Wage & Hour Litigation Blog

From Stanley Cup to Ante Up: Minimum Wage Increase Sweeps Chicagoland

Posted in City/Local Ordinances

Authored by Abad Lopez

Starting July 1, 2015, the minimum wage in the City of Chicago is $10 per hour. The Chicago City Council approved an ordinance that also increases the city’s minimum wage in successive increments through July 1, 2019. By enacting this ordinance, Chicago becomes one of the largest U.S. cities to adopt such a measure—following a trend that threatens to sweep the nation. This substantial wage increase adds to an already complex and burdensome landscape for employers in the Chicagoland area, which includes a recently enacted Cook County Wage Theft Ordinance that can strip employers of their business license for violating any wage laws.

In the Chicago Ordinance, the coverage for employees is broad—including all individuals and business entities that maintain a business within the city limits and/or are subject to license requirements of Chicago. What’s more, the ordinance applies to employers employing as few as one covered employee, which is defined as any person who spends two or more hours working in the City of Chicago in any two-week period. And with respect to “working,” travel time to sales calls and for deliveries is compensated time if done within Chicago’s city limits.

Going forward, the City minimum wage will increase all the way up to $13 per hour by July 1, 2019. Tipped employees also get a raise—the ordinance increased their new rate based on the state or federal minimum wage—whichever is greater—plus $.50. This increases to an additional $1 per hour starting July 1, 2016. Starting each July 1 from 2017 and onward, tipped employees are entitled to the highest of federal, state, or city minimum wage for tipped workers from the year prior. Practically, the tipped minimum wage, which is currently $4.95 at the state level, will increase to $5.95 by 2016. The Ordinance also mandates that employers post a notice of these changes at their business facility. A copy of that notice can be found here. Employers face civil fines of between $500 to $1,000 for each offense. Employees can also file civil lawsuits under this Ordinance, in which they can recover up to three times the amount of underpayment, in addition to attorney fees and costs. What’s more, the City can deny a business license to any employer for committing three violations of this Ordinance within the last 24 months.

This adds to the pitfalls in the Cook County Wage Theft Ordinance, which threatens stiff sanctions for any wage law violations. Under this ordinance, effective since May 1, 2015, any employer who has violated state and federal wage laws, including the Illinois Minimum Wage Law or other federal or state laws (including from other states) will be ineligible to hold a Cook County business license. There is a five-year look back period, so any violations in the preceding five years carry the same consequences. What does this mean? According to the Cook County Ordinance, if there was a wage violation outside of Cook County or even in another state, employers could lose their Cook County business license, among other potential consequences.

To avoid liability and harsh penalties, employers should determine which employees will be affected by both ordinances, revise pay ranges for any covered employees, and comply with the notice requirements. Employers should also take heed—and generally be wary of local wage ordinances—which are likely to be enacted throughout the U.S. with greater frequency and, like the Chicagoland ordinances, may include traps for the unwary with potentially drastic consequences.

Second Circuit Teaches Unpaid Interns a Lesson

Posted in DOL Enforcement, Misclassification/Exemptions

Co-authored by Robert Whitman, Adam Smiley, and Meredith Kurz

In a closely watched case affecting the viability of unpaid internship programs at for-profit employers, the Second Circuit held that the “primary beneficiary” test should be used to decide whether interns should be deemed employees or trainees. The court also held that this test requires highly individualized inquiries — a conclusion that may deal a blow to plaintiffs’ abilities to obtain class or collective certification in these cases.

The plaintiffs in Glatt v. Fox Searchlight Pictures, Inc., served as unpaid interns for the film production company, including on the movie Black Swan. In a 2013 decision, Judge William Pauley of the Southern District of New York granted summary judgment to two of the interns, holding that they should have been treated as employees entitled to compensation and held that a third intern could pursue his related claims as a class and collective action under the FLSA and New York Labor Law.

The Second Circuit vacated those rulings. On the question of employee status, the court declined to defer to the Department of Labor’s 6-factor test, holding that it is “too rigid” since it was based on a 68-year old Supreme Court decision involving railroad trainees and was not entitled to special deference. The court also declined to adopt the interns’ proposed test, under which employee status would exist whenever the employer receives an “immediate advantage from the interns’ work.”

