Co-authored by: Steve Shardonofsky and John P. Phillips

Seyfarth Synopsis: On November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act. If passed by the Senate, the bill would overturn Obama-era decisions and agency guidance broadly defining and holding separate, unrelated companies liable as “joint employers” under federal wage & hour and labor law. Perhaps more importantly, the bill signifies a broader trend to provide more clear guidance and roll-back various Obama-era rules on wage & hour issues.

The Broad Approach to “Joint Employment” Under the Obama Administration

Under the prior Administration, and particularly during the later years, employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves in the crosshairs of federal agencies and regulators. Traditionally, joint employer status was found where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment. In that case, both entities could be held jointly liable for violations of wage & hour and other employment laws. The Obama Administration upended this traditional test, however.

In August 2015, the NLRB issued its much-discussed Browning-Ferris decision (addressed here), where the Board adopted an expansive definition of joint employment focusing on the right to control the terms and conditions of employment and the indirect exercise of those rights. (Seyfarth Shaw LLP is leading the appeal of Browning-Ferris to the D.C. Circuit Court of Appeals.) In 2015 and 2016, then-WHD Administrator Dr. David Weil issued two separate Administrator’s Interpretations (“AIs”) concerning independent contractors and joint employment. In 2015, in an effort to reduce the classification of workers as independent contractors and increase the number of workers subject to the FLSA’s minimum wage and overtime requirements, Dr. Weil issued guidance espousing a broad interpretation of who qualifies as an “employee” under the FLSA and highlighting the DOL’s position that almost all workers are employees. In 2016, Dr. Weil followed-up with guidance emphasizing the DOL’s position that joint employment must be determined based on the economic realities instead of (in their view) artificial corporate or contractual arrangements, including situations involving “horizontal” and “vertical” joint employment (discussed here). This guidance focused on the economic realities of a business’s relationship with a given worker, especially noting that indirect control (e.g., control excised solely through a staffing company) can be sufficient for a finding of joint employment. While the AIs were not entitled to judicial deference, we anticipated that some judges would treat Dr. Weil’s words as gospel.

As we previously reported, the broader tests espoused by the NLRB and the WHD exposed employers to a myriad of new wage and hour liabilities, investigations, and enforcement actions, and were especially relevant to companies that outsource work, utilize staffing agencies and contractors, or employ a franchisor/franchisee business model. If recent activity by Trump’s DOL and Congress is any indication, a shift in regulatory enforcement and focus is well underway.

The Winds of “Joint Employment” Are Shifting

As we reported here and here, this summer the DOL withdrew its AIs on joint employment and independent contractors. More recently, on November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act by a vote of 242-181, including yes votes from eight Democrats. The bill clarifies the standard for “joint employer” status under the FLSA and the NLRA, and returns to a traditional test that requires “direct, actual, immediate,” and “significant” control over the essential terms and conditions of employment, such as hiring, discharging employees, determining rates of pay and benefits, day-to-day supervision, and administering employee discipline.

Implications for Employers

The DOL’s decision to withdraw its AIs and the passage of the Save Local Businesses Act are welcome changes for employers who faced significant liability and uncertainty under the Obama-era rules. Although the bill itself still faces a tough road in the Senate—where it will require Democratic support to reach 60 votes and avoid a filibuster—it would represent a significant shift in the federal government’s focus. Even if the bill stalls, it nevertheless solidifies a broader regulatory and enforcement trend that may prompt federal courts to return to the traditional and more predictable joint employer test under the FLSA.

Full passage of the Save Local Businesses Act in Congress and signature by the President, however, will not be a panacea for these thorny joint-employer issues. Many states, such as California, still have broad joint-employer tests under their respective wage-hour laws. Courts will also continue to grapple with the proper application and interpretation of these rules, as evidenced by a recent decision from the Fourth Circuit Court of Appeals purporting to define joint employment even more broadly than the Obama Administration. Furthermore, the plaintiffs’ bar will continue to push the outer contours of the law in their search to apply joint employer principles more broadly and thereby reach the “deep pockets” of franchisors and other principals. Regardless of what happens to the Save Local Businesses Act, we foresee continued potential exposure and litigation in this arena. Employers—and particularly those in industries that make heavy use of franchises, subcontractors, and staffing agencies—should remain engaged and focused on these issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.

