This Sunday was Daylight Savings Time and we pushed the clocks ahead by one hour. This is, on a human level, a welcome event, as it signals winter’s end.   Now, I can fling away any vestiges of Seasonal Affective Disorder and turn my attention to outdoor activities.   Employers, however, must be vigilant on the particular day that this event takes place, as there is a FLSA implication to it.

The US Department of Labor has issued an Opinion Letter in 1967, but it remains the USDOL position, addressing the issue of whether overtime is due when employees work the shift during which the clock changes from 2AM to 3AM. Ostensibly, this adds on an extra hour to the shift, making an eight hour shift a nine hour shift, but the employee is actually working only seven hours not eight.  There also is the issue of whether the payment for the extra hour must be included when computing the regular rate for purposes of overtime calculation.

The DOL opined that the payment of the additional hour’s pay to the employee who works the seven-hour shift at the beginning of the change to daylight saving time need not be included in the regular rate of pay in accordance with Section 7(e)(2) of the FLSA.   Since this extra compensation is not being given for actual work performed, the payment was not made as compensation for the employee’s hours worked in the workweek and thus it need not be included when the rate for overtime is computed.   Conversely, no part of such payment could be credited toward overtime compensation due, if the aggregate hours worked during the week equal or exceed forty hours.  The key point is that the worker is only working seven hours in the spring-forward scenario.

However, the Opinion Letter also warns that, at the end of the daylight saving period, the employee working the nine hour shift must receive pay for the nine hours and all such time must be counted in determining the hours worked in that workweek.

The Takeaway

This is the kind of hidden landmine that employers may stumble on and not pay people correctly, either overpaying them or underpaying them.  It is indicative of the many nuances in FLSA law that employers need to look to counsel for guidance.

Enjoy the additional sunshine!

It is amazing to me that employers still do not understand that there exists an inviolate obligation on their parts to pay proper overtime.  It is not proper for an employer to believe that if it treats its employees “well,” or if its business is “green” and it tries to do the right thing by the environment, this means that it cannot pay overtime.  A recent example of this trend is a Georgia slaughterhouse that has now settled a case (for $100,000 in wages) to resolve allegations from workers who claimed they were shorted on overtime pay.  The case is entitled Travis Taylor, Terry Barrows, and Layton Ferrell Duke v. White Oak Pastures, Inc. and was filed in federal court in the Middle District of Georgia.

A class of thirty-four (34) workers will receive payments, which will range between $191-16,000.  Their payouts depend on how long they worked at the employer, which is typical for class action settlements, which often come down to the parties agreeing on a formula for payouts, rather than an individualized study of each employee’s situation.  The lawyers for the class will receive $127,500 in fees, more than their clients will receive in wages.  As is typical in these cases (and crucial for the employer), the Company does not have to admit it violated any law.

One collective action was filed in September 2015 and another in 2020.  The settlement includes workers in both lawsuits.  The workers were assigned to the red meat abattoir, on the kill floor.  The allegation was that they were supposed to work from 7AM-6PM, with one hour for lunch, but they were nevertheless compelled to work until all of the cows were slaughtered.

The Judge had rejected an earlier settlement.  He found that the employees were being asked to release claims other than those dealing with overtime and the lawsuit, such as age discrimination claims, etc.  The parties then revisited the Releases and drafted one focused more sharply on just the overtime allegations.  The Judge found that more to his liking, stating that the “scope of this proposed release provision is reasonable.”

The Takeaway.

The Company characterized its business as a “fair, sustainable and humane” farm.  The Company also was proud that it was a so-called zero-waste operation where even the bones of the cows were used to make bone-meal fertilizers for organic fields.  Both of these are commendable, but what would be even more commendable is if the Company paid proper overtime.

Now, that is something that is fair and sustainable…

I have often said that the USDOL is a politically charged industry and its view on legal issues (much like the National Labor Relations Board) shifts with the Administration that is in power.  For example, under the prior administration, the agency took a pro-business stance and issued pro-business Opinion Letters on independent contractor and working time issues.  Well, a new day has dawned at the agency with a retreat by the USDOL on these and other matters.

It is as simple as withdrawing the Opinion Letters.  On February 19, 2021, the USDOL rescinded these letters, showing that the pendulum is swinging back towards employee interests.  The first Opinion Letter (FLSA 2019-6), dealt with independent contractors for a virtual marketplace company; that letter favored independent contractor status for these workers within the parameters of the Opinion Letter.  This letter followed the agency’s February 5, 2021 announcement of a delay in the issuance of a final rule on this very important topic.

