Authored by Cheryl Luce

Seyfarth Synopsis: Tipped workers who didn’t receive notice of the tip credit get a win under New York state minimum wage law in a case that echoes technical traps we have seen in FLSA decisions.

Throughout the year, we have been covering cases that show how the FLSA has been construed by courts as “remedial and humanitarian” in purpose, but that its technical traps do not always serve such a purpose and do not necessarily serve to ensure a living wage for working Americans. A recent decision from a New York federal court applying New York law shows how state minimum wage laws can also provide traps for the unwary and result in big payouts to employees who were paid at least minimum wage but in a way that violates the law’s technical requirements.

This case was filed five years ago against a restaurant company operating franchises in New York. The plaintiffs moved for partial summary judgment on whether they were properly advised in writing about tip credits when they started at the company and whether their wage statements met New York state law requirements. The moving plaintiffs were paid $5.00 per hour in regular pay and $7.50 per hour in overtime in addition to tips that (at least for the purposes of summary judgment) the plaintiffs did not dispute brought their pay above New York’s minimum wage requirements, nor did they contend that they did not understand that they were paid pursuant to the tip credit. Nonetheless, because of the company’s technical tip credit notice and wage statement violations, the court concluded that the company was liable to 15,000 workers for the liability period of 2011 to present for the difference between their hourly rate and the New York minimum wage (which increased to $9.70 per hour on December 31, 2016).

According to reporting by Law360, the plaintiffs’ attorney estimates that the damages could lead to more than $100 million in payments to the workers. It is not hard to imagine that such a massive judgment could put a major strain on the company’s operations or even threaten their ability to continue doing business. All the while, the plaintiffs did not dispute that, accounting for their tips, they were actually paid at least the New York minimum wage. In the event that the court orders defendants to pay them difference in the hourly rate they were paid and the New York minimum wage, they will have received the benefit of not just tips, but also damages resulting from what can only be described as a technicality.

Although this is a state law case and thus does not make up the fabric of inconsistent and illogical rhetoric we find in FLSA decisions that we have examined earlier, we find it appropriate to draw similar conclusions here. What is remedial and humanitarian about this court’s construction of New York’s minimum wage requirements? What protection of the right to earn a living wage is afforded low wage workers in this case? And if the answer is none, then perhaps courts ought to acknowledge that they do not always construe wage-hour laws in a way that achieves their core purpose of ensuring a living wage for working Americans, but rather in a way that has no apparent connection to such a purpose.

Co-authored by Kristen Peters and Simon L. Yang

Seyfarth Synopsis: Last month in Mendoza v. Nordstrom, Inc., the California Supreme Court addressed three questions about California’s “day of rest” statutes that prohibit employers from causing employees “to work more than six days in seven.” California employers can now rest assured that (1) employees are entitled to one day of rest during each workweek, not one day of rest in every rolling seven days; (2) an exception permits employers to require work each day of a workweek if every daily shift in that workweek is no more than six hours; and (3) while employers cannot require employees to forgo a day of rest, employees remain free to choose to work all seven days in a workweek.

California’s “Day of Rest” Provisions

In the beginning (or 80 years ago), the California legislature created the Labor Code. Sections 551 and 552 codified 19th century laws—the “day of rest” provisions—that entitle all in employment to “one day’s rest therefrom in seven” and prohibit an employer to “cause his employees to work more than six days in seven.” Later, the lawmakers said, let there be a six-hour exception, and Section 556 made the day of rest provisions inapplicable “when the total hours of employment do not exceed 30 hours in any week or six hours in any day thereof.”

The Alleged Violations in Mendoza

Two former Nordstrom employees, Chris Mendoza and Megan Gordon, occasionally were asked to fill in for other employees. As a result, they sometimes worked more than six consecutive days. During those weeks, some of their shifts were six hours or less.

Though the day of rest provisions historically lacked a private right of action, Mendoza and Gordon—enabled by California’s private attorneys general statute—sued in federal district court for alleged violations of Sections 551 and 552.

The district court initially rejected the former barista and sales associates’ claims—both because they were not required to work the fill-in shifts and because they had worked some less than six hour shifts during the at-issue weeks. The plaintiffs appealed.

Interpreting the Day of Rest Provisions

Uncertain how California courts would interpret the statutes, the Ninth Circuit asked for the California Supreme Court’s assistance. The Justices addressed and resolved three questions:

  1. Is the “day of rest” calculated by the seven-day workweek, or does it apply on a rolling basis to any seven-consecutive-day period?