Co-authored by Robert S. Whitman and Needhy Shah

Seyfarth Synopsis: A judge in the Southern District of New York held that FLSA off-the-clock claims could not proceed collectively because the employer’s policy enforcement and approval of overtime compensation varied by supervisor.

In Lynch v. City of New York, Judge Katherine Forrest rejected an attempt to prosecute a single collective action for off-the-clock claims of employees in different units reporting to different supervisors. Ordering the case decertified, she held that the plaintiffs’ own testimony showed “critical differences in what supervisors told their employees about overtime.”

A group of five representative plaintiffs–current and former administrative assistants–asserted FLSA claims against the New York City Department of Homeless Services. The group had been granted conditional certification of a FLSA collective action, which requires only a modest showing that the employees were similarly situated with respect to alleged FLSA violations. A total of 30 opt-ins remained at the final certification stage.

Following discovery and motion practice, the court granted the City’s motion for decertification of the FLSA collective, determining that the plaintiffs were not similarly situated under the more stringent standard applicable after discovery is complete.

To determine whether plaintiffs could proceed collectively, the court analyzed whether the employees worked in disparate settings, whether the City would have individualized defenses to the employees’ claims, and the impact of fairness and procedural considerations. The court sided with the City on all of these factors due to the highly individualized nature of plaintiffs’ experiences with overtime compensation.

The core issues were whether the City had knowledge of plaintiffs’ uncompensated work outside regular hours and whether supervisors had uniform practices. Plaintiffs’ depositions revealed variations by supervisor on what employees were told about overtime and whether overtime compensation requests were approved. Employees were responsible for recording their hours in an electronic timekeeping system and submitting requests to be compensated for overtime hours. Plaintiffs claimed they did not always request to be compensated for overtime work, even though requests were routinely granted—98.5% of requests since July 2013 were approved.

These individualized factual issues and proof, the court said, meant there were few procedural benefits and little judicial efficiency to be gained through collective action. However, Judge Forrest left open the possibility of collective treatment of appropriate subclasses by supervisor or unit.

This opinion is another example of why employers should not get discouraged after an early pre-discovery grant of conditional certification. Even though courts regularly invoke the “lenient standard” at that stage, and sometimes decline to review the defendant’s evidence, all bets are off by the time the factual record is complete and the time for final certification arrives.

Co-authored by Cheryl Luce, Kyla Miller, and Noah Finkel

Seyfarth Synopsis: A recent decision highlights why the FLSA is not always the remedial statute created to protect low-income workers by holding that four commission-based sales representatives, each earning six figures, were not exempt from the overtime requirements because they were not paid on a salary basis.

Our readers are well aware that under the FLSA, employers are required to pay employees overtime equal to time and one-half the regular rate for all hours worked over 40 hours in a workweek unless an exemption applies. When making exempt classification decisions, the focus tends to be on whether employees are doing the kind of work that would satisfy the applicable duties test and whether employees are making enough to satisfy the income thresholds. But the FLSA exemptions don’t concern only how much employees are paid, but also how they are paid. Though sometimes overlooked, technical requirements about how employees are paid can carry the day in a misclassification lawsuit, leaving a trail of decisions that often seem contrary to the purpose set out by the creators of the FLSA. This was one such decision.

This decision illustrates how the FLSA often is applied in a way that is a far cry from what it was originally intended to be: an Act passed during the Great Depression to ensure a living wage for working Americans. In this case, the U.S. District Court for the Eastern District of Tennessee denied the defendants’ motion for summary judgment, finding that four highly compensated sales representatives, who were paid on a commission basis, were not exempt from FLSA’s overtime provisions despite the fact that the plaintiffs each earned well over $100,000 per year. In fact, one sales representative topped out at over $900,000 per year. Across the relevant period, the plaintiffs’ compensation averaged about $470,00 per year.

