Another administrative exemption case, this time in the trucking industry, tests the contours of that vague, nuanced exemption and to what occupations it applies. In this case, a group of Logistics Coordinators contend they are not within the exemption because their primary duty was making sales and they were not paid on a salaried basis, which is the linchpin for any employer claim of a “white-collar exemption.” The case is entitled Rood v. R&R Express Inc., and was filed in federal court in the Western District of Pennsylvania.

These employees claim they were part of the production process, the stream of production. They claim that their jobs only involved locating entities that needed trucking services and then seeking to sell those services to them. In their summary judgment papers, they claim that the “Third Circuit has long recognized that inside salespeople, like the logistics coordinators, are not covered by the administrative exemption because they do ‘productive work,’ not ‘administrative’ work. Based on the Logistics Coordinators’ primary duties, the Court should rule, as a matter of law, that the logistics coordinators were not covered by the administrative exemption.” Significantly, the exemption argument is the Company’s only defense to the overtime claim.

The Company claimed the workers were administrative, and thus exempt from overtime. The plaintiffs respond by relying on a major Third Circuit decision, Martin v. Cooper Electric Supply Co. that established the premise that inside sales workers were in the stream of production and not administrative workers as defined by Part 541 of the FLSA regulations. They point to the fact that the employees “make cold calls and [send] emails to customers in pursuit of sales and generally engaged in efforts to make sales for R&R Express day in and day out.” They also claim that the workers did not exercise discretion and independent judgment (as required by the exemption) as they were allegedly required to choose from a list of Company sanctioned carriers for other services.

The Company has relied on another Third Circuit case, Smith v. Johnson & Johnson, which found a senior professional sales representative was within the administrative exemption, as his work was concentrating on promoting sales, as opposed to making sales. Most significantly, the plaintiffs charge that the Company did not pay these workers on a salary, which is a fundamental condition precedent for an employer claiming the exemption. The workers state that the Company first paid these employees hourly, then on a flat amount per week (which is a salary) and then by commission only. They allege that neither hourly par nor commission payment satisfy the regulatory requirement.

    The Takeaway

The plaintiff brief could have been one sentence simply alleging that no salaries were paid. That, by itself, dooms the exemption argument. On the merits, this case is a cautionary tale. The administrative exemption is more appropriate for “back office” functions and not for any job that contributes to the daily production activity of an employer. Where these cases often go south for employers on the merits is the lack of discretion and independent judgment exercised by the employees. Employers need to give their administrative employees latitude in arriving at decisions and not place them in work roles where their responses are dictated by guidelines and mandated Company protocols.

if borderline, make them non-exempt…

In a chicken-and-egg type of case, an unusual case, the Third Circuit has emphatically held a Judge taking over a class action case must deal with the threshold issue of whether a class should be certified prior to a trial commencing on the collective claims of the class. The Court sternly warned that if this is not done, it would be contrary to Court rules and Supreme Court precedent. The case is entitled In re: Citizens Bank NA, and issued from the U.S. Court of Appeals for the Third Circuit.

The case involves a group of Loan Officers suing under the Fair Labor Standards Act, alleging they were compelled to perform off the clock work. They sought certification under both the FLSA and state law, pursuant to Rule 23 of the Federal Rules of Civil Procedure. The trial court Judge wanted to proceed directly to a trial on these allegations, prior to determining whether a Rule 23 class was appropriate. The Court stated that this approach was a “win-win for the employees and disadvantages Citizens at every turn.”

This kind of skewed approach, held the Third Circuit, would essentially guarantee class certification if the plaintiffs won at trial. If, on the other hand, the Company prevailed at trial, the individual class members would be able to then file their own individual lawsuits. The Court decried this order of events, because even if the lawsuit encompassed only Rule 23 claims, and no class action, the trial first, certification second, concept should be met with the “utmost skepticism.” The Court aptly stated that “such a procedural sequence would be ignoring Rule 23’s text and history, flouting Supreme Court precedent, and departing from the case law of seven circuits while undercutting four others.”

Now, the stay that had been issued is dissolved and a new Judge will be assigned. The Third Circuit made plain that it expects the new Judge will consider “our ensuing discussion of the interests at stake here and the factors that motivated our grant of a stay in the first place.” There are, as the Court noted, “weighty concerns” regarding a trial prior to the certification process and the “complexities unique” to these hybrid cases.