A day of rest is guaranteed for each seven-day, employer-established workweek, not for any “rolling” seven-day period.

In reaching this result, the Mendoza court concluded that “the Legislature intended to ensure employees … a day of rest each week, not to prevent them from ever working more than six consecutive days at any one time.” Thus, periods of more than six consecutive days of work that stretch across more than one workweek are not per se prohibited.

Of more general interest, in adopting the workweek as the framework for counting the seven days the California Supreme Court made an observation that could be welcome to employers in future cases by indicating that this interpretation would be the one most congenial to an employer’s administration of time records.

  1. Does the Section 556 exception apply so long as an employee works six hours or less on at least one day of the applicable workweek, or does it apply only when an employee works no more than six hours on each and every day of the workweek?

The “six hour” exception applies only when an employee works no more than 30 hours in the workweek and no more than six hours on each day of the workweek.

  1. What does it mean for an employer to “cause” an employee to go without a day of rest?

“[A]n employer’s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right.” The Court explained that an employer is not liable simply because an employee chooses to work a seventh day; rather, an employer “causes” an employee to go without a day of rest when it induces the employee to forgo an entitled day of rest. In other words, employers cannot coerce employees to forgo a day of rest, but they will not face liability if an employee, who is aware of the rest-day requirements, nonetheless chooses to work seven days in a row.

Again, employers likely appreciate the Justices’ rejection of the plaintiffs’ ambitious argument that the Labor Code should always be interpreted in such a way as to maximize liability. The Court recognized that an expansive interpretation is improper when the legislative intent indicates a narrower reading of the statute.

Moreover, the decision does protect employees and their right to choose. So on the seventh day, let them rest—or work. It’s up to them.

Lessons Learned for Employers 

Employers nonetheless should review their scheduling practices to assess whether employees (exempt and non-exempt) work all seven days in any employer-defined workweek. Employers should also ensure that their employment policies notify employees of their right to a “day of rest” so they can establish that an employee made an informed decision to forgo a day of rest. Finally, employers should consider obtaining a written waiver from an employee before agreeing to allow the employee to forgo a day of rest in a given workweek.

iStock-649373572Authored by Katherine M. Smallwood

Seyfarth Synopsis: On May 8, 2017, Governor Nathan Deal signed a law expanding the reach of a pre-existing statute that prohibits Georgia localities from passing ordinances affecting worker pay in Georgia. The amendment is in line with a trend of states’ laws proactively limiting counties’ and cities’ abilities to promulgate ordinances that exceed worker protections that state and federal laws provide.

House Bill 243, authored by Representative Bill Werkheiser (R – Glennville), amends the Georgia Minimum Wage Law to preempt any local government rules requiring additional pay to employees based on schedule changes. The Georgia Minimum Wage Law already prohibited local governments, such as counties, municipal corporations, and consolidated governments, from adopting mandates requiring an employer to pay any employee a wage rate or provide employment benefits not otherwise required under state or federal law.

Prior to the adoption of House Bill 243, the Georgia Minimum Wage Law defined “employment benefits” to mean “anything of value that an employee may receive from an employer in addition to wages and salary,” including but not limited to, “any health benefits; disability benefits; death benefits; group accidental death and dismemberment benefits; paid days off for holidays, sick leave, vacation, and personal necessity; retirement benefits; and profit-sharing benefits.” House Bill 243 amends the definition of “employment benefits” to include “additional pay based on schedule changes.”

According to the National Federation of Independent Business, House Bill 243 benefits employers by protecting them from predictive scheduling requirements, which are intended to require employers to set employees’ work schedules in advance and pay an employee for lost or adjusted time if the schedule changes after the employer initially sets it. Proponents of the Bill argued that members of the food, service, and retail industries rely heavily on scheduling flexibility to serve their customers, and that these business realities justified the Bill’s protection from predictive scheduling requirements that localities might promulgate if it were not passed into law.

The Georgia Minimum Wage Law and this new amendment to it are part of the larger wave of so-called preemption bills, which seek to preclude localities from enacting ordinances that impose additional obligations on employers operating within their boundaries. Numerous states, including South Carolina, Minnesota, Tennessee, Missouri, and Arkansas, have either passed or considered similar preemption laws. While the laws in these several states (each of which is generally perceived to be business-friendly) should provide some solace to employers on the lookout for business-impacting local laws, they also highlight the need for caution in states whose legislatures are less willing to restrict cities’ and counties’ from passing worker protection laws.

