Seyfarth Synopsis: The Fourth District held that a motion to compel arbitration is not the correct vehicle to challenge a plaintiff’s failure to plead the individual component of a PAGA claim affirming the Superior Court’s denial of a motion to compel arbitration as there was no individual component alleged to compel to arbitration.

The Fourth District reviewed a Superior Court decision denying a motion to compel arbitration in the aftermath of Balderas v. Fresh Start Harvesting, Inc. where the plaintiff contended that he did not allege the individual component of a PAGA claim such that there was no claim that could be to compelled to arbitration. Rather, the plaintiff alleged that he was acting “in a representative capacity only.” The Fourth District concluded that the plaintiff only alleged he was an aggrieved employee “in order to meet the standing the requirements” for the non-individual component of a PAGA claim and, for this reason, held that the Superior Court was correct in denying the employer’s motion to compel arbitration because there was no individual component to arbitrate. The Fourth District made clear that that its decision was particular to the complaint at issue and that any courts facing the same issue must examine the complaint before it.

The Fourt District expressly did not address the question of whether it is permissible for a plaintiff to file a complaint that asserts only the non-individual component of a PAGA claim. It noted that Leeper v. Shipt, Inc. stands for the proposition that “a PAGA complaint should contain an individual PAGA claim, not that it does” and any such dispute would have to be resolved on a pleadings challenge and not as part of a motion to compel arbitration. Moreover, the Court of Appeal made clear that the plaintiff would be precluded from taking the position that he does seek to bring the individual component of a PAGA claim, all but inviting the defendant to bring a pleadings challenge on remand.

Seyfarth Synopsis: In E.M.D. Sales, Inc., et al. v. Carrera, et al, the United States Supreme Court unanimously held that employers need only prove an employee is exempt from overtime under the Fair Labor Standards Act by a preponderance of the evidence standard rather than by clear and convincing evidence.

In E.M.D. Sales, Inc., et al. v. Carrera, et al., the United States Supreme Court, in a unanimous opinion, resolved a circuit split and held that the preponderance-of-the-evidence standard governs whether an employee is exempt from overtime under the Fair Labor Standards Act (FLSA).  This decision is a win for employers and may have important implications outside the exemption context. 

As our readers know well, the FLSA exempts various categories of workers from its overtime requirements, but employers have the burden to prove that an exemption applies.  The question the Carrera case answered is what standard of proof employers have to meet to prove that an exemption applies.

Every federal Court of Appeals to have addressed this issue held that the preponderance standard applies except for the Fourth Circuit, which held that employers must prove an exemption by clear and convincing evidence, a much higher standard.  The Supreme Court sided with the majority of Court of Appeals and held that the preponderance standard governs.

The Court reasoned that the preponderance standard is the “default” standard in civil cases and analogized the FLSA with Title VII of the Civil Rights Act of 1964 (Title VII), which likewise uses a preponderance of evidence standard.  As the Court stated, “[i]f clear and convincing evidence is not required in Title VII cases, it is hard to see why it would be required in Fair Labor Standards Act cases.” 

The employees in Carrera had argued that a higher standard should apply because of the importance of the FLSA in supporting “a well-functioning economy where workers are guaranteed a fair wage” and that the FLSA’s rights are not waivable.  The Court rejected such policy-based arguments by again drawing a comparison with Title VII.  “Eradicating discrimination from the workplace is undoubtedly important.  Yet . . . this Court has held that a preponderance standard is appropriate for Title VII cases.”  The Court further explained that the text of the statute, not policy considerations, guided its interpretation: “Rather than choose sides in a policy debate, this Court must apply the statue as written and as informed by the longstanding default rule regarding the standard of proof.”

The theme of interpreting the FLSA according to its text, as opposed to its supposed underlying policy objectives, is not new.  As we explained here, in Encino Motorcars, LLC v. Navarro, the Court rejected the principle—adopted by most Court of Appeals—that the FLSA’s exemptions should be “construed narrowly,” based on policy considerations.  Instead, the exemptions should be given “a fair (rather than a ‘narrow’) interpretation.”  This was a welcome change because courts all too often, as we noted here, used the “construed narrowly” principle to reach desired pro-employee results, without persuasive analysis.    

Cases like Carrera and Encino may have important implications outside of the exemption context.  As we discussed here, federal courts historically have applied a two-step approach to certification of collective actions under the FLSA—with the first step (typically called “conditional certification”) posing a minimal burden for plaintiffs.  The justification for this minimal burden or lenient standard often is, at least in part, the FLSA’s remedial purpose–a purpose of just about every other employment (and other) statute.  Several courts recently have rejected this approach, adopting a higher burden to justify FLSA collective certification.  Carrera fully supports a higher standard for initial certification of a FLSA collective, because—like Encino—it rejects the principle that the FLSA should be construed broadly to effectuate nebulous policy considerations.        

Similarly, as discussed here, some courts have held that an individual FLSA claim cannot be settled unless approved by the court or the Department of Labor.  Thus, while discrimination and harassment claims (not to mention, almost every other type of civil claim) may be settled without court supervision, some courts have held that settling FLSA claims, even if worth only a de minimis amount, needs judicial approval.  Such courts cite the remedial purposes of the FLSA as justification for the need of court supervision.  But Carrera—like Encino before it—calls into question the policy-based justification of such court supervision.

In short, Carrera is a welcome employer win, and one that may lead to even more.

