Co-authored by Steve Shardonofsky and Ashley Hymel

The U.S. Court of Appeals for the First Circuit recently sided with an ever-increasing line of cases clarifying the type of payments that may be added to a fixed salary without violating the fluctuating workweek method described in 29 C.F.R § 778.114.  The Court distinguished additional hourly-based pay from performance-based bonuses in this context, and re-affirmed that employers retain significant discretion in crafting and implementing creative compensation plans — including pay plans that combine various types of compensation — to meet business needs and incentivize their workers.

The Plaintiff’s Attack on GNC’s “Combo” Pay Plan

In Lalli v. General Nutrition Centers, In., et al., GNC Store Manager Joseph Lalli received a fixed weekly salary regardless of his hours worked, plus weekly commissions for his sales. Because he received a fixed salary for fluctuating hours plus weekly performance-based bonuses, GNC calculated his overtime rate using the “half-time” method outlined in the FLSA interpretive bulletins at 29 C.F.R § 778.114 and § 778.118.  Lalli challenged the company’s overtime calculations on the basis that his commissions altered the fixed nature of his weekly pay and thus removed his compensation from the half-time purview of Section 778.114.

Employee Compensation: Have It Your Way (Almost)

In denying the Plaintiff’s claims (more on that below), the First Circuit confirmed that employers should be able to structure compensation plans to suit their business needs and incentivize their workers, and that employers should not be restrained by the compensation plan examples outlined in 29 C.F.R. § 778.109-.122.  While noting that the two pay plans at issue (fixed salary for fluctuating hours and commissions) were “‘examples’ of compliant pay structures,” the First Circuit explicitly rejected the implication that a “pay scheme must fall within a regulatory example in order to comply with the [FLSA].”  As in this case, the Court explained, “different types of remuneration…may be combined in a compliant compensation plan.”  Indeed, the Court concluded, “[i]t was not the purpose of Congress in enacting the [FLSA] to impose upon the almost infinite variety of employment situations a single, rigid form of wage agreements.”

Additional Performance-Based Pay Does Not Jeopardize the Fluctuating Workeek Method

Lalli argued his salary was not “fixed” for purposes of Section 778.114 because his compensation fluctuated from week to week on account of the commissions he earned, citing in support the First Circuit’s 2003 O’Brien v. Town of Agawam decision and an April 2011 DOL bulletin.

The O’Brien court held that contractually-stipulated overtime pay for each hour in excess of eight per shift and an additional bonus of $10 per week for nightshifts, in addition to the employees’ salaries, disrupted the “fixed salary” element of the fluctuating workweek.  Further, in July 2008, the DOL proposed a change to 29 C.F.R. § 778.114 to clarify the validity of the fluctuating workweek when paired with “overtime premiums and other bonus and non-overtime premiums.”  In its April 2011 bulletin, however, the DOL changed course and opted to leave Section 778.114 unaltered.  Lalli argued that this change of heart was meant to signal that Section 778.114 is not applicable whenever bonuses or additional payments are included on top of a fixed salary.

According to the First Circuit, both authorities were inapposite to this case.  “[N]either the O’Brien decision nor the DOL’s April 2011 bulletin,” the Court noted, “reach or answer the particular question posed here: whether a compensation structure employing a fixed salary still complies with section 778.114 when it includes additional, variable performance-based commissions.”  O’Brien was distinguishable, the Court said, because Lalli’s performance-based compensation was unrelated to hours worked.  Similarly, the DOL’s 2011 bulletin was unavailing because it cited only to cases rejecting hours-based bonuses. As the First Circuit observed, “[i]f anything, the DOL bulletin indirectly approved of the developing distinction between time-based and performance-based bonuses.”

Ultimately, the Court rejected Lalli’s plea that “two rights make a wrong,” holding that “GNC’s pay scheme epitomizes the compensation arrangements illustrated in sections 778.114 and 778.118, and the mere combination of these two permissible methods does not render the former inapplicable.”  While this decision reinforces employers’ wide latitude in implementing creative and multi-faceted compensation plans, creativity and discretion should not be interpreted as a substitute for overtime compliance.  In this case, the half-time overtime method under Section 778.114 was lawfully paired with the half-time overtime method under Section 778.118.  Employers seeking to implement other or more creative combinations should consult with experienced wage-hour counsel to ensure their pay plans are compliant.

