Fair Labor Standards Act Law

Independence Day Takes on New Meaning

2009-09-16T16:20:00.006-04:00

The assault against the use of independent contractors to perform work which can also be done by employees has long been a favorite crusade of the employment plaintiffs' bar and labor organizations, but now there is an impressive array of federal agencies, ranging from the IRS to the Department of Labor, which have joined the lineup. The latest evidence being relied on in this battle is an August 2009"Report to Congressional Requesters" entitled "Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention." The 69-page study contends, without any independent empirical study, that so-called "employee misclassification," while it is not itself a violation of the law, "is often associated with labor and tax law violations."

Supporting data are largely anecdotal or extremely dated, including a 1984 IRS survey. Eleven "stakeholders" were asked to participate, and nine responded to the structured survey which consisted of 19 "options" for change. Four of the 9 were labor unions; three were groups "that represent the views of small businesses, independent contractors, and those who hire them," one was part of "the tax preparation and advice community," and the last was a federal agency which uses contractors. None of the responses were separately identifiable, nor are we given the names of those groups which participated. You will note that others significantly affected by the subject - employer and HR organizations, and employers larger than the small business category, for example - were not asked to express their views. Separate comments were provided by the IRS and the Department of Labor.

We will not engage in any further characterization of the report, but you can expect it to be relied upon in litigation and investigations over the coming months and years. For a little light reading, see http://www.gao.gov/new.items/d09717.pdf.

Novel Retaliation Case

2009-08-12T12:29:00.002-04:00

Family law met the Fair Labor Standards Act in Centeno-Burnuy v. Becker Farms. In November 2001, four plaintiffs - Ruben Centeno-Burnuy, Waldo Centeno-Burnuy, Aquiles Galindo-Buendia and Joel Pecho-Vivanco - filed an FLSA action against Becker Farms and its owners, Oscar and Melinda Vizcarra, in US District Court in Buffalo NY. The litigation was finally settled in August 2009. Meanwhile, back at the farm, the four plaintiffs had another row to hoe: In June 2003, they filed a separate suit in the same court, asserting they had been retaliated against by Donald A. Perry - father of Melinda Vizcarra and father-in-law of Oscar Vizcarra. Neither the Vizcarras nor Becker Farms were named in the second complaint. Plaintiffs' attorneys in both cases were lawyers with Farmworker Legal Services of New York, who also associated two different Rochester attorneys for the two cases. While Becker Farms and the Vizcarras retained counsel in the first case, Donald Perry, the sole defendant in case number two, represented himself.

Becker Farms has been operated as a family farm in Niagara County, NY for four generations or more. Perry "lives on a two-and-a-half-acre plot in the middle of the 340 acre farm." The farm was granted permission to hire non-immigrant foreign workers under the H-2A visa program, and hired four each year from 1996 through 2001; the four plaintiffs, all Peruvian nationals, worked there through the growing seasons of some or all of that time period. Beginning in 2000, plaintiffs were in contact with the legal services organization, and left the farm's employ in November 2001, immediately following which they began litigation.

Perry then called the Immigration and Naturalization Service to complain that the organization "had aided and abetted these illegal aliens in absconding from Becker Farms." When Perry was warned that his actions were unlawful, Perry's response was not conciliatory: The course of events, so close after the September 11, 2001 international terrorist incidents, led Perry to conclude "that there was something very strange going on," "that these men are here for no good," and that the plaintiffs were "sympathizers of Sendaro Luminoso," the Peruvian group better known in the US by its English name, Shining Path. He then embarked on a multimedia campaign against the plaintiffs and their attorneys, also making complaints to state and federal law enforcement and regulatory agencies. He coupled these activities with hounding and harassing an employee of another organization, Rural Opportunities Inc., notwithstanding both a preliminary injunction against Perry and his conviction for criminal contempt.; he even continued to pursue her after she left Rural Opportunities' employ.

On July 14, 2009, Magistrate Judge L. Kenneth Schroeder issued an order recommending that Perry be found liable for retaliation - accusations for which Perry had proffered no real defense - but denying plaintiffs' request that the injunction be made permanent. On August 5, District Judge Richard Arcara adopted the recommendations and set a hearing for August 28 to select a trial date.

Trial may be somewhat anticlimactic. The remedies for FLSA retaliation other than injunctive relief sometimes can include damages for emotional distress and mental anguish, and if the case goes to a jury, particularly if Perry continues to represent himself, the outcome could be qute unfavorable to him. Note that Judges Schroeder and Arcara did not have to rely on the definition of "employer" in the statute - the "acting in the interest of en employer with respect to an employee" language we discussed in a recent post - because the prohibition of retaliation in FLSA's Section 15(a)(3) extends to "any person," thus rendering irrelevant Perry's contention that he "is not an agent of Becker Farms and has never owned or operated Becker Farms." Additionally, prevailing plaintiffs can expect to recover their attorneys' fees and costs. Mr. Perry's conduct would seem to have produced a bit more than he counted on. Centeno-Burnuy v. Perry, W.D.N.Y. No. 03-CV-457.

Principle, or Principal? It's Not Just a Spelling Distinction

2009-08-06T14:31:00.003-04:00

Requiring employees to work overtime is not an unusual employer demand, but in situations in which employees band together to refuse overtime, the issue is not as simple. In health care, it's even more involved: Section 8(g) of the National Labor Relations Act, 29 U.S.C. Sec. 158(g), mandates that a labor organization "before engaging in any strike, picketing or other concerted refusal to work at any health care institution" must (except in initial-contract bargaining situations) give the employer and the Federal Mediation and Conciliation Service at least 10 days' notice of "the date and time that such action will commence."

