Co-authored by Catherine M. Dacre, Tamara Fisher, and Simon L. Yang

When an employer has a denial of class certification remanded by an appellate court, it has a reason to worry. And while the employer might breathe a sigh of relief when the district court on remand again denies class certification, nothing is certain when that decision also is appealed. But FedEx might finally relax now that the Ninth Circuit earlier this week affirmed the Central District of California’s second refusal to certify a class of employees who alleged that they were not paid for off-the-clock work before shifts or during meal breaks.

After previously remanding the district court’s denial of class certification and instructing it to reconsider class certification in light of California law applicable to the plaintiffs’ claims, the Ninth Circuit blessed the lower court’s conclusion that individual issues predominated over both claims. As to pre-shift work, the Ninth Circuit found that the district court had properly considered whether common evidence demonstrated that FedEx exerted control over employees who had clocked in but were not paid for time prior to the start of their scheduled shifts and determined that “absent a policy that prevents the FedEx employees from using that time for their own benefit,” no common questions existed.  The mistaken belief of a few employees that they were not free to leave after clocking in did not equate to a policy of control, and the fact that employees would be paid for time worked prior to the scheduled start of shift, if reported, defeated the plaintiffs’ argument that common questions predominated.

Next, on the issue of off-the-clock work during meal breaks, the Ninth Circuit confirmed that California law requires an employer to pay for work during meal breaks only when it knew or reasonably should have known about the work.  It then explained the district court properly concluded that individual issues would predominate because FedEx did not know or have reason to believe employees worked through provided meal breaks.  Even though the plaintiffs argued that FedEx could have reviewed electronic data showing when packages were scanned to determine whether scans occurred during meal breaks, the Ninth Circuit confirmed this evidence wouldn’t establish liability.  Because employers are not required “to police employees’ meal breaks … FedEx had no obligation to sift through the volumes of electronic data produced by the scanning devices to determine whether its employees were actually taking their authorized breaks.”  In sum, even though employer data may have demonstrated that employees were working during meal breaks, the existence of such data did not support a finding that an employer knew or reasonably should have known about the work or provide common evidence supporting class certification.

At least on these facts, ignorance was bliss for the employer, but not for the employees. Because FedEx properly provided meal breaks, the fact that it maintained electronic data did not mean it knew or should have known employees performed work during their meal breaks.  By contrast, employees’ ignorance of their ability to do as they pleased during pre-shift time did not save their claims for off-the-clock pay where no company policy exerted control over them.

Authored by Alex Passantino

While much of Washington, DC, begins its preparations for the inevitable summer slowdown, the Department of Labor’s Wage and Hour Division appears to be ramping up for a summer sure to keep wage and hour lawyers across the country hopping (and likely ruining some planned vacations).

Since WHD’s proposed rule made its way over to OMB’s Office of Information and Regulatory Affairs (OIRA) just over a month ago, there has been rampant speculation about the timing of the proposal’s public reveal.  In the meantime, numerous organizations have met with OIRA to provide their thoughts on the expected rule.  Those meetings go into next week.  As a result, we expect that the proposed rule will be formally announced no sooner than the end of next week, and almost certainly before the month’s end.  We will, of course, keep you updated as we learn additional information.

Once the proposal has been released, WHD does not plan to simply sit back and wait for the comments to roll in.  WHD Administrator, Dr. David Weil, recently announced that he plans to issue an Administrator Interpretation clarifying who qualifies as an independent contractor under the FLSA.  This is not all that surprising, given Dr. Weil’s interest in the employment relationship, notably his focus on fissured industries.  The concepts articulated in any guidance are likely to be far-reaching, and will also need to be carefully considered in a wide variety of other putative employment contexts, such as franchising and subcontracting.  Notwithstanding the significance of this issue, the Administrator Interpretation simply gets released, and there will be no opportunity for public notice-and-comment.  No formal timetable has been given by WHD, but expect it to be released this summer.

Then, as the white-collar proposal’s comment period begins to draw to a close (or gets extended), WHD intends to publish a Request for Information (RFI) on the use of smartphones and their impact in hours worked under the FLSA.  Although no formal rulemaking has been proposed, remember that the Department’s RFI on Family and Medical Leave Act use and abuse in 2006 led to a report in 2007, and a proposed rule and final rule in 2008.

So, this summer, look for your fellow wage and hour geeks.  We’ll be the ones reading Federal Register pages out by the pool.

Co-authored by John L. Collins and Brian Wadsworth

If I settle my employment lawsuit and release “all claims,” does that include wage-hour claims if the subject never came up? Last week, in Bodle, et al. v. TXL Mortgage Corporation, the Fifth Circuit said no.

