Second Circuit Seal.jpgAuthored by Jeremy W. Stewart

The DOL continued its “regulation by amicus program” this past week when it submitted an amicus brief in Greathouse v. JHS Security, Inc., urging the Second Circuit to reverse a lower court’s decision, and longstanding circuit precedent, that internal complaints are not protected by the FLSA’s retaliation provision (29 U.S.C. § 215(a)(3)).  The Second Circuit’s decision may result in significant consequences for employers operating in New York, Vermont, or Connecticut.

This is nearly the fiftieth “significant” amicus brief the Solicitor General’s Fair Labor Standard’s Division has filed since the beginning of 2009, and the fifth it has filed seeking a broader interpretation of the FLSA’s retaliation provision during the same period.  This, despite the Supreme Court’s unanimous rebuke last term of the DOL’s amicus program in Christopher v. SmithKline (discussed here), as we have previously discussed. 

Case Background

In Greathouse, the plaintiff alleged he complained to JHS’s President that he had not received a paycheck in several months.  According to the plaintiff, the President allegedly responded, “I’ll pay you when I feel like it,” and pulled a gun on him.  Not surprisingly, plaintiff never returned to work.

Plaintiff sued the company and its president in the Southern District of New York alleging, among other things, they violated the FLSA when JHS’s President pulled a gun on him in response to his complaint.  The district court threw out plaintiff’s FLSA retaliation claim because he only complained internally, and not to “some relevant governmental or other prosecutorial authority.”  The plaintiff then appealed to the Second Circuit.

FLSA Retaliation And The DOL’s Position

The FLSA prohibits discharging or in any other manner discriminating against an employee “because such employee has filed any complaint” covered by the FLSA.  Two questions that have divided courts are:  (1) does the “filing” requirement preclude oral complaints from protection, and (2) does an internal complaint qualify as “fil[ing] any complaint?”

The Supreme Court answered the former question in Kasten v. Saint-Gobain Plastics (discussed here), holding that oral complaints may be protected.  The Supreme Court declined to directly address the second question.

The Second Circuit is the only circuit that does not extend the FLSA’s protection to internal complaints.  Approximately 20 years ago, in Lambert v. Genese Hosp., the Second Circuit held that the FLSA’s retaliation provision “does not encompass complaints made to a supervisor.”  The DOL has filed two amicus briefs in 2013 seeking a reversal of Genese. 

Specifically, the DOL argues the Second Circuit read the FLSA too narrowly when it declined to read protection for internal complaints into the statute.  The DOL also argues that the plain meaning of “any complaint” includes intracompany complaints, not just those filed with governmental entities.  Alternatively, the DOL argues the Second Circuit should broaden its interpretation of the FLSA’s retaliation provision to allow the remedial purposes of the FLSA to be achieved.

The DOL’s final argument is that it has long viewed internal complaints as protected.  The Fourth Circuit considered this argument in 2012, and concluded that although not determinative, the DOL’s consistent advancement of this “reasonable and thoroughly considered position” added force to its conclusion that internal complaints may be protected by the FLSA.  The Supreme Court previously found a similar argument persuasive in extending protection to oral complaints.

Implications

According to an amicus brief several labor groups have requested leave to file in Greathouse, in low wage industries, only 1.2% of wage complaints are first made to an outside agency, and only 1.3% are made to an employer and outside agency.  A reversal of Genese may create claims for the over 95% of employees who only make internal complaints, which will likely increase the overall number of FLSA cases filed in the Second Circuit (over 1,500 between January 1, 2012 and March 3, 2013) or, at a minimum, increase the number of FLSA retaliation claims. 

In addition to the increased risk of FLSA retaliation claims, expanded protection of internal complaints will mean that employers must be more vigilant in handling internal wage complaints because seemingly minor grumblings may create bigger issues.  As a result, it will be more important than ever to ensure front-line managers are trained to handle these internal complaints.

EDNY.bmpCo-authored by Noah Finkel and Giselle Donado

Parties might be able to privately settle their FLSA disputes without court approval — and without disclosing the amount — provided they don’t care if they obtain a valid release.

Finally a court has untangled the web of case law that often mistook the fact that a release of FLSA claims in a purely private settlement of FLSA claims may be void with an outright ban on private settlements.  In Picerni v. Bilingual SEIT & Preschool Inc., Judge Cogan of the federal district court for the Eastern District of New York issued an opinion clarifying that just because a release might be void doesn’t mean parties are not free to privately settle their FLSA claims.  It simply means that such settlements are more risky.  A settlement without a (court-approved) valid release is still a settlement of a lawsuit, and still means that the lawsuit should be dismissed.

