Wage & Hour - Development & Highlights

Motor Carrier Exemption FLSA Class Action Defeated On Interstate Commerce Issue

mtabakman@foxrothschild.com (Mark Tabakman) — Wed, 11 Nov 2009 16:00:53 -0500

The federal motor carrier exemption from overtime, 29 USC 213(b)(1), which applies to safety workers (e.g. drivers) engaged in interstate commerce, has been found to exempt Ray’s Trash Service, Inc. drivers from their right to overtime under the Fair Labor Standards Act even though the drivers do not cross state lines. They were held to nevertheless be in the stream of interstate commerce. The case is entitled Craft v. Rays, LLC which had been filed in the U.S. District Court for the Southern District of Indiana.

The judge held that the transportation of recyclables across state lines sufficed to bring the drivers into the “practical continuity” of interstate commerce. As the judge noted, “although plaintiffs never transported the recyclables across state lines, the court finds that their transportation was part of a practical continuity of movement across state lines.”

The drivers filed a class action in May 2008, alleging their pay was improperly docked, but the main thrust of their class action was a claim for overtime. The employees claimed that the interstate commerce ended when the movement of the goods was interrupted and because the employer did not have the “fixed and persisting intent” to ship the goods out of state. That intent is necessary to show that interstate commerce still continues despite the fact that the driver drives only within a State.

The judge rejected those arguments, holding that the company did not just have a speculative intention to ship out of state, as more than half of the recyclables were, in fact, sent to out-of-state recipients. The court held that the activities the drivers engaged in – included baling and consolidating recyclables, were no more than “repackaging,” which, under the law, did not interrupt the flow of interstate commerce.

One commentator has suggested that this ruling will have special relevance today, for FLSA motor carrier overtime cases, as all of us are living and working in a “green economy” in which numerous recyclables will be shipped out of state. From my perspective, it means that a lot of drivers will not be seeing or getting any green.

Mere Conclusions as to Employer Status will Result in Dismissal

LSevier@foxrothschild.com (Lee A. Sevier) — Mon, 09 Nov 2009 10:18:21 -0500

In Chen et al. v. Domino's Pizza Inc. et al., the U.S. District Court for the District of New Jersey dismissed Domino's Pizza Inc. from a proposed class action. The action alleged that the company, and a select number of New Jersey franchisees, failed to pay delivery drivers proper overtime wages in violation of the Fair Labor Standards Act and the New Jersey Wage and Hour Laws.

Specifically, the plaintiffs asserted that as delivery drivers, they regularly worked 60 or more hours per week without any regular meal or break periods, and that they were required to clock in several hours after they began work. The complaint also alleged the plaintiffs were terminated after they complained about the alleged overtime denial.

The court found, however, that the plaintiffs failed to set forth sufficient facts to show an employment relationship existed between them and Domino’s, and only made a “conclusory statement that Domino's is an employer 'within the meaning of 29 U.S.C. § 203(d) and N.J. Stat. Ann. § 34:11-56a1(g).” In dismissing the company from the action, the court reasoned that the plaintiffs were employees of the franchisee and not the corporation. The plaintiffs also attempted to set forth a joint employer argument, but the court struck down this argument on the grounds that these allegations were not in the complaint.

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere conclusory statement regarding the employer status of a company will be insufficient to sustain a claim in court.

Mere Conclusions as to Employer Status will Result in Dismissal

LSevier@foxrothschild.com (Lee A. Sevier) — Mon, 09 Nov 2009 10:18:21 -0500

Mere Conclusions as to Employer Status will Result in Dismissal

LSevier@foxrothschild.com (Lee A. Sevier) — Mon, 09 Nov 2009 10:18:21 -0500

Court Strikes Claims In US Steel/Steelworkers FLSA Class Action

mtabakman@foxrothschild.com (Mark Tabakman) — Tue, 27 Oct 2009 16:15:23 -0500

In a case entitled Clifton Sandifer et al. v. U.S. Steel Corp. a federal judge has cut out some claims from a work time class action suit, but has allowed one major allegation to remain in the case. That cause of action involves whether the employees should be paid for the time spent in walking from their locker room to their work stations.

