Wage & Hour Litigation Blog

SCOTUS Says DOL Needs to Explain Itself If It Wants Deference to its Regulations

Posted in DOL Enforcement, Misclassification/Exemptions, Overtime

Authored by Abigail Cahak

Seyfarth Synopsis: The Supreme Court dealt a blow to the Department of Labor’s rulemaking procedures, criticizing the agency for explicitly changing its long-standing treatment  of automobile service advisors as overtime exempt while saying “almost nothing” regarding the reasons for the abrupt change.

This week, the Supreme Court dealt a blow to the Department of Labor’s rulemaking procedures, criticizing the agency for explicitly changing its long-standing treatment  of automobile service advisors as overtime exempt while saying “almost nothing” regarding the reasons for the abrupt change.

The decision, echoing earlier criticisms of the DOL by the Court for taking new positions on who is and isn’t exempt in Christopher v. SmithKline Beecham Corp. when considering the exempt status of pharmaceutical sales representatives, may be of use to employers in challenging other recent DOL regulatory changes.

The Encino Motorcars Decision

Automobile service advisors employed by dealerships are generally responsible for meeting with customers, listening to their concerns about their cars, suggesting repair or maintenance services, selling new accessories or replacement parts, recording service orders, following up with customers as services are performed, and explaining repair and maintenance work when customers return for their vehicles.

The exempt status of such employees flip-flopped throughout the 1960s and 1970s; however, in 1978 the DOL issued an opinion letter specifically taking the position that service advisors could be overtime exempt under 29 U.S.C. § 213(b)(10)(A). The DOL confirmed this position nine years later when it clarified in its Field Operations Handbook that service advisors were to be treated as exempt. Finally, in 2008, the DOL issued a notice of proposed rulemaking stating that it intended to revise its regulations to reflect the overwhelming court authority on the matter and its own long-standing practice on the issue.

In 2011, DOL issued a final rule addressing service advisors, as well as a number of other issues on a broad range of topics.  Many of these reversed course from previous long-held DOL positions, including the DOL’s announcement that its 2008 proposal on service advisors would be rejected and the final rule would state the exact opposite: that service advisors are not exempt because they do not themselves sell automobiles.

In Encino Motorcars, LLC v. Navarro, the Supreme Court concluded that the Ninth Circuit improperly accorded Chevron deference to the DOL’s 2011 final rule in a suit alleging that the defendant dealership had improperly classified its service advisors. The Ninth Circuit had previously reversed, based on deference to the 2011 regulation, the District Court’s dismissal of the case as to the exemption of service advisors.

The Supreme Court started by noting that it must defer to a federal agency’s interpretation of ambiguous law if that interpretation is a “reasonable” one. But deference is not warranted when the agency does not give “adequate reasons for its decisions” and “where the agency has failed to provide even the minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law.” This is particularly important where an agency is changing an existing policy and as such it must “provide a reasoned explanation for the change.”

Under these principles, the Court concluded that the Department’s 2011 regulation was not entitled deference because it offered “barely any explanation” for the change in interpretation. The Court stressed that “[t]he retail automobile and truck dealership industry had relied since 1978 on the Department’s position that service advisors were exempt from the FLSA’s overtime pay requirements” and had “negotiated and structured their compensation plans against this background understanding.” Therefore, “[i]n light of this background, the Department needed a more reasoned explanation for its decision to depart from its existing enforcement policy.” Accordingly, the Court vacated the Ninth Circuit’s decision an instructed it “to interpret the statute in the first instance.”

Potential Implications of the Supreme Court’s Decision

The Court’s ruling won’t have a direct impact on most employers — only a few employ automobile service advisors.  But its reasoning could have wide-ranging implications. The Court commanded that, when reversing course with new regulations, the DOL must show good reasons for the new policy. The automobile service advisor regulation was only one part of a 2011 series of regulations from the DOL in which the DOL changed its regulations, including several proposed interpretations on other FLSA issues from the DOL during the Bush Administration, including the tip credit, tip pooling, and fluctuating workweek.  To the extent the DOL’s explanation for the change is wanting, those changes are now subject to challenge.

