Many wage-hour/overtime actions are brought against restaurants; this is, and has been for some time, a disturbing pattern. Coupled with this trend is the fact that it seems that this industry has certain “customs” on paying workers that give plaintiffs a seeming leg up in these actions. So, it warms my heart when these suits are dismissed for lack of credible evidence and an appellate court affirms that dismissal. The Second Circuit has just done this in cases involving suits brought by employees of Chinese restaurants who were claiming minimum wage and overtime violations. The cases are entitled Li et al. v. Chinatown Take-Out Inc. and Wang v. Happy Hot Hunan Restaurant Inc., and issued from the Second Circuit Court of Appeals.

In the first case, the Second Circuit affirmed that Chinatown Take-Out Inc. did not fail to pay the named plaintiffs their proper wages under the FLSA and New York law, as well as affirming that their hours were correct, as determined by the lower court. In the Happy Hot Hunan case, the Circuit Court affirmed the lower court’s finding that the plaintiff was exempt.

In the Chinatown Take Out case, the plaintiffs argued that the trial court was wrong when it found that they did not work on Jewish holidays and also did not work later than 8PM, while they claimed they worked until 10PM. The Second Circuit concluded that the lower court was correct in crediting the testimony of the restaurant witnesses, as opposed to the memories of the workers. As the court simply, but emphatically stated, “plaintiffs’ testimony did not sufficiently show the amount and extent of their claimed work.”

The Second Circuit affirmed the lower court’s finding that Mr. Wang was exempt and therefore not owed any overtime by the Happy Hot Hunan Restaurant. The Court stated that “the district court concluded that Wang was an exempt employee based on testimony offered during a three-day bench trial. On appeal, Wang primarily challenges the district court’s fact finding and credibility determinations. Nothing Wang points to, however, demonstrates that the district court committed clear error in its fact finding.”

The Takeaway

I am a management side advocate and defense attorney, but I do not want to see restaurant workers or lower wage workers be taken advantage of or not paid properly for all hours worked,. However, when employees seize upon alleged customs in this industry to try to manufacture outlandish claims of hours worked that in no way comport with reality and are defeated, that is as big a victory for “Justice” as when underpaid workers receive their proper wages in a suit. Plaintiff-side lawyers also, many times, seek to prosecute these cases with one eye towards (maybe) securing wages for their clients but with another (bigger) eye on their own fees.

Maybe, the pendulum is swinging back the other way…

We are seeing states start to re-open and businesses start to come back to life and bring their employees back. There are many difficult economic issues that surround these developments, not the least of which is the continuing need to comply with the Fair Labor Standards Act (and state wage and hour laws). These issues may depend on industry (and season) but there are certain issues that cut across all of these lines.

One issue concerns exempt employees, i.e. those workers not due overtime even if they exceed forty hours of work in a week. As businesses come back and may be working shorthanded, an employee who is a “manager” or “supervisor” and therefore exempt, may be converted to a non-exempt worker in a week(s) that they perform too much non-exempt work, e.g. serving customers, working the cash register. In such a scenario, these employees would be entitled to overtime for those weeks.

Another less well known problem may involve people paid on commissions. Under Section 207(i) of the FLSA, commission based employees, who earn at least 50% of their compensation from commissions and work for a “retail or service establishments are exempt from overtime even though they are not “white collar” exempt employees. If sales plummet, meaning commissions plummet, that 50% threshold may not be achievable and, therefore, the employees would be overtime eligible for those periods of time.

Similarly, “outside sales employees,” who are also exempt, are only exempt if they regularly and customarily engage in outside sales work. Naturally, in these days of wholesale shutdowns, more and more outside sales people are working from home or another fixed location. Under that set of circumstances, these people would not be working/selling outside on a regular and customary basis and, again, they would be non-exempt for those weeks.

Another issue is whether employees that are subjected to testing for COVID-19, such as temperature screenings, are compensable time. This might be analogized to the security screenings that many workers already go through, where the standard is whether waiting on line for the security checks was compensable, which the U.S. Supreme Court concluded that it was not. State laws might be tougher, especially where states have not adopted the federal Portal to Portal Act.

The Takeaway

Employers may think they have enough to be concerned with just with bringing their employees back safely, preventing them from becoming ill when they do return, and returning to normal operation and, hopefully, profitability. As discussed above, there are numerous wage hour issues that may sneak up on an unwary employer, which could ultimately lead to collective or class actions being filed. That is why employers must be proactive and compliant with federal, and state, wage and hour laws when they re-open.

