I have often written about the scourge of Assistant Manager class actions. The employee category is particularly subject to this kind of lawsuit as these workers often perform some non-exempt work and it is unclear many times if they possess and exercise sufficient and proper supervisory authority. A recent case in New Jersey provides yet another example. A federal judge has just conditionally certified a class of Assistant Store Managers who work for Panera Bread. They allege that they were misclassified as exempt. Interestingly, the Court would not certify such classes in Massachusetts and New York.  The case is entitled Friscia v. Doherty Enterprises Inc. and was filed in federal court in the District of New Jersey.

Waitress carrying three platesThe judge concluded that the lead plaintiff Jacqueline Friscia made a “modest factual showing” concerning the alleged misclassification but refused to certify classes in other states. The court stated that “put simply, Friscia has not produced sufficient evidence to show that she is similarly situated to assistant managers in New York or Massachusetts.”

As is typical in these cases, the named plaintiff claims she worked 55-80 hours per week. She also claims that she performed many non-exempt tasks and that these tasks comprised the majority of her work time per week These tasks included preparing food, taking food orders, cleaning the store, working at the cash register and dish washing. Other than her weekly salary of $800, she asserted that she never received overtime for her long hours.

The company took the position that since the named plaintiff worked in only one store, she could not know conditions at other stores or whether the other Assistant Managers were “similarly situated.” The company also contended that there was an arbitration agreement in place and thus the workers could not be included all together in the same class actions. The judge was not impressed by these arguments, finding that the plaintiffs had met the “lenient burden” to receive conditional certification.

The Takeaway

The company can still defeat this class action by making a motion to de-certify the class later on. This would entail taking more discovery, perhaps many more depositions, in an effort to show that there is too much individual difference between the workers across the system to allow for class treatment. This will be expensive and may not be successful.

Or, the company can bite the bullet and settle…

I have blogged about some USDOL initiatives of late and see they are picking up some momentum with further developments coming down the line. The agency is going to revise the manner in which overtime is calculated (maybe to the employer’s benefit) and speak more on the issue (thorny as it is) of inclusion of bonuses in the regular rate.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There are other forms of “compensation” for employees, such as employee discounts and referral fees. The issue of whether these items are includible in the regular rate may also be opined about.  As I blogged about, the regulatory Agenda specifically stated that it would “clarify, update, and define regular rate requirements.” No other details have been forthcoming.

There is consensus that the new regulations would establish new groups of payment that may be excludible from the regular rate for overtime which businesses would welcome. There are any number of non-economic incentives and “payments” that are not directly amenable to computation and should (or should not) be includible.

Mr. Alexander Passantino, a former Wage-Hour Division Chief has observed that “it would be nice to have more guidance on what you’re talking about there so that we could give clients more advice on that with more certainty. Clients come up with good ideas on how they want to reward employees. It’s just helpful to say, ‘Yeah, that’s going to impact overtime rate,’ or, ‘no, it’s not.’”

The Takeaway

I agree with that sentiment. Employers want to comply with the law and often times have difficulty in properly interpreting what the FLSA does/does not command.  We will see what happens to the definition of the “regular rate” and what items it will/will not include.

I can’t wait…  .

White papers flying on blue sky background.A group that monitors government activities sued the U.S. Department of Labor last year seeking records related to the agency’s position and work on the new overtime rules and the fiduciary rules asserted to a federal judge that the agency was being less than forthcoming with the documents. In response, the Judge stated that he was “concerned” about the agency’s lack of responsiveness. The case is entitled American Oversight v. U.S. Department of Labor and was filed in federal court in the District of Columbia.

In the parties’ joint status report, the group, dubbed American Oversight, stated that it “continues to have concerns about the consistency and sufficiency of the information DOL is providing.’ The group maintains that the DOL has been either dilatory or has given conflicting reports regarding the records search. American Oversight sued the DOL in October. The group requested records related to the rules; they want calendar entries concerning agency meetings on the rules, names of attendees in the meetings and copies of correspondence sent to or received from the DOL relating to the rules.

The DOL has stated in its part of the Report that it will respond to the requests over the next few months. It also asserted that everything related to the new overtime rules has been produced. The group asking for the records states that it is “confused” by some statements in the DOL update. The group stated that “plaintiff believes that the July production deadline is more reasonable…but DOL’s inability to accurately and consistently report out the status of its anticipated productions continues to be of significant concern.”  .

