Wage & Hour Litigation Blog

Perfecting The “Pick Off”: Using A Rule 68 Offer Of Judgment To Get FLSA Collective Actions “Out”

Posted in Offer of Judgment

Co-authored by Gerald L. Maatman, Jr. and Scott Rabe

“Sometimes surrender is the best option.”  That is how Judge Raymond J. Dearie of the U.S. District Court for the Southern District of New York described how the Rule 68 Offer of Judgment may be used by employers to pay—i.e., “pick off”—individual plaintiffs to defeat a broader and significantly more costly FLSA collective action in his recent opinion in Anjum v. J.C. Penney Co., Inc.. The Anjum decision provides the most fulsome analysis of the current state of the law in the Second Circuit regarding Offers of Judgment made in FLSA cases following the Supreme Court’s important decision last year in Genesis Healthcare Corp. v. Symczyk, which we wrote about here. And the decision provides hope for employers that the Offer of Judgment “pick off” strategy may be used with great effect to eliminate FLSA collective actions early and at far less cost.

Facts Of The Case

In Anjum, defendant J.C. Penney made offers of judgment to all named plaintiffs in a FLSA collective action. The named plaintiffs rejected the offers, and J.C. Penney moved to dismiss the action as moot. After the original offers of judgment were made and rejected, more than fifty new plaintiffs opted-in to the suit. The Court denied J.C. Penney’s motion on two primary bases: (1) the Court found that there was a question of fact as to whether J.C. Penney’s offers of judgment fully satisfied each of the Plaintiff’s claims, and (2) even if complete offers of judgment had been made, the case was not moot because more than 50 opt-ins joined the lawsuit before judgment had been entered, and a matter is not moot, and the Court retains subject matter jurisdiction, until judgment is entered.

Lessons Of The Ruling

Notwithstanding the result in Anjum, the decision provides significant fodder for employers looking to shortcut a potentially onerous and expensive FLSA collective action by using the offer of judgment.

(1)  Anjum re-emphasizes that the “pick off” is a legitimate strategy for obtaining dismissal of FLSA actions.

The Court in Anjum not only rejected the notion that a “pick off” strategy is disfavored in the FLSA context, it blessed the strategy as a legitimate means for employers to potentially avoid the significant cost of litigating and settling a FLSA collective action. Employers should, therefore, evaluate the feasibility of an early “pick off” strategy as a means of short-cutting a potentially expansive and costly FLSA collective action.

(2)  The “pick off” strategy applies even if a motion for conditional certification is pending.

The Court in Anjum not only endorsed the “pick off” as a valid means of defeating FLSA collective actions, but also opined that the “relation back” doctrine also does not apply in the FLSA context. The “relation back” doctrine stands for the proposition that after class certification is granted, an event in the interim that moots the named plaintiffs’ claims does not moot the entire lawsuit.  Anjum re-emphasized what the Supreme Court said in Genesis Healthcare, that the “relation back” doctrine did not apply to FLSA cases because of the fundamental differences between a Rule 23 class and a FLSA collective. But Anjum went even further to state that an offer of judgment could moot a FLSA case even where there was a pending motion for conditional certification. This will likely have broad impact in the FLSA context, as it will prevent Plaintiffs from filing motions for conditional certification shortly after filing a complaint so as to prevent employers from making viable offers of judgment.

(3) Timing is important!!

Anjum also underscores that a Court retains subject matter jurisdiction over a FLSA case even after offers of judgment have been made fully satisfying all Plaintiffs’ claims up until the point the Court enters judgment on the basis of mootness. In other words, after making a complete offer of judgment, an employer must move for dismissal and await judgment from the Court before the matter is mooted. The practical effect of this rule is that opt-ins may continue to join the lawsuit before entry of judgment so as to prevent a finding of mootness. Therefore, to maximize the potential benefit, employers should make offers of judgment sooner than later, before potential plaintiffs are aware of the lawsuit, and if at all possible, before notice is distributed to potential members of the collective, and quickly move to dismiss the action following expiration or rejection of an offer. Employers should also be prepared to make immediate supplemental offers of judgment to opt-ins that join the lawsuit after the original offers have been made to prevent plaintiffs from defeating the motion to dismiss by adding new plaintiffs.

