Wage & Hour Litigation Blog

The 16th Edition of Litigating California Wage & Hour and Labor Code Class Actions Is Here!

Posted in State Laws/Claims

Authored by Christopher A. Crosman

We are excited to announce the 16th edition of Seyfarth Shaw’s publication Litigating California Wage & Hour and Labor Code Class ActionsAs in previous editions, this publication reviews the most commonly filed wage and hour and Labor Code class and representative claims and the development of the law over the last several years, and discusses and analyzes the various types of wage & hour class actions that affect many California employers. This new edition has been updated to reflect the latest developments in the law and promises to delight.

Download the publication using this convenient link today!

Employers Should Not Retreat on Compliance Planning Despite Two-Pronged Attack on OT Rule

Posted in DOL Enforcement, Misclassification/Exemptions

Authored by Alex Passantino

Two lawsuits related to the Department of Labor’s revisions to the white-collar exemptions have been filed in East Texas.

The first lawsuit, citing (among other things) the severe impact the impending salary increase will have on state and local government budgets, was filed by the Attorneys General of Nevada, Texas, and 19 other states (the “State AG case”). The State AG case makes a Tenth Amendment-based challenge to Congressional application of the FLSA to states. It also argues that the DOL exceeded Congressional authority with respect to the salary test, the highly-compensated employee exemption level, and indexing. The State AG case also argues that the DOL failed to follow the Administrative Procedure Act and/or that the Department exceeded its Congressional delegation of authority.

The second lawsuit was filed by a broad coalition of Texas and national business groups and trade associations. This case alleges that the DOL exceeded its statutory authority under the FLSA, both by the dramatic increase in the minimum salary level required for exemption and by the provision that would require automatic updating of that level every three years.

Both cases seek a variety of declarations regarding the unlawfulness of the DOL’s actions, as well as temporary and permanent injunctive relief preventing the rule from becoming effective on December 1, 2016.

The filing of these cases, as well as recent efforts in Congress to stop the rule (or at least to revise it), may tempt some employers into taking their foot off the pedal with respect to ensuring compliance with the new salary level by December 1. As many have learned the hard way, however, legislation and litigation are less-than-certain solutions.

Employers should continue their efforts to be compliant by December 1. If we receive legislative or judicial relief at some point, it will be much easier to stop the process than it would be to start it much closer to the effective date. In other words, Congressional or judicial relief should not be your compliance strategy.

We will, of course, continue to keep you updated on the litigation and legislative efforts. In the meantime, keep your eyes on the December 1 deadline.

You Can’t Eat Your Cake And Have Your PAGA Too

Posted in State Laws/Claims

Authored by Daniel C. Whang and Simon L. Yang

Seyfarth Synopsis: When an allegedly aggrieved employee attempts both to seek compensatory relief as an individual and to impose penalties as a proxy for the California Labor Commissioner under the Private Attorneys General Act of 2004 (“PAGA”), the resulting comingling of the plaintiff’s interests as an individual and as a representative in the shoes of the State of California is another unsurprising byproduct of the PAGA statutory scheme. Some plaintiffs try to argue that results in one role don’t affect the other, but another court recently reminded plaintiffs that resolving their individual claims also resolves their ability to pursue representative PAGA claims.

Judge Kenneth Freeman recently confirmed that a representative plaintiff’s role as a proxy for the State of California is not unconditional and requires that the plaintiff be an “aggrieved employee.” In the recent case, the plaintiff had originally filed both class action claims as well as a representative PAGA claim alleging exempt misclassification against his employer. After being compelled to arbitrate individual wage and hour claims while the representative PAGA claim was stayed, the plaintiff accepted a statutory offer to compromise under California Code of Civil Procedure Section 998, which dismissed all but his PAGA claim with prejudice.

In refusing to dismiss his PAGA claim, the plaintiff argued that his dual role as an individual and representative of the State of California meant that the dismissal of his individual claims had no impact on his ability to continue as a PAGA representative. The defendant disagreed and filed a motion for summary adjudication. Judge Freeman sided with the employer and made clear that once the plaintiff settled his individual claims, he was no longer an “aggrieved employee” under PAGA and, therefore, no longer had standing to bring a representative claim.

