Wage & Hour Litigation Blog

Whatever Happened to those Overtime Rules?

Posted in Overtime

Authored by Alex Passantino

Over the past several weeks, we have received an increasing number of questions about the status of the Department of Labor’s revisions to the “white collar” overtime exemptions.  As regular readers know, last March, the President directed the Secretary of Labor to begin the regulatory process on those regulations.  At that time, the President directed the Secretary to consider how the regulations could be revised to:

  • Update existing protections in keeping with the intention of the Fair Labor Standards Act.
  • Address the changing nature of the American workplace.
  • Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.

Since the initial direction by the President, indications are that the anticipated revisions to the overtime regulations may involve:

  • A (potentially significant) increase to the current salary level of $455 per week.
  • An adjustment to the primary duty test, presumably to implement a California-style hard 50% limitation on work deemed non-exempt, although a different—and more workable—standard (e.g., 30%, 40%) is certainly possible.
  • And other changes to the duties tests, such as limitation or elimination on the ability of managers to engage in management and non-exempt work concurrently or the re-introduction of the requirement that an administrative employee’s work be related to management “policies.

The details of the proposed revisions, however, remain in the Department of Labor.

In May of last year, the Department of Labor identified a target date of November 2014 for publication of a proposed rule.  In the months that followed, the Department engaged in a series of “listening sessions” with the regulated community, soliciting input and ideas.  The Department, however, did not meet its November target date.

In December, the Department identified a target date of February.  As of this post, the proposed rule has not yet been submitted to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA).  Given that OIRA can sometimes take months to review a rule, it is difficult to see how the Department can meet its February date, but there has been no formal announcement of a delay.

There has, however, been much speculation about what may be holding the regulations up at the Department.  That speculation typically focuses on the proper salary level for the exemption.  Earlier this month, the Economic Policy Institute, a think-tank that receives a significant portion of funding from organized labor, posted a letter sent by a number of labor economists to Secretary Perez.  In that letter, the economists noted that the Department had been considering a salary level of $42,000.  The economists pushed for a $50,000 threshold.

The U.S. Senate also jumped into the salary level debate today, when a group of 25 Democratic Senators (as well as Sen. Bernie Sanders, an Independent who caucuses with the Democrats) sent a letter to President Obama requesting that the salary level be increased to at least $56,680 per year.

Clearly, the proper salary level to be included in the proposal is something under careful consideration at the Department.  Presumably, once that level is determined, the proposed regulations will be sent to OIRA, and, ultimately, published in the Federal Register for comment by the regulated community.  Only after that notice, comment, consideration—and, presumably, another long debate surrounding the salary level—will any changes become applicable to the U.S. workforce.

We will keep you updated on further developments as they arise.

Unpaid Internship Showdown at the Second Circuit

Posted in DOL Enforcement

Co-authored by Robert S. WhitmanNadia S. Bandukda, Adam J. Smiley, and Jade Wallace

The Super Bowl isn’t the only major showdown coming this weekend.

On Friday morning, a three-judge Second Circuit panel will hear argument in two cases raising critical issues for the fate of internships in for-profit businesses:  (1) Fox Searchlight’s appeal of the decision granting summary judgment and class certification to interns who worked on film productions and (2) the appeal by former Hearst Corporation interns whose motion for class certification was denied.

At issue in both cases is the test to be used to evaluate whether interns are “employees” under the FLSA or “trainees” who are exempt from minimum wage and overtime requirements.  Under the common law “primary benefit” test, if the internship primarily benefits the intern rather than the employer, the intern is properly deemed a trainee and not entitled to compensation.  The Department of Labor (“DOL”) has declared that internship status should instead be determined by a strict 6-factor test and that if each factor is not satisfied, the intern is entitled to compensation.  The lower courts have applied modified versions of these tests and reached differing results.

We have written frequently on this topic (in May 2013, November 2013, and April 2014), but to tide you over until kickoff, we break down the matchup by looking at what the many friends of the Court have to say about the issue.

