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

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.

While many courts apply a lighter standard for the conditional certification of putative FLSA classes, employers tend to prevail more often on so-called “off-the-clock” cases, as a recent case from the Southern District of Texas demonstrates.  In Griffith v. Wells Fargo Bank N.A.pdf., Case No. 4:11-DV-1440 (S.D. Texas), the plaintiff contended that the employer required its loan processors to work off of the clock and therefore, did not properly compensate them for their overtime hours worked.  They sought conditional certification of a nationwide class of loan processors, relying on factors such as the employer’s job descriptions, handbooks, and use of a nationwide electronic time-recording system.

The court examined each of these to determine whether the plaintiff had made a showing of a nationwide illegal policy, but found none.  First, the court rejected the plaintiffs’ claim that the company’s time-keeping system encouraged the underreporting of hours by, among other things, “prepopulating” the time fields with the employee’s set schedule or prompting the employee to double-check their entries for accuracy if the time they recorded added up to more than a 14-hour day.  Since the employees could override the system, its use did not violate the FLSA.

The court also rejected an argument commonly made in FLSA cases, that the plaintiffs needed more than 40 hours per week to complete their work, and that the employer’s discouraging of overtime somehow “forced” them to fail to report time.  As the court aptly noted, this argument essentially turned the employer’s admonition to work efficiently into one to break its express policies.  The court found, moreover, that the employer’s policy was that the employees record all of their time, and that anything to the contrary would be “unofficial” and thus not the result of a nationwide illegal policy. 

The court concluded that the plaintiffs had failed to show that the loan processors were similarly situated and denied certification.

The Bottom Line:  Courts will more readily deny conditional certification of FLSA classes in off-the-clock cases (versus misclassification cases).

When James Bond brandishes his Walther PPK and walks into a printing plant, you know one thing is certain - you will be "treated" to at least a half-dozen newspaper puns.  And, since this article is about a recent California case involving newspaper carriers, it will, of course, be no different.

Ever since Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), stopped the presses last summer, courts have been struggling with how to interpret the decision, and more importantly, how to define its holding with pending class actions.  The judge in Dalton v. Lee Publications, Inc., Case No. 3:08-cv-01072 (S.D. Cal. April 24, 2012), faced just such a dilemma.  The plaintiffs, employed as newspaper home delivery carriers, initially sued in 2008 on the premise that the employer, Lee, had misclassified them as independent contractors.  In July 2010, the court certified the class as Lee newspaper home delivery carriers who had signed written agreements designating them as independent contractors.

Lee was black, white, and red all over its face when it saw that a class of 800 employees had been certified, so it quickly appealed.  In November 2010, however, the Ninth Circuit denied its appeal.  Still determined that the certification was not fit to print, Lee moved for decertification following the Dukes decision in 2011.  Primarily, Lee argued that individualized issues predominated over common issues, and that the class of 800 would be unmanageable.

The court disagreed.  Using Dukes as front page, above the fold material, it wasted no time distinguishing the 1.5 million individuals involved there with the "scant" 800 employees of Lee.  Lee argued that the court could not merely look to the similar contracts signed by the plaintiff class members as a "common answer" to the question.  Plaintiffs, on the other hand, convinced the court that Lee kept "extensive records" that purportedly demonstrated mileage, hours, and other information with respect to each class member.  Any individual damages could be determined through those records, and without any kind of "representative sampling."

It wasn't all bad news for Lee, however.  Before putting the paper to bed, the court conceded that if the workers could not present such proof of individualized damages at trial, and they were forced to resort to individual testimony, Lee could renew its motion for decertification at that time.

The Bottom Line:  Even after Dukes, it is difficult to allege individualized damages for decertification purposes when the defendant keeps meticulous records from which it can easily calculate the amounts.

The case of DeSilva v. North Shore-Long Island Jewish Health System, Inc., Case No. 10-CV-1341-JFB-ETB (E.D.N.Y. March 7, 2012), began small, like a lone cough one winter’s morning, before escalating into a full-blown cold, complete with hacking and wheezing.  At first there were six plaintiffs working as nurses.  After two amended complaints, however, the purported class rose to nearly 38,000 current and former employees, enough to make any defendant employer break out in a cold sweat.  They alleged that their pensions and 401(k) or 403(b) plans were not credited with their non-reduced weekly wages and correct overtime compensation.  These claims, however, were actually the symptoms of a much deeper, deadlier problem alleged by plaintiffs: that the defendant maintained three illegal pay policies – the meal and break deduction policy, the unpaid pre-and post-schedule work policy, and the unpaid training policy.  The only cure, of course, was a prescription-strength dose of unpaid wages (among other penalties).

In mid-2011, the defendants filed a motion to dismiss while plaintiffs simultaneously sought expedited notice to the affected employees under 216(b) of the FLSA.  After hearing oral arguments (and nearly nine months of pondering), the court ultimately ruled on the plethora of claims, including (somewhat unusual in an employment context) RICO violations, wire fraud, and forced labor allegations.  More common, however, were plaintiffs’ allegations that defendants had breached their fiduciary duty under ERISA.  The court, in what amounted to a quick nip and tuck of only two paragraphs, examined the plan documents themselves and held that, because the benefits at issue were tied only to compensation paid – not to hours worked or compensation earned through hours – the plaintiffs had failed to state an ERISA cause of action.  Accordingly, the breach of fiduciary duty claims under ERISA were dismissed with prejudice.

