The Wage and Hour Litigation Blog

Authored by Alex Passantino

Smartphone apps.  They’re everywhere.  It seems as though everyone has an app.  Even the U.S. Department of Labor.  DOL has an app that lets you check the compliance status before you decide whether to eat at Café du Misclassificacion (read more here). It has an app that tells you how hot it feels outside. And, it has an app that allows employees to record the time they spend working for you. 

This last app -- cleverly named “DOL-Timesheet” -- is of particular note to those of us in the wage and hour world.  It allows employees to create a timesheet, enter a rate of pay, and record -- either contemporaneously (with a clock-in/clock-out function) or after the fact (with a manual function) -- the time spent working for you.  The Wage and Hour Division has been touting the app for quite some time now, and, in a recent press release, explains the app’s significance:  “instead of relying on their employers’ records, workers now can keep their own records.”  Think about that . . .  the DOL has developed a tool for employees to create a shadow set of timekeeping “records” to be used to challenge your timekeeping records.  If that doesn’t concern you, then understand that the app has few safeguards on data quality -- for example, an employee can create a timesheet with, say, 42 hours worked on a single day, a feat that seems difficult for even the most efficient worker.

So, Did WHD Use Information from the App?  Did Someone Work Actually Work 42 Hours a Day?

Actually, it’s not clear that the employer in WHD’s enforcement action was impacted by an employee’s use of the app.  According to WHD, the employer paid overtime after 45 hours in a week and “failed to pay employees for time spent transporting equipment from the last job site of the day back to the company’s headquarters.”  The FLSA requires that non-exempt, covered employees be paid an overtime premium for hours worked in excess of 40 hours in a workweek.  It also requires that employers pay at least minimum wage for all hours worked.  As described in the WHD press release, the time spent by an employee transporting equipment from the last job site back to headquarters is probably working time for which the employee should be paid.  Of course, there are numerous other situations in which it may not be readily apparent that an employee should have been paid.  And still more in which you might think, “Of course that’s [or . . . not] compensable time!”  In either case, you should be consciously considering the legal ramifications before deciding to exclude time from work hours.

Well . . . What Should We Do?

First and foremost, if your answer to the question “After how many hours do you pay your non-exempt employees overtime?” is a number higher than 40, then you’re probably going to want to take a good, long look at your compensation plan.

Second, you should evaluate your own timekeeping and payroll practices.  Are employees working time that isn’t captured by the timekeeping system?  Is there travel time during the course of a work day that isn’t being included in the employees’ hours worked?  Do your managers simply write down “8” for each employee and hope for the best?  Take care now to ensure that you are properly including (or excluding) certain periods of time from “hours of work,” and -- this is important -- that the time is being properly and accurately recorded.

Finally, consider whether you have appropriate safeguards in place to combat against an employee’s future claim that he or she was not paid for all hours worked.  Are your timekeeping policies clear?  Must employees acknowledge/certify that their time is accurate?  Do you conduct periodic reviews of actual practices to determine compliance?

WHD has been making a strong push to educate employees about wage and hour law (and other statutes).  It is arming employees with tools to challenge your practices.  And, of course, WHD is itself aggressively enforcing the FLSA.  You should be following their lead:  plan to review your payroll policies and practices to prevent liability under state and federal wage and hour law and protect your bottom line.

“What Happened, Dude?” is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.

Authored by Alex Passantino

'Twas the week after Christmas, and all through the land     

Our readers were focused on their year '13 plans;                                                                  

And though we've no desire to knock you off track,                                                             

We thought that 2012 deserved one last look back.                                                             

Hours, exemptions, pay rates, and more;                                                                         

Nearly 100 posts (for those keeping score).                                                                           

We know every issue will not give you your kicks,                                                                  

So we considered them all, and we picked out just six.

At the top of the list, one case, it stood out.                                      

And our blog frequently mentioned what it was all about.                                                      

We note it again, cause it's not every day                                                                        

That the SCOTUS addresses the FLSA.                                                                          

Pharma Sales Reps were the source of debate                                                                    

As the justices considered their overtime fate. 

But beyond the exemption lay a larger issue,                                                                

Which brought Roberts, CJ, and eight justices, too.                                                               

A unanimous ruling that courts won’t defer                                                                          

To an agency brief that's made up on the spur.                                                                   

No Auer.  No Skidmore.  No Seminole Rock.                                                                           

No deference at all, which came as a shock.                                                                      

And five Justices found that sales’ “other disposition”                                                    

Includes what happens with drugs ‘tween sales rep and physician.

Our second big item for the past year                                                                             

Gives hospitals all over a reason to cheer.                                                                 

Automatic break cases have been oh so scary                                                                    

But departments and managers and practices vary,                                                            

And faced with these cases, this giant morass                                                               

Increasingly, courts have been saying "no class."

