On February 28, the Wage & Hour Division sent to the White House Office of Information and Regulatory Affairs its long-awaited regulatory proposal on joint employment. Not much is known about the proposal, which was described in the Regulatory Agenda as addressing the changes in the workplace in the 60 years since most of 29 CFR 791 was issued. WHD stated that it was proposing changes “intended to provide clarity to the regulated community and thereby enhance compliance . . . and help to provide more uniform standards nationwide.” The joint employer regulation joins WHD’s proposed rules increasing the minimum salary level for exemption and revising the basic and regular rate regulations in the White House review process. We expect the exemption and regular rate proposals to be made public in the next couple of weeks, with the joint employer proposal following shortly thereafter.
Seyfarth Synopsis: On November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act. If passed by the Senate, the bill would overturn Obama-era decisions and agency guidance broadly defining and holding separate, unrelated companies liable as “joint employers” under federal wage & hour and labor law. Perhaps more importantly, the bill signifies a broader trend to provide more clear guidance and roll-back various Obama-era rules on wage & hour issues.
The Broad Approach to “Joint Employment” Under the Obama Administration
Under the prior Administration, and particularly during the later years, employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves in the crosshairs of federal agencies and regulators. Traditionally, joint employer status was found where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment. In that case, both entities could be held jointly liable for violations of wage & hour and other employment laws. The Obama Administration upended this traditional test, however.
In August 2015, the NLRB issued its much-discussed Browning-Ferris decision (addressed here), where the Board adopted an expansive definition of joint employment focusing on the right to control the terms and conditions of employment and the indirect exercise of those rights. (Seyfarth Shaw LLP is leading the appeal of Browning-Ferris to the D.C. Circuit Court of Appeals.) In 2015 and 2016, then-WHD Administrator Dr. David Weil issued two separate Administrator’s Interpretations (“AIs”) concerning independent contractors and joint employment. In 2015, in an effort to reduce the classification of workers as independent contractors and increase the number of workers subject to the FLSA’s minimum wage and overtime requirements, Dr. Weil issued guidance espousing a broad interpretation of who qualifies as an “employee” under the FLSA and highlighting the DOL’s position that almost all workers are employees. In 2016, Dr. Weil followed-up with guidance emphasizing the DOL’s position that joint employment must be determined based on the economic realities instead of (in their view) artificial corporate or contractual arrangements, including situations involving “horizontal” and “vertical” joint employment (discussed here). This guidance focused on the economic realities of a business’s relationship with a given worker, especially noting that indirect control (e.g., control excised solely through a staffing company) can be sufficient for a finding of joint employment. While the AIs were not entitled to judicial deference, we anticipated that some judges would treat Dr. Weil’s words as gospel.
As we previously reported, the broader tests espoused by the NLRB and the WHD exposed employers to a myriad of new wage and hour liabilities, investigations, and enforcement actions, and were especially relevant to companies that outsource work, utilize staffing agencies and contractors, or employ a franchisor/franchisee business model. If recent activity by Trump’s DOL and Congress is any indication, a shift in regulatory enforcement and focus is well underway.
The Winds of “Joint Employment” Are Shifting
As we reported here and here, this summer the DOL withdrew its AIs on joint employment and independent contractors. More recently, on November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act by a vote of 242-181, including yes votes from eight Democrats. The bill clarifies the standard for “joint employer” status under the FLSA and the NLRA, and returns to a traditional test that requires “direct, actual, immediate,” and “significant” control over the essential terms and conditions of employment, such as hiring, discharging employees, determining rates of pay and benefits, day-to-day supervision, and administering employee discipline.
Implications for Employers
The DOL’s decision to withdraw its AIs and the passage of the Save Local Businesses Act are welcome changes for employers who faced significant liability and uncertainty under the Obama-era rules. Although the bill itself still faces a tough road in the Senate—where it will require Democratic support to reach 60 votes and avoid a filibuster—it would represent a significant shift in the federal government’s focus. Even if the bill stalls, it nevertheless solidifies a broader regulatory and enforcement trend that may prompt federal courts to return to the traditional and more predictable joint employer test under the FLSA.
