By: Robert Whitman and John Phillips

As we previously reported, arbitration agreements have come under increasing scrutiny in recent years, especially with regard to claims for sexual harassment/assault arising during employment.

A number of states have already attempted to limit employers’ ability to require arbitration of such claims.  For example, state legislatures in California, Maryland, New Jersey, New York, Vermont, and Washington have passed statutes in recent years limiting employers’ ability to require arbitration of sexual harassment and (depending on the state) other claims.

However, most states’ efforts in this regard have conflicted with the Federal Arbitration Act (“FAA”) and are preempted by the federal statute.  For example, one federal district court earlier this year held that the New York law prohibiting arbitration of harassment claims is preempted by the FAA.  While preemption is not necessarily a sure-thing—the Ninth Circuit earlier this year appeared to limit the FAA’s preemptive reach—the prevailing view among federal courts, including the Supreme Court, has been that state laws seeking to restrict arbitration agreements are impermissible in the face of the strong federal policy promoting arbitration under the FAA.

Because the FAA preempts only state laws, not other federal statutes, there have been occasional efforts in Congress by opponents of arbitration to enact a federal law limiting or outright prohibiting arbitration in the employment setting.  These efforts have not previously advanced very far.  But some recent bills have bipartisan support and may have a chance at passage.

First, Senators Kirsten Gillibrand (D-NY) and Lindsey Graham (R-SC) jointly sponsored the Ending Forced Arbitration of Sexual Assault & Sexual Harassment Act of 2021 (S. 2342).  A companion bill has been introduced in the House (H.R. 4445).  The Senate bill has 17 other cosponsors, including 10 Democrats and 7 Republicans, while the House bill—introduced by Representatives Cheri Bustos (D-IL) and Morgan Griffith (R-VA)—has 13 Democrats and 4 Republicans as additional co-sponsors.  The Act would amend the FAA to prohibit pre-dispute arbitration agreements, including agreements with class- or collective-action waivers, for claims involving sexual assault or sexual harassment.  The Senate bill was recently approved unanimously by the Senate Judiciary Committee and “reported out” for consideration by the full Senate.  The House bill was similarly approved by the House Judiciary Committee on a bipartisan vote of 27-14.  Thus, the Act is now ready for consideration by the full Senate and House.

Second, the Resolving Sexual Assault and Harassment Disputes Act of 2021 (S. 3143) was recently introduced by Senator Joni Ernst (R-IA).  The bill would amend the FAA to (1) prohibit arbitration of sexual assault claims and (2) permit arbitration of sexual harassment claims provided that the agreement does not contain a confidentiality provision unless the parties agree otherwise after the claim has arisen, along with other procedural fairness requirements.  The prospects for this bill are uncertain.

Third, and much less certain of passage, is the more well-known Build Back Better Act (H.R. 5376).  Among the many provision in the Act is language to overrule the Supreme Court’s decision in Epic Systems Corp v. Lewis by banning collective action waivers in arbitration agreements.  This bill passed the House but faces unanimous Republican opposition, and it’s passage in the Senate is uncertain.

These federal developments demonstrate that some version of an arbitration bill tailored to sexual assault and harassment claims has a very good chance at becoming law.  Employers with arbitration programs should monitor events in Washington (as well as statehouses) and be prepared to amend their arbitration agreements should one of the federal bills under consideration become law.

By: Andrew McKinley & Kyle Winnick

Seyfarth Synopsis: On November 9, 2021, the Tenth Circuit issued a ruling beneficial to alleged joint employers in wage and hour lawsuits.  The Court held that a customer of staffing agencies could compel arbitration pursuant to arbitration agreements entered into between the plaintiffs and the staffing agencies, even though the customer was not a signatory to the agreements.  While the ruling only explicitly addressed Oklahoma law, it is indicative of a clear trend toward courts in a number of states permitting non-signatory enforcement of arbitration agreements within the joint employer context.

The proliferation of wage and hour class and collective lawsuits has forced an increasing number of staffing agencies to enter into arbitration agreements containing class-and-collective-action waivers with their employees.  In an effort to circumvent those agreements, plaintiffs’ attorneys have strategically chosen to forego bringing suit against the staffing agencies that directly contract with or employ them, instead suing only the customers of the staffing agencies, claiming that the customers are the direct or at least joint employers of the workers employed by the staffing agencies and thus are the one liable for any alleged wage-hour violations.  Because the staffing agency was not named in the lawsuit, the arbitration agreement between the plaintiff and staffing company is inapplicable—or so the argument goes.  Joining an increasing number of other courts addressing other states’ laws, the Tenth Circuit recently rejected such efforts to plead around arbitration agreements and class waivers under Oklahoma law.

In Reeves v. Enterprise Products Partners, LP, the plaintiffs worked for an energy company through third-party staffing companies that paid them for their work.  The plaintiffs and their respective staffing companies entered into employment agreements containing arbitration clauses whereby they agreed to “resolve by arbitration all past, present, or future claims or controversies, including but not limited to, claims arising out of or related to my . . . employment.”

