Authored by Gerald Maatman, Jr. 

Seyfarth Synopsis: Workplace class action filings were flat overall and even decreased as compared to levels in 2015. However, that is apt to change in 2017. In the 4th in a series of blog postings on workplace class action trends, we examine what employers are likely to see in 2017.

Introduction

Overall complex employment-related litigation filings increased in 2016 insofar as employment discrimination cases were concerned, but decreased in the areas of ERISA class actions, governmental enforcement litigation, and wage & hour collective actions and class actions. For the past decade, wage & hour class actions and collective actions have been the leading type of “high stakes” lawsuits being pursued by the plaintiffs’ bar. Each year the number of such case filings increased. However, for the first time in over a decade, case filing statistics for 2016 reflected that wage & hour litigation decreased over the past year.

Additional factors set to coalesce in 2017 – including litigation over the new FLSA regulations and the direction of wage & hour enforcement under the Trump Administration – are apt to drive these exposures for Corporate America. To the extent that government enforcement of wage & hour laws is ratcheted down, the private plaintiffs’ bar likely will “fill the void” and again increase the number of wage & hour lawsuit filings.

Complex Employment-Related Litigation Filing Trends In 2016

While shareholder and securities class action filings witnessed an increase in 2016, employment-related class action filings remained relatively flat.

By the numbers, filings for employment discrimination and ERISA claims were basically flat over the past year, while the volume of wage & hour cases decreased for the first time in over a decade.

By the close of the year, ERISA lawsuits totaled 6,530 filings (down slightly as compared to 6,925 in 2015 and 7,163 in 2014), FLSA lawsuits totaled 8,308 filings (down as compared to 8,954 in 2015 and up from 8,066 in 2014), and employment discrimination lawsuits totaled 11,593 filings (an increase from 11,550 in 2015 and a decrease from 11,867 in 2014).

In terms of employment discrimination cases, however, the potential exists for a significant jump in case filings in the coming year, as the charge number totals at the EEOC in 2015 and 2016 reached record levels in the 52-year history of the Commission; due to the time-lag in the period from the filing of a charge to the filing of a subsequent lawsuit, the charges in the EEOC’s inventory will become ripe for the initiation of lawsuits in 2017.

The Wave Of FLSA Case Filings Finally Crested

By the numbers, FLSA collective action litigation filings in 2016 far outpaced other types of employment-related class action filings; virtually all FLSA lawsuits are filed and litigated as collective actions.  Up until 2015, lawsuit filings reflected year-after-year increases in the volume of wage & hour litigation pursued in federal courts since 2000; statistically, wage & hour filings have increased by over 450% in the last 15 years.

The fact of the first decrease in FLSA lawsuit filings in 15 years is noteworthy in and of itself. However, a peek behind these numbers confirms that with 8,308 lawsuit filings, 2016 was the second highest year ever in the filing of such cases (only eclipsed by 2015, when 8,954 lawsuits were commenced).

Given this trend, employers may well see record-breaking numbers of FLSA filings in 2017.  Various factors are contributing to the fueling of these lawsuits, including: (i) new FLSA regulations on overtime exemptions in 2016, which have been delayed in terms of their implementation due to legal challenges by 13 states; (ii) minimum wage hikes in 21 states and 22 major cities set to take effect in 2017; and (iii) the intense focus on independent contractor classification and joint employer status, especially in the franchisor-franchisee context. Layered on top of those issues is the difficulty of applying a New Deal piece of legislation to the realities of the digital workplace that no lawmakers could have contemplated in 1938. The compromises that led to the passage of the legislation in the New Deal meant that ambiguities, omitted terms, and unanswered questions abound under the FLSA (something as basic as the definition of the word “work” does not exist in the statute), and the plaintiffs’ bar is suing over those issues at a record pace.

Virtually all FLSA lawsuits are filed as collective actions; therefore, these filings represent the most significant exposure to employers in terms of any workplace laws.  By industry, retail and hospitality companies experienced a deluge of wage & hour class actions in 2016.

This trend is illustrated by the following chart:

The Dynamics Of Wage & Hour Litigation – Low Investment / High Return

The story behind these numbers is indicative of how the plaintiffs’ class action bar chooses cases to litigate. It has a diminished appetite to invest in long-term cases that are fought for years, and where the chance of a plaintiffs’ victory is fraught with challenges either as to certification or on the merits. Hence, this reflects the various differences in success factors in bringing employment discrimination and ERISA class actions, as compared to FLSA collective actions.

