Wage & Hour Litigation Blog

The Second Circuit Finds Entry-Level Accountants To Be Exempt Learned Professionals Under the FLSA

Posted in Misclassification/Exemptions, Overtime

Authored by Gena Usenheimer

Earlier today, in Pippins v. KPMG, the Second Circuit held that entry-level accountants are professionals exempt from overtime under the FLSA.  While the Court’s finding is of great significance to employers within the accounting industry, the decision offers broad guidance as the meaning of the professional exemption generally, guidance which is applicable to employers in all industries.

Briefly, the FLSA’s professional exemption require that an employee’s main or most important duty be the performance of “work requiring an advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.”  Implementing regulations impose a three prong test to determine whether an employee’s primary duty qualifies for the exemption:  1) the work must be predominantly intellectual in character, requiring the consistent exercise of discretion and judgment; 2) the work must be in a field of science or learning (such as accounting), and 3) be of a type where specialized academic training is a standard prerequisite for entrance into the profession.  Because in Pippins there was no dispute that plaintiffs were accountants working a field of science or learning, the Court’s analysis focused on the other two elements of the test.

The bulk of the Court’s analysis focused on the meaning of the “advanced knowledge” prong, specifically, what it means to consistently exercise “discretion and judgment.”  Notably, the Court found that “what matters is whether [employees] exercise intellectual judgment within the domain of their particular expertise” finding the “critical question” to be whether “workers act in a manner that reflects knowledge and requires judgments characteristic of a worker practicing that particular profession.”  The Court also observed that employees may “exercise professional judgment when their discretion in performing core duties is constrained by formal guidelines or when ultimate judgment is deferred to higher authorities.”  With respect to supervision by “higher authorities,” the Second Circuit opined that supervision of junior professionals by their more experienced and senior colleagues is standard operating procedure in many offices and “does not relegate the junior professionals to the role [] of non-professional staff,” especially where the junior employees use professional judgment in determining when to elevate an issue to a supervisor and/or when ask for help.

In addition to the “advanced knowledge” prong, to qualify for the professional exemption employees must also employ advanced knowledge “customarily acquired by a prolonged course of specialized intellectual instruction.”  In exploring the parameters of this so-called “education” requirement, the Second Circuit determined the education requirement is likely met by a few years of relevant training so long as that training is specialized to the job or profession at issue.  (In contrast, generic education requirements, such as a bachelor’s degree in any field, e.g., generally do not meet the requirement.)  The Court then summarily rejected plaintiffs’ argument that they did not meet the education requirement because they learned all necessary skills while on-the-job, finding that KPMG’s “training” materials would not be understandable to “the average classics or biochemistry major” nor could non-accountants “develop the requisite understanding of the audit function, on the basis of the brief training period.”

While the precise implications of the Second Circuit’s guidance won’t be known for some time, many state wage and hour laws closely track the FLSA so we can expect to the decision to have far reaching consequences.

 

Your Help Is Needed – Vote for the Wage & Hour Litigation Blog!

Posted in Uncategorized

The American Bar Association is holding its annual competition for the 100 best legal blogs. Through this competition, the ABA is seeking to identify legal blogs that people in the legal profession should know about.

We would appreciate your support in helping Seyfarth Shaw’s Wage & Hour Litigation Blog recognized more widely.

Wage & Hour Litigation Blog is a resource for employers to stay current on developments in wage and hour law, including recent court decisions, legislative updates, and Department of Labor compliance, rule-making and enforcement activities.

The deadline to nominate the blog is Friday, August 8, 2014.

Click the link to vote by that date. The blog’s address is http://www.wagehourlitigation.com/. Simply provide a short explanation of why you like our blog, and the value it provides.

Hurry over to the polls, and cast your vote!

One of These Things Is Not Like the Others: Some Class Representatives Just Don’t Belong

Posted in Rule 23 Certification

Authored by Brian P. Long

A seemingly never ending wave of call center class actions has been leveled against employers in recent years.  The hallmark of these suits invariably includes allegations of purportedly homogenous “drones” working off-the-clock when they are not helping customers.  Companies are left with few options other than shout into the wind that their policies prohibit such uncompensated work by their varied customer focused workforce.  Unfortunately, too frequently, courts are deaf to the employer’s concerns and certify collective and class actions with little regard to whether the named plaintiffs are “typical,” “adequate,” or even whether there is evidence of common issues among the putative class, other than the well-worn self-serving theories common to each of these suits.  Often enough, with little chance of legitimate policies and genuine differences among their workers carrying the day, companies are forced into expense settlements.