The plaintiffs subsequently brought a proposed collective action under the Fair Labor Standards Act (FLSA) against the energy company, but not their staffing companies, claiming the energy company was their actual employer and that it unlawfully denied them overtime.  The energy company then moved to compel arbitration based on the agreements the plaintiffs had signed with their respective staffing companies.  The plaintiffs responded by contending that as a non-signatory to the arbitration agreements, the energy company could not compel arbitration.

The Tenth Circuit disagreed.  Relying on an equitable estoppel theory under Oklahoma law, which governed the arbitration agreements, the Tenth Circuit held the energy company could compel arbitration, despite being a non-signatory to the agreements.  The Tenth Circuit explained that equitable estoppel allows a non-signatory to enforce an arbitration agreement where a complaint raises allegations of “substantially interdependent and concerned misconduct by both the nonsignatory and the signatory to the contract.”

The Reeves court then explained why this standard was met on the facts before it.  Because the staffing companies were the ones who paid the plaintiffs, their allegations necessarily implicated the staffing companies’ conduct, making them “in essence” parties. The Tenth Circuit found that the doctrine of equitable estoppel precluded the plaintiffs from “simply plead[ing] around” their arbitration agreements, which covered “any concern arising” out of the plaintiffs’ employments, and the court had little doubt that a claim against a customer concerning payment was one such “concern.”  As a result, the court held that the customer was entitled to enforce the arbitration agreements under Oklahoma law.

The Tenth Circuit’s holding dovetails with how other courts have treated similar scenarios.  In Noye v. Johnson & Johnson Servs. Inc., 765 F. App’x 742 (3d Cir. 2019), for example, the plaintiff brought statutory claims against the staffing company that directly employed him and the staffing company’s customer for whom he had worked.  The plaintiff had signed an arbitration agreement with the staffing company, but not with the co-defendant.  The Third Circuit, construing Pennsylvania law, held the customer could compel arbitration, despite being a non-signatory to the arbitration agreement, because the plaintiff’s employment and arbitration agreements “were the vehicles” that placed him with the customer.

The upshot of Reeves, and similar cases, is that carefully drafted arbitration agreements can not only preclude class and collective actions for staffing companies, but can help shield their customers as well who may be sued on a joint employer theory.  While Reeves only explicitly addressed Oklahoma law, it is indicative of a clear trend toward courts in a number of states permitting non-signatory enforcement of arbitration agreements.  Nonetheless, a non-signatory’s ability to enforce an agreement will inevitably turn on the language of the particular agreement at issue and the particular state law governing that agreement.

By: Ariel Fenster, Noah Finkel, Christina Jaremus, and Kevin Young

Seyfarth Synopsis: Last week, the U.S. DOL issued a final rule limiting use of the FLSA’s tip credit for tipped employees who sometimes perform non-tipped work. Declining a more flexible approach advocated by many employers in response to the proposed rule, the final rule reinstates a weekly 20% limitation on non-tipped work and adds a daily 30-minute constraint, as well. The rule, which takes effect on December 28, 2021, commands attention from hospitality employers utilizing the tip credit.

A Dive Into the New Menu: 80/20 Rule

In December of 2020, the DOL under the Trump administration took the so-called “80/20” rule off the menu. That rule provided that employers were required to pay employees minimum wage if more than 20% of their time in a workweek was spent performing non-tip producing work. This was viewed as a positive development by many employers, who viewed the 20% limitation as an impractical rubric in the context of a fast-paced restaurant or other traditional hospitality settings.

The employer community’s relief was short-lived.

Pursuant to a final rule published last week and effective by year end, a new 80/20 rule is back in full force and this time with modification. The new rule effectively requires employers to examine  a tip-credit employee’s daily job duties into three buckets:

Bucket 1 (tip credit is acceptable): Duties that directly produce tips (e.g., serving, bartending, bussing);

Bucket 2 (tip credit may be acceptable depending on time): Duties that directly support tip-producing work (e.g., for servers, clearing the table; for bartenders, slicing fruit garnishments for drinks; for bussers, pre/post-table service prep work); and

Bucket 3 (tip credit is not acceptable): A catch-all bucket of any other duties.

An employer, the new rule provides, may take a tip credit for work that falls into bucket #1, but not bucket #3. Examples of work in the latter group include: for servers, preparing food and cleaning the kitchen or bathrooms; for bartenders and service bartenders, cleaning the dining room or bathroom; for bussers, cleaning the kitchen or bathrooms.

So, where does all of that leave bucket #2, i.e., job duties that support tip-producing work? Here, the new rule provides that an employer may take a tip credit if the employee’s work “is not performed for a substantial amount of time.” A “substantial amount of time” is defined as: (a) work that exceeds 20% of the employee’s workweek; or (b) work that is performed “for a continuous period of time exceeding 30 minutes.”