The second Opinion Letter related to working time issues, in particular whether sleeping time for truckers was compensable.  That pronouncement (FLSA2019-10) had opined that the sleeping time was presumptively non-compensable, if there was a sufficient showing that the worker was relieved if all productive duties and there were adequate facilities.  The agency believed, now, that the Opinion Letter was inconsistent with the USDOL decades old view that employees could go as much as eight hours in a sleep mode, without needing to be paid for the time.  Other letters on this topic, which FLSA 2019-10 had “overturned,” were now reinstated.

The Takeaway

The withdrawal of these letters is an indication of how the USDOL swings in the winds of political change.  Although these letters might provide a safe harbor for alleged offenses occurring while they were in force (which was not that long) now they are “history.”  The more salient point is that employers need to expect (and prepare for) a wholesale expansion of FLSA rules and rulings in favor of employees, starting with a tightening up of the definition of independent contractor.

Stay tuned and be aware…

I have settled numerous FLSA cases and note that there are many elements that management-side lawyers always want to see in such a document.  One is a confidentiality provision as we do not want the employee “shooting his mouth off” over what he received in settlement.  We also want as broad a Release as possible so we never run the risk of being confronted by this worker again in a court.  Well, these goals, laudable as they are, are proving more difficult to achieve given the stance of federal courts on such provisions.  A recent New Jersey case illustrates this point.  The case is entitled Hudson v. Express Transfer & Trucking and was filed in federal court in the District of New Jersey.

In this case, the parties settled on August 10, 2020 and requested that the Court approve the settlement as required.  Included in the Release were a limited confidentiality provision, non-disparagement and neutral reference provisions.  The limited confidentiality provision provided that the parties, if asked about the lawsuit, would respond that “the matter has been resolved” and that the employer could seek equitable relief in court for a violation.  The general release provided that the plaintiff gives up his claims under the Family and Medical Leave Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1991 and the New Jersey Law Against Discrimination.

The Court noted that many courts had found such provisions unenforceable, especially in the District of New Jersey.  The Court observed that such provisions undermine fundamental purposes of the FLSA.  In one case, the confidentiality provision prevented employees from speaking to anyone about the contents of the settlement and compelled them to tell anyone who asked that “the matter has been resolved and I cannot talk about it.”  In another case, the Judge noted that this kind of “compelled silence” allowed employers to “thwart the informational objective of the notice requirement by silencing an employee who has vindicated a disputed FLSA right.”  The court in that case concluded that this provision potentially allowed employers to retaliate against employees for the vindication of their FLSA claims by allowing employers to sue the employee if they spoke about the agreement.

The Court also rejected the broad release provision as possible including future employer FLSA violations that could occur after the signing of the Release and observed that the FLSA was enacted in part to address “inequalities in bargaining power between employers and employees” and that this salutary purpose was endangered by such broad waivers of FLSA rights.  The Court noted that another court had rejected a release provision in a single plaintiff FLSA action because it purported to release any and all claims the plaintiff may have against defendant, and the court had no information regarding the potential value of such released claims so as to evaluate fairness.

Conversely, the Court pointed to another case where a court approved a Release because it was limited to future claims related to the specific litigation at issue and did not incorporate any FLSA claims) and another case where a court approved a release provision in a FLSA collective action because it was limited only to the claims in the subject litigation, and noting that the parties intentionally narrowed the scope of the release because they knew that general releases are disfavored in FLSA settlement agreements.

The Takeaway

The Court believed that the confidentiality provision and the release provisions were overbroad and contravened the “public-private character” of employee rights under the FLSA and served to “nullify the purposes of the Act.”

Attorneys need to be aware…

As a general rule, employee expense reimbursements are not includible in the regular rate for purposes of overtime computation.  When the reimbursements, however, are unreasonable or out of whack (i.e. too high) as regards the particular expense, then the USDOL takes the position that the reimbursements are really a backdoor way of paying the employee a higher wage and not having to pay overtime on that higher wage.  In a recent case testing this concept, the Ninth Circuit has determined that per diem sums paid given to employees for meals, incidentals and housing while they were assigned out of town can be deemed “wages” and therefore includible in the regular rate.  The case is entitled Clark v. AMN Services, LLC, and issued from the Ninth Circuit Court of Appeals.