But there is hope, and the waters may be receding.  Bucking the trend, a Maryland federal judge just denied certification of two related putative class action lawsuits brought against Comcast Cable Communications Management, LLC on behalf of Customer Account Executives (“CAEs”) working at two separate locations in Maryland.  CAEs, like most call center employees, provide service and support over the phone to Comcast’s current and prospective customers.  Predictably, the main theory of liability in these cases hinged entirely on an unsupported theory: CAEs needed to perform various tasks including booting up their computers, opening software applications, and reviewing company e-mails off-the-clock so that they would be ready to take calls from customers at the start of their shifts.

Rather than submit and settle following the conditional certification of an FLSA collective action, Comcast kept fighting.  As it turns out, for good reason.  One of the named plaintiffs worked in a position where he did not actually take inbound calls from customers.  The Court found this difference critical: “Thus, plaintiffs’ whole theory of CAEs needing to log in and be ready to receive telephone calls as soon as their shift begins would not be applicable to Faust in the same way as other CAEs.”  But the differences among the purported drones and named plaintiffs did not end there.  A separate named plaintiff only worked 30 hours per week and, thus, would not be due additional overtime even if his allegations were true.  Once again, the Court correctly found that the plaintiffs’ claims failed to meet even the threshold issue of typicality.  Also, the named plaintiffs abandoned related unpaid meal period and off-the-clock post-shift claims without explanation.  The lack of explanation led the Court to conclude that the named plaintiffs were not adequate representatives of the putative class.

Importantly, the Court did not stop its analysis with typicality and adequacy.  Rather than simply accept as true the plaintiffs’ unsupported theory that every CAEs’ claims were the same, the Court held that class-wide issues do not predominate.  In doing so, the Court noted that off-the-clock claims typical to call center actions raise at least four distinct questions: (1) did the employee work overtime?; (2) was the employee paid for that work?; (3) if the employee was not paid, did the employer know, or should it have known that the overtime was worked?; and (4) was the amount of time de minimis?

In addressing these questions, the Court noted that Comcast maintained strict policies forbidding off-the-clock work, and it was not enough for plaintiffs to simply allege employees worked off-the-clock under a recycled theory of liability.  Instead, plaintiffs actually need evidence that Comcast “had some unofficial policy or practice of permitting CAEs to act in contravention of that official policy . . .this unofficial policy must be capable of being demonstrated on a class-wide basis.”  The Court rejected plaintiffs’ contention that once a CAE logged into their computer, Comcast was required to pay them for a continuous workday, noting that several CAEs testified that they would log-in and then get coffee, review personal e-mails, or perform other personal tasks.  Whether the time between the initial log in and the start of the CAE’s shift was actually compensable required an inherently individualized inquiry.  In short, the CAEs are not homogenous drones, but individuals with unique habits and defenses.  Further, the Court noted that uncompensated time under 10 minutes may be de minimis.  As the amount of alleged off-the-clock time worked by CAEs could not be shown by simple reference to the log-in times, there was no way of determining liability on a class-wide basis.  Because Plaintiffs could not show CAEs worked off-the-clock under some nonexistent unofficial policy (let alone the amount of alleged unpaid time), the Court held that the CAEs’ claims were not subject to common proof and certification was inappropriate.  Comcast was heard.

Not stopping there, the Court also took issue with declarations submitted by the plaintiffs’ attorneys purportedly summarizing putative class data that would warrant class treatment.  Rather than retain an expert statistician, the plaintiffs’ attorneys instead took it upon themselves to conduct an analysis of the CAEs’ computer log-in times.  The plaintiffs also submitted an “irrelevant” expert report from another class action pending in a different state.  The Court rejected this approach, as it rejected the unsupported theory of liability, and struck each of the declarations.

The decisions in these cases may signal a sea change.  Companies facing similar suits are not destined to settle simply because mere allegations of a common practice of off-the-clock work are leveled against them.  Lawful policies and legitimate variations between putative class members are not only relevant, but may carry the day.

The 14th Edition of Litigating California Wage & Hour and Labor Code Class Actions Is Here!