At a time when so many hospitality businesses are struggling to survive the pandemic’s fast-shifting currents, reintroduction of the 80/20 rule is likely not welcome news by many employers who view it as an arbitrary and impractical standard that effectively asks them to monitor, assess, and categorize each tipped employee’s tasks on a minute-to-minute, day-to-day basis.

The 30-Minute Recipe

If the 80/20 rule does not cause employers heartburn, the new 30-minute standard may do the trick. That said,  the Department’s clarification of the 30-minute rule in its final standard (as compared to the proposed rule) helps to soften the rule’s impact and clarify its application.

As explained above, an employer may not take the tip credit for time spent on “directly supporting” work that exceeds (a) 20% of the employee’s hours in a workweek (excluding any hours for which the employer doesn’t take the tip credit); or (b) a continuous period of 30 minutes. If an employer assigns an employee to perform “directly supporting” work for more than 30 minutes, it must pay a direct cash wage equal to the full federal minimum wage for the time exceeding 30 minutes. Time excluded from the tip credit under this rule is omitted when calculating the 20% threshold referenced in (a), above.

As Seyfarth noted in its commentary to the DOL, “[o]ver time, and multiplied by hundreds of employees,” such “inadvertent violations” of the 30-minute tolerance “by just a minute or two” might “yield substantial liability.” The DOL acknowledged Seyfarth’s comments, as well as comments by others in the employer community, that the 30-minute limitation would impose immense compliance and monitoring challenges.  The DOL noted that, “in light of these concerns,” it decided to soften the 30-minute rule so that it acts as a “tolerance for the first 30 minutes of non-tipped, directly supporting work.”

Further, after considering comments about the vagueness of what is “tip-producing work,” the DOL clarified in the final rule that the definition of tip-producing work is work that provides service to customers—including all aspects of that service—for which the tipped employee receives tips, and directly supporting work is performed in preparation for that work. By way of example, the Department agreed with Seyfarth’s comment that:

[I]n the hospitality industry, tip-producing work for servers, bartenders, and nail technicians is broader than simply serving food and drinks, or performing manicures. Thus, the Department agrees with the assessment that a bartender’s tip-producing work of preparing drinks may include generally talking to the customer seated at the bar and ensuring that a patron’s favorite game is shown on the bar television, [and] a servers’ tip-producing work includes bringing a highchair and coloring book for an infant seated at their table…

What’s Left For Employers to Digest

The rule introduces compliance challenges that command time and attention. Employers will need to consider what steps they can take to ensure that tip credit employees are not performing non-tipped work, or at least to ensure a clear process for tracking and recording time on such work. Here are a few tips to consider:

  • Due to the 30-minute rule, employers may want to avoid having a tip credit employees come in more than 30 minutes before opening or stay more than 30 minutes after closing. If employers cannot practically run the business without having tip credit employees do so, they will need to establish a system to ensure that these employees are paid directly at the full minimum wage for time exceeding 30 minutes.
  • Alternatively, to the extent an employer schedules tipped employees to work before the establishment opens or after it closes, it should consider paying them at full minimum wage for the pre-opening and post-closing time. This will be required if the employees are not performing tip-producing or tip-supporting work during that time.
  • Employers should carefully document their compliance efforts. Managers should be trained, and those efforts should be documented. Employers should also notify employees and instruct them to inform management if they work outside of their tipped role that they did not record properly in the timekeeping system.
  • To that end, employers should also evaluate their timekeeping system. Ideally, such systems should be equipped to separately track employees’ tip-producing (and non-tipped work, if applicable) in multiple jobs, assign the right rates to each, and combine hours for overtime purposes. Employers should also ensure that their staff members are aware of how to use the software.
  • If there are certain tasks that employers feel clearly constitute non-tipped work, they may direct employees not to perform them, or ensure that they are performed only while clocked in under an appropriate, non-tipped job code. Again, these efforts and communications should be documented.

There’s no one-size-fits-all approach for complying with the new rules. Best practices will vary by business depending on the nature of the enterprise, its personnel, its time-tracking capabilities, and the like.

With an effective date of December 28, 2021, the new rules require hospitality employers to act quickly. Unfortunately, they will need to do so during the holiday period, in the face of a labor shortage, and while continuing to navigate the COVID-19 pandemic. As always, please do not hesitate to reach out to the blog authors or your favorite Seyfarth lawyer if you would like to discuss these important issues.

By Noah Finkel and Lennon Haas

Seyfarth Synopsis:  Plaintiffs asserting federal and state wage and hour claims in one action often pursue both class certification of state claims under Rule 23 and collective action certification under the FLSA.  In that hybrid environment, litigating FLSA collectives to judgment before addressing Rule 23 certification can saddle employers with the increased exposure of a class action without affording them the benefit of global peace upon resolution of the dispute.  Recognizing that unfairness, the Third Circuit admonished district courts to address class certification before trying FLSA claims.  In doing so, it may have provided employers with authority for an argument against class certification.