Interpretation of that statutory requirement was the question presented in SEIU, United Healthcare Workers-West v. NLRB, decided in the US Court of Appeals for the Ninth Circuit on August 3 ( www.ca9.uscourts.gov/datastore/opinions/2009/08/03/07-73028.pdf). Union-represented housekeepers and linen aides employed by California Pacific Medical Center were urged by their labor organization to work no overtime, because the collective bargaining agreement between the Union and CPMC forbade the employer to require overtime except in emergencies. Although CPMC had been able to deal with workload pressures through allowing employees to volunteer for overtime work, a proposed change in handling linens provoked the Union to contend there was a violation of the agreement's provisions on subcontracting, resulting in the suggested job action.

An administrative law judge and the National Labor Relations Board agreed that the Union's conduct stepped over the line. and ordered the Union to "cease and desist" their encouragement of work stoppages in the form of overtime refusal. The Ninth Circuit, enforcing the NLRB order, found no safe harbor for the Union's conduct in the language of the collective bargaining agreement. The basis for future mischief is, however, the court's comment on an issue which the Union argued but which the evidence did not support: '[T]here would not necessarily be a concerted refusal to work in the event all employees, acting independently, were unwilling to volunteer for overtime. Here, however, the members did not act on an individual basis. Rather, their action was 'concerted' because it was orchestrated by the Union."

This situation is a narrow one. Group protests, whether or not union-inspired, may constitute "concerted protected activity" under the National Labor Relations Act, so that care must be taken by an employer in responding to such a challenge. The 10-day notice requirement was imposed as a price of allowing the organization of hospitals and other health care facilities, and even that protection does not preclude "spontaneous" job actions by employees. One final observation: The overtime issue ran for seven days, after which employees resumed working overtime. The critical period was June 5 through 11, 2006. The employer has absolutely no remedy for the lost week's overtime more than three years ago. Consequently, being right may have meaning in principle - but the employer's principal expenditures, starting with the Union's activity and consuming a three-year legal battle in which there's no possibility of recovering the fees and expenses entailed in the process, would be enough to cause most of us to lose interest.

Massachusetts Court Overrules Federal Judge

2009-08-05T16:05:00.005-04:00

It isn't often that you see a state appellate court telling a federal judge he's wrong, but that's the bottom line in DiFiore v. American Airlines Inc. (Massachusetts Supreme Judicial Court, SJC-10303, Aug. 4, 2009). The story begins with a suit by eight skycaps who worked for an American Airlines independent contractor; they claimed they had been stiffed by American, which collected a fee of $2.00 apiece for checked luggage but didn't turn the money over to the skycaps. Slightly more than a year ago, a federal jury in the District of Massachusetts awarded the plaintiffs $283,000, but then Judge William G. Young set aside the verdict because the jury instructions regarding the Massachusetts "service charge" law were misleading. Now the highest state court in the Commonwealth has concluded that the federal judge was wrong and the jury's instructions were correct. This outcome stems from a procedure in which a federal judge can ask a state court to interpret state law. Plaintiffs' counsel understandably calls this "a great decision." It remains to be seen what will happen next.

(See our prior post, "Checking Out at Curbside" (May 14, 2008) for more background.)

When Is a Discharge Not a Discharge?

2009-07-31T14:23:00.003-04:00

Section 3(d) of the Fair Labor Standards Act, as well as many state laws modeled on it, defines "employer" as including "any person acting directly or indirectly in the interest of an employer in relation to an employee." This seemingly circular language is the reason that the Department of Labor, as well as many plaintiffs' attorneys, is not content to name only the employer as a defendant in wage-hour litigation; instead, at least one owner, executive or other responsible individual is typically thrown into the mix, a tactic which never fails to gain the attention of the person(s) hailed into court.

That's often as far as it goes; rarely do the interests of the defendants diverge, and the outcome, favorable or not, is usually binding on all parties. However, upon occasion there are distinctions, and they can prove extremely vexing for the individuals. An example of this circumstance is found in the July 27 decision of the US Court of Appeals for the Ninth Circuit in Boucher v. Shaw, http://caselaw.lp.findlaw.com/data2/circs/9th/0515454p.pdf. Thelma Boucher, Ardith Ballard and Joseph W. Kennedy III were employees of a Las Vegas "hotel, casino and bowling center," the Castaways, which filed for Chapter 11 in 2003. Seven months later, the three were among those discharged in conjunction with the failed reorganization of the employer. They filed suit in Nevada state court, claiming unpaid wages and vacation and holiday pay; they were joined in the litigation by their union, Culinary Workers Local 226, which wanted dues payments which the employer had withheld from employee wages but had not forwarded to the union. Named as defendants were the CEO, HR Manager, and CFO of the defunct company; the first two held the entire ownership interest in the Castaways. After the case was removed to federal court, the district court dismissed all claims, and the plaintiffs appealed.

The Ninth Circuit first asked the Nevada Supreme Court for an interpretation of state law, and received the reply that the three managers could not be sued as "employers" under state law since the Nevada definition does not mirror the federal one. That wiped out the appeal as it related to vacation and holiday pay, also disposing of the union's dues claim. As to the unpaid wages count under the FLSA, however, the court reached a different conclusion: While the managers didn't challenge their status as "employers" under federal law, they asserted their wage payment duties ended with the liquidation of the Castaways in the bankruptcy court. While the court said the defendants hadn't explained their defense clearly, that didn't matter; "the managers are independently liable under the FLSA," so the bankruptcy had no effect on their obligations to the plaintiffs.