Before finally suturing up its decision on the plethora of issues, the court also denied the defendants’ request for dismissal on grounds of Labor Management Relations Act preemption.  Adopting a “wait and see” approach, the court held that the proper time to make the preemption determination was after it was clear whether or not interpretation of the collective bargaining agreements was necessary to decide their claims.

The Bottom Line: Contrasting the age-old medical adage of “take two and call me in the morning,” the court’s ruling here affirms that plaintiffs cannot merely plead a breach of fiduciary duty claim under ERISA and expect results.  One must pay close attention to what the plan documents specify; in this case, the benefits were directly linked to the compensation actually paid, and not the hours worked.  As a result, plaintiffs found themselves discharged and holding the bill.

The California Court of Appeal issued a rare decision in favor of employers last week, when it reversed a class action judgment of $15 million and decertified a class of 260 current and former bank employees who claimed they had been misclassified as exempt and were therefore entitled to meal and rest break premiums.  News of the opinion caused many in the employment defense bar to double check their calendars that it wasn’t April 1.

The class consisted of current and former business banking officers who claimed they were misclassified by USB as outside sales personnel exempt from California’s overtime laws, and were thus unlawfully denied overtime pay.  The central issue on appeal with whether the trial court had properly used statistical sample of class members to determine liability.  Specifically, the trial court had limited the phase of the bench trial dedicated to determination of liability to testimony from and about only 20 members of the class.  The employer was therefore not permitted to introduce significant evidence that several of the non-sample group class members were, in fact, properly classified as exempt.

At the end of this phase of the trial, the trial court found that 19 of the 20 sample class members had been misclassified.  The trial court then used this initial finding to make a finding of liability on a class-wide basis, a determination which, statistically speaking, had a 43.3% margin of error.

The Court of Appeal rejected the trial court’s broad reading of Bell v. Farmers Ins. Exchange, 115 Cal. App. 4th 715 (2004) (referred to by the Court as “Bell III”), which had held that statistical sampling could be used to determine class-wide damages.  Stating that Bell III was “manifestly inapposite” to the question of class-wide liability, the Court of Appeal explained that:

[t]he procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.  Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal.  Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place.  And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.

Use of sampling to determine liability, the Court of Appeal held, was in this case a violation of state and federal due process guarantees, despite its efficacy as a method for liability analysis: “[W]e have never advocated that the expediency afforded by class action litigation should take precedence over a defendant’s right to substantive and procedural due process.”  In short, the court found that the time-consuming individual inquires could not be avoided by using random sampling of class members to determine whether the class, as a whole, qualified for any of the asserted exemptions. 

Though the opinion did not go as far as to make a bright-line prohibition on statistical sampling in class-wide liability determinations, it clearly set a tone that such sampling would be subject to significant scrutiny.  Indeed, the Court relied on the U.S. Supreme Court’s recent decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), in which the Supremes rejected wholesale the use of statistical sampling in the determination of Wal-Mart’s liability to a 1.6 million-strong class.  “The same type of ‘Trial by Formula’ that the U.S.  Supreme Court disapproved of in Wal-Mart,” the Court of Appeal noted, “is essentially what occurred in this case . . . . we find this approach to be untenable.”

The court found that the trial court also erred in denying USB’s motion for decertification for many of the same reasons.  The court first found that the trial court’s denial of decertification was based on “the erroneous legal assumption that a finding of liability due to misclassification could be determined by extrapolating the findings based on the [random witness group] to the entire class.”  The court also found that the trial court gave “excessive weight” to the fact that USB classified all of its business banking officers as exempt without inquiring as to the particular employees’ job duties, hours worked, or performance.  Finally, the court noted that it was “doubtful” a trial plan could have been created that would have accounted for the all the necessary individual inquiries. 

Though employers should, of course, remain diligent in their determination of employee exempt/non-exempt status and in their compliance with meal and rest break mandates, the Duran opinion will prove a useful spear in employer’s defense of class actions where plaintiffs regularly attempt to prove their cases with the assistance of statistical sampling and analysis.

The Bottom Line:  The decision in Dukes criticizing attempts at "Trial by Formula" in class actions seems to be taking hold, even in California state courts.

 Authorship credit: Gilbert P. Brosky and Alastair J. Gamble

Maryland staffing corporation Aerotek Scientific, LLC (“Aerotek”), allegedly required its employees who worked at one of its call centers in California to arrive at work at least ten minutes before the beginning of their shifts to log into their computers and be at the ready to receive calls at the immediate start of their shifts. While this sounds like a sound customer service practice, Aerotek employee Tamara Pryor alleged that this and other requirements resulted in she and other class members performing pre-shift work without proper compensation.

In Pryor v. Aerotek Scientific, LLC, Case No. CV-10-06575-MMM-AJW, (C.D. Cal. Nov. 15, 2011), the plaintiff brought claims against Aerotek in the Central District of California for the typical litany of state law wage and hour claims, for failure to pay wages due for pre-shift work, failure to pay overtime, failure to provide accurate itemized wage statements, failure to pay wages upon termination, and unfair business practices in violation of California Business & Professions Code Sections 17200 et seq. She further claimed that Aerotek instructed its employees to record only the time they were logged into its telephone system as time worked, although employees also spent time logging into their computer system before they were logged into it. Pryor also claimed that Aerotek required class members to round their start and end times to the nearest 15-minute interval and precluded them from logging into the telephone system before the scheduled start of their shift, which allegedly ensured that the substantial portion of any rounding would be in Aerotek’s favor.