The Spirit of the FLSA Haunts a Highly Paid Employee

Posted in Overtime

ghost-582113_1920Authored by Jeff Glaser

 

Seyfarth Synopsis: The Eleventh Circuit Court of Appeals cites to the FLSA’s purpose and spirit in upholding the dismissal of a minimum wage and overtime claim brought by a highly paid computer software and hardware engineer.

As we’ve discussed on this blog before, the Supreme Court’s decision in Christopher v SmithKline Beecham Corp. had many layers. In holding that pharmaceutical sales representatives were subject to the FLSA’s outside sales exemption, the Court touched on the purpose and spirit of the Act. Justice Alito, the author of the majority opinion, explained that highly paid employees, such as pharmaceutical sales representatives, are “hardly the kind of employees that the FLSA was intended to protect.” This dicta could apply well beyond the confines of pharmaceutical representatives and the outside sales exemption. It could suggest an additional consideration in any FLSA lawsuit involving highly paid individuals.

Last week, the Eleventh Circuit picked up and expanded this line with its decision in Pioch v. Ibex Engineering Services, Inc. Pioch worked at Ibex for almost ten years as a computer software and hardware engineer. Ibex paid him on an hourly basis, ranging from $50 to $85.40 per hour. He received straight time for any hours he worked over 40 in a week, but, based on the computer professional exemption, Pioch did not receive an overtime premium. The computer professional exemption applies to employees who perform certain computer-related duties and are paid at least $455 per week or, if compensated on an hourly basis, $27.63 per hour.

Pioch resigned from Ibex after an internal investigation concluded that he improperly collected per diem payments amounting to nearly $150,000. As a result of the investigation, Ibex withheld Pioch’s final paycheck of $13,367.20, which represented three weeks of work. Pioch brought suit in the Southern District of Florida, alleging, among other things, that Ibex violated the FLSA’s minimum wage and overtime requirements by withholding his last paycheck and failing to compensate him at all for three weeks of employment.

The district court granted Ibex summary judgment on Pioch’s FLSA claims, finding that the computer professional exemption applied to Pioch’s entire employment with Ibex, including the last three weeks of employment when he didn’t receive any pay at all.

The Eleventh Circuit agreed. In reaching this decision, the court followed the Supreme Court’s lead in Christopher, and engaged in its own analysis of the purpose and spirit of the FLSA. It explained that “read[ing] the FLSA blindly, without appreciation for the social goals Congress sought, would … do violence to the FLSA’s spirit.” After reviewing these goals, the court concluded that Congress intended the FLSA to “aid the unprotected, unorganized, and lowest paid of the nation’s working population”—not “a highly-paid hourly employee typically earning over six figures a year,” like Pioch.

Guided by this interpretation, the Eleventh Circuit held that Pioch’s exempt status did not “evaporate” simply because Ibex withheld his final paycheck. Ibex promised to pay Pioch many times more than the minimum amount required under the computer professional exemption. Ibex’s alleged failure to follow this promise by withholding Pioch’s final paycheck is a matter for state contract law, not the FLSA. To this point, the court explained that “[w]hat Mr. Pioch is essentially trying to do is assert a state-law breach of contract claim, for his agreed-to hourly rate, through the FLSA.” The FLSA, though, is “not a vehicle for litigating breach of contract disputes,” and therefore Pioch’s FLSA claim was properly dismissed.

Like Christopher, the Pioch decision is helpful to employers on multiple levels. Narrowly, it finds that the withholding of a final paycheck does not invalidate the exempt status of an hourly employee otherwise subject to the computer professional exemption. More broadly, it indicates, as the Supreme Court did, that the spirit and purpose of the FLSA is a valid consideration when determining the Act’s application to highly paid employees.

Tweeting With the DOL

Posted in DOL Enforcement

Image for Promotion 06_16_16We have harnessed a number of special avenues to connect with you regarding the new overtime rule, including our FLSA Exemption Resource Center, a live Facebook interview with USA Today and our recent testimony before the U.S. House Education and the Workforce Committee.

Now, for our latest avenue: Twitter. For those who use Twitter to keep up with current events, join Brett Bartlett tomorrow, Thursday June 16, at 2:00 PM EST for a “chat” about the new FLSA exemption rule. Wage and Hour Division Administrator David Weil, Solicitor of Labor Patricia Smith, and Michael Hancock of Cohen Milstein will be joining him to answer questions focused primarily on the impact that the new rule will have on businesses nationally. You can join the conversation on Twitter using the hashtag: #OTRuleChat.