Seyfarth Synopsis: Class Certification Recipe Needs More Flavor: The Fourth Circuit tossed out a class certification order for Bojangles’ shift managers, citing a high level of generality in identifying common policies and overly broad class definitions as insufficient under Rule 23. The court’s message? For a class action to pass the Rule 23 taste test, you need a well-seasoned mix of precise common policies and narrow class definitions. Bon appétit!

The original recipe for pursuing class certification based on overbroad and generalized allegations might be cooked. A Fourth Circuit panel recently held that allegations about “generic” policies allegedly necessitating off-the-clock work does not suffice for class action certification.

Specifically,  in Stafford, Jr.  v. Bojangles’ Restaurants, Inc., the Fourth Circuit vacated and a remanded a class certification order from the United States District Court for the Western District of North Carolina. The plaintiffs claim that Bojangles – a beloved southern-style fast-food chain with more than 300 restaurants across eight states – systematically required its shift managers to perform various tasks off-the-clock without compensation. To add more heat, they also allege that Bojangles sometimes made unauthorized edits to their time records to avoid paying overtime.

The district court certified classes for shift managers in North Carolina and South Carolina but denied certification for other state law claims (in Alabama, Georgia, Kentucky, Tennessee, and Virginia) on the grounds that the representatives from those states could not “fairly and adequately protect the interest of the class.”

The Fourth Circuit found that the district court abused its discretion in certifying even the North Carolina and South Carolina classes due to a “high level of generality” in identifying common policies, which allegedly unified prospective class members’ wide-ranging claims, as well as overly broad class definitions. This decision underscores the critical importance of specificity and precision in identifying common policies uniting class members’ claims and fashioning class definitions to meet the requirements of Rule 23.

Alleged Overtime Avoidance Recipe Too General To Show Commonality and Predominance

One of the key problems the Fourth Circuit identified was the district court’s heavy reliance on the fact that 80% of prospective class members worked opening shifts and were subject to Bojangles’ Opening Checklist. This checklist allegedly required pre-shift work before clocking in, which the district court saw as a common question of fact. The district court also determined that common questions predominated because, despite differences in the character and extent of the plaintiffs’ off-the-clock work, all class members’ claims originated from the same alleged policies and practices, including the Opening Checklist.

But the Fourth Circuit rejected the secret sauce. They noted that just because the plaintiffs satisfied Rule 23 with respect to their pre-shift work claims didn’t mean all claims were entitled to class treatment. This finding alone didn’t meet the commonality and predominance requirements of Rule 23, as it didn’t address the Named Plaintiffs’ other allegations regarding off-the-clock work. Although pre-shift work was one theory of liability alleged in the case, the Named Plaintiffs also claimed that they and some of the class members experienced wage violations due to miscellaneous post-closing tasks like cleaning, workday trips to the bank for deposits and travel between store locations, and “systematic” time shaving by some managers to avoid overtime obligations.

Besides the pre-shift work, the district court didn’t distinguish between these other alleged off-the-clock activities, nor did it identify any company policies related to them. Instead, it “leaned into generalities,” suggesting that class members were unified by a common theory of being worked off the clock, regardless of the specific uncompensated activities they were required to perform. The Fourth Circuit concluded, “While evidence of commonality among employees may come in many forms, and may not appear exactly like the Opening Checklist, we require something more than conclusory assertions of some highly generalized company policy to have shift managers work without pay.”

This holding is similar to the one we blogged about last month, where the Middle District of Florida denied even FLSA conditional certification for grocery store department and assistant managers  due to the overwhelming number of individualized issues that precluded a finding of similarity. Like in that case, the Circuit Court here noted that a “generalized company policy” could not be used to answer questions like (a) what kind off-the-clock work did an employee perform? (b) how much time was spent on it? and (c) for whom was time-shaving attempted?

Too Many Cooks Overly Broad Class Definitions Get Fried

The Fourth Circuit wasn’t having it with the overly broad class definitions either, which lumped together all shift managers who worked within a three-year period without specifying the type of off-the-clock work or whether they experienced time-shaving. This lack of specificity raised red flags about commonality, predominance, and typicality – all crucial elements for class certification under Rule 23.

Ultimately, the Fourth Circuit did not foreclose class certification here quite yet. Rather, it suggested that the district court whip up more specific subclasses to ensure that common questions predominate and that class representatives have claims typical of the subclass they represent.

Rule 23 Recipe: Mixing Precision with Commonality and Slicing Out Subclasses

The Fourth Circuit’s decision serves up a reminder of the importance of precise class definitions and clear identification of common policies when certifying class actions to meet the stringent requirements of Rule 23. So while it may be “Bo Time,” that’s not enough for Rule 23 class certification.

As the case heads back to the district court, it will be crucial to see how the court addresses the issues raised by the Fourth Circuit in its certification analysis. Will they create more specific subclasses to ensure that the class action is both fair and not overbroad? Will this decision highlighting the impropriety of relying on a “generalized” policy for class purposes also result in decertification of the conditionally certified FLSA collective? Only time will tell, but one thing’s for sure – this case is cooking up some interesting developments!

Seyfarth Synopsis: Advancing the trend of courts unwilling to rubber stamp the conditional certification of FLSA collective actions, Publix developed an early record of evidence that—when properly scrutinized—warranted the denial of collective certification in a case brought by five alleged representative plaintiffs claiming that they and thousands of others worked off-the-clock in violation of policies expressly prohibiting it. This hallmark case in the Eleventh Circuit—seen by some as the birthplace of the two-stage collective certification standard—provides a roadmap for defending FLSA litigation that long has over-burdened courts and employers. Roberts et al. v. Publix Super Markets, Inc., Case No. 8:23-cv-2447 WFJ-CPT, 2024 WL 4753703 (M.D. Fla. Nov. 12, 2024).

