Fair Labor Standards Act (FLSA)

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
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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…

The issue of whether to pay for training time is a vexing one.  In a recent case, a major airline avoided liability (for the most part) in a FLSA collective action alleging that it did not pay workers for time spent in a customer service-training program.  The Court held that the trainees were not employees “engaged” in work.  The case is entitled Otico v. Hawaiian Airlines Inc., and was filed in federal court in the Northern District of California.

Airplane
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The individual (Otico) had claimed that she was entitled to ten days pay for her time spent in a pre-employment training program.  The Court concluded, in granting summary judgment that no reasonable juror could conclude that this person was acting as an “employee” when she took the training courses.  The Court found that the airline was not directly benefitting from any free labor.  The Court held that “the trainees receive the benefit of learning how to do a job they hope to get.  Otico, therefore, was the ‘primary beneficiary’ of the arrangement. Although one wonders why Hawaiian is unwilling to pay something to these people, since they no doubt must sacrifice to participate in the program, the law does not require it to do so.”

The employer contended that the training provided was equivalent to the kind of instruction that the people could have received at a trade or vocational school and which would have cost them a lot of money.  The airline also asserted that it incurred extra costs and there were disruptions to its operations that were a by-product of its providing the training.

Ms. Otico, as a part of the hiring process, claimed that she was compelled to attend the unpaid training course, which took ten days, for eight hours per day.  The people learned about federal regulations and how to utilize the airline computer/software system.  Ms. Otico completed the course in December 2015 and got a job with the airline after she passed a drug test and received clearance from the airport.

The Takeaway

I do not understand the judicial reasoning here.  The person claimed that attendance was mandatory, the course material was related to the trainee’s job, and attendance was during regular working hours.  If those facts are true, then, under FLSA regulations and precedent, this time should have been compensable.

Usually, in FLSA cases, no emotional damages are allowable in retaliation cases.  Perhaps that inviolate principle is now changing.  In an important case, the Fifth Circuit has recently held that “an employee may recover for emotional injury resulting from retaliation” under the Fair Labor Standards Act in Pineda, et al. v. JTCH Apartments LLC. 

Stressed businessman in the office
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The FLSA prohibits employers from retaliating against employees for complaining about not being paid correctly or for commencing a lawsuit or an administrative proceeding.  The anti-retaliation damages clause states that “[a]ny employer who violates the provisions … shall be liable for such legal or equitable relief as may be appropriate to effectuate the purpose of” the anti-retaliation section.  In Pineda, the issue was whether this language allowed a plaintiff to recover emotional harm damages in FLSA retaliation cases as well as the lost wages.

The plaintiff was a maintenance worker who was given an apartment to live in, at a discounted rent, as part of his compensation.  He sued for alleged unpaid overtime; then, three days after the Company was served with the Complaint, the employer told Pineda (and his wife) to vacate their apartment for nonpayment of rent, where the unpaid rent equaled the discount that the Company had given to Mr. Pineda.  The employee then added a FLSA retaliation Count and at trial requested a jury instruction on emotional distress damages for the retaliation claim, which was denied.   The employee won his wage case (and attorney fees) and then he appealed the lower court’s refusal to instruct the jury on emotional distress damages to the Fifth Circuit.

The Fifth Circuit found the language of the FLSA damages provision for retaliation claims to be “expansive” and should “be read to include the compensation for emotional distress that is typically available for intentional torts like retaliatory discharge.” The Fifth Circuit cited precedent from other Circuits that have approved such awards.  The Fifth Circuit also noted that intentional retaliation cases were more detrimental than ordinary wage violations.  In this case, the Court noted that the plaintiff’s testimony on the nature and level of emotional harm was “sufficient to enable a jury to find that the plaintiff experienced compensable emotional distress damages.” Now, he has to prove such harm.

The Takeaway

Employers must be careful when they want to discipline or fire an employee who filed a wage claim or complained about his compensation.  It seems that a disturbing trend is forming, with more and more courts ready to award emotional distress damages in FLSA retaliation cases.  Thus, even a simple wage violation, even if an accident, may expose the employer to damages for pain and suffering.  The action(s) cannot be, or be perceived to be, retaliatory.

There have been a number of cases in which the FLSA employee status of exotic dancers has been litigated.  Well, in a very recent one, the plaintiffs’ counsel is strongly attacking the Company’s early summary judgment motion.  The dancers argued they were employees, not independent contractors; the Court has now granted conditional certification to the class.  The case is entitled Shaw et al. v. The Set Enterprises Inc. et al., and was filed in federal court in the Southern District of Florida.