The Executive Director of American Oversight, Austin Evers, charged the agency with “delaying the release of records showing what outside interests influenced decisions to roll back the rules.” He stated that “we filed this lawsuit last October to find out who had a seat at the table, and now more than seven months later, the agency is long on excuses and short on answers. What is the Labor Department so desperate to hide?”

The Takeaway

It should be interesting to see what is in those records and who was at those meetings. That might throw light on the position that the DOL is going to take on the overtime rules. The agency’s delay in producing the information may be related simply to bureaucratic slowness.it something else?

U.S. Supreme Court Building, Washington, D.C.The legal world is abuzz with the ripples created by a recent US Supreme Court decision on the statute of limitations in class actions.  A recent post in the Epstein Becker Wage & Hour Defense Blog makes some interesting observations on the case and the issue of its application to wage-hour/overtime class actions.  The case is entitled China Agritech, Inc. v. Resh  and issued from the US Supreme Court a few days ago.

Under the FLSA, each week in which an employee was not properly paid is a separate violation.  There are situations when a plaintiff seeks to bring a class action, but loses on the class certification motion and then, lo and behold, a different plaintiff tries to assert a new class action based on the same theory.

This case followed the holding in American Pipe & Construction Co. v. Utah, where the Court held that a timely-filed complaint seeking relief for a class stayed the running of the statute of limitations for other class members and that if class certification was denied, other people could enter the case without their own statute of limitations being eroded away.  As the post notes, the Court subsequently ruled that this tolling principle also applied when individual members of the class later filed their own individual actions.  That left the question of whether the tolling rules enunciated in these cases applied to future class actions.

In China Agritech, the plaintiff filed a putative class action under the Securities Exchange Act of 1934, with a two-year statute of limitations. The court denied class certification in May 2012; the initial case settled in September 2012 and was dismissed.  The next month, a second plaintiff filed a class action alleging the same claims and seeking the same class as in the first case.  Certification was again denied and that case also settled.

Then, in June 2014, a new plaintiff filed a third class action; the district court dismissed it as untimely but the Ninth Circuit reversed.  The case went to the Supreme Court where the Court decided that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”

The Court distinguished individual claims from class actions.  If certification was denied, only then would individual claims be allowed to proceed so there was a rationale for preserving the original statute of limitations.  However, if the next case concerned class claims, the Court held that for sake of efficiency, it was important to determine the best class representative (if there were competing representatives) and then class certification, if appropriate, would be determined, essentially, once and for all in the case.   The Court rejected the implicit argument of a rolling statute of limitations, as that would allow the statute “to be extended time and again; as each class is denied certification…”   Thus, subsequent time-barred class actions were not permitted.

The Takeaway

The China Agritech, holding gives employers a new and powerful weapon to defeat class actions.  The American Pipe doctrine of allowing tolling for future plaintiffs in FLSA class is not viable anymore although courts will probably permit individual lawsuits seeking recovery for weeks which would have been barred under the American Pipe rationale.  It is possible that subsequent class actions will be allowed if filed by people who were in a putative class that did not receive certification but there will be no tolling.  As the Epstein post notes, and with which I totally agree, employers should look, first, when defending a FLSA class action, if there is a statute of limitations defense.  That would get rid of the entire case!

Simply put, June 11, 2018 was a good day for us on the management side…

I have often blogged (and am concerned about) working time issues, especially when they comprise the basis for a class action. These are “soft,” subtle activities that may rise to the level of compensable time, catching n employer unawares. A recent example of this is a class action filed seeking compensation for “homework” done after an employer mandated training session. The case is entitled Acevedo et al. v. Southwest Airlines Company and was filed in federal court in the District of New Mexico.

Child daydreaming while doing math homeworkThe customer service representatives were mostly successful in warding off the employer’s motion to dismiss, which was based on an exemption peculiar to the airline industry. They claim they worked off-the-clock and had to do more work at home following training. The Judge noted that examination of the employees’ job duties is necessary to ascertain if the exemption applies. The Court will make that ultimate determination after discovery is completed.

The Company required the customer representatives to attend training for six weeks; they were paid for that time, the classroom time, but they were not paid for the required homework assignments that were connected to and part of the classroom training. The homework took approximately 60-90 minutes, per night. The plaintiffs also contended that the Company only considered them to be on the clock when they opened a certain telephone program on their computer. The plaintiffs also allege they were not paid for work they were compelled to perform before they clocked in, or were allowed to clock in.

