Generic Seal.bmpCo-authored by:  Jeremy W. Stewart and Kyle Petersen

On January 10, 2013, U.S. District Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin issued an order denying the plaintiffs’ motion for class and collective action certification of unpaid meal period claims in Boelk, et al. v. AT&T Teleholdings, Inc., et al., No. 3:12-cv-0040-bbc (W.D. Wis. 2013).   This decision is significant for employers because the Court follows the instruction given by the Supreme Court in Wal-Mart Stores, Inc. v. Dukes to perform a “rigorous analysis” to determine if Rule 23(a)’s commonality requirement has been met, and because it provides guidance for defeating conditional certification — a challenging task — of a FLSA collective action under 29 U.S.C. § 216(b).

The Boelk plaintiffs are current and former non-exempt, field service technicians who claim that defendants failed to pay them and other field service technicians all wages owed because: (1) the defendants’ restrictions on where technicians take breaks and what they can do during their breaks are such that the breaks are not bona fide, and are therefore compensable, and (2) defendants’ efficiency rating system compels employees to work through meal breaks without reporting the time as hours worked.  Plaintiffs attempted to pursue these claims as a “hybrid” collective action under the FLSA and Rule 23 class action under Wisconsin’s Wage Payment Act.

Plaintiffs argued that their first claim satisfies the commonality requirement of Rule 23(a) because the primary question to be resolved as to all proposed class members is “whether the restrictions limited technicians’ breaks so much that the breaks should have been compensated.”  Judge Crabb held that this “common question” is insufficient because it is not framed in terms of the actual elements of a claim under state or federal law, which is critical because, “as the Supreme Court made clear in Dukes, commonality is not simply a matter of common questions, ‘even in droves,’ but rather, whether the class proceeding can generate ‘common answers, apt to drive the resolution of litigation.’”  Here, the plaintiffs cited no law supporting the proposition that an employer must pay employees for meal breaks because employer restrictions prohibit employees from doing what they want on break, regardless of whether employees are performing work or activities that predominantly benefit the employer.  The failure to properly frame the common question in terms of whether the meal period restrictions result in technicians engaging in activities that predominantly benefit defendants, which is compensable, coupled with a lack of individual or classwide evidence that the restrictions resulted in such activities, doomed the first claim. 

In reaching her decision, Judge Crabb, who also decided Espenscheid v. DirectSat USA (discussed here) and Ruiz v. Serco, Inc., two of the most employer friendly wage and hour decisions in recent memory, distinguished this case from the Seventh Circuit’s decisions in Ross v. RBS Citizens, N.A. (overtime), and McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (race discrimination), by noting that, unlike Ross and McReynolds, the plaintiffs failed to offer proof of companywide policy that resulted in the alleged violation.  Instead, the evidence suggested that local supervisors were charged with significant discretion in the enforcement of meal break restrictions.  Accordingly, the plaintiffs failed to show that common questions could be resolved on a classwide basis using common proof.

Judge Crabb also held that plaintiffs’ second claim – defendants’ efficiency rating system compels employees to work through meal breaks without reporting the time as hours worked – fails to satisfy the commonality requirement of Rule 23.  With respect to this claim, Judge Crabb identified the “crucial question” as “why plaintiffs and other technicians worked through all or part of their meal breaks without reporting their doing so.”  According to Judge Crabb, this question is incapable of resolution on a class-wide basis because the answer turns on fact-intensive, individualized inquiries as to why a technician worked during a meal period on any given day. 

After determining that  Rule 23 class certification was inappropriate for the Boelk plaintiffs’ state law claims, the Court turned to plaintiffs’ FLSA claim.  Because the plaintiffs were seeking conditional certification, they urged the Court to apply the lenient standard typically used by Courts at the first stage of the two-step certification process.  The Court rejected the plaintiffs’ argument because “the parties have conducted significant discovery.”  Specifically, the record contained declarations, all six named plaintiffs had been deposed, two potential opt-ins had been deposed, and plaintiffs had taken a Rule 30(b)(6) deposition.  The Court held that, accordingly, “it is appropriate to apply more scrutiny to plaintiffs’ claim than would normally be applied at the conditional certification stage.”  In doing so, the Court referred to its Rule 23 commonality analysis and concluded that the plaintiffs failed to establish that they and the putative class members “were victims of a common policy or plan that resulted in common injuries.”  Rather, the  “plaintiffs’ experiences with respect to the meal break restrictions were not common and varied depending on their individual practices and particular supervisor.”  Thus, the Court held that plaintiffs were not similarly situated to the putative class they sought to represent and denied plaintiffs’ motion for conditional certification under the FLSA.

