Fair Labor Standards Act (FLSA)

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

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

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

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

The Takeaway

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

Maybe this new proposal is the right fix…

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…

At long last, new USDOL Opinion Letters are bursting forward.  Like Spring.  The agency just issued three new letters on a variety of topics, including one of my favorites, travel time.  The other letters address issues of compensable break time as well as the kinds of lump-sum payments that could be garnished for child support.

writing letter
Copyright: perhapzzz / 123RF Stock Photo

The new Labor Secretary stated early on that the agency was going back to issuing these letters.  I applauded that decision at the time.  These letters reflect the agency’s interpretations of various issues under the FLSA, some of them arcane and off-beat, issues that existing case law does not address.  Under President Obama, the agency ceased issuing opinion letters, but favored so-called Interpretations, which were more global in scope.

I want to focus on the travel time letter, FLSA 2018-18.  The inquiry of the submitter was whether the employer had to pay crane technicians, who worked irregular hours, for their travel time under three scenarios: 1) an employee who travels from his home state on Sunday for a training class commencing at 8AM on Monday; 2) an hourly technician who travels from his home to his work location and then to a job site; and, 3) a worker who travels from job site to job site many times during a single day.

The USDOL response was that the first scenario mandated payment for the employee if his hours of travel cut across their normal workday (which is consistent with the FLSA regulations on this point).   The Letter provided three methods to reasonably determine normal work hours for employees with irregular schedules to determine whether the time was compensable.

The first method involves a review of the worker’s hours during the most recent month of employment so that a final determination could be made on the compensability of the travel time.  The second provides that if typical work hours cannot be determined, the employer may choose the average start and end times for the workday.  Lastly, where there are truly no normal work hours, the employer and employees could negotiate a reasonable amount of time in which travel outside the home communities was compensable.

The Takeaway

I know that plaintiff side lawyers and worker advocates may feel that such letters amount to “get out of jail free” cards employers, who want to avoid liability.  The opposite is the case.  The letters provide guidance so that employers may know how to comply with the law in various situations.   That the following of the guidance in a letter gives the employer the protection of the safe harbor provisions in wage hour law is a justly deserved by product.

Keep writing, Mr. Wage-Hour Administrator…

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…

Working time cases come in all sizes and shapes. Many of these off-the-clock cases are so-called donning-and-duffing cases involving clothes changing for work and whether it is compensable. The U.S. Department of Labor has weighed in again on this issue. It has filed a lawsuit against a battery company for its alleged failure to pay workers for time spent putting on and then taking off protective clothing before and after their shifts. The company is East Penn Manufacturing Company.

Woman with hand raised in hazmat protective suitThe lawsuit alleges that the company owes back wages for almost 7,000 workers. A DOL official stated, “the Department of Labor is committed to ensuring that employees receive the wages they have earned for all the hours they have worked. The legal action in this case demonstrates the department’s commitment to workers and to leveling the playing field for employers that comply with the law.”

The agency claims that the workers spent time putting on protective clothing before commencing a shift and took more time removing the clothing and then showering before they clocked out. Although this was compensable activity under the law, the department said, the company failed to pay employees for that time. Rather, the allegation is that the workers were paid only for their scheduled hours, notwithstanding when they clocked in or out.

The Takeaway

The basic rule is that if the employee cannot perform their main job without first performing or engaging in the preliminary (or postliminary) activity, then the activity is compensable. Here, the workers could not manufacture the batteries if they did not wear the protective clothing. This scenario need not have happened.

At all…

Classification issues are annoying ones, to state the obvious. Especially decisions and issues as to who is and who is not an independent contractor. And, it does not matter whether the defending entity is a mom-and-pop candy store or one of our most elite educational institutions, such as Harvard University. That august institution has just recently agreed to revise its university-wide worker classification system as part of a settlement of a class action involving allegations of misclassification. The case is entitled Donahue v. Harvard University and was filed in state court in Massachusetts.

A massage therapist treating a female client on a table in an apartmentThe settlement included a class of approximately 20 acupuncturists and massage therapists who worked at the University’s Center for Wellness from January 2013 to December 2017. These workers will now be re-classified as employees and receive up to $30,000 each in back pay. When the University re-classifies other workers, the side “benefit” will be that they will be eligible to join unions.

The plaintiff’s attorney complimented the university. She stated, “from the outset of this case, I have said that Harvard should be a role model for other employers. I am very proud of this settlement and hope that it sets an example of how other employers should respond when a concern is raised that its workers have been misclassified.”

