Wage & Hour Litigation Blog

Eighth Circuit Concludes That $24 Million Wage Payment Judgments Have No Meat

Posted in State Laws/Claims

Co-authored by Michael Wahlander and Noah Finkel

It is not every day that multi-million dollar wage and hour class action judgments get reversed. But that is exactly what happened twice late last week in the Eighth Circuit in two cases against the same employer involving similar issues. In one, the Court reversed a judgment of more than $18.7 million, and in the other, it reversed a judgment for just under $5 million.

In both cases, groups of workers at meat processing plants in Nebraska brought class action claims under Nebraska state wage payment law alleging that the employer owed them additional compensation for pre- and post-shift activities. In both cases, the district court certified the state law claims as class actions under Rule 23, granted summary judgment in favor of the plaintiff-employees, and held trials on damages only, both of which resulted in multi-million dollar judgments.

For the most part, these claims were not brought under the FLSA or even under a state overtime law. Rather, they were primarily brought under Nebraska wage payment law with attendant FLSA claims. State law wage payment claims are brought in many wage-hour cases for two reasons. First, as with a state overtime claim (provided one is available under applicable law), a state wage payment claim usually can brought under an opt-out class action procedure rather than under an opt-in collective action procedure. Because opt-in rates often are not high, the former nearly always results in a far higher number of claimants in a case than the latter. Second, state wage payment laws often are a way for plaintiff-employees to claim “gap time,” that is, the hours for which they claim they should have been paid that do not exceed 40 hours in a week and thus do not implicate the overtime provisions of the FLSA or state overtime law.

But the Eighth Circuit reversed both wage payment law judgments. It reasoned that an employee cannot use the FLSA to support a claim under Nebraska wage payment law because that law allows employees to recover only those wages that the employer previously agreed to pay. The Court accordingly found that the employees’ state-law claims failed as a matter of law because their claims were based solely on alleged FLSA violations and the evidence did not show a prior agreement to pay the claimed wages. In one of the cases, the employees based their wage payment claim on a collective bargaining agreement between the employees’ union and the employer which the Eighth Circuit held, did not include a term to pay the additional compensation claimed by the employees.

That these opinions concern Nebraska wage payment law—a not frequently invoked statute in wage-hour litigation—should not detract from their significance. Wage payment theories are often invoked to try to obtain an opt-out class action as opposed to merely an opt-in collective action and/or to claim relief for “gap time.” Nebraska law’s requirement that there be an “agreement” to pay those wages is not unique. Many state wage payment laws contain a similar requirement to bring such a claim. The Eighth Circuit decisions show that district courts should examine that requirement carefully, especially since many plaintiffs in wage-hour cases testify that they believe that their employer had a policy to not pay wages for the time at issue in the case.

What the Browning-Ferris Decision May Forecast for Wage and Hour Law

Posted in DOL Enforcement, Independent Contractors, Joint Employment

Co-authored by Richard Alfred and Patrick Bannon

The National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., announced last week, dramatically expands joint employer liability under the National Labor Relations Act. A business can be found to be a joint employer of individuals, the Board concluded, even if the business has only unexercised potential power to control the individuals’ work indirectly. The Board argues that this broad concept of joint employment is necessary because otherwise an entity with real control over the economics of a business could insulate itself from the obligations of an employer by contracting with a third party to employ the workers who keep the business running. Seyfarth Shaw’s discussion of the ramifications of the Browning Ferris decision, for both unionized and non-unionized employers, is available here.

Wage and hour lawyers who treat the Browning-Ferris decision as simply a matter of traditional labor law overlook the potentially major significance of the decision for wage and hour law. Even though the NLRA and the FLSA embody different tests for identifying employer-employee relationships (common law v. eceonomic realities), the Wage and Hour Division will undoubtedly cite the NLRB’s expanded view of who can be a “joint employer” to support the Wage and Hour Division’s expected further efforts to expand the range of parties that may be found responsible for wage and hour violations.