Third -- a crucial pairing that’s been quite hot of late                                                   

Collective wage claims and the word “arbitrate”                                                                  

Attacks on class waivers have sunk like a stone                                                                 

Since SCOTUS approved them in Concepcion.                                                           

Employment class waivers should have the same fortune                                                    

But first must maneuver around D.R. Horton.                                                                        

In Sutter, the Supremes decide if arbitrations are class-y,                                                      

While California, it seems, is contrary -- so sassy.

The fourth of our topics is only beginning,                                                                      

Soon SCOTUS will decide if Genesis is winning                                                                       

By offering a plaintiff all possible pay                                                                              

Then moving the court:   “Make this case go away.”                                                          

With the case fully briefed, and the arguments heard,                                                          

It won’t be ‘til next year that we learn the last word. 

Our fifth and sixth issues go hand-in-hand,   

It’s the wage-hour wave that’s been sweeping the land.                                                     

Whether it’s agency efforts or plaintiff-filed cases,                                                             

FLSA violations will get thrown in your faces.                                                               

Aggressive enforcement might lay you down flat.                                                               

Will your customers know?  Well, there’s an app for that.                                                   

And these targeted efforts to cause course correction,                                                       

Won’t be going away, due to Barack’s re-election.                                                             

And the plaintiffs’ bar will also be sticking around,                                                               

As their wage-hour case filings continue to abound.

So make sure that next year, you review all this “stuff.”    

And thanks for the page views; we can’t thank you enough.                                                

We wish you success in 2013.                                                                                        

From your favorite blogging (and book-writing) team.

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Co-authored by Alex Passantino and Louisa Johnson

The Eighth Circuit Court of Appeals recently affirmed a district court’s decision that an employer does not violate the FLSA by strategically defining when its “workweek” begins and ends in the manner that restricts to the largest extent possible the overtime hours its employees will incur.  Abshire v. Redland Energy Services, LLC.  The Eighth Circuit looked to the U.S. Department of Labor’s interpretive guidance and numerous federal and state court decisions in determining how an employer may define the workweek and found that the only catches are these:  (1) the workweek must contain 168 consecutive hours (i.e., a full seven, consecutive days); and (2) once the workweek is defined, any changes to it must be intended to be permanent.    

In Abshire, the employer took advantage of this flexibility to permanently redefine its workweek for the purpose of drastically reducing the amount of overtime its drilling rig operators incur.  The drilling rig operators work 12-hour shifts on seven consecutive days (Tuesday through Monday), followed by seven days off.  The FLSA workweek for these employees was initially Tuesday to Monday as well.  Over a two-week period, this resulted in 40 regular hours and 44 overtime hours in the first week and no pay in the second week.  The employer made a permanent change to the workweek (Sunday to Saturday) while maintaining the Tuesday-to-Monday schedule.  This put 40 regular hours and 20 overtime hours in the first week, and 24 regular hours in the second week of the pay period.  Thus, in changing the workweek, the overtime due in each two-week pay period was reduced from 44 to 20 overtime hours.

When the employer changed the workweek, the drilling rig operators sued on the grounds that the change was made in a clear effort to limit the number of hours subject to the overtime premium.  Upholding the decision of the district court, the Eighth Circuit rejected the employees’ claims, stating quite clearly:  “. . . an employer’s effort to reduce its payroll expense is not contrary to the FLSA’s purpose.”  The court also rejected the employees’ attempt to read into the FLSA a requirement that employers have a “legitimate business purpose” to justify a permanent change in the workweek.

What does this decision mean for employers?  In truth, the Eighth Circuit’s decision is not groundbreaking in the sense that employers have for many decades had the flexibility under federal law to define when their employees’ workweek will begin and end.  Although most employers probably structure their workweeks around the typical Monday to Friday workweek, some employers have, for many years, structured their employees’ work schedules and the FLSA workweek to limit the amount of overtime due or to provide additional workplace flexibility. 

The Eighth Circuit’s new decision may encourage other employers to reconsider how their workweeks are defined.  If an employer chooses to do so, it should proceed with caution.  First, the employer should consider whether applicable state laws permit the same flexibility as federal law in defining the workweek.  Second, if state law is not an impediment, then in order to effectuate a proper change to a workweek, an employer should:

