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Co-authored by Steve Shardonofsky and Tiffany Tran

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

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

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

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

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

Authored by Robert S. Whitman and Howard M. Wexler

Amid the uncertainty concerning the DOL’s enjoined overtime exemption rules and similar state-led efforts to increase the salary threshold, such as in New York, the Second Circuit recently gave employers an early holiday present when it resolved a long-standing split among New York federal courts and held that “New York’s law does not call for an award of New York liquidated damages over and above a like award of FLSA liquidated damages.”

Under the FLSA, an employer that underpays an employee is liable in the amount of those unpaid wages “and in an additional equal amount as liquidated damages” if it did not act in good faith.  Similarly, under the NYLL, liquidated damages in the amount of 100% total wages due are mandatory unless the employer proves its good faith.  The NYLL is silent as to whether it provides for liquidated damages in cases where liquidated damages are also awarded under the FLSA.

In Chowdury v. Hamza Express Food Corp. et al., an employee challenged the damages award he received after his former employer defaulted in his lawsuit for unpaid wages under the FLSA and New York Labor Law.  The employee sought two discrete liquidated damages awards: one under the FLSA and one under the NYLL.  Noting a split among district courts as to whether such “cumulative” or “stacked” liquidated damages awards are available, the Magistrate Judge recommended denial of a cumulative award, concluding that it would be an unfair double recovery.  The District Court adopted the Magistrate Judge’s recommended ruling.

The Second Circuit affirmed.  It held that “double recovery” of liquidated damages under the FLSA and NYLL was unwarranted. “Had the New York State legislature intended to provide a cumulative liquidated damages award under the NYLL, we think it would have done so explicitly in view of the fact that double recovery is generally disfavored where another source of damages already remedies the same injury for the same purpose.”  Accordingly, the court held, “In the absence of any indication otherwise, we interpret the New York statute’s provision for liquidated damages as satisfied by a similar award of liquidated damages under the federal statute.”

The decision is a big win for employers as it resolves what has frequently been a bone of contention between parties litigating (and trying to resolve) wage and hour lawsuit in New York brought under the FLSA and NYLL, and potentially could be used in other states where penalties under wage-and-hour laws serve the same purpose as the FLSA’s liquidated damages provision.  The potential exposure in New York cases is already high enough to give employers the holiday blahs:  back wages, 100% liquidated damages, 9% pre-judgment interest, a 6-year limitations period, and attorneys’ fees.  This decision at least removes the possibility that plaintiffs will claim, like George Costanza, an entitlement to “double dip.”

Happy Holidays!

Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
Contractors. Joint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic reality. Right to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Co-authored by Abad Lopez and Noah Finkel

Even in the face of an apparent victory, a company may be stuck with an unexpected and outsized attorneys’ fees tab.  In a recent case that highlights the multifaceted perils of drawn out litigation, the Tenth Circuit affirmed a $3.4 million attorneys’ fees award—even though the jury rejected the majority of plaintiffs’ claims and where the fees “substantially exceeded” plaintiffs’ actual damages award.

The case involved workers who sued under the Fair Labor Standards Act and the Kansas Wage Protection Act, which proceeded as a class and collective action.  At trial, the jury awarded the workers approximately $503,000 in damages under the FLSA and state law, a sum far less than that sought by the plaintiffs.  The jury found the company liable on a class-wide basis for systematically undercompensating employees for the time they spent putting on and taking off protective clothing and equipment and walking to and from their work stations.  However, the jury found that plaintiffs failed to prove their meal and rest break claims.  The district court then proceeded to award plaintiffs’ counsel $3.4 million in attorneys’ fees despite their rather limited success.

In affirming the district court’s full attorney’s fees award, the Tenth Circuit afforded considerable leeway under the “abuse of discretion” standard.  By doing so, it allowed fees for the time spent on plaintiffs’ successful donning and doffing claims, in addition to any time spent on their unsuccessful meal and rest break claims.  Even though plaintiffs’ claims ostensibly involved different legal theories, the court found that they were “interrelated.”  The court also had no concerns about the size of the award, even though plaintiffs only recovered 8% of the damages they sought and the award “substantially exceeded” the actual damages award by a 7 to 1 ratio.

As evident from this decision, litigation through trial may prove undesirable even in the face of an apparent victory.  Although at times warranted, defending a case at all costs, even where the actual potential damages are palatable, carries the added risk of an unexpected (and decidedly unpalatable) attorneys’ fees award.  As such, decisions about an “exit strategy,” including via early resolution, defeating certification, or early dismissal of particular claims through dispositive motions, are critical in light of these risks.  Even where defendants decide that victory at trial is the only acceptable outcome, this decision should be made with eyes wide open about the potential cost of a victory.