The Wage and Hour Division is likely to argue that the NLRB’s increased readiness to recognize joint employers under the NLRA, which has always been understood to embody a more stringent common-law agency test for establishing joint employer status, supports a broad view of joint employment under the Fair Labor Standards Act’s “economic realities” test for whether an employment relationship exists. The NLRB’s majority labored to explain how its joint employer concept is consistent with the common-law agency test. The Wage and Hour Division is not constrained by the common law’s right to control test and is likely to be emboldened to adopted an expansive joint employer standard under the more flexible economic realties test.

Indeed, last month, the Wage and Hour Division issued an Administrator’s Interpretation addressing the distinction between employees and independent contractors under the FLSA. That guidance is noteworthy for emphasizing the importance of whether an individual’s services are an integral part of a company’s business and downplaying the importance of whether the business controls an individual’s work. The Administrator’s view of what constitutes an employment relationship–if the courts accept it–would potentially support a joint employer doctrine that is dramatically broader than employers have seen to date and that could be used by the DOL and aggressive plaintiffs’ lawyers to pursue businesses for wage and hour violations involving individuals with whom the defendant companies have never had a direct relationship.

The Administrator of the Wage and Hour Division has long expressed concern about what is termed the “fissuring” of the employment relationship. At the heart of this concept, is the notion that business giants profit from the services of individuals who are direct employees of third-party companies, usually lower on the economic totem-pole. For example, the employees who run hotels and restaurants are often employees of local franchisees, not of the well-known national companies whose names are on the door. Similarly, the employees who work in a call center or distribution center are often employees of a staffing company, not of the business whose customers they help or whose products they handle.

The Wage and Hour Division has adopted a strategic enforcement plan that seeks to hold top-level companies responsible for wage and hour compliance as to the individuals who work in their business sector–regardless of whether a direct employment relationship exists. As the Wage and Hour Division appears to see things, a broad joint employer theory is essential to its efforts to target supposedly deep-pocketed national companies. Businesses that could be vulnerable to joint employer claims include suppliers, contractors, lessors, private equity and venture capital investors, companies that outsource work, staffing agencies, franchisors, creditors, and parent entities that have subsidiary businesses.

The combination of the Browning-Ferris decision and the Wage and Hour Division’s recent independent contractor guidance should serve as a warning to businesses in general to assess their potential exposure to wage and hour claims based on a joint employer theory. Assessments of this type should start with a close examination of contractual relationships with third-party employers to determine whether changes can be made to those agreements to reduce the risk of joint employer liability under the expanded definition of that term adopted by the NLRB and likely on the horizon from the Wage and Hour Division.

We will continue to report in the months ahead on developments regarding the joint employer issue and its impact on wage and hour law.

Home Health Care Agencies Feeling Sick After Friday’s Circuit Court Ruling

Posted in DOL Enforcement

Co-authored by Gena Usenheimer and Jade Wallace

As we reported earlier this year, the U.S. Department of Labor has been fighting nearly 14 months of legal challenges in connection with its attempt to modify the FLSA’s companionship exemption. On Friday, the U.S. Circuit Court of Appeals for the District of Columbia upheld the DOL’s proposed regulations. Assuming no further developments, employers in a majority of states will need to modify their pay practices to conform with the new regulations, including employers in the 27 states that currently do not have minimum wage or overtime requirements in place for this category of worker.

Previously, individuals falling into the FLSA’s “companionship” exemption—many of whom are home health care aides employed by third-party agencies—were exempt from federal minimum wage and overtime requirements. The most significant changes to the newly upheld regulations: (1) eliminate the ability for third-party agencies to avail themselves of the exemption, (2) change the definition of “companionship” so as to exclude many home health care aides from the exemption’s coverage, and (3) require third-party agencies to pay overtime to live-in domestic service employees.

The newly upheld revisions will significantly reduce the number of individuals covered by the exemption, bringing many new employees within the FLSA’s minimum wage and overtime protections. Not surprisingly, the DOL celebrates Friday’s decision as “vital to nearly two million home care workers, who will now qualify for minimum wage and overtime protections.” Although there is no news yet on whether further appeal is expected or when the newly upheld regulations will go into effect, home health care agencies relying on the companionship exemption should be prepared to revise their pay practices in short order.