What’s changed?  Not much.  Parties often have settled FLSA cases without court approval, and courts frequently have dismissed those cases without much mention.  Some courts, however, have refused to dismiss cases pursuant to settlement unless the parties submit the settlement agreement for review.  That frequently admits that the settlement agreement is no longer confidential.  The Picerni decision is significant because it explains why settlements without court approval are in fact permissible.  Joining the Fifth Circuit, the Picerni Court speaks out against the body of case law stating that plaintiffs cannot accept offers of judgment and that parties cannot even voluntarily dismiss a FLSA case without the court’s approval.  See Martin v. Spring Break ’83 Prods., 688 F.3d 274 (5th Cir. 2012), discussed here.  It expressly recognizes that private settlements are not forbidden simply because they may not be as enforceable as court-approved settlements.  The court used simple logic here:  while a court-approved FLSA settlement includes a valid release of claims and results in dismissal, it does not mean that an unapproved settlement should not result in dismissal.  Private settlements thus are allowed, they just may not be enforceable as to future claims.  But if the parties don’t care, then, according the Picerni court, there’s nothing stopping them.  In other words, the Picerni court is in effect saying, “settle without me if you want, but when the plaintiff sues you again, don’t say I didn’t warn you.”

The Facts:

The Picerni case involved garden variety FLSA claims.  The plaintiff, a teacher, filed suit against her employer, a private education institution, alleging that she (and those similarly situated) was not paid for hours she worked, bringing her below the minimum wage level.  Before the defendant even appeared or filed an answer, the plaintiff filed notice that she accepted defendant’s offer of judgment settling her individual claims.  The court refused to enter judgment, and explained that FLSA settlements must be approved by the court — the acceptance of an offer of judgment simply won’t do.  Plaintiff filed a motion explaining the settlement, and the court changed its mind.  Unprompted by the parties, the court considered whether, under Federal Rule 41, parties can dismiss an FLSA action without the oversight or approval of the court.  The answer, this time, was yes.  The court accepted the parties’ Rule 68 offer of judgment and allowed the parties to dismiss the case. 

The Opinion:

The court reasoned that, unlike other statutes, the FLSA does not expressly require court approval to dismiss FLSA claims.  Of the body of case law to the contrary, the court stated that those cases should be confined to their facts and suggest only “that the courts will not recognize an unreasonable settlement.”  Those cases did not “expressly preclude private settlements; they simply refused to  recognize releases in subsequent litigation where the settlement was unreasonable or not the result of a bona fide dispute.”  The court admitted that allowing private FLSA settlements is not without its downsides: putative class members may never learn of their potential claims, settlements will be kept confidential, and a plaintiff’s recovery likely will be smaller.  But if this what the parties want, and the employer is willing to risk that the settlement may not be enforceable in the future, then let them have at it.

What are the risks?  The Picerni court emphasized that private FLSA settlements require the employer to roll the dice, and cautioned that such settlements may not be enforceable as to later claims.  This largely will depend on whether there was an actual dispute (probably), and whether the settlement reached reasonably resolved that dispute (that depends).  More practically, it will really just depend on the employee and his or her lawyer — is the settlement amount enough to cause the employee to not be interested in filing another suit to obtain more money? 

But the Picerni decision provides employers more security than it gives itself credit for.  Indeed, allowing the parties privately settle and dismiss an action with prejudice arms employers with claims preclusion or res judicata defenses to later claims. 

A risk worth taking?  It depends.  An early settlement will save employers the time and cost of prolonged litigation.  And, perhaps even more appealing, private settlements are private.  Unlike the court-approved settlements, these private settlements can remain confidential.  The case can be dismissed without all other employees learning of the plaintiff’s claims and recovery.  An ounce of prevention is a pound of cure here.  Keeping the settlement terms confidential likely will reduce the risk of copycat claims from other employees looking for the same remedial treatment.  The risk, however, is that an employer may pay a plaintiff to dismiss an FLSA case, and then have to face further FLSA litigation from that plaintiff.

This decision makes clear that employers have options other than win, lose, or settle with court approval.  Employers may pursue a confidential settlement with plaintiffs and voluntarily dismiss a case with prejudice without the court’s approval.                                                                                                                                                                                                                                                                                          

SDNY.jpgAuthored by Patrick Bannon

Can an arbitration agreement preclude an FLSA collective action?  To the chagrin of many plaintiffs’ lawyers — and the National Labor Relations Board — a growing consensus says, “Yes.”  Last week, a President Obama-appointed federal judge in New York joined the chorus in Ryan v. JPMorgan Chase & Co., et al.

Tiffany Ryan, a former assistant branch manager of JPMorgan Chase Bank, sued the bank for $9,000 in overtime pay under the FLSA.  She attempted to pursue the case as a collective action:  a case on her own behalf and “on behalf of all others similarly situated.” 

When she was hired, however, Ryan had agreed to submit all claims against the bank — specifically including FLSA claims — to arbitration.  She had further agreed, in unmistakably clear language, that the arbitration would be on an individual basis only and not on a class or collective basis. 

The bank asked Judge Vincent Briccetti to enforce Ryan’s arbitration agreement by dismissing the lawsuit and ordering Ryan to arbitrate her claim on an individual basis.  

