There have been many class actions concerning the job title “Assistant Manager” and this malady has risen again.   The chain, Hooters, has been sued in a nationwide collective action that alleges the Company misclassified assistant store managers, calling them supervisors, in order to avoid paying overtime.  The case is entitled Stirewalt et al. v. Hooters of America LLC and was filed in federal court in the Northern District of Alabama.

Hooters Restaurant
By Ildar Sagdejev (Specious) (Own work) [GFDL or CC BY-SA 4.0-3.0-2.5-2.0-1.0], via Wikimedia Commons
The named plaintiffs allege that they worked up to eighty (80) hours per week but were never paid overtime due to their misclassification.  The claim they only had the title of Manager, but that their main duty was sales and not the supervision of at least two other employees, over whom they could exercise managerial authority.  They claim that when they did create schedules, they were “almost always changed,” according to the Complaint.  They claim that although they interviewed new job applicants, the recommendations they made were often ignored by their supervisors.

More significantly, the Complaint alleges fraudulent conduct by the Company. It alleges that the “defendants have intentionally and repeatedly misrepresented the true status of managerial compensation … to avoid suspicion and inquiry by employees regarding their entitlement to monies owed to them.  Plaintiffs, as well as other similarly situated present and former employees, relied upon these misrepresentations by defendants and [were] unable to determine [their] true status under the FLSA by the exercise of reasonable diligence because of those misrepresentations.”

The plaintiffs want notices to be sent to current and former assistant managers who worked at a Hooters store within the last three years.  This would allow these workers to opt in to the collective action.  The plaintiffs seek overtime, commissions, bonuses, vacation and sick time and, naturally, attorneys’ fees.

The Takeaway

I don’t mind these so much.  (Famous last words?)  These kinds of actions usually necessitate an individualized determination of the duties of the various employees and that is the death knell of a viable class action.  The problem is if they were subject to the same, uniform, system-wide policies, that would be bad.  But, at least from the start the defendant here has a legitimate, viable chance of defeating the motion(s) for class certification.

On the crest of the FLSA collective action wave that has swept the nation in recent years is the never-ending parade of exemption misclassification cases targeting Manager/Assistant Manager positions.  In yet another iteration of this phenomenon, Payless Shoesource Inc. has agreed to settle such a class action for just under $3,000,000.   The case is entitled Shallin et al v. Payless Shoesource, Inc. et al and was filed in federal court in Connecticut.

One-third of the settlement (a cool million) goes to the lawyers and the balance will be divided up among the almost 2200 class members who worked at Payless stores from March 2011 to the present.  The theory of the case was that the Company misclassified the Managers as exempt under the Fair Labor Standards Act.  The case began in March 2014 when former store managers filed the suit.  This is so often the pattern—a fired or separated employee starts an action and all of a sudden, in typical FLSA collective action style, it comes out that many (as herein, more than 2000) other employees are “similarly situated.”

The Complaint ran according to the usual format.  There were allegations of “purposeful” conduct, i.e. willful, designed to secure the third year on the statute of limitations.  There were allegations that the Company knew that the workers spent more than 50% of their time working the cash register, dealing with customers, cleaning the store and answering phones, all clearly non-exempt, rank-and-file duties.   As is also typical, the Complaint alleged that the Company saved inordinate amounts of money through this practice.  Indeed, the Complaint asserted that the “defendants’ unlawful pay practice saves them hundreds of millions of dollars.”  The Company hotly contested these allegations but chose to settle to save future litigation costs, without admitting any liability or wrongdoing.

The Company has endured similar suits previously.   Managerial employees in Mississippi some years ago filed suit on a misclassification theory, alleging that they were compelled to work 60-90 hours per week without overtime and the amount of non-exempt work they performed undermined their exempt status.  That case went away after the parties reached a confidential settlement.

