State Wage & Hour Laws

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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…

There has been a good deal of controversy and confusion over whether the recently enacted New Jersey Equal Pay Act was retroactive.  The law became effective July 1, 2018 and has a six year statute of limitations.  Could a lawsuit filed after enactment, say in August 2018, go back to August 2012?  We did not know but it now seems that the answer is a resounding “no.”  This is because a recent federal court decision has said so. The case is entitled Perrotto v. Morgan Advanced Materials, PLC and was filed in federal court in the District of New Jersey.

The plaintiff asserted that retroactive application was warranted and would neither vitiate any party’s constitutional rights nor cause manifest injustice. The Company defended by asserting there was no basis to indicate retroactivity.  The Company contended there was no express or implied legislative intent for retroactive application.  The law was also not curative, as it was a totally new statutory scheme.  Lastly, the Company maintained that the parties’ expectations did not allow for retroactive application.

The Court agreed with the Company.  The Court examined the statute’s plain language to discern legislative intent and opined that, although the law was passed on April 25, 2018, it specifically postponed the effective date until July 1, 2018.  The Court believed that this delayed enactment demonstrated that the Legislature intended the law to only have prospective application.

The Court also found that the law cured nothing by amendment.  As the Court noted, a curative amendment remedies “a perceived imperfection in or misapplication of a statute” or clarifies the lawmakers’ intent behind the creation of the law.  Moreover, a retroactive application would not cure anything because this is a “first of its kind” law that dealt with pay fairness for performing “substantially similar work.”  In other words, the law expanded employee protections, by, for example, making a six year statute of limitations rather than the two years for an alleged violation of the New Jersey Law Against Discrimination.  Thus, the law did not seek to explain or clarify existing law.

The Takeaway

An eminently correct result, I daresay…

Where a plaintiff files a FLSA (or other statutory wage hour) lawsuit, he may well file state law, tort-like claims, such as unjust enrichment, breach of contract, fraud and others. Usually, if not always, those claims/counts are predicated upon and solely arise from the alleged FLSA violations. As such, the FLSA (or any other wage statute at issue, like the NJ Prevailing Wage Act) is the exclusive remedy for these alleged violations and the state law claims are preempted. Thus, the employer should initially file a motion to dismiss rather than answer the Complaint.

Law books and justice scales
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For example, in Moeck v. Gray Supply Corp., 2006 WL 42368, at *1-2 (D.N.J. Jan. 6, 2006), plaintiffs asserted fraud and negligent misrepresentation claims (in addition to their FLSA claims), arising out of the fact that defendants purportedly ‘’materially misrepresented“ that employees would be given overtime pay and “concealed“ that defendant’s employees “would be compelled to work additional time without compensation.” The Moeck court found these claims preempted by the FLSA because they were “merely based on Plaintiffs’ [FLSA] overtime claims.” Id

Similarly, in Kronick v. bebe Stores Inc., 2008 WL 4509610 (D.N.J Sept. 29, 2008), plaintiff claimed that the employer required employees to work overtime without compensation, thereby violating the FLSA and state common law. The Kronick court determined that the state common law claims were preempted because plaintiff premised the state law claims on the same facts relied upon in support of plaintiff’s FLSA claims. Id. Additionally, in Ramirez v. Gromitsaris, 2013 WL 2455966 (D.N.J. June 3, 2013), the court likewise dismissed plaintiff’s unjust enrichment claim as preempted by the FLSA because plaintiff did “not make any independent factual allegations in support of [the] claim.

Furthermore, the Davis-Bacon Act (DBA), 40 U.S.C. 3141 et seq., a federal statute which mandates the payment of prevailing wages for certain work performed under federally funded or assisted contracts has been deemed to preempt common law claims based on the same nucleus of facts. See Alvarez-Soto v. B. Frank Joy, LLC, 258 F. Supp.3d 615, 627-628 (D. Md. 2017) (unjust enrichment claim was “based on the failure to pay wage rates in accordance with the [DBA],” and therefore, was preempted by the DBA); Grochowski v. Phoenix Const., 318 F.3d 80, 85-86 (2d Cir. 2013) (DBA preempts breach of contract and quantum meruit claims because those claims are “indirect attempts at privately enforcing the prevailing wage schedules contained in the DBA.”).

The Takeaway

I believe this is a very good, strong tactic for defense counsel to employ. The law is very solid  on this issue. It also makes the plaintiff’s lawyer do some work, changes the dynamic and momentum of the case and shows the plaintiff that it is not going to be easy and that their case is fraught with difficulty.

It’s called changing the momentum…

New Jersey Silhouette in Rubber Stamp StyleThe issue of who is and who is not an independent contractor has exploded on the legal scene in recent years. Many agencies are honing in on this topic and I have, over the last five years, probably defended more than fifty audits, inspections and lawsuits involving this issue. Well, the landscape just got murkier, or more difficult for employers as the US Department of Labor and the NJ Department of Labor have just signed a cooperation agreement to target the misclassification of individuals as independent contractors in New Jersey.