Supreme Court Briefing Begins in Tyson Foods, Inc. v. Bouaphakeo, A Potential Wage and Hour Blockbuster

Posted in Off-the-Clock Issues, Overtime, Rule 23 Certification, State Laws/Claims

Co-authored by Richard Alfred, Patrick Bannon and Esther Slater McDonald

In a case that could change how wage and hour class and collective actions are litigated, Tyson Foods, Inc. recently filed its opening Supreme Court brief. Tyson seeks reversal of a $5.8 million judgment in favor of meat processing employees who claimed to have worked off the clock.

As we reported in June, the Tyson Foods case is likely to have a profound impact on wage and hour litigation. It could result in the Supreme Court’s first discussion of what it means for employees to be “similarly situated” under FLSA Section 216(b) and of how the standards for certifying a Rule 23(b) class action apply to wage and hour cases.

As expected, Tyson’s opening brief parallels its cert petition. The case should not have been certified as a class action or as an FLSA collective action, Tyson argues, because the plaintiffs relied on “statistical evidence that masks, rather than accounts for, differences among individual class members.” In certifying the class, the court relied on expert testimony as to the average time employees spent donning and doffing equipment, even though the expert acknowledged that the actual times varied widely among class members, depending on their job classifications and their equipment combinations.

“[T]he standards governing certification of a collective action under the FLSA can be no less stringent” than those articulated in Wal-Mart Stores, Inc. v. Dukes for certification of a Rule 23(b)(3) class, Tyson argues. e Thus, the company argues, the variations described above mean the litigation would not provide common answers to the questions of (1) whether an employee worked more than 40 hours per week and, (2) if so, whether Tyson properly paid the employee for that overtime. Although the lower courts found that common issues predominated because Tyson’s compensation policy for donning and doffing time applied to all of the employees, Tyson point out that the time variations are “outcome determinative because they control whether or not a particular plaintiff worked any unpaid overtime at all.”

In addition, Tyson states that using statistical averages violated the Rules Enabling Act and the Due Process Clause. “No court would allow an individual employee to meet his ‘burden of proving that he performed work for which he was not properly compensated by submitting evidence of the amount of time worked by other employees who did different activities requiring a different amount of time to perform,” Tyson writes (quotation marks omitted). “Yet that is exactly what happened here.” Tyson explains: plaintiffs obtained classwide damages by applying the expert’s average times to all class members despite evidence that some class members spent less time donning and doffing equipment.

This “trial by formula” deprived Tyson of its right to raise individualized defenses in violation of Due Process and the Rules Enabling Act, Tyson argues. “Rather than challenging whether individual class members suffered any injury or damages, Tyson could only attack plaintiffs’ supposedly ‘representative’ evidence as biased, unreliable, and not actually representative of anyone in the class.” Tyson also notes that using averages to prove liability for the class as a whole conflicted with the Court’s command in Wal-Mart Stores, Inc. v. Dukes that class-wide liability cannot be based purely on extrapolation from unproven assumptions about individual class members.

Finally, Tyson argues that class certification was improper because the class includes hundreds of uninjured plaintiffs who, as a result, can collect damages under the jury’s verdict. Under Article III, “federal courts cannot order money to be paid to an uninjured plaintiff,” and the FLSA limits a court’s authority under the Act to providing redress for “unpaid overtime compensation.” Thus, Tyson argues, class or collective actions including uninjured members cannot be certified.

We continue to follow the briefing in this case. The brief of the respondent employees is currently due on September 22, 2015.

MLB FanFest Volunteers Strike Out at Second Circuit Under FLSA’s Seasonal Amusement or Recreational Establishment Exemption.

