The issue of misclassification of workers as exempt when they might not be has been around for a very long time. Another class of such workers has been certified in the health care industry. The federal Judge has granted final certification to two classes of workers claiming they are entitled to overtime. The classes will allow more than seventy (70) client service managers to pursue their overtime claims.

The Company had argued that the guidelines it issued to assist the client service managers were not enforced uniformly, as the workers performed many different tasks, which depended on the location that worked at, as well as the supervisory policies and approach of the particular local manager they worked for. The Judge found that “while the existence of uniform policies is not dispositive, it is strong evidence to support plaintiffs’ burden of showing how they are similarly situated.”

The employees allege that they spend the vast amount of their time, between 70-95%, performing non-exempt duties. They allege that “from corporate documents and corporate admissions, to seven plaintiffs’ depositions — shows that those CSMs who joined this lawsuit spend most of their time performing substantially similar, non-exempt tasks.”

The Company countered by asserting that there existed too much individuality amongst the alleged class to allow for such certification. The Company contended that each of the plaintiffs worked at different places in a network spanning thirteen (13) States, with each facility having its unique staffing levels and different supervisors giving varying guidance about the work and timekeeping. The Company stressed that there were sufficient differences in the duties and workloads of the plaintiffs to undermine the contention that they were all “similarly situated.” Although there was a policy book, the Company asserted that was no evidence that all of the Client Service Managers were treated the same. The case is entitled Ivanovs et al. v. Bayada Home Health Care Inc., and was filed in federal court in the District of New Jersey.

The Takeaway

I think the Court got it wrong. As I have written about many times, the best attack against certification is the contention that too much individual scrutiny is needed and/or that the employees are too dissimilar to warrant inclusion in an overall class working under a single, overall policy. The employer here seemed to make that case very cogently with a good deal of factual foundation.

It’s a shame…

I have written a few times on the new, very aggressive, enforcement measures that the New Jersey legislature has recently taken on the issue of misclassification. On this troubling note, I just read an article where other management-side employment law attorneys also recognize that these so-called workplace protection laws can do tremendous damage to their clients and may have the unintended consequence of causing businesses to fold or flee the State. The goal, it seems, is to replenish the Unemployment Insurance compensation fund which has been badly depleted by payments emanating from the waves of unemployment resulting from COVID-19.

The attorneys, as have I, have focused on the new laws passed several weeks ago which have made a tough situation for employers even tougher. These laws provide for stop-work orders at all of an employer’s locations, not merely the “offending” one (i.e. where misclassified workers are being used) and heavy, daily, fines for entities that do not adhere to a shut-down order.

Although the proponents of law praise it as a means to further protect workers, under our view, the management view, the laws are unusually harsh, even for an Administration that has been markedly pro-employee and a hard place for employers to do business in, much less thrive. As one commentator aptly noted, “a small employer who gets hit with one of these could easily be put out of business.” The laws are targeting the construction industry and other industries “suspected” of being permeated with misclassification, such as trucking and health care.

The push for more enforcement has been on the radar for employment attorneys for some time now, as the State must replenish billions of dollars it paid out in UI benefits this last eighteen months. Other commentators have also noted the State’s need for replenishing UI funds as the motivation for these draconian measures. There have been more than one million UI claims filed between March-June 2020, when the pandemic raged and that led State authorities to realize even more that a great deal of money was being “lost” through alleged misclassification. The four statutes, all enacted July 8, 2021, add to the misclassification legislation that had already been enacted by this Administration.

The Takeaway

The New Jersey Department of Labor now has greatly enhanced abilities to go after employers it believes are not properly classifying employees. In this regard, the agency may take employers to court and seek injunctive relief as well as attorney fees. Such attacks would increase legal costs for employers dramatically. The agency, as another commentator noted, is sending “a message to employers that the DOL has greater authority and additional remedies at its disposal.” If proof was needed, the agency (on August 10) raided a Jersey City construction site under the powers given to it under the law and shut the work down.

I’m afraid it’s only the beginning…

I read an interesting post in the Seyfarth Shaw blog about out-of-state employees and their ability to become part of a FLSA collective/class action. The FLSA allows individuals to bring suits claims for overtime violations “for and in behalf of’ themselves and other “similarly situated” employees. Often, in these cases, there are but a few resident plaintiffs in the jurisdiction where the case is filed and dozens/hundreds of out-of-state employees. The proper jurisdiction for these suits, as the Seyfarth post notes, became open to debate after a US Supreme Court 2017 decision in Bristol Myers Squibb v Superior Court. In that case, many of the class were nonresidents and the Court held that the similarity in claims was an “insufficient basis for jurisdiction.” As there was no connection between the forum and the out of State claims, an essential element of due process was absent.