The Court rejected the Company’s attempt to dismiss state law wage claims because they were supposedly preempted by the Railway Labor Act. The Court found that the “plaintiff’s NMMWA claims are independent, state law claims that do not require contractual interpretation. For this reason, the court will not dismiss plaintiff’s NMMWA claims on the basis of preemption under the RLA.”

The Takeaway

Absent a victory on the exemption issue, which may be problematic, I frankly do not see how the Company can prevail on this. The classroom training hours were (obviously) work hours and were paid for as such by the Company. The homework time directly derived from the classroom work and was tied to it. Unless there is a viable de minimis argument/defense (which is, again, doubtful), my advice is to settle this case quickly, unless the Company believes it has a sure-fire winner on the exemption argument. The takeaway is that these soft, subtle types of working time claims can explode on an employer in an instant.

Too bad, back in elementary school, homework was not compensable…

We have experienced a watershed change in the law this week and its ripples will move outward in ever widening circles for years to come. This is, naturally, the decision in Epic Systems Corp. v. Lewis (one of a trio of cases, the others being National Labor Relations Board v. Murphy Oil USA and Ernst & Young LLP v Morris) that dealt with the issue of class action waivers in arbitration agreements. Well, the Supreme Court agreed with the employer and asserted that such waivers are now legal.  As a recent blog in the Epstein Becker Wage & Hour Defense Blog points out, this decision may well have a major effect on pending wage-hour class and collective lawsuits, many of which have been held in abeyance until the Court decided the case. I imagine many employers will now implement these waivers and practitioners will likely be advising clients to do so. I wonder, however, if the case will be the panacea that many commentators are hailing it as.

U.S. Supreme Court Building, Washington, D.C.The vote was 5-4, with new Justice Neil Gorsuch writing the decision. The bottom line is that class action waivers are permissible under the Federal Arbitration Act and are not illegal under the National Labor Relations Act. This resolves a conflict in the federal appellate courts as many of these tribunals had held that such waivers were illegal.

As the Epstein Becker post points out, the decision “is an unqualified victory for employers, particularly those who already have such arbitration agreements in place.” As wage hour class actions abound and defending them is so very expensive (e.g. due to the fee shifting potential), a “reasonable” employer might be well-advised to implement such agreements and force their employees, individually, into arbitrations over their wage-hour claims.

But let’s not, those on the management side, start toasting each other with expensive champagne just yet. In many states, the employer has to pay all costs associated with the arbitration, including the arbitrator’s fees. So, as the post mentions, clever plaintiff lawyers can start filing dozens, if not hundreds of individual arbitration cases, which will cause employer costs to skyrocket and maybe then force employers to settle cases that they pushed into arbitration for the very reason of trying to cut costs of litigation.

The Takeaway

I hail this decision too, but the practical implications will take some time to play themselves out. The thought of defending dozens and dozens of individual arbitrations, each likely based on the same theory will likely yield gargantuan legal fees and expenses (e.g. arbitrator fees) for the employer. At that point, wouldn’t an employer want to aggregate these individual claims for efficiency and to save money?

Isn’t that a class action?

The fluctuating work week (“FWW”) method of computing overtime is very misunderstood and, often, misused by employers. On that note, I read an interesting post in the Epstein Becker Wage and Hour Defense Blog on a recent Southern District of New York case that explained some of the more common issues related to this concept. The case is entitled Thomas v. Bed, Bath & Beyond and addressed several issues that I have long been interested in.

Clock
Copyright: / 123RF Stock Photo

As the Epstein post notes, one issue was whether isolated deductions from wages undermine the fixed salary requirement. Another was whether the employee’s hours must fluctuate above/below forty hours for the plan to be valid. Another was whether employees had to understand the nature of the FWW calculations in order for there to be a “mutual understanding” that the lump-sum salary was designed to cover all hours worked for that week at the particular straight time rate.

Under the FWW method, the weekly salary (of non-exempt employees) covers all hours worked at straight time. If more than forty hours are worked, the employee receives additional half-time, based on the number of hours worked in that given week, after engaging in multiplication and division process. The regular rate will fluctuate every week, depending on the number of hours worked in that week. In other words, as the post points out, as the number of hours worked in a week increases, the regular rate goes down.

