N.D. CalAuthored by Eric Hill

Seyfarth Synopsis: Airline customer service representative denied pay for pre-employment 10-day classroom training program under the FLSA and California Labor Law.

The maxim “it is extremely difficult to find someone to pay you to learn” has been proven again! This must be why we, or at least most of us, eventually leave school to enter the working world.

Meanwhile, the trend in the law is clear:

  1. Where trainees are truly “learning,” as a precursor to “working,” and are the primary beneficiary of pre-employment training, there is no duty to pay them.
  2. But, where the trainee’s “on the job” training involves performing work an employee would otherwise perform (to the employer’s financial advantage), the trainee must be paid.

In a January 9, 2017 ruling, Judge Vince Chhabria of the Northern District of California held that a customer service representative for Hawaiian Airlines was not entitled to be paid during a 10-day pre-employment training program that consisted of classroom work and tours of the facilities rather than actual “on-the job” customer service training. The decision is notable for its practical, straightforward analysis regarding when trainees should be paid under federal and California law.

The Court adopted the “primary beneficiary test,” cautioned against a mechanistic application of the six Department of Labor criteria, and granted Hawaiian Airlines summary judgment. (While the lawsuit is a proposed class action, the parties opted to file cross-motions for summary judgment before litigating the class certification question.)

According to the Court, the key question was whether the airline was taking financial advantage of the trainee during the training program by using her to perform work that an employee would otherwise perform. Because the plaintiff did not perform the work of the customer service employees, the Court found no reasonable juror could conclude she was acting as an “employee” during her training course.

The Court noted the classroom instruction and touring were only precursors to performing the work of an employee. The airline did not receive any direct benefit from the training, which taught trainees about FAA regulations, the computer system, and the way the company operated. Because the airline was not using the trainees as “anything close to employees,” the plaintiff was the “primary beneficiary” of the training.

As is the trend, the Court rejected the argument that a trainee is an employee unless the employer can satisfy all six of the DOL’s criteria. Stating that the six criteria are “relevant but not conclusive,” the Court focused instead on whether the trainee or the employer was the “primary beneficiary” of the training. It warned against “mechanistically applying the six criteria,” and called the case “a good illustration” of why “just about every court” has “rejected the Department of Labor’s approach.”

The Court emphasized that the DOL’s criteria seem to be designed for true “on-the-job” training, whereas the plaintiff here was not involved in this type of training. The Court also pointed out there is no difference between the federal and California legal standards for determining whether a worker qualifies as an “employee” during training.

Despite its warnings about reliance on the six DOL criteria, the Court found that application of the criteria would lead to the same result. The criteria are:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees; and on occasion his operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent training.

This decision is not the first “training time” case to grant summary judgment to an employer under these circumstances. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that trainees will be deemed to be employees. But they do signal that, where trainees are not performing the work of the employees and are not engaging in traditional work-alongside-the-employees “on the job” training, they do not cross the line from “trainee” to “employee” and need not be paid as a matter of law.

Co-authored by David S. Baffa, Candice T. Zee, and Alexius Cruz O’Malley

Seyfarth Synopsis: The U.S. Supreme Court has agreed to decide whether workplace arbitration agreements containing class and collective action waivers are enforceable under the FAA, notwithstanding the provisions of the NLRA.

Earlier today, the United States Supreme Court granted and consolidated three petitions for certiorari, to consider whether employers can require employment-related disputes to be resolved through individual arbitration, and waive class and collective proceedings, are enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.

Three circuits—the Second, Fifth, and Eighth—have concluded that agreements that waive class and collective proceedings, thus requiring that claims be arbitrated on an individual basis, are fully enforceable. Two circuits—the Seventh and Ninth Circuit—as well as the National Labor Relations Board, have concluded that waivers in mandatory arbitration programs are unenforceable because the waivers prevent employees from engaging in concerted activities under the National Labor Relations Act.

The National Labor Relations Board asked the Supreme Court to review and reverse the Fifth Circuit’s ruling, in which the Court rejected the Board’s position that such agreements unlawfully interfere with employees’ NLRA rights to engage in concerted activity for their mutual aid or protection.

Two employers also asked the Supreme Court to review decisions by the Ninth and Seventh Circuits in which the courts found the class waivers to be unlawful. The U.S. Supreme Court has consolidated all three cases and oral argument likely will be held in March.

