Wage & Hour Litigation Blog

Another Good Ruling for Employers Who Fear Class Arbitration

Posted in Arbitration Agreements

Authored by James Hlawek

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

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

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

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

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

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

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

 

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

Posted in Settlement

By Rob Whitman and Howard M. Wexler

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

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

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

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

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

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

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

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

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

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

Posted in Defenses, Overtime

Authored by Kyle Petersen

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

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

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

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

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

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

Posted in Misclassification/Exemptions

Authored by Kyle Petersen

The facts are familiar:

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

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

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

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

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

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

How to Slay the Monster of a Proposed Multistate Class Action

Posted in State Laws/Claims

Authored by Jacob Oslick

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

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

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

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

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

New York Court Side-Steps Issue of Deference to State DOL

Posted in State Laws/Claims

Authored by Gena Usenheimer

How much deference should courts give to interpretive guidance from the New York State DOL? At least for now, the answer remains unclear.

In February 2014, we reported on the Second Circuit’s request for direction from the New York Court of Appeals as to two questions arising out of Ramos v. Simplex Grinnell, LP, a prevailing wage litigation.

The first question was how much deference a court should give to an opinion letter issued by the state DOL. The letter at issue interpreted New York’s prevailing wage statute, but stated that the interpretation would apply prospectively only. On Friday, the Court of Appeals gave a non-answer, adopting the DOL’s position as to the amount of deference to which its opinion letter is entitled—none. The court held: “[W]e will not give the agency more deference than it claims for itself.” What’s clear, then, is that when the DOL takes the position that its guidance is not entitled to judicial deference, courts should agree.

The court did answer the second question certified by the Second Circuit: whether an agreement to comply with a statute binds a company to comply with the statute as it is understood at the time of the agreement or how the statute may ultimately be interpreted. Not surprisingly, the court held that an agreement to comply with a statute is an agreement to comply with the statute as it is correctly interpreted, regardless of whether that interpretation was known to the parties at the time of their agreement.

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.