Wage & Hour - Development & Highlights

The Northern District of Alabama Finds That Mercedes' Employees Are Too Well Paid to Sue for Overtime

Keith Reinfeld — Fri, 04 May 2012 14:11:45 -0500

On Monday, the Northern District of Alabama dismissed sixteen (16) individuals from a federal overtime lawsuit against Mercedes-Benz International Inc. (“Mercedes”) due to their status as “highly compensated” employees. The Court determined that these individuals were exempt from overtime because they earned more than $100,000 per year and performed “office on non-manual work.” The case is entitled Hicks v. Mercedes-Benz U.S. International Inc.

The decision is notable in that the “highly compensated” exemption is rarely the subject of litigation. This exemption applies to certain, white collar employees who earn more than $100,000, and perform one or more of the duties required under the executive, administrative, or professional exemptions. For instance, an employee who earns more than $100,000 annually will be exempt from overtime if he or she directs the work of two or more employees even though the employee does not meet the other requirements of the executive exemption.

In Hicks, the plaintiffs argued that the exemption did not apply to the sixteen (16) employees at issue because Mercedes included payments such as 401(k) contributions and insurance premiums in the compensation calculation. The plaintiffs stated that “the only relevant indicator of any employee’s total compensation is the W-2 tax form.” The District Court rejected the plaintiffs’ argument and held that pre-tax contributions, such as 401(k) contributions, are appropriately included in the calculation.

The lesson from this case is a simple one – employers should keep the “highly compensated” exemption in mind when considering the exempt status of employees. Employers may discover that their generosity is finally being rewarded.

Court Holding That Lack of Lead Plaintiff Execution Of Opt-In Form Does Not Bar FLSA Action Is Dangerous

Mark Tabakman — Wed, 18 Apr 2012 14:19:10 -0500

In FLSA collective actions, every person who joins the suit must opt in by signing an opt-in form. Even the lead plaintiff must do that in order to officially be part of the class. On several occasions, I have argued to plaintiff's counsel that the failure of the lead plaintiff(s) to themselves execute the op-in form has further eroded away that person’s possible recovery period and/or abrogated the entire class action. (And it has worked). Now, in an interesting case that cuts against this premise, a federal judge has permitted a collective action filed by a class of exotic dancers to proceed, notwithstanding the failure of the lead plaintiff to sign and file the (I thought) required opt-in form. The case is entitled D'Antuono et al. v. Genna and was filed in federal court in the District of Connecticut.

The employer had argued that the lead plaintiff, who separated in December 2008, never filed the consent form and therefore had not stopped the statute from running, effectively eliminating any recovery on her part. This was consistent with the law, which mandates all plaintiffs sign in to the suit. The plaintiff, Cruz, argued that a 2011 Affidavit she had submitted evidenced her consent to join the suit and should be taken as the equivalent of an opt-in form.

The court concluded that the affidavit was sufficient to meet the notice requirement and noted that the issue would not have even become a problem, if the consent had been filed when the complaint was originally filed. The court stated that “despite this lapse, the court reads Ms. Cruz' affidavit broadly as implicitly verifying the complaint, expressing an interest that legal action be taken to protect her rights and expressing an interest in being a party plaintiff."

The lawsuit centers around allegations that the plaintiffs were not independent contractors, another in a long string of these so-called stripper cases, where the crux of the theory is that the employer did not properly pay minimum wage. Some of the plaintiffs were ordered to arbitrate their claims on the basis of the holding in AT&T v. Concepcion, but plaintiff Cruz had not signed the "entertainment lease" that contained a mandatory arbitration clause.

The Court’s taking the Affidavit as a de facto opt in form is disturbing. What other “slippage” will there be in the kinds of documents and filings that a court will accept as the equivalent of an opt-in form? Put differently, a defense previously available to employers to defeat a class action by kicking out the lead plaintiff may be endangered. We will see if other courts follow this lead, or whether this decision is more aberrational in nature.

The California Supreme Court Makes Life Easier For Employers

Keith Reinfeld — Fri, 13 Apr 2012 12:48:32 -0500

The surprise of the recent snowstorm in Southern California was nothing compared to the shock created by the California Supreme Court in its ruling in Brinker International Inc., et al. v. Superior Court. The California Supreme Court found that employers must only make meal breaks available to their workers, but are not required to “ensure that the employee does not work.” This is a much needed victory for employers, and one that could significantly reduce the number of wage and hour lawsuits filed by employees. In particular, the decision removes any obligation by employers to police whether their workers take breaks, and could potentially eliminate claims for off the clock time during meal breaks.