Judge Freeman is not alone in his view. The California Court of Appeal has previously concluded that a plaintiff who released any individual wage and hour claims he may have against his employer as part of a class action settlement cannot subsequently bring a PAGA claim based on the same alleged violations.

Since a PAGA claim can only be brought by and on behalf of “aggrieved employees,” Judge Freeman’s decision is helpful beyond just resolving claims with a PAGA representative. It also suggests “Pick Up Stix” campaigns—where an employer settles claims with individual putative class members to reduce the potential liability in the class action itself—should also be viable in PAGA lawsuits. Settling non-parties’ underlying wage and hour claims should mean that current or former employees who have chosen to participate in the campaign would no longer be “aggrieved employees” for purposes of PAGA.

Considering that PAGA claims cannot be waived in arbitration agreements and are not subject to class certification requirements, employers facing PAGA claims may feel that the courts stack the odds against them. But the recent decision from Judge Freeman provides an encouraging reminder that employers may be able to use settlements as an effective litigation strategy in PAGA actions.

In Final Exam, Court Rejects Hearst Interns’ Pay Claims

Posted in Misclassification/Exemptions, State Laws/Claims

Authored by Rob Whitman

Seyfarth Synopsis: Unpaid interns for Hearst magazines have been rebuffed again in their effort to be declared eligible to receive wages under the FLSA and the New York Labor Law.

In an August 24, 2016 ruling, Judge J. Paul Oetken of the Southern District of New York held that six interns, who worked for Marie Claire, Seventeen, Cosmopolitan, Esquire, and Harper’s Bazaar, were not employees as a matter of law and granted summary judgment to Hearst. After reviewing each of their circumstances individually, the court held:

These interns worked at Hearst magazines for academic credit, around academic schedules if they had them, with the understanding that they would be unpaid and were not guaranteed an offer of paid employment at the end of the internships. They learned practical skills and gained the benefit of job references, hands-on training, and exposure to the inner workings of industries in which they had each expressed an interest.

The six named plaintiffs were the only ones remaining after the Second Circuit, in July 2015, denied their bid for class and collective certification. The court in that decision also articulated a new set of factors for determining whether unpaid interns at for-profit companies are “trainees” (who are not entitled to compensation) or “employees” (who must receive minimum wage and overtime premiums).

The Second Circuit’s decision adopted the “primary beneficiary” test to determine internship status—i.e., whether the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” Applying that test to the Hearst interns, Judge Oetken concluded, “[w]hile [the six plaintiffs’] internships involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential, each Plaintiff benefited in tangible and intangible ways from his or her internship, and some continue to do so today as they seek jobs in fashion and publishing.”

Among the factors he relied on: the relatively brief duration of the internships, typically limited to college semesters or summer breaks; the interns’ opportunities for observation and learning, such as “Cosmo U,” a program in which senior editors spoke about their career paths; and the receipt of or opportunity for academic credit.

Aside from its detailed discussion of the facts of the plaintiffs’ internships, the court’s decision, Wang v. The Hearst Corporation, is notable for two reasons:

  1. It shows the practical impact of a denial of class and collective certification. Although the court addressed the six named plaintiffs’ claims in a single opinion, it was effectively a series of rulings on each intern’s individualized circumstances. As the court noted, some of the factors—such as the receipt of college credit for the internships—weighed differently for the different plaintiffs. But in the end, the result for each of them, given the “totality of the circumstances” in their particular cases, was the same.
  2. The court’s decision applied equally to the plaintiffs’ claims under the FLSA and the NY Labor Law. This issue was left somewhat unsettled after the Second Circuit’s 2015 decision, which noted the similarities in the definitions of “employee” under the two statutes but did not explicitly say that the ruling pertained to both. Judge Oetken, following the earlier lead of a Southern District colleague, held that his ruling decided the claims under federal and NY law.

The Hearst decision is not the first to grant summary judgment under the Second Circuit’s factors. In March 2016, a Southern District Judge found that an intern for the now-late Gawker website was properly treated as such and was not entitled to wages. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that interns will be deemed to be employees, nor should they make for-profit employers complacent about not paying interns. But they signal that, where interns have a bona fide learning experience in coordination with their academic pursuits, they need not be paid as a matter of law.