This decision carries ominous lessons for executives who believe bankruptcy gives everyone a clean slate. In states in which the language of the wage-hour law is like the FLSA's, the implications are that other obligations such as unpaid vacation, holiday and sick pay may evoke a similar outcome. As a cautionary note, please observe that the Ninth Circuit only found that the case shouldn't have been dealt with on a motion to dismiss, but the ruling, unless overturned by a full-bench decision from the Nation's largest appellate panel or by Supreme Court action, will no doubt be relied on far beyond the nine states (AK, AZ, CA, HI, ID, MT, NV, OR and WA) over which the Ninth Circuit has jurisdiction. At the very least, attention may need to be given regarding the wisdom of seeking independent counsel when you're sued.

Spreading the Retaliation Net

2009-07-28T09:13:00.003-04:00

We have warned about the expansive view taken by some courts in treating an informal internal wage-hour complaint as a trigger for retaliation protection. You can now add another wrinkle to the fabric: In Cole v. Green Mountain Landscaping Inc. (D.Vt. No. 2:09CV5, 7/22/09), the court found that a complaint filed with a state agency "was related to" the Fair Labor Standards Act even though there was no mention in it of the federal law, thereby rendering a post-complaint firing sufficiently suspect that the employer's motion to dismiss was denied. The employee's written state claim, alleging denial of overtime pay and accrued vacation, was deemed entitled to greater status than informal complaints.

Imitation - the Sincerest Form of flattery

2009-07-22T17:22:00.003-04:00

A couple of Q&As lifted from the latest NC Labor Ledger, the official NC Department of Labor publication:

I was recently hired to work at a small company as part of a "stimulus" grant; however, I am told that I am not subject to the protections offered by the N.C. Wage and Hour Act. Why is this so?

You were hired by your city/county and are paid by the city/county; you are simply placed to work at a private-sector establishment. Government employees are exempted from all provisions of the N. C. Wage and Hour Act except the minimum wage provisions.

My boss just informed us that the company does not have the funds to pay for overtime work; therefore, overtime will no longer be approved by management. However, he informed us that we must complete all assigned work before we leave for the day. Is this legal?

If you actually work more than 40 hours in a given workweek, you must be paid overtime even though management has not given approval. Employers who do not want to pay for overtime hours must ensure that employees do not work more than 40 hours in a workweek. [Editor's note: Of course, if the employee is exempt from overtime requirements, no overtime need be paid if all exemption requirements are met.]

Wireless Gadgets and 24/7 Access to Employees: Employers Beware of the Hidden Cost

2009-07-21T12:05:00.007-04:00

T-Mobile USA has been sued in the Eastern District of New York by its retail sales associates and supervisors who allege that they were not compensated for "off-the-clock" activities linked to Blackberrys and other hand-held devices. The complaint in Agui v. T-Mobile alleges that employees were issued smartphones and were required to review and respond to communications (telephone calls, conference calls, emails and text messages) from other employees of T-Mobile at all hours. Complaining employees allege that their lunch breaks were interrupted by T-Mobile business, as well as their nights and weekends. The total additional time employees spend "off-the-clock" working was up to 15 hours according to the complaint. This is the second suit against T-Mobile making these types of claims for unpaid wages and overtime. To read the Agui complaint, click here.

In light of the prevalence of smartphones and other wireless technology permitting employers to be in contact with employees at any time of day or night, employers should prepare a policy to address work provided during otherwise non-working hours if the employer does not already have such a policy in place. Employees should be encouraged to report all their time worked, regardless of where, when or by what means, the work is conducted. Making sure all employees, particularly managers and supervisors, are aware of this policy is an important step for an employer to ensure its compliance with FLSA requirements. As always, seeking counsel during the drafting or review stages of employment policies is a proactive means of furthering the company's compliance efforts.

A Verbal Complaint Isn't Worth the Paper It Isn't Written On

2009-07-15T10:18:00.006-04:00

Calling to mind the old Samuel Goldwyn quote about verbal contracts, the US Court of Appeals for the Seventh Circuit held in Kasten v. Saint-Gobain Performance Plastics Corp. (No. 08-2820)that the retaliation protections the FLSA extends to those who "file any complaint" under the statute require that the complaint be reduced to writing. Kasten brought two suits against his employer: the first, a donning-and-doffing claim, resulted in a judgment against the company, and the second alleged he was retaliated against for complaining to management about the company's policy of refusing to pay for time spent putting on and taking off safety gear. Saint-Gobain said Kasten had made no such complaints.

The court acknowledged that internal complaints are protected by the law, but said the language of the statute, which is less broad than similar protections in other employment laws, didn't reach "purely verbal" opposition. The court looked to the dictionary definition of "file" in concluding, "One cannot 'file' an oral complaint; there is no document, such as a paper or record, to deliver to someone who can put it in its proper place." The court rejected arguments by the plaintiff and the Department of Labor that "file" and "submit" are synonymous as "overbroad." Now what happens if the complaint is emailed, texted or tweeted? The devil's in the details.

