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Wage & Hour – Developments & Highlights

To Highlight Recent and Noteworthy Developments In Cases And Regulations on Wage and Hour Laws That Affect Large and Small Businesses

Another Bimbo Bakeries FLSA Collective Action:  It Is Possible To Fix!

Posted in Class Actions

A putative class of delivery truck drivers has filed a collective action FLSA lawsuit against Bimbo Bakeries, alleging a failure to pay overtime.  The case is entitled Oddo et al. v. Bimbo Bakeries U.S.A. Inc. and was filed in federal court in the District of New Jersey.  The plaintiffs will seek conditional certification and try to get the ability to send opt-in notices to affected employees.

The plaintiffs claim that by paying drivers a flat rate of $110 per week plus 12% commission on sales, the Company violated both federal and state law.

The Complaint alleges that the “plaintiffs assert that defendants failed to pay named plaintiffs and those similarly situated proper overtime compensation and failed to implement a system to track the number of hours worked each work week.” The Complaint contends that the drivers, titled “route sales representatives,” could not improve their commissions since they had no sales training and “the amount of sales that named plaintiffs made to a retailer along their delivery routes was mainly determined by the volume of the retailer’s sales to its customers since named plaintiffs’ last delivery.”

There have been many other FLSA lawsuits against this Company, which is a multinational bakery company based in Mexico; the Company owns several brands, including Sara Lee, Entenmann’s and Thomas’. The Company has also settled several cases with fairly large dollar payouts over the last six years.  By contrast, the class here is no more than forty employees (if they all opt in).

The Takeaway

Overtime cannot be waived nor can it be paid through compensation arrangements which, although fair or even generous, do not comply with the law.  The employer here must either keep employees to forty hours or less or pay them overtime.

There are legal ways to pay overtime and yet not experience an increase in labor costs.  This Company must examine any number of procedures for effecting compliance and still being efficient and profitable.  They do exist!

I believe the Company can do it…

Golf Course Class Action Held In Abeyance Pending Settlement Talks—The Right Thing To Do

Posted in Class Actions, Independent Contractor

I blogged about this case a few weeks ago and opined that the employer would have an uphill fight.  Maybe they heard me.  The case has now been put in abeyance as the parties seek to work out a settlement.  This initiative follows my thinking in many of these cases—try to get out early and as cheap as you can (especially if, as the employer, you perceive you have exposure).  The case is entitled Werman et al. v. Rotonda Golf Partners LLC and was filed in federal court in the Middle District of Florida.

The proposed collective action was based on the theory that employees were forced to work off the clock and were therefore not paid proper overtime.  The lawyers filed a joint motion last week asking for a stay so they could discuss settlement.  The case is now in abeyance until October 7.

The joint motion noted that “the parties respectfully submit that it would be most efficient for the parties to spend their time and limited resources working toward a mutually agreeable settlement rather than responding to the amended complaint, filing a case management report, engaging in discovery and engaging in motion practice relating to, among other things, the overtime exemption asserted by defendants.”

The protocol agreed on will include letters being sent to the employees so they can opt in if they choose.  The defendants then have to provide the payroll records to the plaintiffs’ lawyers so they can “reasonably necessary to determine whether, as plaintiffs allege but which defendants deny, compensation is owed to the opt-in.”

The suit alleges that employees were directed not to punch in when they got to work and to keep working after they punched out.  The employees allege that they received two paychecks that showed only a portion of their hours worked.  They also received part of their monies as “employees” and then received the rest of their pay through a 1099, i.e. as independent contractors.  The workers contend that they were intentionally misclassified so the employers could avoid paying overtime.

The Takeaway

This is a big step forward in resolving this litigation and it will dramatically cut down the litigation fees which the employer would have to spend and avoid inflating the adversary’s fee petition/demand.

It appears to me, as a management side practitioner, that this is the right strategy.  The most crucial thing is to fix what was broken—treating people as W2 employees and 1099 independent contractors in the same work week(s) smacks of deception and an intent to avoid payment of overtime.  Off-the-clock cases are very bothersome, especially when the evidence suggests that there was a focused, management effort to order people to work off-the-clock.

