Employment Class Action Blog - Information and Commentary on Employment Class Action Cases Affecting Employers

Anyone who has dined at a restaurant is aware of the importance of tipping, even if the exact rules, like the percentage and how it should be calculated, may be a bit fuzzy at times.  From the standpoint of the restaurant, too, the standards of what may or may not be tipped work for taking advantage of the FLSA’s tip credit may be less than clear.   A recent case from the Northern District of Indiana demonstrates not only some of the issues to be considered, but also that it may be difficult for a plaintiff to pursue claims challenging the amount of tipped work on a class-wide basis. 

In Roberts v. Apple Sauce, Inc., Cause No. 3:12-CV-830-TLS (N.D. Ind. May 13, 2013), the plaintiff, a former Applebee’s waitress, brought suit against the franchisee for whom she had worked, contending that it had not properly taken advantage of the tip credit exception contained in section 6(a)(1)(C) of the FLSA.  The significance of such a claim, by the way, is that if the tip credit does not apply the employer cannot take advantage of tips to make up the difference between $2.13 per hour and the minimum wage (or a difference of $5.13 per hour at present).  The crux of the plaintiff’s claim was that she was required, in addition to waiting tables, to perform various non-tipped duties such as dishwashing, food preparation, cleaning the kitchen and bathrooms (hopefully at very different times), and trash removal.  She also contended, somewhat incredibly, that she had not been advised that the employer would be taking advantage of the tip credit, a specific requirement of the applicable regulation.  As if often the case, she sought to pursue her claims on a collective basis on behalf of the wait staff at 24 Applebee’s restaurants.

The defendant moved to dismiss the claims under Rule 12(b)(6), and the plaintiff, in essence, sought conditional certification of the proposed class as well as to toll the statute of limitations.  In a relatively compact but thoughtful opinion, the court granted the motion to dismiss, at least in part, but also denied the plaintiff’s motions.  As to the motion to dismiss, the court noted that the Department of Labor guidance specifically recognized that incidental duties such as “general preparation work or maintenance” like cleaning, table-setting, making coffee, and dishwashing, did not destroy the exemption so long as they do not exceed 20% of the tipped employee’s time.  The court noted that despite the general allegation that such work was done, the precise allegations were somewhat “sparse.”  Citing the pleading standard of Ashcroft v. Iqbal, 556 U.S. 662 (2009), the court dismissed that aspect of the plaintiff’s claims.

The court did find that the complaint stated a claim that the employer had failed to inform her that it would be taking advantage of the tip credit. Of course, the court was obligated under the applicable standard to accept the allegations of the complaint as true, but one could legitimately question in this day and age how a waitress would not realize that she was receiving a sub-minimum wage and that the employer was taking a credit for tips to make up the difference.  While the court held that the complaint stated such a claim, however, it also found that it relied upon what the plaintiff was told in orientation, not a uniform policy, and that the case could therefore not be handled as a collective action.  It therefore denied conditional certification and it also rejected tolling because there were no extraordinary circumstances that would justify tolling the statute of limitations.

The Roberts case is significant because the court took at least a cursory review of the plaintiff’s claims and denied conditional certification even though it found that she had stated, at least in part, a claim.  A contrary holding would have resulted in a class being conditionally certified that likely would have been decertified only after the parties had spent considerable sums advancing or defending their claims.

The bottom line:  A court has denied conditional certification of a tip credit case because of the need for individual inquiries.

Introduction

In April 2010, Stephanie Sutherland (“Sutherland”) filed a putative class action against Ernst & Young under the Fair Labor Standards Act (“FLSA”) and New York law claiming that low-level accountants were improperly deprived of proper compensation for time worked in excess of 40 hours per week.

Ernst & Young filed a motion to dismiss or stay the proceedings and to compel arbitration of Sutherland’s claims on an individual basis under the Company’s dispute resolution procedure.  Ultimately, District Judge Kimba Wood, relying on the Second Circuit’s decisions in Italian Colors Rest. v. Am. Express Travel Related Servs. Co. (“AMEX”) (the three AMEX decisions are discussed extensively in a March 5, 2013 article), denied Ernst & Young’s motion to compel because “the enormous costs and fees attendant to prosecuting her claim on an individual basis would effectively prohibit her from bringing suit at all.”  The Sutherland case illustrates how a relatively modest wage and hour dispute can be portrayed as one requiring extensive attorneys and expert fees, only suitable for class handling.

The Second Circuit Appeal

An appeal resulted (Case No. 12-304), and in June 2012 the Equal Employment Opportunity Commission and Secretary of Labor filed an Amicus Brief supporting Appellee Sutherland in the Second Circuit.  The brief argued:

 (1) That Sutherland submitted undisputed evidence that she was unemployed, owed $35,000 in student loans and had no savings.  Further, her attorney submitted a declaration stating that litigating whether junior accountants like Sutherland were exempt from the FLSA would cost over $160,000 in fees, plus arbitration costs of $6,000 and expert testimony of more than $33,500.

(2) That expert witnesses testimony “can be useful in some FLSA cases to determine whether a statutory exemption applies, and . . . the Secretary and courts have relied on expert testimony in such cases.”

(3) That Ernst & Young’s stipulations to pay costs and attorneys’ fees were insufficient because it was unclear if expert witness fees would be covered and that the Company stipulated to pay costs and fees only if Sutherland prevails.

But, under AMEX I, according to the Amici, Sutherland “must include the risk of losing and thereby not recovering any fees, in [her] evaluation of [her] suit’s potential costs.”  See AMEX I, 554 F.3d 300, 318 (2009).  Hence, the Amici concluded that “Sutherland’s inability to advance substantial costs, . . . the [unwillingness] of her attorneys . . . to invest large amounts of potentially uncompensated time in a case where the Plaintiff has plausible claims . . . mean that Sutherland cannot effectively vindicate her FLSA rights by suing individually.”  (Amicus Brief at 13).

The E & Y Response

Ernst & Young filed its response to the Amicus Brief on March 7, 2013.  In that response the Company first noted that Amici do not argue that the FLSA creates a substantive right to proceed as a class.  (E&Y Response at 1).  Next, the Company attacked the argument that arbitration would be cost prohibitive.  Indeed, it pointed out that Sutherland would be fully compensated for all her alleged fees and costs, even those relating to unidentified (and perhaps unnecessary) expert fees based on its prior express stipulation. 

Then, Ernst & Young attacked the underpinnings of the Amici’s arguments one by one. The Company pointed out that, as the District Court recognized, it would pay all arbitration-related costs.  The expert fees were challenged next.  While Amici relied on $33,500 in expert fees they offered no rationale why those fees were needed.

The Amici termed experts “useful” in some FLSA cases not “necessary” in the Sutherland case.  And, in the AMEX decision the Appellate Court found that “substantial expert witness costs” were “necessary” to prove the individual anti-trust tying claims.  AMEX III, 667 F.3d 204, 218 (2012).  Ernst & Young also pointed out that none of the FLSA cases cited by the Amici considered that the expert evidence was “necessary.”  Sutherland’s proper classification “will be determined ‘by examining [her] actual job characteristics and duties’ not by expert analysis.”  (E&Y Response at 4).

The need for the “risk of losing” consideration, was also challenged by the Company.  Amici argued that even if Sutherland recovered all her fees and costs it was insufficient because she also had to consider the fact that one might lose.  Ernst & Young responded that this AMEX III dicta did not overturn established authority holding that statutory fee shifting provisions enable a plaintiff to secure representation even when the potential recover is small.  Attorneys do pursue individual wage and hour claims seeking a modest monetary recovery because of such fee shifting.

And, her attorney’s declaration stating that he would not represent her in an individual action is insufficient to avoid a class waiver.  If not, according to the Company, “virtually any plaintiff, in any type of case, could assemble a similar record and avoid arbitration.”  (E&Y Response at 6).  AMEX does not permit avoidance of class action waiver “’simply by manufacturing an affidavit or choosing pricey attorneys’ or engaging unnecessary experts”.  Id.  Reading AMEX that broadly would nullify the purpose of the Federal Arbitration Act (“FAA”), to “ensur[e] that private arbitration agreements are enforced according to their terms”.  AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1748 (2011).

In the final analysis, the Sutherland case most aptly illustrates the cost, delay and manipulation that can surround the application of the effective vindication of federal rights doctrine.  These ramifications can eliminate any certainty in the application of an arbitration agreement, run counter to the intent of the FAA and second guess the legislative wisdom in enacting fee shifting provisions.  All these concerns likely will be addressed in the U.S. Supreme Court’s Opinion in the AMEX case itself which was argued on February 27, 2013.

The Bottom Line:

The Sutherland case illustrates how even a modest employment case can be impacted by the “effective vindication of rights” doctrine.  Each case can result in a threshold inquiry into claims and related costs where plaintiff’s counsel, experts and judicial analysis can dictate varying results.  Thankfully, some guidance likely will come from the U.S. Supreme Court’s upcoming AMEX decision.

We’ve commented before that while most courts apply a fairly lenient standard at the “conditional certification” phase of Fair Labor Standards Act collective action litigation, plaintiffs tend to have a harder time in so-called “off-the-clock” cases.  A recent decision from the Southern District of Ohio reflects that obtaining conditional certification can also be difficult where plaintiffs raise a host of time-keeping and payroll practice issues.

In Rutledge v. Claypool Electric, Inc., Case No. 2:12-cv-0159 (S.D. Ohio, Feb. 5, 2013), the plaintiffs worked as construction workers for the defendant.  They sought to assert three sets of collective action claims for wage and hour violations, for (apparently) off-the-clock time, for using compensatory time off in lieu of overtime, and for failing to use the correct base rate in computing overtime.  This last claim was premised upon the fact that the employer paid different rates for public and private projects but that, according to the plaintiffs, it tended to pay overtime based upon the lower private rates.

The plaintiffs moved for conditional certification for all three classes, but the Magistrate Judge denied their motion. The plaintiffs appealed to the district court judge all but the denial of the off-the-clock class.

The district court first found that because a motion for conditional certification is not a dispositive motion, the Magistrate Judge’s opinion could not be overturned unless she had committed an error of law or had made “clearly erroneous” factual findings.  This standard all but dictated the outcome of the appeal.  While the plaintiffs had urged the Magistrate Judge to consider hearsay evidence at the conditional certification stage, she had refused to do so, and the district court found that this did not constitute an error of law.

With respect to the classes, the court first found that while the plaintiffs had introduced evidence that they themselves had been given compensatory time off in lieu of overtime, they failed to demonstrate that there was any class-wide issue and could only point to the conduct of a single supervisor.  Similarly, the court found no sufficient evidence of any class-wide policy not to pay overtime at the correct rate. 

Interestingly, in this regard the plaintiffs tried to rely upon an admission contained in the defendants’ answer to the effect that overtime was paid at time and a half at the “basic hourly rate applicable to the work performed by the employees during the overtime hours.”  The court found that this response did not admit that employees were paid at different rates during any particular work week. 

Finding no sufficient evidence of a common illegal policy, the court upheld the Magistrate Judge’s denial of conditional certification.

The bottom line:  Courts are more inclined to deny conditional certification when the plaintiffs rely upon an improper policy or practice, but cannot show that it applied across the class.

Hollywood certainly believes that it’s often easier to reach back into the well than to spend time creating something new.  (See, e.g., any movie series that has more than one sequel.)  Sometimes, we here at the Employment Class Action Blog are no different.  Take, for example, this week’s Seventh Circuit decision in Espenscheid v. DirectSat, LLC, Case No. 1943 (Feb. 4, 2013).  We have already blogged about this case twice before, the first time when the lower court decertified the collective action class on the eve of trial back in 2011, and then again when the Court of Appeals upheld the plaintiffs contention that settlement agreement did not prevent them from appealing the decertification.

And now, barring the Supreme Court granting certiorari, the saga of the 2341 unhappy technicians has finally reached an end.  And, unfortunately, that end is an unhappy one for the plaintiffs as the Court of Appeals has upheld the decertification.

The court’s decision is straightforward: the underlying lawsuit alleges that management compelled the technicians to do work for which they were allegedly not compensated at all, and also to work overtime without being paid. The district court initially conditionally certified the case, but then decertified it because it determined that the case would have been unmanageable for trial.  The Seventh Circuit notes that had plaintiffs simply been seeking “just injunctive or declaratory relief,” the trial could have progressed, because “the only issue would have been whether DirectSat had acted unlawfully.”  Plaintiffs, however, only sought damages.  “And to determine damages, would, it turns out, require 2341 separate evidentiary hearings….”   As a result, the Seventh Circuit upheld the decertification.

What is paramount for both plaintiffs and defendants going forward, however, was the court’s determination that plaintiffs could not avoid decertification by presenting testimony from 42 “representative” members of the class to determine damages.  The court refused to believe that the experiences of 42 class members for the purpose of calculating damages could be successfully extrapolated to the other 2341 technicians.  Finally, the court does note that the plaintiffs could have sought (in the court’s view) a promising alternative by complaining to the Department of Labor, which could then obtain in a suit under the Fair Labor Standards Act the same monetary relief for the class members that they could have claimed if such a suit were feasible.  Alas, hindsight is 20/20.

The Espensheid decision may prove increasingly important if other courts accept its view.  First, the court largely rejected the “sampling” arguments made by plaintiffs in many wage and hour cases, and may result in fewer class or collective actions reaching trial.  Second, the court’s analysis seems to downplay differences between the standards for certification under section 16(b) of the FLSA and Rule 23 of the Federal Rules of Civil Procedure, thus inviting more arguments based on the Supreme Court’s 2011 decision in Wal-Mart Stores v. Dukes.  Lastly, the opinion appears to suggest the court’s view that a more appropriate vehicle for such cases in the future is resort to the United States Department of Labor rather than class or collective litigation.

The Bottom Line:  The Seventh Circuit’s decision deals a significant, perhaps fatal blow to the concept of employing  sampling approach for collective (and potentially class) actions and suggests that the U.S. Department of Labor might be a better venue for such claims in the future.

We’ve written several times in the past about the two-step procedure now in vogue for the handling certification of collective actions under section 16(b) of the FLSA.  Under that procedure, a plaintiff first moves for “conditional certification,” which, despite its name, means only that the court is authorizing notice to the potential class members, and then permitting them to opt into the action if they choose within a particular time.  Once that time has concluded, the court permits discovery as to that group and the defendant then moves to “decertify” the class, even though it was never really certified to begin with. 

The two-step procedure was intended to deal with the unique features of FLSA litigation, but has taken on a life of its own.  Apparently forgetting the legislative history of FLSA section 16(b), which was intended to limit aggregated claims against employers, and glossing over the management problems inherent in these types of cases, some courts are readily issuing conditional certification orders even when it is obvious that the proposed class will never stand up over time.  Further, although many courts have commented on the misnomers used throughout the process, such terms as “conditional certification” remain even though it is generally agreed that at that stage the court is certifying nothing.

A recent case from the Eastern District of Pennsylvania reflects a court’s common sense, rational approach to these issues.  In Postiglione v. Crossmark, Inc.pdfCase No. 11-960 (E.D. Pa. Nov. 14, 2012), the plaintiffs were a group of “retail representatives” for a retail service company known as Crossmark.  Crossmark had 12,000 such representatives, who provided merchandising and inventory services to retailers nationwide.  These representatives were paid on an hourly basis, but claimed they were not compensated for certain administrative time (such as responding to email or computer data entry), some driving time, and, on occasion, working time due to budget pressures.

The plaintiffs took what is now a fairly common approach, filing a complaint naming 31 initial plaintiffs, and then collecting an additional 21 opt-in plaintiffs along the way.  Following some early procedural wrangling and a period of limited discovery, they then moved for conditional certification.

The District Court noted the two-step procedure and, like other courts, noted problems in the nomenclature for various steps.  At its core, however, the court recognized that the two-step procedure was simply a case management tool.  Applying the standard that the plaintiffs must make a “modest factual showing” that the class members are similarly situated, the court ultimately denied the motion.

To begin with, the court found that the plaintiffs’ evidentiary submissions were suspect.  Although the plaintiffs submitted numerous declarations, those declarations departed from their deposition testimony in important respects and tended to exaggerate their claims.  Beyond that, the plaintiffs each testified about different “unwritten policies” and had different accounts of what time they were actually paid for.  The court concluded that “Plaintiffs have not demonstrated the existence of a nationwide policy; they have only demonstrated the lack of any such common policy.”

Interestingly, the court also concluded that the 52 named plaintiffs had not been properly joined under Federal Civil Rule 20.  It found that FLSA section 16(b)’s similarly situated standard was less stringer than that of Rule 20, and that since there was no collective class, there also could not be Rule 20 joinder.  It therefore dismissed all of the claims, except for that of the first named plaintiff, without prejudice.

The Bottom Line:  Another court has denied conditional certification after finding that the plaintiffs had not made the modest factual showing of having similarly situated class members.

