This is an interesting case.  A class action that was denied certification, appealed to the Second Circuit, which reversed because the lower court did not properly interpret the job description on the key issue of duties qualifying for the employer to claim the protection of the Part 541 exemptions.  The employees were salesmen and installation technicians.  Now, they get another shot to prove they are worthy of class status. The case is entitled Sydney et al. v. Time Warner Entertainment-Advance/Newhouse Partnership and issued from the Court of Appeals for the Second Circuit.

plastic black toolbox with tools over white backgroundThe lower court had relied upon the outside sales exemption.  The panel, however, concluded that the jobs seemed much more inclined to be installation jobs, rather than selling jobs.  Therefore, it was too early and improper to grant summary judgment as there were issues of fact.  The Court stated that “we conclude that the district court erred in holding on summary judgment that plaintiffs’ primary duties were exempt sales, as opposed to nonexempt installations, and accordingly in its ultimate conclusion that the outside sales exemption applied.”

These workers, dubbed territory sales representatives, or TSRs, contacted apartment building owners in upstate New York.  Their role was to urge these owners to funnel their tenants to the Employer for their cable TV, internet and phone service needs.  They received a small salary and commissions.  The plaintiffs allege they spent some time making calls to get business but the majority of their time was supposedly spent doing the actual installations (which would obviously be non-exempt work).  They asserted that they worked 55-70 hours per week.

They sued but the lower court rejected their claims, relying on the outside sales exemption, finding that that “based on [the] undisputed facts, the court finds that plaintiff’s primary duty was making sales.”  The Second Circuit disagreed.  That Court noted that the men went to work in hard hats and safety glasses.  They also carried tool boxes full of different tools.  Also, there were other employees whose job was to focus on door-to-door sales.

The Takeaway

The issue on summary judgment was whether the facts, i.e., the job description, undisputedly showed that the men were outside salesmen.  If, however, the facts on the ground differ from the printed description, that job description will be worthless as a defense in proving the exemption.  In other words, if the workers spend the majority of the time at work performing nonexempt work, such as installations they are non-exempt.

Simple as that…

The Fair Labor Standards Act is eighty years old this month and commentators strongly suggest that the law needs updating in many areas.

 cupcake with sparkler against a blue background, illustrating birthday conceptMy colleague Tammy McCutchen stated that a complaint-driven mechanism defense should be engrafted into the FLSA. She stated that “I think employers should get the opportunity to avoid [some liability] by having in place a system of compliance and taking appropriate action based on investigations, just like they have under Title VII and the ADA and the ADEA.”

In this manner, an employee complaint or issue about wages (e.g. overtime) would/could get resolved quickly and cheaply. Ms. McCutchen (a former DOL official) opines that if such a system is in place, that should work to limit employer liability if the employee ultimately sues. Under her theory, with which I concur, the “penalty” for such an employee who did not avail himself of the internal reporting system would be that he/she would not receive liquidated damages.

Another item on the management side wish list is a heartfelt desire to make securing class certification a little more difficult. In a typical FLSA collective action, the Plaintiff(s) first seek so-called conditional certification, fairly easy to secure, and then, later on, the employer can move to de-certify the class.

It should be harder to get over that first hurdle. Nowadays, plaintiffs use a few certifications, sometimes which are identical, and courts seem satisfied with such a meager showing. When a class is conditionally certified, the stakes and legal fees/costs for an employer rise dramatically. This contingency forces many employers into settlements which they might not otherwise have undertaken.

It should be harder, as perhaps with some multi-part test or standard, rather than a few similar sounding certifications.

Another area of concern and one badly in need of updating is the exemption “question.” For example, the outside sales exemptions emanates from a time when most salesmen were door-to-door or were, literally, outside all/most of the time. Nowadays, many sales are made and sales work done from a computer and a telephone, inside the employer’s place of business. Yet, the regulations still require that the salesman be “customarily and regularly” performing outside sales work. That is but one example. In that regard, reasonable people can differ on how exemption law should be applied, but there certainly is a need for more clarity, no matter which side you are on.

The Takeaway

These all sound pretty reasonable and common sensical to me.

Or is it my perspective?

What is working time? There are many variations on this theme, some far grayer than others. When does waiting time become working time? Is the employee engaged to be waiting or waiting to be engaged? If the former, then it is working time. A class action involving more than 1,100 workers is now testing these hypotheses. These workers have been granted certification in a class action alleging they were not paid for time spent undergoing security checks before they left the store. The case is entitled Heredia et al. v. Eddie Bauer LLC and was filed in federal court in the Northern District of California.