The case is in federal court in Indiana; the plaintiffs filed suit in December 2007. Unlike many class actions I have commented upon, this was not a misclassification lawsuit, but rather a work time case. The plaintiffs sought compensation for time spent donning, doffing, walking, showering and laundering personal clothing in excess of the 40-hour workweek. The employees allege that these “work” activities consumed 9-10 hours per week.

The judge threw out the portions of the case pertaining to the donning and doffing of protective clothing, agreeing with US Steel that the compensability of these activities was addressed in the parties’ collective bargaining agreement. The court also found that showering was not required by the company and therefore was a postliminary (i.e. after work) activity for which no compensation was required.

Similarly, even though instructions were provided on how to launder clothing worn under work gear, transporting and laundering clothing was not required by the Company and thus it was not compensable. The judge kept the walking to work station claim, rejecting the company argument that these were non-compensable preliminary and postliminary work. The judge also rejected the de minimis doctrine argument, finding that walking times varied widely throughout the plant.

Judge Miller also did not accept the argument that these claims were preempted under the National Labor Relations Act as they ostensibly involved interpretations of the collective bargaining agreement, rather than statutory violations of the Fair Labor Standards Act.

Affirming that Mere Speculation is not Enough to Sustain FLSA Claim

LSevier@foxrothschild.com (Lee A. Sevier) — Thu, 22 Oct 2009 11:18:51 -0500

In Bailey et al. v. Border Foods Inc., the U.S. District Court for the District of Minnesota dismissed with prejudice a proposed collective and class action against a Pizza Hut franchisee after finding that the lead plaintiffs failed to adequately plead that their wages fell below the required minimum wage. The plaintiffs, former delivery drivers for Pizza Hut, accused the franchise operator of violating the federal Fair Labor Standards Act and Minnesota Fair Labor Standards Act by failing to pay minimum wages, and making unlawful wage deductions and wrongfully retaining employee gratuities in violation of the state law.

The Court also dismissed without prejudice the state claims against the franchisees, noting that once the federal claims were dismissed, he no longer had jurisdiction over the case. In doing so, he declined to exercise supplemental jurisdiction over the state claims.

In making its decision, the Court stated “[i]n this case, plaintiffs have failed to identify their hourly pay rates, the amount of their per-delivery reimbursements, the amounts generally expended in delivering pizzas, or any facts that would permit the court to infer that plaintiffs actually received less than minimum wage.” Specifically, the complaint merely alleged that the plaintiffs were “systematically deprived” of minimum wage. Further, on the plaintiff’s consent forms, they wrote they did not “believe” they were paid enough to cover expenses, which indicated that they were speculating as to whether their pay actually fell below minimum wage.

In deciding to dismiss the federal claims with prejudice, the Court noted that the plaintiffs were given fair notice of their pleading deficiencies but did not request leave to replead.

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere “belief” of an FLSA violation will not be sufficient to sustain a claim in court.

The Department of Redundancy Department: Class Action Style

mtabakman@foxrothschild.com (Mark Tabakman) — Thu, 22 Oct 2009 10:47:07 -0500

In an unusual move, Rite Aid Corp. is seeking dismissal of an overtime class action filed by a former drugstore employee, asserting it is identical to another class action that had been previously filed and is still working its way through the courts. The case is docketed as Georgianna Gordon v. Rite Aid Corp.

The Company urges that, under federal law, the action filed first takes precedence over this action, which was recently filed in the U.S. Southern District of New York. The earlier action, entitled Indergit v. Rite Aid Corp. and Rite Aid of New York Inc. was filed some ten months before this current action.

As the Indergit action was filed before this case, and as there is considerable identity of the issues and parties, the Company urges that the Court apply the first-filed ruled. This seems somewhat self-evident, as the issues presented in this case are being actively litigated in Indergit. If the federal judge does not dismiss the action, the Company will then seek a stay pending resolution of the earlier case.

Ms. Gordon worked as an Assistant Manager and Manager at Rite Aid from July 2007-June 2009. She alleges that she primarily did non-exempt work, such as stocking shelves. She admits that she opened/closed the store and responded to and resolved customer complaints, but denies that she ever hired or scheduled employees, which would clearly be exempt work. She claims she worked between 50-60 hours per week and earned a salary of approximately $800 per week.