In our continuing coverage of exotic dancer performances on the class action stage, another group of dancers from California recently won approval of a multi-million dollar settlement in a wage and hour class action suit.

A California federal district court judge approved a nearly $13 million settlement for a class of dancers who had worked at clubs owned or operated by Spearmint Rhino Companies Worldwide, Inc., and other defendants in.  The dancers, from California and five other states, had alleged in a suit filed in 2009 that the defendants had misclassified them as independent contractors, depriving them of minimum wage compensation and other benefits under state laws and the Fair Labor Standards Act.

The settlement also requires the defendants to stop treating the dancers as independent contractors or lessees and start treating them as employees or owners.  In California, the defendants will be prohibited from charging “stage fees,” which the dancers had been paying for the privilege of performing at the adult entertainment venues.

The judge’s approval came more than one year after the parties had reached an agreement and sought preliminary approval from the court.  The court had denied the dancers’ previous attempts at court ratification because of the judge’s concerns about the typicality and adequacy of class representatives for a number of subclasses, the agreement’s attempt to release FLSA claims of class members not opting in to the collective action, and the agreement’s failure to identify the charitable organizations as recipients for the settlement fund’s non-reversionary awards.

Each dancer who makes a claim is expected to recover an award in the range of $1,000 to $10,000.  The court approved an award of $2.3 million for the plaintiffs’ counsel … which should serve as an incentive to those dancers who took the jobs to put themselves through law school.

The Bottom Line:  Employers who misclassify exotic dancers (or other workers) as independent contractors to save money may end up losing their own shirts.

While most class actions, like most actions generally, tend to settle, they are on occasion tried.  In the case of wage and hour litigation, employers can and have prevailed at trial as demonstrated by a case from the Sixth Circuit.  In Henry v. Quicken Loans Inc.pdf, Case No. 11-2125 (6^th Cir. Oct. 25, 2012), the plaintiffs brought a collective action against Quicken Loans, contending that it had misclassified its mortgage bankers as administrative exempt under the FLSA.  Ultimately, 455 mortgage loan officers opted into the litigation and the case was tried to a jury, which returned a defense verdict.

The plaintiffs made three primary assertions.  First, they argued that the mortgage loan officers were primarily salespeople, pointing to documents that, among other things, referred to them as a “sales force.”  Second, they asserted that they exercised no discretion or independent judgment, but were, instead, found to follow a 10-step set of guidelines prepared by the employer.  Lastly, they pointed to Department of Labor opinion letters expressing doubts over the exempt status of mortgage loan officers for other employers.

The jury, of course, rejected the two factual arguments but, instead, credited the testimony of several mortgage loan officers who denied that their primary duty was selling and admitted that their job required the use of discretion and judgment.  The Sixth Circuit found that the jury could properly believe that testimony and found no basis to overturn its verdict.  The court of appeals also rejected the plaintiffs’ legal arguments based on the DOL opinion letters, finding the letters non-binding and also questioning whether they even involved the same facts.  Thus, the Sixth Circuit affirmed the jury verdict.

Henry itself stands for the largely unremarkable proposition that a jury may find an employee exempt if there is evidence to support the exemption.  But underlying the holding is the fact that the employer won the case before the jury despite facing skilled plaintiffs’ counsel and unfavorable DOL guidance.  This result is not unlike that in last month’s Eight Circuit decision in Lopez v. Tyson Foods, Inc., Case No. 11-2344 (8th Cir. Sept. 4, 2012), which we wrote about on September 17, and which similarly affirmed a jury verdict in a donning and doffing case. 

The Bottom Line:  While every case will turn on its facts, employers can prevail in collective action cases tried to a jury. 

The United States District Court for the Northern District of Georgia has issued a very good decision for employers opposing conditional certification of FLSA minimum wage and overtime cases. 

In Beecher v. Steak N Shake Operations.pdf, Case No. 1:11-CV-4102-ODE (N.D. Ga. Sept. 27, 2012), the plaintiffs were employees of company-owned Steak N Shake restaurants working in non-exempt hourly roles.  The employees included workers in positions such as cooks, dishwashers, and hourly supervisors, as well as tipped employees such as servers.  They contended that the company unlawfully failed to pay minimum wage and overtime in large part due to company-wide policies that discouraged store managers from incurring overtime costs.  They argued that as a result of these policies, store managers would alter their time records to deduct time they had worked, and sought conditional certification of a nationwide class of hourly Steak N Shake employees.

The court noted the lower standard for conditional certification, but still found no basis to grant even conditional certification of the proposed class.  First, the court accepted the plaintiffs’ showing that the company stores shared structures, positions, handbooks, and systems to report hours and tips, but found that such a showing was not enough.  Instead, the court found, the plaintiffs’ claims would require a review of what happened at each individual store.  Indeed, because there were entirely legitimate reasons why a time record might be modified (e.g. a waitress inverts numbers on the tips she received; correction in computer “glitches” in reporting credit card tips; an employee forgets to clock out, etc.), the court concluded that resolution of the plaintiffs’ claims would require review of roughly two million different payroll corrections.

The court also found other issues with the proposed class.  While the plaintiffs sought to represent a nationwide class covering 400 restaurants and 65,000 employees, there were only 23 plaintiffs had actually opted in, suggesting a lack of interest in pursuing the claims.  Most of the plaintiffs, in fact, worked at four stores in a single market near Atlanta, Georgia, and all but one worked in Georgia.

Interestingly, although the court did not cite the decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___ (2011), it further concluded that “there is not enough glue to hold this proposed class together.”  This suggests that the court considered that the reasoning of Dukes does apply in FLSA collective actions, a holding that may prove of use in future cases.

The Bottom Line:  Particularly in cases involving alleged failure to pay for all hours worked, a number of courts will continue to deny even motions for conditional certification. 

Consistent with a trend that started roughly four years ago, a California District Court has refused to certify a class of retail store managers seeking overtime pay under California law on the grounds that individual issues would necessarily predominate.  Deane v. Fastenal, Inc.pdf., Case No. 11-CV-0042 YGR (N.D. Cal. Sept. 27, 2012).  This case also reflects potential perils for plaintiffs in wage and hour cases when they try to pursue simultaneous state law class and federal law collective claims.

Not that long ago, cases challenging the exempt status of retail store managers or assistant managers were a staple of California class action litigation.  Virtually every major retailer was faced with lawsuits arguing that the managers did not spend sufficient time managing, or that they did not exercise sufficient discretion, to satisfy the executive employee exemption under California law.  These claims were bolstered by the fact that, unlike federal law, the California wage and hour law uses a quantitative primary duties test that requires that the manager spend at least fifty percent of their time performing exempt duties.

Fastenal has over 2,000 locations nationwide.  It is basically a hardware store for construction and industry, selling things like fasteners (as the name implies), tools, and protective gear.  Unlike a traditional consumer hardware store, often, store managers and staff must go out to make sales calls, and do not simply service customers that come into the store through the front door.

In Deane, the plaintiffs sought to represent a nationwide class of store managers who claimed that they had been misclassified as exempt and were entitled to overtime pay.  The district court granted conditional certification under the FLSA.  Afterwards, the plaintiffs moved to certify a class of California managers under California law and the defendant moved to decertify the conditionally certified FLSA class. Thus, the judge was being asked to address certification while the case was in a unique procedural posture.

What was also unique was that the employer relied on three exemptions, the executive (which you would expect of for a manager), administrative and outside sales.  The outside sales exemption was asserted because of the need for some employees to go out to customers to make the necessary sales. 

The district court denied the motion for class certification, which might once have been considered a foregone conclusion given the fact that the case involved a frequent topic of class action litigation, was pending in the Northern District of California and had already been conditionally certified for FLSA purposes.  The court found that while it appeared that some of the managers might have been misclassified, it also appeared that there was a wide variation in the amount of discretion given to individual managers, as well as differences between the business traffic of the individual stores. 

Citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550 (2011), the court refused to adjudicate the case by representative proof.  Thus, the court found that class issues did not predominate and that the state law claims should not be certified.

The Deane decision is of note for several reasons.  First, of course, it represents a decision refusing to certify an employment class action by a court traditionally viewed as friendly to such cases.  It also related to a type of claim, misclassification of retail managers, which had also been successful in California in the past.  But the case also represents a potential problem for plaintiffs who seek to pursue combined FLSA and state law wage and hour claims.  By pressing state law class claims, they gave the opportunity to the defendant to demonstrate at an earlier stage that the FLSA claims should not proceed as a class.  And they also made it easier for the defendant to make arguments based on the Dukes case that sampling and similar methods were inappropriate.

The Bottom Line:  Certification of classes of retail store managers is no longer a foregone conclusion, even in jurisdictions perceived to be pro-plaintiff.  Pursuing hybrid state and federal claims may present the defendant with additional opportunities to decertify the class.

Unless you’re one of the twelve people in the world who didn’t see The Avengers this summer, you can likely recall the scene where Tony Stark literally “steps out” of his Iron Man suit after landing on his penthouse ledge.  Indeed, the fictional billionaire has perfected the doffing of his hardware to a science—the machines literally unscrew and disassemble the pieces as he walks into his living room.  The entire process takes, at most, 35 seconds of screen time.

But what about Bruce Wayne?  Let’s assume that he’s throwing another five-star gala dinner for Gotham’s elite when he glances out the window and see the Bat Signal against the clouds.  The Joker is on the loose, and Commissioner Gordon needs Batman.  But, unlike Tony Stark, Bruce’s process to get dressed for crime fighting is a bit more involved.  After playing the magic off-tune notes to open the door to the Batcave, he has to wait for the platform to rise out of the floor with his suit, pop open the case, strip down, pull on the body armor, tug on the cowl, snap the utility belt in place (after picking the appropriate gadgets), wave goodbye to Alfred, decide whether he wants to listen to Robin’s whining or let him stay home for the evening, and then maneuver his car through the waterfall and out into the streets.  All in all, it’s a complicated process, and in “real life,” it must take up a good…twenty minutes?   

The purpose for these two analogies was to illustrate the donning and doffing process which occasionally creeps up in an FLSA lawsuit now and again.  In fact, earlier this month, the Eighth Circuit affirmed a jury verdict against beef processing employees at a Tyson Foods, Inc. plant in Lexington, Nebraska.  In that case, Lopez v. Tyson Foods Inc., Case No. 11-2344 (8th Cir. Sept. 4, 2012), 225 workers sued for unpaid wages and overtime under the FLSA and a class action under the Nebraska Wage Payment and Collection Act covering more than 10,000 employees.  Their claim, simply put, was that they should have been compensated for the donning and doffing of items that are not unique to the meat processing industry.  Thus, they claimed they should have been compensated for that time, much as if Batman attempted to charge the city of Gotham for the time spend donning his cape and cowl.

The employees at issue donned personal protective equipment and clothing prior to going out on the production floor, taking it off before lunch, putting it on again after lunch, and then again when they left for the day.  Prior to 2007, Tyson paid the employees four minutes per day for donning and doffing items that the company deemed “unique” to the meat processing industry, and over time, increased the amount of time to 25 minutes.  While Tyson conceded that it was required to pay for the time spent donning and doffing the unique items, it refused to compensate for the time spent putting on or taking off “non-unique” items.

The jury returned a verdict for Tyson at trial.  On appeal, the employees challenged the jury instruction that “[w]hen activities occur pre-shift or post-shift, only the time reasonably spent is compensable.”  They claimed that under the “continuous workday rule,” an employer must pay for an employee’s actual time spent performing a compensable activity.  The Court of Appeals disagreed, and claimed that there was a circuit split on the issue of counting “reasonable” time or “actual” time for such activities.  Interestingly, the court found no clear answer as to the appropriate standard, but also concluded that there was no reversible error because it could not be said that difference between reasonable and actual time would have made any difference in the jury’s verdict.  As a result, the instructions were not in error.

Similarly, the employees challenged the court’s instruction on whether or not donning and doffing was considered “work” under the FLSA.  Specifically, they argued that “work” was a question of law, not of fact, and therefore should have gone to the jury in the first place.  At the end of the day, however, the Eighth Circuit scolded the plaintiffs by telling them that they had “invited any error” themselves by requesting the work issue be submitted to the jury.  The district court did, however, affirm that the handling of unique items was, in fact, compensable.  (So it appears that Bruce could get compensated for the time spent picking out which grappling hook to use, assuming he’s fighting crime in Chicago.)

The Bottom Line:  The Eighth Circuit has largely left the question open as to whether employees should be compensated based on their real or actual donning and doffing time.

When I was growing up, my father had a workshop he used to relax on weekends.  While he enjoyed doing projects, he also regularly misplaced tools, much to the frustration of everyone.  When my brother moved out of the house, he also lost the only other person he could blame for losing them.  In the 1980s, however, he discovered Harbor Freight Tools, where he could buy cheap tools in bulk and not really care whether he lost them or not.  To this day, I believe he has, for example, at least eight dozen tape measures kicking around his workshop, basement, garage, and shed, and similar numbers of screwdrivers, hammers, pliers, and whatever special might have appeared in the Harbor Freight catalog.  It is difficult to go more than a few steps without finding an inexpensive tool for just about any job.   Hence, I have had a soft spot for Harbor Freight for three decades.

Whether it is good karma from such memories, good lawyering, or good luck, Harbor Freight is now the subject of an excellent opinion from the District of Kansas decertifying a class of Harbor Freight store managers.  In Green v. Harbor Freight Tools USA, Inc.pdf., Case No. 2:09-cv-02380-JAR (D. Kan. Aug. 17, 2012), the five original plaintiffs sought to represent a class of store managers for the Harbor Freight retail stores that have sprung up across the company.  The crux of their claim was that although they were given the title of Store Manager, they were in fact micromanaged by company guidelines and by company District Managers, and thus no longer performed exempt work and should have been entitled to overtime.  The district court granted conditional certification in 2010, and 81 managers opted into the litigation.  By the time of the court’s ruling on decertification, 31 plaintiffs remained, all of whom had been deposed.  With discovery completed, Harbor Freight moved to decertify the conditionally certified class.

The court’s opinion carefully reviews the evidence presented by both sides in support of (or against) the application of the executive and administrative exemptions.  The plaintiffs, on their part, relied on the common job description, uniform classification policy, and claims that managers spent 80-90 percent of their time on non-exempt duties such as stocking, cleaning, or running the cash register.  The court acknowledged this evidence in support of conditional certification, but found that it was not enough to prevent decertification at the second stage of the case.  Among other things, the court noted that there were differences among the class members in the time spent performing various duties, in their freedom to make personnel decisions, and the existence of two potential exemptions.  It also found problems with collective treatment in that the plaintiffs had claimed in their resumes that they had done exempt work, casting questions on their credibility and requiring an individualized inquiry.  Ultimately, it found that the putative class members were not similarly situated, that their claims would require a manager-by-manager inquiry, and that fairness and efficiency prevented the case from being handled on a class basis effectively.

The Harbor Freight case is one of many that have decertified FLSA cases at the end of discovery.  Cases that may look like class or collective actions under a lighter standard often prove to be unmanageable after a little discovery and application of even a moderately rigorous analysis.

The Bottom Line:  Another court has decertified a conditionally-certified FLSA class based on the different day-to-day experiences of putative class members.

Do you remember the movie “Spring Break ’83”?  We don’t either, but it has spawned what may be the most significant Fair Labor Standards Act case this year.

The FLSA has traditionally been read to preclude private releases of claims for minimum wages or overtime.  The genesis of this requirement is the fear that employers will force employees to waive valid claims, or that employees seeking employment will too readily agree to waive their rights to overtime pay.  A release of FLSA claims has often been seen to require approval either by the United States Department of Labor or a court.  The Department of Labor, in fact, has a form, the WH-58, designed for supervised releases.  But this view may have been too strict.

The plaintiffs in Martin v. Spring Break ’83 Productions, L.L.C., Case No. 11-30671 (5^th Cir. July 24, 2012), were sound and lighting technicians (“grips” in the trade) who had worked on the movie Spring Break ’83 in Louisiana in 2007.  During their employment on the set, they were represented by the International Alliance of Theatrical Stage Employees (“IATSE”) and several of its locals.  Toward the end of the movie’s production, they and others filed grievances with the union, contending that they were not paid wages for all of the time they had worked.  The union investigated the claims and, after finding no documentary proof that the workers had worked the hours they claimed, settled the grievances with the employer.  The settlement contained broad release language that included claims by the individual members.  It was not, however, approved by either a court or the DOL.

Before the settlement was signed, however, four of the covered employees filed suit for their claimed overtime pay in California against the entities involved in the movie’s production as well as four individual defendants.  The defendants successfully moved to transfer the claims back to Louisiana, and the district court there eventually granted summary judgment on the employers’ behalf.

The Fifth Circuit first dealt with issues relating to the individual defendants and ultimately concluded that they could not properly be considered “employers” under the FLSA.  After disposing of that issue, it turned to the issue of the release.

