By: Colleen M. Regan

Seyfarth Summary: On July 12, 2018, the California Supreme Court agreed to address questions posed by the Ninth Circuit about whether California Labor Code provisions apply to an out-of-state employer whose employees work part of their time in California. Nationwide employers with employees jetting in to work temporarily in California need to return their seats to an upright position and follow this developing story.

Is your business flying high in the current economy? Profits reaching new altitudes? Maybe you have employees residing in one state while working in another. If some work occasionally in California, prepare to fasten your seatbelts for a potentially rough landing. Even if your employees work in California only intermittently (think partial days), and even if your company is not headquartered in the Golden State, the California Supreme Court may soon bring you down to earth.

Background

Traditionally, employers in paying their employees have applied the wage and hour law of the state where the employee sides or most often works, even if the employee occasionally works in another state. In California, however, the rules are peculiar.

In a 2011 decision, Sullivan v. Oracle, the California Supreme Court held that non-California residents working in California for a California-based employer were subject to California daily overtime laws if they performed their in-state work for whole days. Oracle left employers up in the air as to whether California law would apply in other contexts, such as (a) when non-California residents work partial days of work in California, (b) when the employees worked for non-California based employers, or (c) when the wage and hour provisions at issue were something other than the cal-peculiar rules on daily overtime.

The Certified Questions

Which brings us to the current Ninth Circuit cases. Specifically, in three airline cases raising California issues in federal court (two cases against United Airlines, one against Delta), the Ninth Circuit requested the California Supreme Court to address five questions, paraphrased below:

(1) Does the federal Railway Labor Act exemption found in Wage Order 9 bar a wage-statement claim (Labor Code § 226) by an employee who is covered by a collective bargaining agreement?

(2) Does Section 226 apply to wage statements that an out-of-state employer provides to an employee who resides in California, who receives pay in California, and who pays California income tax on her wages, but who does not work principally in California?

(3) Does Section 226 and Labor Code § 204 (governing timely wage payments to current employees) apply to payments that an out-of-state employer makes to an employee who, in the relevant period, works in California only episodically and for less than a day at a time?

(4) Does California minimum wage law apply to out-of-state employers for the California work that their employees perform in California only episodically and for less than a day at a time?

(5) Does California’s peculiar rule preventing pay-averaging for employees paid by commission or piece rate apply to a pay formula that generally awards credit for all hours on duty, but that does not always award pay credit for all hours on duty?

In the underlying lawsuits, United pilots and Delta flight attendants claim that the airlines violated California Labor Code provisions on wage statements, minimum wage, and the timing and completeness of wage payments. United (based in Chicago) and Delta (based in Atlanta) both won at the district court level, successfully arguing that de minimis work within California does not trigger California law, especially when (i) the employers are not based in California, (ii) the employees work only limited amounts of time in the state, and (iii) the employees mostly work in federal air space and in multiple jurisdictions during a single pay period or even a single day.

Why Does This Matter to Employers Based Outside California?

The guidance that the California Supreme Court will issue may ensnare non-California employers in a complex web of Labor Code laws for employees who work in California only sporadically, or who merely stop in California on their way to other work locations. It remains to be seen whether the Supreme Court will stretch to apply California’s peculiar rules on wage statements, daily overtime, and minimum wage to such transitory California work. Or whether California rules on meal and rest beaks, or paid sick time, might also be implicated.

Based on recent emanations from our high court, we would not be surprised to see another extension of California’s employee-protective laws. Any such extension would be highly problematic in light of California’s robust civil and statutory penalties for Labor Code violations. The state’s Private Attorneys General Act authorizes penalty lawsuits brought on a representative basis on behalf of all “aggrieved employees or former employees.” While we do not predict that California will attempt to regulate employment of individuals who merely fly through California airspace, all employers with employees having feet on the ground in California need to sit up, return their tray tables to their original position, and be alert to these pending decisions.

Workplace Solution: The California Supreme Court’s opinion regarding the certified questions will not come down for many months. In the meanwhile, sit back, enjoy the flight, and watch this space for further developments. Feel free to contact your favorite Seyfarth attorney if you would like to discuss.

By: Ariel D. Fenster and Brett C. Bartlett

Seyfarth Synopsis: The Eleventh Circuit recently affirmed the district court’s grant of summary judgment to two Florida counties in an action brought against former sheriff deputies under the Fair Labor Standards Act (FLSA) and Florida Minimum Wage Act (FMWA). The court held that the deputies were not entitled to compensation for the time that they spent donning and doffing police gear at home or the time that they spent driving to and from work in marked patrol vehicles.

Should we be paying our employees before their shifts start?  The answer is highly fact dependent.  In recent weeks, the Eleventh Circuit affirmed the Middle District of Florida’s decision that the time deputies spent putting on their police gear at home and driving to and from work in their patrol cars was not compensable.  In Llorca v. Sheriff Collier County, Florida,  the Eleventh Circuit analyzed what type of pre-shift activities may qualify for hourly compensation.  The decision provided a deep analysis of the Portal-to-Portal Act of 1947, as amended by the Employee Commuting Flexibility Act of 1996.  In relevant part, the act states that an employer does not have to pay its employees for activities that are “preliminary or postliminary” to the “principal activity” of the job.   The U.S. Supreme Court has long interpreted the term “principal activity or activities” to include all activities that are an “integral and indispensable part of the principal activities.”

