I have blogged many times about the rash of intern cases that have popped up over the last few years. Now maybe there will be a consistent, uniform test for determining whether interns are really statutory “employees.” The US Department of Labor has endorsed such a test. The agency is approving the so-called “primary beneficiary” standard.

Students/interns sitting at a table with laptops talking
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The agency has endorsed a seven-part test for determining intern status. This was set forth in the Second Circuit decision in the 2015 ruling in Glatt v. Fox Searchlight Pictures Inc. That test analyzes the “economic reality” of interns’ relationship with the putative employer to ascertain who is the primary beneficiary of the relationship. This test has been applied in a number of cases and industries of industries, where courts have found that, as the primary beneficiaries of these internships, the individuals are not employees under the FLSA and therefore cannot file claims for misclassification and wage violations.

The agency noted that four federal appellate courts have rejected the six-part DOL test set forth almost a decade ago. The agency issued a statement asserting that the “Department of Labor today clarified that going forward, the department will conform to these appellate court rulings by using the same ‘primary beneficiary’ test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”

Under the “old” test, an intern is an employee unless all of the six factors were satisfied. These included whether the intern displaced a regular employee and whether the employer derived any “immediate advantage” from the intern’s work. The updated test now restates the seven non-exhaustive factors that constituted the Glatt test. Those include: 1) whether there’ exists a clear understanding that no expectation of compensation exists; 2) whether interns receive training similar to what they would receive in an educational environment; and, 3) to what extent the internship is tied to a formal education program. The agency specifically noted that the primary beneficiary standard is “flexible,” and that determinations on intern-employee status hinge upon the unique circumstances of each case.

The Takeaway

I believe this is a better, fairer, more realistic test. Is it, as I postulated, “definitive guidance?”We will see…

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…

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…

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
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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…

I have blogged on this topic many times but I never tire of it. What is the way to defeat a class action? The magic bullet? The answer? Too much individual scrutiny is needed! Another Judge has proven me right on this. A federal judge has denied a motion to certify a class of distributors who distributed products for a bakery with brands such as Wonder Bread and Nature’s Own. The drivers alleged that they were misclassified as independent contractors and should have been overtime-eligible employees. The case is entitled Soares et al. v. Flowers Foods Inc. et al. and was filed in federal court in the Northern District of California.

Bakery
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The judge acknowledged that there were common questions as to the drivers’ substantive claims. However, it was the varying nature of their businesses, such as differences in operations, whether they hired their own “employees” and whether they did business with other entities that would have necessitated the individual evaluation(s). The Judge noted that “individualized issues over how to determine which distributors personally serviced their routes and whether the distributors operated distinct businesses prevents common questions of fact or law from predominating, and class wide treatment is not superior to individual actions.”

The class members bought exclusive rights to sell products in designated geographic territories and were responsible for delivering, displaying and selling the products in their chosen territories. The agreements designated the distributor as “an independent contractor with the resources, expertise and capability to act as a distributor.” The documents also specifically stated that the distributors would not be subject to Company control “as to the specific details or manner” of their business. In October 2015, they filed suit alleging that the Company misclassified them as independent contractors.

The Judge noted that although the class was confined to distributors who “personally serviced” their routes, the sorting out of those distributors that actually did that and when they did that “cannot be answered in one fell swoop.” The Court indicated that some distributors did engage their own employees who performed the routes some of the time and neither party could show through evidence, which distributors “personally serviced” their routes and which did not or how many days they did or did not personally service the routes.

The Court stated that “there would need to be mini-trials into these distributors’ recollections of how often they personally serviced their routes, and when and how often, if at all, they provided distribution services for other companies. Thus, some distributors might be found to operate businesses distinct from Flowers’ operation, while for others this factor would weigh in favor of an employment relationship, and thus this factor is not subject to common proof.”

The Takeaway

This is the object lesson for employer-defendants. I believe these independent contractor cases are peculiarly susceptible to these defenses. The employer must always look at and focus upon the “individual scrutiny” defense because it could be a single stroke method of making the whole thing go away.

