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It is not often when an employer defends a FLSA lawsuit by asserting that it is in an illegal business and therefore immune to suit. Sound funny? Well, that is precisely what a Colorado employer that furnishes security services to legal cannabis growers/sellers has pressed on the Tenth Circuit. The employer’s theory is that the workers are not entitled to allegedly unpaid overtime under the Fair Labor Standards Act because their work is illegal under federal law. The case is entitled Kenney v. Helix TCS, and was argued before the Court of Appeals for the Tenth Circuit.

The Company’s counsel argued that the collective action cannot proceed as the FLSA only applies to legal businesses. The lawyer claimed that all job functions engaged in by the workers amount to trafficking in illegal drugs. This case is fascinating because it highlights the tension between a state legalizing cannabis and its continuing illegality under federal law. The lawyer for the Company argued that this controversy entered the “legally ambiguous” sphere in which legal cannabis businesses operate.

The named plaintiff, an armed security guard who guarded growers and sellers, claimed he worked overtime many weeks and was not paid properly. He sought class certification for all such guards, going back three years. The Company moved to dismiss, arguing that the employee’s work (as he was dealing with a Schedule 1 drug under federal law) violated the federal Controlled Substances Act and was thus outside of FLSA coverage.

The district court Judge denied the motion and observed that other courts have not endorsed this concept. The Judge noted that in other cases involving businesses that violate federal laws, e.g. immigration, courts have ruled that these violations did not mean the businesses could not comply with other federal laws. However, the Judge certified the ruling for immediate appeal and thus it went (quickly) to the Tenth Circuit.

The lawyer for the plaintiff asserted that the FLSA does not have a requirement that employees subject to its jurisdiction must be engaged in “only” legal businesses. There was no outright mention of “lawfulness” in the law and there was nothing in the state statute that voided the dictates of the FLSA.

The Takeaway

Maybe Congress should make an exception to the FLSA for this industry, but it has not done so. Consider the implications of granting the employer’s motion to dismiss—it would be giving a business illegal under federal law an advantage over legal businesses by sanctioning the avoidance of paying overtime.

Hmm. Food for thought…

When a class action is filed, often times there are issues (for the plaintiff and their counsel) as to who should be in the class. Often, the named plaintiff will seek to reach out to other putative class members, but it is not every day when a Judge orders that the plaintiff may telephone or email these other class members, despite a claim that this would unfairly facilitate the plaintiff’s case. That is what a New Jersey federal judge has just ordered. The case is entitled Sanchez v. Santander Bank NA et al., and was filed in federal court in the District of New Jersey.

computer-email

The theory of the case is that the employer coerced employees into not filing for overtime; the named plaintiff claims the information will help her figure out if the workers are class members. The Judge denied Santander’s bid to limit contact and now the plaintiff can contact Branch Operations Managers at more than 600 banks spread across nine states. The Judge allowed this unrestricted access to facilitate the plaintiff’s discovery efforts. There are more than 1100 other possible class members.

The Judge observed that the plaintiff “is already in possession of the contact information for potential opt-ins, and the court sees no basis to prevent plaintiff from investigating whether or not these employees are similarly situated to plaintiff by limiting the scope or means of communication.”

The theory of the suit was that the Bank prohibited these employees from reporting extra hours worked or ostensible overtime. There were also allegations that the Bank punished/disciplined employees who did attempt to report the extra time worked. The named plaintiff asserted that she implored upper management to hire more employees or dispatch help from other branches, but these initiatives went nowhere. The named plaintiff claimed she had to work 10-12 extra hours per week, without pay.

The Bank had argued that Sanchez’ contact with potential plaintiffs should be limited to those Branch Managers she worked with or who were in the immediate geographical area. The Bank also opposed Sanchez calling or emailing other workers, contending that any communications should be confined to the letter that the Judge had approved.

The Takeaway

I don’t like this. It seems that the courts often make it easier for plaintiffs to do the “best” job that they can in securing the biggest class they can. The plaintiff already had the addresses so these people could have easily been contacted in the more traditional manner.

Seems the pendulum swings a little far to the left on this one…

This is an interesting case because it combines the elements of necessary, but not proven, commonality of situation for class certification and a quirky element of overtime calculation based on a unique FLSA provision.  The bottom line is that the two workers who sought a class action on both the federal and state levels lost both because of the need for too much individual scrutiny of worker claims.  The case is entitled Sinclair et al. v. PGA Inc., and was filed in federal court in the Western District of Wisconsin.