In 2008, the California Supreme Court agreed to hear the case to clarify the meal break standard after an appeals court denied a class action of approximately sixty thousand employees. The case, for the most part, hinged on the interpretation of California Labor Law § 512, which requires employers to provide meal breaks to individuals working more than five hours in a day. The employer, Brinker International Inc. ("Brinker") maintained that it merely had to make the meal breaks available, and the plaintiffs argued that Brinker was obligated to make sure that its employees actually took these meal breaks. In rejecting the plaintiffs’ argument, the Court held, in an unanimous opinion, “The difficulty with the view that en employer must ensure no work is done – i.e., prohibit work – is that it lacks any textual basis.”

The impact of this decision on wage and hour claims outside of California is difficult to predict. While the California Supreme Court’s decision was based on its interpretation of the state’s Labor Law, counsel for Brinker has predicted that the Brinker International Inc. decision will have “significant implications” nationwide. Since the question of whether employers are required to ensure that their workers take their meal breaks is not addressed by the Fair Labor Standards Act, or its regulations, its likely that courts in jurisdictions throughout the country will look to the case for guidance.

In the end, the Brinker International Inc. decision should not affect the manner in which businesses deal with meal breaks for their employees. The decision does not mean that employers do not have to pay employees for any time worked during a meal period. Rather, the significance of Brinker International Inc. is that it places the burden on the employee to report any time he or she works during a meal break.

For further discussion of the practical affects of this decision, read this post on our California Employment Law blog.

Home Goods Assistant Managers Denied FLSA Conditional Certification

Mark Tabakman — Wed, 11 Apr 2012 10:14:58 -0500

I have written that it is a rarity that a class is denied conditional certification in a FLSA collective action. When that happens, it is (often) the result of the individuality defense that is the best weapon to deflect the class. Another way to defeat the motion for certification is to argue that the evidence submitted does not allow the conclusion that a bona fide “class” exists. This principle has been recently applied in a case where the federal judge has denied conditional class certification for a proposed class of Assistant Managers claiming overtime. The suit alleged that these employees, who worked at Home Goods, were misclassified as exempt under the Fair Labor Standards Act. The case is entitled Jenkins v. The TJX Cos. Incorporated and was filed in the Eastern District of New York.

The court ruled that the plaintiffs failed to prove that all of them performed (or did not perform) the kinds of duties that would entitle them to overtime. This case highlights what happens when the support for the class (e.g. affidavits) is simply too paltry or insufficient to evidence the requisite commonality needed for a class to exist.

The evidence consisted of the lead plaintiff’s own testimony and a single page report submitted by a consultant that supposedly showed the breakdown of duties performed by the Assistant Managers. The court ruled, quite correctly, this was not enough to sustain a viable class. The court stated that “although plaintiff's burden at this stage of the proceedings is modest, the court cannot justify certifying a class of plaintiffs, likely numbering in the hundreds, on the basis of such thin factual support.” This is very important because the initial showing for the conditionally certified class is low, but this minimal showing did not even meet that reduced standard.

The submission by the so-called “expert was also criticized by the court. The report was so vague that no valid or credible conclusion could be drawn from it; any conclusion that could try to be drawn would only be speculative. The report was skimpy to the point of not providing any context or explanation of the conclusions or findings.

The plaintiff alleged that he (and others) were routinely performing all manner of non-exempt tasks, including cleaning/sweeping, unloading trucks and taking out garbage. If these tasks comprised a major portion of the work time (judged on a weekly basis) of the employees, their exemption would be undermined. The failure to buttress these allegations with anything other than the scanty evidence discussed above, however, doomed the case to failure. As the court found, [the plaintiff] has failed to provide any factual support for the contention that other [Assistant Managers] at Home Goods' stores in New York, let alone nationwide, primarily performed nonexempt tasks.”

The lesson learned here is that defense counsel must scrutinize, tear apart and attack the initial showings made by the plaintiffs. Herein, plaintiffs’ counsel did the defense a favor by rendering such a flimsy showing of “evidence.” This scrutiny, coupled with a corollary attack based on the fatal (to the class) need for individual assessment, gives defense counsel the best chance to defeat a motion for conditional certification.

An Employee's Immigration Status Is Irrelevant To A Claim Under the Fair Labor Standards Act

Keith Reinfeld — Thu, 05 Apr 2012 14:44:53 -0500

I have been asked on several occasions whether illegal aliens, or unauthorized immigrants, can sue for unpaid wages under the Fair Labor Standards Act (“FLSA”). Employers are typically shocked when I tell them that the FLSA covers all workers, regardless of their immigration status. The Southern District of New York, in a recent ruling, not only reiterated my statement, but took it a step further, in holding that the immigration status of FLSA plaintiffs cannot be entered as evidence at trial.

Last week, the United States Department of Labor (“DOL”) announced that it had obtained a judgment in Solis v. Cindy’s Total Care, Inc. requiring nail salon, Cindy’s Total Care, Inc., to pay $235,920 in unpaid overtime and liquidated damages to thirty two (32) current and former employees. The lawsuit arose out of an investigation by the DOL that found that salon employees worked more than 40 hours in week but were not paid overtime. Instead, the employees were paid a fix daily rate regardless of the number of hours worked.