• Ensure that the change to the workweek is intended to be permanent.  Workweeks may not “shift” back and forth based, for example, on an employee’s start time for the week.
• Consider and comply with any applicable state laws regarding advance notice to employees of the workweek change.
• Continue to look and pay properly for overtime hours when they are incurred even if the workweek is aligned with employees’ work schedules in such a manner that overtime work should normally not occur.  Despite an effective alignment of work schedules and the workweek, non-exempt employees may still incur overtime hours by not adhering to their scheduled start and end times or by working beyond them.  No matter the reason for the overtime being incurred, if a non-exempt employee works more than 40 hours during the defined workweek, she is owed overtime compensation.
• Take care to memorialize the workweek so that any successors in management will know what it is and can be sure that the overtime premium is still paid when it is owed. 
• Remember to split between the first and second workweek an employee’s hours if the employee’s shift starts in one workweek and ends in the next.  For example, if the workweek runs from 11:27 pm on Tuesday to 11:26 pm the following Tuesday and the employee works on Tuesday from 4:00 pm to midnight, then the first 7 hours and 26 minutes of the employee’s shift should be counted in the first workweek, and the last 34 minutes of the employee’s shift should be counted in the second workweek.
• Finally, in situations in which the change in workweek results in overlapping workweeks for the first pay period, the employer should calculate the overtime due as though it had been worked in both workweeks, then pay the greater of the amounts due. 

Co-authored by Benjamin Briggs, Heather Havette, and Patrick Ryan

A federal judge in Georgia recently denied conditional collective-action certification for a proposed class of more than 65,000 hourly employees of the national restaurant chain Steak ‘n Shake.  While the court’s opinion is notable in several respects, its most striking feature is the court’s apparent receptiveness to evidence that undermined the plaintiffs’ claims on the merits and put the employer’s overarching business practices in the proper context for the court. 

In Beecher v. Steak'n Shake Operations, Inc., two hourly employees brought a suit against Steak ‘n Shake on behalf of all of the national restaurant chain’s employees nationwide, alleging that Steak ‘n Shake violated the FLSA’s minimum wage and overtime provisions. Specifically, they alleged that Steak ‘n Shake’s managers were incentivized to keep their labor costs low and, therefore, improperly shaved hours from employee time records to avoid paying overtime and improperly inflated tips to avoid paying a minimum wage differential to its hourly employees. 

In support of their bid for conditional certification, the two named and 21 opt-in plaintiffs submitted cookie-cutter employee declarations that reiterated the allegations in the complaint, print-outs of the company website that noted generic employee complaints about improper compensation, and numerous emails and reports in which management expressed concern about the accrual of overtime in an effort to manage their labor costs.  Steak ‘n Shake opposed plaintiffs’ motion by explaining that the adjudication of plaintiffs’ claims could only be done on a edit-by-edit basis and, therefore, they were not suitable for collective treatment.  In support, Steak ‘n Shake submitted scores of evidence that undermined plaintiffs’ allegations, including manager declarations that detailed numerous legitimate business reasons why edits were made to time and tip records.  This seems to have struck a chord with Judge Orinda Evans, who recognized that the individualized nature of the claims could result in “correction-by-correction mini-trials of more than 2 million corrections made to time and tip records of the putative class.”  Steak ‘n Shake further attacked the merits of plaintiffs’ claims by providing evidence that demonstrated that the company paid more than $18 million in overtime and $1.3 million in minimum wage differentials to the proposed class during the limitations period.  

Even though courts do not usually consider the merits of the parties’ claims at the conditional certification stage, these merit based arguments seem to have influence the judge’s opinion about the absence of a uniform policy or procedure that violated the law.   The court noted that the evidence provided by Steak ‘n Shake “undercut some of the Plaintiffs’ broad assertions that all hourly-paid employees were not properly compensated” and held that the mere existence of a national practice of reviewing and sometimes revising hours and tips received “is not enough glue to hold [the] proposed class together . . . neither is the fact that Defendant generally discourages managers from allowing overtime.”    

The court also determined that the number of plaintiffs in the case was simply too small, and its members too homogenous, to suggest that there was sufficient interest in joining from other members of the large proposed class: “twenty-three Plaintiffs, twenty of whom worked in one state and almost exclusively in four stores, is insufficient to conditionally certify a nationwide class of 65,000 employees.”   

Given the court’s opinion, employers should not be afraid to proffer evidence at the early stages of litigation that goes to the merits of the case and undercuts plaintiffs’ allegations.  Moreover, even if the court does not consider such evidence on the merits, a company may be able to influence a judge’s opinion by simply putting its overarching business practices in proper context and re-framing the terms of the debate.

Co-authored by George Preonas and Hayley Macon

On July 23, 2012, in Harris v. Superior Court (Liberty Mutual Ins. Co.), a case that the California Supreme Court previously had reversed and remanded, the California Court of Appeal stuck by its prior conclusion and held that insurance claims adjusters do not qualify for the administrative exemption from overtime pay requirements.

The Harris case involved claims for unpaid overtime by a class of Liberty Mutual insurance claims adjusters.  The claims adjusters argued that they were misclassified as administratively exempt.  After class certification, the claims adjusters moved for dismiss Liberty Mutual’s affirmative defense that they were exempt employees.  The trial court denied the motion.  On appeal, the California Court of Appeal reversed, applying the “administrative/production worker dichotomy” test set forth in two Bell v. Farmers Insurance Exchange cases—(collectively “Bell”)—and found that, because claims adjusters did not perform administrative work, they could not qualify for the administrative exemption.  The California Supreme Court granted review of the decision.