After this, employers fighting FLSA collective actions have sought to use the Bristol-Myers rationale. The Courts have been fleshing out the meaning, with more than four dozen federal courts opining on the subject, breaking roughly fifty-fifty on the issue. Well, now, two Circuit Courts of Appeal have chimed in. On August 17, 2021, in Canaday v. The Anthem Companies, Inc. the Sixth Circuit held that a court cannot exercise specific jurisdiction over FLSA suits where the conduct was “unrelated to the defendant’s conduct in the forum state.” The very next day, the Eighth Circuit came to the same ruling in Vallone v. CJS Solutions Group LLC.

These courts started with the premise that service of process was a condition precedent for exercising authority over a defendant employer. There can be countrywide service (and many laws have that component) but the Fair Labor Standards Act does not. Under Federal Rule of Civil Procedure 4(k), there are limits constraining effective service within the limits prescribed by a forum state’s long-arm statute and, derivatively, the Fourteenth Amendment’s Due Process Clause.

These cases stand for the proposition that the power to exercise jurisdiction under that amendment is limited. A court may assert so-called “all purpose,” jurisdiction over a defendant where the corporation is situate or where it was incorporated. Alternatively, a court may assert “case-based,” jurisdiction if the allegation “arises out of or relates” to the employer’s conduct or activity in its home forum. As neither named plaintiff sought to litigate in the home jurisdiction, they could only rely upon specific jurisdiction to launch their suit, which the Courts concluded did not exist.

The appellate Courts also rejected the contention that the collective opt-in procedure of the FLSA circumvented that “problem.” They concluded that even the opt-in plaintiffs were required to individually prove that their own claims were linked to the actions of the company in its home State. The Circuit Courts concluded that no such showing could be made as the named plaintiffs did not work in the corporate home State. Thus, the Courts held that where “nonresident plaintiffs opt in to a putative collective action under the FLSA, a court may not exercise specific personal jurisdiction over claims unrelated to the defendant’s conduct in the forum state.”

The Takeaway

These decisions point the way for employers to curtail the scope and size of FLSA collective actions. There is another case pending in the First Circuit and this will also clarify (or confuse) this crucial issue of personal jurisdiction. The issue may end up in the US Supreme Court and likely will. For employers, this is welcome news and another tool, an offensive tool, (as opposed to the usual defensive ones) to fight collective and class actions.

The more weapons we have, the merrier…

The New York City restaurant industry has, over the last several years, been hit with a flood of lawsuits. Many of these have focused on illegal tip pools but many have also alleged that employees were misclassified as exempt. These cases often generate large liabilities for employers and must be avoided. A recent example of this trend is a suit against a famous chef, Salt Bae, who is charged with misleading five workers to emigrate to the United States only to then misclassify them as exempt to not pay overtime. The case is entitled Ok et al. v. Nusret New York LLC et al., and was filed in federal court in the Southern District of New York.

The workers claim they worked at various Nusr-Et steakhouses for as many as ninety (90) hours per week, Cooks in restaurant kitchenbut were never paid overtime, which would violate both the Fair Labor Standards Act and New York laws. The Complaint, filed by well-known employee advocate Louis Pechman, alleges that “upon their arrival in the United States, defendants assigned plaintiffs to work grueling hours in nonmanagerial griller positions at the restaurants. Throughout their employment, defendants misclassified plaintiffs as exempt workers to avoid paying them legally required overtime pay, instead unlawfully paying plaintiffs on a salary basis.”

The workers emigrated from Turkey because the chef urged them to do so. He submitted letters to the immigration services to assist them in those efforts. When they arrived in America, however, he allegedly compelled them to sign a document in which they acknowledged they were “sous chefs” and, as stated in the Complaint, the document they signed “falsely [indicated] that [they] would have supervisory and management authority in their roles at the restaurants.” This was a fiction, alleged the workers who claim they had no managerial powers or functions but simply grilled meat.

