iStock-649373572Authored by Katherine M. Smallwood

Seyfarth Synopsis: On May 8, 2017, Governor Nathan Deal signed a law expanding the reach of a pre-existing statute that prohibits Georgia localities from passing ordinances affecting worker pay in Georgia. The amendment is in line with a trend of states’ laws proactively limiting counties’ and cities’ abilities to promulgate ordinances that exceed worker protections that state and federal laws provide.

House Bill 243, authored by Representative Bill Werkheiser (R – Glennville), amends the Georgia Minimum Wage Law to preempt any local government rules requiring additional pay to employees based on schedule changes. The Georgia Minimum Wage Law already prohibited local governments, such as counties, municipal corporations, and consolidated governments, from adopting mandates requiring an employer to pay any employee a wage rate or provide employment benefits not otherwise required under state or federal law.

Prior to the adoption of House Bill 243, the Georgia Minimum Wage Law defined “employment benefits” to mean “anything of value that an employee may receive from an employer in addition to wages and salary,” including but not limited to, “any health benefits; disability benefits; death benefits; group accidental death and dismemberment benefits; paid days off for holidays, sick leave, vacation, and personal necessity; retirement benefits; and profit-sharing benefits.” House Bill 243 amends the definition of “employment benefits” to include “additional pay based on schedule changes.”

According to the National Federation of Independent Business, House Bill 243 benefits employers by protecting them from predictive scheduling requirements, which are intended to require employers to set employees’ work schedules in advance and pay an employee for lost or adjusted time if the schedule changes after the employer initially sets it. Proponents of the Bill argued that members of the food, service, and retail industries rely heavily on scheduling flexibility to serve their customers, and that these business realities justified the Bill’s protection from predictive scheduling requirements that localities might promulgate if it were not passed into law.

The Georgia Minimum Wage Law and this new amendment to it are part of the larger wave of so-called preemption bills, which seek to preclude localities from enacting ordinances that impose additional obligations on employers operating within their boundaries. Numerous states, including South Carolina, Minnesota, Tennessee, Missouri, and Arkansas, have either passed or considered similar preemption laws. While the laws in these several states (each of which is generally perceived to be business-friendly) should provide some solace to employers on the lookout for business-impacting local laws, they also highlight the need for caution in states whose legislatures are less willing to restrict cities’ and counties’ from passing worker protection laws.

Co-authored by Julie Yap and Michael Cross

Seyfarth Synopsis:  The California Court of Appeal affirmed a denial of class certification on the ground that the plaintiff’s expert report failed to establish claims could be determined on common evidence. The ruling highlights that trial courts are permitted to weigh conflicting evidence related to whether common or individual issues predominate. While expert reports often inform merits questions relating to damages, when those reports are the main source of support for certification, they equally inform issues of liability.

Plaintiff, a former Oracle technical analyst, filed suit alleging that Oracle’s employment practices violated various state wage and hour laws and constituted unfair business practices. Plaintiff’s case, both in the trial and appellate courts, turned largely on the reliability of his expert’s report.

Plaintiff’s expert’s opinion was based on a comparison of Oracle’s (1) payroll records, (2) internal time records, and (3) time cards. In comparing those data sets, Plaintiff’s expert purported to find a discrepancy between the number of overtime hours technical analysts worked and the number of overtime hours for which Oracle had paid them. In addition, by reviewing the time cards, the expert purported to uncover that many analysts took shortened or late meal breaks, or missed them altogether. Plaintiff moved to certify a class relying on a handful of putative class member declarations, but, in large part, through reference to a concurrently-filed expert report, arguing that his claims were subject to common proof through the expert’s comparison and analysis of Oracle’s records.

Oracle opposed Plaintiff’s motion to certify, relying on its own expert’s report and 42 declarations, 22 of which were from putative class members. Oracle’s rebuttal expert identified significant flaws in the methodology and care used by the Plaintiff’s expert. Among other flaws, Plaintiff’s expert included on-call, non-worked, and sick time in his time card numbers, which created significant discrepancies between the purported time worked and the time paid. In addition, the Plaintiff’s expert misread Oracle’s spreadsheets and ignored a $21 million overtime payment that Oracle had made. Finally, the expert made a number of assumptions about the data he analyzed, but failed to disclose those assumptions in his report.