Instead, the Second Circuit held that the primary beneficiary test provides a more appropriate framework by focusing on “what the intern receives in exchange for his work” and providing “the flexibility to examine the economic reality as it exists between the intern and the employer.”

Rather than using a rigid set of factors to evaluate the internship, the court fashioned a flexible, non-exhaustive set of considerations:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The court specifically noted that courts may consider relevant evidence beyond the specified factors in appropriate cases. Further, these considerations require a “weighing and balancing [of] all the circumstances,” no one factor is dispositive, and “every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.”

At the heart of the decision is the notion that a legitimate internship program must “integrate classroom learning with practical skill development in a real world setting,” and that focusing on the academic aspect of an internship program is critical and better reflects the modern workplace. The court also appeared to recognize that for any meaningful internship experience, the intern must do some “work.” With this understanding, the court said that interns may perform work so long as it “complements” rather than “displaces” the work of the company’s regular employees.

On the question of class and collective certification, the court held that “the question of an intern’s employment status is a highly individualized inquiry” given the nature of the primary beneficiary test. Even under the FLSA’s more lenient standard, it said, the interns were not “similarly situated” to each other because of the “individualized aspects of [their] experience,” especially given the nationwide scope of the proposed collective action.

Through a summary order, the Second Circuit also upheld a Southern District of New York decision that denied class certification in Wang v. Hearst Corp., a tandem internship case.  Putting a finer point on the certification issue than in Glatt, the court held:

As we have framed the relevant inquiry, courts must analyze how the internship was tied to the intern’s formal education, the extent of the intern’s training, and whether the intern continued to work beyond the period of beneficial learning. Irrespective of the type of evidence used to answer them, these questions are individual in nature and will require individual analysis. . . . Therefore, because of variation in the proposed class and the need for individual analysis of each intern’s situation, common questions do not predominate over individual ones.

***

So what does this all mean?

First, the DOL’s 6-factor test, at least in the Second Circuit, is no longer valid. As the court said, “[B]ecause the DOL test attempts to fit [the Supreme Court’s railroad decision’s] particular facts to all workplaces, and because the test is too rigid for our precedent to withstand, we do not find it persuasive, and we will not defer to it.”

Second, the decision makes clear that interns may perform some “work” so long as the work does not displace an employee. While no bright line exists, interns may likely be assigned projects that help current employees do their work more effectively. However, the amount of work should be weighed in the context of the entire intern program to ensure that the scale still tips toward the intern being the primary beneficiary of the program.

Third, the educational component of the internship is a critical factor. Companies’ programs should emphasize training and educational opportunities, such as speaker series, mock projects, information sessions, open door policies to ask questions about the industry, and attendance at industry conferences or events. The greater the educational component of the program, the more likely that the interns will be the primary beneficiaries.

Fourth, the recent wave of internship cases may have crested and crashed, based not only on the Second Circuit’s decision on the merits, but as much or more because class and collective certification has become more difficult. Plaintiffs’ lawyers may now decide to forego cases where the inherent individual inquires necessary to evaluate interns’ experiences mean that certification will be difficult or impossible.

Stay tuned for more developments as we see how courts in the Second Circuit implement this decision and how it affects lawsuits currently filed, as well as the frequency of new lawsuits.

USTA Aces Misclassification Case Before Second Circuit

Posted in Independent Contractors

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

With Wimbledon in full swing, and the U.S. Open just a few weeks away, the Second Circuit awarded game, set and match to the U.S. Tennis Association in a challenge to the independent contractor status of the tournament’s umpires. In Meyer v. USTA, which we previously wrote about here, the court upheld a District Court’s 2014 ruling that the umpires were properly classified as contractors, not employees, under the FLSA and NY Labor Law.

The plaintiffs in Meyer were umpires who worked at the U.S. Open pursuant to independent contractor agreements prepared by the USTA. Each umpire received a fixed daily rate (between $115 and $200) as well as reimbursement for some travel, meal and equipment costs. They filed a putative class/collective action alleging that they should have been classified as employees, and thus were entitled to overtime pay.

