Wage & Hour Litigation Blog

Full Disclosure To Plaintiffs: Failure To Prevail In An FLSA Case Could Cost You

Posted in Conditional Certification

Co-authored by Noah Finkel and Kara Goodwin

When negotiating a collective action notice to potential opt-in plaintiffs upon an order for or agreement to conditional certification, a defendant-employer often seeks to include language in the notice that if plaintiffs lose the case, they may be liable to the defendant for costs.  Not surprisingly, plaintiffs’ counsel usually resists including such a warning, arguing that the imposition of costs never actually happens and that including it has a chilling effect on potential opt-ins.  Defendant’s counter usually goes something like this:  well, it could happen and potential plaintiffs are entitled to full notice of all the potential benefits and risks of joining the case.  One lawyer’s “chilling effect” is another lawyer’s “full disclosure.”  Defendants have been without many good examples of a court actually taxing costs against the losing plaintiffs in an FLSA action for a significant sum.  That is, until now.

In Kuznyetsov, et al. v. West Penn Allegheny Health System, Inc., the Western District of Pennsylvania affirmed costs in favor of the defendants and against the three named plaintiffs in the amount of $60,890.97.  By way of background, the three named plaintiffs filed a collective action pursuant to § 216(b) of the FLSA, the case was conditionally certified, notice was sent to nearly 15,000 current and former employees, and more than 1,000 plaintiffs opted in.  After “contentious” discovery and “excessive” motion practice, the court decertified the collective action because the opt-in plaintiffs were not similarly situated.  The opt-in plaintiffs’ claims were dismissed without prejudice and the  named plaintiffs’ claims were dismissed with prejudice.  After defendant filed a bill of costs, the clerk of courts taxed costs in the amount of $60,890.97 (an amount which appeared to be fueled largely by ESI costs) against the named plaintiffs.

Plaintiffs asked the district court to review and deny costs, arguing that it was inequitable to force the three named plaintiffs to pay the costs of defending against the claims of the entire collective, especially because the three plaintiffs would not be able to afford it.  The court rejected both arguments.  First, it pointed out that the three named plaintiffs had combined annual income of more than $300,000 and thus could bear nearly $61,0000 in costs.  While most wage-hour plaintiffs do not earn that much that year, most wage-hour cases do not involve costs that are that high.  Here, the result is that each named plaintiff is liable for costs in the amount of about 20% of his or annual income.  To put that in perspective, under this ratio, a court would assess $5,000 in costs to a plaintiff earning $25,000 annually.

The court next rejected the argument that costs should be shared by the more than 1,000 plaintiffs who opted in and then were dismissed.  The court reasoned that the named plaintiffs “have failed to provide any evidence that counsel informed the opt-in [p]laintiffs that they may be potentially liable for a portion of the costs.”  The court found nothing “inequitable” about requiring the named plaintiffs to pay costs for the entire collective:  “Plaintiffs chose to bring their claims as a collective action.  They were not required to do so.  As the named parties, they assumed the associated risks.”

This opinion provides powerful ammunition to counter plaintiffs’ resistance to including a statement in the notice that opt-ins may be liable for a portion of costs if they join and ultimately lose the case — that is, costs do get taxed against losing FLSA plaintiffs, and those costs can be significant.  The opinion should also cause a plaintiff’s counsel to think twice about refusing to include cost language in a notice.  A notice that does not include that language threatens to leave their original client(s) in the case with full liability for a defendant-employer’s costs unless either (a) plaintiff’s counsel can show that, after the opt-in period, counsel notified opt-ins of their potential liability for costs; or (b) plaintiff’s counsel is prepared to pay for those costs.  The latter is not allowed by the rules of professional conduct in many jurisdictions.  The former is likely to be disputed by several opt-ins and would be perceived by opt-ins as a “bait and switch” after they joined the case not aware of their potential liability.

To protect the interests of their original clients, the safe course for a plaintiff’s counsel may be to include cost-shifting language in the notice.  Defense counsel should remind them of that.

What’s Good For The Goose: Supreme Court Rejects Heightened Pleading Standing For Removing Defendants

Posted in Jurisdiction

Authored by Julie G. Yap

On Monday morning, the Supreme Court yet again rejected a would-be class action plaintiff’s attempts to avoid federal court.  The Court’s order again affirmed that defendants need not overcome significant barriers to plead their cases in federal court—a position contrary to that often advanced by plaintiffs and their counsel in opposing the removal of putative class actions alleging violations of state wage and hour laws.  Instead of imposing an evidentiary burden on a removing defendant, the Supreme Court clarified that a petition for removal from state court to a federal district court “need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold.”  As such, removing defendants need only satisfy the same liberal pleading standards applicable to a plaintiff’s complaint.