The Judge rejected the claim, for a class, that the Company should have paid the higher wage rates for skilled labor (e.g. trade work, such as carpentry) as opposed to generic wage rates.  The Judge also agreed to decertify a FLSA collective whose overtime rates were allegedly miscalculated or underestimated.  The Judge opined that the state-law part of the suit did not possess several elements of a viable class action under Rule 23, citing to the need for too much individual attention needed for each worker’s situation.  The Judge also observed that no other worker had opted into the suit, and this fact “undermines the entire purpose of a collective action.”

The theory was that the employer violated the Wisconsin prevailing wage law by paying workers at a lower, general for work done to support more skilled work.  The plaintiffs alleged that this practice violated the FLSA because the rate should have been that which they earned before overtime kicked in as opposed to the lower-rated work they were actually performing in the overtime hours.

Importantly, the Judge denied the request for class certification on the prevailing wage claims.  The Court held that the workers failed to meet the numerosity requirement, as they could not make a showing as to the actual number of workers who worked the lower-rated support work.  They also could not meet the “predominance” requirement, meaning that the underpayment theory applied to most members of the class.

The Judge stated that the claim of the employees is based “not just on the amount, but also on the type of work” each class member did, and would force the court to make “an individual determination of whether an employee’s work on a specific week, day and even hour made possible, supported or cleaned up after a skilled trade worker.”  The Court added that a trial would focus on individual workers’ “unique work on an hourly, daily or weekly basis” and whether it should have been paid at higher wages, the workers did not meet the “superiority” requirement that they show a single class case would be better than a series of individual cases.

The Takeaway

Here, the workers lost the federal and state class actions.  The state case is quite interesting because it shows a path for employers sued in class actions in prevailing wage cases how they can defeat the motion for class certification.  I have preached this dogma for years and repeat it proudly now, again.

Individual scrutiny destroys a class!

This is an interesting case.  A class action that was denied certification, appealed to the Second Circuit, which reversed because the lower court did not properly interpret the job description on the key issue of duties qualifying for the employer to claim the protection of the Part 541 exemptions.  The employees were salesmen and installation technicians.  Now, they get another shot to prove they are worthy of class status. The case is entitled Sydney et al. v. Time Warner Entertainment-Advance/Newhouse Partnership and issued from the Court of Appeals for the Second Circuit.

plastic black toolbox with tools over white backgroundThe lower court had relied upon the outside sales exemption.  The panel, however, concluded that the jobs seemed much more inclined to be installation jobs, rather than selling jobs.  Therefore, it was too early and improper to grant summary judgment as there were issues of fact.  The Court stated that “we conclude that the district court erred in holding on summary judgment that plaintiffs’ primary duties were exempt sales, as opposed to nonexempt installations, and accordingly in its ultimate conclusion that the outside sales exemption applied.”

These workers, dubbed territory sales representatives, or TSRs, contacted apartment building owners in upstate New York.  Their role was to urge these owners to funnel their tenants to the Employer for their cable TV, internet and phone service needs.  They received a small salary and commissions.  The plaintiffs allege they spent some time making calls to get business but the majority of their time was supposedly spent doing the actual installations (which would obviously be non-exempt work).  They asserted that they worked 55-70 hours per week.

They sued but the lower court rejected their claims, relying on the outside sales exemption, finding that that “based on [the] undisputed facts, the court finds that plaintiff’s primary duty was making sales.”  The Second Circuit disagreed.  That Court noted that the men went to work in hard hats and safety glasses.  They also carried tool boxes full of different tools.  Also, there were other employees whose job was to focus on door-to-door sales.

The Takeaway

The issue on summary judgment was whether the facts, i.e., the job description, undisputedly showed that the men were outside salesmen.  If, however, the facts on the ground differ from the printed description, that job description will be worthless as a defense in proving the exemption.  In other words, if the workers spend the majority of the time at work performing nonexempt work, such as installations they are non-exempt.

