The Wage and Hour Litigation Blog

Authored by Loren Gesinsky

Employers can benefit from calling out plaintiffs who hide the ball and assert unpaid “gap time” wages in complaints under the Fair Labor Standards Act.

That’s the primary message from the Second Circuit’s opinion in Lundy v. Catholic Health Sys. of Long Island, which affirmed the dismissal of a putative FLSA collective action brought by nurses against a series of health-care providers.

Hiding the Ball Warrants Ejection From the Game

The Lundy plaintiffs alleged that they weren’t paid for missed meal breaks, work done before and after their scheduled shifts, and required training sessions.  But, despite amending their complaint four times, their cagey pleadings never identified even a single week in which they had worked more than 40 hours without receiving overtime.  Instead, they asked the Court to infer overtime violations, because they “occasionally” worked shifts exceeding 40 hours, “typically” missed meal breaks, and “often” did compensable work before and after their shifts. 

The Second Circuit didn’t buy it.  Using the opinion to, for the first time, “consider[] the degree of specificity needed to state an overtime claim under the FLSA,” the Second Circuit held that “a plaintiff must sufficiently allege 40 hours of work in a given workweek as well as some uncompensated time in excess of the 40 hours.”  The Lundy plaintiffs flunked that standard, because they were “hiding the ball” and never “alleged a single workweek” in which they worked uncompensated time beyond 40 hours.  Their generic allegations about sometimes working more than 40 hours a week, sometimes missing meal breaks, and sometimes working other uncompensated time merely “invited speculation” that such weeks had occurred.

The FLSA Supports Neither Gap Time Nor Organized Crime

The Second Circuit also used Lundy to settle an issue that had been simmering in the lower courts: whether the FLSA can permit so-called “gap time” claims for unpaid work below 40 hours a week.  Back in 1960, the Second Circuit held that these claims weren’t viable for weeks in which the employee worked less than 40 hours, unless the employee’s average hourly wage fell below the federal minimum wage.  Over fifty years later, the Lundy Court ruled that, because the FLSA “requires only payment of minimum wages and overtime wages,” it does not authorize a “gap time” claim in weeks where the employee works more than 40 hours but seeks recovery for unpaid work under 40 hours. In so ruling, the Second Circuit created a split with the Fourth Circuit and rejected the U.S. Department of Labor’s interpretive guidance on this issue, finding it lacking in either “statutory support or reasoned explanation.”

For added value, the Second Circuit rejected the plaintiffs’ efforts to masquerade their FLSA claims as RICO violations.  The plaintiffs theorized that the defendants had violated RICO by mailing pay stubs that did not include all hours worked.  The Lundy Court found these allegations woefully vague and noted that, “[a]lmost more fundamentally,” the pay stubs couldn’t have violated RICO because they “would have revealed (not concealed) that Plaintiffs were not being paid for all their alleged compensable overtime.”

Lundy did not, however, reach an issue of critical importance to employers: whether they may face FLSA liability for  automatically deducting time for meal and rest breaks, then “shifting the burden” to employees to cancel the deduction when they work through a break period.  The Lundy district court found that such a policy did not violate the FLSA. (See decision here).  But because Lundy dismissed the FLSA claims on other grounds, employer liability on this question remains an open question within the Second Circuit.

Calling Plaintiffs’ Bluff Has Advantages

Why bother to leverage Lundy into a dismissal if plaintiffs can simply re-plead with more specificity and raise “gap time” claims under the laws of many states, including New York?  When plaintiffs cannot in good faith specify even one week in which they worked uncompensated time, an employer might be spared expensive discovery and the pressure to offer an ill-deserved settlement.  Requiring plaintiffs to plead with greater specificity may also assist employers in crafting arguments for denying or limiting class certification.  And when plaintiffs re-plead with the requisite specificity, knowing that specificity at the outset should help an employer better prepare for depositions and other discovery.   Also, there should now be cases in which at least some of the plaintiffs or putative class members are not covered by a state law that recognizes “gap time” claims, leaving plaintiffs’ counsel with a difficult choice between  embracing this lack of typicality or simply forgetting these claims.  In sum, calling plaintiffs’ bluff on these issues can have advantages, thanks to Lundy.