The lawsuit concerns an alleged scheme by the bank to avoid paying overtime to Loan Officers. They allege that even though the employees could claim overtime, the employer had an unofficial policy that capped how much overtime could be approved, leading to the performance of this off-the-clock work.

    The Takeaway

I don’t understand how this could have even been contemplated. It put the plaintiffs in a no-lose situation and placed the employer at a great legal and tactical disadvantage. Luckily, the Third Circuit, a highly respected federal appellate court, put an end to this nonsense.

What will plaintiffs think of next…

I always tell clients they must comply with both federal and state law, whatever State they are situate in, that complying with one is not a defense to not complying with the other, tougher, law. A sterling example of this concept has just arisen in a travel time case. Travel time issues are often murky, anyway, and the vagaries of a particular State may prove difficult to be aware of, before “something” happens. A recent Washington State case highlights this point. The case is entitled Port of Tacoma v. Sacks, and issued from the Washington Court of Appeals,

As a rule, under the FLSA employers do not have to compensate employees for time travelling outside of their normal workday. If an employee’s workday is 9AM-5PM, and that employee catches a plane at 9PM, then that travel time (and the time going to the airport) is not compensable. If the plane leaves at 3PM, then the travel is compensable, including the commute to the airport. An important note—these principles apply only to non-exempt workers, as exempt workers do not receive overtime (or compensation beyond their salary) regardless of whether the travel would be compensable.

The Washington decision expands the protection of the wage hour laws to that travel time beyond the end of the shift. The Court ruled that four non-exempt workers employees who traveled to China to monitor the erecting of four cranes were due compensation for all their travel time to and back from China. The Court held this, notwithstanding that the employer and the Union representing the workers negotiated an eight hour per day compensation arrangement.

By doing so, the Court held true to the State Department of Labor & Industry position that went beyond federal law and held that all travel time which was related to the job was compensable. The State DOL position is that the timing of the travel is irrelevant, i.e. whether it happens during the normal shift or after and it also include the travel time to the airport.

The Takeaway

This case shows that employers must be cognizant of the wage hour laws, not just cases, but the positions and perspective of the particular Department of Labor, in every jurisdiction they do business in. This Washington case is a bit of an anomaly as it significantly expands the compensability of travel time and may also apply to other preliminary and postliminary activities. It is not enough to defend by showing compliance with the FLSA.

Don’t be unpleasantly surprised…

When I, as a management-side practitioner, defend a FLSA class action, the contingency I fear is that a court might find that the violation was “willful,” thereby extending the two-year statute of limitations to a third year. A recent case shows just how hard a defendant will fight against that third year. In this case, the employer could not convince the Court that a third year was unwarranted. The case is entitled Bah v. Enterprise Holdings Inc. et al. and was filed in federal court in the District of Massachusetts.

The Company had relied upon a Second Circuit decision that concluded that in order to find willfulness, the plaintiff(s) had to plausibly support their claim. The Massachusetts (which is in the First Circuit) Judge disagreed, observing that the Second Circuit holding merely creates a circuit split on this issue” and “does not persuade the court that its Nov. 13, 2020, decision was based on a manifest error of law.”

The Company had sought reconsideration of the Judge’s November 2020 ruling, It argued that the employee commencing the action “never asserted a single factual allegation supporting his claim that defendants’ alleged misclassification somehow constituted willful neglect or disregard for compliance with the FLSA.” The reconsideration motion sought only to upset the willfulness ruling. The remainder of that November decision focused on whether the joint employer issue had been properly and adequately pled. Now, the case will proceed to a decision on conditional certification.

The Takeaway

To plaintiff side lawyers, everything is willful. They never saw a case that wasn’t willful. That simply is not case. Most FLSA violations, especially misclassification issues, I have found, are more attributable to good-faith employer errors when they make nuanced and fact-sensitive decisions on who is/is not exempt. Employers need to carefully document, in internal memos, for example, what bases and facts supported their decisions to classify employees. Naturally, those decisions need to be factual and legally well founded, but such a protocol goes a long way to defeating willfulness claims.

They shouldn’t get that third year…

The issue of misclassification of workers as exempt when they might not be has been around for a very long time. Another class of such workers has been certified in the health care industry. The federal Judge has granted final certification to two classes of workers claiming they are entitled to overtime. The classes will allow more than seventy (70) client service managers to pursue their overtime claims.