We look forward to your tweets!

They’re Here: White Collar Exemption Revisions Announced

Posted in DOL Enforcement, Overtime

Authored by Alex Passantino

Tomorrow, the Department of Labor’s long-awaited revisions to the Fair Labor Standards Act’s white collar exemption will be announced. Although there certainly will be additional nuance identified once the entire package has been made available, here are the bottom line changes:

  • The new salary level required for the executive, administrative, and professional exemptions will be $913 per week, which translates to $47,476 per year.
  • Up to 10% of the salary level can be met with bonuses and commissions. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, however, such payments must be paid on a quarterly or more frequent basis and the employer is “permitted” to make a “catch-up” payment. More specific details of this new development are still unclear.
  • The new salary level required to take advantage of the highly-compensated employee provision of the exemptions will be $134,004 per year. Of that, $913 per week must be paid on a salary basis.
  • The new levels will be effective on December 1, 2016. December 1 is a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.
  • The salary level will be increased automatically every three years, starting in 2020. The amount will be based on the 40th percentile of full-time salaried workers in the region in which the salary level is lowest (historically, the South). The Department will publish the information in the Federal Register in advance of the increase. It is expected that the salary will be $51,000 per year on January 1, 2020.

The salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the Department in its proposed rule last year. In addition, although an automatic increase was proposed and expected, doing so every three years—instead of annually—provides a small relief for the compensation planning process.

Over the past year, there has been a great deal of discussion about what the Final Rule might contain. Given those discussions, it is notable that the final rule does not:

  • change the regulatory text for primary duty;
  • revise the tests for the duties required of executive, administrative, or professional employees;
  • amend the salary basis test;
  • apply any new compensation standards to doctors, lawyers, teachers, or outside sales employees; or
  • make any changes to the computer professional exemption (other than the salary increase, as may be applicable).

We will keep you updated once the Final Rule is available in its entirety.

You can register for our webinar discussing the changes here.

UPDATE (5/18/16): The Final Rule is posted.

Plaintiffs’ Bar Sets Sights on New Lawsuits Following DOL Rule Amendments

Posted in DOL Enforcement, Misclassification/Exemptions

Co-authored by Richard Alfred, Brett Bartlett, and Noah Finkel

The Department of Labor’s release of the new exemption regulations appears imminent. As we have reported in a number of posts, these new rules are expected to nearly double the minimum annual salary level required for employees under the administrative, executive, and professional exemptions (currently $23,660 to between $47,000 – $50,440); impose an automatic annual (or, possibly, less frequent) indexing to inflation; and significantly increase the highly compensated employee exemption (now set at $100,000). Once issued, these new rules will significantly change employee eligibility for overtime and will impact virtually all employers operating in the United States. The rules are likely to become effective within 60 – 120 days, or possibly longer.

The overtime rule amendments will be the first major revisions to the “white collar” exemptions since 2004. Those modest changes in the regulations resulted in a dramatic increase in wage and hour litigation at that time. Consider this: in 2003, the year before the last amendments, the number of federal court wage and hour filings stood at 2,751, according to the Annual Report of the Director, Judicial Business of the United States Courts; a year later, in 2004, that number jumped to 3,617, an increase of almost 32%, followed by another double-digit percentage increase in 2005 to 4,039, up nearly 12%.[1]

With that as a backdrop, we have been predicting another surge in new wage and hour lawsuits following the anticipated new rules this month. That prediction has now been underscored by an article published late last week by the Bloomberg BNA Daily Labor Report. That article, “Plaintiffs’ Bar Plans Outreach on Overtime Changes,” leads with the not-so-subtle statement by an attorney at a well-known plaintiff-side law firm, “Once the regulation’s done, that’s only the beginning…” Reportedly, these lawyers are planning to “educate” employees about the requirements of the regulatory changes through techniques that may include “using radio, television and online advertising.” We can only assume that the aim of such “education” is to find new clients, who then become plaintiffs against employer-defendants.