DOL Issues Final Rule on Minimum Wage for Certain Federal Contractor Employees

Posted in DOL Enforcement, Executive Orders

Authored by Alex Passantino

As we noted previously, on October 7, 2014, the Department of Labor’s Wage & Hour Division (WHD) issued a Final Rule implementing a $10.10 minimum wage for federal contractor employees pursuant to Executive Order 13658.

Executive Order 13658 generally requires that the hourly minimum wage paid by contractors to workers performing “on or in connection with” covered contracts with the Federal Government shall be at least $10.10 per hour, beginning January 1, 2015, and an amount determined by the Secretary of Labor, beginning January 1, 2016, and annually thereafter.

A number of the key provisions are discussed in detail below.  Highlights include:

  • The minimum wage applies to contracts that results from a solicitation issued on or after or awarded outside the solicitation process on or after January 1, 2015.
  • The minimum wage applies to four general categories of contracts:  Davis-Bacon construction; Service Contract Act contracts; concession contracts; and certain contracts in connection with Federal property or lands.
  • Subcontracts should be analyzed in the same way as the prime contract, except that the dollar thresholds for coverage of the prime contract do not apply to subcontracts.
  • Workers performing on or in connection with covered Federal contracts are generally entitled to receive the minimum wage for all time spent performing on or in connection with covered Federal contracts.
  • Workers who are employed in a bona fide executive, administrative, or professional capacity and exempt from the FLSA’s minimum wage and overtime requirements are not entitled to receive the Executive Order minimum wage.
  • Workers performing “in connection with” covered contracts are also excluded from coverage of the Executive Order if they spend less than 20% of their work hours in a particular workweek performing in connection with covered contracts.

When Does the Minimum Wage Obligation Begin?

The Executive Order minimum wage requirement applies to a “new contract,” which is defined as a contract that results from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015.

It includes both new contracts and replacements for expiring contracts, but does not apply to the unilateral exercise of a pre-negotiated option to renew an existing contract by the Federal Government.  A contract that is entered into prior to January 1, 2015, will constitute a new contract if, through bilateral negotiation, on or after January 1, 2015:  (1) the contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014 providing for a short-term limited extension; or (3) the contract is amended pursuant to a modification that is outside the scope of the contract.

What Categories of Contracts Are Covered?

Executive Order 13658 applies to four categories of contractual agreements:

  • procurement contracts for construction covered by the Davis-Bacon Act (DBA), except for those DBA-covered contracts with the District of Columbia;
  • service contracts covered by the Service Contract Act (SCA), except for those SCA-covered contracts with the District of Columbia;
  • concessions contracts, including any concessions contract excluded from the SCA by the Department of Labor’s regulations at 29 CFR 4.133(b); and
  • contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Procurement Contracts for Construction

Under the Final Rule, any contract covered by the DBA and its implementing regulations is subject to the Executive Order minimum wage requirement.  This includes contracts in excess of $2,000 to which the Federal Government is a party, for the construction, alteration, or repair, including painting and decorating, of public buildings and public works of the Federal Government and which require or involve the employment of mechanics or laborers.

The Executive Order does not apply, however, to contracts that are subject only to the Davis-Bacon Related Acts, such as the National Housing Act, the Housing Act of 1950, the Housing Act of 1959, the Federal-Aid Highway Acts, the Housing and Urban Development Act of 1965, and other grant, loan, and assistance programs.

Service Contracts

Both procurement and non-procurement contracts (in excess of $2,500) that are subject to the SCA and its implementing regulations are subject to the Executive Order minimum wage requirement.  With the exception of concession contracts, discussed below, contracts that are exempted or excluded from SCA coverage—such as a contract for professional services performed essentially by bona fide professional employees, with the use of service employees being only a minor factor in contract performance—would likewise be excluded from the Executive Order minimum wage requirement.

Contracts for Concessions

The Final Rule defines the term concessions contract to mean a contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services. The term concessions contract includes, but is not limited to, a contract whose principal purpose is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public. The Executive Order covers all concession contracts with the Federal Government, including those excluded from SCA coverage by regulations, such as concession contracts with the Federal Government to operate souvenir shops or to provide food or lodging in national parks.