 

As our readers know, the laws regarding how, and how much, employers must pay their employees are rapidly evolving. Against this backdrop, we are excited to announce Five on Friday, a new micro-blog series developed by Seyfarth’s Wage & Hour Litigation Practice Group.

Each installment in this weekly series will feature a skilled lawyer or expert who will answer five questions about the changing wage-and-hour landscape in an accessible format that is intended to inform, educate, and entertain readers who are on the front lines of compliance.

Please note that Five on Friday will be distributed to subscribers only. You can subscribe (free of charge, of course) by clicking below:

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Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
ContractorsJoint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic realityRight to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!

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

sealCo-authored by Laura E. Reasons and Noah A. Finkel

BlackBerry devices may be a thing of the past; but smartphones–and their ability to allow employees to be constantly connected–certainly aren’t going away any time soon.

On Thursday, a judge in the Northern District of Illinois held in Allen v. City of Chicago that the Chicago Police Department (CPD) did not violate the FLSA by failing to pay law enforcement employees for time spent off-duty performing work on their CPD-issued BlackBerry devices. The ruling provides several lessons to employers on how to protect themselves against so-called “BlackBerry claims” by non-exempt employees carrying smartphones that many have been predicting may soon flood the courts.

Plaintiff, a sergeant in CPD’s Bureau of Organized Crime (BOC) filed suit alleging that he and other CPD officers should have been paid for time they spent off-duty reading and responding to emails on their BlackBerrys, and performing related follow-up work.

The Court conditionally certified an opt-in collective action of sworn BOC officers below the rank of Lieutenant who had a BlackBerry device and who would have incurred overtime had their off-duty work on a BlackBerry device been recorded, and then also denied the City’s decertification and summary judgment motions. Thus, the case proceeded to an approximately 4-day bench trial last August on the claims of 51 plaintiffs in the collective action. On December 10, the Court issued an opinion ruling in favor of the City and against the plaintiffs.

The Court said that, to succeed on their FLSA claims, plaintiffs must prove by a preponderance of the evidence, that (1) they performed overtime work for which they were not properly compensated, and (2) the City had actual or constructive knowledge that plaintiffs worked overtime without compensation. While plaintiffs succeeded on the first point, the City prevailed because plaintiffs failed to prove it had knowledge of their off-the-clock work.

Plaintiffs argued that the City maintained an unwritten policy to deny plaintiffs payment for their off-duty work on their Blackberry devices. This policy was enforced, they reasoned, through pressure not to incur overtime, a requirement that they receive prior approval to work overtime, and a Department-wide “understanding” that off-duty BlackBerry work would not be compensated.

The Court found that the plaintiffs performed off-duty work. They monitored their BlackBerrys, responded to time-sensitive messages to supervisors and co-workers and made and received phone calls. Although some of these activities were de mimimis and thus non-compensable the Court held that some of the BlackBerry activities were compensable work activities.

But the Court then looked at whether the City knew or should have known that the plaintiffs were working off-the-clock. Because the officers’ schedules varied day-to-day, and because they were often in the field, their supervisors typically did not know when an officer was responding to an email or call off-duty, as opposed to during working time. Moreover, much of the off-duty BlackBerry activity was between the officers and their coworkers or others, giving the City even less opportunity to learn of the off-duty work.

Witnesses also testified–and the Court found–that some officers did fill out “time due slips,” pursuant to CPD’s procedures, seeking overtime pay for the BlackBerry work. Whenever this happened, the time was compensated and no one was disciplined for seeking this compensation.  Because of the volume of “time due slips” supervisors reviewed each day, and the lack of detail on the “time due slips,” it was difficult to determine whether overtime was paid for off-duty BlackBerry work versus other work. It also would have been difficult for the City to determine if a “time due slip” was submitted for known off-duty work, since the slips were sometimes reviewed days later and contained very little detail. Some of the plaintiffs contended that they did not submit “time due slips” for off-duty BlackBerry work because the City maintained an illegal, unspoken policy not to pay for such work. But the Court rejected this argument.

It is a principal tenet of the FLSA that the law “stops short of requiring the employer to pay for work it did not know about, and had no reason to know about” so the officers’ claims failed.

