Fair Labor Standards Act (FLSA)

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I have written a number of times about law firms that have been sued in FLSA actions. Another example. Employees have sued two Florida personal injury law firms, alleging that they were misclassified and not properly paid proper overtime wages in violation of the Fair Labor Standards Act. In fact, there are two class actions filed. The cases are entitled Durrett v. Disparti Law Group PA et al and Hinkle v. Jodat Law Group PA. et al. Both cases were filed in federal court in the Middle District of Florida.

Law books and justice scales
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The employees at issue in the Disparti suit are case managers; these are the same kind of employees whose status is at issue in the Jodat case.  The employees claim that their duties are non-exempt. The Durrett plaintiff alleged, “in most if not all work-weeks, plaintiff was paid for 40 hours but was not compensated time and half for hours worked over 40.” She alleged that the “defendant would pay plaintiff straight time by personal check for all hours over 40 in a workweek. This disguised method of compensation was implemented to circumvent the FLSA’s requirement for overtime compensation.”

The plaintiffs claim that the founders of the firm knew of these illegal payment practices and have named both of them as individual defendants. The suit also alleges that sometimes the defendant gave Durrett compensatory time and failed to pay Hinkle for her time spent delivering mail between the offices, although she asserted this was a routine part of her duties.  Hinkle claimed that the “defendants were able to avoid paying overtime by not paying plaintiff travel time when she would transport firm mail between office locations.

The women employees claim all they did was manage cases, keep clients informed of status of their cases, order supplies and organize files.  Ms. Durrett made a very (potentially) damaging allegation, i.e., that she was ordered to clock out and then keep working, many times in excess of fifty (50) hours per week. Naturally, the employees claim the violations were willful and that there are many other workers at these two firms with similar claims.

The Takeaway

Law firms, or doctor offices, are not immune to FLSA lawsuits, particularly on misclassification grounds. It is always the employer’s obligation to classify employees properly. It sounds like the employees at issue do mainly ministerial tasks, run-of-the-mill tasks that do not smack of exemption. Unless the plaintiffs (and possible opt-ins), supervise workers so they might possibly fit within the executive exemption, the only realistic possibility is the administrative exemption.

The grayest and toughest of the white-collar exemptions for the employer to prove…

There have been so many cases involving employees in the financial services industries and their exempt status or lack thereof. In another variation on this theme, Provident Savings Bank is seeking review by the US Supreme Court of a Ninth Circuit decision that gave new life to allegations that its mortgage underwriters are non-exempt and entitled to overtime. The bank asserts that these employees are exempt under USDOL regulations, i.e. the administrative regulations. The case is entitled Provident Savings Bank, FSB v. Gina McKeen-Chaplin, et al. and has been submitted to the U.S. Supreme Court.

Banking and Financial Services
Copyright: sashkin7 / 123RF Stock Photo

The bank had defended the lawsuit by asserting that these workers did qualify as exempt administrative employees because their duties involved the “servicing” and “running” of the bank’s business by analyzing and evaluating whether the bank should risk money by rendering loans to certain borrowers. The petition states “nothing in the FLSA’s text or purpose justifies interpreting the ‘administrative’ exemption with a heavy thumb on the scale against the employer. Perhaps for that reason, this court has pointedly refused to apply the canon in recent FLSA cases.”

The Ninth Circuit concluded that the job functions of these workers, i.e. reviewing loan applications using guidelines set down by the bank and investors, were not the back office functions relating to management or general business operations that the exemption requires. The named plaintiff had appealed a lower court decision that granted summary judgment to the Bank.

The district court had first granted conditional certification but then threw the case out because it concluded that the underwriters fit within the administrative employee exemption because major, primary functions included “quality control.”  That is one of the functions enumerated in the regulations as work related to the management or general business operations of the bank.

The Takeaway

This case highlights the confusion in the regulations concerning the financial services industry. If these workers are “simply” using established guidelines and standards to make decisions, well, that is not “discretion and independent judgment.” Although quality control is certainly a back-office type business function, this particular exemption still requires employees to use discretion.

That is where these kinds of cases usually go south for the employer.

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.”

I have blogged (somewhat incessantly, I admit) about manager FLSA class actions and what the line(s) of defense are for the employer in these cases, and how to defeat these cases. Another case in point. A federal judge has now decertified a collective class, following the Magistrate Judge’s recommendation against the class continuing in this overtime action. The case is entitled McEarchen et al. v. Urban Outfitters Inc., and was filed in federal court in the Eastern District of New York.