Posted in State Laws/Claims

Authored by Christopher A. Crosman

Just in time for the summer beach reading season comes the 14th edition of Seyfarth Shaw’s publication Litigating California Wage & Hour and Labor Code Class Actions. It contains discussion and analysis of the various types of wage & hour class actions that affect many California employers, and has been updated to reflect the latest developments in the law.

Download the searchable, 140-page publication using this convenient link. And get ready to impress family and friends at your next summer barbecue discussion of the nuances of litigating California wage & hour class actions!

Sampling Duran: The California Supreme Court’s Smack Down Of A Biased Sampling Scheme Isn’t Limited To California

Posted in Misclassification/Exemptions

Co-authored by Jacob Oslick and Noah Finkel

Mark Twain famously said that “there are lies, damn lies, and statistics.”  A recent decision by the California Supreme Court provides a good example of why.  In Duran v. U.S. Bank, N.A., the Court put the kibosh on a trial court’s decision — in a wage-and-hour class action — to impose a “trial plan” which accepted evidence based only on a small sample of the class members.  The Court found that the trial court’s sampling plan created huge statistical biases in plaintiff’s favor, while violating the defendant’s due process rights.  We’ve previously discussed DuranWhat employers should realize, however, is that Duran’s reasoning should extend far beyond California state law, and far beyond just the trial management stage.  With plaintiffs across the country hungry like a wolf to short-circuit employers’ due process rights, the California Supreme Court’s decision provides a model that employers can use to fight back certification efforts for FLSA collective actions and state wage-and-hour class actions.

Duran’s reasoning does not depend upon statutory language or precedent specific to California.  Instead, Duran depends upon well-accepted statistical precepts, taught nationwide in our colleges and universities.  These statistical precepts, such as “selection bias” and the “margin of error” apply to all contexts in which sampling is used.  Similarly, by giving defendants the opportunity to impeach a sampling plan, Duran recognized that any sampling plan is just an imperfect model of the real world; it is not religious dogma that must be accepted on faith.  This understanding applies to all sampling models, regardless of whether the context is trial management or something else.  Any time a court uses sampling without employing Duran’s safeguards, it engages in bad science.

This is important, because sampling “is a procedure often used in FLSA actions.” LaFleur v. Dollar Tree Stores, Inc. (E.D. Va. Mar. 7, 2014).  And, while courts have used sampling to streamline FLSA trials, they have also employed sampling at the certification stage, and even to limit a defendant’s discovery rights to a fraction of FLSA opt-in plaintiffs.  See Roussell v. Brinker Int’l, Inc. (5th Cir. 2011) (trial management); Indergit v. Rite Aid Corp. (S.D.N.Y. June 17, 2014) (certification); Smith v. Lowe’s Home Centers, Inc. (S.D. Ohio 2006) (discovery).  Even worse, courts have frequently made the same statistical blunders that Duran rebuked.   In Roussell and Indergit, for instance, the courts permitted the parties to cherry-pick witnesses to form the representative “sample.”  Yet, as Duran showed, such a procedure necessarily creates a biased “sample” of the class, a statistical flaw known as a “selection bias.”  Similarly, in Reich v. S. New England Telecommunications Corp. (2d Cir. 1997), the Second Circuit sustained a verdict predicated on testimony from just 2.5% out of 1500 opt-in plaintiffs, finding that a trial needs to contain only a “very small sample of representative evidence” from collective members.  Yet Reich contained no analysis about the margin of error such a small sample would create (it’s 15.49%, at the standard 95% confidence interval), even assuming the sample was construed in an unbiased, truly representative fashion.

Notably, none of these decisions predicate their reasoning on statutory or regulatory language.  The haphazard sampling procedures they endorse are judge-made.  And what judges make, judges can easily correct or distinguish.  In comes Duran, to explain just why these judge-made rules should be revised.  Indeed, in a world where even expert opinions must conform with solid science under Daubert, it is disappointing that judges have too frequently conjured up trial and discovery plans which limit factual testimony to rigged, biased, or sloppily-constructed unscientific samples.

In short, because good sampling science forms the root of Duran, Duran’s reasoning necessarily applies to any kind of sampling plan — whether proposed at the discovery, final certification, liability, or damages phase — in any court, under any wage-and-hour statute.  For this reason, employers should study Duran carefully when hit with a wage-and-hour class or collective action, and use Duran’s persuasive logic to make shoddy sampling proposals come undone.