This case shows that, despite the so-called lenient standard, courts are willing to scrutinize motions for conditional certification, especially where discovery has been taken.  Employers defending collective actions should consider taking early discovery aimed at identifying individualized issues that may ultimately result in a determination that a common answer(s) cannot resolve the claims at issue.

 

Wage Hour Division.gifCo-authored by Alex Passantino and Charles F. Walters

On January 30, 2009, President Obama issued Executive Order 13495 requiring contractors and subcontractors who are awarded a federal service contract to provide the same or similar services at the same location to, in most circumstances, offer employment to the predecessor contractor’s employees in positions for which they are qualified.  The Executive Order directed the Secretary of Labor and the Federal Acquisition Regulatory (FAR) Council to issues regulations within 180 of the days of the Order and conditioned the effective date of the Executive Order itself on the FAR Council’s issuance of regulations.

On March 19, 2010, the Department of Labor’s Wage & Hour Division (WHD) published a proposed rule implementing the Executive Order.  On August 29, 2011, WHD published a final rule, which was itself effective only when the FAR Council published its own final regulations.  On May 3, 2012, the FAR Council published a proposed rule, largely implementing WHD’s final rule and permitting the regulated community until July 2, 2012, to provide comments.

Last month, the FAR Council issued a final regulation, stating that it will be applicable to solicitations issued on or after the effective date of January 18, 2013.  WHD followed suit, making its regulations effective on January 18, 2103. 

The critical regulatory requirements are:

A.  Only contracts and subcontracts that exceed the simplified acquisition threshold (currently set at $150,000) are covered, with the following coverage exclusions:

  • contracts with sheltered workshops, contracts for vending services pursuant to   the Randolph Sheppard Act, and contracts awarded pursuant to the Committee for Purchase from People Who Are Blind or Severely Disabled are also excluded
  • employees who were hired to work under a Federal service contract and one or more nonfederal service contracts as part of a single job are excluded from the obligations of the Executive Order.

B.  At least 30 days prior to contract completion, outgoing contractors must provide the contracting agency with a certified list of all employees who have performed services on the predecessor contract during the contract’s final month.

C.  Within 5 days of the solicitation date, incumbent contractors must inform their employees if the contracting agency has exercised its authority to exempt a contract from the nondisplacement rule (which the contracting agency must have done by the contract solicitation date).

D.  Upon receiving the employee list from the contracting agency, successor contractors must offer jobs to the predecessor’s employees who worked on the contract during its final month, who have skills to perform a job under the new contract, and who will lose their jobs with the predecessor contractor because it did not win the new contract.

  • employees who will be retained by the predecessor contractor need not be offered employment by the successor

E,  The successor contractor must provide an express, bona fide offer of employment on the contract, with a stated time limit for acceptance of not less than 10 days.

  • subject to limited exceptions, the successor contractor may not offer employment on the contract to any other person prior to the expiration of the 10-day period
  • successor contractors, however, may employ its current service employees who have worked for at least three months and who would otherwise face lay-off or discharge, even at the expense of predecessor employees
  • an offer can be bona fide even if it is not for a position similar to the one previously held, and even if subject to different terms and conditions (including pay), provided that the employee is qualified for the job

F.  The successor contractor can choose to perform the contract with fewer employees than did the predecessor.

  • where the successor does not initially offer employment to all predecessor employees, the obligation to offer employment shall continue for 90 days after the date of the successor’s first performance

G.  If the successor contractor receives written, “credible” information showing that an employee had not “performed suitable work” on the incumbent contract, that employee need not be offered a job by the successor contractor.

H.  Successor contractors may use employment screening processes, such as background checks and drug tests, “only when such processes are provided for by the contracting agency, are conditions of the service contract, and are consistent with the Executive Order”.

I. “Managerial and supervisory employees,” who are defined as those employees similarly exempt under the Fair Labor Standards Act and the Service Contract Act, are exempted from the nondisplacement rule.

J.  The predecessor contractor must post a written notice (or deliver such a notice to each employee individually, including electronically, if a receipt or other confirmation is used) advising employees of their possible right to an offer of employment with the successor contractor.

K.  Penalties for violating the Executive Order include back pay, mandated offers of employment to the predecessor employees, and possible debarment (for willful or aggravated violations or for failure to comply with an order of the Secretary).

As WHD and the Federal contracting agencies begin to further consider the issues related to implementation of these regulations, and particularly during the “contracting season” preceding the start of the new fiscal year in October 2013, there undoubtedly will be additional questions from and guidance to the contracting community on the regulations. 