The Trial Court’s Denies Certification

In denying Plaintiff’s motion for certification, the Court concluded that Plaintiff’s expert report was unreliable based largely on the reasons set forth in Oracle’s opposition. Specifically, the court found that because Plaintiff relied on his expert’s report to establish that three of his claims could be determined by common proof, and because that report was unreliable, he could not establish commonality for those claims.

The Appellate Court Affirms The Denial of Certification

Plaintiff appealed the trial court ruling on two main grounds. He first argued that whether or not his expert’s calculations were accurate should not have been considered on his motion for certification. Accuracy of expert reports, he argued, is a merits question. Second, Plaintiff argued that the trial court improperly weighed the competing declarations submitted by the parties.

In evaluating the first question, the Court of Appeal noted that whether or not common issues predominate over individual ones is often closely tied to the ultimate merits of a claim. But the Court did not stop there. The Court rejected Plaintiff’s argument that Plaintiff’s expert’s opinion went only to the merits of alleged damaged in the case, holding that when a party’s expert report serves as its sole support for establishing that common questions predominate, the party has transformed that report into evidence of liability, not damages. As the Court explained:

Plaintiff’s only evidence that uncompensated overtime and missed, late, or short meal breaks could be established classwide with common proof was [his expert’s] declaration and his comparison of [two of Oracle’s] databases. The issue here is whether Plaintiff can establish that class members worked overtime for which they were not paid or had late, short, or missed meal breaks on a classwide basis, and this is a question of entitlement to damages, not damages themselves.

The Court also found it was within the lower court’s discretion to weigh competing declarations from the parties in order to determine whether the requirements for class certification were satisfied, and that doing so was not an improper evaluation of the merits.

Employers defending against class certification motions that rely on expert opinions to establish liability can, and should, offer contrary evidence, and make clear to the court that they are arguing certification and liability issues, not simply damages issues.

Co-authored by Kyle A. Petersen and Molly C. Mooney

Seyfarth Synopsis:  The Second Circuit recently upheld a district court order denying a bid for class certification by personal bankers claiming their managers refused to approve timesheets with overtime hours, shaved reported overtime hours, and pressured them to work off the clock. Because the company’s policy governing (and limiting) overtime work was lawful on its face, the bankers’ claims hinged on the exercise of managerial discretion in applying those policies. The district court concluded that the plaintiffs failed to demonstrate sufficient uniformity in the exercise of managerial discretion, and the Second Circuit affirmed.

As noted earlier, the trial court’s decision reflects reluctance by some trial courts to certify nationwide class actions based on local or even regionalized evidence of rogue managers deviating from company policy. The Court of Appeals has now given its seal of approval to that approach.

In Ruiz v. Citibank, N.A., personal bankers from several states alleged that Citibank had a strict policy limiting overtime hours while also setting rigorous sales goals and quotas for the bankers that could not be achieved in a forty-hour workweek. The bankers also alleged that branch managers refused to approve timesheets with overtime hours, or shaved overtime hours off of the bankers’ timesheets.

The bankers sought certification of a class consisting of bankers with claims under New York, Illinois, and District of Columbia law. Their attempt to establish commonality — primarily through anecdotal evidence of pressure to work off the clock and a not uncommon and entirely legal goal of reducing overtime work — fell short and was rebutted by putative class member testimony of variations across branches. For example, putative class members testified that individual branch managers had differing management styles for incentivizing and motivating employees to meet their sales goals — some plaintiffs were rewarded for positive sales performance, with no reference to overtime hours they worked in doing so, while others failed to achieve sales goals with no admonition. This, said the court, showed that the pressure to work off the clock was not uniformly felt and precluded the case from proceeding as a class. On appeal, the Second Circuit wholeheartedly agreed with the district court’s “lucid and accurate analysis” and affirmed denial of class certification.

While not a game changer, this decision reaffirms the need for plaintiffs to come up with more than anecdotal evidence of allegedly systemic problems, and highlights how employers can use class member depositions to defeat class certification.

