State Wage & Hour Laws

Jonathan Ash writes:

Waiter carrying tray of glasses
Copyright: bedya / 123RF Stock Photo

In what amounts to a victory for all employers throughout the State of New York, the Supreme Court of New York recently granted summary judgment in one of the first cases to effectively make use of the newly amended affirmative defense set forth in the Wage Theft Prevention Act (“WTPA”).  The case is entitled Ahmed v. Morgans Hotel Group Management, LLC.

Employers in the hospitality industry in New York often fall victim to unsubstantiated claims by former employees of unpaid wages.  Attorneys will send letters threatening a potential class action wage and hour lawsuit and demanding that the employer provide documentation on a class-wide basis to disprove the existence of the claim in order to resolve the case with a substantial settlement.  The mere threat of such a lawsuit is enough to get employers to comply with this fishing expedition.

In this instance, the Company limited its production to only those documents necessary to show that the named plaintiff(s) did not have a claim that they were not paid gratuities for banquet events where the Company charged an administrative fee.  The Court rejected the plaintiff’s claim and concluded that no reasonable customer could have been confused and that because the plaintiff could not identify a single instance in which the gratuity was not paid, the WTPA claim must fail.

Perhaps more significantly, however, was the claim for unpaid minimum wage, which was based upon the alleged failure to provide the required notice under the Hospitality Wage Order.  Plaintiffs’ attorneys attempt to capitalize on this nuanced area of the law in hopes that one of these requirements is not met due to human error or inadvertence.

One year ago, the WTPA was amended to provide that “it shall be an affirmative defense” to such a violation if the employer can show complete and timely payment of all wages due and that the employee never earned below the minimum wage.  In such a case, the employee suffered no actual injury, so this affirmative defense prevents a windfall and discourages the predatory practices of plaintiffs’ attorneys.

The Takeaway

This significant decision paves the way for other employers to defend against such actions.  Rather than succumbing to the demands of an aggressive plaintiffs’ attorney fishing for information, employers now have a means to defend these claims through this affirmative defense if they can show that the employee was always timely paid wages equal to or above the minimum wage.


Jonathan Ash is an associate in the firm’s Labor & Employment Department, resident in its Princeton office.

I love this one.  For the title of the worker classification involved.  It appears that a class of drilling fluid specialists, commonly referred to as “mud men,” has reached a $7 million settlement in its wage and hour suit against M-I LLC.  The case is entitled Syed et al. v. M-I LLC and was filed in federal court in the Eastern District of California.

The employees worked in drilling operations in Bakersfield, Calif.  They claimed they were compelled to work either twelve (12) hour shifts daily for two weeks before leaving their work sites, or work full-days (i.e. 24 hours) in which they were always on-call.  They claimed that they were not paid overtime when they worked more than forty hours per week.  (They also claimed no overtime pay when their work days exceeded eight hours, which is California law).

The settlement monies will be paid to 115 members of the national FLSA class as well as 353 members of the California class; the $7 million settlement includes up to $2.37 million in attorneys’ fees and costs, service awards of $15,000 to plaintiff Balfour and $20,000 to named plaintiff Syed, $11,500 in claims administration expenses and a $75,000 Private Attorneys General Act payment.

That leaves more than four million dollars to be paid out to class members, based on the number of weeks worked during the class period. Some class members will receive $55 for every week, while the California class members will receive $165 for each week worked.  The proposed settlement document stated that “for purposes of this proposed settlement, at a mediation … the parties operated under the premise that Rule 23 proposed class members were in a better position under California law for claims than FLSA collective action members, where in some individual cases, the covered positions have generally been deemed ‘exempt’ under federal law.  This is crucial to understand in order to realize the structure of the proposed settlement.”

The Takeaway

The plaintiffs’ attorney posited that “there are many of these types of cases pending against many major players in the industry.”  If this is an industry wide pattern and practice, that would be a problem.  The only thing to do in that instance is get into compliance and hope no one sues for two years…

A group of New Jersey sales associates who work in Dish Network LLC call centers urged a federal court to confirm a $1.9 million arbitration award stemming from a proposed class action, in which the workers said the satellite television provider miscalculated their overtime pay rates.  The case is entitled Frisari v. Dish Network LLC, and was filed in federal court in the District of New Jersey.