The Takeaway

Given all this class action litigation on Manager exempt status, I am almost at a point where I want to advise clients that all Managers (and, certainly, at a minimum, Assistant Managers) should be classified as non-exempt, their hourly rates adjusted accordingly, to reflect their salaries and they get paid overtime when they work more than forty hours.  With that said, if an employer wants to preserve and be able to defend the exempt status of Managers, then these workers must be endowed (and not only in a Position Description) with managerial functions (e.g. hiring, firing) and paper trails must be laid down to reflect the actual exercise of those powers.

If that cannot be done effectively, then maybe the better approach is to classify them all as non-exempt and totally eliminate the risk of a successful FLSA suit.  I understand that, from an operations perspective, as well as a “perception” context, this is not an ideal course of action but on this matter, as in so many legal/business issues, there must be a balancing of the good and bad and spending hundreds of thousands of dollars defending and/or settling a FLSA collective action on this issue is, indeed, bad.

I have written that it is a rarity that a class is denied conditional certification in a FLSA collective action.  When that happens, it is (often) the result of the individuality defense that is the best weapon to deflect the class.  Another way to defeat the motion for certification is to argue that the evidence submitted does not allow the conclusion that a bona fide “class” exists.  This principle has been recently applied in a case where the federal judge has denied conditional class certification for a proposed class of Assistant Managers claiming overtime. The suit alleged that these employees, who worked at Home Goods, were misclassified as exempt under the Fair Labor Standards Act.  The case is entitled Jenkins v. The TJX Cos. Incorporated and was filed in the Eastern District of New York.

The court ruled that the plaintiffs failed to prove that all of them performed (or did not perform) the kinds of duties that would entitle them to overtime.  This case highlights what happens when the support for the class (e.g. affidavits) is simply too paltry or insufficient to evidence the requisite commonality needed for a class to exist.

The evidence consisted of the lead plaintiff’s own testimony and a single page report submitted by a consultant that supposedly showed the breakdown of duties performed by the Assistant Managers.  The court ruled, quite correctly, this was not enough to sustain a viable class.  The court stated that “although plaintiff’s burden at this stage of the proceedings is modest, the court cannot justify certifying a class of plaintiffs, likely numbering in the hundreds, on the basis of such thin factual support.” This is very important because the initial showing for the conditionally certified class is low, but this minimal showing did not even meet that reduced standard.

The submission by the so-called “expert was also criticized by the court.  The report was so vague that no valid or credible conclusion could be drawn from it; any conclusion that could try to be drawn would only be speculative.  The report was skimpy to the point of not providing any context or explanation of the conclusions or findings.

The plaintiff alleged that he (and others) were routinely performing all manner of non-exempt tasks, including cleaning/sweeping, unloading trucks and taking out garbage.  If these tasks comprised a major portion of the work time (judged on a weekly basis) of the employees, their exemption would be undermined.  The failure to buttress these allegations with anything other than the scanty evidence discussed above, however, doomed the case to failure.  As the court found, [the plaintiff] has failed to provide any factual support for the contention that other [Assistant Managers] at Home Goods’ stores in New York, let alone nationwide, primarily performed non-exempt tasks.”

The lesson learned here is that defense counsel must scrutinize, tear apart and attack the initial showings made by the plaintiffs.  Herein, plaintiffs’ counsel did the defense a favor by rendering such a flimsy showing of “evidence.”  This scrutiny, coupled with a corollary attack based on the fatal (to the class) need for individual assessment, gives defense counsel the best chance to defeat a motion for conditional certification.

 

In FLSA collective action cases, there has been a doctrine of law prevalent for a number of years. Federal claims and state law claims are not compatible and cannot be maintained in the same lawsuit.  I have successfully moved to sever New Jersey state claims when made components of a FLSA action.  What that does is to erode away the state statute of limitations, while the motion is pending and decided.  The Third Circuit, in a case entitled Knepper vs. Rite Aid Corporation has now changed this longstanding principle.