The U.S. Supreme Court has decided time and again that the Federal Arbitration Act strongly favors private resolution of disputes, and that agreements to arbitrate that include these waivers must be afforded great deference and should be enforced. See AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. ––, 133 S. Ct. 2304 (2013). Because the Supreme Court has not directly addressed these agreements in the context of employment arbitration or considered whether Section 7 of the National Labor Relations Act prohibits such agreements, the courts have come to opposite conclusions.

This critically important question has significant implications for employers, in that identical contractual provisions might be considered lawful and enforceable within some circuits, but not in others. Employers, particularly multi-state employers utilizing uniform arbitration agreements across the country, have been grappling with the uncertainty of the efficacy of their arbitration agreements for years. Stay tuned.

Authored by Rachel M. Hoffer

It’s a common business model in the fast-food industry: a massive restaurant company provides the menu, the marketing—including catchy slogans and a universally recognized logo—and the basic operational standards for the restaurant, and a franchisee provides the rest—including hiring, training, and firing restaurant employees. Unfortunately for the fast-food giants (the notorious FFGs, if you will), it’s also common for disgruntled employees to name them in lawsuits—particularly super-sized class-action lawsuits—against the franchisee.

In March 2014, three fast-food workers from Oakland did just that—they sued the family-owned company that operates 8 franchise restaurants in Northern California, and they brought the FFG along for the ride under a joint employment theory, serving up a complaint chock full of California Labor Code, Private Attorneys General Act (PAGA), and negligence claims. Last August, a federal judge in California dismissed the negligence claim on summary judgment and rejected the workers’ theory that the franchisee acted as the FFG’s actual agent. But the judge didn’t toss out the workers’ claims completely, finding the plaintiffs had presented enough evidence of ostensible agency to have their day in court with the FFG.

Determined to have it their way, right away, the plaintiffs settled their claims against the franchisee but moved to certify a class of more than 1,200 hourly workers who had worked at the franchisee’s eight restaurants. Unwilling to pick up the franchisee’s remaining tab, the FFG moved to deny class certification and to strike the representative PAGA claim. And the FFG did what Giants tend to do in San Francisco—it won. Last week, the judge found that the workers’ ostensible agency theory required too many individualized inquiries to be decided on a class basis.

Under an ostensible agency theory, the FFG is on the hook for the franchisee’s actions if the worker can prove: (1) in dealing with the franchisee, the worker reasonably believed the franchisee had the authority to act on the FFG’s behalf; (2) the worker’s belief was caused by something the FFG did or failed to do; and (3) the worker wasn’t negligent in relying on the franchisee’s apparent authority.

The workers argued that the questions of law or fact common to potential class members outweighed the questions that affected only individual members, and that a class action was the best way to fairly and efficiently decide their claims. In support of this argument, the workers asserted that the “belief” prong of the first requirement—that the potential class members believed the franchisee had the authority to act for the FFG—could be inferred from the circumstances. The judge wasn’t convinced that the law allows such an inference, nor was he convinced that the evidence supported such an inference. Instead, the evidence showed that class members received different information about the franchisee’s authority, and some actually understood that the FFG was not their employer. So, the question of belief had to be decided on an individual basis.

The judge also found that there was no way to determine, on a class basis, whether such a belief was reasonable and not negligent. Rather, what each worker knew (or should have known) varied depending on the circumstances. Some workers, for example, were told during orientation that the franchisee was their employer and the FFG was not. Some workers received and read documents informing them that the franchisee, not the FFG, was their employer; others either did not receive or did not read that paperwork. In other words, whether a belief was reasonable and not negligent depended on the information available to each worker.

Likewise, the judge found that reliance can’t be determined on a class-wide basis. The workers—pointing to out-of-context case law—argued that courts often presume reliance when there is no evidence that the plaintiff knew or should have known that the purported agent was not an agent of the principal. But even if that case law applies in the franchise context, the workers’ argument begged the question; the presumption couldn’t apply on a class-wide basis because, as the judge had already explained, the knew-or-should-have-known question couldn’t be answered on a class-wide basis. The order: individualized inquiries, all the way.

The workers also argued that the court should certify a class because they were seeking injunctive relief on a class-wide basis. But the judge didn’t see how an injunction against the FFG could help the franchisee’s employees, when he had found in his summary-judgment opinion that the FFG didn’t control the aspects of their employment at issue in the case. Simply put, where’s the beef?