Five groups have filed amicus curiae briefs in the two appeals: the Secretary of Labor, the U.S. Chamber of Commerce, the Economic Policy Institute, Organized Labor (AFSCME, SEIU, CWA, UFCW), and the American Council on Education.  Here is where each group stands on the key issues before the Court:

 

DOL

Chamber of Commerce

EPI

Organized Labor

ACE

What test does group support? DOL 6-Factor Test Primary Benefit Test Brief does not urge the court to adopt any specific test DOL 6-Factor Test Functional standard similar to Primary Benefit Test:  leaves the determination of intern status with educational institutions rather than DOL
Key arguments DOL test is based on Supreme Court’s Portland Terminal decision.DOL test provides a consistent, objective standard for analyzing internship programs. Focuses on the benefits to interns and businesses from internship programsDOL test: 1) impedes students’ ability to develop skills in meaningful internship experiences; 2) will reduce available internship opportunities; and 3) places an onerous burden on employers to ensure interns are not engaging in productive work FLSA must be expansively construed to cover internships where “workers are suffered or permitted to work.”“Many… non-traditional jobs come under the broad FLSA definitions of employment, and when scrutinized do not pass muster.” The Primary Benefit test could deny traditional common-law employees from FLSA protection Primary Benefit analysis allows courts to develop a standard that prevents abuse but also permits varied and flexible learning experiences without fear of liabilityThe approval of an internship by a college or university should provide a presumption of compliance with the FLSA
Notable Quotes: “In an internship context, a primary benefit test could be applied to exclude from the protections of the FLSA interns who are receiving very basic training on the employer’s operation while performing productive work for the employer on the theory that because interns are new entrants to the workforce, even the most rudimentary instruction or general exposure to a particular industry inures to their benefit.” “Prohibiting interns from performing any productive work is antithetical to a meaningful internship.” “Unpaid interns are likely to receive jobs with lower median wages than paid interns and applicants with no internship experience.” Applying the Primary Benefit test would “strip [workers] of a slew of other statutory workplace rights – concerning sexual harassment, discrimination on the basis of race and gender, workplace safety, and collective bargaining – that apply only to wage earners.”“Unpaid internships are a hallmark example of the race to the bottom in wages that result when, in the perceived absence of FLSA coverage, workers at the lowest rung of the labor market are forced to compete against one another to offer their services at the cheapest possible rate.” The DOL 6-factor test would be insufficient to address experiential learning and “cannot be used to evaluate the educational value of a particular internship.”“The uncertain and chilling prospect of employer FLSA liability for a legitimate educational internship restricts, if not altogether eliminates, opportunities which college students need in the public sector, in the non-profit sector, and in the business world.”The business concern about employing the 6-factor test and about civil liability under the FLSA has brought a “profound negative impact on the availability of internships” and allowing businesses to feel that such programs are “too risky.”

 

It is of course too soon to know whether the Second Circuit panel will be swayed by any of this.  Given the DOL’s primary enforcement role under the FLSA, its views will surely be given respectful consideration and perhaps strong deference.  But the amicus briefs come from a range of interested parties and reflect the importance of the internship issue to the various constituencies.  As of this post, only the DOL has been allowed any argument time in addition to the parties.

We will report on the arguments shortly after they close on Friday, and update readers as soon as possible thereafter.

Juno How to Pay When Your Facilities Close for Weather-Related Reasons?

Posted in Off-the-Clock Issues, Salary Basis, State Laws/Claims

Authored by Alex Passantino 

As Juno prepares to pummel the Northeast with snow, employers should prepare for any weather-related closures of their offices, factories, or other facilities.  The effect of a weather-related closure on compensation requirements varies for different types of employees and also varies by state.

EXEMPT EMPLOYEES

Most employees who are exempt from federal overtime requirements and paid on a salary basis are not subject to reductions to their weekly salaries because of a closure.  Even if an exempt employee misses a full day of work, the employer may not reduce the employee’s weekly salary (unless the employee misses an entire work week).  An employer that improperly reduces an employee’s salary might lose or jeopardize the ability to treat the employee as exempt from overtime pay requirements — potentially a very costly mistake.

Even though employers will almost certainly have to pay exempt employees their full salaries regardless of storm-related closures, employers do have the right to charge exempt employees for vacation or PTO for any work that they miss.  Employees who do not have enough accrued vacation or PTO to cover the closure, however, must still be paid their full weekly salaries.