Isometric Illustration of a Line at Security Checkpoint - Body Scan Machine U.S. District Judge Beth Labson Freeman certified several causes of action, including a class for off-the-clock “exit inspections.” The Judge stated that there were two existing questions common to all class members–did the company mandate that security checks be performed off the clock and, if it did so, was the time spent by employees off the clock, waiting to go through security checks. compensable hours worked.

The theory of the suit (filed by a sales associate at a retail store) was that employees were not properly paid for time spent engaged in screening and time they waited for the screening to be conducted. The employee alleged that she was compelled to undergo bag checks and security inspections whenever she left the facility and these inspections were conducted pursuant to Company policy. Indeed, the worker alleged that supervisors directed her to clock out and wait at the front of the store before a manager would conduct a bag check.

The Company defended by asserting that the employees were only subject to screening if they were carrying a bag that might be utilized to steal store merchandise. The Company further stated that these bag checks were to be conducted on the clock, pursuant to Company policy. It also argued that the named plaintiff could not demonstrate that all class members incurred a common injury because there was no liability for some employees, such as those who did not carry a bag. The Judge observed that Eddie Bauer’s written policies did not mention whether employees had to clock out before undergoing a screening, or whether managers had to advise employees that these screenings were to be conducted on the clock.

Significantly, the judge rejected the contention that plaintiffs could not establish commonality because the Company policy allowed inspections to be performed on the clock. The Court observed that “this argument itself is an answer to the common question: whether Eddie Bauer’s policy and practice was to mandate that security checks be performed off-the-clock. Of course, the parties disagree on the answer to this question, but that does not preclude a finding of commonality under Rule 23(a)(2).”

The Takeaway

This is a troubling case. The element of compulsion, i.e. allegedly making employees punch out and wait for the inspection, makes this case very dangerous for the employer. It is made more interesting because the Supreme Court ruled a few years ago that similar waiting time was not compensable because that waiting time was not directly related to the job.

Maybe that is the next argument the Company should make…

A group of hourly employees working for the pawnshop chain Gem Financial Services Inc. have been granted conditional certification in a Fair Labor Standards Act action; their allegation is (as usual) unpaid overtime.  The federal Judge ruled that the workers had presented sufficient evidence at this early juncture to show that a common compensation policy applied to them and it was arguably illegal.  The case is entitled Dalton et al. v. Gem Financial Services Inc. et al., and was filed in federal court in the Eastern District of New York.

Pawn Shop
Copyright: schubphoto / 123RF Stock Photo

The Judge concluded that “courts in this circuit have routinely allowed for conditional certification where plaintiffs proffer precise and detailed information outlining the alleged mistreatment suffered by other similarly situated employees as a result of defendants’ compensation policies.”

The employer has twenty-eight retail locations throughout the New York area and in excess of 130 workers.  The employees allege that they were routinely shorted on overtime pay for weeks when they worked in excess of the statutory threshold of forty hours.  Added to the pure wage hour claims is the allegation by one of the three original plaintiffs, Diori Johnson, an accountant, who states that she was asked to falsify time records, make improper deductions from exempt employees’ salaries and continually not pay employees the proper amount.

An HR administrator, who visited company pawn shops, always heard complaints from employees that they were not paid overtime and saw (allegedly) rounding practices that always resulted in clocked hours being rounded down.  The Judge noted these employees’ experiences and observations as the basis for deciding to grant conditional certification.  The Court stated that “this type of consistent involvement in the day-to-day compensation realities of other Gem employees enabled plaintiffs to directly observe defendants’ alleged wage-denial scheme.”

Interestingly, the Court also concluded that the workers did not meet the Second Circuit standard for demonstrating sufficient similarities between non-exempt workers and other employees who were allegedly misclassified as exempt from overtime to be able to conditionally certify a collective action class including both groups.

The Takeaway

This case shows the best and the worst of results for the employer.  The Court (rather easily) granted certification on the one class of workers, where the Court believed that a common policy and practice applied to all of them.  Then, the Court refused to grant certification to a second requested class, where the allegation was that the workers were non-exempt.  On that component, the Court believed that not enough similarity or commonality had been shown.  That is the essence of a successful defense to a collective action.