Plaintiffs claiming that their employers failed to properly compensate them usually have available both state and federal causes of action.  Asserting both types of claims in one action, and pursuing those claims on an aggregate basis, is not uncommon.  Because the FLSA contains its own unique aggregation mechanism, however, these “hybrid” cases proceed on two tracks—one for FLSA claims under that statute’s “collective action” provision, and another for state law claims under Rule 23.  The former includes only those who opt in to the case, but the latter, if certified, includes all those who don’t opt out of a case and thus an involve far greater exposure for an employer.

Those dual tracks normally follow a choreography where Plaintiffs move early for “conditional” certification of their proposed FLSA collective, discovery occurs, and then defense motions for collective action decertification and plaintiff motions for Rule 23 class certification are filed around the same time.  Sometimes, however, courts abandon that sequencing by focusing on FLSA claims first, often at the plaintiff’s urging.

Last week, the Third Circuit weighed in on how courts should order the affairs of hybrid actions, making clear that trying FLSA claims before deciding class certification may violate Rule 23.  In doing so, the court slowed plaintiffs’ pursuit of judgment and cast doubt on the superiority of the class device for litigating wage and hour cases.

Mortgage loan officers filed a complaint against their employer, a regional bank, that brought a collective action under the FLSA and parallel state law claims as a Rule 23 class action.  After the district court conditionally certified the FLSA collective, the plaintiffs moved for class certification of the state law claims and the employer moved to decertify the collective.  The court granted the former and denied the latter.  The employer appealed both decisions and succeeded in reversing class certification.

On remand, the district court refused to readdress certification and set the FLSA portion of the case for trial — even before considering class certification on the state law claim.  Out of alternative avenues for relief, the bank petitioned for mandamus, a stay pending a decision on its petition, and reassignment to a new district judge, arguing that it was improper to try the merits of the FLSA claim prior to class certification and an opportunity for class members to opt-out.  The Third Circuit granted the stay, but because the district judge joined the reassignment request it denied as moot the mandamus petition.

In doing so, however, it provided district courts guidance on the proper interaction between class certification under Rule 23 and merits decisions on FLSA collective actions.  A “trial-before-certification” approach, reasoned the court, ignores Rule 23’s mandate to decide certification “[a]t an early practicable time after a person sues.”  What’s more, that ordering invites proposed class members to wait for final judgment before deciding whether to opt-out, thus permitting them to “benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one.”

That “unfair upshot” is only “compounded when what is scheduled for trial [before certification] is a hybrid wage-and-hour case.”  Trial on the FLSA claims would have necessarily decided a merits issue for the class claims too and in doing so “may well have satisfied” Rule 23’s requirement that common questions predominate.  If the bank lost, then, members of the proposed class would have had no incentive to opt-out.  But if the bank won, the FLSA judgment would bind only the collective action participants, thus enabling the remaining putative class members to avoid the preclusive effect of an unfavorable decision.  In other words, trial-before-certification would expose employers to the full scope of class-wide liability but “would arbitrarily deprive [them] of the benefits of . . . the full preclusive effect of the class action judgment.”

For employers facing hybrid wage-and-hour actions, particularly those in the Third Circuit, this opinion provides support for a more deliberate and structured approach to sequencing the myriad decision points in these cases.  Fidelity to the court’s reasoning will mean that courts need to carefully coordinate FLSA collective action and Rule 23 proceedings to ensure that class certification receives attention before deciding FLSA merits issues that intertwine with state law claims and certification considerations.

The decision, in recognizing that an FLSA collective action trial likely disproves a class action’s superiority under Rule 23(b)(3), also provides possible ammunition for resisting class certification in a hybrid action.  If judgment on the merits of FLSA claims fatally undermines the class mechanism’s superiority, the mere availability of a collective action under the FLSA may as well.

By: Jeffrey A. Berman and Jennifer R. Nunez

Seyfarth Synopsis: An unpublished Ninth Circuit opinion has held that an employer need not pay employees for time spent undergoing government-required security checks en route to their worksite within the Los Angeles International Airport. Cazares v. Host International, Inc.

The Facts

Jesus Cazares, an attendant in the Admirals Club lounge at the Los Angeles International Airport (“LAX”), sued his employer, Host International, Inc., for unpaid wages, failure to provide meal and rest breaks, and failure to provide accurate wage statements. The main claim was that Host failed to pay for time spent going through TSA security procedures to enter LAX. Cazares also claimed that Host failed to provide meal breaks in that the security process left him no time to leave the airport on meal breaks. Cazares also alleged that Host failed to provide him full 10-minute rest breaks because he had to spend time walking through the terminal to reach designated rest areas.

The Trial Court Decision

In July 2020, the district court dismissed Cazares’s lawsuit for failure to state a claim on which relief can be granted. Cazares appealed the court’s order to the Ninth Circuit.