On November 15, 2011, the district court denied certification of the class. In keeping with the growing trend among wage and hour certification decisions, the district court cited Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (2011), but denied certification on grounds unrelated to the issues focused upon in that decision. Like its decision in Lessard v. Skywest Airlines, Inc., Case No. 2:11-cv-03769-JHN-VBK (C.D. Cal. Oct. 24, 2011), less than a month earlier, the district court denied certification on the basis that the Rule 23(b) predominance requirement had not been met. The Court concluded that Aerotek’s common time reporting policies were not enough to satisfy the predominance requirement which is “far more demanding” than Rule 23(a)’s commonality requirement. The Court observed that Aerotek’s common time reporting policies would not have had a uniform impact on employees in light of the significant discrepancies in employees’ testimony regarding how early they were told to arrive at work and how long it took them to log into the telephone system. The Court also observed that Aerotek’s rounding practices necessitated individualized inquiries because “even an employee who worked for a few minutes before recording time . . . may have been compensated for the time if the employee rounded his or her total time up at the end of the day.” Accordingly, this precluded reaching a conclusion as to whether, on a classwide basis, employees were underpaid.

The Bottom Line: The Dukes decision is taking hold, at least indirectly. Plaintiffs seeking to assert class claims need to demonstrate a common policy or issue that had a uniform impact on employees that is subject to common proof.

Authorship credit: Dawn Kennedy

An employer permits its employees to trade shifts voluntarily. A nice favor, right? Unfortunately, there are claimants ready to assert class action wage and hour claims when the employees' own decisions create potential overtime issues.

In Lessard v. Skywest Airlines, Inc., Case No. 2:11-cv-03769-JHN-VBK (C.D. Cal. Oct. 24, 2011), the plaintiffs were former ticket agents for Skywest Airlines in California. They asserted that the company permitted employees to trade shifts among themselves, but that it failed to take into account California overtime requirements when the trades resulted in them working over 40 hours per week or 8 hours per day. Part of the reason this was an issue is that section 13 of the federal Fair Labor Standards Act has an exemption for airline workers, so that the state overtime claims may be the only ones that may apply. Perhaps important to the outcome of the case, the trades were voluntary among employees, rather than shifts dictated by the employer.

The plaintiffs also contended that Skywest failed to include various performance rewards - bonuses - into the regular rate for overtime purposes. They asserted the standard array of California Labor Code violations and sought to represent two state-wide class of Skywest agents, one for the shift trade issues, and the other for alleged bonus calculation claims.

The district court denied certification of both classes. The district court cited the recent decision of Dukes v. Wal-Mart Stores, Inc.,131 S. Ct. 2541 (2011), but decided the case on issues that were not directly discussed in that case. It found that neither class met the Rule 23(b) predominance requirement. While the reasons differed slightly between the two proposed classes, the key problem with both was that while the plaintiffs alleged that a common policy existed, they never identified what that policy was and even their own submissions suggested variations in the putative class members' experience. The court also rejected plaintiffs' identification of a general issue regarding the validity of the relevant California Wage Order, finding that it was but one of many issues in the case.

The court concluded that Rule 23(b) was not satisfied, and denied class certification for both proposed classes.

The Bottom Line: Plaintiffs seeking to assert class claims need to demonstrate a common policy or issue whose resolution will determine the outcome of the case.

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.

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.

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.

We've written several times this year about the wide split in authority regarding whether a plaintiff in a wage and hour case may bring both a collective action under the FLSA and a Rule 23 class action with respect to claimed parallel violations of state law. Apart from concerns over the management of simultaneous "opt-in" and "opt-out" classes, many courts refusing to permit both have noted the legislative history of FLSA section 16(b), which created the collective action vehicle. These courts have found, based on the statute's history, that Congress passed section 16(b) 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).

Earlier this year, the Seventh Circuit concluded in Ervin v. OS Restaurant Services, Inc., 632 F.3d 971 (7th Cir. 2011), that both could be maintained, a decision we wrote about on January 26. Subsequently, as reflected in our blog entries on May 30 and June 6, both the Southern District of New York and the Middle District of Pennsylvania have found that the two are incompatible, and cannot be combined.

On June 8, 2011, the Western District of Pennsylvania, in Bell v. Citizens Financial Group, Inc.pdf, Civil Action No. 10-0320 (W.D. Pa. June 8, 2011), again weighed in on the issue and held that the two could not be combined. After reviewing the conflicting authority, it found that permitting both "would allow plaintiffs to evade the requirements of the FLSA," largely by "eviscerat[ing]" the purposes of the FLSA's opt-in requirement. It therefore denied certification of a state law class when it had already certified the class as an opt-in class under the FLSA.

The Bottom Line: The legislative history of FLSA section 16(b) makes it clear that the opt-in requirement was intended to limit overtime litigation, but there is a distinct split among courts whether the plaintiffs can avoid the requirement by seeking a state law class on the same issues.

As we have commented before in this blog, courts considering certification of collective actions under the FLSA often use the two-step procedure generally attributed to the court in Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987).  Under that procedure, the court first determines whether to “conditionally” or “provisionally” certify the class.  This first step typically relies upon a relative showing that the putative class members are similarly situated and is made on an incomplete evidentiary record.  If the case is conditionally certified, the court will direct notice the proposed class and permit potential class members to opt into the litigation.  Following the close of that period and additional discovery, the defendant typically moves to “decertify” the conditionally certified class.  This second motion is decided under a stricter standard (for the plaintiffs) and often results in the class being decertified.  A recent case from the Southern District of New York again shows that even large “conditionally” certified classes are being decertified and that the plaintiffs cannot rely simply on uniform policies, but must demonstrate some class-wide illegal policy or practice.