Obtaining a “first stage” conditional certification order is possible without a “front end” investment in the case (e.g., no expert is needed unlike the situation when certification is sought in an ERISA or employment discrimination class action) and without conducting significant discovery due to the certification standards under 29 U.S.C. § 216(b).  Certification can be achieved in a shorter period of time (in 2 to 6 months after the filing of the lawsuit) and with little expenditure of attorneys’ efforts on time-consuming discovery or with the costs of an expert. As a result, to the extent that litigation of class actions by plaintiffs’ lawyers are viewed as an investment, prosecution of wage & hour lawsuits is a relatively low cost investment without significant barriers to entry relative to other types of workplace class action litigation. As compared to ERISA and employment discrimination class actions, FLSA litigation is less difficult or protracted, and more cost-effective and predictable. In terms of their “rate of return,” the plaintiffs’ bar can convert their case filings more readily into certification orders, and create the conditions for opportunistic settlements over shorter periods of time. The certification statistics for 2016 confirm these factors.

What Is In Store For 2017

Has the wage & hour litigation crested for good, or will 2017 see more case filing? My bet is that employers will see more case filings.

An increasing phenomenon in the growth of wage & hour litigation is worker awareness. Wage & hour laws are usually the domain of specialists, but in 2016 wage & hour issues made front-page news.  The widespread public attention to how employees are paid almost certainly contributed to the sheer number of suits.  Big verdicts and record settlements also played a part, as success typically begets copy-cats and litigation is no exception. Yet, the pervasive influence of technology is also helping to fuel this litigation trend. Technology has opened the doors for unprecedented levels of marketing and advertising by the plaintiffs’ bar – either through direct soliciting of putative class members or in advancing the overall cause of lawsuits. Technology allows for the virtual commercialization of wage & hour cases through the Internet and social media. These factors all suggest that 2017 will see an increase in wage & hour lawsuit filings.

And state court cases are not to be forgotten. In 2016, wage & hour class actions filed in state court also represented an increasingly important part of this trend.  Most pronounced in this respect were filings in the state courts of California, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania.  In particular, California continued its status in 2016 as a breeding ground for wage & hour class action litigation due to laxer class certification standards under state law, exceedingly generous damages remedies for workers, and more plaintiff-friendly approaches to class certification as well as wage & hour issues under the California Labor Code.  For the fourth year out of the last five, the American Tort Reform Association (“ATRA”) selected California as one of the nation’s worst “judicial hellholes” as measured by the systematic application of laws and court procedures in an unfair and unbalanced manner. Calling California one of the worst of the worst jurisdictions, the ATRA described the Golden State as indeed that for plaintiffs’ lawyers “seeking riches and the expense of employers …” and where “lawmakers, prosecutors, and judges have long aided and abetted this massive redistribution of wealth.”

 

Authored by Simon L. Yang

Seyfarth Synopsis: Sometimes, plaintiffs’ attorneys have circumvented a key aspect of the California Legislature’s intent in enacting PAGA: limiting standing to pursue penalties for Labor Code violations to those employees who were actually harmed. Though a new California bill could halt those attempts, PAGA plaintiffs’ wiliness warrants a cautionary comment to the Legislature to ensure that any amendment furthers—rather than further frustrates—the original legislative intent.

A New PAGA Bill: Employers should be optimistic that the California Legislature continues to propose bills seeking to curtail PAGA abuse. One recently introduced bill would advance three laudable goals, to close loopholes and preclude arguments that have encouraged absurd interpretations of the original PAGA statute. But the Legislature should mindfully proceed. While one proposed change is straightforward, a second creates confusion absent a quick fix, and a third requires revisiting PAGA’s legislative intent to consider what amendment would be best.

Extension of Time for Employers to Exercise Right to Cure Violations: The first part of the pending bill proposes a clearly needed fix of an oversight within the 2016 amendment. As previously noted, 2016 legislation provided the LWDA with more time to respond to PAGA letters, but failed to also extend the employer’s time to respond. The pending bill would provide employers with 65 days to cure certain Labor Code violations.

Expansion of Scope of Violations Subject to Right to Cure: The proposed bill would also broaden the availability of the right to cure. Currently, many violations are specifically excluded from the cure provisions. According to the bill, an amendment would “exclude only the health and safety violations from the right to cure provisions.” The proposed text within the bill, however, falls short and would create confusion.

A quick fix is all that would be needed, though. To achieve the declared intent, the proposed amendments within Labor Code section 2699.3(c) (providing procedures for curable violations) should be accompanied with deletion of section 2699.3(a), which currently provides procedures lacking any right to cure but applying to some of the Labor Code violations the bill intends to make curable.

Reemphasis on PAGA’s Standing Requirement: The third proposal is the most interesting. The bill’s suggested amendment would reemphasize that “an aggrieved employee may be awarded civil penalties based only upon a violation by the employer actually suffered by that employee.”

At first glance, the proposal restates a given, but it likely responds to some plaintiffs’ efforts to obliterate PAGA’s standing requirement. These plaintiffs have misled courts into believing that an employee aggrieved by one Labor Code violation can invoke PAGA to seek penalties for other violations that the employee never experienced.

