I recently blogged about the defendants in a FLSA case being able to secure plaintiff tax returns in discovery.  Maybe that was the start of a trend.  In a New Jersey case, a federal judge has ordered all of the named plaintiffs to produce tax returns for the tax years for which they claim damages in this action.  The case is entitled Kim v. Dongbu Tour & Travel, Inc and was filed in federal court in the District of New Jersey.

17542382 - u s income tax return forms 1040,1065,1120
Copyright: lobzik / 123RF Stock Photo

Plaintiffs worked as tour guides and were classified as independent contractors, which the Court ruled they were not; the Court granted the conditional certification motion. Defendants then sought the Plaintiffs’ income tax returns, asserting that “the income earned by each Plaintiff is relevant to their retaliation claim[s] and “is evidence of Plaintiffs’ damages (or lack thereof) and their mitigation of such alleged damages.”  The employer also argued that the tax returns would provide further evidence of whether Plaintiffs were employees or independent contractors, which would impact the key issue of liability.

The Court noted that public policy “favors the nondisclosure of income tax returns,” but it looked at the relevance of the tax returns to the litigation.  If the returns were relevant, a court had to then determine whether there was a compelling need for the tax returns due to the sought after information being otherwise unavailable.”  The Court noted that it was the burden of the party objecting to producing the information to prove that that the information is otherwise available.

Applying this test, the Court here ruled that the plaintiffs’ tax returns were relevant, because if the workers received additional income by tips or commissions counts, that information bore directly on assessing whether the employees received proper wages.  The information was also relevant to the workers’ allegations relating to their claimed damages, including the existence of offsets or mitigation.

The Court also concluded that there was a compelling need for the tax returns and the information was otherwise unavailable.  The Court observed that although Plaintiffs submitted their log guide books, many were incomplete or were simply unavailable and the Court concluded that information pertaining to the amounts received at various stops was also unavailable.  The Court also refused to approximate damages because it opined that the tax returns could provide accurate information and eliminate the need for speculative, burdensome, or costly attempts to approximate.  In sum, the employees could not show that the information was otherwise available from a less invasive reliable source.

The Takeaway

This is a great tactic for defendant employers to use in these cases.  This decision provides an instructive roadmap for the arguments that must be made in order to secure plaintiff-employee tax returns.  Usually, people don’t want their tax returns to be seen by others, especially in a federal litigation, where it could conceivably become “public.”

Maybe it turns out to be a way of impelling quick, early, cheaper settlements.

We’re pleased to note that U.S. Magistrate Judge James L. Cott of the U.S. District Court for the Southern District of New York recently cited a New York Law Journal article written by Fox partner Glenn Grindlinger in a memorandum order. In the order signed November 6 in Souza et al. v. 65 St. Marks Bistro, Judge Cott noted the Second Circuit’s decision in Cheeks v. Freeport Pancake House. In Cheeks, the court held that “stipulated dismissals settling FLSA claims with prejudice under…the Federal Rules of Civil Procedure required the approval of the district court (or the U.S. Department of Labor)…in order to take effect.”

In a footnote, Judge Cott wrote:

Given this dicta, one commentator has observed that Cheeks is “a problematic decision for employers as it will make it harder to resolve FLSA claims,” and “[b]ecause courts will scrutinize FLSA settlement agreements before they will dismiss an FLSA case, defendant employers will find it difficult to include confidentiality and other provisions in an agreement that are normally contained in settlement agreements.” Glenn Grindlinger, Second Circuit Requires Court Approval of all FLSA Settlements, New York Law Journal, August 19, 2015, at 3.

To read Glenn’s full piece, please visit the Fox Rothschild website.

In an important decision, a New Jersey federal district court has ruled that the statute of limitations for claims under the New Jersey Wage Payment Act is six years, not the two year period that specifically governs overtime and other wage claims specified in the New Jersey Wage-Hour Law.   In Meyers v. Heffernan, (Civ. No. 12-2434) the Plaintiffs were commissioned sales representatives for a now-defunct Mortgage Lenders Network USA, Inc., a mortgage banking company until approximately February 2007.  The plaintiffs sought unpaid commissions.

The defendants argued that the Wage Payment Law (WPL) contained a two year statute limitations period and, as the claims were three years old, they were untimely.  The Supreme Court of New Jersey had not yet considered the limitations period applicable to claims arising under the WPL.  USDJ Cooper looked to an earlier NJ Appellate Division decision for guidance.  Troise v. Extel Commc’ns, Inc., 345 N.J. Super. 231 (N.J. App. Div. 2001).