On December 29, 2011, the Supreme Court reversed the Court of Appeal’s decision, concluding that it had erred in relying on Bell because it was distinguishable.  The Supreme Court further ruled that the Court of Appeal had erred in relying primarily on the administrative/production dichotomy, instead of following the language of the relevant wage order and regulations.  The Supreme Court remanded, ordering the Court of Appeal to first apply the language of the statutes and wage order to the facts, and only then, if the statutes and wage order failed to provide sufficient guidance, look to the administrative/production dichotomy.

At issue on remand was one of the four requirements for the administrative exemption – whether the work is administrative.  Under the California Wage Order 4 and the federal regulations, administrative work must be “directly related” to the management policies or general business operations of the employer.  In order to be “directly related,” the work must be both administrative in nature and of “substantial importance” to the management policies or general operations of the employer’s business.  Harris addresses only the nature of the work.  

To consider whether the nature of the claims adjusters’ work qualified as exempt administrative work, the Court of Appeal cited the interpretative federal regulations, which provide that an employee’s work duties meet the exemption test only if they “relat[e] to the administrative operations of a business as distinguished from ‘production.’”  Relying heavily on a 1991 Third Circuit case, Martin v. Cooper Elec. Supply Co., and a federal case from Connecticut, the Court of Appeal interpreted this regulation to include only duties involving establishment of management policies or general business operations.  Under this rationale, claims adjusters cannot be exempt because they adjust individual claims, rather than set broader policy or run general business operations. 

The Court of Appeal then applied the administrative/production dichotomy test in further support of its determination that claims adjusters are non-exempt.  Again relying on Martin from the Third Circuit, the Court of Appeal held that “production” employees do not qualify as exempt employees who are performing the exempt task of “servicing the business,” because they are not formulating general policy on behalf of the business.  The Court of Appeal reasoned that claims adjusters were production employees because Liberty Mutual’s product is risk transference, and claims adjusting is an essential part of risk transference.  Although the Court of Appeal thus applied the administrative/production dichotomy with the same result achieved in Bell, the Court of Appeal denied that it was following Bell, as the Court here was considering only employee’s duties, not their role. 

The Court of Appeal expressly declined to follow other federal and administrative authority, including applicable Ninth Circuit decisions, on the grounds that it is not bound by those other federal decisions, and instead preferred to rely on the Third Circuit’s decision in Martin.

The Court of Appeal also rejected Liberty Mutual’s argument that the class was too heterogeneous to certify a class, and instead relied on its categorical conclusion that the claims adjusters did not perform duties involving management policy or general business operations, so they could not be exempt. 

What Harris Means for Employer

The Court of Appeal’s decision is highly controversial because of its application of the administrative/production dichotomy, as well as its rejection of seemingly persuasive analogous federal law, including authority in the Ninth Circuit.  The panel’s decision to essentially reinstate what the Supreme Court had just reversed is difficult to reconcile with the high court’s decision.  Indeed, the appellate justice who authored the original opinion wrote a dissent from the panel’s decision on remand.

The Court of Appeal’s decision thus creates significant uncertainty for the trial courts and for employers.  If the decision stands, then the administrative exemption in California could have very limited application.  Insurance claims adjusters and many other employees currently classified as administratively exempt might have to be reclassified as non-exempt, unless they are among that small group of employees who are primarily involved in setting company policy or running general business operations.  We anticipate strenuous efforts to seek review of this decision.

Authored by Kara Goodwin

Employers seeking to prove that an employee claiming unpaid overtime is exempt under the FLSA often face two chilling phrases in the first paragraph of a court’s legal analysis.  First, that exemptions are “narrowly construed” against employers and, second, that employers must prove that employees fit within those exemptions “plainly and unmistakably.”   But two recent decisions show that those two phrases may not be so daunting anymore.  Last month, in Christopher v. SmithKline Beecham Corp., the Supreme Court made clear that not all definitions of an exemption are to be narrowly construed against employers.  And last week, the Tenth Circuit Court of Appeals reversed a jury verdict in favor of an employee challenging his exempt status because the trial court erroneously instructed the jury that an employer has to prove that an employee “plainly and unmistakably” fits within the terms of an exemption.

In Lederman v. Frontier Fire Protection, Inc., the plaintiff worked as a senior estimator for Frontier, a company in the business of selling and installing automatic fire sprinkler systems.  Lederman’s responsibilities apparently included contacting customers and potential customers, inspecting customer buildings to evaluate the cost of sprinkler system installation, and preparing bids.  The case went to trial on Frontier’s affirmative defense that Lederman qualified as an exempt outside salesperson, and therefore was not eligible for overtime pay.