Posted in Misclassification/Exemptions

playballCo-authored by Laura E. Reasons and Noah A. Finkel

Last week, the Second Circuit affirmed a lower court decision in Chen v. Major League Baseball Properties, Inc., et al., holding that FanFest—a five-day interactive baseball theme park organized in conjunction with Major League Baseball’s 2013 All-Star Week and held at the Javits Center in New York City—is an “establishment” for purposes of the FLSA’s seasonal amusement or recreational establishment exemption, 29 U.S.C. § 213(a)(3).

John Chen volunteered to work at FanFest. He attended a three-hour training, then worked 14 hours over three shifts. Like other volunteers, Chen was not paid minimum wage for his work. Instead, he was provided a t-shirt, cap, drawstring backpack, water bottle, and a baseball. Chen sued, arguing that he should have been paid minimum wage for the time he worked at FanFest. The Defendants moved for dismiss, arguing that FanFest volunteers, like Chen, are exempt from the FLSA’s minimum wage requirements under the seasonal amusement or recreational establishment exemption.

29 U.S.C. § 213(a)(3) provides an exemption from the FLSA’s minimum wage and overtime requirements for:

Any employee employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit educational conference center, if

(A) it does not operate for more than seven months in any calendar year, or

(B) during the preceding calendar year, its average receipts for any six months of such year were not more than 33 1/3 per centum of its average receipts for the other six months of such year.

The Chen appeal centered around the meaning of the word “establishment.” Chen argued that, although FanFest took place at the Javits Center, he was actually an employee of Major League Baseball and the Office of the Commissioner of Baseball, so the relevant “establishment” should include all operations of those entities. If that were the case, the exemption would not have applied since Major League Baseball and the Commissioner of Baseball do not operate seasonally, as defined by clauses (A) or (B) of § 213(a)(3).

But the court rejected Chen’s arguments. Instead, it held that Fanfest at the Javits Center is the relevant “establishment.” Since FanFest was only a 5-day long event, it clearly meets the “seasonal” requirement of clause (A).

In so holding, the court relied on case law, the legislative history, and DOL regulations that define “establishment” as a “distinct physical place of business,” as opposed to “an entire business or enterprise” which may include several places of business. 29 C.F.R. § 779.23.

The court quickly disposed of Chen’s argument that FanFest was not an establishment for the purposes of recreation or amusement. Indeed, amusement parks and sporting events are the very types of establishments to which the exemption is intended to apply. The Second Circuit agreed with the district court that FanFest was a “sports event” and noted that the Complaint itself described FanFest as a “theme park.”

Practice Pointers and Typical Problems

  • Employers intending to rely on the seasonal amusement or recreational exemption who operate across various physical locations must take care to define the relevant “establishment”—a discrete, physical location—and analyze the exemption accordingly. Unrelated operations at different locations of the same employer, likely won’t destroy the exemption at the relevant “establishment.” But employers arguably may not rely on the exemption for employees not working at the physical “establishment,” even if they provide support to operations at that establishment.
  • It is simplest to show that the establishment is “seasonal,” if it operates for 7 months or less during the calendar year. Limited operations during the off-season (such as holding private events in a stadium, or deploying a limited crew for maintenance or to prepare for the season), will not necessarily destroy the exemption. Nevertheless, if an employer is relying on clause (B) of the exemption, it must carefully aggregate and compare its receipts for the slower 6 months to the rest of the year. Also note, that the 6 months need not be consecutive.
  • In comparing receipts under clause (B), an employer may need to look beyond its own receipts. For example, if a court found a stadium was the relevant “establishment,” it might require analysis of the aggregated receipts of different corporate entities including entities such as a baseball club, a souvenir vendor, and concessionaires or restaurants within the establishment. As a practical matter, employers should consider if and how they will prove the exemption, including cooperation that may be needed from other unaffiliated companies with whom they have a business relationship because they operate within the same “establishment.”
  • Special care should be taken if an employer hires the same individuals to perform seasonal work and non-seasonal work (either at the same time, or in the off-season).
  • Consider state minimum wage and overtime laws and their exemptions, many of which vary, and some of which may lack anything like the seasonal establishment exemption.
  • Finally, application of the exemption is complicated and employers should work closely with counsel to determine the intricacies of whether the it applies to their establishment (particularly if they plan to rely on clause (B)).