In Zivali v. AT&T Mobility.pdf, Case No. 08 Civ. 10310 (S.D.N.Y. May 12, 2011), the plaintiff was a nonexempt employee working at an AT&T Mobility retail store.  He contended that, largely as a result of the company’s time-keeping system, he was not appropriately paid for his wages and overtime. He specifically pointed to issues such as needing supervisor approval for overtime, having to work through meal periods, and having to work “off-the-clock,” issues that he claimed arose because of difficulties in capturing such time in the company’s electronic time-keeping system.   He sought to represent a class of all such employees nationwide.  In 2009, applying the lower standard, the court conditionally certified the class.  See Zivali v. AT&T Mobility, 646 F. Supp. 2d 658 (S.D.N.Y. 2009).  Over 4,100 plaintiffs ultimately opted in from over 2,000 AT&T Mobility stores across the United States.  As is usual for the plaintiffs in these cases, so far the case was going well for them.

But then comes phase two - the decision whether to decertify the class.  Following additional discovery and the depositions of approximately 30 class members, the defendant moved to decertify the class.  Applying what it described a “more ‘stringent standard of proof,’” the court reviewed the defendant's submissions.  The court found that the plaintiff had the burden under section 16(b) of the FLSA, 29 U.S.C. section 216(b), to demonstrate that the putative class members were similarly situated.  It then determined that the electronic time-keeping system challenged by the plaintiffs, as well as the company’s corporate policies, were themselves lawful.  This finding was significant because certification under the FLSA requires not simply the existence of uniform practices or policies, but ones that actually violate the law.  

Because there was no overarching policy that violated the FLSA, the court concluded that the case would devolve into a series of individual determinations over why particular employees at particular stores might not have been paid the wages they were due.  As to claims of off-the-clock time, for example, the court found that each employee’s situation was different.  Some received customer calls on off time; others did not.  Some managers expected employees to review customer emails on off hours while other did not.  The same was true for the other claimed violations. Some employees took their meals without incident or even were able to take them at home, while others reported customer interruptions or other difficulties.  Estimates of off-the-clock time ranged from totally de minimus duties to those taking only one or two minutes to more extensive time.

Ultimately, the court determined that “the many fact-specific issues in this case would essentially require 4,100 mini-trials.”  Applying the higher, second-stage standard, the court decertified the class and dismissed all of the claims except those of the single named plaintiff.

The Bottom Line:  A viable FLSA collective action class requires uniform policies or practices that violate the Act, not simply uniform policies.

Thomas Hobbes famously observed that life is short, nasty, and brutish.  A recent case from the Ninth Circuit demonstrates that litigation is similar, except that it is not short.

In Marlo v UPS.pdf (9^th Cir., April 28, 2011), the plaintiff was a UPS employee who held various supervisory positions in connection with the movement of freight.  He contended that he was misclassified as an exempt employee under California law and asserted claims for unpaid overtime as well as the usual assortment of related California claims.  This claim, incidentally, would have been difficult to bring under federal law due to the application of the Motor Carrier Act (“MCA”).  The FLSA contains an overtime exemption for employees performing certain functions in connection with interstate transportation under the MCA, but has no direct California equivalent.  See 29 U.S.C. section 213(b)(1).

Marlo brought his action in May of 2003, and the court certified a class of California UPS supervisors in 2004.  In 2005, the district court granted summary judgment in UPS’s favor.  In 2007, however, in a decision that spans only a handful of paragraphs, the Ninth Circuit reversed, citing unspecified questions of fact.  254 Fed. Appx. 568 (9^th Cir. 2007).  So far, so good for the plaintiffs, although the case was now four years old.

On remand, the district court decertified the class.  Upon reviewing the parties’ positions, it found that the need for an individual inquiry demonstrated that the case did not satisfy the predominance requirement of Rule 23(b)(3).  It stated that while the employer bore the burden of establishing an exemption under California law, the plaintiff had the burden to establish the elements of Rule 23.   In particular, it rejected the plaintiff’s reliance on what he claimed were centralized control and uniform policies.  Interestingly, it also refused to rely on an annual survey UPS itself had conducted because it had not used a reliable methodology.

Marlo’s individual claims were tried and, following a nine-day trial, the jury found in Marlo’s favor on some, but not all claims.  Both sides appealed.

The Ninth Circuit affirmed the decisions below.  As to certification decision, the Ninth Circuit held that the district court did not abuse its discretion in decertifying the class and did not, by evaluating the existence of common proof, improperly weight the evidence as to the merits.  After nine years of litigation, the individual plaintiff prevailed, but there was no class-wide determination.

The Bottom Line:  Wage and hour class actions can take on a life of their own.  Individual differences among employees will still defeat certification, even when the named plaintiff’s claims are found to have merit. 

We just wrote about a recent case in which a court refused to certify a class of Wal-Mart loss prevention employees.  See Bramble v. Wal-Mart Stores Inc., Case No. 09-04932 (E.D. Pa. Apr. 11, 2011).  In the Bramble case, the court found that the duties of the employees were simply too diverse to justify even conditional certification. 