During the trial, the salon attempted to introduce evidence showing that various plaintiffs were illegal aliens. The court prohibited the introduction of this evidence as irrelevant. In particular, the court noted that the FLSA expressly protects “any individual,” and does not exclude non-U.S. citizens or undocumented workers.

Solis v. Cindy’s Total Care, Inc. highlights the fact that employers can face liability from undocumented workers just as easily at it can from documented workers. Any hope that employees will shy away from bringing a lawsuit based on his or her illegal status is simply not realistic. Rather, the courts and the DOL seemingly provide undocumented workers with a safe harbor to pursue claims for violations of the FLSA. Similarly, as seen in Solis, employers should be wary of relying on any defense that attempts to ruin the credibility of an FLSA plaintiff based upon his or her immigration status.

Third Circuit Rules FLSA and State Wage Claims Are Not Incompatible: A Brave New (And Dangerous) World

Mark Tabakman — Thu, 29 Mar 2012 15:04:31 -0500

In FLSA collective action cases, there has been a doctrine of law prevalent for a number of years. Federal claims and state law claims are not compatible and cannot be maintained in the same lawsuit. I have successfully moved to sever New Jersey state claims when made components of a FLSA action. What that does is to erode away the state statute of limitations, while the motion is pending and decided. The Third Circuit, in a case entitled Knepper vs. Rite Aid Corporation has now changed this longstanding principle.

This brave new world has emerged because the Third Circuit has held that state law class-action, overtime claims and FLSA collective action claims were not, ab initio, incompatible. In a precedential opinion, the Third Circuit has reversed a district court, which was following the long-established rule. The Court “disagree[ed] with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.” Although the Court reversed on the inherent incompatibility issue, it affirmed the portion of the decision finding that the FLSA did not preempt state law on this matter.

The plaintiffs were Assistant Managers and had opted in to the FLSA collective action. They then filed state law claims in Maryland and Ohio. The plaintiffs contended that under the Class Action Fairness Act, the state law claims could be maintained due to diversity jurisdiction and allowed to proceed, although the actions would be parallel to the federal case.

The district court held that the Rule 23 opt-out class actions, founded on laws that provided the same remedies as the FLSA, were incompatible with opt-in process of the federal court.. The lower court extended the incompatibility doctrine because it had usually been applied to scenarios in which the federal and state claims were filed together, i.e. the hybrid cases. In this situation, separate state lawsuits were instituted.

The Third Circuit disagreed. “We join the Second, Seventh, Ninth and D.C. circuits in ruling that this purported 'inherent incompatibility' does not defeat otherwise available federal jurisdiction." I disagree. I think this is a way of giving plaintiffs the ability to circumvent the FLSA, which is the reasoning adopted by the courts that had applied the doctrine in these hybrid cases.

More to follow, I am sure...

The United States Department of Labor Cares About Home Care Workers

Keith Reinfeld — Mon, 26 Mar 2012 15:47:44 -0500

Last week, witnesses testified at a hearing before a subcommittee of the House Education and Workforce Committee on a proposal by the United States Department of Labor (“DOL”) to extend minimum wage and overtime protections to in-home care providers. Currently, in-home care workers are exempt from the minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”). The DOL is seeking to modify the law so that in-home care workers who work for third parties, such as staffing agencies, are not exempt from the FLSA’s requirements. Under the new law, as proposed by the DOL, only workers who are employed by households to perform “fellowship” and protection duties would be exempt. “Fellowship” and protection duties include activities such as playing cards, visiting with friends, and taking walks.

Supporters of the proposed rule testified at the hearing that it would give long overdue protections to vulnerable workers. In contrast, opponents of the proposed rule argued that it would harm both the workers it seeks to protect and the individuals receiving the care. The basis for this argument is that the proposed rule change would result in home workers working less hours and thus potentially making less money, and that individuals needing home care would be unable to afford the services.

The proposed rule has resulted in thousands of comments from the public, but in the end, it may not have any significant impact. Nancy J. Leppink, deputy administrator of the DOL’s Wage and Hour Division, testified that half of the states already have laws requiring in-home care workers to be paid minimum wage and overtime. Moreover, Ms. Leppink stated that almost the entire cost of home care provided to individuals would funded by Medicare and Medicaid, and for this reason, should not have any effect on the level of care. Additionally, the rule change would not apply to care workers directly employed by households, nor would it require that workers be paid for sleep time.

The comment period for the proposed rule closed on March 21, 2012. The DOL has not provided a time table as to when it will complete analysis of the public comments.