As wage-hour practitioners know, the law in most circuits makes settlement of wage-hour claims a hassle, requiring either court approval or supervision by the Department of Labor for an enforceable release. In either case, the settlement terms are not confidential and may be easily be discovered.

But not so in the Fifth Circuit. In Martin v. Spring Break ’83 Productions, L.L.C., the Fifth Circuit held in 2012 that a private settlement reached over a bona fide dispute under the FLSA is enforceable. So in the Fifth Circuit, parties can settle wage-hour claims privately in most circumstances with enforceable releases, without having to seek court or government approval. But what if the case being settled was not a wage-hour case, and wage-hour issues never came up before the signing of a general release of “all claims?” In those circumstances, the Fifth Circuit ruled wage-hour claims were not waived.

TXL Mortgage Corporation (“TXL”) sued former employees Ambre Bodle and Leslie Meech in Texas state court for violation of their noncompetition covenants. The parties settled the litigation with a private settlement agreement and agreed final judgment. The settlement agreement said that Bodle and Meech “fully and completely release and discharge TXL . . . from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature . . . whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute or regulation.”

But on the exact same day they settled the state court litigation, Bodle and Meech turned around and sued TXL and its president, William Dale Couch, in federal court under the FLSA, claiming they were owed overtime pay. The trial court dismissed the case on the basis of the release, relying on Martin.

In Martin, the Fifth Circuit found the private settlement agreement of FLSA claims enforceable, because it resolved a “bona fide dispute” between the parties over the number of hours worked. But unlike Martin, the state court action in Bodle was not about a wage-hour dispute at all. It was a dispute over restrictive covenants. The district court reasoned that because the topic of unpaid commissions arose during settlement discussions, that was close enough to FLSA-type claims to render the general release enforceable as to overtime claims. The Fifth Circuit said this was not good enough because there was no discussion of overtime claims during settlement talks, and thus no bona fide wage-hour dispute.

In the wake of Bodle, questions remain as to the enforceability of releases against FLSA claims in contexts other than settlement of FLSA suits. Would a release as part of the settlement of a race discrimination discharge lawsuit that specifically references FLSA claims be enforceable against such claims? What about a release in return for severance pay in a reduction-in-force situation if the issue of wage-hour claims were specifically addressed? Currently, Martin and Bodle do little to provide concrete answers.

Co-authored by Richard Alfred, Patrick Bannon and Esther Slater McDonald

Tyson Foods, Inc. v. Bouaphakeo

The U.S. Supreme Court agreed yesterday to hear an appeal challenging a nearly $6.0 million judgment in a collective and class action case against Tyson Foods, Inc. In Tyson Foods, Inc. v. Bouaphakeo, a wage and hour collective and class action regarding the compensability of time spent donning and doffing, the Court will decide (1) whether liability and damages may be determined by statistical techniques that presume all class or collective members are similar; and (2) whether a class or collective action may include individuals who were not injured.

Case Background

Plaintiff employees brought a collective and class action against Tyson under the Fair Labor Standards Act (“FLSA”) and a parallel state law. The plaintiffs alleged that they were entitled to damages because Tyson failed to pay them overtime for time spent “donning” and “doffing” personal protective equipment and walking to and from their work stations. The district court certified an FLSA collective and Rule 23 class based on its conclusions regarding the existence of common questions about whether those activities were “compensable ‘work’” under the FLSA and the state law. At trial, the plaintiffs used statistical evidence of the average donning, doffing, and walking times for employees to prove liability and damages. The jury returned a verdict for the collective and class, and the final judgment totaled $5.8 million.

On appeal, Tyson contended that certification was improper because employees’ individual routines varied and, thus, the litigation could not generate common answers apt to drive the resolution of the litigation as required under Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Tyson pointed out that liability and damages were only inferred as to individual class members based on statistical evidence contrary to the Supreme Court’s “Trial by Formula” prohibition in Dukes and the use of damages models that ignore the basis of defendant’s alleged liability to each class member as required by Comcast v. Behrend, 133 S. Ct. 1426 (2013).

Tyson further argued that collective and class certification was inappropriate because some class members did not work any overtime and were thus not entitled to any damages. The Eighth Circuit Court of Appeals rejected these arguments, holding that liability and damages could be proven by inference and that issues relating to individual damages, or no damages at all, do not preclude certification.

Citing circuit splits on both issues presented, Tyson filed a petition for a writ of certiorari in March 2015 which was granted today. Those issues, as stated in the cert petition, are:

(1) Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and

(2) whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.

Potential Implications for Wage & Hour Collective and Class Actions

Even though employers have been facing an avalanche of wage and hour collective and class claims for more than a decade, the Supreme Court has had little to say in the wage and hour context about the procedures for litigating collective actions, class actions, or “hybrids” of the two. The potential for a game-changing ruling is a very important development for employers.