Full Court Press for Interns at Second Circuit?

Posted in DOL Enforcement

Co-authored by Robert WhitmanAdam J. Smiley, and Meredith Kurz

As this blog previously reported, a three-judge panel of the Second Circuit ruled against two separate groups of interns in early July, applying the “primary beneficiary” test—to evaluate whether unpaid interns are trainees not entitled to wages or employees who must be paid—and stating that conditional and class certification in internship lawsuits could be exceedingly difficult for plaintiffs to achieve.

On August 14, the interns in Glatt v. Fox Searchlight and Wang v. Hearst Corp. asked the Second Circuit for reconsideration of the July ruling or, alternatively, for review en banc by the full court. They argue that categorizing unpaid interns differently than other employees is contrary to Supreme Court and Second Circuit precedent and creates a category of “quasi work” that would allow private employers to receive free labor. They urge the court to adopt a test that allows unpaid internships only where employers receive no ‘immediate advantage’ from any work done by” the interns.

The plaintiffs also took issue with the panel’s ruling on their class certification motion. In addition to arguing that the interns’ claims in Glatt were substantially similar, they said the panel should not have commented on the likelihood of class certification more generally and should instead have simply remanded the issue to the trial court to have the panel’s new test applied.

If en banc review is granted, the entire roster of 13 active judges on the Second Circuit (i.e., those not on senior status) would rehear the case. Such requests are very rarely granted. In addition to the plaintiffs, a coalition of organizations such as the National Employment Law Project and Intern Worker Alliance also appear to be supporting the request for further review of the panel’s decision.

The Glatt decision is already being relied on at the District Court level. Pop culture website Gawker recently filed a motion for summary judgment in its case against several former interns and argued that, under Glatt, the interns’ claims could not survive because the interns had “precisely the sort of hands-on, educational internships that the Second Circuit endorsed in Glatt.”

While Glatt appeared to throw cold water on potential internship claims, the trend of new lawsuits continues. Most notable is the recently filed class action against Dualstar Entertainment Group, the entertainment company owned by twins Ashley and Mary-Kate Olsen of Full House fame, in which the plaintiff alleges that the company violated the New York Labor Law by failing to pay its interns.

There is no timetable for the Second Circuit’s decision on the en banc request, but watch this blog for further developments.

Show & Tell: Second Circuit Holds FLSA Bars Private Settlements

Posted in Settlement

Co-authored by Robert S. Whitman and Howard M. Wexler

As we have noted in previous posts (most recently, here), courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements. Some parties have responded to this trend by entering into private settlements and filing a simple stipulation of dismissal with prejudice.

At least within the Second Circuit, this is no longer permitted. Court or DOL approval is now definitively required to obtain a dismissal with prejudice of FLSA claims.

Cheeks v. Freeport Pancake House Inc. was an FLSA case not unlike many others. The claims appear to have been standard-issue, and the parties reached a settlement shortly after the Initial Conference. The parties then filed a joint Stipulation of Dismissal with Prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). However, the District Judge, Joanna Seybert, refused to honor the stipulation. She ordered the parties to “file a copy of the settlement agreement on the public docket” and “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought about by an employer’s overreaching.”

The parties instead asked the judge to certify the case for immediate review by the Second Circuit on the issue of whether FLSA actions are an exception to Rule 41(a)(1)(A)(ii)’s general rule that parties may stipulate to a dismissal with prejudice without the involvement of the court.

The Second Circuit heard oral argument on November 14, 2014, and because the two sides were in agreement that court approval should not be required, the court solicited the views of the DOL, which submitted a letter brief taking the position that the “FLSA falls within the ‘applicable federal statute’ exception to Rule 41(a)(1)(A), such that the parties may not stipulate to the dismissal of FLSA claims with prejudice without involvement of a court or the DOL.”