The defendants argued that the plaintiffs were exempt from overtime wages under the highly compensated employee exception. Under this exemption, the employee must perform office or non-manual work and be paid a total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) and must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee. The defendants argued that even though the plaintiffs were paid by commissions on sales, the highly compensated employee exemption applies because the commissions are “fees,” so they were paid on a fee basis. The plaintiffs argued that the highly compensated employee exemption applies only when employees are paid on a salary basis and that the commissions they received were not “fees.” The court agreed with the plaintiffs, holding that the plaintiffs’ compensation did not meet the highly compensated employee exemption’s salary basis test.

We previously have discussed courts’ construction of the FLSA as “remedial and humanitarian in purpose and must not be interpreted or applied in a narrow, grudging manner.” We have argued that courts apply this construction inconsistently and often illogically. And this case serves as one more challenge to the unsupported dicta that we find in many cases stating that, because the FLSA is “remedial and humanitarian,” its exemptions must be “narrowly construed.” Here, we have employees who are very high earners, with two employees making close to one million dollars in a single year, and whose employer is now forced to pay them additional compensation and liquidated damages (and a fee petition for their lawyers is sure to come next). The court construed the FLSA exemptions against these employees narrowly, and we can discern no remedial or humanitarian purpose that the FLSA is serving here. Rather, this decision reflects the FLSA as a statue riddled with technical traps and rigid rules that do not necessarily serve to ensure a living wage for working Americans.

Authored By Alex Passantino

As we’ve reported previously, among the items the Department of Labor identified earlier this year in its Regulatory Agenda was a Notice of Proposed Rulemaking (NPRM) seeking to rescind portions of a 2011 rule that restricted tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. On October 24, 2017, that NPRM was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval. One of the cases challenging the validity of the 2011 rulemaking may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on November 7. With that deadline looming, it’s possible that the Administration is seeking to moot the issue before the Supreme Court has the chance to address some of the issues related to agency deference.

After OIRA clears the NPRM, it will be sent to the Federal Register for the public to provide comments in response to the Department’s proposal. At that time, we’ll know the specifics of the proposal and will be able to provide more guidance on what this means for employers. Stay tuned.

 

Authored By Robert Whitman

Seyfarth Synopsis: The Second Circuit will soon decide key issues for FLSA practitioners: whether settlements pursuant to an Offer of Judgment are subject to court review and approval, and whether the standards for final collective certification of FLSA claims are different from those for class certification of state law wage claims under Rule 23.

Two cases now before the Second Circuit, one involving a small Japanese restaurant, the other involving Mexican fast-casual chain Chipotle, offer the court the opportunity to experience the gustatory pleasures of two prime cuts of FLSA procedural law: enforceability of settlements and the standards for collective certification. It is a veritable feast for wage and hour geeks in the New York metropolitan area and beyond.

In Yu v. Hasaki, the court on October 23 accepted for interlocutory review the question of whether a district court must approve the settlement of FLSA claims when the settlement is procured through an Offer of Judgment under FRCP 68.

Yu involves FLSA and New York Labor Law claims by a sushi chef. To settle the case, the defendants made an offer of judgment, which the plaintiff accepted. After the parties advised the court, Judge Jesse Furman ordered them to submit their agreement for his approval, along with letters explaining why the settlement is fair and reasonable. The defendants objected, arguing that, under Rule 68, court approval of an accepted offer of judgment is mandatory, leaving no role for the judge in reviewing the agreement’s terms. They based their argument on the language in Rule 68 that, if a plaintiff accepts an offer, the clerk “must then enter judgment.”

In effect, the defendants contended that Rule 68 creates an exception to the Second Circuit’s decision in Cheeks v. Freeport Pancake House, in which the court held that judicial approval of settlement terms is mandatory for dismissal of FLSA claims with prejudice and that many otherwise-customary settlement provisions, such as confidentiality and general releases, are not permissible. The U.S. Department of Labor weighed in as an amicus curiae, arguing that judicial approval is required, even when the settlement arises out of an accepted Rule 68 offer.

Judge Furman agreed, holding that the concerns articulated in Cheeks apply equally under Rule 68 as they do in standard FLSA settlements. But because other district judges had held differently, he certified his order for interlocutory appeal under 28 U.S.C. § 1292(b), holding, among other things, that there was a substantial basis for disagreement on the issue. The Second Circuit accepted the case for review, stating that the decision “clearly merits interlocutory review under section 1292(b), as Judge Furman sensibly recognized.”