That isn’t right. Even PAGA’s initial proponents, in 2003, explained that a standing requirement meant that a PAGA plaintiff could only be someone who had been subjected to the Labor Code violation for which that plaintiff sought to recover penalties:

Only Persons Who Have Actually Been Harmed May Bring An Action to Enforce The Civil Penalties. Mindful of the recent, well-publicized allegations of private plaintiff abuse of [California’s unfair competition law (the “UCL”)], the sponsors state that they have attempted to craft a private right of action that will not be subject to such abuse. Unlike the UCL, this bill would not permit private actions by persons who suffered no harm from the alleged wrongful act. Instead, private suits for Labor Code violations could be brought only by an employee or former employee of the alleged violator against whom the alleged violation was committed. This action could also include fellow employees also harmed by the alleged violation.

The legislative history is consistent throughout, and the final bill analysis preceding PAGA’s enactment maintained that PAGA plaintiffs must have suffered harm from an alleged violation. Those individuals could seek penalties on behalf of “other current or former employees against whom one or more of the alleged violations was committed.” Simply put, someone who was aggrieved by certain Labor Code violations could be a PAGA plaintiff and could sue on behalf of others who also were subject to any of those violations.

But PAGA plaintiffs argue that the enacted statute is contrary. They seize upon PAGA’s definition of an “aggrieved employee,” which they read to comingle concepts. Specifically, they argue that PAGA confers standing not only on those plaintiffs whom the Legislature intended to have standing to be a PAGA plaintiff (i.e., those “against whom the alleged violation was committed”) but also on those employees on whose behalf the PAGA plaintiff could sue (i.e., those “against whom one or more of the alleged violations was committed”).

The result is that absurd arguments abound. For example, some PAGA plaintiffs assert that a non-exempt employee who suffered an expense reimbursement violation can recover penalties on behalf of employees who have been misclassified as exempt!

Two Cents for the Legislature: The proposed amendment—a new Labor Code section 2699.4 establishing that “an aggrieved employee may be awarded civil penalties based only upon a violation by the employer actually suffered by that employee”—is a welcomed attempt to put an end to the silliness. But the proposal restates what was intended to be an evident truth.

Adding a provision to clarify original intent could be argued is unnecessary, especially since the Legislature could simply revisit the definition of an “aggrieved employee.” The definition presently can and should be read without absurdity, but PAGA plaintiffs contort statutory language to assert illogical arguments (like the ability to recover penalties as being irrelevant to standing).

In sum, enacting section 2699.4 to preclude an award of penalties for a violation that a PAGA plaintiff has not suffered merely restates the standing requirement that precludes such an award in the first instance. To the extent the Legislature finds a need to respond to PAGA plaintiffs’ tactics, enacting section 2699.4 might be unnecessarily complicated. A simple amendment to the definition of an aggrieved employee would have the same result.

Authored by Kevin Young

Will the Department of Labor’s new overtime rule go into effect? When will a new Secretary of Labor be confirmed? We don’t have the answers just yet, but a lot has happened over the last few weeks to inch us closer. As things heat up, we wanted to update our readers on all the latest.

Where Do Things Stand in the Fifth Circuit?

As our readers know, Judge Amos Mazzant, a federal judge for the Eastern District of Texas, entered an order preliminarily enjoining the DOL’s new overtime rule on November 21, 2016, just days before the rule was set to take effect. The government (i.e., the defendants in the Texas litigation) appealed the order to the Fifth Circuit ten days later.

Early in the appeal, the government convinced the Fifth Circuit to address the appeal on an expedited basis. Under that schedule, briefing would have ended this week.

Under a new administration, however, the government subsequently filed an unopposed motion to extend the same briefing schedule that it previously sought to expedite so that it could reconsider the positions it has taken thus far. Late last week, the Fifth Circuit granted the motion, extending the briefing schedule to March 2.

Many employers want to know when the appeal will be decided. The answer remains unclear. Under the expedited schedule, the appeal would have been fully briefed this week and oral argument, if any, likely would’ve taken place within the next two or three months. All of that is pushed back now. Moreover, with all signals suggesting the DOL’s presumptive new leadership will take a different approach, the likelihood of there being an appeal to be orally argued is lower today than it was a few weeks ago.

How About the Rest of the Case in the Eastern District of Texas?

While many have turned their focus to the Fifth Circuit appeal of District Judge Mazzant’s preliminary injunction order, there remain two fully-briefed motions before the judge, either of which could have an enormous impact on the case: (1) the AFL-CIO’s motion to intervene as a co-defendant to defend the new rule; and (2) the business and state government plaintiffs’ motion for summary judgment.

If the AFL-CIO is permitted to intervene as a defendant, it could become more difficult for the plaintiffs to work with the government to end the proceedings altogether (which the parties might do if the union were not involved). Even if the government wanted to lay down its shield and settle the case, the AFL-CIO would still be there to defend the new rule. It’s important to note that an order denying intervention would be immediately appealable.