Co-authored by Kristin McGurn and Timothy Nelson

Courts continue to reject automatic meal period deduction cases and offer useful guidance to hospitals that have been plagued by such cases for years. (Camilotes, Megginson, Wolman).  In White v. Baptist Memorial Health Corporation, the Sixth Circuit endorsed the use of policies to automatically deduct time for unpaid meal periods, finding that such policies do not, standing alone, violate the FLSA.  The Sixth Circuit said in White that “if an employer establishes a reasonable process for an employee to report uncompensated work time the employer is not liable for non-payment if the employee fails to follow the established process.”  White affirmed the trial court’s decision granting Baptist summary judgment on White’s FLSA claim, finding that White presented no evidence that Baptist knew or should have known that she was working through meal breaks without compensation.  Without a viable claim of her own, the Court affirmed that White could not establish that she was similarly situated to those whom she sought to represent, which resulted in decertification of the conditionally certified FLSA action.   

White, an emergency room nurse, did not have a regularly scheduled meal break due to the emergent nature of her work.  Like many healthcare professionals working in acute care departments, White was expected to take a meal break as work demands allowed.  Baptist’s policy automatically deducted time from shifts of six or more hours for an unpaid meal break.  Baptist’s policy also indicated that if a meal period was missed or interrupted, partially or completely, for work then the employee would be paid.  Baptist instructed employees to record all time spent working during meal breaks in an “exception log.”  Evidence showed that employees were compensated for time recorded in these logs, including White and others on her unit who collectively reported missed or interrupted meal breaks on particular shifts.  White admitted that she also was paid for meal breaks that she individually reported as missed.

White acknowledged in writing that she understood the hospital’s meal break policy and that she was to use the exception log to be compensated for missed or interrupted meal periods.  White claimed, however, that her meal breaks were interrupted from time to time and she was not compensated.  She also claimed that she told her supervisors and Baptist’s HR department on occasion that she was unable to take meal breaks, but she never told them that these breaks went uncompensated.  White admitted that she understood Baptist’s procedure for reporting payroll errors and that when she used it the errors were “handled immediately.”  Nevertheless, White testified that eventually she stopped logging missed meal breaks despite Baptist instructions and did not use the hospital’s procedures to correct payroll errors because she felt it would be “an uphill battle.”  Importantly, there was no evidence that Baptist prevented or discouraged White from using any of these procedures.   White could not remember, and had no records of, the interrupted breaks for which she claimed not to be paid.

The Sixth Circuit reiterated that automatic meal break deductions are lawful under the FLSA, but reminded employers that if they know or have reason to believe that employees are continuing to work during breaks then the time may be compensable.  The Court focused on whether Baptist had actual or constructive knowledge that White worked without pay during meal periods.  Citing heavily to Fifth, Eighth and Ninth Circuit overtime cases discussing constructive knowledge, the Court found that there was no way Baptist should have known that White was not paid for compensable work during meal periods because she decided not to comply with Baptist’s procedures, and there was no evidence that she complained about being paid improperly. 

This decision is helpful for employers who use automatic meal period deduction policies for several reasons.  First, the Sixth Circuit stated that “when the employee fails to follow reasonable time reporting procedures, she prevents the employer from knowing its obligation to compensate the employee and thwarts the employer’s ability to comply with the FLSA.”  Employers who choose such policies must establish and clearly communicate processes by which employees are accountable to record uncompensated work time, ensure that employees understand and acknowledge their role in these processes, and monitor and respond appropriately when the processes are used to record time “by exception.”  Second, White establishes that the standard for constructive knowledge of uncompensated work time is whether the employer should have known, not whether it could have known.  This standard will undermine employees’ arguments that the employer is obligated to sift through peripheral records to determine if employees were in fact performing work off-the-clock, and illustrates that placing some burden on employees to bring such work to the attention of the employer is appropriate. 

The lengthy White dissent, which challenged the majority’s focus on constructive rather than actual knowledge, cited White’s testimony that she occasionally reported a missed or interrupted break in the exception log for which Baptist did not pay her.  The dissenting judge found this evidence sufficient to create a triable issue of material fact - whether Baptist had actual knowledge of White’s uncompensated work - that rendered summary judgment inappropriate.  We can expect employees to use the logic of the dissent as a roadmap and continue to attempt to defeat summary judgment by pointing to even the slightest evidence that they complained of, or their employer should have known of, unpaid work performed off-the-clock, even if the employee failed to report all of it by exception. 