In Scott v. Chipotle, the appeals court is considering whether to address an issue that has long vexed FLSA litigators: whether the standard for final collective action certification under 29 U.S.C. § 216(b) differs from the standard for class certification under Rule 23.

The plaintiffs in Scott are apprentices – managerial trainees – at Chipotle restaurants in several states. They sued under the FLSA and state law, claiming they were misclassified as exempt managers because they spent most of their time filling orders and operating cash registers. District Judge Andrew Carter granted conditional FLSA certification, and 516 employees opted in. But after discovery, the court refused to grant final FLSA certification, and likewise denied Rule 23 class certification of the state law claims, holding that the responsibilities of the seven named plaintiffs did not match those of the putative class or collective.

The plaintiffs appealed the state law class certification decision as of right under Rule 23(f). They also sought permission from Judge Carter to take an interlocutory appeal of his FLSA final certification ruling, contending that the court’s twin rulings highlighted a “rift” between the certification standards for FLSA and non-FLSA wage and hour claims that the Second Circuit could resolve. While disagreeing with the plaintiffs’ argument, Judge Carter nonetheless observed that they had indeed “point[ed] to controlling questions of law which may have substantial grounds for a difference of opinion,” and granted permission.

It is now up to the Second Circuit whether to allow the interlocutory appeal. If it takes the case, it will have the opportunity to issue a combined opinion, addressing both Rule 23 and section 216(b), that clarifies the standards for final certification under both regimes.

Whether one’s preferences run to wasabi or jalapeno, these cases are sure to satisfy even the hungriest of wage and hour lawyers.

 

Co-authored by Kerry Friedrichs and Kyle Petersen

Seyfarth Synopsis: A common feature of many a commission plan is the recoverable draw that is offset against future commissions. The DOL has long held this is a permissible way to satisfy the minimum wage requirement. In a recent decision, the Sixth Circuit agreed, up to a pointthe point of termination. It concluded that requiring employees to repay the draw post-termination ran afoul of the FLSA’s requirement that the minimum wage be paid “free and clear” because the practice is akin to an unlawful kickback of paid wages. The Sixth Circuit punted the case back to the district court even though the employer had never actually enforced the repayment policy. The remanded case also includes Plaintiffs’ claims that they were pressured to work off the clock in order to lower the weekly draw payments.

Fall … traditionally a time for enjoying the changing season, watching falling leaves and football, preparing holiday meals, and—for employers across the country—updating annual sales commission plans in anticipation of the new year. In doing so, employers should bear in mind the Sixth Circuit’s timely decision that a “draw against commissions” pay structure for commissioned salespeople can be used to satisfy the minimum wage but that employees cannot be made to repay recoverable “unearned” draws post-termination.

In Stein v. hhgregg, Inc., the retail furniture and appliance store paid its sales employees on a commission-only basis. To ensure that the sales force was paid at least the minimum wage required by the FLSA, the employer paid plaintiffs a recoverable draw against future commissions in any workweek in which their commission earnings fell short of minimum wage. The draw was recovered from later pay checks when the commissions were high enough to exceed the minimum wage. As is often the case, the commission policy also required that any “unearned” draw balance be repaid at the time of termination, although the employer never actually sought repayment.

The plaintiffs challenged this pay structure, arguing that recovery of the draw was actually an unlawful “kick-back” of wages in violation of the FLSA’s requirement that minimum wages be paid “free and clear,” without condition. Plaintiffs also alleged that the draw policy led to pressure to work off the clock so as to minimize the minimum wage obligations and draw payments.

Adopting the long-standing position of the DOL, the Sixth Circuit rejected the plaintiffs’ contention that the draw structure violated the FLSA when advanced amounts were recovered during employment. They came to a different conclusion, however, with the provision in hhgregg’s compensation plan requiring that terminated employees repay “unearned” draw balances after termination. The court distinguished the pre- and post-termination recovery on their characterization of the post-termination recovery as a repayment of already earned and paid wages whereas they construed the pre-termination recovery as merely an offset against future unpaid and unearned commissions.