A sand trap, but there is a way out…

Hock Shop Employees Get Conditional Certification For One Group But Not For Another: An Interesting Twist

Posted in Class Actions, Exemptions, Overtime Issues

A group of hourly employees working for the pawnshop chain Gem Financial Services Inc. have been granted conditional certification in a Fair Labor Standards Act action; their allegation is (as usual) unpaid overtime.  The federal Judge ruled that the workers had presented sufficient evidence at this early juncture to show that a common compensation policy applied to them and it was arguably illegal.  The case is entitled Dalton et al. v. Gem Financial Services Inc. et al., and was filed in federal court in the Eastern District of New York.

The Judge concluded that “courts in this circuit have routinely allowed for conditional certification where plaintiffs proffer precise and detailed information outlining the alleged mistreatment suffered by other similarly situated employees as a result of defendants’ compensation policies.”

The employer has twenty-eight retail locations throughout the New York area and in excess of 130 workers.  The employees allege that they were routinely shorted on overtime pay for weeks when they worked in excess of the statutory threshold of forty hours.  Added to the pure wage hour claims is the allegation by one of the three original plaintiffs, Diori Johnson, an accountant, who states that she was asked to falsify time records, make improper deductions from exempt employees’ salaries and continually not pay employees the proper amount.

An HR administrator, who visited company pawn shops, always heard complaints from employees that they were not paid overtime and saw (allegedly) rounding practices that always resulted in clocked hours being rounded down.  The Judge noted these employees’ experiences and observations as the basis for deciding to grant conditional certification.  The Court stated that “this type of consistent involvement in the day-to-day compensation realities of other Gem employees enabled plaintiffs to directly observe defendants’ alleged wage-denial scheme.”

Interestingly, the Court also concluded that the workers did not meet the Second Circuit standard for demonstrating sufficient similarities between non-exempt workers and other employees who were allegedly misclassified as exempt from overtime to be able to conditionally certify a collective action class including both groups.

The Takeaway

This case shows the best and the worst of results for the employer.  The Court (rather easily) granted certification on the one class of workers, where the Court believed that a common policy and practice applied to all of them.  Then, the Court refused to grant certification to a second requested class, where the allegation was that the workers were non-exempt.  On that component, the Court believed that not enough similarity or commonality had been shown.  That is the essence of a successful defense to a collective action.

On that first group, it seems an uphill climb…

Morgan Stanley Settles Four Collective Actions: The Specter of Off-the-Clock Lawsuits Continues to Haunt

Posted in Class Actions, Working Time

The financial giant Morgan Stanley announced that it will settle four FLSA collective actions for six million dollars; the suits, filed by financial adviser trainees, alleged that they were not paid overtime properly.  The case is entitled Devries v. Morgan Stanley & Co. LLC et al. and was filed in federal court in the Southern District of Florida.

The parties asked U.S. District Judge Kenneth A. Marra to grant preliminary approval of the settlement, which includes attorneys’ fees of almost four million dollars as well.  The filing papers asserted that “the proposed settlement satisfies the criteria for approval of a Fair Labor Standards Act collective action settlement because it was reached after significant information exchange and contested litigation in four venues, and was the result of arm’s length settlement negotiations conducted by experienced counsel well-versed in wage and hour law.”

The settlement provides that members of two of the four collective actions will receive the equivalent of six hours of unpaid overtime for each week they worked, while the others will receive payments equivalent to those reached in a very similar case involving this company, which ended in 2014 with a $4.2 million settlement.  The case involved allegedly unpaid training and study time, i.e. off-the-clock work.  These types of cases have reached epidemic proportion and are showing no signs of losing vitality.  The plaintiffs alleged that although the bank had a written policy to pay overtime, there existed, in reality, a de facto “off-the-clock” policy in violation of the FLSA.

The Company defended this case aggressively, as noted by the assertions in the filings that the “plaintiffs believe that this amount represents a very fair settlement given the amount of unpaid overtime that was claimed, the uncertainty of success on collective certification, and defendants’ defenses on the merits, including its contention that that it provided paid time during the workweek for studying during training weeks and that it took steps to prevent its employees from studying off the clock.”

The Takeaway

The Company put forth a statement that it agreed to settle these lawsuits in order to avoid the cost and distraction of prolonged litigation.  That was the correct thing to do but the more important thing is to now make sure that proactive steps are taken to ensure that if study/reading time is mandated (or implicitly mandated) that the employees are compensated for that time.

