Co-authored by Kara Goodwin and Noah Finkel

Seyfarth Synopsis: The Ninth Circuit recently joined the Second, Fourth, Eighth, and D.C. Circuits in holding that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole, rather than each individual hour within the workweek.

Yes, Virginia, contrary to the contentions of some plaintiffs’ counsel, the FLSA does allow for flexibility in how employers compensate their employees. In the recent case of Douglas v. Xerox Business Services, the Ninth Circuit rejected the argument that the FLSA measures minimum-wage compliance on an hour-by-hour basis; instead, the Ninth Circuit copied the other circuits that have addressed the issue and concluded that minimum-wage compliance is measured by weekly per-hour averages.

The plaintiffs—customer service representatives at call centers run by Xerox—were paid under what the court described as a “convoluted” and “mind-numbingly complex payment plan” where employees earned different rates depending on the task and the time spent on that task. In reality, the pay arrangement was not terribly difficult to discern. For certain defined activities like trainings and meetings, employees received a flat rate per hour; for time spent managing inbound calls, employees were paid a variable rate calculated based on a matrix of qualitative and efficiency controls; all remaining tasks had no specific designated rate.

At the end of each workweek, Xerox totaled all amounts earned (for defined activities and for activities paid at the variable rate) and divided that total by the number of hours worked that week. If the resulting average hourly wage equaled or exceeded minimum wage, Xerox did not pay the employee anything more. But if the average hourly wage fell below minimum wage, Xerox gave the employee subsidy pay to bump the average hourly wage up to minimum wage.

In the plaintiffs’ view, because Xerox averaged across a workweek, it compensated above minimum wage for some hours and below minimum wage for others, thereby violating the FLSA. Plaintiffs sought back pay for each hour they worked at sub-minimum wage because, they claimed, the FLSA bars an employer from paying below minimum wage for a single hour.

The Ninth Circuit disagreed and concluded that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole and, as such, Xerox properly compensated employees for all hours worked by using a workweek average to arrive at the appropriate wage.

Although the FLSA’s “text, structure, and purpose” provided “few answers” to the per-hour versus per-workweek question, the Department of Labor’s longstanding per-workweek construction and decisions by sister circuits shaped the Ninth Circuit’s holding. The Department of Labor adopted the per-workweek measure just over a year and a half after the FLSA was passed in 1938 and has never deviated from this understanding: “[T]he workweek [is] the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of [the minimum wage].”

Courts—including every circuit that has addressed the issue—have overwhelmingly followed the Department of Labor’s guidance. The Second Circuit first embraced the per-workweek construction in 1960 in United States v. Klinghoffer Brothers Realty Corp., explaining that “the [c]ongressional purpose is accomplished so long as the total weekly wage paid by an employer meets the minimum weekly requirements of the statute.” The Fourth (Blankenship v. Thurston Motor Lines, Inc.), Eighth (Hensley v. MacMillan Bloedel Containers, Inc.), D.C. (Dove v. Coupe), and now Ninth Circuits have also agreed that minimum wage compliance is measured by the workweek as a whole. No circuit has taken a contrary position.

As is often the case, plaintiffs relied heavily on the fact that the “FLSA is remedial legislation” that “must be construed broadly in favor of employees” (if you are a frequent reader of this blog you are aware of our feelings on this language as described in detail here) and argued that a per-hour approach is necessary to ensure workers are protected from wage and hour abuses. But, as the Ninth Circuit pointed out, there is no empirical evidence that broad application of the workweek standard disadvantages employees in any way. As this case makes clear, even if employees (or their attorneys) are unhappy with an employer’s pay plan, there is no violation of the FLSA’s minimum wage provision so long as an employee’s total compensation for the week divided by total hours worked results in a rate that is at or above the minimum wage.

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.

Co-authored by Hillary J. Massey and Kerry Friedrichs

The Ninth Circuit this week blessed an employer’s policy of rounding employee time punches to the nearest quarter hour, affirming summary judgment in favor of the company on an employee’s challenge to the rounding policy under the FLSA and the California Labor Code.