How did Publix convince the Middle District of Florida that five Named Plaintiffs were not similarly situated to opt-in plaintiffs and potential plaintiffs, thus defeating conditional certification and repudiating the plaintiffs’ lawyers attempts to use the prospect of defending a massive FLSA collective action to bludgeon the employer into settling despite the merits?  Publix’s willingness to push for early and aggressive discovery ultimately proved critical to its success.

Publix’s Push for Early Discovery Set the Course for Success

The Publix plaintiffs, non-exempt hourly Department and Assistant Department Managers, alleged that they performed four types of off-the-clock work: (1) pre-shift work; (2) post-shift work; (3) work performed during meal breaks; and (4) after hours work-related communications, such as e-mails and texts. The Company denied that any such off-the-clock work occurred and also denied that the Company knew about it, if it did in fact occur. The question at this stage of the case, however, was not whether the work occurred or whether Publix was liable for it, but rather, whether potentially thousands of other individuals were similarly situated to the Named Plaintiffs. 

The case arose against the backdrop we’ve described recently of courts rejecting the “lenient” two-part Lusardi FLSA conditional certification standard in favor of more rigorous tests of whether plaintiffs are “similarly situated” to potential opt-in plaintiffs. The Lusardi approach, so named for Lusardi v. Xerox Corp. (D.N.J. 1987), applies a first stage “lenient standard” under which a plaintiff need make only a “modest showing” to convince a court to approve notice of the lawsuit to potential plaintiffs, with a more stringent standard applied at the second stage, after discovery. 

Courts have moved away from this approach in recent years. In 2021, the Fifth Circuit’s Swales opinion rejected Lusardi and concluded that plaintiffs must show that potential plaintiffs are “actually similar” to named plaintiffs, upon a “rigorous” analysis based upon discovery. Then, in 2023, the Sixth Circuit’s Clark opinion rejected Lusardi’s lenient first stage approach and concluded plaintiffs must demonstrate a “strong likelihood” that they are similarly situated to potential collective members to justify court-authorized notice, akin to the requirement for a preliminary injunction. The Sixth Circuit explained that at the second stage, a district court must make a conclusive determination as to whether plaintiffs and opt-in plaintiffs are “in fact similarly situated.” The Seventh Circuit currently is considering whether to abandon the two-stage approach this term in Richards v. Eli-Lilly.

Because the Publix case is in the Eleventh Circuit, the court was not required to follow either of the newer approaches. Courts and employers in the Eleventh Circuit, however, have grappled with the outcome in Morgan v. Family Dollar, where the appellate court upheld the trial court’s conditional certification and the denial of decertification of a retail store manager collective action. Plaintiffs’ lawyers resoundingly argue that Morgan mandates use of the lenient standard for collective certification, though it’s worth noting that the trial court in that case actually allowed early discovery to inform its decision on conditional certification—it just found that the evidence in that exemption misclassification case, among other unifying factors, justified certification. 

Publix was not dissuaded and refused to assume the Lusardi “lenient” standard would apply or that Morgan required certification here. Instead, convinced that the actual facts and evidence would never support the plaintiffs’ outlandish and vague claims that they worked without proper pay, Publix fought strategically to obtain discovery early in the case, and based on that discovery, enabled the court to apply a “more rigorous standard.” Publix pushed for pre-certification discovery, which the court granted. Publix deposed eight of the 100 plaintiffs and relied heavily on differences in Plaintiffs’ claims and work experiences that were uncovered in those depositions and the exchange of documents. Because of this pre-certification discovery, the court performed a more searching review of whether plaintiffs and the proposed collective were, in fact, similarly situated. The court applied a higher standard than the “lenient” first stage standard, and reviewed and relied on an abundance of record evidence reflecting differences in Plaintiffs’ claims and experiences, described below.

Extensive Individual Inquiries Precluded Collective Certification

Now—based on a record of actual evidence rather than only the plaintiffs’ self-serving complaint allegations and affidavits that courts might typically consider—the court scrutinized the claims against Publix and found that their veracity could not be determined in a unified, collective way. Whether untrue, unfounded, or simply outlandish, testing of each would require individualized inquiries antithetical to the purposes of collective action litigation. The court concluded:

  • The pre-certification depositions revealed that “whether a given [Department/Assistant Manager] even worked off-the-clock, how long it took to complete such work, whether a supervisor ordered the additional work (or an employee was simply being proactive), and what type of work the employee completed are all questions whose answers varied from Plaintiff to Plaintiff.”
  • There were individual variances about whether Publix knew about off-the-clock work allegedly performed.
  • There could be “substantial variance in the time it takes to complete off-the-clock work between each Plaintiff. For example, instances of alleged overtime work would only take a de minimis amount for a plaintiff.”
  • The alleged types of off-the-clock work were so various that individual inquiries would overrun anything commonly attributable to them.
  • Publix’s written policy prohibiting off-the-clock communications meant that any determination of liability would require individualized inquiries such as determining whether a text message, for instance, was work related or personal and how long it took to read and respond, if indeed it might represent non-de minimis working time.  

In response to Plaintiffs’ argument that the court should not consider these differences until a later merits stage of the case, the court explained that refusing to review and consider the discovery “would potentially result in the court granting Plaintiffs’ motion for conditional certification despite already possessing evidence which would require it to grant a motion for decertification.”