The court agreed with the DOL. It started its analysis by noting that this issue is a “blank slate” as “neither the Supreme Court nor our sister Circuits have addressed the precise issue before us.” It then explored the “differing results” reached by district courts within the Circuit, including Judge Brian Cogan’s 2013 decision holding that court approval is not required (see our post on that decision here) and Judge Dora Irizarry’s subsequent decision taking the opposite position.

Although the Second Circuit was “mindful of the concerns” articulated by Judge Cogan, it held that the FLSA is a “uniquely protective statute,” and as such, requiring judicial or DOL approval is consistent with its underlying purpose and helps eliminate potential abuse, such as exceedingly disproportionate attorney awards.

Given the importance of this issue to FLSA litigants, and the volume of FLSA lawsuits, Cheeks may not be the final word on this topic. Although there is no split among the Circuits (as the Second Circuit noted, it is the first to weigh in on this issue), the DOL’s participation in the case and the unsettled nature of the question suggest that the case may be ripe for en banc or Supreme Court review. For now, however, it is clear that within the Second Circuit, the parties must submit their privately negotiated settlement agreements to the court in order for the case to be dismissed with prejudice. This means, of course, that the agreement will be a public document, and the Cheeks opinion suggests (but does not discuss) that strict confidentiality provisions in FLSA settlements may not survive court scrutiny either.

The court did leave open the question of “whether parties may settle such cases without court approval or DOL supervision by entering into a Rule 41(a)(1)(A) stipulation without prejudice.” Since such a dismissal does not resolve claims or bar future lawsuits, there does not appear to be nearly the same (if any) judicial interest in monitoring them. But that is an issue the court may well take up sometime soon.

In the meantime, as we have advised before, litigants need to give very careful consideration to the challenging issues raised by settlements in even the simplest of FLSA cases. As tempting as it may be for both sides to resolve cases with a handshake, basic settlement agreement, and one-line Stipulation of Dismissal with Prejudice, the days of such an approach may be coming to an end.

No Fees For You: Second Circuit Holds Expert Fees Are Not Recoverable Under FLSA

Posted in Conditional Certification, Rule 23 Certification

Co-authored by Robert S. Whitman and Howard M. Wexler

Expert witness fees are not recoverable under the FLSA. So held the Second Circuit in a decision that highlights a strategy we have previously discussed for employers to fend off class/collective actions.

In Gortat v. Capala Brothers, Inc., the plaintiffs alleged that they were denied wages, including overtime compensation, throughout their employment. After six years of litigation, the case went to trial and the plaintiffs prevailed, winning unpaid wages as well as $514,284.00 in attorney’s fees and $68,294.50 in costs. In support of their claims, the plaintiffs retained an economic expert to aid in establishing their alleged damages.

In their appeal to the Second Circuit of the fee award, the defendants argued that the expert fees (which constituted $10,425 of the attorney’s fee award ) are not recoverable under the FLSA. The court agreed. It relied on the text of the FLSA, which states that where a defendant has violated the Act, “the court … shall, in addition to any judgment awarded to the … plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” Based on this language, the court said that the plaintiffs were not entitled to be reimbursed for the expert fees, as the FLSA does not explicitly provide for such reimbursement. The Second Circuit then vacated the award and remanded the case to the District Court to determine if the New York Labor Law authorizes the award of such fees.

In isolation, this decision is hardly a game changer. However, we have previously written about the increasing importance of a trial plan for wage and hour class/collective actions to ensure that cases can effectively be tried on a multi-plaintiff basis rather than wind up as hundreds (or potentially thousands) of mini-trials. In Tyson Foods, Inc. v. Bouaphakeo, which the Supreme Court will hear next Term, one of the issues before the Court will be whether liability and damages may be determined by statistical techniques that presume all class or collective members are similar.