At trial, the evidence was disputed on Lederman’s authority to finalize sales, the amount of time he spent away from Frontier’s place of business, and the importance of sales to his position.  In its jury instructions on proof of an exemption, the district court told the jury that “an employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving that the particular employee fits plainly and unmistakably within the terms of the claimed exemption.”  

The Tenth Circuit found the district court’s instruction to be a mistake, instead holding that the ordinary burden of proof - preponderance of the evidence - applies to employers seeking to prove an FLSA exemption.  In doing so, the Tenth Circuit rejected the plaintiff’s argument that the heightened “plainly and unmistakably” burden of proof refers to the principle, articulated in many earlier cases, that exemptions from FLSA’s overtime provisions should be construed narrowly against the employer.  The court found that cases using the phrase “plainly and unmistakably” did so in the context of statutory construction, not evidentiary burdens.

This decision is consistent with other courts that have confronted similar FLSA burden-of-proof issues and come to the conclusion that the proper standard is a preponderance of the evidence.  For example, the Seventh Circuit, in Yi v. Sterling Collision Centers, Inc., rejected the contention that the employer was required to prove an FLSA exemption by “clear and affirmative evidence,” instead concluding that the appropriate burden of proof was a preponderance of the evidence. The preponderance standard, however, has not been universally accepted.  For example, the Fourth Circuit, in Desmond v. PNGI Charles Town Gaming, LLC, maintained its position that the proper burden of proof for employers to show an employee falls within an exemption is “clear and convincing evidence.”

Lederman undoubtedly will prove to be a useful tool in what can often be an uphill, fact-intensive endeavor to prove an FLSA exemption.  In addition, the Lederman decision further weakens the use of the “narrowly construed against the employer” concept in exemption cases.  As readers of our blog will recall, this is consistent with the Supreme Court’s recent decision in Christopher v. SmithKline Beecham Corp., in which the Court ruled that an exemption should not be construed narrowly against the employer where the Court is interpreting a general definition that applies throughout the FLSA.

Authored by Kara Goodwin

A recent National Economic Research Associates (“NERA”) report, “Trends in Wage and Hour Settlements: 2011 Update,” quantified what most working in the wage-hour litigation field already knew ─ wage and hour cases continue to be a source of potential liability for employers. The report identified 107 settlements of wage and hour cases in 2011, slightly more than the approximately 90 identified cases settled in both 2009 and 2010, and well above the less-than 40 publicized settlements in 2007 and 2008. In addition, the average per-plaintiff, per-class period year settlement dramatically increased from approximately $900 in the 2007-2010 period to $1,500 in 2011.

It’s not all bad news ─ aggregate settlement amounts continued a downward trend from an average of over $20 million per case in 2007 to under $5 million in 2011. Additionally, the median settlement amount in 2011 was $1.6 million, significantly lower than $12.8 million in 2007. The majority of wage and hour cases that settled in 2011 did so for between $1 million and $2.5 million. 

A number of case-specific factors affect the aggregate settlement amount. Not surprisingly, the number of class members and the duration of the class period are particularly important drivers in wage and hour settlement values. Plaintiffs’ alleged damages are often a function of the number of work-days in the class ─ more plaintiffs and a longer class period lead to more work days and higher alleged damages. 

The number and type of wage-hour allegations in the case also impact the settlement amount. Overtime claims and allegations relating to missed meals and breaks made up a higher proportion of allegations in settled cases in 2011 than in prior years. Settled cases involving off-the-clock allegations, however, decreased by more than 50% from the 2007-2010 period.

Jurisdiction is also likely to impact settlement. As in all years, substantial wage and hour litigation activity occurred in California in 2011, both in terms of number of settlements and total settlement amounts paid. At the same time, there was an increase in New York settlements in 2011, with approximately 20% of all settlement spending related to New York cases. 

Another case-specific factor impacting settlements is industry. Over half of the settlement dollars over the 2007-2011 period were concentrated in two industries: the retail industry and the financial services/insurance industry.

A copy of the full report can be found here.

Authored by Laura Reathaford and Catherine Dacre

Plaintiffs often argue in seeking class certification that an employer’s policy applicable to all or a certain group of employees provides sufficient evidence of commonality to justify the certification of the alleged class.  In Delodder v. Aerotek, Inc., the Ninth Circuit affirmed the district court’s decision denying certification of a class of recruiters who claimed they had been misclassified as exempt from California’s overtime requirements.  In reaching its decision, the Court of Appeals agreed with the lower court that evidence of material differences in the activities that the alleged class members actually performed carried greater weight than the defendant’s uniform corporate policies and training programs.

Plaintiffs in Delodder sought certification under Rule 23(b)(3) based on the theory that Aerotek had a common policy requiring all recruiters to complete the same training and follow the same policies when performing their jobs.  Plaintiffs relied on Fair Labor Standards Act regulations incorporated by reference into the California Wage Orders.  The regulations establish that routine screening of job applicants according to predetermined criteria does not require “discretion and independent judgment,” but that the selection of qualified candidates does.