Simple as that…

When hit with a wage hour suit, class action or single, employers are well advised to look for a preemption argument, whether from a union contract (e.g. National Labor Relations Act) or a statutory construct.  If the preemption argument is successful, the entire suit goes away.  Therefore, such an argument can become the proverbial “magic bullet” that defense practitioners (i.e. myself) yearn for.  The Third Circuit has just ruled that a federal law that confines state regulation of the trucking industry does not preempt the Illinois Wage Payment and Collection Act.  Thus, the claims of a class of drivers asserting that illegal deductions were made stays alive.  The case is entitled Lupian et al. v. Joseph Cory Holdings LLC, and issued from the Third Circuit Court of Appeals.

Trucking and the motor carrier exemption
Copyright: vitpho / 123RF Stock Photo

The appellate court affirmed the lower court ruling, where Judge Martini found that the state law was not preempted by the Federal Aviation Administration Authorization Act, a law that preempts any state law “relating to a price, route or service of any motor carrier.”  The Court stated that “the IWPCA claims here are too far removed from the [FAAAA’s] purpose to warrant preemption.  With no record to demonstrate otherwise, we hold that the impact of the IWPCA is too tenuous, remote and peripheral to fall within the scope of the FAAAA preemption clause.”

The plaintiffs sued in August 2016 on a theory that they were not independent contractors and had suffered illegal wage deductions.  They charged that the Company violated the section of the Wage Payment Act that required a written authorization in order to deduct from their compensation.  The lower federal court rejected the preemption defense, asserting that the state law’s “effect on motor carriers does not warrant preemption.”

The Third Circuit agreed and was guided by similar cases from the Seventh and Ninth Circuits.  The Court stated that these kinds of laws (e.g. Wage Payment laws) are “a prime example of an area of traditional state regulation.”  The Court observed that “while the fact that the IWPCA does not regulate affairs between employers and customers is not dispositive, it does demonstrate that the operation of the IWPCA is steps away from the type of regulation the FAAAA’s preemption clause sought to prohibit.  We cannot say, particularly at this procedural juncture, that the IWPCA has a significant impact on carrier rates, routes or services of a motor carrier or that it frustrates the FAAAA’s deregulatory objectives.”

The Takeaway

Well, sometimes the magic works and sometimes it doesn’t…

Often, when a class of workers petitions for conditional certification in FLSA collective action, and such certification is granted, it usually is for the entire class being asked for.  Sometimes it is not and when that happens, it is “news.”  That has happened in a recent Pennsylvania case where the proposed class was more than two-hundred workers and the certified class was less than forty.  The case is entitled Hunt v. McKesson Corp., and was filed in federal court in the Western District of Pennsylvania.

The Judge slashed the sought-after class from all McKesson employees in the “grade 103″ category to only the workers in the grade whose job descriptions matched concerning the use and levels of discretion and judgment.  The Judge noted that “this is a conditionally certified collective that is comprised of a group of employees for whom McKesson itself describes the scope of their discretion and judgment identically.  It is McKesson’s grouping of different titles with identical definitions of discretion and judgment (which plaintiff attests were accurate in practice) and McKesson’s identical treatment of that group for purposes of overtime exemptions that makes those job positions sufficiently similarly situated at the conditional certification stage.”

The plaintiff alleged that her duties lacked the requisite discretion and independent judgment needed for the administrative exemption.  The named plaintiff asserted that her job entailed that she “[follow] policies and procedures in analyzing situations or data from which answers can be readily obtained,” and that similar language was found in the description for other grade 103 jobs.  If that was borne out, it certainly would not be discretion as contemplated by the regulations.

close-up of a judge hitting mallet at deskThe Judge made specific note that many of the job descriptions at issue had language different than the plaintiff’s and these differences impacted whether or not discretion was utilized by the workers. The Judge found that “plaintiff continues to lump together ‘readily obtained’ job positions with ‘appropriate action’ job positions, but plaintiff has no evidence to show how those two ‘sub-categories’ of grade 103 are similarly situated to one another other than they share the same grade 103.”  Then, he cut the class.

The Takeaway

This Judge really delved into the minutiae of this matter and made a very reasoned decision that the class being asked for was an overreach.  This could well be a sound tactic for defense counsel to utilize when attacking a class and trying to whittle it down, if not eliminate/defeat it entirely.

It’s a start…

 

I had blogged about this case when it first came out. It struck me as very interesting because not only is the subject matter unique, it also raises the whole thorny issue of what is (or is not) working time. This latest case involves Parking Production Assistants (PPAs). These people worked for CBS and their function was to guard parking spaces. Now, the employer will settle this class action for $9.98 million to settle the case where the theory was unpaid overtime. The case is entitled Hines et al. v. CBS Corporation and was filed in federal court in the Southern District of New York.