The named plaintiff, Kara Donohoe, a massage therapist, sued the University in January 2016, alleging it misclassified her and others as independent contractors. They were, consequently, denied certain employee-related benefits. She will receive $30,000 in back pay and an extra $30,000 for being the named plaintiff, a so-called “incentive award.” Other workers will receive up to $30,000 in back pay. Harvard has now tasked a group of people (e.g. HR) with revising its policies concerning classification of individuals as independent contractors. This study will be guided by federal and state law principles.

The Takeaway

A wholesale classification of any group of individuals as independent contractors is dangerous. As I have harped on many times, the starting point for any such analysis, whether under FLSA principles or state law, any state’s law, is to ascertain if the individual has other customers or clients or works solely/mostly for the putative employer.  In this case, if these Therapists worked only for Harvard, they were not engaged in an “independently established business” and that is the death knell for any employer defense in an independent contractor case.

Sorry, but, on this one, Harvard gets an “F.”

I have blogged several times recently on the rash of “check bag” cases that have percolated through the courts. Another example. A class of workers employed by Converse Inc. have now asked the Ninth Circuit to revive a class action resting on the theory that the time waiting to go through mandatory security inspections was compensable. The employees allege that the trial court’s decision that the time spent was de minimis was incorrect. The case is entitled Chavez v. Converse Inc., and was filed in federal court in the Northern District of California.

White canvas sneakersThe lower court judge found that the waiting time spent in inspections was a minute or a little more. Thus, the Court ruled that the time was de minimis. The employees argued that the judge should not have applied this doctrine to the California Labor Code claims because the test utilized by the Court was ostensibly meant to apply to Fair Labor Standards Act claims under the holding in Lindow v. United States. In this regard, the Court acknowledged that the question of whether the de minimis doctrine could ever apply to the California state statute was a question pending before the California Supreme Court after the Ninth Circuit certified that question to the Supreme Court.

The employees filed suit in July 2015 and in September 2016, Judge Cousins certified a class of approximately 1500 employees, finding that the claims shared commonality sufficient for a class-based litigation. Nevertheless, the judge dismissed the suit because the time spent in waiting was too brief to warrant litigation or to make findings that compensation was owed because the time was “working time.”

There were competing experts in this case. The Company expert stated that the inspection took less than ten seconds. The workers’ expert stated that the inspections took approximately 2.5 minutes per occurrence. The Judge ruled that even if the worker expert was right and it took 144 seconds per inspection, each worker would have to go through five exit inspections daily to amass more than ten minutes of off-the-clock time, which is the standard baseline for a de minimis finding.

The Takeaway

This case is interesting because the state Supreme Court is going to rule on the meaning of de minimis, which will impact on the holding reached in this matter. With that said, the lesson for employers is to always, I mean always, stake out the de minimis defense in any waiting time case, especially a bag case.

It just may work…

I am always telling clients who are sued in FLSA actions not to take any actions against employees who may still be working for them (which, admittedly, is not the case very often) because that will make things dramatically worse.  Well, it appears that HBO may not be heeding this admonition because production assistants who joined FLSA collective and state class actions have alleged that the company is taking actions against them for joining those suits.  The case is entitled Sapia et al. v. Home Box Office Inc. and was filed in federal court in the Southern District of New York.

Photo of movie clapper on woodThe company had settled suits based on a theory that it did not pay parking production assistants properly for their hours, i.e. work hours, spent holding spaces for large productions like “Girls” and “Vinyl.”  The company allegedly retaliated against employees who opted into the cases by asking them to sign agreements that they would drop out of the litigation and, more importantly, by cutting their shifts and/or refusing to hire them back for additional work.  The Complaint alleges that the “defendant reduced plaintiffs’ shifts to strategically force plaintiffs to resign by reducing their pay to levels below those necessary to sustain themselves and their dependents.”

Although the studios made millions of dollars from the projects.  The studios, however, only paid a per diem pay to the employees, who were assigned to hold parking spaces over long shifts.  HBO settled the case for $8,000,000 in September.  However, the company allegedly was not content to leave it there.  For example, one plaintiff stated that he was called into a meeting with the Parking Coordinator and at that meeting was informed that any assistants who participated in the overtime lawsuits would be given fewer shifts.  The Coordinator also asked if the employee would sign a “working agreement.” This would require the employee to remove himself from the litigation.