Class of IBM Employees Decertified Because Of Need For Individual Assessment

Mark Tabakman — Thu, 22 Mar 2012 10:55:02 -0500

I have often written that conditional certification in a FLSA collective action is fairly easy to get and de-certifying a class is difficult, once that conditional certification has been achieved. Well, every rule has its exceptions. A federal district court judge has recently de-certified a class of IBM call center employees who were claiming compensation for preliminary work. The case is entitled Seward v. IBM Corp. and was filed in federal court in the Southern District of New York.

The court concluded that too much individual assessment was warranted, thus destroying the needed commonality for the class to exist. The court stated that the “plaintiff did not show he shares common factual and employment settings with all of the opt-in plaintiffs due to the existence of a sufficiently uniform and pervasive policy requiring off-the-clock work.”

The plaintiffs had requested that the judge assign them to sub-classes as opposed to a single “large” class, but as they had not raised that issue before the Magistrate Judge (who had issued a report recommending de-certification) the Judge refused to consider that request. The response from the plaintiffs is that they will file individual suits. Their lawyer asserted that they "intend to file dozens of individual cases to protect our clients' rights."

This case is similar to others I have posted on and is typical of this new wave of class action suits based on off-the-clock working time that is allegedly not being paid. The lead plaintiff claimed that he (and the others) were not compensated for their time booting up their computers and the computer programs that were necessary for them to do their work. Thus, their theory is that these preliminary activities were integral to the performance of their primary job.

The company seized upon the “individual” defense. It argued that the workers worked on a number of different teams, in different departments and also their work procedures differed as well. The Magistrate Judge agreed, finding that there was not the requisite commonality or overall practice that required off-the-clock work. The Magistrate found that as there were differences in their job duties, as well as management expectations of the various teams, commonality was lacking.

I applaud this result. I emphasize again that the first line of defense in collective actions is the individuality theory. A caveat----don’t wish for something because you may just get it. If the defense succeeds in destroying the class, the employer, as here, may be faced with and left to defend dozens (or hundreds) of individual lawsuits.

Who Is The "Employer" Under The FLSA: Second Circuit Addresses The Issue Of Individual Liability For The CEO Of Gristede's

Mark Tabakman — Fri, 09 Mar 2012 11:08:47 -0500

In FLSA cases, the plaintiff will often sue not only the Company, but its owners and/or officers as well. I know from personal experience in defending these cases that clients often are motivated to settle because they fear the specter of possible personal or individual liability.

The recent case involving the owner of Gristede’s Foods Incorporated illustrates this maxim in a graphic manner. He has appealed to the Second Circuit Court of Appeals, arguing that he is not an “employer” under the Fair Labor Standards Act and thus should not be held liable for any portion of the $3.5 million settlement just arrived at to resolve overtime employees who were pursuing a class action. The case is entitled Torres et al. v. Gristede's Operating Corporation.

The CEO, John Catsimatidis, argues that he should not be liable to payments to the more than five hundred Department Managers (who were allegedly misclassified as exempt) because the day-to-day operations were handled by his deputies and their deputies and so on. Thus, he disclaimed any operational control at the level where the working conditions, job duties, and, most importantly, hours, of the employees were regulated and directed from. A lower federal Court had ruled in September 2011 that he “retained” retained control of the daily operations of the various stores and thus he was an “employer” as defined under the FLSA.

The CEO’s appeal focuses its attack on the legal standard used by the District Court. He urges that the district court had applied the wrong legal standard and should have used the so-called “economic reality” test, which is the test used to determine independent contractor status under the FLSA. The CEO argues that this test would zero in on an owner’s “actual relationship” with employees. The appeal papers urged that “the district court did not apply the 'economic reality' test or focus on Catsimatidis’ relationship with the store employees in question. Instead, it looked at Catsimatidis’ overall corporate control and supervision.” The evidence showed that for over a decade, the CEO has not played a role in hiring or firing decisions, did not make payroll decisions and did not negotiate with the labor unions representing the employees.

An affirmance would pose a danger for employers because it would expose controlling shareholders to liability in scenarios in which they may exercise general oversight of Company operations but are not “on the ground” in a particular store or facility (where decisions about exempt status and work hours may be made). The Company claims that the “FLSA does not contemplate such disdain for the corporate form.” On the other hand, the buck (all three million of them) may stop at the top.

To be continued.

Swamp People Can Be Employees Too! Louisiana Joins DOL "Team" On Independent Contractor Crackdown

Mark Tabakman — Wed, 29 Feb 2012 13:47:21 -0500

I have often posted on independent contractor issues and had posted about the new initiative undertaken by the federal Department of Labor to share information with the States in a concentrated effort to find instances where employers have misclassified “true” statutory employees as independent contractors.

Now, Louisiana has joined this effort and has become the thirteenth State to share information and enforcement efforts with the federal agency to find these violations and, concomitantly, increase revenues to its own State treasury, as well as ensuring that workers receive their due as statutory employees.