Continue Reading The Eleventh Circuit Affirmed It Was Not A “Crime” To Not Compensate For Dressing and Drive Time

By: Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: A New York federal court once again denied a motion for conditional certification of a nationwide collective action against Barnes & Noble.  The ruling highlights that, even though the burden for “first stage” certification is modest, courts are willing to apply a “modest plus” approach after discovery relevant to conditional certification has taken place.  It also shows the potential positive impact the Supreme Court’s recent Encino Motorcars decision may have for employers opposing conditional certification.

Foreword

Once upon a time, we blogged about a decision in the Southern District of New York denying conditional certification of a nationwide collective of café managers at Barnes & Noble.  Undeterred, the managers again sought conditional certification, this time after the parties conducted extensive discovery focused on issues pertinent to conditional certification.  Magistrate Judge Katharine H. Parker concluded this story by again denying conditional certification, finding that “the solicitation of additional opt-ins will raise more questions and prolong the resolution of this case” given the differences between putative class member.

Chapter 1:  The First Denial

Our tale concerns claims that the café managers were misclassified as exempt under the FLSA.  In her prior decision, Judge Parker denied conditional certification without prejudice given the lack of evidence as to whether the named plaintiffs were similarly situated to the putative class.  She held that she could not “infer that Defendant had a de facto policies of requiring all 1,100 café managers to perform non-exempt work based on the personal experiences of the nine people who have joined this suit” and “nor can it infer such a policy from general assertions” and “cookie-cutter declarations.”

Chapter 2:  Discovery Ensues

Seeking an alternate ending, the plaintiffs advanced the plot, taking extensive discovery focused on conditional certification, including the production of more than 25,000 pages of documents, more than ten depositions, several written statements from opt-ins concerning their job duties, and obtaining contact information for 200 putative members of the putative collective so they could interview them about their job duties.  Given this extensive discovery, Judge Parker held that she would apply a “modest plus” standard in this chapter to determine whether conditional certification was appropriate, rather merely requiring a “modest factual showing.”

Chapter 3:  The Second Denial

Judge Parker began her analysis with a flashback to the Supreme Court’s April 2018 decision in Encino MotorcarsIn that gripping drama, the Court rejected the longstanding notion that FLSA exemptions should be construed narrowly.  Although not faced with deciding whether the managers were in fact misclassified as exempt, Judge Parker cited to Encino Motorcars to set the stage for her decision on certification, stating that she would be guided by “the Supreme Court’s recent pronouncement about FLSA exemptions when evaluating whether Plaintiffs have met their burden of demonstrating the existence of common nationwide policies.”

Under this “modest plus” standard, Judge Parker again denied conditional certification.  In relevant part, Judge Parker held:

In sum, even accepting as true that BN scheduled and directed Café Managers to perform non-exempt tasks, the evidence presented by Plaintiffs does not demonstrate that it is more likely than not that Plaintiffs were subject to a common policy applicable to all Café Managers nationwide requiring them to primarily perform non-exempt duties. It is not enough for Plaintiffs to present policies that BN scheduled or directed Café Managers to perform some non-exempt tasks, because the core issue is whether Plaintiffs have raised an inference that Café Managers’ primary duties were non-managerial.

The plot thickened. Judge Parker further noted that, “Plaintiffs’ varying testimony suggests that some Plaintiffs may have performed more managerial duties than others underscoring the likelihood that…the Court may need to evaluate each Plaintiff individually to determine their primary duties.”

In her final pages, Judge Parker once again dispelled the oft-cited theory advanced by plaintiffs that the reclassification of a position from exempt to non-exempt shows that the position was uniformly misclassified previously.

Epilogue:  What’s Next?

It remains to be seen whether Plaintiffs will try to make this duology into a trilogy by challenging Judge Parker’s decision to the District Judge.  Regardless, this decision, like the one before it, may become a “best seller” for employers in fending off conditional certification motions given its adoption of the “modest plus” standard and reliance on Encino Motors by, in effect, requiring Plaintiffs to show that the putative collective is subject not just to a common practice, but one that would actually violate the FLSA.

By: Simon L. Yang and Kevin M. Young

Seyfarth Synopsis: Most wage and hour laws set out to benefit and protect workers in some way. The recent wave of state and local predictive scheduling laws and minimum wage hikes is no different. Yet it is critical to assess, and attempt to account for, the possibility that these laws could hasten the demise of the very jobs held by the workers they intend to protect the most.

While opinions differ as to how much or how soon workers will have to adapt to the automation tsunami, this trend seems certain to impact the workplace in myriad ways. For example, a recent study focused on the Indianapolis workforce suggests not only the potential for job loss, but unfortunately, a pronounced impact on occupations disproportionately held by women.

Meanwhile, another trend impacting the American workforce involves more active state and local lawmaking concerning wage and hour issues. Prime examples include minimum wage increases and predictive scheduling laws, which are being proposed and enacted across the country with increasing frequency.

With respect to minimum wage hikes, employers are well aware of the “Fight For $15” movement that started in Seattle in 2012. States like California have joined cities like Seattle in enacting laws that phase in $15 minimum wages. Many other jurisdictions have enacted minimum wage ordinances that soar above the federal $7.25 minimum.