Prompt Payment Required – Doesn’t Matter If Fired, Retired, Or Resigned

Posted in State Laws/Claims

Co-authored by Monica Rodriguez and Justin Curley

Seyfarth Synopsis: The California Supreme Court holds that employers must promptly pay final wages owed to employees who quit, including those who retire, or risk paying steep statutory penalties under California Labor Code section 203.

What Were the Plaintiff’s Claims?

Janis McLean worked as deputy attorney general for the California Department of Justice. In November 2010, McLean retired and filed suit in an individual and representative capacity against the State of California shortly thereafter. She alleged that the State Controller’s Office failed to pay her final wages on her last day of employment or within 72 hours of her last day after she retired.

What Do California Labor Code Sections 201 and 202 Require of Employers?

California Labor Code sections 201 and 202 require employers to pay final wages owed to employees who are fired or quit. Depending on how the employment comes to an end, final wages are due immediately or within 72 hours after the last day of employment. Failure to timely pay final wages subjects employers to penalties of up to 30 days’ wages.

What Did the California Supreme Court Decide?

The California Supreme Court agreed with McLean that the prompt payment provisions of California Labor Code sections 201 and 201 included protections for employees who retire. The State had demurred to the complaint, arguing that because McLean had retired from her job, she had not stated a claim for statutory penalties which applies only when employees “quit” or are “discharged.” While the trial court sustained the demurrer, the California Court of Appeal and California Supreme Court disagreed.

The California Supreme Court looked to the legislative purpose of the statute and noted that the statute is meant to be “liberally construed with an eye to promoting such protection” of employees. The court also considered the ordinary meaning of the word “quit” to determine whether it encompasses the word “retire,” and concluded that the word “quit” is broad enough to cover a voluntary departure through retirement.

Lessons Learned for Employers?

This decision serves as a reminder to California employers to promptly pay wages owed to their employees after termination, regardless of the method in which the employment ends–through discharge, retirement, or resignation. For those who are interested, a more in-depth review of the case is available here.

Northern District of California “Shuts Out” Minor League Ballplayers’ Experts

Posted in Decertification

Authored by Eric Lloyd

Seyfarth Synopsis: Minor league baseball players took a swing at class certification, and they missed—badly.

In Senne v. Kansas City Royals Baseball Corp., et al., minor league baseball players across the country asserted wage and hour claims under the Fair Labor Standards Act (“FLSA”) and various state laws against Major League Baseball (“MLB”), the Commissioner of MLB, and a number of MLB franchises. The players sought allegedly unpaid minimum wages and overtime for “work” performed during the baseball season (such as travel to and from games and pre-game activities) and during the offseason (such as participating in spring training and offseason conditioning). The U.S. District Court for the Northern District of California conditionally certified the Plaintiffs’ proposed collective under the FLSA in October 2015.

Plaintiffs moved to certify their state law wage and hour claims in April 2016. In support of their class certification motion, Plaintiffs submitted declarations and testimony from two experts. Plaintiffs proposed that one of their experts would offer a damages model at trial based on estimates of the number of hours worked by each player during each work week in the class period. They further posited that these estimates would be based upon players’ responses to a survey devised by another expert, which asked players to provide information concerning the amounts of time they spent performing purportedly work-related activities. The Defendants asked the court to exclude the experts’ declarations and testimony on the ground that the proposed survey was flawed and would collect unreliable data.

The court denied Plaintiffs’ motion to certify their state law claims, and, decertified the FLSA collective. While this was obviously a welcome development for class action-weary employers, Chief Magistrate Judge Joseph C. Spero’s opinion stands out from other recent certification decisions given its extensive discussion regarding the use of representative evidence in class actions.

Judge Spero granted the Defendants’ motion to exclude Plaintiffs’ experts’ declarations and testimony, finding the proffered survey evidence to be “fundamentally flawed.” The court was troubled that the players’ survey responses would be unreliable insofar as the survey asked players to provide information concerning “mundane events” that may have happened years in the past, such as when they arrived and departed from a baseball stadium on a given day, whether their baseball-related activities were “rained out,” or whether they missed a practice due to injury or illness. The fact that no time records which could verify the players’ responses existed cemented the court’s conclusion that the survey data would be unsound. In addition, the court expressed concern that the survey responses would be tainted by self-interest bias given that “virtually all minor league players have a vested interest in the outcome of this litigation.”