Group of satellite dishes
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The workers urge that the award, which gave the employees overtime at time and one-half, instead of the half-time overtime rates they were paid, is appropriate under long established principles.  The plaintiffs urge that “it is well established that when this court reviews an arbitration award, as long as the arbitrator’s award is not by ‘his own brand of industrial justice,’ the award is legitimate.”

The plaintiffs’ lawyer stated that the award shows that employers could not “cut corners” by paying overtime based on a half-time premium, which is a form of the FLSA “fluctuating work week” method.  He stated that “this sets precedent that companies cannot use the fluctuating work week method under the New Jersey Wage & Hour Law.”

The employees claimed that they were compelled to work off the clock and were prevented from accurately reporting these overtime hours.  They asserted that they were not paid while they performed preliminary duties before their shifts began, such as booting up computers and launching software.  The employees also claimed that they often worked through lunch, although these meal breaks were counted as unpaid periods.

The employees had filed suit and then the Company claimed that they were compelled to arbitrate their claims individually, as opposed to a class action, but the arbitrator held that there was the possibility the workers could still proceed with their claims as a class.   The Company sought to vacate that award but was unsuccessful.  In the final order he entered, the arbitrator awarded $480,000 in attorneys’ fees to the class and $1.9 million damages for the class.

The Takeaway

This case illustrates an interesting trend that is perhaps developing.  I believe (and I see it in my practice) that plaintiff lawyers are becoming less averse to litigating FLSA claims in an arbitral forum, where defendants would much prefer to be in.  On balance, I think it is better for both sides.  It is much cheaper, much faster and arbitrators are usually pretty savvy, both in deciding the case on the merits and facilitating settlements.

A win win.  Maybe…

Whenever a FLSA suit is lodged against a unionized employer, I always look for the possibility of a preemption defense, which will, in one fell swoop, doom the entire litigation.  If the Court finds that the matter is governed by the parties’ labor contract and is better and properly left for the arbitration (or NLRB) process, then the Court does not have jurisdiction.  In a recent case, FreshPoint Inc. has tried to argue just that.  The Company has urged dismissal of a class action FLSA suit, asserting that the claims are nullified by the drivers’ collective bargaining agreement.  The case is entitled Rodriguez Jr. v. FreshPoint Inc. and was filed in federal court in the Northern District of California.

Picket line
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The FreshPoint attorney argued that the claims for failure to pay straight wages, pay overtime, provide meal periods and permit rest periods are not suited for resolution in federal court because these items were negotiated into the labor contract by FreshPoint and the Teamsters.  He also argued that the California Labor Code has an exemption from state overtime and meal break requirements for commercial drivers who have agreed to such a union contract.

The lawyer for the workers acknowledged that the meal break and overtime pay policy complied with the collective bargaining agreement under California law.  She asserted, however, that the other claims should not be dismissed and took issue with the defendant’s contention that the workers were seeking “improper reimbursements” by seeking relief with both rest break premiums and penalties and for not enumerating the breaks in the wage statements of the employees.  She claimed that “it’s not a double recovery. That’s just what they’re owed.  There are hours they were off the clock that weren’t paid for.”

The Judge seemed skeptical about the federal preemption argument.  The Judge wondered “if I were to find there was no preemption, what’s the basis of jurisdiction under the state law claim?”

The was filed in state court but the defendants removed it to federal court in September.  This is the usual course of action when federal claims are implicated, explicitly or otherwise, in a state court law suit.

The Takeaway

This is the best starting point to mount a defense.  If this is successful, the whole thing goes away.  That would be good because if these alleged violations were the products of common policies or practices, the argument for a class certification would be stronger.

Quiz
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The TSheets Time Tracking Blog recently posted a quiz testing readers’ knowledge of the Fair Labor Standards Act (FLSA). It was a pleasure to assist in preparing the 9-question quiz, asking participants to correctly apply the FLSA to several hypothetical situations. Can you get a perfect score?

Copyright: fotomircea / 123RF Stock Photo
Copyright: fotomircea / 123RF Stock Photo

A Texas federal court handed a quick win Wednesday to a class of trainers claiming Gold’s Gym unfairly denied them overtime, ruling their pay did not comprise “bona fide commissions” under the Fair Labor Standards Act.  The case is entitled Casanova et al. v. Gold’s Texas Holdings Group Inc., and was filed in federal court in the Western District of Texas.