The Appellate Court Decision

On August 18, 2021, a Ninth Circuit panel affirmed the order dismissing Cazares’s case.

The claim for unpaid work. The Ninth Circuit held that the time spent passing through federally-mandated airport security checks en route to work was not compensable because Cazares did not allege enough facts to show that Host had subjected him to any control during the security checks.

The claim for unprovided meal breaks. The Ninth Circuit held that Cazares had failed to allege facts to show that Host had discouraged him from taking meal breaks as he was not required to undergo a security check in order to leave his worksite (the Admirals Club) during meal breaks.  Host did not have to also ensure that Cazares could leave the secured area of the airport in order to satisfy its meal break obligation.

The claim for unprovided rest breaks. The Ninth Circuit rejected Cazares’s contention that his rest breaks were shortened by a walking requirement, as he failed to allege facts to show that Host made him take his rest breaks at a particular designated area several minutes away from his Admirals Club worksite.

The claim for inaccurate wage statements. Because the wage and break claims failed, the Ninth Circuit concluded that the derivative wage-statement claim also failed.

Seyfarth filed an amicus brief on behalf of a large employer association in support of Host.

What Cazares Means For Employers

The Ninth Circuit’s ruling, though unpublished, is nonetheless citable. It is a useful reminder that it is the level of the employer’s control over employees—not the mere fact that the work requires an activity—that determines whether an activity is compensable under California wage and hour law. The ruling also represents a common sense approach to California’s meal and rest period rules.

By Lennon Haas and Noah Finkel

Seyfarth Synopsis:  Since the Supreme Court’s 2017 decision in Bristol-Myers Squibb Co. v. Superior Court, federal district courts around the country have wrestled with whether they may exercise personal jurisdiction over employers as to FLSA claims brought by people who worked and were paid outside of the forum state.  On August 17 and 18, the Sixth and Eighth Circuits said no.  The result is that, at least within those circuits, an employer cannot be subject to a multi-state FLSA collective action unless it is brought in a court in the employer’s home state.

The FLSA allows individuals to bring claims for minimum wage or overtime violations “for and in behalf of” themselves and other “similarly situated” employees.  These “collective actions” often involve relatively few resident plaintiffs and a multitude of out-of-state employees.  Where their claims may be brought became an open question after the Supreme Court’s 2017 decision in Bristol-Myers.

That case involved 678 individual product liability claims joined together in a California state court based mass action.  Nearly 600 of those claims belonged to nonresidents.  To establish personal jurisdiction, the nonresidents relied on the similarity of their claims to those of the California plaintiffs.

The Supreme Court rejected that conception, holding that resident/nonresident claim similarity “is an insufficient basis for jurisdiction.”  Despite having incurred the “same injuries” as the California plaintiffs in the same manner and from the same cause, the nonresidents, reasoned the Court, had failed to show “a connection between the forum and the[ir] specific claims.”  That essential element of due process lacking, the Supreme Court held that no specific jurisdiction existed over Bristol-Myers as to the claims of out-of-state plaintiffs when those claims did not arise from the company’s California contacts.

Recognizing the similarity between mass actions and FLSA collective actions, employers have argued ever since that Bristol-Myers required all FLSA plaintiffs—both resident and nonresident named and opt-in plaintiffs—to establish specific personal jurisdiction.  Almost 50 district courts weighed in, with plaintiffs and defendants each prevailing about half the time.

On August 17, 2021, the Sixth Circuit became the first court of appeals to decide the issue, holding in Canaday v. The Anthem Companies, Inc. that courts may not exercise specific jurisdiction over FLSA claims “unrelated to the defendant’s conduct in the forum state.”  The very next day the Eighth Circuit reached the same conclusion in largely the same way in Vallone v. CJS Solutions Group, LLC.

Both courts began by determining the proper analytical framework under which to proceed.  And both, although considering federal questions in federal court, concluded that due process limits on state court authority constrained their power.

Service of process, they observed, is a prerequisite for obtaining authority over a defendant and must be congressionally authorized.  A statute can authorize nationwide service, and many do.  But not the FLSA.

More often, and as is the case for FLSA litigation, Federal Rule of Civil Procedure 4(k) constrains effective service within the limits prescribed by a forum state’s long-arm statute and by extension the Fourteenth Amendment’s Due Process Clause.

As Canaday and Vallone recognized, the power to exercise jurisdiction under that amendment is finite.  Courts may assert general, or “all purpose,” jurisdiction over a defendant in its home state (for a corporation, where it is incorporated and headquartered).  Or, they may assert specific or “case-based,” jurisdiction if a claim “arises out of or relates” to the defendant’s forum conduct.  Because neither Canaday nor Vallone chose to litigate in their employer’s homes, only specific jurisdiction could provide the authority needed.