Only two days later, another court denied certification of an even harder case against rival retailer Target.  In Mullins v. Target Corp.pdf., Case No. 09-7353 (N.D. Ill. Apr. 13, 2011), the plaintiff was an "investigator" for Target, and she claimed that she had been misclassified as exempt under the FLSA.  Her case was somewhat more difficult from the employer's standpoint because she had no managerial duties and the only potentially applicable exemption was the administrative exemption.  In Bramble, the employer appeared to have the easier executive exemption available.   Like the Wal-Mart plaintiff, the plaintiff in Mullins sought to represent a class of those like her nationwide, and she also moved for conditional certification under section 16(b) of the FLSA.  She fared even worse, however, because the court granted summary judgment against her.

The court analyzed the plaintiff's duties and found that her investigative activities did satisfy the administrative exemption.  It rejected the plaintiff's arguments that she did not possess the necessary discretion and decision making authority because she frequently needed to consult with and make recommendations to her superior.  Because it found that the administrative exemption applied, it dismissed her claims and found the motion for conditional certification to be moot.

The Bottom Line:  The Court won't even reach the issue of conditional certification if it finds the named plaintiff's claims to be unviable.

It's easy to forget that cases to the Supreme Court are in many ways like any other case and their own histories following Supreme Court review.  Almost no-one, for example, could readily identify the individual appointed to the position sought by William Marbury after the Supreme Court's Marbury v. Madison.pdf decision.  While almost anyone can describe, and even recite, the text of a "Miranda" warning, few know that Ernesto Miranda was still convicted after the Supreme Court's suppressed the use of his confession in the case that bears his name. 

While not in the same league as either of those two cases, the case of Hertz v. Friend.pdf continues to limp along following the Supreme Court's 2010 decision.  The Friend case is a relatively typical California wage and hour action in which a group of Hertz location managers contend that they were misclassified as exempt and seek lost overtime, penalties for missed meal and break periods, and other relief under California law.  They filed their claims in California state court, but Hertz removed the case to the United States District Court for the Northern District of California, claiming diversity jurisdiction under the Class Action Fairness Act ("CAFA"), 28  U.S.C. section 1332(d).  The plaintiffs were all citizens of California, and Hertz contended that its principal place of business was New Jersey  because that was the state where its headquarters and primary operations were centered. The district court, however, found that there was no diversity because it concluded that a plurality of Hertz's business (about 18%, depending on how you measure it) was located in California and thus its California business "substantially predominated."  The Ninth Circuit affirmed, but the Supreme Court held unanimously that removal was proper. Hertz Corp. v. Friend, Case No. 08-1107, 559 U.S. ___(Feb. 23, 2010).  In an opinion authored by Justice Breyer, the Court rejected the "substantially predominates" test applied by the district court and used a "nerve center" test to determine a corporation's principal place of business.  Under that measure, the Supreme Court found, Hertz's principal place of business was New Jersey and removal was proper.

On remand, the plaintiffs moved to certify the class under California law, but in an opinion one year and one day from the date of the Supreme Court's decision the district court rejected their arguments.  First, it found that it could not certify the class under Rule 23(b)(2), because it provided only for equitable relief.  All of the named plaintiffs were no longer Hertz employees, and thus had no standing to seek any such relief or to represent a class seeking such relief.  Second, it found that the case could not be certified under Rule 23(b)(3), because class issues did not predominate.  After reviewing evidentiary submissions by the parties, the court concluded that the level of responsibility and the time spent performing various managerial and nonmanagerial tasks varied within the class and even from day-to-day. These duties reflected a host of responsibilities, including hiring and firing, moving cars, interviewing candidates, training, cleaning vehicles, and many other aspects of the operation of a rental car operation.  Given the required "fact-intensive inquiry into each potential plaintiff's employment situation," and the variation in the plaintiffs' duties and the employer's expectation as to those duties, the case would devolve into a series of minitrials.  Thus, the district court denied class certification.

The Bottom Line:  A trip to the Supreme Court doesn't guarantee a big case.  Cases challenging the exempt status of managers often fail due to variations among duties by location and other business factors.

In a decision that emphasizes practicality over formalism, the Ninth Circuit recently held that pharmaceutical sales representatives (“PSRs”) are exempt from overtime pay.  In Christopher v. SmithKline Beecham Corp.pdf, __F.3d___, 2011 WL 489708 (9^thCir. Feb. 14, 2011) the Court concluded that the “outside sales” exemption to the FLSA applies to PSRs, meaning that they are not entitled to overtime pay.  Christopher held that the PSRs’ primary duty was making sales in the sense that “sales” occur in the pharmaceutical industry. 

PSRs have been the subject of numerous class and collective action cases claiming entitlement to overtime, and specifically challenging the application of the outside sales exemption to the FLSA.  The basis for these lawsuits is that the law prohibits manufacturers and PSRs from directly selling prescription drugs to the public or to physicians. Thus, the plaintiffs argue, they cannot be “selling.”

As a result of the legal restrictions on direct sales, the pharmaceutical industry employs approximately 90,000 PSRs to personally convince physicians in a targeted area to prescribe the drugs for which the PSR is responsible.  The PSRs personally visit physicians and provide samples along with information about the products.  The goal of the PSR is to seek non-binding commitments from the physicians to prescribe the assigned product, since the law precludes a direct sale in the strict sense of the word.  (Nota bena for movie aficionados:  The recent film “Love and Other Drugs” depicts the competitive sales atmosphere among PSRs—and, a frolic involving the patient played by Anne Hathaway, raising unrelated issues of binding v. non-binding commitments.). 