The court also rejected the Plaintiffs’ argument that the U.S. Supreme Court’s recent decision in Tyson Foods, Inc. v. Bouaphakeo permitted the use of survey evidence given the absence of time records for the players. As Judge Spero noted, the players who comprised the putative class were not at all similarly situated—for instance, they played for different organizations, with different work requirements, in different states, with different laws—making it inappropriate to “paper over significant material variations [among the plaintiffs] that make application of the survey results to the class as a whole improper.” In other words, Tyson Foods was inapplicable because the players’ working conditions were simply too different to draw any reliable conclusions about class members’ claims based on purportedly representative survey evidence.

Senne is the latest case showing that courts are reviewing trial plans based on representative evidence with increased scrutiny, as discussed previously here. Judge Spero’s thorough 104 page opinion exposes a number holes in the use of survey evidence to support a trial plan—for instance, that it may be unverifiable and contaminated by the respondents’ self-interest—and it therefore provides employers with strong arguments to present in opposition to class certification.

Should Franchisors Become BFFs with WHD?

Posted in DOL Enforcement

Authored by Alex Passantino

Seyfarth Synopsis:  WHD is seeking to enter into compliance agreements with, among others, franchisors.  Whether an employer should take WHD up on their offer to sign on the line depends on a variety of considerations.

Expanding upon a relationship started in 2012, the U.S. Department of Labor’s Wage & Hour Division and Subway announced a voluntary compliance agreement earlier this week. Billed as an effort at increasing Subway’s social responsibility, the agreement details the steps WHD and Subway have decided will be mutually beneficial, including the following:

  • WHD will develop, with Subway’s assistance, compliance assistance materials for the franchise restaurant industry, which Subway will distribute to, among others, its managers and franchisees.
  • WHD will assist Subway in understanding the enforcement data related to its franchisees.
  • Subway will provide WHD with its annual disclosures to other government agencies, including the FTC.
  • Subway and WHD will explore options for franchisee compliance, including building alerts into the payroll and scheduling platform that Subway offers its franchisees.
  • WHD and Subway will meet quarterly to discuss franchisee compliance.
  • Subway may advise its franchisees of their obligations to comply with WHD’s investigative process.

In press releases and media statements accompanying the announcement, WHD Administrator David Weil revealed that WHD attempted to enter into similar agreements with other franchisors, and will seek to do the same in the future.

Should a franchisor—or any employer for that matter—enter into a voluntary compliance agreement with WHD? Ultimately, the answer to that question depends on a number of factors, and different employers likely will reach different conclusions. A couple of things to consider include:

Wage and hour compliance history. If the employer and its franchisees have had a solid compliance history—considering both WHD investigations and private lawsuits—there may be no need to invite WHD into the fold. If, on the other hand, there have been significant violation—particularly violations that have been publicly reported, it may be worth exploring. Media outlets reported that Subway’s franchisees had been investigated around 800 times in a three-year period, resulting in back wages of approximately $2 million. That type of negative publicity for the brand may have prompted the desire to reach an agreement to make every effort to ensure the brand and demonstrate “social responsibility.”

Joint employment. Entering into an agreement with WHD in which a franchisor takes additional responsibility for wage and hour compliance has the potential to be fraught with peril when it comes to joint employment. Although both Subway and WHD seem to insist that the agreement does nothing to shift the balance in any joint employment inquiry, whether it be under the FLSA, the NLRA, or any other law, it’s hard to see how the compliance agreement will not be used by parties seeking to establish joint employment. Indeed, another government agency (such as the NLRB) or a private plaintiff’s attorney is completely free to ignore WHD’s understanding of an agreement’s impact on joint employment.

Though it may be true in many cases that the agreement itself makes no changes to the analysis, in others it very well may. Presumably, entities at either end of the spectrum of concern—either those employers who are totally confident there will be no joint employment finding or those employers who believe the “cake is baked” on the issue—will be more likely to enter into an agreement. Those who are somewhere in the middle may be rightfully concerned that the agreement may be used against them to prove joint employment; at the very least, it will be one more item that needs to be explained away.