One thing that is certain, however, is that non-union successor contractors will have a very difficult time not inheriting a unionized predecessor’s union bargaining obligation under the National Labor Relations Act’s (“NLRA”) “successor” doctrine.  Any successor contractor under this regulation that has a workforce on the contract comprised of more than 50% of the predecessor’s employees will almost certainly be a NLRA successor and have to bargain with the predecessor’s union as its employee’s bargaining representative.  Suffice it to say, lawfully avoiding a workforce comprised of more than 50% of the predecessor’s employees will be extremely difficult given the Nondisplacement rule.  Accordingly, non-union incoming contractors should know they are getting themselves into when taking over for a unionized contractor, and be prepared to deal with a unionized workforce on that contract.

We will continue to keep you apprised of developments in this area through additional alerts as well as a webinar discussing these obligations.

Eight Circuit Seal.jpgAuthored By Patrick J. Bannon

Can an employee waive the right to pursue an FLSA overtime claim on a collective or class basis?  On January 7, 2013, another federal appellate court, the 8th Circuit Court of Appeals, answered “Yes.”  A link to the Court’s opinion is here.  The United States Courts of Appeals for the 3rd, 4th, 5th, 9th and 11th — and now the 8th — Circuits have all rejected employee challenges to agreements to arbitrate FLSA claims on an individual basis.

The most recent victory for individual arbitration of FLSA claims, Owen v. Bristol Care, involved an arbitration agreement between Bristol Care, an elder care business, and Owen, one of its employees.  Owen and Bristol Care agreed to arbitrate “all claims or controversies” against each other, specifically including FLSA claims.  They also agreed that they would not arbitrate covered claims “as, or on behalf of, a class.”

Two years after entering into the arbitration agreement, Owen filed suit in federal court, claiming that she was misclassified as exempt and consequently denied overtime in violation of the FLSA.  Pursuant to FLSA Section 216(b), she sought to pursue the suit as a collective action on her own behalf and on behalf of other similarly situated employees.  Bristol Care filed a motion to stay the action and to compel arbitration, based on Owen’s arbitration agreement.

The District Court denied Bristol Care’s motion, finding that the provision precluding arbitration “on behalf of, a class” invalidated Owen’s arbitration agreement.  A waiver of the right to pursue FLSA claims on a class basis, the District Court held, is inconsistent with Section 216(b) of the FLSA, which gives employees the right to bring actions on behalf of others, and with the National Labor Relations Act, which, according to the National Labor Relations Board’s controversial D.R. Horton decision, guarantees employees the right to participate in class actions as a form of statutorily protected “concerted activity.”

A unanimous 8th Circuit panel issued a terse opinion overruling the District Court.  The existence of a right to bring a collective action under Section 216(b) of the FLSA, the Court pointed out, does not mean that an employee cannot waive the exercise of that right.  Indeed, the Court noted, the requirement that an employee affirmatively opt in to a Section 216(b) action suggests that an employee can waive the right to participate in such an action.

The appellate panel also rejected the argument that enforcing arbitration agreements precluding class arbitration would thwart Congress’s intent in enacting the FLSA.  Owen retained the ability to vindicate her rights under the FLSA through individual arbitration, the Court noted, as well as the right to file a complaint with the Department of Labor, and the Department of Labor has the power to investigate and file suit on behalf of a class of employees.

As for the argument that the agreement not to arbitrate on a class basis violated employees’ rights under the NLRA to engage in concerted activity, the Court declined to follow the NLRB’s D.R. Horton decision, emphasizing that the decision is non-binding and has been widely rejected by the courts.  Based on the strong federal policy of enforcing arbitration agreements as written, the 8th Circuit directed the District Court to enter an order staying the court proceedings and compelling arbitration.

Bristol Care marks the sixth federal appellate court to validate agreements to arbitrate FLSA claims that explicitly preclude “class arbitration” procedures.  No federal appellate court has held that such agreements are unenforceable.  While plaintiff-side lawyers still have not given up challenging these agreements, the legal tide continues to run in favor of enforcing agreements to arbitrate on an individual basis. 

Authored by Alex Passantino

‘Twas the week after Christmas, and all through the land     

Our readers were focused on their year ’13 plans;                                                                  

And though we’ve no desire to knock you off track,                                                             

We thought that 2012 deserved one last look back.                                                             

Hours, exemptions, pay rates, and more;                                                                         

Nearly 100 posts (for those keeping score).                                                                           

We know every issue will not give you your kicks,                                                                  

So we considered them all, and we picked out just six.

