The retail industry is notoriously prone to FLSA collective action misclassification lawsuits because there are many levels of management, especially so-called lower management, where the employees may/may not discharge actual/true supervisory powers. Another illustration of this principle has resulted in a large dollar settlement that will pay employees known as “sales team managers” a fairly large amount of money, although the exact amount has not been disclosed. What was disclosed is that the plaintiffs’ lawyers will receive almost two million dollars in attorney fees! The case is entitled , and was filed in federal court in the Eastern District of Texas.

ArbitrationThe Judge examined the six-factor test under the Fair Labor Standards Act for granting approval to such settlements and concluded that there was no evidence of fraud and also, importantly, that the settlement addresses the plaintiffs’ possibility of prevailing on the merits. The Court stated that “after considering the factors, the court finds that the settlement agreement should be approved because it is a fair and reasonable settlement of a bona fide dispute.”

The hundreds of sales team managers claimed that they performed the same job duties as their subordinates, such as selling, restocking products and maintaining the organization of the store and the clothing racks. The employees denied that they performed any managerial tasks, such as hiring or firing. In sum, they alleged that although they had the title of “manager,” they were not at all performing the tasks required under the Part 541 regulations that address exempt status. There were 384 workers who had opted in.

As is typical in these cases, the parties devised a formula for determining the amounts of money workers will receive. It will be based on the number of weeks they worked in the three years before they opted in. It remains unclear the aggregate amount of money that the employees will receive, as that (important) fact was redacted.

The Judge noted that the fourth factor, the “probability of the plaintiffs’ success on the merits,” was the “most important factor absent fraud and collusion.” The Judge observed that the employees “face considerable hurdles in succeeding on the merits.” Thus, the Judge concluded that the settlement represented a “fair and reasonable recovery.”

The Takeaway

As these lawsuits are so common, my advice to my clients for years has been to treat lower level managers as non-exempt and pay them hourly. It is possible to take the salary being paid and “back into” a correct hourly rate so that, even with the anticipated overtime worked, the employer’s labor costs will not be increased. That puts an end to the threat of a misclassification lawsuit.

It works…

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…

I am always telling clients who are sued in FLSA actions not to take any actions against employees who may still be working for them (which, admittedly, is not the case very often) because that will make things dramatically worse.  Well, it appears that HBO may not be heeding this admonition because production assistants who joined FLSA collective and state class actions have alleged that the company is taking actions against them for joining those suits.  The case is entitled Sapia et al. v. Home Box Office Inc. and was filed in federal court in the Southern District of New York.

Photo of movie clapper on woodThe company had settled suits based on a theory that it did not pay parking production assistants properly for their hours, i.e. work hours, spent holding spaces for large productions like “Girls” and “Vinyl.”  The company allegedly retaliated against employees who opted into the cases by asking them to sign agreements that they would drop out of the litigation and, more importantly, by cutting their shifts and/or refusing to hire them back for additional work.  The Complaint alleges that the “defendant reduced plaintiffs’ shifts to strategically force plaintiffs to resign by reducing their pay to levels below those necessary to sustain themselves and their dependents.”

Although the studios made millions of dollars from the projects.  The studios, however, only paid a per diem pay to the employees, who were assigned to hold parking spaces over long shifts.  HBO settled the case for $8,000,000 in September.  However, the company allegedly was not content to leave it there.  For example, one plaintiff stated that he was called into a meeting with the Parking Coordinator and at that meeting was informed that any assistants who participated in the overtime lawsuits would be given fewer shifts.  The Coordinator also asked if the employee would sign a “working agreement.” This would require the employee to remove himself from the litigation.

The worker not only refused to sign the agreement, he tore it up in front of his supervisor.  Then, he was denied more shifts when he asked for them, he alleges. When he asked to be assigned shifts, the company denied the requests or just ignored them.  The Complaint then alleges that the “defendant constructively terminated plaintiff Sapia by refusing to assign him any shifts of work in retaliation for opting into the lawsuit and for refusing to opt-out of it.”

The Takeaway

As an employer, you need to know when to walk away from something, fix it and move forward.  This case was settled, over, but now has been given new life in a needless manner.

Didn’t have to happen…

Usually, in FLSA cases, no emotional damages are allowable in retaliation cases.  Perhaps that inviolate principle is now changing.  In an important case, the Fifth Circuit has recently held that “an employee may recover for emotional injury resulting from retaliation” under the Fair Labor Standards Act in Pineda, et al. v. JTCH Apartments LLC. 