Ryan raised three objections — each unsuccessful. 

First, Ryan argued that her right to pursue an FLSA collective action is unwaivable.  Relying on higher court decisions that the right to pursue a class action can be waived, Judge Briccetti held that the right to proceed collectively under the FLSA was not per se unwaivable.

Second, Ryan argued that the arbitration agreement could not be enforced because if she were forced to arbitrate on an individual basis, she would be unable as a practical matter to vindicate her FLSA rights.  Judge Briccetti disagreed, noting that Ryan had not proven that individual arbitration would be unworkable given the amount of her claims, the bank’s agreement to pay all arbitration costs and the provision in the FLSA allowing Ryan to recover her attorneys’ fees if she won.

Finally, Ryan contended that enforcing her arbitration agreement would violate federal labor law.  The National Labor Relations Board endorsed this argument in 2012 in its lengthy and controversial D.R. Horton decision.  Judge Briccetti dismissed the reasoning of D.R. Horton in a sentence, noting that in doing so he was joining numerous other courts.  (He also questioned the validity of D.R Horton following the Court of Appeals for the D.C. Circuit’s ruling in Noel Canning that the appointments of certain NLRB members were unconstitutional.  D.R. Horton, itself, is pending decision by the Court of Appeals for the Fifth Circuit.) 

For employers who wish to resolve disputes with their employees through individual arbitration, the sky continues to brighten:  the analysis of D.R. Horton seems to be on life support while support for agreements to arbitrate FLSA claims on an individual basis and to waive FLSA collective actions continues to grow. 

supreme court.jpgCo-authored by Arthur Rooney and Jessica Schauer Lieberman

Are work clothes “clothes” under the FLSA?  And how much weight should be given to the Department of Labor’s opinion on this issue, especially when that opinion has changed more than once?

Yesterday, the Supreme Court agreed to answer these questions when it agreed to review the Seventh Circuit’s decision in Sandifer v. U.S. Steel, which we discussed in a post on May 2012.  In short, the plaintiffs in Sandifer claimed that they were owed wages for time spent changing into and out of their work clothes in a locker room at the plant.  But the company argued that it did not have to pay for these activities because the parties had agreed that time spent changing clothes would not be compensable during collective bargaining.  And FLSA §203(o) states that time spent “changing clothes . . . at the beginning or end of each workday” is excluded from compensable time if it is treated as non-work time by a collective bargaining agreement.  So that raised the question: are work clothes or personal protective gear “clothes” under the FLSA?

In June 2010, the DOL issued an Administrator’s Interpretation that took a narrow view of the definition of “clothes.”  According to the DOL, the exception for changing “clothes” does not include protective gear.  The DOL also stated that changing clothing–even if not itself a compensable activity–may nevertheless be considered a “principal activity” sufficient to trigger the continuous workday, making subsequent activities compensable.

In Sandifer, the Seventh Circuit rejected plaintiffs’ attempts to rely on the DOL’s Interpretation. The Court stated that, “[p]rotection–against sun, cold, wind, blisters, stains, insect bites, and being spotted by animals that one is hunting–is a common function of clothing, and an especially common function of work clothes by factory workers.  It would be absurd to exclude all work clothes that have a protective function from section 203(o), and thus limit the exclusion largely to actors’ costumes and waiters’ and doormen’s uniforms.”  The Court also held that the plaintiffs’ workday started when they arrived at their work site, and not when they changed their clothes or started walking to their work areas.  The Seventh Circuit refused to give the DOL’s views any weight because the DOL had changed its position three times within a period of less than fifteen years, and it failed to adduce any knowledge or expertise that would justify those shifts in interpretation.

The plaintiffs sought Supreme Court review of the Seventh’s Circuit’s ruling regarding the definition of “clothes” as well as its decision that changing clothes cannot trigger the start of the continuous workday.  The Supreme Court, however, only agreed to hear argument on the first of those issues.

The Supreme Court’s agreement to address the definition of “clothes” most immediately impacts employers who rely on 203(o) and a collective bargaining agreement to exclude time spent donning and doffing protective gear.  The issue is of key importance to employers in the poultry and meat processing industries, as well as the basic metals industry, which are heavily unionized and where extensive protective gear is required.  The issue is also one that the authors of this Blog have been watching for some time; an article published by Seyfarth’s Richard Alfred and Jessica Schauer Lieberman in 2011 criticized the DOL’s Interpretation, highlighting many of the same grounds that were later cited in the Seventh Circuit’s decision.

The decision should also have more far-reaching effects, however, because the Supreme Court is likely to address the deference due to DOL opinions expressed in administrator’s interpretations.  The DOL has articulated new or changed interpretations of the FLSA on a wide variety of issues through administrator’s interpretations, opinion letters, and amicus briefs.  For example, in a 2010 administrator’s interpretation, the DOL reversed prior opinion letters and found that mortgage loan officers are not exempt.  Last June, in Christopher v. SmithKline, the Supreme Court rejected the DOL’s interpretation of the FLSA articulated in an amicus brief.  Now, the Court has an opportunity to do the same in the context of an administrator’s interpretation.  Depending on how the Court decides Sandifer, it could deal a further blow to the DOL’s efforts to make changes in the law without engaging in rule-making. 