In Troise, the Court considered whether a two or six year limitations period applied to an employee’s private cause of action for underpayment of prevailing wages.  The Appellate Division observed that where the Legislature creates a statutory cause of action without including a limitations provision the court should apply the general limitations provisions which governs that category of claims

The plaintiffs herein were seeking to vindicate their economic rights through recovery of unpaid, accrued commissions.  As the nature of these injuries were more analogous to a breach of contract claim rather than an injury to the person, the Court concluded that the WPL is subject to the six-years statute of limitations that is provided by NJSA 2A:14-1 for breach of contract claims.

This is exciting news, so to speak.  At least it (definitively) clarifies the statute of limitations, unless and until the state Supreme Court rules differently.  Which it likely would not.

Better safe than sorry is the old adage.  Nowhere is this maxim more applicable than for an employer’s compensation practices, especially on issues of classification, working time, and record keeping protocols and obligations.

In the last several years, there has been an escalation of wage hour lawsuits, single and class action.  These cases can be grouped into certain categories that correspond almost exactly to particular payroll practices and corporate/financial decisions that impact the FLSA and state law.  Some of these flashpoint areas are:

  • Overtime claims arising from classification of employees as exempt or non-exempt;
  •  Independent contractor/consultant classification;
  •  Preliminary and postliminary work claims (e.g. donning and doffing, travel time);
  •   Automatic deductions for lunch (the curse of the smart clock)
  •  On-call cases; and
  • The Blackberry/E-Mail Claims (a “new” type of preliminary and postliminary work).

There is no way to tell when a claim will arise.  Usually, they come from workers fired for eminently good reasons but who complain to the DOL or file suit and, bad luck, have, not been properly paid.  If the “policy” at issue affects a group or, class, of workers, the snow ball rolls downhill.

The best, really, the only protection employers have is to self-audit all of their compensation practices and if there are issues, fix them, but do so in ever so subtle a manner as to “not arouse suspicion.”  The focus should be not only on having/drafting the legally correct (and employer friendly) policies but to exercise oversight to ensure they are implemented and maintained in a consistent manner.

The best defense is a good offense.  Another adage but, here, the best defense is proactive planning.  Such audits do not cost a great deal and the report that I submit to the employer when I do one highlights areas of concern and suggested remedial measures.  Such an audit also provides the ability to mount a “good faith” argument/defense.

An ounce of prevention….

Of late, there have been some favorable decisions for employers on FLSA class action pleading issues.  Now, a losing plaintiff is asking the US Supreme Court to reverse this trend and rule that her action should proceed, notwithstanding that there exists a lack of specific factual details.  The plaintiff contends that the high Court should resolve the split in the Circuits on this matter.  The case is entitled Dejesus v. HF Management Services.

The employee wants the Justices to reverse the Second Circuit.  That Court held that the fact that she did not carefully estimate her hours or submit different/other factual proof to her otherwise naked allegation that she worked more than 40 hours in some weeks was fatal to her case.  The Cert petition contends that this position is contrary to that taken by other Circuits.

Plaintiff’s counsel stated that “as the Second Circuit itself noted in the Dejesus opinion, the federal courts across the country are divided on the issue of FLSA pleading standards — especially after Twombly and Iqbal.”  The lawyer therefore urged the Court to take the case, contending that it is a perfect test case because it was a single plaintiff, rather than a class, action.  The lawyer acknowledged that the issues in those cases are far murkier for individual plaintiffs.

The company filed a motion to dismiss which was granted by the District Court.  The employee appealed to the Second Circuit.  That Court found, contrary to the lower court, that the worker was an “employee” under the Fair Labor Standards Act but nevertheless dismissed the suit.  The Court noted that the plaintiff must not only make a conceivable case, but the allegations must also be “plausible.”  In other words, a plaintiff cannot merely rehash and parrot the general language of the law, but must allege specifics.

The Second Circuit was not asking for Einstein-like precision.  In its opinion, the Court observed that “while this court has not required plaintiffs to keep careful records and plead their hours with mathematical precision, we have recognized that it is employees’ memory and experience that lead them to claim in federal court that they have been denied overtime in violation of the FLSA in the first place.  Our standard requires that plaintiffs draw on those resources in providing complaints with sufficiently developed factual allegations.”

I hope the Court takes it, because I believe that plaintiffs should be compelled to claim actual numbers.  In counseling clients, it is my experience that employees who have been shorted out of one hour know exactly how much they are missing.  Employees who claim they have been often/routinely shorted on overtime should have an idea as to exactly how much they have been denied, if it’s really happening “every week.”