Full passage of the Save Local Businesses Act in Congress and signature by the President, however, will not be a panacea for these thorny joint-employer issues. Many states, such as California, still have broad joint-employer tests under their respective wage-hour laws. Courts will also continue to grapple with the proper application and interpretation of these rules, as evidenced by a recent decision from the Fourth Circuit Court of Appeals purporting to define joint employment even more broadly than the Obama Administration. Furthermore, the plaintiffs’ bar will continue to push the outer contours of the law in their search to apply joint employer principles more broadly and thereby reach the “deep pockets” of franchisors and other principals. Regardless of what happens to the Save Local Businesses Act, we foresee continued potential exposure and litigation in this arena. Employers—and particularly those in industries that make heavy use of franchises, subcontractors, and staffing agencies—should remain engaged and focused on these issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.
Authored by Alex Passantino
On June 7, Department of Labor Secretary Alexander Acosta announced the withdrawal of the DOL’s 2015 and 2016 Administrator Interpretations (“AIs”) on joint employment and independent contractors. These documents were statements of the Wage & Hour Division’s interpretations of the FLSA’s (and Migrant and Seasonal Agricultural Worker Protection Act’s) definitions of “employ,” “employer,” and “employee.” The withdrawal does not change the law; it simply removes as the DOL’s position those statements made in the AIs.
The withdrawal likely indicates a changing focus in the Department’s enforcement efforts away from the “fissured” industry initiative of the Obama Administration. We may get additional insight when Secretary Acosta testifies before the House Labor appropriations subcommittee to discuss the Trump Administration budget.
Seyfarth Synopsis: A New York federal court in Durling, et al. v. Papa John’s International, Inc., Case No. 7:16-CV-03592 (CS) (JCM) (S.D.N.Y. Mar. 29, 2017), recently denied Plaintiffs’ motion for conditional certification of a nationwide collective action in an FLSA minimum wage action against Papa John’s International, Inc. (“PJI”), in which the drivers alleged that they have not been sufficiently reimbursed for the cost of their vehicle expenses. This ruling shows that even though the burden for “first stage” conditional certification is modest, employers can defend their pay practices by showing the absence of any evidence of a common policy or plan that violates the FLSA. This is especially so when plaintiffs seek to certify a nationwide collective action, for as the court held in Durling, conditional certification is not proper when plaintiffs submit evidence pertaining to only a small sub-set of the putative collective action members.
In 2016, approximately 80% of conditional certification motions were granted in the Second Circuit. Plaintiffs undoubtedly have a low bar to hurdle to obtain conditional certification under section 16(b) of the FLSA. It is a hurdle nonetheless, and some courts have shown a willingness to look closely at plaintiffs’ proffered evidence to ensure that a factual nexus exists that binds together the members of a putative collective action. In Durling, et al. v. Papa John’s International, Inc., Judge Cathy Seibel of the U.S. District Court for the Southern District of New York rejected Plaintiffs’ motion for conditional certification of a nationwide collective action that would have included drivers employed at corporate-owned stores and stores operated by franchisees. The Court concluded that Plaintiffs’ evidence did not support a finding that the named plaintiffs were similarly situated to thousands of drivers employed by hundreds of different employers.
By highlighting Plaintiffs’ failure to show that Papa John’s International, Inc. (“PJI”) dictated a common corporate policy to franchisees, or any significant factual nexus among the members of the putative collective action across corporate and franchise stores, PJI won a significant victory.
Plaintiffs are five delivery drivers who work for either PJI or one of two restaurants owned by independent franchisees. Each Plaintiff delivered pizzas in his own vehicle, and alleged that PJI and the franchisees under-reimbursed delivery drivers for wear and tear, gas, and other vehicle expenses such that PJI violated the FLSA. Pointing to the practice of one franchisee, as an example, Plaintiffs averred that they were paid $6 per hour plus $1 per delivery, which, at an average rate of five deliveries per hour, amounts to wages of approximately $11 per hour. Applying the IRS standard mileage rate, Plaintiffs claim that they paid $13.50 per hour for upkeep on their vehicles, resulting in a net loss of $2.50 per hour. Accordingly, Plaintiffs asserted that they earned less than minimum wage in violation of the FLSA and corresponding state minimum wage laws.
There are over 3,300 Papa John’s restaurants in the United States. Approximately 700 are owned and operated, at least in part, by PJI. The remaining 2,600 plus restaurants are owned and operated by 786 independent franchisees. Although four of the five Plaintiffs worked for franchisees, they did not sue any franchisees in this litigation — only PJI. Plaintiffs claimed that PJI is a joint-employer of the drivers at all franchised Papa John’s. They alleged that PJI disseminated policies to the franchisees that caused the drivers to be under-reimbursed in a uniform way. Plaintiffs supported this theory with purported evidence that all stores, both corporate and franchise, use the same point-of-sale (“POS”) technology to record deliveries and calculate reimbursements, and use the same logos and uniforms.