The workers’ PAGA claim fared no better; the judge found that a representative PAGA action wouldn’t be manageable because it relied on the ostensible agency theory, which could only be established through individualized inquiries. So, while the three plaintiffs can still pursue their individual claims against the FFG on an ostensible agency theory, those are small fries compared to the representative claims they had hoped to bring on behalf of more than 1,200 other workers.

The take-home for the notorious FFGs who franchise independent restaurant owners, of course, is to stay out of the kitchen when it comes to the relationship between the franchisee and its employees. And, for the FFGs’ sake, franchisees should make sure employees know where their bread is buttered.

Co-authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis: In McCaster v. Darden Restaurants, the Seventh Circuit affirmed the District Court’s order denying class certification of claims for denial of earned vacation benefits at separation and granting summary judgment on part-time workers’ claims for accrual of benefits under policies that limited eligibility to full-time employees. The decision is an important one for vacation pay claims, as well as defense strategies to block class certification in wage & hour litigation.


Employers who offer vacation benefits have been subject to confusing and inconsistent rulings about eligibility requirements and accrual of benefits, along with litigation from enterprising plaintiffs’ class action lawyers seeking to take advantage of such uncertainty. On January 5, 2017, the U.S. Court of Appeals for the Seventh Circuit provided some welcome clarity when it rendered an employer-friendly decision in McCaster v. Darden Restaurants, Inc., No. 15-3258 (7th Cir. Jan. 5, 2017).

The Seventh Circuit ruled that eligibility requirements, like those limiting paid vacation benefits to full time employees, do not run afoul of “length of service” concepts that prohibit forfeiture of earned vacation benefits upon separation. Further, the Seventh Circuit set the bar for plaintiffs seeking to pursue such violations on a class-wide basis, holding that they may not do so without demonstrating an unlawful practice that spans the entire class of individuals subject to the vacation policy. As such, the Seventh Circuit’s opinion should have far-reaching implications.

Factual Background

Plaintiffs worked intermittently as hourly employees at Darden-owned restaurants for a period of time spanning roughly eight years. Id. at 2. McCaster worked primarily worked at a Red Lobster before June 1, 2008, and Clark primarily worked at an Olive Garden after June 1, 2008. Id. at 2-3.

During this time, Darden paid eligible employees vacation or “anniversary” pay when they reached the annual anniversary of their hiring date. Id. at 3. When an employee ceased working for the company, Darden included in the employee’s final paycheck the pro rata amount of anniversary pay he had earned prior to the date of separation. Id. Starting June 1, 2008, Darden limited vacation pay to full-time employees, defined as those who worked at least 30 hours per week. Id.

In this proposed class action, McCaster alleged that, prior to June 1, 2008, Darden failed to pay him accrued vacation pay when he left his job at Red Lobster, even though he had earned about 12 vacation hours in violation of the Wage Payment Collection Act (“IWPCA”). Id. Clark alleged that, after June 1, 2008, Darden failed to pay her vacation pay when she separated from employment. Id. at 3-4.

Plaintiffs moved to certify a class of “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy … and who did not receive all earned vacation pay benefits.” Id. at 4. The District Court rejected this definition because it described an improper fail-safe class. The District Court also rejected the plaintiffs’ proposed alternative definition because it failed to meet the requirements of Rule 23. Id.

Darden moved for partial summary judgment on Clark’s individual claim. Id. The company argued that Clark was not eligible for vacation pay during the relevant time period because she worked part-time. The District Court agreed and granted the motion. Id. at 5. McCaster subsequently settled his individual claim but reserved the right to appeal the denial of class certification. This appeal followed.

The Seventh Circuit’s Opinion

The Seventh Circuit affirmed the District Court’s orders denying class certification and granting summary judgment.

At the outset, the Seventh Circuit held that, because Darden’s vacation-pay policy covered only full-time employees, Clark did not qualify for benefits. Id. at 5. Clark argued that if an employer provides paid vacation to its full-time employees on a pro rata length-of-service basis, it may not deny this same benefit to its part-time employees. The Seventh Circuit rejected Clark’s argument.