Defendants In FLSA Collective Action Assert Need for Too Much Individual Scrutiny Mandates Decertification

Posted in Class Actions, Overtime Issues

Whenever a class action is defended, the main defense is, always, too much individual scrutiny is needed to allow a class to be formed.  This is exactly what a group of defendants has just now urged a California federal court to find and thus decertify a conditional class of workers claiming they were denied overtime pay in violation of the Fair Labor Standards Act.  The case is entitled Sandoval et al. v. Ali et al.. and was filed in federal court in the Northern District of California.

The workers clam that they were not paid for non-repair-related tasks and they also claim that they were not properly compensated for downtime; the employers claim that each of these claims has to be assessed individually because they are not similar enough to belong to a single class or to opt in to the conditionally certified FLSA class.  Indeed, the defendants noted that the court itself already compared the theories of recovery to “shifting sands.”

The defendants brief aptly noted that “each variation has been tied to unique, individualized or specifically anecdotal scenarios based on cases that are dissimilar to the facts of this case, but there has not been any evidence of any class-wide policy, procedure or practice at use [in] all shops let alone a single shop that would warrant the FLSA conditionally certified class to continue as a class action.”

The defendants argued that the standard for conditional certification is much lower because that kind of certification is granted “not on the merits,” but rather because, in that limited and narrow setting, naked allegations can carry the day.  However, the defendants cogently argued that “by contrast, [for] the decertification of FLSA collective actions or final certification of FLSA collective actions, the burden on plaintiffs is substantially greater and requires a demonstration of substantial similarity between the plaintiffs and opt-ins.”  The defendants conclude by bluntly noting that “plaintiffs cannot meet this burden.”

The Takeaway

Anything that can be espoused that will tend to show individuality or that individual scrutiny is needed should be thrown up as a defense.  For example, in this case, there were several FLSA class members and a number of opt-in workers that allegedly had claims beyond the statute of limitations period, so their circumstances would also be different.  The employer here has cogently asserted that decertification is mandated because proving liability under these circumstances will necessarily default into making numerous individual inquiries over time worked.

Music to my ears.  Hope it works.

House Committee Hears Doomsday Predictions on Impact of New FLSA Rules

Posted in Exemptions, Overtime Issues

Now that the new DOL exemption rules have issued, commentators have had time to reflect on what these changes may mean for business.  A few days ago, a House of Representatives committee heard that the new rules will hinder the ability of businesses to offer flexibility and advancement to newly overtime-eligible workers.  To the contrary, the head of the DOL championed the new rules as a great victory for middle-class employees.

Under Chairman Rep. John Kline, R-Minn., the House Education and the Workforce Committee was looking at the potential effects of the rules.  A management side attorney told the committee that the changes could lead to a host of potentially negative impacts from converting employees to non-exempt status.  He opined that there would be reduced flexibility for workers, limited career advancement opportunities and weakened employee morale.  He warned that there would also be more (as if we need it) FLSA litigation.

The lawyer noted that “in the short period of time since the revisions were published, it has become clear that it will be incredibly difficult for many employers to implement.  Complicating the analysis is the fact that the Department’s revisions would require employers to revisit these issues every three years, deciding whether continued classification of an employee as exempt is worth the new threshold salary increase.”

Another witness, a VP for HR from a major university, warned committee members that the overtime changes will be “difficult to absorb without significantly impacting university services.”  She also stated that the University would be forced to reclassify employees whose jobs were well-suited for exempt status.

The committee Chairman himself warned that the rule “will do more harm than good” and will adversely impact, to a greater extent, lower-income workers and younger Americans.  The Chairman stated that “this rule will disrupt the lives of countless individuals and do nothing to remove the regulatory landmines that are harmful to workers and employers.  He added that “workplaces are more dynamic and innovative than they have ever been, and the needs of today’s workers are much different than for those who worked when the [FLSA] was written more than 75 years ago.”

The Takeaway

I am not sure that these doomsday predictions are entirely accurate.  Businesses will lose some flexibility, but they may gain some certainty and peace of mind.  For those employees whose duties are currently borderline in terms of exemption, the salary changes make it “easier” for employers to now make them non-exempt and hourly and not have to worry about lawsuits challenging their exempt status.