Stressed businessman in the office
Copyright: tomwang / 123RF Stock Photo

The FLSA prohibits employers from retaliating against employees for complaining about not being paid correctly or for commencing a lawsuit or an administrative proceeding.  The anti-retaliation damages clause states that “[a]ny employer who violates the provisions … shall be liable for such legal or equitable relief as may be appropriate to effectuate the purpose of” the anti-retaliation section.  In Pineda, the issue was whether this language allowed a plaintiff to recover emotional harm damages in FLSA retaliation cases as well as the lost wages.

The plaintiff was a maintenance worker who was given an apartment to live in, at a discounted rent, as part of his compensation.  He sued for alleged unpaid overtime; then, three days after the Company was served with the Complaint, the employer told Pineda (and his wife) to vacate their apartment for nonpayment of rent, where the unpaid rent equaled the discount that the Company had given to Mr. Pineda.  The employee then added a FLSA retaliation Count and at trial requested a jury instruction on emotional distress damages for the retaliation claim, which was denied.   The employee won his wage case (and attorney fees) and then he appealed the lower court’s refusal to instruct the jury on emotional distress damages to the Fifth Circuit.

The Fifth Circuit found the language of the FLSA damages provision for retaliation claims to be “expansive” and should “be read to include the compensation for emotional distress that is typically available for intentional torts like retaliatory discharge.” The Fifth Circuit cited precedent from other Circuits that have approved such awards.  The Fifth Circuit also noted that intentional retaliation cases were more detrimental than ordinary wage violations.  In this case, the Court noted that the plaintiff’s testimony on the nature and level of emotional harm was “sufficient to enable a jury to find that the plaintiff experienced compensable emotional distress damages.” Now, he has to prove such harm.

The Takeaway

Employers must be careful when they want to discipline or fire an employee who filed a wage claim or complained about his compensation.  It seems that a disturbing trend is forming, with more and more courts ready to award emotional distress damages in FLSA retaliation cases.  Thus, even a simple wage violation, even if an accident, may expose the employer to damages for pain and suffering.  The action(s) cannot be, or be perceived to be, retaliatory.

granite slabs
Copyright: severija / 123RF Stock Photo

Usually, it is the USDOL that is seeking sanctions against an employer who has, in wholesale fashion, violated the Fair Labor Standards Act. Well, for once that wheel has turned the other way. A federal judge has just sanctioned Labor Secretary Tom Perez for discovery failures and the Court prevented the government from calling witnesses at trial. Further, the lawyer representing the agency has sought permission to withdraw from the case. The case is entitled Perez et al v. Virginia Marble and Granite Inc. et al, and was filed in federal court in the Eastern District of Virginia.

The Judge granted three motions for sanctions filed by the Company, “for reasons stated from the bench” in an Order filed a few days ago. The Judge also barred the Secretary from discussing a damages calculation at trial and denied the agency’s motion to extend the discovery deadline; that motion was filed five days after discovery closed. The agency admitted that several unexpected medical emergencies involving the agency attorney’s son delayed its discovery responses.

The agency had sued the Company, alleging overtime violations involving forty-six employees. The Complaint alleged that the Company paid some workers a flat rate for each day of work, but not the required time-and-a-half when they did overtime work. The agency also charged that the Company was altering their records to make it appear that the employees were paid proper overtime.

The Company, for its part, filed three sanctions motions, alleging discovery derelictions and deficiencies; the Company requested that the Court bar testimony regarding the agency’s damages calculation or, even better, dismiss the case completely. The Company contended that the Secretary failed to himself appear or make an investigator available for a deposition, failed to disclose the agency’s damages calculation and witness lists under Rule 26(a) and failed to respond to written discovery requests. The Company sought to accommodate scheduling issues and many times had asked for the damages calculation and witness list.

The Takeaway

This makes me feel good—even the Secretary of Labor can be sanctioned for failure to comply with discovery deadlines and protocols in federal court. I have found state courts much more lenient on discovery issues and failure to meet deadlines.

Good way to start the holidays!

After an employer make settlements with employees, especially if done through a DOL investigation, and those employees are still employed, there exists perhaps a natural “urge” to take some of that money back or perhaps, to get some pay back.  That’s a No-No.  To prove the point, the US Department of Labor has now sued an employer who cut the wages of two workers when they refused to return back wages paid to them as part of a settlement in a prior DOL investigation.  The case is entitled Perez v. Makin’ Choices Inc. and was filed in federal court in North Carolina.