The Seventh Circuit held that Clark’s interpretation had no support in the text of the IWPCA, its implementing regulations, or in Illinois cases interpreting it: “[T]he Act merely prohibits the forfeiture of accrued earned vacation pay. Whether an employee has earned paid vacation in the first place depends on the terms of the employer’s employment policy.” Id. at 6. Because Clark did not work full time, she did not accrue benefits subject to forfeiture at separation.

The Seventh Circuit further concluded that the District Court did not abuse its discretion in denying class certification. Id. at 8. The Seventh Circuit held that, under Plaintiffs’ class definition, class membership turned on whether class members had valid claims. As such, Plaintiffs defined “a classic fail-safe class,” which the District Court properly rejected. Id. at 9.

Although Plaintiffs offered an alternative definition free from fail-safe concerns, including “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy.” the Seventh Circuit held that the District Court properly rejected it for failure to satisfy the requirements of Rule 23. Id. at 10.

The Seventh Circuit concluded that Plaintiffs’ alternative class failed to satisfy the commonality requirement. Id. at 11. Whereas the proposed alternative class consisted of all separated employees from December 11, 2003, to the present, Plaintiffs failed to identify any unlawful conduct on Darden’s part that spanned the entire class and caused all class members to suffer the same injury. Plaintiffs simply argued that some separated employees did not receive all the vacation pay they were due. The Seventh Circuit noted that “[t]hat may be true, . . . But establishing those violations (if there were any) would not involve any classwide proof.” Id. at 12.

Implications For Employers

The Seventh Circuit provided welcome clarity for employers that maintain vacation policies by cutting through conflicting case law and setting the bar for class certification of supposed violations. McCaster establishes that employers may set eligibility requirements that differentiate workers and rejects the notion that part-time workers accrue vacation benefit under a policy that limits participation to full-time employees. Further, in setting a bar for certification of such cases, the Seventh Circuit made clear that the commonality requirement remains a significant threshold for plaintiffs seeking to litigate their claims on a representative basis. It rejected the notion that mere violations of a pay policy are eligible for resolution on a class basis without some evidence of a state-wide practice that caused all class members to suffer the same injury. As a result, the opinion should have far-reaching and lasting impact.

coins-currency-investment-insurance-128867Co-authored by Robert S. Whitman and Howard M. Wexler

With employers about to ring in 2017, the New York State Department of Labor—with only two days to spare—has finalized regulations to increase the salary threshold for exempt status. The regulations, originally introduced on October 19, 2016, take effect on December 31, 2016.

Employers were hopeful that the State would abandon (or delay) these regulations given the now-enjoined U.S. Department of Labor’s overtime exemption rules that were set to go into effect on December 1, 2016. In response to such concern, however, the State DOL noted, “this rulemaking is not based on, or related to, the federal rulemaking concerning salary thresholds…this rulemaking is required by law and non-discretionary. Its purpose and effect is to maintain the longstanding historical relationship between minimum wage and salary threshold amounts…”

In keeping with the upcoming gradual increase in the State’s minimum wage levels, the new tiered salary thresholds for exempt status across the state will be:

Large Employers (11 or more employees) in New York City

  • $825.00 per week on and after December 31, 2016;
  • $975.00 per week on and after December 31, 2017; and
  • $1,125.00 per week on and after December 31, 2018.

Small Employers (10 or fewer employees) in New York City

  • $787.50 per week on and after December 31, 2016;
  • $900.00 per week on and after December 31, 2017;
  • $1,012.50 per week on and after December 31, 2018; and
  • $1,125.00 per week on and after December 31, 2019.

Employers in Nassau, Suffolk, and Westchester Counties

  • $750.00 per week on and after December 31, 2016;
  • $825.00 per week on and after December 31, 2017;
  • $900.00 per week on and after December 31, 2018;
  • $975.00 per week on and after December 31, 2019;
  • $1,050.00 per week on and after December 31, 2020; and
  • $1,125.00 per week on and after December 31, 2021.

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

  • $727.50 per week on and after December 31, 2016;
  • $780.00 per week on and after December 31, 2017;
  • $832.00 per week on and after December 31, 2018;
  • $885.00 per week on and after December 31, 2019; and
  • $937.50 per week on and after December 31, 2020.

In addition to the increased salary levels, the new regulations adjust the amount employers can deduct for employees’ uniforms and claim as a meal and tip credit in line with the gradual increase of the minimum wage toward $15. There is a tiered system for these changes as well depending on the employer’s location.

