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I always look for a preemption defense when I am defending a FLSA collective action, whenever there is a labor contract involved. What a magic bullet that is—get rid of the entire matter in one fell swoop (with maybe just a 12(b)(6) motion). But, and it is a big but, there must be something in the labor contract that is pertinent. If not, that tactic fails, as evidenced by a recent (split) Third Circuit opinion.  The Court refused to dismiss a FLSA collective action brought by nurses at a New Jersey assisted living home and send the case to arbitration, asserting that there were factual disputes, not claims contained within the collective bargaining agreement. The case is entitled Tymeco Jones et al. v. SCO Silver Care Operations LLC, and was issued by the Court of Appeals for the Third Circuit.

Hospital Emergency signThe plaintiffs alleged that their employed miscalculated their overtime wages and did not pay them when they were compelled to work through lunch. The Court found that the workers did not explicitly waive their right to sue under the Fair Labor Standards Act and the claims did not center on a contractual dispute at its heart. As the majority succinctly stated, “neither of the plaintiffs’ FLSA claims depend on disputed interpretations of CBA provisions such that arbitration is necessary.”

The nurses filed the action in December 2013, charging that the Company did not include shift differentials (up to $3.00 per hour) when calculating their overtime, i.e. their regular rate and also claimed they were not paid for working through lunch on the many occasions that they did. The employer argued that the case should have been sent to arbitration.

The Third Circuit noted that a court could compel arbitration on a federal statutory claim when the Union “clearly and unmistakably” waived its right to sue and the statute at issue did not exclude arbitration as a forum. In addition, a court could order arbitration when the claims depended “on the disputed interpretation of a CBA provision” even if the Union had not waived its right to sue.  That was not the case herein, as the Court concluded that “all of these so-called disputed ‘interpretations’ of the CBA … are factual questions — length of meal breaks, types of interruptions, how they were handled and whether the plaintiffs ever received compensation due to these interruptions.”

The Takeaway

I think this is a chance worth taking. There are always labor contract articles that focus on methods and amounts of compensation. I believe, all the time, a plausible argument can be made for a preemption position. The employer here came close to prevailing. Even if the employer loses, I believe it makes the case that the challenged payment method is legal, because, if it was not, wouldn’t the Union have challenged it or negotiated it out of the contract?        

We usually think of FLSA and overtime cases arising in our country, but companies operating overseas have to deal with the laws of that country. In an interesting case that hearkens to the headlines of national security and international crisis, Fluor Corporation has requested that a federal judge dismiss a putative class action filed by contractors who allege that they were not paid overtime in violation of Afghanistan labor law. The company claims that the Afghan labor code does not apply to employees of U.S. contractors. The case is entitled Allen et al. v. Fluor Corp. and was filed in federal court in the Northern District of Texas.

Silhouette of U.S. soldier
Copyright: zabelin / 123RF Stock Photo

The contractors filed suit in May 2016, claiming that the Company violated Article 67 of the Afghanistan Labor Code by not paying them overtime despite the fact that they worked twelve hours per day, seven days a week. They seek a class of at least 100 contractors and allege their total claims exceed $5 million dollars. They built base camps, provided housing, transportation and meals to the troops.

The Company defends by claiming that the contractors were fully paid under their employment agreements and under American law. The Company claims that although these men were “paid a fortune,” the workers are engaged in a “self-serving” attempt to benefit from the overtime laws in the Afghanistan Labor Code; the Company asserts such law does not apply to them. The lawyer for the Company asserted “these plaintiffs are not entitled to a windfall recovery under the laws of the Islamic Republic of Afghanistan.”

The Company argues that the Afghanistan Labor Code only applies to foreign workers who are required to obtain work permits, which these workers did not have, or need. The Company asserts that even if Afghan labor laws applied, there must first be findings of fact made by that nation’s labor regulator before that ruling could be appealed to a competent court.

The lawyer for the plaintiffs appealed for sympathy from the Court. He asserted that if the court declines jurisdiction, then hundreds or thousands of Americans will be prevented from pursuing their rights. He also claimed (perhaps with some justification) that going to Afghanistan to pursue these claims would be far too dangerous for the workers, adding that security alone would cost $20,000 a day. He also urged the Court note that Afghanistan remains a sovereign nation with the right to have its laws apply to workers who are in the country.

