Conditional Certification

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?

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…

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…

Exemption class actions, i.e. lawsuits alleging misclassification, continue to pop up in different contexts and concerning different classifications. A bank has just agreed to settle a case by paying more than $2 million to put a close to a Fair Labor Standards Act (FLSA) collective action based on a theory that the bank misclassified certain computer/IT workers. The case is entitled Schaefer Jr. v. M&T Bank Corporation, and was filed in federal court in the Southern District of New York.

Network switch and ethernet cables,data center conceptThe settlement will pay almost $2.5 million to more than two hundred IT workers across the country. The parties have filed a joint motion asking that the settlement be approved. The motion notes that the employer denied liability as well as that it even was the employer of the workers. The motion then asserts that the settlement was “reasonable in light of the considerable risk that Plaintiffs face.” Naturally, the motion seeks money for attorney’s fees that would amount to 33% of the gross settlement funds and money for a settlement claims administrator.

The motion provides the rationale for the settlement by stating that “first, although plaintiffs obtained conditional certification, maintaining the collective and certifying a class through trial may be difficult. Defendant would likely argue that the differences among various job titles, departments and other individualized questions preclude class certification and would warrant decertification of the collective. Moreover, defendant could argue that the computer exemption applies to plaintiffs and ultimately convince the court that plaintiffs were properly classified as exempt from overtime pay. Although Plaintiffs disagree, other defendants have prevailed on such arguments in similar cases.”

The theory of the suit was that the bank did not properly pay overtime to technology department network computing analysts and staff specialists. The lead plaintiff, James Schaefer Jr., alleged that he was such an IT worker for several years and was not paid overtime because he was misclassified as exempt.

The Takeaway

These exemption cases prove difficult to win, often times. On the computer exemption issue, numerous titles abound which may or may not connote an exempt classification. A lot of gray here. With that said, the need-for-individualized-scrutiny defense sometimes works. Sometimes it does not and then the stakes for the employer-defendant are dramatically escalated.

Much better to settle…

I blog a lot about working time cases because these are the issues can sneak up on an employer, even the most well intentioned and good faith employer. Travel time is one of these murky, arcane kind of activities that go unnoticed by companies until, often, a lawsuit is filed. Another example emerges. A group of workers who constructed and maintained cellphone towers in several States gave been granted conditional certification in a FLSA collective action based on an alleged failure to pay for travel time. The case is entitled Lichy et al. v. Centerline Communications LLC, and was filed in federal court in the District of Massachusetts.

Silhouette of a cell phone tower shot against the setting sun.The judge certified a class of tower technicians and foremen. These workers can now opt into the lawsuit, which is based on the theory that the company should have compensated them for hours they spent driving company vehicles to work, over supposedly vast distances. The inclusion of foremen in the class, e.g. supervisory personnel, is quite interesting, but the Court found their duties were very similar to the rank-and-file workers and the foremen were working under the identical travel time policy.

The plaintiffs’ lawyer, naturally, applauded the decision, stating “first, the court recognized that slight differences among members of the class do not preclude conditional certification where all class members are subject to the same policy regarding payment of wages  Second, the court explicitly recognized that plaintiffs need not submit affidavits in support of their motion for conditional certification in order to prevail.”

Five tower technicians/lineworkers filed the suit. Their job duties included climbing cell towers, many times in distant locations and installing antennae, radios and cables. The Company mandated that the workers drive together to these job sites. The men were paid their regular hourly rates for the travel time between a meeting point and the job site. However, the Company failed to pay for the travel time returning to the central meeting place unless there were traffic delays or the job location was more than 130 miles from the regional workshop, according to the allegations in the case. The workers seek payment for the time driving back in Company vehicles to the central location. The Company contends that the FLSA does not mandate payment for travel time.

The Takeaway

I wonder why the company would not pay for the travel time back to the meeting place or regional office when the Company did pay for the travel time from the meeting place to the job site. That initial agreement to pay seems to undermine the defense that travel time is non-compensable. Home to work travel time is non-compensable, but when workers must first report to a central location, leave from there to the first job site and travel back to that central location, the travel time then does become compensable.

I bet this case settles…

A class of equipment operators and trainees has asked a federal court to approve a $1.35 million settlement of their FLSA class action lawsuit alleging the Company did not fairly pay them their wages and used a gimmick to avoid doing so.  The case is entitled Elliott v. Schlumberger Technology Corp. et al., and was filed in federal court in the District of North Dakota.