Courts have been divided about whether the mere allegation of a specific type of FLSA violation, allegedly affecting a group of employees, is sufficient to show that the employees are “similarly situated” within the meaning of Section 216(b), the main remedies provision of the FLSA. The issue that the Supreme Court has now agreed to hear–whether a collective can properly be certified where the alleged FLSA violation affected different employees differently and some not at all–is an important one, especially in “off-the-clock” FLSA cases.

The Tyson Foods case is especially fascinating because it involves a “hybrid” case, involving a Rule 23 opt-out class with several thousand members and an FLSA “collective” of 444 opt-in plaintiffs. The Supreme Court can be expected to address how its Wal-Mart and Comcast decisions–both arising under Rule 23–apply to FLSA collective actions as well as state law wage and hour class actions. The Court’s prohibition in Wal-Mart of “trial by formula” has the potential to restrict the certification of collective actions, both initially and ultimately, to adjudicate cases with large numbers of plaintiffs with highly individualized claims.

We will closely follow the briefing in the months ahead, as the Supreme Court considers what could be one of the most important wage and hour decisions in many years and will blog about developments in this case as they occur.

Authored by Simon L. Yang

Final approval of a class action settlement sometimes isn’t so final.

At least that’s what the Ninth Circuit reminded Labor Ready Southwest, Inc. and a class of current and former employees earlier this week. On Tuesday, the Ninth Circuit vacated an order granting final approval of their class settlement of FLSA and California Labor Code claims and asked the Central District of California for a redo.

The Ninth Circuit on several occasions made clear that it was expressing no opinion on the ultimate fairness of the class settlement negotiated by the parties. So what was the issue?

Acknowledging that a district court has to engage in a “difficult balancing act” when considering both the strong judicial policy in favor of settlements and the district court’s fiduciary duty owed to absent class members, the Ninth Circuit remanded the case based on the “high procedural standard” for settlements that occur without a certified class.

The Ninth Circuit said the district court provided inadequate assurance that it considered the fairness of the settlement, by failing to sufficiently inquire about certain aspects of the settlement: (i) defendant agreed to a “clear sailing” arrangement (where it would not object to a certain fee request), (ii) class counsel would “receive a disproportionate distribution of the settlement,” and (iii) unclaimed settlement funds would revert back to the defendant.

Again, the Ninth Circuit reiterated that the existence of any one (or even all three) of the above-identified settlement terms “does not mean the settlement cannot still be fair, reasonable, or adequate” but that it “required the district court to examine them, and adequately to develop the record to support its final approval decision.”

So, next time you have a final approval hearing, consider whether you might want to slow down to ensure there’s no doubt about either the fairness—or finality—of your settlement.

Authored by Alex Passantino

On Thursday, the Department of Labor and the Federal Acquisition Regulatory (FAR) Council will issue proposed guidance and proposed regulations, respectively, regarding the implementation of the President’s Fair Pay and Safe Workplaces Executive Order. The Executive Order requires federal contractors to disclose a wide variety of labor law violations, but did not provide great specificity with respect to its provisions. The proposed guidance and regulations now provide definitions and explanations of a great number of those provisions.

For a discussion of the proposals, see our Client Alert here. In addition, later this week, we plan to post a description of the particulars of the proposals as they relate to wage and hour issues.

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

As we have noted in previous posts (most recently here and here), courts have been paying closer attention to the terms of FLSA settlements and occasionally refusing to approve agreements where the amount of attorneys’ fees is too high compared to money going to the plaintiffs.

Add Flores v. Mamma Lombardi’s of Holbrook, Inc. to the list. In that case, which involved a class of over 4,000 employees, the parties asked Magistrate Judge Gary Brown of the Eastern District of New York to approve a $1.375 million settlement. The agreement called for an award of one-third of the settlement fund to class counsel, or approximately $445,500. Although he approved the overall settlement amount, Judge Brown rejected the fee application, instead finding the appropriate amount given the nature of the case and work performed to be $92,974.90—a reduction of more than 80%.

In rejecting the “princely sum” sought by Plaintiffs’ counsel, Judge Brown noted that in assessing the reasonableness of fee applications in class actions, courts must “act as a fiduciary who must serve as a guardian of the rights of absent class members.” Although Plaintiffs’ counsel argued that it is typical in FLSA settlements for counsel to receive 33% of the settlement, and cited several similar cases in which their firm was involved where judges approved such a percentage, Judge Brown was not convinced. He said counsel’s request “appears to be driven by plaintiffs’ counsel seeking high payouts at the expense of silent class members” and distinguished the other cases by suggesting that those courts failed to scrutinize the reasonableness of the fee applications.