Both plaintiffs contended that even so, the FLSA’s collective mechanism negated the need for individual nonresident plaintiffs to show a connection between the forum and their specific claims.  The circuits disagreed.  “The principles animating Bristol-Myers,” they concluded, dictated that even collective action opt-ins individually establish that their claims connected to the defendant’s forum conduct.  That was so because collective actions are “more accurately described as a kind of mass action,” with “each opt-in plaintiff . . . a real party in interest[] who must meet her burden for obtaining relief,” including by establishing that personal jurisdiction exists.

The question became, then, whether nonresident FLSA plaintiffs could show a connection between their claims and the defendants’ in-forum conduct.  Both Vallone and Canaday held that they cannot.  Nonresident plaintiffs were not employed in the forum.  They were not paid in the forum.  And they were not “shortchanged” overtime compensation in the forum.  “Taken together,” said Canaday, nonresident FLSA opt-in claims “look just like the claims in Bristol-Myers.”

That similarity led Canaday and Vallone to conclude that where “nonresident plaintiffs opt in to a putative collective action under the FLSA, a court may not exercise specific personal jurisdiction over claims unrelated to the defendant’s conduct in the forum state.”

For employers with multi-state operations, the decisions in Vallone and Canaday offer an important avenue for potentially limiting the size and reach of individual collective actions.  A pending decision in Waters v. Day & Zimmerman, No. 20-1997 (1st Cir.), will further clarify this important personal jurisdiction issue.  Should that case split from Canaday and Vallone, the applicability of Bristol-Myers to collective actions may well command attention from the Supreme Court.

Tuesday, August 24, 2021

1:00 p.m. to 2:00 p.m. Eastern
12:00 p.m. to 1:00 p.m. Central
11:00 a.m. to 12:00 p.m. Mountain
10:00 a.m. to 11:00 a.m. Pacific

On July 21, 2021, the US Department of Labor announced a Notice of Proposed Rulemaking (NPRM) to establish standards and procedures to implement and enforce Executive Order 14026, “Increasing the Minimum Wage for Federal Contractors.” The Executive Order and its enacting regulations will increase the minimum wage for workers performing work on or in connection with covered federal contracts to $15 per hour beginning January 30, 2022; continue to index the federal contract minimum wage in future years to an inflation measure; eliminate the tipped minimum wage for federal contract workers by January 1, 2024; ensure a $15 minimum wage for workers with disabilities performing work on or in connection with covered contracts; and restore minimum wage protections to outfitters and guides operating on federal lands.

In this webinar, attorneys from Seyfarth’s Government Contracts, Government Relations and Policy, and Wage and Hour Litigation Practice Groups will provide an overview of the NPRM including its substance, reasoning, timeline and potential impacts on employers.

REGISTER HERE

 

Speakers

Brett C. Bartlett, Moderator, Partner, Seyfarth Shaw LLP
Adam K. Lasky, Partner, Seyfarth Shaw LLP
A. Scott Hecker, Senior Counsel, Seyfarth Shaw LLP
Stephanie B. Magnell, Counsel, Seyfarth Shaw LLP

*This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC, FL and VA.  The following jurisdictions accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, ME, NH.  The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD.  For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. If you have questions about jurisdictions, please email CLE@seyfarth.com.

By: Ryan McCoy

Seyfarth Synopsis: The Federal Arbitration Act (“FAA”) exempts workers engaged in interstate commerce from enforcement of mandatory arbitration agreements. Uber drivers (and other drivers working in the gig economy) have frequently argued that they fit under this “interstate transportation” exemption in order to avoid arbitration of their claim that they have been misclassified as independent contractors. A growing number of courts across the country have rejected those arguments, however, finding that Uber drivers are not interstate workers because Uber’s service is primarily local and intrastate in nature. Last week, the Ninth Circuit Court of Appeals joined those courts, affirming a ruling from the Northern District of California that sent the Uber drivers’ classification claims to arbitration.

The District Court’s Decision

In September 2019, plaintiffs filed a putative class action in the District Court for the District of Massachusetts, seeking to represent a class of Uber drivers who worked in Massachusetts. The lawsuit sought an order against Uber that would prohibit Uber from continuing to classify its drivers as independent contractors and force Uber to reclassify drivers as employees “and comply with Massachusetts wage laws.” In response, Uber sought to transfer the lawsuit from Massachusetts to the Northern District of California, and further sought to compel arbitration of the drivers’ claims based on the mandatory arbitration agreement the drivers signed, which included a class action waiver. Plaintiffs resisted Uber’s efforts to send their claims to arbitration, arguing Uber drivers are exempt from mandatory arbitration under Section 1 of the FAA because, in plaintiffs’ view, such drivers are a class of workers engaged in interstate commerce. In support of their arguments, drivers pointed to data in Massachusetts showing the relative frequency drivers crossed state lines or picked up and dropped off at airports. But the district court rejected those arguments because the nationwide data showed Uber drivers spent the vast majority of their time in a single state; unchallenged facts that did not support such a broad interpretation of the interstate commerce exemption. Plaintiffs then appealed to the Ninth Circuit after the district court compelled individual plaintiffs’ claims to mandatory arbitration.