11th circ.gifAuthored by Jeffrey Glaser

The Eleventh Circuit Court of Appeals issued a decision last week that could substantially reduce the amount of damages available for FLSA retaliation claims.  In Moore, et al. v. Pak, an Eleventh Circuit panel held that district courts in that circuit (Alabama, Florida and Georgia) have the discretion to deny liquidated damage awards to plaintiffs who prevail on FLSA retaliation claims, even if the defendant does not offer evidence that it acted in good faith.  In so holding, the panel followed decisions in the Sixth Circuit (Kentucky, Michigan, Ohio and Tennessee) and Eighth Circuit (Arkansas, Dakotas, Iowa, Minnesota, Missouri and Nebraska) Courts of Appeals, and rejected contrary authority issued by the Fifth (Louisiana, Mississippi and Texas) and Seventh (Illinois, Indiana and Wisconsin) Circuits.

In general, liquidated damage awards are mandatory if a plaintiff prevails on FLSA minimum wage or overtime claims, unless the employer establishes that it acted in good faith and with reasonable grounds for believing it was not violating the FLSA.  By statute, the liquidated damages are an amount equal to the unpaid compensation or wages awarded to prevailing plaintiffs.  Whether employers found liable under the FLSA’s retaliation provision are subject to the same mandatory liquidated damage awards as available for overtime and minimum wage claims has been less clear.  If a jury awards plaintiffs $90,000 in economic damages for a retaliation claim under the FLSA, are they automatically entitled to another $90,000 in liquidated damages unless the defendant establishes good faith?  Or, do courts have more flexibility in the liquidated damage determination for FLSA retaliation claims than they do for minimum wage and overtime claims?

This question about the mandatory nature of liquidated damages in FLSA retaliation claims arose in Pak after a jury found Mr. Pak, the former CEO of the company where the plaintiffs worked, to be individually liable for retaliation under the FLSA and awarded each of the three plaintiffs in the case $30,000 in damages.  In a post-trial motion, the plaintiffs sought an additional $30,000 in liquidated damages for each plaintiff because, plaintiffs argued, Mr. Pak failed to present any evidence of good faith and, therefore, liquidated damages should be mandatory.  The district court disagreed and denied the plaintiffs’ motion for liquidated damages.

In what the appellate court’s opinion characterized as “a matter of first impression” in the Eleventh Circuit, the panel upheld the district court’s decision, thus adding to the growing authority against mandatory awards of liquidated damages in FLSA retaliation claims.  The panel based its decision largely on the statutory language of section 216(b) of the FLSA. 

Under that section of the law, employers that violate the minimum wage and overtime provisions of the FLSA “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid compensation, as the case may be, and in an additional equal amount as liquidated damages.”  By contrast, employers that violate the FLSA’s retaliation provision “shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of [the retaliation provision], including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.”

According to the Eleventh Circuit’s decision, this difference in language indicates that Congress did not intend to make liquidated damages mandatory in FLSA retaliation claims.  Instead, the court ruled that an award of liquidated damages is only appropriate in such cases if it effectuates the purposes of the FLSA.  As the panel explained, “[w]hatever is awarded must be appropriate to effectuate the purposes of the retaliation provision, and determining that requires the exercise of wide discretion.”

Further, the panel in Pak rejected Fifth and Seventh Circuit decisions suggesting that liquidated damages are mandatory in FLSA retaliation claims.  According to the Eleventh Circuit, these prior opinions assumed that liquidated damages in retaliation claims should be treated the same as in minimum wage and overtime claims, but those decisions did not analyze the relevant statutory language of the FLSA.  The Eleventh Circuit was more persuaded by authority in the Sixth and Eighth Circuits, which specifically analyzed the language of 216(b) in determining the non-mandatory nature of liquidated damages in FLSA retaliation claims. It remains to be seen whether the plaintiffs will seek Supreme Court review given the circuit split on this issue and, if they do, whether the high court will agree to hear the case.

At least for now, litigants in the Eleventh Circuit, like those in the Sixth and Eighth Circuits, will have to argue over the circumstances necessary to justify liquidated damages in retaliation claims.  The panel in Pak provided no specific guidance in this area beyond noting the district court’s wide discretion to determine an award appropriate to effectuate the purposes of the FLSA’s retaliation provisions.  Further, the decision in Pak raises interesting burden of proof issues.  Although it is the defendant’s burden to establish good faith to avoid an imposition of liquidated damages in overtime and minimum wage claims, do plaintiffs in retaliation claims now have the burden to prove bad faith in order to justify liquidated damages?  Guidance in these areas will surely develop over time in the Eleventh Circuit as well as other courts grappling with liquidated damage awards in FLSA retaliation claims.