The Takeaway

What an interesting set of circumstances this is! Of course, these men cannot go to Afghanistan to pursue their claims. That is why I believe the Court will side with the workers.

You know, law firms are not immune from FLSA issues merely because they are law firms and may be allegedly endowed with some superior knowledge of laws. A recent case illustrates this maxim.  The name partner of a Los Angeles firm has been charged with misclassifying his legal secretary as exempt.  She now has won a jury verdict of $80,000 in overtime; her former boss had claimed that she was properly classified as an executive employee. The case is entitled Bernal v. Little PC et al. and was filed in state court in the Superior Court of California, County of Los Angeles.

Law books and justice scales
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Ms. Bernal alleges that she was promised a salary of $1,000 per week and no evening hours.  Her workload increased but Mr. Little refused to pay her overtime wages.  Her counsel told the jury to disregard Little’s assertion that they had an arrangement to pay the Plaintiff a set salary, because the lawyer explained that her position was not exempt from overtime.

Mr. Little claimed Bernal was exempt as manager, as she directed the work of two or more other employees, was responsible for HR and payroll duties and could establish her own hours and manage her own workload.  The plaintiff’s lawyer took strong issue with those assertions, telling the jury that she was primarily a legal secretary, including the taking of dictation.

The lawyer testified that Ms. Bernal had worked for him before and knew what the hours were and that there was no conversation about her having a set hourly schedule as she claimed.  He also asserted that Ms. Bernal knew it was a “salaried” position; he told the jury that she testified that the initial offer appealed to her because she would be paid for days she did not work.  The secretary countered by claiming that her job was all-consuming, sometimes working twenty-hour days and running personal errands for Little, as well as being required to respond to texts and calls on nights and weekends.

The Takeaway

Merely paying someone a salary does not mean that they could not eligible for overtime.  They must perform the duties required for the executive (or other) exemption.  This person’s job duties did not sound like that.  Nor does fancy title, if she had one, e.g. Office Manager, mean that she managed anything.

(Expensive) lesson learned…

I have blogged so many times about Assistant Manager class actions.  I never seem to get tired of it because there is a never-ending “supply” of them.  Guess what.  Another one.  A group of employees working for AC Moore, an arts, crafts and floral merchandise retailer, has petitioned a federal judge to approve an almost three-million dollar settlement that settles claims that they have been misclassified as exempt executive employees.  The case is entitled  Rossmeisl et al. v. A.C. Moore Arts & Crafts Inc., and was filed in federal court in the District of Massachusetts.

Arts & crafts items
Copyright: 36clicks / 123RF Stock Photo

The plaintiffs asked for the court approval a bare two months after they filed their collective action.  Their theory was that they were misclassified as exempt.  They argued equally hard that the settlement should be approved because it was the right thing to do.  They stated that “the settlement was the result of extensive pre-suit investigation, discovery and substantial arm’s-length negotiations.  Recognizing the uncertain legal and factual issues involved, the parties reached the settlement pending before the court after private mediation before an experienced mediator.”

The lawyers for the plaintiffs advised the employer that they were alleging that the assistant general managers were misclassified as exempt in January 2016.  The parties then entered into pre-litigation discussions to ascertain if a settlement was possible.  The Complaint was nevertheless filed on February 8.  The court papers then capture the essence of why this settlement should be approved.

The court papers advised the Judge that “the settlement, which followed a thorough investigation and mediation with a former federal magistrate judge, Hon. Diane Welsh, satisfies the criteria for approval of a Fair Labor Standards Act collective action settlement because it resolves a bona-fide dispute, was reached after in-depth investigation and review of significant documentary evidence and payroll data, was the result of arm’s-length settlement negotiations assisted by a private mediator and between experienced counsel and provides good value to the workers it will benefit.”

The Takeaway

This is an interesting tactic employed by the lawyers for the plaintiffs.  Avoid litigation, but still get a nice settlement.  It might also be better for an employer but there might be, I fear, too ready a desire to settle at such an early stage, just to avoid the (rapidly) escalating legal fees associated with defending such a case.  Naturally, the merits, good or bad, dictate the employer’s strategic decision.