This memorandum of cooperation will enhance enforcement efforts by facilitating the coordination of investigations by the agencies as well as sharing resources. The agencies want to send a “strong message” to the business world that misclassification laws “are being strictly enforced.”

Commissioner Robert Asaro-Angelo stressed that his agency’s strong goal is to ensure that workers are shielded from “unscrupulous business practices.” He stated that “this partnership with U.S. DOL will help ensure that our business partners and the state’s workers all get the protections they deserve.” The sectors most amenable to misclassification problems are the construction, transportation and information technology. The new so-called gig economy is also a focus of these issues.

Mark Watson, of the USDOL stated that the agreement “will amplify the effectiveness of both agencies.” He added that “the U.S. Department of Labor looks forward to improving coordination and increasing joint outreach and compliance assistance efforts with all of our state partners.”

This agreement follows an earlier New Jersey initiative where the Governor announced he wanted to take a harder line on this misclassification issue. That initiative was the establishment of a cross-agency task force to focus on the problem of misclassification. Finding more people to be true “employees” would generate more money for the State

The Takeaway

I know a lot of employers classify people as independent contractors when, perhaps, they should not be. I also know that a lot of these individuals want those relationships to exist as one of independent contractor status. In New Jersey, under the strict ABC test, it was very difficult to win on the third prong, the “independently established business” prong, until the advent of the Garden State Fireworks case. We will see where that goes.

But, employers now need be aware if they are found to have violated the New Jersey unemployment statute on independent contractor, they may find the USDOL alleging that under that statute, the workers are really employees.

Ill man with flu coughing and drinking hot tea from cup at homeAn issue often facing employers, in every state, is: when does sick time or vacation time become wages and under what conditions should these days be paid out, especially when an employee separates employment. The Supreme Court of Massachusetts has weighed in on this and held that accrued, unused sick time is not wages under state law.  The case is entitled Mui v. Massachusetts Port Authority, and issued from the Massachusetts Supreme Judicial Court.

The Court vacated a lower court’s decision for the employee, who had claimed that the Massachusetts Wage Act mandated that a separated employee be paid in full on the next regular pay day.  Thus, argued the employee, by failing to pay him “on time” for this accrued, unused sick time, the Port Authority violated the law.  The Court observed that the statute “does not mention sick pay,” and that a court does not “add language to a statute where the Legislature has not done so itself.”  In this regard, the Legislature had refused to expand the meaning of wages under the statute other than those forms of compensation specifically mentioned.

The Court observed that “although an employee may use accrued sick time under appropriate conditions, such time may be considered ‘lost’ if not used.  Such ‘use it or lose it’ sick time policies are common. Because accrued, unused sick time is not compensable under a ‘use it or lose it’ sick time policy, such time clearly is not a wage under the act.”

The Court noted that the Authority’s policy was to pay separated employees a percentage of their accrued, unused sick time so long as they have worked there for at least two years and were not terminated for cause.  Nevertheless, the Court stated that the only contingent compensation recognized as wages in the Massachusetts Wage Act was commissions and the word “wages” did not include any other type of contingent compensation.

The Takeaway

Employers implementing sick leave, vacation or other policies, e.g. PTO, must always insert in the policy what happens to accrued, but unused, or unearned, time upon separation.  And the employer can distinguish between those fired for cause and those who voluntarily resign.

As an employer should…

Jonathan Ash writes:

Waiter carrying tray of glasses
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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.

Oil pump jack and oil tank silhouette

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…

Employers may make deductions for uniforms under the Fair Labor Standards Act but such deductions cannot take their wage rates under the minimum. Life Time Fitness just learned this truism. The gym chain has agreed to pay in excess of $976,000 in back wages and damages to almost 16,000 employees whose wages fell below the minimum after these deductions were made.

Gym Treadmills
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The Wage Hour Administrator stated that “the U.S. Department of Labor takes its responsibility to ensure workers receive the wages they have earned very seriously. This agreement will put thousands of dollars where they belong — in the pockets of hardworking people and their families.”

The agreement applies to workers at locations in 26 states. The Company will pay back $11,899 to 363 workers across three locations in Minnesota and $476,329 to 15,546 employees at locations in 26 states for a total of $488,228 in back wages. The Company will also pay a sum equal to the wages in liquidated damages and was also assessed Civil Money Penalties of almost $100,000 for these FLSA violations.

The Company has self-corrected. More than a year ago, the Company voluntarily ceased compelling employees buy their own uniforms. A Company spokesperson stated that “we are pleased to have since reached a resolution with the Department of Labor that was acceptable to all parties.”

The Takeaway

The minimum wage is inviolate. Deductions can never reduce an employee’s wage rate below that basement level. Moreover, each State has their own rules, often times stricter than the FLSA, concerning “illegal” deductions. Thus, the takeaway here is to learn the wage payment laws of each State where business is conducted and to “honor” the sacredness of the minimum wage.

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.

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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.