She also alleges that she did not exercise independent judgment. This is an odd allegation, especially under the Fair Labor Standards Act, as the “discretion and independent judgment” component of that exemption test has been deleted under the revised regulations of August 2004.

This is not the first case of overtime “flu” to hit this Company. In July 2009, a class of Assistant Managers in Ohio sued Rite Aid on a misclassification theory. To further complicate matters, similar misclassification lawsuits have been lodged against Rite Aid competitors CVS Caremark Corp. and Walgreen Co.

These Assistant Manager cases are extremely tough to defend, because it is difficult to prove that management remains the employees’ “primary duty” even when they are working the cash register, stocking shelves or waiting on customers. I believe, and have advised numerous clients, the best and most prudent thing to do is to treat these folks as non-exempt from the commencement of their employment, build the overtime into their compensation, assuming they have to work 48-50 hours every week and then never worry about overtime lawsuits. Never worry about overtime lawsuits. Sorry—I’m being redundant.

The Employer Beats The Class To The Punch With A Dramatic Result!

mtabakman@foxrothschild.com (Mark Tabakman) — Thu, 08 Oct 2009 11:46:22 -0500

In a ground-breaking decision, the Ninth Circuit Court of Appeals has set a path down for defendant-employers in Fair Labor Standards Act (“FLSA”) class actions that is breathtaking in its simplicity and conclusive effect. In Vinole v. Countrywide Home Loans, the Court ruled that an employer need not wait until the close of discovery (which is very expensive and time-consuming) to file a motion seeking to deny class certification before the plaintiff moves to have the class certified.

The plaintiffs, External Home Loan Consultants, alleged that they had been misclassified as exempt outside sales employees, resulting in an illegal failure to pay them overtime. The Company, relying on California Wage Orders and the language in the FLSA regulations, had in fact classified these workers as exempt as outside sales people.

Before the pretrial motion deadline and discovery deadlines ensued, the Company filed a motion to deny class certification under Federal Rule of Civil Procedure 23. The plaintiffs opposed the motion, claiming that it was premature because they had not yet filed their class certification motion and further contending that class certification was appropriate, based on the evidence that they had adduced.

In affirming the lower federal court’s denial of class certification, the Ninth Circuit held that too much individual analysis of what the employees did, e.g. outside sales work or lack thereof, was required. As I have written about many times, individuality is the death knell of a class action, as plaintiffs must prove commonality, i.e. a common policy, plan or practice applicable to the entire class.

This can be the start of a trend that might push back on the multiplicity and veritable explosion of class actions. In giving employers a weapon to use offensively, the Ninth Circuit (usually, a fairly liberal, pro-employee Circuit) has signaled that, as Bob Dylan wrote four decades ago, the “times, they are a changin’”

Lock and Unload!: De Minimis Plus Failure to Mention Equals Dismissal of Class Action

LSevier@foxrothschild.com (Lee A. Sevier) — Wed, 30 Sep 2009 14:25:37 -0500

In Albrecht et al. v. Wackenhut Corp., the U.S. District Court for the Western District of New York has dismissed a lawsuit in which approximately 115 security guards accused their employer, Wackenhut Corp., of violating the Fair Labor Standards Act and New York State Labor Law by not paying them for time spent arming up, checking through security and arming down.

The plaintiffs alleged that that these duties took roughly 15 minutes per day and that they should be compensated for that time. However, the Court found that all three of the processes took less than a minute each to complete. On that basis, the Court reasoned that these preliminary and postliminary activities were not subject to compensation under the Fair Labor Standards Act as they were de minimis in nature.

Additionally, Wackenhut had implemented a daily briefing for all guards at the Ginna facility, and, consequently, the guards had to report for duty 15 minutes before the start of their scheduled shifts. The parties agreed that they were being compensated for that time, but the plaintiffs claimed the briefings were not included in overtime calculations. The Court rejected this contention because it was not included in the complaint nor mentioned in the depositions. Moreover, the Court pointed out that Wackenhut's policy called for the briefing time to be compensated at the guards’ normal base rate for time under 40 hours in a week and at the guards’ overtime rate for time over 40 hours in a week.