Contracts in Connection with Federal Property or Lands and Related to Offering Services for Federal Employees, Their Dependents, or the General Public

This category generally includes leases of Federal property, including space and facilities, and licenses to use such property entered into by the Federal Government for the purpose of offering services to the Federal Government, its personnel, or the general public. This category would include a private fast food or casual dining restaurant that rents space in a Federal building and serves food to the general public, as well as delegated leases of space in a Federal building from an agency to a contractor whereby the contractor operates a child care center, credit union, gift shop, barber shop, or fitness center in the Federal agency building to serve Federal employees and/or the general public.

Contracts Not Subject to the Executive Order Minimum Wage Requirement

Exclusions from coverage include: (1) grants; (2) contracts and agreements with and grants to Indian Tribes under Public Law 93-638, as amended; (3) any procurement contracts for construction that are not subject to the DBA (i.e., procurement contracts for construction under $2,000); and (4) any contracts for services, except for those otherwise expressly covered by the final rule, that are exempted from coverage under the SCA or its implementing regulations. In addition, the Executive Order does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government, i.e., those subject to the Walsh-Healey Public Contracts Act.

Subcontracts

Covered subcontracts of covered prime contracts are subject to the requirements of the Executive Order.  In order for the requirements of the Order to apply to a subcontract, the subcontract must:  (1) qualify as a contract or contract-like instrument under the definition in the regulations; and (2) fall within one of the four specifically enumerated types of contracts.  In addition, the wages of workers under the contract must be governed by the DBA, SCA, or FLSA.  Notably, however, the dollar thresholds for coverage of the prime contract do not apply to subcontracts.

As a result, subcontracts for the manufacturing or furnishing of materials, supplies, articles, or equipment between a manufacturer or other supplier and a covered contractor for use on a covered Federal contract (e.g., a contract to supply napkins and utensils to a fast food restaurant franchise on a military base) is not a covered subcontract.

Who Is Entitled to the Executive Order Minimum Wage?

Workers performing on or in connection with covered Federal contracts whose wages are governed by the FLSA, the SCA, or the DBA are generally entitled to receive the Executive Order minimum wage for all time spent performing on or in connection with covered Federal contracts.  Workers performing “on” covered contracts are those workers directly performing the specific services or construction called for by the contract’s terms.  Workers performing “in connection with” covered contracts are those workers performing other duties necessary to the performance of the contract.

There are, however, some limited exclusions from coverage for certain workers. For example, workers who are employed in a bona fide executive, administrative, or professional capacity and exempt from the FLSA’s minimum wage and overtime requirements are not entitled to receive the Executive Order minimum wage.  Moreover, workers performing “in connection with” covered contracts are also excluded from coverage of the Executive Order if they spend less than 20% of their work hours in a particular workweek performing in connection with covered contracts.

What Requirements Apply to Tipped Employees?

The Final Rule uses the FLSA’s tipped employee standards, but does so with the higher hourly rates required by the Executive Order.  Thus, the minimum cash wage (which is $2.13 under the FLSA) is $4.90 an hour beginning on January 1, 2015.  It will increase by the lesser of $0.95 per hour or the amount necessary to raise the hourly amount of 70% of applicable Executive Order minimum wage.

What Are a Contractor’s Obligations?

As is the case with the labor standards clauses under the SCA and DBA, contractors and subcontractors must include the Executive Order contract clause in any covered lower-tiered subcontracts.  They must notify all workers performing on or in connection with a covered contract of the applicable minimum wage rate under the Executive Order.

In addition, contractors and subcontractors must pay covered workers the Executive Order minimum wage for all hours worked on or in connection with covered contracts.  In situations where contractors are not exclusively engaged in contract work covered by the Executive Order, and there are adequate records segregating the periods in which work was performed on covered contracts subject to the Order from periods in which other work was performed, the Executive Order minimum wage does not apply to hours spent on work not covered by the Order.  Thus, contractors need to keep adequate records segregating time spent on covered work from non-covered work.  This is particularly important where the contractor is attempting to exclude from coverage a worker performing “in connection with” covered contracts because she spends less than 20% of her work hours in a particular workweek performing in connection with covered contracts.