Co-authored by Julie Yap and Michael Cross

Seyfarth Synopsis:  The California Court of Appeal affirmed a denial of class certification on the ground that the plaintiff’s expert report failed to establish claims could be determined on common evidence. The ruling highlights that trial courts are permitted to weigh conflicting evidence related to whether common or individual issues predominate. While expert reports often inform merits questions relating to damages, when those reports are the main source of support for certification, they equally inform issues of liability.

Plaintiff, a former Oracle technical analyst, filed suit alleging that Oracle’s employment practices violated various state wage and hour laws and constituted unfair business practices. Plaintiff’s case, both in the trial and appellate courts, turned largely on the reliability of his expert’s report.

Plaintiff’s expert’s opinion was based on a comparison of Oracle’s (1) payroll records, (2) internal time records, and (3) time cards. In comparing those data sets, Plaintiff’s expert purported to find a discrepancy between the number of overtime hours technical analysts worked and the number of overtime hours for which Oracle had paid them. In addition, by reviewing the time cards, the expert purported to uncover that many analysts took shortened or late meal breaks, or missed them altogether. Plaintiff moved to certify a class relying on a handful of putative class member declarations, but, in large part, through reference to a concurrently-filed expert report, arguing that his claims were subject to common proof through the expert’s comparison and analysis of Oracle’s records.

Oracle opposed Plaintiff’s motion to certify, relying on its own expert’s report and 42 declarations, 22 of which were from putative class members. Oracle’s rebuttal expert identified significant flaws in the methodology and care used by the Plaintiff’s expert. Among other flaws, Plaintiff’s expert included on-call, non-worked, and sick time in his time card numbers, which created significant discrepancies between the purported time worked and the time paid. In addition, the Plaintiff’s expert misread Oracle’s spreadsheets and ignored a $21 million overtime payment that Oracle had made. Finally, the expert made a number of assumptions about the data he analyzed, but failed to disclose those assumptions in his report.

The Trial Court’s Denies Certification

In denying Plaintiff’s motion for certification, the Court concluded that Plaintiff’s expert report was unreliable based largely on the reasons set forth in Oracle’s opposition. Specifically, the court found that because Plaintiff relied on his expert’s report to establish that three of his claims could be determined by common proof, and because that report was unreliable, he could not establish commonality for those claims.

The Appellate Court Affirms The Denial of Certification

Plaintiff appealed the trial court ruling on two main grounds. He first argued that whether or not his expert’s calculations were accurate should not have been considered on his motion for certification. Accuracy of expert reports, he argued, is a merits question. Second, Plaintiff argued that the trial court improperly weighed the competing declarations submitted by the parties.

In evaluating the first question, the Court of Appeal noted that whether or not common issues predominate over individual ones is often closely tied to the ultimate merits of a claim. But the Court did not stop there. The Court rejected Plaintiff’s argument that Plaintiff’s expert’s opinion went only to the merits of alleged damaged in the case, holding that when a party’s expert report serves as its sole support for establishing that common questions predominate, the party has transformed that report into evidence of liability, not damages. As the Court explained:

Plaintiff’s only evidence that uncompensated overtime and missed, late, or short meal breaks could be established classwide with common proof was [his expert’s] declaration and his comparison of [two of Oracle’s] databases. The issue here is whether Plaintiff can establish that class members worked overtime for which they were not paid or had late, short, or missed meal breaks on a classwide basis, and this is a question of entitlement to damages, not damages themselves.

The Court also found it was within the lower court’s discretion to weigh competing declarations from the parties in order to determine whether the requirements for class certification were satisfied, and that doing so was not an improper evaluation of the merits.

Employers defending against class certification motions that rely on expert opinions to establish liability can, and should, offer contrary evidence, and make clear to the court that they are arguing certification and liability issues, not simply damages issues.

sleeping on the jobCo-authored by Gena B. Usenheimer & Meredith-Anne Berger

Seyfarth Synopsis: A New York appeals court held that home healthcare employees who work overnight shifts are entitled to pay for all hours in a client’s home in a 24-hour period—including sleep and meal periods. The previously accepted interpretation of New York law allowed employers to pay 13 hours for a 24-hour shift so long as specified meal and sleep periods were provided.