Accordingly, the court dismissed the case. The point is that the de minimis doctrine covers only fleeting, inconsequential periods of time. Although the employer in this case succeeded in having the case dismissed, if the time had actually been shown to be 10-15 minutes per day, or, roughly, an hour per week, that would not have been deemed inconsequential and the class action would have been viable. Repetitive duties, done every day, will not be de minimis if the aggregate time, on a weekly basis, exceeds a small amount of time.

I Told You So: The Offer Of Judgment Works!

mtabakman@foxrothschild.com (Mark Tabakman) — Wed, 23 Sep 2009 17:15:26 -0500

A few weeks ago, I posted about a procedure that could be used to defeat FLSA collective actions before they got started. That was the Offer of Judgment procedure under Federal Rule of Civil Procedure 68. Although there were cases previously approving that dismissal process, there seems to be the beginning of a tide. Only a few days ago, a federal judge has dismissed a class action against United Mortgage and Loan Investment LLC, on the basis that the court lacked subject matter jurisdiction because the defendants had offered the plaintiffs the maximum they could recover, which they turned down. That simple scenario is the essence of the Offer of Judgment process.

In this case, docketed as Simmons v. United Mortgage and Loan Investment, LLC et al., the U.S. District Court for the Western District of North Carolina dismissed the case and denied the plaintiff’s motion for conditional collective action certification. This was because the “defendants’ May 16, 2008, offer of judgment mooted the action, depriving this court of subject matter jurisdiction.”

As the plaintiffs rejected the offer, they will receive nothing. This really points out the dangers for continuing to litigate when a plaintiff has already been offered everything they could conceivably win. In my view, this represents a (hopefully) growing trend of the federal courts showing that when a plaintiff refuses to resolve a case at an early stage in the litigation process, there are consequences that flow, i.e. dismissal of the case and not receiving the originally offered money (or any portion of it).

Significantly, the May 2008 Offer gave the plaintiffs all they could have won at trial, i.e., back pay, liquidated damages, attorneys’ fees and costs. When they did not take the offer, the result was that the active case or controversy, which is what is needed for a court to maintain jurisdiction, was dissolved.

The Judge agreed there were concerns relating to a defendant-employer's ability to “pick off” FLSA plaintiffs and moot a collective action before it got started. Rule 68 does exist for a reason, however, and it is there to be used, in the appropriate circumstances. In this regard, under the FLSA’s opt-in mechanism, only those individuals who affirmatively choose to join a particular suit are actually in it, so an individual who has tried to opt in to a collective action that is mooted through an Offer of Judgment may nevertheless pursue his own case.

I believe this is a very viable mechanism for an employer trying to stop FLSA cases at an early stage, before legal fees mount up and before other putative plaintiffs join in and, especially, before a class gets certified. The key lies in melding proactive action with making the Rule 68 Offer. If the employer is doing something wrong (e.g. misclassification of employees as exempt), it must fix the problem before it makes the Offer of Judgment so that the one active case gets dismissed and even if others then come forward, there will be nothing for them to glom on to, as the problem has been solved and the danger eradicated..

The Misclassification "Flu" Is Going Around: Is Your Company Sick?

mtabakman@foxrothschild.com (Mark Tabakman) — Wed, 16 Sep 2009 16:20:47 -0500

It appears that the U.S. Department of Labor and the Internal Revenue Service are planning to escalate their efforts, i.e. audits/inspections, focusing on (some might say, targeting) employers for their allegedly improper classification of individuals as independent contractors rather than employees. Concomitant to this will be an aggressive and enhanced use of penalties, both to foster compliance and, of equal importance, revenue generation.

The U.S. Government Accountability Office has issued a report, finding that misclassification of individuals as independent contractors is not a per sec violation of the law, but noting that such actions are often linked to violations of the labor and tax laws. With that said, re-classification of individuals to employees means that unemployment contributions have to be paid on them, the same for workers’ compensation premiums and, more importantly, overtime has to be paid if they work over forty hours. Independent contractors do not get overtime.

The report chided the Department of Labor for not having its investigators look for evidence of contractor misclassification when they conducted normal wage-hour audits. Although the investigators might have inquired about the “presence” of independent contractors or discover misclassification issues through worker interviews, they failed to, as a rule,. review employer records evidencing payments to people labeled as “independent contractors.”