The White decision follows the same Court’s prior Frye decision that decertified another FLSA collective action against Baptist, furthering its message that automatic meal period deduction cases, depending as they do on employer knowledge, are difficult to maintain on a class-wide or collective basis.

Co-Authored by Sophia Kwan and Brandon McKelvey

On Monday, the California Supreme Court held in Kirby v. Immoos Fire Protection, Inc. that neither plaintiffs nor defendants can recover attorney's fees in meal or rest break cases under statutes that provide attorney's fees in actions to recover "wages." The decision is largely favorable to employers as it decreases incentives for plaintiffs' lawyers to bring meal and rest period suits and lowers employers' potential exposure in such suits. Nonetheless, because prevailing party fees are not available to either party, employers cannot recover fees in meal and rest period cases, which may make it more difficult to combat some frivolous meal and rest period suits.

The California Supreme Court had previously held that the remedy for failing to provide a meal or rest break (an hour of pay) constitutes a "wage" rather than a "penalty" for purposes of triggering a longer statute of limitations. Thus, the argument went that meal and rest period cases qualified for attorney's fee awards as they were actions to recover wages. In Kirby, however, the Supreme Court finely parsed the attorney's fee statutes and held that, while the remedy for meal and rest break claims was a wage, the action itself was an action for a failure to provide a meal and rest period as opposed to an action to recover wages. Under this interpretation, meal and rest break claims do not qualify for recovery of attorney's fees under the statutes at issue.

In what is good news for employers, the Supreme Court held that a plaintiff cannot recover attorney's fees under California's one-way fee shifting statute (Labor Code § 1194), which authorizes an award of attorney's fees only to employees who prevail on their "minimum wage" or overtime" claims. In what appears to be an attempt at balancing the playing field for employees, however, the Supreme Court held that neither party (including a defendant employer) can recover attorney's fees under the two-way prevailing party statute (Labor Code § 218.5).

The Kirby decision, in combination with the Supreme Court's recent decision in Brinker, may have a chilling effect on meal and rest break actions in California. The unavailability of attorney's fees under these statutes may decrease the incentives for plaintiffs' attorneys to file individual or class action meal and rest break lawsuits. The inability of the employer to recover attorney's fees, however, decreases the risk plaintiffs' attorneys have in pursuing a meal or rest break case that is frivolous and limits the ability of the employer to recoup costs in such cases.

Seyfarth Shaw's Wage & Hour Litigation Practice Group

Following the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., nearly all federal courts have enforced agreements to arbitrate FLSA claims. A few courts, however, have refused to apply Concepcion and Stolt-Nielsen to FLSA claims by relying on two arguments that most defendants would contest:  (1) whether an arbitration agreement that is silent on the issue of class arbitration prohibits collective arbitration under the FLSA, as Stolt-Nielsen suggests, and (2) whether an agreement, implicit or explicit, to waive collective arbitration of FLSA claims is conscionable and enforceable, as Concepcion suggests it should be.  On March 14, the Third Circuit Court of Appeals hinted at but did not take a clear position on either of these issues in Quilloin v. Tenet HealthSystem Philadelphia, Inc. et al. 

The U.S. District Court for the Eastern District of Pennsylvania in Quilloin had denied the Defendant’s motion to compel arbitration of Plaintiff’s FLSA claims on the grounds that disputes over material facts had to be resolved before it could determine whether the arbitration agreement was substantively and procedurally conscionable under Pennsylvania law.  One of the genuine disputes of material fact that the District Court believed it needed to resolve was whether Plaintiff’s potential damages were large enough that she would be incentivized to proceed with her FLSA claims even if she had to do so on an individual, rather than a collective action, basis.  Even though the District Court believed that, because the agreement was silent as to class arbitration, the arbitrator should decide whether the arbitration agreement prohibited class arbitration, it nevertheless went on to question whether the arbitration agreement was conscionable and enforceable.