Plaintiffs filed their Complaint on May 13, 2016, which they amended on July 12, 2016. On October 14, 2016, Plaintiffs filed a motion for conditional certification of their FLSA collective action, seeking to represent all delivery drivers on a nationwide basis.
The Court’s Decision
The Court denied Plaintiffs’ conditional certification motion. While the Court declined PJI’s invitation to apply a heightened standard in assessing the motion (due to the discovery that had been undertaken in the case), the Court found that Plaintiffs failed to satisfy even the modest standard generally used in step one conditional certification motions. The Court also declined to decide whether PJI was in fact a joint-employer, finding this to be a merits issue. Framing the conditional certification issue, however, the Court reasoned that Plaintiffs could show that they were similarly-situated with the other members of the proposed collective action in two ways: (1) by demonstrating that PJI dictated a common reimbursement policy for all delivery drivers working at both corporate and franchise-owned restaurants, or (2) by showing that a common policy existed across the entire proposed collective action.
As to the first issue, the Court found that while PJI admitted that it reimbursed the drivers it employs at corporate-owned stores by paying them a specific amount per delivery (without conceding that the rate is so low as to violate the FLSA), Plaintiffs failed to offer any evidence that PJI was involved in its franchisees’ policies for reimbursing delivery drivers. According to the Court, the mere use of the same POS system, with the corresponding ability to access data on how drivers are paid, “in no way indicates that [PJI] dictated a nationwide delivery driver payment policy.”
In analyzing the question of whether Plaintiffs could show a common policy across the collective action that would bind the putative members together, the Court answered it in the negative. The Court rejected Plaintiffs’ attempt to show common policies regarding issues wholly unrelated to the purported practice of under-reimbursement. The Court reasoned that proffering common policies “such as wearing the same uniforms, or use of the Papa John’s logo, or even the general use of personal vehicles to make deliveries, is not sufficient to demonstrate a common policy with respect to the payment of drivers.”
The Court determined that while Plaintiffs arguably had made a “modest showing” of a common policy across PJI corporate-owned stores and the two franchises for which Plaintiffs work, this “evidence is insufficient to infer a nationwide policy.” The Court rejected Plaintiffs’ conclusory averments that other franchisees had the same policy, observing that witnesses as to this claim lacked personal knowledge. The Court also found that Plaintiffs failed to offer evidence of a common policy that violated the FLSA, noting that while the evidence showed that a few more franchisees do not use the IRS reimbursement rate, “there is no evidence that these franchisees do not pay a rate reasonably related to driving and wear and tear costs, or that what they pay is so low that the drivers end up getting less than the minimum wage.” The Court also opined that it had found no similar cases where plaintiffs succeeded in certifying a nationwide collective action involving hundreds of franchisees where the declarations offered descriptions of only two stores, and no evidence existed that the franchisor dictated the policy at issue to all franchisees. Thus, even recognizing that the Plaintiffs’ modest burden at the conditional certification stage, the Court declined to certify the collective action by “infer[ring] from the policy of two franchisees, that a nationwide 780-something other franchisees reimburse delivery drivers on a per-delivery basis that results in compensation below the minimum wage.” Consequently, the Court denied Plaintiffs’ motion for conditional certification of a nationwide collective action, holding that Plaintiffs failed to meet their modest burden of showing that delivery drivers were similarly-situated.
Implication for Employers
FLSA collective actions are ubiquitous due in large part to the low burden for conditional certification — especially compared to class certification under Rule 23. Indeed, the vast majority of FLSA collective actions are conditionally certified, which can have the effect of driving large early settlements. Members of the plaintiffs’ class action bar have attempted to stretch the conditional certification device to cases that involve joint employer theories, in the hopes that the court will certify a large collective action without scrutinizing the novel aspects of the case. Employers facing FLSA collective action allegations in situations involving a decentralized policy across multiple locations can add this ruling to their defensive arsenal. And although the Plaintiffs’ bar will likely continue to pursue FLSA collective actions as long as the burden for conditional certification is so low and the benefit of a substantial settlement is so high, this ruling shows that certification is far from automatic.