Talk about adding insult to injury…

The construction industry has had a long history of wage violations, whether of prevailing wage laws or just “ordinary” wage hour laws. Another example of this trend has emerged in New Jersey where an entity (and its subcontractors) have been sued in federal court in a collective action for alleged failure to pay overtime. The case is entitled Romero et al. v. Allstate Interiors Inc. et al., and was filed in federal court in the District of New Jersey.

The plaintiffs claim that they often worked more than forty hours in a week but were not paid overtime, but rather were paid only a flat day rate. The named plaintiffs also charge they were denied compensation for transporting other workers to and from project locations in their own cars. The lawsuit names subcontractors of Allstate as well, on a single employer theory, charging there were common owners, officers and directors. These subcontractors are GYK Drywall Inc. and Ceiba Services LLC.

The Complaint alleges FLSA violations and also violations of the New Jersey Wage Payment Law. There are approximately sixty potential class members, including laborers, laborers’ assistants and drivers. The Complaint sweepingly alleges that the “defendants have engaged in their unlawful conduct pursuant to a corporate policy of minimizing labor costs and denying employees compensation.”

The Plaintiffs claim they were only paid $130-150 per day, regardless of hours worked. They claimed they (and the others) worked more than seventy (70) hours per week. The named plaintiffs also claim they provided transportation to other workers, were promised reimbursement for gasoline and tolls, but did not receive it. The Complaint alleges that the employer did not track the hours of the workers, nor did it instruct the employees to track their time. Significantly, the named plaintiffs allege they know of other workers who were not paid overtime.

The Takeaway

Paying a day rate to non-exempt employees is permissible but those employees nevertheless are entitled to overtime if they work more than forty hours. Paying this day rate, this flat rate, no matter the number of weekly hours, is a common practice in the construction industry. If all of the workers were subject to the same day-rate/no overtime policy, then this case has a decent chance of receiving conditional certification.

Time for the employer to think about an early settlement….

I have found a very interesting exemption case involving a rather unique job title that also is very instructive in the interpretation of the Highly Compensated Exemption (“HCE”) under the Part 541 FLSA exemption tests. The case involved an employee whose title was Organ Procurement Coordinator, who was seeking back due overtime, claiming he was a non-exempt employee. The case is entitled Smith v. Ochsner Health System et al. and issued from the Fifth Circuit Court of Appeals.

The Fifth Circuit panel affirmed the lower court’s decision. The employee acknowledged that his primary duties included “customarily and regularly” arranging for organ donations and then planning the manner of transport for the organs and the logistics involved in that. The employee also earned more than $100,000 per annum (actually $120,000). The Court determined that this job function related to business operations, which meant that he was performing an administrative job duty, qualifying him for the administrative exemption. As the Court aptly put it, “we need not examine other job duties, though, because just one exempt duty suffices.”

The HCE exemption provides that workers will be exempt as highly compensated employees if they are compensated, in total, in excess of $100,000 annually (as of 1/1/20, $107,000) and they must perform but a single job duty that is deemed exempt. At least $455 per week of that compensation (as of 1/1/20, $684) must be a “salary.” The worker must also perform that exempt work as his “primary duty.” The Court (quite correctly) would not credit this employee’s job title as proof of his exempt status under the HCE but concluded that the record demonstrated that his job duties related to business operations; he also interviewed potential employees and ordered supplies. Tellingly, the plaintiff did not dispute that he performed these job duties.

In his role as Organ Procurement Coordinator, the plaintiff was the primary channel of communication between the hospital and the Louisiana Organ Procurement Agency. He was tasked with responding to calls at all times of the day. He also scrutinized the medical histories of possible donors, relayed vital data about the organs to the surgeons and then ensured that the organs were properly and safely transported.

The Takeaway

The HCE exemption should be one of the first (if not the first) places a defense practitioner looks at when defending an exemption lawsuit. If the person at issue makes more than the (now required) $107,000 per year, it is a pretty good bet you can find a single exempt function that this person performs. In this case, the Fifth Circuit that arranging for organ donations and coordinating that process affected general business operations and that was enough for the administrative exemption to apply.