Other Benefits. It’s also possible that an employer’s participation in a voluntary compliance agreement with WHD can be used to help establish a good faith defense to liquidated damages, or to help oppose a plaintiff’s attempt to establish willfulness and a third year of damages. These efforts will necessarily be dependent on the nature of any alleged violation and its relationship to the agreement, but it would be difficult to paint an employer who meets with WHD regularly to discuss compliance, and who engages in the types of training activities contemplated by the agreement, as being reckless or indifferent to its obligations under the FLSA.

The decision to enter into a voluntary compliance agreement with WHD if presented with the opportunity—or to reach out directly to WHD to get the process started—is one that should be carefully and thoughtfully considered. It remains to be seen whether the Subway agreement will be the beginning of a trend or an isolated example of an employer willing to go where others are not. As additional agreements are announced and publicized, we will, of course, keep you posted.

Another Federal Court Thinks the DOL Is Out to Lunch On Tip Credit Rule

Posted in DOL Enforcement, Service Charges/Gratuities

Authored by Noah Finkel and Cheryl A. Luce

Seyfarth Synopsis: New decision from Northern District of Georgia rejects the DOL’s interpretation of the FLSA tip credit law. Holds that the FLSA does not regulate tips received by employees who are paid at least minimum wage.

Imagine that you are a restaurateur. You employ servers and bartenders who receive tips, but you pay them at least the minimum wage instead of the lower, minimum cash wage of $2.13 per hour. You are not taking a “tip credit” based on the tips your servers receive to bring them up to minimum wage. Instead, you’re directly paying the servers minimum wage (or more). If you reallocate the tips your servers receive, are you violating the FLSA?

Section 3(m) of the FLSA states that employees must retain all tips they receive if the employer takes a tip credit towards their minimum wage obligation. Prior to April 2011, courts held that Section 3(m) does not require employers to return tip money to employees if the employer does not take a tip credit. You, as the restaurateur, do not have to return tips your servers receive under the FLSA because you pay your them at least  minimum wage and the FLSA does not regulate your tip pool.

That was the case before the Department of Labor tried to regulate what the FLSA does not: tips received by employees who are paid at or above minimum wage. In April 2011, the DOL issued a rule that states, “Tips are the property of the employee whether or not the employer has taken the tip credit under Section 3(m) of the FLSA.” 29 C.F.R § 531.52. This DOL rule has been rejected by many district courts and the Court of Appeals for the Fourth Circuit, who agreed that the rule is not entitled to deference under Chevron or otherwise because the FLSA does not regulate tips of employees who are paid at least minimum wage. As we reported in February, however, the Court of Appeals for the Ninth Circuit went against the grain and upheld the rule in Oregon Restaurant and Lodging Association v. Perez. The Ninth Circuit concluded that because Section 3(m) is silent on whether employees who do not take a tip credit can reallocate tips received by employees, the DOL retained authority to regulate all tips, and the rule is reasonable and entitled to deference.

Recently, in Malivuk v. Ameripark, LLC, the plaintiff asked the Northern District of Georgia to adopt the Ninth Circuit’s approval of the DOL rule for valet attendants who received tips that were then reallocated by Ameripark to pay for overhead expenses. Ameripark argued that the DOL regulation is invalid under Chevron. The Northern District of Georgia agreed with Ameripark—and did not mince words in doing so. The court labeled the Ninth Circuit’s reasoning in Oregon Restaurant as “flawed” and stated, “The DOL Regulation violates the plain language of Section 203(m).”

Malivuk reaffirms that the DOL cannot exceed what the FLSA regulates. The FLSA regulates minimum wage and overtime pay, not wage payment like the laws of many states. If the DOL rule regulating tips received for employees who are paid at least minimum wage were to stay, it would fundamentally transform the FLSA into a wage payment law. The FLSA is not “silent” on how tips received by employees who are properly paid the minimum wage and overtime should be paid out; rather, the FLSA does not regulate these employees because it has no other remedies to offer them. The FLSA’s remedies are for payments below minimum wage and failure to pay overtime; it is not a wage payment law.

As the hospitality and other industries search for ways to share the tips collected by front-of-the-house employees like servers and bartenders with back-of-the-house employees like cooks, dishwashers, and janitors, the DOL’s far-reaching tip pool rule is an encroachment. Rulings like Malivuk allow employers to allocate tips in ways that suit their business needs.

