I read an interesting post by Daniel Schwartz in the Connecticut Employment Law Blog. It concerned a recent Second Circuit decision that bodes well for employers in the never-ending fight against wage-hour class actions. The case is entitled Rodriguez-Depena v. Parts Authority, Inc. et al. and issued from the Court of Appeals for the Second Circuit.

Auto parts store shelvesThe Court therein ruled that the arbitration clause set forth in the employment agreement precluded the federal action.  Dan noted that the “clear logic” of the decision will be hard to overlook and I believe he is quite right. The Court relied upon an earlier decision that held that age discrimination claims could not be brought in court if a valid arbitration policy was in place.

The Court also examined the issue of whether the required judicial oversight of FLSA settlements would be a bar to arbitration of these claims. The Court held that it did not, as the guarantee of the fairness of a settlement of a claim filed in court did not mean that this right provided an ironclad right to file suit in court.

Dan notes that this “federal endorsement of arbitration provisions” will allow employers to adopt these provisions and provide themselves with another defense. It also provides yet another stratagem to be utilized in the early stages of a FLSA class action case.

The Takeaway

Maybe employers should consider utilizing such mandatory arbitration provisions. Arbitration is a much cheaper and faster litigation mechanism. I am a big advocate of taking the easiest way out of a class action federal court FLSA case and these kinds of provisions may be another weapon in that early dismissal arsenal.

Well done, Dan…

A class of equipment operators and trainees has asked a federal court to approve a $1.35 million settlement of their FLSA class action lawsuit alleging the Company did not fairly pay them their wages and used a gimmick to avoid doing so.  The case is entitled Elliott v. Schlumberger Technology Corp. et al., and was filed in federal court in the District of North Dakota.

The plaintiffs alleged that the Company violated the law by paying them under the “fluctuating workweek” method.   Interestingly (or maybe not so much), the settlement talks took place after U.S. District Judge Ralph R. Erickson granted the Company’s motion to decertify the class.   The Judge ruled that there was insufficient evidence to show that the workers were similarly situated. There are 138 people in the class.

The plaintiffs alleged that the Company paid equipment operators and trainees by the fluctuating-workweek (FWW) method.  That method allows employers to pay workers overtime at a half-time, as opposed to time and one-half, but certain conditions must be met.  The workers claimed that in order to validly use this method, the employees must be paid on a fixed salary, which they were not.

The Court had conditionally certified a collective class of equipment operators, trainees and other similar employees who were employed at the Company plant in Williston, North Dakota, and to whom the Company applied the fluctuating workweek method for at least one week during the three years preceding the lawsuit.

The Takeaway

This case presents a valuable lesson.  Attempted use of the FWW method of payment must have the employees receiving a fixed salary and an agreement, in advance of the work, that the employees understand what the payment arrangements and overtime protocols are going to be.  This allows the employer to pay half time for overtime instead of time and one-half.  Without these two requirements being met, any attempt to use the FWW method is doomed to failure.  Put differently, the FWW method can be the employer’s best friend, if done right.

If not, it is the employer’s worst enemy…

I always look for the easiest way out of a FLSA lawsuit. I use the word “easiest” in the most generic sense, as no magic bullet defense is truly easy. However, there are times when you catch lightning in a bottle, i.e. the jurisdictional defense. In a recent case, the Company was able to use this defense/shield to dismiss a FLSA overtime suit. The case is entitled Zheng v. Best Food In Town, LLC et al and was filed in federal court in the District of New Jersey. The plaintiff alleged violations of the Fair Labor Standards Act (“FLSA”) and the New Jersey Wage and Hour Law (“NJWHL”).

Cooks in restaurant kitchenThe plaintiff alleged that he was a salaried employee and worked as a kitchen helper for Defendants with a fixed lump sum per month compensation. His duties included washing and cutting vegetables, frying and cooking rice, preparing meat, and cleaning. He separated employment in May 2015. The plaintiff alleged that his employer engaged in a widespread pattern and practice of not paying a class of employees proper minimum wage and overtime compensation.