To Seek Or Not To Seek (Court Approval)? THAT Is The Question

Posted in Settlement

Co-authored by Rob Whitman, Howard Wexler, and Noah Finkel

Unlike most other causes of action, FLSA claims require court or agency approval before a release can be deemed fully valid and enforceable.  Are there scenarios where it makes sense for employers to “roll the dice” and settle a pending litigation without asking the court to bless the terms of the deal?

The question, which rarely bedeviled litigators when FLSA claims were more of a rarity than they are today, now has enormous practical significance given how many wage-hour lawsuits are filed and the very real prospect that settling one case can lead to a multitude of “copycat” claims.  Outside the FLSA setting, of course, this is a non-issue; parties file a bare-bones Stipulation of Dismissal with the court stating that the claims are dismissed with prejudice, the settlement agreement remains fully confidential, and everyone (including the judge) goes on to the next case.  The defendant need not lose a moment’s sleep worrying that, if the same plaintiff returns with the same claim, the release will be held unenforceable simply because the court never approved its terms.

But under longstanding case law, a release of an FLSA claim requires court (or Department of Labor) approval, even if both sides are represented by sophisticated counsel advocating zealously and ably for their clients.  And obtaining court approval typically requires submitting the settlement agreement to the court on the public docket, with the court’s approval order similarly made public, and can cause weeks of delay in closure of the case.
This presents a host of concerns for defendants.  While potential plaintiffs don’t usually troll the PACER system to find defendants that they think will be easy marks, the same cannot always be said for plaintiffs’ lawyers, many of whom rely on a steady stream of new cases they believe can be quickly settled against defendants that are willing (however reluctantly) to indulge them.  In addition, where the employer is settling with a single individual before anyone else has opted in, it may fear that other potential plaintiffs are “waiting in the wings”—perhaps alerted by the current plaintiff or his/her counsel—to see the value of the settlement in order to decide whether to try their own claim.  And whether or not new cases are filed, an employer does not want adverse publicity associated with the settlement of a case.

Adding to the mix is a more recent trend:  courts are paying increasingly close attention to the terms of FLSA settlements and refusing to approve agreements where they are concerned by, for example, the amount of attorney fees as compared to money going to the plaintiffs, or clauses requiring confidentiality, non-disparagement and no-reemployment.  One federal judge in Tennessee rejected a confidential deal to settle a putative FLSA collective action because the proposed confidentiality clause “contravenes Congress’s intent both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.”  Earlier this week, a California judge refused to approve an agreement because it allowed the employer to keep up to 20 percent of the unclaimed settlement amount, reasoning that this could disincentivize the parties from seeking a high claim rate by class members, and because the attorney fees would remain the same even if few class members participated.

Given the uncertainty of whether a court, if tested, will honor a non-court-approved FLSA settlement, at what point does it make sense for an employer to decide not to seek court approval?

When an employer is particularly worried about bad publicity and “copycat” lawsuits, foregoing court approval and keeping the settlement terms confidential may outweigh the risk of an unenforceable settlement.  Copycat lawsuits typically arise because the plaintiff encourages current or former colleagues to bring their own claims (especially if the defendant settled early and the plaintiff thinks it was “easy money”); and/or because the same counsel wants to pursue the same claim (presumably emboldened by what he/she learned from the first case). Similarly, if the employer places an especially high value on ancillary settlement terms that the court may reject or question, such as no-reemployment and non-disparagement, the risks of seeking court approval may outweigh the benefits.

So what is a settling employer to do?  If it seeks court approval, it will be able to obtain an enforceable release of FLSA rights, but it likely will generate publicity about the settlement and possibly copycat lawsuits.  If an employer does not seek court approval of the settlement, it likely will not obtain a valid release of FLSA rights.

One alternative is to not seek a release.  Instead, an employer and the plaintiffs can agree that the plaintiffs (or all the parties together) will jointly move to dismiss the lawsuit with prejudice.  There likely won’t be a valid release of FLSA rights, but dismissal of prejudice of an FLSA case should mean that the plaintiffs will be barred from a subsequent FLSA suit by operation of claim preclusion principles.  If an employer’s goal is to no longer have to litigate an FLSA dispute with a group of current and/or former employees, then dismissal with prejudice is the “belt,” and a court-approved settlement containing release is merely the “suspenders.”  Only one of them is necessary to keep the pants from falling down.