The workers alleged they worked at least seventy-two (72) hours per week and were paid a fixed salary, but no overtime. They also allege that when Salt Be was present, their hours per week rose to ninety (90). They also allege that Salt Be used “an aggressive managerial style, frequently cursing at plaintiffs and blaming them for the other employees’ mistakes.” They also alleged they had to stay overnight at the restaurants to make sure there was no vandalism during the George Floyd protests of last summer in the City.

The Takeaway

As Mr. Pechman stated (and he is right) these misclassification controversies occur quite often in this industry. It is black-letter law that just calling someone a Manager or a “sous chef” and compensating that person via a salary does not convert that person to an exempt employee. The employee must also perform the job functions (e.g. hiring, firing, etc.) that managers do to qualify for the exemption. If they do not perform these duties, the employer is inviting the kind of lawsuit discussed herein.

And increasing its potential for damages….

This is an interesting and rather unique situation. Two lawyers who represent a putative class of workers who filed a class action under the Fair Labor Standards Act now want to withdraw from the case. They assert that they have had no contact with their clients, the named plaintiffs, for many weeks. The workers are suing a cannabis company and they allege the employer did not pay them for so-called donning and duffing time. The case is entitled Dutcher et al. v. Cresco Labs Inc. et al. and was filed in federal court in the Northern District of Illinois.

The lawyers told the Judge that withdrawing was their “only alternative” as they have tried to contact their clients in many different manners (e.g. phone, text, email). Their clients also must comply with certain discovery demands and the lawyers are also unable to do that because of the lack of communication. The lawyer stated that “we feel at this point it’s impossible to prosecute this case on their behalf when they’re clearly not interested in participating in this litigation any longer.”

The Company had filed a motion to dismiss the breach of contract claim which was to be argued but that was postponed. The Judge noted that whether there was a valid contract “was going to be a very interesting matter, but it will have to wait for another case.” The Judge admonished the plaintiffs, asserting that he will direct them to explain why their entire suit should not be dismissed based on their failure to respond to discovery.

The suit was a traditional donning-and-duffing case, with workers claiming pay for the preliminary activity of changing into protective clothing before their shifts started, as well as a “mandatory on-site pre-shift health screening procedure.” They also claimed they did not get lunch time because of the time it took to change out of and then back into their gear. The Company claimed that a class certification was completely inappropriate because the Court would be required to apply different state laws to class members, who work in nine States where the Company maintains facilities. The workers want to represent a nationwide class and a separate class of Massachusetts based workers.

The Takeaway

Maybe these lawyers got too far out in front of their own case. Maybe they should have made sure that their so-called representative plaintiffs, i.e. the named plaintiffs, were ready to see the thing through and, at a minimum, cooperate with them and the judicial process by complying with basic discovery demands. Maybe now, the entire case goes down.

A thorny issue for employers is training newly hired people, then having those people quit (for whatever reason) and being stuck with the training costs. What can the employer do? I think there are few options, but one option, a risky one, is to not pay the employee or withhold their pay when they leave. A recent case is testing whether that strategy is legal. The case is entitled Barker v. K. Dolan Conveyor Co LLC et al. and was filed in federal court in the Western District of Pennsylvania.

An ex-employee, a technician for a conveyor company, filed such a suit, seeking two weeks pay he claims was illegally withheld to “pay” for the costs of the training. He claims violation of the Fair Labor Standards Act, the Pennsylvania Minimum Wage Act and the Pennsylvania Wage Payment and Collection Law. He alleges that “as a result of not having paid any wage whatsoever to plaintiff for his final week[s] of employment with defendants, defendants failed to pay the plaintiff all wages due and owing.” The worker earned $14 per hour.

The employee claimed that when he quit, he did not receive his last two weeks’ worth of pay. He claims the Company’s position was that he had to compensate the Company for the costs of his training. He is suing the Company, an affiliate as well as the owner, personally. He seeks back pay for the lost wages, plus liquidated damages.

The Takeaway

This might be a problem for the Company. The costs of training are costs that a Department of Labor or a court might well conclude are business costs that the employer must bear and cannot be passed along to the employee or deducted from his wages. If the employer has been doing this all along, there may well be a class action brewing. One solution may be to have the employee sign a statement where he acknowledges that the training is for his benefit and he is voluntarily acknowledging that he is learning skills he might take with him, thereby giving a deduction or pay back policy some legal foundation.