The court first reviewed prior authority relating to the enforceability of unsupervised releases.  It distinguished cases that had held that such releases were not enforceable, finding that they frequently involved cases in which there was no valid dispute over time or the employer took particular advantage of the employees involved.  Finding that an unsupervised release of bona fide FLSA claims will be enforced, it affirmed the district court’s grant of summary judgment.

Depending on how future courts interpret it, Martin may have a substantial impact in FLSA collective action litigation, as well as FLSA litigation generally.  For example, FLSA litigation often arises in the wake of employment actions such as reductions in force.  If the class members have signed waivers of claims, employers may have an argument that their FLSA claims (apart from clear-cut minimum wage or overtime claims) may be waived.  As a minimum, the existence of such releases may suggest that the class members’ claims are not similar, thus making certification inappropriate.  We are likely to see a raft of cases in the months ahead either accepting or rejecting Martin and giving more guidance on its coverage and potential limitations.

The Bottom Line:  Under the right circumstances, at least one Circuit Court has found that an unsupervised release of FLSA claims is enforceable.

Rule 68 offers of judgment have often been rendered almost meaningless in employment class and collective actions amidst criticism by some courts that they would permit employers to “pick off plaintiffs” and to avoid class litigation altogether. As we have noted previously, these courts express little or no sensitivity towards the cost of class or collective litigation on even the weakest of claims, and also presume that if one plaintiff has asserted a claim there must be others as well demanding class action treatment.

The Supreme Court addressed these contentions in the context of Rule 23 class actions in a pair of cases 22 years ago, Guaranty Nat’l Bank of Jackson v. Roper, 445 U.S. 326 (1980) (offer of full relief in consumer case), and U.S. Parole Comm’n v. Geraghty, 445 U.S. 388 (1980) (class action could be maintained after named plaintiff’s claim became moot), and concluded that the mootness of the named plaintiff’s claim would not moot a Rule 23 class. The Supreme Court has not yet addressed, however, whether Rule 68 will work in the context of an FLSA collective action, which is very different from Rule 23 due to its affirmative requirement that plaintiffs actually opt into the litigation.

On June 25, 2012, the United States Supreme Court accepted certiorari in the case of Genesis Health Care Corp., Case No. 11-1059, which concerned the use of offers of judgment in collective action cases. We blogged the original Third Circuit decision on September 8, 2011 and you can access the blog post (and the underlying decision) here.

If the court leaves the Third Circuit holding undisturbed, offers of judgment will remain of limited utility in the collective action context. On the other hand, if the court reverses, Rule 68 offers of judgment may become a viable tool to help stem the enormous cost of collective action litigation. Even better, were the Court to reconsider its 1980 holdings, such a tool will become useful in a wider array of controversies.

The bottom line: The Supreme Court has agreed to consider whether offers of judgment will apply in collective actions before a plaintiff has moved for certification.

Early May in America is known for several things.  For most of us living outside the Sunbelt, the temperature manages to stay above 60 degrees consistently, flowers start to bloom in earnest, baseball season begins to heat up, and (perhaps most importantly), the annual tradition of waiting for television networks to announce what shows are being renewed for the fall is finally upon us.  For fans of Big Bang Theory or any other CBS sitcom, it’s a foregone conclusion that you will see your favorite characters returning in the fall.  For the small, but dedicated fans of pretty much any show on NBC, but specifically Community or Parks and Recreation, however, these weeks bring another period of nail-biting as we anxiously await the news on pick-up or cancellation.

In many ways, pharmaceutical companies have been like those fans of 30 Rock awaiting word of their Liz Lemon’s fate from above, with the Supreme Court playing the role of NBC executives.  For years, drug companies have classified their sales representatives to be exempt from the FLSA’s overtime requirements.  A tidal wave of class action lawsuits in the past several years, however, have challenged that thinking (and resulted in great expense to companies like Eli Lilly & Co. and Abbott Laboratories).  Oral arguments regarding GlaxoSmithKline PLC’s sales reps were heard before the Supreme Court just last month. 

Unlike those fifteen fans of Awake that are still waiting for the dire news next week (folks, you know it’s canceled), the Seventh Circuit has granted some relief for the drug companies in its decision in Schaefer-LaRose v. Eli Lilly & Co., No. 10-3855, and Jirak v. Abbott Laboratories, Inc., Nos. 11-1980 & 11-2131 (7th Cir. May 8, 2012).  The opinion, which addresses a pair of consolidated cases, involves the application of outside sales and administrative exemptions of the FLSA to drug reps. 

In short, the drug company employers argued that both the sales and administrative exemptions applied to their reps.  The court agreed that the employees’ duties were covered by the administrative exemption, and specifically held that that representatives were “the public face of their employer to the most important decision-maker regarding the use of their companies’ products, the prescribing physicians.”  Thus, while the reps may not have ultimately closed the sale, they were still performing work directly related to the general business operations of the employer.

Perhaps unsurprisingly, given the inevitable decision on the outside sales exemption currently pending before the Supreme Court, the Seventh Circuit did not address the issue in its decision.

The Bottom Line:  With the Supreme Court’s decision on the outside sales exemption due in June, drug companies (and potentially other employers with similar sales representative structures) received a bit of good news with the decision that there is still more than one overtime exemption that may apply to their sales representatives. 

In a decision that will thrill readers of all ages with its scintillating recitation of the Portal-to-Portal Act's legislative history, the Third Circuit has held that there is no inherent incompatibility between the opt-in mechanism of Section 16(b) of the Fair Labor Standards Act (that's 29 U.S.C. 216(b) for those of you keeping score at home) and the opt-out mechanism required by Rule 23(b)(3) of the Federal Rules of Civil Procedure.  Knepper v. Rite Aid Corp., 2012 U.S. App. LEXIS 6218 (3d Cir. Mar. 27, 2012).  But, before digging through the garbage cans behind the Third Circuit's opinion, some background on this question will be helpful.  

While the plaintiffs' bar finds the FLSA's multitude of employer pitfalls absolutely adorable (not to mention its liquidated damages and fee recovery provisions), they're much less enamored with its opt-in mechanism.  In a typical Rule 23(b)(3) class action, absent class members are bound by a judgment in the case unless they affirmatively refuse to join (i.e., they must "opt out").  In a Section 16(b) collective action, on the other hand, an individual can only be part of the "class" if he/she affirmatively consents in writing to join (i.e., they must "opt in").  (As an aside, there technically isn't a "class" in a Section 16(b) case.  That's what everyone calls it, however, probably because it's a lot easier to say than "the group of party plaintiffs who were not originally in the case but who received the notice ordered by the Court and decided to join thereafter by giving their consent in writing.")

So, what's wrong with the FLSA's opt-in mechanism?   Well, to borrow a simply precious euphemism coined by one commentator, it doesn't "encourage fee-maximizing behavior."  (If you look closely at your screen, you can actually see the academia dripping from that phrase.)  While estimates of the average opt-in rate for an FLSA collective action vary wildly, most fall in the range of 10-20%, with virtually no estimates higher than 30 percent.  In a Rule 23(b)(3) opt-out class action, however, the average opt-out rate is almost non-existent, a fraction of a percent.  More people means more money, which can be good or bad depending on whether you're the payor or the payee.  

Always the enterprising folk, the plaintiffs' bar has been trying over the last several years to get the best (or worst, again depending on your perspective) of both worlds--they bring FLSA Section 16(b) collective actions joined together with one or more proposed Rule 23 class actions under state wage and hour laws.  The federal hook--the FLSA claim--gives them the convenience of a single forum from which they can send, in many cases, nationwide notice.  Once they get their multi-state collection of opt-in plaintiffs--voila!--they can select named class representatives for Rule 23 state law class actions.  Best of all, they can still keep the case in one court on their own playground (not to suggest that there's any forum-shopping involved).

Feeling much like the NBA team that Joey Crawford bets against in a game he's officiating, employers have cried foul on this neat little procedural maneuver.  They've argued that the FLSA's opt-in requirement is inherently inconsistent with Rule 23(b)(3)'s opt-out procedure.    

In Knepper, the Third Circuit unfortunately joined the Second, Seventh, Ninth and D.C. Circuits in rejecting this argument.  The court held that, because Congress did not intend for the FLSA to displace state regulation of wages and working hours, the FLSA's opt-in enforcement mechanism cannot displace enforcement of state wage-and-hour laws through Rule 23 opt-out class actions.  From this premise, the Third Circuit concluded that there is no barrier to joining such claims together in the same matter.

At first glance, it might seem that there's a silver lining to this grandaddy of a cumulo-nimbus storm cloud.  After all, the Third Circuit was very careful to distinguish a prior case where it rejected the combination of an FLSA collective action with a Rule 23(b)(3) class action (De Asencio v. Tyson Foods, Inc., 342 F.3d 301 (3d Cir. 2003)).  The court distinguished De Asencio on the basis that the district court in that case was only exercising supplemental jurisdiction over the state law claims, and the state law class proposed in the case would have swallowed the federal action in terms of both size and complexity.  In contrast, the Third Circuit noted that the state law class at issue in Knepper was brought under the Class Action Fairness Act, and that the district court therefore had independent diversity jurisdiction over the state law claims.  

But, as Jerry Garcia once sagely observed, every silver lining's got a touch of grey.  (Brief pause to enjoy melody playing in head.)  Indeed, if that brief stroll through federal court jurisdiction didn't put you to sleep, you've probably already noticed the inconsistency in the reasoning.  The proposed state law class in De Asencio was just too darn big, so it was appropriate to reject a combined action.  But, if a state law class action is so big that it satisfies CAFA's requirements (including the requisite $5 million in controversy), then, by all means, proceed!  Well, that's.....interesting logic.

In truth, it seems the real distinction between Knepper and De Asencio is the fact that CAFA didn't exist when De Asencio was decided in 2003.  That's a bad omen for two reasons.  First, it means that the bigger a proposed state law class is, the more likely it can go forward (at least in the Third Circuit).  Second, it means that any number of the CAFA victories we enjoy on the employer side may someday come back to bite us on our collective backside.

The Bottom Line: The best we can hope for on combined FLSA/Rule 23 collective/class actions is a circuit split, and that prospect grows dimmer with every circuit to weigh in on the issue.

"Hey, Where'd You Get That Document?"

ESI has become one of the most despised three-letter combinations in corporate America (and the lawyers who dutifully serve it). The costs and risks associated with a company's duty to preserve ESI are a headache of their own, but the dangers in production turn that headache into a full-fledged nightmare.

Ladies and gentlemen, Exhibit A: a decision issued against drug store chain Duane Reade in the Southern District of New York on February 28. The case is an FLSA collective action involving claims by assistant store managers that that they were improperly treated as exempt from overtime. During discovery, the employer identified relevant documents from its preserved ESI by using a list of search terms. And, it made sure to identify potentially privileged communications by searching for and flagging documents with the first and last names of its outside and in-house attorneys.

Sounds reasonable enough, doesn't it? There were two million documents--that's documents, not pages--included in their ESI production. Obviously, they couldn't have outside counsel review everything. Search terms are a nice, reliable way to cull down a large volume of documents, right?

Well, despite these safeguards, the employer inadvertently produced an email from one Human Resources representative to another recounting her conversation with an in-house attorney (identified by name) regarding FLSA compliance. As it turned out, the email repeated an admonition from the attorney that assistant store managers--the particular group at issue in the case--generally were not performing a sufficient volume of exempt duties to justify their treatment as exempt employees.

Ouch. In legalese, that's what we sometimes call a "bad fact."

So, you might ask, how did this smoking Howitzer slip through the cracks? Because.....(drum roll)......only the attorney's first name appeared in the document. ESI documents were searched for first and last names, so the memo wasn't flagged. Oops. Even worse, the court ultimately did not require plaintiffs' counsel to return the document or otherwise limit their use of it.

While that's a pretty big load of bad news, there are at least a few encouraging points in the opinion. First, the court held that the memo was, in fact, privileged to the extent that the author of the email was repeating advice from in-house counsel. That's no small victory.

Second, the court agreed that the employer acted reasonably in using search terms as a means of protecting its privileged documents. The only reason the court found that the privilege was waived was because the employer's outside counsel was present at a deposition where plaintiffs' counsel used the document as an exhibit for cross-examination, and conducted redirect on the document without asking the witness for the identities and roles of the people who were mentioned. While the employer's counsel professed that they were not aware that the individual mentioned in the email was an in-house lawyer, the court noted that defense counsel was present for a deposition three weeks earlier where the in-house attorney was specifically identified.

The Bottom Line:There are very few--if any--airtight shortcuts to reviewing ESI, so pay close attention and get an iron-clad clawback agreement. And, make sure the names of your in-house legal staff are etched onto the brains of every outside attorney who touches the case.

Confidentiality provisions in employment settlements are routine, but they can be problematic in the context of the settlement of a class or collective action. Class action settlements require court approval under Rule 23(e) (if the class is certified) and FLSA settlements require approval from either the United States Department of Labor or a court. See Lynn's Food Stores v. United States, 679 F.2d 1353 (11th Cir. 1982). So, can the parties get that approval without publicly disclosing the terms through a court filing?

In a recent case, Rice v. Lucky Brand Dungarees Stores, Inc., Case No. 11-CV-61923 (Jan. 9, 2012), the parties settled a putative FLSA collective action, but apparently chose not to seek court approval, and simply tendered a stipulation that stated that the case was to be dismissed with prejudice. The court, however, refused to enter the stipulation and directed the parties to file the agreement publicly or to show extraordinary circumstances why the agreement should not be filed. This decision is similar to one reached two years ago by another district court in Florida in Dees v. HydraDry, Inc., Case No. 8:09-CV-1405 (M.D. Fla. Apr. 19, 2000), in which the court rejected such an attempt in a much longer opinion.

One interesting twist in the Rice case is that the parties did not explicitly ask the court to approve the settlement or to issue any class-wide relief, but had only filed the stipulation of the court. Despite the lack of any such request, the court still refused to permit so much as a stipulation for dismissal with prejudice under Rule 41.

Rice was, of course, under the FLSA, but class actions (as opposed to collective actions) are subject to the additional disclosure requirements of Rule 23(e) and the Class Action Fairness Act, 28 U.S.C. section 1715. Thus, the same, and probably higher, obligations apply.

The Bottom Line: Parties should assume that a court will demand the public disclosure of the terms of a either a class or collective action settlement.

An Irritable Pessimist's View of a Welcome Decision

After several years of waiting, the California Supreme Court handed down its long-anticipated decision in Harris v. Superior Court last week. Given the natural-born suspicion held by management-side lawyers toward anything that wanders its way out of the wilderness that is the California courts, it probably comes as no surprise that we’re left a bit underwhelmed. In fact, we’re left feeling much like a patient immediately following successful brain surgery; sure, we’ve obtained the best possible outcome for which we should probably be thankful, but it feels like we just had our collective skull drilled and cut open only to get a result that might eventually develop into normalcy.

The primary issue in Harris was the degree to which the so-called "administrative/production dichotomy" is controlling in applying California's administrative exemption. Under California Wage Order 4-2001, the first element of the administrative exemption restricts its application to employees who perform work "directly related to management policies or general business operations of [an employee's] employer or his/her employer‘s customers." When applied in isolation without reference to other analytical tools, the administrative/production dichotomy interprets this provision to exclude any employee involved in producing or providing the goods and/or services that the employer is in business to provide (i.e., "production employees"). As illustrated by Bell v. Farmers Ins. Exchange, 87 Cal.App.4th 805 (2001), some California courts further restricted the "administrative" side of the dichotomy to include only those individuals who are actually involved in matters affecting the overall direction of the business and/or its policies.

In Harris, the appellate court held that Bell precluded the defendant employer from establishing a genuine issue of fact as to whether the plaintiff insurance adjusters were administratively exempt. While acknowledging that the adjusters' work was not routine or unimportant (as was the case in Bell), the appellate court held that their work nonetheless was "not carried on at the level of policy or general operations, ... [and therefore fell] on the production side of the dichotomy."

The good news is that the California Supreme Court unequivocally rejected this mechanical application of the administrative/production dichotomy, a holding that is undeniably welcome news for California employers. The breadth of its opinion, however, is somewhat difficult to decipher. For example, in addressing the appellate court's assertion that the administrative exemption is limited to employees who impact the overall business and/or its policies, the Court noted that the appellate court had conflated the proper analysis with a separate element of the exemption (i.e., that an employee's work must be of "substantial importance to the management or operations of the business"). However, the Court stopped short of deciding whether such a requirement would be appropriate in the context of the "substantial importance" prong, and disclaimed any intention to do so. Moreover, the Court specifically denied any suggestion that the dichotomy was misapplied in Bell, and emphasized that its decision in Harris was limited to holding that the appellate court erred by treating the administrative/production dichotomy as dispositive based on the factual record of that case.