Empty parking lotThis settlement parallels other similar settlements for these employees at other production companies. In fact, there are approximately twelve of these cases working their ways through the various pipelines of litigation. The motion by the parties to the Judge, seeking his approval on the settlement, stated “while the other settled PPA cases generally contain similar factual and legal allegations, they were brought against different movie and/or television production studios.  Although not binding, presently there is substantial precedent of both preliminary and final approval of settlements … similar to the one presented here.”

The plaintiff attorneys assert that they met with in excess of one-hundred potential plaintiffs and reviewed at least 20,000 weeks of payroll records. They further assert that more than one hundred people have already joined the lawsuit, although the opt-in notice has not even been sent out. On that basis, the lawyers seek 33% of the gross settlement amount for their fees.

The case started three years ago when the named plaintiffs sued, alleging that they were not paid proper overtime when they secured various sets and lots on production sites in New York for TV shows. They claimed that they worked up to 100 hours per week but were only paid a day rate or per diem rate.

The Takeaway

Working time is when an activity is directed or controlled by an employer or inures to that employer’s benefit. The “guarding” of the parking spots accomplished an important goal for the employer and therefore was of (considerable) benefit to the employer. That meant it was working time. The fact that the employer settled this case for almost ten million dollar shows that it came to understand this.

A little bit too late…

Where a plaintiff files a FLSA (or other statutory wage hour) lawsuit, he may well file state law, tort-like claims, such as unjust enrichment, breach of contract, fraud and others. Usually, if not always, those claims/counts are predicated upon and solely arise from the alleged FLSA violations. As such, the FLSA (or any other wage statute at issue, like the NJ Prevailing Wage Act) is the exclusive remedy for these alleged violations and the state law claims are preempted. Thus, the employer should initially file a motion to dismiss rather than answer the Complaint.

Law books and justice scales
Copyright: phartisan / 123RF Stock Photo

For example, in Moeck v. Gray Supply Corp., 2006 WL 42368, at *1-2 (D.N.J. Jan. 6, 2006), plaintiffs asserted fraud and negligent misrepresentation claims (in addition to their FLSA claims), arising out of the fact that defendants purportedly ‘’materially misrepresented“ that employees would be given overtime pay and “concealed“ that defendant’s employees “would be compelled to work additional time without compensation.” The Moeck court found these claims preempted by the FLSA because they were “merely based on Plaintiffs’ [FLSA] overtime claims.” Id

Similarly, in Kronick v. bebe Stores Inc., 2008 WL 4509610 (D.N.J Sept. 29, 2008), plaintiff claimed that the employer required employees to work overtime without compensation, thereby violating the FLSA and state common law. The Kronick court determined that the state common law claims were preempted because plaintiff premised the state law claims on the same facts relied upon in support of plaintiff’s FLSA claims. Id. Additionally, in Ramirez v. Gromitsaris, 2013 WL 2455966 (D.N.J. June 3, 2013), the court likewise dismissed plaintiff’s unjust enrichment claim as preempted by the FLSA because plaintiff did “not make any independent factual allegations in support of [the] claim.

Furthermore, the Davis-Bacon Act (DBA), 40 U.S.C. 3141 et seq., a federal statute which mandates the payment of prevailing wages for certain work performed under federally funded or assisted contracts has been deemed to preempt common law claims based on the same nucleus of facts. See Alvarez-Soto v. B. Frank Joy, LLC, 258 F. Supp.3d 615, 627-628 (D. Md. 2017) (unjust enrichment claim was “based on the failure to pay wage rates in accordance with the [DBA],” and therefore, was preempted by the DBA); Grochowski v. Phoenix Const., 318 F.3d 80, 85-86 (2d Cir. 2013) (DBA preempts breach of contract and quantum meruit claims because those claims are “indirect attempts at privately enforcing the prevailing wage schedules contained in the DBA.”).

The Takeaway

I believe this is a very good, strong tactic for defense counsel to employ. The law is very solid  on this issue. It also makes the plaintiff’s lawyer do some work, changes the dynamic and momentum of the case and shows the plaintiff that it is not going to be easy and that their case is fraught with difficulty.

It’s called changing the momentum…

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…

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.