The DOL noted that although non-traditional, non-employee/employer relationships were not per se illegal, they were when there was an intent to avoid compliance with labor laws. The agency also (again) re-affirmed that misclassification by some employers places undue competitive pressure on other employers who are following the law. There are also significant losses for the State unemployment insurance and workers' compensation funds.

The Executive Director of the Louisiana Workforce Commission (the State DOL) stated that “initiatives like this are critical in leveling the playing field for businesses that play by the rules." He continued by asserting that these efforts are “also vital for ensuring that eligible, hardworking men and women get the coverage and benefits they earn if they are injured on the job or lose their jobs through no fault of their own."

These new efforts are starting to show some results. Last year, the US DOL was able to “redeem” more than five million dollars in back-due minimum wages/overtime monies for workers who had been misclassified as independent contractors. The payment of “wages” also triggers and guarantees the protections of the federal Family and Medical Leave Act as well as unemployment insurance for these misclassified workers.

The two key elements in any independent contractor analysis are the degree of putative control exercised by the “employer” and showing that the entity/person is in an independently established business. There are proactive measures that companies can take to facilitate their possible need to make these showings, especially on the independent business prong, which is usually the element that independent contractor defenses founder on.

Another Working Time Case: Whether On Land Or Sea, The Time Must Still Be Paid!

Mark Tabakman — Thu, 23 Feb 2012 16:10:15 -0500

The issue of claims for alleged working time is on a disturbing trend upwards. There seems to be no end to the frequency and variety of these claims. Although the latest case is not in the context of a judicial proceeding, but rather an administrative investigation, the result, and the issues, remain the same. The US Department of Labor and Norwegian Cruise Line have just entered into a settlement where the Company will pay $526,602 in allegedly owed wages more than two-thousand employees working for the Pride of America cruise ship, based in Hawaii.

The investigation showed that the Company paid straight time for certain work activities, i.e. mandatory weekly emergency drills, without regard for whether these hours brought the employees beyond forty for that week, thereby triggering an overtime obligation. This included all of the time spent conducting and participating in the emergency drills conducted every Saturday. Further, as the employer had taken meal and lodging credits against the minimum wage, there were also minimum wage violations. Other working time included hours spent cleaning cabins between cruises and for chunks of time spent (allegedly) in performing vital preliminary duties, before employees commenced their assigned shifts.

The US DOL District Director (the top DOL official in Honolulu) stated that “employees in many jobs on U.S.-flagged vessels are entitled to the federal minimum wage and overtime protections under U.S. law.” He continued by complimenting the employer for coming “ into compliance once the issues were identified.” This means that the Company evidenced that it was ready to now fully comply with wage-hour laws, thus garnering some “good faith” in the settlement discussions with the DOL.

I just posted on another working tine case this week and normally would have looked for another topic. The veritable explosion of these working time cases, however, has given me much concern and I feel I must trumpet this caution to the business community. Where an employer compels (in any way, shape or form) employees to perform tasks and treats that time as either wholly uncompensated time or simply “straight time,” liability is sure to be the result.

Another Call Center Case Focuses On Off The Clock Working Time

Mark Tabakman — Mon, 20 Feb 2012 14:25:25 -0500

I have written many times about class actions for claimed working time and the great danger of these “subtle” kinds of violations that then explode on the employer. Call centers gave been especially hard hit with this new wave of collective actions. Another example. A class of customer service representatives has been conditionally certified in Virginia. Their theory is that their employer refused to pay for extra hours worked “off-the-clock.” The case is entitled Hargrove v. Ryla Teleservices Inc., and was filed in the Eastern District of Virginia.

The employees claim that they were required to report early, before their shifts and engage in necessary work-related activities, which were not paid for. They claimed that had to boot up the computers, plan schedules and review and respond to work-related e-mails. If these preparatory tasks are "integrally related” to performance of the employee’s principal job duty, the tasks may be compensable, especially if the employees are “ordered” to perform these preliminary (or postliminary) duties.

Evidence of the widespread nature of this problem is that this is the seventh class action against this company, with conditional certification already granted in four cases. The magistrate had originally recommended conditional certification be ordered; the Company appealed to the District Judge, who found the ruling was not clearly erroneous and allowed it to stand.

The Complaint has alleged that “supervisors explained to the employees that performing unpaid work activities was required because it was expected and was part of the job.” The Complaint also estimates the amount of extra work performed as 10-20 minutes each day. However, the workers allege that the overtime hours were not recorded or paid for. The Complaint also maintains that the employees faced poor performance evaluation if they were not ready to take calls when their shifts started, meaning that they had to perform the preliminary work.