The Court noted that to sustain a suit under the FLSA, an employee must work for an enterprise or business that “has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.” 29 U.S.C. § 203(s)(1)(a). This enterprise must have annual gross sales or business “not less than $500,000.” Id.

On this point, the Company submitted individual and corporate tax returns to support the argument that the business did not reach this threshold. These documents included tax returns from 2013, 2014, and 2015; Defendants’ gross corporate annual revenue ranged from $385,420 to $428,856. The plaintiff countered by asserting that these income tax records did not account for all of Best Food In Town’s sales. The Court observed that, thus, the Plaintiff’s only evidence to rebut these documents was “an assertion of tax fraud.”

The Court concluded that this lack of evidence was fatal. In a summary judgment proceeding, the non-moving party must make some showing of evidence from which a reasonable jury might return a verdict in his favor. All the Plaintiff did here was make an assertion. That did not and could not carry the day. Thus, the Court ruled that the FLSA did not apply to the Company and dismissed the Complaint.

The Takeaway

How quick and effective! No jurisdiction because the dollar threshold was not met and the case is dismissed, early on. This will certainly not work in every case, but the moral of the story remains the same. Defense counsel should explore the possibility of a sure-fire, quick, easy way out. If you don’t look, you don’t find.

Always look…

I recently blogged about this possibility and now it has come to fruition. The House of Representatives has passed a proposal to walk back the Obama USDOL initiative to expand the doctrine of joint employer status/liability for violations of labor law. The vote was 242-181 and followed (mostly) party lines. The new law would amend the National Labor Relations Act and the Fair Labor Standards Act to state that one entity would be jointly liable for another entity’s labor law violations if that first entity had “direct control” of the second entity’s employees.

U.S. Capitol Building
Copyright: mesutdogan / 123RF Stock Photo

The National Labor Relations Board applied this direct control standard until 2015, when it changed the law in the now famous (or infamous) Browning-Ferris Industries decision. That case held that entities are joint employers under the NLRA when one of them has “indirect or potential control” over the other company’s workers. The USDOL issued guidance that tracked this decision (although the new Labor Secretary rescinded it a few months ago). The D.C. Circuit is now reviewing that case.

The main criticism of the Obama policies and case law was that companies would not enter into agreements with other entities or businesses due to concern over liability. Rep. Bradley Byrne, R-Ala., the bill’s sponsor, stated that these Obama policies have caused “deep uncertainty among job creators.” He asked “what does it mean to have ‘indirect or potential control’ over an employee?” I practiced labor and employment law for decades and I do not know what that means, so I can only imagine the confusion Main Street businesses have faced.”

The fact that the DOL has rescinded its guidance does not change the fact that the tenets in it are still being used and applied. There has been a dramatic increase in the number of lawsuits where joint employer allegations are raised. One management side attorney observes, “every time I’m faced with a wage and hour lawsuit where there’s a temporary agency involved, it’s a sure bet it’s not only going to be the temp agency that’s named as a defendant.”

The opposition takes the view that this law would allow large companies such as franchisors to shield themselves from liability for labor law violations. Representative Mark Takano, D-California, stated “workers and local businesses are on the losing end of today’s vote. The winners are the large corporations and their lobbyists and trade associations who already enjoy outsized power over the economy and the workplace, and whose contributions line the campaign coffers of the House members who voted for this bill.”

The Takeaway

This is a far tougher standard for an agency, whether NLRB or USDOL, to meet, in order to establish a joint employer relationship. I have myself seen, in many cases; these agencies take a very expansive view of this doctrine. This puts tremendous pressure on the entities involved to either litigate to the hilt or settle perhaps on unfavorable terms.

This is one body of law that could do with a little coming back to the middle…

I remember with fondness the Sonny & Cher song, “The Beat Goes On.” That song could be easily applied to the saga of the USDOL overtime rule, which continues. Although the proposed rule has been shot down by the Fifth Circuit, the USDOL will now request that the Fifth Circuit reverse a Texas federal court order blocking the new rule. That new rule would have doubled the salary threshold for employees to be exempt.