The District Court applied the “economic reality” test for whether the umpires were employees or independent contractors under the FLSA. The factors were: (1) the degree of control exercised by the putative 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. Based on a review of these factors, the District Court declared held that the USTA aced the misclassification test and that the chair umpires were properly classified. It reached the same conclusion under the New York Labor Law as well.

Similar to the “Hawk-Eye” review system used to review chair umpire calls during the U.S. Open, the Second Circuit undertook a de novo review and the USTA held serve by getting the decision affirmed. In relevant part, the Court noted:

  • The umpires exercise a high degree of independent initiative and control in officiating tennis matches;
  • They are free to decide independently each year whether to apply to officiate at the U.S. Open, which lasts only a few weeks, as well as which days they wish to officiate;
  • They are free to serve as umpires for other tennis associations, and maintain other non-umpiring jobs throughout the year;
  • They do not receive fringe benefits and are not on the USTA’s payroll; and
  • They generally claimed independent contractor status on their income tax returns.

This was by no means a straight-sets victory for the USTA given the litigation costs it incurred and risks it faced in the event the Second Circuit held that the District Court double-faulted in reaching its decision. The case should be an object lesson for employers: the mere fact that a worker is labeled an “independent contractor” and willing to work as such (without receiving minimum wage or an overtime premium) is not by itself enough to remove the worker from the coverage of wage-hour laws. Careful compliance for employers in classifying workers as independent contractors rather than employees, with an eye toward eliminating any unforced errors, remains as important as ever.

Obama Administration Proposes New Overtime Rules

Posted in DOL Enforcement, Misclassification/Exemptions

Authored by Alex Passantino

Today, the U.S. Department of Labor’s Wage & Hour Division announced its long-awaited proposal to amend 29 CFR Part 541, the “white collar” exemption for executive, administrative, and professional employees. Somewhat surprisingly, the Division only made specific proposals with respect to the salary levels required for the exemption and the highly-compensated exemption. In 2016, which is when the salary increase would be expected, the standard salary is projected to be $970 per week or $50,440 per year, indexed to the 40th percentile of weekly earnings for full-time salaried workers; the highly-compensated employee standard would be set at $122,148, indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. Given the size of the increase, even California and New York employers will need to be more alert to federal wage and hour compliance.

As has always been the case, the proposed salary levels would not apply to individuals employed as outside sales employees. Similarly, lawyers, doctors, and teachers are excluded from the proposed salary requirements.

The effort to amend these regulations began over a year ago, when President Obama directed Secretary of Labor Perez to consider whether revisions to the regulations were appropriate. The proposed rule has been under review at the White House’s Office of Information and Regulatory Affairs since May 5, 2015, and President Obama is expected to discuss the proposal at an event scheduled for this Thursday, July 2, in Wisconsin. We expect publication in the Federal Register shortly. Employers (and the entire regulated community) will have 60 days to provide their comments on the proposal.

Since last year, there has been rampant speculation about what the proposed rule would—and would not—contain. At long last, we now know. An increase to the standard salary test, indexed to the 40th percentile of weekly earnings for full-time salaried workers, and an increase to the highly-compensated employee salary, indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. In other words, the rule proposes to perpetually increase the salary levels required on an annual basis.

What the rule does not contain is any specific proposal with respect to duties. Instead, WHD asks for comments on the following questions:

  • What, if any, changes should be made to the duties tests?
  • Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
  • Should the Department look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?
  • Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?
  • Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?

WHD also asks whether there are specific occupations for which it should provide additional examples in the regulatory language.  In addition, WHD asks whether (and how) nondiscretionary bonuses might be used to satisfy the standard salary level.

WHD’s decision to use questions to address the duties test is somewhat unique for an Notice of Proposed Rulemaking. Presumably, WHD will use responses to the questions to formulate its positions in a final rule, which deprives the regulated community of any ability to meaningfully comment on a proposal—it’s a moving target.

Despite the fairly limited scope of the rulemaking, it is important to note that the salary levels are proposals. In 2003, when the Department last proposed revisions to the white-collar exemptions, the Department received 75,280 comments during the 90-day comment period. We can expect similar participation this time around. All of the comments will need to be reviewed by the Department, and issues raised by the comments will need to be considered and addressed. As a result, the final regulations may be different from the proposal in any number of respects. Moreover, given the scope of the proposal and the anticipated volume of comments, it is highly unlikely that the Department will be able to get a final rule completed in less than a year. In all probability, compliance with any ultimate revisions to the regulations will not be necessary until summer or fall of 2016.