Authored by Ryan McCoy

Seyfarth Synopsis: On May 2, 2017, the House of Representatives passed a bill amending the Fair Labor Standards Act to permit private employees to choose to take paid time off instead of monetary overtime compensation when working more than 40 hours in one week. Passed along party lines in the House, the bill would still need to pass the Senate, making its future somewhat uncertain. Should the Senate approve it, the Trump Administration has already signaled its support for the bill. 

The Working Families Flexibility Act of 2017

Long permitted for government employees, compensatory time off (“comp time”) is generally prohibited in the private sector. Every few years, Congress seeks to reconcile that dichotomy. This year, Rep. Martha Roby (R-AL) introduced the Working Families Flexibility Act of 2017 (H.R. 1180), which would permit an employee and their private-sector employer to agree that the employee would accept time off in the future for those hours worked in excess of 40 hours in one week, in lieu of receiving overtime premium pay in that pay period.

To illustrate, assume an employee works 50 hours in one workweek. For those 40 hours worked by the employee, the employee would receive 40 hours of pay at the regular rate. Instead of receiving 10 hours of overtime premium pay, the employee could agree to take 15 hours of paid time off at another time (i.e., one and one-half hours for each overtime hour worked). Such an agreement would necessarily mean that the employee would not receive any monetary compensation for those overtime hours worked in that pay period (at least initially).

Other provisions related to this significant amendment to the FLSA’s overtime rules include a provision capping the number of accrued comp time hours at 160 hours per employee, and requiring employers to cash out unused compensatory time on an annual basis. Also, an employer would have the option of providing monetary compensation for an employee’s unused compensatory time in excess of 80 hours, after giving 30 days’ notice to the employee. Employers would be prohibited from interfering with employees’ right to request (or not request) comp time, meaning an employer could not force an employee to agree to forego overtime premium pay in favor of compensatory time off.

H.R. 1180 Faces an Uncertain Future in the Senate

The House passed the bill largely along party lines. A similar vote in the Senate would result in passage, but the Senate’s legislative filibuster looms large. It is unclear whether there would be 60 votes to overcome the filibuster. If there are, however, private sector employees – like their government counterparts – will be able to take comp time: the Trump Administration has already publicly stated its support for the bill.

We will continue to keep an eye on any new developments about this legislation.

Co-authored by Brett Bartlett and Kevin Young

Seyfarth Synopsis:  Last Thursday, the Senate confirmed Alexander Acosta as the 27th United States Secretary of Labor. Filling the final post in President Trump’s cabinet, Acosta will lead a Department of Labor that has, since inauguration, operated without political leadership in the Secretary role. With Secretary Acosta in place, the DOL now has a leader to advance the new administration’s agenda. Here, we offer a brief introduction to Secretary Acosta, as well an overview of the action and opportunity employers may expect on the wage and hour front over the next few months.

Who is Alexander Acosta?

Secretary Acosta is a Florida native and son of Cuban immigrants. After graduating from Harvard Law School in 1994, he clerked for now-Justice Samuel Alito, then a federal appellate judge for the Third Circuit. After spending several years in private practice, he turned to public service, first as a member of the NLRB, next as the civil rights chief at the Department of Justice, and then as the U.S. Attorney for the Southern District of Florida. Since 2009, he has served as Dean of the Florida International University College of Law.

Secretary Acosta is known to be intelligent, thoughtful, and experienced in political matters. Through years of public service, he has demonstrated an interest in protecting the rights of non-majority individuals. Compared to some of President Trump’s other cabinet nominations, he drew only light opposition during the confirmation process, with comparatively bi-partisan support and a confirmation vote of 60 to 38.

Expectations in the Wage and Hour World.

We expect Secretary Acosta to move quickly on several fronts. First, the Secretary will begin filling pivotal DOL roles that have remained vacant since President Trump took office—among them, the Wage and Hour Division’s Administrator and the Solicitor of Labor (which has been filled on an acting basis).

Second, Secretary Acosta will likely turn his attention to critical DOL initiatives that have been in limbo since the election, including the new overtime exemption rules that were temporarily enjoined by a federal district court in Texas just before their December 1, 2016 effective date. Even as they have languished before the Fifth Circuit following the Obama administration’s appeal of the injunction order, the rules have been a major source of consternation for employers. Secretary Acosta can now take careful steps to determine an exit from the litigation that has stuck the new rules in procedural purgatory, while at the same time assessing future changes to the exemption rules.