The plaintiffs’ summary judgment motion could be even more impactful. If the district court grants the motion, that would end the case: the new rule would be invalidated, the litigation would end, and the AFL-CIO would have no case to defend. Sure, an order granting summary judgment can be appealed—but who is going to file the appeal? It’s hard to imagine the new DOL leadership (or anyone else in the new administration) doing so. And it’s too soon to say whether the AFL-CIO would go it alone.

Speaking of DOL Leadership, When Will We Have a New Labor Secretary and How Might That Impact the Litigation?

Secretary of Labor nominee Andrew Puzder’s confirmation hearings have been pushed from Thursday, February 2 to Tuesday, February 7. With that delay, the extension obtained in the Fifth Circuit is more important, as it will give Mr. Puzder additional time to get through confirmation, land in office, and execute on any plans concerning the overtime exemptions.

While Mr. Puzder’s immediate priorities are not yet known, the public certainly has insights into his views on core issues, including the new overtime rule. After all, Mr. Puzder has been a prominent commentator on wage and hour issues, including on his blog; in his book, Job Creation: How It Really Works and Why Government Doesn’t Understand It; and in the press.

Based on prior statements, Mr. Puzder certainly seems to share the new administration’s view of an over-regulated labor market, with the new overtime rule being a prominent example. He wrote in a May 18, 2016 opinion column for Forbes:

The real world is far different than the [DOL]’s Excel spreadsheet. This new rule will simply add to the extensive regulatory maze the Obama Administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere. In practice, this means reduced opportunities, bonuses, benefits, perks and promotions.

And with respect to the federal minimum wage, Mr. Puzder has signaled possible support for an increase, but certainly not to the double-digit threshold that many advocates have lobbied for (and successfully achieved in various cities and states). He explained to Fox Business on May 31, 2016:

 [Those demanding a $15 minimum wage] should really think about what they’re doing. There are solutions to this problem, and increasing the minimum wage is not the best solution. If we are going to increase the minimum wage at all, we’ve got to keep a lower minimum wage for entry-level workers, or these people are just going to be shut out of the workforce….The [Congressional Budget Office] came out with a report last year that said you could raise the minimum wage to about $9 without much impact on jobs, and you probably could do that….

Parting Thoughts.

While it’s difficult to know how all of this will unfold, it seems clear that the next couple months could be quite momentous at the district court level, the appellate level, and in Washington, D.C., where new DOL leadership should soon take the helm. We at the Wage & Hour Litigation Blog will, of course, continue to keep our readers apprised of the latest developments.

N.D. CalAuthored by Eric Hill

Seyfarth Synopsis: Airline customer service representative denied pay for pre-employment 10-day classroom training program under the FLSA and California Labor Law.

The maxim “it is extremely difficult to find someone to pay you to learn” has been proven again! This must be why we, or at least most of us, eventually leave school to enter the working world.

Meanwhile, the trend in the law is clear:

  1. Where trainees are truly “learning,” as a precursor to “working,” and are the primary beneficiary of pre-employment training, there is no duty to pay them.
  2. But, where the trainee’s “on the job” training involves performing work an employee would otherwise perform (to the employer’s financial advantage), the trainee must be paid.

In a January 9, 2017 ruling, Judge Vince Chhabria of the Northern District of California held that a customer service representative for Hawaiian Airlines was not entitled to be paid during a 10-day pre-employment training program that consisted of classroom work and tours of the facilities rather than actual “on-the job” customer service training. The decision is notable for its practical, straightforward analysis regarding when trainees should be paid under federal and California law.

The Court adopted the “primary beneficiary test,” cautioned against a mechanistic application of the six Department of Labor criteria, and granted Hawaiian Airlines summary judgment. (While the lawsuit is a proposed class action, the parties opted to file cross-motions for summary judgment before litigating the class certification question.)

According to the Court, the key question was whether the airline was taking financial advantage of the trainee during the training program by using her to perform work that an employee would otherwise perform. Because the plaintiff did not perform the work of the customer service employees, the Court found no reasonable juror could conclude she was acting as an “employee” during her training course.

The Court noted the classroom instruction and touring were only precursors to performing the work of an employee. The airline did not receive any direct benefit from the training, which taught trainees about FAA regulations, the computer system, and the way the company operated. Because the airline was not using the trainees as “anything close to employees,” the plaintiff was the “primary beneficiary” of the training.

As is the trend, the Court rejected the argument that a trainee is an employee unless the employer can satisfy all six of the DOL’s criteria. Stating that the six criteria are “relevant but not conclusive,” the Court focused instead on whether the trainee or the employer was the “primary beneficiary” of the training. It warned against “mechanistically applying the six criteria,” and called the case “a good illustration” of why “just about every court” has “rejected the Department of Labor’s approach.”

The Court emphasized that the DOL’s criteria seem to be designed for true “on-the-job” training, whereas the plaintiff here was not involved in this type of training. The Court also pointed out there is no difference between the federal and California legal standards for determining whether a worker qualifies as an “employee” during training.