Home healthcare agencies may be losing sleep over a recent decision regarding pay for employees working overnight shifts. In Tokhtaman v. Human Care, LLC, the New York State Supreme Court, Appellate Division, First Department (Manhattan and the Bronx), held that a home healthcare employee who was not a residential employee, that is, one “who lives on the premises of the employer,” must be paid for all hours present at a client’s home, including time spent sleeping or on meal periods.

The ruling departs from how New York home healthcare employees had been paid in recent years.

New York Department of Labor regulations provide that minimum wage must be paid for each hour an employee is “required to be available for work at a place prescribed by the employer” except that a “residential employee — one who lives on the premises of the employer” need not be paid “during his or her normal sleeping hours solely because he is required to be on call” or “at any other time when he or she is free to leave the place of employment.”

Though the regulation is silent as to non-residential home healthcare employees working shifts of 24-hours or longer, courts and employers alike previously relied on a 2010 Opinion Letter that offered some relief from this onerous requirement. In particular, the 2010 Opinion Letter instructed that “live-in employees”—whether residential employees or not—could be paid only for 13 hours for a 24-hour shift if the employee was afforded 3 hours for meals, afforded at least 8 hours for sleep, and actually received 5 hours of uninterrupted sleep. In reliance on the 2010 guidance, and parallel federal regulations, employers of home healthcare employees have been paying employees for 13 hours out of a 24-hour shift, rather than for all 24 hours, provided the required meal and sleep periods have been given.

But Tokhtaman said that the 2010 Opinion Letter conflicts with the regulations. Because the letter “fails to distinguish between ‘residential’ and ‘nonresidential’ employees,” the court declined to follow its guidance. Rather, the court applied a strict reading of the regulations and rejected Human Care’s argument that appropriate meal and sleep periods need not be compensated.

Another case to watch on this issue is Andryeyeva v. New York Home Attendant Agency. The trial court in that case certified a class of overnight, non-residential home healthcare workers, rejecting the proposition that as a matter of law, sleep and meal hours may be excluded from the hourly wages of a home attendant who does not reside in the home of his or her client. The decision is currently being appealed. Depending on the outcome of Andryeyeva, this issue may be taken up to the New York Court of Appeals, New York State’s highest court, in the near future for a definitive decision.

We will continue to track these cases as they move through the courts. Stay tuned for the latest developments.

Co-authored by Rachel M. Hoffer and John Phillips

Seyfarth Synopsis: Vampire Weekend crassly and rhetorically asked us, “Who gives a f*** about an Oxford comma?” As it turns out, lots of people: First Circuit judges, dairy farmers in Maine, truck drivers, your authors—the list goes on.

And when lists go on—as a Maine dairy company recently learned the hard way in O’Connor v. Oakhurst Dairy—that little comma between the last item and the next-to-last item goes a long way in avoiding any ambiguity. In that case, a group of dairy delivery drivers sued Oakhurst, claiming the company failed to pay them overtime under Maine’s wage and hour laws.

Oakhurst argued that dairy delivery drivers are overtime-exempt under Maine’s “Exemption F.” Under Exemption F, Maine’s overtime law does not apply to:

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.

Now, we can all agree that dairy products are “perishable foods,” and the parties agreed that the drivers were not involved in canning, processing, preserving, freezing, drying, marketing, storing, or packing any food. The case came down to whether the drivers engaged in “packing for shipment or distribution.”

The drivers argued that this phrase refers to a single activity of “packing,” whether the packing be for shipment or for distribution. As they did not pack food, the drivers reasoned, Exemption F did not apply to them. Oakhurst argued that the phrase actually refers to two different activities: “packing for shipment” and “distribution.” As the drivers clearly engaged in the distribution of food, Exemption F did apply to them.

The district court didn’t need a comma between “packing for shipment” and “or distribution” to be convinced that “packing for shipment” and “distribution” are each stand-alone exempt activities under the statute; it granted summary judgment in favor of Oakhurst. On appeal, the dairy company found a much tougher customer in the First Circuit.