Third, once a new Administrator is in place, we expect a clearer message around the Wage and Hour Division’s enforcement and education policies, which have remained fairly static since the end of 2016. We would not be surprised to see the Division reduce its focus on widespread investigations and liquidated damages, which became more common in the last administration, and reopen its doors to working with employers to ensure compliance. This could to a renewal of the process by which employers may seek an Administrator’s opinion letter, which can provide an absolute defense against claims challenging the practices covered by the letter.

Potential Opportunities for Employers?

Employers should pay attention to the new Secretary’s first steps in this new administration, especially to the team that he nominates to be confirmed by Congress. While we do not expect sub-regulatory agencies like the Wage and Hour Division to stop enforcing the laws they are empowered to oversee, we do anticipate that an Acosta-led DOL will present fresh opportunities to address and ensure compliance in a less hostile regulatory environment.

Parting Thoughts.

While it’s difficult to know the exact steps that Secretary Acosta will take to advance the new administration’s agenda, it seems clear that the next few months could be quite momentous at the DOL. Not only do we expect increased clarity into how the DOL will operate under new leadership, but we believe the changes that the DOL makes may create new opportunities for employers seeking to proactively ensure compliance with the various laws that the DOL enforces. We will, of course, continue to keep our readers apprised of the latest developments.

 

Book that says JusticeCo-authored by Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: A New York federal court denied a motion for conditional certification of a nationwide collective action against Barnes & Noble. The ruling highlights that, even though the burden for “first stage” certification is modest, courts may not approve such motions without evidence that the named plaintiffs are similarly situated to the putative collective action members they wish to represent.

Foreword

Plaintiffs’ counsel frequently cite the “low” burden required for conditional certification under the FLSA. But a recent decision in the Southern District of New York denying conditional certification highlights that some courts are willing to “do the reading” and not “skip pages,” and will actually review the plaintiffs’ proffered evidence to ensure that there is a factual nexus to bind the pages of the certification motion together.

Chapter 1: The Complaint

In Brown v. Barnes and Noble, Inc., the plaintiffs are former Barnes & Noble, Inc. café managers. They allege that they, and similarly situated others, were misclassified as exempt, and sought unpaid overtime and other pay under the FLSA and the New York Labor Law.

Chapter 2: The Conditional Certification Motion

Two months after filing the complaint, and before conducting any discovery, the plaintiffs moved for conditional certification of their FLSA claim. They argued that, because the café managers had been uniformly classified as exempt, were all reclassified as non-exempt, work under the same job description, and because Barnes & Noble maintains detailed policies, procedures and rules that control how the café managers, regardless of location, performed their work, that all such managers are “similarly situated” to the named plaintiffs.

Chapter 3: The Court’s Decision

Magistrate Judge Katharine H. Parker authored the court’s decision. Before getting to the main plot of this conditional certification story, Judge Parker dispelled three oft-cited theories advanced by plaintiffs to obtain conditional certification:

  1. that a uniform classification of exempt status, standing alone, can satisfy the low threshold for conditional certification;
  2. that the employer’s reclassified of a position from exempt to non-exempt shows that the position was uniformly misclassified previously; and
  3. that a common job description means the position is the same everywhere.

Judge Parker had little trouble untangling the plot on the first point, holding that a uniform classification of exempt status is not sufficient, in and of itself, to establish the commonality required for conditional certification. She was equally unpersuaded on the second point, and held that “there could be many legitimate business reasons for an employer to reclassify employees.” On the third point, Judge Parker reiterated prior decisions holding that “a common job description does not mean that conditional certification is per se warranted in every case.” In this case, she added, the job description “is of little utility…when, under Plaintiffs’ own theory of the case, [it] did not accurately reflect the duties they personally performed.”

In her final pages, Judge Parker held that based on the evidence before her, she could not “infer that Defendant had a de facto policies of requiring all 1,100 café managers to perform non-exempt work based on the personal experiences of the nine people who have joined this suit” and “nor can it infer such a policy from general assertions” and “cookie-cutter declarations.”

