Now that the new $35,000 per annum overtime rule has been proposed, the commentators have been commenting on the implications.  I have read these with great interest.  For example, Alexander Passantino, former DOL Wage Hour Division chief, stated that “it just struck me as funny that it’s within $5 per week of the exact midpoint between the $23,660 and the $47,476.  It is as close to the middle as you can get without making it totally in the middle.”

The figure is where it was expected to be by most commentators.  This is in spite of worker advocates urging that the number be set much higher.  Congressman Bobby Scott, D-Va., stated that although the new salary level provides overtime to some workers, it “would exclude millions … who would have benefited under the 2016 Obama administration rule.”

There are also no automatic updates or escalators.  In lieu of such increases, there will be potential increases every four years but there will first be a notice and comment period.  Mr. Passantino stated that the DOL was trying to walk a fine line between business and employee interests.  He stated that “I think the automatic update strikes me as an attempt to go down the middle again.  They’re going to get comments that say there should be automatic updates, and they’re going to get comments that say there shouldn’t be.  I can’t imagine there are going to be very many comments that say there shouldn’t be, but you should totally think about it every four years.”

What has surprised many observers is that the salary level for highly compensated employees, the HCE exemption, was raised higher than even the Obama proposal had set it.  The new level of $147,000 is almost $50,000 higher than the 2004 level ($100,000) and $13,000 more than the 2016 Obama proposal.  Lee Schreter, a wage-hour attorney, stated that “I think the biggest impact of the rule will not be the minimum salary. I think the place where the impact is going to be felt most and where I think you’re going to see some employer push back is on the increase in the highly compensated.”

The issue had come up early on whether there would be different salary levels for each white collar exemption — executive, administrative and professional.  There was also the possibility of effecting geographic/regional salary level. These possible modifications did not make it into the final proposal.

The Takeaway

Interesting tidbits…

We have been waiting for the United States Department of Labor to announce its plan for toning down the overtime rule revisions implemented in the last administration, but stayed by federal courts, and to announce its own proposal. Now, that momentous event has happened—the agency announced yesterday it will set the salary threshold at $35,308 per annum.  The new level will go into effect in January 2020.  This amounts to a weekly salary of $679 per week.

The agency also announced that the Highly Compensated Exemption (HCE), now set at $100,000, will rise to approximately $147,000.  This figure is actually almost $13,000 higher than the Obama-administration proposal.

Significantly, there are no proposed changes to the duties test. Of equal significance is the fact that employers may utilize certain nondiscretionary bonuses and commissions to meet 10% of the new salary requirement.  The rule also proposed updating the salary level every four years but only after notice-and-comment periods that precede the increases.

The Takeaway

I think this is a reasonable compromise. The truth is that a salary of $700 per week is not a dramatic increase and the $455 per week threshold was too low.  This is fair and I believe that employers will not “go crazy” over the new salary level.

But, we will see…

There is no industry that is immune to wage hour or FLSA actions, including amateur sports leagues.  In an interesting case, a federal Judge has granted conditional class certification to a class of members of an amateur football league who worked as referees and who were, they claim, compelled to perform the work of refereeing other teams’ games for free.  The case is entitled Ernst et al. v. ZogSports Holdings LLC, and was filed in federal court in the Central District of California.

What is even more interesting is that the Court held that the individuals did not have to establish that they were statutory employees before they could send opt-in notices out to other potential class members.  The class that is sought is nationwide.  The employer organizes adult amateur leagues in different sports, e.g. flag football; the players pay to participate, whether as part of a team or individually.  The allegations are that the Company mandates that for each game played, a team must supply a “volunteer referee” to ref at another game.

The plaintiffs claim that their work was integral to the Company’s business and because they performed work identical to that done by paid, “true” employees, they should be deemed employees and eligible for compensation.  The class certification motion asserts that “even if the volunteer referees were truly intending to volunteer, they would still be covered employees under the FLSA.  The FLSA requires payment of minimum wage to workers and generally precludes them from volunteering to work for for-profit enterprises.”

The Company defended by asserting these people were not employees.  The Company also contended the volunteering was like that done by members of all sorts of clubs and organizations. The Judge noted that plaintiffs in other cases had been granted conditional certification where the issue of employee status was still undecided.  The Judge observed that “the parties agree this case is in the notice stage. Plaintiffs therefore need only satisfy the more lenient standard of showing they are similarly situated to other potential collective members, which is met with substantial allegations that potential opt-in collective members were the victims of a single decision, policy, or plan.”