The Third Circuit reversed the District Court and found that there was no basis to deny the defendant’s motion to compel.  It instructed the District Court to stay litigation and compel arbitration while leaving to the arbitrator the decision of whether the arbitration agreement prohibited class arbitration.  The Third Circuit suggested that the issue of substantive conscionability could arise depending on how the arbitrator interpreted the agreement’s silence on the class arbitration issue but also acknowledged the Supreme Court’s decision in Stolt-Nielsen that “[s]ilence regarding class arbitration generally indicates a prohibition against class arbitration.”  Perhaps further hinting at the direction a would-be arbitrator should take, the Third Circuit then quoted the Supreme Court’s list of reasons in Concepcion as to why arbitration is “‘poorly suited’” to handling class actions.  Finally, the Third Circuit noted that Pennsylvania’s law prohibiting class action waivers “is surely preempted by the [Federal Arbitration Act] under Concepcion.”

Notably missing from the Third Circuit’s discussion is any mention of the National Labor Relation Board’s January 3, 2012 ruling in D.R. Horton, Inc. or the handful of federal court decisions to consider the NLRB’s pronouncement in D.R. Horton that a collective or class arbitration waiver is unenforceable under the NLRA.  Taken together, the Third Circuit’s discussion of the Supreme Court’s precedents and lack of discussion of the NLRB’s position suggest that the Third Circuit would find Stolt-Nielsen and Concepcion to apply to an arbitration agreement covering a plaintiff’s putative FLSA collective action claims.  The Third Circuit, however, stopped short of a direct pronouncement on these issues.

Authored by Loren Gesinsky

On January 20, 2012, Magistrate Judge Paul E. Davison of the Southern District of New York recommended decertifying the off-the-clock FLSA claims of 40 current and former IBM call-center representatives in Seward v. IBM.  While noting “the scarcity of cases within the Second Circuit” addressing this type of motion, he relied heavily on Zivali v. AT&T Mobility, in which Judge Jed S. Rakoff of the same Court, eight months earlier, decertified off-the-clock claims of over 4,100 retail-store employees.

As the sole named plaintiff, Seward failed to meet his burden of proving he was similarly situated to the 39 opt-in plaintiffs in relation to the three key factors identified in Zivali: 

1. common or disparate factual and employment settings of the individual plaintiffs;
2. defenses available which appear common to all plaintiffs or individual to each plaintiff; and
3. fairness and procedural considerations.

For the first factor, the Court found that IBM’s timekeeping system and overtime policies were legal because, although time entries were pre-populated electronically, plaintiffs could add — and some opt-in plaintiffs were directed by their supervisors to add — boot-up time outside regular hours.  The Court also found that “the many differences in specific job duties, team functions and structures, managerial expectations, and individual experiences and understandings among the plaintiffs” prevented Seward from proving a sufficiently uniform and pervasive policy requiring him and all the opt-in plaintiffs to engage in system-boot-up activities off the clock.  For example:

• answering incoming calls was not the primary function of many opt-in plaintiffs;
• 27 opt-in plaintiffs worked for at least one manager who did not expect or require pre-shift work;
• several managers organized their teams’ schedules into staggered, overlapping shifts so that there would always be phone coverage, even at the start of a particular opt-in’s shift;
• some opt-ins arrived at the office early for personal reasons and then engaged in personal activities (eating, drinking, socializing, browsing the internet, etc.) rather than boot-up activities;
• badge-swipe data regarding office entry indicated that 2 opt-ins did not arrive early enough to engage in booting-up activities prior to their shifts; and
• 1 opt-in’s shift started an hour before telephone lines were even open.

The same facts supported IBM’s claim that its defenses will be individualized.  These defenses will depend on evidence rife with disparities regarding whether pre-shift work was necessary or expected, whether plaintiffs actually engaged in such work (and, if so, how much time they spent booting up), and whether managers knew or should have know that plaintiffs were engaging in this work.  Other than actual boot-up time, all of this evidence relates to liability and therefore could not be resolved simply by bifurcation.

The Court then stated that the third-factor determination of fairness and procedural questions “appears largely to depend on the Court’s analysis under the first two factors of the test.”  While recognizing that representative testimony might be appropriate on some issues such as management requirements or the functions of different teams, the Court found that such testimony would be inappropriate on the rest of the factual issues, thus making continued certification through trial unwieldy and unfair.

