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…

The joint employer possibility is a dangerous one for employers, as two related (or semi-related) entities may be held liable for overtime monies if the hours worked by employees at the two (or more) entities exceed 40. Now, Republicans in the House of Representatives have introduced a bill to narrow the definition of joint employment under federal wage-hour and labor law. This would provide businesses clear and bright lines for how they structure deals with contractors, but employee advocates take the opposite view and fear that this act would allow companies that outsource labor to avoid liability for workplace violations.

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

The proposed legislation, entitled the Save Local Business Act (introduced by Rep. Bradley Byrne, R-Alabama) would amend the National Labor Relations Act and the Fair Labor Standards Act to specify that a business may be branded as a joint employer only if it exercises direct, actual and immediate “significant control” over the essential terms and conditions of certain workers. These essential terms and conditions include hiring and firing/discipline, setting of employee rates of pay and benefits, daily supervision of employees, assignment of individual work schedules and assignment of jobs and job duties.

The proposed standard is stricter (i.e. more pro-employer) than the concepts outlined for joint employment in the controversial NLRB decision in Browning-Ferris Industries of California. The proposed law could result in some finality, in that it will place one body of guiding principles in place under both the NLRA and FLSA so that employers will gain some consistency. One practitioner has stated that, “it provides everybody with a clear definition for who will be liable under both laws.”

A pro-employee advocate from the National Employment Law Project stated that this statute could have serious and adverse effects on lower paid workers, who work, for example, in agriculture or janitorial services. The advocate warned that if the bill becomes law, it would be easier for businesses to place buffers between themselves and their workers, e.g. temporary agencies, staffing service providers, which would facilitate the avoidance of liability. Another employee advocate expressed a dimmer, more radical view, stating that the law would “undermine the concept of joint employment” and “set a high threshold to hold an employer who contracts or outsources work” liable for workplace law violations.

The Takeaway

In FLSA cases involving joint employment, there is varying law between federal circuits, but as regards labor law, the NLRB’s interpretation of the statute is given broad deference by courts on joint employment issues. If, however, Congress adopts a specific test, that test will then likely be given considerable deference by courts in future cases. Long story short—this bill is geared towards a considerable narrowing of the definition of joint employment.

At last!

I have blogged often on these new OT regulations and now it seems the game is continuing, with opposition (not unexpected) from the current administration. The USDOL has released its request for information (RFI) on the revision of the white-collar overtime exemption rules. This has engendered, and will continue to engender, a great deal of controversy. The Obama administration-authored changes to the rules would double the salary level for workers to qualify as overtime-exempt.

The request for information requests stakeholder input on the salary test for exemption under the Fair Labor Standards Act. The questions that the DOL has posed shows that the agency is weighing many options for the rule.  These include setting the salary threshold differently depending on geographical area or possibly eliminating any salary test at all and focusing only on employee job duties to determine if a white-collar exemption (executive, administrative, professional) applied.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
Alfred Robinson, a former WHD Administrator, and someone likely to know, has stated that. “I’ve seen offices that maybe pushed liquidated damages or things of that nature beforehand are not so adamant about it this year.”  He added that, “I read the tea leaves as suggesting that hopefully some reason is coming into some of the enforcement practices.”

In November 2016, an employer group sought and secured a nationwide injunction from a federal court in Texas against the proposed overtime rule.  The new Secretary of Labor has indicated that the new salary level should be set somewhere between the old level and the proposed one (approximately $47,000 per year), but, significantly, the RFI does not suggest the level where it should be set.  The DOL states that “concerns expressed by various stakeholders after publication of the 2016 final rule that the salary level would adversely impact low-wage regions and industries have further shown that additional rulemaking is appropriate.”

The exemption test is now tri-partite—employees must be salaried, must earn a certain minimum salary and must perform certain duties.  The exemption regulations are updated periodically; the last time was in 2004 when the salary level was raised from $250 per week to $455 per week and some changes were made to the duties components of the so-called white-collar exemptions.  The current proposal would not touch the duties tests but would raise the salary level to $913 per week.