The worker not only refused to sign the agreement, he tore it up in front of his supervisor.  Then, he was denied more shifts when he asked for them, he alleges. When he asked to be assigned shifts, the company denied the requests or just ignored them.  The Complaint then alleges that the “defendant constructively terminated plaintiff Sapia by refusing to assign him any shifts of work in retaliation for opting into the lawsuit and for refusing to opt-out of it.”

The Takeaway

As an employer, you need to know when to walk away from something, fix it and move forward.  This case was settled, over, but now has been given new life in a needless manner.

Didn’t have to happen…

The controversy over whether employees must arbitrate wage claims continues with full force. A federal judge has just sent to arbitration a claim by an employee that the Company violated the Fair Labor Standards Act by not paying him overtime pay. The Court found that the parties had “clearly and unmistakably” agreed that an arbitrator should decide whether the allegations are arbitrable. The case is entitled Smith v. Kellogg Co. et al., and was filed in federal court in the District of Nevada.

Arbitration
Copyright: kzenon / 123RF Stock Photo

The district judge granted a motion to compel arbitration. The Court found that the retail sales representative signed an employment agreement that contained a mandatory arbitration clause under the Judicial Arbitration Mediation Services rules, which leave the determination of arbitrability to the arbitrator.

The judge noted several cases involving the issue of whether the sophistication of the parties matters in deciding whether a delegation of arbitrability is clear and unmistakable. The judge, however, referred to language in another decision holding that the parties do not need to be sophisticated to conclude that the incorporation of arbitrator rules “constitutes clear and unmistakable evidence of the parties’ intent” to delegate the decision about arbitrability.” As the Court aptly noted, “… the requisite intent to delegate is present in the continued employment/incentive agreement in the incorporation of the JAMS rules, which delegate the determination of arbitrability to the arbitrator.”

The judge also noted that the Agreement contained a clause telling the employee to consult with an attorney. The document also gave at least 21 days to consider the Agreement prior to signing it and there was, very generously, a seven-day grace period to revoke the decision made previously to agree to the arbitration procedure. The judge concluded that although “ Smith has raised a slight inference of procedural unconscionability [he} has not made a showing of substantive unconscionability as to the delegation provision. Therefore, the delegation provision is enforceable and I grant the motion to compel arbitration.”

The Takeaway

An arbitration provision such as this one is an escape mechanism for the employer in an overtime or FLSA context. It must be drafted properly, with all the procedural safeguards necessary and as may need to vary from state to state but it can preclude federal litigation.

Which is always a much more expensive proposition.

Accurate records are extremely important for employers. The employer must record the employees’ start time, when they took lunch, and when they leave at the end of the day.  That is so employees can be properly paid (for overtime as well) and, significantly, it is for the employer’s protection so workers cannot inflate claims of working hours. The one thing employers must never do is to alter, edit or change those records, especially for any ulterior reason.

Female hotel housekeeping worker with linens and cartAn Orlando hotel found this out the hard way. The hotel has been ordered to pay in excess of $400,000 in back wages and penalties after the U.S. Department of Labor concluded that the Company had, on numerous occasions, altered payroll records to avoid paying overtime. The agency found that the Sheraton Vistana Resort did not accurately record all work hours performed by the employees. The Company assessed $372,183 in back wages for 275 employees and more than $40,000 in penalties for repeat violations of the Fair Labor Standards Act.

The USDOL District Director stated that this resolution “puts these wages into the hands of those who earned them, and demonstrates how the Department of Labor’s enforcement protects workers and levels the playing field for law-abiding employers.” The investigation showed that supervisors directed employees to sign documents authorizing the Company to edit the times employees punched in and out. The supervisors then altered time records to indicate that employees did not work through their lunch breaks, notwithstanding that they did so.

The Company maintained that it has taken steps to ensure future compliance. A spokesperson stated that, “Sheraton Vistana Resort has agreed to pay some housekeeping associates for overtime that may not have been fully paid for a period of two years.  Current procedures prevent any similar underpayments to associates.”

The Takeaway

Keeping accurate records is essential, as it shows the hours employees worked and protects the employer in the sense that employees cannot inflate the hours they worked because the records show otherwise.  This is especially so if the employer directs employees to self-certify that the hours worked are accurate.  This lovely reasoning goes out the window if the employer is actively directing employees not to report hours, to work off-the-clock, or, as here, to “authorize” their supervisors to change their working hours.

A big no-no….