Former dancers Sarah Shaw, Rebecca Wiles and Ashley Howell argued that the amount of control exerted over them by the club owners was the key in deciding what their status should be.  The plaintiffs reeled off many cases in which just such findings were made.  Their papers noted that their “position is not novel; the vast majority of courts to have considered this issue have found exotic dancer/entertainers to be employees as a matter of law.”

Their theory was a willful misclassification had occurred and they were paid only through tips from the customers.  The class was granted conditional certification in December 2016, as the Court found that a sufficient evidentiary showing was made indicating 300 entertainers worked at the two clubs during the three years leading up to the lawsuit and all were similarly situated.

The owners asserted they were independent contractors who just paid a “modest fee” to the club as a licensee, in exchange for being allowed to perform, use the facilities and collect tips and fees from the clientele. They also asserted they exercised no control while they were dancing and performing.

An attorney for the plaintiffs said that notice was being sent to 4,500 prospective class members.  He opined that, in the end, these people would be considered employees under the law, as they have in many other cases.  He said that “there’s been very strong precedent over the last ten years or so, consistently, in nearly all courts, that has found entertainment dancers do qualify as employees. We believe the same will be found under the facts of this case.”

The Takeaway

These cases are very fact-sensitive, but I agree that the majority of them rule that these folks are employees.  This case is interesting in the sense that an ultimate decision on the merits has not been made, but the opt-in notices are being sent to prospective claimants.

I love this one.  For the title of the worker classification involved.  It appears that a class of drilling fluid specialists, commonly referred to as “mud men,” has reached a $7 million settlement in its wage and hour suit against M-I LLC.  The case is entitled Syed et al. v. M-I LLC and was filed in federal court in the Eastern District of California.

The employees worked in drilling operations in Bakersfield, Calif.  They claimed they were compelled to work either twelve (12) hour shifts daily for two weeks before leaving their work sites, or work full-days (i.e. 24 hours) in which they were always on-call.  They claimed that they were not paid overtime when they worked more than forty hours per week.  (They also claimed no overtime pay when their work days exceeded eight hours, which is California law).

The settlement monies will be paid to 115 members of the national FLSA class as well as 353 members of the California class; the $7 million settlement includes up to $2.37 million in attorneys’ fees and costs, service awards of $15,000 to plaintiff Balfour and $20,000 to named plaintiff Syed, $11,500 in claims administration expenses and a $75,000 Private Attorneys General Act payment.

That leaves more than four million dollars to be paid out to class members, based on the number of weeks worked during the class period. Some class members will receive $55 for every week, while the California class members will receive $165 for each week worked.  The proposed settlement document stated that “for purposes of this proposed settlement, at a mediation … the parties operated under the premise that Rule 23 proposed class members were in a better position under California law for claims than FLSA collective action members, where in some individual cases, the covered positions have generally been deemed ‘exempt’ under federal law.  This is crucial to understand in order to realize the structure of the proposed settlement.”

The Takeaway

The plaintiffs’ attorney posited that “there are many of these types of cases pending against many major players in the industry.”  If this is an industry wide pattern and practice, that would be a problem.  The only thing to do in that instance is get into compliance and hope no one sues for two years…

A group of New Jersey sales associates who work in Dish Network LLC call centers urged a federal court to confirm a $1.9 million arbitration award stemming from a proposed class action, in which the workers said the satellite television provider miscalculated their overtime pay rates.  The case is entitled Frisari v. Dish Network LLC, and was filed in federal court in the District of New Jersey.

Group of satellite dishes
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The workers urge that the award, which gave the employees overtime at time and one-half, instead of the half-time overtime rates they were paid, is appropriate under long established principles.  The plaintiffs urge that “it is well established that when this court reviews an arbitration award, as long as the arbitrator’s award is not by ‘his own brand of industrial justice,’ the award is legitimate.”

The plaintiffs’ lawyer stated that the award shows that employers could not “cut corners” by paying overtime based on a half-time premium, which is a form of the FLSA “fluctuating work week” method.  He stated that “this sets precedent that companies cannot use the fluctuating work week method under the New Jersey Wage & Hour Law.”

The employees claimed that they were compelled to work off the clock and were prevented from accurately reporting these overtime hours.  They asserted that they were not paid while they performed preliminary duties before their shifts began, such as booting up computers and launching software.  The employees also claimed that they often worked through lunch, although these meal breaks were counted as unpaid periods.

The employees had filed suit and then the Company claimed that they were compelled to arbitrate their claims individually, as opposed to a class action, but the arbitrator held that there was the possibility the workers could still proceed with their claims as a class.   The Company sought to vacate that award but was unsuccessful.  In the final order he entered, the arbitrator awarded $480,000 in attorneys’ fees to the class and $1.9 million damages for the class.