The per diem payments were given to workers who worked more than fifty miles from their home base.  The policy provided that the workers were given the per diem allowances if they worked only the week’s shifts required under their contract.  If the employees worked more shifts than anticipated, they were allowed to “bank” those additional hours for the next week when they did not work a full week; if they worked fewer shifts, the per diem allowances would be reduced proportionately given the missed shifts/hours.

The Court looked at the issue of whether the employees were receiving the per diem as reimbursement for expenses or whether it was compensation for working hours.  The Court concluded that the monies were for hours worked.  There were three reasons.  The first was that the Company was paying a per diem for seven days’ worth of expenses, whether or not the employee actually had “expenses” e.g. hotel, on those days.

The Court also noted that the workers could “bank” hours and therefore receive the per diem payments for days they did not work and were (obviously) not paying any expenses.  Lastly, and significantly, the Company paid the traveling employees and those that did not travel, the identical per diem allowances.  The Company treated the payments to the workers who did not travel as wages, which indicated that the per diem payments were, really, additional wage payments, rather than valid expense reimbursement.

The Takeaway

The per diem payments here were not connected to expenses actually incurred by the employees and thus were deemed extra compensation, which had to be included in the regular rate for purposes of overtime compensation.  Any expense reimbursements must have some direct and reasonable connection to the expenses actually incurred by the workers in order to pass muster under the FLSA.  Otherwise, these “reimbursements” will be deemed wages and the employer will face unexpected liability and if this policy applies to many workers, the employer will face a class or collective action.

That will involve a lot of “expenses” for the employer…

I do a great deal of prevailing wage defense on behalf of employers, both on a federal level (i.e. Davis-Bacon Act) and the State of New Jersey prevailing wage statute.  It sometimes seems that trade unions are able to aggressively lobby the NJDOL to take administrative actions that militate against non-union employers or make it harder for such employers to conduct their construction businesses.  One prime example of this is the law that mandates construction contractors (e.g. those doing public work) to be affiliated with an apprenticeship program.  Well, a trade association, the New Jersey Electronic Life Supply Association (“Association”), represented by my Partner, Beth Hampton, has now challenged that requirement in federal court.  The case is entitled Centcom Corporation et al. v. New Jersey Department of Labor and Workforce Development and was filed in federal court in the District of New Jersey.

The suit alleges that this requirement precludes Association members, particularly smaller entities, from meeting existing contracts and was really a boondoggle to the trade unions, which are very powerful in New Jersey.  The Complaint notes that “this preference was enacted … to reward political favor and to ensure that every public contractor in the state of New Jersey was part of and contributed to a union, and for no other legitimate purpose.”

The Association maintains that the apprenticeship requirement impermissibly favors union contractors, because one manner to secure compliance with this mandate is to be in a collective bargaining relationship with a Union, as the unions have access to various government-approved apprenticeship programs.  Members of this Association, made up of companies that install safety systems (e.g. fire detection), have the additional obstacle that the US Department of Labor has not sanctioned an apprenticeship program for entities that install safety systems.

Thus, these companies cannot renew their registration certificate with the NJDOL, which allows them to perform public work.   As a result, the entities cannot service the systems that they themselves installed.  The Association alleges that because these systems are unique, the State would be compelled to install new safety systems in many public buildings.

The Association charges that this apprentice requirement violates the contracts clause of the U.S. Constitution, a clause that precludes the States from enacting laws that impede the performance of contracts.  The Association also charges that the statute violates the due process clause by, de facto, stopping these companies from conducting their businesses as well as the First Amendment by discriminating against contractors based on their association (or lack of such association) with a union.  The plaintiffs seek declaratory and injunctive relief, i.e., an order declaring the law unconstitutional.

As Ms. Hampton aptly put it, “hardworking small business owners who have invested their life’s work in building a business from the ground up and who have for decades established and worked under contracts with municipalities, boroughs and cities in our state are being deprived by state law from continuing existing contracts unless they establish an apprenticeship program.”

The Takeaway

The prevailing wage laws are, in a sense, the great equalizer.  Employers, whether union or non-union, must pay the same wages and benefits on a public project.  So far so good.  But, the NJDOL has not only expanded the definition of “public work” but has also enacted measures that seem to facilitate union organizing.  Like this apprenticeship rule.