This case has several important take-aways for employers, even outside the public-safety context:

  • Off-duty work on mobile devices can be found to be compensable. Employers who provide mobile devices to non-exempt employees (or allow them to perform work on their own devices), must ensure strong policies are in place prohibiting off-the-clock work, and must have mechanisms in place to encourage reporting of after-hours work.
  • Minimal activity such as simply monitoring emails likely will not amount to compensable work. It is more akin to being “on call” since employees can passively monitor a mobile decide while still using their time for their own benefit. Any time likely won’t be found compensable unless something more is required–such as responding to emails, making phone calls, or doing any follow-up research.
  • Proving employer knowledge of off-duty work is a very difficult burden for plaintiffs to meet, especially if the mobile communications are not with a supervisor. This is particularly so on a class or collective basis. Nonetheless, employers cannot turn a blind eye if they have reason to believe employees are working off-the-clock, and should address issues through policy, coaching, and–if necessary–discipline.
  • The Court, here, recognized that each side failed to take basic steps to eliminate ambiguity about CPD’s approach to compensating off-duty BlackBerry work. The plaintiffs, it reasoned, should have obtained clarity by submitting “time due slips” to see if CPD would pay overtime and test their assertion that it would not. CPD, on the other hand, could have had a written policy clarifying that all off-duty BlackBerry work should be reported, and would be compensated–like all other work.
  • Finally, the Court recognized that our reliance on devices that allow work to be performed remotely isn’t going away any time soon. Therefore, it behooves employers to review their policies and practices and ensure they work cooperatively with employees to prevent litigation.

 

Co-authored by Richard Alfred and Kevin Young

Wage and hour litigation continues to soar to record highs. So says the federal judiciary’s most recent data on cases filed in federal court over the last federal fiscal year. After hitting an all-time high of 8,160 in FY14, the annual wage and hour caseload spiked another 7.6%to 8,781in FY15. In federal court, employers are more likely to face wage and hour claims than any other form of employment litigation.

The following graph tells the story:

As the graph depicts, this year’s increase in wage and hour litigation continues the year-over-year explosion in these cases over the past fifteen years. Since 2000, the incidence of wage and hour federal court filings has skyrocketed by more than 450%. During the past decade alone, such filings have increased in eight out of ten years. This year’s total of 8,781 cases is more than any two pre-2005 years combined.

Several factors have fueled the increase in wage and hour lawsuits over the past year. They include:

  • The DOL’s June 2015 proposal to revise the “white-collar” exemption regulations has invited increased attention to wage and hour issues. We expect the new regulations to be issued next fall. As we’ve discussed before, the new rules threaten to dramatically increase the exemptions’ minimum salary level, index that salary level to provide further annual increases, and, possibly, to change the exemptions’ duties tests.
  • Legal developments impacting independent contractor classification and joint employer status have led to a substantial rise in claims under these theories. These developments have included: (i) the Wage & Hour Division’s July 2015 Administrator’s Interpretation on independent contractors, which seeks to curtail employers’ ability to engage workers on this basis; (ii) the NLRB’s August 2015 BFI decision, which expands joint employer status under the National Labor Relations Act; and (iii) a number of highly publicized lawsuits against “on-demand” employers, such as Uber, that challenge business models reliant on the use of independent contractors.
  • Federal court cross-currents affecting the legal requirements for class and collective certification have led to a sharp rise in individual wage and hour claims following large class decertifications, and, at the same time, to a resurgence in class actions as plaintiffs’ counsel and some judges find ways to end-run the limitations set by the Supreme Court in Dukes, Comcast, and other precedent-setting opinions.
  • Continued talk of raising the federal minimum wage in the private sector, and of increases in the minimum wage at state and local levels, have further increased the focus on wage and hour issues.

These factors have added to those that we have reported on in past years (May 2013 and May 2014), which have sustained the surge in wage and hour lawsuits:

  • The FLSA is an old Depression-era statute created more for smokestack industries, where shifts started and ended with the sounding of a whistle, than for the modern workplace, where application of the Act’s mandates is often confusing and difficult.
  • Many of the terms essential to the FLSA were ill-defined, or not defined at all, when the law was enacted in 1938 and the DOL’s regulations were adopted soon thereafter. Those terms remain ambiguous today, leaving businesses with uncertainty and employees with the ability to second-guess their employers’ decisions.
  • State laws have provided additional sources of litigation, often regarding pay and other workplace practices not covered by federal law but often combined with FLSA claims.
  • Employees have become increasingly aware of their ability to sue for perceived management missteps in exempt status classifications, hours worked or off-the-clock claims, and overtime pay calculations.
  • Influenced by large settlements and court awards, plaintiffs’ lawyers have found wage and hour claims to be fertile ground for large fee recoveries.