The First Circuit set out to determine for itself what the contested phrase means. Because Maine’s high court had not interpreted Exemption F, the court looked to the plain language of the statute. Here, the court had an udder field day, parsing the language of the statute and applying rules of statutory construction. But, for want of an Oxford comma, the First Circuit found the statute ambiguous, no matter what rules or conventions it applied:

  • The Rule Against Surplusage: a court should give independent meaning to each word in a statute and treat no word as unnecessary. Oakhurst argued that “shipment” and “distribution” mean the same thing, so the Maine legislature could not have meant both to modify “packing.” The First Circuit disagreed, noting that Maine includes both “distribution” and “shipment” together in other lists in its statutes and finding that the words do not necessarily mean the same thing. Conclusion? Still ambiguous.
  • The Parallel Usage Convention: “every element of a parallel series must be a functional match of the others (word, phrase, clause, sentence) and serve the same grammatical function in the sentence (g., noun, verb, adjective, adverb.).” The drivers pointed out that every activity in Exemption F is a gerund—“canning,” “processing,” “preserving,” “packing,” etc.—but that both “shipment” and “distribution” are not. If the words “shipment” and “distribution” are read as the object of the preposition “for,” i.e., “packing for shipment” and “packing for distribution,” the statute doesn’t violate the convention—and “packing for shipment” and “distribution” do not constitute stand-alone exempt activity under the statute. But if “packing for shipment” and “distribution” are read as stand-alone activities, then we have gerunds and non-gerunds in a parallel series, which violates the convention and is an affront to grammarians everywhere. The First Circuit seemed to agree that the drivers’ construction wasn’t as messy grammatically but stopped short of saying that the parallel usage convention resolved the ambiguity. In other words, still ambiguous.
  • Maine’s Aversion to the Serial Comma: Maine’s legislative drafting manual instructs drafters of laws and rules not to use the Oxford comma. The dairy company argued that, because of this instruction, its construction must be right; we should just read the statute as if it included the prohibited comma. But, as the drivers pointed out, the manual isn’t “dogmatic on that point,” and it provides guidance on how “to avoid the ambiguity that a missing serial comma would otherwise create.” The court agreed that the missing serial comma—if indeed there was a missing serial comma—created ambiguity, casting doubt on whether this was a case of a missing serial comma at all. So, still ambiguous.
  • The Convention of Using Conjunctions: drafters typically use a conjunction like “and” or “or” to mark off the last item in a list. Oakhurst emphasized that there is no conjunction before “packing” in Exemption F, but there is a conjunction before “distribution.” While the First Circuit considered this “Oakhurst’s strongest textual rejoinder,” that wasn’t the final word on matter. The drivers fought back with asyndeton—a technique in which drafters make a list without using conjunctions, citing zero examples of Maine drafters using this technique—and Latin—specifically, the noscitur a sociis canon, which requires giving words grouped in a list “related meaning.” Like a glass of skim milk, the court found the drivers’ response “hardly fully satisfying,” but it was enough to keep their case alive. Yep. Still ambiguous.

With all this textual ambiguity, and “no comma in place to break the tie,” the First Circuit turned to the legislative history and statutory purpose to guide its interpretation of the statute. After churning out another five or so pages of analysis, the court concluded that these too were unhelpful in resolving the ambiguity.

Finding no other way to resolve the ambiguity, the First Circuit reverted to the default rule of construction under Maine law for ambiguous wage and hour laws: liberally construe the statute to further the purpose for which it was enacted. In other words, the court accepted the drivers’ narrower construction of the exemption and reversed the district court’s summary-judgment ruling.

Now, maybe you’re not an employer in a perishable food industry in Maine; chances are, you aren’t. But courts also narrowly construe the FLSA’s exemptions against employers. For that and other reasons, its always a good idea to periodically review whether the employees you’ve classified as exempt truly qualify for an exemption. Otherwise, like Oakhurst, you may find yourself crying over spilled milk.

Authored by Simon L. Yang

Seyfarth Synopsis: Sometimes, plaintiffs’ attorneys have circumvented a key aspect of the California Legislature’s intent in enacting PAGA: limiting standing to pursue penalties for Labor Code violations to those employees who were actually harmed. Though a new California bill could halt those attempts, PAGA plaintiffs’ wiliness warrants a cautionary comment to the Legislature to ensure that any amendment furthers—rather than further frustrates—the original legislative intent.

A New PAGA Bill: Employers should be optimistic that the California Legislature continues to propose bills seeking to curtail PAGA abuse. One recently introduced bill would advance three laudable goals, to close loopholes and preclude arguments that have encouraged absurd interpretations of the original PAGA statute. But the Legislature should mindfully proceed. While one proposed change is straightforward, a second creates confusion absent a quick fix, and a third requires revisiting PAGA’s legislative intent to consider what amendment would be best.