Co-authored by Kevin Fritz and Jeremy Stewart

Yesterday, the nation’s highest court decided to close the checkout lane on John Catsimatidis when it denied the grocery chain CEO’s petition for certiorari in a case we have been following since last year.  The petition challenged the Second Circuit’s conclusion that Catsimatidis should be held personally, jointly, and severally liable for wages owed to employees based on his general control over the company.

Applying a standard known as the “economic realities” test, the Second Circuit looked at Catsimatidis’ power to hire and fire, his supervisory roles with regard to work schedules and conditions of employment, his role in setting the rate and method of employees’ payment, and his duties with respect to maintaining employment records.  Although it noted it was a close case, the Second Circuit held that given the totality of the circumstances, the CEO could be held personally liable for the unpaid amounts under an FLSA settlement agreement.  In other words, he was left holding the bag.

The Second Circuit’s decision differed from at least four of its sister circuits.  Indeed, the First, Seventh, Eighth, and Eleventh Circuits all hold that personal liability is limited to acts of personal responsibility.  Given the split and impact of the Second Circuit’s far-reaching decision, Catsimatidis turned to the Supreme Court for assistance.  But today’s denial means that, at least for now, there are many options to choose from on the individual liability of corporate officers question.

Although the question of individual liability remains unsettled—and until more clarity is provided—employers should consider raising awareness of the potential for personal liability by reviewing corporate structures and operational control to determine which individuals may ultimately be at risk of individual liability based on the “economic realities” of their position.  This case also presents an additional reason for companies to be proactive in assessing wage and hour compliance.

Co-authored by Kevin Fritz, Jeremy Stewart, and Robert Whitman

On Friday, SCOTUS will decide if it will grant review of a Second Circuit decision that placed a CEO on the hook for unpaid back wages under an FLSA settlement agreement.  We previously reported on this case out of New York where the Second Circuit held that the CEO of a grocery chain was personally liable for $3.5 million in unpaid wages deemed owed under the FLSA.  The issue was individual liability.  Who has it?  How did he get it?  How much will it cost?

In Irizarry v. Catsimatidis, the Second Circuit looked to a number of factors in holding that the CEO is an “employer” under the FLSA and therefore responsible for money owed by his grocery chain under a settlement agreement, including his power to hire/fire, supervisory capacity, whether he decided employee pay rate, and his influence over day-to-day management decisions.  Unless SCOTUS reverses or modifies the Second Circuit’s holding, the CEO will remain personally, jointly, and severally liable for unpaid amounts owed to plaintiffs under the settlement agreement, even though the CEO may not have been “personally responsible for the FLSA violations” in the first place— because according to the court, he still profited.

This case is interesting because the Second Circuit made a potentially far-reaching decision in holding that an individual may be personally liable for a corporation’s violation of the FLSA merely because he had general control over corporate affairs.  If SCOTUS decides to hear this case, employers (in particular management) may finally get some clarity about the level of operational control that triggers individual liability, and Catsimatidis may soon be seeking a discount of a different kind from SCOTUS.

Stay tuned to our blog for the latest on this, and visit again soon for all your Wage & Hour shopping needs.

Authored by Alex Passantino

It’s the week before Christmas, so you know it’s the time
For our review of the year—our wage-hour rhyme.
Our look-back on issues from the past 52 weeks
That grabbed the attention of you wage-hour geeks.

Leading us off is no big surprise:
FLSA filings continue to rise.
A 10% bump; they’re not going away,
‘Cause they’re filed at a rate of like 30 a day.

Next up on our list is that place at One First,
Where nine Justices use words like “affirmed” and “reversed.”
A flurry of cases from the Court so Supreme,
For the most part?  A wage-hour defense lawyer’s dream.

Individualized damages may take Rule 23 off the table
As we learned in the context of allocation of cable.
When damages cannot be measured en masse,
Then SCOTUS has ruled that there shall be no class. 

For state law wage cases, was Comcast the end?
Would class cert responses simply say “How will you calculate, friend?”
Then five short days later, the Court kicked back Ross.
‘Twas a heck of a hint that these classes get tossed.

T.L. Cannon and Ginsburg and Family Movie
And Martins they all made defendants feel groovy.
We’ll have a better idea of what this all means
When circuit number two rules in 2014.

Another huge trend that’s been sweeping the nation:
Supreme Court decisions on class arbitration.
With an agreement, class claims you can prevent.
But you’d better be sure that it says what you meant. 