 

At the top of the list, one case, it stood out.                                      

And our blog frequently mentioned what it was all about.                                                      

We note it again, cause it’s not every day                                                                        

That the SCOTUS addresses the FLSA.                                                                          

Pharma Sales Reps were the source of debate                                                                    

As the justices considered their overtime fate. 

But beyond the exemption lay a larger issue,                                                                

Which brought Roberts, CJ, and eight justices, too.                                                               

A unanimous ruling that courts won’t defer                                                                          

To an agency brief that’s made up on the spur.                                                                   

No Auer.  No Skidmore.  No Seminole Rock.                                                                           

No deference at all, which came as a shock.                                                                      

And five Justices found that sales’ “other disposition”                                                    

Includes what happens with drugs ‘tween sales rep and physician.

 

Our second big item for the past year                                                                             

Gives hospitals all over a reason to cheer.                                                                 

Automatic break cases have been oh so scary                                                                    

But departments and managers and practices vary,                                                            

And faced with these cases, this giant morass                                                               

Increasingly, courts have been saying “no class.”

 

Third — a crucial pairing that’s been quite hot of late                                                   

Collective wage claims and the word “arbitrate”                                                                  

Attacks on class waivers have sunk like a stone                                                                 

Since SCOTUS approved them in Concepcion.                                                           

Employment class waivers should have the same fortune                                                    

But first must maneuver around D.R. Horton.                                                                        

In Sutter, the Supremes decide if arbitrations are class-y,                                                      

While California, it seems, is contrary — so sassy.

 

The fourth of our topics is only beginning,                                                                      

Soon SCOTUS will decide if Genesis is winning                                                                       

By offering a plaintiff all possible pay                                                                              

Then moving the court:   “Make this case go away.”                                                          

With the case fully briefed, and the arguments heard,                                                          

It won’t be ‘til next year that we learn the last word. 

 

Our fifth and sixth issues go hand-in-hand,   

It’s the wage-hour wave that’s been sweeping the land.                                                     

Whether it’s agency efforts or plaintiff-filed cases,                                                             

FLSA violations will get thrown in your faces.                                                               

Aggressive enforcement might lay you down flat.                                                               

Will your customers know?  Well, there’s an app for that.                                                   

And these targeted efforts to cause course correction,                                                       

Won’t be going away, due to Barack’s re-election.                                                             

And the plaintiffs’ bar will also be sticking around,                                                               

As their wage-hour case filings continue to abound.

 

So make sure that next year, you review all this “stuff.”    

And thanks for the page views; we can’t thank you enough.                                                

We wish you success in 2013.                                                                                        

From your favorite blogging (and book-writing) team.

 

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

 

Seyfarth_Logo.jpgCo-authored by Loren Gesinsky and Scott Rabe

Employers across the country are in the midst of planning, decorating, and reveling in good cheer as they prepare to enjoy — or perhaps already did enjoy — an office holiday party.

While most employment attorneys and human resources professionals appreciate the potential morale-building of office holiday parties — and do not want to be viewed as Scrooge-like objectors to festivities — they also bear in mind the potential legal issues such parties raise.  Perhaps most obviously, alcohol, especially if provided without limitation, can lead to employee DUIs and tort claims, as well as reduced inhibitions that might engender harassment claims.  Whether employees must be paid for attendance is another such issue, although not one that has received much attention.  We summarize below a few wage-and-hour considerations relevant to this issue.

When must an employee be paid for attendance at an office holiday party?

As an initial matter, the obligation to pay employees for attendance at a holiday party applies only to nonexempt employees.  Exempt employees do not need to be paid extra for time spent attending or in relation to a holiday party.

With respect to nonexempt employees, however, an employer’s obligation to pay will likely turn on when the holiday party is scheduled and whether the employee is required to attend.  Holiday parties scheduled during the regular work day will virtually always be compensable.  Even if scheduled after hours, a holiday party will still be compensable “work” for nonexempt employees required to attend.  Conversely, it is clear that no compensation is owed for holiday-party attendance that is 100% voluntary and strictly for the benefit of employees.  The grey legal area for compensability falls on the spectrum between attendance that is mandatory and 100% voluntary.  For example, the facts behind a claim that attendance was strongly encouraged could lead a fact-finder to conclude that the implicit message was attend or face negative work consequences, thereby rendering attendance compensable “work.”

It is important to recognize also that, while attendance at a holiday party may be 100% voluntary for the majority of employees, those who are working the event or helping prepare for the event — even if the work is voluntary — must be paid.  Neither the Department of Labor nor the courts recognize an exception for “volunteering” if the nonexempt employee is performing nonexempt functions. 