In the meantime, employers can now cite to Pak, as well as previous precedent, as further argument against the imposition of liquidated damages in FLSA retaliation claims.  Pak will therefore be a useful tool for employers not only in active litigation, but also in settlement negotiations, when plaintiffs often double the value their claims based on the assumption of liquidated damages.

Seventh Circuit.jpgCo-authored by Laura Reasons, Giselle Donado, and Noah Finkel

In an opinion likely to make it more difficult for wage-hour plaintiffs to certify a class action and maintain certification of a collective action, the Seventh Circuit affirmed the Western District of Wisconsin’s decertification decision in Espenscheid v. DirectSat USA, LLC on the grounds that trial was not manageable under the plan submitted by plaintiffs, where determining damages would require 2,341 separate evidentiary hearings.  We previously discussed the District Court’s decision here (and thus will not rehash the background facts).  Espenschied is a very important decision that could shape the wage-hour certification landscape because of its holding that ultimate certification of a collective action is subject to the same standard as a Rule 23 class action, its requirement that damages in a wage-hour case be capable of being determined through common proof, and its emphasis on a workable, trial plan as a predicate for class and collective action certification.

In the Seventh Circuit’s opinion, Judge Posner started from the premise that, for certification purposes, there is no reason to treat a state-law wage-hour class action brought pursuant Federal Rule of Civil Procedure 23 differently from a collective action under Section 216(b) of the FLSA.  It explained that the district court correctly held that plaintiffs had not presented a feasible trial plan.  Determining damages would require 2,341 separate evidentiary hearings.  This was not a case where, for example, each technician worked from 8 a.m. to 5 p.m. and was forbidden to take a lunch break.  The court reasoned that, in such a case, damages could be calculated formulaically by a computer program.  But in this case, damages for each individual plaintiff would have to be determined separately by a trier of fact, as such determinations would turn on individual facts such as a workers’ effort and efficiency, different tasks performed, and the reasons the workers did not record certain tasks.  Those same factors are present in several off-the-clock collective or class actions

The Seventh Circuit also upheld the district court’s rejection of plaintiffs’ proposal to present trial testimony from 42 “representative” members of the 2,341-person class.  This proposal was problematic because it did not appear that the “representatives” were chosen in a statistically sound manner.  Moreover, extrapolating damages of the “representatives” to the whole could result in conferring a windfall on some, while shorting others.  Indeed, plaintiffs themselves acknowledged at argument that it would be “[d]ifficult for Plaintiffs to provide an objective framework for identifying each class member within the current class definitions without making individualized findings of liability.”

The court stated that class counsel “must think that like most class actions suits this one would not be tried — that if we ordered a class or classes certified DirectSat would settle.  That may be a realistic conjecture, but class counsel cannot be permitted to force settlement by refusing to agree to a reasonable method of trial should settlement negotiations fail.”  The court wrote that class counsel essentially had “asked the district judge to embark on a shapeless, free-wheeling trial that would combine liability and damages and be would virtually evidence free as far as damages were concerned.”  This, the Seventh Circuit would not allow and thus upheld the district court’s decertification decision.

With this opinion, the Seventh Circuit has given employers some improved tools to defend against class and collective claims.  This decision demonstrates an emerging trend to treat Section16(b) collective actions and Rule 23 class actions as one for purposes of analyzing certification.  Judge Posner expressly stated that “there isn’t a good reason to have different standards for the certification of two different types of action, and the case law has largely merged the standards, though with some terminological differences.”  With that in mind, Judge Posner reviewed the district court’s decision to decertify the three subclasses, treating “the entire set of suits before [the court] as if it were a single class action.”  Few appellate courts, or district courts for that matter, have set forth the level of common proof that collective action plaintiffs must set forth at the ultimate certification stage.  The Sixth Circuit, for example, has suggested that it may be similar to the standard for joinder under Federal Rule 20.  O’Brien v. Ed Donnelley Enterprises, Inc. 575 F.3d 567, 584-86 (6th Cir. 2009).  The Seventh Circuit takes the different view that the standard is more in line with the rigorous standard under Rule 23.  In doing so, Espenschied  brings the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes into the fold for 216(b) collective actions by using Rule 23’s commonality standard to drive the certification decision. 

This decision also puts the onus on plaintiffs seeking certification of large classes based on a “representative” sample to provide evidence that the claims and damages of all class members can be readily ascertained from the sampling in order to satisfy Rule 23’s commonality standard.  Indeed, plaintiffs’ inability to articulate how their “representative” sample was truly representative was fatal to certification.  Importantly, Judge Posner suggests that even differences in damages among the class members might be reason enough not to allow certification.  Offering a purportedly “representative” sample of class members, without more, likely will no longer be sufficient.  Here, Dukes’ guidance on statistical evidence will prove useful to employers by providing a high threshold for what statistical evidence plaintiffs may use as the glue that binds the claims and damages of class members.  With that in mind, employers would be wise to prepare a discovery plan that demands that plaintiffs establish the validity of the “representative” nature of their class sample with respect to their claims and damages.  This strategy may prove useful in limiting the class to the individual representatives, and foster an early settlement given the heavy burden plaintiffs will face to validate their “representative” sample. 