A magic bullet…

Well, here we are, still in the midst of this horrible COVID-19 pandemic, staying home, scared to go out, wearing masks and gloves, but yet, the first lawsuit(s) involving virus issues have already been filed. In this instance, right in my home state of New Jersey, a hair stylist has filed a class and collective action, alleging that the employer did not pay workers in violation of the Fair Labor Standards Act and the New Jersey Wage Payment Act, following the closure of its beauty shops due to the virus scare. The case is entitled Olsen v. Ratner Cos. LC d/b/a Hair Cuttery and was filed in federal court in the District of New Jersey.

The named plaintiff, Nicole Olsen, alleged that the workers received varying messages about the Company decision to cease operations. The Complaint alleges that the Company, prior to the March 21 shutdown, told the employees that they would not receive their pay for work performed in the previous week. The Company maintained that it was waiting for federal funds and employees would be paid once the funding was received or after the Company went back into business. The Complaint then asserts that “subsequently, on April 7, 2020, plaintiff and employees similarly situated were not paid the wages they were due.”

The stylists earn commissions, but must make at least the minimum wage for every hour worked and if the commissions do not yield that, then the employer must supplement the employees’ pay to reach that level. The Company was doing that but then evidently stopped. The Complaint alleges that the Company (which operates in sixteen States) did not pay the employees their commissions or their minimum wages for the period March 15-21.

The plaintiffs filed under the Fair Labor Standards Act, as a collective action and also under the New Jersey Wage Payment Law as a class action. They want compensatory damages, as well as liquidated damages, civil penalties, and, naturally, attorney fees. The plaintiffs’ counsel took the position that he was fighting for a good cause. He stated that “the idea we can climb out of this crisis on the back of working men and women is completely unfair, unjust and, as alleged by our client, illegal under federal and state law. We are proud to be fighting for working men and women during this national economic crisis.”

The Takeaway

I wonder if there was another way to resolve this. Of course, the workers are entitled to be paid and should be paid, but is the employer not paying them out of pique or spite? No. The vicissitudes of what we are all dealing with in this unprecedented situation have caused this employer to hit a wall, very quickly, because of the particular business it is in. But, a class action lawsuit? Maybe there will be a quick mediation and it will be resolved. Maybe the employer will receive the funds and, on its own, pay the workers.

This could have, and should have, been resolved without litigation!

The USDOL has been quite busy lately in issuing regulations and other guidance relating to the provisions in the Families First Coronavirus Response Act. With that said, the “regular” business of the agency continues as best as it can. One of these functions is the issuance of Opinion Letters which, as I have written about numerous times, provide important guidance for employers on how they may comply with the myriad wage hour laws. The agency has issued Letters regarding my favorite topic—what does/does not get included in employees’ regular rate when computing overtime.

One eternally thorny issue is what bonuses do/do not get included. The rule of thumb is that for a bonus to not be included in the regular rate, it must be completely discretionary bonuses. Any bonus that is promised to employees (company policy, labor contract) almost automatically does get included. One example is a longevity bonus.

In Opinion Letter FLSA 2020-3, the agency looked at whether length-of-service payments, mandated by a municipal resolution, should be included in the regular rate. .  The employer asking for the opinion advised that eligible employees shall receive longevity awards in the amount of $2/month for every year of service.   The employer had been paying these longevity bonuses every two weeks, but wished to pay the bonus in a lump sum at Christmas.

The FLSA regulations exclude Christmas bonuses from being counted towards the elevation of the regular rate. However, employers cannot use that provision as a vehicle for excluding what would otherwise have been includible. In this regard, if the “Christmas” bonus is so much or substantial, then it might “be assumed that employees consider it part of the wages for which they worked” and those that are required by law are not considered gifts for purpose of exclusion from the regular rate.”  29 CFR 778.212(b).

Given these principles, the agency held that as the municipal resolution required that the longevity payments be paid, even if there was some discretion in their form and timing, they had to be included in the regular rate of the employees who received these bonuses. In dicta, the Letter noted that if the resolution had authorized, but not required, the longevity payments around Christmas, they could be excluded from the regular rate.

The Takeaway

Thus, business continues for the DOL, although perhaps not “as usual.” The agency has issued other Opinion Letters on inclusion of certain kinds of bonuses and it is important that these efforts continue as the bonus inclusion issue is one of the grayest and vaguest in the entire FLSA. I don’t like the answer the agency has reached in this matter, but what is paramount for myself, as a management-side practitioner, s that I am more able to properly advise clients how they should comply with the law, which is the overriding goal of every employer.