With more developments in wage and hour laws on the horizon, we expect to see the upward trend continue in the coming year. Now more than ever, employers are well advised to audit their exempt status classifications, independent contractor classifications, and pay practices with experienced wage and hour counsel to identify and mitigate legal risk.

Co-authored by Richard Alfred, Patrick Bannon, and Daniel Whang

Companies burdened by an avalanche of wage and hour class and collective actions have been hoping that Tyson Foods, Inc. v. Bouaphakeo might be the game-changing decision they have been waiting for.  If the oral argument before the Supreme Court this morning is an accurate indication (and it may not be), they may have to wait a little longer.

In thousands of cases over the last ten years, federal courts have struggled to decide when an employee can convert an ordinary wage dispute into a class action under state law or a collective action under the Fair Labor Standards Act.  Despite the frequency with which these issues arise, and their importance, Tyson Foods is the Supreme Court’s first opportunity to weigh in on the subject.

As we have described in our earlier posts, [here, here, and here], several named plaintiffs claimed that Tyson Foods failed to pay a class of more than 3,000 employees in a pork processing plant for time spent “donning” and “doffing” various kinds of sanitary and protective gear and for other pre- and post-shift activities.  The trial judge allowed the case to proceed as a class action under Iowa law and allowed several hundred employees to opt in to an FLSA collective action.  At trial, the plaintiffs presented an expert witness who videotaped employees at the beginning and end of their shifts and calculated the average time they spent on various tasks.

The jury reached a $5.9 million lump-sum verdict in favor of the certified class.  Significantly, however, the jury’s verdict was much less than the amount plaintiffs’ experts had calculated by averaging the donning, doffing, and walking time spent by about several hundred of the class members.

In its Supreme Court briefing, Tyson Foods attacked (1) the determination of liability and damages by averaging the experiences of dissimilar class members, and (2) the inclusion in the class of individuals who never suffered any lost pay.  Underlying these issues are important questions regarding whether plaintiffs in a class action may satisfy the predominance requirement of Rule 23(b)(3) merely by alleging an unlawful compensation practice or policy, even if the challenged policy affects different proposed class members differently–and some not at all; and whether the “similarly situated” standard of FLSA §216(b) incorporates the requirements of Rule 23.

At oral argument, the Justices, although animated in their questioning of both sides (as well as of the government’s attorney who argued as a friend of the court for the Department of Labor), mostly bypassed these broad questions, focusing instead on more FLSA- and case-specific issues.

Much of the argument focused on whether the case should be decided, not on the application of Rule 23(b)(3) or the “similarly situated” standard for FLSA collective actions, but on the application of a 1947 Supreme Court decision, Andersen v. Mt. Clemens Pottery Co.  From nearly the beginning of the argument, first Justice Kagan and later Justices Kennedy, Breyer, and Sotomayor, peppered Tyson Foods’ attorney with questions about that case and whether it, rather than Rule 23, should drive the Court’s decision.  Relying on the part of Mt. Clemens Pottery in which the Court decided that evidence of the average time spent on a task could be used to determine FLSA damages if the employer did not keep records of actual time worked, these Justices questioned whether averaging might be proper because Tyson Foods had not kept records of the exact time spent by each class member putting on and taking off each specific article of gear.  In response, Tyson Foods’ attorney argued that Mt. Clemens Pottery only applied to the damages phase and should not be extended to a determination of liability.  Responding to questions from Justices Alito and Kennedy about whether it would be fair to penalize employers for not having records of time spent on activities that they believed in good faith were non-compensable, the Assistant Solicitor General arguing for the government in support of the plaintiffs, contended that Mt. Clemens required that result.