On that first group, it seems an uphill climb…

Whenever a class action is defended, the main defense is, always, too much individual scrutiny is needed to allow a class to be formed.  This is exactly what a group of defendants has just now urged a California federal court to find and thus decertify a conditional class of workers claiming they were denied overtime pay in violation of the Fair Labor Standards Act.  The case is entitled Sandoval et al. v. Ali et al.. and was filed in federal court in the Northern District of California.

Copyright: leaf / 123RF Stock Photo
Copyright: leaf / 123RF Stock Photo

The workers clam that they were not paid for non-repair-related tasks and they also claim that they were not properly compensated for downtime; the employers claim that each of these claims has to be assessed individually because they are not similar enough to belong to a single class or to opt in to the conditionally certified FLSA class.  Indeed, the defendants noted that the court itself already compared the theories of recovery to “shifting sands.”

The defendants brief aptly noted that “each variation has been tied to unique, individualized or specifically anecdotal scenarios based on cases that are dissimilar to the facts of this case, but there has not been any evidence of any class-wide policy, procedure or practice at use [in] all shops let alone a single shop that would warrant the FLSA conditionally certified class to continue as a class action.”

The defendants argued that the standard for conditional certification is much lower because that kind of certification is granted “not on the merits,” but rather because, in that limited and narrow setting, naked allegations can carry the day.  However, the defendants cogently argued that “by contrast, [for] the decertification of FLSA collective actions or final certification of FLSA collective actions, the burden on plaintiffs is substantially greater and requires a demonstration of substantial similarity between the plaintiffs and opt-ins.”  The defendants conclude by bluntly noting that “plaintiffs cannot meet this burden.”

The Takeaway

Anything that can be espoused that will tend to show individuality or that individual scrutiny is needed should be thrown up as a defense.  For example, in this case, there were several FLSA class members and a number of opt-in workers that allegedly had claims beyond the statute of limitations period, so their circumstances would also be different.  The employer here has cogently asserted that decertification is mandated because proving liability under these circumstances will necessarily default into making numerous individual inquiries over time worked.

Music to my ears.  Hope it works.

Although there are FLSA actions brought all over the country, the statistics show that the Southern District of Florida is the (dubious) leader in such suits.  Commentators attribute this disproportionate number to the “pervasive” existence of unsophisticated small businesses employing immigrant workers and, importantly, a skilled and aggressive plaintiffs’ bar that are knowledgeable in FLSA matters and eager to file suit.

South Beach, Miami
Copyright: sborisov / 123RF Stock Photo

Of the 8,960 FLSA actions filed in 2015, almost 1300 were filed in the Southern District of Florida alone; the Southern District of New York, with 947 suits, was a close second.  (There is a knowledgeable and aggressive FLSA plaintiffs’ bar there as well).

The simple fact is that FLSA suits have doubled in the last ten years.  In 2005, there were 4021 and that number doubled in 2015.  In that same time frame, the number of cases filed in the Southern District of Florida ranged between 1200-1400.  Notwithstanding this national uptick, South Florida still holds a sizable lead.

One commentator suggests that there is a “higher percentage of unscrupulous employers in South Florida.”  Perhaps a workforce with a large percentage of immigrants may be more vulnerable to workplace underpayment, as employers may see employees who are afraid of complaining to authorities.

The Takeaway

I do not believe, on balance, that for small businesses, it is greed that motivates them. Rather, I believe it is just failing to get necessary legal advice when implementing employee policies.  The FLSA is complex and nuanced.  Full compliance and corrective actions are best when done under counsel’s direction.  Even with good policies, employers could have lower level supervisors who do not understand the law and do or do not do, things that bind the company.

I believe strongly that the best course of action is a proactive one.  A complete audit of all compensation practices, e.g. exemptions, working time, etc.  Fix what is broken and move on.

Although there is an active plaintiffs bar in South Florida, they are all over (with many of them pooling resources).  Notwithstanding that, if there is nothing for them to “find” then it does not matter and internal audits accomplish that goal.

Then you can sit in the Florida sun…

The recent US Supreme Court decision in Campbell-Ewald Co. v. Gomez, No. 14-587 (Jan. 20, 2016) resolved a split in holding that an unaccepted Rule 68 offer of judgment does not moot a class representative’s claims or the putative class action.  This was the first Supreme Court decision favoring class actions for quite a while.  The majority opinion adopted the reasoning from Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013) (April 16, 2013), i.e., that a rejected offer is a “legal nullity” that leaves a plaintiff’s standing intact.