In Christopher, the GlaxoSmithKline PSRs were paid a base salary and incentive-based compensation tied to whether market share, sales volume, revenue, or dosage associated with the product increases in the PSR’s territory.  The employer asserted that the “outside sales” exemption applied because the PSRs’ primary duty involved making sales or obtaining orders away from the employer’s business.  The plaintiffs argued that their primary duty was not making sales, but instead communicating features and benefits of the products to physicians.  The Department of Labor (“DOL”) supported the plaintiffs’ position that PSRs do not meet the primary duty test necessary for the exemption. 

Congress has defined “sell” for purposes of the exemption as a “sale” or “other disposition.” Congress has not defined the specific parameters of the outside sales exemption but has granted the DOL power to issue regulations to this end.  Courts typically defer to the DOL interpretation as long as it is based on a permissible construction of the statute.  However, Christopher found that the DOL had not provided specific, meaningful language interpreting the meaning of sales in this context. 

Christopheranalyzed the current and historical job functions for PSRs industry-wide and concluded that the job duties are homogeneous among various drug manufacturers and have changed little over the past 50-60 years.  The Court emphasized that the DOL had interpreted the exemption as far back as 1940 to require only a sale “in some sense” of the word.  As a result, Christopher held that the DOL’s current position in the context of an amicus brief was not entitled to deference since it had essentially acquiesced to the industry practice for decades.  Further, the Court concluded that the DOL view was plainly erroneous and inconsistent with regulations and practice. 

Christopher recognized that legal restrictions prohibit the PSRs from directly selling the drugs, but that physicians are in reality the decision makers that result in the sales.  Based on the pharmaceutical business model, the prescription is the sale for practical purposes.  The manufacturers hire PSRs based on their sales experience, exercise limited oversight of day-to-day activities of the PSRs, and tie compensation to whether sales of the product for which the PSRs are responsible increase.  As a result, the Court concluded that the PSRs’ jobs involve selling at least  in “some sense” of the word.  The Court opined that the bulk of the PSRs’ job duties are in line with those of the “classic salesman” as set forth in a 1941 case, Jewel Tea Co. v. Williams, 118 F.2d 202 (10^th Cir. 1941).  The PSRs’ primary duty is not promoting their employer’s products in general to the at-large public.  Instead, the PSR is primarily concerned with inducing a particular physician in a particular territory to prescribe a particular drug.

In contrast to Christopher, the Second Circuit has found that PSRs do not qualify for the outside sales exemption because they do not literally consummate sales with physicians or receive binding commitments from physicians.  In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2d Cir. 2010).  The Novartis Court gave controlling deference to the DOL view requiring essentially a transfer of title to fall within the outside sales exemption.  The Court construed the outside sales exemption narrowly against the employer and viewed the PSRs’ primary duties as promotional in nature. 

Other courts have considered whether the separate “administrative” exemption to the FLSA applies to PSRs.  This exemption requires that the employee receive at least $455 per week and that the “primary duty” involve discretion and independent judgment in the performance of significant office or non-manual work directly related to management or general business operations.  In Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), the Court held that  the administrative exemption applied to the PSRs, finding that they engaged in planning, exercised discretion to develop their own strategies for marketing, and could chose which doctors to visit within territories.  As a result, Smith rejected the PSRs’ claim that they lacked discretion with respect to matters of significance and found it unnecessary to consider the outside sales exemption.

In contrast to Smith’s application of the administrative exemption, Novartisfound that the PSRs did not exercise discretion and independent judgment with respect to matters of significance.  The Court stated that the PSRs had no role in planning sales strategy or the core message to physicians and were forbidden from answering any questions for which they had not been scripted.  In the wake of Novartis, the Eastern District of New York has denied summary judgment due to a factual dispute concerning the job duties and discretion of telephone claims representatives alleged to be exempt under the administrative exemption.  Harper v. Government Employees Ins. Co., ___F.Supp.2d___, No. 09-2254 2010 WL 4791635 (E.D. N.Y. Nov. 16, 2010).  The Court stated that the employer’s argument in favor of the exemption was strong but that more facts were needed based on the Second Circuit’s “very narrow” interpretation of the administrative exemption.

The Bottom Line:   Courts are now split over the application of the outside sales exemption.  The Ninth Circuit views PSRs as exempt based on the outside sales exemption and the Third Circuit reaches the same result based on the administrative exemption.  The Second Circuit disagrees, holding that PSRs do not qualify for either exemption.  Courts disagree on fundamental concepts, such as the deference owed to the DOL and the proper construction of the exemptions based on decades old industry practice.  The Supreme Court is considering petitions for certiorari and may weigh in to resolve the difference of opinion among lower courts.  Regardless, employers relying on the outside sales and administrative exemptions should review the realities of employees’ day-to-day duties, including the amount of discretion and judgment exercised. 

A federal court in New Jersey recently decertified an FLSA class of 1,500 Home Depot merchandising assistant store managers (“MASMs”) who claimed they were misclassified as exempt executive employees.  (Aquilino v. Home Depot, U.S.A., Inc.pdf., No. 04-04100 (D. N.J. Feb. 15, 2011).  The court determined that because the job responsibilities and duties varied from MASM to MASM, proceeding as a class would require individualized inquiries to determine whether each specific opt-in qualified as an executive employee. 