Seyfarth Synopsis: A federal court in California recently held that a franchisor cannot be held liable for labor code claims where it did not exercise control directly, or through an actual agency relationship with the employer, over the terms and conditions of the workers’ employment. The decision limits claims against independent businesses based on an “ostensible” or perceived agency relationship between the employer and the independent business.
On March 10, 2017, a federal judge handed a Franchisor—a Fast-Food-Giant (FFG) who franchises with independent restaurant owners—a second straight summary judgment win, ruling that the FFG could not be held liable under an ostensible agency theory for workers’ California wage claims arising out of their employment with the franchise restaurants. As we explained earlier this year, three fast-food workers from Oakland sued a family-owned company that operated eight franchise restaurants in Northern California. They brought the FFG along for the ride under a joint employment theory, serving up a complaint chock full of California Labor Code, Private Attorneys General Act (PAGA), and negligence claims.
Last August, a federal judge dismissed the claims against the Franchisor, in part, after finding that the FFG did not control the workers’ employment directly or through an actual agency relationship with their employer, and was therefore not a joint employer. But the judge didn’t toss out the workers’ claims completely, opining that a jury could be persuaded that the FFG was liable under an “ostensible agency” theory—namely that the franchisee might have created an impression that it was acting as the franchisor’s agent (even if it was not), and the employees may have relied on that impression to their detriment.
Recently, the FFG moved for dismissal of all claims against it, arguing that it could not be held liable for the workers’ wage and labor code claims because—by definition—it is only an “employer” if it exercised “actual” control over their employment (and the court had already ruled that was not the case in its prior grant of summary judgment). The workers countered that liability could be premised on ostensible agency because the California Wage Order defines an employer to include anyone who “directly or indirectly, or through an agency or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”
But the court didn’t buy the workers’ argument, noting that the Wage Order’s second phrase—“exercises control over”—limited the scope of agency liability to actual agency or actual control over their employment. The Wage Order’s specific, limited definition of an “employer” meant that the conflicting ostensible agency provisions were not a viable basis for the workers’ claims. The court was also not persuaded by the workers’ resort to policy arguments that adopting a broader interpretation would advance the protective purpose of the Wage Order, stating “[t]o ignore [lawmakers’] decision to limit the definition of ‘employer’ to those who, through an agent, control workplace conditions would be to rewrite the law.”
This decisions is good news for franchisors and other similar types of entities that do not exercise actual control over employees. This case takes California law at the language of its text and prevents employees from pursuing entities that are not joint employers. However, the take-away order for franchisors continues to be to stay out of the kitchen when it comes to the relationship between franchisees and their employees.
Authored by Brett Bartlett
Seyfarth Synopsis: The Fourth Circuit Court of Appeals recently set forth a new standard for determining whether two or more businesses may be held responsible as joint employers for overtime pay due to a single worker because they are joint employers. Although more expansive than other courts’ standards — and even more so than former Wage and Hour Administrator David Weil’s standard pronounced in his 2016 Administrator’s Interpretation on joint employment — businesses following best practices to avoid joint employment liability under the FLSA should remain insulated from responsibility to pay for overtime worked by another business’s employees.
Employers have no doubt been paying close attention to the future of the joint employer doctrine, which was a focus of change and expansion for DOL leadership during the Obama administration. With a new administration in place, many have speculated as to the doctrine’s narrowing and possible demise.
The Fourth Circuit’s recent decision in Salinas v. J.I. General Contractors, Inc., reminds us of Mark Twain’s famous line: “The reports of my death are greatly exaggerated.” The decision embodies what is perhaps the most aggressive interpretation of joint employment yet to grace the hallowed halls of FLSA jurisprudence. Joint liability under the FLSA for unpaid wages is alive and kicking.
In Salinas, the plaintiffs worked for a subcontractor that did work almost exclusively for the co-defendant contractor, which they alleged to be jointly responsible for unpaid overtime under the FLSA. The subcontractor was generally responsible for hiring and firing the plaintiffs; although the contractor threatened a plaintiff with termination for substandard work and actually hired several of the plaintiffs when it needed them on the payroll for insurance policy purposes. The plaintiffs received paychecks directly from the contractor on a few occasions.
That’s not all. The contractor played a role in setting the plaintiffs’ daily and weekly work schedules, decided their start and end times at their worksites, assigned them additional unscheduled hours, and decided where they would work. The plaintiffs signed timesheets marked with the contractor’s name. They wore hardhats and vests bearing the contractor’s logo. Their supervisors wore contractor-branded sweatshirts. They used the contractor’s tools and equipment to do their work (the subcontractor, which was their direct employer, didn’t provide any tools for them to use); and they did their work under supervision and direction of the contractor’s foremen. The plaintiffs were even instructed to tell anyone who asked that they worked for the contractor.