U.S. Supreme Court
Copyright: msdogan / 123RF Stock Photo

Given that unaccepted Rule 68 offers can no longer moot a case where the plaintiff “remained empty-handed,” some have speculated that new forms of “offers plus” could revive the classic pick-off strategy.  Indeed, the Campbell-Ewald Court reserved decision as to result “if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”

One court has recently rejected such a strategy, denying a motion to deposit funds with the court under Rule 67 as procedurally improper.  Brady v. Basic Research LLC, No. 213CV7169SFJARL, 2016, at *2 (E.D.N.Y. Feb. 3, 2016) (denying motion where defendants sought “to deposit funds into court to moot this case … not to relieve themselves of the burden of administering an asset”) (Law360 subscription required).  That court echoed “the Supreme Court directive that ‘a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.’”

But what happens if a class representative accepts a Rule 68 offer precertification that resolves that individual’s claims?  One district court posited that a named plaintiff could continue to represent a class even after accepting a Rule 68 offer, based on “the underlying logic that a class action is not mooted upon expiration of the named plaintiff’s transitory claims.  The Ninth Circuit has disagreed, holding, in Campion v Old Republic Protection Co., that the plaintiff lacked standing to appeal certification after accepting a Rule 68 offer because he had “no financial interest or other personal interest whatsoever in class certification.”  The court held that when the plaintiff voluntarily settles his or her individual claims, we have found no case that has held that the ‘private attorney general’ interest suffices; all cases look to whether the plaintiff has the requisite financial, or otherwise personal, stake in the outcome of the class claims.”

The Takeaway

As the Supreme Court has yet to address this precise issue, a class representative’s continued standing after resolving his individual claims may well hinge on the terms of the Rule 68 offer.  A defendant would be well advised to craft an offer that includes an unqualified release of class claims and eliminates the named plaintiff’s stake in any eventual class outcome, so no matter what happens on appeal, the plaintiff will anything more.  Plaintiffs will seek terms that protect the class, including by reserving a named plaintiff’s right to represent the class until another representative can be sotted in, as well as the right to appeal an adverse ruling on certification.

There is, as we all know, an insane amount of litigation on independent contractor issues.  These controversies can emanate from any industry and there is no business that is immune to these allegations.  Case in point.  A judge in New York State has just granted class certification to a class of cheerleaders for the Buffalo Bills of the NFL who are claiming that the misclassification deprived them of overtime pay.  Although they may be out of the playoffs, the team may yet be in the limelight, but for the wrong reasons.  The case is entitled Caitlin Ferrari, et a. vs. Stephanie Mateczun, et al, and was filed in the Supreme Court of New York in Erie County.

American football
Copyright: tiero / 123RF Stock Photo

The Judge ruled that the plaintiffs, known as the Buffalo Jills, are entitled to class certification because (under New York law) the statute of limitations is six years so the proposed class can extend back six seasons.  There were approximately forty (40) cheer leaders engaged during this time, so the Judge deemed it impracticable to try their cases separately.  The Court also found sufficient commonality in the claims as to warrant class certification.

The lead plaintiff Buffalo Jill, Caitlin Ferrari, alleges that the Jills were required to attend all Buffalo Bills home games, attend biweekly practices, conduct dance clinics as well as make several public appearances from April-December.  She alleged that a small component of this “work” was paid over, making the wages of the Jills less than the State minimum wage.  She also alleges that, although the Jills can, on their own, sell the Buffalo Jills swimsuit calendars at $5/calendar, if they do not sell the calendars they are stuck with what they do not sell.  The parties have been expanded, with the team and the League now being added in.  The Jills want unpaid wages, unreimbursed expenses and attorneys’ fees.

The suit is the latest of several clashes over fair pay between NFL cheerleaders and their respective teams in recent years.  The Oakland Raiders and Tampa Bay Buccaneers have settled similar cases.  Indeed, there is a similar case in which a group of cheerleaders is seeking unpaid wages from these defendants.   Three of those plaintiffs joined the Ferrari lawsuit in January 2015, saying they “wish to stand in solidarity with their fellow cheerleaders” and believe that “a class action is the best way to do so.”