Predictive scheduling laws represent a more recent, but arguably more impactful, trend in the retail and foodservice industries. While such laws (or proposals) vary by jurisdiction, they generally require employers to (1) set work schedules at least two weeks in advance; and (2) pay an employee for a certain number of hours not worked due to a subsequent schedule change. These laws also often restrict whether and when a business may hire part-time labor and impose minimum payments for on-call periods when no work is performed.

While these state and local laws intend to benefit workers in today’s economy, it is fair to question what the longer term net impact of this sort of legislation might be.

Even in the short-term, these laws could run counter to other trends in the American workforce. For example, a great many workers value flexible work arrangements and freedom over concrete work expectations and long-term commitments. On the one hand, laws that require employers to adhere to a work schedule set weeks in advance could promote flexibility through predictability. On the other hand, however, such requirements could get in the way of workers who value part-time work over full-time work or who would strongly prefer to go home early if demand is lower than anticipated.

Looking further down the line, the potential ramifications of these legislative efforts loom even larger. By increasing the threshold cost of labor, minimum wage hikes could make the prospect of reducing labor hours, whether via job automation or other means, far more attractive to certain employers. For example, a study on the Seattle minimum wage ordinance found that workers’ hours are being reduced at a rate that exceeds increased wages, resulting in a $74 reduction in average monthly earnings for workers in low-wage jobs.

Predictive scheduling laws seemingly risk the same brand of unintended consequences. To date, these laws have been concentrated in the retail and foodservice industries, where labor costs oftentimes constitute the greatest expense on an employer’s P&L statement. It is fair to wonder how, over time, employers in these industries will adapt to laws that could require them to incur labor expenses not only for hours worked by their employees, but also for certain hours not worked.

None of this is to suggest a particular view on the wisdom of state and local minimum wage and predictive scheduling laws. Protecting the workers of today is a worthy cause. But so too is accounting for the workers of tomorrow. If these new laws could fuel certain businesses to eliminate or automate jobs, or to shy away from mutually desirable part-time or flexible work arrangements, that creates an issue that both opponents and proponents of the laws should be interested in solving.

There is no clear answer on how to balance and account for these issues; the question is layered with political, policy, and ethical considerations that go beyond the confines of a blog post. What does seem clear, however, is that single-faceted wage and hour lawmaking that focuses only on the workers of today could in fact hinder the workers of tomorrow.

By: Noah A. Finkel, David S. Baffa, Daniel C. Whang, and Andrew L. Scroggins

Seyfarth Synopsis:  In one of the most significant employment cases in memory, a sharply divided United States Supreme Court held today that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain waivers of the ability to participate in a class or collective action under various employment statutes.

There is no longer any reason under the law why an employer cannot require its employees to waive the ability to bring a class or collective action under federal, state, and local employment laws.

While there are certain exceptions (explained below), the United States Supreme Court today removed the last potential legal barrier to the enforcement of class waivers in the employment sphere.  In a 5-4 decision authored by Justice Neil Gorsuch, it held in three cases consolidated for review that requiring employees to agree to arbitration agreements with class waivers does not violate the National Labor Relations Act (“NLRA”) and that such agreements are fully enforceable.

The only foreseeable barrier to enforcement of a class waiver would be federal legislation amending the Federal Arbitration Act (“FAA”) or state legislation permitting private attorney general actions such as California’s Private Attorneys General Act (“PAGA”).  Employers who maintain mandatory arbitration programs with class waivers can be assured for the time being that those waivers provide a valid defense to a collective or class action.  Employers who do not have such arbitration programs need to be aware of this significant development in the employment law landscape and at least consider whether an arbitration program with a class waiver is appropriate for them.

Be aware, however, that a class waiver in an arbitration program does not mean the end of all multi-claimant litigation.  As those with operations in California know, employees who have entered into class waivers with their employers nevertheless may bring PAGA actions in that state.  Likewise, agency-initiated actions are not impacted, leaving the Department of Labor and the Equal Employment Opportunity Commission free to pursue relief under the statutes they enforce on behalf of employees regardless of whether those employees have entered into class waivers.  Meanwhile, some plaintiff-side attorneys have become skilled at bringing dozens of single-claimant arbitration matters against an employer at the same time, which might cost an employer more than defending a collective or class action in court.

An arbitration program with a class waiver isn’t necessarily for every employer.  But this ruling certainly will cause more employers to adopt arbitration programs with class waivers, and likely will reduce the number of class and collective actions employers face.

The Path Leading to the Decision

Beginning with its 2011 decision in AT&T Mobility v. Concepcion, the Supreme Court has blessed the validity and enforceability of class waivers in arbitration agreements.  This was followed by decisions in CompuCredit Corp. v. Greenwood and American Express Co. v. Italian Colors Restaurant, where the Supreme Court forged jurisprudence that made class waivers seem unassailable in the commercial context.  But because none of the cases involving class waivers before the Supreme Court were in the employment context, uncertainty existed as to whether class waivers in mandatory employment arbitration agreements were enforceable.