The rule requires payments to be made no later than one pay period following the end of the regular pay period in which such wages were earned or accrued.  The pay period may not be of any duration longer than semi-monthly.  State, local, and other federal (e.g., DBA) pay frequency obligations must nevertheless be met.

Finally, the final rule prohibits the taking of kickbacks from wages paid to workers on covered contracts as well as retaliation against any worker for exercising his or her rights under the Executive Order or the implementing regulations.

Other Issues

The “Federal Government” includes nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces or of other Federal agencies, but does not include the District of Columbia, any Territory or possession of the United States, or any independent regulatory agency.

Where there is a covered contract not subject to the FAR, the contracting agency shall include the Executive Order minimum wage contract clause established by WHD in all covered contracts and solicitations for such contracts.  For procurement contracts subject to the FAR, contracting agencies must use the clause set forth in the FAR developed to implement this rule.

Where it is discovered or determined, whether before or subsequent to a contract award, that a contracting agency made an erroneous determination that Executive Order 13658 did not apply to a particular contract and/or failed to include the applicable contract clause, the contracting agency, on its own initiative or within 15 calendar days of notification by an authorized representative of the Department of Labor, shall incorporate the contract clause in the contract retroactive to commencement of performance under the contract through the exercise of any and all authority that may be needed (including, where necessary, its authority to negotiate or amend, its authority to pay any necessary additional costs, and its authority under any contract provision authorizing changes, cancellation and termination).

Complaints may be filed with the WHD by any person or entity that believes a violation of the Executive Order or its implementing regulations has occurred. The final rule contains a mechanism for WHD investigations and informal complaint resolution, as appropriate; it also specifies remedies and sanctions for violations of the Executive Order and its implementing regulations, including the payment of back wages and debarment. The Department’s final rule also includes an administrative process, including administrative hearings, to resolve disputes of fact or law.

Of Grapefruits, Drug Tests and Security Screening: Supreme Court Hears Oral Argument in Integrity Staffing Solutions v. Busk

Posted in Off-the-Clock Issues

Authored by Rebecca Pratt DeGroff and Ashley Choren Workman

What do grapefruits, drug tests, and security screening have in common?  The Justices of the Supreme Court discussed all three during oral argument yesterday in Integrity Staffing Solutions v. Busk, analyzing the contours of compensable activities under the FLSA, as amended by the Portal-to-Portal Act, including the compensability of law clerks preparing grapefruit breakfasts for their judges.  This case, which we reported on earlier this year here and here is of interest to most employers because it asks the Court to draw the line between two different kinds of pre-shift and post-shift work activities:  those that integral and indispensable to an employee’s principal activities and thus must be paid for, and those that are purely preliminary or postliminary to an employee’s principal activities and thus need not be paid for.

In a rare move, the Department of Labor joined forces with Integrity to argue that time spent by employees going through security checks as they leave work is not compensable under the FLSA.  During the argument, the parties agreed that the time spent was “work,” as that term is defined by the FLSA.  The debate, instead, centered on whether this work time is compensable under the Portal-to-Portal Act.

Paul Clement, counsel for Integrity, argued that going through security as part of the egress process is the epitome of postliminary activity that is non-compensable under the Portal-to-Portal Act.  He explained that because the security screening occurs away from the employee’s work station it is not compensable.  Responding to a hypothetical posed by Justice Kagan, Clement distinguished security screening time from time spent by a retail employee who is responsible for clearing their cash register at the end of their shift.

Curtis Gannon, on behalf of the Department of Labor, argued that unlike time spent in drug testing, time spent in security checks is non-compensable for two primary reasons: (1) it is ordinary activity done in the course of checking in to work or checking out of work; and (2) it is classically associated with entrances and exits. According to Gannon, these factors put the security check time squarely within the ambit of non-compensable, preliminary or postliminary time under the Portal-to-Portal Act.

Mark Thierman, counsel for Respondent, argued that time spent in security checks is a compensable principal activity because it is done at the direction of the employer and for the benefit of the employer.  He further argued that because the security checks occurred at the end of the day, the continuous workday rule compels treating the time as compensable.  Finally, he also emphasized that because the amount of time spent in security checks is 20 minutes, the de minimus exception would not apply.