Plaintiffs often resist coming up with a trial plan during discovery or briefing on certification of the class/collective action, arguing that such details can be left until the eve of trial. Now, to the extent plaintiffs retain an expert to aid in formulating a trial plan earlier in the case, Gortat makes it clear that, at least in the Second Circuit, they will have to pay for the expert out of their own pocket. Having to foot the bill for such costs, with no chance of recouping them later on, may cause plaintiffs’ counsel to rethink the scope of the class/collective action they wish to pursue, or whether to pursue one at all.

How Contemplated Changes to the White-Collar Exemptions’ Duties Tests Could Reward Your Poor Performers…and What You Can Do in Response

Posted in DOL Enforcement

Co-authored by Louisa Johnson and Alex Passantino

As you have no doubt heard, the Department of Labor’s Wage & Hour Division (“WHD”) has proposed revisions to the regulations defining which of your white-collar employees qualify as exempt from the Fair Labor Standards Act’s overtime pay and minimum wage requirements. In addition to proposing that the minimum salary level for exemption be more than doubled (from its current level of $23,660 per year to approximately $50,440 in 2016), the WHD has asked the public to comment on (among other things) whether it should adopt a California-style bright-line test that requires employers to pay overtime to employees who devote more than 50% of their time to non-exempt work.

Although we remain optimistic that WHD will make no changes to the duties tests, it would be foolish to view WHD’s proposal as taking such changes off the table. Accordingly, it is important for employers to be thinking about what WHD might do, based on the questions asked in the preamble. Thus, it is worth noting that WHD’s question with respect to the California standard lacks any reference to language similar to California’s regulations defining executive and administrative exempt employees: “The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement.” (emphasis added).

The absence of any reference to this language is a good example of why WHD, in the event that it chooses to make changes to the duties tests, should propose—through a supplemental or additional rulemaking—specific regulatory language, complete with an explanation in the preamble and an appropriate economic impact analysis. These issues are far too important to be left to speculation.

The language we reference above is an important counterbalance to California’s requirement that an executive or administrative exempt employee spend more than 50% of her time on exempt tasks. Why? Because of poor performing employees.

More often than not, it is a poor performer who sues his employer. Because poor performers are failing or refusing to perform the duties expected of them, they can testify with a straight face that they spent a high percentage of their time performing the same tasks as the non-exempt employees that they supervise. Similarly, it is easy for them to say that they did not perform many, if any, of the exempt duties that the employer’s job descriptions, training programs, and performance evaluations made clear they should perform.

The WHD’s current duties test cautions courts not to focus exclusively on the percentage of time an employee actually spends on various tasks; instead, it counsels consideration of which of the employee’s duties are the most important or principal tasks. Yet, even under this current duties test, some courts have been willing to find that poor-performing employees have been misclassified based on their own testimony that they did not actually perform the duties they were supposed to perform. In other words, some courts have effectively ruled that an employer must pay overtime (and thus more total compensation) to a poor-performing employee—due to his inability or unwillingness to perform the exempt duties expected of him—than to an employee in the same job position who is performing the duties expected of the job position. To describe such an outcome as an unfair result for employers and high-performing employees alike would be an understatement.

If not counterbalanced by the requirement that courts consider the duties an employee is expected to or supposed to perform, a change to a California-style, quantitative duties test only increases the likelihood that a poor-performing employee could endanger the exempt classification of a job position due to his inability or unwillingness to actually perform the duties required of his position.

What Can You Do To Avoid Poor-Performing Employees Undermining the Exempt Status of Their Job Positions?

First, if you are planning to comment in response to WHD’s Notice of Proposed Rulemaking, and, if you plan to address the questions related to the duties tests, you should note that any revisions to the duties tests for the white-collar exemptions that place a quantifiable limit on the amount of time that exempt employees can spend on non-exempt work, should be accompanied by language to the regulations making clear that, in quantifying the number of hours an employee spends on exempt and non-exempt work, an employer’s expectations for the job position and the duties the employee should have performed must be considered because poor performance or the refusal to perform should not permit an employee to escape exempt status.