For example, the court refused to ignore evidence that Publix maintained facially lawful wage and hour policies, including policies requiring reporting of all off-the-clock work, and that Publix enforced those polices. The court explained that pre-notice discovery showed that “Publix’s policies prohibiting off-the-clock work are not merely ‘paper tigers,’” and that it “has fully paid employees for working overtime and terminated employees for repeated violations” of those policies. In sum, the court ruled there was no “policy or practice that violates the FLSA which is sufficiently clear to bind together a potential class this massive, this disparate, and this individualized.”

The decision demonstrates, through extensive citations to the record, why the facts matter and why courts should not rush to certify collective actions without first considering the factual differences among potential collective members.

Lesson for Plaintiffs’ Counsel?  Publicity Efforts Led to Confused Employees

In an apparent attempt to bolster Plaintiffs’ collective claims, Plaintiffs’ counsel Shavitz Law Group and Morgan & Morgan embarked on a publicity campaign to entice employees to join the case as opt-in plaintiffs, and 97 employees joined the Named Plaintiffs. Those opt ins, including at least a few who had their depositions taken by Publix’s counsel, may now be dismissed by the court and left wondering why they were encouraged to join. Those employees may feel they were misled into believing they had valid claims and thus settlement dollars heading their way. This is important because huge FLSA collective actions are often filed against well-intentioned employers who, like Publix, generally are viewed favorably by their employees and the community in general. From the employer’s perspective, those employees likely did not understand what they were signing up for.

More Great News for Employers: Labor Budgets Do Not Violate The FLSA

In FLSA cases, plaintiffs’ attorneys often argue that employers act improperly when they use labor budgets to manage payroll and overtime of non-exempt employees and set performance expectations for those same employees. This decision rejects that view. Plaintiffs alleged that Publix uses “labor forecasts” to determine the labor needs of each store, allowing Publix to assign hours “based on the specific items sold within particular stores (and their departments), venues and services offered, and the layout of each particular store,” including hours for the assistant manager positions at issue. Plaintiffs contended that the work of assistant managers could not be completed within the hours allocated, thus compelling employees to work off the clock, and that there were “negative pressures” from supervisors and upper management, including being listed on an overtime report, that created a de facto policy to not report overtime hours.

The court rejected these arguments, explaining that the evidence reflected that Publix pays Department/Assistant Managers who report working overtime. In other words, labor budgets do not establish liability absent some evidence that the employer does not pay non-exempt employees who work overtime beyond the allocated hours.

What Did Publix Do Differently and What are the Lessons for Employers?

Lawyers filing putative FLSA collective actions against compliance-oriented employers nationally almost always argue that courts should, until far later in this expensive-to-defend litigation, disregard actual evidence of legal compliance or proof showing that plaintiff-employees were lawfully paid. Rather, they argue, courts should allow hundreds or thousands of employees to be notified that they might have claims against their employer, even when it is unlikely they actually will. This cart-before-the-horse approach to collective action litigation permits these lawyers to assert massive pressure on the employers they sue, based on the reality that the defense of these cases can cause exorbitant expenses—time, money, and other burdens. Publix—with its longstanding commitment to pay employees lawfully and competitively (something shown by numerous awards and recognitions for its investment in its talented workforce)—chose to stand up to the pressure and to fight for an opportunity to let the facts, rather than mere allegations, speak for themselves. It secured a win where other employers have struggled because it employed an aggressive strategy to fight back against an unjustified attack on its interests.

The court’s decision in this case reminds us that employers can defend against FLSA collective actions by having sound wage-hour policies, enforcing those policies, and affirmatively pushing for early pre-certification discovery to highlight individualized inquiries rather than waiting to oppose a motion for conditional certification.

Seyfarth Synopsis: A federal district judge has vacated the U.S. DOL’s 2024 rulemaking increasing the minimum salary employers must pay to exempt executive, administrative, and professional employees. That minimum now reverts to an annualized threshold of $35,568, and $107,432 in total pay for the highly compensated employee exemption. While current DOL leadership may appeal, it is highly unlikely that the incoming Administration would continue that fight come January.

On Friday, Judge Sean D. Jordan, a federal judge in the Eastern District of Texas, vacated the Biden DOL’s 2024 revisions to the minimum salary for employees to satisfy the FLSA’s executive, administrative, and professional (“EAP”) exemptions, as well as the highly compensated employee (“HCE”) exemption. The court ruled that the DOL exceeded its statutory authority by raising the salary level too high and rejected its addition of an auto-increase mechanism to the rule.

Flashback to 2016

This story may feel familiar to many employers.

In 2016, the Obama DOL instituted a rule increasing the EAP exemption salary threshold and adding an inflation-based, auto-increase feature to the rule. But that rule was challenged in a Texas federal court, which halted the rule just days before it was set to take effect.

In the earlier case, the court said the increased salary threshold was too high because it “makes an employee’s duties, functions, or tasks irrelevant if the[ir] salary falls below the new minimum salary level.” The court also found the auto-increase feature violated statutory rulemaking requirements because, among other things, it circumvented notice and comment.

The Obama DOL quickly appealed the Texas court’s ruling, but the Trump Administration later pulled out of that fight and focused on new rulemaking. That effort led to the 2019 institution of a new earnings threshold: a salary of $684/week (or $35,568/year) for EAP employees, and total earnings of $107,432 for HCE employees.