This places the Seventh Circuit, along with the Second and Fourth Circuits (Lambert v. Genesee Hosp., 10 F.3d 46 (1993) and Ball v. Memphis Bar-B-Q Co., 228 F.3d 360 (2000)), at odds with somewhat vague rulings by three other federal appellate courts in which the employees apparently made speaking objections which weren't in documentary form: Brennan v. Maxey's Yamaha, Inc., 513 F.2d 179 (8th Cir. 1975)(employee refused to endorse a check deemed to be an attempted circumvention of the FLSA); EEOC v. White & Sons Enterprises, 881 F.2d 1006 (11th Cir. 1989)(Equal Pay Act opposition activity); EEOC v. Romeo Community Schools, 976 F.2d 985 (6th Cir. 1992)(same). Consequently, there are 11 states in which written complaints are needed, 14 in which documentation seems unnecessary, the the other 25 which have no clear rule. With a likelihood that Supreme Court review may be sought to resolve the conflict, retaliating against a verbal complainer is still a risky venture.

Family Dollar Mounts Vigorous Defense

2009-07-13T11:10:00.000-04:00

Originally published May 7, 2009

In another chapter in the hotly-contested multidistrict litigation involving FLSA claims against the discount retailer, Family Dollar has won a battle and continues to press the plaintiffs to comply with procedural rules. Since "class" members have to file written consents to join in federal wage-hour suits, they are subject to discovery requirements, including answering interrogatories. When a number of the consenters failed to provide responsive, signed responses, Family Dollar asked the court for help, and got it: For the ruling by Judge Graham Mullen of the US District Court for the Western District of North Carolina, see http://www.wcsr.com/resources/pdfs/flsa_blog042909.pdf.

Now the employer has filed motions to dismiss noncomplying plaintiffs' claims. Watch these pages for further developments.

Update (7/13/09): Order

Update (6/22/09): Docket and New Filing

Update (6/12/09): Judge Mullen denied the motion to dismiss

Update (6/5/09): The Court on Defendant's Motion to Dismiss

Update (5/14/09): "Judge says plaintiffs' attorneys are spiteful."

Third Time Is Not a Charm for Chicago EMS Paramedics; Great American Sues to Avoid D&O Coverage

2009-07-10T11:13:00.011-04:00

EMS paramedics employed by the City of Chicago have brought and had summary granted on three FLSA lawsuits filed by the same attorney. The first two cases were consolidated by a federal judge sitting in the Northern District of Illinois because the cases were "not distinguishable...other than the timelessness of their claim." The same federal judge granted summary judgment to the City of Chicago on the consolidated case holding that the cases were "hopelessly heterogeneous" and therefore not properly collective actions with so many factual distinctions. In granting summary judgment in the newest collective action alleging the same facts by EMS paramedics against the City of Chicago, Judge Darrah also of the Northern District of Illinois noted that the plaintiffs' counsel stated during the earlier cases' consolidation hearing that he was going to file a third suit on "claims [that are] identical" to the consolidated case claims and Judge Hibbler's opinion in the consolidated case was "persuasive based both on the facts (identical to those here) and his analysis and application of controlling authority." To read the Memorandum Opinion and Order in Baley et al. v. City of Chicago, Case No. 09 C 228 (N.D. Ill. July 7, 2009), click here.

As a footnote to our entry on June 25, 2009 regarding an OT claim coverage dispute involving Great American Insurance Co., Great American has sued for a declaratory ruling that oil-and-gas exploration company GeoStar Corp. defendants are not covered by the insurance company's excess D&O liability policies in a suits against GeoStar for alleging defrauding investors. Great American states in the complaint that but for material misrepresentations by GeoStar, Great American would never have issued the policy at the same premium or with the same terms (if at all). To read the Complaint for Declaratory Judgment filed by Great American in Great American Insurance Co. v. GeoStar Corp. et al., case number 1:09-cv-12488 (E.D. Mich.), click here.

Federal Minimum Wage Rate Increase

2009-07-09T07:54:00.007-04:00

The Federal minimum wage will increase from $6.55 an hour to $7.25 an hour, effective July 24, 2009.

Employers should note this ten percent increase, take the necessary steps to implement the change and update their required postings, and ensure that they are complying with all applicable minimum wage laws. In doing so, it is important for employers to know the minimum wage laws in each state where they have employees. Some states have higher minimum wage rates than the Federal rate, while many others follow the Federal rate. (For example, under North Carolina law, employers must pay the higher of the Federal minimum wage or $6.15 per hour.) The U.S. Department of Labor makes available this handy chart summarizing the minimum wage laws of each state.

Iqbal Followup

2009-06-30T15:13:00.005-04:00

In a recent post, we discussed the Supreme Court's surprise May 18 decision in Iqbal v. Ashcroft - holding that a plaintiff needs to have some real facts in a complaint rather than just "formulaic conclusions." We predicted that the defense bar would rise to the occasion by filing motions to dismiss in Fair Labor Standards Act cases in which the skeletal allegations fail to say what it is that the defendant did which is claimed to violate the law. Here are two of the early returns:

Qureshi v. Panjwani, 2009 WL 1631798 (S.D. Tex., June 9, 2009): The court reviewed the pivotal language of Iqbal - "the pleading standard ... does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation" - and allowed the plaintiff to amend the complaint to supply additional facts.

Noble v. Serco, Inc., 2009 WL 1811550 (E.D.Ky., June 25, 2009): The employer's motion to dismiss was filed on February 2, and class certification proceedings were stayed pending the court's ruling on the motion. Since the briefing was long over when the Iqbal decision issued, the Judge didn't mention Iqbal but relied on the opinion two years earlier in Bell Atlantic Corp. v. Twombly. Twombly had announced a new rule for deciding motions to dismiss: A complaint must contain (1) "enough facts to state a claim to relief that is plausible," (2) more than "a formulaic recitation of a cause of action's elements," and (3) allegations that suggest "a right to relief above a speculative level." The court said there was enough in the complaint to meet these tests, and did not require plaintiff to amend to say more.

