It is vital for employers to remember that when non-exempt employees earn commissions, those commissions must be included in the computation of their regular rate when they work overtime. The inclusion of the commissions bumps up the regular rate a little but if this is not done, then these small amounts of money can quickly add up if an employee or, worse yet, a class of employees files a lawsuit. That is exactly what has happened in a recent case involving sales representatives in a class action. The case is entitled Johnson v. Cincinnati Bell Inc. et al., and was filed in federal court in the Southern District of Ohio.

Salesperson holding the receiver of a corded desk phone while dialing in the office.The named plaintiff, Michael Johnson, was a sales representative for less than one year. His theory was that the failure to include the commissions in the regular rate violated the Fair Labor Standards Act. He moved for conditional certification in May and then the parties filed a joint stipulation in which they agreed to the definition of the class as certified and they also agreed on a method for advising potential members.

The court found that the class was appropriate, as there was a low standard of proof that needed for the establishment of a class. The judge stated that she was “satisfied that both the agreement of the parties and evidentiary submissions by plaintiff demonstrate the modest showing necessary to support conditional certification of the proposed class.”

There were affidavits, as well as payroll records which undergirded the theory that these employees, the outbound sales representatives, who worked in the telesales department “had certain standard duties, [were] paid in the same manner and regularly worked more than forty hours per week, and defendants did not include commission payments in the regular rate of compensation for purposes of overtime.”

The Takeaway

This case highlights the complexity of the Fair Labor Standards Act and all of its nuanced regulations. It is very easy for a well-intentioned, good faith employer to make a mistake. If it affects but one employee, that is all it is, a simple mistake, maybe costing a few dollars. If it affects a class, it is a much bigger issue.

Much bigger. And costlier…

I am a big believer in advice from the U.S. Department of Labor. I have applauded the re-introduction of opinion letters and I welcome any published guidance (on any subject) so I can better advise/counsel my clients on compliance issues. The home health care industry has been aflutter recently with all kinds of litigation and DOL issuances. A thorny issue is when/if someone working in this field is an independent contractor. Well, the agency has recently published guidance on this issue.

Copyright: rmarmion / 123RF Stock Photo

The guidance addresses the home-care registry industry. The registries funnel home care workers to elderly and infirm clients. Almost universally, these workers are treated as independent contractors. Although the field bulletin addresses a small number of workers in a discrete industry, the guidance suggests the manner in which the Trump DOL will view other flash point independent contractor sectors, like Uber (where there has also been extensive litigation). .

The guidance lists a number of factors that will be considered when making the determination of employee-independent contractor status. The guidance smacks of earlier guidance and numerous cases on this subject. If the registry gets into the details of the manner of care provided, that would be evidencing too much control. In this regard, giving a modicum of training to such workers might pass muster, as the Company can argue that such generic training is for customer relations purposes or for safety reasons.

There also a number of industry-specific factors that will be considered. The bottom line is that the analysis will be the usual totality of the circumstances test.

The Takeaway

So it seems that the watchword will (continue to) be “totality of the circumstances.” The more things change, the more they stay the same. Except—it is the application of the factors and how they play out in a given case.

That’s where the rub is…

The car wash industry is one that is subject to many alleged wage-hour issues (some might say abuses). A recent case illustrates this maxim. A car wash has just settled a lawsuit with the USDOL for $4.2 million on wage hour claims. The theory was that the employer avoided paying proper minimum wage and overtime by compelling workers to clock out but yet remain on the premises until more cars came in for washes. The case is entitled Acosta v. Southwest Fuel Management Inc. et al. and was filed in federal court in the Central District of California.

Close-up of hand with green brush washing red carThe judge approved the settlement which yields 1.9 million in back pay and an equal amount in liquidated damages. The employer also has to pay $400,000 in civil money penalties. Several hundred employees are involved.

An interesting twist. Evidently, the employer strenuously resisted efforts by the agency to gain discovery. The DOL asserted that the company was stonewalling its legitimate efforts to garner relevant documents. The government alleged the company also did not preserve video footage, a spoliation-type allegation. Accordingly, the special master concluded that the client and his lawyers, Littler Mendelson, PC have to pay the DOL approximately $20,000 in attorneys’ fees.

Naturally, the company must come into compliance. The Acting Administrator of the DOL San Francisco office said that “the judgment is a major win for hundreds of employees systematically abused by one of Southern California’s largest car wash operators.” The DOL Regional Solicitor observed that federal laws protect workers and neither any employer nor his attorneys can interfere with these principles or the rights of the workers. She said “the integrity of our justice system depends on employers and their attorneys ensuring that a true and accurate record free of any undue influence is presented to the court,”

The Takeaway

I have handled many car wash cases in the last few years. All I can say is that when I have a client that I know has not complied with the law, my aim and goal, my only goal, is to get them out as quickly and cheaply as possible. Protracted discovery disputes and/or intransigence during that process, to me, is counterproductive.