“This case turns on $15.02 and one minute.” From the first line of its decision in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership, the Ninth Circuit signaled the common-sense approach that it would apply in assessing the legality of rounding practices. The court rejected plaintiff’s claims for $15.02, the total amount he claimed to have been underpaid due to the rounding policy, and one minute, the total amount of “off the clock” time for which plaintiff alleged he was not compensated. In the first published decision by any court of appeals on this issue, the 9th Circuit took a practical view of the federal rounding regulation, repeatedly referring to the purpose and effectiveness of rounding policies.

The Policy

At issue in the case was whether the company’s rounding policy complied with federal and California law. Time Warner’s timekeeping system rounded all employee punches to the nearest quarter hour in a facially-neutral manner. The rounding was automatic and not subject to manager oversight or editing.

The Court’s Practical Interpretation of the Rounding Rule

The federal rounding rule permits employers to round employees’ time to the nearest 5 minutes, one-tenth, or quarter hour, so long as the rounding does not result, over time, in a failure to compensate employees for time worked. California courts and the California Division of Labor Standards Enforcement have applied this rule to rounding claims under California law as well.

The plaintiff claimed that any failure to pay any employee for any time worked caused by the rounding violates the rounding rule and state and federal wage laws. Noting that no other circuit court of appeals had addressed the issue in a published opinion, the Ninth Circuit ruled that requiring rounding to be neutral each pay period for each employee, would “gut the effectiveness” of using rounding because it would require employers to “unround” time each pay period to ensure its neutrality—an analysis the rounding regulation was designed to avoid. Thus, even though the rounding practice had a slight net negative impact to plaintiff (by $15.02), this did not establish that the practice was not neutral. In some pay periods the plaintiff benefited from rounding and in other pay periods he did not, and this demonstrated that Time Warner’s policy was neutral in application.

The Ninth Circuit further rejected plaintiff’s argument that California’s daily overtime requirement impacted the neutrality of Time Warner’s rounding because overtime minutes are more valuable because they are paid at an overtime rate. Noting that a California court had previously found this argument to be without merit, the Ninth Circuit noted that there is “no analytical difference between rounding in the context of daily overtime and rounding in the context of weekly overtime,” and that, because the rounding policy was neutral, employees could benefit from the rounding (and would receive overtime pay) just as easily as they could miss out on some overtime pay.

The De Minimis Rule Need Not Be Pled as an Affirmative Defense

The plaintiff’s absurd claim that he was entitled to pay for one minute of off-the-clock work was the basis for another employer victory in this decision: a ruling that the de minimis doctrine does not have to be pled as an affirmative defense. The court ruled the doctrine is a “rule,” not an affirmative defense that must be pled in an answer. Finally, the court, not surprisingly and in accordance with current case law, held that one minute of off-the-clock work is de minimis and thus need not be paid.

No Certification of “a Class Without a Claim”

The Ninth Circuit ruled on a final issue in a way that reflects common sense from the perspective of employers, but may be disconcerting for would-be class plaintiffs: that a court’s summary judgment decision on the merits of plaintiff’s individual claim “fully moots” the need to address the plaintiff’s motion for class certification, and a court should not be required to entertain plaintiff’s “attempt to certify a class without a claim.”

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:
ContractorsJoint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic realityRight 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!

Authored by Alex Passantino

It’s the week before Christmas, and we’ve accepted our mission,
The annual wage hour “sum-up” composition.
And to start it all off, we’ve got something nice,
‘Cause the Supreme Court addressed wage and hour stuff twice.

The year started out with the first one of those;
As Justice Scalia answered “What counts as clothes?”
With one simple phrase, the Court cleaned up a mess,
Clothes should be “commonly regarded as articles of dress.”

Gloves and hardhats, and fireproof suits,
And your shirt and your pants (and, presumably, boots),
They all count as clothes, from your toes to your face.
But not glasses, or plugs that can block out the bass.

Then later this year, the Court came back again,
To answer the question, “The clock, it starts when?
If you screen all your workers so they don’t steal your stuff,
And the clock stops before they’re in line, that’s enough.

The statute considered? ’Tis one that’s immortal.
The 68-year-old Portal-to-Portal.
With language so dated, it puts “whilst thou” to shame,
So we list the words here and we call them by name:

Principal Activity!  Integral! And Indispensable!
The words that define whether work is compensable.
The task’s required?  So what?  That’s not a fight you should pick.
You pay only those duties whose element’s intrinsic.