Dollar signs
Copyright: sergo / 123RF Stock Photo

The company agreed in August 2014 to pay sums exceeding $100,000 to resolve a DOL investigation centering on allegations of unpaid overtime/minimum wage.  Then, allegedly, the company began repeatedly asking two of the employees to return what they were paid out under the DOL audit.  Their refusal triggered (allegedly) the wage cuts.  The government’s complaint charges the company the owner, personally, with violating the anti-retaliation protections of the FLSA.  As the Complaint aptly states, “shorting workers once is bad enough, but we simply will not tolerate attempts to retaliate after we’ve stepped in to recover the wages they’ve worked so hard to earn.”

The audit started in July 2012 and culminated in an August 2014 settlement.  The simple fact is that the workers worked between 77-112 hours per week, making about $12 per hour, so these people were working a huge amount of overtime hours.  Then, after many times being asked to give back the “hard-earned” settlement dollars, the company decided to try an alternative method to recoup the money.

While DOL investigators were looking into the alleged retaliation, they also uncovered other violations by the company of FLSA overtime laws.  The agency is seeking back pay and damages for the alleged retaliatory action and, adding insult to injury, seeking overtime wages for the two employees at issue as well as two other technicians.

The Takeaway

Sometimes it is better to leave well enough alone.  The most important thing for me, when I am advising and representing a client in a DOL audit, is to come out of the audit or inspection, fix what was broken and then move on.  The company here seemingly did not do that.

So the company will perhaps learn another, harder, more expensive lesson.

Usually, when a party does not respond to discovery requests, it can face sanctions, including the dismissal of the case (if he/they are the plaintiff(s).  Well, that truism took a hit the other day when a New Jersey federal judge did not dismiss the claims of two opt-in plaintiffs in a FLSA collective action against General Electric Company, as the Court concluded that the delays in their responding to discovery by service technicians, who have charged they were not compensated for off-the-clock duties, did not mandate dismissal of their case.  The case is entitled Maddy et al. v. General Electric Co., and was filed in federal court in the District of New Jersey.

Copyright: marsil / 123RF Stock Photo
Copyright: marsil / 123RF Stock Photo

Although the plaintiffs had a lengthy history of delinquent discovery responses, including a year-long lack of response to certain discovery requests, the Judge refused to throw their claims out.  The Judge examined the so-called Poulis factors, the Third Circuit six-part standard  to determine whether to dismiss a case for failure to comply with discovery and concluded that, in their totality, the standards weighed against dismissal. The Court found that “the only factors which somewhat weigh in favor of dismissal are the extent of the parties’ personal responsibility and the history of dilatoriness.”

The Judge found no evidence to support the employer’s claim that it had been prejudiced by the discovery delay nor was there any evidence that the two opt-ins had acted in bad faith when eventually responded to the May 2014 request in September 2015.  Significantly, the Judge also found that the plaintiffs’ claims seemed meritorious (which is one of the Poulis factors) as the defendant had not filed a motion challenging the legal sufficiency of the claims.

The allegations were that employees were doing preliminary, off-the-clock work.  The employees charge that spent time on integrally connected tasks, including time spent logging in to the computer system in order to download jobs, responding to emails and travel time.  Importantly, they allege that their supervisors intimidated them when they tried to report the time worked on their timesheets.

The Takeaway

This case evidences the “leniency” with which courts allow plaintiffs to continue to press their claims, even in the face of dilatory (beyond words) conduct in responding to discovery.  It seems if the defendant had made some motion to dismiss or challenge the claims, on their own merits, the result might have been different.

The bigger issue is whether, in reality, the employees were working off-the-clock or performing tasks so directly connected to their primary jobs that those sideline activities became compensable.  If supervisors intimidated employees not to report the time, that is bad enough on its own and worse, it will fortify the allegations of how many hours they claimed they worked.

When a FLSA case (or a state law wage hour case) is filed against a unionized client, the first line of defense for me is to ascertain if we can argue that the court has no jurisdiction because the wage hour claims are preempted by federal labor law and must be decided pursuant to federal labor contract law.  Preemption is also appropriate where the state-based cause of action is “inextricably intertwined” with the collective bargaining agreement.  In Johnson v. Langer Transport Corporation, filed in federal court in New Jersey, this doctrine has recently been given renewed vitality.