The plaintiffs alleged that they did not receive a “fixed weekly salary” because there were instances when their salaries were docked due to their absences. Although the Court acknowledged that an employer cannot effect deductions if it places employees on the FWW method of compensation, the Court adopted a utilitarian view and would not scuttle the agreements due to these isolated occurrences. Also, the Company reimbursed the workers for these deductions.

The plaintiffs also contended that their hours never dipped below forty per week, so the FWW compensation method was invalid. The Court turned this argument aside as well. The Court looked at the regulation on point (29 CFR 778.114) and held that the FWW payment method only mandated that the hours varied on a weekly basis and that the hours need not drop below the overtime threshold. This is quite important, doctrinally.

Lastly, and oddly, the plaintiffs claimed that they did not have a clear mutual understanding that they were on a FWW plan. This was odd because the workers had signed a form that set forth the terms of the FWW arrangement. That document also provided sample overtime calculations; they were also given annual notices about their FWW payment arrangement. Significantly, the Court held that the plaintiffs’ subjective lack of understanding of their pay plan was irrelevant, but the proper test was an objective one.

The Takeaway

This case is fascinating and I believe very instructive. I think it provides employers with a roadmap as to how they can and should structure a FWW compensation system for salaried non-exempt workers. As a general rule, most non-exempt employees are paid hourly, but they do not have to be, provided they receive overtime after forty hours. Some non-exempt workers like being “salaried” as that status gives them a white-collar “feel.”

So, good for the employer and, more importantly, employee relations…

The Trump Administration has issued its regulatory agenda, which is a semi-annual statement of the short- and long-term policy plans of government agencies. The DOL is at the forefront of these changes to come. The agency stated that it will revise the definition of “regular rate,” the number that forms the basis for overtime computations this coming September.

A former lobbyist for the Chamber of Commerce applauded the DOL proposed initiative on the regular rate and called it “huge.” The Fair Labor Standards Act mandates that employers calculate the regular rate for overtime purposes and there are many scenarios in which bonuses and other incentives are required to be included when determining what the regular rate is for a particular week. If these bonuses and other incentives did not need to be included, that would be a watershed development in how overtime is calculated and would reduce employer overtime liability significantly.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
I have handled FLSA class actions where a client, through inadvertence, did not include small bonus amounts for employees and the end result was a major class action that we eventually settled but it was a real problem. The point is that many employers, good faith, well-intentioned employers, are simply unaware of these rules though they are certainly not trying to “stiff” their employees.

Another proposal in the agenda, rather controversial, is to expand apprenticeship and job opportunities minors under eighteen by softening the rules that forbid minors from working in so-called “hazardous” occupations or working around machinery that is prohibited. One advocate for workers agreed with the goal of increasing work chances for young people but urged the agency “to proceed with caution.” The advocate stated that “the DOL has a responsibility to safeguard the health and well-being of all workers, especially children.”

The Takeaway

The regular rate revision or change excites me from an “intellectual” side and, more germanely, from a practitioner’s perspective. That entire issue is very misunderstood by the employer community and can often lead to major liability. On a weekly basis, the tiny amounts generated from an employer’s failure to include bonus monies is negligible. However, when those tiny amounts of money are combined for a class of employees over two (or three) years, then the liability may become astronomical.

Maybe this new proposal is the right fix…

I have done a lot of independent contractor work in New Jersey, defended many such cases, from (numerous) unemployment audits to FLSA class actions. The New Jersey test, the A-B-C test, is well-established and one of the hardest for the putative employer to prevail upon. The test was, just a few years ago, reinforced by the NJ Supreme Court. Now, Governor. Phil Murphy has signed an Executive Order creating a task force to look into this issue of employee misclassification, as the Governor opines that millions and millions of dollars in taxes are being lost because of this practice. My question is—why do it?

New Jersey Silhouette in OrangeThe Task Force on Employee Misclassification will make recommendations on strategies the state will use to deal with the arguably widespread misclassification of employees as independent contractors. The Task Force will look at existing enforcement practices in and will seek to set out best practices to strengthen enforcement in this area, as well as making education outreach.

The Executive Order states that “with some audits suggesting that misclassification deprives New Jersey of over $500 million in tax revenue every year.” The Order is a product of a NJDOL report issued during the transition that contained a section on misclassifying workers. The report referenced a fairly new NJ Supreme Court case on misclassification and USDOL guidance which had “clarified the factors to be examined in determining a worker’s status.” The Report cited some benefits (UI insurance, family leave) that employees receive and independent contractors do not.