Where Plaintiffs’ Counsel Are Looking

This effort may initially focus on previously exempt employees who, because of the minimum salary level increases, are reclassified as non-exempt. In some cases, these employees may continue to be paid a set weekly salary but for work limited to 40 hours per week, a perfectly lawful method of pay for non-exempt employees. Both employers and employees paid in this manner may not realize, however, that an overtime premium is due for work over 40 hours in a week, notwithstanding the salary method of pay.

Additionally, reclassified employees may feel that they are expected to continue performing the same duties they had as exempt employees, when they regularly worked more than 40 hours a week. As non-exempt employees, company policies may prohibit them from working beyond 40 hours without supervisory approval and will typically require them to keep track of and record their work time accurately. Those who fail to do so may be disciplined and may also later argue that they were denied overtime pay and seek compensation for such time, as well as liquidated damages, attorneys’ fees, and, under some state laws, penalties and interest.

As plaintiff-side attorneys “switch their focus from outreach to enforcement,” this article reports, new lawsuits will be filed for past alleged violations uncovered from increased scrutiny given to wage and hours issues more generally, in addition to alleged overtime violations seen as arising from the new rules. This is likely to result in claims alleging exempt status misclassification and off-the-clock unpaid work. “[T]his will only add to the recent swelling of private FLSA litigation,” and a further “surge in overtime pay lawsuits,” commented one labor and employment lawyer for this story.

Further adding to this expected spike in new wage and hour lawsuits is likely to be dissatisfaction among newly reclassified non-exempt employees who may see their reclassification as a form of demotion and reduction in status. Morale issues may follow, which could adversely impact productivity and may also provide an incentive among those workers to seek legal redress.

What Happened the Last Time the Regulations Changed?

It is no surprise to employers that wage and hour laws—both federal and state—are complicated, often difficult to apply, and the source of potentially crippling exposure from collective and class actions. In the decade following 2005, lawsuits under the FLSA and state laws have continued to increase in record numbers, more than doubling in federal court filings, alone (from 4,039 to 8,781 in 2015). We have discussed the causes contributing to this escalation in previous posts. As discussed, the 2004 amendments and the publicity that surrounded them led to an increase in awareness of the FLSA and state wage and hour laws. Other causes include:

  • The vague and ambiguous text of the FLSA and DOL regulations, adopted in 1938 and amended just nine years later with the Portal-to-Portal Act of 1947;
  • The workplace and our economy at that time were extremely different from now, and applying those legal requirements to today’s businesses is difficult and presents issues, the answers to which are often unknown and unknowable as courts struggle to reach consistent decisions; and
  • Large settlements and verdicts have given employee attorneys an incentive to focus more on procedurally advantageous collective actions in which the plaintiffs’ burden in obtaining conditional certification is lower than Rule 23 class certification and often easier to prove than claims of employment discrimination.

The same ingredients that led to the sharp increases in wage and hour litigation a dozen years ago are present today. The plaintiffs’ bar is gearing up by aiming its attention on the risks and hurdles that employers will face in complying with the soon-to-be released new regulations. The challenge for employers is to understand their current wage and hour policies, practices, and job classifications and how the new rules are likely to impact them. The opportunity is to plan for the implementation of the likely changes to the law so that necessary workforce adjustments can be made thoughtfully and consistently based on business goals and culture.

As we near the release of the new regulations, we repeat what we have said many times before: employers should assess their pay practices and classification decisions through an audit conducted by experienced in-house or outside wage and hour counsel. As plaintiff-side lawyers plan for another wave of wage-hour lawsuits, employers are well advised to take steps now to reduce their chances of becoming future litigation targets. We also invite you to visit Seyfarth Shaw’s FLSA Exemption Resource Center for more information and resources for employers on the new regulations.

[1] The source for all statistics of case filings in federal courts reported in this article is the Annual Report of the Director, Judicial Business of the United States Courts, available at http://www.uscourts.gov/statistics-reports/caseload-statistics-data-tables?tn=c-2.

New FLSA Overtime Exemption Rules Expected Imminently

Posted in DOL Enforcement

By: Seyfarth Shaw’s Wage Hour Litigation Practice Group

Seyfarth Synopsis: As early as next week, the Department of Labor is expected to issue its final rule implementing revisions to the regulations governing the application of the FLSA’s “white collar” exemptions from overtime and minimum wage. 