For the curious reader, ultimately all parties agreed that time spent by a law clerk preparing a grapefruit breakfast for a judge, another hypothetical posed by Justice Kagan, would be compensable work.

We will provide an update when the Court issues its decision, which is expected in 2015.

DOL Ties Its Own Hands—and Only Its Own Hands—on Companionship Services

Posted in DOL Enforcement

Authored by Alex Passantino

On Thursday, the Department of Labor will publish in the Federal Register a notice announcing a limited duration non-enforcement policy regarding the Wage & Hour Division’s companionship services regulation.  The final rule was published more than a year ago and has an effective date of January 1, 2015.

The operational challenges faced by employers as a result of this regulation have been significant.  As a result, numerous trade associations, disability advocacy groups, and states requested extensions of the effective date.  The states, in particular, needed additional time “to adjust their publicly funded home care programs in order to comply with the FLSA, and specifically noted that time was needed for budgetary, programmatic, and operational adjustments.”

The Department, however, has refused to extend the effective date.  This means that employers, as of January 1, 2015, are obligated to comply with the regulatory provisions.  Nothing about the Department’s notice changes this obligation.  Instead, the Department has elected to take a non-enforcement position from January 1 through June 30, 2015, meaning that it will not itself enforce the law against employers.  From July 1 through December 31, 2015, “the Department will exercise its prosecutorial discretion in a manner that is consistent with this document when making determinations on a case-by-case basis as to whether to bring enforcement actions in the home care context.”

Notably, in choosing to take a hands-off enforcement approach, instead of extending the effective date, the Department undoubtedly will cause confusion within the regulated community.  The Department’s regulations are effective as of January 1, 2015.  The FLSA provides a private right of action.  The Department’s notice does nothing with respect to these private enforcement actions, and non-compliant employers unfortunately may have to find that out the hard way.

Regs Keep on Slippin’ Into the Future: Part 541 Rules Expected After Year’s End

Posted in DOL Enforcement

Authored by Alex Passantino

Back in May, the Department of Labor announced a target date of November 2014 for publication of a proposed rule on revisions to the Part 541 regulations (pp. 56-57). However, Law 360 reports (subscription required) that Solicitor of Labor Patricia Smith does not believe that the Department will hit their mark.  Rather, Smith “hoped to see it rolled out early in the new year.”

This delay in the expected proposal is not likely to have a significant impact on the Department’s ability to finalize a regulation during the Obama Administration. Even an early 2015 proposal gives the Department well more than a year to consider the comments and write a final rule.

Stay tuned for future developments.

Be Careful What You Wish For – At Least When Seeking Court Approval

Posted in Settlement

By Rob Whitman and Howard M. Wexler

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

One judge who has swum against the tide is Brian Cogan in the Eastern District of New York.  In a 2013 decision, he held that court approval of a settlement is not required for dismissal of an FLSA case since, in his opinion, “Ratcheting up the legal process to achieve some Platonic form of the ideal of judicial vindication did not seem necessary to accomplish any purpose under the FLSA.”  But other courts have disagreed with Judge Cogan’s decision, including many of his judicial brethren within the Second Circuit, so parties have continued to submit settlement agreements for court approval rather than agreeing to a private resolution and filing a boilerplate Stipulation of Dismissal out of an abundance of caution.

Encalada v. Baybridge Enterprises Ltd. was an FLSA case in which Judge Cogan was asked to approve the amount of attorneys’ fees after the parties settled pursuant to an accepted Rule 68 Offer of Judgment.  After noting that, “unlike most courts” he does not require a fairness hearing in connection with the settlement of an FLSA lawsuit, Judge Cogan nonetheless had to review the nature of the case and the reasonableness of fee application.  Before turning to the fees, Judge Cogan observed that “there is no other category of civil filings that has increased at a rate anywhere near that for cases brought under the FLSA.”  He then held that the requested fees were unreasonable given that the case was a fairly straightforward FLSA matter that did not involve any “complex issues like exemptions, coverage, collective action notification, classification, or statutory interpretation.”  Accordingly, Judge Cogan reduced the fee award by substantially cutting the attorney’s hourly rate.