The key (again) is the amount of employer compulsion. It is concerning to me, as a management side advocate, that the employees would allegedly suffer poor performance evaluations if not at their desks, ready to take calls, at their assigned start times. This would enhance their argument that they were required to perform preliminary tasks that were tied to their main job and were mandated by their employer. That combination equals (in all likelihood) significant liability.

California Joins The U.S. Department of Labor In Its Fight Against Misclassification

Keith Reinfeld — Wed, 15 Feb 2012 08:53:28 -0500

On February 9, 2012, the U.S. Department of Labor (“DOL”) announced that California has entered into a “memo of understanding” to work with the DOL to “end the practice of misclassifying employees” as independent contractors. This agreement between California and the DOL is part of the federally funded Misclassification Initiative that was launched in September 2011. The purpose behind the Misclassification Initiative is to enable federal and state agencies to coordinate the enforcement of wage and hour laws. California is the twelfth state to enter into a “memo of understanding” with the DOL.

Thus far, its not clear whether the Misclassification Initiative has been a success. The DOL has stated in a press release that in 2011, it collected more than $5 million in back wages resulting from misclassification of employees as independent contractors. However, the DOL has not stated whether there is any connection between the recovery of this money and the coordinated efforts of federal and state agencies. Similarly, the DOL has not indicated how much of this $5 million in back wages was collected after September 2011. Additionally, I have found it surprising that it took nearly five months for another state to join this Initiative. Presumably, the failure to attract more states to join efforts with the DOL has been a disappointment.

Along the same lines, in September 2011, when the federal government launched the Misclassification Initiative, I wrote that the DOL has failed to provide any information as to how the DOL and state agencies would work together to end misclassification. Its now February and there is still no indication that there are any procedures in place for a coordinated “attack” on misclassification.

While the success of the Misclassification Initiative is dubious, at best, employers should still expect the government to scrutinize, and likely dispute, the classification of any worker as an independent contractor.

When Is An "Intern" An Employee Under The FLSA?

Mark Tabakman — Thu, 09 Feb 2012 07:11:43 -0500

Nowadays, an intern is a good thing to be. The young person gets some experience for a resume and the “employer” gains some productive work accomplished as part of furthering the person’s education. When the line is crossed and the issue becomes money, not getting “experience,” the putative employer must be able to defend its decision not to compensate these people when judged against a series of defined regulatory criteria that define what an intern is under the law. A recent example of this is the suit filed by a former unpaid intern at The Hearst Corporation suing on behalf of herself and hundreds of other similarly situated people. The case is entitled Wang v. Hearst Corporation and was filed in the U.S. District Court for the Southern District of New York.

The lead plaintiff had interned for Harper's Bazaar. She claimed that she worked on a full-time basis, i.e. fifty-five hours and claims she was never paid, notwithstanding that she performed job duties that regular employees should have been doing. The Complaint labels this class of interns as a “crucial labor force” for Hearst, which publishes dozens of magazines, here and abroad.

The plaintiffs’ counsel asserted that “unpaid interns are becoming the modern-day equivalent of entry-level employees, except that employers are not paying them for the many hours they work.” In this regard, the lead plaintiff, Ms. Wang, who was the head accessories intern, claims that she assisted at photo shoots and managed samples given to Hearst by fashion houses.

There are a number of criteria, under federal law, that are utilized when determining if so-called interns are actually statutory employees who must be paid at least the minimum wage (and overtime). What they default down to, on a more global level, is that the internship is designed to enhance the education of the person without a substantial benefit inuring to the employer, in the form of productive work, which could and should be done by regular employees. The Company is defending on this “educational” basis, asserting that it requires the interns to be enrolled in a university program and receive credit for their time spent at the company.

Be aware that Departments of Labor also focus on the presence of interns and scrutinize whether these people are employees or not. There are other consequences for misclassification, beyond the minimum wage and overtime that would have to be paid back, such as unemployment and workers compensation issues. Conducting an internal audit of any such intern positions, judged against the regulatory criteria, will provide necessary guidance.

24 Hour Fitness Ruled Out Of Shape: Barred From Using Arbitration Provision In FLSA Collective Action

Mark Tabakman — Tue, 31 Jan 2012 07:09:35 -0500

There has been a lot of legal news being made recently concerning arbitration agreements and the Fair Labor Standards Act. Many of these cases have gone for the employer. In a recent case, however the Fifth Circuit on ruled that a class action could proceed judicially, despite the existence of an arbitration provision, where the arbitration agreement included an “escape hatch” for the Company that rendered the agreement unenforceable. The case is entitled Carey v. 24 Hour Fitness USA Inc.

The problem was that the agreement permitted the Company to retroactively change the agreement or completely terminate it. That unilaterally reserved right to change the terms and conditions of the employees’ employment showed an improper balance of “fairness” weighed disproportionately in the employer’s favor. The Fifth Circuit stated that if “an employee sought to invoke arbitration with the company pursuant to the agreement, nothing would prevent 24 Hour Fitness from changing the agreement and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest.”