The legal rules for paying exempt employees apply in all states.  Of course, in deciding whether to charge employees with vacation or PTO, employers may also want to consider non-legal factors such as employee morale and the organization’s finances.

NON-EXEMPT EMPLOYEES

For non-exempt employees, federal law requires only that employers pay employees for the hours they actually work.

TELECOMMUTING

In assessing pay requirements for all employees, employers should keep in mind that, even if an office or other facility is closed, some employees might work remotely.  Work performed remotely generally must be paid to the same extent as work performed on an employer’s premises — even if the employer did not request that the work be performed.  Non-exempt employees working remotely must generally be paid at their usual hourly rate (and subject to the usual requirements for overtime pay).

REPORTING PAY

Certain Northeastern states have additional requirements that apply to hourly employees who report to work when a facility is closed or not operating at full capacity.  For example:

  • Connecticut has a reporting pay requirement that applies to employees in the “Mercantile trade.”  Employees in that industry must be paid four hours at their regular rate of pay, if they actually report for work.  The “Mercantile trade” is defined as the wholesale or retail selling of commodities and any operation supplemental or incidental thereto.  A two-hour guarantee is in place for the restaurant and hotel industries, if the employee was not “given adequate notice the day before” that she should not report for work.
  • Massachusetts mandates reporting pay for non-exempt employees of at least three hours at the statutory minimum wage ($9.00) if they are scheduled to work more than three hours on a given day and actually report for work.  Employees scheduled for less than three hours need only be paid for their scheduled hours.
  • New Hampshire requires reporting pay for non-exempt employees who actually report for work of at least two hours at their regular rate.
  • New Jersey requires reporting pay for non-exempt employees who actually report for work of at least one hour at their applicable wage rate (unless, prior to this report to work, the employer already made available to the employee the minimum number of hours of work agreed upon for the week).
  • New York requires “call-in pay” for non-exempt employees of at least four hours, or the number of hours in the regularly scheduled shift (whichever is less) at the basic minimum hourly wage ($8.75) for employees who actually report for work.  A 2009 New York Department of Labor opinion letter, however, interpreted the reporting-pay obligation as not applying if “the amount paid to an employee for the workweek exceeds the minimum and overtime rate for the number of hours worked and the minimum wage rate for any call-in pay owed.”  Employees working in the hospitality industry may be subject to different requirements.
  • Rhode Island requires an employer to pay an employee who reports for duty at the beginning of a work shift (where the employer offers no work for him to perform) not less than three (3) times the employee’s regular hourly rate of pay.
  • Washington, D.C., requires reporting pay of at least four hours at the statutory minimum wage ($9.50) for non-exempt employees who actually report for work if they are scheduled to work for at least four hours.  Employees scheduled for less than four hours need only be paid for their scheduled hours.

Some of the reporting pay requirements noted above may be waived if the employer makes a good faith effort to provide employees with reasonable advance notice that they should not to report to work.  Employers that foresee that their facilities will be closed should give employees who are scheduled to work as much notice as possible for both practical and wage/hour compliance reasons.

If you are an employer with questions about the requirements summarized above or any other impacts that the storm may have on your legal obligations as an employer, we encourage you to contact any Seyfarth Shaw attorney with whom you work.

Seyfarth Shaw Attorneys Author the 2015 Update to the Definitive Guide to Litigating Wage & Hour Lawsuits

Posted in Conditional Certification, Hybrid Lawsuits, Rule 23 Certification

Leading employment law firm Seyfarth Shaw has updated its definitive guide to the litigation of wage and hour lawsuits. Co-authored by three Seyfarth partners and edited by the chair of the firm’s national wage-hour practice, Wage & Hour Collective and Class Litigation is an essential resource for practitioners. The unique treatise provides insight into litigation strategy through all phases of wage & hour lawsuits, and is now updated with additional significant cases through 2014.

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

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

“The growth of wage and hour decisions at the appellate level has continued, and will have a significant impact on pending and future litigation,” said Alfred. “Our updated edition arrives at the perfect time for corporations looking for the most current insight and strategy on wage & hour litigation. New have touched on pleading requirements, the enforcement of class waivers in arbitration agreements, exemptions, and use of statistical evidence and sampling in class trials, among others. This handbook delves into these new developments and offers practical litigation advice to all employers navigating this complex space.”