It’s worth a try…

The issue of payment (or not) for undergoing security checks has been a hot item of late, especially since the US Supreme Court issued its momentous decision in Integrity Staffing Solutions v. Busk. Now, these controversies have taken on a new tweak with COVID-related screenings. In a recent case, a group of workers are suing, requesting payment for time spent going through security and COVID-19 screenings. The Company defends by asserting that the activity is not integral to the employees’ regular jobs and the time is de minimis. The case is entitled Pipich v. O’Reilly Auto Enterprises LLC, and was filed in federal court in the Southern District of California.

The Company has filed a motion to dismiss, relying on the holding and rationale of Busk. The Company maintains that the addition of allegations relating to COVID screening (plus the security check time) did nothing to alter the dispositive applicability of the Supreme Court holding. The COVID-19 screenings were intended to maintain a safe workplace by keeping workers and customers safe by keeping symptomatic workers out of the workplace and thus preventing the spread of the disease.

The Company argued that “because these COVID screenings are meant to prevent symptomatic team members from working in the first place, they cannot be considered integral or indispensable to the team member’s work. As the Busk court explicitly explained, ‘preshift screening[s] conducted for employee safety’ are not compensable under the FLSA.”

The named plaintiff seeks a class of current and former workers who went through a COVID-19 screening or security inspection in the three-years before Complaint filing. The workers claim that the Company “implemented an illegal policy requiring its nonexempt workers to undergo a COVID-19 screening each shift without pay. This physical and medical examination constitutes compensable time that was worked by the plaintiffs and class members.”

The Takeaway

    There have been a number of these lawsuits working their way through the courts with varying results. Some have settled. Some have relied exclusively on the de minimis argument which I think is problematic. I do not believe the de minimis argument is the winning one here. I believe the best theory is that the activity is not integrally related to the primary job. Yet, in a motion to dismiss an employer wants to set forth every defense it has.

    Only takes one to win…

I have often blogged about the very enforcement-oriented stance of the Murphy Administration and the New Jersey Department of Labor (“NJDOL”). Well, I have now even more evidence. On July 8, 2021, Governor Murphy signed three bills into law that broaden the agency’s power to enforce State wage, benefit, and tax laws.

The first law, A-5890/S3920, which takes effect immediately, gives the Commissioner, at his “sole discretion,” the power to bypass the Office of Administrative Law and bring an enforcement action for any violation of State wage, benefit and tax law in Superior Court. Upon filing a complaint, the Commissioner may seek an injunction against the employer. Additionally, any entity that fails, for any reason, to furnish information required will be guilty of a disorderly persons offense and may be fined $1,000. Each day that the entity fails to furnish records will constitute a separate offense. Previously, an employer or its agent would only be subject to penalties for a willful failure to furnish information required by to the commissioner.

A-5890 also provides for much more punitive stop-work orders. If the Commissioner determines that an employer is in violation of any State wage, benefit or tax law, the Commissioner has the power to issue a stop-work order against the employer requiring cessation of all business operations of the employer at any number of worksites, or across all of the employer’s worksites and places of businesses. A final stop-work order remains in effect until the Commissioner is satisfied that the employer is complying with State laws and has paid any penalties.

The second statute (A-5891/S3921) creates the “Office of Strategic Enforcement and Compliance” in the NJDOL. The Office of Strategic Enforcement and Compliance will oversee and coordinate enforcement of State wage, benefit, and tax laws across the divisions of the NJDOL and between the agency and other State agencies. The new law requires the NJDOL to determine whether an individual has any outstanding liabilities to the agency (i.e., unpaid contributions to unemployment compensation fund or state disability benefits) as a precondition to awarding the individual direct business assistance from the department, or for the NJDOL to provide a report to another state agency or entity that the business is in good standing. If the department determines that the person has any outstanding liabilities, the application for business assistance will be denied.

The third law (A-5892/S3922) takes effect on January 1, 2022 and makes misclassifying employees for the purpose of evading insurance premium payments a violation of the New Jersey Insurance Fraud Prevention Act (“NJIFPA”). For example, if an employer purposely or knowingly “makes a false or misleading statement, representation, or submission, including failing to properly classify employees in violation of state wage, benefit and tax laws, for the purpose of evading the full payment of insurance benefits or premiums.” A person or business found in violation of the NJIFPA will be liable in a civil action for a penalty of $5,000 for the first offense, $10,000 for the second offense, and $15,000 for each subsequent offense.