Retail clothing storeJudge Roslynn R. Mauskopf adopted the Magistrate Judge’s report and recommendations, concluding that there was no plain error in the Report. Moreover, the Managers had not lodged objections to the Report/Recommendations. Magistrate Judge James Orenstein had ruled that there were too many differences in duties, responsibilities and authority among the members of the class to allow the claims to proceed as a collective action.

The Managers stated that they agreed not to object to the Report if the Company gave the Managers more time to file, perhaps, individual lawsuits. The original lawsuit alleged misclassification, i.e. that the Managers did not fit the executive exemption, they were not true managers and therefore were non-exempt under the FLSA. The plaintiffs moved to certify a class of all current/former department Managers at the Company’s 179 stores. The plaintiffs argued that all of the Managers had similar job duties and lacked meaningful discretion. There were notices sent to 1,500 potential opt-ins, following the granting of conditional certification. More than two hundred opted in and several were deposed.

The Magistrate Judge found that there were major differences between the duties and experiences of the opt-in plaintiff and the named plaintiffs. The Judge found that the opt-ins seemed to be exempt, as opposed to the named plaintiffs. The named plaintiffs asserted that they had little say in hiring and firing decisions. To the contrary, many opt-ins “described being active participants in the hiring and firing process,” Judge Orenstein wrote. The named plaintiffs posited that they spent but little time training hourly workers, but many opt-ins testified to a broad range of training responsibilities.

The Takeaway

This is another lesson for employers, not only in these Manager type cases but also for all employers defending almost any kind of FLSA (or state) class/collective action.  Bang away at individual differences in the class. It sure helps if the opt-ins to the class give favorable testimony at the expense of their own self-interest (and wallet). The interesting twist is that the plaintiffs extracted more time for possible plaintiffs to file their own individual cases.

Maybe they know something…

Well, it finally happened. A Texas federal judge struck down the Obama Administration’s proposed changes to the FLSA overtime regulations, which would have made millions of more people eligible for overtime. The Court’s theory was that the U.S. Department of Labor used a salary level test that was excessive in determining whether workers should be exempt from overtime. The case is entitled State of Nevada et al. v. U.S. Department of Labor et al. and was filed in federal court in the Eastern District of Texas.

The Judge granted summary judgment to the Plano Chamber of Commerce and more than 55 other business groups. These entities had fought the proposed 2016 rule that highly elevated the minimum salary threshold necessary to be deemed exempt under the FLSA “white collar” exemptions, executive, administrative, and professional. The new level would have been more than $47,000 per year ($913 per week). The highly compensated exemption (HCE) would have gone from $100,000 to approximately $134,000.

The Judge opined that the “significant increase” would negate or totally undermine duties test, which is a critical component of the exemption analysis. The Judge stated that, “the department has exceeded its authority and gone too far with the final rule. The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The judge noted that if the DOL proposal went through, then more than four million workers currently not eligible for overtime would automatically be eligible under the final rule, although their job duties had not changed. The Judge noted, “because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’ unambiguous intent.” The Judge cautioned that he was not making any determination on the issue of the DOL’s authority to set a salary threshold.

The new Secretary of Labor, Alex Acosta, has advised lawmakers that the DOL wanted to revise the overtime rule, establishing the salary level somewhere between the “old” level and the very high level set in the Obama-DOL rule. Mr. Acosta stated that level was too harsh on businesses.

The Takeaway

In principle, I agree with the concept that the duties portion of the test is as important as the salary component and raising this salary in this extreme manner was too much for business to bear. I had clients make changes back in November 2016, in anticipation of the rule, and now they are living with (and paying for) those changes because they do not want to penalize their employees. With that said, I do believe the salary level will (ultimately) be raised.

Most wage-hour class actions settle, usually with the lead plaintiff getting an extra sum of money for leading the “good fight.” In any such action, the Judge has to approve the settlement. Well, sometimes a Judge does not like what is in the settlement and will reject it. That is exactly what has happened in a Pennsylvania case. The federal judge has declined to approve a settlement between a former Assistant Manager and his class, who had sued an auto repair shop. The Court found that the proposed settlement was too generous to the named plaintiff and, more tellingly, his attorneys. The case is entitled Hoover et al. v. Mid-Atlantic Lubes Inc. et al, filed in federal court in the Eastern District of Pennsylvania.