The plaintiffs alleged that the Company violated the law by paying them under the “fluctuating workweek” method.   Interestingly (or maybe not so much), the settlement talks took place after U.S. District Judge Ralph R. Erickson granted the Company’s motion to decertify the class.   The Judge ruled that there was insufficient evidence to show that the workers were similarly situated. There are 138 people in the class.

The plaintiffs alleged that the Company paid equipment operators and trainees by the fluctuating-workweek (FWW) method.  That method allows employers to pay workers overtime at a half-time, as opposed to time and one-half, but certain conditions must be met.  The workers claimed that in order to validly use this method, the employees must be paid on a fixed salary, which they were not.

The Court had conditionally certified a collective class of equipment operators, trainees and other similar employees who were employed at the Company plant in Williston, North Dakota, and to whom the Company applied the fluctuating workweek method for at least one week during the three years preceding the lawsuit.

The Takeaway

This case presents a valuable lesson.  Attempted use of the FWW method of payment must have the employees receiving a fixed salary and an agreement, in advance of the work, that the employees understand what the payment arrangements and overtime protocols are going to be.  This allows the employer to pay half time for overtime instead of time and one-half.  Without these two requirements being met, any attempt to use the FWW method is doomed to failure.  Put differently, the FWW method can be the employer’s best friend, if done right.

If not, it is the employer’s worst enemy…

In the movie “Grease,” there is a song entitled “Beauty School Dropout,” sung by Frankie Avalon. Well, in a legal version of that number, the Seventh Circuit has affirmed that beauty school students have, sort of, dropped out of the FLSA as they are not considered employees. The case is entitled Hollins v. Regency Corp., and issued from the Seventh Circuit Court of Appeals.

Hairdresser cutting young woman's hairThe decision affirmed a lower court decision, holding that a cosmetology student who worked at the beauty school’s salon was not an employee of the school. This employer, a cosmetology school, requires that students complete 1,500 hours of classroom and hands-on work. They do this by working in the school’s salon; the customers pay discounted prices. Significantly, the students are not paid, but they do receive credit of hours towards their license as well as academic credit.

The named plaintiff alleged that her hours were compensable under the FLSA and she brought a collective action; the lower court denied the motion for conditional class certification as moot, as the court granted the employer’s motion for summary judgment on the “employee” issue.

The Seventh Circuit looked at the “primary beneficiary” test and determined that under those standards, the workers were not employees. The right approach was that taken by the lower court, which examined the “particular relationship and program.” What was also important was that the work (of serving the public) was required to attain the professional license in cosmetology. The court found that the students were paying the school “for the opportunity to receive both classroom instruction and supervised practical experience.”

It was also probative to the Court that the main business operations were centered on providing an education, not operating “actual” beauty salons. Thus, the Seventh Circuit ruled, “that the fact that students pay not just for the classroom time but also for the practical-training time is fundamentally inconsistent” with the notion that the students were employees.

The Takeaway

There has always been controversy over whether students at these types of schools are FLSA employees. It seems that when students are engaged in the usual and typical jobs and tasks that students engage in when they are pursuing a degree (of any kind), that is not “work.” Perhaps, even though the students here lost, others may try the same tactics, albeit in different jurisdictions.

If the tasks at issue are claimed or argued to be not connected to attaining a degree, maybe these cases would have better prospects of succeeding and giving some unlucky employer a real “haircut.”

No industry is immune to FLSA collective actions and the energy industry is seeing a significant uptick in these actions. In this regard, a class of workers employed by an oil field services company has just agreed to a $2.1 million deal to settle a Fair Labor Standards Act collective action alleging that the company did not pay them proper overtime wages. The case is entitled Meals v. Keane Frac GP LLC et al., and was filed in federal court in the Western District of Pennsylvania.

Oil pump jack and oil tank silhouette
Copyright: crstrbrt / 123RF Stock Photo

The employer advised the Court that a settlement had been reached with a class of “frac supervisor I’s” to settle a FLSA collective action, seeking overtime, on a misclassification theory. The agreement recited that both counsel believed the settlement was in the best interests of all the parties, given the costs to be incurred, the risks inherent in litigation, as well as the delays, when placed up against the benefits of the settlement.

The defendant, however, made sure to secure non-admissions language. The papers stated that the “defendant denies and continues to deny all of plaintiff’s allegations in the action. Defendant enters into this agreement expressly disavowing any fault, liability and/or wrongdoing.”