So is the time compensable that is spent waiting between the end of a nonexempt employee’s shift and the beginning of the holiday party and/or in travel to the party?  The answer is no if party attendance is voluntary and compensation for it is not required.  However, if attendance is mandatory or functionally close enough, waiting and travel time might be compensable, especially if there is a relatively small gap of time between the end of the shift and the start of the party.  (A larger gap in time during which nonexempt employees are relieved of all work and entirely free to go wherever and do whatever they desire would likely not be compensable).  To avoid potential liability, employers can simply pay employees for the gap and/or travel time if they are already paying nonexempt employees for attendance at the party itself.

Cost-Saving Tips

  • Make attendance at the holiday party entirely voluntary and convey that message to employees with unwavering clarity.
  • Consider scheduling the party during regular working hours when nonexempt employees are paid anyway.
  • To the extent attendance is required, publish the hours of the party and enforce them.
  • Neither ask nor permit nonexempt employees to prepare for and/or work at the party outside regular work hours.

Conclusion

We are not Scrooge-like enemies of office holiday parties.  We appreciate (and personally enjoy) their positive effects.  At the same time, we wish to caution employers about the potential legal consequences of a refusal to pay nonexempt employees for time spent in connection with such a party that is essentially a mandatory work event.  The simplest ways to avoid this concern are to schedule the party during regular work hours or ensure that it is both entirely voluntary to attend and fun enough to encourage high attendance anyway.  Happy Holidays!

Ninth Circuit.jpgCo-authored by David Kadue and Julie G. Yap

On Tuesday, an en banc panel of the Ninth Circuit heard oral argument regarding whether California’s rule against compulsory arbitration for claims of public injunctive relief was preempted by the Federal Arbitration Act (“FAA”) in Kilgore v. KeyBank NA.  As we reported in March of this year, a three judge panel of the Ninth Circuit held that the California rule did not survive the U.S. Supreme Court’s vehement reaffirmation of the preemptive effect of the FAA in AT&T Mobility v. Concepcion.  But then came the Ninth Circuit’s decision to grant en banc review.  This development appeared to breath new life into the plaintiffs’ argument that certain claims are immune to mandatory arbitration agreements when judicial resolution is needed to “vindicate statutory rights.” 

Yet at oral argument, the en banc panel of Ninth Circuit seemed unwilling to land the knock-out punch, either in favor of or against FAA preemption.  Instead, the questioning focused on whether the court could resolve the case on a more narrow ground.

In Kilgore, former students of a vocational school sued KeyBank, the school’s preferred tuition lender, alleging that KeyBank violated California’s Unfair Competition Law (“UCL”) by continuing to lend the students tuition money even while knowing that the school was moving toward bankruptcy.  The students sought to have KeyBank enjoined from enforcing the loan agreements.  These agreements contained an arbitration clause, which KeyBank moved to enforce.  The district court, ruling prior to Concepcion, denied the motion to compel arbitration, reasoning that California precedent prohibited mandatory arbitration of claims for injunctive relief under the UCL. .

The original Ninth Circuit panel reversed this result, because Concepcion expressly rejects state laws that place a blanket prohibition on the arbitration of certain types of claims.   California’s pre-Concepcion law, the panel explained, was no longer valid.  The panel rejected the plaintiffs’ arguments that the FAA’s preemptive scope does not reach injunctive relief primarily designed to protect the public.  Rather, the panel cited Concepcion’s dismissal of state public policy arguments, concluding that “states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

The grant of an en banc rehearing signaled potential openness to a theory that Concepcion does not apply where arbitration would impede the vindication of statutory rights.  The Second Circuit has adopted this argument as applied to federal claims, and the U.S. Supreme Court recently granted review to address this issue in American Express Co. v. Italian Colors Restaurant.  Because American Express involves the vindication of federal statutory rights, however, the Supreme Court’s decision would not necessarily determine how Concepcion applies to state law claims such as the one that the Ninth Circuit faces in Kilgore.

At oral argument, the en banc court seemed hesitant to address the broad preemption issues.  Instead, judges asked if this case really presents a claim for public injunctive relief, since what the students really want is an order that they need not repay their loans to KeyBank.  Meanwhile, the students’ school has gone out of business, so what is the public harm that the requested “public injunctive relief” would avert?  In a further expression of judicial restraint, the en banc judges asked both whether the Ninth Circuit should stay its hand until the U.S. Supreme Court has decided American Express or the California Supreme Court has decided Iskanian.