Epilogue: What’s Next?

Brown is another reminder that, despite the lenient standard for conditional certification under the FLSA, courts may assess the evidence rather than simply read the “Cliffs Notes” version of the parties’ submissions, and that, where appropriate, they will deny certification if plaintiffs have failed to show that they are similarly situated to others. It remains to be seen whether the plaintiffs will propose a sequel by filing a new motion with additional evidence or simply choose to litigate on behalf of the named plaintiffs alone. This decision—while perhaps not a scintillating beach read for summer—may still become a “best seller” for employers in fending off conditional certification motions.

sleeping on the jobCo-authored by Gena B. Usenheimer & Meredith-Anne Berger

Seyfarth Synopsis: A New York appeals court held that home healthcare employees who work overnight shifts are entitled to pay for all hours in a client’s home in a 24-hour period—including sleep and meal periods. The previously accepted interpretation of New York law allowed employers to pay 13 hours for a 24-hour shift so long as specified meal and sleep periods were provided.

Home healthcare agencies may be losing sleep over a recent decision regarding pay for employees working overnight shifts. In Tokhtaman v. Human Care, LLC, the New York State Supreme Court, Appellate Division, First Department (Manhattan and the Bronx), held that a home healthcare employee who was not a residential employee, that is, one “who lives on the premises of the employer,” must be paid for all hours present at a client’s home, including time spent sleeping or on meal periods.

The ruling departs from how New York home healthcare employees had been paid in recent years.

New York Department of Labor regulations provide that minimum wage must be paid for each hour an employee is “required to be available for work at a place prescribed by the employer” except that a “residential employee — one who lives on the premises of the employer” need not be paid “during his or her normal sleeping hours solely because he is required to be on call” or “at any other time when he or she is free to leave the place of employment.”

Though the regulation is silent as to non-residential home healthcare employees working shifts of 24-hours or longer, courts and employers alike previously relied on a 2010 Opinion Letter that offered some relief from this onerous requirement. In particular, the 2010 Opinion Letter instructed that “live-in employees”—whether residential employees or not—could be paid only for 13 hours for a 24-hour shift if the employee was afforded 3 hours for meals, afforded at least 8 hours for sleep, and actually received 5 hours of uninterrupted sleep. In reliance on the 2010 guidance, and parallel federal regulations, employers of home healthcare employees have been paying employees for 13 hours out of a 24-hour shift, rather than for all 24 hours, provided the required meal and sleep periods have been given.

But Tokhtaman said that the 2010 Opinion Letter conflicts with the regulations. Because the letter “fails to distinguish between ‘residential’ and ‘nonresidential’ employees,” the court declined to follow its guidance. Rather, the court applied a strict reading of the regulations and rejected Human Care’s argument that appropriate meal and sleep periods need not be compensated.

Another case to watch on this issue is Andryeyeva v. New York Home Attendant Agency. The trial court in that case certified a class of overnight, non-residential home healthcare workers, rejecting the proposition that as a matter of law, sleep and meal hours may be excluded from the hourly wages of a home attendant who does not reside in the home of his or her client. The decision is currently being appealed. Depending on the outcome of Andryeyeva, this issue may be taken up to the New York Court of Appeals, New York State’s highest court, in the near future for a definitive decision.

We will continue to track these cases as they move through the courts. Stay tuned for the latest developments.

Co-authored by Brett C. Bartlett and Samuel Sverdlov

Seyfarth Synopsis: The Southern District of New York recently held that parties may not settle FLSA claims without court approval through an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure.

Background: Rule 68

Under Rule 68, a party defending a claim can make an “offer of judgment” to the other party. If the other party accepts the offer, the clerk must enter judgment pursuant to the offer’s terms. However, if the offered party rejects the offer and obtains a less favorable judgment at trial, that party must then pay the costs incurred by the offering party after the offer was made. Courts have explained that the purpose of Rule 68 is to prompt parties to evaluate the risks and costs of litigation and to balance those risks against the likelihood of success.