The issue was whether the payments received constituted commissions under the FLSA.  If ruled commissions, the employer could seek the protection and the exemption of Section 7(i) of the FLSA, the so-called commission exemption.  The Court ruled that the percentage of the fees paid by clients and given to the trainers were tied to one-hour class sessions and therefore were “wages” rather than commissions.  Thus, Section 7(i) was inapplicable.

The Court found that “the compensation system was not decoupled from time.  Instead, a one-to-one correlation existed between the hours a trainer worked and his or her compensation.  Such a compensation system reflects nothing more than an hourly wage, where the employee’s rate of pay changes based upon his or her qualifications.”

The trainers filed a collective action in December 2013, claiming they were misclassified and entitled to overtime.  The group was granted conditional class and 80 trainers opted in.  The trainers were paid in a two-part system that included a flat rate for “floor hours” or hours worked performing general tasks at the gym and some of the fees for individual and group training classes that the employees sell and conduct.  The employees were paid a set percentage of these fees based on certificates they earned and the number of classes they conducted.

The employer claimed these were commissions; the trainers claimed that the fees were proportional to and tied to hours worked, without performance-based fluctuations, and thus were not “commissions” as defined by the FLSA.  The Court noted that bona fide commissions were demarcated by several characteristics, including that the commissions were a percentage of the price passed on to the consumer and were separate and apart from actual hours worked so that the employees had an incentive to work more efficiently.  The payments failed to meet this second prong of the test, as employees could not work more quickly since the classes were a fixed length of time.

The Takeaway

The Section 7(i) exemption rests on receipt of at least 50% of commission compensation by the affected employees, as well as some other requirements, e.g. retail industry.  In that instance (and in those weeks) the employee is exempt.  The whole point of “commission,” however is that it seeks to incentivize people to work more quickly or efficiently, to churn up that commission.

Without the protection of 7(i), all of these extra payments must be calculated into the regular rate for any week in which any employee(s) worked overtime, thus inflating the regular rate by, in all likelihood, small amounts of money on a weekly basis.  If, however, a lawsuit is filed and it is a class action and eighty or so employees join in and computations are done for 2-3 years going back, then the wages are doubled, with attorney fees added in, it is plain that the exposure is geometric.

Much better to research and resolve the issue before the compensation (e.g. “commission”) system is implemented…

Here is another exemption misclassification lawsuit, but this time coming from a different angle.  This time, it is a group of human resources employees who work for Lowe’s have filed a putative class action on the theory that they were misclassified as managers and are thus entitled to overtime.  This is very dangerous because the suit comes from people who are supposed to help the employer in making exempt and non-exempt determinations.  The case is entitled Lewis et al. v. Lowe’s Home Centers LLC and was filed in federal court in the Southern District of New York.

Tools and hardware retailer
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The five named plaintiffs, all Human Resource Managers (HRMs), allege that they worked at least fifty hours per week and were labeled exempt, even though their duties were not managerial in nature.  They estimate there are possibly 250 possible opt-in members of the class.  They seek damages that their attorney estimates could reach $15 million.  The Complaint alleges that “the policy of underpayment was a business decision to purposefully evade the provisions of the New York Labor Law and applicable regulations and saved the defendants tens of millions of dollars.”

The plaintiffs claim (as in many of these cases) that all they did was process clerical paperwork for payroll, benefits and new hires; they allege they also worked in other departments, including sales, customer service and cleaning break rooms and bathrooms.  They maintain that they had no supervisory responsibilities or decision-making authority.  According to their lawyer “they are store-level, low-level personnel employees.”

Although the lawyer conceded that these individuals conducted interviews for job applicants, they could only ask a designated series of questions, very well defined and limited, and then grade the answers.  He claims that they could not make recommendations on hiring decisions, but asserted rather cavalierly, that “a 10-year-old schoolgirl could ask these questions and mark down a score on the interview sheet.”

Significantly, a similar class action was filed against Lowe’s in Florida in 2012 and the Company settled that case for $3.5 million.  There were 900 HRMs involved in that matter and they made identical claims of misclassification.

The Takeaway

Human Resource Directors are clearly exempt under the administrative exemption (the toughest one to prove, by the way).  However, people with HR type responsibilities, such as “personnel clerks,” or classifications like that, often times are non-exempt.  The flashpoint issue is discretion and independent judgment, or lack of same.  If these folks are simply following a prescribed script or menu and then just adding numbers, without being able to evaluate the candidates to any extent, that is problematic. The earlier, big, settlement does not help either!