One swallow doesn't make a spring, but examination of these two decisions - and of the large number of other cases in which Iqbal motions have been filed - strongly suggests that there are lessons to be learned for both sides. Defendants will continue to file motions to dismiss, and plaintiffs will counter with amendments of the complaint (at the motion-to-dismiss stage, the complaint usually can be amended as a matter of right if no answer has been filed). Situations in which the court throws the case out based on a sketchy complaint may be rare. Life would be simpler if plaintiffs' counsel included enough facts to show what position plaintiff held, what the general nature of the claim is (e.g., misclassification as exempt, failure to pay for hours spent at the beginning and end of the workday, deductions from salary of exempt personnel, and so on), and whether the plaintiff or counsel had brought the claim to the employer's attention. That will require a little more work at the beginning, but could cut down on the number of arguments by both sides over truly threshold issues.

I rest my case.

No Insurance Coverage for OT Suits? Lawsuits Against Insurers Look to Be on the Rise

2009-06-25T11:14:00.010-04:00

Vozzcom, Inc., a cable and electrical contracting services provider based in Florida, has sued its insurance carrier, Great American Insurance Co. of New York, to determine the insurer's obligation to defend and indemnify Vozzcom in a putative collective action filed by an employee asserting wage and hour violations. The suit was filed in the U.S. District Court for the Southern District of Florida.

Vozzcom is no stranger to wage and hour suits having defended itself from several claims over the past few years. Vozzcom had previously been sued by an employee for wage and hour violations in 2007. At the time of the first wage and hour suit against Vozzcom, Vozzcom was not insured by Great American. Vozzcom's insurer at the time of the first wage and hour suit defended and settled the suit for Vozzcom. In 2008 (and continuing through the present time), Vozzcom purchased a claims-made employment practices claims policy from Great American for calendar years 2008 and 2009. A second wage and hour suit commenced against Vozzcom in 2008 that resulted in a court award of nominal back wages for the plaintiff although the court ruled that Vozzcom met its burden of acting in good faith and with reasonable grounds to believe its wage and hour practices were compliant. The second suit led to a dispute between Great American and Vozzcom's prior insurer as to who might be liable for defense costs and indemnity. Ultimately, a court ruled that the prior insurer was liable because the suit arose from the first wage and hour suit.

Once again in January 2009 (while the Great American policy remained in effect), a third wage and hour suit was filed against Vozzcom. Vozzcom requested Great American to defend and indemnify Vozzcom in the third suit. Great American denied the claim as part of the same single claim as the prior two wage and hour lawsuits. Whether Great American can successfully avoid coverage remains to be seen, but the case raises interesting issues for employers reviewing their current and past insurance coverage. This suit serves as a reminder to an employer to check insurance policies and, in the case of multiple suits over similar practices, assess which policy or policies may cover a wage and hour suit.

To read the complaint in the Great American suit, please click here.

Arbitration Can Be Troublesome

2009-06-24T10:49:00.004-04:00

The conventional wisdom that arbitration is a way to avoid the expense, time and risk of litigation has been challenged repeatedly as plaintiffs, courts, and even legislators seek to impose new requirements which can make the arbitration process just as costly as litigation, with the added downside that there's no meaningful way to appeal an arbitration award. That lesson was brought home in the ongoing fight known as In re Cintas Corp. Overtime Pay Arbitration Litigation (N.D.Cal. No. 06-1781), involving the Cincinnati-based uniform and business services supplier. This long-running dispute started in 2003 with a collective action filed by Cintas sales representatives who claimed they should not have been classified as exempt.

(Round 1) The court allowed the sending of notices to the alleged class, and about 2400 opted into the case.
(Round 2) Cintas then argued that most of the claims had to be arbitrated, and the court agreed as to nearly 80 percent of the group, and Cintas asked 70 different courts to order the claimants to arbitrate.
(Round 3) The claimants asked the Judicial Panel for Multidistrict Litigation to consolidate all those cases back to San Francisco, aand the JPML agreed.
(Round 4) After the California court named an arbitrator, the court concluded that the claimants were refusing to arbitrate by angling for the class arbitration and threatened to send the cases back to the 70 district courts. That decision is on appeal.
(Round 5) The arbitrator disagreed with the district judge and allowed the claimants to proceed with their class arbitration.
(Round 6) Cintas asked the court to order the arbitration halted. The court refused to enter an injunction.

Where will this go? What will it cost? When will it end? One major difference between the Cintas case and a sporting event is the lack of a single referee with authority to dispose of disputes. Once the arbitration genie was loosed from its bottle, the law of unintended consequences took hold. So the next time you think, "Wouldn't it be nice if we could channel our wage-hour disputes into a simple procedure?," think again to see what could go wrong. Plaintiffs' counsel may be sufficiently motivated and financed to see the match through to the final bell.

But That's What a Bonus is For!

2009-06-18T16:39:00.002-04:00

We frequently remind you that in order to utilize the executive or administrative "white collar" overtime exemptions, it is necessary that the employee in question be paid on a "salary basis" - an amount which doesn't fluctuate when the quantity or quality of work varies. The US Court of Appeals for the Sixth Circuit (covering Kentucky, Michigan, Ohio and Tennessee) recently brought this lesson home - expensively - in Winterwood v. Life Time Fitness, Inc. In 2005, the year after the new FLSA regulations took effect, the employer looked at the results suggested by its compensation plan and decided to "claw back" overpayments of bonuses which department heads had received, determining that those bonuses had not been "earned."