Somewhat remarkably, the trial court concluded that the alleged joint employers were not jointly responsible for the FLSA violations proved in the case. The Fourth Circuit reversed.
In reversing the lower court’s judgment, the Fourth Circuit articulated and applied a new joint employment test that, based on a facial reading alone, has the potential to force federal courts within that Circuit to conclude that a joint employment relationship exists in almost any case where two or more businesses derive the benefit of work done by an employee of one of them.
Under the rule of Salinas, a court must determine whether alleged joint employers are not “completely disassociated” with respect to the employment of a particular employee. If they are not completely disassociated, then they are joint employers. And this, according to the Fourth Circuit judges, is something that must be considered in a manner “[c]onsistent with the FLSA’s ‘remedial and humanitarian’ purpose,” according to which “Congress adopted definitions of ‘employ,’ ‘employee,’ and ‘employer’ that brought a broad swath of workers within the statute’s protection.”
Fortunately, the court did not stop there, with a standard that might birth joint employment liability from any relationship between two or more businesses. It went on to provide some guidance for determining whether alleged joint employers are in fact completely disassociated. It set forth a non-exhaustive list of six factors to consider (which, in fairness, are fairly reminiscent of factors considered under other tests for joint employer liability that predate Salinas). It provided that courts should consider:
- Whether, formally or as a matter of practice, the alleged joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
- Whether, formally or as a matter of practice, the alleged joint employers jointly determine, share, or allocate the power to—directly or indirectly—hire or fire the worker or modify the terms or conditions of the worker’s employment;
- The degree of permanency and duration of the relationship between the alleged joint employers;
- Whether, through shared management or a direct or indirect ownership interest, one alleged joint employer controls, is controlled by, or is under common control with the other alleged joint employer;
- Whether the work is performed on a premises owned or controlled by one or more of the alleged joint employers, independently or in connection with one another; and
- Whether, formally or as a matter of practice, the alleged joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes, or providing the facilities, equipment, tools, or materials necessary to complete the work.
So what should employers do with all this?
Although the court in Salinas defines joint employment broadly and differently than other courts in a technical sense, from a practical perspective the ruling should not cause employers to change radically the way they do business in the Fourth Circuit or elsewhere.
We have always cautioned that businesses should take care to insulate employees from circumstances that might lead to a conclusion of joint employment liability. For instance, care should be taken to avoid one business from assigning and overseeing work of another’s; shared employee scenarios should be limited when possible; workers should not wear uniforms of businesses that don’t employ them; and breaks in service do matter (a three-year assignment is not a temporary one). Where a joint employment determination might not be actually and completely avoidable, indemnification and other protective provisions should be used to mitigate exposure among parties that could be determined joint employers.
Finally, for employers operating in the Fourth Circuit, it would be worthwhile to assess those scenarios in which their operations rely on work performed by workers traditionally viewed as another business’s employees or independent contractors. Under Salinas, the lines of FLSA liability have become blurrier in the Fourth Circuit especially. An assessment may provide clarity and a better ability to mitigate any heightened risks that this aggressive ruling creates.
Authored by Gerald Maatman, Jr.
Seyfarth Synopsis: Workplace class action filings were flat overall and even decreased as compared to levels in 2015. However, that is apt to change in 2017. In the 4th in a series of blog postings on workplace class action trends, we examine what employers are likely to see in 2017.
Overall complex employment-related litigation filings increased in 2016 insofar as employment discrimination cases were concerned, but decreased in the areas of ERISA class actions, governmental enforcement litigation, and wage & hour collective actions and class actions. For the past decade, wage & hour class actions and collective actions have been the leading type of “high stakes” lawsuits being pursued by the plaintiffs’ bar. Each year the number of such case filings increased. However, for the first time in over a decade, case filing statistics for 2016 reflected that wage & hour litigation decreased over the past year.
Additional factors set to coalesce in 2017 – including litigation over the new FLSA regulations and the direction of wage & hour enforcement under the Trump Administration – are apt to drive these exposures for Corporate America. To the extent that government enforcement of wage & hour laws is ratcheted down, the private plaintiffs’ bar likely will “fill the void” and again increase the number of wage & hour lawsuit filings.