Rejecting this argument, the district court found that some Aerotek recruiters had more authority to select and recommend candidates than others and thus, were not simply operating pursuant to any predetermined criteria.  The Ninth Circuit agreed stating that evidence of corporate policies and training programs is not dispositive of the class certification issue, “for the obvious reason that training and policies may not reflect what the class members actually do.”  The Court upheld the district court’s finding that class certification was inappropriate because the question of whether a putative class member lacks the requisite discretion depends on predominantly individualized issues.

The Ninth Circuit similarly rejected Plaintiffs’ effort at certification under Rule 23(c)(4) which permits a class to be maintained with respect to a particular issue.  Plaintiffs had sought certification of a limited class action to adjudicate their claim that class members do not perform “office or non-manual work directly related to management policies or general business operations.”  The Court upheld the district court finding that all putative class members were engaged in “meeting the needs of Aerotek’s customer companies,” a role that is directly related to Aerotek’s general business operations, and therefore qualified under the administrative exemption.

The Ninth Circuit’s decision was widely anticipated after the Court agreed to hear this discretionary appeal and has been the subject of prior posts on our Seyfarth Shaw’s Workplace Class Action Blog. Class action litigators were hoping for some guidance from the Ninth Circuit for close call cases requiring a fact-intensive inquiry.

At least to some degree, the decision delivered.  The Ninth Circuit confirmed that a trial court must “make a factual determination as to whether class members are actually performing similar duties” in exemption cases, and refuted the argument that a district court’s decision to afford more weight to evidence of actual work performed (rather than to the uniform policy evidence) was a clear error of judgment.  This ruling provides employers with helpful guidance on the type and quality of evidence needed to defeat class certification in exemption cases.

Authored by:  Noah Finkel, Brett Bartlett, Andrew Paley and Richard Alfred

Members of Seyfarth Shaw's Wage and Hour Litigation Practice Group have authored Wage & Hour Collective and Class Litigation, the first-of-its kind treatise on wage and hour litigation. Published by American Lawyer Media's Law Journal Press, the 912-page volume is the most comprehensive guide published to date that focuses on litigation strategy through all phases of wage and hour lawsuits, the area of high-stakes litigation that, as readers of this blog well know, has plagued employers in recent years.  Indeed, wage and hour lawsuits have outpaced all other types of workplace class actions in recent years, and have surged by more than 325% since the early 2000s.

The book blueprints the mechanics of wage and hour cases, examines how employers in multiple industries are targeted for wage and 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, Seyfarth’s book should also prove useful to senior management seeking to fend off wage-hour actions before they strike.

The guide has already received praise from the Honorable Elaine L. Chao, the 24th U.S. Secretary of Labor, who stated: “Given the recent explosion of wage and hour litigation, both management- and plaintiff-side attorneys will find this publication to be an invaluable reference. With its painstaking attention to the law and procedure, this treatise will certainly be the go-to resource when practitioners ponder questions of strategy and substance in the context of wage and hour cases.”

The book was authored by Noah Finkel, Brett Bartlett and Andrew Paley, who practice in the firm’s Chicago, Atlanta and Los Angeles offices respectively. Richard Alfred, Boston-based chair of  Seyfarth’s national Wage & Hour Litigation Practice, served as senior editor.  More than 70 other Seyfarth attorneys, many of them regular contributors to this blog, contributed to the book, which will be updated regularly.

Wage & Hour Collective and Class Litigation takes up 27 chapters and 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 advises employers on:  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.

Among topics covered by the book:

• The certification process and the impact of conditional certification
• Decertification and its sometimes unexpected consequences
• Defending against state law wage and hour class actions brought under Federal Rule of Civil Procedure 23
• Discovery issues and strategies in class and collective actions
• Special considerations under California law, one of the country’s leading venues for wage-hour cases
• Issues raised by ERISA claims in wage and hour cases
• Coordinating or consolidating multiple simultaneous class actions
• Meeting the duty to preserve information, including electronically stored information
• The pros and cons of arbitration
• Motions for summary judgment and the optimal time to file
• Civil remedies, including calculation of unpaid overtime and liquidated damages
• Actions by the Secretary of Labor to recover unpaid wages and overtime
• Defending  "independent contractor"  cases
• Calculating the  "regular rate"  for purposes of the FLSA

Wage & Hour Collective and Class Litigation can be purchased from Law Journal Press by clicking here.  Readers of Seyfarth's Wage & Hour Litigation blog can use discount code 2128982 at checkout to obtain a special discounted introductory price of $195 for the print & online access bundle or $163 for online access only. The purchase price includes a one-year long subscription to all updates.

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.

Authored by Laura Reathaford

A California federal district court judge has refused to certify a putative class of Verizon FiOS technicians who claimed they were misclassified as exempt from California’s overtime requirements.  