I believe, however, that an employer can enhance the exempt duties of perhaps otherwise non-exempt employees, or that non-exempts can “evolve” into exempt employees.  Some strategic, proactive planning can accomplish this worthy goal.

In most (if not all) FLSA cases I handle, whether single plaintiff or collective action, there is usually a State of New Jersey cause of action set forth as Count II, with the FLSA Count as the first one.  The New Jersey Count is duplicative of the federal count to the extent that people (ultimately) opt-in to the federal case (but without the liquidated damages) but the state Count is governed by Rule 23 considerations, not the opt-in principles.

Copyright: andreypopov / 123RF Stock Photo
Copyright: andreypopov / 123RF Stock Photo

In Thompson v. Real Estate Mortgage Network, Inc., the plaintiff, Patricia Thompson, sued her former employers for allegedly failing to compensate for overtime work, in violation of the FLSA and the New Jersey Wage and Hour Law (“NJWHL”).  Under FRCP Rule 12(b)(6), the Employer moved to dismiss the state Count on the pleadings, asserting that a claim for overtime was not cognizable under the New Jersey minimum wage law.

The Employer argued that the lack of a definition of the term “minimum fair wage” in the section of the NJWHL that conferred a private right of action precluded an overtime action from being brought.  The defendants argued that, without a specific definition, a court could not expand that term to include overtime claims.  The district court Judge began his analysis by observing that it was not” immediately apparent” to the Court that a “minimum fair wage” excluded overtime.

With that said, the Court then noted (as was quite plain) that the NJWHL’s statute of limitations section – titled “Limitations; commencement of action” – did refer explicitly to overtime compensation.   Thus, the court reasoned that “if the State legislature did not intend to create a private right of action for overtime compensation, this language is inexplicable.  The New Jersey legislature would not have prescribed a limitation period for a nonexistent cause of action.”

The Court also observed that the FLSA included a right of action to recover withheld overtime payments and that the principle of parallel construction suggested that the NJWHL should be interpreted the same way.  Noting that these laws should be interpreted liberally, the Court found it “difficult to conclude that the NJWHL gives employees fewer or narrower rights than the FLSA.”

The Takeaway

There is an old canon in the world of litigation—you don’t want your first motion, your first initiative before a Court (any court) to be a loser.  To me, that was the entire reason for not doing this.  The liberal construction given to wage hour also should have, by itself, precluded this approach.

Second, more importantly, reading the statute as a whole and noting that the statute of limitations explicitly included overtime claims in it should have been another red flag tip-off that this motion was destined for failure.

If the impetus for the motion was to buy time for the employer to come into compliance, that is one thing.  But, if not, I am left to wonder the reason for doing it…

In November we reported on Wigdor v SoulCycle, which had been filed in New York Supreme Court, New York County.  In that action a well-known plaintiff’s attorney, Douglas Wigdor, alleged that SoulCycle retaliated against him by banning him from the Company’s establishments because Wigdor had filed a putative wage and hour class action against SoulCycle.

This action reminded us of Jerry Seinfeld’s “Soup Man,” who would decline to serve customers that did not properly place a soup order.  We had previously asked whether the owner of a store has a right to prevent counsel from entering, for example, to solicit business in their establishment.  The answer is apparently: yes …. and no.

In Wigdor v SoulCycle, Mr. Wigdor asserted four claims: (1) retaliation under New York Labor Law (NYLL) § 215; (2) retaliation under California Labor Code (CLC); (3) prima facie tort; and (4) breach of an obligation of good faith and fair dealing.  SoulCycle moved to dismiss all claims for failure to state a claim, and now the Court has issued a decision on that motion.

The Court dismissed three of the four claims – the retaliation claims under NYLL and CLC as well as the prima facie tort claim – but declined to dismiss the claim for good faith and fair dealing.  See Wigdor v SoulCycle, Index 161572/2014 (Sup. Ct, NY County April 13, 2015).  In dismissing the NYLL and CLC retaliation claims the Court recognized, as we noted in the November blog, that both statutes prohibit retaliation against an “employee.”  Indeed, NYLL § 215 states: “No employer … shall discharge, penalize, or in any other manner discriminate against any employee because such employee has made a complaint to his employer….” id. (emphasis supplied).  The CLC contains a similar provision.  Yet neither statute references protection for the employee’s lawyer.  The Court explained:

Contrary to the plaintiff’s contention, the text of Labor Law § 215 does not reveal a clear intent to authorize a claim where an employer retaliates against an attorney that represents a former employee of the employer.  Indeed, neither the plain language of the statute nor its legislative history, as revealed by the 1967 bill jacket accompanying its enactment and the 1986 bill jacket accompanying its amendment, contemplates an action by someone other than an employee making complaints regarding a former employer.