The Company had argued that the guidelines it issued to assist the client service managers were not enforced uniformly, as the workers performed many different tasks, which depended on the location that worked at, as well as the supervisory policies and approach of the particular local manager they worked for. The Judge found that “while the existence of uniform policies is not dispositive, it is strong evidence to support plaintiffs’ burden of showing how they are similarly situated.”

The employees allege that they spend the vast amount of their time, between 70-95%, performing non-exempt duties. They allege that “from corporate documents and corporate admissions, to seven plaintiffs’ depositions — shows that those CSMs who joined this lawsuit spend most of their time performing substantially similar, non-exempt tasks.”

The Company countered by asserting that there existed too much individuality amongst the alleged class to allow for such certification. The Company contended that each of the plaintiffs worked at different places in a network spanning thirteen (13) States, with each facility having its unique staffing levels and different supervisors giving varying guidance about the work and timekeeping. The Company stressed that there were sufficient differences in the duties and workloads of the plaintiffs to undermine the contention that they were all “similarly situated.” Although there was a policy book, the Company asserted that was no evidence that all of the Client Service Managers were treated the same. The case is entitled Ivanovs et al. v. Bayada Home Health Care Inc., and was filed in federal court in the District of New Jersey.

The Takeaway

I think the Court got it wrong. As I have written about many times, the best attack against certification is the contention that too much individual scrutiny is needed and/or that the employees are too dissimilar to warrant inclusion in an overall class working under a single, overall policy. The employer here seemed to make that case very cogently with a good deal of factual foundation.

It’s a shame…

I have written a few times on the new, very aggressive, enforcement measures that the New Jersey legislature has recently taken on the issue of misclassification. On this troubling note, I just read an article where other management-side employment law attorneys also recognize that these so-called workplace protection laws can do tremendous damage to their clients and may have the unintended consequence of causing businesses to fold or flee the State. The goal, it seems, is to replenish the Unemployment Insurance compensation fund which has been badly depleted by payments emanating from the waves of unemployment resulting from COVID-19.

The attorneys, as have I, have focused on the new laws passed several weeks ago which have made a tough situation for employers even tougher. These laws provide for stop-work orders at all of an employer’s locations, not merely the “offending” one (i.e. where misclassified workers are being used) and heavy, daily, fines for entities that do not adhere to a shut-down order.

Although the proponents of law praise it as a means to further protect workers, under our view, the management view, the laws are unusually harsh, even for an Administration that has been markedly pro-employee and a hard place for employers to do business in, much less thrive. As one commentator aptly noted, “a small employer who gets hit with one of these could easily be put out of business.” The laws are targeting the construction industry and other industries “suspected” of being permeated with misclassification, such as trucking and health care.

The push for more enforcement has been on the radar for employment attorneys for some time now, as the State must replenish billions of dollars it paid out in UI benefits this last eighteen months. Other commentators have also noted the State’s need for replenishing UI funds as the motivation for these draconian measures. There have been more than one million UI claims filed between March-June 2020, when the pandemic raged and that led State authorities to realize even more that a great deal of money was being “lost” through alleged misclassification. The four statutes, all enacted July 8, 2021, add to the misclassification legislation that had already been enacted by this Administration.

The Takeaway

The New Jersey Department of Labor now has greatly enhanced abilities to go after employers it believes are not properly classifying employees. In this regard, the agency may take employers to court and seek injunctive relief as well as attorney fees. Such attacks would increase legal costs for employers dramatically. The agency, as another commentator noted, is sending “a message to employers that the DOL has greater authority and additional remedies at its disposal.” If proof was needed, the agency (on August 10) raided a Jersey City construction site under the powers given to it under the law and shut the work down.

I’m afraid it’s only the beginning…

I read an interesting post in the Seyfarth Shaw blog about out-of-state employees and their ability to become part of a FLSA collective/class action. The FLSA allows individuals to bring suits claims for overtime violations “for and in behalf of’ themselves and other “similarly situated” employees. Often, in these cases, there are but a few resident plaintiffs in the jurisdiction where the case is filed and dozens/hundreds of out-of-state employees. The proper jurisdiction for these suits, as the Seyfarth post notes, became open to debate after a US Supreme Court 2017 decision in Bristol Myers Squibb v Superior Court. In that case, many of the class were nonresidents and the Court held that the similarity in claims was an “insufficient basis for jurisdiction.” As there was no connection between the forum and the out of State claims, an essential element of due process was absent.