Complex Employment-Related Litigation Filing Trends In 2016
While shareholder and securities class action filings witnessed an increase in 2016, employment-related class action filings remained relatively flat.
By the numbers, filings for employment discrimination and ERISA claims were basically flat over the past year, while the volume of wage & hour cases decreased for the first time in over a decade.
By the close of the year, ERISA lawsuits totaled 6,530 filings (down slightly as compared to 6,925 in 2015 and 7,163 in 2014), FLSA lawsuits totaled 8,308 filings (down as compared to 8,954 in 2015 and up from 8,066 in 2014), and employment discrimination lawsuits totaled 11,593 filings (an increase from 11,550 in 2015 and a decrease from 11,867 in 2014).
In terms of employment discrimination cases, however, the potential exists for a significant jump in case filings in the coming year, as the charge number totals at the EEOC in 2015 and 2016 reached record levels in the 52-year history of the Commission; due to the time-lag in the period from the filing of a charge to the filing of a subsequent lawsuit, the charges in the EEOC’s inventory will become ripe for the initiation of lawsuits in 2017.
The Wave Of FLSA Case Filings Finally Crested
By the numbers, FLSA collective action litigation filings in 2016 far outpaced other types of employment-related class action filings; virtually all FLSA lawsuits are filed and litigated as collective actions. Up until 2015, lawsuit filings reflected year-after-year increases in the volume of wage & hour litigation pursued in federal courts since 2000; statistically, wage & hour filings have increased by over 450% in the last 15 years.
The fact of the first decrease in FLSA lawsuit filings in 15 years is noteworthy in and of itself. However, a peek behind these numbers confirms that with 8,308 lawsuit filings, 2016 was the second highest year ever in the filing of such cases (only eclipsed by 2015, when 8,954 lawsuits were commenced).
Given this trend, employers may well see record-breaking numbers of FLSA filings in 2017. Various factors are contributing to the fueling of these lawsuits, including: (i) new FLSA regulations on overtime exemptions in 2016, which have been delayed in terms of their implementation due to legal challenges by 13 states; (ii) minimum wage hikes in 21 states and 22 major cities set to take effect in 2017; and (iii) the intense focus on independent contractor classification and joint employer status, especially in the franchisor-franchisee context. Layered on top of those issues is the difficulty of applying a New Deal piece of legislation to the realities of the digital workplace that no lawmakers could have contemplated in 1938. The compromises that led to the passage of the legislation in the New Deal meant that ambiguities, omitted terms, and unanswered questions abound under the FLSA (something as basic as the definition of the word “work” does not exist in the statute), and the plaintiffs’ bar is suing over those issues at a record pace.
Virtually all FLSA lawsuits are filed as collective actions; therefore, these filings represent the most significant exposure to employers in terms of any workplace laws. By industry, retail and hospitality companies experienced a deluge of wage & hour class actions in 2016.
This trend is illustrated by the following chart:
The Dynamics Of Wage & Hour Litigation – Low Investment / High Return
The story behind these numbers is indicative of how the plaintiffs’ class action bar chooses cases to litigate. It has a diminished appetite to invest in long-term cases that are fought for years, and where the chance of a plaintiffs’ victory is fraught with challenges either as to certification or on the merits. Hence, this reflects the various differences in success factors in bringing employment discrimination and ERISA class actions, as compared to FLSA collective actions.
Obtaining a “first stage” conditional certification order is possible without a “front end” investment in the case (e.g., no expert is needed unlike the situation when certification is sought in an ERISA or employment discrimination class action) and without conducting significant discovery due to the certification standards under 29 U.S.C. § 216(b). Certification can be achieved in a shorter period of time (in 2 to 6 months after the filing of the lawsuit) and with little expenditure of attorneys’ efforts on time-consuming discovery or with the costs of an expert. As a result, to the extent that litigation of class actions by plaintiffs’ lawyers are viewed as an investment, prosecution of wage & hour lawsuits is a relatively low cost investment without significant barriers to entry relative to other types of workplace class action litigation. As compared to ERISA and employment discrimination class actions, FLSA litigation is less difficult or protracted, and more cost-effective and predictable. In terms of their “rate of return,” the plaintiffs’ bar can convert their case filings more readily into certification orders, and create the conditions for opportunistic settlements over shorter periods of time. The certification statistics for 2016 confirm these factors.