So, what does that mean for class certification? Well, we’d like to believe that it means a plaintiff’s lawyer can’t create a common legal question worthy of class certification just by claiming that the putative class members fall on the production side of the administrative/production dichotomy, or by claiming that they do not exercise discretion on matters of substantial importance or significance simply because they do not possess policy-making authority. There certainly is language in the Harris opinion to support this hope. The Harris Court, for example, found unpersuasive a prior case (Bratt v. County of Los Angeles, 912 F.2d 1066 (9th Cir. 1990)) in which the Ninth Circuit suggested that policy-making authority was a requirement for an employee to be treated as administratively exempt. The Harris Court further cautioned that application of the administrative exemption is fact-specific and that courts should not ignore the language of the FLSA regulations and California Wage Order in favor of a mechanical application of the administrative/production dichotomy.

But, after all, we’re talking about California here.

The Bottom Line: Harris is, at the very least, a welcome sign for employers, but there is some measure of ambiguity in its holding for the lower courts to explore.

The question of the exempt status of pharmacy representatives has spawned numerous class and collective actions against the pharmaceutical industry. A recent case reflects the court’s rejection of a creative attempt to challenge the exempt status of a putative class of drug sales representatives.

In Ibanez v. Abbott Laboratories.pdf, No. 09-1406, 2011 WL 5572621 (E.D. Pa., Nov. 15, 2011), a court recently held that pharmaceutical sales representatives (“PSR’s”) are exempt from overtime pay. The Court concluded that the “administrative exemption” to overtime applies to PSR’s because they regularly exercise discretion and independent judgment with respect to matters of significance such as pre-planning of calls to physicians, managing their territories and events, and “relationship building” with physicians based on the physicians’ unique practices and circumstances.

In reaching its decision, Ibanez rejected the named plaintiff’s argument that a previous adverse judgment against Abbott in an Illinois federal court precluded the Court from finding the PSR’s exempt from overtime. In Jirak v. Abbott Laboratories, Inc., 716 F.Supp.2d 740 (N.D. Ill. 2010), the Court granted summary judgment to a class of Abbott PSR’s, holding that the PSR’s were entitled to overtime pay because neither the administrative exemption nor the outside sales exemption applied.

The plaintiff argued that Abbott should be “estopped” from successfully arguing that its PSR’s fell within the administrative exemption because it lost the same argument as applied to its nationwide PSR’s in the Jirak case. But, Ibanez held that the plaintiff’s attempt at offensive collateral estoppel was precluded due to considerations of fairness. The named plaintiff in Ibanez had received notice of the Jirak suit and could have joined that case but opted to sit on the sidelines and pursue a separate class action in Pennsylvania for strategic reasons. Ibanez indicated that precluding Abbott’s defense based upon the outcome in Jirak would create an incentive for potential plaintiffs to adopt a “wait and see” attitude instead of promptly asserting their claims. Such an approach does not promote judicial efficiency because the plaintiff would not have been bound had Abbott prevailed in the Jirak litigation. Ibanez found that permitting offensive collateral estoppel in this context could encourage excessive and superfluous litigation.

After concluding that it need not defer to the Jirak decision based upon collateral estoppel, Ibanez distinguished Jirak based on the later court’s deference to the Department of Labor’s amicus brief. Ibanez emphasized that the Third Circuit in two recent cases refused to defer to the Department of Labor’s position concerning the PSR’s entitlement to overtime. See Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010); Baum v. AstraZeneca, No. 09-2150, 2010 WL 1063935 (3d Cir. Mar. 24, 2010). And, the Court opined that it would reach the same conclusion regarding the Department of Labor brief even if it were not bound by the Third Circuit’s view of the briefs. Ibanez emphasized that PSR’s necessarily exercise discretion and independent judgment because they obviously could not be effective by merely spitting out a pre-planned script while interacting with physicians.

Courts remain split over whether PSR’s are exempt from overtime. As a result, litigation outcomes on this issue differ from Circuit to Circuit and sometimes from court to court. While the uncertainty this presents is problematic, Ibanez highlights that an employer’s loss in one part of the country on this same issue does not necessarily dictate the outcome in another venue.

The Bottom Line: The exempt status of pharmacy sales representatives is still a hot litigation topic. Creative attempts to use collateral estoppel offensively against an employer may fail if the court is willing to delve into the merits.

As we have commented before, there are no class actions per se under the Fair Labor Standards Act. Rather, the plaintiffs must demonstrate that the proposed class members are "similarly situated." In making that determination, most courts considering certification of classes under the FLSA now use a two-step procedure. At the first stage, they apply a lenient standard to determine if the employees are similarly situated and, if so, authorize notice to the proposed class. This stage typically goes under the misnomer of "conditional certification," but is now being more correctly referred to as the "notice" stage. At the second stage, typically after more discovery, courts will apply a higher standard, often resulting in the "decertification" of the class they had conditionally certified.

Courts have tended to conditionally certify cases more often than not based on the lenient standard. At least some courts, however, are requiring at least a modest showing and are refusing to issue even conditional certification when that showing has not been made. Most recently, in Ramos v. Burger King Corporation.pdf, Case No. 8:11-cv-642-T-30MAP (M.D. Fla. Oct. 6, 2011), the three plaintiffs were Burger King restaurant general managers and assistant managers who contended that they were misclassified as exempt for overtime purposes. They sought to pursue a nationwide collective action under the FLSA on behalf of all managers and assistant managers at 866 Burger King-owned restaurants.

The plaintiffs moved the court for conditional certification. They supported their motion with their own opt ins, and consents of eight other potential class members. They also pointed to the employer's use of common job titles. The defendant, for its part, submitted declarations from managers who did not want to participate in the case and from district managers who testified as to differences among restaurants.

The district court acknowledged the two-step procedure, but noted that even at the conditional certification stage the plaintiffs still had the burden to show that there were other employees who wanted to opt-in. The court noted that Burger King operated restaurants of different sizes, and that factors such as sales volume, manager experience, and hours of operation could all affect the exempt work being performed by the potential plaintiffs. It concluded that the plaintiffs' showing was "woefully short of meeting the similarly situated standard." It therefore denied conditional certification.

The Bottom Line: Under the two-step procedure for collective actions under the FLSA, a number of courts will hold plaintiffs to making even a minimal showing that there is a class of similarly situated individuals.

Court Washes Out Meal and Rest Break Claims for Class of Whirlpool Drivers and Installers

Tired of the stains those pesky meal and rest break requirements leave on your California operations? If your business is a motor carrier covered by the Federal Aviation Administration Authorization Act of 1994 (“FAAA Act”), some power to help clean up that mess just bubbled up in the Southern District of California.

In Dilts v. Penske Logistics LLC, Southern District of California Case No. 08-CV-318 JLS (BLM) (Oct. 19, 2011), after a class of hourly appliance delivery drivers and installers who were assigned to its Whirlpool account was certified, Penske Logistics LLC filed a motion for partial summary judgment in an effort to eliminate the plaintiffs' meal and rest break claims. Penske did not try to establish that it had not violated California's meal and rest break laws, but rather, it argued that the laws were preempted by the FAAA Act.

The parties did not dispute that the duties of the employees at issue included loading Whirlpool appliances from warehouses in California onto their trucks, transporting the appliances to other locations within California, and installing the appliances. However, the plaintiffs disputed that these activities fell within the scope regulated by the FAAA.

In concluding that the plaintiffs’ activities do fall within the scope regulated by the FAAA, the Court relied upon Subtitle IV of Title 49 of the United States Code which regulates interstate transportation. Specifically, the Court cited subsection (c)(1) which states:

Except as provided in paragraphs (2) and (3), a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property. 49 U.S.C. § 14501(c)(1).

The Court found that intrastate activity is covered by the FAAA Act and that Penske qualifies as a “motor carrier . . . with respect to the transportation of property” in this case.

The plaintiffs argued that Penske’s purely intrastate operations in this case brought them outside of the FAAA Act’s regulatory scope. However, the Court disagreed, citing to the text of the statute and Congressional findings that “the regulation of intrastate transportation of property by the States has imposed an undue burden on interstate commerce . . . and certain aspects of the State regulatory process should be preempted.” Pub. L. No. 103-305, § 601(a), 108 Stat. 1569, 1605 (1994). The Court also found that Penske’s activities qualified as those of a “motor carrier” under the definition of the FAAA Act, which broadly defines the term as “a person providing commercial motor vehicle . . . transportation for compensation.” 49 U.S.C. § 13102(14). The Court also noted that “transportation” includes “services related to that movement.” 49 U.S.C. § 13102(23). Because plaintiffs, as Penske drivers/installers, operated commercial motor vehicles which transported property and conducted services related to that movement, the Court found their activities were regulated under the FAAA Act.

After confirming that Penske’s activities fell within the scope regulated by the FAAA Act, the Court then analyzed the issue of whether California’s meal and rest break laws fell within the “preemptive scope” of the FAAA Act. The plaintiffs argued that the FAAA Act did not preempt the meal and rest break laws because, according to the plaintiffs, they do not impose substantive standards “related to” the price, route or service of a motor carrier. The Court found, however, that the history of the FAAA Act and its preemption provision, as well as binding authority from case law led to the conclusion that California’s meal and rest break laws are preempted by the FAAA. Because the preemption language of the FAAA Act did not expressly encompass state regulation of meal and rest breaks, the Court considered the legislative history of Section 14501 and found that it reflects Congress’ “clear and manifest purpose” that the California meal and rest breaks be preempted.

To determine whether California’s meal and rest break laws were within the scope of the FAAA Act’s preemption provisions, the Court analyzed whether the laws, which do not directly target the motor carrier industry, “‘bind’ Penske’s prices, routes or services and thereby ‘interfere with competitive market forces within the industry,’” and found that they do. Penske argued, and the court agreed, that the “fairly rigid meal and break requirements impact the types and lengths of routes that are feasible” and that while “the laws do not strictly bind Penske’s drivers to one particular route, they have often the same effect by depriving them of the ability to take any route that does not offer adequate locations for stopping, or by forcing them to take shorter or fewer routes. In essence the laws bind motor carriers to a smaller set of possible routes.” Penske also asserted that the meal and rest break laws have a significant impact on Penske’s services, in that scheduling off-duty meal periods for drivers would require one or two less deliveries per day per driver, and the mandatory breaks reduce driver flexibility, interfere with customer service, and, “by virtue of simple mathematics,” reduce the amount of on-duty work time allowable to drivers and thus reduce the amount and level of service Penske can offer its customers without increasing its workforce and investment equipment. Accepting these undisputed facts as true, the Court found that the length and timing of meal and rest breaks seemed “directly and significantly related to such things as the frequency and scheduling of transportation” and that the “connection to ‘schedules, origins, and . . . destinations’ is far from tenuous.” The key issue, the Court found, is “that to allow California to insist exactly when and for how long carriers provide breaks for their employees would allow other States to do the same, and to do so differently” and (quoting the Supreme Court in Rowe v. New Hampshire, 552 U.S. 364, 373 (2008)) that “‘to interpret the federal law to permit these, and similar, state requirements could easily lead to a patchwork of state service-determining laws, rules and regulations.’’’ Ultimately, the Court found that “state regulation of details significantly impacting the routes or services of the carrier’s transportation” is “itself preempted by the FAAA Act.”

In their attempts to persuade the Court that the California meal and rest break laws were not preempted by the FAAA Act, the plaintiffs characterized the laws as “simply the requirement to pay one hour of wages” in order to analogize their case to other cases in which courts have found that wage hours are not preempted. The Court found that this was a “mischaracterization,” because the meal and rest break laws “are not simply wage laws which require employers to pay employees a certain wage and thus indirectly affect the prices of a service.” Rather, they prescribe events “that must occur over the course of the driver/installer’s day.” The Court was also not persuaded by the plaintiffs’ argument that the California meal and rest break laws come within the safety exception of the FAAA Act. While the Court acknowledged that the public health concerns addressed by the meal and rest break laws are serious, it held that they are not directly connected to motor vehicle safety and that therefore, the motor vehicle safety exception to the FAAA Act’s preemptive scope does not apply, and California’s meal and rest break laws are preempted by the FAAA Act.

The Bottom Line: If you are a transportation company and your employees’ work is regulated by the FAAA, you may have a “clean” defense to assert against claims for California meal and rest break violations.

California has been the focus of numerous class action wage and hour suits involving retail managers and assistant managers. One reason is that California law defines the executive exemption slightly, but significantly differently than, federal law.  Under both the FLSA and California law, courts will consider whether the employee's "primary duty" is management.  While under federal law that question is qualitative (which duties are the most important?), California applies a quantitative test (does the employee spend at least 50 percent of their time managing?).  As a result, employees who would clearly be exempt under the FLSA may not be in California, a trap that has ensnared many national employers.

A recent case from the Central District of California demonstrates that even under this more difficult standard, class certification may not be appropriate. In Velazquez v. Costco, Case No. SACV-11-00508-JVS (C.D. Cal., Oct. 11, 2011), the plaintiff sought to represent a class of Costco "receiving managers" throughout the state of California.  She alleged that she and the other receiving managers were misclassified as exempt because they spent more than half of their time on non-exempt duties. She sought to recover overtime, as well as other California forms of relief, on behalf of the class.

The court expressed some concern over whether the claims could satisfy the Rule 23(a) requirement of commonality given the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), but assumed they had been met for purposes of its analysis. Instead, it focused on the Rule 23(b) element of predominance. It found that the plaintiffs' claims did present a common question of law (whether they properly classified as exempt), but that the fact issue of how the managers spent their time varied widely.  It noted that the day-to-day work duties of the receiving managers varied based on factors such as the specific store, the individual's experience, and the preferences of local management. The need to examine these and other factors meant that class issues did not predominate and also that a class would not be a superior means of handling the action.  Accordingly, it denied certification.

The Bottom Line:  even in California, differences in how employees spend their time can defeat class certification in wage and hour cases.

One of the hottest topics in class/collective action litigation this year has been the availability of both an FLSA collective action and a state law class action in the same suit. We've already written several times about some of these cases, with a distinct difference in approach and outcome among the various courts. Some courts have found the two schemes incompatible, while others have found that the two different schemes could be maintained in the same lawsuit.

The arguments in favor of incompatibility are compelling. Section 16(b) of the FLSA, 29 U.S.C. § 16(b), the statute creating the collective action vehicle, was passed in response to "a national emergency spawned by out-of-control litigation of employee minimum wage and overtime claims." Ellis v. Edward D. Jones & Co., 527 F. Supp. 2d 439, 450 (W.D. Pa. 2007). Indeed, the legislative history reflects that section 16(b) was passed to limit collective claims. In addition, having simultaneous opt-in and opt-out classes will invariably breed confusion, as class members will need to make opposite elections regarding which, both, or either of the two claims they may elect to participate in.

On September 26, 2011, the Second Circuit swept these concerns aside and held that state law claims could be maintained as a class. In Shahriar v. Smith & Wollensky, Case No. 10-1884-cv (2d Cir. 2011), the plaintiffs were waiters working for the Smith & Wollensky Park Avenue restaurant in New York. They contended that certain of the restaurant's tipping practices, such as requiring the sharing of tips with non-service workers, violated the FLSA, New York law, or both. While the opinion is not entirely clear on this point, it appears that the district court conditionally certified the FLSA class in 2008, and a total of 25 plaintiffs (including the original plaintiffs) opted in. The defendant took no further steps with respect to class action treatment of the state law claims until the eve of trial, when the court granted certification on the New York claims. The district court expressed concern over the late challenge to a state law class and practical concerns as to what would happen with respect to the state law claims. While finding it a close call, the court certified the case for a class of 275 wait staff employees. The Second Circuit granted review of that decision under Federal Rule 23(f).

The court of appeals affirmed. It largely ignored the statements in the legislative history over the need to limit FLSA classes and instead attributed section 16(b)'s opt-in requirement to a fear of retaliation by employers. Curiously, all of the cases cited by the court cited for this proposition about Congress’s intent from the 1940s were from district courts in the Second Circuit from at least 50 years after section 16(b)'s passage. Analyzing the issue as one of the exercise of supplemental jurisdiction under 28 U.S.C. section 1367, it therefore found no compelling reason why the district court could not hear the state law claims as a class. It also noted holdings of other courts finding the two schemes compatible, such as Ervin v. OS Restaurant Services, Inc., 632 F.3d 971 (7th Cir. 2011), a decision we wrote about on January 26.

Since it ignored the statute's legislative history, the Second Circuit reached the unsurprising conclusion that in most cases section 16(b) and Rule 23 would not be incompatible. It also analyzed the district court's application of Rule 23 and found there was no abuse of discretion in certifying the class because all of the wait staff were subject to the same challenged tip practices. What may have made the case easier for the court was the fact that all of the plaintiffs were from the same facility and the same state, thus minimizing potential differences among them.

The bottom line: There remains a split of authority as to whether a plaintiff can maintain both a state law class action and a federal collective action in the same case.

In a terse but well-reasoned decision, the Eighth Circuit recently affirmed the grant of a motion to compel arbitration and enforced a class action waiver despite arguments that it was unenforceable under Minnesota law. The Appellate panel also considered whether cases sent to arbitration should be stayed rather than dismissed.