 

Seventh Circuit Serves Up Employer-Friendly Recipe For Compensating Tipped Employees

Posted in Service Charges/Gratuities

Authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis: The U.S. Court of Appeals for the Seventh Circuit served up some welcome relief for employers in Schaefer v. Walker Bros. Enterprises, in which the court rejected Plaintiff’s theory and affirmed a district court’s order granting summary judgment in favor of Defendants.

Many employers, particularly in the hospitality industry, pay tipped employees less than the minimum wage.  They do so anticipating that tipped employees will receive tips from customers that push employees’ income above minimum wage.  The FLSA and many state laws allow such a practice – often referred to as taking a “tip credit” – so long as employers meet certain conditions.

The vague nature of the statutes and regulations governing the tip credit, coupled with a lack of developed case law interpreting such statutes and regulations, has created fertile ground for litigation.  In particular, some plaintiffs’ wage & hour lawyers have sought to feast on unsuspecting restaurateurs who require tipped employees to perform side work – from wiping tables to cutting fruit to polishing brass.  Plaintiffs argue that such tasks invalidate the tip credit because they put servers, bartenders, and other tipped employees in a “dual job” or second occupation that employers must compensate at minimum wage.

Last week, the U.S. Court of Appeals for the Seventh Circuit served up some welcome relief for employers in Schaefer v. Walker Bros. Enterprises (7th  Cir. July 18, 2016), in which the court rejected Plaintiff’s theory and affirmed a district court’s order granting summary judgment in favor of Defendants.

The Seventh Circuit held that Defendants properly took the tip credit for time servers spent performing side work duties and that Defendants properly informed servers of their intention to take the tip credit by distributing an employee handbook and displaying a DOL poster.  The decision represents a significant victory for hospitality industry employers, particularly the significant number that require servers to perform end-of-shift and beginning-of-shift side work duties at the tip credit rate of pay.

Factual Background

In 2010, Plaintiff-servers brought suit against Walker Brothers contending that the restaurants violated federal and state minimum wage laws in two ways:  (1) by incorrectly using the tip credit to pay servers less than minimum wage while requiring them to perform duties unrelated to their tipped occupation; and (2) by failing to inform the servers of their intent to apply the tip credit to the servers’ wages.

Walker Brothers owns six restaurants in the Chicago suburbs that operate under the name “The Original Pancake House.”  Upon hire, Walker Brothers provides servers with an employee handbook that states, among other things, that the restaurants apply a tip credit that reduces servers’ hourly wages 40% below minimum wage.  The restaurants also display DOL-approved posters explaining the tip credit in well-traveled areas.

In addition to serving customers, servers perform side work tasks that vary, among other things, by the station to which they are assigned.  Defendants required servers, for instance, to wash and cut strawberries, mushrooms, and lemons; mix applesauce and jams, restock bread bins and replenish dispensers of milk; fill ice buckets; brew tea and coffee; wipe toasters and tables; wipe down coffee burners and woodwork; dust picture frames; and occasionally polish brass.

After the district court granted class certification, the restaurants moved for summary judgment.  The district court granted their motion finding that the side work tasks were “incidental to the regular duties of the server (waiter/waitress)” and that Walker Brothers provided notice of the tip credit by giving servers an employee handbook and displaying posters approved by the Illinois DOL.

The Seventh Circuit’s Opinion

The Seventh Circuit affirmed the district court’s judgment in favor of Walker Brothers in all respects and, in doing so, rendered an important decision for the hospitality industry.  Most significantly, the Seventh Circuit found Plaintiff’s position that none of their side work was related tipped work as “untenable.”  It held that servers engaged in making coffee, cleaning tables, and several other activities that the DOL provided as examples of duties that could be performed by persons paid at the tip credit rate.  The court reasoned “[t]hat some of our plaintiffs’ tasks may be performed by untipped staff at other restaurants does not make them unrelated as a matter of law”; rather, the “right question” is whether the tasks are “related” or “incidental” to tipped duties.  The Seventh Circuit noted that the “most problematic” duties were “wiping down [coffee] burners and woodwork and dusting picture frames,” but because the DOL gave “cleaning and setting tables” and “occasionally washing dishes or glasses” as examples of related duties, it could not categorically exclude “clean up tasks” from the definition of duties related to a server’s tipped occupation.  In any event, the Seventh Circuit concluded that it need not decide what to make of wiping woodwork or dusting picture frames because, as the record showed, the time spent on such tasks was “negligible.”  The Seventh Circuit noted that the law “does not convert federal judges into time-study professionals and require every minute to be accounted for.”  Given the flexible standards imposed by the DOL, the possibility that a few minutes a day were devoted to keeping the restaurant “tidy” did not require the restaurants to pay the normal minimum wage for those minutes.