The culmination of more than two years’ worth of work by the Department, the final rule has the potential to impact the exempt status of a wide variety of positions in virtually every industry and impose the most significant changes to those regulations in at least a decade.

In this Client Alert, we bring you the latest intelligence on the content and timing of the final rule, as well as what you can expect from your team at Seyfarth Shaw in the coming weeks.

We have also created a special update series on the new FLSA overtime exemption rules. To receive this special series, please subscribe by clicking here.

Do we know what the final rule contains?

Not yet.  The substance of the final rule will not be known to the public until the Department announces the rule.  That announcement will not take place until after the final rule has been approved by the White House’s Office of Management and Budget (OMB).  OMB has been meeting with a wide range of stakeholders since it began its review on March 14.

OMB does not reveal the contents of the final rule during its meetings.  Nevertheless, stakeholder attendees often leave the meeting with definite ideas of what the rule will contain.  And, government officials sometimes leak information to the media. Here’s what the Department proposed on the key issues and what we’ve been hearing we might expect in the final rule.

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What’s the expected timing for all of these changes?
Due to the impact of a seldom-used, but potentially significant law known as the Congressional Review Act (CRA), it is widely believed that the Department wishes to publish the final rule (and provide the required notices to Congress) by May 16, 2016.  Regulations submitted to Congress after that date are expected to be subject to the CRA’s “clawback” provision, which would push the deadline for Congress to vote to “repeal” the rulemaking into the next–and possibly more employer-friendly–Administration.

In the spring of 2015, OMB completed its review of the proposed rule in 55 days.  As of today, the final rule has been under OMB review for 50.  With OMB stakeholder meetings on the rule scheduled as late as May 10, it is not likely that the final rule will be published before then, but it is entirely possible that the Department will announce the rule within a day or two of those meetings.

Once the rule is announced, will there be some type of grace period for implementation?

The final rule will almost certainly be a “major” rule, which, as a matter of law, means that the rule cannot be effective for at least 60 days following its publication in the Federal Register.

One of the major concerns raised by employer groups in their meetings with OMB, however, has been the difficulty they will have implementing a change to the salary threshold in such a short period of time, particularly when no employer knows what that salary threshold will be.  Upon learning the salary level, employers will need to determine the set of impacted positions and assess whether to convert each position to non-exempt, raise the salary level, and/or engage in some restructuring of the organization to better accommodate the new salary requirement.  In addition, employers will need to consider how the decisions with respect to the impacted positions have further effects on positions outside the impacted population.

Compounding the difficulty in implementing salary threshold changes are (among other things) the technical requirements for implementing such changes in payroll systems, the need to train newly non-exempt employees on timekeeping matters (and, potentially, to add more timeclocks to account for the new population), and state law requirements to notify an employee of changes to the amount and/or method of pay in advance (in some states a pay period in advance).  Add to that the preparation of communications plans to implement each of these elements, and it is clear that a 60-day implementation would be extremely difficult.

As a result, the employer community has asked OMB to provide for a longer effective date period.  In 2004, the Department gave employers 120 days to implement a far more modest salary increase, and we are hopeful that it will do the same here.

What should I be doing now?

Whether the effective date is 60 or 120 days or even 180 days, implementation of the Department’s changes is going to require prompt and focused action by employers.  Employers would be wise to identify now, if they have not already done so, the positions that may be subject to the salary threshold increase, whether the new level will be $45,000 or $50,000, or somewhere in between.  Such a review should consider how operations would be impacted by reclassification to non-exempt status and/or a salary increases to ensure compliance and the impact of those changes on other employees in addition to those directly impacted.

Employers also may take this time to determine how much lead time will be necessary to implement any changes by their payroll and timekeeping vendors and to assess whether training regarding timekeeping practices and general management of newly reclassified non-exempt employees is desirable (and, if so, when and how to provide it).

What can I expect from Seyfarth in the coming weeks?

Seyfarth Shaw will be keeping you up-to-date on the latest developments through a number of resources.  As soon as the substance of the new rules are known, we will issue another  Management Alert.  This Alert will be sent to you by email and updates to our social media outlets. Additional analysis will be sent during the weeks after its release through our special series that can be subscribed to by clicking here.  In addition, we will make information available on our Wage Hour Blog at www.wagehourlitigation.com.