In Green v. SuperShuttle International, Inc.pdf, Case No. 10-3310, U.S. Court of Appeals for the Eighth Circuit, (Sept. 6, 2011), Mack Green and the other plaintiffs (collectively “Green”) brought suit, originally in Minnesota state court, raising violations of the Minnesota Fair Labor Standards Act based upon SuperShuttle’s alleged misclassification of its drivers as franchisees rather than employees. The plaintiff drivers sought lost wages, employment benefits and restitution of franchise fees.

After removal, the district court granted SuperShuttle’s motion to compel arbitration and required the drivers to submit their claims to individual arbitration because of class action waivers in their Unit Franchise Agreements. The class action waiver provision of the Franchise Agreements stated:

“Any arbitration suit, action or other legal proceeding shall be conducted and resolved on an individual basis only and not a class-wide, multiple plaintiff, consolidated, or similar basis.”

Green also had argued he was exempt from arbitration under the Federal Arbitration Act (“FAA”) because he is a transportation worker. The FAA (9 U.S.C. § 1) does not apply “to contracts of . . . any . . . class of workers engaged in . . . interstate commerce.” The district court decided it need not determine whether Section 1 of the FAA exempted Green from arbitration because the Unit Franchise Agreement gave the threshold question of arbitrability to the arbitrator. Consequently, the lower court granted SuperShuttle’s motion to compel arbitration but left the question of Green’s FAA exemption as a transportation worker to the arbitrator. The district court then dismissed the federal action without prejudice. (See the September 13, 2010 District Court Opinion.pdf).

On appeal, Green asserted the district court: (1) improperly granted the motion to compel because the drivers were exempt from the FAA; (2) erred in enforcing the class action waiver in the Unit Franchise Agreements because they were invalid under Minnesota law, and (3) improperly dismissed the federal action rather than staying it pending arbitration.

The Eighth Circuit affirmed in part and reversed in part. Citing Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010) the appellate court found parties can agree to have arbitrators decide threshold questions of arbitrability. And, the Unit Franchise Agreements incorporated the rules of the American Arbitration Association (AAA) which provide an arbitrator the power to determine his or her jurisdiction over a particular dispute. The Court held by incorporating the AAA Rules the parties agreed to allow the arbitrator to decide if the FAA transportation workers exemption applied. So, the district court properly granted the motion to compel arbitration.

Green also maintained that the district court erred when it directed the drivers to submit their claims individually, since those waivers violated Minnesota law. Alternatively, he argued that the district court should have permitted the arbitrator to resolve the issue of whether the class action waivers were enforceable.

The Eighth Circuit read AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753 (2011) to mean that the Minnesota law challenge to the class action waiver was preempted by the FAA. (See our related post on the Concepcion decision).

Lastly, the court reviewed Green’s contention that the district court should not have dismissed the action. The district court had relied on a judicially-created exception to the FAA in dismissing the case, because the entire controversy between the parties would be resolved by arbitration. See Jann v. Interplastic Corp., 631 F. Supp. 1161, 1167 (D. Minn. 2009). The Eighth Circuit found “it is not clear all of the contested issues . . . will be resolved by arbitration. The arbitrator may very well determine the transportation worker exemption applies.” Should that occur, the drivers may be prejudiced by the dismissal “because the statute of limitations may run and bar them from refilling complaints in state or federal court.”

In a separate concurring Opinion, Judge Bobby Shepherd examined the approach in other circuits, concluding “the plain language of Section 3 [of the FAA] and the purpose of the FAA require district courts to stay an action pending arbitration upon a parties’ application, and . . . district courts should not be afforded discretion to dismiss the action.”

The Bottom Line: At least some courts are giving full effect to the Supreme Court’s Concepcion Opinion. But, questions about proper FAA procedures, such as when district courts must stay the action, still remain.

Having already struck out on a curveball they thought was a fastball over the middle of the plate, Schering Corp. is now 0 for 2 following the latest ruling from the Connecticut federal district court in Kuzinski et al. v. Schering Corp.pdf., Case No. 3:07-cv-0233-JBA (D. Conn. August 5, 2011).  The case began over four years ago, when Schering's sales reps alleged that Schering intentionally misclassified them as exempt under the FLSA.  In its first at-bat, Schering argued that the plaintiffs were subject to the FLSA's outside sales exemption, and thus not entitled to overtime.  Given the decades of support for this proposition, the crowd (and, most likely, Schering) perhaps expected a long drive to deep centerfield...a-wayyyy back...gone!  The court, however, added a previously unseen curveball to its repertoire, finding that the outside sales exemption was not available because Schering's sales reps did not actually sell their products directly to consumers.  Rather, according to the court, the sales reps merely encouraged doctors to prescribe the company's products, which indirectly resulted in increasing sales.  Subsequently, the Second Circuit approved this analysis in In re Novartis Wage and Hour Litig., 611 F.3d 141, 150 (2d Cir. 2010).

Undaunted by its first strikeout, Schering strode out of the dugout a second time, knocked the dust from its cleats, and stepped into the batter's box again with a new argument: that its sales reps were covered by the FLSA's administrative exemption because they exercised discretion and independent judgment in promoting the sale of Schering's drug products.  The court shook off this changeup; however, striking Schering out yet again.  In so holding, the court compared the plaintiffs to the "employee in the clothing store who assists customers in finding their size of clothing," who "roams the floor" and adjusts her sales pitch to promote particular products to individuals.  The court particularly noted in this regard that the exercise of discretion and independent judgment with respect to matters of significance requires more than "the use of skill in applying well-established techniques, procedures, or specific standards."  (It should be noted that the Second Circuit reached the same conclusion in regarding to the administrative exemption in its Novartis decision mentioned above.)

Thus, unfortunately for Schering, it was back to the dugout, 0 for 2 in its first two at-bats. 

The Bottom Line: Given the circuit split on whether pharmaceutical sales reps are covered by the outside sales exemption (see Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011) and the unavailability of the FLSA's administrative exemption, pharmaceutical companies will remain somewhat in limbo as to whether they may appropriately treat such employees as exempt.  Moreover, this uncertainty is not likely to be resolved unless and until the Supreme Court weighs in on the issue, and the Court notably denied certiorari in the Novartis case.

When the much anticipated decision is Wal-Mart Stores Inc v Dukes.pdf was announced (see our post analyzing of the decision), many commentators, us included, believed it would significantly change the landscape of employment class actions.  While the case involved allegations of sex discrimination, much of the language appeared to apply to other types of class actions, including those outside of the employment context entirely.

One such issue relates to whether Dukes will apply to collective actions under section 16(b) of the FLSA.  Section 16(b) permits a wage and hour (or ADEA) claim to proceed collectively if the putative class members are "similarly situated."  Most courts interpret this to mean that the employees must prove that they were subject to "a common policy or plan that violated the law."  See, e.g., Iglesias-Mendoza v. La Belle Farm, Inc., 239 F.R.D. 363, 367-68 (S.D.N.Y.1967) (written by then district court judge Sonia Sotomayor).  The Dukesdecision related, of course, to Rule 23(a)(2)'s requirement of commonality, which requires "questions of law and fact common to the class."  F.R. Civ. P. 23(a)(1).  Because the standards are synonymous, the Dukes decision should limit section 16(b) collective actions as well.

A recent case in California also demonstrates that Dukes will apply to wage and hour suits.  In Cruz v. Dollar Tree Stores.pdf, Case No. 3:07-04012-SC (N.D. Cal. July 8, 2011), the plaintiffs were a current or former store managers for the Dollar Tree stores in California.  They brought a putative class action in the Northern District of California (the same district court as Dukes), claiming that they were misclassified as exempt and entitled to California overtime and meal and rest periods.  The Court certified the class in 2009. 

As is often the case in this type of litigation, the early victories went to the plaintiffs, but things went downhill from there.  Shortly after the class was certified, the Ninth Circuit rendered its decisions in In re Wells Fargo Home Mortgage Overtime Pay Litigation, 571 F.3d 953 (9th Cir. 2009), and Vinole v. Countrywide Home Loans, Inc.,571 F.3d 935 (9th Cir 2009), resulting in the class being partially decertified in 2010.  In April, 2011, the Ninth Circuit decided Marlo v UPS.pdf, Case No. 09-56196 (9th Cir. 2011), in which the district court had decertified a class of truck loading dock supervisors it had previously certified.  We wrote about the Marlo case on May 6, 2011.  As the Dollar Tree case approached trial, the court conducted a hearing to discuss trial management issues.  In the interim, the Supreme Court decided the Dukes case.

These developments, the court found, were fatal to the class.  The court described the holding in Dukesas providing "a forceful affirmation of a class action plaintiff's obligation to produce common proof of class-wide liability in order to justify class certification."  It interpreted this requirement as on of "common proof to serve as the 'glue' that would allow a class-wide determination of how class members spent their time on a weekly basis."  Of equal importance, it found that the Supreme Court's utter rejection of what it called "Trial by Formula" [capitalization original in Dukes] undermined any class-wide determination of liability by sampling or statistical means.  Thus, the court decertified the class.

The Bottom Line:  The Dukesdecision should apply to wage and hour actions.  Increasingly, cases are being decertified even after they have been certified when courts realize that the plaintiffs' claims cannot, as a practical or legal matter, be tried together.

It has been a good few weeks for employers in the satellite dish industry.  Just last week, we wrote of the case of Espenscheid v. Directsat USA, LLC.pdf, Case No. 09-cv-625-bbc (W.D. Wis. May 23, 2011), in which the court decertified a class of satellite dish technicians only days before trial.  In that case, the court, despite repeated earlier rulings in favor of the class, concluded that the actual trial of such a case would be unwieldy.  Only a few days later, in Delano v. MasTec Inc.pdf., Case no. 10-cv-00320-JDW-MAP (M.D. Fla. June 2, 2011), a different district court denied even conditional certification of a similar class.

In Delano, the plaintiffs were former installers of satellite dishes who were paid primarily on a piece-rate basis.  They contended that the company encouraged the underreporting of hours by requiring pre-authorization of overtime (which was never granted) and withholding work assignments if it appeared that a technician was nearing 40 hours in a given work week.  These measures, of course, were lawful, but the plaintiffs contended that the company was aware that the technicians were working more hours than they were reporting.  They submitted numerous declarations to the effect that supervisors "must have been aware" that the technicians were working overtime hours due to the company's scheduling and reporting structures.  A handful of declarants asserted that mostly unspecified supervisors directed them not to report over 40 hours no matter how much they worked.  Based on this evidence, the plaintiffs moved for conditional certification and notice to the class.

The Middle District of Florida, like other courts in the Eleventh Circuit, follows the two-step procedure for certifying collective actions under the FLSA.  The court recognized that the plaintiffs' burden at the initial notice stage was light, but also that it was not “invisible.”  It further noted the requirement in that court for the plaintiffs to demonstrate that other, similarly situated employees wanted to opt in.  Ultimately, the court found that the plaintiffs failed to satisfy even the lesser burden because few technicians had expressed a desire to join the case, and many of the employees were subject to arbitration agreements that would have limited or barred their participation.  The court’s opinion also suggests fundamental problems with the plaintiffs’ case in that the company’s formal policies demanded adherence to the FLSA, while the plaintiffs’ proof of an over-arching practice consisted of anecdotal evidence from different facilities that together did not rise to the level of a state-wide employment practice.  It concluded that even conditional certification was inappropriate.

Incidentally, the court also noted during the course of its opinion - quite correctly - that the term “conditional certification” is a misnomer.  It is simply an order directing notice to the proposed class.  The "class" cannot be certified until there are opt-ins because section 16(b) of the FLSA, 29 U.S.C. section 216(b), provides that no one can be made a party without their consent.

The Bottom Line:  An overtime class should not be conditionally certified absent employees who are similarly situated, have claims they can assert, and actually want to join the litigation.

A recent case demonstrates that it is often easier in theory than in practice to contend that a large group of employees are "similarly situated" for purposes of certifying a collective action.  These differences can prove fatal to the class even though the plaintiffs may win impressive early procedural victories.   In Espenscheid v. Directsat USA, LLC.pdf, Case No. 09-cv-625-bbc (W.D. Wis. May 23, 2011), the plaintiffs, a grop of satellite installation technicians, brought suit under the FLSA and various state laws, contending that they were improperly denied overtime.  The court initially granted conditional certification, and approximately 1,000 potential class members opted in.  Later, the court also certified the case as a Rule 23 class action under the laws of the states of Wisconsin, Pennsylvania, and Minnesota, and denied the defendant's motion to decertify the conditionally certified FLSA class.  The defendant twice unsuccessfully sought Rule 23(f) review from the Seventh Circuit. 

Thus, until weeks before trial, the plaintiffs had won several key procedural victories.  In each of its rulings district court concluded that, while there were differences among the class members, the defendant had uniform policies and practices that it believed rendered class treatment appropriate.  It also expressed the belief that subclasses could resolve some of the issues the defendant had raised.

Things started to fall apart for the plaintiffs after the court denied cross motions for summary judgment.  While ordinarily the denial of such motions would be more of a benefit for the plaintiffs than the defendant, in this case the court combined its ruling with a request for a plan for trying the case.  At this point, nothing went well for the plaintiffs.  As part of their plan, they retained an expert and submitted a damages report that largely cut across the subclasses created by the court.  After striking the report, the court ordered the plaintiffs "to articulate how they were planning to address the distinct issues represented by each subclass." 

Ultimately, the court rejected the plan submitted by the plaintiffs in that, among other problems,  it:  (a) failed to address the issues specific to each subclass; (b) failed to distinguish among the various types of violations the plaintiffs claimed; (c) failed to explain how the proposed "representative plaintiffs'" claims were representative of the whole class; and (d) failed to account for variation in the type of work among different offices.  Further, the court found that even where the plaintiffs did submit generalized proof, the defendant's arguments would invariably require the same type of individualized inquiry a class was intended to avoid.  Thus, with trial only two weeks away, the court decertified the class and converted the trial to one only on the individual plaintiffs' claims.

Incidentally, this case is not unlike that of Marlo v. UPS, which we wrote about in a post on May 6, in which the district court decertified a case it had certified due to problems that arose with the class while determining how to best try the case, and the Ninth Circuit affirmed.

The Bottom Line:  It is better that wisdom comes late rather than never.  The practical issues in trying a class action oftentimes become apparent only once the court and parties actually consider the logistics of trial.

Rule 23 classes require class members to opt out if they do not want to participate in the litigation.  Fair Labor Standards Act classes require class members to affirmatively opt in.  Are the two compatible?

No, according to a recent pair of cases from the Middle District of Pennsylvania.  In fact, the court held that when an FLSA collective action is being pursued, the FLSA collective action remedies preempt class action remedies under state law.  In Fisher v. Rite Aid Corporation, Case No 09-cv-2069 (M.D. Pa. Feb. 16, 2011), and Fisher v. Rite Aid Corporation.pdf, Case No. 10-cv-1865 (M.D. Pa. Feb 16, 2011), the plaintiffs were assistant managers who had worked for the Rite Aid pharmacy chain as assistant managers.   The two cases raised similar allegations, one under Maryland state law and the other under the law of Ohio.  The plaintiffs in both cases claimed, essentially, that they were misclassified as exempt employees and that they and others were improperly denied overtime.  Both asserted claims under state law and sought class action treatment.  While neither asserted claims under federal law, and specifically the FLSA, such claims were raised in a third case pending before the same court, Craig v. Rite Aid.  The defendant moved to dismiss the state law claims on the grounds that the pursuit of state law claims under Rule 23 would conflict with the FLSA.

In both cases, the court found that a state law class action for overtime wages was incompatible with the FLSA's enforcement procedures.  It noted a split of authority on whether plaintiffs could pursue both class and collective action remedies, but found that the better view was that a class action could not be maintained over matters covered by the FLSA.  It noted that Congress had adopted the FLSA section 16(b) procedure specifically to control the volume of litigation by avoiding the application of Rule 23 and also intended that only those who wanted to be involved in the litigation to be made a party.  It found that permitting a state law overtime class action to proceed while FLSA claims were pending, even if in a different case, would "eviscerate the purpose of Section 216(b)'s opt-in requirement," citing Otto v. Pocono Health Sys., 457 F. Supp. 2d 522, 524 (M.D. Pa. 2006).

Concluding that a Rule 23 class action as to the state law claims would conflict with the collective action remedies of the FLSA, the court dismissed both state law cases without prejudice.

The Bottom Line:  Many, but not all, courts have found that state law class action remedies for wage and hour violations are incompatible with the collective action procedure under the FLSA and cannot be maintained.

Three years ago, in Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11^th Cir. 2008), the Eleventh Circuit affirmed a large jury verdict in a collective action against the Family Dollar Store retail chain challenging the exempt status of its store managers.  That victory, however, proved to be no guarantee of success in later litigation against the same or even similar employers.