Copyright: laschi / 123RF Stock Photo
Copyright: laschi / 123RF Stock Photo

The plaintiff claimed that he was not paid regular or overtime wages, that the Company failed to accurately record wages and hours and then retaliated against him when he made complaints regarding his allegations of unpaid wages. The Company argued that this would necessarily require the Court to examine and interpret the labor contract to determine the worker’s pay rate, how hours were reported and tracked, the Company timekeeping policies, and its policies for reporting errors in pay.

The plaintiff contended that there was no dispute about the labor contract, what it says, or anyone’s rights under the contract. Instead, the plaintiff argued that he was not paid for hours he worked with the Company because it “manipulated” the time clock and refused to pay him. This, according to the plaintiff, did not require an analysis of the contract’s terms.  He argued that the factual determination of the amount of time worked, and the legal determination regarding whether this time is compensable under the applicable wage law did not depend on a reading of the terms of the labor contract.

The Court concluded that the claims for unpaid wages under the New Jersey Wage Hour Law were preempted under the Labor Management Relations Act because such claims, at their core, required an analysis and interpretation of the contract.  While the Court recognized that not every dispute tangentially involving a provision of a collective bargaining agreement is preempted, because that would be inconsistent with congressional intent, the core allegations of this Complaint were founded directly on rights created by the labor contract, specifically the Plaintiff’s right to be paid in accordance with labor contract provisions.

The Takeaway

If the labor contract provision at issue violates an explicit state wage hour law, then the wage claim is not preempted.   For example, in New Jersey the minimum wage is $8.38 per hour; if management and labor agreed to pay a starting rate of $8.00 per hour, such an explicit violation would exist and preemption would not be appropriate.

If, on the other hand, an arguable contention can be made that the dispute requires interpretation of contract terms, or explicitly addresses a matter agreed to by management and labor negotiators and codified in the contract (sometimes for years), the case for preemption becomes that much stronger.  If faced with a state court or NJDOL proceeding involving such an issue, the defendant (i.e. Employer) should strongly consider moving for a declaratory judgment in federal court.

We are all happy with the falling gasoline prices we have experienced, but, as lawyers, we (seemingly) always look for the dark spot in the sky. Some commentators are positing that the sharp drop in oil prices may trigger an increase in Fair Labor Standards Act suits against employers in the energy sector, as involuntarily separated workers seek out lawyers who look for weaknesses in employer compensation procedures, such as dubious classifications of workers as exempt or independent contractors. In fact, I recently posted on just such a misclassification lawsuit in this industry (won by the plaintiffs).

Factors possibly impelling this increase are the rather lenient standard for securing conditional collective action certification in FLSA cases and the widespread use of independent contractors by oil companies.  From numerous experiences, I can safely say that the issue of who is and who is not an independent contractor is often a murky question and the term “consultant” is used a little too loosely.

The use of independent contractors is more pervasive in the energy space industry, as opposed to other industries, according to Becky Baker, of Houston’s Bracewell & Giuliani.  She opines that oil companies rely “heavily on a contract workforce in the field.”  Although using independent contractors is certainly lawful, the issue of whether such workers are actually employees is extremely fact sensitive and the law is generally tilted (in any State) in favor of finding people to be employees.

Starting a FLSA lawsuit is easier for plaintiff side attorneys because many of them now use a detailed intake questionnaire, which probes not only “standard” type discrimination issues but also ferrets out the manner and mode of payment of the potential client, whether they receive overtime and whether they are in fact classified as independent contractors.   If the person answers that they do not receive overtime, then a whole line of inquiry opens, with now a new focus on FLSA type issues.

The Takeaway

Perhaps the larger energy companies, which may have already been sued on classification issues (exemption and independent contractor status) may be well positioned to defend such new cases, but there will be many opportunities for plaintiff lawyers to go after small and mid-size employers.  Although lower/falling oil prices may not be good for all kinds of employment cases, wage-hour suits specifically are a genre of cases that may have legs.  This is because, unlike many discrimination lawsuits, which must first begin with the filing of a Charge before the Equal Employment Opportunity Commission, FLSA plaintiffs do not have to go through this procedural hurdle, as they would for a Title VII claim.

Further, although an employer can ultimately seek to decertify a FLSA collective action, there is only a modest burden placed on plaintiffs to secure conditional certification, which then triggers the sending of notices to all putative plaintiffs, which then raises the stakes geometrically.  Also, is extraordinarily expensive to defend such actions and the fee shifting nature of the FLSA further multiplies the fees at issue.

So, fill up and let’s ride…