Anticipating the announcement of the new regulations next week, we are scheduling a webinar on Monday, May 16, at 2:00 p.m. EDT (11:00 a.m. PDT, 12:00 p.m. MDT, 1:00 p.m. CDT).  Alex Passantino, former Acting Wage & Hour Administrator, along with other of our most experienced wage and hour practitioners will be discussing these rules and their impact on employers.  You may sign up for this webinar immediately by clicking here or through an invitation that you will receive shortly.

Be on the lookout for the announcement of our Exempt Status Resource Center that will be available online and will provide easy and instant access to a host of materials about the new rules and to help organizations think through the many business and legal issues arising from them.

Of course, if you and your organization would like help thinking through any of these issues, we encourage you to reach out to the Seyfarth attorney with whom you work and/or any member of our wage-and-hour team listed here.

PAGA 101: Tired of Stupid Answers? Time to Ask the Stupid Questions

Posted in State Laws/Claims

Authored by Simon L. Yang

When PAGA—California’s Labor Code Private Attorneys General Act of 2004—was first enacted, we knew it would take years to see how it would be applied. Twelve years (and over $30 million in penalties paid to the state) later, we thought we’d have more answers. But many California employers, attorneys, and judges, now all too familiar with PAGA, still are uncertain how to manage and litigate PAGA claims and continue to await guidance.

But we’re tired of waiting. And we might be waiting for Godot (since California legislators have those more than 30 million reasons to like the PAGA status quo). Nor can we expect California executives and agencies to assist, since they largely ignore their roles for overseeing and authorizing PAGA claims (as less than 1% of received PAGA notices are even reviewed in practice).

So the joy of addressing the uncertainty of PAGA is left for litigants and courts. Of course, courts can’t really be blamed for furthering confusion with inconsistent and contradictory rulings, since one of the few certainties is that the bounty hunter statute simply isn’t the California legislature’s finest work—meaning only that the statute’s text is the source of much PAGA confusion.

But wait no more, and add this to the list of certainties: The California Wage & Hour Series will include “PAGA Primer” posts returning to the basics, starting with the statute, and seeking to defuse PAGA misconceptions. It’s time to ask the stupid questions: What does PAGA actually say? When does PAGA create penalties? Does PAGA permit recovery of two penalties for a single violation? Does PAGA create substantive or procedural rights? Does Rule 23’s applicability to a PAGA claim vary on a case-by-case basis? Does PAGA exempt claims from manageability requirements? Does a right to a jury trial exist for PAGA claims? Asking stupid questions is the way to avoid stupid answers.

We’ll still blog on PAGA developments—including the California legislature’s response to the governor’s proposed amendments, the California Supreme Court’s ruling on the standard for and scope of PAGA discovery, and maybe even a final disposition in a case permitting the United States Supreme Court to weigh in on the Iskanian rule. And we’ll not only wait for answers but also take the proactive approach by addressing a series of basic but necessary questions.

If you have other PAGA questions that you want answered, well, good luck—you’re not alone. Joking aside, feel free to reach out to the author or any of the other 50+ members of Seyfarth’s California Wage & Hour Litigation team if you need assistance with PAGA, want to suggest questions, or just want to talk PAGA.

Ninth Circuit Roundly Supports Time Punch Rounding

Posted in Defenses

Co-authored by Hillary J. Massey and Kerry Friedrichs

The Ninth Circuit this week blessed an employer’s policy of rounding employee time punches to the nearest quarter hour, affirming summary judgment in favor of the company on an employee’s challenge to the rounding policy under the FLSA and the California Labor Code.

“This case turns on $15.02 and one minute.” From the first line of its decision in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership, the Ninth Circuit signaled the common-sense approach that it would apply in assessing the legality of rounding practices. The court rejected plaintiff’s claims for $15.02, the total amount he claimed to have been underpaid due to the rounding policy, and one minute, the total amount of “off the clock” time for which plaintiff alleged he was not compensated. In the first published decision by any court of appeals on this issue, the 9th Circuit took a practical view of the federal rounding regulation, repeatedly referring to the purpose and effectiveness of rounding policies.

The Policy

At issue in the case was whether the company’s rounding policy complied with federal and California law. Time Warner’s timekeeping system rounded all employee punches to the nearest quarter hour in a facially-neutral manner. The rounding was automatic and not subject to manager oversight or editing.