The Wage Hour Division of the USDOL conducted 24,500 Fair Labor Standards Act cases in 2008, but only 131 focused on misclassification. The vast majority of those cases were triggered by employee complaints.

Heightened enforcement is everywhere, spreading like a flu we are all reading about. Proper classification of someone as an independent contractor, a “true” independent contractor, is often confusing, with many shades of gray. More confusion is engendered by the particular State the employer does business in and the particular law (e.g. unemployment, Title VII, workers’ compensation) that is implicated. Self-audits, internal audits focusing on the various factors that are always examined (i.e. control, independently established business) are a very good inoculation against this very expensive flu bug.

Commission Class Action As Big A Threat As Misclassification Class Action

mtabakman@foxrothschild.com (Mark Tabakman) — Fri, 11 Sep 2009 13:38:25 -0500

I have often written of the dangers from class actions based on misclassification theories, e.g. administrative exemption. There are working time actions, alleging illegal policies of making employees work off-the-clock as well. In a case entitled Clara Seamands et al. v. Sears Holdings Corp. et. al employees of Sears have filed a class action in federal court in Kansas alleging improper payment of commissions and an outright failure to pay commissions. The employees claim that Sears denied them proper pay and never told them of planned/proposed reductions in their commission arrangements.

In instances in which the workers alleged that their sales records did not match up with their commission compensation, the Company failed to investigate and then did not resolve the situations. Rather, the Company allowed the issues to fester. The plaintiffs allege this was willful, not done through mere negligence.

The lawyer for the putative class stated that “Sears has a systemic problem in the way it processes sales and pays commission.” Clearly these are moneys that should have been paid to employees, and instead Sears retained them.”

There are probably 1,000 employees that could be encompassed by the class. The lawyer believed the number could rise a lot higher. The complaint alleges violations of the employees’ contracts and many state laws. As damages, the plaintiffs seek back commissions and (of course) attorneys’ fees.

This case teaches that commission policies may and should be set by the employer, but they should be in writing and be disseminated to all affected employees. The employees should sign off on the commission policies and any substantive revisions or changes to them. Naturally, the employer must adhere to its own commission policy and pay commissions when they vest. When commissions vest can be open to interpretation, but once commission “vests,” it becomes earned wages and then can form the basis of a Department of Labor complaint, or, as herein, a (potentially) nationwide class action.

You Can't Win For Losing: Even If Proper Classification Would Have Resulted in Lower Pay, Plaintiffs Still Get Damages!

LSevier@foxrothschild.com (Lee A. Sevier) — Thu, 10 Sep 2009 13:27:10 -0500

In Somers v. Converged Access Inc., Massachusetts' highest court ruled that an employee misclassified as an independent contractor can seek damages from an employer even if the employer can show that the employee would have been paid less if properly classified. Sounds unbelievable, but nevertheless is still the case!

Somers alleged that he should have been classified as an employee and received benefits accordingly. The lower court granted summary judgment to Covered Access, Inc. on all counts. Although it found that there was an issue of material fact as to whether Somers was misclassified, the court held that to be academic because Somers was paid much more as an independent contractor than he would have been as an employee.

Interestingly, the Massachusetts Supreme Court took the case on its own initiative. The Supreme Court rejected the lower court's finding that if an employee is found to be misclassified as an independent contractor, the employee's pay must be treated as his base wage, as though he were an employee, for the purpose of calculating damages. Indeed, in a blow to employers, the Supreme Court stated “[a]n employee misclassified as an independent contractor, as a matter of law, is an employee; his contract rate is his wage rate; and his 'damages incurred' equal the value of wages and benefits he should have received as an employee, but did not.”

The decision should be a warning to employers to make sure your independent contractors truly are independent, because if a person is misclassified as an independent contractor, he can still seek damages even if as an employee he would have been paid less. Like Ripley said, believe it or not!

In Hard Economic Times, The "Salary" Basis For Exempt Employees Is Evolving

mtabakman@foxrothschild.com (Mark Tabakman) — Fri, 04 Sep 2009 12:08:24 -0500

In order to be exempt, an employee must perform certain duties and be paid a “salary” as that term of art is defined. Employers/clients have been calling and inquiring whether they can reduce exempt employee salary, without jeopardizing the exemption. Under federal law, within certain parameters, this is permissible.