What the Proposed Regulatory Revisions Mean for Employers

The current minimum salary level of $455 per week translates to $23,660 per year. This level was established in 2004, and represented a significant increase from the $155 per week ($8,060 per year) minimum that had been the standard for the preceding 30 years.

Just over 10 years removed from the last salary increase, the proposed rule expects to set a new threshold of $970 per week ($50,440 per year) in 2016. Initial estimates indicate that a salary increase to $50,400 per year would impact 5-10 million workers, many of whom are concentrated in the retail and hospitality industries. Some other estimates believe the number of impacted employees is more likely to be in the range of 15 million. Although the impact of this salary increase will almost certainly have a larger impact in Southern states and rural areas than it would in the Northeast and metropolitan areas, because the new salary minimum exceeds the California requirement of $37,440, even California employers will need to pay close attention to the federal exemption requirements.

Notably, this sizeable increase in the salary level makes it difficult to maintain part-time exempt positions. Under the current salary requirement, a part-time, pro-rated salary is sufficient to establish the exemption (provided that the pro-rated amount exceeds $455 per week). The new amount makes such an arrangement far more difficult, effectively eliminating some flexible workplace arrangements. If an employee’s pro-rated salary is not in excess of the new salary amount, that employee now needs to meticulously record his working hours, even if he never approaches 40 hours, because the FLSA’s “hours worked” recordkeeping obligations apply to all non-exempt employees.

In addition, WHD proposes to increase the highly-compensated employee standard. By its calculations, that figure is $122,148 for 2015. Neither the proposal nor WHD’s talking points indicate how much the salary would be in 2016 based on the proposed indexing.

Of course, the proposed salary is not necessarily the salary that will be required in the final regulation. In 2004, for example, the proposed salary was $30 per week lower than the salary in the final rule; the standard for highly compensated employees increased from $65,000 in the proposed rule to $100,000 in the final.

Notably, for the first time ever, the salary tests will include an automatic, annual increase, with the standard salary indexed to the 40th percentile of weekly earnings for full-time salaried workers, and the highly-compensated employee salary indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.

Conclusion

Clearly, the salary revisions that have been proposed will make a significant impact on an employer’s operations. Employers should now consider the impacts this proposal might have on their operations—and their bottom line. Although the salary levels will be the focus, employers should not forget about the questions posed by WHD—input is critical on these points as well. The public comment period is 60 days, and a robust regulatory record will allow the Department to best analyze the impacts its proposal will have on the economy. Thus, employers should seriously consider providing comments in response to the proposal. Seyfarth attorneys are already working with clients to do so and will be submitting comments on behalf of the firm.

Beyond the importance of providing comments, it will be necessary to begin preparing company executives and operations employees for these proposed changes. In just over a year, the proposed changes almost certainly will become final, in what we expect will largely be the same form as the proposal. The final changes are unlikely to provide a significant period of time to come into compliance—in 2004, employers only had 120 days to do so; we expect a shorter lead time next year.

With the expected lack of lead time, employers will need to start planning well in advance. For example, it will be necessary to budget for salary increases and/or increased overtime costs for at least part of 2016. In order to make informed decisions with respect to budgeting, employers will need to complete a preliminary assessment of the positions that may be impacted by the changes, and determine whether the duties performed by the positions would qualify for the exemption. Only then can the employer consider whether a salary increase is even an option.

OT Rules Out This Week

Posted in DOL Enforcement, Misclassification/Exemptions

Authored by Alex Passantino

According to Politico, the White House will begin to announce details of the long-anticipated revisions to the overtime regulations on Tuesday morning.  Initial reports are that the salary level required for exemption will more than double, from $23,660 to $50,440.

More details on this developing story as we learn them.