The Court’s Practical Interpretation of the Rounding Rule

The federal rounding rule permits employers to round employees’ time to the nearest 5 minutes, one-tenth, or quarter hour, so long as the rounding does not result, over time, in a failure to compensate employees for time worked. California courts and the California Division of Labor Standards Enforcement have applied this rule to rounding claims under California law as well.

The plaintiff claimed that any failure to pay any employee for any time worked caused by the rounding violates the rounding rule and state and federal wage laws. Noting that no other circuit court of appeals had addressed the issue in a published opinion, the Ninth Circuit ruled that requiring rounding to be neutral each pay period for each employee, would “gut the effectiveness” of using rounding because it would require employers to “unround” time each pay period to ensure its neutrality—an analysis the rounding regulation was designed to avoid. Thus, even though the rounding practice had a slight net negative impact to plaintiff (by $15.02), this did not establish that the practice was not neutral. In some pay periods the plaintiff benefited from rounding and in other pay periods he did not, and this demonstrated that Time Warner’s policy was neutral in application.

The Ninth Circuit further rejected plaintiff’s argument that California’s daily overtime requirement impacted the neutrality of Time Warner’s rounding because overtime minutes are more valuable because they are paid at an overtime rate. Noting that a California court had previously found this argument to be without merit, the Ninth Circuit noted that there is “no analytical difference between rounding in the context of daily overtime and rounding in the context of weekly overtime,” and that, because the rounding policy was neutral, employees could benefit from the rounding (and would receive overtime pay) just as easily as they could miss out on some overtime pay.

The De Minimis Rule Need Not Be Pled as an Affirmative Defense

The plaintiff’s absurd claim that he was entitled to pay for one minute of off-the-clock work was the basis for another employer victory in this decision: a ruling that the de minimis doctrine does not have to be pled as an affirmative defense. The court ruled the doctrine is a “rule,” not an affirmative defense that must be pled in an answer. Finally, the court, not surprisingly and in accordance with current case law, held that one minute of off-the-clock work is de minimis and thus need not be paid.

No Certification of “a Class Without a Claim”

The Ninth Circuit ruled on a final issue in a way that reflects common sense from the perspective of employers, but may be disconcerting for would-be class plaintiffs: that a court’s summary judgment decision on the merits of plaintiff’s individual claim “fully moots” the need to address the plaintiff’s motion for class certification, and a court should not be required to entertain plaintiff’s “attempt to certify a class without a claim.”

Court Insures Allstate Against Unsound Trial Plan Mayhem

Posted in Off-the-Clock Issues, Rule 23 Certification

Co-authored by Sherry Skibbe and Andrew Paley

Allstate Insurance Company “insured” a major victory last week in an off the clock class action pending in Los Angeles Superior Court, vindicating employers’ argument that plaintiffs cannot simply intone the magical incantation of “statistical sampling” as a means of collective proof in a class action. Rather, plaintiffs must proffer a detailed and manageable trial plan that relies on sound statistical science. Likening Plaintiff’s trial plan to a house built on a poor foundation, Judge John Shepard Wiley rejected the statistically unsound trial plan because it would be “an enduring source of grief.”

After almost nine years of litigation, Judge Wiley granted Allstate’s motion to decertify both an off-the-clock and wage statement class because none of the multiple trial plans suggested by Plaintiff complied with the requirements in the California Supreme Court’s 2014 decision in Duran v. U.S. Bank National Association or last month’s U.S. Supreme Court decision in Tyson Foods, Inc. v. Bouaphakeo.

Over the past two years, Plaintiff offered several trial plans based on statistical sampling and extrapolation suggested by two different experts. The court, however, found that each of the plans failed to comply with sound statistical methodology and were “premised on invalid logic.” Recognizing that a 95% confidence interval and a 5% margin of error is the common convention, the court roundly criticized Plaintiff’s expert who proposed an 84% confidence interval and anywhere from a 10-20% margin of error. The court also rejected Plaintiff’s plea to let him proceed with trial and enter a directed verdict if he could not prove his claims because such a plan was “doomed to be an expensive waste of time.” Under proper sampling methodologies, the case would be unmanageable at trial as the sample size would require testimony from at least 495 class members.