This uncertainty was amplified by the National Labor Relations Board’s 2012 decision in D.R. Horton, which rejected workplace class waivers.  In the Board’s view, class waivers prevent employees from engaging in protected concerted activity in violation of Section 7 of the NLRA.  The Board continued to press its view even after the Second, Fifth, and Eighth Circuits refused to enforce the rule.  Then in 2016, the Seventh Circuit created a circuit split with its decision in Lewis v. Epic Systems Corp., which held that the right to bring a class or collective action is protected concerted activity under the NLRA, and that class waivers violate that right.  The Sixth and Ninth Circuit followed the Seventh Circuit’s reasoning, deepening the split.

The Supreme Court granted cert in three cases to resolve the issue of whether employers who require employees to arbitrate claims on an individual basis are preventing employees from engaging in protected concerted activity in violation of the NLRA.  On October 2, 2017, the Supreme Court heard oral argument, and today it issued its decision in a split that is just as close as the circuit split below.

The Court’s Reasoning

The Supreme Court began with the premise that the Federal Arbitration Act (FAA) is unequivocal in its mandate that courts enforce arbitration agreements.  The Court’s majority decision rejected the argument that the NLRA overrides that command by rendering a class waiver unlawful.  In the majority’s view, Section 7 of the NLRA does not create a right to pursue a collective or class action.  Rather, Section 7 focuses on the right to organize unions and bargain collectively and does not mention  class or collective action procedures, the majority reasoned.

Section 7’s catch-all provision that employees  must be permitted to engage in “other concerted activities for the purpose of . . . other mutual aid or protection” does not protect the right to participate in a class action because it only protects activities similar to those explicitly listed in Section 7 and thus reaches only to “things employees do for themselves in the course of exercising their right to free association in the workplace.”

The majority supported its holding with other observations, including that: class and collective action procedures were “hardly known” in 1935 when the NLRA was passed; the NLRA states no rules on class or collective action, in contrast to the regulatory regime it imposes surrounding other concerted activities; and the collective action procedures under the Fair Labor Standards Act (“FLSA”) — the statute under which the employees’ underlying causes of action arise — is just like the collective action procedures under the Age Discrimination in Employment Act, which the Supreme Court previously has held does not prohibit mandatory individual arbitration.

At bottom, the Court’s majority was unwilling to infer a Section 7 right to a class or collective action based on “vague terms or ancillary provisions” that would “dictate the particulars of dispute resolution procedures in Article III courts or arbitration proceedings–matters that are usually left to, e.g., the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA.”

The reasoning of the majority, as articulated by Justice Gorsuch, is broader than some expected.  His majority opinion does not merely hold that between conflicting rights and interests of the FAA and NLRA, the FAA wins.  Rather, the majority suggests that there may not be any Section 7 right to pursue a collective or class action in the first place.  This raises the question of whether a collective or class action waiver that is not contained within an arbitration program may be enforceable.

The Dissent

As expected, Justices Ginsburg, Kagan, Sotomayor, and Breyer dissented in an opinion authored by Justice Ginsburg.  The dissent focused on the circumstances that are unique to the employment context, including what Justice Ginsburg refers to as the “extreme imbalance once prevalent in our Nation’s workplaces,” and the reasons Congress enacted the NLRA in the first place, to “place employers and employees on more equal footing.”  Of paramount importance was the NLRA’s recognition that an individual employee has unequal bargaining power against the employer, and that the right to engage in concerted activities levels the playing field.

In the dissent’s view, class and collective actions qualify as concerted activities because in these actions, employees band together to improve their working conditions by holding employers accountable for violations of employment law.

What Should Employers Do

Employers will undoubtedly be asking:  what does this decision mean for me?  The answer depends on many factors, and like arbitration agreements themselves, there is no one answer that fits all.

For employers that already maintain a mandatory arbitration agreement with a class waiver, the Supreme Court’s decision has minimal impact.  A well-drafted agreement that does not overreach will be enforced.  While there are no longer any barriers to enforcing mandatory class waivers, the Supreme Court’s decision will not save a poorly drafted arbitration agreement.  In many states, an arbitration agreement still can be found unenforceable if it is both procedurally and substantively unconscionable under state law principles.  Some courts in some states may find that an arbitration agreement that is mandatory in nature is procedurally unconscionable, which makes it imperative that there is nothing in the arbitration agreement that can be substantively unconscionable.

Employers that have a voluntary arbitration agreement with a class waiver should consider whether making the arbitration program mandatory could yield additional benefits.  If almost all employees participate in a voluntary arbitration program with a class waiver, the additional risk of a mandatory program – whether due to procedural unconscionability concerns or employee relations issues – may not outweigh the marginal benefit.  But if the number of employees who opt out of or refuse to sign a voluntary arbitration agreement with a class waiver is higher than an employer is comfortable with, a mandatory program should be considered.  This is particularly true for employers in the Ninth Circuit, which gave a hat-tip to the NLRA by permitting class waivers so long as employees could opt out of the arbitration agreement.  An opt-out procedure, however, is no longer required in light of the Supreme Court’s decision.

Employers that maintain arbitration programs without a class waiver should strongly consider revising their agreement to include a class waiver.  An arbitration agreement without a class waiver leaves open the worst possible outcome, which is class arbitration.  The potential exposure in any class action is too high to inject any uncertainty as to whether the parties intended to permit class arbitration or not.  And an employer may want a court, rather than an arbitrator with potential financial incentive, to decide whether the parties intended to permit class arbitration.  An express class waiver likely would avoid these issues.  If an employer has an arbitration agreement already in place, there is now no reason to omit a class waiver.