Now we leave SCOTUS cases and we turn to the rest,
The five or six topics our blog writers liked best.
Appearing so often, it borders on a fixation.
Are cases addressing increased decertification

And non-certification (you know what we mean).
Early on, or at trial, and all points in between.
Surveys kicked out.  Class reps were rejected.
Comcast has turned out to be nearly all we expected.

And even where Rio can dance on the sand,
Out came a case simply known as Duran.
If you’re asked to provide your trial proof logistics,
You can no longer just smile, shrug, and yell out “Statistics!”

So much litigation, so many cases to savor
And that’s only the issue of classbased arb waiver.
Add holding plaintiffs to standards when pleading a case,
And it kinda feels like employers are leading this race.

But just when you think wage claims might become less systemic,
We look at case numbers and declare “Epidemic!”
Interns, exemptions, independent contractor relations
Dominate dockets across the whole nation.

The government, too, makes employers squirm.
And this year, a new boss has gotten confirmed.
Those in restaurants, lodging, and others franchised,
Into DOL investigations, you’ll soon be baptized.

Now as we approach the end of the year,
And look forward to next, and the things we should fear,
At the top of the list, the elephant in the room,
Is the effort to make your exemptions go “Boom!

In early 2015, we’ll know what DOL may have planned,
If the rules out in Cali will apply ‘cross the land.
But before we say bye to the year that’s near past
Thanks for reading our blog.  You’ve made it a blast.

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

Authored by Noah Finkel

The Tampa Bay Buccaneers had a tough week last week.  It wasn’t just their loss to the Detroit Lions.  Defeats on Sundays are something with which the Bucs have grown accustomed.  Rather, last week the 11th Circuit Court of Appeals held that the Bucs’ attempt to have an adverse judgment against themselves would not end a class action lawsuit they faced.

Why is it that the Bucs can’t even succeed in losing a lawsuit?  It has a lot to do with the intricacies of Federal Rule of Civil Procedure 68, and dual standing that a class representative carries under Federal Rule of Civil Procedure 23.

In short, the Bucs made a Rule 68 offer of judgment for full relief to a class representative in a Telephone Consumer Protection Act putative class action in an attempt to moot the case.  The 11th Circuit in Stein v. Buccaneers Limited Partnership held that the case could nevertheless proceed as a class action.  A post earlier this week from our colleagues on Seyfarth Shaw’s Workplace Class Action blog explains the details, and makes the point that employers defending any sort of workplace class action need to be cognizant of this ruling.

The ruling bears further examination for its potential effects on wage-hour cases.  Trying to moot a wage-hour collective or class action is often an attractive strategy for an employer.  Many of the cases involve relatively low potential liability to the named plaintiff(s) and/or class representative(s), but involve significant exposure when that potential liability is multiplied by the number of current and former employees who might participate in the class or collective action.  By offering complete relief to a named plaintiff in an FLSA collective action, an employer can cause a court to hold that no case or controversy exists, and thus a court loses jurisdiction of a case and must dismiss it before it blossoms into a collective action.  The Supreme Court’s Genesis Healthcare Corp.’s ruling makes this clear, and so does a post-Genesis Fifth Circuit ruling.

But the Stein case illustrates the limits to Genesis in wage-hour cases, and raises the question of whether employers should ever use Rule 68 at all in the wage-hour context.  A simple offer of complete relief may be the better move.

First, in Stein, the 11th Circuit joined the 3rd, 5th, 9th, and 10th Circuits in holding that a Rule 68 offer of full relief to a class representative does not moot a Rule 23 class action.  This is significant because so many wage-hour cases are now filed under state wage-hour laws, and use Rule 23 to attempt to obtain a class action.  (The 7th Circuit has held to the contrary in Damasco v. Clearwire Corp., but its holding doesn’t help employers much because it further held that a Rule 68 offer won’t moot a class action if a motion for class certification is filed first, even if that motion is a perfunctory one on which briefing is stayed.  Accordingly, careful plaintiffs’ lawyers in the 7th Circuit now file Damasco motions for class certification at the same time they file the complaint, even though briefing on that motion won’t occur usually for more than a year later.)  Thus, in many circuits, an offer of complete relief under Rule 68 won’t moot a case in a wage-hour action that includes a Rule 23 claim under state law.  It only potentially may work in a collective action brought solely under the FLSA.