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

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

  • Recent federal appellate court decisions, including the Third Circuit’s decision in Davis v. Abington Memorial Hospital, analyzing what is necessary to plead a plausible claim for relief to avoid a motion to dismiss in wage and hour cases.
  • The California Supreme Court’s recent decision in Duran v. U.S. Bank.  This case establishes important principles in the class action setting on the use of statistical evidence and sampling, on employers’ due process rights to present evidence on their affirmative defenses and the use of trial plans to determine if class actions are manageable.  Although controlling law only in California, Duran establishes principles that may be helpful to employers litigating class actions in any forum.
  • The Second Circuit decision in Pippins v. KPMG on the application of the professional exemption to entry-level accountants.
  • The California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, which overruled its prior decision in Gentry v. Superior Court.  The Iskanian ruling provides California employers with far more flexibility to utilize arbitration agreements in the employment setting and avoid class action litigation.
  • The Third Circuit’s decision in Thompson v. Real Estate Mortgage Network  applying a more lax federal common law standard to determine successor liability under the FLSA.

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

U.S. Supreme Court Declines to Referee Slugfest Between Federal and California Courts on Enforceability of Arbitration Agreements

Posted in Arbitration Agreements

Co-authored by David D. Kadue and Simon L. Yang

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California.

But even then the Iskanian court also sounded a note of resistance, based on a special Cal-peculiarity: the court held that Concepcion does not apply to a PAGA claim. The rationale for creating this PAGA exception to Concepcion was that a PAGA claim differs from a class action in that PAGA plaintiffs act as private attorneys general, on behalf of the State of California—an entity that never agreed to arbitrate. Meanwhile, a dozen or more federal district court decisions repudiated this rationale, holding that the FAA, as interpreted by Concepcion, requires courts to enforce arbitration agreements calling for individual arbitration of PAGA claims, even if that enforcement keeps the plaintiff from acting as a private attorney general.

The employer petitioned the U.S. Supreme Court for a hearing on whether the California Supreme Court, in Iskanian, has once again strayed from the FAA’s true path. In supporting this request for intervention, the employer community explained that Iskanian’s rationale does not withstand scrutiny, for several reasons. First, the injuries that PAGA addresses are Labor Code violations that have harmed the suing “aggrieved employee.” The notion that this injury is really to the State of California is an overbroad legal fiction that could apply to any statutory claim—as California presumably has an interest in compliance with all of its statutes. This legal fiction contrasts with the actual governmental injury asserted in a true qui tam claim under the False Claims Act, in which a private party, on behalf of the government, alleges fraud on the government, after notifying the government of the claim and letting the government decide whether to sue for itself. Second, PAGA differs from a true qui tam action in that the State of California plays almost no role in a PAGA action. Under the False Claims Act, the government investigates the claims and a case cannot proceed as a qui tam action unless the government expressly consents, so the government plays a true gatekeeper role. Under PAGA, by contrast, the California Labor and Workforce Development Agency (“LWDA”) has a limited chance to investigate and intervene after the aggrieved employee gives written notice of a violation, and the LWDA almost never investigates. On the contrary, unless, within 33 days, the LWDA says it will investigate (a once-in-a-blue-moon occurrence), the aggrieved employee can sue, without any government oversight, so that the aggrieved employee may unilaterally dismiss the action. Third, the State of California rarely sees the 75% share of the civil penalties that PAGA nominally promises. Settlements of Labor Code claims often involve no PAGA penalty whatsoever. The only judicial oversight is to approve any PAGA penalty sought: if no PAGA penalties are allocated, the court has nothing to approve. Individual plaintiffs can thus use PAGA claims to pressure a greater settlement of their private claims, while producing nothing for the State. In short, because individuals control PAGA actions from start to finish, enabling them to seek recovery for their own alleged injuries, there is no good reason to distinguish PAGA claims from other wage and hour claims. As to all these claims, the FAA preempts any state public policy that would interfere with the enforcement of arbitration agreements. So why should PAGA be any different?