Despite its warnings about reliance on the six DOL criteria, the Court found that application of the criteria would lead to the same result. The criteria are:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees; and on occasion his operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent training.

This decision is not the first “training time” case to grant summary judgment to an employer under these circumstances. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that trainees will be deemed to be employees. But they do signal that, where trainees are not performing the work of the employees and are not engaging in traditional work-alongside-the-employees “on the job” training, they do not cross the line from “trainee” to “employee” and need not be paid as a matter of law.

Co-authored by David S. Baffa, Candice T. Zee, and Alexius Cruz O’Malley

Seyfarth Synopsis: The U.S. Supreme Court has agreed to decide whether workplace arbitration agreements containing class and collective action waivers are enforceable under the FAA, notwithstanding the provisions of the NLRA.

Earlier today, the United States Supreme Court granted and consolidated three petitions for certiorari, to consider whether employers can require employment-related disputes to be resolved through individual arbitration, and waive class and collective proceedings, are enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.

Three circuits—the Second, Fifth, and Eighth—have concluded that agreements that waive class and collective proceedings, thus requiring that claims be arbitrated on an individual basis, are fully enforceable. Two circuits—the Seventh and Ninth Circuit—as well as the National Labor Relations Board, have concluded that waivers in mandatory arbitration programs are unenforceable because the waivers prevent employees from engaging in concerted activities under the National Labor Relations Act.

The National Labor Relations Board asked the Supreme Court to review and reverse the Fifth Circuit’s ruling, in which the Court rejected the Board’s position that such agreements unlawfully interfere with employees’ NLRA rights to engage in concerted activity for their mutual aid or protection.

Two employers also asked the Supreme Court to review decisions by the Ninth and Seventh Circuits in which the courts found the class waivers to be unlawful. The U.S. Supreme Court has consolidated all three cases and oral argument likely will be held in March.

The U.S. Supreme Court has decided time and again that the Federal Arbitration Act strongly favors private resolution of disputes, and that agreements to arbitrate that include these waivers must be afforded great deference and should be enforced. See AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. ––, 133 S. Ct. 2304 (2013). Because the Supreme Court has not directly addressed these agreements in the context of employment arbitration or considered whether Section 7 of the National Labor Relations Act prohibits such agreements, the courts have come to opposite conclusions.

This critically important question has significant implications for employers, in that identical contractual provisions might be considered lawful and enforceable within some circuits, but not in others. Employers, particularly multi-state employers utilizing uniform arbitration agreements across the country, have been grappling with the uncertainty of the efficacy of their arbitration agreements for years. Stay tuned.

Authored by Rachel M. Hoffer

It’s a common business model in the fast-food industry: a massive restaurant company provides the menu, the marketing—including catchy slogans and a universally recognized logo—and the basic operational standards for the restaurant, and a franchisee provides the rest—including hiring, training, and firing restaurant employees. Unfortunately for the fast-food giants (the notorious FFGs, if you will), it’s also common for disgruntled employees to name them in lawsuits—particularly super-sized class-action lawsuits—against the franchisee.

In March 2014, three fast-food workers from Oakland did just that—they sued the family-owned company that operates 8 franchise restaurants in Northern California, and they brought the FFG along for the ride under a joint employment theory, serving up a complaint chock full of California Labor Code, Private Attorneys General Act (PAGA), and negligence claims. Last August, a federal judge in California dismissed the negligence claim on summary judgment and rejected the workers’ theory that the franchisee acted as the FFG’s actual agent. But the judge didn’t toss out the workers’ claims completely, finding the plaintiffs had presented enough evidence of ostensible agency to have their day in court with the FFG.

Determined to have it their way, right away, the plaintiffs settled their claims against the franchisee but moved to certify a class of more than 1,200 hourly workers who had worked at the franchisee’s eight restaurants. Unwilling to pick up the franchisee’s remaining tab, the FFG moved to deny class certification and to strike the representative PAGA claim. And the FFG did what Giants tend to do in San Francisco—it won. Last week, the judge found that the workers’ ostensible agency theory required too many individualized inquiries to be decided on a class basis.

Under an ostensible agency theory, the FFG is on the hook for the franchisee’s actions if the worker can prove: (1) in dealing with the franchisee, the worker reasonably believed the franchisee had the authority to act on the FFG’s behalf; (2) the worker’s belief was caused by something the FFG did or failed to do; and (3) the worker wasn’t negligent in relying on the franchisee’s apparent authority.

The workers argued that the questions of law or fact common to potential class members outweighed the questions that affected only individual members, and that a class action was the best way to fairly and efficiently decide their claims. In support of this argument, the workers asserted that the “belief” prong of the first requirement—that the potential class members believed the franchisee had the authority to act for the FFG—could be inferred from the circumstances. The judge wasn’t convinced that the law allows such an inference, nor was he convinced that the evidence supported such an inference. Instead, the evidence showed that class members received different information about the franchisee’s authority, and some actually understood that the FFG was not their employer. So, the question of belief had to be decided on an individual basis.