Maybe better to cultivate the agency’s good will and try to make the best deal possible.

The Fair Labor Standards Act is eighty years old this month and commentators strongly suggest that the law needs updating in many areas.

 cupcake with sparkler against a blue background, illustrating birthday conceptMy colleague Tammy McCutchen stated that a complaint-driven mechanism defense should be engrafted into the FLSA. She stated that “I think employers should get the opportunity to avoid [some liability] by having in place a system of compliance and taking appropriate action based on investigations, just like they have under Title VII and the ADA and the ADEA.”

In this manner, an employee complaint or issue about wages (e.g. overtime) would/could get resolved quickly and cheaply. Ms. McCutchen (a former DOL official) opines that if such a system is in place, that should work to limit employer liability if the employee ultimately sues. Under her theory, with which I concur, the “penalty” for such an employee who did not avail himself of the internal reporting system would be that he/she would not receive liquidated damages.

Another item on the management side wish list is a heartfelt desire to make securing class certification a little more difficult. In a typical FLSA collective action, the Plaintiff(s) first seek so-called conditional certification, fairly easy to secure, and then, later on, the employer can move to de-certify the class.

It should be harder to get over that first hurdle. Nowadays, plaintiffs use a few certifications, sometimes which are identical, and courts seem satisfied with such a meager showing. When a class is conditionally certified, the stakes and legal fees/costs for an employer rise dramatically. This contingency forces many employers into settlements which they might not otherwise have undertaken.

It should be harder, as perhaps with some multi-part test or standard, rather than a few similar sounding certifications.

Another area of concern and one badly in need of updating is the exemption “question.” For example, the outside sales exemptions emanates from a time when most salesmen were door-to-door or were, literally, outside all/most of the time. Nowadays, many sales are made and sales work done from a computer and a telephone, inside the employer’s place of business. Yet, the regulations still require that the salesman be “customarily and regularly” performing outside sales work. That is but one example. In that regard, reasonable people can differ on how exemption law should be applied, but there certainly is a need for more clarity, no matter which side you are on.

The Takeaway

These all sound pretty reasonable and common sensical to me.

Or is it my perspective?

I have often written about the scourge of Assistant Manager class actions. The employee category is particularly subject to this kind of lawsuit as these workers often perform some non-exempt work and it is unclear many times if they possess and exercise sufficient and proper supervisory authority. A recent case in New Jersey provides yet another example. A federal judge has just conditionally certified a class of Assistant Store Managers who work for Panera Bread. They allege that they were misclassified as exempt. Interestingly, the Court would not certify such classes in Massachusetts and New York.  The case is entitled Friscia v. Doherty Enterprises Inc. and was filed in federal court in the District of New Jersey.

Waitress carrying three platesThe judge concluded that the lead plaintiff Jacqueline Friscia made a “modest factual showing” concerning the alleged misclassification but refused to certify classes in other states. The court stated that “put simply, Friscia has not produced sufficient evidence to show that she is similarly situated to assistant managers in New York or Massachusetts.”

As is typical in these cases, the named plaintiff claims she worked 55-80 hours per week. She also claims that she performed many non-exempt tasks and that these tasks comprised the majority of her work time per week These tasks included preparing food, taking food orders, cleaning the store, working at the cash register and dish washing. Other than her weekly salary of $800, she asserted that she never received overtime for her long hours.

The company took the position that since the named plaintiff worked in only one store, she could not know conditions at other stores or whether the other Assistant Managers were “similarly situated.” The company also contended that there was an arbitration agreement in place and thus the workers could not be included all together in the same class actions. The judge was not impressed by these arguments, finding that the plaintiffs had met the “lenient burden” to receive conditional certification.

The Takeaway

The company can still defeat this class action by making a motion to de-certify the class later on. This would entail taking more discovery, perhaps many more depositions, in an effort to show that there is too much individual difference between the workers across the system to allow for class treatment. This will be expensive and may not be successful.

Or, the company can bite the bullet and settle…

I have blogged about some USDOL initiatives of late and see they are picking up some momentum with further developments coming down the line. The agency is going to revise the manner in which overtime is calculated (maybe to the employer’s benefit) and speak more on the issue (thorny as it is) of inclusion of bonuses in the regular rate.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There are other forms of “compensation” for employees, such as employee discounts and referral fees. The issue of whether these items are includible in the regular rate may also be opined about.  As I blogged about, the regulatory Agenda specifically stated that it would “clarify, update, and define regular rate requirements.” No other details have been forthcoming.