The en banc Ninth Circuit’s decision in Kilgore could be groundbreaking precedent on the issue of the scope of Concepcion and the enforceability of arbitration agreements generally.  A ruling for the plaintiffs could open the floodgates to arguments that any arbitration agreement should be set aside to accommodate various important public policies.  A ruling for the defendant could powerfully reinforce Concepcion’s message that states cannot interpose state public policies to frustrate the enforcement of arbitration agreements.  Yet it appears that, after all the excitement aroused by the Ninth Circuit’s decision to go en banc, the case now may go out with a whimper instead of a bang. 

supreme court.jpgCo authored by Steve Shardonofsky and Noah Finkel

Earlier this week, the U.S. Supreme Court announced its decision to deny certiorari in Martin et al. v. Spring Break ’83 Productions, L.L.C. et al.  This decision leaves in place the Fifth Circuit’s ruling enforcing a private FLSA settlement—a first for any federal appellate court.

In Martin, four union-represented plaintiffs filed a grievance against Spring Beak ’83 Louisiana, L.L.C. alleging that they had not been paid for all their hours worked.  The employee’s union and Spring Beak ’83 Louisiana entered into a settlement concerning the disputed hours worked.  In exchange for settlement payments, the plaintiffs waived their right to file any complaints or lawsuits.  Before the settlement agreement was signed by union representatives, the plaintiffs filed a lawsuit against Spring Break ’83 Louisiana and several other individual and corporate defendants to recover their unpaid wages.  On appeal, the Fifth Circuit affirmed summary judgment in favor of the defendants, holding that the four plaintiffs had waived their FLSA claims as part of the settlement—even though the settlement was never approved by the DOL or a district court.

In the cert petition, the plaintiffs argued that Supreme Court review was necessary because Martin created a circuit split with the Eleventh Circuit, which held in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) that FLSA claims may be settled only by court approval or DOL supervision.  The plaintiff also argued that Supreme Court review was appropriate because the Fifth Circuit’s ruling conflicts with the Supreme Court’s earlier decision in Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 745 (1981), which held that a union cannot waive individual FLSA rights through collective bargaining.

As wage and hour practitioners know well, the vast majority of federal district and appellate courts historically have refused to enforce settlements and/or waivers of FLSA rights without Department of Labor or court approval.  The Fifth Circuit’s ruling in Martin reverses this trend.  The fact that the Supreme Court did not grant certiorari could be construed as a tacit acknowledgement that private FLSA settlements are appropriate.  Indeed, the FLSA itself does not require court or DOL approval, and private settlements of claims brought under Title VII, the ADA, and other employments statutes passed well after the FLSA are routinely enforced.

Although the Fifth Circuit’s decision in Martin could signal the start of a significant change in this area, questions remain regarding its future impact because the Fifth Circuit’s decision thus far stands alone.  Until more courts adopt the reasoning Martin, employers should still seek DOL or court approval for FLSA settlements if they wish to ensure that the release is valid.

D. AZ Seal.jpgCo-authored by Howard M. Wexler and Robert S. Whitman

In wage-and-hour cases, the method of calculating potential damages is often just as (if not more) important as the underlying misclassification determination.  Since at least the 1940s, the U.S. Department of Labor has consistently taken the position that, where the employer and misclassified employees have a “clear mutual understanding” that their weekly salary compensated them for all hours worked, they are only entitled to “overtime” damages calculated at one-half their regular rate of pay.  The regular rate of pay is based on a mathematical formula and is determined by dividing the salary by the number of hours worked in a particular workweek.  

As recently as 2009, the DOL approved the method of calculation, ruling that the “clear mutual understanding” requirement does not need to be expressed in writing but is satisfied when an employee continues to work and accept payment of a salary for all hours of work.  Every federal Court of Appeals to have directly addressed the issue — –the 1st, 4th, 5th, 7th and 10th Circuits – has endorsed the half-time method of calculating back wages in misclassification cases.     

Despite this judicial and regulatory acceptance, a recent decision from the U.S. District Court for the District of Arizona takes the opposite approach.  In Blotzer v. L-3 Commc’ns Corp. (D. Ariz. Dec. 6, 2012), Judge Jennifer G. Zipps, after holding that the plaintiffs were misclassified as exempt from overtime, – rejected L-3’s contention that any damage awards should be calculated under the FWW method because, she said, it conflicts with the “rationale and intent of the FLSA.”

In reaching her decision, Judge Zipps applied a Department of Labor regulation used when employees receive a fixed salary for all hours worked:  the “half-time” or “fluctuating workweek” (“FWW”) method.  The FWW method allows employers to pay a fixed salary that is meant to cover all hours worked in a given workweek.  29 U.S.C. § 778.114.  Overtime is then owed for any hours worked over 40, based on a “sliding” rate scale at least at a half-time rate.