Silhouette of mechanic in an auto repair shopThe Judge found that the proposed $6,000 incentive award for the named plaintiff, in addition to his money from the actual settlement, would see him receive the amount of the $15,000, which was deemed excessive. The Court also found the $175,512 requested by his counsel for his fees was also excessive. As the Court aptly put it, “the fee award named plaintiff’s counsel seeks is almost 12 times greater than the amount the opt-in collective will receive in total. In these circumstances, I cannot preliminarily approve the settlement.”

The employees alleged that the Company denied proper compensation by throwing out time records and/or editing time entries to reduce or remove hours. The Company also allegedly ordered employees to clock out when they were not assisting customers, although they were required to stay in the store.

The parties sought approval of the settlement in January; every potential class member was going to receive compensation for hours worked but uncompensated. A settlement fund of 15,000 had been established. The class included customer service technicians and assistant managers who worked at the store in Warminster, PA, from January 2014-January 2016.

Counsel for the named plaintiff contended that the $6,000 incentive award requested for Mr. Hoover was fair, as he was actively involved in going to judicial proceedings and court conferences. He also agreed not to seek employment with the Company and asserted that should be worth something. The Judge disagreed and dubbed the incentive award “excessive and unduly preferential.”

The Takeaway

Plaintiff’s counsel stated that, “the parties have worked amicably with one another from the outset of this litigation and we look forward to continuing to work with the defendants to consummate a mutually agreeable resolution.” To that, I say that more reasonableness in the demand for fees would be a good way to work together amicably. From my experience in these matters as an employer’s attorney, plaintiff counsel fee demands (especially the opening number) often seem disproportionate to the amount of work I believe (reasonably) should have gone into the case.

I have blogged on this long, protracted saga many times and I am glad to see that with each posting, the judicial result does not change.  The Seventh Circuit has now affirmed a lower court’s ruling that determined that Chicago police officers did not have a viable claim for overtime under the Fair Labor Standards Act for their after-hours work performed on city-issued BlackBerrys.  The Court concluded that there was a lack of any systemic or uniform policy that stopped the officers from putting in for the overtime.  The case is entitled Allen v. Chicago and issued from the Court of Appeals for the Seventh Circuit.

The panel affirmed U.S. Magistrate Judge Sidney I. Schenkier’s December 2015 decision, which followed a six-day bench trial.  The Seventh Circuit agreed with the lower court that the police department did not act to affirmatively prevent officers from requesting payment for nonscheduled overtime work.  The Court also concluded that the City had no knowledge that officers were not being paid for the work.

The police department issued BlackBerrys to the officers, which they sometimes used for such off-duty work.  They were required to submit “time due slips” to their supervisors and they had to write a short explanation of the work they performed, after which the supervisor approved the time and the officers were then paid.  The Magistrate eventually concluded that the officers did not demonstrate that the department had an “unwritten policy” that discouraged them from submitting slips.

The officers argued that their supervisors knew they were working off-the-clock because, according to them, the City gave them BlackBerrys so they could be contacted at any time.  The City countered by pointing to evidence that supervisors believed the officers were preparing the overtime slips so they could be paid.  The Seventh Circuit rejected the contention that the department had actual or constructive knowledge that overtime was being underreported and/or that there was pressure on the officers not to report that time.

Interestingly, the Seventh Circuit compared this case to the Sixth Circuit holding in White v.  Baptist Memorial Health Care Center.  In that 2012 decision, the Sixth Circuit held that an employee’s failure to accurately record/log work hours doomed her FLSA suit for overtime.  The Seventh Circuit observed “plaintiffs in this case, like the nurse in White, worked time they were not scheduled to work, sometimes with their supervisors’ knowledge. They had a way to report that time, but they did not use it, through no fault of the employer,” the Seventh Circuit said. “Reasonable diligence did not, in the district court’s view, require the employer to investigate further. Since … we see no clear error in that view of the facts, we see no legal error in reaching the same conclusion as the White court.”

The Takeaway

In order for employees to be paid for alleged off-the-clock work, they must show that their employer knew or should have known about the work.  They must also show that there was a system wide policy or practice that prevented them from being paid.  There was no evidence of either of these scenarios in this case and, more importantly, there was evidence that the City paid for this working time!