A particularly interesting aspect of that holding is the court’s rebuff of the employer’s argument that it had never actually sought repayment from a former employee and had since removed this provision from its plans. In so holding, the court noted the detrimental effects—including psychological effects—on employees who believed that they owed a debt to their former employer. It appears neither the court nor the parties addressed the potential standing issues or what sort of recovery the court envisioned plaintiffs might be able to obtain under the FLSA for the psychological harm they suffered by having a theoretical debt hanging over them.

The Sixth Circuit also held that the plaintiffs could bring their off-the-clock and overtime claims based on their theory that hhgregg’s managers encouraged employees to work off the clock in order to reduce or eliminate their commission draw by reducing their reported hours worked and increasing their earned commissions for the workweek.

While Stein v. hhgregg largely validates the common practice of advancing future commissions to meet the FLSA’s minimum wage requirement, there are some cautionary points for employers to keep in mind as they revise their commission plans. First, inclusion of a post-termination repayment provision—even if only there as a theoretical stick—could create liability, at least in the Sixth Circuit. Second, although the FLSA allows for recoverable draws during employment, be mindful of varying state laws that may preclude this practice. For example, California has a stricter minimum wage law that does not allow for “averaging” earnings to meet the minimum wage and restricts employers from taking unauthorized deductions from earned wages. California employers should work closely with counsel to develop commission plans that properly incentivize sales staff while complying with California law. Finally, the court’s decision on the off-the-clock claim reinforces the need for employers to implement clear policies against off-the-clock work, even for employees paid on a commission basis.

Authored by Andrew L. Scroggins, Noah A. Finkel, and David S. Baffa

Seyfarth Synopsis:  The NLRB has withdrawn the significant concession it offered at oral argument on the nature of the NLRA rights it seeks to assert in the face of employers’ mandatory arbitration programs.

As noted in our earlier blog post, the Supreme Court heard oral argument on October 2, 2017, on one of the most significant employment law cases in some time, to consider whether to permit employers to use mandatory arbitration programs that contain waivers of collective and class actions.

In the most dramatic moment of the morning, the NLRB’s General Counsel Richard Griffin made a significant admission.[1]

In response to a series of questions by a skeptical Chief Justice Roberts, Griffin agreed that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this. He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Next to the podium was counsel for the employees, Daniel Ortiz of the University of Virginia School of Law. Ortiz did not agree with that concession, thus seeming to highlight a fundamental dissent from the NLRB’s position. This gap was all the more notable for the fact that the Solicitor General already had abandoned the NLRB to side with the employers.

In an unusual development, just one day after the argument, the NLRB’s Griffin sent a short letter to the Court disavowing its argument and adopting the position staked out by Ortiz:

I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning by Chief Justice Roberts found at pages 47-50 of the transcript of the oral argument.  My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts found at pages 60-64 of the transcript of the oral argument, were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions.

Such letters are not unprecedented. Still, it is a remarkable about face. For the justices who already seemed skeptical of the NLRB’s position, this change of position may only serve to highlight that the NLRB is not clear in the reasoning of its position or the effects such reasoning may have if ordered more broadly by the Court to apply to future cases.

[1] The New York Times highlighted Griffin’s concession:

The labor board’s general counsel, Richard F. Griffin Jr., argued for the workers. He made a concession at odds with the position of another lawyer on his side.

Mr. Griffin said that employment contracts could not require workers to give up collective action in arbitration but that the private entities that conduct arbitration could require that cases be pursued one by one.

If that is so, Justice Samuel A. Alito Jr. responded, “you have not achieved very much because, instead of having an agreement that says no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.”

Daniel R. Ortiz, a law professor at the University of Virginia who also argued for the workers, took a different approach…

Co-authored by Noah A. Finkel, David S. Baffa, and Andrew L. Scroggins

Seyfarth Synopsis: Following oral argument, employers should be cautiously optimistic that the Supreme Court will allow mandatory arbitration programs containing waivers of the ability to bring collective and class actions.