What Is In Store For 2017
Has the wage & hour litigation crested for good, or will 2017 see more case filing? My bet is that employers will see more case filings.
An increasing phenomenon in the growth of wage & hour litigation is worker awareness. Wage & hour laws are usually the domain of specialists, but in 2016 wage & hour issues made front-page news. The widespread public attention to how employees are paid almost certainly contributed to the sheer number of suits. Big verdicts and record settlements also played a part, as success typically begets copy-cats and litigation is no exception. Yet, the pervasive influence of technology is also helping to fuel this litigation trend. Technology has opened the doors for unprecedented levels of marketing and advertising by the plaintiffs’ bar – either through direct soliciting of putative class members or in advancing the overall cause of lawsuits. Technology allows for the virtual commercialization of wage & hour cases through the Internet and social media. These factors all suggest that 2017 will see an increase in wage & hour lawsuit filings.
And state court cases are not to be forgotten. In 2016, wage & hour class actions filed in state court also represented an increasingly important part of this trend. Most pronounced in this respect were filings in the state courts of California, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania. In particular, California continued its status in 2016 as a breeding ground for wage & hour class action litigation due to laxer class certification standards under state law, exceedingly generous damages remedies for workers, and more plaintiff-friendly approaches to class certification as well as wage & hour issues under the California Labor Code. For the fourth year out of the last five, the American Tort Reform Association (“ATRA”) selected California as one of the nation’s worst “judicial hellholes” as measured by the systematic application of laws and court procedures in an unfair and unbalanced manner. Calling California one of the worst of the worst jurisdictions, the ATRA described the Golden State as indeed that for plaintiffs’ lawyers “seeking riches and the expense of employers …” and where “lawmakers, prosecutors, and judges have long aided and abetted this massive redistribution of wealth.”
Seyfarth Synopsis: Federal court denies motion for conditional certification for a proposed class of employees working at separate Subway franchises.
Earlier this year, the DOL’s Wage-Hour Division issued a much-publicized Administrator Interpretation on what employers constitute joint employers, including an explanation of how two or more employers under common ownership can constitute “horizontal” joint employers. As articulated by the WHD’s sweeping pronouncement, it appeared that virtually any jointly-owned entities might constitute joint employers, at least in the eyes of the WHD.
But in a victory for employers in the battle over joint employer status, a federal district judge in the Southern District of Florida recently denied a motion for conditional collective action certification for a group of Subway employees of different franchises with common ownership. In Aguiar, et al. v. Subway 39077, Inc., Timothy E. Johnson, et al., plaintiff Yirandi Aguiar sought collective action certification for the overtime claims for all “Store Managers” working at approximately 38 Subway franchises owned and operated as separate corporate entities by Timothy Johnson in Southern Florida.
Applying the usual “fairly lenient standard” to determine whether conditional collective action certification was warranted, the Court rejected Aguiar’s attempt to certify the collective on several levels. First, the proposed collective was comprised of individuals employed by approximately 38 separate, non-party corporate entities. Second, Aguiar only provided “Consent to Join” forms and affidavits from three individuals including herself, and thus failed to sufficiently show the existence of other employees who wished to opt into the action.
Third, and most significantly, even if Aguiar could satisfy these first two elements, the Court found that the putative plaintiffs were not similarly situated. In making this determination, the Court noted that the individuals worked at separate corporate entities, and Aguiar did not show that she or other employees were authorized to sell or make sandwiches at any other of the 38 franchises. Additionally, the franchises were spread throughout Southern Florida, and thus were not geographically concentrated. And finally, Aguiar failed to provide information regarding a joint payroll department or joint supervision over the proposed collective action members.
This case demonstrates that even under the “lenient standard” described above, merely alleging common ownership over a number of franchises is not enough to show joint employment status or to obtain a broad conditional certification order.
Authored by Alex Passantino
The President’s FY2017 budget request seeks a nearly $50 million increase in the Wage & Hour Division’s budget. This more than 20% increase would fund, among other things, 300 additional investigative staff — putting the number of WHD employees over 2,000 for the first time in recent memory. WHD also seeks around $9 million for case management system upgrades and data analytics capabilities, stating its need for
a more in-depth understanding of industries, business models, and a more coordinated approach to conducting enforcement across networks of businesses, supply chains, or contracting relationships.