The Takeaway

    The new laws expand the DOLWD’s power to enforce State wage, tax and benefit laws and increase employer exposure and liability for any potential violations. Given that most of the new laws go into effect immediately, employers that use independent contractors must re-examine their worker classifications to determine if these independent contractors meet the stringent New Jersey A-B-C test that is the standard for making such determinations. With these escalating penalties and the threat if a crippling stop-work order, employers may want to shy away from using or classifying workers as independent contractors.

    Better safe than sorry…

In July 2019, the New Jersey Legislature amended and expanded the State’s wage-hour laws to give the enforcing agency the power to stop an errant contractor, especially those doing prevailing wage work, from actually doing any more work until the violations are remedied. In its first exercise of this awesome authority, the agency has directed Cunha Construction to stop doing work, across the State, based on its record of persistent and continuing wage-hour transgressions.

The DOL stated that this is the first time such a broad stop-work order has been issued; previously, such orders were issued on a project-by-project basis. The Order stays effective until the employer has evidenced compliance and paid all back-due wages to employees as well as paying the penalties assessed.

The Legislature gave the agency the power to order any employer to stop doing work when the DOL discovers major wage violations, including a failure to pay benefits or other violations. As this contractor was not a registered public works employer, the NJDOL did not possess the “tools” to bring the employer into compliance and, so this weapon was a valuable one for the agency to use. As Governor Murphy stated, “this stop-work order from the Department of Labor & Workforce Development is the first of its kind under a law signed by Gov. (Phil) Murphy to strengthen our ability to enforce the state’s labor laws. The message to employers should be clear: We are committed to using all of the tools at our disposal to protect New Jersey’s workers.”

The agency conducted field visits at two project and interviewed workers. The investigation revealed that the employer was paying off the books and by cash and also, most significantly, did not have workers’ compensation insurance. The employer was found also not to have paid overtime, did not keep proper records, paid late, and sought to impede the investigation.

The Takeaway

This is a powerful tool for the Department of Labor. In theory, the purpose is to ensure that workers are better protected from employers to seek to take advantage of them and gyp them from their hard-earned wages, especially in the construction industry where I see this power will be exercised more frequently.

Time will tell…

I have blogged many times about cases where relatively small amounts of compensation, bonus type compensation, are not included when an employer calculates the regular rate for overtime and a class action ensues. Now, this is happening with COVID-related bonuses and extra monies. A recent example is a case where a group of workers have charged that COVID compensation increases were not added into their regular rates. The case is entitled Sanchez v. Gold Standard Enterprises Inc., and was filed in federal court in the Northern District of Illinois.

The plaintiff alleges that the company, known as Binny’s Beverage Depot, promised to pay workers extra money to stay and work during COVID, but then did not include those monies when the company computed overtime. The company did not do so and thus, according to the Complaint, the employer “substantially underpaid its workforce when they worked overtime while risking their lives.”

The allegation is that the employer wanted employees to work through the dark days of the pandemic, so it promised to increase worker compensation. The employer instituted a policy under which it paid hourly workers 1.5 times their hourly rates for all hours they worked between March 15-July 4, 2020 and an extra $2 per hour for hours worked between July 5, 2020-January 2, 2021. The Company also granted bonuses for salaried (i.e. exempt) supervisors who worked through the crisis. The Complaint notes that “this compensation was well-deserved: these workers were literally risking their lives by potentially contracting Covid-19.”

The company called the extra $2/hour “temp bonus pay.” The named plaintiff claims that, regardless of the name, the monies should have been included in regular rate computations. The named plaintiff also claims that US Department of Labor has issued guidance during the pandemic that specifies that these kinds of payments must be included in regular rate calculations. He seeks a class of similarly situated workers who were not allegedly properly paid.

The Takeaway

It is a basic rule that any monies (i.e. bonus, incentive pay) that are promised to employees if they “do something,” like meeting certain production goals, or having perfect attendance for a quarter, or working through a pandemic, are includible in the regular rate under the FLSA regulations. It does not matter what the money is called, e.g. temp bonus pay. This is the kind of thing that can easily trip up an employer. On a weekly basis, on a per employee basis, these amounts are usually very small. When, however, you take a class of employees and now the sums start to aggregate and can be doubled (i.e. liquidated damages), the stakes become much higher.

Much higher…