Appellate Court Delivers for FedEx—Second Class Cert Denial Affirmed by Ninth Circuit

Posted in Rule 23 Certification

Co-authored by Catherine M. Dacre, Tamara Fisher, and Simon L. Yang

When an employer has a denial of class certification remanded by an appellate court, it has a reason to worry. And while the employer might breathe a sigh of relief when the district court on remand again denies class certification, nothing is certain when that decision also is appealed. But FedEx might finally relax now that the Ninth Circuit earlier this week affirmed the Central District of California’s second refusal to certify a class of employees who alleged that they were not paid for off-the-clock work before shifts or during meal breaks.

After previously remanding the district court’s denial of class certification and instructing it to reconsider class certification in light of California law applicable to the plaintiffs’ claims, the Ninth Circuit blessed the lower court’s conclusion that individual issues predominated over both claims. As to pre-shift work, the Ninth Circuit found that the district court had properly considered whether common evidence demonstrated that FedEx exerted control over employees who had clocked in but were not paid for time prior to the start of their scheduled shifts and determined that “absent a policy that prevents the FedEx employees from using that time for their own benefit,” no common questions existed.  The mistaken belief of a few employees that they were not free to leave after clocking in did not equate to a policy of control, and the fact that employees would be paid for time worked prior to the scheduled start of shift, if reported, defeated the plaintiffs’ argument that common questions predominated.

Next, on the issue of off-the-clock work during meal breaks, the Ninth Circuit confirmed that California law requires an employer to pay for work during meal breaks only when it knew or reasonably should have known about the work.  It then explained the district court properly concluded that individual issues would predominate because FedEx did not know or have reason to believe employees worked through provided meal breaks.  Even though the plaintiffs argued that FedEx could have reviewed electronic data showing when packages were scanned to determine whether scans occurred during meal breaks, the Ninth Circuit confirmed this evidence wouldn’t establish liability.  Because employers are not required “to police employees’ meal breaks … FedEx had no obligation to sift through the volumes of electronic data produced by the scanning devices to determine whether its employees were actually taking their authorized breaks.”  In sum, even though employer data may have demonstrated that employees were working during meal breaks, the existence of such data did not support a finding that an employer knew or reasonably should have known about the work or provide common evidence supporting class certification.

At least on these facts, ignorance was bliss for the employer, but not for the employees. Because FedEx properly provided meal breaks, the fact that it maintained electronic data did not mean it knew or should have known employees performed work during their meal breaks.  By contrast, employees’ ignorance of their ability to do as they pleased during pre-shift time did not save their claims for off-the-clock pay where no company policy exerted control over them.

Proposed White Collar Exemption Regulations are Coming . . . Soon (and Other Items of Regulatory Interest)

Posted in DOL Enforcement, Misclassification/Exemptions

Authored by Alex Passantino

While much of Washington, DC, begins its preparations for the inevitable summer slowdown, the Department of Labor’s Wage and Hour Division appears to be ramping up for a summer sure to keep wage and hour lawyers across the country hopping (and likely ruining some planned vacations).

Since WHD’s proposed rule made its way over to OMB’s Office of Information and Regulatory Affairs (OIRA) just over a month ago, there has been rampant speculation about the timing of the proposal’s public reveal.  In the meantime, numerous organizations have met with OIRA to provide their thoughts on the expected rule.  Those meetings go into next week.  As a result, we expect that the proposed rule will be formally announced no sooner than the end of next week, and almost certainly before the month’s end.  We will, of course, keep you updated as we learn additional information.

Once the proposal has been released, WHD does not plan to simply sit back and wait for the comments to roll in.  WHD Administrator, Dr. David Weil, recently announced that he plans to issue an Administrator Interpretation clarifying who qualifies as an independent contractor under the FLSA.  This is not all that surprising, given Dr. Weil’s interest in the employment relationship, notably his focus on fissured industries.  The concepts articulated in any guidance are likely to be far-reaching, and will also need to be carefully considered in a wide variety of other putative employment contexts, such as franchising and subcontracting.  Notwithstanding the significance of this issue, the Administrator Interpretation simply gets released, and there will be no opportunity for public notice-and-comment.  No formal timetable has been given by WHD, but expect it to be released this summer.