There have been a number of FLSA lawsuits in the energy industry of late, focusing on unpaid overtime.  One of these employers who was sued, Key Energy, has just settled two class actions for $3 million.  The case is entitled Grillo v. Key Energy Services LLC and was filed in federal court in the Central District of California.

Offshore drilling platform
Copyright: 1971yes / 123RF Stock Photo

The employees advised the Court, in their motion for preliminary approval, that the decision to settle was founded on the strength (or weakness) of the case and the goal of ending the case without incurring additional legal fees and costs that could cut into the monies that the plaintiffs might receive.

The court papers filed by plaintiffs stated that “although plaintiffs and their counsel maintained a strong belief in the underlying merits of the claims, they also acknowledge the significant challenges posed by continued litigation through trial.  Accordingly, when balanced against the risk and expense of continued litigation, the settlement is fair, adequate, and reasonable.”

The plaintiffs worked on oil rigs off the coast of California.  They claimed that although the Company had proper overtime policies, the actuality was that the Company denied employees their statutorily mandated lunch periods and compelled people to work more than forty hours without paying proper overtime.  The plaintiffs won certification in July 2016 for a class of California-based Key Energy employees; the motion before the Court asks for approval of a class with eight subclasses.

The settlement would pay the employees a total of $1.79 million dollars; the class is estimated to include more than 1800 employees.  These workers would receive an average of approximately $985 per person; there would be a formula utilized, depending on the number of pay periods worked, between June 2009 and February 2017.  The named plaintiffs (Grillo and Zaragoza) would each get an additional $10,000 in incentive payments for bringing the suit.

The Takeaway

Employers in the energy industry should take note of this case and the others that have been filed (and are being filed) in recent years.  I have blogged about this and spoken on it many times.  There are factors inherent in the industry, e.g. methods of compensation, that have developed over the many years and may be well suited to this unique industry, but, and it is a big “but,” they may not comply with the Fair Labor Standards Act.

I urge employers in this industry to examine their compensation practices and fix what is broken, which will start to erode away the statute of limitations.

Regretfully, to my lights, conditional certification seems all too easy for plaintiffs in a FLSA collective action to secure.  Are things changing?  A federal judge has refused to certify a proposed class of natural gas pipeline inspectors for Gulf Interstate Field Services Inc. in a Fair Labor Standards Act overtime suit, concluding that the named worker in the suit is not similarly situated.  The case is entitled Sloane v. Gulf Interstate Field Services Inc., and was filed in federal court in the Middle District of Pennsylvania.

Pipeline Leading to Oil Refinery
Copyright: kodda / 123RF Stock Photo

The employee has alleged that he was paid a day rate but overtime was not paid for hours exceeding forty.  Judge Brann observed that many factors militated towards denying conditional certification.  He noted that there were many differences among the putative class members, such as where they worked, what they did and who their clients were.  Thus, there was a lack of commonality amongst the workers.

The Court aptly observed that the “plaintiff seeks certification of collective action generically comprising ‘all current and former employees of [GIFS] who performed work as a pipeline inspector in the United States in any workweek between three years prior to the date of the court’s order and the present.  The proposed class otherwise embraces no limitations based on geography, timeframe, client, position type or project nature, though it does incorporate a carve-out for three separate projects where workers were believed to not have suffered any unlawful treatment.”

Significantly, the Court also focused on the prior convictions of lead plaintiff Thomas Sloane, finding that those convictions and his evasiveness and dissembling about them with his own lawyer, showed that he was not a proper class representative.  Three of Sloane’s offenses involved burglary or theft; the Court concluded that this “propensity for untruthfulness” would taint the entire case for the other possible class members.

The Takeaway

This is the dogma that must be pursued when defending one of these collective actions.  Look for discrepancies in the fabric of the class, especially as regards the named plaintiff and the rest of the class.  Herein, this task was made easier because of the criminal convictions and conduct related to those convictions of the named plaintiff.  In sum, if the named plaintiff is but a poor representative of a putative class, the case for conditional certification is rendered much weaker.