Authored by

Seyfarth Synopsis: In what many employers will see as a “break” from workplace reality, the Supreme Court, in Augustus v. ABM Security Services, Inc., announced that certain “on call” rest periods do not comply with the California Labor Code and Wage Orders. As previously reported on our California Peculiarities Employment Law Blog, this decision presents significant practical challenges for employers in industries where employees must respond to exigent circumstances.


On December 23, 2016, the California Supreme Court issued its long-anticipated decision in Augustus v. ABM Security Services, Inc., affirming a $90 million judgment for the plaintiff class of security guards on their rest break claim. The Supreme Court found that the security guards’ rest breaks did not comply with the California Labor Code and Wage Orders, because the guards had to carry radios or pagers during their rest breaks and had to respond if required.

The Supreme Court took a very restrictive view of California’s rest break requirements, concluding that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest breaks.” Thus, in the Supreme Court’s view, an employers may not require employees to remain on call—“at the ready and capable of being summoned to action”—during rest breaks.

See our One Minute Memo for more details on the decision and thoughts on the implications of this case for California employers. The Augustus decision presents significant practical challenges for employers, especially in industries in which employees must be able to respond to exigent circumstances.

Workplace Solution:

The holding that “on call” rest periods are not legally permissible should prompt employers to evaluate their rest-break practices. In industries where employees must remain on call during rest periods, employers should consider seeking an exemption from the Division of Labor Standards Enforcement. Lawyers in the Seyfarth California Workplace Solutions group can assist with other suggestions for responding to this decision.

Co-authored by Steve Shardonofsky and Tiffany Tran

Resolving a split in the lower courts and deciding an issue of first impression for the Court, the Fifth Circuit earlier this week held that prevailing plaintiffs in FLSA retaliation cases may recover emotional distress damages. While perhaps not unexpected, since the result joins with the majority rule in other Circuits, the outcome means that the costs to litigate these claims and the potential exposure may increase dramatically by the inclusion of possible emotional distress damages. The number of claims will likely increase as well, since plaintiffs with little or no economic damages now have another reason to sue.

In Pineda v. JTCH Apartments, LLC, Santiago Pineda filed an FLSA lawsuit to recover overtime for maintenance work he performed for the property owner (JTCH Apartments, LLC) at the apartment complex where he and his wife, Maria Pena lived. In exchange for the work, Pineda claimed he received discounted rent, but was not paid overtime. Three days after Pineda filed suit, Pineda and Pena received a notice to vacate their apartment for non-payment of rent equal to the amount of the prior rent discounts. After leaving the apartment, Pena (who leased the apartment) subsequently joined her husband’s lawsuit and both of them asserted retaliation claims, alleging that the eviction notice and demand for rent owed were meant to punish them for the initial overtime suit. A jury ultimately found for Pineda on both his overtime and retaliation claims. The district court refused to instruct the jury on Pineda’s emotional distress damages for his retaliation claim and also dismissed Pina’s retaliation claim because she was not an “employee” of JTCH Apartments and therefore could not assert claims under the FLSA.

Numerous federal appellate courts (including the First, Second, Sixth, Seventh, and Ninth Circuits) have directly and indirectly allowed for the recovery of emotional distress damages in in FLSA retaliation cases. Acknowledging this background, the Fifth Circuit found that the language in the FLSA’s damages provision allowing “such legal or equitable relief as may be appropriate ” should be read expansively to include compensation for emotional distress that is typically available for intentional torts like retaliatory discharge. In so holding, the Fifth Circuit distinguished its prior ruling that emotional distress damages are not available under the ADEA, even though both statutes contain somewhat similar language and should be interpreted consistently. The Court also found that Pineda’s testimony regarding marital discord, sleepless nights, and anxiety about where his family would live after the eviction was sufficient to have the jury decide this issue.

Citing Thompson v. N. Am. Stainless, LP, Pena alleged that as the spouse of an employee who was retaliated against she was within the “zone of interests” protected by the statute. The Fifth Circuit, however, rejected this argument because Thompson applied under Title VII, which applies to a “person claiming to be aggrieved,” whereas the anti-retaliation provision of the FLSA makes it unlawful to discharge or discriminate against “any employee.” The Court affirmed dismissal of Pena’s claim and remanded the case for a determination about whether Pineda is entitled to compensation for emotional distress.