Extension of Time for Employers to Exercise Right to Cure Violations: The first part of the pending bill proposes a clearly needed fix of an oversight within the 2016 amendment. As previously noted, 2016 legislation provided the LWDA with more time to respond to PAGA letters, but failed to also extend the employer’s time to respond. The pending bill would provide employers with 65 days to cure certain Labor Code violations.

Expansion of Scope of Violations Subject to Right to Cure: The proposed bill would also broaden the availability of the right to cure. Currently, many violations are specifically excluded from the cure provisions. According to the bill, an amendment would “exclude only the health and safety violations from the right to cure provisions.” The proposed text within the bill, however, falls short and would create confusion.

A quick fix is all that would be needed, though. To achieve the declared intent, the proposed amendments within Labor Code section 2699.3(c) (providing procedures for curable violations) should be accompanied with deletion of section 2699.3(a), which currently provides procedures lacking any right to cure but applying to some of the Labor Code violations the bill intends to make curable.

Reemphasis on PAGA’s Standing Requirement: The third proposal is the most interesting. The bill’s suggested amendment would reemphasize that “an aggrieved employee may be awarded civil penalties based only upon a violation by the employer actually suffered by that employee.”

At first glance, the proposal restates a given, but it likely responds to some plaintiffs’ efforts to obliterate PAGA’s standing requirement. These plaintiffs have misled courts into believing that an employee aggrieved by one Labor Code violation can invoke PAGA to seek penalties for other violations that the employee never experienced.

That isn’t right. Even PAGA’s initial proponents, in 2003, explained that a standing requirement meant that a PAGA plaintiff could only be someone who had been subjected to the Labor Code violation for which that plaintiff sought to recover penalties:

Only Persons Who Have Actually Been Harmed May Bring An Action to Enforce The Civil Penalties. Mindful of the recent, well-publicized allegations of private plaintiff abuse of [California’s unfair competition law (the “UCL”)], the sponsors state that they have attempted to craft a private right of action that will not be subject to such abuse. Unlike the UCL, this bill would not permit private actions by persons who suffered no harm from the alleged wrongful act. Instead, private suits for Labor Code violations could be brought only by an employee or former employee of the alleged violator against whom the alleged violation was committed. This action could also include fellow employees also harmed by the alleged violation.

The legislative history is consistent throughout, and the final bill analysis preceding PAGA’s enactment maintained that PAGA plaintiffs must have suffered harm from an alleged violation. Those individuals could seek penalties on behalf of “other current or former employees against whom one or more of the alleged violations was committed.” Simply put, someone who was aggrieved by certain Labor Code violations could be a PAGA plaintiff and could sue on behalf of others who also were subject to any of those violations.

But PAGA plaintiffs argue that the enacted statute is contrary. They seize upon PAGA’s definition of an “aggrieved employee,” which they read to comingle concepts. Specifically, they argue that PAGA confers standing not only on those plaintiffs whom the Legislature intended to have standing to be a PAGA plaintiff (i.e., those “against whom the alleged violation was committed”) but also on those employees on whose behalf the PAGA plaintiff could sue (i.e., those “against whom one or more of the alleged violations was committed”).

The result is that absurd arguments abound. For example, some PAGA plaintiffs assert that a non-exempt employee who suffered an expense reimbursement violation can recover penalties on behalf of employees who have been misclassified as exempt!

Two Cents for the Legislature: The proposed amendment—a new Labor Code section 2699.4 establishing that “an aggrieved employee may be awarded civil penalties based only upon a violation by the employer actually suffered by that employee”—is a welcomed attempt to put an end to the silliness. But the proposal restates what was intended to be an evident truth.

Adding a provision to clarify original intent could be argued is unnecessary, especially since the Legislature could simply revisit the definition of an “aggrieved employee.” The definition presently can and should be read without absurdity, but PAGA plaintiffs contort statutory language to assert illogical arguments (like the ability to recover penalties as being irrelevant to standing).

In sum, enacting section 2699.4 to preclude an award of penalties for a violation that a PAGA plaintiff has not suffered merely restates the standing requirement that precludes such an award in the first instance. To the extent the Legislature finds a need to respond to PAGA plaintiffs’ tactics, enacting section 2699.4 might be unnecessarily complicated. A simple amendment to the definition of an aggrieved employee would have the same result.