In Dart Cherokee Basin Operating Co. v. Owens, the named plaintiff attacked the defendant’s petition to remove the case from state court to a federal district court under the Class Action Fairness Act (“CAFA”), arguing that the notice of removal was “deficient as a matter of law” because it included “no evidence” proving that the amount in controversy exceeded the required $5 million threshold for federal jurisdiction under CAFA .  In response, the defendant submitted a declaration, including a detailed damages calculation indicating that the amount in controversy well exceeded the  jurisdictional minimum by more than $6 million.  The district court, however, refused to consider the declaration, holding that the notice of removal must contain evidence of the amount in controversy.  When the defendant appealed the district court’s remand order, the Tenth Circuit denied review.

The Supreme Court overturned the trial court’s holding and concluded that a removing defendant need only set forth “a short and plain statement of the grounds for removal” and need not submit supporting evidence.  The Court noted that, “by design,” the removal statute tracks the general pleading requirements for plaintiffs, citing legislative history that corroborated Congress’ intent to “simplify the ‘pleading’ requirements for removal.”  As such, like a complaint, “when a defendant seeks federal-court adjudication, the defendant’s amount in controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.”  Moreover, the Court emphasized that there is no presumption against removal in cases removed under CAFA, noting that CAFA was enacted to facilitate the removal of certain types of cases to federal court.

While the Court’s decision addressed a decision invoking removal under CAFA, the Court’s holding interpreted a section of the removal statute, 28 U.S.C. § 1446(a), which applies not only to removals under CAFA, but also to removals under the court’s traditional bases for jurisdiction, including diversity of citizenship.

This ruling has significant implications for wage and hour litigation because both CAFA jurisdiction as well as traditional diversity jurisdiction are often at issue when plaintiffs bring claims under state wage laws to avoid the federal courts or to seek enhanced damages.  The Supreme Court’s ruling demonstrates that a removing defendant cannot be held to a higher burden in pleading the right to litigate its claims in federal court.

Can’t Win For Losing? Try Offering Complete Relief, Not Rule 68

Posted in Defenses, Offer of Judgment

Authored by Noah Finkel

The Tampa Bay Buccaneers had a tough week last week.  It wasn’t just their loss to the Detroit Lions.  Defeats on Sundays are something with which the Bucs have grown accustomed.  Rather, last week the 11th Circuit Court of Appeals held that the Bucs’ attempt to have an adverse judgment against themselves would not end a class action lawsuit they faced.

Why is it that the Bucs can’t even succeed in losing a lawsuit?  It has a lot to do with the intricacies of Federal Rule of Civil Procedure 68, and dual standing that a class representative carries under Federal Rule of Civil Procedure 23.

In short, the Bucs made a Rule 68 offer of judgment for full relief to a class representative in a Telephone Consumer Protection Act putative class action in an attempt to moot the case.  The 11th Circuit in Stein v. Buccaneers Limited Partnership held that the case could nevertheless proceed as a class action.  A post earlier this week from our colleagues on Seyfarth Shaw’s Workplace Class Action blog explains the details, and makes the point that employers defending any sort of workplace class action need to be cognizant of this ruling.

The ruling bears further examination for its potential effects on wage-hour cases.  Trying to moot a wage-hour collective or class action is often an attractive strategy for an employer.  Many of the cases involve relatively low potential liability to the named plaintiff(s) and/or class representative(s), but involve significant exposure when that potential liability is multiplied by the number of current and former employees who might participate in the class or collective action.  By offering complete relief to a named plaintiff in an FLSA collective action, an employer can cause a court to hold that no case or controversy exists, and thus a court loses jurisdiction of a case and must dismiss it before it blossoms into a collective action.  The Supreme Court’s Genesis Healthcare Corp.’s ruling makes this clear, and so does a post-Genesis Fifth Circuit ruling.

But the Stein case illustrates the limits to Genesis in wage-hour cases, and raises the question of whether employers should ever use Rule 68 at all in the wage-hour context.  A simple offer of complete relief may be the better move.