Plaintiffs sought certification under Rule 23(b)(3) on the basis that Verizon had a common policy of misclassifying its First Level Managers (“FLMs”).  However, the Court rejected this frequently alleged “common policy” argument finding that the ultimate question of whether Verizon unlawfully classified FLMs as exempt “is an individualized inquiry involving facts unique to each Plaintiff.”  The Court noted that in order to win certification, it is not enough merely to allege a common scheme.  A plaintiff must establish the reasons why each FLM was treated in an allegedly unlawful manner.

In this regard, the Court relied heavily on the U.S. Supreme Court's decision in Dukes v. Wal-Mart, noting that ‘[w]ithout some glue holding the alleged reasons for those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.”  The evidence before the Court revealed that FLMs had different job duties and carried out these duties in a variety of ways based on the location and size of each FLM’s respective worksite, the number of employees assigned to each worksite and its business volume as well as the experience level of the employees and the type of work actually performed.

Is the Verizon decision indicative of a new trend in post-Dukes class and, by extension collective, action litigation?  Class actions alleging state wage and hour violations have, in the past, frequently been certified.  However, as Dukes points out, “the class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties” and in fact, more and more district courts are applying Dukes to deny certification in misclassification cases.  Whether this means that fewer misclassification and other types of wage and hour claims will be certified in the future remains to be seen.  At least for now, Verizon might say that in 2012, the rule in Dukes rings true.

Authored by Alex Passantino

Today, the Department of Labor’s Wage and Hour Division (WHD) announced that it would soon be publishing a Notice of Proposed Rulemaking regarding the companionship exemption from the Fair Labor Standards Act.  Among other changes, the Department will propose to limit the exemption to companions employed only by the family or household using the services.  The Department proposes to change the regulations to prevent third party employers, such as in-home care staffing agencies, from claiming the exemption, even if the employee is jointly employed by the third party and the family or household. 

The companionship exemption was included in the 1974 FLSA Amendments and provides an exemption from the FLSA’s minimum wage and overtime requirements for “any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.”  The implementing regulations followed in 1975 and have remained largely unchanged since that time, providing that:  “Employees who are engaged in providing companionship services, . . . , and who are employed by an employer or agency other than the family or household using their services, are exempt from the Act's minimum wage and overtime pay requirements.”

In the early 2000s, however, the regulations were subjected to several legal challenges, including one that reached the United States Supreme Court.  Around that time, in the first-ever Wage and Hour Advisory Memorandum, WHD read the statutory language “naturally . . . to exempt any employee who provides companionship services to an aged or infirm individual in a private home.”  WHD further noted that “the statute does not draw any distinction between companions who are employed by the owners of the homes in which they are working and companions who are instead employed by third party employers.”  Ultimately, in the case of Long Island Care at Home, Ltd. v. Coke, a unanimous Supreme Court upheld WHD’s interpretation of the statute.   

In explaining why it now seeks to change the regulations, the Department notes that there has been a growing demand for long-term in-home care, a substantial increase in the in-home care services industry, and “among the lowest in the service industry” earnings of in-home care employees.

Thus, the Department proposes to eliminate the application of the companionship exemption for third-party employers.  In addition, the Department would further limit application of the exemption to those individuals for whom companionship services is not a vocation.  The Department proposes to do so by limiting the application of the exemption to individuals who provide “fellowship” and “protection” to the aged or infirm.  The Department also proposes to allow up to 20% of an employee’s time to be spent on “incidental intimate personal care” services, which include:  “occasional” dressing (such as putting on coats and shoes); “occasional” grooming (such as combing and brushing hair or washing hands and face); “occasional” driving to and from appointments; “occasional” toileting; “occasional” feeding, “including preparing food eaten by the person while the companion is present”; “occasional placing clothing that has been worn by the person in the laundry, including depositing the person’s clothing in a washing machine or dryer, and assisting with hanging, folding, and putting away the person’s clothing” and “occasional” bathing “when exigent circumstances arise.” 

The proposal would also further explain which medical care services cannot be provided by companions, including “catheter and ostomy care, wound care, injections, blood and blood pressure testing, turning and repositioning, determining the need for medication, tube feeding, and physical therapy.”

It is important to remember that this is simply the Department’s proposal.  Once the proposal is published in the Federal Register -- presumably within the next several days -- interested parties will have the opportunity to provide comments regarding the Department’s proposal (typically 60 to 90 days).  Only after review and analysis of those comments, and publication of a final rule, will these proposed changes be effective. 