Judge Cogan refused, however, to reduce the number of hours claimed by plaintiff’s counsel.  The employer asserted that “plaintiff unreasonably failed to settle early, effectively churning the case to enhance his legal fee,” but the judge was not persuaded, stating that “it is difficult for a court [to] tell which side, if either, is at fault for not settling earlier, as neither party admits to unreasonableness.”

Plaintiff has already filed a Notice of Appeal of Judge Cogan’s decision to the Second Circuit.  Thus, while the employer thought it had obtained finality as a result of the acceptance of the Offer of Judgment, it now has to litigate the fee issue and incur further costs as a result.

This decision again highlights the risks of submitting FLSA settlement agreements for approval:  the court may find some (or all) of its terms to be unreasonable and either modify them or send counsel back to the drawing board.  Submission for approval also usually requires the court to make the terms of the settlement publicly available on the docket, which raises a host of additional concerns for employers.  As such, the question of whether to seek court approval in any given case remains.  Employers may no longer assume that every FLSA settlement should or must be submitted for public approval, and if they do submit settlements for approval, should be prepared to vigorously defend their terms.


 

Minimum Wage for Certain Federal Contractor Employees: Final Rule to Be Issued on October 7, 2014

Posted in DOL Enforcement

Authored by Alex Passantino

Despite the fact that the rule is as of today still listed as under review by the Office of Management and Budget, the Labor Department announced that it would publish a final rule implementing Executive Order 13658 in the October 7, 2014, Federal Register.

The Wage & Hour Division has established an EO 13658 website containing the Final Rule, a number of frequently asked questions, and a Fact Sheet.  Our team is reviewing the 338-page rule and will provide a substantive update shortly.  In addition, please be on the lookout for information about our webinar on this important topic.

The $10.10 Minimum Wage for Employees Servicing and Supporting Federal Contracts Moves a Little Further on Down the Road: DOL Sends Final Rule to OMB for Review

Posted in DOL Enforcement

Authored by Alex Passantino

Last Friday, the Department of Labor’s Wage & Hour Division (WHD) submitted to the White House Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) its Final Rule to implement a $10.10 minimum wage for federal contractor employees pursuant to Executive Order 13658.  The Final Rule will address comments made by the regulated community in response to WHD’s Notice of Proposed Rulemaking.

The Executive Order requires that the Labor Department issue regulations by October 1, 2014.  Review by OIRA is the final step in the process prior to publication of the Final Rule in the Federal Register.  It is unclear whether OIRA will have sufficient time to review the Final Rule in time to meet the October 1 deadline or whether it will need to let that deadline slide.

As we have written previously, once the Final Rule is published, the minimum wage for federal contractor employees and the implementing rules are expected to apply to covered contracts where the solicitation has been issued on or after January 1, 2015.  We will, of course, keep you updated on the status and effective date of the minimum wage obligations.

 

Bittersweet Victory: Court Affirms $3.4 Million Attorney’s Fee Award Despite Plaintiffs’ Defeat on Majority of Claims

Posted in Damages, Overtime

Co-authored by Abad Lopez and Noah Finkel

Even in the face of an apparent victory, a company may be stuck with an unexpected and outsized attorneys’ fees tab.  In a recent case that highlights the multifaceted perils of drawn out litigation, the Tenth Circuit affirmed a $3.4 million attorneys’ fees award—even though the jury rejected the majority of plaintiffs’ claims and where the fees “substantially exceeded” plaintiffs’ actual damages award.

The case involved workers who sued under the Fair Labor Standards Act and the Kansas Wage Protection Act, which proceeded as a class and collective action.  At trial, the jury awarded the workers approximately $503,000 in damages under the FLSA and state law, a sum far less than that sought by the plaintiffs.  The jury found the company liable on a class-wide basis for systematically undercompensating employees for the time they spent putting on and taking off protective clothing and equipment and walking to and from their work stations.  However, the jury found that plaintiffs failed to prove their meal and rest break claims.  The district court then proceeded to award plaintiffs’ counsel $3.4 million in attorneys’ fees despite their rather limited success.