In In Re Family Dollar FLSA Litigation.pdf, Case No. 09-2029 (4^th Cir. Mar. 22, 2011), the plaintiff (Irene Grace), like the plaintiff in Morgan, had been the manager of a Family Dollar Store location.  She filed suit in 2004.  She contended, again like the plaintiff in Morgan, that she spent most of her time on nonexempt duties and that she should have been paid overtime wages.    She was also represented by the same lawyers who had brought the Morgan lawsuit, and she asserted the same class-wide allegations.  So far, sounds good for the plaintiff, but there her claim starts to fall apart.

Although Grace filed her action in the Middle District of Georgia (which lies within the Eleventh Circuit), it was transferred to the Western District of North Carolina where other litigation against the company was pending.  That court denied conditional certification under section 16(b) of the FLSA, but 74 plaintiffs still filed opt-in forms.   Following Grace’s deposition, the employer moved for summary judgment as to her claim, a motion the court granted.

The Fourth Circuit affirmed.  It noted Grace’s claim that she spent over 95 percent of her time performing nonexempt duties such as handling freight, running a cash register, and doing janitorial work.  She also, however, interviewed and evaluated employees, assigned work, and was generally responsible for ensuring that the store was profitable.   The court found that the amount of time she spent on the allegedly non-exempt duties was not the critical factor for the reason that even while she was performing them she was engaged in managing the store.   Thus, her primary duties satisfied the executive exemption.

Interestingly, the court cited, but refused to recognize the Morgan case as controlling.  It found that Grace’s testimony, not that in Morgan, governed the case.  It refused to assume that the two cases were factually identical. 

As to the class issues, the court found no abuse of discretion in the denial of conditional certification given the variation in store size and manager responsibilities.

Incidentally, a different district court recently granted summary judgment in a similar case against rival Dollar General Stores.  See In Re Dollar General Stores FLSA Litigation.pdf, Case No. 5:09-MD-1500-JG (E.D. N.C., Jan. 19, 2011) (concluding that store managers were exempt).

The Bottom Line:  Cases turn on their own merits.  That plaintiffs prevail on the class and merits issues in one case is no guarantee of a similar outcome in another.

Yet another court has denied conditional certification of an FLSA overtime case.  While, for a time, courts seemed to accept motions for conditional certification uncritically, more courts are questioning the plaintiffs' showing even at an early stage.  These courts are also going to very purpose behind the two-step procedure and refusing to certify cases on the grounds of judicial economy and efficiency when it appears clear, even at an early stage, that the case will devolve into a series of mini-trials.

Most recently, in Bramble v. Wal-Mart Stores Inc.pdf., Case No. 09-04932 (E.D. Pa. Apr. 11, 2011), a group of "asset protection coordinators" brought suit against Wal-Mart, contending that they had been misclassified as exempt for overtime purposes.  The named plaintiffs were from Pennsylvania and Massachusetts, but they brought solely FLSA claims, and sought to represent a nationwide class of persons in their position.  This class, the court found, consisted of approximately 5,600 employees working in 3,500 stores across the country. 

In seeking conditional certification, the plaintiffs used an approach we now see used in many FLSA cases.  Much like the Dukes discrimination case now awaiting decision in front of the U.S. Supreme Court, the plaintiffs relied on the company's uniform nationwide policies.  As is the case in most putative class wage and hour cases, they also pointed to the existence of a single job description nationwide as well as standard training materials.  They asserted that they were not exempt either as executive or as administrative employees.  They submitted their own deposition testimony, that of a handful of peers, and Rule 30(b)(6) deposition testimony from the company about their jobs.  There was nothing remarkable about this general approach, which is one that has been used in dozens if not hundreds or thousands of cases.  Still, in this case it didn't work.

The court used the two-step approach now most common in FLSA cases, deciding conditional certification under a more "lenient" standard, with a second motion to decertify, if necessary, being decided on a higher standard.  It found, however, that even under the lesser standard the plaintiffs had failed to meet their burden. 

The evidence submitted by the employer demonstrated that plaintiffs could not meet even the lower burden.  The job descriptions did not violate the FLSA and, as found by the U.S. Department of Labor, reflected exempt duties.  Thus, the use of uniform job descriptions tended to support rather than undermine the employees' exempt status.  By contrast, the job descriptions did not contain the nonexempt functions the plaintiffs claimed they were required to perform.  This, incidentally, is a common flaw in the plaintiff's showing at this stage - the plaintiffs must demonstrate a common illegal policy and not simply a common policy.  Further, as demonstrated by 23 declarations submitted by the employer, the actual duties performed within the job description varied from store to store based on size, location, and other factors.

Ultimately, the court found that the plaintiffs had not satisfied their burden even for conditional certification.  On a common sense note, the court also quoted the United States District Court for the District of Massachusetts in stating that conditional certification under such circumstances would be highly inefficient and contrary to judicial economy:  "[L]itigating this case as a collective action would be anything but efficient. The exempt or non-exempt status of potentially [thousands] ofemployees would need to be determined on ... an employee-by employee basis."  See Morisky v. Pub. Serv. Elec. & Gas Co., 111 F. Supp. 2d 493, 499 (D.N.J. 2000).

The Bottom Line:  More courts are denying even conditional certification on cases challenging exempt status when the plaintiffs rely on what individuals are actually doing rather than a company wide policy that actually violates the FLSA.

If you think wage and hour class actions aren’t very sexy, you’re wrong.

A class of exotic dancers in California and other states have received preliminary court approval of a $10 million settlement of their class action suit in which they claimed that their adult nightclub employers misclassified them as independent contractors.  Trauth v. Spearmint Rhino Companies Worldwide, Inc.pdf (Case No. 5:09-cv-01316) (C.D.Cal).

The representative plaintiffs of the class of approximately 11,000 females who perform live nude and semi-nude dance entertainment alleged that their employers violated the Fair Labor Standards Act (FLSA), the California Labor Code and Unfair Competition Act and other states’ wage and hour laws when they allegedly failed to pay them minimum wage and split their tips to pay for “stage fees” and compensate other nightclub employees such as managers, doormen, and disc jockeys.

While this case may attract a peculiarly prurient interest, it ought to strip all employers of the notion that they are immune from similar suits.  Courts have been approving multimillion-dollar settlements involving employers of all stripes, including the pharmaceutical, banking, health club, energy, telecommunications, casino and health care industries.

The authors of Employment Class Action blog have written about many of these cases in the past.  Some arise when former “independent contractors” file for unemployment benefits and then argue that they are really employees.  Class actions are now also being filed when a large number of independent contractors in a particular line of work -- such as tech support or computer programmers, sales representatives, maintenance workers, nurses and construction workers -- work exclusively for one employer over a significant period of time and perform duties similar to that of workers traditionally classified as employees. 

Often, the employers getting into the most trouble are those that have laid off a large group of employees only to re-hire them as independent contractors so that they can avoid paying employment taxes, overtime wages and benefits.

The Internal Revenue Service, U.S. Department of Labor and many state labor departments also are looking to lay bare employers who they claim are misclassifying their workers.  In an effort to collect more employment tax revenue, over the next three years, the IRS plans to randomly select and audit up to 6,000 businesses that use contractors.  The DOL stated in its 2011-2016 strategic plan that it will partner with the IRS to root out employers who continue to misclassify employees as independent contractors. 

The government efforts likely will arouse the interest of workers eager to seek unpaid minimum wage and overtime pay through class action filings.

The Bottom Line:  An employer can be nakedly exposed to a wage and hour class action unless workers are properly classified.

The mantra uttered by plaintiffs in FLSA cases is the "fairly lenient" standard used by many courts to determine conditional certification. As we have written before, this standard may give the plaintiffs an early victory, but may not really benefit either side as such claims are frequently decertified, suggesting that the original decision to certify conditionally was a waste of money and judicial resources. A recent case from the Western District of New York reflects that common sense may still result in conditional certification being denied.

In Brickey v. Dolgencorp., Inc.pdf., Case No. 06-CV-6084L (W.D.N.Y. Feb. 23, 2011), the plaintiffs were hourly employees of the Dollar General Stores. They contended that as a result of the company's allocation payroll budgets to individual stores, managers were pressured to “shave” time from payroll records or to ask employees to work off the clock. They claimed that these policies encouraged violations not only of the FLSA, but also that of the laws of New York, Ohio, Maryland, and North Carolina, where the individual plaintiffs worked. They sought conditional certification of a nationwide class of assistant managers and clerks under the FLSA, and also state law class actions in the four states in which they had worked.

The district court cited and followed the two-step procedure for certification of an FLSA collective action. It first noted, however, that there was nothing inherently illegal about an employer having or enforcing a payroll budget. To the extent that they were claiming violations, their real complaint was that individual managers may not have complied with the statute to meet their budgets. Thus, the court found, following the lead of at least one other case, that a policy that might indirectly encourage managers to limit overtime did not violate any statute. Further, because the existence of any violation turned on the actions of individual managers, the court found that examination of the plaintiffs' claims would have to be undertaken on a manager-by-manager basis, and not on a nationwide or state-wide basis. While acknowledging the “fairly lenient” standard for conditional certification, the court concluded that the plaintiffs had not shown that they “were subject to a common policy or practice that violated the law, as opposed to unlawful actions by individual, anomalous managers” and denied the plaintiffs’ motion.

With that ruling, the court’s conclusion as to the state law claims was no surprise. It found for the same reasons that the plaintiffs could not establish that common legal or factual issues predominated or that the interests of judicial economy would be served by having “hundreds of fact-intensive ‘mini-trials.’” Thus, it found that the plaintiffs could not satisfy the requirements of Rule 23(b) and denied certification of the state law classes.

The Bottom Line: While plaintiffs have a lesser standard for conditional certification, they still need to demonstrate a common class-wide policy that actually violates the law.

Many who have had the “pleasure” of traveling by plane in the past few years have no doubt been placed in a veritable Hurt Locker of bag fees and surcharges.  The Adams v. US Airways, Inc.pdf 2011 U.S. Dist. LEXIS 14660 (D. Ariz. Feb. 11, 2011), matter arose from those humble beginnings, much like Dev Patel in Slumdog Millionaire, to find itself before the District Court of Arizona.  But, unlike Josh Brolin’s character in No Country for Old Men, who found himself unexpectedly rich upon discovering a bag full of money, the plaintiff skycaps at issue in Adams were unable to convince the District Court that US Airways was being unjustly enriched at the expense of an alleged minimum wage violation under the FLSA. 

The Adams case was born when US Airways Departed from tradition and began charging a $2 per bag fee on passengers in 2005.  As a result, and not unexpectedly, passengers began to tip skycap baggage handlers less.  The skycaps felt the Crash of their paychecks plummeting, and in turn, alleged in a putative collective action that the reduced tipping dropped their wages below the required minimum wage in violation of the FLSA, and the equivalent Arizona law.  Now a far cry from being a Million Dollar Baby, the plaintiffs alleged that US Airways was being unjustly enriched by their bag fees, and filed suit.

Unlike Samwise’s journey home in Return of the King, however, the skycap’s case was not long in duration.  US Airways immediately raised the issue of whether the plaintiffs sufficiently pled that it was a joint employer.  Without being a joint employer, US Airways was not liable for any damages under the FLSA.  To determine whether or not a joint employer status existed, the court considered the “totality of the circumstances” and specifically looked at whether US Airways had: 1) the power to hire and fire the employees; 2) supervised and controlled employee work schedules and conditions of employment; 3) determined the rate and method of payment; and 4) maintained employment records.

With those factors in mind, the court dealt with the skycaps’ claims in (as Sean Connery famously described) the “Chicago way”: First, the skycap services were not essential to US Airways’ business.  Second, there was no indication that US Airways had the power to hire and fire, control schedules, payment, or anything other than the two dollars assessed as a bag fee.  So while it may have taken A Beautiful Mindto come up with the unjust enrichment theory on behalf of the skycaps, the court ultimately held that plaintiffs’ conclusory allegations “do not demonstrate the plausibility of a claim that US Airways is a joint employer.”

With that finding in hand, the court cut through the remaining claims like a Gladiator—without joint employer status under the FLSA, the relationship between US Airways and the skycaps was “too attenuated” to result in unjust enrichment for the airline.  The claim was summarily dismissed. 

The Bottom Line:  As the saying goes, there’s more than one way to skin a cat.  By proving it wasn’t a joint employer under the FLSA, US Airways sidestepped a potentially expensive (and time-consuming) collective action without having to run the usual gamut of exemptions. 

And one last note: This is actually the third case in less than a year involving skycaps.  In an earlier decision mentioned here in Adams, Thompson v. U.S. Airways, Inc., 717 F. Supp. 2d 468 (E.D. Pa. 2010), the court found that US Airways controlled decisions relating to skycap compensation or the performance of services.  No similar facts were alleged in this matter, making it, if nothing else, a nice companion piece, and proof that factual details make all the difference in the world.

 And just prior to Thompson, the skycaps in Travers v. JetBlue Airways Corp., Case No. 08-10730-GAO (D. Mass. Sept. 30, 2010), alleged a similar claim to the one in Adams when they, too, found their tips decreased following an increase in bag fees.  The court in Travers denied conditional certification (despite having denied, for the most part, the defendants’ summary judgment motions).  For a more detailed analysis of the court’s decision against certification, please see our blog entry dated October 12, 2010.

As we look forward to Spring Training, the Fourth Circuit recently analyzed what courts sometimes refer to as “picking off” collective action plaintiffs.   In Simmons v. United Mortgage Co.pdf., ___F.3d____No. 09-2147, 2011 WL 184356 (Jan. 21, 2011), the Court discussed the interplay of FLSA collective action procedure, Federal Rule of Civil Procedure 68 offers of judgment, and standing.  The Constitution requires that litigants have standing (i.e., a live legal dispute) in order for the federal Court to decide a case.  In other words, the rulebook does not permit lawsuits that are mere exhibition games.  A timely and properly worded offer of judgment may moot a collective action and potentially result in no recovery to the plaintiff.  But, as Simmons demonstrates, an offer of judgment that fails to follow the rules may result in no outs and additional opt-in plaintiffs on base.   

In Simmons, former junior asset managers of United Mortgage filed a collective action alleging that they were improperly classified as salaried exempt and not paid for overtime hours worked.  After nine additional plaintiffs opted-in, counsel for Defendants sent a letter to the Plaintiffs’ counsel offering each “full relief” contingent upon acceptance within five days.  Specifically, the letter to plaintiffs’ counsel stated that each opt-in plaintiff would be compensated fully upon receipt of an affidavit stating the dates on which overtime was worked, the total hours worked up to the date of their termination, the total amount of back pay claimed, and a statement detailing their calculation of overtime amounts owed.  The letter also offered to pay taxable costs and reasonable attorney’s fees as agreed upon by the parties or as determined by the court.  The letter finally required the parties to enter into a confidential settlement agreement and release.  At the request of plaintiffs’ counsel, defense counsel clarified in writing that the offer included liquidated damages and applied to both the named plaintiffs and all opt-in plaintiffs. 

After paintiffs failed to accept the offer within the five-day period, United Mortgage moved to dismiss the entire case for lack of subject matter jurisdiction.  United Mortgage contended that the offer to satisfy plaintiffs’ claims in their entirety meant that the case was moot, or no longer live.   The District Court agreed, finding that the Defendant’s “offer of judgment” was for full relief to all plaintiffs and included attorney’s fees and taxable costs.  The District Court also found that the plaintiffs’ motion for conditional certification and request for court-facilitated notice to potential collective action members was likewise moot.      

The Fourth Circuit reversed, finding that the defendant’s offer did not constitute an offer of judgment in accordance with Federal Rule of Civil Procedure 68 and did not moot the case.  As the primary reasons for finding the case still live, Simmons stated that the offer of a confidential settlement—instead of a judgment—coupled with the affidavit requirement, could result in additional legal wrangling instead of finality.  Simmons also recognized that the offer provided only five days to accept, instead of the ten days required by Rule 68.  But, the opinion implies that the time for acceptance of the offer was not critical in determining whether a live case or controversy existed.  

The impact of an offer of judgment is fact and court-specific.  A plaintiff in the Seventh Circuit who rejects a properly worded offer of judgment that satisfies his entire demand is barred from recovering damages or attorneys’ fees.  See Greisz v. Household Bank, 176 F.3d 1012, 1015 (7^th Cir. 1999).  Other Courts lament that offers of judgment improperly allow Defendants to pick off a named plaintiff for a relatively nominal amount, thereby mooting the lawsuit and avoiding class notice and certification.  As a consequence, some courts permit a timely motion for certification to relate back to the date plaintiff filed the initial complaint.  See, e.g., Sandoz v. Cingular Wireless, LLC, 553 F.3d 913 (5^th Cir. 2008). If the motion to certify is denied, then the offer of judgment moots the case.  But, if the motion to certify is granted, then the offer does not satisfy the claims of all those in the collective action.  The Simmons District Court was not troubled that the offer improperly picked off’ plaintiffs because the offer was made to actual plaintiffs and would be opt-in plaintiffs. 