Now, the California Department of Industrial Relations’ Division of Labor Standards Enforcement has issued an Opinion Letter (DLSE Opinion Letter 2009.08.19, 8/19/09) agreeing with the federal position. As California almost always has tougher, i.e. more pro-employee, standards than the Fair Labor Standards Act requires, I see this as a watershed development in wage-hour law.

Under the California Opinion Letter, an employer that experiences economic difficulties and, for example, reduces the work week of exempt employees from five days to four and also reduces their salary by 20% will not run afoul of the “salary basis” test for these workers to still be considered exempt under California state law. The key is that the employer’s action must be temporary in nature.

The Opinion Letter acknowledged that this issue had not been addressed by California courts, but acknowledged that the federal Department of Labor and federal courts have concluded that an employer who shortens a workweek because of straitened economic conditions does not violate the salary basis test for exempt status under federal law. In this case, the request for the opinion came from a California employer that was going through “significant” economic difficulties arising from economic conditions in California.

The company had already laid off employees, but wanted to implement other measures until things got better. The employer also advised that it intended to restore the full workweek and when it do so, it would re-establish the original salaries of the affected exempt employees. The Opinion Letter noted that

“there is no express restriction in California law to having a fixed reduction in a salary during a period when the company operates a shortened workweek due to economic conditions.”

Plaintiff lawyers alleging misclassification first look at the salary basis issue. If the employees were not paid a “salary” or had it impermissibly reduced, the exemption is lost for the single person or the entire class, without any examination of the duties of the affected employees. This opinion letter gives California employers a comfort level that employers in other States that follow the FLSA as a rule have already enjoyed, if that word can be used in the context of the economic crisis facing our country.

Lojack Accused of Stealing Time From Employees: A New Twist On De Minimis

LSevier@foxrothschild.com (Lee A. Sevier) — Mon, 31 Aug 2009 15:51:23 -0500

The Ninth Circuit has largely upheld a lower court's grant of summary judgment to the defendant employer in Rutti et al. v. Lojack Corp., Inc. This case involved an alleged Fair Labor Standards Act violation that accused the defendant of failing to compensate its technicians for off-the-clock work. While the decision was largely affirmed by ruling that the plaintiffs were not entitled to compensation for time spent driving to work in a company-owned car, one vital part was vacated.

Indeed, the Ninth Circuit found that the lower court erred in holding that the plaintiff should not be compensated for time spent at home each night uploading data about the installations performed that day on a “personal data terminal” provided by the company. The court found the task appeared to be essential to the plaintiffs' principal work activities and the time spent performing the task (15 minutes) was not de minimis.

Additionally, Plaintiff argued that his commute was compensable because his use of a Lojack vehicle was not voluntary and amounted to a condition of employment, and because Lojack put restrictions on his use of the vehicle, such as not being able to transport passengers. The Ninth Circuit affirmed the lower court's rejection of the both those arguments.

Plaintiff also sought compensation for certain activities he performed off-the-clock in the morning and in the evening. The Ninth Circuit affirmed the lower court's ruling that the tasks he performed in the morning, such as mapping and prioritizing work for the day, were not integral to the job and were related to the non-compensable commute.

While this is a seeming “win” for employers, it also sheds light on what the courts will consider de minimis for purposes of the Fair Labor Standards Act. Notably, for tasks deemed integral to the job, a 15 minute work requirement each day will not be found to be de minimis and will be compensable. The lesson for employers is that when preliminary or postliminary activities, i.e. before/after work, take up more than a few moments, a court, or a Department of Labor, will likely view that as productive work time, not de minimis.

Topless or Not, They're Employees, Not Independent Contractors

mtabakman@foxrothschild.com (Mark Tabakman) — Mon, 31 Aug 2009 13:10:13 -0500

The reach of wage hour laws extends even into topless go-go bars, as a recent case has, perhaps humorously, demonstrated. In a case entitled Chaves v. King Arthur’s Lounge Inc. a Massachusetts court has ruled that so-called exotic dancers who performed in a local strip club were employees, not independent contractors. Thus, they were due, at least, the state minimum wages and overtime compensation from their employer.