The judge also found that there was no way to determine, on a class basis, whether such a belief was reasonable and not negligent. Rather, what each worker knew (or should have known) varied depending on the circumstances. Some workers, for example, were told during orientation that the franchisee was their employer and the FFG was not. Some workers received and read documents informing them that the franchisee, not the FFG, was their employer; others either did not receive or did not read that paperwork. In other words, whether a belief was reasonable and not negligent depended on the information available to each worker.

Likewise, the judge found that reliance can’t be determined on a class-wide basis. The workers—pointing to out-of-context case law—argued that courts often presume reliance when there is no evidence that the plaintiff knew or should have known that the purported agent was not an agent of the principal. But even if that case law applies in the franchise context, the workers’ argument begged the question; the presumption couldn’t apply on a class-wide basis because, as the judge had already explained, the knew-or-should-have-known question couldn’t be answered on a class-wide basis. The order: individualized inquiries, all the way.

The workers also argued that the court should certify a class because they were seeking injunctive relief on a class-wide basis. But the judge didn’t see how an injunction against the FFG could help the franchisee’s employees, when he had found in his summary-judgment opinion that the FFG didn’t control the aspects of their employment at issue in the case. Simply put, where’s the beef?

The workers’ PAGA claim fared no better; the judge found that a representative PAGA action wouldn’t be manageable because it relied on the ostensible agency theory, which could only be established through individualized inquiries. So, while the three plaintiffs can still pursue their individual claims against the FFG on an ostensible agency theory, those are small fries compared to the representative claims they had hoped to bring on behalf of more than 1,200 other workers.

The take-home for the notorious FFGs who franchise independent restaurant owners, of course, is to stay out of the kitchen when it comes to the relationship between the franchisee and its employees. And, for the FFGs’ sake, franchisees should make sure employees know where their bread is buttered.

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

Seyfarth Synopsis: In McCaster v. Darden Restaurants, the Seventh Circuit affirmed the District Court’s order denying class certification of claims for denial of earned vacation benefits at separation and granting summary judgment on part-time workers’ claims for accrual of benefits under policies that limited eligibility to full-time employees. The decision is an important one for vacation pay claims, as well as defense strategies to block class certification in wage & hour litigation.


Employers who offer vacation benefits have been subject to confusing and inconsistent rulings about eligibility requirements and accrual of benefits, along with litigation from enterprising plaintiffs’ class action lawyers seeking to take advantage of such uncertainty. On January 5, 2017, the U.S. Court of Appeals for the Seventh Circuit provided some welcome clarity when it rendered an employer-friendly decision in McCaster v. Darden Restaurants, Inc., No. 15-3258 (7th Cir. Jan. 5, 2017).

The Seventh Circuit ruled that eligibility requirements, like those limiting paid vacation benefits to full time employees, do not run afoul of “length of service” concepts that prohibit forfeiture of earned vacation benefits upon separation. Further, the Seventh Circuit set the bar for plaintiffs seeking to pursue such violations on a class-wide basis, holding that they may not do so without demonstrating an unlawful practice that spans the entire class of individuals subject to the vacation policy. As such, the Seventh Circuit’s opinion should have far-reaching implications.

Factual Background

Plaintiffs worked intermittently as hourly employees at Darden-owned restaurants for a period of time spanning roughly eight years. Id. at 2. McCaster worked primarily worked at a Red Lobster before June 1, 2008, and Clark primarily worked at an Olive Garden after June 1, 2008. Id. at 2-3.

During this time, Darden paid eligible employees vacation or “anniversary” pay when they reached the annual anniversary of their hiring date. Id. at 3. When an employee ceased working for the company, Darden included in the employee’s final paycheck the pro rata amount of anniversary pay he had earned prior to the date of separation. Id. Starting June 1, 2008, Darden limited vacation pay to full-time employees, defined as those who worked at least 30 hours per week. Id.

In this proposed class action, McCaster alleged that, prior to June 1, 2008, Darden failed to pay him accrued vacation pay when he left his job at Red Lobster, even though he had earned about 12 vacation hours in violation of the Wage Payment Collection Act (“IWPCA”). Id. Clark alleged that, after June 1, 2008, Darden failed to pay her vacation pay when she separated from employment. Id. at 3-4.

Plaintiffs moved to certify a class of “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy … and who did not receive all earned vacation pay benefits.” Id. at 4. The District Court rejected this definition because it described an improper fail-safe class. The District Court also rejected the plaintiffs’ proposed alternative definition because it failed to meet the requirements of Rule 23. Id.

Darden moved for partial summary judgment on Clark’s individual claim. Id. The company argued that Clark was not eligible for vacation pay during the relevant time period because she worked part-time. The District Court agreed and granted the motion. Id. at 5. McCaster subsequently settled his individual claim but reserved the right to appeal the denial of class certification. This appeal followed.