Second, Stein shows that, even in an FLSA collective action context, Rule 68 may be a poor vehicle for an employer to make an offer of full relief.  Under Rule 68, an offer not accepted within 14 days is considered withdrawn.  Thus, the 11th Circuit held in Stein, an unaccepted offer no longer moots a claim after 14 days because it technically no longer exists. Rule 68 also requires that a defendant-employer take a judgment against itself.  This causes two problems:  (a) taking an adverse judgment could complicate matters for a company in future lawsuits or DOL investigations, in government contracting, or in obtaining financing or completing other types of transactions; and (b) when a judgment is entered against an employer under the FLSA, the plaintiff is considered to have prevailed in the case, and thus is entitled to an award of reasonable attorneys’ fees for which an employer is liable.  If the offer is made early, these fees may not be significant.  But many employers find that, in this context, some (but not all) plaintiff’s attorneys seem to have a “heavy pencil” when completing their time sheets.

There is a better way.  Just make an unconditional offer of complete relief to the plaintiff.  Even include a check. There is no need to invoke Rule 68.  At least in some circuits, such an offer in a single-plaintiff, multi-plaintiff, or collective action context — whether accepted or unaccepted — can moot a case even when Rule 68 is not in the picture.  The 7th Circuit, for example, has made this clear on multiple occasions.  This provides two benefits.  First, there’s no judgment against the employer.  Rather, the case gets dismissed for lack of jurisdiction due to mootness.  Second, there is no liability for fees.  Under the FLSA, only prevailing plaintiffs are entitled to attorneys’ fees.  But when a case is dismissed as moot and a plaintiff is not awarded a favorable judgment, the Supreme Court has held that there is no entitlement to fees.

At bottom, Rule 68 should have no role in attempting to moot a wage-hour case in most circuits.  If the case includes class action allegations under state wage-hour law, a Rule 68 offer of complete relief doesn’t moot the putative class action.  And if the case is a pure FLSA collective action claim, an offer of complete relief — without resort to Rule 68 — may moot a case without carrying the baggage that Rule 68 offer brings.  And even then, an employer has to weigh whether it should try to moot a named plaintiff’s FLSA claim.  Other potential plaintiffs may be waiting in the wings anyway, and an offer of full relief to the first current or former employee who files a claim risks putting “blood in the water” and also making an enemy of a plaintiff’s counsel. As with virtually any strategy decision, whether to try to moot a case must be decided on a case-by-case basis.

Co-authored by Barry Miller and Taron Murakami

On Monday, the Supreme Court heard arguments in a pair of cases addressing the Department of Labor’s reversal in its position regarding the exempt status of mortgage loan officers.  The Justices’ questions reflected concern about the DOL flip-flopping on this issue, but they also expressed a reticence to issue a broad ruling that would hamper agencies’ ability to render informal interpretations that have sudden and significant impacts on employers and other regulated entities.  A transcript of the argument is available here.

The consolidated case addresses the validity of the DOL’s 2010 Administrator’s Interpretation, in which the agency offered its sweeping conclusion that mortgage loan officers generally do not meet the FLSA’s administrative exemption, and in the process withdrew a 2006 Opinion Letter in which the DOL had reached the opposite conclusion.  Additional background is in our previous posts on the D.C. Circuit’s ruling that threw out the Administrator’s Interpretation as a capricious reversal that would require notice and comment rule making; on the D.C. Circuit’s refusal to reconsider that ruling; and on the Supreme Court’s decision to review the case.

While the government attempted to defend the DOL’s 2010 reversal as a result of the agency reaching the conclusion “that the 2006 interpretation was simply erroneous,” Justice Roberts noted “a change in the leadership at the agency” between 2006 and 2010, and Justice Scalia commented that the change in the Presidential administrations was “a more likely explanation.”  Their concern was not just that the agency had reversed its position with the political tides, but also that it had done so through informal guidance without formal rulemaking that would have provided employers notice of a potential change and an opportunity to comment.  Justice Kagan recognized that there was “a sense that agencies more and more are using interpretative rules and are using guidance documents to make law and . . . it’s essentially an end run around the notice and comment provisions.”