Although not unexpected, the result in Pineda means that potential exposure, settlements, and jury awards for FLSA retaliation claims in the Fifth Circuit may increase dramatically by the inclusion of possible emotional distress damages. The cost to defend these claims will increase as well, as parties will be required to investigate and litigate these fact-intensive damages issues. The number of claims may increase over time as well, since plaintiffs with little or no economic damages now have another reason to pursue their claims. On the other hand, with a resounding “no,” the Fifth Circuit has quashed any lingering doubt about whether a Thompson-style “zone of interests” test applies under the FLSA.

Authored by Alex Passantino

It’s the week before Christmas; ’16’s nearly done.
As we sit back and ponder the Year of 541.
The journey’s been long; it’s taken some time.
What’s happened thus far? Let us tell you in rhyme.

As the year drew anew, we sat with breath bated,
While within DOL they discussed and debated.
Should we take our proposal and set it on fire?”
“Take the percentage of time test and set the bar higher?”

“No, we meant what we said and we said what we meant,
We’ll still increase the salary, but we’ll change the percent.”
“Messing with duties will cause us nothing but trouble,
So just take the old salary, and make the new one be . . . double.”

From the moment it published, the rule came under attack.
Even Congress started plotting to take it all back.
But summer it came, then autumn did too.
And raises or OT would be in on 12/2.

With communications all drafted . . . maybe one last correction,
The narrative changed with November’s election.
Might the rules be undone by a Trump Administration?
Or would December’s due date cause such plans great frustration?

We considered . . . while preparing for our Turkey Day function,
When a court in East Texas stopped the rules by injunction.
A week before kickoff. For some ‘twas too late.
For others, they scooped up their plans and yelled “Wait!”

With more motions, appeals, and attempts to intervene,
We look at it all and ask “What does this mean?”
There’s gossip, speculation, and some wack-a-doo theories.
Apropos for a year when the Cubs won the Series.

We’ll know when we know, maybe a few days before.
More excitement is what ‘17 has in store.
But before we look forward, we’ll take one last look back.
Because wage-hour issues this year did not lack.

Some employers may feel there’s less cause for concern
When facing a lawsuit filed by an intern.
And as they consider which students their program will host,
Pay special attention to who benefits most.

California, of course, continued its wage-hour saga.
Whether sitting or standing or some thing they call PAGA.
And if plaintiffs have no trial plan, make sure you get your shots in,
Before calculating piece rate using IBM’s Watson.

Turning back east, we recall how DOL’s year went,
Beginning with January’s missive about joint employment.
A description of vertical and horizontal relations,
Should it “meet with an accident,” there’ll be standing ovations.

Spring brought a trip to SCOTUS for the service advisor.
DOL changed the reg; its explanation? “We’re wiser.”
But for positions the agency has held very long,
The Supremes told the Department “Hey, you’re doing it wrong.”

The rest of the year deserves more time to expound.
From exempt underwriters to permission to round.
And here’s hoping that someday the world will just get it,
And create a singular rule that involves the tip credit.

Decertification. Half-time. Franchise compliance.
A wide breadth of issues that appear with reliance.
But the future’s a mystery, so with great anticipation,
Happy New Year, and Thank You — Love, wagehourlitigation.

Authored by Robert S. Whitman and Howard M. Wexler

Amid the uncertainty concerning the DOL’s enjoined overtime exemption rules and similar state-led efforts to increase the salary threshold, such as in New York, the Second Circuit recently gave employers an early holiday present when it resolved a long-standing split among New York federal courts and held that “New York’s law does not call for an award of New York liquidated damages over and above a like award of FLSA liquidated damages.”

Under the FLSA, an employer that underpays an employee is liable in the amount of those unpaid wages “and in an additional equal amount as liquidated damages” if it did not act in good faith.  Similarly, under the NYLL, liquidated damages in the amount of 100% total wages due are mandatory unless the employer proves its good faith.  The NYLL is silent as to whether it provides for liquidated damages in cases where liquidated damages are also awarded under the FLSA.

In Chowdury v. Hamza Express Food Corp. et al., an employee challenged the damages award he received after his former employer defaulted in his lawsuit for unpaid wages under the FLSA and New York Labor Law.  The employee sought two discrete liquidated damages awards: one under the FLSA and one under the NYLL.  Noting a split among district courts as to whether such “cumulative” or “stacked” liquidated damages awards are available, the Magistrate Judge recommended denial of a cumulative award, concluding that it would be an unfair double recovery.  The District Court adopted the Magistrate Judge’s recommended ruling.