In yesterday’s oral argument, in one of the most significant employment law cases we have seen in some time, a divided Supreme Court appeared more likely than not to give the green light to employers’ mandatory arbitration programs that contain waivers of collective and class actions. Our summary of the issues this case presents can be found here: http://www.wagehourlitigation.com/arbitration-agreements/will-the-supreme-court-finally-remove-doubt-that-an-employer-can-mandate-that-employees-enter-into-arbitration-agreements-with-class-waivers/

Reading tea leaves from oral argument is always a challenge, especially for those who have a stake in the matter.[1] But the three authors of this post attended yesterday’s argument and, judging from the questions from the Court, the various Justices’ reactions to the answers to those questions, and the prior rulings from the Court, are optimistic that the Court ultimately will issue a closely-contested ruling in favor of class waivers.

Four Justices Appear Ready to Invalidate Class Waivers in Employment Cases

While our prediction is somewhat uncertain, there is one aspect in which we are completely confident: there will not be a unanimous decision. Indeed, it appeared that there are four solid votes to hold that Section 7 of the National Labor Relations Act provides an employee with a right to bring a collective or class action, that requiring an employee to waive that right as a condition of employment violates NLRA Section 8’s prohibition against employer restraint of that right, and that, therefore, an employer’s arbitration agreement including a class waiver cannot be enforced either because the class waiver is illegal or because the NLRA constitutes a contrary congressional command to the general rule that, under the Federal Arbitration Act, arbitration agreements are to be enforced according to their terms.

Justice Ginsburg asserted in her questions that “the driving force of the NLRA was the recognition that there was an imbalance, that there was no true liberty of contract,” which is why concerted activity — including, in her apparent view, class and collective action — is protected against employer interference. She further contended that the Court’s prior precedents regarding the FAA concerned only commercial contracts and did not involve NLRA rights. (As the employers’ counsel Paul Clement rightly pointed out, however, the Court has twice reviewed the propriety of arbitration agreements between employers and employees, and neither time did the Court reason that arbitration agreements in the employment context are entitled to any less weight than those in the commercial context.)

Justice Kagan relied on the Court’s prior precedent to argue that the NLRA protects “employees seeking to improve working conditions through resort to administrative and judicial forums” and thus implied that filing a class action also is protected by the NLRA. But the employers’ counsel retorted that Court precedent merely protects “resort to” courthouses, and that “there is no right to proceed as a class once you get there.” Once in court, nothing prohibits an employer from asserting all available defenses to class treatment, including moving to enforce an agreement between an employer and employee to arbitrate all disputes on a bilateral basis.

Justice Sotomayor questioned that argument by maintaining that an employer cannot enforce a contract that is “illegal” even under the FAA. In response to that, employers’ counsel Clement retorted that the Court has decided two other cases (Circuit City v. Adams and Gilmer v. Interstate Johnson/Lane Corp.) in which employees had agreed to bilateral arbitration and in which it could have been argued that the NLRA makes such an agreement unlawful. “But no dog barked at that point . . . and that’s because the NLRA in no other context extends beyond the workplace to dictate the rules of the forum,” Clement told the Court.

The most vigorous questioner was Justice Breyer, who appeared offended by the idea of a class waiver. He went so far as to say that he is worried that the employers’ position “is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal” and that “I haven’t seen a way that you can, in fact, win the case, which you certainly want to do, without undermining and changing radically what has gone back to the New Deal.” Clement explained, however, that “for 77 years” — from the passage of the NLRA until its 2012 D.R. Horton decision — “the [NLRB] did not find anything incompatible about Section 7 and bilateral arbitration agreements” and the NLRB’s General Counsel issued a memorandum on the issue in 2010 in which it found that a mandatory class waiver does not violate the NLRA.

But From Where Does the 5th Vote Come?

Despite these fairly clear votes to invalidate class waivers, four votes does not a majority make.  And in questioning of counsel for the NLRB and counsel for the employees, it appeared that it will be difficult to find that fifth vote. Justice Thomas, in keeping with his usual demeanor, did not ask a question, but he has been in the Court’s majority in other cases enforcing arbitration agreements and is regarded as generally receptive to employer’s views. Nor did Justice Gorsuch ask a question. He, however, thus far has joined the Court’s conservative majority in all decisions in which he has been a part.