Corinne Burzichelli writes:

The issue of the exempt status of financial services employees has been explored in numerous cases for many years and in different parts of the country.  Now, there is a new chapter to add to this saga.  On February 28, 2017, Judge William J. Martini granted Morgan Stanley Smith Barney LLC’s motion for summary judgment, dismissing financial advisers’ claims that they were entitled to overtime under the FLSA and New Jersey law.  The case is entitled In re: Morgan Stanley Smith Barney LLC Wage And Hour Litigation and was filed in federal court in the District of New Jersey.

Banking and Financial Services
Copyright: sashkin7 / 123RF Stock Photo

The plaintiffs, consolidated from four cases originating in New Jersey, New York, Connecticut and Rhode Island, alleged that Morgan Stanley failed to pay overtime in violation of the FLSA.  The named plaintiff, Nick Pontilena, additionally claimed that Morgan Stanley violated New Jersey law by not paying him required overtime, making improper wage deductions, and failing to maintain required pay records.

The court rejected these claims and concluded that financial advisers were exempt from overtime  under the FLSA.  The Court concluded that the administrative exemption applied.  This is significant because many courts have rejected the identical defendant contentions/defenses.

Judge Martini determined that financial advisers met this standard by reviewing the USDOL regulations and case law directly addressing financial advisers as opposed to DOL guidance on mortgage loan officers.  Indeed, the Court chose to follow precedent from the Eastern District of Pennsylvania and the Northern District of California, and deferred to a 2006 DOL letter, all of which found that financial advisers were exempt from the FLSA.

Specifically, the Court agreed with the regulations and concluded that the financial advisers satisfied the administrative exemption because they primarily offered advice and analyzed client information in an independent manner and were not focused solely on making “sales.  That is a very momentous decision because the decisions that have gone the other way have found that these employees’ main job duty was selling.

The Takeaway

Employers in the financial services industry who are hit with these suits must focus on the analysis, rather than the selling, job duties of the employees.  If a court believes that the “sale” is the ultimate driving force for the employees’ work, they will be found to be non-exempt.  At least in New Jersey, financial advisers will be exempt from the FLSA.  Let’s now see if this trend carries through to other Circuits in the country.

Hopefully, it will…

Corinne Burzichelli is an associate in the Labor & Employment Department of Fox Rothschild LLP, resident in its Princeton office.

I have blogged before about fancy golf clubs being sued for FLSA violations.  Well, here is another one.  The Farm Neck Golf Club is a members-only golf club on Martha’s Vineyard, where Presidents Barack Obama and Bill Clinton have played.  This organization was just sued in a putative collective/class action by a cafe cook who alleged that she was not properly paid for overtime hours.  The case is entitled Shkuratova v. Farm Neck Association Inc. and was filed in federal court in the District of Massachusetts.

Golf Course
Copyright: Photozek07 / 123RF Stock Photo

The former cook, Anna Shkuratova, began a putative class action over overtime compensation for violations of the federal Fair Labor Standards Act and state law.  The Complaint stated that the “plaintiff was subject to defendants’ common practices, policies or plans including failing to pay at least minimum wage for all regular hours worked, failing to pay at least one and one-half times the regular rate of pay for hours worked in excess of 40 hours per week, failing to compensate plaintiff and class members for hours worked off the clock and failing to keep accurate time and payroll records in violation of the FLSA.”

The golf club is located in a very pretty piece of farmland on the eastern edge of the island, right on the water.  It has earned a consistently high rating in Golf Digest’s Places to Play, “and is considered by many to be one of the premiere golfing experiences in the Northeast, a true test of golf in an idyllic setting.”

The named plaintiff states that she worked as a cook at the club’s Cafe at Farm Neck from May 2016-September 2016.  The plaintiffs seek five subclasses of employees who were not paid minimum and overtime wages and who worked off the clock, such as kitchen employees, front-of-house cafe workers, golf course workers such as golf professionals and pro shop salespeople, tennis pros and maintenance workers.

The Takeaway

It is the off-the-clock allegations that, to me, are the most troubling.  Oftentimes, employers have to work under very tight labor budgets and there is pressure, implicit or otherwise, to stay within those budgets.  It is that pressure that sometimes results in FLSA violations.