Cheeks Decision

As we have previously discussed, in Cheeks v. Freeport Pancake House, Inc., a landmark decision of the Second Circuit, the court held that absent approval by either the district court or the DOL, parties “cannot” settle FLSA claims with prejudice. The Cheeks decision has made it increasingly difficult for parties to reach a settlement of FLSA claims in the Second Circuit, and accordingly, litigants have increasingly tried to avoid the requirement for judicial or DOL approval by entering into settlements pursuant to Rule 68.

Recent SDNY Decision

In the recent case of Mei Xing Yu v. Hasaki Restaurant, Inc., et al., the parties attempted to do just this — bypass judicial scrutiny of an FLSA settlement by settling their claims pursuant to a Rule 68 offer of judgment. The parties in Hasaki argued that the language of Rule 68 provides that the clerk “must” enter judgment of an accepted offer of judgment. The SDNY, however, held “that parties may not circumvent judicial scrutiny of an FLSA settlement via Rule 68.” Judge Furman reasoned that FLSA settlements are ripe for abuse by defendant employers, and that there are a number of scenarios where a settlement must pass judicial scrutiny, even where there is a Rule 68 offer of judgment. For instance, among other examples, judicial scrutiny is required in qui tam actions under the False Claims Act, settlements on behalf of a minor, and in cases where injunctive relief is sought.

The majority of district courts in the Second Circuit disagree with Judge Furman, and have held that Rule 68 offers of judgment in FLSA cases do not need to undergo judicial scrutiny. Given the split in authority on this issue within the Second Circuit, Judge Furman certified the decision for interlocutory appeal, noting an immediate appeal would “materially advance the ultimate termination of the litigation.” Further, the court held that “resolution [of this issue] by the Second Circuit is plainly desirable, if not necessary.”

Outlook for Employers

Until there is resolution of this issue, employers in the Second Circuit should carefully consider whether a Rule 68 offer of judgment in an FLSA case is worth the risk that the district court would nonetheless require scrutiny of the settlement. Given that Hasaki has been certified for appeal to the Second Circuit, we hope to have clarity on whether settlement of an FLSA case pursuant to Rule 68 requires judicial approval.

Co-authored by Kyle A. Petersen and Molly C. Mooney

Seyfarth Synopsis: If Congress fails to pass a long-term funding bill, we could be facing a federal government shutdown with no money flowing to fund non-essential services. While it seems the crisis may be averted for now — with a short-term spending bill that would keep the lights on for another week — the potential for a shutdown still looms.  And with it comes concern for many private-sector employers with federal contracts.  If the money dries up, employers may need to consider cost-saving measures, such as temporary furloughs, reductions in hours, or reduced pay.

If Congress fails to pass a funding bill and the government shuts down, employers may need to consider cost-saving measures. Employers should bear in mind the potential wage and hour implications when implementing these changes.

  • Non-Exempt Employees: Reductions in Hours and Hourly Rate. Because non-exempt employees do not need to be paid for time when they are not working, employers can reduce their scheduled hours, as well as their hourly pay without implicating wage and hour laws. Such changes should be prospective and, of course, the hourly pay must still satisfy the federal and state minimum wage. When reducing rates of pay, it is important to check state law on how far in advance you must tell an employee their hourly rate is going down. It is also important to continue paying workers on time.
  • Exempt Employees: Full-Week Reductions in Hours and Salary. Frequent readers of this blog should know that exempt employees are subject to the salary basis test, which means that they generally must be paid the same minimum weekly salary regardless of how many or few hours they work each week. (Federal law currently requires a minimum weekly salary of $455). Reductions in that weekly salary could jeopardize the employee’s exempt status. This means that employers cannot subject exempt employees to partial week furloughs. Full-week furloughs are OK, so long as the employee performs no work during the week. And, yes, that includes abstaining from responding to email, taking phone calls, and other activities that could constitute hours worked.  Given that many employees are constantly “plugged in,” ensuring compliance with this requirement is essential yet challenging.
  • Exempt Employees: Partial-Week Reductions in Hours and Salary. As you might have surmised by now, partial-week reductions in salary are generally not permitted without risking an employee’s exemption. For example, employers generally cannot pay exempt employees 80% of their salary for working four-day workweeks instead of five at the employer’s request. A narrow and delicate exception to this rule is that employers can implement a fixed reduction in future salaries and base hours due to a bona fide reduction in the amount of work. While the FLSA and federal regulations do not specifically address furloughs, the Department of Labor’s opinion letters and courts have (almost) unanimously concluded that employers may make prospective decreases in salary that correspond to reduced workweeks, so long as the practice is occasional and due to long-term business needs or economic slowdown. How frequently an employer can furlough its exempt employees is not settled, but federal courts have held that salary reductions twice per year are infrequent enough to be bona fide.