The 2024 Rule

In April 2024, the Biden DOL picked up the mantle to narrow the group of workers who may be classified as exempt under the FLSA. It issued a new rule that made three changes, including a sizeable salary level increase that was set to take effect in just six weeks:

  1. Effective July 1, 2024, it increased: (a) the minimum weekly salary to qualify for the EAP exemptions from $684/week (or $34,568/year) to $844 per week (or $43,888/year); and (b) increased the HCE’s annual earnings threshold to $132,964, up from $107,432.
  • Effective January 1, 2025, it would have further increased: (a) the EAP salary threshold to $1,128 per week (or $58,656 per year); and (b) the HCE annual earnings threshold to $151,164 per year.
  • It called for these earnings thresholds to be automatically increased every three years.

Like the 2016 rule before it, the 2024 rule was promptly challenged in Texas. It was actually challenged in multiple lawsuits, several of them overseen by Judge Jordan. Earlier this year in one of those cases, Judge Jordan enjoined the rule, but only with respect to one employer: the State of Texas (i.e., employees who worked for the State of Texas as an employer).

Meanwhile, this separate litigation—calling for the same relief, but on a nationwide basis—moved forward on the judge’s docket.

The End of the 2024 Rule

All eyes were on the pending litigation when Judge Jordan delivered a Friday afternoon knockout blow to the 2024 rule. As a result, the salary threshold returns to $684/week (or $35,568/year) for EAP employees, while the annual earnings threshold for HCE employees returns to $107,432.

In his late afternoon ruling, Judge Jordan “set[s] aside and vacate[s]” the entirety of the 2024 rule, including the portion that went into effect earlier this year, the portion that was set to take effect in January 2025, and the automatic inflation adjustment feature. Judge Jordan made clear that his ruling had nationwide impact and was not limited to the litigants before him.

For guiding principles, Judge Jordan examined the FLSA’s text, which refers to the exempt status of “employee[s] employed in a bona fide executive, administrative, or professional capacity…” The judge explained that the terms “executive,” “administrative,” and “professional” all relate to duties. While the court noted that the qualifying term “bona fide” introduces some leeway for the DOL to use a minimum salary level, he found that this leeway is limited to where the salary is a reasonable proxy for an employee’s exempt status.

Stated differently, “a salary test cannot displace the duties test.”

Under these principles, Judge Jordan rejected the 2024 rule in its entirety—not just the January 2025 increase, but the increase that took effect in July 2024 and the auto-adjustment feature that would have raised the minimum salary level every three years. The court explained that earlier increases to the EAP salary threshold had rendered no more than 10% of employees who meet the duties test as non-exempt, but that the 2024 rule would have rendered a third of otherwise exempt employees non-exempt based on salary alone.

What Now?

While the DOL will likely appeal to the Fifth Circuit Court of Appeals, it is highly unlikely that the court will rule on the matter before the arrival of a new administration on January 20, 2025. And it is even less likely that a Trump DOL, upon its return, would care to continue an appeal or restore the 2024 rule. Indeed, those connected with the prior Trump Administration have signaled they believe that the pre-2024 rule sets the appropriate threshold for exemption.

So what do employers do now?

Many planned on making changes on January 1, 2025 as a result of the now-vacated rule, whether to reclassify exempt employees making less than $58,656 per year, or to hike their salaries to or above that level to maintain their exempt status. Federal law no longer requires them to do so, and near-term developments are highly unlikely to change that.

Even the July 1, 2024 salary threshold increase exits the picture of what employers are required by federal law to do. Employers that made changes as a result of that increase—which, again, lifted the EAP salary threshold from $684/week to $844/week—have the option, if they want, to roll back their changes. Doing so, however, could be very difficult as a practical matter, and would require weighing the impact on employee morale, retention, and recruiting.

Further, employers must consider state laws, which are untouched by this ruling. Many states have their own overtime laws, and some (e.g., Alaska, California, Colorado, Maine, New York, and Washington) contain EAP exemptions that are narrower than the FLSA’s, including higher minimum salary levels. For example, effective January 1, 2025, the minimum threshold in New York City and certain New York counties will be $64,350/year; in California, it will increase to $68,640/year; and in Washington State, it will increase to $77,968.80/year for employers with more than 50 employees (or $69,305.60/year for smaller employers). It would not be surprising to see additional states enact higher minimum salaries for exempt employees.

Employers should consult with counsel before deciding what changes to make or unwind as a result of these developments. In addition to being here to assist with those considerations, we will continue to monitor these important developments and keep our readers informed.

Seyfarth Synopsis: The Second District again held that issue preclusion barred plaintiff’s PAGA claim because he failed to establish any violation of the Labor Code and arbitral findings have a preclusive effect on a plaintiff’s standing in a stayed PAGA claim.   

The Second District again grappled with the issue of whether an arbitrator’s previous adjudication of Labor Code violations preclude a plaintiff from asserting a PAGA claim based on those same Labor Code violations. The Court of Appeal held that issue preclusion applies—that is, when an arbitrator concludes that a PAGA plaintiff failed to establish that they suffered any individual violations under the California Labor Code, issue preclusion bars that PAGA plaintiff from relitigating those same violations for the purpose of standing under PAGA. The Court reached the same conclusion as its colleagues in Division One of the Second District in Rocha v. U-Haul Co. of California.