The District Court for the Southern District of Ohio sided with the 8-plaintiff class, reasoning that the recoupment of the bonuses destroyed the "salary basis" because it was a reduction in pay based on quality of work; however, since there were actual pay reductions levied in only three pay periods, the trial court ordered back pay for only those losses. The appeals court viewed the situation as more serious, saying that as of the effective date of the new plan the managers were not paid on a salary basis, were no longer exempt, and were entitled to overtime compensation for all hours worked in excess of 40 in any workweek. The bonus plan, the appellate panel said, created a "significant likelihood of improper deductions" even though, looking at what has actually happened, that "likelihood" had materialized in only three payroll cycles in 2005.

The moral? Just because something makes sense from the standpoint of business judgment has little to do with whether the FLSA's requirements have been met.

Just the Facts

2009-06-05T13:18:00.003-04:00

While Congress, the Department of Labor, and the plaintiffs' bar seem intent on pushing the envelope toward new claims and new employer liability, care should be taken to consider the teaching of the Supreme Court's decision in Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937 (May 18, 2009). The case involved a Muslim Pakistani pretrial detainee who claimed he had suffered under harsh prison conditions and brought suit against the former Attorney General and the FBI director. The question presented for review was a narrow one: did the plaintiff "plead factual matter that, if taken as true, states a claim that [Ashcroft and Mueller] deprived him of his clearly established constitutional rights." However, the 5-4 ruling by Justice Kennedy applies to all complaints filed in US District Courts, and carries the potential for more rigorous scrutiny of such pleadings given the heightened standard the Court explained.

Iqbal builds on the 2007 precedent established in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, which had announced a "flexible 'plausibility standard'" - reciting conclusory statements in the complaint will not always suffice to keep a case alive. In other words, a complaint needs more than legal conclusions - it must provide some factual context, which crosses the line between possibility and plausibility, in order to survive a motion to dismiss. Accordingly, the Court found that two claims in the complaint did not meet that threshold:

(1) that the defendants "knew of, condoned, and willfully and maliciously agreed to subject" [Iqbal] to harsh conditions of confinement "as a matter of policy, solely on account of [his] religion, race and/or national origin and for no legitimate penological interest"; and

(2) that Ashcroft was "the principal architect" of the policy and that Mueller was "instrumental" in adopting and executing it.

The problem was in the failure of the complaint to explain the chasm between those assertions and the conclusion that the defendants' purpose in formulating the policy was based on race, religion or national origin. Iqbal argued that these issues could be dealt with in the discovery process, the the Court disagreed on grounds that "it is counterproductive to require the substantial diversion that is attendant to participating in litigation and making informed decisions as to how it should proceed" just because the plaintiff has put together a complaint which, if all the allegations were proved, might result in liability for the defendant. In the most significant aspect of the decision for employment litigation, the Court warned that it is not enough to claim discrimination; there must be a factual context presented to allow the judge to assess whether the case should be allowed to proceed.

The four dissenters - Justices Souter, Stevens, Ginsburg and Breyer - deemed the majority's analysis "cursory," contending that the two claims discussed above were selected without regard for other concessions made by the defendants. It is instructive to note, however, that whatever concessions a defendant might make in an answer or otherwise are not pertinent to an analysis of the complaint itself. Iqbal stands for the proposition that something is needed beyond leaps of faith to enable a complaint to be answered at all.

How does this lesson apply? Using FLSA litigation as an example, there are plaintiffs' attorneys who file complaints which are formulaic, bare-bones documents in which the changes from one case to another are so minimal as to suggest a simple filling in of the blanks. Often there is no identification of the plaintiff's job, department, or working conditions; instead, there is a simple assertion that the employer violated the law by failing to pay plaintiff (and all those similarly situated) in accordance with the law. Nor are Department of Labor complaints much better (and often, since there is no plaintiff other than the Secretary of Labor, there may be even less detail). Will this become an issue in FLSA litigation? Will plaintiffs' counsel need to be a bit more specific in drafting their complaints? The answer to the first question is clearly yes; the answer to the second will be provided over the next few years, assuming, of course, that there is no revisiting of the subject by the Supreme Court.

NC Department of Labor Answers Questions on Interns and Wage Payment

2009-05-21T16:04:00.003-04:00

With summer around the country, questions about interns and wage payments may come up.

See the following FAQ (originally published in NC DOL newsletter)

Got a Wage Claim? Don't Expect Insurance to Cover It Automatically. Read the Fine Print.

2009-05-13T09:42:00.016-04:00

Employers who haven't checked the terms of their D&O policies may find themselves very sorry when it comes to coverage of wage claims. Recently, employer Jeff Tracy, Inc., found itself unable to prove that a wage class action was a "loss" under the terms of its D&O Policy issued by U.S. Specialty Insurance Co. according to a federal district court judge in California.

The D&O policy at issue in the Jeff Tracy case did not have any special endorsements to cover employee claims, such as the wage class action that cost Jeff Tracy over $400,000 in state assessments for various alleged misconduct including failing to pay the prevailing wage on public works projects, failing to inform employees of their classification under California state law, and making misstatements about how the employees would be paid. Not only did the policy not have a special endorsement, the policy contained an exclusion that the judge determined excluded the claims, namely that the policy did not cover any "claim" "for an actual or alleged employment practices wrongful act" or "for any actual or alleged violation of any provision of the Fair Labor Standards Act other than the Equal Pay Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health Act, ... or any other similar provisions of any federal, state or local statutory or common law or any rules and regulations promulgated under any of the foregoing." The insurer consistently denied coverage of the wage claims as not within the definition of "Loss" under the policy and as specifically excluded by the policy, in response to multiple notices of the wage assessment by the employer.