The DOL has stated that it would request that the appellate court hold the appeal in abeyance “while the Department of Labor undertakes further rulemaking to determine what the salary level should be.” The agency, however, gave no details at all in the simple appeal notice. The cases are entitled State of Nevada et al. v. U.S. Department of Labor and Plano Chamber of Commerce et al v. R. Alexander Acosta, both filed in federal court in the Eastern District of Texas.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The District Court Judge, Amos Mazzant, had concluded that the USDOL exceeded its authority when it doubled the salary requirement for exempt status. The Judge stated that the DOL “exceeded its authority” by “creat[ing] a final rule that makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” The Obama DOL immediately appealed and although the Trump DOL initially followed up on the appeal, with the goal of having the Fifth Circuit affirm its power to set salary levels, the agency then requested that the Fifth Circuit dismiss the appeal prior to the grant of summary judgment.

One commentator observed “the appeal] is less about appealing Judge Mazzant’s decision to strike down the overtime regulations that had been proposed under President Obama’s administration and more about preserving the concept that the Department of Labor has the authority to modify the overtime rule to begin with.”

There is an expectation that the DOL will propose lifting the salary level to $30-35,000 per year. This would be what the 2004 level would now be, considering inflation. The Labor Secretary has given no indication of what the agency will do. He has, however, in the past, stated he might want to raise the salary level in that area.

The DOL issued a request for information in the summer, asking for public opinions on the manner in which the rule should be changed. Approximately 165,000 comments were submitted on different elements of any salary test, e.g. what level to set salary, whether geography should play a role.

The Takeaway

I believe the DOL has the authority to set salary levels, as it has done many times through the decades. The level that the agency chose, however, was unreasonable and would have been bad for business. I am also intrigued by the concept of making allowances for differences in salary level based on geography.

I think that makes good sense…

In every FLSA class action I have defended (as well as every demand letter I have seen on this subject) the plaintiff’s lawyer always alleges that the violations were “willful.” It does not matter what the facts are. No, they say, the violations are “always” willful. The violations rarely, in fact, are. Now, the Third Circuit has given defense practitioners some added ammunition to beat back these allegations. The case is entitled Souryavong v. Lackawanna Cty. and issued from the Third Circuit Court of Appeals.

Courthouse pillarsThe Court made clear that to allege that the employer acted only “unreasonably” is insufficient and that a degree of “actual awareness is necessary.” The Court held that this is so even if the employer produces insufficient evidence of good faith. The Court explained “a jury question on willfulness is present when [an employer] is well aware of the FLSA’s structures, sets up a bureaucracy to classify pay and benefits and properly calculate overtime, and then despite all that allows a misclassification of a monthly payment to continue for nine years.”

The Court explained that for a plaintiff (or class) to prevail, the plaintiff “must put forward at least some evidence of the employer’s awareness of a violation of the FLSA overtime mandate.”  In other words, even if the employer cannot produce sufficient evidence of good faith, the plaintiff must prove that the employer intentionally violated applicable laws.

The Court noted that it was a truism that the employer must establish good faith, but it remained the plaintiff’s burden to show intentionality, i.e. that the employer either actually knew that it was violating the law or acted with reckless disregard.

The Takeaway

Employers must do everything possible to comply with the law. Employers should address potential wage-hour violations in a prompt manner and effect the appropriate remedies.  This will blunt the effect of any allegations of willfulness. We recommend that employers regularly conduct wage and hour audits to make sure that employees are properly classified as either exempt or non-exempt and that non-exempt employees are paid overtime in accordance with the law. In addition, such an audit will include an overview and analysis of all of the employer’s compensation and wage-hour practices.

That’s the cure for willfulness…

I have blogged (somewhat incessantly, I admit) about manager FLSA class actions and what the line(s) of defense are for the employer in these cases, and how to defeat these cases. Another case in point. A federal judge has now decertified a collective class, following the Magistrate Judge’s recommendation against the class continuing in this overtime action. The case is entitled McEarchen et al. v. Urban Outfitters Inc., and was filed in federal court in the Eastern District of New York.