The Company had sought to compel individual arbitrations, under the policy in the Employee Handbook and it asked the Court to honor the arbitration provision. The lead plaintiff countered by contending that the arbitration clause was illegal under Texas law because one party could avoid arbitration (possibly depending on its view of whether it was going to win the case). The district court agreed and the Company appealed. The Company argued that the arbitration provision was proper because the Company was duty-bound to notify the employees of the changes and secure their acknowledgment of those changes.

The Fifth Circuit disagreed, concluding that these procedures did not save the provision from being “illusory.” The Court held that “the fundamental concern driving this line of case law is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it.”

The lesson for employers is simple—make any arbitration provision one that is genuinely fair and does not allow wholesale, unilateral modification. I believe the strategy of channeling these claims into arbitration is often the right one, but not if the employer starts out with a serious, self-induced, obstacle.

Pharmaceutical Sales Representatives Get $99 Million In Overtime From Novartis

Keith Reinfeld — Fri, 27 Jan 2012 09:00:00 -0500

On January 24, 2012, the Southern District of New York preliminarily approved a settlement in In Re: Novartis Wage and Hour Litigation, which will pay pharmaceutical sales representatives (“Sales Reps”) $99 million. The case was originally filed in 2006 and affects over 7,000 current and former Sales Reps.

As I discussed in an earlier entry, in July 2010, the Second Circuit determined that the “outside sales exemption” was not applicable to Novartis’ Sales Reps because they did not “sell” or make any “sales.” Rather, the Sales Reps were responsible for promoting drugs to physicians, providing information, and arranging events, such as lunches and speaking engagements. The Second Circuit’s decision created shock waves throughout the pharmaceutical industry as drug companies have historically treated Sales Reps as exempt employees. Novartis appealed the Second Circuit’s decision, and in February 2011, the United States Supreme Court denied Novartis’ petition for review.

All is not lost, however, for pharmaceutical companies. On February 14, 2011, the Ninth Circuit affirmed the District of Arizona’s ruling in Christopher, et al. v. SmithKline Beecham Corp., that held a proposed class of pharmaceutical sales representatives to be exempt from overtime pay pursuant to the “outside sales exemption.” In November 2011, the Supreme Court agreed to review the case, and hopefully, will conclusively answer the question of whether pharmaceutical sales representatives are exempt employees.

In the meantime, drug companies should be wary about classifying sales representatives as exempt if they do not “sell” or make any “sales,” and should measure their actual duties against the requirements of the exemption.

Lessons To Be Learned From Another Successful Defense Of An Assistant Manager Class Action

Mark Tabakman — Wed, 25 Jan 2012 17:05:19 -0500

I have written several times about Assistant Manager class actions being quite difficult to defend because these employees often perform a great deal of “subordinate” type work, making the issue of “primary duty” a tricky one. In a recent class action involving these employees, a federal judge has denied a motion for conditional certification (which does not often happen) on the basis that the lead plaintiff Assistant Manager was not similarly situated to the people he tried to represent. The case is entitled Guillen v. Marshalls of MA Inc and was filed in the Southern District of New York.

The plaintiff had claimed that the violations were willful, thereby entitling him (and the other opt-ins) to a third year of recovery. Then, going after the primary duty requirement, the plaintiff alleged that he devoted the bulk of his time to non-exempt tasks such as janitorial work and unloading trucks.

The deficiency in the plaintiff’s motion, however, was that he failed to show that Assistant Managers throughout the country were performing their jobs in precisely the same manner. Put differently, there was not a strong showing that Assistant Managers elsewhere were discharging non-exempt duties. The court stated that “Guillen’s latest motion adds virtually no evidence suggesting that Guillen is similarly situated to ASMs in Marshalls stores nationwide with respect to the main contention in this case: that he was required to perform tasks that rendered him nonexempt from the FLSA’s overtime requirements.”

The court noted that there was nothing in the job description for this classification that required the performance of non-exempt work that the plaintiff alleged was done. There was no evidence of any nationwide requirement(s) in this area as well. The plaintiffs could not find a companywide policy that would apply to all of these employees. As I have often noted, that is the anathema for an employer defending such a case. In this case, there could have been thousands of employees employed in these jobs across the country and without a showing of commonality (i.e. a policy), there would be a need for individual scrutiny of what each employee actually did.

What this case again reinforces for me is that the knee jerk reaction of any company defending a FLSA collective action should be to look for and solidify all evidence of the dissimilarity of the lead plaintiff and the “others.” Company compensation policies should also be examined and, if need be, appropriately revised.