The Second Circuit affirmed.  It held that “double recovery” of liquidated damages under the FLSA and NYLL was unwarranted. “Had the New York State legislature intended to provide a cumulative liquidated damages award under the NYLL, we think it would have done so explicitly in view of the fact that double recovery is generally disfavored where another source of damages already remedies the same injury for the same purpose.”  Accordingly, the court held, “In the absence of any indication otherwise, we interpret the New York statute’s provision for liquidated damages as satisfied by a similar award of liquidated damages under the federal statute.”

The decision is a big win for employers as it resolves what has frequently been a bone of contention between parties litigating (and trying to resolve) wage and hour lawsuit in New York brought under the FLSA and NYLL, and potentially could be used in other states where penalties under wage-and-hour laws serve the same purpose as the FLSA’s liquidated damages provision.  The potential exposure in New York cases is already high enough to give employers the holiday blahs:  back wages, 100% liquidated damages, 9% pre-judgment interest, a 6-year limitations period, and attorneys’ fees.  This decision at least removes the possibility that plaintiffs will claim, like George Costanza, an entitlement to “double dip.”

Happy Holidays!

Authored by Michael Kopp

With all the drama of a get-away chase, the Third Circuit recently brought to a screeching halt plaintiffs’ counsel’s elaborate maneuvers to end run repeated decertification of their FLSA actions, and held as a matter of first impression in Halle v. West Penn Allegheny Health System, Inc. that opt-in plaintiffs have no right to appeal decertification. The decision is important for three reasons. First, it offers a road block against the use of opt-in plaintiffs to appeal a decertification order, including where the named plaintiffs’ claims have been mooted. Second, it offers instruction on how to structure class notices to foreclose potential opt-in appeals. Third, it underscores the heightened strategic value of Rule 68 offers to named plaintiffs in FLSA actions after decertification to block appeals.

In a long and winding procedural path, plaintiffs’ counsel employed a “whack a mole” strategy to keep the possibility of a collective action alive after successive certification defeats. Counsel originally filed two separate FLSA collective actions, asserting claims that two hospitals and their affiliates failed to compensate work performed during unpaid meal period times. After conditional certification of the separate actions, over 3,000 and 800 individuals respectively opted into the two actions. In a happier moment in this narrative, the district court judges decertified the actions, due to differences in practices for reversing the 30-minute automatic deduction for meal periods, and differences in job duties and supervision that would impact whether work was performed during meal periods.

Plaintiffs’ first escape maneuver was a voluntary dismissal of their claims with prejudice, in the hopes of prompt appellate review of the interlocutory decertification orders. Instead, the Third Circuit rejected this “procedural slight-of-hand,” and held that by dismissing their claims, the named plaintiffs had mooted their claims (along with any right to challenge decertification). The appeals were dismissed for lack of jurisdiction.

Not to be deterred, plaintiffs’ counsel filed two new class actions against the same hospital defendants, with only slight modifications to the proposed class. The district courts promptly slammed the brakes, struck the collective allegations, and held that issue preclusion barred the named plaintiffs (who were opt ins in the prior actions), from re-litigating the prior decertification decision. In what appeared to be the end of the road, the employers then mooted the named plaintiffs’ claims by extending Rule 68 offers which were all accepted.

Not willing to give up the chase, plaintiff’s counsel deployed opt-in plaintiffs to appeal the order striking the collective allegations, claiming the opt-ins were “party plaintiffs” with full rights to appeal. The Third Circuit rejected these “procedural gymnastics,” finding that (1) the order striking the collective allegations effectively dismissed the opt-ins as parties to the action, and they therefore could not appeal the subsequent judgments, and (2) the opt-ins had signed consent forms ceding the individual authority to litigate, including the right to appeal. The Third Circuit recognized the claimed “unfairness” of leaving the opt-in plaintiffs without an opportunity to appeal where the employer “picked off” the named plaintiffs. Nonetheless, the court found that the “potential for unfairness” cannot trump an absence of jurisdiction.

Halle is, accordingly, important guidance in structuring class notices, and highlights the continuing strategic value of Rule 68 offers later in the action, including to moot claims and thereby potentially obtain expedited finality for a decertification order.