After this, employers fighting FLSA collective actions have sought to use the Bristol-Myers rationale. The Courts have been fleshing out the meaning, with more than four dozen federal courts opining on the subject, breaking roughly fifty-fifty on the issue. Well, now, two Circuit Courts of Appeal have chimed in. On August 17, 2021, in Canaday v. The Anthem Companies, Inc. the Sixth Circuit held that a court cannot exercise specific jurisdiction over FLSA suits where the conduct was “unrelated to the defendant’s conduct in the forum state.” The very next day, the Eighth Circuit came to the same ruling in Vallone v. CJS Solutions Group LLC.

These courts started with the premise that service of process was a condition precedent for exercising authority over a defendant employer. There can be countrywide service (and many laws have that component) but the Fair Labor Standards Act does not. Under Federal Rule of Civil Procedure 4(k), there are limits constraining effective service within the limits prescribed by a forum state’s long-arm statute and, derivatively, the Fourteenth Amendment’s Due Process Clause.

These cases stand for the proposition that the power to exercise jurisdiction under that amendment is limited. A court may assert so-called “all purpose,” jurisdiction over a defendant where the corporation is situate or where it was incorporated. Alternatively, a court may assert “case-based,” jurisdiction if the allegation “arises out of or relates” to the employer’s conduct or activity in its home forum. As neither named plaintiff sought to litigate in the home jurisdiction, they could only rely upon specific jurisdiction to launch their suit, which the Courts concluded did not exist.

The appellate Courts also rejected the contention that the collective opt-in procedure of the FLSA circumvented that “problem.” They concluded that even the opt-in plaintiffs were required to individually prove that their own claims were linked to the actions of the company in its home State. The Circuit Courts concluded that no such showing could be made as the named plaintiffs did not work in the corporate home State. Thus, the Courts held that where “nonresident plaintiffs opt in to a putative collective action under the FLSA, a court may not exercise specific personal jurisdiction over claims unrelated to the defendant’s conduct in the forum state.”

The Takeaway

These decisions point the way for employers to curtail the scope and size of FLSA collective actions. There is another case pending in the First Circuit and this will also clarify (or confuse) this crucial issue of personal jurisdiction. The issue may end up in the US Supreme Court and likely will. For employers, this is welcome news and another tool, an offensive tool, (as opposed to the usual defensive ones) to fight collective and class actions.

The more weapons we have, the merrier…

The New York City restaurant industry has, over the last several years, been hit with a flood of lawsuits. Many of these have focused on illegal tip pools but many have also alleged that employees were misclassified as exempt. These cases often generate large liabilities for employers and must be avoided. A recent example of this trend is a suit against a famous chef, Salt Bae, who is charged with misleading five workers to emigrate to the United States only to then misclassify them as exempt to not pay overtime. The case is entitled Ok et al. v. Nusret New York LLC et al., and was filed in federal court in the Southern District of New York.

The workers claim they worked at various Nusr-Et steakhouses for as many as ninety (90) hours per week, Cooks in restaurant kitchenbut were never paid overtime, which would violate both the Fair Labor Standards Act and New York laws. The Complaint, filed by well-known employee advocate Louis Pechman, alleges that “upon their arrival in the United States, defendants assigned plaintiffs to work grueling hours in nonmanagerial griller positions at the restaurants. Throughout their employment, defendants misclassified plaintiffs as exempt workers to avoid paying them legally required overtime pay, instead unlawfully paying plaintiffs on a salary basis.”

The workers emigrated from Turkey because the chef urged them to do so. He submitted letters to the immigration services to assist them in those efforts. When they arrived in America, however, he allegedly compelled them to sign a document in which they acknowledged they were “sous chefs” and, as stated in the Complaint, the document they signed “falsely [indicated] that [they] would have supervisory and management authority in their roles at the restaurants.” This was a fiction, alleged the workers who claim they had no managerial powers or functions but simply grilled meat.