This brave new world has emerged because the Third Circuit has held that state law class-action, overtime claims and FLSA collective action claims were not, ab initio, incompatible.  In a precedential opinion, the Third Circuit has reversed a district court, which was following the long-established rule.  The Court “disagree[ed] with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.”  Although the Court reversed on the inherent incompatibility issue, it affirmed the portion of the decision finding that the FLSA did not preempt state law on this matter.

The plaintiffs were Assistant Managers and had opted in to the FLSA collective action.  They then filed state law claims in Maryland and Ohio.  The plaintiffs contended that under the Class Action Fairness Act, the state law claims could be maintained due to diversity jurisdiction and allowed to proceed, although the actions would be parallel to the federal case.

The district court held that the Rule 23 opt-out class actions, founded on laws that provided the same remedies as the FLSA, were incompatible with opt-in process of the federal court..  The lower court extended the incompatibility doctrine because it had usually been applied to scenarios in which the federal and state claims were filed together, i.e. the hybrid cases.  In this situation, separate state lawsuits were instituted.

The Third Circuit disagreed. “We join the Second, Seventh, Ninth and D.C. circuits in ruling that this purported ‘inherent incompatibility’ does not defeat otherwise available federal jurisdiction.”  I disagree.  I think this is a way of giving plaintiffs the ability to circumvent the FLSA, which is the reasoning adopted by the courts that had applied the doctrine in these hybrid cases.

More to follow, I am sure…

I have written several times about Assistant Manager class actions being quite difficult to defend because these employees often perform a great deal of “subordinate” type work, making the issue of “primary duty” a tricky one.  In a recent class action involving these employees, a federal judge has denied a motion for conditional certification (which does not often happen) on the basis that the lead plaintiff Assistant Manager was not similarly situated to the people he tried to represent. The case is entitled Guillen v. Marshalls of MA Inc and was filed in the Southern District of New York.

The plaintiff had claimed that the violations were willful, thereby entitling him (and the other opt-ins) to a third year of recovery.  Then, going after the primary duty requirement, the plaintiff alleged that he devoted the bulk of his time to non-exempt tasks such as janitorial work and unloading trucks.

The deficiency in the plaintiff’s motion, however, was that he failed to show that Assistant Managers throughout the country were performing their jobs in precisely the same manner.  Put differently, there was not a strong showing that Assistant Managers elsewhere were discharging non-exempt duties.  The court stated that “Guillen’s latest motion adds virtually no evidence suggesting that Guillen is similarly situated to ASMs in Marshalls stores nationwide with respect to the main contention in this case: that he was required to perform tasks that rendered him nonexempt from the FLSA’s overtime requirements.”

The court noted that there was nothing in the job description for this classification that required the performance of non-exempt work that the plaintiff alleged was done.  There was no evidence of any nationwide requirement(s) in this area as well.  The plaintiffs could not find a companywide policy that would apply to all of these employees.  As I have often noted, that is the anathema for an employer defending such a case. In this case, there could have been thousands of employees employed in these jobs across the country and without a showing of commonality (i.e. a policy), there would be a need for individual scrutiny of what each employee actually did.

What this case again reinforces for me is that the knee jerk reaction of any company defending a FLSA collective action should be to look for and solidify all evidence of the dissimilarity of the lead plaintiff and the “others.”  Company compensation policies should also be examined and, if need be, appropriately revised.

After a three-week jury trial, Southern New England Telephone Company has won a verdict finding that employees who were titled as field managers and classified as exempt, were in fact exempt under the Fair Labor Standards Act and state law.  This case is significant because, as a rule, first-level managers are often in reality “working foreman” type of workers and are usually found to be non-exempt.  The case is entitled Perkins et al. v. Southern New England Telephone Company and was filed in federal court in the District of Connecticut.

Under the FLSA, employees classified as executive exempt must supervise at least two workers on a full time and direct basis, must have input into or authority over different personnel decisions, such as hiring, firing, compensation, promotion, etc and must have management as their primary duty.  With first-level managers, the problem (for defense counsel) often arises because these managers do the same kind of work as their subordinates so the primary duty factor often is an issue.