There is consensus that the new regulations would establish new groups of payment that may be excludible from the regular rate for overtime which businesses would welcome. There are any number of non-economic incentives and “payments” that are not directly amenable to computation and should (or should not) be includible.

Mr. Alexander Passantino, a former Wage-Hour Division Chief has observed that “it would be nice to have more guidance on what you’re talking about there so that we could give clients more advice on that with more certainty. Clients come up with good ideas on how they want to reward employees. It’s just helpful to say, ‘Yeah, that’s going to impact overtime rate,’ or, ‘no, it’s not.’”

The Takeaway

I agree with that sentiment. Employers want to comply with the law and often times have difficulty in properly interpreting what the FLSA does/does not command.  We will see what happens to the definition of the “regular rate” and what items it will/will not include.

I can’t wait…  .

White papers flying on blue sky background.A group that monitors government activities sued the U.S. Department of Labor last year seeking records related to the agency’s position and work on the new overtime rules and the fiduciary rules asserted to a federal judge that the agency was being less than forthcoming with the documents. In response, the Judge stated that he was “concerned” about the agency’s lack of responsiveness. The case is entitled American Oversight v. U.S. Department of Labor and was filed in federal court in the District of Columbia.

In the parties’ joint status report, the group, dubbed American Oversight, stated that it “continues to have concerns about the consistency and sufficiency of the information DOL is providing.’ The group maintains that the DOL has been either dilatory or has given conflicting reports regarding the records search. American Oversight sued the DOL in October. The group requested records related to the rules; they want calendar entries concerning agency meetings on the rules, names of attendees in the meetings and copies of correspondence sent to or received from the DOL relating to the rules.

The DOL has stated in its part of the Report that it will respond to the requests over the next few months. It also asserted that everything related to the new overtime rules has been produced. The group asking for the records states that it is “confused” by some statements in the DOL update. The group stated that “plaintiff believes that the July production deadline is more reasonable…but DOL’s inability to accurately and consistently report out the status of its anticipated productions continues to be of significant concern.”  .

The Executive Director of American Oversight, Austin Evers, charged the agency with “delaying the release of records showing what outside interests influenced decisions to roll back the rules.” He stated that “we filed this lawsuit last October to find out who had a seat at the table, and now more than seven months later, the agency is long on excuses and short on answers. What is the Labor Department so desperate to hide?”

The Takeaway

It should be interesting to see what is in those records and who was at those meetings. That might throw light on the position that the DOL is going to take on the overtime rules. The agency’s delay in producing the information may be related simply to bureaucratic slowness.it something else?

U.S. Supreme Court Building, Washington, D.C.The legal world is abuzz with the ripples created by a recent US Supreme Court decision on the statute of limitations in class actions.  A recent post in the Epstein Becker Wage & Hour Defense Blog makes some interesting observations on the case and the issue of its application to wage-hour/overtime class actions.  The case is entitled China Agritech, Inc. v. Resh  and issued from the US Supreme Court a few days ago.

Under the FLSA, each week in which an employee was not properly paid is a separate violation.  There are situations when a plaintiff seeks to bring a class action, but loses on the class certification motion and then, lo and behold, a different plaintiff tries to assert a new class action based on the same theory.

This case followed the holding in American Pipe & Construction Co. v. Utah, where the Court held that a timely-filed complaint seeking relief for a class stayed the running of the statute of limitations for other class members and that if class certification was denied, other people could enter the case without their own statute of limitations being eroded away.  As the post notes, the Court subsequently ruled that this tolling principle also applied when individual members of the class later filed their own individual actions.  That left the question of whether the tolling rules enunciated in these cases applied to future class actions.

In China Agritech, the plaintiff filed a putative class action under the Securities Exchange Act of 1934, with a two-year statute of limitations. The court denied class certification in May 2012; the initial case settled in September 2012 and was dismissed.  The next month, a second plaintiff filed a class action alleging the same claims and seeking the same class as in the first case.  Certification was again denied and that case also settled.

Then, in June 2014, a new plaintiff filed a third class action; the district court dismissed it as untimely but the Ninth Circuit reversed.  The case went to the Supreme Court where the Court decided that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”

The Court distinguished individual claims from class actions.  If certification was denied, only then would individual claims be allowed to proceed so there was a rationale for preserving the original statute of limitations.  However, if the next case concerned class claims, the Court held that for sake of efficiency, it was important to determine the best class representative (if there were competing representatives) and then class certification, if appropriate, would be determined, essentially, once and for all in the case.   The Court rejected the implicit argument of a rolling statute of limitations, as that would allow the statute “to be extended time and again; as each class is denied certification…”   Thus, subsequent time-barred class actions were not permitted.