The opinion acknowledges that insurance policies are subject to special rules of construction. First, the law favors broad coverage to provide insured with the greatest possible protections and disfavors exclusions through narrow interpretation. Second, while the insured has the burden to establish coverage, the insurer has the burden to establish that the claim is specifically excluded. Furthermore, D&O policies generally favor requiring an insurer to reimburse the insured for the costs of a defense, rather than providing the insured with a defense.

This decision should serve as motivation for employers to review their various insurance policies and confirm what their policies cover and what what they do not cover. This is particularly important given the increase in wage claims over the past few years.

To read the decision of the Jeff Tracy, Inc. v. U.S. Specialty Insurance Company, etc., SA CV 08-361 AHS (RNBx) (May 5, 2009), click here.

"A New Sheriff in Town"

2009-05-07T16:31:00.002-04:00

Hilda Solis - former Democratic member of Congress and the new Secretary of Labor - told the AFL-CIO, "You can rest assured that there is a new sheriff in town." The Administration and Congress have now given the sheriff a larger posse and a potful of money. The 2008 budget gave DOL $175.7 million for wage-hour enforcement; that rose to $193.1 for 2009, and the stimulus package in ARRA added another nearly $5 million. The 2010 tally is a whopping $227.7 million for this function alone; the total DOL budget request is $104.5 billion for discretionary and mandatory programs. If you want to see the details, look at the 81-page "budget in brief" at http://www.dol.gov/dol/budget/2010/PDF/bib.pdf; the wage-hour discussion is on page 36. Solis plans to add at least another 150 wage and hour field investigators, plus 100 more to focus on employers who have received stimulus payments. Additionally, you may have noted that the Administration has determined enforcement of laws and regulations targeting union corruption as "not a priority"; in fact, the overall DOL budget is less than 2009's, reflecting a reordering of what the agency deems important.

The DOL initiative is buoyed by the release of a General Accounting Office report charging that the Wage and Hour Division of DOL "has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn." Secretary Solis has also pledged that those Department employees who were negligent or dishonest in the past will be dealt with. All in all, you can expect the agency to be persistent and exhaustive in its efforts, and the plaintiffs' bar will take note. FLSA filings were marginally down last year; don't expect that trend to continue. By the way: state agencies with wage enforcement responsibility are likely to echo, or even attempt to outstrip, their federal counterpart; for example, more than 3000 California employees of a Michigan-based construction company recently garnered an aggregate settlement of $8.5 million as a result of alleged nonpayment for hours spent performing gutter installation work. Gutierrez v. Schmid Insulation Contractors Inc., CV 08-6010 (C.D. Cal., 3/9/09). A prudent employer will take note and attempt to insure it isn't the first kid on the block to have one of these problems.

Swine Flu Outbreak Information and Resources for Businesses

2009-05-06T15:02:00.001-04:00

With the recent concerns and extensive media coverage about the "swine flu" outbreak, all businesses would be well served to take time to get the most current information available, and to evaluate how this outbreak might impact their business.

Click here to learn more about how your business can prepare...

What is Good for the Goose? The EEOC Finds Itself in Hot Water over Its Overtime Practices

2009-04-06T09:05:00.011-04:00

Over the past three years and again this past month, the EEOC has found its own overtime policies and practices being scrutinized by an federal arbitrator reviewing a grievance filed on behalf of EEOC workers in April 2006 by the EEOC's union, the National Council of EEOC Locals No, 216, AFGE/AFL-CIO. One of the issues in the case was the EEOC's reclassification of certain investigators and mediators to exempt status under the FLSA's administrative exemption in the wake of a consultant's report.

The chief complaint discussed by this opinion was the EEOC's failure to give its nonexempt employees [investigators, mediators and paralegals] the choice between extra pay or compensatory time, only giving the employees comp time. After eight weeks of hearings on this issue, the arbitrator determined that the EEOC was correct in its assertion that flex time employees were not eligible for "suffered or permitted" overtime, but that the EEOC should have given its nonexempt investigators, mediators and paralegals the options of extra pay or comp time. Interestingly, in recent years, the EEOC has lost a significant amount of its employees, nearly a quarter of its workforce, with the largest losses from its investigators, mediators and paralegals.

The 83-page arbitration opinion and award is a good resource for FLSA analysis. The opinion contains numerous quotes of EEOC memoranda and policies of interest and painstakingly analyzes the overtime issue under a collective bargaining agreement. This opinion may be read by clicking here.

Winning Is Not Everything

2009-01-29T12:13:00.005-05:00

Whether or not Vince Lombardi actually said "Winning isn't everything - it's the only thing" (see http://aafla.org/index/FootballStudies.html), making sales isn't necessary to establish the outside sales exemption to the Fair Labor Standards Act. That's the lesson of Gregory v. First Title of America, Inc., decided by the US Court of Appeals in Atlanta on January 27. Nelda Gregory, who had been marketing director for a Florida title insurance company for slightly over 6 months, was initially paid $1000 per week but switched, at her own request, to a commission-only compensation plan based on 50% of closed orders. She was never paid extra for overtime.

After she was fired, she filed suit, contending she was entitled to additional compensation under both her employment contract and the FLSA. Her argument was, in a nutshell, that she couldn't and didn't "sell": Her work consisted of trying to generate business by urging lenders and real estate salespeople to refer business to her employer, and she even lacked a license to sell title insurance. Apparently unimpressed with that position, the District Court threw the case out.