Importantly, there had been a grant of conditional certification in June to a class of current and former “frac supervisor I’s” and other like employees who were employed by the Company in the last three years. The plaintiffs alleged that these alleged supervisors performed primarily manual work, which precluded the application of the exemption. The plaintiffs also claimed that the Company has a policy of deliberately misclassifying these supervisors to save overtime costs (even though they received bonuses). The Complaint alleged that all of these supervisors were similarly situated because they shared common job duties, were all classified as exempt and all performed uncompensated work.

The Takeaway

This was the right move by the employer. Exemption cases are always tough to win—often, the entire class is held to be exempt, or, heaven forbid, non-exempt, especially if common policies apply to the affected workers. The issue now becomes whether to re-classify these workers, i.e. pay them hourly, or enhance their duties so they “evolve” into exempt employees.

A lot easier to re-classify.  A lot less (future) worry and aggravation…

Regretfully, to my lights, conditional certification seems all too easy for plaintiffs in a FLSA collective action to secure.  Are things changing?  A federal judge has refused to certify a proposed class of natural gas pipeline inspectors for Gulf Interstate Field Services Inc. in a Fair Labor Standards Act overtime suit, concluding that the named worker in the suit is not similarly situated.  The case is entitled Sloane v. Gulf Interstate Field Services Inc., and was filed in federal court in the Middle District of Pennsylvania.

Pipeline Leading to Oil Refinery
Copyright: kodda / 123RF Stock Photo

The employee has alleged that he was paid a day rate but overtime was not paid for hours exceeding forty.  Judge Brann observed that many factors militated towards denying conditional certification.  He noted that there were many differences among the putative class members, such as where they worked, what they did and who their clients were.  Thus, there was a lack of commonality amongst the workers.

The Court aptly observed that the “plaintiff seeks certification of collective action generically comprising ‘all current and former employees of [GIFS] who performed work as a pipeline inspector in the United States in any workweek between three years prior to the date of the court’s order and the present.  The proposed class otherwise embraces no limitations based on geography, timeframe, client, position type or project nature, though it does incorporate a carve-out for three separate projects where workers were believed to not have suffered any unlawful treatment.”

Significantly, the Court also focused on the prior convictions of lead plaintiff Thomas Sloane, finding that those convictions and his evasiveness and dissembling about them with his own lawyer, showed that he was not a proper class representative.  Three of Sloane’s offenses involved burglary or theft; the Court concluded that this “propensity for untruthfulness” would taint the entire case for the other possible class members.

The Takeaway

This is the dogma that must be pursued when defending one of these collective actions.  Look for discrepancies in the fabric of the class, especially as regards the named plaintiff and the rest of the class.  Herein, this task was made easier because of the criminal convictions and conduct related to those convictions of the named plaintiff.  In sum, if the named plaintiff is but a poor representative of a putative class, the case for conditional certification is rendered much weaker.

A group of sales representatives for a car dealership have requested conditional certification in a Fair Labor Standards Act case.  The employees allege that they were paid less than minimum wage and were not properly paid their commissions.  The case is entitled Hotaranu et al. v. Star Nissan Inc. and was filed in federal court in the Eastern District of New York.

Auto dealership row of cars
Copyright: happyalex / 123RF Stock Photo

The named plaintiffs contend that they only received a base rate of $100 per week for those weeks in which they did not earn commissions, thereby causing their compensation not to meet the minimum wage standards. The complaint (filed in September 2016) alleges that there were numerous times when a sales representative did not earn any commissions, or where the commission were insufficient to meet the minimum wage/overtime requirements of the FLSA.

The Complaint also claims that the dealer manipulated gross profits of sold cars that resulted in reductions of the commissions earned by the sales representatives.  The named plaintiffs allege that they received flat commissions regardless of the gross profit on the car sold.  This, they claim, was done, notwithstanding agreed-upon calculations in their commission agreements.

The motion for certification claims that the plaintiffs have met their burden for conditional collective certification because they have demonstrated that the sales representatives are subject to the same policies.  At the conditional certification stage, the burden is fairly low (in any event) and the plaintiffs note that they have produced an alleged “well-pled” complaint and four affidavits from Star Nissan employees.  This is sufficient, according to plaintiffs, for the motion to be granted.

The Takeaway

It seems that there is a good chance that the motion will be granted, as the burden on plaintiffs at this stage is low – some might say, ridiculously so.  With that said, there might be an out, a magic bullet for the employer.  If the auto dealership is defined as a “retail business” under Section 207(i) of the FLSA and if the commissions earned equaled or exceeded 50% of weekly income over a representative period, then the sales representative(s) would be exempt from overtime for those weeks under the so-called commission exemption of the FLSA.

Then, the whole thing (or a good chunk of it) goes away.

Worth looking into…