The Takeaway

The China Agritech, holding gives employers a new and powerful weapon to defeat class actions.  The American Pipe doctrine of allowing tolling for future plaintiffs in FLSA class is not viable anymore although courts will probably permit individual lawsuits seeking recovery for weeks which would have been barred under the American Pipe rationale.  It is possible that subsequent class actions will be allowed if filed by people who were in a putative class that did not receive certification but there will be no tolling.  As the Epstein post notes, and with which I totally agree, employers should look, first, when defending a FLSA class action, if there is a statute of limitations defense.  That would get rid of the entire case!

Simply put, June 11, 2018 was a good day for us on the management side…

I have often blogged (and am concerned about) working time issues, especially when they comprise the basis for a class action. These are “soft,” subtle activities that may rise to the level of compensable time, catching n employer unawares. A recent example of this is a class action filed seeking compensation for “homework” done after an employer mandated training session. The case is entitled Acevedo et al. v. Southwest Airlines Company and was filed in federal court in the District of New Mexico.

Child daydreaming while doing math homeworkThe customer service representatives were mostly successful in warding off the employer’s motion to dismiss, which was based on an exemption peculiar to the airline industry. They claim they worked off-the-clock and had to do more work at home following training. The Judge noted that examination of the employees’ job duties is necessary to ascertain if the exemption applies. The Court will make that ultimate determination after discovery is completed.

The Company required the customer representatives to attend training for six weeks; they were paid for that time, the classroom time, but they were not paid for the required homework assignments that were connected to and part of the classroom training. The homework took approximately 60-90 minutes, per night. The plaintiffs also contended that the Company only considered them to be on the clock when they opened a certain telephone program on their computer. The plaintiffs also allege they were not paid for work they were compelled to perform before they clocked in, or were allowed to clock in.

The Court rejected the Company’s attempt to dismiss state law wage claims because they were supposedly preempted by the Railway Labor Act. The Court found that the “plaintiff’s NMMWA claims are independent, state law claims that do not require contractual interpretation. For this reason, the court will not dismiss plaintiff’s NMMWA claims on the basis of preemption under the RLA.”

The Takeaway

Absent a victory on the exemption issue, which may be problematic, I frankly do not see how the Company can prevail on this. The classroom training hours were (obviously) work hours and were paid for as such by the Company. The homework time directly derived from the classroom work and was tied to it. Unless there is a viable de minimis argument/defense (which is, again, doubtful), my advice is to settle this case quickly, unless the Company believes it has a sure-fire winner on the exemption argument. The takeaway is that these soft, subtle types of working time claims can explode on an employer in an instant.

Too bad, back in elementary school, homework was not compensable…

We have experienced a watershed change in the law this week and its ripples will move outward in ever widening circles for years to come. This is, naturally, the decision in Epic Systems Corp. v. Lewis (one of a trio of cases, the others being National Labor Relations Board v. Murphy Oil USA and Ernst & Young LLP v Morris) that dealt with the issue of class action waivers in arbitration agreements. Well, the Supreme Court agreed with the employer and asserted that such waivers are now legal.  As a recent blog in the Epstein Becker Wage & Hour Defense Blog points out, this decision may well have a major effect on pending wage-hour class and collective lawsuits, many of which have been held in abeyance until the Court decided the case. I imagine many employers will now implement these waivers and practitioners will likely be advising clients to do so. I wonder, however, if the case will be the panacea that many commentators are hailing it as.

U.S. Supreme Court Building, Washington, D.C.The vote was 5-4, with new Justice Neil Gorsuch writing the decision. The bottom line is that class action waivers are permissible under the Federal Arbitration Act and are not illegal under the National Labor Relations Act. This resolves a conflict in the federal appellate courts as many of these tribunals had held that such waivers were illegal.

As the Epstein Becker post points out, the decision “is an unqualified victory for employers, particularly those who already have such arbitration agreements in place.” As wage hour class actions abound and defending them is so very expensive (e.g. due to the fee shifting potential), a “reasonable” employer might be well-advised to implement such agreements and force their employees, individually, into arbitrations over their wage-hour claims.

But let’s not, those on the management side, start toasting each other with expensive champagne just yet. In many states, the employer has to pay all costs associated with the arbitration, including the arbitrator’s fees. So, as the post mentions, clever plaintiff lawyers can start filing dozens, if not hundreds of individual arbitration cases, which will cause employer costs to skyrocket and maybe then force employers to settle cases that they pushed into arbitration for the very reason of trying to cut costs of litigation.

The Takeaway

I hail this decision too, but the practical implications will take some time to play themselves out. The thought of defending dozens and dozens of individual arbitrations, each likely based on the same theory will likely yield gargantuan legal fees and expenses (e.g. arbitrator fees) for the employer. At that point, wouldn’t an employer want to aggregate these individual claims for efficiency and to save money?

Isn’t that a class action?