First, in Stein, the 11th Circuit joined the 3rd, 5th, 9th, and 10th Circuits in holding that a Rule 68 offer of full relief to a class representative does not moot a Rule 23 class action.  This is significant because so many wage-hour cases are now filed under state wage-hour laws, and use Rule 23 to attempt to obtain a class action.  (The 7th Circuit has held to the contrary in Damasco v. Clearwire Corp., but its holding doesn’t help employers much because it further held that a Rule 68 offer won’t moot a class action if a motion for class certification is filed first, even if that motion is a perfunctory one on which briefing is stayed.  Accordingly, careful plaintiffs’ lawyers in the 7th Circuit now file Damasco motions for class certification at the same time they file the complaint, even though briefing on that motion won’t occur usually for more than a year later.)  Thus, in many circuits, an offer of complete relief under Rule 68 won’t moot a case in a wage-hour action that includes a Rule 23 claim under state law.  It only potentially may work in a collective action brought solely under the FLSA.

Second, Stein shows that, even in an FLSA collective action context, Rule 68 may be a poor vehicle for an employer to make an offer of full relief.  Under Rule 68, an offer not accepted within 14 days is considered withdrawn.  Thus, the 11th Circuit held in Stein, an unaccepted offer no longer moots a claim after 14 days because it technically no longer exists. Rule 68 also requires that a defendant-employer take a judgment against itself.  This causes two problems:  (a) taking an adverse judgment could complicate matters for a company in future lawsuits or DOL investigations, in government contracting, or in obtaining financing or completing other types of transactions; and (b) when a judgment is entered against an employer under the FLSA, the plaintiff is considered to have prevailed in the case, and thus is entitled to an award of reasonable attorneys’ fees for which an employer is liable.  If the offer is made early, these fees may not be significant.  But many employers find that, in this context, some (but not all) plaintiff’s attorneys seem to have a “heavy pencil” when completing their time sheets.

There is a better way.  Just make an unconditional offer of complete relief to the plaintiff.  Even include a check. There is no need to invoke Rule 68.  At least in some circuits, such an offer in a single-plaintiff, multi-plaintiff, or collective action context — whether accepted or unaccepted — can moot a case even when Rule 68 is not in the picture.  The 7th Circuit, for example, has made this clear on multiple occasions.  This provides two benefits.  First, there’s no judgment against the employer.  Rather, the case gets dismissed for lack of jurisdiction due to mootness.  Second, there is no liability for fees.  Under the FLSA, only prevailing plaintiffs are entitled to attorneys’ fees.  But when a case is dismissed as moot and a plaintiff is not awarded a favorable judgment, the Supreme Court has held that there is no entitlement to fees.

At bottom, Rule 68 should have no role in attempting to moot a wage-hour case in most circuits.  If the case includes class action allegations under state wage-hour law, a Rule 68 offer of complete relief doesn’t moot the putative class action.  And if the case is a pure FLSA collective action claim, an offer of complete relief — without resort to Rule 68 — may moot a case without carrying the baggage that Rule 68 offer brings.  And even then, an employer has to weigh whether it should try to moot a named plaintiff’s FLSA claim.  Other potential plaintiffs may be waiting in the wings anyway, and an offer of full relief to the first current or former employee who files a claim risks putting “blood in the water” and also making an enemy of a plaintiff’s counsel. As with virtually any strategy decision, whether to try to moot a case must be decided on a case-by-case basis.

An “Integral and Indispensable” Supreme Court Win For Employers Regarding What Counts As Time Worked Under the FLSA

Posted in Off-the-Clock Issues

Co-authored by Patrick Bannon, Rebecca DeGroff, Noah Finkel and Richard Alfred

The Supreme Court unanimously ruled today that the Fair Labor Standards Act does not require employers to pay employees for time spent passing through post-shift security screening.

The decision, Integrity Staffing Solutions, Inc. v. Busk, is not only a major win for employers who use security screening.  The logic of the ruling is important for all employers because it clarifies the “integral and indispensable” test used to determine the compensability of employee activities that are not, themselves, principal activities.  It is now clear that the fact that an employer requires a particular activity does not make that activity integral and indispensable and, thus, compensable.  More is required.  For an activity to be integral and indispensable to a principal activity, it must be “an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.”