Many judges, such as Brian Cogan in the Eastern District of New York, have held that court approval of a settlement is not required for dismissal of an FLSA case; lack of approval merely means that a waiver or release is likely void (discussed here).  But other courts have disagreed.  They have held that even if an employer is not seeking an effective release, a judge still must approve the settlement (and usually makes the terms of the settlement publicly available on the docket).  Earlier this year, a federal judge in Missouri observed, “There are good reasons for requiring judicial oversight of private settlements of FLSA claims. Private FLSA settlements are often negotiated with confidentiality provisions that aim to prevent other employees whose FLSA rights may have been violated from learning of the settlement and seeking the same relief.”  And one of Judge Cogan’s Eastern District colleagues, Sandra Townes, noted that “no reported opinion has endorsed Judge Cogan’s position.   To the contrary, one judge in this district has expressly rejected his position, while two others have continued to require court approval for settlements of FLSA actions.”  Some judges in federal courts in Florida have ruled similarly.

So is court approval a necessary evil or something that employers should seriously consider avoiding to reduce the risk of a watered down settlement agreement due to judges who doth protest too much?  As with many questions in the law, the answer is, “It depends.”  But the spate of recent court activity has changed the dynamic on this issue, and employers should no longer assume that every FLSA settlement should or must be submitted for public approval.  Sometimes staying under the radar will make the most sense.  In all cases, the employer must think carefully about its objectives in settling and to its own self be true.

BREAKING NEWS RE CALIFORNIA CLASS ACTION WAIVERS: GENTRY IS DEAD; LONG LIVE PAGA.

Posted in Arbitration Agreements, State Laws/Claims

Co-authored by Colleen Regan and David Kadue

Gentry is dead.  Back in 2007, the California Supreme Court, in Gentry v. Superior Court held that California public policy favoring class actions was so important that employers cannot have employees, in arbitration agreements, waive their right to pursue a class action.  Many thought that the Gentry rule contradicted the Federal Arbitration Act, and further thought that the U.S. Supreme Court so indicated in a 2011 decision, AT&T Mobility LLC v. Concepcion.  But many California courts, post-Concepcion, continued to apply Gentry to invalidate class action waivers in arbitration agreements.  On Monday, however, the California Supreme Court confirmed that the rumors of Gentry’s death were not exaggerated after all:  in light of Concepcion, the Gentry rule really is FAA-preempted.  Iskanian v. CLS Transportation Los Angeles, LLC (Cal. Sup. Ct., filed 6/23/2014).

The Iskanian decision will be welcome news to those employers that wish to limit potential exposure to class actions by using arbitration agreements that include class action waivers.

The Iskanian court also rejected the employee’s argument that class action waivers are invalid under the National Labor Relations Act.  Only one of the seven California Supreme Court justices accepted that argument.

PAGA lives to fight another day. The plaintiff in Iskanian not only pursued a class action to prosecute allegations of Labor Code violations, but also asserted a representative action under the Private Attorneys General Act of 2004. Another important question presented in Iskanian was whether the arbitration agreement had effectively waived the employee’s right to bring a representative PAGA action.  Here, the California Supreme Court sided with the employee, holding that the PAGA claim is beyond the scope of the FAA, which addresses only private disputes.  The PAGA claim, by contrast, is brought in the name of the State of California, and thus is not a private claim.

California’s high court has notoriously been a holdout against the enforcement of mandatory arbitration agreements, notwithstanding frequent prodding by the U.S. Supreme Court.  With the Iskanian decision, it is likely that other states will reach similar conclusions.

Seyfarth Shaw LLP will be bringing you a One Minute Memo, with in-depth analysis of the decision, shortly.  Stay tuned.

Disrespecting the Secretary’s Authority? Senate Bill Would De-Authorize Labor Department’s Ability to Set Salary Level and Primary Duty Standard under FLSA Exemptions

Posted in Misclassification/Exemptions

Authored by Alex Passantino

Earlier this week, Senator Harkin, along with eight Democrat co-sponsors, introduced the “Restoring Overtime Pay for Working Americans Act.”  If it became law—a prospect that at this time appears highly unlikely—this proposal would increase the salary level required to qualify for the FLSA’s white collar exemptions from the current $455 per week to $1,090 per week over a three-year period, with the salary level adjusted upward each year thereafter.  The proposal also would increase the level required for the highly-compensated employee test from the current $100,000 per year to $125,000 per year.  In addition, the proposal would add a new sub-section to section 13(a) of the FLSA, defining “primary duty” as requiring an exempt employee not to “spend more than 50 percent of such employee’s work hours in a workweek on duties that are not exempt.”