Finally, Espenschied makes clear that practical considerations are not to be ignored at the ultimate certification stage.  The Seventh Circuit gave much weight to the fact that the plaintiffs did not offer a feasible way for determining liability and damages based upon their representative sample, and noted that while, as a practical reality, most certified classes do go on to settle, that does not obviate the need to provide evidence that plaintiffs are able to calculate damages in a meaningful way for all class members.  Employers would be wise to demand a trial plan from plaintiffs explaining how they will attempt to ask the court to determine liability and damages for the class, particularly in those cases where plaintiffs rely on a representative sample.  Any failure by plaintiffs to provide a feasible plan to ascertain the claims and damages should prove useful in opposing certification.  Indeed, these practical considerations also may be worth raising at the conditional certification stage.  While the standard is a lenient one, alerting the court that plaintiffs’ claims present significant practical hurdles that cannot be cured may sway the court.  The court’s message in Espenscheid  was clear–judicial resources should not be wasted simply to facilitate a settlement of a class whose claims are not ascertainable and damages are not readily calculable without individualized findings.

N.D. Ohio.bmpAuthored by Kristin G. McGurn

A federal judge in the Northern District of Ohio continued a recent trend in automatic meal break deduction litigation by decertifying a conditionally-certified nationwide class of HCR Manorcare’s nursing home employees (click to link HERE). The potential class included 44,000 current and former HCR workers from 300 short- and long-term assisted living, skilled nursing, and rehabilitation facilities across the country.  Discovery involved managers, HR staff, and hourly employees at 26 facilities as plaintiffs hailing from 28 states had opted in to the suit.  The court concluded that HCR’s meal break policy, which deducted 30 minutes automatically from timecards on certain shifts and required employees to report exceptions, was lawful.  There was no allegation or evidence that HCR employed a policy to violate that compliant policy.  Plaintiffs argued that the common theory of liability binding plaintiffs together was HCR’s lack of vigilance and involvement in local implementation.  The court refused to maintain the conditional class based on HCR’s use of the automatic deduction  itself.  It focused instead on differences among the opt-in plaintiffs as to how managers in HCR’s far-flung network handled reporting of missed or interrupted meal breaks, their training on the policy, and encouragement for exception reporting.  The court also found that differing responsibilities, employment experiences, personal habits, and individualized defenses among HCR’s registered nurses, licensed practical nurses, certified nursing assistants, and admission coordinators were too disparate to support a collective action.  The court held that proceeding collectively would be neither fair nor useful if based on representative testimony, and was otherwise procedurally unmanageable.  As a result, the court dismissed the claims of 318 opt-in plaintiffs.

Importantly, the court also refused to certify a partial collective action because discovery revealed that employees’ meal break experiences were not linked to their position, shift or facility, but rather to individual managers’ decisions in implementing policy.  Plaintiffs did not suggest how sub-classes could be established. 

Decertification of the conditional class followed a mandamus petition to the Sixth Circuit, in which HCR challenged, under federal rules governing joinder of parties and class actions, the familiar two-step process (conditional certification and notice/decertification) employed by most courts facing FLSA collective actions.  Through the writ of mandamus, HCR sought to vacate the nationwide conditional certification and interrupt the delivery of notice to a sampling of employees across the country, relying on Wal-mart, Inc. v. Dukes principles (click to link HERE) that the district court had held were inapplicable to the collective action.  Though the Sixth Circuit denied the writ, that court recently upheld decertification in similar automatic meal-period deduction cases in, White v. Baptist Mem’l Health Care Corp. (click to link HERE) and Frye v. Baptist Mem’l Hosp., Inc. (click to link HERE).  The Northern District of Ohio, bound by those decisions, has continued this trend.

Supreme Court Seal.jpgCo-authored by Richard Alfred and Patrick Bannon

Last week, Oxford Health Plans filed its opening brief with the Supreme Court in Oxford Health Plans LLC v. Sutter.  As we noted in an earlier post, even though Sutter is not an employment case, the Supreme Court’s decision will have an important effect on whether employers that have entered into arbitration agreements with their employees containing broad language requiring “all disputes” to be submitted to arbitration but no reference to class proceedings can be required to participate in “class arbitration” of employment claims.

Following the Supreme Court’s Stolt-Nielsen and Concepcion decisions, many observers believed that employers were already protected against being forced into class arbitration without clear contractual language authorizing it.  Those decisions established that because class arbitration and bilateral arbitration limited to the parties of the agreement are profoundly different, a party cannot be required to participate in class arbitration unless the party has affirmatively agreed to do so. 