It is difficult to defend a class action based on exemption, which explains why many of these cases (as herein) settle. This is because the employer-defendant is (usually) going to be completely right, or totally wrong. Either the class of workers (especially if the exemption at issue is professional or administrative) will meet the regulatory tests or they will fall short. That is the reason these cases often settle, because the employer does not want to test its theory at an expensive trial.

Artist at computer
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Case in point. A judge in California just gave final approval to a 1.5 million settlement to resolve class action allegations that a group of senior artists for a video game giant company were wrongly classified. The case is entitled Lee et al. v. Activision Blizzard Inc. et al., and was filed in Superior Court of the State of California, County of Los Angeles.

The Judge approved a settlement in this case, more than two years after the named plaintiff, John Lee, filed a suit alleging that the Company had misclassified the senior artists as exempt, salaried employees to avoid paying overtime. The Court approved the sum of $1.5 million for the class of 128 artists, as well as legal fees of $500,000.

The lawyer for the plaintiffs claimed they had a strong case on the classification issue. The Company maintained that the senior artists were properly classified and it had a basis for potentially wiping out all damages in the case. The Company had garnered several Affidavits from the class members themselves who asserted that they were properly classified. The Company asserted in the motion that “given that the makeup of the 128 member putative class consisted of approximately 80 percent individuals, who continue to be employed by the defendant, it was possible that at trial, any if not all of the currently employed class members might testify that they were properly classified during the class period or that they worked no overtime hours at all.”

The Takeaway

The exemptions at issue were the professional and possibly the administrative. The Company might have been well advised to settle, however, because the professional exemption virtually mandates a long, prolonged course of study in a field recognized as “professional.” The administrative exemption, as I have preached many times, is the most difficult of the white collar exemptions to defend, especially on the issue of discretion vs skills and experience, which may well have been the stumbling block in this case for the Employer.

You know, law firms are not immune from FLSA issues merely because they are law firms and may be allegedly endowed with some superior knowledge of laws. A recent case illustrates this maxim.  The name partner of a Los Angeles firm has been charged with misclassifying his legal secretary as exempt.  She now has won a jury verdict of $80,000 in overtime; her former boss had claimed that she was properly classified as an executive employee. The case is entitled Bernal v. Little PC et al. and was filed in state court in the Superior Court of California, County of Los Angeles.

Law books and justice scales
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Ms. Bernal alleges that she was promised a salary of $1,000 per week and no evening hours.  Her workload increased but Mr. Little refused to pay her overtime wages.  Her counsel told the jury to disregard Little’s assertion that they had an arrangement to pay the Plaintiff a set salary, because the lawyer explained that her position was not exempt from overtime.

Mr. Little claimed Bernal was exempt as manager, as she directed the work of two or more other employees, was responsible for HR and payroll duties and could establish her own hours and manage her own workload.  The plaintiff’s lawyer took strong issue with those assertions, telling the jury that she was primarily a legal secretary, including the taking of dictation.

The lawyer testified that Ms. Bernal had worked for him before and knew what the hours were and that there was no conversation about her having a set hourly schedule as she claimed.  He also asserted that Ms. Bernal knew it was a “salaried” position; he told the jury that she testified that the initial offer appealed to her because she would be paid for days she did not work.  The secretary countered by claiming that her job was all-consuming, sometimes working twenty-hour days and running personal errands for Little, as well as being required to respond to texts and calls on nights and weekends.

The Takeaway

Merely paying someone a salary does not mean that they could not eligible for overtime.  They must perform the duties required for the executive (or other) exemption.  This person’s job duties did not sound like that.  Nor does fancy title, if she had one, e.g. Office Manager, mean that she managed anything.