The case involved employees who packaged products at Amazon warehouses.  At the end of each shift they were required to line up and pass through anti-theft metal detectors, a process that allegedly took 25 minutes per day.  According to the employees, the employer could have dramatically reduced the time required by hiring more screeners.

The plaintiff had argued that time spent on screenings was compensable because the employer required it for the employer’s benefit.  The Supreme Court rejected that theory as inconsistent with Congress’ amendment of the FLSA in the Portal-to-Portal Act to limit the scope of compensable work.  The real test, the Court wrote,  is whether a pre-or post-shift activity is “integral and indispensable to the principal activities that an employee is employed to perform.”  Merely being required to perform an activity does not meet that test.  Rather, the test can only be met if an activity is an “intrinsic element” of the job.

The Supreme Court concluded that passing through security was not a “principal activity” of the employees because they were employed to package products, not to go through security screenings.  Nor, the Court stated, were the security screenings “integral or indispensable” to the employees principal activities.  On the contrary, the employer “could have eliminated the screenings altogether without impairing the employees ability to complete their work.”  Justices Sotomayor and Kagan wrote a concurrence that endorsed the basic reasoning of the Court’s opinion, but did not include the “intrinsic element” language in the opinion of the Court.

The Court also rejected as irrelevant whether the employer could have shortened the time required for the screenings.  Such arguments, the Court wrote, “are properly presented to the employer at the bargaining table . . . not to a court in an FLSA claim.”

The Court’s definitive ruling — a 9-0 ruling issued about 60 days after oral argument — likely will not be limited to security screenings.  The “intrinsic element” test should be applied by lower courts to many other contexts, including donning and doffing claims and claims for compensation for computer “boot up” time in call center environments.

Busk marks a moment of solidarity between employers and the Department of Labor, which, consistent with a 1951 Opinion Letter, argued in favor of Integrity Staffing.  The Supreme Court noted that the Department of Labor’s regulations were “consistent with” the Court’s conclusion, but made no reference to giving the regulations any deference.

Today’s opinion marks the third Supreme Court decision in as many years in which the Court sided with employers in a wage-hour dispute.  Two years ago, it held that pharmaceutical representatives are exempt outside sales employees and thus are not entitled to overtime compensation.  Earlier this year, and as part of last year’s Supreme Court term, the Court ruled that time spent donning and doffing certain clothes by employees covered by a collective bargaining agreement is excluded from compensable time due to Section 203(o).  And now it has ruled that employees’ preliminary or postliminary activities are compensable only if they are an “intrinsic element” of an employee’s principal activity.

Interestingly, the Court stressed at the beginning of its opinion that the Portal-to-Portal Act of 1947 was enacted by Congress to stop a flood of litigation alleging that employees should be paid for activities that are not their principal job activities.  The Court itself is now stopping the wave of FLSA litigation asserting similar claims that has flooded employers in the last decade.

 

Angst, Administration and Interpretation: Supreme Court Hears Arguments on DOL’s Flip-Flopping on Exempt Status of Mortgage Loan Officers

Posted in Defenses, Misclassification/Exemptions

Co-authored by Barry Miller and Taron Murakami

On Monday, the Supreme Court heard arguments in a pair of cases addressing the Department of Labor’s reversal in its position regarding the exempt status of mortgage loan officers.  The Justices’ questions reflected concern about the DOL flip-flopping on this issue, but they also expressed a reticence to issue a broad ruling that would hamper agencies’ ability to render informal interpretations that have sudden and significant impacts on employers and other regulated entities.  A transcript of the argument is available here.

The consolidated case addresses the validity of the DOL’s 2010 Administrator’s Interpretation, in which the agency offered its sweeping conclusion that mortgage loan officers generally do not meet the FLSA’s administrative exemption, and in the process withdrew a 2006 Opinion Letter in which the DOL had reached the opposite conclusion.  Additional background is in our previous posts on the D.C. Circuit’s ruling that threw out the Administrator’s Interpretation as a capricious reversal that would require notice and comment rule making; on the D.C. Circuit’s refusal to reconsider that ruling; and on the Supreme Court’s decision to review the case.

While the government attempted to defend the DOL’s 2010 reversal as a result of the agency reaching the conclusion “that the 2006 interpretation was simply erroneous,” Justice Roberts noted “a change in the leadership at the agency” between 2006 and 2010, and Justice Scalia commented that the change in the Presidential administrations was “a more likely explanation.”  Their concern was not just that the agency had reversed its position with the political tides, but also that it had done so through informal guidance without formal rulemaking that would have provided employers notice of a potential change and an opportunity to comment.  Justice Kagan recognized that there was “a sense that agencies more and more are using interpretative rules and are using guidance documents to make law and . . . it’s essentially an end run around the notice and comment provisions.”