For the entire history of the FLSA’s white-collar exemptions, the salary level and duties for exempt employees—including primary duty—have been established by the Secretary of Labor through regulations, as is required by the FLSA itself.  Indeed, both the salary level and the percentage of time spent on non-exempt duties appear to be under consideration by the Department of Labor as it prepares its proposed regulations in response to President Obama’s Memorandum.  Meetings held by the Secretary of Labor with a variety of outside groups indicate that DOL is actively considering these issues.  The Department’s proposal—and its initial position on the salary level and primary duty test—is expected in November (see pp. 56-57).

It is unclear why these Senators determined that it was necessary to remove the Secretary of Labor’s authority to set the salary level and primary duty standards around the same time that the President directed the Secretary to exercise that authority.  Perhaps the bill will be used to schedule a hearing on these issues in the Senate HELP committee?  Perhaps the bill should be viewed as the Senators laying down their marker on the appropriate salary level?

In all likelihood, it is a combination of factors that went into the decision to propose this bill at this time.  Regardless, employers should not lose sight of the fact that—at least this year—changes to salary levels and primary duty are going to be handled through the regulatory process.

N.B.:  It is also worth noting that the bill contains a provision that would allow the Department of Labor to assess civil money penalties for violations of the recordkeeping provisions of the FLSA, something that is not the case under current law.  Not surprisingly, recordkeeping violations frequently accompany the misclassification of an employee as exempt—or of an employee as an independent contractor.

Preempt This! California Federal Court Holds that Federal Law Preempts State Law Rules Against Waivers in Arbitration Agreements

Posted in Arbitration Agreements

Co-authored by Christina F. Jackson and Julie G. Yap

While employers have been waiting patiently for the California Supreme Court’s decision regarding the enforceability of class and representative action waivers in arbitration agreements, last week, a California federal court jumped into the fray and held that state law rules are powerless against the broad preemptive power of the Federal Arbitration Act (“FAA”).  Specifically, the court concluded that—under the FAA and the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion—class and representative action waivers in arbitration agreements cannot be invalidated by state law.

In Fardig v. Hobby Lobby Stores, Inc., the non-exempt employee plaintiffs argued that the binding arbitration agreements they entered into with their employer were unenforceable under state law.  The plaintiffs asserted that the broad language in the agreement—waiving their rights to bring any class action, collective action, or joint claims—was contrary to: (1) the California Supreme Court’s ruling in Gentry v. Superior Court; (2) their “right” to bring collective claims under California’s Private Attorney General Act (“PAGA”); and (3) the National Labor Relations Act.  In response, the employer moved for an order compelling the plaintiffs to comply with the binding arbitration agreements, including the waiver provisions.

The court sided with the employer.  As previously discussed in other posts (here and here), California state courts have created a collage of varying conclusions as to whether Gentry remains good law after Concepcion.  In Fardig though, the court joined the majority of California federal courts holding that Concepcion overrules Gentry.  In Gentry, the California Supreme Court held that a class action waiver should not be enforced if a court determined that “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.”  However, the Fardig court simply and pointedly concluded that “Gentry does not survive Concepcion.”

The district court then concluded that the FAA’s broad policy in encouraging arbitration preempts any state law rule requiring arbitration agreements to permit collective PAGA actions.  The district court rejected the plaintiffs’ assertion that the California Supreme Court’s decision in Sonic Calabasas A., Inc. v. Moreno (“Sonic II”), created a “carve-out” for PAGA claims from the requirements of the FAA.  Specifically, the district court noted that Sonic II articulated that the test for determining whether a state rule is preempted following Concepcion is the “extent to which the rule ‘interfere[s] with the fundamental attributes of arbitration.’”  The district court concluded that there are “various ways in which representative PAGA actions do in fact burden the fundamental attributes of arbitration,” including creating “a slower, more costly process” and requiring “defendants to run the risk that an erroneous decision on a PAGA claim on behalf of many employees would go uncorrected given the absence of multilayered review.”