Then, as the white-collar proposal’s comment period begins to draw to a close (or gets extended), WHD intends to publish a Request for Information (RFI) on the use of smartphones and their impact in hours worked under the FLSA.  Although no formal rulemaking has been proposed, remember that the Department’s RFI on Family and Medical Leave Act use and abuse in 2006 led to a report in 2007, and a proposed rule and final rule in 2008.

So, this summer, look for your fellow wage and hour geeks.  We’ll be the ones reading Federal Register pages out by the pool.

General Release May Not Preclude FLSA Claims Says Fifth Circuit

Posted in Settlement

Co-authored by John L. Collins and Brian Wadsworth

If I settle my employment lawsuit and release “all claims,” does that include wage-hour claims if the subject never came up? Last week, in Bodle, et al. v. TXL Mortgage Corporation, the Fifth Circuit said no.

As wage-hour practitioners know, the law in most circuits makes settlement of wage-hour claims a hassle, requiring either court approval or supervision by the Department of Labor for an enforceable release. In either case, the settlement terms are not confidential and may be easily be discovered.

But not so in the Fifth Circuit. In Martin v. Spring Break ’83 Productions, L.L.C., the Fifth Circuit held in 2012 that a private settlement reached over a bona fide dispute under the FLSA is enforceable. So in the Fifth Circuit, parties can settle wage-hour claims privately in most circumstances with enforceable releases, without having to seek court or government approval. But what if the case being settled was not a wage-hour case, and wage-hour issues never came up before the signing of a general release of “all claims?” In those circumstances, the Fifth Circuit ruled wage-hour claims were not waived.

TXL Mortgage Corporation (“TXL”) sued former employees Ambre Bodle and Leslie Meech in Texas state court for violation of their noncompetition covenants. The parties settled the litigation with a private settlement agreement and agreed final judgment. The settlement agreement said that Bodle and Meech “fully and completely release and discharge TXL . . . from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature . . . whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute or regulation.”

But on the exact same day they settled the state court litigation, Bodle and Meech turned around and sued TXL and its president, William Dale Couch, in federal court under the FLSA, claiming they were owed overtime pay. The trial court dismissed the case on the basis of the release, relying on Martin.

In Martin, the Fifth Circuit found the private settlement agreement of FLSA claims enforceable, because it resolved a “bona fide dispute” between the parties over the number of hours worked. But unlike Martin, the state court action in Bodle was not about a wage-hour dispute at all. It was a dispute over restrictive covenants. The district court reasoned that because the topic of unpaid commissions arose during settlement discussions, that was close enough to FLSA-type claims to render the general release enforceable as to overtime claims. The Fifth Circuit said this was not good enough because there was no discussion of overtime claims during settlement talks, and thus no bona fide wage-hour dispute.

In the wake of Bodle, questions remain as to the enforceability of releases against FLSA claims in contexts other than settlement of FLSA suits. Would a release as part of the settlement of a race discrimination discharge lawsuit that specifically references FLSA claims be enforceable against such claims? What about a release in return for severance pay in a reduction-in-force situation if the issue of wage-hour claims were specifically addressed? Currently, Martin and Bodle do little to provide concrete answers.

Game Changer? The Supreme Court Agrees to Consider Standards for Certifying FLSA Collective Actions and State Law Class Actions

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

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

Tyson Foods, Inc. v. Bouaphakeo

The U.S. Supreme Court agreed yesterday to hear an appeal challenging a nearly $6.0 million judgment in a collective and class action case against Tyson Foods, Inc. In Tyson Foods, Inc. v. Bouaphakeo, a wage and hour collective and class action regarding the compensability of time spent donning and doffing, the Court will decide (1) whether liability and damages may be determined by statistical techniques that presume all class or collective members are similar; and (2) whether a class or collective action may include individuals who were not injured.

Case Background

Plaintiff employees brought a collective and class action against Tyson under the Fair Labor Standards Act (“FLSA”) and a parallel state law. The plaintiffs alleged that they were entitled to damages because Tyson failed to pay them overtime for time spent “donning” and “doffing” personal protective equipment and walking to and from their work stations. The district court certified an FLSA collective and Rule 23 class based on its conclusions regarding the existence of common questions about whether those activities were “compensable ‘work’” under the FLSA and the state law. At trial, the plaintiffs used statistical evidence of the average donning, doffing, and walking times for employees to prove liability and damages. The jury returned a verdict for the collective and class, and the final judgment totaled $5.8 million.