Several of the Justices seemed interested in whether it would be possible for the district court judge on remand to sort out which employees had and had not been injured and how the damages the jury awarded should be allocated.  Justices Kagan and Kennedy seemed to think that task would be easy.  Justices Roberts, Sotomayor and Alito pointed out, however, that the jury must have rejected some aspects of the plaintiffs’ evidence because of the large discrepancy between the verdict and the experts’ calculation of damages.  Would it be possible, these Justices wondered, for the district court judge to determine damages for specific class members when she could not know the reason for the jury’s damages reduction–whether the jury had concluded that the average times for donning and doffing specific items were inflated or whether some averages were accurate and others way off the mark?  And, these Justices worried that, without knowing which tasks were undercompensated, the judge would not know which class members the jury decided had been denied overtime pay.

The Justices also discussed whether Tyson Foods has standing to object to how the district court allocates the judgment among class members.  Even if some class members are overcompensated and others undercompensated, the employees’ counsel argued, the mistakes will not increase Tyson Foods’ liability.  Tyson Foods responded, however, that the legal peace that is created when an employee is paid all the wages he or she is owed gives the company standing to object if the employee’s share of the judgment is reduced because of payments to employees who were not truly injured.

Finally, several of the Justices devoted significant time to a surprisingly detailed discussion of the extent of variation among class members as to the clothing and protective gear they used and how long it took them to put on or take off specific items.  So specific were the Justices’ questions that, at one point, laughter broke out in the courtroom when Justice Ginsberg rehearsed the exact sanitary gear worn by class members (“hard hats, ear plugs or ear muffs, and boots”) and then chided class counsel, along with Chief Justice Roberts and Justice Scalia, for omitting “boots” from his list.

Forecasting a Supreme Court decision based on oral argument is a hazardous proposition.  Whether it is a game-changer or not, we will report on this case again when the Supreme Court issues its decision–most likely in Spring 2016.

Authored by Gena B. Usenheimer

As we previously reported, this past August, the D.C. Circuit Court of Appeals upheld the Department of Labor’s Final Rule imposing sweeping changes to the former companionship exemption under the Fair Labor Standards Act. The group of home care associations that challenged the scope of the new regulations in court recently asked the U.S. Supreme Court to delay the Rule’s implementation date, pending disposition of their yet to be filed petition of certiorari. On Tuesday, the Supreme Court denied that request. The Court’s refusal to stay implementation of the Final Rule does not impact its ability to ultimately accept certiorari, once a petition is filed.

Absent some other form of immediate intervention, the Circuit Court’s ruling upholding the regulations will take effect on October 13, 2015. According to its website, the DOL will not begin enforcing the Final Rule for 30 days, or until November 12. Nevertheless, the DOL’s delayed enforcement does not extend to private plaintiffs, who are free to bring claims any time after October 13.

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

In a case that could change how wage and hour class and collective actions are litigated, Tyson Foods, Inc. recently filed its opening Supreme Court brief. Tyson seeks reversal of a $5.8 million judgment in favor of meat processing employees who claimed to have worked off the clock.

As we reported in June, the Tyson Foods case is likely to have a profound impact on wage and hour litigation. It could result in the Supreme Court’s first discussion of what it means for employees to be “similarly situated” under FLSA Section 216(b) and of how the standards for certifying a Rule 23(b) class action apply to wage and hour cases.

As expected, Tyson’s opening brief parallels its cert petition. The case should not have been certified as a class action or as an FLSA collective action, Tyson argues, because the plaintiffs relied on “statistical evidence that masks, rather than accounts for, differences among individual class members.” In certifying the class, the court relied on expert testimony as to the average time employees spent donning and doffing equipment, even though the expert acknowledged that the actual times varied widely among class members, depending on their job classifications and their equipment combinations.

“[T]he standards governing certification of a collective action under the FLSA can be no less stringent” than those articulated in Wal-Mart Stores, Inc. v. Dukes for certification of a Rule 23(b)(3) class, Tyson argues. e Thus, the company argues, the variations described above mean the litigation would not provide common answers to the questions of (1) whether an employee worked more than 40 hours per week and, (2) if so, whether Tyson properly paid the employee for that overtime. Although the lower courts found that common issues predominated because Tyson’s compensation policy for donning and doffing time applied to all of the employees, Tyson point out that the time variations are “outcome determinative because they control whether or not a particular plaintiff worked any unpaid overtime at all.”