In August 2013, Governor Christie approved an amendment to the New Jersey Law Against Discrimination (“NJLAD”) prohibiting employers from retaliating against employees who request current or former colleagues to provide information about their job title, occupational category or pay.  The amendment is designed to combat pay inequality, based on the notion that if employees know they can ask each other about their salaries and benefits, they would more freely discuss these topics and discriminatory practices would be harder to hide.

The bill was first introduced as amending New Jersey’s Conscientious Employee Protection Act (“CEPA”) but Governor Christie conditionally vetoed it.  The Legislature then reintroduced it as amending NJLAD, which was more consistent with the original intent of the law of tackling workplace discrimination.

In 2012, Governor Christie also amended New Jersey’s Equal Pay Act requiring covered employers to provide written notification to employees of their right to gender equality in pay, compensation, benefits and other terms and conditions of employment.  Both of these amendments are aimed to tackle pay inequality at the workplace and New Jersey employers should be conscious of these two amendments as they implement compensation plans, but should also reevaluate their practices generally.

When investigating federal wage discrimination claims, the Equal Employment Opportunity Commission (“EEOC”) analyzes more than just employee wages when evaluating employers’ compensation systems for potential discrimination.  Sharon Alexander, special assistant to EEOC Chair Jacqueline Berrien, said the commission uses two lenses when investigating possible pay bias under Title VII of the 1964 Civil Rights Act and the Equal Pay Act.  One lens focuses on “apples to apples” wage comparisons, she said.  The other lens considers broader practices that might not constitute compensation bias per se, but may nonetheless have a discriminatory effect on pay.

Thus, New Jersey employers should not only be mindful of just general wage comparisons, but should closely consider their broader practices that may have a discriminatory impact on pay.

I have posted numerous times on the crackdown by numerous States of alleged misclassification of individuals as independent contractors. My State, New Jersey, has passed a special law pertaining to misclassification in the construction industry, although no new definition of independent contractor was established. Now, a move is afoot to do the same thing for/in the trucking industry.

The New Jersey Assembly has passed legislation that would establish a presumption that port and parcel delivery truck drivers are employees unless the putative employer can prove otherwise. The newly proposed law, which (naturally) enjoys strong union support, is entitled the Truck Operator Independent Contractor Act.

The proponents of the law claim that misclassification of these truckers is rampant and allows employers to avoid payment of numerous taxes (e.g. Social Security, Medicare, unemployment) and, most significantly, the payment of overtime. Assemblyman John Wisniewski, D-Middlesex, a main sponsor of the proposed statute, stated that “the misclassification of employees improperly deprives employees of protections provided under state and federal law and creates an uneven playing field for law-abiding companies that currently operate under a competitive disadvantage compared to their industry peers who misclassify.”

The bill, like its counterpart in the construction industry, contains harsh and expensive administrative penalties, as well as the potential for criminal prosecution, for employers that misclassify truck drivers and also allows drivers to sue for damages.

To show that an individual is an independent contractor, the putative employer would have to show that the individual is free from their control when it comes to the services they perform, that the services are outside the usual course of business, and the workers are “customarily engaged in an independently established trade, occupation, profession or business.” This is the exact same test already has been on the books for years in the unemployment and wage-hour statutes.

The only reason for pushing this legislation, it seems to me, is revenue generation for the State. This is highlighted by the potential for especially onerous penalties, which would all revert to the State Treasury. The legislation is not warranted nor needed. The lesson, however, for employers remains the same—-make sure that your independent contractors truly are so.

The Eighth Circuit in Carmody v. Kansas City Board of Police Commissioners addressed the standard of proof in a wage and hour case when an employer failed to maintain accurate timekeeping records. The Court held that even under the “relaxed standard” established by the U.S. Supreme Court in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), plaintiffs in wage and hour suits are compelled to provide evidence of “actual damages.”

The FLSA requires employers to maintain accurate and complete records of employees’ hours and compensation, including any alternate arrangements for dealing with overtime, tim- off or compensatory time.

In Anderson, the U.S. Supreme Court found that when an employer failed to maintain accurate time records, the employees were relieved of proving the “precise extent of uncompensated work.” In other words, Anderson created a relaxed evidentiary standard in cases when the evidentiary burden shifts to the employer because the employee showed that uncompensated work was performed (and enough evidence exists to reasonably show the amount and extent of the work).   Anderson only applies, however, where the “existence of damages is certain.”