We’ll see where the lawsuit goes…

I have been praising the Opinion Letters which have, of late, been issuing from the US Department of Labor because, candidly, they are displaying a business friendly attitude, or should I say, a pragmatic approach to the thorny issues employers face in the maze of USDOL regulations.  Well, this may all change as President Biden has selected Boston Mayor Marty Walsh as the Secretary of Labor.  He is clearly a friend of labor, as he was the head of the Boston Building and Construction Trades Council.

Union leaders were quick to praise the pick.  Richard Trumka, the head of the AFL-CIO, stated that “it will take an unprecedented effort from the president-elect and the Labor Department to recover from the failed policies of the past four years, which have harmed working people and our families.  But with Joe Biden and Marty Walsh, we are setting our sights high.”  Randi Weingarten, who leads the American Federation of Teachers asserted that Mr. Walsh would be “a crucial addition” to the Biden administration.  She lauded the fact that “he’s walked picket lines and knows workers’ struggles and power when they come together…”

The new Secretary will face an agency that has issued a number of pro-employer rulings and Opinion Letters.  These include a regulation just issued as final which addresses the thorny issue of independent contractors.  Also, as I have written about often, a number of business friendly Opinion Letters have issued as well, which this Secretary may look to rescind.

Employer and business proponents criticized the selection.  Virginia Foxx, R-N.C., who sits on the Education and Labor Committee, stated that the pick of Walsh “raises significant concerns” that the new administration will move vigorously on a $15 minimum wage and other supposedly anti-employer policies.  Another commentator observed that, in his view, Walsh is “moderate only in comparison to the other radical individuals reportedly considered for the Cabinet position.”

The Takeaway

I hope that the USDOL continues to issue Opinion Letters which are very helpful and instructive in guiding employers towards compliance.  My fear is that the agency will either stop that procedure (as was done by the Obama Administration) or that their tone and conclusions will be less than business friendly.  Other changes like this are, not may, coming down the pike, and all we can do is wait to see what they are.

With bated breath…

There has been a lot of action lately from the USDOL on the issue of the Section 7(i) exemption from overtime (29 USC 207(i), the so-called commission exemption.  One of the basic requirements for an employer trying to claim this exemption is that it must be in a “retail business.”  Until May 2020, this was a hard test because the agency had (for decades) included in the regulations governing Section 7(i) a listing of businesses that did not have a retail quality.  In May 2020, the agency rescinded those lists, opting to allow the analysis to be governed by the general criteria applicable to these issues.  Now, the agency has, essentially, followed its own new tenets and ruled in an Opinion Letter that employees of staffing firms may be eligible for the commission/retail exemption.

As Wage and Hour Administrator Cheryl Stanton noted, a “typical staffing firm,” meaning an entity that sends temporary workers to clients could, in fact, qualify as retail or service establishment.  The Administrator went through the three factor standards utilized in these issues and she concluded that staffing firms could be found to: 1) sell goods and services; 2) at least 75% of which could be “recognized by the industry as retail;” and, 3) these entities receive no more than 25% of their business from resale.

Ms. Stanton noted that the DOL had (in May 2020) rescinded the decades-old lists of businesses that might or might not qualify as retail.  She explained that the lists were rescinded after numerous courts wondered whether they continued to have usefulness.  However, the Administrator observed that whether a staffing firm was, in fact, a retail or service establishment was very dependent on the particular circumstances of that company’s operation.

The Takeaway

I welcome this holding and hope that the trend continues.  The longstanding definition of a “retail or service” business is outdated and not suited to a modern, high tech, society.  The listings had made courts prisoners of the agency’s view, from decades ago.  Now courts, and the agency, will be allowed to gauge the circumstances how a business operates against the designated statutory and regulatory criteria.

Keep up the good work!

I have often lamented how easy it seems for plaintiffs to secure conditional certification in a FLSA collective action.  A few Affidavits, often identical in content, are produced and then, voila, the plaintiff gets conditional certification which then inordinately complicates matters for the employer and makes litigating the case and, of equal import, settling the case, that much harder (and more expensive).  Well, the Fifth Circuit might have just signaled that a change, a new day, is coming on this front.  That Court just set out a protocol for certification that requires a district court to “rigorously scrutinize” purported similarities among plaintiffs from the commencement of the collective action.  The case is entitled Swales et al. v. KLLM Transport Services LLC, and issued from the Court of Appeals for the Fifth Circuit.