The Seventh Circuit’s Opinion

The Seventh Circuit affirmed the District Court’s orders denying class certification and granting summary judgment.

At the outset, the Seventh Circuit held that, because Darden’s vacation-pay policy covered only full-time employees, Clark did not qualify for benefits. Id. at 5. Clark argued that if an employer provides paid vacation to its full-time employees on a pro rata length-of-service basis, it may not deny this same benefit to its part-time employees. The Seventh Circuit rejected Clark’s argument.

The Seventh Circuit held that Clark’s interpretation had no support in the text of the IWPCA, its implementing regulations, or in Illinois cases interpreting it: “[T]he Act merely prohibits the forfeiture of accrued earned vacation pay. Whether an employee has earned paid vacation in the first place depends on the terms of the employer’s employment policy.” Id. at 6. Because Clark did not work full time, she did not accrue benefits subject to forfeiture at separation.

The Seventh Circuit further concluded that the District Court did not abuse its discretion in denying class certification. Id. at 8. The Seventh Circuit held that, under Plaintiffs’ class definition, class membership turned on whether class members had valid claims. As such, Plaintiffs defined “a classic fail-safe class,” which the District Court properly rejected. Id. at 9.

Although Plaintiffs offered an alternative definition free from fail-safe concerns, including “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy.” the Seventh Circuit held that the District Court properly rejected it for failure to satisfy the requirements of Rule 23. Id. at 10.

The Seventh Circuit concluded that Plaintiffs’ alternative class failed to satisfy the commonality requirement. Id. at 11. Whereas the proposed alternative class consisted of all separated employees from December 11, 2003, to the present, Plaintiffs failed to identify any unlawful conduct on Darden’s part that spanned the entire class and caused all class members to suffer the same injury. Plaintiffs simply argued that some separated employees did not receive all the vacation pay they were due. The Seventh Circuit noted that “[t]hat may be true, . . . But establishing those violations (if there were any) would not involve any classwide proof.” Id. at 12.

Implications For Employers

The Seventh Circuit provided welcome clarity for employers that maintain vacation policies by cutting through conflicting case law and setting the bar for class certification of supposed violations. McCaster establishes that employers may set eligibility requirements that differentiate workers and rejects the notion that part-time workers accrue vacation benefit under a policy that limits participation to full-time employees. Further, in setting a bar for certification of such cases, the Seventh Circuit made clear that the commonality requirement remains a significant threshold for plaintiffs seeking to litigate their claims on a representative basis. It rejected the notion that mere violations of a pay policy are eligible for resolution on a class basis without some evidence of a state-wide practice that caused all class members to suffer the same injury. As a result, the opinion should have far-reaching and lasting impact.

coins-currency-investment-insurance-128867Co-authored by Robert S. Whitman and Howard M. Wexler

With employers about to ring in 2017, the New York State Department of Labor—with only two days to spare—has finalized regulations to increase the salary threshold for exempt status. The regulations, originally introduced on October 19, 2016, take effect on December 31, 2016.

Employers were hopeful that the State would abandon (or delay) these regulations given the now-enjoined U.S. Department of Labor’s overtime exemption rules that were set to go into effect on December 1, 2016. In response to such concern, however, the State DOL noted, “this rulemaking is not based on, or related to, the federal rulemaking concerning salary thresholds…this rulemaking is required by law and non-discretionary. Its purpose and effect is to maintain the longstanding historical relationship between minimum wage and salary threshold amounts…”

In keeping with the upcoming gradual increase in the State’s minimum wage levels, the new tiered salary thresholds for exempt status across the state will be:

Large Employers (11 or more employees) in New York City

  • $825.00 per week on and after December 31, 2016;
  • $975.00 per week on and after December 31, 2017; and
  • $1,125.00 per week on and after December 31, 2018.

Small Employers (10 or fewer employees) in New York City

  • $787.50 per week on and after December 31, 2016;
  • $900.00 per week on and after December 31, 2017;
  • $1,012.50 per week on and after December 31, 2018; and
  • $1,125.00 per week on and after December 31, 2019.

Employers in Nassau, Suffolk, and Westchester Counties

  • $750.00 per week on and after December 31, 2016;
  • $825.00 per week on and after December 31, 2017;
  • $900.00 per week on and after December 31, 2018;
  • $975.00 per week on and after December 31, 2019;
  • $1,050.00 per week on and after December 31, 2020; and
  • $1,125.00 per week on and after December 31, 2021.

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

  • $727.50 per week on and after December 31, 2016;
  • $780.00 per week on and after December 31, 2017;
  • $832.00 per week on and after December 31, 2018;
  • $885.00 per week on and after December 31, 2019; and
  • $937.50 per week on and after December 31, 2020.

In addition to the increased salary levels, the new regulations adjust the amount employers can deduct for employees’ uniforms and claim as a meal and tip credit in line with the gradual increase of the minimum wage toward $15. There is a tiered system for these changes as well depending on the employer’s location.