For everyone else who has been waiting for the Supreme Court’s decision before deciding what to do, there are various factors to consider.  The threshold question is whether to even have an arbitration program.  There are certainly many benefits to arbitration.  These include quicker resolution of claims, more predictable outcomes compared to a jury, arguably lower attorneys’ fees to take a case through completion in arbitration than in court, and greater chance of keeping the proceedings and outcome confidential.

But there also are numerous downsides to arbitration that employers have to consider.  Arbitrator fees can be very significant, and in states like California, the employer must pay all of the arbitrator fees.   Some plaintiffs’ attorneys have resorted to filing a large number of individual arbitrations to make the arbitration process exorbitantly expensive for employers.  Arbitrators also can be less likely to grant dispositive motions because they may feel a claimant has a right to take his or her claim through the evidentiary hearing (the equivalent of a trial in arbitration).

Another question is what the scope of the arbitration program should be.  Given the costs associated with arbitration, some employers may want to limit an arbitration program to just wage and hour claims, which have the greatest likelihood of being brought as class claims.  In addition, current federal and state legislative headwinds are pushing against mandatory arbitration of sexual harassment and other Title VII claims.  Certain Department of Defense contractors have long been banned from imposing such agreements, and the State of New York recently passed legislation that seeks to prohibit private employers from requiring arbitration of sexual harassment claims.  While state laws of this type are susceptible to preemption by the Federal Arbitration Act, federal bans have been proposed, and employers may wish to sidestep the controversy altogether by considering wage-hour only arbitration agreements.  In this way, discrimination claims, which usually are brought on a single-plaintiff basis, could then be excluded from the arbitration program if the additional costs associated with arbitration exceed the confidentiality benefit of arbitration.

Employers considering implementing an arbitration program also need to be aware of the various exceptions.  The FAA does not apply to certain employees, most notably transportation workers.  In California, PAGA representative actions are not subject to class waivers and cannot be arbitrated.  Complaints and charges filed with governmental agencies are not subject to arbitration agreements.

While there are many factors to consider, the Supreme Court’s decision today assures employers that arbitration agreements with class waivers remain a valuable option for employers interested in reducing potential class and collective action exposure.

*Seyfarth Shaw LLP is counsel for Epic Systems Corp. in the Lewis case at the district and appellate courts and is co-counsel for Epic at the Supreme Court.

By: John Phillips and Steve Shardonofsky

Seyfarth Synopsis: In an important decision for employers seeking to enforce arbitration agreements and limit wage and hour exposure and related defense costs, the U.S. Court of Appeals for the Fifth Circuit reaffirmed that district courts should rule on motions to compel arbitration and related jurisdictional questions before reaching issues on FLSA conditional certification.  The decision also provides a helpful roadmap for business executives and practitioners on the enforcement of arbitration agreements and the practical importance of so-called “delegation clauses.”  This case marks an important win for employers and is a must read for anyone seeking to enforce an arbitration agreement in the Fifth Circuit, particularly in the wage-hour context.

While wage and hour cases continue to proliferate in state and federal courts, many employers have turned to arbitration agreements with class/collective action waivers in an attempt to stem the tide. In response, savvy plaintiff-side attorneys often file motions for class or collective-action certification very early in the litigation, hoping to obtain a ruling on those issues before the court addresses issues related to arbitration.  The strategy has been successful in some jurisdictions, resulting in proverbial class- and collective-action bells that cannot be un-rung—even when the case is subsequently dismissed and moved to arbitration.  Fortunately, the Fifth Circuit affirmed that, in the collective action setting, questions regarding whether the plaintiff’s claims should be arbitrated must be decided prior to any issues regarding conditional certification.  Along the way, the Court provided a helpful analysis on the enforcement of arbitration agreements and the importance of delegation clauses in this context (i.e., a provision explaining that the arbitrator, not the court, must decide all issues regarding arbitrability, including whether the parties agreed to arbitrate and whether the claims at issues are subject to arbitration).

Background on the Case

In Edwards v. DoorDash, Incorporated, the plaintiff brought a purported FLSA collective action alleging that he and other delivery drivers were misclassified as independent contractors.  The same day the suit was filed, the plaintiff also moved for conditional certification of a nationwide collective.  In response, DoorDash filed an emergency motion to stay the briefing and any ruling on conditional certification, and it moved to compel arbitration pursuant to the plaintiff’s arbitration agreement, which included a class/collective action waiver provision and required the parties to arbitrate under the rules of the American Arbitration Association.

The district court delayed its ruling on conditional certification until it ruled on whether the lawsuit should be sent to arbitration.  The district court found ultimately that the arbitration agreement was valid and enforceable, dismissed the plaintiff’s lawsuit, and compelled him to arbitrate his claims, effectively denying the motion for conditional certification as moot. The plaintiff appealed to the Fifth Circuit, arguing that (1) the court should have decided conditional certification before ruling on the arbitration agreement, and (2) the district court erred in enforcing the arbitration agreement itself.  The Fifth Circuit upheld the district court in full; and in doing so, the Court provided a helpful analysis for any employer seeking to enforce arbitration agreements in the wage-hour context.

