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…

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…

 

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…

When will employers learn?  They keep classifying retail Store Managers and Assistant Managers as exempt, when these workers are often misclassified, not intentionally, but because the nature of their duties often tends to undermine the primary duty test and render them non-exempt.  Another example is a recent case where Store Managers have been granted conditional certification in their FLSA collective action.  The case is entitled Spack et al. v. Trans World Entertainment Corp. and was filed in federal court in the Northern District of New York.

The plaintiffs can now send out notices to current and former store managers so they might opt in to the case.  The plaintiffs also want a class of Assistant Managers for alleged off the clock work.  The Company, however, won that round, convincing the Judge that it was too soon to certify such a class, asserting that it had not yet been ascertained if these workers were non-exempt, which would allow them to make these claims.

The Judge appeared to reserve decision on a combined class and also indicated that the class could also be de-certified.  The Court stated that “should additional discovery demonstrate the existence of significant differences between the SMs or between the SMs and SAMs, the court can choose to deny any future motion seeking conditional collective certification of the SAMs, or, at the second stage of the analysis, decertify the collective.”

The plaintiffs met the “modest” burden at this conditional stage by submitting twelve Certifications from opt-in plaintiffs who claimed they worked 50-70 hours per week and spent the vast majority of their time performing non-exempt, low-level tasks that were not managerial in nature.  The Company also submitted statements from managers that showed they performed managerial (i.e. exempt) work and tried to undermine the plaintiffs’ statements but the Court would not allow these manager statements to bear the weight that the Company urged they should be accorded.

The Takeaway

My advice to employers is to test the duties of their management personnel, especially lower level managers, against the criteria in the FLSA regulations.  This can be done via a “self-audit” or internal audit, of which I have conducted dozens.  You also need to check the law of the particular state in which the controversy may be litigated, as the state law may be tougher than the FLSA standards, such as in California or New York.

There is a tripartite test for independent contractor under the New Jersey Unemployment Compensation statute (and many other States), the so-called “ABC” test.  Under this test, services performed by an individual for remuneration shall be deemed to be employment unless it is shown to the satisfaction of the Department of Labor that: (a) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; (b) Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and, (c) Such individual is customarily engaged in an independently established trade, occupation, profession or business. All three of the above conditions must exist; the New Jersey unemployment compensation test traditionally has been one of the most difficult to meet and the NJ Supreme Court has adopted this test.

In this case, the Employer claimed that the exotic dancers who worked at the club from 2002-2005, were independent contractors. The DOL Commissioner found that the dancers were employees because they worked for tips, which represented compensation under the statute.  The Court also found that none of the three prongs of the ABC test were satisfied.  The case is entitled Dance, Inc. v NJDOL and issued from the New Jersey Appellate Division.

The statue defined “employment” as any service “performed for remuneration or under any contract of hire, written or oral, express or implied.”  This was broad enough to encompass “all compensation for personal services, including commission and bonuses and the cash value of all compensation in any medium other than cash.”  Although wages paid by an employer were one type of compensation, tips or “gratuities” were as well.

The dancers worked only for tips from the customers.  They all signed a “State Rental/License Agreement” setting forth that they were independent contractors.  Also, they had to “lease” the right to use the club’s stage.  There was no rental amount set forth; it was also in English, with the fact that the dancers spoke only Spanish or Portuguese.

The Company claimed that the dancers were independent contractors who took no direction from the Company, could work when they wanted and came and went as they pleased.  The Court noted, however, that the website showed pictures of numerous, scantily-dressed women and gave their work schedules.  The dancers performed every night, demonstrating that they were (obviously) integral to the Club’s operation, a sure sign of employee status.

The Takeaway

These independent contractor tests, especially an ABC type test, are very hard for an employer to overcome.  That is why retaining independent contractor relationships with single-person “businesses” is often very dangerous, because these are exactly the kind of people who should be deemed independent contractors, because that is what they want.  But the law works against the entities that retain their services by imposing an onerous burden of proof on the putative employer.

Get your Sherpas and keep climbing…

In a very interesting and off-beat decision, the Third Circuit has thrown out one class of loan officers who alleged misclassification but let stand the lower court’s decision that certified the case as a collective action under the Fair Labor Standards Act.  The case is entitled Reinig et al. v. RBS Citizens NA, and issued from the Third Circuit Court of Appeals.

The panel overruled the decision that had given certification to Loan Officers across ten States who alleged that they were not properly paid for time off the clock.  However, the Court allowed the decision granting collective action certification to stand as it opined that it did not have jurisdiction over that issues as a component of the Employer’s interlocutory appeal.

The Court addressed the issue of “pendent appellate jurisdiction.”  This means that the appellate court is allowed in certain scenarios to assert jurisdiction over issues that are not allowed to be appealed independently but that are “intertwined” with matters over which the Court has jurisdiction.  The Court herein first observed that FLSA collective certification orders are not appealable because they are not final and further concluded that the order in this case was not “inextricably intertwined” with the Rule 23 class certification determination.  Thus, the Court would not exercise pendant jurisdiction over it.

The Court stated that “in so holding, we are persuaded by our prior precedent and the Second Circuit’s well-reasoned decision in [Myers v. Hertz Corp. ] that Rule 23 class certification and FLSA collective action certification are fundamentally different creatures.  Further, judicial efficiency notwithstanding, the myriad problems that could result from exercising jurisdiction in this context counsel against expanding the narrow doctrine of pendent appellate jurisdiction in the way Citizens proposes.”

The legal requirements for conditional certification of FLSA claims is less onerous than securing class certification under Rule 23.  The Court also noted that if it concluded that pendant jurisdiction could be asserted over FLSA certification, then, in the future, a party could “abuse the doctrine” by filing insipid interlocutory appeals so that litigant could get appellate review before a final decision on that issue has been rendered by the district court.

In another (very) interesting twist, the Third Circuit criticized the lower court for not doing its job of specifying the particular classes and claims that were involved.  Indeed, the Court stated that it was compelled to “comb through and cross-reference multiple documents in an attempt to cobble together” the classes and claims that might be amenable to class adjudication.

The Takeaway

Rule 23 claims are harder for a plaintiff to establish as a class.  The danger is that the Rule 23 action is an opt-out, not an opt-in, as a FLSA collective action is; everybody is in except for a handful that might opt out.  It is an interesting twist because I think the Court is right—there would be defendants/employers who would utilize this vehicle as a poor man’s way of getting the collective action certification issue examined sooner rather than later.

Sounds only like good lawyering…