The Takeaway

This case illustrates an interesting trend that is perhaps developing.  I believe (and I see it in my practice) that plaintiff lawyers are becoming less averse to litigating FLSA claims in an arbitral forum, where defendants would much prefer to be in.  On balance, I think it is better for both sides.  It is much cheaper, much faster and arbitrators are usually pretty savvy, both in deciding the case on the merits and facilitating settlements.

A win win.  Maybe…

A group of field service engineers have filed a FLSA suit against Alcon Laboratories, on the theory that the company misclassified them as exempt employees.  They seek conditional class certification, alleging that they were consistently denied overtime pay.  The case is entitled Voss v. Alcon Laboratories Inc., and was filed in federal court in the District of Minnesota.

Lab and engineers
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The allegation is that the Company wrongfully classified field service engineers as exempt until the Company changed their classification in 2016.  The plaintiffs seek conditional certification of a class of field service engineers.  The motion for certification asserts that “regardless of their specific job title, Alcon’s field service engineers performed the same primary job duties and were compensated in the same manner.  And despite the fact that they routinely worked over 40 hours per week, they were uniformly classified as exempt and denied proper overtime pay.”

Although they now receive overtime, the employees want back due wages for the period(s) of time they were misclassified.  The lead plaintiff asserts that his duties included installing, repairing, troubleshooting, servicing and maintaining ophthalmic laser equipment.  The Company defended its earlier classification decision by contending that the employees were professionally exempt or fit within the Highly Compensated Employee (HCE) exemption.

But – and it is a big but – at the conditional certification stage, there is a lower burden of proof and the plaintiffs argue that they have met the “fairly lenient” burden of evidence for conditional certification, i.e., a showing that the workers were similarly situated.  The plaintiffs argue that they share the same job duties, FLSA classification and pay structure and that they were all told, via a series of conference calls, about their new classification policy.

The Takeaway

The danger, always, when an employer re-classifies employees and begins to pay them overtime going forward is that the employees will realize that maybe they should have been paid overtime “all along” and will take some action.  In the litigious world in which we live, in the internet world in which we live, where employees can (all too) easily learn about their “rights,” an employer who re-classifies must always anticipate future challenges to its prior reclassification decisions.

One answer.  Compute what the employees are owed for that past overtime and pay them, along with getting the employees to sign releases.  That also brings with it legal issues, as one or more of the people may take that Release to an attorney or seek an attorney’s advice, but if the employer can get most of the people to “take the money and run” on that backdue overtime, the size of any ostensible class has been greatly diminished.

Whenever a FLSA suit is lodged against a unionized employer, I always look for the possibility of a preemption defense, which will, in one fell swoop, doom the entire litigation.  If the Court finds that the matter is governed by the parties’ labor contract and is better and properly left for the arbitration (or NLRB) process, then the Court does not have jurisdiction.  In a recent case, FreshPoint Inc. has tried to argue just that.  The Company has urged dismissal of a class action FLSA suit, asserting that the claims are nullified by the drivers’ collective bargaining agreement.  The case is entitled Rodriguez Jr. v. FreshPoint Inc. and was filed in federal court in the Northern District of California.

Picket line
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The FreshPoint attorney argued that the claims for failure to pay straight wages, pay overtime, provide meal periods and permit rest periods are not suited for resolution in federal court because these items were negotiated into the labor contract by FreshPoint and the Teamsters.  He also argued that the California Labor Code has an exemption from state overtime and meal break requirements for commercial drivers who have agreed to such a union contract.

The lawyer for the workers acknowledged that the meal break and overtime pay policy complied with the collective bargaining agreement under California law.  She asserted, however, that the other claims should not be dismissed and took issue with the defendant’s contention that the workers were seeking “improper reimbursements” by seeking relief with both rest break premiums and penalties and for not enumerating the breaks in the wage statements of the employees.  She claimed that “it’s not a double recovery. That’s just what they’re owed.  There are hours they were off the clock that weren’t paid for.”

The Judge seemed skeptical about the federal preemption argument.  The Judge wondered “if I were to find there was no preemption, what’s the basis of jurisdiction under the state law claim?”

The was filed in state court but the defendants removed it to federal court in September.  This is the usual course of action when federal claims are implicated, explicitly or otherwise, in a state court law suit.

The Takeaway

This is the best starting point to mount a defense.  If this is successful, the whole thing goes away.  That would be good because if these alleged violations were the products of common policies or practices, the argument for a class certification would be stronger.