The following conditions must be met in order to use the FWW method:

  1. the employee’s hours must fluctuate from week-to-week;
  2. the employee must receive a fixed salary that does not vary with the number of hours worked during the week (excluding overtime payments);
  3. the fixed salary must be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage;
  4. the employer and employee must share a “clear and mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked; and
  5. the employee must receive overtime compensation for hours worked in excess of forty, not less than one-half the rate of pay.

29 C.F.R. § 778.114(a).

Judge Zipps held that application of the FWW method in misclassification cases is inappropriate because in such cases, there can be no “clear mutual understanding” about a fixed salary for fluctuating employee hours – a precondition of the FWW method.  “When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth (a clear mutual understanding) nor fifth (receipt of overtime compensation for hours worked in excess of forty) legal prerequisites for use of the FWW method is satisfied.”

The courts that have approved the FWW method in misclassification cases have rejected this narrow view of the “clear and unmistakable” requirement, echoing instead the long-held DOL position and holding that the requisite understanding is established when the employer and employee agree that the employee will be paid a salary for all hours worked.  It is also worth noting that the Seventh Circuit expressly rejected the FWW method as the basis for calculating back wages in misclassification cases, but nevertheless applied a half-time method, finding the calculation to be rooted in the Supreme Court’s 1942 decision of Overnight Motor Transportation Co. v. Missel. 

Despite the fact that many courts have adopted the FWW method in misclassification cases, thereby limiting employer’s potential exposure for overtime damages to half-time, there will continue to be outliers.  Because there is no circuit split, it is unclear when or whether the method will be expressly approved by the Supreme Court.  In the meantime, employers should continue to advocate forcefully for application of the method and oppose plaintiffs’ arguments that salary paid to exempt employees (even those later deemed to have been misclassified) was not intended to compensate for all hours worked.

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

For an employer, what could be worse than a class action lawsuit?  Quite possibly, a “class arbitration.”  Like a class action suit, class arbitration is a proceeding in which one or a few claimants try to assert claims on behalf of many, sometimes hundreds or thousands, of other current and former employees.  But a class arbitration is decided by an arbitrator rather than in court.  There is no judge or jury, and the relatively clear rules of procedure or evidence that apply in court may or may not be followed.  The arbitrator has almost plenary authority over the proceedings, subject to only very limited appeal rights.  For employers facing wage and hour claims under the Fair Labor Standards Act, class arbitration poses the additional risk that an arbitrator might disregard the special opt-in procedures that apply to FLSA collective actions in favor of generic opt-out class action rules — a change that could dramatically raise the monetary stakes.

Last Friday, December 7, 2012, the U. S. Supreme Court agreed to decide Oxford Health Plans LLP v. Sutter, a case that could determine whether employers that have arbitration agreements with their employees that are silent about class or collective actions are nonetheless subject to class and collective arbitration.  (The Supreme Court’s order describing the question it has agreed to decide is here.)  The stakes are high.  The Court’s decision will determine whether an arbitrator can require an organization to defend itself in class arbitration based solely on the existence of an agreement with a broad arbitration clause providing for arbitration of “all disputes” or “all claims” without mentioning class or collective proceedings.   Such broad arbitration clauses have for decades been commonly included in agreements of all kinds, including arbitration agreements with employees.  If such clauses are sufficient to authorize class-wide arbitration, employers that have arbitration agreements may be subject to a wave of class arbitration claims, including class claims under state wage and hour law, collective claims under the FLSA and, even claims that collective claims under the FLSA should be subject to class arbitration procedures, a possibility raised by the Fourth Circuit’s 2008 Long John Silver’s Restaurants, Inc. v. Cole decision.

Many observers, notably including a panel of appellate judges on the Court of Appeals for the Fifth Circuit, thought the Supreme Court had already ruled, in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., that employers cannot be forced to participate in class or collective arbitrations based on arbitration agreements that do not expressly give arbitrators the authority to proceed on that basis.  However, the Second Circuit and perhaps the First Circuit have expressed a different view.  So has the Third Circuit in Sutter, the case the Supreme Court will review. 