The plaintiffs had claimed that they were merely given the title of manager and were, under that umbrella, compelled to work 50-70 hours per week, without overtime payment.  The plaintiffs contended, as indicated above, that they had and exercised no managerial authority over their so-called subordinates.

The plaintiffs’ lawyers had valued the case at a startling figure exceeding $50 million.  This verdict is even more significant given the fact that the judge had ruled (prior to trial) that the Company had destroyed a very large chunk of evidence that the plaintiffs’ lawyers asserted hampered their prosecution of the case and benefited the defendants.

The judge evidently agreed with the plaintiffs, as he had rejected defendant’s motion to dismiss the case, finding that the field managers were themselves closely supervised and actually earned less than the people they supervised.  The defendant will not, I daresay, argue with the result, but, on balance, this is against the odds.

In Florida, an Assistant Manager has filed a class action against RadioShack Corporation, alleging that the company has misclassified these managers as exempt executives and has not paid them overtime.  The case is Truax v. RadioShack Corp. and was filed in the U.S. District Court for the Southern District of Florida.

The plaintiff is also claiming that Radio Shack “knowingly and willfully” violated the Fair Labor Standards Act; this is an attempt to extend the otherwise two-year statute to three years and to recover liquidated (i.e. double) damages.  The plaintiff is claiming that the company failed to pay time and one-half for the overtime hours.  The named plaintiff claimed he regularly worked 55 hours every week but was only paid straight pay for the hours, rather than time-and-a-half that is mandated by the FLSA.

In another case, RadioShack is alleged not to have paid workers for attending store meetings. In that case, Kamar et al. v. RadioShack Corp., the U.S. Court of Appeals for the Ninth Circuit has affirmed a lower federal court ruling that granted class certification to the plaintiffs.  That case involved mandatory meetings (on Saturday) that non-exempt employees attended and were not paid for.

On the Assistant Manager issue, the best defense is that these workers are truly exempt. The second best defense is that the class certification motion must fail because individualized assessment of each Assistant Manager is needed because some might have exercised more managerial duties than others.  The need for individual scrutiny is the antithesis of a class action .

As far as the mandatory meetings, this is basic FLSA law.  Non-exempt employees compelled to attend meetings or trainings are on the clock.

In yet another case involving Assistant Managers, the named plaintiff in a exemption misclassification case has moved for conditional certification, after successfully defeating the defendant-employer’s Rule 68/Offer of Judgment strategy.

I have written about Rule 68 many times and have urged that this is a viable way for a defendant to close a case out, without going through the torture of protracted, extraordinarily expensive litigation. In this case, however, the federal judge concluded that this was an attempt to “pick off” the lead plaintiff and thwart the case for everyone else, so he denied the motion and is allowing the case to proceed.  The case is entitled Nash v. CVS Caremark Corp and is in federal court in the District of Rhode Island.

The employer moved for dismissal, on mootness grounds, as I have done, after making an offer of full relief to the named plaintiff in July 2009.  When the plaintiff rejected the offer, the company argued that the court no longer had jurisdiction over the case, because by rejecting the offer that would have provided him the maximum possible recovery, the plaintiff could not legally pursue the matter.

The court disagreed.  The judge saw this as an effort to cut the head off the case and prematurely terminate the litigation.  The judge wrote that “the present motion underscores the unique danger of tactical manipulation in FLSA cases.”  The court went on to note that “nothing in Rule 68 itself suggests that it should be used as a vehicle for sabotaging claim-aggregating devices.”  To the court, this defense action created a “virtually unwinnable” situation for plaintiffs in collective actions.

The judge saw the tactic as forcing the plaintiff to either pursue discovery very early in the case, when a court likely will deem it premature, or seek class certification and/or notice before discovery, which runs the risk of harming the interest of these as-yet undiscovered class members.  The judge decried this “moot-and-dismiss” tactic, as it might allow the company to forum-shop as well as plaintiff-shop.