Retail clothing storeJudge Roslynn R. Mauskopf adopted the Magistrate Judge’s report and recommendations, concluding that there was no plain error in the Report. Moreover, the Managers had not lodged objections to the Report/Recommendations. Magistrate Judge James Orenstein had ruled that there were too many differences in duties, responsibilities and authority among the members of the class to allow the claims to proceed as a collective action.

The Managers stated that they agreed not to object to the Report if the Company gave the Managers more time to file, perhaps, individual lawsuits. The original lawsuit alleged misclassification, i.e. that the Managers did not fit the executive exemption, they were not true managers and therefore were non-exempt under the FLSA. The plaintiffs moved to certify a class of all current/former department Managers at the Company’s 179 stores. The plaintiffs argued that all of the Managers had similar job duties and lacked meaningful discretion. There were notices sent to 1,500 potential opt-ins, following the granting of conditional certification. More than two hundred opted in and several were deposed.

The Magistrate Judge found that there were major differences between the duties and experiences of the opt-in plaintiff and the named plaintiffs. The Judge found that the opt-ins seemed to be exempt, as opposed to the named plaintiffs. The named plaintiffs asserted that they had little say in hiring and firing decisions. To the contrary, many opt-ins “described being active participants in the hiring and firing process,” Judge Orenstein wrote. The named plaintiffs posited that they spent but little time training hourly workers, but many opt-ins testified to a broad range of training responsibilities.

The Takeaway

This is another lesson for employers, not only in these Manager type cases but also for all employers defending almost any kind of FLSA (or state) class/collective action.  Bang away at individual differences in the class. It sure helps if the opt-ins to the class give favorable testimony at the expense of their own self-interest (and wallet). The interesting twist is that the plaintiffs extracted more time for possible plaintiffs to file their own individual cases.

Maybe they know something…

Well, it finally happened. A Texas federal judge struck down the Obama Administration’s proposed changes to the FLSA overtime regulations, which would have made millions of more people eligible for overtime. The Court’s theory was that the U.S. Department of Labor used a salary level test that was excessive in determining whether workers should be exempt from overtime. The case is entitled State of Nevada et al. v. U.S. Department of Labor et al. and was filed in federal court in the Eastern District of Texas.

The Judge granted summary judgment to the Plano Chamber of Commerce and more than 55 other business groups. These entities had fought the proposed 2016 rule that highly elevated the minimum salary threshold necessary to be deemed exempt under the FLSA “white collar” exemptions, executive, administrative, and professional. The new level would have been more than $47,000 per year ($913 per week). The highly compensated exemption (HCE) would have gone from $100,000 to approximately $134,000.

The Judge opined that the “significant increase” would negate or totally undermine duties test, which is a critical component of the exemption analysis. The Judge stated that, “the department has exceeded its authority and gone too far with the final rule. The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The judge noted that if the DOL proposal went through, then more than four million workers currently not eligible for overtime would automatically be eligible under the final rule, although their job duties had not changed. The Judge noted, “because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’ unambiguous intent.” The Judge cautioned that he was not making any determination on the issue of the DOL’s authority to set a salary threshold.

The new Secretary of Labor, Alex Acosta, has advised lawmakers that the DOL wanted to revise the overtime rule, establishing the salary level somewhere between the “old” level and the very high level set in the Obama-DOL rule. Mr. Acosta stated that level was too harsh on businesses.

The Takeaway

In principle, I agree with the concept that the duties portion of the test is as important as the salary component and raising this salary in this extreme manner was too much for business to bear. I had clients make changes back in November 2016, in anticipation of the rule, and now they are living with (and paying for) those changes because they do not want to penalize their employees. With that said, I do believe the salary level will (ultimately) be raised.

I have blogged on this long, protracted saga many times and I am glad to see that with each posting, the judicial result does not change.  The Seventh Circuit has now affirmed a lower court’s ruling that determined that Chicago police officers did not have a viable claim for overtime under the Fair Labor Standards Act for their after-hours work performed on city-issued BlackBerrys.  The Court concluded that there was a lack of any systemic or uniform policy that stopped the officers from putting in for the overtime.  The case is entitled Allen v. Chicago and issued from the Court of Appeals for the Seventh Circuit.