Additionally, the Court recommended full rather than partial decertification, in part because neither party requested partial decertification and IBM specifically objected to it during oral argument.

The parties have 14 days from service of the Report and Recommendation to serve and file objections with District Judge Vincent L. Briccetti.  We intend to report on the resolution of any such objections and other developments of note in this case.

Co-authored by Andrew Paley and Kevin Young

In the six weeks since the Supreme Court’s monumental decision in Dukes v. Wal-Mart, the FLSA arena has been abuzz with speculation as to whether the decision’s rationale can be used to defeat large-scale FLSA collective actions as early as the conditional certification stage.  On July 22, 2011, in an order denying conditional certification of a nationwide class in MacGregor et al. v. Farmers Insurance Exchange, a South Carolina federal district court answered that it can.

While the MacGregor court acknowledged that Rule 23 and the FLSA’s collective action provisions are different, it found Dukes “nonetheless illuminating” as early as the initial certification stage, where the asserted commonality between the plaintiffs and those whom they purport to represent is rooted in “decentralized and independent action by supervisors that is contrary to the company’s established policies.”  In such a case, the court explained, Dukes teaches that “individual factual inquiries are likely to predominate and judicial economy will be hindered rather than promoted by [collective treatment].”  

This was the case in MacGregor, where three former claims representatives asked the court to approve notice to a nationwide class of all property claims representatives.  At the heart of their dispute was an overtime-preapproval policy under which they were to seek their respective supervisor’s approval to work overtime hours.  This requirement was separate, however, from the company’s policy that employees must accurately record their actual hours on their timecard, even non-preapproved overtime. 

To show that they were “similarly situated,” a threshold for FLSA collective action certification, the plaintiffs had to demonstrate that they and the potential class members were victims of “a common policy or plan that violated the law.”  Attempting to demonstrate this nexus, they argued that their supervisors frequently refused to preapprove overtime, and discouraged claims representative from reporting any unauthorized overtime. They also acknowledged, however, that company policy prohibited them from working “off the clock” and required that all hours worked, preapproved or not, be paid.

At the heart of the court’s assessment was its finding that the plaintiffs’ allegations were not rooted in a common policy that itself was unlawful, but rather in the enforcement decisions of individual supervisors, which, if true, contradicted company policy.  Based on this finding, the court cited and sided with various FLSA decisions in which collective treatment has been denied due to the inextricability of the alleged violations and the actions of individual supervisors.  And while the court noted that it could have ended its analysis there, it proceeded to draw upon Dukes, a decision it described as “clearly reasoned” and instructive where the grounds for certification rest upon “decentralized and independent action” that violates company policy.

Dukes is still just six weeks old, and it is all but certain that decisions addressing the case in the FLSA arena will continue to follow.  For now, MacGregor stands as the most thorough decision applying Dukes to an FLSA collective action, and it did so in denying conditional certification.  The court’s decision represents a clear win for employers, who have over the past decade been subject to a growing tide of massive FLSA collective actions and a lenient conditional certification standard.  Of course, it is by no means novel for employers to argue that collective treatment is inappropriate where individualized inquiries abound.  Nevertheless, with Dukes now supporting this argument, other courts may very well follow MacGregor’s lead in finding that Dukes limits the appropriateness of collective certification.

Authored by Laura Reathaford

What is at stake for employers if their employees miss a meal break and a rest break in the same workday?  Labor Code Section 226.7 provides a remedy for employees who miss their meal and/or rest breaks: “one hour of additional pay…for each workday that the meal or rest period is not provided.”  However, few have understood whether this means an employer must pay one hour of pay for a each meal and rest period that is missed in a workday or whether only one hour of pay is due for each workday that any number of meal or rest periods are missed.

On February 16, 2011, the California Court of Appeal in UPS v. Superior Court, finally provided an answer: the Labor Code permits up to two hours of pay per work day - one hour of pay for any number of missed meal periods and one hour of pay for any number of missed rest periods in a workday.