The Bottom Line: If an employer decides that an offer of judgment is the correct strategy, care must be taken to properly structure the terms and timing of the offer.  Obtaining an early settlement demand and/or quantification of damages by plaintiff’s counsel could serve to alleviate the ambiguity created by the affidavit requirement in the Simmons offer.  Offers of judgment and motions to dismiss constitute important litigation tools that should be considered alongside other strategies such as early depositions and a summary judgment motion before the plaintiff files a motion for conditional certification.  These tools should be analyzed based on the individualized facts in the case, local law, and the judge’s proclivities. 

A recent case for the Western District of New York demonstrates that little is certain in class action litigation.  In Omiatek v. Big Lots, Inc.pdf., Case No. 09-CV-0352S(Sr) (W.D. N.Y. Jan. 20, 2011), the court bucked two trends and (1) denied conditional certification (2) of a proposed class that consisted of assistant managers.

A little background:  The two-step procedure now used by many courts in FLSA cases requires at least two visits to the question of certification of a proposed collective action.  First, the court determines the question of “conditional certification,” under which it requires a lesser showing of whether the proposed class members are sufficiently similarly situated to permit notice.  The term is a misnomer because the court is not “certifying” anything, but only authorizing notice to the proposed class and a period of time for proposed members to opt in.  Still, conditional certification is often granted and may give the plaintiff a false sense of success and the defendant an equally false sense that it has “lost” the case.  Both parties, however, must undergo a time-intensive and at times disruptive set of tasks related to management of the opt-in class.

Afterwards, the court engages into a much more rigorous inquiry as to whether the proposed class of opt-ins can proceed as a class.  Even if the plaintiffs pass that hurdle, however, decertification remains a very real possibility.  Recognizing this step, and citing the lower standard for conditional certification, many courts have “conditionally” certified cases that, in fact, cannot survive as fully blown collective actions.  We’ll call this trend one.

Trend two is the spate of cases over “assistant manager” positions.  In many of these cases, plaintiffs’ counsel have successfully argued that the class members for the particular employers are managers in name only and that, in fact, they have no management functions at all.  These actions have been particularly successful in California, where the issue of whether the employee’s primary duties are exempt is determined on a quantitative (do they duties take over 50% of the employee’s time) rather than qualitative basis (what’s the most important part of their job).  Much of the debate turns on whether the individuals are indeed assistant managers, or whether an inflated title has been given to an employee otherwise dedicated to nonexempt work.

Now, we turn to the Omiatek case.  In that case, the plaintiff, a former assistant manager, sought to pursue both FLSA claims and New York state wage claims against the Big Lots retail chain.  He moved for conditional certification of the FLSA claim, contending that the chain had a uniform policy of classifying assistant managers as exempt, discouraged hourly employees from working overtime so that assistant managers had to do more of their duties, and (he claimed) were micromanaged by their superiors.  So far, so good – the class consisted of assistant managers and the plaintiff was seeking conditional certification.

The magistrate judge further found that another court had considered claims against the same employer, had conditionally certified them, and even had denied decertification when sought be the employer.  Even better.

But here the case quickly fell apart.  The previous court, after seven days of trial evidence, had reconsidered its prior rulings and decertified the class because the evidence at trial revealed that the duties of the assistant managers varied so much.  See Johnson v. Big Lots Stores, Inc.pdf, 561 F. Supp. 2d 567, 588 (E.D. La. 2008).  Further, the employer in Omiatek had submitted declarations reflecting that some assistant managers indeed did manage their stores and performed few hourly duties.  The diversity in job experiences led the court to deny even conditional certification of their claims.  Thus, the court, based on the evidence, denied conditional certification.

The plaintiffs also moved for certification of their New York state claims, but the court found certification inappropriate for much the same reasons.

The Bottom Line:  Differences in real life job experiences can defeat even conditional certification.

Too often in law school (and in the many years that follow) students are forced to read cases where final decisions will turn on one minute detail, or an obscure rule of law that rarely comes into play.  It is for all of these reasons that Villa v. Tyco Electronics Corp., Case No. C 10-00516 MHP (N.D. Cal. Jan. 7, 2011) stands out as a testament that good, old-fashioned lawyering will still prevail in the litigation game.

The story is the classic tale of an electrician working the morning shift, from 6:00 a.m. to 2:30 p.m., with just a fifteen-minute break at 9:00 a.m., and a lunch break combined with a second ten-minute break from 11:50 a.m. to 12:30 p.m.  While many of us would probably jump at the chance to clock out at 2:30 in the afternoon, the plaintiff thought differently.  Indeed, he brought a litany of allegations against his former employer (of less than three months) on behalf of himself and others similarly situated claiming violations of California meal and break time laws, unpaid overtime wages and waiting time penalties, failure to pay his wages in a timely fashion, failure to reimburse him for business expenses, and failure to keep accurate payroll records.  And, of course, this case wouldn’t be mentioned on this blog if Villa hadn’t brought these claims on behalf of himself as an individual, and on behalf of all others similarly situated.

When examined, Villa presents a formidable list, to be sure. But it was also one dismantled with military precision using one very powerful weapon available to both plaintiffs and defendants—an excellent deposition.

Villa’s crucial allegation centered on his belief that Tyco deprived him of his meal and breaks by combining them into a single period of time around the lunch hour, that the defendant failed to adequately staff the facilities in a manner that allowed him to take his breaks as necessary, and that they failed to record the beginning and end of his break periods.

The defendant battled back by pointing to Villa’s deposition testimony where he testified that he was paid for the break time in the morning, and that he testified the extra ten minutes on his lunch hour constituted his second paid break of the day.  They also knocked in the extra point by citing California Labor Code § 226.7, which merely specifies that breaks shall be taken, not that the time shall be recorded.

  Villa: 0

  Tyco: 7

With regard to the overtime claims, the defendant returned to the deposition once more to illustrate that plaintiff had not identified a single hour worked for Tyco when he was not paid.  Indeed, he could not point to a single paystub that he alleged was inaccurate.  The court kicked in the extra point as well, when it disregarded Villa’s attempt to raise donning and doffing claims as grounds for overtime, despite having never raised them in the Amended Complaint.

  Villa: 0

  Tyco: 14

The defendant powered through Villa’s timely wage payment claims as well, by producing myriad records indicating that plaintiff was paid twice a month, every month, for the duration of his time at Tyco.  The only near-fumble occurred, however, when the plaintiff alleged that his final paycheck arrived late as a result of Tyco’s willful withholding.  However, evidence proved that inclement weather had prevented FedEx from delivering the final paycheck until two days after it was sent—and that it was no fault of the defendant.

  Villa: 0

  Tyco: 21

The court also wasted little time on the failure to reimburse the plaintiff for business expenses—Villa testified that he was paid as required.

  Villa: 0

  Tyco: 28

Now in the home stretch, and with the clock winding down, the court turned to plaintiff’s allegation that Tyco failed to keep accurate payroll records under § 226.  As with nearly every other play the plaintiff attempted to run, however, the defendant was prepared and pointed to the deposition where, once again, Villa testified that he had been paid wages for all of the time periods.

  Villa: 0

  Tyco: 35

With all of his individual claims dismissed, the court addressed the remaining issue, that is, what to do about the putative class allegations.  Thus, with the clock winding down and little else to say, the court took a knee and let time expire when it held that, having found each of plaintiff’s claims failed to meet the requirements to show actual injury as a result of defendant’s actions, Villa lacked standing to pursue any claim on behalf of his purported class.

  Villa: 0

  Tyco: 42 (Although I will admit that it’s almost impossible to score while taking a knee.)

The Bottom Line:  This article is in no way meant to be an endorsement of defense attorneys (or of any particular team winning the Super Bowl).  As mentioned above, if nothing else, Villa stands for one principle: an excellent, accomplished deposition can make all the difference in the world when it comes time to move for summary judgment in an employment class action case.  Facts and testimony can and will win court battles, just as a perfectly executed offense and defense will win on the field.

And, specific to the issue of class actions, Villa reminds us that strategic, targeted attack can reap tremendous results: by dismissing Villa’s individual claims, the court was left with no choice but to dismiss the rest of the putative class members’ claims without prejudice, putting an end to the big game before it even began.

In this day and age, finding a court to deny conditional certification of a proposed FLSA class is sometimes about as difficult as successfully remaking a classic Hollywood western with modern actors and sensibilities.  But, just as the Coen Brothers’ True Grit continues to surprise audiences and critics alike as one of the finest remakes in years, the recent decision in Botello v. COI Telecom, LLC, Case No. SA-10-CV-305-XR, from the Western District of Texas, has proven that not everything turns out the way you would expect.

The court in Botello considered the plight of a group of Field Service Technicians (FST) or former FSTs of the defendants.  The plaintiffs opened fire with both barrels and alleged that COI and Time Warner violated the FLSA when they failed to pay overtime wages, and that they violated ERISA when they denied the plaintiffs pension, health, disability, and other benefits.  Additionally, the FSTs loaded their wagon with a slew of other claims, as well, including unjust enrichment, deceptive trade practices, negligent misrepresentation, promissory estoppel, and fraud. 

While the story of the FSTs and the defendants could be told in campfire tale fashion, it would be a tedious one filled with talk of direct control of duties.  COI provided telecommunications and fiber optics systems integration in the Texas area.  Sometime in late 2003 or early 2004, it re-characterized its relationship with FSTs from employees to independent contractors.  One of COI’s customers was Time Warner, which entered into an Installation Services Agreement with COI.  Included in that agreement was a paragraph requiring any disputes to be submitted to binding arbitration (a fact which, like the pursuit of Lucky Ned’s gang to the silver mine, ultimately led to a dead end).

Several pages of the court’s decision are devoted to describing the myriad ways that Time Warner exerted control over the independent contractors.  In no particular order, and certainly not encompassing the entire gamut of examples provided, the plaintiffs testified that: 1) they were subject to being “fired” by Time Warner; 2) they had their homes checked for any illegal cable hookups prior to hiring; 3) FSTs could only wear headgear that had Time Warner or COI on the cap; 4) FSTs were required to wear a badge that designated them as a Time Warner contractor; 5) they were fined if they were not wearing hats that said COI when climbing utility poles; 6) they were required to display magnetic signs on their vans with COI’s logo and Time Warner’s phone number; 7) some FSTs were required to use a portable device that would transmit information directly to Time Warner regarding jobs and invoices; 8) and if someone needed to change their daily assignments, they needed approval from COI or Time Warner.

Keeping all of that (and more) in mind, the plaintiffs requested the court certify a class on their ERISA and unjust enrichment claims under Rule 23.  Among other things, the defendants argued that some of the plaintiffs were bound by the aforementioned arbitration agreement, while others were not.  Using the analysis provided by Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), however, the court determined that the arbitration agreements in and of themselves did not preclude plaintiffs from seeking that a court certify a class and adjudicate a class claim. 

Galloping along, the court also concluded that the proposed class members were not harmed in substantially the same manner, as many of the FSTs chose not to purchase health insurance, and the plaintiffs could not agree whether the purchase of equipment from COI was optional or mandatory and whether or not financing was available.  

More importantly, perhaps, to the realm of employment law was the court’s decision on the plaintiffs’ motion for conditional class certification.  As mentioned above, the plaintiffs moved to allow the FLSA claim to proceed as a collective suit, and thus receive the names, addresses, and telephone numbers of the potential class members to effectively distribute notice.  The court employed the Lusardi approach, and began the trademark Lusardi analysis by looking only at the pleadings and affidavits to determine whether notice should be sent out.  Because so many courts, at least at times, seem to view this first stage as merely a formality on the way towards progressing into the discovery phase of the action, the court’s decision not to conditionally certify the collective action sounded like a gunshot in the middle of night, and it may prove helpful to employers defending similar lawsuits in the future.

When considering whether or not to grant conditional certification for discovery purposes, the court agreed that the plaintiffs made a “plausible” argument that they were improperly characterized as independent contractors, and that both COI and Time Warner were joint employers.  The court pointed out, however, that other issues should be taken into consideration—namely, that FSTs working in San Antonio were treated differently than those working in other cities, and that the same was true for FSTs working in Austin.  It therefore determined that conditional certification was not appropriate, as the collective action members would not be similarly situated.  In many ways, the court’s determination sounds almost like a second stage analysis in the Lusardi paradigm, albeit only with the benefit of reading the initial pleadings and affidavits.

Ultimately, just as Mattie Ross gets her revenge on Tom Cheney (SPOILER ALERT), Time Warner had its day, as well, when the court granted it partial summary judgment on various ERISA and unjust enrichment issues.  And when the dust cleared from the denial of conditional certification and the Rule 23 certification, only a handful of claims are left against the various defendants. 

The Bottom Line:  While it has become less common for a court to deny conditional certification, Botello now stands as a recent example that courts can (and do) find that plaintiffs are not substantially similar based solely on the pleadings and affidavits alone.

Many employers have programs advancing or even paying the costs of employee education or training.  Frequently, those policies obligate the employee to reimburse the employer if the training is not completed, or if the employee terminates shortly after completing that training.  A recent Ninth Circuit case underscores that, if properly applied, these types of policies are lawful.

In Gordon v. City of Oakland.pdf, Case No. 09-16167 (9th Cir. Nov. 19, 2010), the City of Oakland, California required police officers to reimburse a portion of their training costs pursuant to a schedule if they left the city’s employment with less than five years of service.  The plaintiff, a former Oakland police officer, left less than two years after completing her training. At the time of her resignation she was making $37.8025 per hour, or roughly five times the minimum wage.  Pursuant to the schedule, the city contended that she was liable to repay $6,400, part of which was offset against her accrued vacation and compensatory time.

Incidentally, the opinion notes that the city did not offset the amount against her final paycheck entirely, apparently still paying her regular wage for her final two weeks of employment.  Thus, there was no argument that she did not receive at least the minimum wage.  In fact, the court appeared to accept the view that the city could have offset a portion of the costs, so long as she received pay for at least the minimum wage on her final paycheck.  Of equal interest, the collective bargaining agreement would have permitted the city to offset the entire sum against pay, but the city wisely still paid more than the portion representing the minimum wage, thus avoiding a potential FLSA issue.

In any case, the plaintiff still brought suit under the FLSA, contending that as a result of the mandatory repayment of training costs she was paid less than the minimum wage.  She also sought to proceed as a collective action on behalf of similarly situated officers who had also had to repay training costs.  The district court dismissed her claim and she appealed to the Ninth Circuit.

The Ninth Circuit had no difficulty affirming.  First, it found that because the city paid her final paycheck, there was no argument that she was paid below the minimum wage for any given week.  Instead, the court concluded, she could only recover by proving that repayment of the training costs was a “kick-back” under 29 C.F.R. section 535.31.  That provision reflects the common sense notion that the minimum wage represented money that was the employee’s own, not money that had to be kicked back to the employer or third parties.

The court found that repayment of training costs was more akin to the repayment of a loan than a kickback.  The city, in fact, could have required employees to arrive with their training completed, and it essentially loaned the cost of the police academy training to those who needed it.  This reasoning was in accord with decisions from other courts of appeal.  The Ninth Circuit held that because the officer was in fact paid the minimum wage, and because the repayment of training costs was not a kickback, there was no FLSA violation.

The bottom line:  Even in the context of FLSA collective actions, employers can still require repayment of training costs so long as they do not reduce employee pay below the minimum wage.

Managers and assistant managers at retail locations have been the focus of many wage and hour class or collective action lawsuits.  In these cases, the employer often asserts that the employee is exempt under the executive exemption and the employee contends that there was not enough discretion or exempt work to warrant application of the exemption.  As discussed previously in this blog, the issue in such cases generally comes down to whether the managers' “primary duties” are exempt or non-exempt. 

For employers in California, courts employ a quantitative test, asking whether more that 50 percent of the employees’ duties are exempt.  In the vast majority of states, and under federal law, the test is qualitative, taking into account factors such as the importance of the exempt duties to the job, the amount of time spent on them, the employee's freedom from direct supervision, and differences between the employee's pay and that of hourly workers.  29 C.F.R. section 541.700.  As a result, employers with smaller individual retail outlets, such as convenience stores, tend to have more difficulty establishing the exempt status of their managers in California than elsewhere because, by virtue of the stores’ smaller size, it is more likely that managers will work along side the employees they supervise and hence more likely that they will spend more time on nonexempt work.

Outside of California, the application of the qualitative test will mean that the employer will often prevail, as demonstrated by a recent case from the United States District Court for the Northern District of New York.  In Guinup v Petr-All Petroleum Corporation.pdf. (case 5:07-CV-1120, 8/23/2010) the plaintiff was the manager of a combination convenience store and gas station.  She asserted both federal claims under the FLSA and class action claims under the New York wage and hour law, claiming that the company misclassified all of its retail outlet managers.  She made many arguments in support of this contention, including, for example, that she was required to perform numerous nonexempt duties such as counting cigarettes, verifying gas readings, monitoring security tapes, comparing prices as nearby gas stations, and working alone at times.