Yet, alas, on Tuesday the U.S. Supreme Court denied the employer’s petition. We thus expect to see continuing discord between federal and California courts on whether PAGA represents an exception to the general rule that courts should enforce arbitration agreements that waive class and representative actions.

Employee or Independent Contractor? In New Jersey, It’s as Easy as “ABC”

Posted in Independent Contractors

Co-authored by Robert S. Whitman and Robert T. Szyba

New Jersey employers now have an answer to a question that had previously been mired in uncertainty:  What test is used to determine whether an individual is an employee or an independent contractor under state wage and hour laws?

In Hargrove v. Sleepy’s, LLC, the New Jersey Supreme Court, answering a question certified by the U.S. Court of Appeals for the Third Circuit, held that the “ABC Test,” taken from the New Jersey Unemployment Compensation Law, applies. Under that test, a worker is presumed to be an employee unless three elements—listed in subsections A, B, and C of the key section of the statute—are met.

Those factors are:

(A) the individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;

(B) the service is either outside the usual course of business for which such service is performed, or such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business.

Unless all three criteria are satisfied, the worker will be deemed an employee.

The plaintiffs in Sleepy’s were delivery drivers who sued under the Employee Retirement Income Security Act (ERISA), the Family and Medical Leave Act (FMLA), New Jersey Wage Payment Law (as well as the state wage laws of New York, Massachusetts, Maryland, and Connecticut), and for breach of contract. They sought rescission of their independent contractor agreements and reformation of their contracts for employment, admission into Sleepy’s ERISA-governed benefit plans, damages for interference with their alleged FMLA benefits, and damages for allegedly unlawful wage deductions and offsets.  Sleepy’s moved for summary judgment on grounds that the workers were independent contractors.  The U.S. District Court agreed, holding that the facts “overwhelmingly show[ed] that the plaintiffs were independent contractors” and thus had no viable employment claims.  The court utilized the so-called “common law test” in its analysis, following the U.S. Supreme Court’s lead in Nationwide Mutual v. Darden, an ERISA case.

Considering the question after certification from the Third Circuit, the New Jersey Supreme Court noted that, of the various tests for independent contractor status, the ABC Test was the most expansive in favor of employment status, as it is the only such test that begins with the presumption that the worker is an employee and puts the burden on the employer to establish otherwise.  The test was also advocated by the state Department of Labor and Workforce Development, which uses it in administrative determinations under the Wage and Hour Law and in unemployment insurance matters.  The Court stated that, in adopting the test, it sought to foster predictability in employment determinations and greater consistency among the state wage and hour laws.  Nonetheless, it recognized that the test differs from the “economic realities” analysis used under the Fair Labor Standards Act and thus could create inconsistent results under state and federal law in New Jersey.

For New Jerseyans, the bar for employment status under the state’s wage and hour laws has been lowered.  Garden State companies that use independent contractors now run a greater risk than before of having those contractors deemed employees.  Because the (alleged) employer bears the burden of establishing independent contractor status, which is distinctly different from applicable federal law, companies should take this opportunity to carefully assess their existing contractor relationships to ensure that these workers are properly classified.

Seyfarth Workplace Class Action Team To Present Webinar on 2014 Class Action Developments and What Lies Ahead

Posted in DOL Enforcement
On January 22, Seyfarth Shaw’s class action experts are presenting a webinar to discuss highlights from Seyfarth’s 11th Annual Workplace Class Action Litigation Report.  The Report covers the array of bet-the-company litigation issues that businesses face and discusses the emerging trends and continuing rising tide of both EEOC litigation and Wage & Hour class actions and collective actions.

The Report and webinar should prove educational to anyone faced with class or complex litigation. To find out more about the webinar and to register, click here.

Home Health Care Agencies Find Companion in Federal Court

Posted in DOL Enforcement

Co-authored by Gena B. Usenheimer and Jade Wallace

The close of 2014 presented a host of potential problems for home health care providers.  As a result of new Department of Labor (“DOL”) regulations changing the federal “companionship” exemption from overtime and minimum wage requirements, many home health care agencies have been bracing themselves for significant changes to their pay practices.