The court also rejected Plaintiff’s “notice” claim, holding that Walker Brothers was able to satisfy all elements of the notice requirements of the statute by combining different documents that it posted or provided to servers.

Implications For Employers

The Seventh Circuit’s decision in Schaefer is a significant victory for the restaurant industry.  Before the Seventh Circuit’s decision, few courts had addressed tip credit claims, and little favorable law existed to validate employers’ regular practice of using servers to perform incidental side work tasks.  As a result of this decision and a growing body of district court decisions favoring restaurant employers, restaurant employers may be able to breathe a little easier.

That’s a Wrap: Fox Reaches Deal with Unpaid Interns

Posted in Independent Contractors

Co-authored by Robert Whitman and Adam J. Smiley

Seyfarth Synopsis: Fox Searchlight and Fox Entertainment Group have reached a preliminary settlement with a group of former unpaid interns, possibly resolving the lawsuit that resulted in a Second Circuit decision that redefined the test used to evaluate whether interns are properly classified under the FLSA.

As this blog has previously reported [here, here], former unpaid interns who worked on Fox film productions sued the studio in 2010, alleging that they were misclassified and entitled to minimum wage and overtime compensation. In a 2013 decision, Judge William Pauley of the Southern District of New York granted summary judgment to two of the interns, holding that they should have been treated as employees, and held that a third intern could pursue his related claims as a class and collective action under the FLSA and New York Labor Law. Fox appealed to the Second Circuit, which in July 2015 held that that the “primary beneficiary” test, rather than the Department of Labor’s stricter six-factor test, should be used to evaluate the classification of unpaid interns. The court sent the case back to Judge Pauley for resolution under its newly articulated standard.

Under the proposed agreement, any intern who served for at least two weeks from 2005-2010 will be entitled to a $495 payment. That amount is within the payout range that we’ve seen in other internship lawsuits. Three of the lead plaintiffs, Erik Glatt, Alexander Footman, and Eden Antalik, will receive service awards of $7,500, $6,000, and $3,500, respectively.

The settlement would resolve claims in two lawsuits before Judge Pauley: Glatt v. Fox Searchlight, which concerns New York interns, and Mackown v. Fox Entertainment Group, which concerns California interns. The total monetary value of the settlement, covering both lawsuits, is approximately $600,000, of which $260,000 is for attorneys’ fees.

In papers supporting the proposed settlement, the plaintiffs noted that the Second Circuit’s ruling presented “significant risk to [them] on the merits and with regard to certification.” They also acknowledged their “extreme challenge” in obtaining class and collective action certification, especially given that the interns “were engaged in various divisions, performing different duties, and reporting to different supervisors,” such that the Court “could conclude that [their differences] exceed their similarities.” While still professing the strength of their case, the plaintiffs admitted that they faced litigation risks because the Second Circuit’s standard was “largely untested.”

The deal is not final: it still must be preliminarily approved by Judge Pauley, which will trigger the issuance of a notice informing class and collective members of their rights under the settlement. Putative class members will then have an opportunity to object to the settlement or opt out, and the deal must be finally approved by the Court after conducting a fairness hearing.

We’ll keep you posted as the settlement approval process moves forward, as well as any developments regarding the motion for summary judgment filed by the Hearst Corporation in a similar lawsuit, currently pending before Judge J. Paul Oetken, also in the Southern District of New York.

On a related note, the Wall Street Journal recently reported on a study conducted by the National Associate of Colleges and Employers, which found that paid interns are more likely to receive a job offer after graduation—and earn more money—then their fellow students who had an unpaid internship. The article also discusses important issues regarding income inequality and diversity between paid and unpaid interns, and employers may be well-served by reviewing the cited data when contemplating whether to offer paid or unpaid internship programs.