The nightclub, King Arthur’s Lounge, had contended that the dancers were not employees and thus not entitled to minimum wage and overtime. The state court judge not only rejected this argument, she also certified the lawsuit as a class action.

To add insult to injury, not only did the club not pay any compensation to the dancers, it also actually charged each of the dancers the sum of $35 per night for the “opportunity” to dance and earn tips from patrons. The employer defended by claiming that its primary business was selling food and liquor; the judge noted that the employer sought to posit its use of the dancers as “a form of entertainment it provides for its patrons, akin to the televisions and pool tables in a sports bar.”

The judge quickly rejected that attempt, ruling that “a court would need to be blind to human instinct to decide that live nude entertainment was equivalent to the wallpaper of routinely-televised matches, games, tournaments and sports talk.” She also concluded that “the dancers were an integral part of the company’s business and were therefore more likely to be employees than independent contractors.” The judge continued, holding that “in an age of electronic and Internet access to a wide variety of adult media, exotic dancing is unlikely to offer a commercial opportunity – over the long term—that would rise to an independently established trade for occupation.”

This case highlights the fact that every employer must carefully evaluate the circumstances of their engagement of individuals to perform services for them. If the services are, as herein, an integral component of the employer’s business, or if too much control is exerted by the employer, or the individual does not perform these services for anyone else, then that individual is likely an employee, not an independent contractor.

The fact that they may dance around a pole does not change this analysis.

Class Action Focuses On Unpaid On-Call Time: A Sleeping Giant?

mtabakman@foxrothschild.com (Mark Tabakman) — Wed, 19 Aug 2009 14:55:11 -0500

The issue of what constitutes working time is a gray one for employers. Especially murky is the question of when on-call time, i.e. waiting time, should be compensated. In a significant development, in a class action case entitled Green v ATT, filed in the Southern District of California ATT has been charged with depriving its information technology staff of overtime wages for on call hours, which are now claimed as working time.

The employees claim they had to be constantly on call, so they could respond to and fix, e.g. troubleshoot, a wide range of problems associated with the computer systems. The suit alleges that the “employees were placed onto standby, on-call but were not paid the required compensation for these hours worked, regular and/or overtime during the class period.”

One of the downfalls of an employer on-call policy, meaning that all of the on-call hours are converted into working time, is requiring employees to respond in a very tight window. The allegations herein are that ATT required the affected employees to respond within 15 minutes to a call-in; they were on call twenty-four hours per day, seven days a week. This was above and beyond the “usual” forty-hour week.

The other component of a bona fide on-call policy is that the employees must be able to pursue their leisure activities, their “lives” in a manner not unduly restricted by the policy. The employees (naturally) alleged that this was an overly restrictive policy and they unable to enjoy any leisure activities or engage in their own pursuits. Therefore, they seek to be compensated.

The plaintiff seeks class certification. Of equal, if not more, concern is that the plaintiff is asking the court to create a “fluid fund” so that the alleged violator can deposit funds for restitution and back pay purposes.

Examine your on-call policies. If the response time is less than thirty minutes and/or if there are other conditions that may be argued as “unduly restrictive” you may need to revise the policy or practice. In the AT&T case, computing the potential damages, i.e. on call pay at hourly and overtime rates for hundreds of employees, for thousands of twenty-four hour days sounds staggering just to contemplate and will be even more frightening to actually undertake.

They're Onto You

LSevier@foxrothschild.com (Lee A. Sevier) — Mon, 17 Aug 2009 15:42:54 -0500

In these economic times, employers are classifying more workers as independent contractors in an effort to save costs, but employers should be warned that companies adopting this strategy may be abusing classification rules-and State and Federal entities are noticing.

In June, eight attorneys general sent a letter to FedEx Corp. expressing concern about the company's practice of classifying drivers as independent contractors. This warning follows the 2008 misclassification ruling by the California Supreme Court that cost the company $26.8 million.

The Montana Supreme Court also recently ruled against a company for misclassifying its staff of exotic dancers. In May, the court held in Smith v. TCAD Inc. that the dancers were employees and were entitled to wages for all hours worked, plus overtime.