As it is mine…

I am getting deluged with inquiries from clients, some very agitated, about what they should do, or can do, vis-à-vis their non-exempt work forces and how these folks can be properly paid, but at the same time remain compliant with the Fair Labor Standards Act. As a basic premise, employees must receive at least the applicable minimum wage (in whatever State the employee works) for all hours worked and then must receive overtime for all hours exceeding forty (40) in a work week. However, employees are not guaranteed that forty hour work week. This is the new normal for businesses throughout this nation.

Employers may cut non-exempt employee scheduled hours due to closings of their businesses or the (severely) reduced demand that this pandemic has caused. However, if an employer directs employees to report to work and then sends them home quickly, the employer will, depending on the State, be on the hook for some hours of reporting pay or show-up pay. Both New Jersey and New York have such statutes.

Many clients have employees working from home, i.e. telecommuting. For exempt workers, this is an “easier” situation, but when non-exempt employees work from home, there are several issues that arise and must be dealt with. Employers must accurately monitor and record the working hours of such employees, as these situations present the great potential for abuse, e.g. padding hours worked at home.

Employers might want to have employees call in when they begin work, take lunch and end their shift or record their time electronically. They might want to have them record their time by hand and then submit that time on a daily basis. Whatever method is chosen, the employer must remind employees of the need to accurately record all working time and ensure that they record when they take lunch and breaks so the working hours are not needlessly inflated.

It is also vital that supervisors not contact non-exempt employees after regular hours or encourage any work to be performed outside the normal shifts of the workers. That will be deemed compensable working time and if that extra work takes them above forty hours in that week, it is then overtime. Even reading/responding to an email (or emails) will be working time and, if more than a minute or two (e.g. de minimis), these minutes will add to the weekly total. ”

The Takeaway

The first step is to adopt or reinforce a policy forbidding working overtime without direction or authorization. The employee-working-at home scenario is dangerous from the perspective that it lends itself to abuse of overtime, without appropriate safeguards. I suggest paying an employee, the first time, for engaging in unauthorized overtime, so as to avoid a complaint to a Department of Labor, but at the same time warning that employee that this is not authorized and future instances of unauthorized overtime may lead to discipline for any violations.

Employers must be proactive…

The Corona Virus scare is causing employers to lay people off and reduce their hours. For non-exempt, hourly people this is fairly easy, from a legal perspective, because if non-exempt people do not work, they do not get paid. The case is tougher for exempt workers. The FLSA requires employers to pay exempt employees at least $684.00 per week in salary, and that salary cannot be reduced (in most instances) by deductions. However, under the FLSA, an employer can prospectively reduce the pay of exempt employees, providing it is the result of an economic slowdown and not to evade the salary basis requirement under the Fair Labor Standards Act (FLSA).

Some years ago, the U.S. Department of Labor (DOL) addressed this issue in a series of FAQs. Specifically, the DOL opined that an employer could reduce exempt employee salaries, provided that the reduction is the result of an economic slowdown and not to evade the salary basis requirement. The DOL stated that the employee would, however, lose his exempt status if reductions from predetermined pay were occasioned by a day-to-day or week-to-week determination of the operating requirements of the business. The DOL reasoned that permissible prospective reductions reflect the long-term needs of the business, while impermissible short-term, day-to-day or week-to-week reductions reflect an absence from scheduled work occasioned by an employer or its business operations.

The agency has published Opinion Letters that affirm this principle. In Opinion Letter No. 2026, (March 4, 1997), an employer had to reduce costs because it received less money from the state to operate its programs. The employer had the option of reducing the workweek for exempt employees or laying off exempt employees. The employer proposed reducing the workweek from 40 to 32 hours, with a commensurate reduction in pay. None of the employees would receive less than the salary basis requirement. The DOL noted that the employer’s salary reduction plan resulting from a reduction in the workweek did not defeat the exemption.

In Opinion Letter No. 2162 (June 3, 1999), the agency re-affirmed this principle. The Letter asserted that a fixed future reduction in wages when operating less than a full workweek due to economic conditions was permissible. It should be noted that the reduction must be proportionate to the full salary. In other words, if the salary is $1000 per week and the usual work week is five days, a reduction of $200 would represent that needed proportionality.