I disagree with this judge.  Rule 68 exists and it exists for just this purpose.  I believe if the named plaintiff (and any early opt-ins) turns down the Offer, the case is and should be amenable to dismissal. Another response is to make the Offer to all class members, i.e. those who properly opt in to the action.  Then, the pick off argument fails.

In yet another case involving Assistant Managers, the named plaintiff in a exemption misclassification case has moved for conditional certification, after successfully defeating the defendant-employer’s Rule 68/Offer of Judgment strategy.

I have written about Rule 68 many times and have urged that this is a viable way for a defendant to close a case out, without going through the torture of protracted, extraordinarily expensive litigation. In this case, however, the federal judge concluded that this was an attempt to “pick off” the lead plaintiff and thwart the case for everyone else, so he denied the motion and is allowing the case to proceed.  The case is entitled Nash v. CVS Caremark Corp and is in federal court in the District of Rhode Island.

The employer moved for dismissal, on mootness grounds, as I have done, after making an offer of full relief to the named plaintiff in July 2009.  When the plaintiff rejected the offer, the company argued that the court no longer had jurisdiction over the case, because by rejecting the offer that would have provided him the maximum possible recovery, the plaintiff could not legally pursue the matter.

The court disagreed.  The judge saw this as an effort to cut the head off the case and prematurely terminate the litigation.  The judge wrote that “the present motion underscores the unique danger of tactical manipulation in FLSA cases.”  The court went on to note that “nothing in Rule 68 itself suggests that it should be used as a vehicle for sabotaging claim-aggregating devices.”  To the court, this defense action created a “virtually unwinnable” situation for plaintiffs in collective actions.

The judge saw the tactic as forcing the plaintiff to either pursue discovery very early in the case, when a court likely will deem it premature, or seek class certification and/or notice before discovery, which runs the risk of harming the interest of these as-yet undiscovered class members.  The judge decried this “moot-and-dismiss” tactic, as it might allow the company to forum-shop as well as plaintiff-shop.

I disagree with this judge.  Rule 68 exists and it exists for just this purpose.  I believe if the named plaintiff (and any early opt-ins) turns down the Offer, the case is and should be amenable to dismissal. Another response is to make the Offer to all class members, i.e. those who properly opt in to the action.  Then, the pick off argument fails.

Only a few weeks ago, I posted and commented upon the never-dying issue of whether Assistant Managers are exempt under the Fair Labor Standards Act and the threat of collective and class actions from these employees.  That time bomb has gone off again, this time with an Assistant Manager working for Big Lots filing a collective action on behalf of allegedly “hundreds” of similarly situated employees. The case is entitled Omiatek v. Big Lots, Inc. and was filed in federal court in the Western District of New York.

It is a typical Assistant Manager case.  The allegation is misclassification, charging that the employees are not exempt from overtime under the executive or administrative exemptions.  It charges (as they all do) that these employees spend the vast majority of their time unloading trucks, unloading boxes, cleaning the store and arranging merchandise.  The suit also charges that the employees do not exercise managerial authority, i.e. hiring, firing, disciplining employees, or making decisions on their compensation.

There is an interesting wrinkle to the case.  The granting of conditional certification (and the maintenance of that certification, as a class) hinges on a showing that they are similarly situated. To achieve this, the plaintiffs need to show that a common policy or practice applied to all potential members of the class.  If the defendants are successful in showing that individual assessment of each plaintiff is necessary, then the motion for class certification will fail.

In 2008, in another Assistant Manager lawsuit filed against this company, that is exactly what happened.  The court in that case (filed in federal court in Louisiana) determined that at least some of the plaintiffs had been properly classified as exempt and thus a class action was inappropriate. This is a distinct possibility when hundreds and hundreds of employees are involved.  There is a more than a good chance that some of them do, in fact, exercise the requisite managerial authority to fit within the exemptions.  It takes skillful deposing of the plaintiffs and perhaps expert reports/testimony as well, but it can, and, indeed, must be attempted by the defendants to defeat the motion for class certification.