The RFI does not trigger the formal rulemaking process that will rescind or modify the proposed (and currently enjoined rule) but the purpose is to secure data and feedback on an issue of concern. Significantly, the agency is on record as stating that it will not seek to revise the rule unless the Fifth Circuit affirms the DOL’s ability and right to establish a salary test.

The Takeaway

I find most interesting the concept that only duties should determine whether an employee is exempt or not.  That might make it easier for employers to maintain lower level supervisors as exempt, as for example, in the retail industry.  Maybe employers would like even better the reverse—if the employee makes a certain amount of salary, he/she is, by definition, exempt.

That seems simpler…

No industry is immune to FLSA collective actions and the energy industry is seeing a significant uptick in these actions. In this regard, a class of workers employed by an oil field services company has just agreed to a $2.1 million deal to settle a Fair Labor Standards Act collective action alleging that the company did not pay them proper overtime wages. The case is entitled Meals v. Keane Frac GP LLC et al., and was filed in federal court in the Western District of Pennsylvania.

Oil pump jack and oil tank silhouette
Copyright: crstrbrt / 123RF Stock Photo

The employer advised the Court that a settlement had been reached with a class of “frac supervisor I’s” to settle a FLSA collective action, seeking overtime, on a misclassification theory. The agreement recited that both counsel believed the settlement was in the best interests of all the parties, given the costs to be incurred, the risks inherent in litigation, as well as the delays, when placed up against the benefits of the settlement.

The defendant, however, made sure to secure non-admissions language. The papers stated that the “defendant denies and continues to deny all of plaintiff’s allegations in the action. Defendant enters into this agreement expressly disavowing any fault, liability and/or wrongdoing.”

Importantly, there had been a grant of conditional certification in June to a class of current and former “frac supervisor I’s” and other like employees who were employed by the Company in the last three years. The plaintiffs alleged that these alleged supervisors performed primarily manual work, which precluded the application of the exemption. The plaintiffs also claimed that the Company has a policy of deliberately misclassifying these supervisors to save overtime costs (even though they received bonuses). The Complaint alleged that all of these supervisors were similarly situated because they shared common job duties, were all classified as exempt and all performed uncompensated work.

The Takeaway

This was the right move by the employer. Exemption cases are always tough to win—often, the entire class is held to be exempt, or, heaven forbid, non-exempt, especially if common policies apply to the affected workers. The issue now becomes whether to re-classify these workers, i.e. pay them hourly, or enhance their duties so they “evolve” into exempt employees.

A lot easier to re-classify.  A lot less (future) worry and aggravation…

I have blogged on this topic many times but I never tire of it. What is the way to defeat a class action? The magic bullet? The answer? Too much individual scrutiny is needed! Another Judge has proven me right on this. A federal judge has denied a motion to certify a class of distributors who distributed products for a bakery with brands such as Wonder Bread and Nature’s Own. The drivers alleged that they were misclassified as independent contractors and should have been overtime-eligible employees. The case is entitled Soares et al. v. Flowers Foods Inc. et al. and was filed in federal court in the Northern District of California.

Bakery
Copyright: maxsheb / 123RF Stock Photo

The judge acknowledged that there were common questions as to the drivers’ substantive claims. However, it was the varying nature of their businesses, such as differences in operations, whether they hired their own “employees” and whether they did business with other entities that would have necessitated the individual evaluation(s). The Judge noted that “individualized issues over how to determine which distributors personally serviced their routes and whether the distributors operated distinct businesses prevents common questions of fact or law from predominating, and class wide treatment is not superior to individual actions.”

The class members bought exclusive rights to sell products in designated geographic territories and were responsible for delivering, displaying and selling the products in their chosen territories. The agreements designated the distributor as “an independent contractor with the resources, expertise and capability to act as a distributor.” The documents also specifically stated that the distributors would not be subject to Company control “as to the specific details or manner” of their business. In October 2015, they filed suit alleging that the Company misclassified them as independent contractors.

The Judge noted that although the class was confined to distributors who “personally serviced” their routes, the sorting out of those distributors that actually did that and when they did that “cannot be answered in one fell swoop.” The Court indicated that some distributors did engage their own employees who performed the routes some of the time and neither party could show through evidence, which distributors “personally serviced” their routes and which did not or how many days they did or did not personally service the routes.