Finally, the district court held that the agreements were enforceable despite the National Labor Relations Board’s decision in D.R. Horton, Inc. concluding that an agreement precluding class claims regarding employees’ wages, hours, or working conditions violated the National Labor Relations Act.  Contrary to the NLRB’s position, the court held that the NLRB’s reasoning conflicted with the FAA and Concepcion—“strongly favoring enforcement of arbitration agreements and strongly against striking class waiver provisions.”

While employers continue to wait for the California Supreme Court to address the three substantive unconscionability arguments raised and rejected by the district court in Fardig, the district court’s decision serves as guidance. This case paints preemption as a dominant force when it comes to waivers in arbitration agreements and gives employers a persuasive opinion in support of preemption arguments—at least in federal court … for now.

Supreme Court to Decide Department of Labor’s Freedom to Flip-Flop

Posted in DOL Enforcement, Misclassification/Exemptions, Overtime, Uncategorized

Authored by Barry J. Miller

On Monday, the Supreme Court accepted a petition for review two cases that may restrain administrative agencies, most notably the Department of Labor, in flip-flopping their interpretations of the law as control of those agencies passes between political parties.  The outcome of the case could hand employers a measure of certainty and stability as they try to interpret increasingly complex wage laws, or it could leave companies at the mercy of shifting political sands in designing policies and practices intended to last longer than one presidential administration.

The two cases stem from a lawsuit that the Mortgage Bankers Association filed to challenge the DOL’s reversal of its position on the overtime exempt status of mortgage loan officers.  In a 2006 opinion letter, the DOL opined that salaried mortgage loan officers met the FLSA’s administrative exemption because their primary duty was the administration of their employer’s financial services business (and not a form of sales), which included financial analysis that required the exercise of discretion and independent judgment regarding significant matters.  In April 2010, the DOL issued Administrator’s Interpretation 2010-1, which reversed the agency’s position, withdrew the 2006 opinion letter, and opined that mortgage loan officers generally were not subject to the administrative exemption because their primary duty was the sale of financial products.  The DOL’s 180-degree reversal on this issue was not based on any new law passed by Congress, any change in the governing FLSA regulations, or any apparent change in the duties of mortgage loan officers.  The Obama Administration simply preferred a more restrictive view on this issue than the Bush Administration had taken.  In the balance was the overtime eligibility of tens of thousands of workers and many millions of dollars in pending and threatened litigation.

The Mortgage Bankers Association sued the DOL, arguing that the Administrator’s Interpretation was invalid because the abrupt reversal in the DOL’s interpretation of the law created an unfair surprise for employers that had relied on the agency’s prior views (which were consistent with longstanding industry practice) in classifying their loan officers as exempt.  The trial court rejected this argument, but as we reported here, the U.S. Circuit Court of Appeals of for the D.C. Circuit overruled the trial court and held that the DOL’s conduct was contrary to doctrine that required the agency to solicit public comment and engage in formal rulemaking before such a reversal in its stated view of the law.

The DOL sought permission to appeal the D.C. Circuit’s ruling to the Supreme Court, as did a separate group of individuals represented by a law firm that has brought a large number of class action lawsuits challenging the exempt status of mortgage loan officers.  In addition, a group of 72 law professors from universities around the country filed their own brief urging the Supreme Court to review the D.C. Circuit’s decision, which they claim creates a schism with several other Circuit Courts of Appeals on an issue that has a fundamental impact on the authority vested in federal agencies.  The professors also argued that the D.C. Circuit’s decision was wrong, noting that agencies are not required to engage in formal rulemaking before announcing an interpretation of the law and therefore should not be required to do so before changing their stated views.

While it may seem abstract and technical, this issue has a concrete practical effect and is much broader than the exempt status of mortgage loan officers.  Rulemaking through the notice and comment process involves a significant investment of an agency’s time and other resources, particularly in comparison to informal statements of opinion like those found in opinion letters or the DOL’s Administrator’s Interpretations.  If the Supreme Court adopts the view of the Mortgage Bankers Association and the D.C. Circuit, federal agencies will be much less able to flip-flop their views of the law with successive election cycles.  If the Supreme Court rejects that view, it could embolden incoming presidential administrations to cast aside their predecessors’ interpretations of the law.  For employers undertaking to design long term compliance strategies in a polarized political environment, either result could resonate for years to come.