Authored by

Seyfarth Synopsis: In what many employers will see as a “break” from workplace reality, the Supreme Court, in Augustus v. ABM Security Services, Inc., announced that certain “on call” rest periods do not comply with the California Labor Code and Wage Orders. As previously reported on our California Peculiarities Employment Law Blog, this decision presents significant practical challenges for employers in industries where employees must respond to exigent circumstances.


On December 23, 2016, the California Supreme Court issued its long-anticipated decision in Augustus v. ABM Security Services, Inc., affirming a $90 million judgment for the plaintiff class of security guards on their rest break claim. The Supreme Court found that the security guards’ rest breaks did not comply with the California Labor Code and Wage Orders, because the guards had to carry radios or pagers during their rest breaks and had to respond if required.

The Supreme Court took a very restrictive view of California’s rest break requirements, concluding that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest breaks.” Thus, in the Supreme Court’s view, an employers may not require employees to remain on call—“at the ready and capable of being summoned to action”—during rest breaks.

See our One Minute Memo for more details on the decision and thoughts on the implications of this case for California employers. The Augustus decision presents significant practical challenges for employers, especially in industries in which employees must be able to respond to exigent circumstances.

Workplace Solution:

The holding that “on call” rest periods are not legally permissible should prompt employers to evaluate their rest-break practices. In industries where employees must remain on call during rest periods, employers should consider seeking an exemption from the Division of Labor Standards Enforcement. Lawyers in the Seyfarth California Workplace Solutions group can assist with other suggestions for responding to this decision.

Co-authored by Steve Shardonofsky and Tiffany Tran

Resolving a split in the lower courts and deciding an issue of first impression for the Court, the Fifth Circuit earlier this week held that prevailing plaintiffs in FLSA retaliation cases may recover emotional distress damages. While perhaps not unexpected, since the result joins with the majority rule in other Circuits, the outcome means that the costs to litigate these claims and the potential exposure may increase dramatically by the inclusion of possible emotional distress damages. The number of claims will likely increase as well, since plaintiffs with little or no economic damages now have another reason to sue.

In Pineda v. JTCH Apartments, LLC, Santiago Pineda filed an FLSA lawsuit to recover overtime for maintenance work he performed for the property owner (JTCH Apartments, LLC) at the apartment complex where he and his wife, Maria Pena lived. In exchange for the work, Pineda claimed he received discounted rent, but was not paid overtime. Three days after Pineda filed suit, Pineda and Pena received a notice to vacate their apartment for non-payment of rent equal to the amount of the prior rent discounts. After leaving the apartment, Pena (who leased the apartment) subsequently joined her husband’s lawsuit and both of them asserted retaliation claims, alleging that the eviction notice and demand for rent owed were meant to punish them for the initial overtime suit. A jury ultimately found for Pineda on both his overtime and retaliation claims. The district court refused to instruct the jury on Pineda’s emotional distress damages for his retaliation claim and also dismissed Pina’s retaliation claim because she was not an “employee” of JTCH Apartments and therefore could not assert claims under the FLSA.

Numerous federal appellate courts (including the First, Second, Sixth, Seventh, and Ninth Circuits) have directly and indirectly allowed for the recovery of emotional distress damages in in FLSA retaliation cases. Acknowledging this background, the Fifth Circuit found that the language in the FLSA’s damages provision allowing “such legal or equitable relief as may be appropriate ” should be read expansively to include compensation for emotional distress that is typically available for intentional torts like retaliatory discharge. In so holding, the Fifth Circuit distinguished its prior ruling that emotional distress damages are not available under the ADEA, even though both statutes contain somewhat similar language and should be interpreted consistently. The Court also found that Pineda’s testimony regarding marital discord, sleepless nights, and anxiety about where his family would live after the eviction was sufficient to have the jury decide this issue.

Citing Thompson v. N. Am. Stainless, LP, Pena alleged that as the spouse of an employee who was retaliated against she was within the “zone of interests” protected by the statute. The Fifth Circuit, however, rejected this argument because Thompson applied under Title VII, which applies to a “person claiming to be aggrieved,” whereas the anti-retaliation provision of the FLSA makes it unlawful to discharge or discriminate against “any employee.” The Court affirmed dismissal of Pena’s claim and remanded the case for a determination about whether Pineda is entitled to compensation for emotional distress.

Although not unexpected, the result in Pineda means that potential exposure, settlements, and jury awards for FLSA retaliation claims in the Fifth Circuit may increase dramatically by the inclusion of possible emotional distress damages. The cost to defend these claims will increase as well, as parties will be required to investigate and litigate these fact-intensive damages issues. The number of claims may increase over time as well, since plaintiffs with little or no economic damages now have another reason to pursue their claims. On the other hand, with a resounding “no,” the Fifth Circuit has quashed any lingering doubt about whether a Thompson-style “zone of interests” test applies under the FLSA.