The Second District found that the defendant established the four elements of issue preclusion: (1) there was a final adjudication, (2) of an identical issue, (3) that was actually litigated and necessarily decided in the first suit, and (4) asserted against one who was a party in the first suit or one in privity with that party. The Court of Appeal explained that for purposes of there being an “identical issue,” it is sufficient that a single, dispositive element is identical and shared between different claims. Given that both individual Labor Code claims and PAGA claims require a preliminary showing that a violation of the Labor Code occurred, and the arbitrator conclusively established there was no Labor Code violation, plaintiff did not have standing as a PAGA plaintiff since he did not personally suffer a Labor Code violation. The Court also noted that its analysis and result was also endorsed by the California Supreme Court in Adolph v. Uber Technologies, Inc.

Seyfarth Synopsis: In March 2024, the Sixth Circuit in Parker v. Battle Creek Pizza, Inc. announced a new standard for assessing vehicle reimbursements under the FLSA. The Sixth Circuit rejected both employees’ requests for the use of the IRS rate and employers’ use of a reasonable approximation of expenses, instead requiring the use of actual expenses. A recent decision from the Northern District of Alabama indicates that Parker may have limited import outside of the Sixth Circuit.

Delivery drivers and employers have long disagreed on how vehicle expenses should be calculated for determining whether the driver’s effective pay is above the $7.25 minimum wage set by the FLSA. Drivers have typically argued that vehicle expenses should be reimbursed using the IRS standard rate, which is $0.67 per mile for 2024. Employers, on the other hand, have generally argued that the IRS rate is not required, and that a reimbursement is compliant with the FLSA, as long as it is a “reasonable approximation” of the driver’s expenses. Although the DOL issued an opinion letter on the issue in 2020, caselaw on the issue has been sparse, consisting largely of scattershot district court opinions.

The Sixth Circuit’s Parker Decision

At least that was the case until the Sixth Circuit weighed in on the issue in Parker v. Battle Creek Pizza, Inc., 95 F.4th 1009 (6th Cir. 2024). In Parker, the Sixth Circuit charted a path that few expected. Rather than endorse the use of the IRS rate or a reasonable approximation of expenses, the Sixth Circuit concluded that the minimum wage calculation must be made through assessment of the driver’s actual expenses. Given the novelty of the Sixth Circuit’s holding, there has been significant uncertainty about what, if any, impact the Parker court’s decision would have outside of the Sixth Circuit.

The Allen Decision

In one of the first decisions addressing Parker, the district court in Allen v. PJ Cheese, Inc., No. 2:20-cv-1846-RDP, 2024 WL 2884170 (N.D. Ala. June 7, 2024), signaled that predictions of a wholesale sea change in driver reimbursement litigation were premature. In Allen, the plaintiff moved for summary judgment on the question of whether he could prove his claims through estimates of vehicle costs, rather than by showing actual costs. The Allen court observed that the answer to that question hinged on two questions: (1) whether 29 C.F.R. § 778.217 allows an employer to reasonably approximate vehicle costs; and (2) if so, whether an employee may also reasonably approximate his vehicle costs.

The Allen court began by observing that virtually all district courts analyzing the question prior to Parker had determined that § 778.217 allowed an employer to reasonably approximate an employee’s vehicle costs for reimbursement purposes. The court observed that the Parker court had determined that § 778.217 did not apply to the question of how vehicle expenses must be reimbursed based on its conclusions that (1) § 778.217 “deals exclusively” with overtime compensation (not assessing minimum wage compliance, and (2) § 778.217 does not apply to “tools,” of which a vehicle is one). The Allen court noted, however, that the Sixth Circuit’s reasoning was contrary to the DOL’s 2020 opinion letter, in which the DOL observed that § 778.217 applied to minimum wage claims and reimbursement for a delivery vehicle is governed by § 778.217.

The Allen court observed that the Parker decision was entitled to no greater weight than the DOL’s opinion letter or district court decisions. And ultimately, the court determined that the 2020 opinion letter was entitled to Skidmore deference for at least three reasons. First, the DOL opinion letter had thoroughly analyzed the DOL’s recordkeeping requirements and had found that none required an employer to track an employee’s actual vehicle-related expenses to reimburse that exact amount. Second, the court observed that the opinion letter was consistent with the DOL’s previous pronouncements on the issue. Specifically, the Wage and Hour Division’s Field Operations Handbook had made clear that reimbursement of actual costs was not the only option for reimbursement. Finally, the court noted that it found the DOL’s conclusion compelling, particularly given the impracticality of tracking individual expenses. Thus, the Allen court held that an employer could approximate an employee’s vehicle costs for reimbursement purposes.

The court further observed that, while a driver could not rely on the Mt. Clemens “just and reasonable inference” standard for establishing damages because an employer has no obligation to maintain an employee’s personal vehicle records, an employee could attempt to establish damages through a reasonable approximation.

Implications

Although Parker marked the first federal appellate decision assessing how vehicle reimbursements should be calculated for purposes of assessing FLSA compliance, its ultimate impact may be limited. The Allen decision suggests that whether district courts outside of the Sixth Circuit follow Parker may hinge on whether those courts believe the 2020 DOL opinion letter is entitled to Skidmore deference. In the meantime, employers with national operations should prepare for the possibility of varying FLSA reimbursement standards in different geographical footprints.

Tips from Seyfarth is a blog series for employers, and their in-house lawyers and HR, payroll, and compensation professionals, in the food, beverage, and hospitality sector. We curate wage and hour compliance “tips” to keep this busy industry informed.

Seyfarth Synopsis: On October 29, 2024, the Fifth Circuit granted the Department of Labor’s Petition for Panel Rehearing in the 80/20 Rule Litigation, Which Sought Clarification About the Scope of the Court’s Ruling.