The NJDOL audits, in supposedly random fashion, approximately 2% of employers to gauge if these employers are correctly reporting all employees for unemployment and disability insurance purposes. I have handled perhaps fifty (50) such audits and can safely say that the tendency of the agency is to find that most individuals are, in fact, employees.

Under the IRS test, many factors are looked at, with a seeming emphasis on the control factors. Under the New Jersey A-B-C test, the most important factor is whether the individual is in an “independently established business.” This third factor is where, nine of ten times, the putative employer’s defense goes south. However, there has been a recent judicial development (the Garden State Fireworks decision) that might swing the pendulum a little back towards the middle.

The Takeaway

One commentator has said that the classification “disease” affects all industries but asserted that the problem is pervasive in the construction, trucking and landscaping spheres. That may be so but I know that the state of enforcement by the NJDOL is already fairly aggressive and I do not understand the point of the task force being created. If it is to advise that there is “a lot” of misclassification, well, we already know that. Maybe the Task Force will recommend stronger and more aggressive enforcement of the existing laws.

From my vantage point, I thought the agency was already doing that…

Employers are always trying to cut off the head of a class action, i.e. the named plaintiff, in order to bring the case to an end. What happens when the named plaintiff is gone from the case but some people have opted in? Do they become named plaintiffs, with the case continuing?  The Eleventh Circuit has seemingly answered that question in the affirmative. The court has just ruled that workers who opt into collective actions under the Fair Labor Standards Act only have to file that little piece of paper, the consent form, to then become a named party to the case,  The case is entitled Mickles et al. v. Country Club Inc.

The Elbert P. Tuttle U.S. Courthouse in Atlanta, Georgia, now home to the U.S. Court of Appeals for the Eleventh Circuit.
By Eoghanacht [Public domain], from Wikimedia Commons
Importantly, the ruling is a published one, meaning it is precedential. The panel reversed the lower court which held that the three opt-ins were not properly added to the case and should have been eliminated from the suit after the original plaintiff did not succeed in securing conditional certification and then settled. The Judge who wrote the decision stated that this was a case of first impression.

The Court noted that the FLSA, on its face, buttressed the conclusion that workers who opt into a collective “become party plaintiffs upon the filing of a consent and that nothing further, including conditional certification, is required.” The Court stated that “we conclude that filing a written consent pursuant to [FLSA] section 216(b) is sufficient to confer party-plaintiff status.”

The case was filed in 2014 by a single named plaintiff Andrea Mickles, a dancer at Goldrush. The suit alleged that the company (Country Club Inc.) had misclassified her and other dancers as independent contractors and thus they were denied proper minimum wages and overtime monies. She sought a class of current and former dancers; three other dancers then opted in by filing consents.

The lower court denied the motion to conditionally certify the class, as it was filed beyond the deadline set forth in local court rules for such a motion. There was no mention, however, of what would happen to the three opt-in plaintiffs. The Company then asked the court to specify which individuals would stay in the case. The company claimed the opt-ins had never become named party plaintiffs and thus were eliminated from the case when the conditional certification motion was denied.

The three additional workers claimed they could not be dropped from the case because the conditional certification motion was denied. The lower court held that the three had not been ruled similarly situated to the original plaintiff and had not been joined to the collective action. Then, the original plaintiff settled with the company and the three opt-ins appealed to the Eleventh Circuit.

That appellate court noted that there was no determination made as to the “similarly situated” element for the three workers, as needed to be done. Although opt-ins must be similarly situated to the original plaintiff, as no ruling on this issue had been made, the three employees stayed as parties until that ruling was made; if they were not ruled to be similarly situated, then they would be dismissed from the case.

The Eleventh Circuit therefore ordered that the opt-in cases be dismissed without prejudice so they were free to refile their claims, or proceed with their own suits. The court stated that “the “appellants were parties to the litigation upon filing consents and, absent a dismissal from the case, remained parties in the litigation, Thus, the district court erred in deeming appellants non-parties in the clarification order, which had the effect of dismissing their claims with prejudice.”

The Takeaway

This is a major change in the FLSA litigation landscape and makes it harder for an employer to get a case dismissed or to even settle a case. Yes, it is only one circuit, but the reasoning and rationale may spread to other circuits.

I hope not…