The court in Aquilino conditionally certified the class on September 6, 2006.  The court noted that this initial certification inquiry uses a “fairly lenient standard” and “usually results in the grant of conditional certification.”  The plaintiffs then sent notice of the collective action to approximately 12,728 current and former MASMs.  Initially, 1,747 opt-in plaintiffs joined the litigation, or about 14 percent of the potential total.  However, that number was even further reduced to 1,502 as a result of dismissals for failure to comply with discovery orders or voluntary withdrawal of claims.  The defendants moved to decertify the class approximately four years after it was conditionally certified. 

Consistent with settled authority, the court first noted that the plaintiffs’ burden to show that they are similarly situated is higher on decertification than on conditional certification.  It stated that a conditional collective action certification should only be converted into a final collective action certification only where “the plaintiffs make some showing that the nature of the work performed by other claimants is at least similar to their own.”  The court identified the following three factors as determinative to the similarly situated inquiry:  “(1) the “disparate factual and employment settings of the individualized plaintiffs; (2) the various defenses available to defendants; and (3) fairness and procedural considerations.”

The court began its inquiry by noting that deposition testimony revealed a wide variation as to the type of duties and responsibilities among the class members as well as the amount of time they spent performing exempt and non-exempt tasks.  The court specifically noted that the MASMs had differing testimony of how they directed and supervised employees and their level of authority over subordinate employees including hiring, promoting, evaluating performance, disciplining, and terminating employees.  The court also noted that there were “great disparities” in the opt-ins’ testimony in regards to the amount of time that they spent performing exempt tasks. 

With this testimony in mind, the court found the first factor did not favor certification because the testimony demonstrated that duties and responsibilities significantly varied from MASM to MASM. This variation would require the court to engage in numerous individualized determinations if the collective action were maintained.  The court rejected as irrelevant the plaintiffs’ argument that Home Depot had not attempted to evaluate whether the MASMs were actually performing exempt work before classifying them as exempt executive employees. 

The court found the second factor did not favor certification because the potential defenses of the defendant and the requisite individual inquiry would make the class unmanageable.  The court noted that “defendant is entitled to question each individual opt-in about his or her managerial responsibilities to illustrate that MASMs qualify as exempt managers.”  The court further found that the defendant’s anticipated attempt to impeach plaintiffs by questioning their inconsistent discovery responses would make it “difficult and confusing” for the fact finder to make credibility determinations and to discern whether each individual is exempt.  

For the final factor, the court agreed with plaintiffs that allowing the litigation to proceed as a collective action would lower costs to the individual plaintiffs and promote judicial economy by having 1 instead of 1500 separate actions.  However, the court found these considerations were outweighed by the “potential unfairness and procedural difficulties” of allowing such a case to proceed as a collective action.  Due to the requisite individual inquiry necessary to determine whether each plaintiff was properly classified as exempt, the court stated it had “serious concerns as to whether a collective action would be most efficient” and whether it could “coherently manage” the collective action without prejudice to the parties. 

The court therefore concluded that the plaintiffs had not met their burden of establishing that they were similarly situated to the opt-in plaintiffs.  The court also refused to create subclasses for declaratory relief and for training period claims.

The Bottom Line:  An employer faced with an adverse decision on conditional certification has options other than writing settlement checks.  As this case demonstrates, an aggressive discovery strategy following conditional certification can provide enough evidence of differences among class members to later prevail on a decertification motion. 

Plaintiffs in many overtime cases argue that they were forced to work “off the clock” because the volume of work they were given was so great.  In a recent case, the employees did one better and argued that the combination of volume and time standards forced them to hire their own helpers to get the job done.

In Wallace v. NCL (Bahamas), Ltd.pdf, Case No. 09-21814-CIV-JORDAN (S.D. Fla. Dec. 30, 2010), the plaintiffs were stateroom stewards for Norwegian Cruise Lines.  They asserted that the cruise line assigned unreasonable work and deadlines, including, among many others, requiring that they clean upwards of 30 cabins in as little as three hours.  The picture they painted of working life on a cruise line did not match the glossy brochures one sees in advertising circulars.  Instead, it was more reminiscent of the shipboard plantation mentality painted so vividly by author David Foster Wallace in his famous (or maybe infamous) essay “A Supposedly Fun Thing I’ll Never Do Again.” As a result of what they described as impossible demands, the plaintiffs asserted that they were forced to hire helpers to complete their jobs on a timely basis. 

Earlier in the case, the district court denied summary judgment for the employer, finding questions of fact as to whether, in fact, the jobs could be completed without helpers.  Apparently emboldened by this order, the plaintiffs moved for class certification.  The Magistrate Judge, however, recommended that the motion be denied and the district court concurred.

Interestingly, the court noted its own prior order finding questions of fact as to whether the job could be performed without a helper.  Still, the court found, the determination of whether and why each steward hired a helper would require a highly individualized inquiry.  Some stewards were able to complete the job without the aid of a helper.  Others hired helpers for personal reasons, such as to help out a family member. 

The court noted other problems with the proposed class, such as locating the 500 or so class members now scattered across the globe and shifting positions by the plaintiffs on their ability to return to Florida for depositions.  The court ultimately rejected the plaintiffs’ proposes class action trial plan, which it found not to resolve these issues, and denied certification.  Bon voyage class claims!

The Bottom Line:  A uniform employer policy, even one found to be arguably oppressive, won’t justify certification if the impact of that policy still requires an individual inquiry.