Interestingly, the plaintiff withdrew her class allegations early in the case as part of a compromise regarding a motion to dismiss filed by the defendant.  The court thus technically ruled on her individual claims on the defendant's motion for summary judgment, although its reasoning theoretically would have applied to the class of store managers as a whole.  The court accepted the plaintiff's description of the nonexempt duties she performed, and even her argument that she performed such duties 80 percent of the time, but noted that she also performed numerous exempt duties such as evaluating employees, scheduling, and supervising other employees.  It noted that while her performance of nonexempt duties was helpful to the store's operations, and quite possibly filled the bulk of her time, her managerial functions were more important.  As the court reasoned, the store largely could not function well, if at all, were she not there to perform the exempt managerial duties.  It further found that despite the existence of regional supervision, she spent most of her day free from direct supervision because the regional manager generally was not in the store.  Therefore, the court found, the managerial duties were  the “primary” duties as a matter of law, and entered judgment for the defendant.

The Bottom Line:  Even in small individual retail operations, and even when the amount of time spent strictly managing the store is relatively small, managerial duties or often still the primary duties and will support the executive exemption.

Courts have long recognized that class actions are not available under the FLSA because it has its own collective action procedure contained in section 16(b) of the Act, 29 U.S.C. section 216(b).  Section 16(b) permits a collective action to proceed if the members of the putative class are “similarly situated.” Among other differences from Rule 23, the FLSA’s collective action provisions require that claimants affirmatively "opt into" the litigation. 

Many states, of course, have their own versions of the FLSA, but most do not echo its enforcement provisions.  Thus, in most such jurisdictions, plaintiffs can assert a state law wage and hour claim through the vehicle of a Rule 23 class action.  Any number of tactical decisions can drive the decision whether to assert state law claims, including the available damages, statute of limitations, or counsel's preference for the Rule 23 or section 16(b) standards.

But what if the plaintiffs want to bring a section 16(b) collective action and a Rule 23 state law class action in the same case?  Does that mean that the putative class members will receive confusing notices telling them that they must opt into the federal claims/do nothing on the state claims versus do nothing on the federal claims/opt out of the state?

Courts are divided, but a pair of recent cases holds that because the two procedures are incompatible, and because the state law claims would interfere with the federal scheme.  These courts have found that state law Rule 23 class cannot be combined with a collective action claim and that, in fact, the differences are so vast that it may even be necessary to dismiss the state law claim outright.  Most recently, in Pittman v. Westgate Planet Hollywood Las Vegas, LLC.pdf, the plaintiffs, who worked in various positions for the Planet Hollywood Towers in Las Vegas, contended that their employer did not pay them for overtime hours.  The court conditionally certified the class under the FLSA, but following the filing of opt-ins, they sought to add a Rule 23 class action under Nevada state law.   The court found that the plaintiffs could not pursue both class and collective action claims because it had already conditionally certified the class under the FLSA, and the state law claims were preempted.  It found that the state enforcement scheme was incompatible with the federal and that, in any case, it appeared that individual issue might prevail.

Three days later, the Ninth Circuit refused review of a similar decision from the same court.  In Daprizio v. Harrah's Las Vegas, Inc.pdf a different judge for the District of Nevada also found that the FLSA preempted state law class actions for the same reasons.  The Daprizio action involved casino staff who claimed that they were required to come in 10-15 minutes early each day for pre-shift meetings, but were not paid for the time.  Importantly, the court had held that preemption required the actual dismissal of the state law claims.  The Ninth Circuit refused to accept the appeal under Federal Rule 23(f) because the trial court’s order technically was not a decision refusing to certify the case, and thus did not fall within Rule 23’s ambit.

The Bottom Line:  Class and collective actions make look alike in some respects, but the differences between the two are great.  While some courts will permit them to proceed in tandem, others have found that the two are in fact incompatible, and that the state law claim should give way to the federal.

A Postscript:  An astute reader alerted us that on December 7. 2010, the court in Daprizio reconsidered its order in light of the intervening Ninth Circuit decision in Wang v. Chinese Daily News, Inc.pdf 623 F.3d 743 (9th Cir. 2010).  The Wang decision is not strictly on point in that it did not deal with the procedural conflict between FLSA collective actions and Rule 23 class actions, but rather reached the unremarkable result that the FLSA's substantive provisions do not preempt similar state law requirements.  While the district court noted that Wang did not address the same issues, still it concluded that reconsideration was appropriate, and directed the case to proceed as two separate classes, one under the FLSA, and one under state law.

A Second Bottom Line:  Attempts to combine FLSA and state wage and hour law claims often lead to unpredictable results.

On October 27, 2010, the Second Circuit affirmed a federal court’s refusal to certify a proposed class of Hertz Station Managers allegedly denied overtime under New York law.  (Myers v. Hertz Corp., No. 08-1037 (2d Cir. Oct. 27, 2010)).  In doing so, the court addressed the potential difficulties of certifying Rule 23 overtime exemption cases and expounded on the appropriate certification standard for FLSA exemption cases.  

In a case the court described as “procedurally convoluted,” the plaintiffs originally sought to proceeded as a collective action under the FLSA.  After the district court denied this motion, the plaintiffs then moved for certification under Rule 23 based on alleged violations of unpaid overtime under New York Labor Law § 191.  While the court found the plaintiffs’ state law claim to be nothing more than an alternative method of seeking redress for an underlying FLSA violation, it addressed the plaintiffs’ appeal by using the traditional requirements of Rule 23. 

Finding that it only needed to address Rule 23’s predominance requirement, the court determined the relevant “question of law and fact” to be whether the plaintiffs established they were entitled to overtime under the FLSA.  The court found this to be a “complex, disputed” issue whose resolution required answering a number of subsidiary questions involving whether the plaintiffs fell under the FLSA’s executive exemption.  The court noted that while the exemption issue may not be an inherently individualized inquiry, the exemption inquiry does require examination of actual duties performed and involve evidence that the plaintiffs’ jobs “were similar in ways material to the establishment of the exemption criteria.”

The plaintiffs relied on two categories of evidence to show the required common proof:  (1) Hertz decided to classify all station managers as exempt without an examination of each individual manager’s duties; and (2) testimony of Hertz representatives which, plaintiffs claimed, established that station managers’ duties did not vary materially across Hertz locations.  With respect to the first category, the court found that the existence of such a blanket exemption policy, standing alone, “is not determinative of the main concern in the predominance inquiry:  the balance between individual and common issues.”  The court further explained that such a policy does not establish whether all plaintiffs were actually entitled to overtime pay, and that the question of entitlement to overtime pay is still answered by examining the employee’s actual duties.  As to the second category, the court found that the proffered testimony was general, largely inconclusive, and only provided mixed support for the plaintiffs.  Thus, the court found that the district court did not abuse its discretion in declining to certify a class.

While the court declined to review the district court’s refusal to conditionally certify the plaintiffs’ FLSA claims, it elected to provide guidance on the standard district courts should apply to motions seeking certification of a collective action under § 216(b) of the FLSA.  The court noted that district courts of the Second Circuit have largely adopted a two-step method.  While not required, the court found this approach to be “sensible.”  The court stated that in FLSA exemption cases, plaintiffs make the showing necessary to send notice to potential opt-ins (the first stage) by “making some showing that ‘there are other employees . . . who are similarly situated with respect to their job requirements and with regard to their pay provisions,’ on which the criteria for many FLSA exemptions are based, who are classified as exempt pursuant to a common policy or scheme.”  The court cautioned that while this is a low standard of proof, it cannot be satisfied simply by “unsupported assertions.”  In the second stage, the district court must determine whether the collective action may go forward by determining whether the plaintiffs who have opted in are in fact similarly situated to the named plaintiffs.   

The bottom line:  As this case demonstrates, Plaintiffs seeking a Rule 23 overtime class do not show predominance simply because the employer used a blanket exemption policy.  Rather, the determinative issue should be whether the plaintiffs' job duties are similar enough so that the applicability of the overtime exemption(s) can be determined on a class-wide basis.

"Hey, Judge, You Don't Understand......I Just Wanted The Money!"

About two dozen people who opted into an FLSA collective action in Nevada federal court may soon be reminded that the pinch is usually in the fine print. Magistrate Judge Peggy A. Leen recommended sanctions against these individuals after they refused to respond to discovery. In fact, these lovable rapscallions apparently enjoy life on the wild side, as they even ignored the magistrate judge's order granting the employer's motion to compel.

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In another twist to the often-litigated question of the compensability of mandatory workplace “clothes changing” under the Fair Labor Standards Act (FLSA),  the United States Court of Appeals for the Sixth Circuit (by a 2-1 vote) concluded that union-represented employees at a Kellogg plant in Tennessee were not entitled to be paid for the time they spent “donning and doffing” mandatory food safety uniforms (i.e. pants, logoed shirts, and slip-resistant shoes) and protective equipment (e.g. hair nets, safety glasses, ear plugs, bump caps, and beard nets where necessary).  The court of appeals, however, did not hand Kellogg a complete victory.  It remanded the case and ordered the district court to consider whether employees should be paid for the time they spend walking to and from their locker-room changing area and a time clock. Franklin v. Kellogg Co.pdf., No. 09-5880 (6th Cir. Aug. 31, 2010)

A brief bit of background: Section 3(o) of the FLSA provides that time spent in changing clothes at the beginning or end of a work day is not working time and need not be paid for if it has been excluded by the express terms of or by custom and practice under a bona fide collective-bargaining agreement.  Rescinding opinion letters issued by the Wage and Hour Division (DOL) during the Bush Administration and reverting back to Clinton Administration opinion letters, the DOL recently issued and trumpeted an “Interpretation” in which it opined that “protective equipment worn by employees that is required by law, the employer, or due to the nature of the job” cannot be considered “clothes” within the meaning of Section 3(o). Administrator's Interpretation.pdf, No. 2010-2, at 4 (June 16, 2010).

The Sixth Circuit opinion is noteworthy in several respects:

1. The court refused to follow the 2010 DOL Interpretation and agreed with Kellogg that in ”the context of the workday,” the Company’s protective equipment provided “covering for the body” and could properly be encompassed within the definition of clothing under Section 3(o).  Slip op. at 12. The court declined to accord deference to the DOL Interpretation, noting the agency’s fluid and “repeatedly” changed position on the issue since 1997. Id. at 11. 
2. In conjunction with its decision on the meaning of “clothes,” the Sixth Circuit concluded that Section 3(o) is not an FLSA “exemption,” but an “exclusion from the definition of work.” Slip op. at 8.  The plaintiff, therefore, not the employer, has the burden of proving that donning and doffing time should not be excluded and must be compensated under the FLSA. 
3. Concerning the issue of the existence of a “custom or practice” of not compensating Kellogg’s employees for clothes changing time, the Sixth Circuit upheld the district court’s decision on summary judgment that there was such a nineteen-year custom or practice despite the existence of some evidence that the Union was unaware that its employees could be paid for such donning and doffing activity. The relevant inquiry from the Sixth Circuit’s standpoint, however, was not whether the Union or its employees knew that there was a “possible entitlement to compensation,” but whether they knew that the time was not being compensated.  Here the Union and the employees knew that Kellogg did not pay for any donning and doffing activity.  Slip op. 16-17.  (Judge Clay dissented, finding that there were questions of fact whether “the Union knowingly acquiesced to nonpayment for donning and doffing time….” Slip op. at 22-26). 
4. Although Kellogg prevailed on the critical clothes changing issues, the Sixth Circuit counter-intuitively concluded, consistent with the current  DOL position, that the noncompensability of this activity under Section 3(o) “is unrelated to whether an activity is a ‘principal activity’” that can start an employee’s “continuous workday” under the FLSA. Slip op. at 18.  The court went on to say that donning and doffing time and activity at the Kellogg plant primarily benefited the Company, not the employees, was “integral and indispensable” under the FLSA,  and could trigger a requirement that walking time between the changing area and the time clock was compensable. Slip op. at 20-21. The Sixth Circuit sent this issue back to the district court because of outstanding factual questions about how long this walking time lasted and whether that time was “de minimis” under the FLSA. Id. at 21. 

The bottom line: The Sixth Circuit’s decision highlights the myriad issues attendant to clothes changing and corollary “preliminary and postliminary” activity that continue to plague employers and provide fertile ground for plaintiffs’ lawyers.  More likely than not, the Sixth Circuit will be asked to rehear this case en banc, with DOL amicus participation and a petition for Supreme Court review probable thereafter to resolve the deepening divergence on these issues in the courts of appeal.

Look for more in our blog on this clothes changing conundrum and the current court landscape in the weeks ahead.

"... and God So Loved Employers, He Gave Them The Fluctuating Workweek Method."

From the "don't look a gift horse in the mouth" desk, the Seventh Circuit recently saved an employer from a holy terror of a damages award (a solemn promise: each pun in this blog will be better than the next) in Urnikis-Negro v. Am. Family Prop. Servs.pdf, 2010 U.S. App. LEXIS 16126 (7th Cir. Aug. 4, 2010). Ms. Urnikis-Negro ("Ms. U-N") left her prior position for a job with her pastor who, quite naturally, was also a real estate appraiser and--surprise!--an individual defendant in the case. The pastor, Todd Lash (endearingly referred to herein as "Pastor Todd"), testified that he was tired of being of a real estate appraiser who also pastored, and longed instead to be a pastor who also appraised real estate. To pursue this "higher calling," Pastor Todd hired Ms. U-N to answer telephones, schedule appointments, proofread paperwork, and assorted other tasks. It seems that there was plenty of such work to keep Ms. U-N occupied, as she frequently worked 12 hours per day during the workweek and an additional 6 hours every other weekend. She was not paid overtime for these hours because, according to Pastor Todd, she was administratively exempt.

For reasons unbeknownst to us, and perhaps only beknownst to Ms. U-N and Pastor Todd, Ms. U-N was fired by Pastor Todd shortly before he was indefinitely suspended from real estate appraisal work. (The facts behind these developments, though omitted from the Seventh Circuit's decision, are almost certainly more interesting than anything else in the case.) Surprisingly, Ms. U-N sued shortly thereafter. Perhaps equally astounding, the trial court (yes, this actually went to trial) did not share Pastor Todd's unique take on the FLSA's administrative exemption. It held that Ms. U-N should have been treated as non-exempt and that she was owed back pay for her overtime hours. Relying on the Book of DOL Chapter 29, Verse 114 (....please, make it stop), however, the trial court found that Ms. U-N's annual salary of $52,000 was intended to provide straight time wages for all hours she worked. As a result, the court held, Pastor Todd only owed her half-time for her claimed overtime hours (i.e., the "fluctuating workweek" or "half-time" method), which reduced Ms. U-N's back pay award to $24,466 rather than the $111,787.50 she was claiming. This was not pleasing in the eyes of Ms. U-N, who apparently had already broken ground on her mansion in the sky. And lo, she did shout her displeasure to the mountain tops of the Seventh Circuit.

The Seventh Circuit affirmed, a result that we applaud with all of our hearts and souls. (Yes, we have both.) But, somewhat concerning is the fact that the court traveled through Hades and back to get to this fairly unsurprising conclusion. More specifically, the Seventh Circuit held that 29 C.F.R. 114 does not authorize the use of the half-time method in calculating damages in a misclassification case. Yet, despite rejecting application of the fluctuating workweek regulation, the court affirmed the trial court's calculation based on the Supreme Court's decision in Overnight Motor Transp. Co. v. Missel.pdf, 316 U.S. 572 (1942). Why, you might ask, is this so odd? Because, in addition to being older than Methuselah, the Supreme Court's Missel decision is the basis upon which the DOL promulgated the half-time regulation that the Seventh Circuit rejected. So, after rejecting the applicability of the half-time regulation, the Seventh Circuit went back to the same source and reached the same conclusion it would have reached simply by applying the regulation in the first place. Strange days, indeed.

The bottom line: What does it all mean in the end? Well, we sincerely doubt that Pastor Todd will borrow a trick from Martin Luther and nail a list of these issues to the door of the Seventh Circuit. And, as good-hearted management lawyers, we're always happy to see one of our capitalist brethren win one for the Gipper, especially an entrepreneur of Pastor Todd's ilk and stature. But, some of the court's logic has our spider-sense a-tinglin', especially in light of what's at stake. Imagine a collective action with just 150 opt-in Ms. U-Ns. A half-time award would result in a verdict of about $3.7 million, which is admittedly a pretty big communion wafer. But, if the half-time method is rejected, that figure ascends to almost $17 million. That, my friends, is eternity in a lake of fire.

So, take heed! Make sure that your employment records confirm, with trumpets blaring, that an exempt employee's salary is intended to compensate her for all hours worked. Say it in thine offer letters, and in thine raise letters, and in thine beasts of the field. While it might end up being overkill, it may be your "Get Out Of Purgatory Free" card if you get sued.