Once the budget crisis passes and employees return to work, caution is still warranted in returning furloughed employees to work.  As always, when dealing with these issues, be sure to contact your wage and hour counsel.

driving car on highway, close up of hands on steering wheel

Co-authored by Gerald L. Maatman, Jr., Gina Merrill, Brendan Sweeney, and Mark W. Wallin

Seyfarth Synopsis: A New York federal court in Durling, et al. v. Papa John’s International, Inc., Case No. 7:16-CV-03592 (CS) (JCM) (S.D.N.Y. Mar. 29, 2017), recently denied Plaintiffs’ motion for conditional certification of a nationwide collective action in an FLSA minimum wage action against Papa John’s International, Inc. (“PJI”), in which the drivers alleged that they have not been sufficiently reimbursed for the cost of their vehicle expenses.  This ruling shows that even though the burden for “first stage” conditional certification is modest, employers can defend their pay practices by showing the absence of any evidence of a common policy or plan that violates the FLSA. This is especially so when plaintiffs seek to certify a nationwide collective action, for as the court held in Durling, conditional certification is not proper when plaintiffs submit evidence pertaining to only a small sub-set of the putative collective action members.

In 2016, approximately 80% of conditional certification motions were granted in the Second Circuit.  Plaintiffs undoubtedly have a low bar to hurdle to obtain conditional certification under section 16(b) of the FLSA.  It is a hurdle nonetheless, and some courts have shown a willingness to look closely at plaintiffs’ proffered evidence to ensure that a factual nexus exists that binds together the members of a putative collective action.  In Durling, et al. v. Papa John’s International, Inc., Judge Cathy Seibel of the U.S. District Court for the Southern District of New York rejected Plaintiffs’ motion for conditional certification of a nationwide collective action that would have included drivers employed at corporate-owned stores and stores operated by franchisees.  The Court concluded that Plaintiffs’ evidence did not support a finding that the named plaintiffs were similarly situated to thousands of drivers employed by hundreds of different employers.

By highlighting Plaintiffs’ failure to show that Papa John’s International, Inc. (“PJI”) dictated a common corporate policy to franchisees, or any significant factual nexus among the members of the putative collective action across corporate and franchise stores, PJI won a significant victory.

Case Background

Plaintiffs are five delivery drivers who work for either PJI or one of two restaurants owned by independent franchisees. Each Plaintiff delivered pizzas in his own vehicle, and alleged that PJI and the franchisees under-reimbursed delivery drivers for wear and tear, gas, and other vehicle expenses such that PJI violated the FLSA.  Pointing to the practice of one franchisee, as an example, Plaintiffs averred that they were paid $6 per hour plus $1 per delivery, which, at an average rate of five deliveries per hour, amounts to wages of approximately $11 per hour.  Applying the IRS standard mileage rate, Plaintiffs claim that they paid $13.50 per hour for upkeep on their vehicles, resulting in a net loss of $2.50 per hour.  Accordingly, Plaintiffs asserted that they earned less than minimum wage in violation of the FLSA and corresponding state minimum wage laws.

There are over 3,300 Papa John’s restaurants in the United States.  Approximately 700 are owned and operated, at least in part, by PJI.  The remaining 2,600 plus restaurants are owned and operated by 786 independent franchisees.  Although four of the five Plaintiffs worked for franchisees, they did not sue any franchisees in this litigation — only PJI.  Plaintiffs claimed that PJI is a joint-employer of the drivers at all franchised Papa John’s.  They alleged that PJI disseminated policies to the franchisees that caused the drivers to be under-reimbursed in a uniform way.  Plaintiffs supported this theory with purported evidence that all stores, both corporate and franchise, use the same point-of-sale (“POS”) technology to record deliveries and calculate reimbursements, and use the same logos and uniforms.