U.S. Supreme Court Rebukes USDOL In Vacating Ninth Circuit Service Adviser Holding

Posted in Exemptions

I have followed and blogged on this case for some time.  As I had thought, the U.S. Supreme Court ruled that the Ninth Circuit’s decision, i.e. allowing OT pay for Service Advisers, was incorrect.  But, and this is a big “but,” the Court’s ruling was a limited one, as it sent the case back to the appellate court and ordered the Ninth Circuit to reconsider the matter without considering the USDOL regulations which the Justices opined were issued without adequate explanation.  The case is entitled Encino Motorcars LLC v. Hector Navarro et al.

The justices voted 6-2 to vacate the March 2015 decision.  In an opinion authored by Justice Anthony Kennedy, the Court stated that the FLSA “must be construed without placing controlling weight” on regulations issued by the U.S. Department of Labor in 2011.”  As the opinion read, “the unavoidable conclusion is that the 2011 regulation was issued without the reasoned explanation that was required in light of the [DOL’s] change in position and the significant reliance interests involved.  Because the decision below relied on Chevron deference to this regulation, it is appropriate to remand for the Court of Appeals to interpret the statute in the first instance.”

There had been a split in the Circuits on this issue.  The Ninth Circuit’s decision was counter to the other rulings by the Fourth and Fifth Circuits, both of which declined to adopt the DOL’s definitions.  The service advisers had urged that they did not sell cars or perform repairs and thus were non-exempt.  The employer contended that since the FLSA exempted salespeople “primarily engaged in selling or servicing automobiles” from overtime, the exemption “applies not just to those primarily engaged in selling, but also to those primarily engaged in servicing.”

The DOL filed an amicus brief, contending that it was entitled to deference for its 2011 regulatory interpretation.  The Supreme Court disagreed, observing that the 2011 regulations ran contrary to a 2008 notice of proposed rulemaking in which the DOL indicated it would revise its regulations to say that the FLSA exemption covers service advisers.  The Court concluded that since the DOL’s prior position was that service advisers were exempt, its explanation for changing its position needed a more adequate explanation.

The Takeaway

This decision shows that the Supreme Court will not simply, or blindly, accept an agency’s change in a position, especially a long-held position, without a detailed explanation from that agency.  That is a very good thing.  The Court held that it was not its role to divine or speculate as to what the agency’s reasoning was on this matter.

Now, we will see if the Court takes the same position on other DOL changes. At a minimum, the agency now has forewarning that the Court might do just that.

After all, isn’t transparency a good thing?

How To (Start To) Prepare For the New FLSA Exemption Guidelines

Posted in Exemptions, Overtime Issues

With the advent of the USDOL’s newly proposed classification rules, implementing the new salary threshold to $913 per week, employer groups and counsel have been straining to determine the best way to react to this development.  This can be, according to some commentators, a daunting task.  What is important is that there are several months before implementation (December 1, 2016), which gives employers time (but not a lot of it) to determine how to proceed.

Some protocols and procedures are, however, self-evident and incumbent upon all employers to deal with.  First, employers must decide what to do with employees whose salaries are near the new threshold.  This means making a determination if these folks are truly exempt and then ascertaining how many hours per week they usually work.  If the employees are not working more than forty hours as a general rule, then, maybe, nothing has to be done.  Misclassification by itself is not a problem—the problems arise when misclassified workers typically work more than forty hours every week.

If the decision is made to re-classify, then, by ascertaining the number of hours usually worked, the employer can back into the “right” hourly rate to pay, so that when coupled with overtime hours and payment at time and one-half, the outlay for the employee(s) does not escalate or go up at all.  This approach satisfies the employer’s obligations to comply with wage hour law and its business needs.

Employers must also understand that if they reclassify individuals, they must keep accurate records of hours worked.  There are many methods, such as “time clocks” or more sophisticated electronic timekeeping protocols.  These timekeeping methods will take managerial oversight to implement and, more importantly, to maintain, especially because, currently, managers are not accustomed to paying close attention to exempt employee work hours and comings-and-goings.

The Takeaway:  Do An Internal Compliance Audit

I firmly believe that virtually all employers are not intentionally violating the FLSA; they want to comply and want to figure out how to do that.  The FLSA is a much-nuanced law and this new salary level raises a host of issues, separate from merely raising currently exempt employee salaries.