Not surprisingly, WHD describes its focus on fissured industries, and specifically details the change in its investigative process:
WHD has also shifted its approach from one that focused on single establishments and resolving complaints, to one that proactively seeks to improve compliance across industries for greater numbers of workers.
Although not specifically referenced, WHD’s recent Administrator’s Interpretation on joint employment is part of the larger plan:
As businesses have contracted out work, sometimes through several layers of contractors, more parties have a role to play in ensuring compliance with labor standards.
The budget documentation also reminds the regulated community of WHD’s efforts on the regulatory side. First and foremost, of course, is WHD’s effort to revise the white-collar exemption regulations. WHD also plans to focus on issuing a proposed regulation on the federal contractor sick leave Executive Order (currently at OMB for review), implementing its recent regulation related to home care workers, and enforcing the regulation addressing government contractor minimum wage. Finally, WHD notes that it will “continue refining the requirements and implementation strategies for Executive Order 13673 — Fair Pay and Safe Workplaces.” [This Executive Order, often referred to as the “blacklisting” Executive Order, would require prospective government contractors to report certain labor law violations to the government, which would use compliance records in making contracting decisions.]
Of course, the budget request is not likely to pass, given Republican control of Congress, the budget deal reached with the President on FY2017 spending levels, and the upcoming Presidential election. Nevertheless, it provides a clear road map of where WHD is headed . . . and what it would do in the unlikely event that it was funded at the requested levels.
As we predicted, the federal Wage and Hour Division has issued another edict that will have far-ranging effects on businesses across the U.S. economy, specifically those sharing employees with related operations or relying on third parties to perform or staff services that their own employees would otherwise carry out. On Wednesday, the WHD issued a new Administrator’s Interpretation that enunciates what its author, Dr. David Weil, describes as clear guidance regarding the standards for determining whether a business can be held jointly responsible with one or more other businesses for violating the pay and labor provisions of the FLSA and the Migrant Worker Protection Act. Here, we focus here on the FLSA.
Dr. Weil, who is the WHD Administrator, issued related guidance last summer in which he stated his agency’s position that almost all workers are employees, regardless of whether they work pursuant to a contract providing that they are anything but. Again noting that a contract between two or more businesses will not answer key questions inherent to the determination of employer-employee status, Dr. Weil has made clear that it is the economic realities of a business’s relationship with a given worker that is dispositive. In this most recent guidance, Dr. Weil examines two joint employment scenarios that will ring familiar with many businesses:
- Horizontal Joint Employment: When two or more related businesses share an employee and thereby undertake obligations to pay her in accordance with federal law. For example, a nurse who works during a single week for three hospitals within the same hospital system is jointly employed by the three hospitals. This means if she works cumulatively more than 40 hours for the three hospitals, she would be entitled to overtime from all three, which would be jointly and severally liable for such pay under the FLSA.
- Vertical Joint Employment: When a primary business becomes jointly responsible under the FLSA for the employees of an unrelated business because the economic realities demonstrate that it too employs such individuals. For example, if the nurse in the above example is employed directly by a staffing agency that the hospital system engages to provide nurses to its healthcare providers, then the hospital system might be deemed to be jointly and severally liable for violating the FLSA, along with the staffing agency and the three hospitals operating in its system, if the economic realities proved an employer-employee relationship between the hospital system and the worker.
The WHD has not previously enunciated standards tied to these horizontal and vertical employment scenarios. Dr. Weil does, however, strive in this week’s guidance to provide some clarity around what they mean. We have done our best to translate what some might describe as regulatory jargon into practical terms in our recent One Minute Memo.
As we explain in the Memo, an Administrator’s Interpretation is not entitled to judicial deference. It is not clear, in fact, that any court will heed the guidance that Dr. Weil attempts to provide. Certainly businesses should expect that some judges will treat his words as gospel. Others will not.
What is more certain is that plaintiffs’ lawyers and their clients will view the substance of the Administrator’s Interpretation as justifying claims made against tenuously-related businesses as they try to expand the scope of those from whom they might extract settlement dollars and, occasionally, judgments.
The more immediate impact that businesses must anticipate is that WHD investigators and their supervisors will aggressively examine relationships between related and unrelated businesses, aiming to assess whether the economic realities allow more than one business to be held responsible for employing and paying workers in compliance with the FLSA.
This WHD ruling is important. Businesses should take notice, regardless of the industry in which they operate. Our Memo provides some useful tips for reducing the risks that the Administrator’s Interpretation creates. We are here to discuss further preventative actions that any business can take.