Plaintiffs filed their Complaint on May 13, 2016, which they amended on July 12, 2016.  On October 14, 2016, Plaintiffs filed a motion for conditional certification of their FLSA collective action, seeking to represent all delivery drivers on a nationwide basis.

The Court’s Decision

The Court denied Plaintiffs’ conditional certification motion.  While the Court declined PJI’s invitation to apply a heightened standard in assessing the motion (due to the discovery that had been undertaken in the case), the Court found that Plaintiffs failed to satisfy even the modest standard generally used in step one conditional certification motions.  The Court also declined to decide whether PJI was in fact a joint-employer, finding this to be a merits issue.  Framing the conditional certification issue, however, the Court reasoned that Plaintiffs could show that they were similarly-situated with the other members of the proposed collective action in two ways: (1) by demonstrating that PJI dictated a common reimbursement policy for all delivery drivers working at both corporate and franchise-owned restaurants, or (2) by showing that a common policy existed across the entire proposed collective action.

As to the first issue, the Court found that while PJI admitted that it reimbursed the drivers it employs at corporate-owned stores by paying them a specific amount per delivery (without conceding that the rate is so low as to violate the FLSA), Plaintiffs failed to offer any evidence that PJI was involved in its franchisees’ policies for reimbursing delivery drivers.  According to the Court, the mere use of the same POS system, with the corresponding ability to access data on how drivers are paid, “in no way indicates that [PJI] dictated a nationwide delivery driver payment policy.”

In analyzing the question of whether Plaintiffs could show a common policy across the collective action that would bind the putative members together, the Court answered it in the negative.  The Court rejected Plaintiffs’ attempt to show common policies regarding issues wholly unrelated to the purported practice of under-reimbursement.  The Court reasoned that proffering common policies “such as wearing the same uniforms, or use of the Papa John’s logo, or even the general use of personal vehicles to make deliveries, is not sufficient to demonstrate a common policy with respect to the payment of drivers.”

The Court determined that while Plaintiffs arguably had made a “modest showing” of a common policy across PJI corporate-owned stores and the two franchises for which Plaintiffs work, this “evidence is insufficient to infer a nationwide policy.”  The Court rejected Plaintiffs’ conclusory averments that other franchisees had the same policy, observing that witnesses as to this claim lacked personal knowledge.  The Court also found that Plaintiffs failed to offer evidence of a common policy that violated the FLSA, noting that while the evidence showed that a few more franchisees do not use the IRS reimbursement rate, “there is no evidence that these franchisees do not pay a rate reasonably related to driving and wear and tear costs, or that what they pay is so low that the drivers end up getting less than the minimum wage.” The Court also opined that it had found no similar cases where plaintiffs succeeded in certifying a nationwide collective action involving hundreds of franchisees where the declarations offered descriptions of only two stores, and no evidence existed that the franchisor dictated the policy at issue to all franchisees.  Thus, even recognizing that the Plaintiffs’ modest burden at the conditional certification stage, the Court declined to certify the collective action by “infer[ring] from the policy of two franchisees, that a nationwide 780-something other franchisees reimburse delivery drivers on a per-delivery basis that results in compensation below the minimum wage.”  Consequently, the Court denied Plaintiffs’ motion for conditional certification of a nationwide collective action, holding that Plaintiffs failed to meet their modest burden of showing that delivery drivers were similarly-situated.

Implication for Employers

FLSA collective actions are ubiquitous due in large part to the low burden for conditional certification — especially compared to class certification under Rule 23.  Indeed, the vast majority of FLSA collective actions are conditionally certified, which can have the effect of driving large early settlements.  Members of the plaintiffs’ class action bar have attempted to stretch the conditional certification device to cases that involve joint employer theories, in the hopes that the court will certify a large collective action without scrutinizing the novel aspects of the case.  Employers facing FLSA collective action allegations in situations involving a decentralized policy across multiple locations can add this ruling to their defensive arsenal.  And although the Plaintiffs’ bar will likely continue to pursue FLSA collective actions as long as the burden for conditional certification is so low and the benefit of a substantial settlement is so high, this ruling shows that certification is far from automatic.