Even if employers raise employee salary levels to the new $913, that by itself does not guarantee that the employee will still remain exempt as there is the equally important duties test.  Therefore, my strong, categorical recommendation is that employers conduct a self-audit of those employees they consider exempt to ensure compliance with the FLSA.

Such a task, particularly if conducted by counsel who are conversant in this area, is not an expensive proposition and can yield savings of (hundreds of?) thousands of dollars if exemption determinations are made in a reasoned, compliance-oriented fashion and are therefore able to withstand attack (i.e. a lawsuit).

Big Time Sand Trap: Golf Course Hit With Misclassification FLSA Collective Action

Posted in Independent Contractor

No industry or business is immune to FLSA collective actions.  What better proof of this than the fact that a Florida resort and golf course management company were sued in a proposed collective action in federal court.  The theory is that the caddies were really employees, not independent contractors and that the employers deprived the caddies of overtime pay and minimum wages in violation of the Fair Labor Standards Act/Florida law.  The case is entitled Stapleton et al. v. Kemper Sports Management Inc. and was filed in federal court in the Middle District of Florida.

The Complaint alleges that the employer failed to pay the caddies their wages.  This process became the responsibility of the guests and players, who paid minimum rates established by the resort plus tips.  The named plaintiff alleges he and the others worked 1-2 rounds of golf per day, which could take, due to weather and other issues, up to six hours to play.  A two round day meant a work day of twelve hours, according to the plaintiff.  Thus, the worker claimed he typically worked 50-60 hours a week.  Guests paid the caddies $80-100 per bag carried.  The worker claims the caddies were also expected to act as guides for players and maintain the grounds.

The Complaint alleges that Kemper set caddy schedules and assigned them to guests; they also allegedly could be disciplined or fired for not showing up and were compelled to request time off, all characteristics of an employee, not a contractor, according to the Complaint.  Notwithstanding these indicia of employment, the putative employers did not pay any wages to the caddies.

There have, of late, been similar lawsuits based on misclassification in this industry.  For example, groundsmen and other employees filed a suit against Rotonda Golf Partners LLC, alleging that the operators of a handful of golf courses located on Florida’s west coast misclassified workers in order to avoid paying overtime premiums.

The Takeaway

The element of control or, better put, the lack thereof, is the first hurdle in showing that individuals are independent contractors.  From these few initial facts, it appears that the golf course may have exerted (or had the potential to exert) control, i.e. hiring, firing, setting schedules.  The next element, often the toughest one to prove for a putative employer, is to show that the workers are in an independently established business.  Therefore, if these caddies do not work for any other golf course or do not have other indicia of working for themselves (e.g. a website), they will likely not be found to be in their own business.

Could be a big bogey for the defendants…

New DOL Overtime Rules: Good or Bad For Employers?

Posted in Exemptions, Overtime Issues

On May 18, 2016, President Obama and the Secretary of Labor announced the publication of the Department of Labor’s final rule updating the overtime regulations, which is anticipated to make more than four million more workers overtime-eligible.

The Final Rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest wage Consensus Region, currently the South ($913 per week; $47,476 annually for a full-year worker).  It also sets the total annual compensation requirement for highly compensated employees (HCE) (who only have to perform a single exempt function to qualify) to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)  It also established an automatic updating procedure; every three years salary levels may/may not be adjusted.

On a more positive note, the Final Rule will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.  For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on a quarterly or more frequent basis.

Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company.  Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula.

The effective date of the final rule is December 1, 2016.  Note that December 1 is a Thursday, so employers will have to make sure that the entire pay period is compliant with the new rule. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.  Significantly, and thankfully, the new rule makes no changes to the duties test.  If an employee had duties that fell within the executive compensation, for example, they will still be exempt, provided that they make $913 per week.

The Takeaway

I am not of the school of thought that believes the sky is falling with the increase in exempt salary levels.  I have seen many employers agonize over whether someone making, say, $30,000 annually is exempt or not.  Now, instead of raising that person almost 20,000 dollars, that employer will make the “easier” choice to convert that person to hourly and pay them overtime or keep that worker (insofar as operationally possible) to no more than forty hours per week.

I think that by making the lines of exemption a good deal brighter, the new rule makes it easier for employers to comply and to stop agonizing.  There will still be some/many borderline calls but in demarcating the boundaries more clearly through this large jump in salary, the new rule serves a salutary purpose.

I think…