Before the UPS decision, employers were able to rely on a favorable published decision from the District Court for the Central District of California finding that only one hour of pay was due regardless of how many meal or rest breaks were missed: Corder v. Houston’s Restaurant.  Corder and its progeny, stood alone on this topic for three years until Judge Pregerson, also of the Central District, rejected Corder and came to the opposite conclusion in Marlo v. United Parcel Service.  Judge Pregerson, in an unpublished decision, held that employers are liable for one hour of pay for each type of violation listed in the statute - - one hour of pay for any missed meal breaks and a second hour of pay for any missed rest breaks in a workday.

While California courts do not typically consider federal district court decisions when interpreting California law, in UPS, the appellate court was so persuaded by the reasons in Marlo that it not only cited to Marlo for it’s ultimate conclusion but it discussed Judge Pregerson’s decision in detail, ultimately adopting his reasoning in its entirety.  The Court, like the court in Marlo, held that since the IWC wage orders provide separate remedies for violations of meal or rest break requirements, this indicated an intent by the Legislature that one hour of pay for each type of violation is expected under the Labor Code.  The Court also noted that, as a matter of public policy, employers should be incentivized to compensate employees for each type of violation which occurs.  To hold otherwise would, in the Court’s view, “encourage an employer to require an employee who has missed a ten-minute rest break to also miss his or her lunch period.”

Authored by Kristin G. McGurn

Following the lead of Judges O’Toole (see 09-cv-11466; 09-cv-11722) and Saylor (see 09-cv-40152; 09-cv-40181) in the District of Massachusetts and Judge Seybert in the Eastern District of New York (see 10-CV-1326), on January 28, 2011, the Honorable Paul A. Crotty in the Southern District of New York dismissed in their entirety four complaints against New York area hospital systems alleging off-the-clock work.  The nearly identical Second Amended Complaints sought to recover unpaid wages allegedly owed to hourly-paid employees for unspecified meal periods and breaks during which they allegedly worked, and for allegedly compensable training time and pre-shift and post-shift work.  Each of the mirror-image complaints alleged claims under the Fair Labor Standards Act (“FLSA”), the Racketeer Influenced and Corrupt Organizations Act (“RICO”), New York Labor Law and state common law.  Megginson v. Westchester Medical Center, et al.; Yarus, et al. v. New York City Health and Hospitals Corp., et al.; Alamu v. The Bronx-Lebanon Hospital Center, Inc., et al. and Nakahata, et al. v. New York-Presbyterian Healthcare System, Inc., et al..

Judge Crotty’s Opinion and Order referred to the complaints’ “strikingly similar allegations and deficiencies,” and described their “generic quality” as lacking “foundation for the legal claims alleged.”  Frowning on “copy-cat” methods of pleading and therefore confirming the propriety of Twombly/Iqbal dismissals in each these companion cases, Judge Crotty pointedly noted that “the very fact that this boilerplate complaint has been used, with identically vague and conclusory allegations, in more than a dozen actions in New York and elsewhere is a vivid demonstrative of how not to plead.”

Judge Crotty noted the absence of specific factual allegations about the meal periods through which plaintiffs allegedly worked, and the number of allegedly under- and uncompensated hours, which he called “the heart of the claim.”  He held that plaintiffs must plead “the nature of the uncompensated activity” as well as their dates of employment, pay and positions, all of which were notably absent from the nearly identical complaints.  Judge Crotty also pointed out the preemption principle that if any of the alleged violations “hinge[] on [a] collective bargaining agreements’ definition of  the terms of employment, they must be brought under the LMRA and in accordance with the [CBAs’] grievance and arbitration provisions.”  Skeptical of the plaintiffs’ own claims as pled, Judge Crotty held that there is “no basis for a collective or class action with regard to every other so-called hourly employee in the system.”  He also noted that the cited state statutes fail to support Plaintiffs’ claims for unpaid wages or overtime.  Judge Crotty ultimately concluded that there was no basis for naming all hospitals within a system or for personal liability on the part of hospital executives; that the RICO allegations fall “woefully short” of stating a claim and are preempted; and that the state claims are insufficiently pled, not viable, duplicative of statutory claims and/or preempted by the FLSA.  Judge Crotty held that it would be futile for plaintiffs to re-plead the RICO and common law-claims, and admonished Plaintiffs to replead claims arising under the FLSA and NYLL with specificity, stating that the “complaint should not take a blunderbuss approach to alleged wrongs, multiple defendants who are not employers, and random citation of inapplicable statutes.”