The Takeaway

I have handled many independent contractor litigations and DOL audits.  Many of these cases have been unemployment audits, where the exposure may not be that much because the DOL there is only seeking back due contributions (and interest) for unemployment insurance.  The FLSA scares me a lot more.  There are liquidated damages, a three year possible statute of limitations and fee shifting.  Overtime claims by a class of misclassified independent contractors and/or minimum wage claims are the much bigger danger.

So, don’t let any independent contractor work more than forty hours…

No industry or business is immune from the threat of a FLSA class action.  Proof of this premise is found in the certification of a class of dozens of freelance content producers who allege that the parent entity of the Hollywood Reporter denied them overtime by misclassifying the workers as independent contractors.  The primary allegation is that this misclassification denies the class members the proper payment of overtime.  The case is entitled Simpson v. Prometheus Global Media LLC and was filed in the Superior Court in California, the County of Los Angeles.

Copyright: appalachianviews / 123RF Stock Photo
Copyright: appalachianviews / 123RF Stock Photo

The Judge certified a class of 43 freelancers who worked at Prometheus from January 2010 up to today.  She included those paid hourly or on a day rate and who were given office space, a computer, a company email account and a dedicated phone line. The Court emphasized that the misclassification issue was central, but she also certified the class on the claims involving overtime, missed rest and meal breaks, as these were all derivative from the fact that the people were or were not “employees.”  The Court also found that the standards set forth in the U.S. Supreme Court opinion of Ayala v. Antelope Valley Newspapers were met, as the people could point to a common policy.

The defendant argued that just because the defendant provided a list of names did not mean that a class was appropriate or certifiable.  She contended that the plaintiffs failed to show any evidence supporting the allegation that class members will be able to identify themselves on that list.  The defendant also argued that the class did not have a sufficient community of interest, because the freelancers did myriad different jobs, requiring different skills, and that a trial would be unmanageable due to needing an unreasonable number of class representatives for so small a “class.”   In sum, too much individualized scrutiny was necessary and thus no class was cognizable.

The Court disagreed, finding that what the freelancers did was integral to the publication of the newspaper, which was the business reason for the existence of the Company.

The Takeaway

The Court concluded that the roles performed by the freelancers were in fact a “principal contribution to the business of putting out a newspaper.”  This is in line with the emphasis in the recently issued USDOL Interpretation on this subject, which focused on the “integration” element.  It is usually (or, heaven forbid, only) when the contractor or consultant at issue is doing something so utterly far removed from the main business of the company that no gray area exists.  That, however, may defeat the entire reason for utilizing such people.

I posted on January 7, 2015 about what to watch for in new USDOL regulatory initiatives in 2015. This post focuses on an even more telling truism—-wage-and-hour litigation continued to rise in 2014, posing major problems (and exposures) for employers. I do not need to be Svengali to “predict” that this trend will continue this year, putting the onus on employers to be proactive in ensuring that their compensation and wage hour policies (including bonus and commission plans) comport with the FLSA and state law.

A recently released report on class action cases observed that while employment discrimination filings and ERISA suits have dropped, FLSA lawsuits rose; a total of 7882 filed in 2013 to a total of 8,066 in 2014. One reason for that rise is that it is easier for plaintiffs to file such suits.

The report notes that the Second and Ninth Circuits are the “hotbeds” of FLSA litigation. More cases are filed, and more class action certifications are granted in these Circuits than anywhere else in the country. More tellingly, plaintiffs in all jurisdictions were granted conditional certification (after which, often, cases settle) close to 70% of the time and plaintiffs, more than half the time, were able to thwart decertification challenges.

The report also notes, hardly surprisingly, that wage-hour litigations will continue to rise this year. Interestingly, the report observes that settlements from employment class actions fell in 2014 (except for ERISA cases). Maybe the downturn in settlements reflects the continuing vitality and use by employer-defendants of the US Supreme Court’s Wal-Mart decision. As it became tougher to secure class certification, plaintiffs are encountering employers who are more aggressive in settlement posture, figuring they have a good chance to defeat certification on the merits (or lack thereof) of the case.

Not only did the Supreme Court help employers with Wal-Mart, in 2013, the Court issued its decision in Comcast which imposed another hurdle on plaintiffs seeking class certification. Thus, defendant employers became even more emboldened in refusing to settle and seeking judicial “victories.”

The Takeaway

It is essential for employers to monitor, review and, if need be, modify their wage hour policies, especially on classification (i.e. exemption and independent contractor) and working time issues. Fixing problems before the suit arrives at the door is always the best and cheapest recourse for the employer.