The DOL originally issued its Final Rule on September 17, 2013, which revised the federal regulations defining the FLSA’s companionship exemption.  Most notably, the revisions (1) made the exemption available only where the “employer” is the individual, family, or household using the services, thereby making it impossible for third-party agencies to avail themselves of the exemption and (2) changed the definition of “companionship” so as to exclude many home health care aides from the exemption’s coverage.

On December 22, 2014, just ten days before the Final Rule was schedule to take effect, Judge Richard Leon of the U.S. District Court for the District of Columbia vacated the regulation which precluded third-party agencies from relying upon the minimum wage and overtime exemption.  Following that order, on December 31, 2014, the Judge issued a temporary restraining order preventing the revised definition of “companionship services” from taking effect until January 15, 2015.

After holding oral argument on the legality of the revised definition, today Judge Leon found the DOL is “yet again … trying to do through regulation what must be done through legislation” and vacated the regulation narrowing the definition of companionship services.

While the DOL will all but certainly appeal these decisions, for now, the FLSA’s companionship exemption remains available to third-party agencies and the definition of “companionship services” is unchanged.

Bad Medicine: California Pharmacists Lose Bid For Class Certification

Posted in Rule 23 Certification

Authored by Gena D. Usenheimer

Hourly pharmacists for CVS in California were forced to swallow a bitter pill late last year when Judge S. James Otero of the Central District or California denied their motion for class certification on claims for unpaid off-the-clock and overtime work.

The plaintiffs alleged that they were forced to work additional hours without pay in order to serve the pharmacy’s customers.  They argued that they could establish their claims on a class-wide basis by relying on CVS’s “Rx Connect” software system, which allows pharmacy employees to perform various daily tasks such as obtaining prescription information, verifying insurance data, and printing labels.  To access the system, employees must enter a three-letter credential that is obtained by inputting employee ID and password information each day.  The plaintiffs claimed they could establish liability for off-the-clock (and overtime) work by cross-referencing time records with the prescription records tracked in the Rx Connect database.

Judge Otero found the plaintiffs’ argument deficient in two main respects.  First, during the class period, CVS used two different computer systems, both of which allowed for the sharing of log-on credentials among multiple employees, making it nearly impossible to determine who was working when.  Second, the Rx Connect system (used for the majority of the class period) did not keep a record of which credentials were active for which employee at any given time.  This, too, made it nearly impossible to determine who was working when.  The court thus agreed with CVS that the only reliable way to learn whether pharmacy employees actually performed off-the-clock work is to ask them.  The need for such individualized inquiries defeated Rule 23(a)’s commonality requirement.

The same problem plagued the plaintiffs’ proposed overtime class:  there was no reliable method to track hours worked, and the evidence varied from manager to manager as to whether pharmacy employees were permitted to work overtime.  The court also found that the proposed class representatives were inadequate based on an “inherent tension” between supervisory pharmacists and those with subordinate titles.

The decision, Howard v. CVS Caremark Corp., serves as another helpful reminder that the presence of individualized inquiries remains a powerful weapon in the fight against Rule 23 class certification.

Court Batters “Dual Jobs” Claim And Finds That Servers’ Duties Do Not Require Minimum Wage

Posted in Service Charges/Gratuities

Co-authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Restaurant servers are some of the few employees to whom employers can pay less than the minimum wage.  This is because they receive tips from customers that, so long as those tips are large enough, often push an employee’s income well above minimum wage.  The FLSA thus allows an employer to take a “tip credit” as to most restaurant servers, provided the employer dots its “i’s” and crosses its “t’s” in following the tip credit regulations.

The vague nature of some of those regulations, and the relatively undeveloped nature of the case law interpreting them, has allowed some plaintiff’s wage-hour lawyers to feast on unsuspecting restaurateurs in obtaining back wages and liquidated damages on behalf of servers, bartenders, and other tipped employees.

But late last month, a federal court judge in the Northern District of Illinois came up with a better recipe for analyzing the tip credit regulations.  In Schaefer v. Walker Bros. Enterprises, et al., Judge Norgle granted summary judgment against plaintiff-servers on their claims that the restaurants at which they work improperly failed to pay servers minimum wage while performing sidework tasks such as refilling, stocking, and chopping, and failed to provide proper notice of their intention to take the tip credit.