The Ninth Circuit “Joins The Growing Majority Of Courts” Holding Uber Drivers Are Not Engaged In Interstate Commerce.

The ultimate question on appeal was whether Uber drivers are engaged in interstate commerce within the meaning of the FAA; if the drivers are engaged in interstate commerce, then they are exempt from the FAA and their claims are not subject to mandatory arbitration and they could bring their classification claims in federal court. Citing authorities from across the country, however, the Ninth Circuit panel agreed Uber drivers were not engaged in interstate commerce and thus their claims were subject to mandatory arbitration under the FAA. First, the panel found Uber drivers’ services were “primarily local and instrastate in nature.” This conclusion remains true even if the drivers sometimes (in this case, just 2.5% of all rides in the United States from 2015-2019) crossed state lines or started and ended their serve in different states. Thus, “[o]verall, interstate trips, even when combined with trips to the airport, represent a very small percentage of Uber rides, and only occasionally implicate interstate commerce.”

The panel also found that assessing the nationwide data for purpose of the exemption, rather than cherry-picking data from a limited geographic region (such as Massachusetts), was important to further the “very purpose of the FAA, by which Congress sought to create a national policy favoring arbitration.” Indeed, “[a]ny alternative approach would potentially produce absurd results whereby the FAA would apply differently to neighboring states, or even neighboring cities in the same state.” The panel thus rejected as “unpersuasive” the minority of courts’ view that a de minimis amount of time spent engaged in interstate commerce could be enough to satisfy the FAA’s exemption and avoid arbitration, finding such a view was inconsistent with the public policy encouraging arbitration.

In addition to affirming the district court’s order compelling arbitration of the Uber drivers’ claims, the Ninth Circuit agreed that the district court should address Uber’s motion to compel arbitration before addressing the drivers’ motion for relief.

What the Ruling Means for Employers

This ruling affirms a common-sense interpretation of the FAA’s interstate commerce exemption, finding that Uber drivers who spend the vast majority of their time engaged in intrastate commerce cannot avoid arbitration of their claims. This ruling is consistent with the public policy underlying the FAA, and avoids setting an unworkable precedent that even a “de minimis” amount of time spent engaged in interstate commerce is sufficient to meet the FAA’s exemption. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually one might expect that the Supreme Court will be asked to weigh in on the issues raised by the appeal.

 

By: Andrew McKinley and Eric Lloyd

Seyfarth Synopsis: Today, the U.S. Department of Labor rescinded the final rule entitled “Joint Employment Status Under the Fair Labor Standards Act,” more commonly known as the Joint Employer Rule. This alert provides an overview of the DOL’s action and its impact on employers.

With the growth of the gig economy and in light of the varying standards that have developed among the courts in the over-80-years since the passage of the Fair Labor Standards Act, the U.S. Department of Labor in January 2020 issued its first formal rule delineating the standard that should be applied to determine whether an entity qualifies as a joint employer. The rule’s discussion of horizontal joint employment – which assesses when multiple putative employers are sufficiently associated that hours worked for each must be aggregated to determine liability – substantively tracked prior DOL guidance. However, with respect to vertical joint employment, which assesses situations in which work for an employer simultaneously benefits another entity, the new rule adopted a four-factor test that focused primarily on whether the potential joint employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.

Today, sixteen months after that rule went in effect, it is effectively dead.

The Joint Employer Rule

The DOL’s joint employer rule had been under assault almost from its announcement. In February 2020, before the rule went into effect, a group of state attorneys general filed a complaint in the Southern District of New York, seeking to invalidate the rule. The court ultimately agreed to vacate the rule, at least with respect to vertical joint employment, reasoning, among other things, that the DOL’s test reflected an impermissibly narrow interpretation of the FLSA, that the rule departed from the DOL’s prior interpretations without adequate explanation, and that the DOL had failed to consider the rule’s costs to workers.

The DOL appealed that decision to the Second Circuit, and submitted briefing in January 2021 supporting the challenged rule. Only two months after announcing that support, the DOL published a notice of proposed rulemaking, in which it proposed to rescind the joint employer rule, largely based on arguments contrary to its appeal. And today, while the appeal remains pending, the DOL issued its final rule of rescission, largely agreeing with the issues raised by the decision from the Southern District of New York. The DOL also went a step further than that decision and rescinded the rule’s horizontal joint employment analysis, concluding that the rule’s discussion of vertical and horizontal joint employment were intertwined, and that leaving the latter in place would engender confusion.