Sutter addresses the issue whether an arbitrator may properly require class arbitration without either express contractual language providing for such a procedure or clear extrinsic (“parol”) evidence that the parties intended such a result, a question that Sutter argues was left unanswered in Stolt-Nielson.  In Sutter, the plaintiff persuaded an arbitrator to interpret the arbitration clause in his agreement with Oxford Health as an agreement to engage in class arbitration.  The clause reads as follows:  “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration . . . ”  Oxford Health argued to a district court judge and then to the Third Circuit Court of Appeals that the arbitrator’s interpretation is plainly wrong because the arbitration agreement says nothing at all about class arbitration.  Both courts, however, rejected that argument, not because they agreed with the arbitrator’s decision, but because they deferred to the arbitrator’s interpretation, which read into the arbitration agreement an intent by the parties to include class arbitration. 

In its Supreme Court brief, Oxford Health argues that the arbitrator’s interpretation of its arbitration clause to authorize class arbitration is so indefensible that it does not meet the requirement in Stolt-Nielsen that there be a contractual basis for finding that the parties agreed to class arbitration.  “If the arbitrator’s reasoning here was sufficient to [satisfy Stolt-Nielsen],” Oxford Health argues, “then nothing short of a conclusive statement  . . . precluding class arbitration . . .would permit a court to vacate an order imposing class proceedings.”  (Brief for Petitioner at 34.) 

Oxford Health also argues that the arbitrator’s decision that the parties agreed to class arbitration should have been subject to “meaningful review” by the district court.  (Brief at 34-39.)  The absence of meaningful court review, Oxford Health warns in its brief, would create two dangers.  First, some arbitrators believe that if an employee’s arbitration agreement precludes a class action in court, it would be unfair to prevent the employee from pursuing class arbitration.  Without real judicial review of their interpretations, arbitrators who feel this way may be tempted to interpret almost any arbitration agreement as an agreement to class arbitration.  Oxford Health suggests that its arbitrator fell into this camp and that the interpretation of its arbitration clause as authorizing class arbitration was just a pretext for circumventing Stolt-Nielsen.  Second, Oxford Health argues, arbitrators will often have a financial interest in whether an arbitration is a short, inexpensive individual proceeding or a high-stakes class arbitration that could last for years.  Judicial oversight of their decisions about whether to allow class arbitrations is essential, Oxford Health argues, to ensure public confidence that the decisions are fair. 

In a footnote, Oxford Health makes an even more fundamental argument:  it suggests that courts should determine for themselves whether the parties agreed to class arbitration.  (Brief at 38 n.9.)  Whether an arbitration agreement permits class arbitration, Oxford Health argues, is not an ordinary issue of contract interpretation as to which courts generally defer to arbitrators.  It is more like whether an arbitration agreement covers a particular type of dispute or whether the parties agreed to arbitrate at all — issues that courts need to decide for themselves or review closely. 

In summary, according to Oxford Health, the District Court and the Third Circuit were wrong to overlook the flimsiness of the arbitrator’s interpretation of its arbitration clause.  A ruling by the Supreme Court in Oxford Health’s favor would close the door on efforts by plaintiffs’ counsel, sometimes against the individual interests of their clients, to expand bilateral arbitration as anticipated by the parties to broad class-wide proceedings ill-suited for arbitration.  In the context of wage and hour claims, this would also eliminate the risk that FLSA collective actions could be pursued as class arbitrations without the express agreement of the parties.

The Plaintiff-Appellee’s brief is scheduled to be filed on February 21, 2103.  In addition to Oxford Health’s brief, several amicus briefs were also filed last week (Chamber of Commerce), (Pacific Legal Foundation), (Voice of Defense Bar).  The Supreme Court is scheduled to hear argument on March 25, 2013.  A decision is expected by the end of June.  We will continue to keep our readers current on developments in this case as they occur.

New York NDNY.jpgCo-authored by Robert S. Whitman and Adam J. Smiley

In February, this blog reported on two FLSA collective actions filed by former unpaid interns for The Hearst Corporation and Fox Searchlight Pictures.  These interns claimed, respectively, that they should have been paid for work performed for about 20 magazines and on the production of the 2010 film “Black Swan.” 

Hot on the heels of these cases is yet another class and collective wage and hour “internship” lawsuit, this time initiated by an “Intern/Assistant Football Coach” for Hamilton College’s Athletics Department.  Filed on December 20, 2012 in the U.S. District Court for the Northern District of New York, the Plaintiff alleges that the school misclassified its athletics department interns (who are not students) as exempt under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL), failed to pay him minimum wage for all hours worked, and failed to pay him overtime for hours in excess of forty per week.

Unlike the Hearst and Fox Searchlight interns, Hamilton College paid the Plaintiff a monthly stipend of $1,000-$1,100.  The Plaintiff argues, however, that his hourly rate during the football season — during which he often worked over 100 hours per week — fell below $3.00 per hour, far less than minimum wage.  After the football season ended, the Plaintiff alleges that he performed similar duties for the women’s basketball team and assisted with football recruiting.  While his weekly hours did not reach triple digits during the offseason, the Plaintiff claims that his rate of pay still fell below minimum wage and that the College continued to deprive him of overtime.