Authored by Noah Finkel

The question of what is “work” in the modern economy, is not always easy to answer.  Those activities that qualify as “work” are compensable under the Fair Labor Standards Act and state law analogues.  Activities that are not “work” are not compensable.  While simple enough to express, making the distinction between these principles is often far from straightforward.  And, the stakes for getting the answer wrong may be enormous, especially when compounded by the “continuous workday” doctrine embraced by the Supreme Court in IBP, Inc. v. Alvarez.  Under that doctrine, employers may be obligated to pay not only for the first “integral and indispensable” activity of the day, but for all subsequent activities that are part of the continuous workday.

This topic is receiving an increased amount of attention.  As readers of this blog may recall from our July 14, 2011 post, the U.S. House of Representatives Committee on Education and the Workforce, Subcommittee on Workforce Protections held a hearing this past July to address the question, “Is the Fair Labor Standards Act meeting the needs of the twenty-first century workplace?”  Last week as reported in our September 22, 2011 post, the Congressional Research Service issued a report entitled, “The Fair Labor Standards Act, Overtime Compensation, and Personal Data Assistants,” which focuses on “[t]he increased use of personal data assistants (PDAs) and smartphones by employees outside of a traditional work schedule” and “questions about whether such use may be compensable under the FLSA.”

In this context, The ABA Journal of Labor and Employment Law has recently published an article tackling the meaning of “work” under the Fair Labor Standards Act.  The article, “Continuous Confusion: Defining the Workday in the Modern Economy,” which is authored by Seyfarth Shaw’s Richard Alfred and Jessica Schauer, argues that employers face a lack of guidance with respect to the concept of compensable time.  This confusion has resulted from the fact that the FLSA itself does not define “work,” the Supreme Court has largely neglected the issue since the 1940s, and regulatory interpretations have been subject to frequent shifts.  Moreover, because much of the authority that does exist is outdated--having changed little since the 1940s when the industrial workplace was the norm--the problem is exacerbated in the modern electronic economy.

The article focuses in particular on a 2010 “Administrator’s Interpretation” issued by the Department of Labor, which took the position that activities that may be excluded from compensable time under a particular statutory exception may nonetheless mark the beginning of the “continuous workday.”  If adopted by courts, this position could have adverse effects on another well-established carve-out from working time, the de minimis exception.  In the modern economy, where employees are able to use technology to perform work from anywhere, the erosion of that exemption could cause activities that employers have long rightly assumed to be non-compensable, such as commuting time, to become compensable under many circumstances.  The article calls for statutory and regulatory reform, as well as better guidance from the Supreme Court, as to what constitutes “work.”

In the meantime, employers should analyze carefully what activities may constitute compensable “work” and prepare themselves for the potential for uncertain and costly litigation over the compensability of various activities that could be regarded by some courts as compensable work.

Authored by Alexander J. Passantino

Earlier this week, the Office of Management and Budget's Office of Information and Regulatory Affairs completed its review of the Wage and Hour Division's Final Rule titled "Amendments to the Fair Labor Standards Act." Assuming there were no significant issues with the draft regulation, this means we should see publication of the Final Rule in the Federal Register in the very near future.

The proposed rule was published in July 2008, and the Wage and Hour Division received public comments for 60 days. The proposal was primarily designed to update the FLSA regulations to reflect numerous statutory changes that had been enacted since the regulations had last been amended. For example, a number of the current regulatory (and interpretive bulletin) provisions contain references to wage rates that long ago ceased to comply with the FLSA's minimum wage (currently $7.25 per hour). In addition, various exemptions of relatively narrow scope have been added and amended by statute over the years. The proposed rule was drafted to update the regulations to address these issues.

More significantly, the proposed rule was drafted to clarify that a tipped employee need not be provided with written notice of an employer's intent to use the tip credit provisions, nor an explanation of how the tip credit operates. The proposal would simply have required that the employee be 'informed" of the tip credit provisions. With respect to actual use of the tip credit, the proposal eliminated provisions that contained references to employment agreements that required tips to be turned over to the employer and clarified that an employer may (1) take the tip credit and allow employees to keep all tips earned or (2) not take the tip credit and retain tips so long as the deductions did not take the employee below minimum wage. The proposed rule also clarified that section 3(m) of the FLSA does not impose a maximum tip pool contribution percentage. Instead, the proposed rule stated that the employer must inform each employee of the required tip pool contribution, and that an employee’s participation in a tip pool cannot bring the employee’s wages below the minimum wage.

Finally, the proposed rule was drafted to clarify the Wage and Hour Division's understanding of the fluctuating workweek method of payment, eliminating regulatory language that discourages employers from paying bonuses or premium payments in addition to salary (e.g., nightshift differentials or hazard pay).

Because of the fairly unique procedural posture of this regulation -- proposed during the Bush Administration, but finalized during the Obama Administration -- it is not clear what position the new Administration will adopt in the Final Rule. Although the proposal in 2008 reflected the thinking of the DOL at that time, the current DOL almost certainly views these issues differently and that could be reflected in the Final Rule. As a result, we are keeping a close eye on the publication of the Final Rule and will update the blog as more information becomes available.