Several of the Justices also seemed inclined to tackle a more modest question than the one the parties had framed.  Justice Breyer, in particular, noted that the case raises very challenging points of administrative law and agencies’ power to change the law informally.  He later described another way for the Court to view the DOL’s reversal of its position and observed  “we can answer that pretty quickly, I think.”  Justice Breyer suggested that the Court doesn’t need to decide whether the Administrator’s Interpretation is entirely invalid, but can simply direct the lower courts to take the DOL’s reversal in position into consideration in deciding how much deference to extend the agency’s guidance.  Where, as with the exempt status of mortgage loan officers, the DOL’s position has flip-flopped, a court might ignore the agency’s views and decide the question based on case law and other devices used to interpret ambiguous statutes.

Questions asked at oral arguments are always in the nature of tea leaves, and it remains to be seen how the Supreme Court will resolve its apparent concerns about the inconsistency of the DOL’s position with its hesitance to wade into deeper questions of administrative law.  If the Court holds that the Administrator’s Interpretation is not entirely invalid but also may be worthy of little or no deference from the courts, employers could be thrown further into limbo regarding the exempt status of mortgage loan officers and other employees who may be subject to inconsistent guidance from the DOL.

It should also be noted that, regardless of the fate of the Administrator’s Interpretation and the DOL’s position on the application of the FLSA’s administrative interpretation to mortgage loan officers, employers have availed themselves of other defenses to the onslaught of overtime litigation in the mortgage industry.  We blogged on a successful alternative defense of the exempt status of loan officers as outside sales employees here.

Another Good Ruling for Employers Who Fear Class Arbitration

Posted in Arbitration Agreements

Authored by James Hlawek

If you are loathe to engage in class arbitration, as most employers are, then a recent California appeals court decision, Garden Fresh Restaurant Corp. v. Moreno, will come as good news.  The appeals court found that a judge, rather than an arbitrator, should decide whether class arbitration is permissible under an arbitration agreement that, like many other arbitration agreements, says nothing about whether class arbitration is allowed or prohibited.

The appeals court’s decision is in line with the only two federal Courts of Appeals to have addressed the issue–the Third Circuit’s decision earlier this year in Opalinski v. Robert Half Int’l Inc. and the Sixth Circuit’s decision last year in Reed Elsevier, Inc. v. Crockett, which the appeals court discussed favorably in its decision.  These decisions are favorable for employers because it is likely that arbitrators are more inclined than judges to find class arbitration permissible.

In Garden Fresh, a former employee brought class and representative claims against her employer in a California trial court.  The employee signed an agreement to arbitrate employment disputes, but it said nothing about class arbitration.  The employer moved the trial court to compel individual arbitration.  The court agreed that the disputes should be arbitrated, but left it to the arbitrator to decide whether it would be on a class or individual basis.  The employer appealed.

The appeals court found that the judge should have decided the class vs. individual issue.  The court found that the issue is more like a “gateway issue” (which is for a judge to decide, absent clear evidence that the parties wanted the arbitrator to decide it) than a “subsidiary issue” (which is for an arbitrator to decide).  The court pointed out that the U.S. Supreme Court had recently noted in Oxford Health Plans v. Sutter that the issue of who should decide class vs. individual arbitration was still unresolved.  But the court found that in other rulings the Supreme Court had given every indication short of a holding that it was a “gateway issue” for a judge to decide.

In particular, the appeals court pointed to Stolt-Nielsen v. AnimalFeeeds Int’l Corp. and AT&T Mobility v. Concepcion.  In those cases, the Supreme Court found that there are “fundamental” differences between class and individual arbitration:  Class arbitrations are less efficient.  There is more at stake.  There are due process concerns for class members. Confidentiality is more difficult.  Thus, the appeals court found that the decision between class and individual arbitration is no mere “subsidiary issue” for an arbitrator to decide.  Rather, it is “vastly…consequential” because an incorrect decision could force an employer to arbitrate thousands of claims that it did not agree to arbitrate.  This, the court held, is a classic “gateway issue” that a trial court judge should decide for both class and representative claims.