Chief Justice Roberts and Justice Alito clearly were skeptical of the NLRB’s position. Indeed, in questioning its General Counsel Richard Griffin, Chief Justice Roberts and Justice Alito led Griffin into a significant admission, providing the most dramatic moment of the morning. They asked Griffin a series of questions that led Griffin to agree that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this.  He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Interestingly, counsel for the employees, Daniel Ortiz of the University of Virginia School of Law, did not agree with that concession, thus highlighting fundamental dissent from the NLRB’s position. These cases at the Supreme Court already were notable because the Solicitor General took a position opposite that of the NLRB. Oral argument added another layer of disagreement: even the employees urging the Court to adopt the Board’s view of the NLRA don’t agree with the concession made by Griffin. In other words, the employees and the NLRB are asking the Supreme Court to recognize a right that overrides the FAA, but they cannot agree on what that right is.

As in any close case recently at the Supreme Court, most eyes were on the swing vote, Justice Kennedy. Going into the argument, he appeared to be the Justice most likely to join Justices Ginsburg, Sotomayor, Kagan, and Breyer, the four justices who dissented from the Court’s enforcement of a bilateral arbitration agreement in the consumer context in AT&T Mobility v. Concepcion. Justice Kennedy did not tip his hand as much as the other Justices. But he did appear to be interested in the concession that NLRB General Counsel Griffin made (and clarified Chief Justice Roberts’ question that induced that concession), and his questioning of the Board and the employees’ counsel suggested that he believed that, even with a collective and class action waiver, employees still can exercise Section 7 rights in various ways, and that he did not wish to “constrain[] employers in the kind of arbitration agreements they can have.”

Little of the argument focused on the FAA and the nature of its saving clause or what constitutes a “contrary congressional command.” The Justices seemed more interested in exploring whether the NLRA contains a right to a class action in the first place.

What Next?

Our predicted close victory for the employers is just that: a prediction. After all, even the Justices who appeared to favor permitting class waivers did not strongly signal how they might reach that result or whether any guidelines or restrictions might accompany the rule. We do not recommend that employers bank on our prediction, because one never knows what is in the minds of the Justices or how they will come out after discussing the cases with each other. Until a decision is issued — which likely will be early 2018 — there will be no definitive answer as to whether a class waiver in an arbitration program provides a defense to an employment class or collective action. Employers should continue to consider whether an arbitration program with a class or collective action waiver is right for them and, if it is, be ready to implement one if the Supreme Court rules in the employers’ favor in these cases.

[1] Seyfarth Shaw LLP is counsel for Epic Systems Corporation — one of the three companies whose arbitration programs are at issue in the three consolidated cases at the Supreme Court — and represents Epic at the district court in this case, was counsel for Epic in the appellate court, and is co-counsel for Epic at the Supreme Court.  The views expressed in this blog post are Seyfarth Shaw’s and not necessarily those of Epic.

Co-Authored by Sheryl Skibbe, Jon Meer, and Michael Afar

Seyfarth Synopsis: A recent court decision credited Nike’s time and motion study showing employees spent mere seconds of time in off-the-clock bag checks, finding the checks to be too trivial and difficult to capture to require payment. In contrast, the class failed to present actual evidence showing any amount of compensable time spent by the class off-the-clock while managers inspected their bags or checked their jackets.

In Rodriguez v. Nike Retail Services, Inc., Nike defeated a class action alleging that hourly retail workers were owed money for the time they spent waiting for security inspections after they had clocked out and were exiting the store.

Nike hired an expert to conduct a study of exit inspections, which showed that the average inspection takes no more than 18.5 seconds and that 60.5 percent of all exits required zero wait time. Rather than submit contradictory evidence in response to Nike’s 700 hours of video, which the court found to be representative of the class period, Plaintiff Isaac Rodriguez relied on an expert declaration attempting to poke holes in Nike’s study.

Judge Beth Labson Freeman called Plaintiff’s strategy “misguided,” rejecting “Rodriguez’s attempt to equate this situation to a battle of experts sufficient to deny summary judgment.” “[P]oint[ing] out flaws in the other side’s evidence,” was not the same as “offering any conflicting evidence for the jury to consider at trial on the relevant claim or defense.”