Id.  Additionally, the Court dismissed the claim for prima facie tort because “other than conclusory contentions, there are no facts supporting the assertion that defendants sole motivation for banning plaintiff from SoulCycle premises was intended to maliciously injure plaintiff.”   Id.  Thus, Seinfeld’s Soup Man would appear to be vindicated.

Unfortunately, the case took a turn for the worse for SoulCycle as the Court refused to dismiss the final claim for breach of good faith and fair dealing.  A prerequisite for asserting such a claim under New York law is that a plaintiff must plead and prove that there was a contractual relationship between the plaintiff and defendant.  SoulCycle argued that it never had a contractual relationship with Wigdor and therefore the claim should be dismissed. The Court disagreed concluding that when Wigdor plead that he had “electronically agreed to SoulCycle’s terms and conditions” he established, at least for the purpose of stating a claim, that a contractual relationship was created.   Accordingly, the breach of good faith and fair dealing claim survives, for now.

Thus, it seems the Court’s ruling does give some guidance to our inquiry as to when a business owner has an appropriate say in deciding who should not be allowed to patronize his/her business.  Certainly, had there been no prior business relationship between Wigdor and SoulCycle, and then this case would have been dismissed.  Yet, apparently when there is some prior “contractual relationship” then the lines become a little cloudy as to when the business owner can decide whether someone should continue to patronize the business.  We are now left to ask, merely because someone had patronized the business before and abided by the terms and conditions of the business owner, such as paying for the goods and services rendered, when can the business owner end that relationship?  How long does the former patron get to ask, as Oliver Twist might – “Please Sir, can I have some more?”

It is no secret that most FLSA class action lawsuits settle.  The costs of litigation, the fee shifting nature of the statute, plus the fact that oftentimes the merits/defenses are not that clear (or good) for the employer militate settlements being made.  However, that is not the end of the story because the settlement then has to be approved by the Judge and that may be easier said than done, as the parties to a suit involving Ricoh Americas Corporation just were made to realize.

The Court would not approve a $325,000 settlement between the company and a class of 400 technicians, finding it was unfair and that insufficient information was provided to the Court to allow it to approve the settlement.  The case is entitled Ramirez v. Ricoh Americas Corp. and was filed in federal court in the Southern District of New York.

U.S. District Judge Fox ruled that the lead plaintiff did not give enough details to support the validity of the settlement.  The plaintiff failed to identify how much additional discovery was needed, e.g. number of class members to be deposed, what experts might be required and, most importantly, why “the instant litigation would be complex, expensive and time consuming.”  The Judge also noted a dearth of evidence showing that putative class members supported the deal and he chided the plaintiff for only taking a single deposition in the seven months since the litigation commenced.

The plaintiff(s) were technicians and sued under the FLSA, the New York Minimum Wage Act and the overtime provisions of the New York Labor Law; the suit was filed in December 2013.  However, the plaintiff did not explain what a comparable position to the position of technician meant and that the class definition (as set forth in the plaintiff’s memorandum of law) was inconsistent with the definition set forth in his notice of motion seeking conditional certification and there was no definition in the proposed settlement agreement.

The Court stated that “the inconsistency of the proposed class definition in the plaintiff’s notice of motion and the memorandum of law and the absence of a definition of the proposed class from the proposed settlement agreement and notices, makes it unclear to the court — as it will make it to anyone who would receive the plaintiff’s notices — who the putative class members might be.”  That was enough, by itself, for the Court to reject the proposed settlement.

The Takeaway

Both parties must take heed when they reach a deal to ensure that all details are addressed so the settlement will get court approval.  The last thing either side wants is to get a deal shot down and then go back to the drawing board, i.e. engage in more protracted discovery, at more expense for both sides and then hope/pray that the settlement then gets approved.  I have (on more than one occasion) had to “help” adversaries prepare and frame settlements so that they get court approval.

Sometimes easier said than done!