Although it took the Court of Appeals 24 pages of analysis, summary judgment was affirmed. Deeming the question of whether Gregory was an exempt outside salesperson to be "a close one" requiring the court "to navigate between a rock and a hard place (or Scylla and Charybdis, for students of the classics)," the per curiam opinion resolved the issues in the employer's failure, but Gregory proved to be her own worst enemy in the process. In fact, you could as easily say Gregory failed to prove, because she offered no evidence of the overtime hours she had worked and hadn't even informed her employer of her assertions in this regard until just before the axe fell. She simply said the employer "should have known." On that basis, the court found it unnecessary to resolve the tough question and send Ms. Gregory on her way.

While the results were favorable for First Title, the lessons are clear: Make sure your exemption is borne out by the facts and the law (it's the employer's burden to prove exemption as an affirmative defense), and never trust that your opponent won't put together the best case possible; hope is not a strategy (which is, after all, the title of a popular book on - you guessed it - sales).

Two Pharmaceutical Companies Successfully End Wage and Hour Suits by Their Sales Representatives

2009-01-20T12:12:00.004-05:00

In the past weeks, Johnson & Johnson and Novartis each won summary judgment in cases brought by their respective sales representatives who had alleged that the sales reps were nonexempt under the FLSA and state law. Despite the clear victories, the Courts’ opinions offer different rationales for exemption depending on whether the outside sales representative exemption or the administrative exemption is used. This issue could make its way to the highest court in the land in the near future to resolve the ambiguity facing employers.

Johnson & Johnson had been sued by a former sales rep of a J&J subsidiary, Ortho-McNeill Pharmaceutical, in the United States District Court for the District of New Jersey in the case Patty Lee Smith v. Johnson & Johnson, case no. 06-cv-04787. In granting J&J’s motion for summary judgment, Judge Linares agreed with J&J’s assertion that its pharmaceutical sales reps were not misclassified and were exempt under the administrative exemption. Additionally, the plaintiff had brought claims based on actions taken more than three years prior that time-barred. Judge Linares recognized the lack of clarity in how to treat pharmaceutical sales reps under the FLSA, stating that “Smith’s position of Senior Professional Sales Representatives occupies a somewhat ambiguous zone under the FLSA.” Finding the logic of the Ruggieri case persuasive on the issue of how the FLSA outside sales exemption is applied, the Court denied that Ms. Smith could be considered an outside sales representative as envisioned by statute and regulation under the FLSA. Instead, the Court focused on the exemption for employees acting in an administrative capacity and found that J&J met its burden to demonstrate that Smith’s role was an “administrative advertising and marketing position with a substantial impact on J&J.” The Court noted the administrative exemption had been used in the Amendola case [click here for our blog entry on the Amendola case]. In closing, the Court noted that its granting of summary judgment for J&J mooted Ms. Smith’s motion to certify the action as a collective FLSA action. To read the Court’s opinion in the Smith case, click here.

Novartis Pharmaceutical Corp. similarly won summary judgment to beat a consolidated class action brought by current and former pharmaceutical sales representatives of Novartis in the United States District Court for the Southern District of New York entitled In Re Novartis Wage and Hour Litigation, case no. 06-MD-1794(PAC). Like J&J, Novartis argued that its pharmaceutical sales reps were exempt from overtime pay as outside sales representative and administrative employees under the FLSA and applicable state law (plaintiffs worked in either New York, California, or other states and were divided into group based on where they provided services for Novartis). The Court’s opinion provides a thoughtful summary of the potentially applicable exemptions and the various sources of interpretations (regulations, DOL guidance, and case law like the 2008 Ruggieri and Amendola decisions) and can be read by clicking here. Ultimately, the Court found that the pharmaceutical sales reps were exempt from overtime payment both on a narrow reading of the outside sales representative exemption (as applicable under the FLSA, California law, and New York law) and as administrative employees (under the FLSA, New York and California as well). The Court declined to reach the issue of whether the pharmaceutical sales reps were also exempt under the highly compensated employee exemption.

To view our blog entry from June 24, 2008 regarding the applicability of FLSA exemptions to pharmaceutical sales reps, click here.

Why We Blog

2009-01-16T12:49:00.004-05:00

Portfolio Media, Inc. has now released its 2009 Law360 Litigation Almanac, a 300-page-plus analysis of suits filed within the last calendar year. Among the findings, summarized in today's Employment Law360, are that the boom in new filings of Fair Labor Standards Act litigation, triggered by the 2004 release of new "white collar" exemption regulations, continues, with significant increases in new cases and an exponential growth of collective or "class" litigation.

Major judgments, verdicts and settlements have fueled this phenomenon. Critical issues include classification of workers - as to employer assertions of exempt status as well as challenges to independent contractor designations and the use of other contingent personnel; time worked issues ("donning and doffing," rest periods, the use of electronic communications outside regular duty hours or away from the employer's regular office facilities); and assaults on entire industry segments such as retail establishments, tipped employees, inside sales, call centers, and marketing representatives. Finally, retaliation claims are on the rise, and we forecast this as an area of even greater concern in the future.

Our blog offers a sampling of recent developments, but it can only touch on the issues which are topical, attention-grabbing, or downright unusual. Dramatic changes in government and the economy are causing us all to reevaluate our practices in an effort to avoid the distractions and expense of making war over workplace concerns. Our resolution for the new year is to continue to improve the quantity and quality of our postings to afford our readers with the best information available to assist in weathering this storm. As always, we welcome your feedback, and thank you for allowing us to take up time in your busy day.

See Employment Law360 article...