The Court stated that “there would need to be mini-trials into these distributors’ recollections of how often they personally serviced their routes, and when and how often, if at all, they provided distribution services for other companies. Thus, some distributors might be found to operate businesses distinct from Flowers’ operation, while for others this factor would weigh in favor of an employment relationship, and thus this factor is not subject to common proof.”

The Takeaway

This is the object lesson for employer-defendants. I believe these independent contractor cases are peculiarly susceptible to these defenses. The employer must always look at and focus upon the “individual scrutiny” defense because it could be a single stroke method of making the whole thing go away.

The attorneys for the USDOL advised the federal Fifth Circuit Court of Appeals that the agency does intend to revise the currently pending changes to the overtime regulations.  The lawyers also requested that the Court approve of the agency’s right to use salary levels to determine exemption status.  The case is entitled Nevada et al v. USDOL and is being heard in the Fifth Circuit.

The lawyers requested “that this Court not address the validity of the specific salary level set by the 2016 final rule ($913 per week), which the Department intends to revisit through new rulemaking.” In lieu of such a holding, the DOL wants the Court to acknowledge that the USDOL possesses the authority to establish a salary minimum; if a salary is less than that amount, the employees would be automatically entitled to overtime for actual hours worked exceeding forty (40).

U.S. Secretary of Labor Alex Acosta
Secretary of Labor Alexander Acosta

A federal district court Judge stayed the rule last year.  The lower court found that the agency emphasized salary levels too much, rather than the job duties performed, in determining exempt status under the proposed revision.  The new Secretary of Labor, Alexander Acosta, stated during his confirmation hearing that this decision seemed to question whether the agency had the power to set a salary threshold.

The DOL has submitted a request for information on the overtime rule to the Office of Management and Budget.  This action suggests that the DOL is prepared to reconsider the pending regulation.  Mr. Acosta hinted that he could envision the current $24,000 salary threshold rising to the low $30,000 range.  The rule, as currently constituted, is estimated to make another four million people eligible for overtime.

The Takeaway

This is an interesting development.  Perhaps the Court will be guided by the government’s arguments and toss this hot potato back to the agency to establish a new (and more business friendly) salary threshold.

*Photo credit: By US Department of Labor (L-17-05-01-C-AlexanderAcosta-023-E) [Public domain], via Wikimedia Commons

I blogged about this off-the-beaten-path case a short time ago. Wow, whoever thought the courts would work this fast? A federal judge dismissed a proposed FLSA collective action against Fluor Corp. filed by contractors who alleged that the Company did not pay them overtime based upon a contract performed in Afghanistan. The Court held that the country’s labor laws were inapplicable to foreign citizens who did not have work permits. The case is entitled Allen et al. v. Fluor Corp., and was filed in federal court in the Northern District of Texas.

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

The contractors had alleged that they were owed more than $5 million dollars in back-due overtime, as they worked twelve hours per day, seven days per week. They claimed this violated the Afghanistan Labor Code. The federal Judge, however, agreed with the Company that the Labor Code did not apply to workers who may have registered with the nation’s Investment Support Agency but were not compelled to apply for work permits in order to provide services. These contractors were providing housing, performing construction work and ensuring that, fuel, food and laundry services were provided for the soldiers.

The Court stated that “based on the evidence of foreign law submitted by the parties, including expert declarations, the court concludes that the Afghanistan Labor Code does not apply to plaintiffs. The code, by its terms, applies to foreign citizens who have obtained or will later obtain work permits, and not to other foreign citizens.”

Pursuant to the Bilateral Security Agreement between the U.S. and Afghanistan, military contractors must register with the Afghan Investment Support Agency, but need not apply for work permits. The Company contended that the requirement provided an exception for American contractors from the requirement to secure permits and, therefore, from the labor law that applies only to foreigners who have secured or will secure such permits. The Judge would also not allow the plaintiffs to amend their Complaint, as the fundamental defects in it could not be cured by re-pleading.

The Takeaway

An outlier kind of case with perhaps little relevance to the average employer, here in “the States.” It does, however, show that wage-hour situations, e.g. overtime class action suits, can arise in any number of scenarios or contexts and creative lawyers need to be able to adapt defenses to the tools, or body of law, at hand.