Cases involving employment and antitrust are rare.  Typically, such cases involve claims that a group of employers agreed expressly or impliedly to cap or limit wages among their employees.  For example, they may claim that the employers in a particular industry agreed not to pay more than a set wage for employees in certain positions. These types of claims are difficult to make and maintain for reasons reflected in the recent decision of a California Court of Appeals in Zumbowicz v. Hospital Association of Southern California, Case No. B215633 (Nov. 16, 2010).

The Zumbowicz case arose out of a bill passed in California in 1999 that obligated employers to pay overtime to non-exempt employees for hours in excess of 8 hours per day.  This new bill went beyond federal and the then existing state law, which required payment of overtime only for time in excess of that over 40 hours per week.  The new statute posed particular problems for the hospital industry because of the popularity of 12-hour shifts among nurses.  While, under the prior law, no overtime would be incurred so long as the nurses did not work more than 40 hours per week, the new law would have created 4 hours of overtime liability each 12-hour shift, even though a given nurse may only have worked a total of 36 hours for the week.  At the same time, the existence of 12-hour shifts, even apart from the potential overtime premium, was an important recruiting tool for nursing staff.

To address this issue and to keep the 12-hour shift a financially viable option, several southern California hospitals came up with the expedient solution of simply reducing the rate of pay of those on 12-hour shifts so that, with the new overtime, there was no change in their total compensation.  The actual reduction was equal to about 15 percent of the hourly rate, but the employee's total paycheck would stay more or less the same.

The plaintiffs, a group of nurses and technical care specialists, brought a putative class action challenging the change as being an antitrust violation under California law.  They contended that the area hospitals, through a hospital association, conspired to depress their wages by reducing their pay.  Much of their case rested upon a theory of “conscious parallelism,” under which they claimed that the hospitals consciously followed each other in reducing the hourly rate for 12-hour shifts. The trial court granted summary judgment against them, and they appealed.

The Court of Appeals affirmed the dismissal of the lawsuit on several grounds.  First, it found that only about half of the hospitals in the association actually adopted the pay reduction, suggesting strongly that there was no “parallel” conduct at all.  Second, they failed to prove even that the hospitals were aware of each others' conduct, let alone that such knowledge was part of the decisional process.  Finally, the court noted the absence of other "plus" factors of anti-competitive conduct, primarily because they failed to show that the hospitals did anything but to act in their own economic self-interest in the wake of the changes in California law.

The court also rejected the plaintiffs’ claim of an outright conspiracy, primarily because of a lack of evidence that any such conspiracy took place, and also held that the trial court had properly limited discovery from third parties such as other hospitals, unions, and the trade association's attorney.

The bottom line:  Absent solid evidence of a conspiracy to fix wages, anti-trust employment class actions are difficult to maintain.

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.

In the weeks following April 26, 2010, en banc decision of a deeply divided Ninth Circuit in Dukes v Wal-Mart Stores.pdf, 603 F.3d 571 (9th Cir. 2010), plaintiffs have predictably argued that the opinion justifies the certification of classes of virtually any size, including those in the overtime/misclassification arena. The case, however, does not apply to such claims by its own terms.

The Dukes case involved a pattern and practice claim under Title VII of the 1964 Civil Rights Act (“Title VII”), 42 U.S.C. §§ 2000e et seq., for gender discrimination in pay and promotions. The plaintiffs’ claims were bolstered by statistical evidence allegedly showing that while two thirds of the hourly Wal-Mart associates were women, only one third of managers were female, and by similar evidence that pay disparities existed in some stores as well as expert and anecdotal evidence regarding discriminatory conduct. The plaintiffs also made a showing, the court found, that Wal-Mart had a uniform personnel and management structure throughout its stores (a factor frequently absent in overtime cases), extensive centralized corporate control over its stores (ditto), and gender disparities in every domestic region of the company. Id. at 600. Relying heavily on the “abuse of discretion” standard of review, a bare majority of the court upheld the district court’s decision to certify the class.

The Dukes decision, however, contains nothing suggesting that large overtime classes should be certified. First, of course, the Ninth Circuit was reviewing the certification decision under an abuse of discretion standard, and even under that lenient benchmark fully five of the eleven judges believed it to be erroneous. The opinion thus is far from a ringing endorsement of the decision to certify, and nothing in the majority or dissents suggests that certification would have survived a less lenient review.

Second, the claim at issue in Dukes bore no relationship to overtime claims. Indeed, the majority took care to emphasize that the plaintiffs’ claims were those for an alleged pattern and practice of gender discrimination under Title VII, claims that by definition required no individual inquiry. Id. at 619, n. 41. It chided the dissent for what it described as a “misguided” concern for individual inquiries in that context. Id.

There is, of course, no such thing as a “pattern and practice” claim under the Fair Labor Standards Act or under any state overtime law that we are aware of, and particularly in misclassification cases both state and federal courts have emphasized the need for an individual inquiry regarding the duties of the putative class members. Thus, the text of the Dukes opinion reflects that the case was decided under a statute under which the individualized inquiry mandated in the overtime context was irrelevant. Further, nothing in Dukes suggests any misgivings about its prior holdings in the Wells Fargo.pdf and Vinole.pdf cases, in which the court rejected the certification of overtime classes far smaller than the class alleged in Dukes.

The Bottom Line: The Dukes case does stand for the proposition that a district court in the Ninth Circuit may not abuse its discretion by certifying a large uniform class in a Title VII pattern and practice case in the face of strong statistical evidence of gender discrimination . However, it sheds no light on whether a court should certify an overtime class of individuals working in a range of functions across different facilities when, by law, an individualized inquiry is required.