And the appeals court did not stop with sending the class vs. individual decision to a trial court judge.  It also gave a not-so-subtle nudge to decide the issue in favor of individual arbitration.  The appeals court stated that “it is difficult to see how the trial court could find” that the parties agreed to class arbitration where (1) the agreement says nothing about class arbitration; and (2) the parties agreed that there was no additional evidence on the issue.

The permissibility of class arbitration is still hotly disputed.  Other state courts and federal district courts (including at least two in California) have found that an arbitrator should decide the class vs. individual issue.  Others have found that class arbitration is permissible even when the arbitration agreement says nothing about class arbitration.  But Garden Fresh, along with the recent decisions of the Third and Sixth Circuits, shows that the trend may be moving against class arbitration.

 

Court “Rolls” Back Attorney Fee Award in Sushi Worker FLSA Settlement

Posted in Settlement

By Rob Whitman and Howard M. Wexler

As we have noted in previous posts, courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements where they are concerned by, for example, the amount of attorneys’ fees as compared to money going to the plaintiffs.

In Fujiwara v. Sushi Yasuda, Judge William H. Pauley III of the Southern District of New York jumped into the fray.  The parties reached an early class-wide settlement and made a joint motion for approval of the terms of the agreement.  As part of a $2.4 million settlement amount, plaintiffs’ counsel originally sought $800,000.  After Judge Pauley questioned that amount, counsel lowered their request to $600,000.

Like several other judges of late, Judge Pauley started his decision by highlighting the “explosion in FLSA litigation,” noting that 9% of all filings in the Southern District of New York are FLSA cases and the 400% increase in FLSA filings nationwide since 2001.  Turning to the issue of fees, Judge Pauley remarked:

A law is only effective to the extent it is enforced, and this increase litigation has been a positive development for many low-wage workers.  The same is true for their lawyers.  The danger to workers from underpayment by their employers is clear.  The danger of overpaying their lawyers is more subtle.

With respect to the request for $600,000 in fees, Judge Pauley commented that plaintiffs’ counsel “worked diligently” and that the quality of the representation they provided was “unquestionably high.”  He nonetheless reduced the requested award to $480,000 (20% of the settlement fund), finding that it was reasonable given the facts of the case, the risk of litigation, and previously approved fee awards in the SDNY.

In a not-so-subtle message to the plaintiffs’ bar as well as his judicial brethren, Judge Pauley stated that “there is a reason to be wary of much of the caselaw awarding attorney’s fees in FLSA cases in [the Second] Circuit” because “many of the authorities cited by Plaintiffs’ counsel in support of their fee application are in fact proposed orders drafted by the class action plaintiffs’ bar and entered with minimal, if any, edits by judges.”  Under these circumstances, he said, it is “no wonder that caselaw is so generous to plaintiffs’ attorneys” — since “by submitting proposed orders masquerading as judicial opinions, and then citing to them in fee applications, the class action bar is in fact creating its own caselaw on the fees it is
entitled to.”

Judge Pauley held that “approval of class action settlements and fee applications [in FLSA cases] is precisely where judicial scrutiny, not judicial deference, is most needed.”  His words echo those uttered recently by Seventh Circuit Judge Richard Posner in a non-FLSA case.  Rejecting a proposed settlement under the Fair and Accurate Credit Transactions Act, he stated:  “The judge asked to approve the settlement of a class action is not to assume the passive role that is appropriate when there is genuine adverseness between the parties rather than the conflict of interest recognized and discussed in many previous class action cases, and present in this case.”

Judge Pauley also gave particular scrutiny to the “service awards” provided as part of the settlement.  The agreement called for $20,000 to each of the six class representatives, all of whom sat for depositions, executed declarations, produced documents, and otherwise assisted in the prosecution of the case.  Nonetheless, the court rejected the awards and struck them from the settlement, holding that these individuals already received “a backdoor service award” because the settlement fund allocated them more money in light of their greater number of shifts worked.

These decisions again highlight the growing trend of courts taking a hard look at FLSA settlements, even when the parties agree on all aspects of the settlement.  Submission for approval also usually requires the court to make the terms of the settlement publicly available on the docket, which raises a host of additional concerns for employers.  Accordingly, if the parties seek to obtain judicial approval of an FLSA settlement, both sides should be prepared to vigorously defend their terms.