Second, because poor performers have been able to undermine the exempt status of job positions even under the current version of WHD’s regulations, and will continue attempting to do so even if WHD does not revise the duties tests of the white-collar exemptions, you should consider how to reduce the risks that poor performers present. While the best methods for doing so will depend on several circumstances specific to your employees, organizational structure, and work environment, one or more of the following options will prove beneficial to most employers:

  • Clearly communicate to employees on a recurring basis through dissemination and re-dissemination of job descriptions, acknowledgments of competency requirements, training materials, counseling, and discipline the exempt duties you expect the employee to perform;
  • Implement a written performance evaluation process that evaluates employees based on the exempt duties they perform;
  • Include in the evaluation process a self-evaluation component where, again, the employees are asked to evaluate themselves on their performance of the exempt duties expected of them; and
  • Do not permit poor performers who fail to improve to remain in the exempt position.

Seyfarth Attorneys Update the 2015 Definitive Guide to Litigating Wage and Hour Lawsuits

Posted in Uncategorized

Seyfarth Shaw has updated its definitive guide to the litigation of wage and hour lawsuits. Co-authored by three Seyfarth partners and edited by the chair of the firm’s national wage-hour practice, Wage & Hour Collective and Class Litigation is an essential resource for practitioners. The unique treatise provides insight into litigation strategy through all phases of wage & hour lawsuits, and is now updated with additional significant cases through early 2015.

Among many other topics, the treatise’s authors examine how employers in multiple industries are targeted for wage-hour lawsuits and provide substantive, procedural and practical considerations that determine the outcome of such actions in today’s courts. Principally designed to assist employment litigators and in-house counsel, the treatise also proves useful to senior management seeking to fend off wage-hour actions before they strike.

Authors Noah Finkel, Brett Bartlett and Andrew Paley, who practice in the firm’s Chicago, Atlanta and Los Angeles offices respectively, as well as Boston-based Richard Alfred, who is Chair of Seyfarth’s National Wage & Hour Litigation Practice Group, are each experienced wage and hour litigators who have handled numerous collective and class actions asserting violations under both state and federal law.

Wage & Hour Collective and Class Litigation covers the complex rules surrounding all types of wage and hour lawsuits. These include claims under the Fair Labor Standards Act, claims under state wage and hour laws, or hybrid cases involving both, as well as special issues involving government contractors. It provides readers guidance around: how to respond to a wage and hour complaint; what to consider when deciding whether to remove a case to federal court; how to assess the particular merits of a claim; whether to settle; how to oppose plaintiffs’ motion to facilitate notice for conditional certification; what kinds of affirmative defenses are best; and how to tilt the odds in favor of the defense.

In its fifth update to the treatise, Wage & Hour Collective and Class Litigation features discussions of recent decisions from appellate and trial courts and their effect on wage and hour litigation, emphasizing the following developments:

  • The United States Supreme Court’s decision in Integrity Staffing Solutions v. Busk in which the Court held that time spent by employees going through anti-theft metal detectors at the end of their shifts was not compensable because it was not integral or indispensable to the employees’ principal activities.
  • The United States Supreme Court’s decision to hear Tyson Foods v. Bouaphakeo, a case that will provide the Supreme Court with the opportunity to clarify the extent to which Wal-Mart Stores, Inc. v. Dukes applies to FLSA collective actions.
  • Federal District Court decisions refusing to follow the California Supreme Court’s decision in Iskanian and ruling that the FAA preempts California’s rule against the waiver of PAGA claims.
  • The Ninth Circuit joining the First, Second and Third Circuits in requiring allegations that a plaintiff worked more than 40 hours in a given work week without being compensated for those additional hours to avoid a motion to dismiss, and the Eighth Circuit requiring proof of such conduct to avoid summary judgment.
  • A number of Federal District Court cases specifying how notice of conditional certification must be provided and what must be contained in the notice, including notifying potential class members that they could be liable for costs.

The 2015 update to Wage & Hour Collective and Class Litigation is published by American Lawyer Media’s Law Journal Press.  It is available online at www.lawcatalog.com.