In addition, Tyson states that using statistical averages violated the Rules Enabling Act and the Due Process Clause. “No court would allow an individual employee to meet his ‘burden of proving that he performed work for which he was not properly compensated by submitting evidence of the amount of time worked by other employees who did different activities requiring a different amount of time to perform,” Tyson writes (quotation marks omitted). “Yet that is exactly what happened here.” Tyson explains: plaintiffs obtained classwide damages by applying the expert’s average times to all class members despite evidence that some class members spent less time donning and doffing equipment.

This “trial by formula” deprived Tyson of its right to raise individualized defenses in violation of Due Process and the Rules Enabling Act, Tyson argues. “Rather than challenging whether individual class members suffered any injury or damages, Tyson could only attack plaintiffs’ supposedly ‘representative’ evidence as biased, unreliable, and not actually representative of anyone in the class.” Tyson also notes that using averages to prove liability for the class as a whole conflicted with the Court’s command in Wal-Mart Stores, Inc. v. Dukes that class-wide liability cannot be based purely on extrapolation from unproven assumptions about individual class members.

Finally, Tyson argues that class certification was improper because the class includes hundreds of uninjured plaintiffs who, as a result, can collect damages under the jury’s verdict. Under Article III, “federal courts cannot order money to be paid to an uninjured plaintiff,” and the FLSA limits a court’s authority under the Act to providing redress for “unpaid overtime compensation.” Thus, Tyson argues, class or collective actions including uninjured members cannot be certified.

We continue to follow the briefing in this case. The brief of the respondent employees is currently due on September 22, 2015.

Authored by Kara Goodwin

Last week, a federal district court decertified a Rule 23 class of more than 1,000 insurance agents who claimed that Bankers Life and Casualty Co. misclassified them as independent contractors, and, as a result, they were entitled $16.9 million in overtime damages under the Washington Minimum Wage Act. In decertifying the class, the court held that “[d]etermining whether class members are employees or contractors under the economic-dependence test” — the same “economic reality” factors typically applied under the Fair Labor Standards Act — “would require an individualized inquiry into each agent’s experience,” meaning “individualized fact questions predominate over common ones” and “[c]lass treatment would be unmanageable.”

Although the procedural history of David et al. v. Bankers Life & Casualty Co. is unique —initially brought in state court; removed under CAFA; remanded where the amount in controversy was not established; state-wide class of 1,000 agents certified, after which plaintiffs asserted a claim for damages exceeding $16.9 million; removed again under CAFA; defendant moved to decertify class — the underlying class certification issues are familiar: whether the common evidence presented provides for a class-wide answer to resolve the misclassification issue “in one stroke” and whether common questions predominate.

Plaintiffs offered the standard form contract that all agents were required to sign and 21 declarations to show that agents operated under a “common regime of control,” which, they argued, supported class certification. Bankers, in turn, relied on declarations from 50 current agents and several managers to demonstrate that many agents had very different experiences from those described by the plaintiffs. Bankers also explained why its declarants had such different experiences from plaintiffs’ declarants, including that the more successful and established agents enjoy greater independence, and that the named plaintiffs and certain declarants enjoyed less independence because of the management style of a particular former supervisor, a style not shared by other supervisors.

As a preliminary matter, the court rejected the plaintiffs’ argument that the defendant’s so-called “happy camper” declarations should be discounted because the declarants were current employees presumably testifying in a light favoring their employer to avoid professional reprisal. Instead, the court relied heavily on the varied experiences described in the declarations, especially as to each agent’s ability to regulate his own hours, to conclude that there was no commonality and that determining whether class members were employees or contractors would require a “mini-trial” on each agent’s experience — i.e., “common issues cannot predominate.”

Also significant was the court’s rejection of the standard form contract as “common evidence,” stating that such evidence is insufficient to support class certification “in light of agents’ varied experiences.” The court also rejected the argument that class certification was appropriate because, even if at differing levels, Bakers had some level of control over all of the agents, concluding that such control “does not strongly suggest that all agents are employees” because any company using a contractor will have “some control over his performance by nature of its power to fire him.”

This case is a powerful testimonial for the use of targeted declarations to highlight differences among class members. The decision undoubtedly will help many employers build their strategy and defenses to class and collective certification.

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

Tyson Foods, Inc. v. Bouaphakeo

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

Case Background

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

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

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

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

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

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

Potential Implications for Wage & Hour Collective and Class Actions

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

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

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

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