The Fifth Circuit’s Ruling

The Fifth Circuit reaffirmed its prior precedents and held that questions regarding arbitration are “threshold” matters that should be resolved “at the outset” and before any ruling on conditional certification under the FLSA.  This result, according to the Court, prevents certification of a collective or class action that should not have been brought in the court in the first place, and it also aligns with the “national policy favoring arbitration embodied in the FAA.”

In determining whether to compel arbitration, courts usually undertake a two-step inquiry to determine (1) whether there is a valid agreement to arbitrate, and (2) whether the dispute falls within the scope of the valid agreement.  But when there is a delegation clause, the Fifth Circuit re-affirmed, district courts should focus only on the first inquiry: whether an agreement to arbitrate was formed and whether it contains a valid delegation clause. The Fifth Circuit then noted:  “If there is a delegation clause, the motion to compel arbitration should be granted in almost all cases.”

In this case, the Court found that there was a valid arbitration agreement with a valid delegation clause. Applying California law, it rejected the plaintiff’s arguments that the arbitration agreement was illusory and never formed because DoorDash allegedly never signed the contract (although it did perform under the agreement) and did not give him a personal copy of the contract to keep. The Court also rejected the plaintiff’s argument that the agreement as a whole was unconscionable because questions regarding the underlying validity of the agreement (but not its formation) were questions for the arbitrator. Finally, the Court found that the agreement contained a valid delegation clause because it incorporated the rules of the American Arbitration Association, which provide that the arbitrator has the power to rule on his or her own jurisdiction, including all issues regarding arbitrability. Because the arbitration agreement was valid and also contained a valid delegation clause, the Fifth Circuit affirmed the district court’s order compelling the plaintiff’s claims to arbitration.

Takeaways and a Word of Caution About Delegation Provisions

This decision is a welcome ruling for employers, and it re-enforces the Fifth Circuit’s willingness for enforce arbitration agreements and give deference to the parties’ intentions—and in the correct procedural order. Importantly, it should help curb attempts by the plaintiffs’ bar to spur fast rulings on conditional certification before considering arbitration and other jurisdictional issues.

By: Ariel D. Fenster & Rashal G. Baz

Seyfarth Synopsis: In a first impression case, the Eleventh Circuit held that an “opt-in” plaintiff is only required to file a written consent to become a party-plaintiff in a collective action under the FLSA, and that the lack of conditional certification does not affect that status. 

At or within a few weeks of the filing of a purported FLSA collective action, a plaintiff’s lawyer often files pleadings signed by other current or former employees in which they consent to join the case as “opt-in” plaintiffs.  Usually — but not always — a motion for conditional certification follows, with the opt-in plaintiffs providing supporting affidavits for that motion.

But what happens to those opt-ins if the case is never conditionally certified?  No appellate court had ever addressed this question until the Eleventh Circuit did so last week in Mickles et al. v. Country Club Inc.

There, Mickles worked as an exotic entertainer at the Goldrush Showbar and alleged that she and those allegedly similarly-situated were misclassified as independent contractors and consequently deprived of minimum and overtime wages.  After filing her complaint, three “opt-in” plaintiffs filed written consents to join the litigation.  The case continued on through discovery.  After discovery, Mickles moved for conditional certification, but the district court determined the motion was “nearly eight months” too late.

In his holding, Judge Jones reasoned that the Northern District of Georgia’s Local Rules require motions for conditional certification be filed within 30 days of the commencement of discovery unless court permission is secured, which did not occur here.

Following the denial of conditional certification, the company filed a motion for clarification, inquiring as to whether the opt-in plaintiffs remained parties in the action.  In response, Judge Jones ordered that the opt-in plaintiffs “were never adjudicated to be similarly situated to Mickles, and, therefore, were never properly added as party plaintiffs to the collective action.” (Mickles and the company then reached a settlement in which the three opt-in plaintiffs did not participate.)

The three opt-in plaintiffs appealed to the Eleventh Circuit, which reversed, holding that “those who opt in become party plaintiffs upon the filing of a consent and that nothing further, including conditional certification, is required.”  The Eleventh Circuit remanded the case to the district court to either (a) dismiss the opt-in plaintiffs without prejudice, so they could pursue individual claims, or (b) to continue with their individual cases since discovery had been completed.

The Eleventh Circuit upheld Judge Jones’ ruling, finding that he did not abuse his discretion in applying the local rule.  More broadly, the Eleventh Circuit made clear that opt-in plaintiffs are “parties” to a case regardless of conditional certification, and re-affirmed various Supreme Court and appellate authorities that a motion for conditional certification is not a required step in multi-claimant FLSA litigation and that conditional certification is merely a case management tool for a plaintiff to be able to send a court-approved notice to employees.