The workers alleged they worked at least seventy-two (72) hours per week and were paid a fixed salary, but no overtime. They also allege that when Salt Be was present, their hours per week rose to ninety (90). They also allege that Salt Be used “an aggressive managerial style, frequently cursing at plaintiffs and blaming them for the other employees’ mistakes.” They also alleged they had to stay overnight at the restaurants to make sure there was no vandalism during the George Floyd protests of last summer in the City.

The Takeaway

As Mr. Pechman stated (and he is right) these misclassification controversies occur quite often in this industry. It is black-letter law that just calling someone a Manager or a “sous chef” and compensating that person via a salary does not convert that person to an exempt employee. The employee must also perform the job functions (e.g. hiring, firing, etc.) that managers do to qualify for the exemption. If they do not perform these duties, the employer is inviting the kind of lawsuit discussed herein.

And increasing its potential for damages….

This is an interesting and rather unique situation. Two lawyers who represent a putative class of workers who filed a class action under the Fair Labor Standards Act now want to withdraw from the case. They assert that they have had no contact with their clients, the named plaintiffs, for many weeks. The workers are suing a cannabis company and they allege the employer did not pay them for so-called donning and duffing time. The case is entitled Dutcher et al. v. Cresco Labs Inc. et al. and was filed in federal court in the Northern District of Illinois.

The lawyers told the Judge that withdrawing was their “only alternative” as they have tried to contact their clients in many different manners (e.g. phone, text, email). Their clients also must comply with certain discovery demands and the lawyers are also unable to do that because of the lack of communication. The lawyer stated that “we feel at this point it’s impossible to prosecute this case on their behalf when they’re clearly not interested in participating in this litigation any longer.”

The Company had filed a motion to dismiss the breach of contract claim which was to be argued but that was postponed. The Judge noted that whether there was a valid contract “was going to be a very interesting matter, but it will have to wait for another case.” The Judge admonished the plaintiffs, asserting that he will direct them to explain why their entire suit should not be dismissed based on their failure to respond to discovery.

The suit was a traditional donning-and-duffing case, with workers claiming pay for the preliminary activity of changing into protective clothing before their shifts started, as well as a “mandatory on-site pre-shift health screening procedure.” They also claimed they did not get lunch time because of the time it took to change out of and then back into their gear. The Company claimed that a class certification was completely inappropriate because the Court would be required to apply different state laws to class members, who work in nine States where the Company maintains facilities. The workers want to represent a nationwide class and a separate class of Massachusetts based workers.

The Takeaway

Maybe these lawyers got too far out in front of their own case. Maybe they should have made sure that their so-called representative plaintiffs, i.e. the named plaintiffs, were ready to see the thing through and, at a minimum, cooperate with them and the judicial process by complying with basic discovery demands. Maybe now, the entire case goes down.

A thorny issue for employers is training newly hired people, then having those people quit (for whatever reason) and being stuck with the training costs. What can the employer do? I think there are few options, but one option, a risky one, is to not pay the employee or withhold their pay when they leave. A recent case is testing whether that strategy is legal. The case is entitled Barker v. K. Dolan Conveyor Co LLC et al. and was filed in federal court in the Western District of Pennsylvania.

An ex-employee, a technician for a conveyor company, filed such a suit, seeking two weeks pay he claims was illegally withheld to “pay” for the costs of the training. He claims violation of the Fair Labor Standards Act, the Pennsylvania Minimum Wage Act and the Pennsylvania Wage Payment and Collection Law. He alleges that “as a result of not having paid any wage whatsoever to plaintiff for his final week[s] of employment with defendants, defendants failed to pay the plaintiff all wages due and owing.” The worker earned $14 per hour.

The employee claimed that when he quit, he did not receive his last two weeks’ worth of pay. He claims the Company’s position was that he had to compensate the Company for the costs of his training. He is suing the Company, an affiliate as well as the owner, personally. He seeks back pay for the lost wages, plus liquidated damages.

The Takeaway

This might be a problem for the Company. The costs of training are costs that a Department of Labor or a court might well conclude are business costs that the employer must bear and cannot be passed along to the employee or deducted from his wages. If the employer has been doing this all along, there may well be a class action brewing. One solution may be to have the employee sign a statement where he acknowledges that the training is for his benefit and he is voluntarily acknowledging that he is learning skills he might take with him, thereby giving a deduction or pay back policy some legal foundation.

It’s worth a try…