In affirming the district court’s full attorney’s fees award, the Tenth Circuit afforded considerable leeway under the “abuse of discretion” standard.  By doing so, it allowed fees for the time spent on plaintiffs’ successful donning and doffing claims, in addition to any time spent on their unsuccessful meal and rest break claims.  Even though plaintiffs’ claims ostensibly involved different legal theories, the court found that they were “interrelated.”  The court also had no concerns about the size of the award, even though plaintiffs only recovered 8% of the damages they sought and the award “substantially exceeded” the actual damages award by a 7 to 1 ratio.

As evident from this decision, litigation through trial may prove undesirable even in the face of an apparent victory.  Although at times warranted, defending a case at all costs, even where the actual potential damages are palatable, carries the added risk of an unexpected (and decidedly unpalatable) attorneys’ fees award.  As such, decisions about an “exit strategy,” including via early resolution, defeating certification, or early dismissal of particular claims through dispositive motions, are critical in light of these risks.  Even where defendants decide that victory at trial is the only acceptable outcome, this decision should be made with eyes wide open about the potential cost of a victory.

Court Slams the Brakes on “Black Car” Drivers’ Misclassification Case

Posted in Misclassification/Exemptions

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

Trying to catch a cab in New York City is not for the faint of heart.  In addition to the traditional “yellow cabs,” which often treat the city streets like a NASCAR track, there are many “Black Car” companies that offer rides through dispatch systems that allow for scheduled pickups.  In Saleem v. Corporate Transportation Group, Judge Jesse Furman of the Southern District of New York held that drivers for a group of “Black Car” companies were properly classified as independent contractors, not employees.

The plaintiffs in Saleem were drivers who were parties to franchise agreements ranging in value from $20,000 to $60,000.  To obtain work, drivers log into the dispatch system, indicate that they are available for work, and then accept or reject jobs when they become available.  The drivers are responsible for procuring the car, paying for vehicle maintenance, and obtaining the appropriate licenses and insurance.  Pursuant to the franchise agreements, they receive a percentage of the total fare charged to the client; are prohibited from soliciting or doing business with any of the franchisor’s clients directly; and had to follow a set of rules that subjected them to penalties depending on the infraction.  Notably, the drivers were not prohibited from working for competitor “Black Car” companies or driving their own private customers.

The drivers filed a putative class/collective action alleging that they should have been classified as employees, and thus were entitled to overtime pay.  The court conditionally certified their FLSA claim in June of 2013, but denied class certification of their state law claims under Rule 23 of the FRCP.  At the close of discovery, both parties filed motions for summary judgment.

The Court applied the “economic reality” test for whether the drivers were employees or independent contractors under the FLSA.  The factors were:  (1) the degree of control exercise by the employer; (2) the workers’ opportunity for profit or loss; (3) the degree of skill and independent initiative required to perform the work; (4) the permanence or duration of the working relationship; and (5) the extent to which the work is an integral part of the employer’s business.

Judge Furman held that the factors overall weighed in favor of independent contractor status.  He noted that the drivers:

  • Were completely free to set their own schedule of work and were under no obligation to accept a particular job;
  • Were free to—and frequently did—work for other car services and provide transportation to private customers;
  • Made numerous decisions that affected their overall profitability, such as whether to rent or buy a franchise, whether to hire other drivers, whether to work for other car service companies, and whether to solicit private clients;
  • Made substantial investments in their businesses through purchasing franchises as well as on their own private vehicles;
  • Exercised a significant degree of independent initiative in order to be a successful driver; and
  • Could terminate the franchise agreements at will.

Although the New York Labor Law test required Judge Furman to assess several additional factors, he reached the same conclusion, that the drivers were properly classified as “all five NYLL factors favor independent contractor status.”

Together with a decision earlier this week involving U.S. Open tennis umpires, this case is a welcome development for defendants in the tricky world of independent contractor classification.  Nonetheless, companies should continue to pay careful attention to this area, especially in light of the U.S. Department of Labor’s September 15, 2014 announcement that it awarded $10.2 million to 19 states “to implement or improve worker misclassification detection and enforcement initiatives.”  Diligent compliance in classifying workers as independent contractors rather than employees remains as important as ever.