At first blush, Mickles is a defeat for an employer: a lawsuit it thought was over was revived.  But on closer examination, the Mickles case provides several helpful points for employers defending FLSA collective actions:

  1. The “party” is not over if an employer defeats conditional certification. Opt-ins continue to have party status even in the absence of conditional certification, so when an employer opposes conditional certification, it should ask that the opt-ins be dismissed without prejudice so that it would only have to defend the claim of the named plaintiff (dismissed opt-ins often will not bother to file their own individual lawsuits).
  2. An opt-in plaintiff in an FLSA case is not like a Rule 23 class member. Each one is a full-fledged “party” much like a named plaintiff.  As such, each one is a legitimate source of discovery from which an employer can learn more about the nature of the claims being brought against it and how similar the opt-ins and named plaintiffs are to each other, and from which it may be able to obtain helpful admissions in opposing certification, defend the case on the merits, and/or limit exposure.  In particular, this underscores that (a) a company expecting to oppose a motion conditional certification motion ought to take the deposition of not only the named plaintiff, but any early opt-in as well and (b) even after conditional certification, an employer should be able to cast a wide net in seeking discovery from opt-in plaintiffs, especially if it can do so in a cost-effective manner.
  3. The local rules can prove to be a helpful weapon. Depending on the jurisdiction, an employer may be able to raise a timeliness defense if plaintiff’s motion for conditional certification is filed more than 30 days after discovery commenced without securing court permission.  Some courts have local rules providing similar timelines for class certification motions.  These rules should not be forgotten.

By: Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: The U.S. Department of Labor has announced the launch of the Payroll Audit Independent Determination program—or “PAID”— to facilitate the resolution of overtime and minimum wage claims under the FLSA without litigation.   New York Attorney General Eric T. Schneiderman recently called PAID “nothing more than a Get Out of Jail Free card for predatory employers,” and said his office “will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.”

As we previously reported, the U.S. Department of Labor has announced the launch of the Payroll Audit Independent Determination program—or “PAID”— to facilitate the resolution of overtime and minimum wage claims under the FLSA without litigation.  Employers that avail themselves of PAID will still have to make payment of all back wages due under the FLSA, but the DOL “will not require additional payment of liquidated damages or civil monetary penalties when employers choose to participate in the program and proactively work with WHD to fix and resolve the compensation practices at issue.”

While PAID looks like welcome news to those employers seeking to resolve wage and hour disputes before being sued, New York employers may wish to curb their enthusiasm.  Attorney General Eric T. Schneiderman recently called PAID “nothing more than a Get Out of Jail Free card for predatory employers,” and said his office “will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.”

Given that, under the PAID program or otherwise, the U.S. DOL “may not supervise payments or provide releases for state law violations,” Schneiderman’s comments have little substantive significance.  However, his comments may cause employers, especially those in New York, to think twice before availing themselves of PAID out of fear of putting themselves on the radar of aggressive state and local government enforcement agencies.  The agency Schneiderman supervises, the New York Attorney General’s Labor Bureau, has a long track record of active enforcement of Labor Law violations in the state.

PAID remains a pilot program that will operate for the next six months, at which point the U.S. DOL will evaluate its effectiveness and decide whether to make it permanent.  The DOL has scheduled a webinar for April 10, 2018 to explain “how the PAID program works, determining eligibility for the program, and how to participate in PAID.”  For now, the decision whether to use PAID is not as easy or straightforward as it may seem.  While employers may view it as a way to do the right thing and move forward with compliant wage-payment practices, officials in New York State may not be impressed.  Contact counsel if you have any questions about the PAID program or the planning or execution of a proactive wage-hour audit.

Authored by Colton Long and Noah Finkel

Seyfarth Synopsis: Employers seeking to show that they correctly have classified an employee as exempt from the FLSA’s overtime requirements often have faced hostility from courts under the misimpression that FLSA exemptions must be “construed narrowly.” Today the United Supreme Court put to rest the “narrow construction” doctrine, signaling to district and appellate courts that FLSA exemptions should be construed plainly as written and without a thumb tilting the scales toward a non-exempt finding.

Today, in a 5-4 opinion (Justice Thomas writing for the majority) the Supreme Court reversed the Ninth Circuit in Navarro et al. v. Encino Motorcars LLC, holding that car dealership “service advisors” are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and therefore are exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(10)(A). We have been tracking this case since January 2016, as the outcome of this decision is likely to have a significant impact on the nation’s 18,000 franchised car dealerships and estimated 45,000 service advisors. While this opinion surely gives a sigh of relief and much needed certainty to automobile industry dealerships, one particular point made by Justice Thomas likely will provide significant help to all employers asserting the application of any FLSA exemption.

In its underlying decision denying exempt status to dealership service advisors, the Ninth Circuit had reasoned that the FLSA and its exemptions under Section 213(b) should be “construed narrowly,” citing a line of several appellate cases to support this construction of the FLSA (without delving into the basis for the cited language itself). The Supreme Court, however, took this reasoning head on in Navarro, “reject[ing] this principle as a useful guidepost for interpreting the FLSA.” Justice Thomas noted in his opinion that the FLSA “gives no ‘textual indication’ that its exemptions should be construed narrowly” and there is therefore “no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.” Further, Thomas noted that “the FLSA has over two dozen exemptions in § 213(b) alone . . . . Those exemptions are as much a part of the FLSA’s purpose as the overtime pay requirements.” Justice Thomas made no bones about picking apart this “cannon” of statutory construction, noting that “the narrow-construction principle relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’” Rather, Thomas noted, the FLSA and its exemptions should be construed plainly, as they are written, with no bent one way or the other (“[w]e thus have no license to give the exemption anything but a fair reading.”)