I read an interesting post the other day by Michael Thompson in the Wage & Hour Defense Blog, in which he discussed the discoverability of plaintiff ATM and cell phone records in a FLSA collective action case.  He discussed the case of Gonzalez v. Allied Concrete Industries, Inc., where the plaintiffs claimed they were not paid overtime in violation of the Fair Labor Standards Act and New York law.  The case was filed in federal court in the Eastern District of New York.  To help them ascertain whether the plaintiffs were working when they claimed they were, the defendants sought an order compelling discovery of their ATM and cell phone records.

Woman using her mobile phone, city skyline night light background
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The defendants asserted the records of the plaintiffs’ ATM transactions were likely to lead to the discovery of admissible evidence because they could reveal each plaintiff’s “whereabouts and activities during hours they claim to have been working.”  The defendants relied on other precedent where access to ATM records was granted.  The Court denied the motion, although it acknowledged the existing precedent.

The Court found that in the other case an evidentiary showing had been made to the effect that the plaintiff attended prolonged lunches during the workweek and withdrew cash from ATMs for that purpose.  In the instant case, however, the defendants had not shown any “evidentiary nexus between the en masse discovery sought and a good faith basis to believe that such discovery material is both relevant and proportional to the needs of the case.”

The defendants also sought the release of the plaintiffs’ cell phone records in order to determine whether the plaintiffs “engaged in personal activities such as non-work related telephone calls, extended telephone calls, [and] frequent text messaging” during times they claimed to have been working.  There was also precedent for this production but the Court ruled that the defendants had not made a showing that the plaintiffs made personal calls when they were supposed to be working.  Thus, the Court ruled that this was mere speculation and did not warrant a “wholesale intrusion into the private affairs” of the plaintiffs.

The Takeaway

I have blogged recently about employers obtaining tax records of plaintiffs in FLSA cases.  I think this possibility, i.e. obtaining, or requesting, electronic evidence of an employee’s activities through discovery, may be another good tactic.  Obviously, some evidential foundation is needed but there may be a possibility that plaintiffs do not want their ATM or cell phone records thrust into the middle of a litigation.

Therefore, they may be more inclined to settle.  Something to ponder, isn’t it?  Or to try…

For the last several months, I have been talking to and advising clients on strategies to deal with the advent of the new FLSA salary regulations, i.e. the $913 per week commencing December 1, 2016.  Maybe all that was for naught?  This is because more than fifty business groups and twenty-one (21) States have filed lawsuits challenging these rule changes.  The theory is that the agency unconstitutionally exceeded its authority to establish a federal minimum salary level for exempt, white collar workers.  The cases are entitled Nevada et al. v. U.S. Department of Labor et al. and Plano Chamber of Commerce et al. v. Perez, both filed in federal court in the Eastern District of Texas

Courthouse pillars
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The States contend that the large increases in required salary levels would force many state and local governments (and private businesses) to dramatically increase their employment costs.  This could compel employers to cut services or lay off employees.  The States seek a declaratory judgment to the effect that the new rules unlawfully violate the Tenth Amendment by requiring a certain mode of payment for state employees.  On that same day, many business groups (e.g. US Chamber of Commerce, National Association of Manufacturers, National Retail Federation) also filed legal actions, claiming that the reasons proffered by the USDOL for the new salary threshold are not a proper construction of the FLSA.

The states also take issue with the policy behind the rule change, saying a worker’s salary level doesn’t reflect the kind of work an employee actually performs. The states argue the DOL regulation disregards the text of the Fair Labor Standards Act by imposing a salary threshold without regard to whether an employee is actually performing bona fide executive, administrative or professional duties.

The States also assert that the rule’s automatic indexing mechanism, which kicks up the minimum salary threshold every three years would not be illustrative of the nation’s economic conditions or the potential impact on public and private resources.  The plaintiffs contend that by compelling States to spend more from state funds on exempt employee salaries or overtime, the federal government is unilaterally depleting state resources and that violates the Constitution.

The business groups also allege that losing the overtime exemption for “frontline executives, administrators and professionals” would rob businesses of being able to flexibly manage their workforces.  Ostensibly, millions of employees nationwide would have to be reclassified to non-exempt hourly workers, which would result in their hours being cut back to avoid overtime and thereby “deny them opportunities for advancement and hinder performance of their jobs — to the detriment of their employers, their customers and their own careers.”

The Takeaway

The agency has raised the minimum salary level several times, the last time in 2004, without legal challenge, or, at least, a successful legal challenge.  I think the same result will obtain this time.  In any event, every employer should be going through the process of determining, under current salary levels, if all of their exempt people are truly exempt??

Get ready for December 1!