Significantly, the court’s decision implicitly rejects the Plaintiff’s argument that not all members of his proposed survey need to testify at trial. The decision is therefore powerful ammunition to counter plaintiffs’ oft repeated argument that a “sample of a sample” is sufficient to testify at trial. If sound statistical methodology requires a sample of 495 class members in order to extrapolate the results to the larger class consistent with the proper confidence interval and margin of error, then all 495 class members need to testify at trial so that the jury can determine their credibility and assess their testimony. Plaintiffs cannot simply propose that their expert will testify at trial as to the results of a survey of the sample. If this means that the trial will be unmanageable, then the case should be decertified.

Although Plaintiff argued that Tyson Foods was a “game changer,” the court found Tyson Foods to be entirely consistent with Duran. The court recognized that Tyson Foods and Duran prohibit the use of statistically inadequate evidence such as that presented by Plaintiff. Although representative proof sometimes can be used in a certified class action, statistical evidence only can be used if the proof is reliable.

This case provides employers with several important “take-aways.” Defense counsel should aggressively challenge a plaintiff’s proposed trial plan to ensure that the trial plan is statistically reliable. Additionally, neither Tyson Foods nor Duran stands for the proposition that statistical sampling and surveys can be used to prove liability in every case. Whatever the supposed benefits of a class action may be, they cannot defeat a defendant’s right to due process. Trial plans must be tailored to the specific facts of the claims alleged and an unmanageable trial plan that is not scientifically sound should be rejected.

Advising On Their Own: Financial Advisors’ Class Claims Defeated

Posted in Conditional Certification, Misclassification/Exemptions, Overtime, Rule 23 Certification, State Laws/Claims

Authored by Hillary J. Massey

Employers have a new tool for opposing conditional and class certification of overtime claims by financial advisors and other exempt employees—last week, a judge in the District of New Jersey denied conditional and class certification of such claims because the plaintiffs failed to show that common issues predominated. The court, pointing to other decisions denying class status to financial advisors in recent years, concluded that the advisors’ duties varied significantly and required individual treatment. While recent headlines have announced large settlements of class claims by financial advisors, this decision bolsters employers’ opposition to those and other purported wage and hour class and collective claims.

The four named plaintiffs brought suit under the FLSA and the laws of New Jersey, New York, and Connecticut, claiming that they and the purported class members were entitled to overtime pay and business expenses, and proposing three classes and an opt-in federal collective. Plaintiffs contended the bank’s uniform categorization of financial advisors as exempt was improper because the advisors regularly made sales “cold calls,” regularly attended networking events to attract new clients, were paid based on their ability to generate sales, were heavily supervised, and had no role in managerial decisions affecting the bank’s business.

Denying plaintiffs’ motions, the judge first concluded that plaintiffs failed to establish their claims were typical and they were adequate representatives of the class because, unlike the plaintiffs, many proposed class members had signed releases of all claims.  The court explained it was unclear how the class representatives would challenge releases they did not sign.

On predominance, the judge concluded that the bank’s policies, plaintiffs’ depositions, and the declarations submitted with the bank’s opposition demonstrated that financial advisors varied in:

  • how often they sold financial products;
  • how they were supervised;
  • how they were paid;
  • what types of clients they served; and
  • how much autonomy they enjoyed.

For example, one plaintiff testified that some advisors did cold calling while others did not, and plaintiffs testified that as their business became more established, they spent less time generating sales.  The record also showed that some managers were involved in the day-to-day work of their financial advisors, but others were more hands off.  Thus the court concluded that common questions did not predominate.

As in another case we recently discussed, where the Sixth Circuit upheld the dismissal of a proposed collective action of bank loan underwriters, the court here also rejected plaintiffs’ heavy reliance on the DOL’s 2010 Administrative Interpretation concerning mortgage loan officers’ non-exempt status, noting that that the Interpretation did not apply to financial advisors.

Finally, despite a “lenient standard,” the judge denied plaintiffs’ motion for conditional certification under the FLSA.  Plaintiffs could not meet their burden by merely showing that the bank had a uniform policy of treating financial advisors as exempt, and the significant class discovery record revealed that financial advisors’ duties varied greatly.

The case will now proceed on the merits of the claims of the four individual plaintiffs only.