For if your clause can be wiggled by the rules of contract,
Then with class arbitration, you might find yourself smacked.
But a well-drafted waiver will protect you from the many,
Even if each individual claim is worth but a penny.

And collective wage claims can be waived, if done clearly,
At least we’ve heard that in both Sutherland and Raniere. 
And the NLRB’s efforts at class waiver thwartin’?
Got kicked to the curb by the Fifth in D.R. Horton.

Our last big decision from SCOTUS this year
Makes the difference ‘tween class and collective more clear.
An FLSA case can be given the boot,
If an offer of judgment makes a named plaintiff moot.

The Court did not say if it must be accepted.
Or if failure to take it leaves the case unaffected. 
At least one court says offers kill claims class-wide.
Death by Rule 68—call it Genesis-cide.

Now, we’d be remiss if Sandifer was neglected,
Where the Supremes will decide which clothes are protected
From inclusion within the scope of “hours of work”
Be they fireproof gloves or what you wear when you twerk.

In the next year, the new government guys have big plans,
Investigating employers across the whole land.
Just be cautious if an investigator should mention:
“If you like it, then of course you can keep your exemption.”

Thank you for indulging this year’s aggregation,
Though we skipped over interns and half–time calculations.
We wish you success in 2014.
From your favorite wage hour lit blogging team.

THANKS TO ALL OF OUR READERS.  BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Authored by Carlos Lopez

Among the many recent amendments to the New York Labor Law, perhaps the most concerning to employers was the expansion of liquidated damages from 25% to 100%.  Viewed in tandem with the statute’s six-year limitations period, the change has the potential to vastly increase employers’ exposure for alleged violations.

Fortunately, the Second Circuit has given employers a modest reprieve, holding that the liquidated damages amendment is not retroactive.  As such, it will apply only from April 2011 forward.

In Gold v. New York Life Ins. Co. [here], a former insurance agent argued that the amendment’s omission of a provision explicitly instructing that it was to apply prospectively meant that it applies retroactively, and therefore that he is entitled to seek 100% liquidated damages on his claims for unlawful wage deductions dating back to 2001.

The Second Circuit rejected that argument, noting that retroactive application of statutes is disfavored in New York and can only be justified by a clear expression of legislative purpose.  Here, the court said, there was no such clear expression.  The court explained that neither the text nor the legislative history of the liquidated damages provision mentions retroactivity.  And it added that a holding of retroactivity would mean that the 2011 amendment would be applied differently from a 2009 amendment, on which the 2011 amendment was built — an odd result that the court did not believe could be justified.

The Second Circuit also rejected Gold’s alternative argument for retroactive application of the 2011 amendment.  According to Gold, because the Labor Law is a remedial statute, any amendments are presumed to have retroactive effect.  While that was the state of the law at one time, the court explained that the New York Court of Appeals, in a 2009 decision, held that the classification of a statute as “remedial” no longer automatically overcomes the strong presumption against retroactivity.  Instead, a better guide for discerning the intent of the legislature is text and history.

Accordingly, the Second Circuit barred Gold from seeking liquidated damages in excess of 25% of any underpayment.  And another thing:  Gold will have to pursue his Labor Law claims in state court, if at all, because the Second Circuit also affirmed the District Court’s decision to decline jurisdiction over Gold’s state law claims and to dismiss the complaint.

SDNYBy Robert S. Whitman and Howard M. Wexler

If an employee is erroneously misclassified as exempt, she is entitled to recover any unpaid overtime at the rate of time-and-a-half for all hours over 40.  Right?

Wrong, according to a welcome decision (here) from Judge J. Paul Oetken of the Southern District of New York.   The decision confirms what employers in misclassification cases have advocated for years:  that the measure of damages is the “half-time” method, under which the employee receives an overtime premium of .5x rather than 1.5x for hours worked over 40.

This approach is often referred to as the “fluctuating work week,” or FWW, method.  Under Department of Labor regulations, several conditions must be met in order to use the method:  (1) the employee’s hours must fluctuate from week-to-week; (2) the employee must receive a salary that does not vary with the number of hours worked; (3) the hourly rate must equate to minimum wage or higher; (4) the employer and employee must share a “clear and mutual understanding” about payment of the fixed salary regardless of the number of hours worked; and (5) the employee must receive overtime at a rate of not less than one-half the regular hourly rate.

In Stein v. Guardsmark, LLC, the plaintiff was a secretary who was classified as exempt yet received a half-time overtime premium for any hours over 40 per week.  She sued, claiming she was improperly classified and that she did not receive the appropriate overtime amount.