Here at TIPS, we’ve been closely following the ongoing litigation in the Fifth Circuit surrounding the U.S. Department of Labor’s December 2021 codification of the “80/20 Rule.”  In our last update, we wrote about the Fifth Circuit’s opinion granting summary judgment to the challengers of the DOL’s 80/20 Rule, which would have both codified longstanding DOL guidance requiring that tipped employees spend no more than 20% of their workweek on tasks that “directly support” their tip producing work (“directly supporting work”) and added a completely new requirement that any such directly supporting work not be performed for more than 30 continuous minutes at a time.  The Fifth Circuit held that the DOL’s regulation ran afoul of the plain text of the FLSA’s tip credit provision. It therefore vacated the rule.

After the Fifth Circuit issued its decision, though, the DOL asked the Court to clarify the scope of the vacatur in a narrow petition for panel rehearing.  In its petition, DOL pointed out that the DOL’s 2021 regulation—in addition to making changes to the existing dual jobs regulation—also withdrew a December 2020 rule published under the Trump-era DOL that, if it had ever gone into effect, would have replaced the DOL’s dual jobs regulation with much squishier language permitting employers to take a tip credit so long as the non-tip producing duties were performed “contemporaneously with tipped duties” or for a “reasonable time.” (What is a “reasonable time,” you ask? The rule didn’t say.) In its petition for panel rehearing, the DOL argued that the Fifth Circuit’s opinion could not have intended to resurrect a withdrawn rule from 2020 in vacating the DOL’s 2021 regulation.

On October 29, 2024, the Fifth Circuit granted the petition, and substituted its previous opinion with a new one. The only change: at the end of the opinion, the Court clarified that its vacatur of the new 80/20 regulation only vacated the rule “insofar as it modifies” the Department’s 1967 dual jobs regulation. In other words, the court clarified that its ruling was not intended to resurrect the withdrawn Trump-era dual jobs rule.

Although the Fifth Circuit’s opinion means that the DOL’s 2021 80/20 regulation is no longer operative, that does not mean that there are no longer any limitations on the amount of non-tip-producing work permitted for an employer to be able to take the tip credit. As readers of this blog will be well familiar with by now, the 80/20 rule has its roots in DOL sub-regulatory guidance—in particular, the Department’s Field Operations Handbook—going at least as far back as 1988.  Other federal appellate courts, including the en banc Ninth Circuit in 2018 and the Eleventh Circuit in 2021, have previously found that guidance to be a reasonable interpretation of the statute. So, while the DOL’s 2021 regulation may no longer be operative, restaurant and hospitality employers should tread carefully in determining their policies and practices around timekeeping and assignment of non-tip producing tasks.

If you are a restaurant or hospitality employer and are looking for guidance on how to proceed in the wake of these recent developments regarding the 80/20 Rule, we encourage you to reach out to one of us—or your favorite member of Seyfarth’s Wage and Hour Litigation Practice Group!

And, stay tuned.

By: Alex Simon and Kyle Petersen

Seyfarth Synopsis: In a welcome turn of events, the Seventh Circuit has taken up the question of what is the appropriate standard for court-authorized notice in collective actions.

When this Blog wrote two weeks ago, “Swales, Clark, and Laverenz pave the way for additional district and appellate courts to depart from Lusardi,” we did not expect the Seventh Circuit to take up the issue so quickly.

But just eight days after Judge Griesbach’s blistering opinion came down in Laverenz, criticizing the still-predominant “modest factual showing standard” for being contrary to the FLSA’s text—the Seventh Circuit has authorized an interlocutory appeal to answer a question raised by an appellant-employer about when a court overseeing a collective action may authorize notice to “similarly situated” potential plaintiffs.

More specifically, in a pending collective action brought under the Age Discrimination in Employment Act (“ADEA”)—which explicitly incorporates the FLSA’s collective action procedure—the Seventh Circuit Court of Appeals will weigh in for the first time on whether a district court may order this notice upon a “modest showing” of similarity without regard to the evidence submitted by the defendant.

After ordering nationwide notice to a collective based on the lax Lusardi framework, the district courtcertified the matter for interlocutory review and stayed issuance of notice pending that review. Initially, the Seventh Circuit denied the petition for permission to appeal. While the  Court admitted that “certifying a collective action under the Fair Labor Standards Act is a recurring issue for district courts,” it concluded that it would be “better” to review that process on a more complete record (i.e. after the second step of the two-step process).

In response, the employer filed a petition for rehearing and petition for rehearing enbac—respectfully pushing back on the notion that review after the second step of the two-step process would be “better.” Specifically, the employer explained that a review at that time would be “impossible,” and completely defeat the purpose of their interlocutory appeal. After all, the very issue to be reviewed on appeal concerns the harms that district courts can cause when they authorize the distribution of notice to a collective on an undeveloped factual record—harms such as “soliciting baseless claims, imposing unfair settlement pressure, and subjecting defendants to costly merits discovery for ‘collectives’ that could never hold up.”

Fortunately, this persuaded the Court of Appeals to take up the cause. This means that it will now decide whether district courts in the Seventh Circuit will be required to determine whether plaintiffs have made a meaningful showing, under all of the evidence, that employees in a collective action are “similarly situated” before notice can be sent.