The Takeaway

Thus, employers may prospectively reduce exempt employees’ workweek from, for example, 40 hours to 32 hours over a several week period, with a commensurate reduction in pay. The employer should issue an announcement would advise the exempt employees of this necessity, how long it may last (if known) and how their salary would be reduced. This method of implementation is along the lines of those approved by the DOL and appears to be the safest method of implementation.

What gets a lot of employers into trouble is the failure to keep accurate records. Or worse, the actual falsification of records or knowingly keeping and maintaining inaccurate records. Nothing will cause the DOL to come down harder on an employer and for the courts to back up the agency. A recent example of this is a case where the employer tried to put all of the blame on an allegedly low level employee and avoid liability for this fairly egregious lapse. The case is entitled Scalia v. ESSG LLC et al. and issued from the Ninth Circuit Court of Appeals.

The appellate panel affirmed the district court’s decision that the Company was perfectly aware that its employees, grocery workers, were working more than forty hours per week and not getting paid proper overtime. As the Court aptly put it, “ESSG chose Haluptzok as its agent for payroll processing, so it cannot disavow her actions merely because she lacked a specific job title or a certain level of seniority in the company.”

The Company had contended it should not be liable for the actions of this agent or, in the alternative that it should be allowed to go after that entity for indemnification or contribution. The appellate court did not agree with the argument about indemnification. The Court found that this was not contemplated by the FLSA. The Court noted that it saw “no indication that Congress intended to create a right to contribution or indemnification for employers under the FLSA.” The Court refused to “make new federal common law that recognizes those rights.”

The dispute began when ESSG contracted with Sync Staffing. That company placed the workers at their work location, an Albertsons grocery store in Arizona. The defendant often took care of administrative matters at these sites and brought in Haluptzok to do the payroll. However, at the end of the very first pay period, a Sync Staffing employee directed Haluptzok to treat and record the overtime hours as straight time. After that, all payroll and time records were processed and prepared in the same way. It aggregated to more than 1000 FLSA violations! That totaled almost $80,000 in wages, which was then doubled for liquidated damages.

The Takeaway

This was clearly more than a record keeping “problem.” This was a deliberate effort by the employer to pay straight time instead of overtime and the vehicle by which that attempt was carried out was through the vehicle of directing the payroll company to cook the books. Now, that effort becomes a rather difficult and expensive pill to swallow.

Hearty appetite…

I have often blogged about the need for defense lawyers to look for a labor law preemption defense when a wage hour action, single or FLSA collective action is lodged.  If the preemption argument succeeds, it is a magic bullet that makes the case totally go away.  There has to be, however, some direct connection between the wage claim made and the labor contract.  That is often easier said than done, as a recent California case shows where the Judge rejected such a defense.  The case is entitled McGhee v. Tesoro Refining & Marketing Co. LLC et al. and was filed in federal court in the Northern District of California.

The Court noted that although some of the named plaintiff’s claims did require the Court to look at various collective bargaining agreements, the claims did not require the interpretation of contractual provisions or a close look at those clauses.  As the Judge observed, “although the court may ‘look’ at the relevant CBAs as evidence of those [allegedly illegal] procedures, the focus remains on [Tesoro’s] actions, not the CBAs’ authorizations.”

The plaintiff’s theory was that the Company required workers to be on-call before and after work, but did not pay the workers for that time.  The incoming workers had to confer with or “huddle” with outgoing workers prior to their shifts beginning as well as rounding down their time cards to the quarter-hour.  The Company also allegedly made workers stay late to make up for meals they ate off premises.

In order to determine if preemption is appropriate, the Ninth Circuit has fashioned a two-part test.  First, the Court looks at whether the issue is based upon a state statute or a labor contract.  If the claim is deemed to be based on state law, then the Court must scrutinize whether a resolution of the claim is dependent on interpretation of the labor contract.  If it requires such interpretation, then the court does not have jurisdiction over the controversy.

The Court herein held that the workers’ claims do not meet this standard as they only have a “hypothetical connection” to the labor contract.  The Judge observed that the issue relating to the on-call policy “require determining defendants actual policies” without hinging on the CBAs, as do claims the companies miscalculated pay for meal breaks”

The Takeaway

The preemption defense should always be examined to see if it is viable.  It is not enough, however, just to contend that a labor contract is “in the picture.”  The defense lawyer must craft/find an argument that interpretation of certain labor contract articles is necessary to resolve the matter and it is not a matter of state or FLSA.

Keep looking for that magic bullet…