The Takeaway

Individuals cannot waive their right to wages or overtime even if they are denominated as “volunteers.”  There have been many such volunteer cases of late and sometimes the line between volunteer and employee is hard to draw.  It is perhaps not surprising that the Judge allowed opt-in notices to be sent as the issue at the heart of the matter, i.e., employee status, will be decided at the correct time in the case.  The concern for the employer is that it has put all its eggs in the basket of non-employee status.

In for a dime, in for a dollar…

An interesting decision just issued involving an employer who attempted to use a blended compensation system to pay employees overtime.  A federal appellate court ruled, however, that this system did not comply with the Fair Labor Standards Act and allowed a million dollar judgment obtained by the USDOL to stand.  The case is entitled U.S. Department of Labor v. Fire & Safety Investigation Consulting Services LLC, and issued from the Court of Appeals for the Fourth Circuit.  The compensation system “mixed and matched” the employees’ regular hourly pay rate with their overtime rate.  Thus, the workers were basically paid a single uniform hourly rate for all hours worked and therefore their OT rate was not calculated properly.

As the Court aptly stated, “the FLSA shields employees from precisely the type of payment scheme utilized by Fire & Safety — one that appears to compensate employees for both non-overtime and overtime but in reality, uses a single rate for all hours worked, regardless of whether they are non-overtime or overtime hours.  Upholding such a scheme and accepting Fire & Safety’s retroactive justifications would undercut one of the fundamental purposes of the FLSA: ensuring that employees are adequately paid for all overtime hours.”

These workers, who investigated fires and provided security for oil-and-gas companies worked shifts of twelve hours for fourteen consecutive days, followed by fourteen days off.  The pay system involved the workers receiving a fixed amount for the entire 168 hours.  That supposedly included both the regular pay rate for the first eighty (80) hours worked and (allegedly) time-and-a-half for the additional eighty-eight (88) hours.  If the workers, however, did not work the full schedule, the Company then used the blended rate.  The Company did this by dividing the total number using a pre-set formula that was based on the compensation they would have earned if they worked the full 168 hours.

The Court provided a hypothetical example of this illegal system in operation: Any person who earned $10 an hour would receive $2,120 in regular pay/overtime for the fourteen days.  If the person was short of the 168 hours, the Company divided the full pay of $2,120 by 168 and multiplied that figure by the actual number of hours worked.  There was a complaint and the agency found it was illegal; the Company corrected the practice but would not pay back pay.

The Fourth Circuit affirmed the lower court and used an actual example from the Company’s records.  The Court stated that “this series of calculations demonstrates that … Fire & Safety’s blended rate in fact served as the regular rate.  Otherwise, when consultants like those above worked less than a full hitch, their wages would have properly accounted for their non-overtime and overtime hours using their purported regular hourly rates, instead of their blended rates.”

The Takeaway

Interesting approach but ultimately doomed to failure.  There are very few ways to pay overtime when non-exempt people work more than forty hours.  If the overtime can (somehow) be built into the agreed-upon compensation, that would work but threading that needle can be tricky.

Tricky, but doable…

I often preach that, when dealing with a class action, the employer should try to pick off the named plaintiff, perhaps overpaying to do so (or maybe not).  In this interesting case, the parties settled (i.e. with the named plaintiff) right after the class had been decertified.  The plaintiff had argued that he was misclassified as an independent contractor.  The case is entitled Roberson et al. v. Restaurant Delivery Developers LLC et al., and was filed in federal court in the Middle District of Florida.

The settlement came after the Judge held that the named plaintiff had not shown that there was sufficient similarity between he and the other workers he wanted in the collective action.  Thus, the Court granted the employer’s motion to decertify the collective action due to this dissimilarity between the employees.

The suit began in March 2017, on the theory that the Company had misclassified the workers as independent contractors and was not paying overtime.  The Judge granted conditional certification in September 2017.  The Company defended by asserting that it never hired Roberson (or anyone else) and was a consulting company that assisted local restaurant delivery entities in getting off the ground and which would use the Doorstep Delivery in a manner similar to being a franchisee.  These new companies would then use delivery drivers who were deemed to be independent contractors.

Mr. Roberson contended that this company gave out a manual to its customers, the licensed restaurant delivery companies.  The Judge, however, concluded that did not mean that the discrete delivery companies had put the polices into operation.  The Judge also noted that the manual did not have any guidance for significant components of the job, such as whether they could face penalties for refusing deliveries.