In granting the defendant’s motion for summary judgment, Judge Oetken held that even if the plaintiff was misclassified, she nonetheless received all legally required overtime pursuant to the FWW method.  Although his analysis of each prong of the FWW test is worth a read, Judge Oetken’s analysis of the “salary basis” and “clear and mutual understanding” prongs are particularly important takeaways for employers given that these are the two criteria that plaintiffs most frequently argue have not been met.

Judge Oetken soundly rejected the plaintiff’s argument that because she received overtime for hours over 40, she was not paid on a salary basis.  He held that “the payment of overtime does not compromise a finding that an employee was paid on a salary basis.”  The court also disagreed with the argument that because the plaintiff’s pay was docked one day for leaving work early, the employer did not intend to pay her on a salary basis.  In rejecting this claim, Judge Oetken noted that courts “have looked skeptically on single incident docking of pay as proof that an employer did not intend to pay its employees on a salary basis.”

As previously discussed here, one of the most common tactics that employees use to fend off application of the FWW method is by arguing that the employer and employee did not share a “clear and mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked.  Judge Oetken, echoing the position taken by the DOL, held that “where an employee continues to work and accept payment of a salary for all hours of work, her acceptance of payment of the salary will validate the fluctuating workweek method of compensation as to her employment.”

It was irrelevant that the plaintiff was never specifically told that she would be paid pursuant to the FWW method or that she “did not have a full grasp of this method of calculating overtime until it was explained to her by her attorney.”  Given that the plaintiff received an offer letter stating her base salary, coupled with the fact that she never submitted any complaints about how her overtime was calculated, Judge Oetken held that there was “no room for doubt about the existence of a clear mutual understanding” about payment under the FWW method.

This thorough decision is good news for employers defending misclassification cases, since application of the half-time method reduces the measure of damages by a considerable amount.  If appealed, it may also present the Second Circuit with the opportunity to decide (as other Circuits have, but it hasn’t) whether the half-time method can be applied in these cases.

Second Circuit Seal.jpgCo-authored by Jeremy W. Stewart and Robert S. Whitman

“Individual liability.”  It’s an ugly phrase that should be avoided in civilized conversation, especially among business owners and company executives.  The Second Circuit sent a chilling reminder this week about that unpleasant prospect that should make employers and business owners pay attention:  In Irizarry v. Catsimatidis (here), the court held that the CEO of the Gristede’s grocery chain is personally liable for $3.5 million of unpaid wages under the FLSA.  

Although it is not unusual for business owners or high-ranking company executives to be named individually as defendants in wage and hour lawsuits, such executives are typically defendants in name only, and are rarely held personally responsible for payment of judgments or settlements.  In Irizarry, however, the Second Circuit held that the company’s CEO, John Catsimatidis (currently a candidate for Mayor of New York City) is an “employer” because of the level of operational control he exercised over Gristede’s.  As a result, the court held that he was personally, jointly and severally liable for unpaid amounts owed to plaintiffs under an FLSA settlement agreement – even though he was not “personally responsible for the FLSA violations” — because he “nonetheless profited from them.”

Gristede’s operates 30 to 35 stores with approximately 1,700 employees. Although the Second Circuit recognized that the company is large, it is not so large that Catsimatidis is unable to influence day-to-day management decisions.  More specifically, the court said that Catsimatidis:

  • Works in the corporate office almost daily;
  • Deals regularly with banking, real estate, and finance;
  • Develops merchandising concepts;
  • Visits stores to provide thoughts on how managers can improve merchandising;
  • Makes hiring and firing decisions for high-level employees who report directly to him; and
  • Has personally promoted employees.  

As the Second Circuit noted, the FLSA’s definition of “employer” is unhelpful because it relies on the word to define the word: “Employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee.”  For this reason, the court looked to four factors to determine if the “economic reality” supports a finding that Catsimatidis is an “employer”:

  1. Did he have the power to hire and fire employees?
  2. Did he supervise and control employee work schedules or conditions of employment?
  3. Did he determine the rate and method of payment?
  4. Did he maintain employment records?

Although only the first and third factors applied to Catsimatidis, the court concluded, based on the totality of the circumstances, that he exercised sufficient control to be personally on the hook for settlement payments to the plaintiffs. 

The facts of Irizarry are certainly not typical of large employers, and the Second Circuit’s decision focused closely on the specific facts of Gristede’s and Catsimatidis.  Nonetheless, the case leaves open the possibility that the level of operational control this CEO exercised is not the floor for individual liability in other cases.  While business owners and executives need not panic, the case highlights yet another reason why companies should be proactive in assessing their wage and hour compliance.