Not So Fast: 9th Circuit Puts the Brakes on Boilerplate, Bare Bones FLSA Complaints

Posted in Defenses, Overtime

Authored by Kyle Petersen

For years, employers have been frustrated by lengthy and costly FLSA litigation prompted by little more than conclusory allegations that the plaintiff and a putative class were not paid for all of their overtime work. Since the Supreme Court clarified the federal pleading standards in Twombly and Iqbal, the doors to the courthouse may be getting a little heavier as district and circuit courts consider the degree of specificity with which plaintiffs must plead their overtime claims.

Following the Supreme Court’s decisions in Twombly and Iqbal, the 1st, 2d, and 3rd Circuits have all held that a bare-bones complaint for unpaid overtime that simply parrots the text of the FLSA will not do.  To survive a motion to dismiss, plaintiffs in the first three circuits must instead include some factual allegations that they actually worked more than 40 hours in a given workweek without being paid for that time. This week, the 9th Circuit joined their bandwagon.

In Landers v. Quality Communications, the 9th Circuit considered the overtime claims of a cable services installer whose complaint alleged that (1) he was paid on a de facto piecework basis; (2) his wages fell below minimum wage; and (3) he was not paid overtime when he worked more than 40 hours. Quality Communications moved to dismiss the complaint because it failed to state a plausible claim for relief. The district court agreed and threw out the case. In doing so, the court noted that the complaint lacked any factual allegations approximating the number of overtime hours Landers worked or the amount of overtime pay he was claiming. Landers’ formulaic recitation of the elements was simply not enough to move his claim from the possible to the plausible. Landers declined to amend his complaint and instead immediately appealed to the 9th Circuit.

On appeal, the 9th Circuit affirmed the district court’s decision but expressly declined to adopt a requirement that an FLSA complaint must include an approximation of the total overtime hours worked or overtime wages allegedly due. Instead, the Court fell in line with the 1st, 2d, and 3rd Circuits and held that to state a viable claim for relief, an FLSA plaintiff at least needs to point to a specific week during which he worked more than 40 hours without being paid for all of that time. Landers failed to do so and the district court was therefore right to throw out his case.  Moreover, because Landers explicitly declined to amend his complaint, he was not given the chance to amend his complaint on remand.

This decision is unlikely to put an end to the high volume of FLSA cases filed in the 9th Circuit or elsewhere because most plaintiffs will be given the opportunity to replead their case even if their complaint is challenged on a motion to dismiss. Even so, this is a positive development because a heightened pleading standard should mean that plaintiff’s theory of the case will be less of a mystery and hopefully less of a moving target. As a result, employers faced with an overtime claim should be able to more narrowly focus discovery and hopefully limit or defeat efforts at collective certification.

Put Up or Shut Up: 8th Circuit Shuts Down Overtime Claim Because Plaintiff’s Guestimates of His Hours Worked Are Insufficient

Posted in Misclassification/Exemptions

Authored by Kyle Petersen

The facts are familiar:

  • An employee who is classified as exempt files suit claiming misclassification and seeking overtime pay.
  • Understandably, the employer does not have time records for the employee because he was treated as exempt and paid on a salary basis.
  • Employee fills the void by testifying that he worked 60 hours every single week based on approximations and estimates of his daily routines.

All too often, such generalized testimony about weekly hours worked is enough for a plaintiff to survive summary judgment and be given a ticket to plead his case to a jury of his peers. Last week, however, the 8th Circuit said not so fast and affirmed the district court’s decision granting summary judgment to an employer because the plaintiff’s across-the-board approximation of his hours worked was insufficient to state a claim under the FLSA.

In Holaway v. Stratasys, Inc., Holaway worked as a field service engineer for Stratasys and was classified as exempt from the FLSA’s overtime requirements. Holaway installed and serviced 3D printers manufactured and distributed by Stratasys. As an FSE, he traveled from his home directly to client sites when called upon. When not on assignment, he was on-duty at home awaiting assignment. After his termination, Holaway sued Stratasys claiming that he was misclassified and owed overtime for all those weeks during which he worked more than 40 hours.

As is often the case with employees classified as exempt, Stratasys did not have time records for Holaway. In those cases, courts generally employ a “relaxed standard of proof” for employees to demonstrate the uncompensated hours that they worked so as not to penalize them for their employer’s failure to keep time records. Under this standard, an employee need only provide admissible evidence sufficient to create a just and reasonable inference that he worked the claimed hours without compensation. If the employee meets that low burden, the employer has the opportunity to refute the reasonableness of the inferences with admissible evidence.