The correct result…

There have been many investigations of gas stations by the US Department of Labor. Like other retail industries, these businesses sometimes work their employees long hours for a set salary or lump sum of money. The problem is that in these scenarios, the employer is likely not paying proper overtime.

Gas stationIt has happened again, in New Jersey. A chain of six southern New Jersey gas stations will pay twenty-seven (27) workers almost $500,000 in back pay and liquidated damages in an audit emanating from a USDOL investigation into violations of the Fair Labor Standards Act,

The latest violator, R & R Store Inc., operating as USA Gas, had paid these workers a flat monthly salary ranging from $2,200-2,400; the employees worked approximately seventy (70) hours per week, but were not paid overtime. A DOL spokeswoman stated that “not paying employees the wages they’ve earned seriously impacts low-wage employees, such as gas station attendants, causing them hardships as they try to support themselves and their families.”

Significantly, the agency also assessed liquidated damages, which doubled the wages due, for an aggregate total of $463,453.52.  Liquidated damages are often now the rule, even in administrative investigations and audits. Interestingly, gas stations in New Jersey and Oregon are the only states that prevent motorists from pumping their own gas, so they need to employ workers, many of them full-time, to pump the gas and provide customer assistance and services.

In sum, the government took a hard line. Its spokesperson stated that the “U.S. Department of Labor remains focused on New Jersey’s gas stations to determine if FLSA violations exist. If violations are found, we will vigorously pursue corrective action to ensure accountability, deter future violations and prevent violators from gaining a competitive advantage.”

The Takeaway

These wage hour problems/issues are rampant in this industry (and in many other retail industries). Employees are paid a lump sum of cash for hours far exceeding the statutory threshold for overtime, i.e. 40 but they never receive appropriate time and one-half overtime. There are ways, however, legal ways, to build in the overtime to employee lump sums (whether cash or otherwise). The employer’s labor costs need not rise in this scenario and, most importantly, the DOL problems go away and never come back.

It can happen…

The joint employer possibility is a dangerous one for employers, as two related (or semi-related) entities may be held liable for overtime monies if the hours worked by employees at the two (or more) entities exceed 40. Now, Republicans in the House of Representatives have introduced a bill to narrow the definition of joint employment under federal wage-hour and labor law. This would provide businesses clear and bright lines for how they structure deals with contractors, but employee advocates take the opposite view and fear that this act would allow companies that outsource labor to avoid liability for workplace violations.

U.S. Capitol Building
Copyright: mesutdogan / 123RF Stock Photo

The proposed legislation, entitled the Save Local Business Act (introduced by Rep. Bradley Byrne, R-Alabama) would amend the National Labor Relations Act and the Fair Labor Standards Act to specify that a business may be branded as a joint employer only if it exercises direct, actual and immediate “significant control” over the essential terms and conditions of certain workers. These essential terms and conditions include hiring and firing/discipline, setting of employee rates of pay and benefits, daily supervision of employees, assignment of individual work schedules and assignment of jobs and job duties.

The proposed standard is stricter (i.e. more pro-employer) than the concepts outlined for joint employment in the controversial NLRB decision in Browning-Ferris Industries of California. The proposed law could result in some finality, in that it will place one body of guiding principles in place under both the NLRA and FLSA so that employers will gain some consistency. One practitioner has stated that, “it provides everybody with a clear definition for who will be liable under both laws.”

A pro-employee advocate from the National Employment Law Project stated that this statute could have serious and adverse effects on lower paid workers, who work, for example, in agriculture or janitorial services. The advocate warned that if the bill becomes law, it would be easier for businesses to place buffers between themselves and their workers, e.g. temporary agencies, staffing service providers, which would facilitate the avoidance of liability. Another employee advocate expressed a dimmer, more radical view, stating that the law would “undermine the concept of joint employment” and “set a high threshold to hold an employer who contracts or outsources work” liable for workplace law violations.

The Takeaway

In FLSA cases involving joint employment, there is varying law between federal circuits, but as regards labor law, the NLRB’s interpretation of the statute is given broad deference by courts on joint employment issues. If, however, Congress adopts a specific test, that test will then likely be given considerable deference by courts in future cases. Long story short—this bill is geared towards a considerable narrowing of the definition of joint employment.

At last!

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…