Similarly, the U.S. Court of Appeals for the Second Circuit, addressed the issue in the 2008 ruling Salamon v. Our Lady of Victory Hospital. In this case, the doctor plaintiff had presented a genuine issue of material fact as to her employment status. The court vacated summary judgment in favor of the hospital, which had argued that the doctor was an independent contractor, not an employee, and could not therefore make a claim for sex discrimination under Title VII.

Even Congress is weighing in. According to Rep. James McDermott, Congress is introducing a bill that would amend the Internal Revenue Code of 1986 “to modify the rules relating to the treatment of individuals as independent contractors or employees.”

All this scrutiny means it's paramount for employers to ensure that they are properly classifying their workers.

Financial Employees Shot Down In Effort For Class Action

mtabakman@foxrothschild.com (Mark Tabakman) — Fri, 07 Aug 2009 12:42:32 -0500

In a relatively rare occurrence, but one of special interest to financial services employers a federal judge has rejected an effort by a putative class of Citibank NA employees whose job duties focused on the recruiting of businesses to participate in the company’s Bank at Work program. The workers claimed, as usual in these cases, that they were misclassified as exempt.

In a crucial ruling, one that might provide a blueprint for employer defenses of these cases, the court ruled that individual examinations of the duties of many, if not all, of the class members would be required. As “individuality” is the antithesis of a class action, which is founded on commonality, e.g. a common policy or practice, the motion for class certification was denied.

In this case, docketed as Miranda v Citibank NA, Judge John F. Walter of the U.S. District Court for the Central District of California concluded there were numerous inconsistencies in the motion, which sought to include approximately 100 workers. The job duties of these employees was to locate and then pitch businesses whose employees could possibly seek to utilize/purchase Citibank services. The employees had the same companywide job description, which included recruiting new accounts.

The plaintiff had argued that the administrative exemption did not apply because she did not utilize discretion and independent judgment, which is often the downfall for employers to claim the administrative exemption. The plaintiff argued that all she (and the others) did was “a series of routinized tasks.”

Under well-established precedent, the court was required to conduct an individual specific study of what each employee did and whether the amount of exempt work performed by each one. This meant, especially, the court needed to determine how much discretion each employee used on the job.

The judge refused to accept blanket, umbrella like allegations that common issues predominated and found that the plaintiff had failed to show the existence of a common policy. To the contrary, the affidavits submitted by both sides demonstrated that the amount of time these employees spent off-site “varied dramatically from one individual to the next.” Thus, individual analysis of whether each of the one-hundred employees qualified for the outside sales exemption was also necessary.

The lesson for employers defending these cases is clear—attack the “commonality” contentions and argue that individual scrutiny is called for. If accepted, that defense argument dooms a class action.

Tipped Employees - Delegate with Caution

mtabakman@foxrothschild.com (Mark Tabakman) — Wed, 29 Jul 2009 08:02:28 -0500

This week, Judge Ronald Guzman of the U.S. District Court for the Northern District of Illinois granted class certification in Ervin et al. v. OS Restaurant Services, Inc., a Fair Labor Standards Act suit accusing Outback Steakhouse of failing to pay minimum wage to employees at one of its locations.

The plaintiffs, former employees of an Outback Steakhouse, filed the suit in February 2008. They all worked as bartenders, servers and other tipped employees and were paid less than minimum wage under the tip-credit provision of state and federal minimum wage law. However, the suit claims that tipped employees were regularly required to do work that did not involve being paid tips, yet they continued to be paid their sub-minimum wage salary.

Judge Guzman decided to certify the class based on the magistrate judge’s conclusion that the plaintiffs had made a modest factual showing for all of their claims under the FLSA sufficient for class certification. However, the Judge denied certification for the plaintiff’s state law claim on the grounds that the state law opt-out component did not comport with the FLSA’s opt-in component. Indeed, under the rules governing class claims, eligible class members in the state law action would be included in the suit unless they opt out, while no one can become a class member in an FLSA suit unless he opts in.

Given that incompatibility, the magistrate judge recommended, and Judge Guzman agreed, that only the FLSA class should be certified.

The lesson that employers should take away from this decision is to be more aware of the tasks delegated to employees who are paid less than minimum wage pursuant to the tip-credit provision of state and federal minimum wage law.