Justice Thomas’s direct repudiation of the “narrow construction” argument aligns with our recent analysis from August 2017, which concluded that the FLSA and its exemptions should not be construed any more narrowly than how they are written. Courts frequently insist that the FLSA’s exemptions “are to be construed narrowly” while the FLSA’s remedial provisions should “be construed liberally to apply to the furthest reaches consistent with Congressional intent.”  We further asserted that no reasoned analysis of the FLSA should conclude that the Act and its exemptions should be interpreted lopsidedly in favor of employees and against employers and that the “narrowly” vs. “liberally” dichotomy derives from unsubstantiated and conclusory language from a 1945 Supreme Court case. At best, we said, the language constitutes an imprecise assertion that the FLSA’s exemptions should not be so broad as to swallow the remedial nature of the FLSA and, at worst, the language amounts to unsupported dicta never intended as a grand pronouncement of how courts should interpret the FLSA.  Our analysis further concluded that courts tend to quote this language to justify a decision’s outcome; when a court decision favors an employee, a court is more likely to cite the “narrowly/liberally” language, when a decision favors an employer, a court is less likely to cite this language.

Consistent with the reasoning noted above, the Supreme Court in Navarro forever repudiated the argument that the FLSA’s exemptions should be construed narrowly. Employers accordingly will be well served by the Supreme Court’s reasoned denunciation of this baseless and oft-cited pronouncement. Further, the logical consequence of the Supreme Court’s Encino Motorcars opinion should serve to banish the “construed liberally” corollary as well. Indeed, as Thomas noted in the opinion, the FLSA should be given nothing but a fair reading. As we noted in our August 2017 analysis, there is no sound basis for maintaining that the FLSA should be construed liberally in favor of employees based alone on the fact that the FLSA is “humanitarian and remedial” legislation (which forms the sole ostensible basis for construing the FLSA broadly in favor of employees). “What piece of legislation passed by Congress is not intended as remedial or humanitarian? It would seem that one has to presume that Congress is always attempting to benefit the public, and that it does not classify its legislation as though some is for the public good, some is for the benefit of lobbying or business groups, and some is to score political points. All legislation is aimed in some way at benefitting the public interest (or at least we would like to, and have to, assume).”

With sound reasoning, the Supreme Court has disposed of an oft-cited yet fundamentally flawed method for construing the FLSA’s exemptions under § 213(b) and provides employers with a compelling counter to litigants seeking to apply the FLSA in a manner broader than the statutory text allows.

 

Co-authored by Christopher Truxler and Coby Turner

Seyfarth Synopsis: Earlier this month, a California federal court dismissed the misclassification claims of 7-Eleven franchisees on the pleadings, finding they did not and could not plead facts sufficient to show that they were employees of their franchisor.

All is well with one of America’s most beloved convenience stores. In October 2017, four 7-Eleven franchisees filed a class action lawsuit alleging the company misclassified franchise owners in California as independent contractors instead of employees. The plaintiff-franchisees sought hundreds of thousands of dollars in overtime pay and business expenses for each franchisee. But on March 14, 2018, the presiding judge put the plaintiffs’ Big Gulp gamble to rest, ruling that the franchisees are, in fact, independent contractor franchisees, and not employees, under California law or the FLSA.

As with most misclassification lawsuits, the heart of the dispute concerned the right to control. The plaintiff-franchisees claimed that 7-Eleven’s franchise agreement created an employment relationship because, they alleged, the company exerts control over certain details of store operations, such as temperature, operating hours, and other matters. The plaintiffs also focused on franchisees’ time spent in initial training.

The court was unmoved. Finding the alleged facts “wholly insufficient” to create an employment relationship under the Martinez v. Combs test, District Judge John Walter ruled that the plaintiffs failed to show that 7-Eleven exerted control over their day-to-day operations. Instead, 7-Eleven and the franchisees entered a “business format” franchising relationship—similar to that which the California Supreme Court ruled on in Patterson v. Domino’s Pizza—which permitted 7-Eleven to exercise the control necessary to protect its trademarks, brand, and goodwill.

Not only did the plaintiffs’ allegations regarding improper control all relate to 7-Eleven’s right to protect and control its brand, service standards, merchandise selection, and hours of operation, but, the court found, such uniformity ultimately benefitted the franchisees because of the increased goodwill it brought to the brand.

Of particular note, the court looked to factors under Martinez to conclude the franchisees were properly classified as independent contractors. The court noted that franchisees were generally entrepreneurial people, willing to commit time and money and assume a risk of loss in order to own and profit from their investment. Some operated multiple locations. The court found it significant that there was no cap on how much plaintiffs could earn on their investment, that they had complete discretion to do things like hire and fire employees, and that they had complete control over the day-to-day operation of their store(s). The fact that franchisees could terminate their agreement with 72 hours’ notice, while 7-Eleven could only terminate “for cause,” further weighed against a common-law employment relationship.

The court thus took a Big Bite out of potential liability for franchisor companies in holding that even standards and guidelines that require a franchisee to follow a list of marketing, production, operational, and administrative tasks is not enough to transform a franchisor into an employer. Other companies engaging independent contractors should also take note. Even though this case was analyzed with regard to a franchisee-franchisor relationship, the court took a view of “control” over independent contractors that is, “thank heaven,” quite practical and positive.