The panel affirmed U.S. Magistrate Judge Sidney I. Schenkier’s December 2015 decision, which followed a six-day bench trial.  The Seventh Circuit agreed with the lower court that the police department did not act to affirmatively prevent officers from requesting payment for nonscheduled overtime work.  The Court also concluded that the City had no knowledge that officers were not being paid for the work.

The police department issued BlackBerrys to the officers, which they sometimes used for such off-duty work.  They were required to submit “time due slips” to their supervisors and they had to write a short explanation of the work they performed, after which the supervisor approved the time and the officers were then paid.  The Magistrate eventually concluded that the officers did not demonstrate that the department had an “unwritten policy” that discouraged them from submitting slips.

The officers argued that their supervisors knew they were working off-the-clock because, according to them, the City gave them BlackBerrys so they could be contacted at any time.  The City countered by pointing to evidence that supervisors believed the officers were preparing the overtime slips so they could be paid.  The Seventh Circuit rejected the contention that the department had actual or constructive knowledge that overtime was being underreported and/or that there was pressure on the officers not to report that time.

Interestingly, the Seventh Circuit compared this case to the Sixth Circuit holding in White v.  Baptist Memorial Health Care Center.  In that 2012 decision, the Sixth Circuit held that an employee’s failure to accurately record/log work hours doomed her FLSA suit for overtime.  The Seventh Circuit observed “plaintiffs in this case, like the nurse in White, worked time they were not scheduled to work, sometimes with their supervisors’ knowledge. They had a way to report that time, but they did not use it, through no fault of the employer,” the Seventh Circuit said. “Reasonable diligence did not, in the district court’s view, require the employer to investigate further. Since … we see no clear error in that view of the facts, we see no legal error in reaching the same conclusion as the White court.”

The Takeaway

In order for employees to be paid for alleged off-the-clock work, they must show that their employer knew or should have known about the work.  They must also show that there was a system wide policy or practice that prevented them from being paid.  There was no evidence of either of these scenarios in this case and, more importantly, there was evidence that the City paid for this working time!

The correct result…

There have been many investigations of gas stations by the US Department of Labor. Like other retail industries, these businesses sometimes work their employees long hours for a set salary or lump sum of money. The problem is that in these scenarios, the employer is likely not paying proper overtime.

Gas stationIt has happened again, in New Jersey. A chain of six southern New Jersey gas stations will pay twenty-seven (27) workers almost $500,000 in back pay and liquidated damages in an audit emanating from a USDOL investigation into violations of the Fair Labor Standards Act,

The latest violator, R & R Store Inc., operating as USA Gas, had paid these workers a flat monthly salary ranging from $2,200-2,400; the employees worked approximately seventy (70) hours per week, but were not paid overtime. A DOL spokeswoman stated that “not paying employees the wages they’ve earned seriously impacts low-wage employees, such as gas station attendants, causing them hardships as they try to support themselves and their families.”

Significantly, the agency also assessed liquidated damages, which doubled the wages due, for an aggregate total of $463,453.52.  Liquidated damages are often now the rule, even in administrative investigations and audits. Interestingly, gas stations in New Jersey and Oregon are the only states that prevent motorists from pumping their own gas, so they need to employ workers, many of them full-time, to pump the gas and provide customer assistance and services.

In sum, the government took a hard line. Its spokesperson stated that the “U.S. Department of Labor remains focused on New Jersey’s gas stations to determine if FLSA violations exist. If violations are found, we will vigorously pursue corrective action to ensure accountability, deter future violations and prevent violators from gaining a competitive advantage.”

The Takeaway

These wage hour problems/issues are rampant in this industry (and in many other retail industries). Employees are paid a lump sum of cash for hours far exceeding the statutory threshold for overtime, i.e. 40 but they never receive appropriate time and one-half overtime. There are ways, however, legal ways, to build in the overtime to employee lump sums (whether cash or otherwise). The employer’s labor costs need not rise in this scenario and, most importantly, the DOL problems go away and never come back.

It can happen…