The lower court’s decision to authorize notice upon a mere “modest” factual showing highlights the harmful and unfair nature of that standard. The plaintiff successfully convinced the court that she should be able to send notice to all of the employer’s 40+ year old employees who had been denied promotions in the last three years, even though she had just four supporting affidavits, and the employer produced substantial evidence that the plaintiff was not similarly situated to anyone. While not every district court that uses the “modest” factual showing standard sets the bar so low, there are some that certainly do. New guidance from the Seventh Circuit clarifying what courts must consider and find before authorizing notice is certainly welcome.

Should the Seventh Circuit decide to follow the Fifth and Sixth Circuits in setting a higher evidentiary bar for plaintiffs to clear before sending notice to “similarly situated” employees—it would send a very clear signal across the country that the Lusardi framework must be discarded. Indeed, the very fact that the Seventh Circuit has taken on this appeal sends a message to district courts throughout the country that just because the “modest factual showing” standard may have been “endorsed” in the past, does not mean that it will hold up on appeal going forward.

In the end, the Seventh Circuit’s willingness to consider this very important issue at this stage of the litigation is a welcome development. We will continue to monitor the case for updates. In the meantime, if you are facing a collective action in the Seventh Circuit, it may be in your interest to seek a stay of the pre-notice proceedings pending a decision about the appropriate standard for notice moving forward. Courts in the Sixth Circuit were, by and large, willing to do this pending the decision on Clark.

Seyfarth Synopsis: On September 11, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit held in Mayfield v. U.S. Department of Labor that the Secretary’s salary tests for evaluating overtime exemptions are valid and do not exceed the Department of Labor’s authority under the Fair Labor Standards Act (“FLSA”).

Robert Mayfield, a Texas-based fast-food purveyor, challenged the U.S. DOL Wage and Hour Division’s 2019 rule, promulgated during the Trump Administration, regarding executive, administrative, and professional (“EAP”) exemptions from overtime under the FLSA. Mayfield argued the rule exceeded the Secretary of Labor’s authority because the FLSA only allows DOL to address a worker’s duties, not to set a salary threshold as part of the exemption analysis.

The district judge dismissed Mayfield’s case a year ago, holding that the FLSA gave DOL broad authority to “define and delimit” the EAP exemptions, which the DOL did not exceed with the 2019 rule. Mayfield appealed to the Fifth Circuit, which held oral argument just last month.

The Fifth Circuit panel issued a ruling upholding the district court’s opinion, finding that setting a minimum salary level for the EAP exemption is within DOL’s power to “define and delimit” the terms of the exemptions. That power, the panel held “is guided by the FLSA’s purpose and the text of the exemption itself.”

This decision, which stands (at least for now) as a win for the DOL, comes on the heels of multiple noteworthy decisions questioning and curtailing agency authority and action. This summer, in Loper Bright Enterprises v. Raimondo, the Supreme Court overruled the principle of Chevron deference. And just last year, the Court waded into the FLSA exemption arena in Helix Energy Solutions Group, Inc. v. Hewitt, with Justices Kavanaugh and Alito issuing a dissent effectively inviting litigants to challenge the EAP salary basis tests as exceeding DOL authority.

In reaching this holding, the Fifth Circuit explained that its precedent did not dictate the case’s outcome and that the major-questions doctrine is inapplicable. It then turned to “whether the Rule is within the outer boundaries of” Congress’s “uncontroverted explicit delegation of authority” to DOL.

The Fifth Circuit panel was “not persuaded” by Mayfield’s argument that, in defining and delimiting exemptions, the Department could address only work duties, since “[u]sing salary level as a criterion for EAP status has a far stronger textual foundation than Mayfield acknowledges.” Further, the Court approved “[u]sing salary as a proxy for EAP status . . . because the link between the job duties identified and salary is strong.” The Court cautioned, however, that where “the proxy characteristic frequently yields different results than the characteristic Congress initially chose, then use of the proxy is not so much defining and delimiting the original statutory terms as replacing them.”

The Fifth Circuit appeared to question whether Skidmore deference remains a viable analytical tool after Loper Bright, but unlike many post-Loper Bright opinions, the Fifth Circuit at least acknowledged Skidmore’s existence, suggesting

if Skidmore deference does any work, it applies here. DOL has consistently issued minimum salary rules for over eighty years. Though the specific dollar value required has varied, DOL’s position that it has the authority to promulgate such a rule has been consistent. Furthermore, it began doing so immediately after the FLSA was passed. And for those who subscribe to legislative acquiescence, Congress has amended the FLSA numerous times without modifying, foreclosing, or otherwise questioning the Minimum Salary Rule.

In approving DOL’s authority to promulgate the rule, the Fifth Circuit stated it was “join[ing] four of its sister circuits.”

Finally, the Court agreed with the District Court’s determination—and two of its sister circuits—that the “EAP exemption is guided by an intelligible principle,” so does not violate the nondelegation doctrine.

What’s Next?

Mayfield may request an en banc rehearing and/or seek Supreme Court review. But this decision could have ramifications for pending challenges to the DOL’s 2024 rule, which increased the salary level threshold for the EAP exemptions to $43,888 per year as of July 1, 2024, with another increase (to $58,656) taking effect on January 1, 2025.

The Mayfield ruling, as long as it stands, clears at least one impediment to the rulemaking, as the Fifth Circuit has blessed DOL’s authority to use the salary level tests within reason, i.e., so long as it serves as an acceptable “proxy.” That said, other challenges are still being litigated that focus on other aspects of the 2024 rule.

For now, employers should continue to prepare for the January 1, 2025 salary threshold increase. We will provide updates on further developments concerning the DOL’s new overtime exemption rule and the challenges to it.