(Expensive) lesson learned…

I have blogged so many times about Assistant Manager class actions.  I never seem to get tired of it because there is a never-ending “supply” of them.  Guess what.  Another one.  A group of employees working for AC Moore, an arts, crafts and floral merchandise retailer, has petitioned a federal judge to approve an almost three-million dollar settlement that settles claims that they have been misclassified as exempt executive employees.  The case is entitled  Rossmeisl et al. v. A.C. Moore Arts & Crafts Inc., and was filed in federal court in the District of Massachusetts.

Arts & crafts items
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The plaintiffs asked for the court approval a bare two months after they filed their collective action.  Their theory was that they were misclassified as exempt.  They argued equally hard that the settlement should be approved because it was the right thing to do.  They stated that “the settlement was the result of extensive pre-suit investigation, discovery and substantial arm’s-length negotiations.  Recognizing the uncertain legal and factual issues involved, the parties reached the settlement pending before the court after private mediation before an experienced mediator.”

The lawyers for the plaintiffs advised the employer that they were alleging that the assistant general managers were misclassified as exempt in January 2016.  The parties then entered into pre-litigation discussions to ascertain if a settlement was possible.  The Complaint was nevertheless filed on February 8.  The court papers then capture the essence of why this settlement should be approved.

The court papers advised the Judge that “the settlement, which followed a thorough investigation and mediation with a former federal magistrate judge, Hon. Diane Welsh, satisfies the criteria for approval of a Fair Labor Standards Act collective action settlement because it resolves a bona-fide dispute, was reached after in-depth investigation and review of significant documentary evidence and payroll data, was the result of arm’s-length settlement negotiations assisted by a private mediator and between experienced counsel and provides good value to the workers it will benefit.”

The Takeaway

This is an interesting tactic employed by the lawyers for the plaintiffs.  Avoid litigation, but still get a nice settlement.  It might also be better for an employer but there might be, I fear, too ready a desire to settle at such an early stage, just to avoid the (rapidly) escalating legal fees associated with defending such a case.  Naturally, the merits, good or bad, dictate the employer’s strategic decision.

There have been many class actions concerning the job title “Assistant Manager” and this malady has risen again.   The chain, Hooters, has been sued in a nationwide collective action that alleges the Company misclassified assistant store managers, calling them supervisors, in order to avoid paying overtime.  The case is entitled Stirewalt et al. v. Hooters of America LLC and was filed in federal court in the Northern District of Alabama.

Hooters Restaurant
By Ildar Sagdejev (Specious) (Own work) [GFDL or CC BY-SA 4.0-3.0-2.5-2.0-1.0], via Wikimedia Commons
The named plaintiffs allege that they worked up to eighty (80) hours per week but were never paid overtime due to their misclassification.  The claim they only had the title of Manager, but that their main duty was sales and not the supervision of at least two other employees, over whom they could exercise managerial authority.  They claim that when they did create schedules, they were “almost always changed,” according to the Complaint.  They claim that although they interviewed new job applicants, the recommendations they made were often ignored by their supervisors.

More significantly, the Complaint alleges fraudulent conduct by the Company. It alleges that the “defendants have intentionally and repeatedly misrepresented the true status of managerial compensation … to avoid suspicion and inquiry by employees regarding their entitlement to monies owed to them.  Plaintiffs, as well as other similarly situated present and former employees, relied upon these misrepresentations by defendants and [were] unable to determine [their] true status under the FLSA by the exercise of reasonable diligence because of those misrepresentations.”

The plaintiffs want notices to be sent to current and former assistant managers who worked at a Hooters store within the last three years.  This would allow these workers to opt in to the collective action.  The plaintiffs seek overtime, commissions, bonuses, vacation and sick time and, naturally, attorneys’ fees.

The Takeaway

I don’t mind these so much.  (Famous last words?)  These kinds of actions usually necessitate an individualized determination of the duties of the various employees and that is the death knell of a viable class action.  The problem is if they were subject to the same, uniform, system-wide policies, that would be bad.  But, at least from the start the defendant here has a legitimate, viable chance of defeating the motion(s) for class certification.

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.