The Plaintiff is alleging that the College lacked funds for enough full-time assistant coaches and thus relied on low-paid interns to provide the necessary labor.  As we saw in the prior cases, interns work for little or no pay when the possibility exists that the internship could lead to a full-time job.  Here, the Plaintiff states that he hoped to eventually join the staff of the Hamilton College football team as a full-time assistant coach. 

This lawsuit demonstrates an emerging trend in wage and hour litigation, and the use of interns across a broad spectrum of employers makes this a fertile area for litigation.  Highlighting the financial risks is the recent settlement of a lawsuit brought by an unpaid intern on “The Charlie Rose Show,” which this blog first reported in March 2012.  The December 18, 2012 settlement totaled $250,000, and called for each of the 190 class members to be paid a sum of $1,100, plus a $50,000 payment for attorneys’ fees.  The parties’ arrived at their $1,100-per-intern figure by agreeing that each intern would receive $110 per week, for a maximum of 10 weeks, which was the average length of an internship semester.  The $110 number was based on an average of 15 work hours per week, which translates to a $7.33 hourly rate, just over the current New York minimum wage of $7.25.  This settlement is believed to be the first of its kind involving a wage and hour claim filed by an unpaid intern.  

Employers utilizing unpaid interns should closely examine their programs in light of these developments to ensure that they are in full compliance with applicable legal standards dealing with interns.  Employers who have decided to pay their interns to avoid any wage and hour liability should ensure that their rate of pay still comports with minimum wage and overtime requirements under the FLSA and applicable state laws.

 

 

seyfarth.jpgAuthored by Rachel M. Hoffer

We’ve all heard the oft-cited statistic that women in the U.S. earn 77 cents for every dollar paid their male counterparts, despite the passage of laws targeted to remedy this disparity.  For the third time in four years, Congressional Democrats have introduced a bill intended to give the Equal Pay Act of 1963 sharper teeth.  Known as the Paycheck Fairness Act, the bill asserts that, “In many instances, the pay disparities can only be due to continued intentional discrimination or the lingering effects of past discrimination”—this, nearly half a century after the passage of Title VII of the Civil Rights Act of 1964.

How would the Paycheck Fairness Act eradicate pay discrimination when its predecessors, according to the bill’s proponents, have not?  If passed, the current version would amend the Equal Pay Act, itself an amendment of the Fair Labor Standards Act, in several ways designed to influence employer behavior.

  • The Paycheck Fairness Act would place a heftier burden on employers defending an Equal Pay Act claim.  Under current law, once a plaintiff establishes a prima facie case of sex-based pay discrimination, the burden then shifts to the employer to show that the pay difference is due to a seniority system, a merit system, a system that bases earnings on quantity or quality of production, or “any other factor other than sex.”  The Paycheck Fairness Act would replace “any other factor other than sex” with “a bona fide factor other than sex, such as education, training, or experience,” and would require employers to establish that the factor is job-related, necessary for business, and “not based upon or derived from a sex-based differential in compensation.”  In addition, the plaintiff could defeat the “bona fide factor” defense by demonstrating that an alternative practice would achieve the same business purpose without resulting in a disparity.
  • The Paycheck Fairness Act would broaden the FLSA’s anti-retaliation provisions to protect employees who participate in or initiate FLSA-related investigations, including employer-conducted investigations, or who ask about or discuss the wages of another employee. 
  • The Paycheck Fairness Act would allow prevailing plaintiffs to recover compensatory damages for an Equal Pay Act violation—and punitive damages, if they demonstrate that the employer acted with malice or reckless indifference.
  • The Paycheck Fairness Act would permit plaintiffs to pursue a Rule 23 class action.  In other words, class members would be included unless they affirmatively opted out of the action—a departure from the FLSA’s familiar collective action procedure, in which individuals must affirmatively opt into the action.
  • The Equal Employment Opportunity Commission would collect employee pay data for use in enforcing federal anti-discrimination laws.  This data will reflect not only sex but also race and national origin information.
  • Finally, the bill promises one carrot amid the sticks of heightened burdens, punitive damages, and class actions:  The Secretary of Labor would recognize employers that have taken great strides to eliminate pay disparities between the sexes, including bestowing a National Award for Pay Equity in the Workplace.

Again, versions of this bill have failed twice, and it seems unlikely that the third time will be the charm.  But pay disparity issues are clearly on the agenda for Congressional Democrats and President Obama, who endorsed a previous version of the bill.  And the EEOC has identified enforcing equal pay laws as one of the six national priorities of its Strategic Enforcement Plan, adopted in December 2012.  Regardless of whether the Paycheck Fairness Act becomes law, prudent employers should start looking at pay disparities now.