Several of the Justices also seemed inclined to tackle a more modest question than the one the parties had framed.  Justice Breyer, in particular, noted that the case raises very challenging points of administrative law and agencies’ power to change the law informally.  He later described another way for the Court to view the DOL’s reversal of its position and observed  “we can answer that pretty quickly, I think.”  Justice Breyer suggested that the Court doesn’t need to decide whether the Administrator’s Interpretation is entirely invalid, but can simply direct the lower courts to take the DOL’s reversal in position into consideration in deciding how much deference to extend the agency’s guidance.  Where, as with the exempt status of mortgage loan officers, the DOL’s position has flip-flopped, a court might ignore the agency’s views and decide the question based on case law and other devices used to interpret ambiguous statutes.

Questions asked at oral arguments are always in the nature of tea leaves, and it remains to be seen how the Supreme Court will resolve its apparent concerns about the inconsistency of the DOL’s position with its hesitance to wade into deeper questions of administrative law.  If the Court holds that the Administrator’s Interpretation is not entirely invalid but also may be worthy of little or no deference from the courts, employers could be thrown further into limbo regarding the exempt status of mortgage loan officers and other employees who may be subject to inconsistent guidance from the DOL.

It should also be noted that, regardless of the fate of the Administrator’s Interpretation and the DOL’s position on the application of the FLSA’s administrative interpretation to mortgage loan officers, employers have availed themselves of other defenses to the onslaught of overtime litigation in the mortgage industry.  We blogged on a successful alternative defense of the exempt status of loan officers as outside sales employees here.

Authored by Kyle Petersen

For years, employers have been frustrated by lengthy and costly FLSA litigation prompted by little more than conclusory allegations that the plaintiff and a putative class were not paid for all of their overtime work. Since the Supreme Court clarified the federal pleading standards in Twombly and Iqbal, the doors to the courthouse may be getting a little heavier as district and circuit courts consider the degree of specificity with which plaintiffs must plead their overtime claims.

Following the Supreme Court’s decisions in Twombly and Iqbal, the 1st, 2d, and 3rd Circuits have all held that a bare-bones complaint for unpaid overtime that simply parrots the text of the FLSA will not do.  To survive a motion to dismiss, plaintiffs in the first three circuits must instead include some factual allegations that they actually worked more than 40 hours in a given workweek without being paid for that time. This week, the 9th Circuit joined their bandwagon.

In Landers v. Quality Communications, the 9th Circuit considered the overtime claims of a cable services installer whose complaint alleged that (1) he was paid on a de facto piecework basis; (2) his wages fell below minimum wage; and (3) he was not paid overtime when he worked more than 40 hours. Quality Communications moved to dismiss the complaint because it failed to state a plausible claim for relief. The district court agreed and threw out the case. In doing so, the court noted that the complaint lacked any factual allegations approximating the number of overtime hours Landers worked or the amount of overtime pay he was claiming. Landers’ formulaic recitation of the elements was simply not enough to move his claim from the possible to the plausible. Landers declined to amend his complaint and instead immediately appealed to the 9th Circuit.

On appeal, the 9th Circuit affirmed the district court’s decision but expressly declined to adopt a requirement that an FLSA complaint must include an approximation of the total overtime hours worked or overtime wages allegedly due. Instead, the Court fell in line with the 1st, 2d, and 3rd Circuits and held that to state a viable claim for relief, an FLSA plaintiff at least needs to point to a specific week during which he worked more than 40 hours without being paid for all of that time. Landers failed to do so and the district court was therefore right to throw out his case.  Moreover, because Landers explicitly declined to amend his complaint, he was not given the chance to amend his complaint on remand.

This decision is unlikely to put an end to the high volume of FLSA cases filed in the 9th Circuit or elsewhere because most plaintiffs will be given the opportunity to replead their case even if their complaint is challenged on a motion to dismiss. Even so, this is a positive development because a heightened pleading standard should mean that plaintiff’s theory of the case will be less of a mystery and hopefully less of a moving target. As a result, employers faced with an overtime claim should be able to more narrowly focus discovery and hopefully limit or defeat efforts at collective certification.