Thus, the Court dismissed claims of the opt-in plaintiffs, but allowed Mr. Roberson to continue to pursue his own claims.

The Takeaway

This is an excellent result.  All the more better if it can be done sooner, rather than later, in the litigation “process.”

And a lot cheaper…

 

Employers should always look for a preemption defense when a FLSA suit is lodged against a unionized client.  Clear proof of that was just given by the Ninth Circuit when that Court held that unionized offshore oil rig workers could not pursue overtime claims because the Labor Management Relations Act (LMRA) barred the suit.  The case is entitled Curtis et al. v. Irwin Industries Inc. et al. and issued from the Court of Appeals for the Ninth Circuit.

The Court affirmed the lower court.  The holdings were based on the fact that the labor contract satisfied the California overtime pay requirements.  The Court found that “Curtis’s claim for overtime pay is preempted under § 301 of the Labor Management Relations Act because California overtime law does not apply to an employee working under a qualifying collective bargaining agreement, and Curtis worked under such an agreement…”

The workers did twenty-four hour shifts on offshore oil rigs.  They worked twelve and were off for twelve but asserted that they could not leave the platform or otherwise use the time for their own pursuits.  They were on the platforms for seven consecutive days.  The workers worked under two separate labor agreements.

The Ninth Circuit noted that Section 301 meant that “nonnegotiable rights” under state law, i.e. minimum wage and overtime, were not always preempted, even if the parties had a labor contract.  The Court stated that a two-step test should be utilized to determine if preemption was appropriate.

The first prong of the test is to determine if the controversy concerned a right inuring to the employees only because of its presence in the labor contract.  That would be sufficient to find that preemption was appropriate.  If a court determined the controversy involved a right established under state law, then the court would inquire whether any provision(s) of the labor contract had to be interpreted for the claim to be resolved and if such an analysis was necessary, then the matter was also preempted.  The Court found that “because Curtis’s right to overtime ‘exists solely as a result of the CBA,’ his claim that Irwin violated overtime requirements by not paying him for the 12 off-duty hours is preempted under § 301.”

The Takeaway

Whenever there is a labor contract involved, try to find some connection between provisions in that contract and the purported overtime or other claim.  Stress that contractual interpretation is required to resolve the dispute, so it is an arbitral issue, rather than a statutory one. Or violation.

It’s certainly worth a try…

I have defended many off-the-clock working time cases and I submit that they are very dangerous for employers. This is because they are particularly amenable to class certification because it is likely that there is a common policy applicable to the members of the class. This premise is highlighted by a recent settlement for a class of security guards employed by a security and facility services at JFK International Airport. The settlement is $2.52 million deal. The case is entitled Douglas v. Allied Universal Security Services et al., and was filed in federal court in the Eastern District of New York.

The plaintiff, Kirk Douglas, requested court approval of the settlement through a motion that labeled the settlement fair and reasonable. The motion stated that “in short, while plaintiff continues to believe in his case, and class counsel has and will continue to capably represent their client’s interests in litigation and mediation, they recognize that Allied has presented significant, and potentially dispositive arguments, that pose a significant risk to their chances for class-wide recovery, and this favors preliminary approval.”

The theory of the case was that the employees were compelled to drive to their bases before they clocked out for the day and they were required to do paperwork after their shifts. There was also an allegation that the employees worked through lunch time. The employees in the class (which totaled about six hundred people) were airport security agents, operations assistants and employees dubbed Tour Supervisors, who were claimed to really not be exempt employees.

The settlement came to be after a mediation. The plaintiffs asserted that while they believed in the rightness of their claims, the Company “has mounted considerable defenses to liability and damages.” In that regard, the Company resisted the contention that the employees were actually performing “work” in these off-the-clock situations. The motion asserted that the proffered settlement was “a good value” given the risks inherent in the litigation. The motion stated that “in class counsel’s estimation, the settlement represents a meaningful percentage of the recovery that the class members would have achieved had they prevailed on all their claims, survived an appeal, and sought to enforce and collect upon a judgment.”

The Takeaway

The activities alleged to be working time in this case are troubling because they are the kind that a good-faith, well intentioned employer might not perceive to even be “work.” That is the problem. Employers have to be aware that any activity that they either compel their employees to perform or which are integral to their jobs may be working time and therefore, compensable.

At least be aware of the possibility…

 

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!