Although Holaway admitted during his deposition that his schedule varied from week to week based on client demands, he concluded that he worked approximately 60 hours each and every week of his employment. His estimations made no provision for sick time, vacation time, paid holidays, or other documented time off during his employment. Ultimately, Holaway was unable to point to any specific week where he worked more than forty hours.  Stratasys moved for summary judgment. The district court punted on the question of whether Holaway was exempt or non-exempt but granted Stratasys’s motion, holding that Holaway had failed to put forth evidence sufficient to show that he worked more than 40 hours in any given week. On Holaway’s appeal, the 8th Circuit affirmed the lower court’s ruling, holding that Holaway’s vague, conclusory, and contradictory testimony about his weekly hours worked failed to meet even the relaxed evidentiary standard afforded to him in the absence of company-maintained time records.

The 8th Circuit’s Holaway decision is a victory for employers facing all-too common misclassification claims in which plaintiffs support their overtime claims with nothing more than unsubstantiated testimony estimating the number of hours they generally worked. With this decision in hand, employers have new ammunition to hold plaintiffs’ feet to the fire when it comes to proving the amount and extent of their alleged overtime work.

How to Slay the Monster of a Proposed Multistate Class Action

Posted in State Laws/Claims

Authored by Jacob Oslick

Adventuring heroes in fantasy fiction soon learn to fight different types of evil beast differently.  Some must be fought by fire, some by water, some by the sword, and some by magic.  The hero who foolishly treats diverse opponents the same does so at his peril.

The Third Circuit recently taught this same basic lesson to the dastardly villains of class action litigation: plaintiffs’ attorneys.  In a recent decision, (see here), the Third Circuit faced an attempt to certify a consumer fraud “class” under the state consumer fraud statutes of all fifty states.  The plaintiffs’ attorneys theorized that such a class was manageable, because each of the fifty states could be “grouped” into one of two categories: (1) states that prohibited “unfair or deceptive” conduct; and (2) states that prohibited “false and misleading conduct.”  In so doing, the plaintiffs’ attorneys glossed over the subtle differences amongst the states in each alleged “group.”

The Third Circuit didn’t let them get away with it, and affirmed the District Court’s decision to reject class certification.  The Third Circuit acknowledged that “grouping” can sometimes make a multi-state class feasible.  But, the Third Circuit held, plaintiffs’ attorneys who seek to certify a multi-state class for trial “face a significant burden to demonstrate that grouping is a workable solution.”  To this end, plaintiffs’ attorneys must provide more than “their own ipse dixit” or “generic assessment” that different states share the same law.  They must provide an “in-depth” treatment of each state, to establish the appropriateness of trying the various state sub-classes together as a “group.”  In other words, just as Harry Potter cannot ignore the differences between basilisks, dementors, and Death-Eaters, plaintiffs’ attorneys cannot merely say that a claim involves “fraud” and then ask the Court to ignore the differences in state laws.  Instead, plaintiffs’ attorneys must do the hard work in showing that a class is manageable, by proving that enough states share functionally identical laws.

So what does this mean for employers? The Third Circuit’s recent decision involved a consumer fraud statute.  But its holding is not limited to it.  And plaintiffs’ attorneys have increasingly sought to certify multi-state employment class actions.  For instance, some have tried to couple an FLSA claim with counts that allege violations of scores of roughly analogous state laws.  And others have tried to challenge an employer’s pay practices by asserting fifty-state “breach of contract” claims.

The Third Circuit has now armed employers with powerful weapons to fight back against these efforts.  Plaintiffs’ counsel within the Third Circuit (i.e., Pennsylvania, New Jersey, Delaware and the Virgin Islands) will need to work much harder to “prove” that dozens of state employment laws truly fit into just a few groups.  Yet the more specificity that plaintiffs’ attorneys provide, the easier it should be to pick-apart their proposed groups, such as by identifying state-specific defenses, exemptions, and doctrines.  Beyond that, this increased certification burden may cause some plaintiffs’ employment attorneys to reconsider bringing largely superfluous counts (such as “breach of contract” claims) that serve little purpose except to over-complicate matters, raise defense costs, and encourage unwarranted settlement.  And that’s very good news for employers trying to heroically beat back ghoulish onslaughts from the plaintiffs’ bar.