Impact on Employers

With the joint employer rule now rescinded, companies must look to the pre-rule patchwork of federal court decisions that vary across (and even within) jurisdictions to assess whether they may qualify as joint employers of third parties’ personnel under the FLSA. At the same time, employers need to continue to evaluate how different joint employer standards under state wage laws may create additional opportunities for exposure. Finally, employers should prepare for the possibility that the Biden Administration will use legislation, rulemaking, or non-binding guidance to expand the situations in which a company may be found to be a joint employer, particularly as the need for a uniform joint employment standard remains unaddressed.

If you would like to discuss any of these developments further, please feel free to contact the authors or your favorite Seyfarth attorney.

By: Daniel I. Small, Robert T. Szyba, Howard M. Wexler, and Glenn J. Smith

Seyfarth Synopsis: New Jersey Governor Phil Murphy signed a legislative package into law on July 8, 2021 that increases enforcement mechanisms for state agencies to impose a variety of penalties against employers who misclassify workers as independent contractors and creates a new office specifically designed to enforce such violations.  Most portions of the legislation are effective immediately.

Continuing his commitment to combat perceived worker misclassification in the Garden State, Governor Murphy signed additional legislation regarding independent contractor misclassification.  We discussed the 2020 legislative efforts by the Murphy administration to address misclassification concerns here.  Now, Governor Murphy has taken the following additional steps, in his administration’s words, to ensure that “New Jersey is the best state in which to be a worker in the entire country”:

  • Court Injunction. Bill A-5890/S3920 empowers the Commissioner of the Department of Labor and Workforce Development (“DOL”) to seek a superior court injunction to prevent ongoing violations of state wage, benefit, and tax laws stemming from employee misclassification, for which the Commissioner would be entitled to collect attorneys’ fees and litigation costs should it prevail.  The law does not provide any standards or factors the Commissioner must consider in determining whether to pursue an enforcement action and instead leaves such an analysis to the Commissioner’s “sole discretion.”  This provision takes effect immediately.
  • Stop-Work Orders. While the Commissioner was already able to issue a stop-work order for the “specific place of business” where a misclassification violation occurred, Bill A-5890/S3920 goes further and empowers the Commissioner to issue a stop-work order for one or more worksites, or across all an employer’s worksites, when the employer commits a single violation of a state wage, benefit, or tax law.  These stop-work orders can remain in effect until the Commissioner finds that the employer has come into compliance and has paid any penalties assessed and are not stayed by an employer’s request for a hearing.  Moreover, the stop-work order will become a final order after 72 hours should an employer not request an appeal in writing of the Commissioner’s decision to issue the order.  Additionally, workers affected by such a stop-work order are entitled to be paid by the employer for the first 10 days of work lost because of the stop-work order.  The Commissioner may bring any legal action necessary to collect any unpaid wages for the first 10 day of a stop-work order.  Finally, the Commissioner may assess a civil penalty of $5,000 per day against an employer for each day that it conducts business operations that are in violation of the stop-work order.  This provision takes effect immediately.
  • Creation of the Office of Strategic Enforcement and Compliance. Bill A-5891/S3921 creates a new office within the DOL — the Office of Strategic Enforcement and Compliance (“OSEC”) — to oversee and coordinate across the divisions of the DOL, and between the DOL and other state agencies and entities, for the strategic enforcement of state wage, benefit, and tax laws.  The law provides that, as a condition for receiving an award of direct business assistance from the DOL, or for the DOL to provide a report to another state agency or entity that a business is in good standing, the DOL will first determine whether the person or business has any outstanding liability to the DOL, including for unpaid contributions to the unemployment compensation fund or the state disability benefits fund, unless the business has entered into an agreement with the DOL to immediately and fully comply with the statutes and rules enforced by DOL and to resolve all delinquencies or deficiencies within a time period specified by the Commissioner.  The bill appropriates $1 million to the DOL to support and expand OSEC to effectuate the purposes of the bill.  This law is effective immediately.
  • Insurance Fraud. A-5892/S3922 makes misclassifying employees for the purpose of evading payment of insurance premiums a violation of the New Jersey Insurance Fraud Prevention Act and provides penalties for fraud involving misclassification — $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation.  Moreover, this bill permits the Bureau of Fraud Deterrence and the insurance fraud prosecutor to consult with the DOL to assist with the investigation of the failure to properly classify employees “for the purpose of wrongfully obtaining the benefits or of evading the full payment of the insurance benefits or insurance premiums.”  This law is effective either January 1, 2022 or February 1, 2022.[1]

Given these developments, the existing use of the ABC test in New Jersey, and a wage theft law that provides workers with a six-year statute of limitations and three times liquidated damages, employers with operations in New Jersey must consider how these new laws impact their business models, particularly those that rely on independent contractors in support of their business operations.  With New Jersey moving to the forefront of independent contractor compliance, employers are advised to conduct a review of their pay, timekeeping, and classification practices and policies in light of these developments.  Please feel free to consult with any of the authors regarding these and other New Jersey-specific updates.

 

[1] The legislation states “This bill shall take effect on the first day of the sixth month next following the date of enactment.”