In a published opinion, meaning it is precedential, the Judges criticized the current conditional certification process as overly lenient for the plaintiffs and that it “frustrates, rather than facilitates” the collective action process.  In response, the Court set forth a series of guidelines to “require” that a lower court request preliminary discovery on certain fundamental issues and then render a final decision regarding certification to allow the case to proceed, or not.  This framework allows a court to resolve possibly dispositive, initial, issues that would now normally be held in abeyance at the conditional certification stage.

As the Court stated, “in our view, a district court must rigorously scrutinize the realm of ‘similarly situated’ workers, and must do so from the outset of the case, not after a lenient, step-one ‘conditional certification.  Only then can the district court determine whether the requested opt-in notice will go to those who are actually similar to the named plaintiffs.”

The plaintiffs alleged that they were misclassified as independent contractors.  The lower court Judge granted conditional certification but then, sua sponte, certified the decision for appeal, observing that “few areas of the law are less settled than the test for determining whether a collective action should be certified.  The Fifth Circuit disapproved of the so-called Lusardi test, otherwise known as the “Goldilocks” approach to the two-step certification test.  Under this standard, the lower court grants conditional certification prior to discovery being conducted and then revisits certification question later, where it renders a final decision on whether to sustain that earlier decision.

Pursuant to the new standard, the lower court is now required to identify any facts and legal issues that may be pertinent to the certification question and direct that discovery be done on those issues.  After discovery, the court could grant certification, or rule that the purported class members were too dissimilar to merit certification or establish certain sub-classes.  Lastly, more discovery could be ordered.

The Takeaway

This case, if picked up on by other Circuits, could have a major impact on the manner in which certification is, or, rather is not, granted.  Maybe there will come an end to the facile, easy manner in which plaintiffs nowadays secure conditional certification, putting that much more pressure on the defendant employer to capitulate, I mean, settle.

Maybe the pendulum is swinging back a little…

In class actions there is always a named plaintiff (or two or three, etc).  That person acts as the class representative and is the “flagship” for the entire case.  When that individual does something to jeopardize their status as such a “representative,” the entire case might go away.  That is precisely what happened in a recent class case for alleged unpaid overtime where the named plaintiff contradicted her deposition testimony, tried to change it to better bolster her case and failed.  The case is entitled Tam et al. vs. Federal Management Co. Inc. et al. and issued from the Massachusetts Appeals Court.

The plaintiff here tried to, through the “abundant” use of the errata sheet, used to correct ostensible errors in a deposition, to make wholesale changes in that deposition testimony, where she admitted that she may have been exempt from overtime, in diametric opposition to her claims and theory of the case.  Thus, her tactic came under the sham affidavit rule, which precludes a party from undermining their own deposition testimony so as to manufacture a factual dispute that would preclude summary judgment.

As the Judge aptly stated, “she admitted to subsidiary facts that contradicted her earlier statements and then ultimately had to acknowledge the opposite of what she initially had asserted.”  The Judge then added that “given that the sham affidavit rule applies, Tam’s admissions about the nature of her job stand uncontradicted.  There is, therefore, no genuine dispute as to the material fact that her job qualified as an exempt administrative position.”

The plaintiff, a property manager, submitted a 32-page errata, far after the due date for such a submission.  She claimed her deposition was paused, not completed, which made her submission timely.  The Court knocked down that argument quickly.  On the merits, the Court noted that the plaintiff changed “no” answers from her deposition to “yes” and other answers from “yes” to “no” more than more than 60 times.  As to fifty of the changes, the plaintiff claimed she either misunderstood a question or found it confusing.  The Court shot that down as well, stating that “nothing in the deposition transcript suggests that the relevant questions were posed to Tam in a manner that overbore her will or that even could be characterized as intimidating, that the questions themselves were unclear, or that she failed to understand them.”

The Takeaway

What the plaintiff was trying to reverse was her admission that she was exempt from overtime based upon her job description.  The defendant’s brief labeled what she was trying to do as a “troublesome tactic” that would “undercut the very purpose of civil discovery and summary judgment.”  They were right.  This case serves as an object lesson for plaintiffs and lawyers when undertaking lawsuits on exemption issues.

Take heed plaintiffs (and their lawyers)…