Sometimes…

Jonathan Ash writes:

Waiter carrying tray of glasses
Copyright: bedya / 123RF Stock Photo

In what amounts to a victory for all employers throughout the State of New York, the Supreme Court of New York recently granted summary judgment in one of the first cases to effectively make use of the newly amended affirmative defense set forth in the Wage Theft Prevention Act (“WTPA”).  The case is entitled Ahmed v. Morgans Hotel Group Management, LLC.

Employers in the hospitality industry in New York often fall victim to unsubstantiated claims by former employees of unpaid wages.  Attorneys will send letters threatening a potential class action wage and hour lawsuit and demanding that the employer provide documentation on a class-wide basis to disprove the existence of the claim in order to resolve the case with a substantial settlement.  The mere threat of such a lawsuit is enough to get employers to comply with this fishing expedition.

In this instance, the Company limited its production to only those documents necessary to show that the named plaintiff(s) did not have a claim that they were not paid gratuities for banquet events where the Company charged an administrative fee.  The Court rejected the plaintiff’s claim and concluded that no reasonable customer could have been confused and that because the plaintiff could not identify a single instance in which the gratuity was not paid, the WTPA claim must fail.

Perhaps more significantly, however, was the claim for unpaid minimum wage, which was based upon the alleged failure to provide the required notice under the Hospitality Wage Order.  Plaintiffs’ attorneys attempt to capitalize on this nuanced area of the law in hopes that one of these requirements is not met due to human error or inadvertence.

One year ago, the WTPA was amended to provide that “it shall be an affirmative defense” to such a violation if the employer can show complete and timely payment of all wages due and that the employee never earned below the minimum wage.  In such a case, the employee suffered no actual injury, so this affirmative defense prevents a windfall and discourages the predatory practices of plaintiffs’ attorneys.

The Takeaway

This significant decision paves the way for other employers to defend against such actions.  Rather than succumbing to the demands of an aggressive plaintiffs’ attorney fishing for information, employers now have a means to defend these claims through this affirmative defense if they can show that the employee was always timely paid wages equal to or above the minimum wage.

Jonathan Ash is an associate in the firm’s Labor & Employment Department, resident in its Princeton office.

There have been many class actions concerning the job title “Assistant Manager” and this malady has risen again.   The chain, Hooters, has been sued in a nationwide collective action that alleges the Company misclassified assistant store managers, calling them supervisors, in order to avoid paying overtime.  The case is entitled Stirewalt et al. v. Hooters of America LLC and was filed in federal court in the Northern District of Alabama.

Hooters Restaurant
By Ildar Sagdejev (Specious) (Own work) [GFDL or CC BY-SA 4.0-3.0-2.5-2.0-1.0], via Wikimedia Commons
The named plaintiffs allege that they worked up to eighty (80) hours per week but were never paid overtime due to their misclassification.  The claim they only had the title of Manager, but that their main duty was sales and not the supervision of at least two other employees, over whom they could exercise managerial authority.  They claim that when they did create schedules, they were “almost always changed,” according to the Complaint.  They claim that although they interviewed new job applicants, the recommendations they made were often ignored by their supervisors.

More significantly, the Complaint alleges fraudulent conduct by the Company. It alleges that the “defendants have intentionally and repeatedly misrepresented the true status of managerial compensation … to avoid suspicion and inquiry by employees regarding their entitlement to monies owed to them.  Plaintiffs, as well as other similarly situated present and former employees, relied upon these misrepresentations by defendants and [were] unable to determine [their] true status under the FLSA by the exercise of reasonable diligence because of those misrepresentations.”

The plaintiffs want notices to be sent to current and former assistant managers who worked at a Hooters store within the last three years.  This would allow these workers to opt in to the collective action.  The plaintiffs seek overtime, commissions, bonuses, vacation and sick time and, naturally, attorneys’ fees.

The Takeaway

I don’t mind these so much.  (Famous last words?)  These kinds of actions usually necessitate an individualized determination of the duties of the various employees and that is the death knell of a viable class action.  The problem is if they were subject to the same, uniform, system-wide policies, that would be bad.  But, at least from the start the defendant here has a legitimate, viable chance of defeating the motion(s) for class certification.