On appeal, Tyson contended that certification was improper because employees’ individual routines varied and, thus, the litigation could not generate common answers apt to drive the resolution of the litigation as required under Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Tyson pointed out that liability and damages were only inferred as to individual class members based on statistical evidence contrary to the Supreme Court’s “Trial by Formula” prohibition in Dukes and the use of damages models that ignore the basis of defendant’s alleged liability to each class member as required by Comcast v. Behrend, 133 S. Ct. 1426 (2013).

Tyson further argued that collective and class certification was inappropriate because some class members did not work any overtime and were thus not entitled to any damages. The Eighth Circuit Court of Appeals rejected these arguments, holding that liability and damages could be proven by inference and that issues relating to individual damages, or no damages at all, do not preclude certification.

Citing circuit splits on both issues presented, Tyson filed a petition for a writ of certiorari in March 2015 which was granted today. Those issues, as stated in the cert petition, are:

(1) Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and

(2) whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.

Potential Implications for Wage & Hour Collective and Class Actions

Even though employers have been facing an avalanche of wage and hour collective and class claims for more than a decade, the Supreme Court has had little to say in the wage and hour context about the procedures for litigating collective actions, class actions, or “hybrids” of the two. The potential for a game-changing ruling is a very important development for employers.

Courts have been divided about whether the mere allegation of a specific type of FLSA violation, allegedly affecting a group of employees, is sufficient to show that the employees are “similarly situated” within the meaning of Section 216(b), the main remedies provision of the FLSA. The issue that the Supreme Court has now agreed to hear–whether a collective can properly be certified where the alleged FLSA violation affected different employees differently and some not at all–is an important one, especially in “off-the-clock” FLSA cases.

The Tyson Foods case is especially fascinating because it involves a “hybrid” case, involving a Rule 23 opt-out class with several thousand members and an FLSA “collective” of 444 opt-in plaintiffs. The Supreme Court can be expected to address how its Wal-Mart and Comcast decisions–both arising under Rule 23–apply to FLSA collective actions as well as state law wage and hour class actions. The Court’s prohibition in Wal-Mart of “trial by formula” has the potential to restrict the certification of collective actions, both initially and ultimately, to adjudicate cases with large numbers of plaintiffs with highly individualized claims.

We will closely follow the briefing in the months ahead, as the Supreme Court considers what could be one of the most important wage and hour decisions in many years and will blog about developments in this case as they occur.

Not So Fast (and Not So Final): Ninth Circuit Tells District Court to Reconsider Final Approval of Class Settlement

Posted in Settlement

Authored by Simon L. Yang

Final approval of a class action settlement sometimes isn’t so final.

At least that’s what the Ninth Circuit reminded Labor Ready Southwest, Inc. and a class of current and former employees earlier this week. On Tuesday, the Ninth Circuit vacated an order granting final approval of their class settlement of FLSA and California Labor Code claims and asked the Central District of California for a redo.

The Ninth Circuit on several occasions made clear that it was expressing no opinion on the ultimate fairness of the class settlement negotiated by the parties. So what was the issue?

Acknowledging that a district court has to engage in a “difficult balancing act” when considering both the strong judicial policy in favor of settlements and the district court’s fiduciary duty owed to absent class members, the Ninth Circuit remanded the case based on the “high procedural standard” for settlements that occur without a certified class.

The Ninth Circuit said the district court provided inadequate assurance that it considered the fairness of the settlement, by failing to sufficiently inquire about certain aspects of the settlement: (i) defendant agreed to a “clear sailing” arrangement (where it would not object to a certain fee request), (ii) class counsel would “receive a disproportionate distribution of the settlement,” and (iii) unclaimed settlement funds would revert back to the defendant.

Again, the Ninth Circuit reiterated that the existence of any one (or even all three) of the above-identified settlement terms “does not mean the settlement cannot still be fair, reasonable, or adequate” but that it “required the district court to examine them, and adequately to develop the record to support its final approval decision.”

So, next time you have a final approval hearing, consider whether you might want to slow down to ensure there’s no doubt about either the fairness—or finality—of your settlement.