The decision in Schaefer represents a significant victory for restaurant employers, particularly the significant number that require their servers to perform end-of-shift and beginning-of-shift sidework duties at the tip credit rate of pay.

Factual Background

In 2010, plaintiff-servers brought suit against Walker Brothers contending that they violated federal and state minimum wage laws in two ways:  (1) by incorrectly using the tip credit to pay the servers an hourly rate less than minimum wage while requiring them to perform duties unrelated to their tipped occupation; and (2) by failing to inform the servers of their intent to apply the tip credit to the servers’ wages.

Walker Brothers own six restaurants in the Chicago suburbs that operate under the name “The Original Pancake House.”  Upon hire, Walker Brothers provides servers with an employee handbook that states, among other things, that they apply a tip credit that reduces servers’ hourly wages 40% below minimum wage.  They also display DOL-approved posters explaining the tip credit in well-traveled areas of all six restaurants.

In addition to serving customers, servers perform sidework tasks that vary by the station to which they are assigned and by other factors such as location, shift, and manager.  Before May 2011, servers regularly sliced produce like strawberries and mushrooms.  Before and after that time, servers also placed scoops of ice cream on customers’ waffles and stirred blueberries into fruit compote.  Some servers also performed duties like putting water in soup warmers, brewing iced tea, and occasionally dusting or polishing brass.

Servers predominantly performed side work at the beginning or ends of their shifts, but also replenished and restocked certain items throughout the day.  Servers did not perform maintenance or janitorial work, such as cleaning bathrooms, washing dishes, mopping or vacuuming floors, washing windows, or taking out garbage.

On September 19, 2013, the Court granted class certification on the servers’ claims.  The restaurant thereafter moved for summary judgment on the servers’ claims.

The Court’s Opinion

The Court extensively recounted the law relating to the tip credit as set forth in the regulations and the DOL Field Operations Handbook.  Employers may pay “tipped employees” a wage below the federally mandated minimum wage rate, so long as, with tips, they earn at least the minimum wage.  Employers can take the tip credit “only for hours worked by the employee in an occupation in which the employee qualifies as a ‘tipped employee.’”

When “an employee is employed in a dual job,” for example, when a “maintenance man in a hotel also serves as a waiter,” employers cannot take advantage of the tip credit when the employee performs tasks unrelated to his tipped occupation.   On the other hand, when employees perform duties “related” to their tipped occupation, such as when a waitress cleans and sets tables, toasts bread, and makes coffee, “employers may apply the tip credit and continue to pay employees below minimum wage.

The Court then issued three key holdings with respect to application of the tip credit.  First, it held that plaintiffs bear the burden of proving that they were not properly compensated.

Second, the Court held that, even viewed in the light most favorable to plaintiffs, the sidework tasks performed by servers were “incidental to the regular duties of the server (waiter/waitress) and generally assigned to the servers” and, therefore, fell within the DOL Handbook’s interpretation of the applicable regulation. In doing so, the Court also distinguished an earlier Northern District of Illinois case in which it was held that a different restaurant could not take a tip credit.  In that case, employees submitted declarations stating that they were assigned to clean bathrooms, wash dishes, scrub floors, pick up trash in the parking lot, take out garbage, and roll silverware.  In Schaefer, however, the servers admitted that they were not subjected to extensive cleaning duties.   The Court thus held:  “Where the related duties are performed intermittently and as part of the primary occupation,” such as the duties are here, “the duties are subject to the tip credit.”

Third, the Court held that summary judgment in favor of the restaurant was appropriate on the notice claims.  Defendants displayed posters approved by the Illinois Department of Labor in well-traveled areas of their restaurants and informed servers of the tip credit in multiple ways, including by giving servers an employee handbook.

Implications For Employers

The Court’s decision in Schaefer is a stunning victory for the restaurant industry.  Before the Court’s decision in Schaefer, few courts had addressed tip credit claims, and little favorable law existed to validate employers’ regular practice of using servers to perform incidental side work tasks.  As a result, restaurant employers can breathe a little easier in 2015.