Nike Agrees to "Just Do It" and Pay Indonesian Workers $1 Million In Unpaid Overtime

Keith Reinfeld — Tue, 17 Jan 2012 09:44:15 -0500

On January 11, 2012, a Nike, Inc. factory in Indonesia agreed to pay its workers more than $1 million in unpaid overtime. The factory workers claimed that Nike required them to work an hour of overtime each day for which they were not paid. The matter was settled prior to a lawsuit being filed following almost a year of negotiations. The settlement will affect nearly 4,500 factory workers.

Under Indonesian law, a company must pay workers overtime for any hours worked beyond the standard 8 hour work day. According to the trade union representing the factory workers, Nike had failed to pay the factory workers overtime for the past 18 years. However, Indonesian law only permits employees to recover unpaid overtime for the previous two years.

In addition to the monetary settlement, Nike has agreed to training programs for local managers that includes “cultural sensitivity, respectful supervisory skills, team leadership and human resource management” training. Moreover, Nike has agreed to hire a third party advocacy group to monitor workplace conditions.

While Indonesian factory workers are not subject to the overtime requirements of the Fair Labor Standards Act, U.S. companies should be careful to rectify any wage and hour violations that may be occurring overseas. Indeed, Karishma Vawani, a BBC correspondent in Indonesia, states that “The fact that Nike’s Indonesia factory has opted to hand over this million dollars and an apparent admission of some wrong doing at their Indonesia plant, may serve as a warning to other companies here to be more mindful of what happens at their Indonesia subsidiary.” Not surprisingly, trade unions are threatening to target Adidas and Puma, who both have large factories in Indonesia, for similar overtime violations.

The bottom line is that, as surprising as it may sound, other countries have wage hour laws and believe in the concept of “overtime.” Nike learned this the hard way, but other companies can benefit from this lesson.
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Employer Defenses Against Class Action Rest (Again) On Individualization, As Well As Exemption

Mark Tabakman — Fri, 13 Jan 2012 12:10:39 -0500

In a recent case, a federal judge in New York has allowed a class action to proceed for thousands of employees who allege that they were misclassified as exempt by an accounting firm. The case is entitled Pippins et al. v. KPMG LLP and was filed in the Southern District of New York. The judge also ordered that the Company turn over a computer-readable list of the names and contact information for possible opt-in plaintiffs.

The judge found there to be commonality because the accounting field is governed in large part by a number of regulations and standards that would render the plaintiffs as “similarly situated.” The court noted, however, that “the uniformity does not mean audit associates are entitled to overtime.” The Company has claimed that these employees are exempt under the administrative and/or professional exemptions. The Company also defended by asserting that, because each employee’s duties may have differed, there would be required an individualized scrutiny as to what each employee did, thus destroying the necessary element of commonality.

What is important is that the “individualized” defense may ultimately prove to be successful, although at the conditional certification step, a court is not focusing on these individual differences but rather looking at what elements of commonality may be present, such as similar educational backgrounds and similar training regimens.

The plaintiffs (naturally) contend that they performed clerical-type work, which was routine and repetitive. They claimed that “all” they do is do basic reviews of documents and financial records. I imagine the Company will defend not only on the individual scrutiny basis but will also try to knock out as many plaintiffs as it can but pointing to the higher levels of education they possess, the degrees and certificates, which will evidence that they do more than just “clerical” work and are using their advanced education (college or above) to conduct financial analyses, (which is the essence of an administrative or professional defense) and not just crunching numbers.

Retaliation Fact Sheet Issued by USDOL: Employers Beware

Mark Tabakman — Fri, 30 Dec 2011 12:05:31 -0500

On March 22, 2011, we posted an article about the US Supreme Court holding in Kasten v. Saint-Gobain Performance Plastics Corp., in which the Court held that a retaliation cause of action could lie even if the complaint was not in writing, but was made verbally. We cautioned about the danger of that holding for employers. Now, the US Department of Labor has issued Fact Sheet 77A codifying this holding in DOL guidelines. The Fact Sheet makes clear that oral complaints are protected and internal complaints to the employer, as opposed to (or, in addition to, complaints to the DOL) are also protected.

The Fact Sheet also makes clear that the retaliation protection applies to all employees of an employer even in those instances in which the employee's work and the employer are not covered by the FLSA.

The Fact Sheet also makes clear that the retaliation protection applies where there is no current employment relationship between the parties, such as an instance where there is alleged retaliation against an employee by a former employer.

Now that this holding has been formalized in DOL guidance and will "enjoy" widespread dissemination, my recommendation is that employers implement a mechanism (similar to the complaint mechanism in anti-harassment policies) where employees may complain about pay errors, or classification issues, or working time issues. These complaints would then be investigated and if found to have merit, an appropriate remedy issued to the employee. The important point is that even if the complaint is made orally, the employer (e.g. HR Department) should reduce the complaint to writing so there exists a record of what was complained of, the action taken and the resolution.