Evaluating Nike’s evidence under the de minimis defense, and recognizing that daily periods of up to 10 minutes have been found to be de minimis, Judge Freeman ruled that the workers hadn’t shown that their off-the-clock exit time was close to meeting that threshold. Although Rodriguez pointed to testimony from three store managers who estimated that some employees may have had a few inspections with higher wait-times, the judge found that wait-times of two or five minutes were too trivial, irregular and administratively difficult to capture.

Judge Freeman also agreed that repositioning time clocks to the front of the store so that employees could clock out after the check was not required. Taking a practical view, the court noted that “brief exit inspections are a modern business reality that most retailers, like Nike, use for the legitimate reason of reducing theft.”

Although the California Supreme Court is considering the de minimis doctrine in Troester v. Starbucks Corp., Judge Freeman declined Rodriguez’s invitation to “predict how the California Supreme Court will rule.” Instead, she noted that the court was compelled to apply existing law to the case, finding the Ninth Circuit and other courts had applied the de minimis doctrine to California claims.

For the moment, this ruling is good news for employers who can put away their stop watches when small increments of off-the-clock time are irregular and difficult to record. But keep your eye on the ball because the California Supreme Court will be making the final call on the de minimis doctrine and whether or how it applies in the state.

Co-authored by John Giovannone, Noah Finkel, and Kyle Petersen

Seyfarth Synopsis: As previously discussed in this space, the Ninth Circuit recently chose to side with the Second Circuit, and not the Sixth Circuit, and ruled that mortgage underwriters fail to meet the FLSA’s administrative exemption from overtime test. In doing so, the Court artificially promoted and expanded a court-created paradigm for assessing job duties—known as the “administrative/production” dichotomy—far beyond its utility, and thereby increased confusion in the mortgage banking industry.  Fortunately, the Supreme Court now has the opportunity to remedy that confusion with the pending petition for writ of certiorari.

As our readers may recall, we took issue with the Ninth Circuit’s July decision in McKeen-Chaplin v. Provident Bank, which held that mortgage underwriters did not qualify for the administrative exemption from overtime under the FLSA, despite their critical role in assessing potential mortgage loans and making important decisions based on those assessments. As we discussed, the decision was the result of a concerted effort to narrowly construe the exemption through a strained application of the outdated “administrative-production dichotomy,” which is a judicially-created shorthand tool that some courts use to shove job duties into one of two artificial buckets. And, as we discussed, the decision demonstrates yet another example of oft-repeated but unsupported, illogical, and inconsistent dicta advocating that while the FLSA, in general, should be broadly construed, its provisions concerning exemptions should be construed narrowly.

Suffice it to say, we are not only concerned that McKeen-Chaplin v. Provident Bank decision is substantively wrong, but that it will lead to less certainty and a spike in misapplication of the administrative exemption test under the FLSA (a fact we discussed further, in the context of the strain the decision creates between the federal and state law).

Fortunately, Provident Bank shares our concerns and has petitioned the United States Supreme for review of the decision (and in fact, cited our blog in the process). The petition rightly and persuasively argues that the decision is important, was wrongly decided, and creates a Circuit split between the Ninth, Second, and Sixth Circuits: “The issue impacts thousands of banks, and tens of thousands of employees nationwide…. Underwriters assess the potential borrowers income, assets, and credit history and decide whether their respective institutions should risk their own financial capital by making the loan. [T]hey play a crucial role in managing their institution’s overall exposure to risk and promoting its overall financial success.” As the petition persuasively points out, when the Department of Labor “promulgated the relevant regulations [concerning the administrative exemption] in 2004, it [also] issued a regulatory impact notice making clear its view that ‘underwriters’ do generally qualify as exempt ‘administrative’ employees.”

Thus, decisions like McKeen-Chaplin v. Provident Bank constitute judicial legislation concerning the ever-shifting contours of the exemption, which has morphed out of the court-created administrative-production dichotomy and an overriding but unfounded desire to narrowly construe the exemption. But such judicial legislation does not align with the original expectations of the drafters for the scope and impact of the exemption regulations. Yet, by way of Provident Bank’s cert petition, the Supreme Court now has the opportunity to right that wrong and definitively bring mortgage underwriters back within the scope of the administrative exemption, as originally envisioned. Hopefully, the Supreme Court will accept Provident Bank’s invitation.