Carmody involved a group of police officers who alleged that their Captaininstituted a policy where giving flextime or time off rather than receiving overtime pay at time-and-a-half. Neither the officers nor the city, however, tracked the accrued flextime

The Court noted that the city’s failure to keep accurate time records allowed for the “relaxed” evidentiary standards explained above.   The officers provided evidence of the flextime policy, but there was no acceptable evidence of specific dates and hours worked, or money owed. The city’s failure to provide accurate time records reduced the officers’ burden, but did not eliminate it.

The takeaway is that even though employers must maintain accurate records of employee work hours and compensation, the failure to do so does not tip the pendulum inordinately in favor of plaintiffs. The better answer, however, is to always keep such accurate records. They are, invariably, the employer’s best protection on extra hours claims. 

In December, I blogged about off-the-clock work in my post Unreported, Off-the-Clock Work.  Off-the-clock work includes meal break time, and issues arise when employees work during these breaks, or claim that they work during these breaks, but are not paid.  Recently, an Ohio federal judge decertified a class of employees who alleged that their employer’s meal break policy violated the FLSA.  The judge decertified the class action suit because the workers’ experiences were too diverse to justify the class. 

The case, Creely v. HCR ManorCare Inc. et al., was filed in the U.S. District Court for the Northern District of Ohio, the case number is 3:09-cv-02879.

The employer, HCR ManorCare Inc., (“HCR”) has more than 44,000 hourly employees.  A class of 318 nurses, licensed practical nurses, certified assistants, and admissions coordinators claimed that employees missed meal breaks and were not properly compensated because HCR failed to  ensure that employees were paid.  Specifically, the plaintiffs claimed that HCR failed to train employees on how to report incidents where they worked during meal breaks, and even in some instances, actively discouraged employees from doing so.  The judge however, decertified the conditional class because the claims presented varying accounts of what instructions these workers received on claiming wages earned while working through meal breaks (since wages were automatically deducted for meal break time). 

Although this class was decertified, this decision demonstrates the overriding importance for employers to maintain reasonable procedures for employees to report ostensible work performed during meal times.  To avoid incidents like this, employers should ensure that employees are properly trained to report their time and managers are keenly aware of their employees working, or seeking to work, through lunch.

 

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The U.S. Court of Appeals for the Sixth Circuit issued a positive decision for employers about unreported, off-the-clock work.   In White v. Baptist Memorial Health Care Corporation, 2012 U.S. App. LEXIS 22752 (6th Cir. 2012) the court held that if an employer establishes a reasonable process for an employee to report uncompensated work time, then the employer is not liable for non-payment when the employee fails to report his time.

            The case involved a nurse who treated patients in the emergency department of a hospital.  Due to the nature of her job and like most healthcare workers, she did not have a regularly scheduled meal break.  Pursuant to the employer’s policy, an unpaid meal break was nonetheless automatically deducted from her paycheck.  The policy further stated that if the employee’s meal break was missed or interrupted, then the employee would be compensated for the time worked.  The employees were instructed to record all time spent working during meal breaks in an “exception log.”  Eventually, the nurse in this case stopped reporting her missed meal breaks in the “exception log,” and filed suit alleging violations of the FLSA for failing to compensate her for working during lunch.

            The FLSA requires a plaintiff to prove that he performed work for which he was not properly compensated.  An automatic meal deduction is lawful under the FLSA.  If, however, the employer knows, or has reason to believe that an employee is continuing to work during an ostensibly unpaid break, then the employee is entitled to compensation, even if the employee fails to report it.

            On the other hand, if the employer does not know, or have reason to believe that the employee worked during the unpaid break, and the employer did nothing to prevent employees from reporting unpaid time, then the employer is not liable for non-payment. 

            In this decision, the “exception log” was a reasonable procedure for reporting time worked during meal breaks.  The nurse, however, eventually stopped utilizing it, and never notified supervisors that she was not being compensated for missing her breaks.  Thus, the court found that there was no way her employer should have known she was being compensated for missing her breaks.  She presented no evidence that her employer prevented or discouraged employees from reporting time, or that her employer was otherwise notified that she or other employees were failing to report time.  Instead, the plaintiff’s failure to utilize the “exception log” was seen as preventing the employer from being aware of any possible obligation to compensate, thwarting its ability to comply with the FLSA.

            Based on this decision, employers should maintain a reasonable procedure for employees to report work during what are deemed to be unpaid breaks, e.g. lunch.  Employers should ensure that employees know how to use the fail-safe procedure and that they are in fact, reporting their time.  If the employer should have known that employees were working and not reporting time, then the employer is liable for payment.