Authored by Jacob Oslick

The days of cursory pleading in FLSA cases have ended. That’s the message the Third Circuit sent a few days before Labor Day, when it issued Davis v. Abington Memorial Hospital.  In Davis, the Third Circuit held that it wasn’t sufficient for the plaintiffs, a group of nurses, to generically allege that they “typically” worked forty-hour weeks and “frequently” worked extra time.  Instead, in order to plead a “plausible” claim, the plaintiffs needed to allege that they actually worked unpaid extra time during a week when they worked at least forty-hours.  Because the plaintiffs failed to allege a single week in which they actually worked unpaid overtime, the Third Circuit affirmed the dismissal of their claims.

In so ruling, the Third Circuit expressly adopted the Second Circuit’s approach in Lundy v. Catholic Health System, which we blogged about last year.  That ruling has helped weed out baseless wage-and-hour claims before discovery, while at the same time providing plaintiffs with a roadmap for how to successfully plead an FLSA claim.

Employers should expect Davis to have a similar effect.  Indeed, Davis even comments that “a plaintiff’s claim that she ‘typically’ worked forty hours, worked extra hours during such a forty-hour week, and was not compensated for” that time “would suffice” to plead a claim.  (emphasis supplied).  Given this explicit guidance, plaintiffs who have cognizable FLSA claims should know exactly how to plead them.  And, with Lundy and now Davis the law—at least in two circuits—plaintiffs who fail to plead this kind of specificity are likely signaling that they cannot.  Employers should seriously consider moving to dismiss these kinds of complaints.

Davis did not entirely follow Lundy, however, in one aspect.  The Third Circuit passed up an opportunity to clarify whether so-called “gap time” claims for allegedly unpaid time below 40 hours a week are ever cognizable under the FLSA.  Lundy held they were not.  And, while the Third Circuit did not disagree, it had no reason to go so far.  The Davis plaintiffs failed to plead they ever worked overtime.  Thus, the Third Circuit saw no need to reach whether an “overtime gap time” might be viable (i.e., a claim for unpaid hours below 40 hours a week, during a week when an employee also works overtime).  Instead, given the allegations before it, the Third Circuit held only that the FLSA does not permit recovery for “pure” gap time claims—that is, claims for allegedly unpaid work “during pay period without overtime.”  That issue will wait for another day.  And, in the meantime, even Davis’ more limited “gap time” holding should provide some relief to employers—particularly with respect to employees who work significantly less than 40 hours a week (a trend that the Affordable Care Act may accelerate).  After Davis, such employees will need to show at the outset that their allegedly uncompensated time either drops them below the minimum wage, or pushes them above 40 hours a week.  Many won’t be able to, thereby saving employers from the burden of defending against these suits.

Co-authored by Robert S. Whitman and Howard M. Wexler

Last summer, the Second Circuit issued a flurry of decisions clarifying the pleading standard in FLSA cases.  In one of those cases, Dejesus v. HF Management Services, LLC, the court held that, in order to state a valid overtime claim after the Supreme Court’s decisions in Iqbal and Twombly, “a plaintiff must sufficiently allege 40 hours of work in a given workweek as well as some uncompensated time in excess of the 40 hours.”  The Second Circuit affirmed the dismissal in Dejesus because the plaintiff failed to estimate her hours or provide any factual context for how many hours she worked, and criticized her complaint as merely a “rephrasing” of the FLSA’s requirements made to appear as factual statements.

Picking up where Dejesus left off, Judge Joanna Seybert of the Eastern District of New York last week dismissed a putative class and collective action brought on behalf of automobile damage adjusters under the FLSA and New York Labor Law because “plaintiff pleads no facts that suggest that GEICO failed to pay Plaintiff the proper amount of overtime pay.”  Instead, the plaintiff alleged that GEICO failed to pay him (and the putative class) overtime compensation for the time he worked between 38.75 and 40 hours per week – which by itself “does not state a claim that GEICO failed to pay proper overtime.”  Judge Seybert further dismissed the plaintiff’s off-the-clock claim because the Amended Complaint provided no facts to support it, such as “an estimate of hours Plaintiff failed to report or who allegedly discourage adjusters from reporting overtime.”

This case shows that employers within the Second Circuit continue to reap the benefits of Dejesus and its progeny.  Perhaps the courts’ rejection of bare bones complaints will prod plaintiffs to provide detailed factual allegations – or even decline to sue in the first place – before burdening employers with years of discovery and other litigation costs.