Judge Brown held that the lodestar method was the more appropriate way to determine fees given the relatively small amount of time expended on the case and certain other questionable litigation tactics pursued by counsel during the litigation. He remarked that awarding fees on a percentage basis would “result in a windfall.”

Once settling on the lodestar method, Judge Brown carefully scrutinized the hours and rates proposed by Plaintiffs’ counsel and decided, based on the totality of factors, to apply an across-the-board 33% reduction in hours and to reduce most of their hourly rates to levels commonly approved by judges within the Eastern District.

This decision exemplifies the trend of courts taking a hard look at FLSA settlements, even when the parties agree on all aspects of the settlement. Parties settling FLSA cases should consider negotiating terms that address what happens if an agreed-upon provision of a settlement is rejected by the court—for example, a provision that attorneys’ fees requested but not approved belong to the defendant and reduce the total settlement amount rather than increase the amount paid to class members. If nothing else, parties who seek to obtain judicial approval of an FLSA settlement must be prepared to vigorously defend their terms to ever-increasing judicial scrutiny.

Co-authored by Coby M. Turner and Adam J. Vergne

In the Central District of California—often known as a magical kingdom for plaintiffs in wage-hour lawsuits—Judge Fernando Olguin brought everyone back to reality by denying class certification. Plaintiff Aladdin Zackaria alleged Wal-Mart incorrectly classified its Asset Protection Coordinators (“APC”) as exempt and moved to certify a class of all APCs that worked in California. After a close inspection of the evidence presented by Wal-Mart, however, Judge Olguin found the disparate experiences of APCs at different Wal-Mart stores prevented the case from being resolved by “common proof on a class-wide basis.”

Despite finding that APCs operated under uniform corporate guidelines, had identical training, and had the same pro forma job responsibilities, the court noted the “touchstone” of analysis under the executive and administrative exemptions is the way in which employees actually spend their time at work. Based on detailed statements in declarations from putative class members gathered by Wal-Mart, Judge Olguin concluded the day-to-day activities and level of discretion exercised by employees varied greatly from one APC to the next. With such individualized experiences, the court held there was no showing of common proof to support trying the case as a class action. Although it may be too early to say it’s a whole new world for employers in California facing misclassification class actions, employers presenting evidence employees’ experiences are varied can position themselves to defeat class certification.

Beyond California, the standard applied to motions for class certification continues to vary somewhat from jurisdiction to jurisdiction and even judge to judge. But as courts gain experience in wage-hour matters, the granting of class certification is not a forgone conclusion as some had treated it. Even when applying the two-step certification analysis for collective actions under the FLSA, courts have shown a willingness to consider testimony in the form of declarations from putative class members in order to defeat evidence in the form of self-serving declarations submitted by named plaintiffs. Employers should take note. By spending the time to gather evidence early, a substantive opposition to class certification can be made—as opposed to mere hypothetical arguments. Although the costs of mounting such an opposition can be substantial, the value of defeating class certification makes such a challenge worthwhile … even in California.

Authored by Alex Passantino

In the Department of Labor’s regulatory agenda for Spring 2015, the Wage & Hour Division announced a request for information (RFI) regarding “the use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours outside of scheduled work outside of scheduled work hours.”  No formal rulemaking has been proposed; WHD simply is seeking information from stakeholders on how these issues impact hours worked under the Fair Labor Standards Act.  That information may—or may not—lead to a proposed rule.  The RFI is expected to be published in the Federal Register in August 2015.

We are thrilled to announce that thanks to the feedback of clients and friends like our loyal blog readers, Seyfarth’s Labor & Employment group has just been recognized for excellence with one of the most prestigious awards in the legal profession. Earlier this week, the team was named Labor & Employment Team of the Year at the 10th annual Chambers USA Awards for Excellence ceremony in New York. The Chambers Awards honor the achievements of leading law firms and lawyers across the country for pre-eminence in key practice areas and notable achievements during the past 12 months, including outstanding work, impressive strategic growth, and excellence in client service. Chambers described Seyfarth as “the market-leading labor & employment practice in the country with an expertise and track-record of successful, strategically effective defenses to complex, high-stakes  wage & hour litigation, employment discrimination class actions, and bet-the-company EEOC lawsuits.”

What means the most to us are the quotes from our clients, which included: “Aside from being legal experts in their fields, the firm’s attorneys are incredibly responsive and provide pragmatic, value-add legal advice,” and “I’ve had several occasions when they’ve given advice contrary to that of other firms—in every instance the lawyers at Seyfarth have been correct.”

At the end of the day, what motivates each and every L&E lawyer at Seyfarth is the goal of providing our clients with the level of service they deserve. It’s the driver of everything we do, and that’s why this award means so much to us.

THANK YOU to all our loyal blog readers for coming along on this ride with us. We appreciate it more than we can say.