Dr.  John Sutter sued Oxford Health on his own behalf and on behalf of a class of other physicians, claiming failures to reimburse the physicians in accordance with Oxford Health’s contracts.  Because Sutter’s contract included a broad arbitration clause, Oxford Health argued and the trial court agreed that he could pursue his claims only in arbitration.  Sutter then asked the arbitrator to authorize class arbitration — to decide not only his own claims but the claims of the other physicians described in his class action lawsuit.  Oxford Health protested and argued, based on the language of its arbitration clause contained in the physician contracts, that it had never agreed to participate in class arbitration and that, therefore, under Stolt-Nielsen, it could not be required to  do so.  But the arbitrator ruled, based on the fact that the arbitration clause expressly covered “all” disputes (even though it didn’t mention class arbitration), that Oxford Health had implicitly agreed to class arbitration.  Emphasizing the importance of deferring to arbitrators when they interpret contracts subject to arbitration, the trial court and the Third Circuit Court of Appeals refused to disturb the arbitrator’s ruling.  Whether the Third Circuit’s ruling is consistent with Stolt-Nielson, and the subsequent Supreme Court opinion in AT&T Mobility v. Concepcion, will now be decided by the Court.

Employers can hope that the Supreme Court’s decision to review the Third Circuit’s Sutter decision arises from the concern of a majority of the justices that the Third Circuit’s reasoning (and similar reasoning by the Second and First Circuits) could undermine what the Court decided in Stolt-Nielsen.  If an arbitrator is free to interpret any arbitration agreement that provides for arbitration of “all” disputes or “all” claims as an implicit authorization of class arbitration, then the overwhelming majority of parties to arbitration agreements could be forced to defend class arbitrations, even though the vast majority of them never even contemplated, much less agreed to participate in, any such proceedings.  Employers with arbitration agreements should watch Sutter closely — a favorable Supreme Court decision could protect them against a legal problem worse than a class action lawsuit. 

The Court has not yet announced the schedule for its consideration of Sutter.  We will keep our readers informed of further developments.  A decision may not be issued until June 2013.

ED PA.jpgCo-authored by Noah Finkel, Julie G. Yap, and Ashley Kircher

Finding the declarations from plaintiffs to be unreliable, a federal judge in Pennsylvania recently denied conditional certification of an FLSA collective action arising out of allegedly unpaid overtime for a proposed nationwide class of more than 9,000 retail representatives employed by Crossmark, Inc.  Postiglione v. Crossmark, Inc., No. 2:11-cv-960 (E.D. Pa. Nov. 14, 2012).  Notably, the court did not stop there.  Rather, it also concluded under Federal Rule of Civil Procedure 20(a) that the 52 named plaintiffs could not bring their claims together in one suit because there was no common plan or policy that applied to all 52 of them.  As such, the court dismissed the case to all but the first named plaintiff.

The plaintiffs in Postiglione alleged that Crossmark violated the FLSA by not paying its employees overtime.  Specifically, the plaintiffs alleged that they were not properly paid for (1) administrative tasks performed either before or after completing their work at retail locations; (2) driving to their first assignment or home from their last assignment of the day; and (3) all the time spent working at the retail locations. 

The court allowed minimal pre-certification discovery, including allowing Crossmark to take the depositions of ten individuals.  In support of their bid for conditional certification, the plaintiffs submitted a number of sworn affirmations signed by many of the named plaintiffs.  After the court raised concerns at oral argument on the plaintiffs’ motion for conditional certification, the plaintiffs proposed narrowing the class. 

The court ultimately concluded that even under the plaintiffs’ narrowed class definition, the plaintiffs had failed to meet their burden to make a modest factual showing that the proposed class members were similarly situated to the named plaintiffs.  The court reasoned that the evidence proffered by the plaintiffs in support of their motion was “patently unreliable” due largely to admissions obtained during pre-conditional certification discovery.

In particular, the court noted that the plaintiffs’ affirmations regarding Crossmark’s alleged failure to pay overtime appeared to have been derived from forms and not to have been individually drafted for the employees signing them, that many of the named plaintiffs contradicted their sworn affirmations in their deposition testimony, and that Crossmark’s proffered timesheets contradicted both the affirmations and the depositions.  The court also noted that the plaintiffs’ evidence suggested that there was no common nationwide policy at all, as the disparities in the named plaintiffs’ testimony demonstrated that any illegal plans or policies that existed were instituted by individual supervisors. 

Finally, the court concluded that based upon the evidence submitted, the plaintiffs could not even demonstrate a common plan or policy with regard to all of the named plaintiffs.  Rather, the court found that the evidence admitted at trial was likely to be highly individualized and focused on the policies and instructions of the named plaintiffs’ 38 different supervisors.  Accordingly, the court dismissed the claims of all but the first named plaintiff.      

The Postiglione decision underscores the need to push for discovery before conditional certification, as it may provide an opportunity to discredit speculative allegations and generic affidavits and thereby avoid conditional certification altogether.  Moreover, the opinion lends further support to the proposition that — even under a lenient standard — courts should take more than a fleeting glimpse at the evidence offered in support of conditional certification.