N.D. CalAuthored by Eric Hill

Seyfarth Synopsis: Airline customer service representative denied pay for pre-employment 10-day classroom training program under the FLSA and California Labor Law.

The maxim “it is extremely difficult to find someone to pay you to learn” has been proven again! This must be why we, or at least most of us, eventually leave school to enter the working world.

Meanwhile, the trend in the law is clear:

  1. Where trainees are truly “learning,” as a precursor to “working,” and are the primary beneficiary of pre-employment training, there is no duty to pay them.
  2. But, where the trainee’s “on the job” training involves performing work an employee would otherwise perform (to the employer’s financial advantage), the trainee must be paid.

In a January 9, 2017 ruling, Judge Vince Chhabria of the Northern District of California held that a customer service representative for Hawaiian Airlines was not entitled to be paid during a 10-day pre-employment training program that consisted of classroom work and tours of the facilities rather than actual “on-the job” customer service training. The decision is notable for its practical, straightforward analysis regarding when trainees should be paid under federal and California law.

The Court adopted the “primary beneficiary test,” cautioned against a mechanistic application of the six Department of Labor criteria, and granted Hawaiian Airlines summary judgment. (While the lawsuit is a proposed class action, the parties opted to file cross-motions for summary judgment before litigating the class certification question.)

According to the Court, the key question was whether the airline was taking financial advantage of the trainee during the training program by using her to perform work that an employee would otherwise perform. Because the plaintiff did not perform the work of the customer service employees, the Court found no reasonable juror could conclude she was acting as an “employee” during her training course.

The Court noted the classroom instruction and touring were only precursors to performing the work of an employee. The airline did not receive any direct benefit from the training, which taught trainees about FAA regulations, the computer system, and the way the company operated. Because the airline was not using the trainees as “anything close to employees,” the plaintiff was the “primary beneficiary” of the training.

As is the trend, the Court rejected the argument that a trainee is an employee unless the employer can satisfy all six of the DOL’s criteria. Stating that the six criteria are “relevant but not conclusive,” the Court focused instead on whether the trainee or the employer was the “primary beneficiary” of the training. It warned against “mechanistically applying the six criteria,” and called the case “a good illustration” of why “just about every court” has “rejected the Department of Labor’s approach.”

The Court emphasized that the DOL’s criteria seem to be designed for true “on-the-job” training, whereas the plaintiff here was not involved in this type of training. The Court also pointed out there is no difference between the federal and California legal standards for determining whether a worker qualifies as an “employee” during training.

Despite its warnings about reliance on the six DOL criteria, the Court found that application of the criteria would lead to the same result. The criteria are:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees; and on occasion his operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent training.

This decision is not the first “training time” case to grant summary judgment to an employer under these circumstances. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that trainees will be deemed to be employees. But they do signal that, where trainees are not performing the work of the employees and are not engaging in traditional work-alongside-the-employees “on the job” training, they do not cross the line from “trainee” to “employee” and need not be paid as a matter of law.

Authored by Rachel M. Hoffer

It’s a common business model in the fast-food industry: a massive restaurant company provides the menu, the marketing—including catchy slogans and a universally recognized logo—and the basic operational standards for the restaurant,
and a franchisee provides the rest—including hiring, training, and firing restaurant employees. Unfortunately for the fast-food giants (the notorious FFGs, if you will), it’s also common for disgruntled employees to name them in lawsuits—particularly super-sized class-action lawsuits—against the franchisee.

In March 2014, three fast-food workers from Oakland did just that—they sued the family-owned company that operates 8 franchise restaurants in Northern California, and they brought the FFG along for the ride under a joint employment theory, serving up a complaint chock full of California Labor Code, Private Attorneys General Act (PAGA), and negligence claims. Last August, a federal judge in California dismissed the negligence claim on summary judgment and rejected the workers’ theory that the franchisee acted as the FFG’s actual agent. But the judge didn’t toss out the workers’ claims completely, finding the plaintiffs had presented enough evidence of ostensible agency to have their day in court with the FFG.

Determined to have it their way, right away, the plaintiffs settled their claims against the franchisee but moved to certify a class of more than 1,200 hourly workers who had worked at the franchisee’s eight restaurants. Unwilling to pick up the franchisee’s remaining tab, the FFG moved to deny class certification and to strike the representative PAGA claim. And the FFG did what Giants tend to do in San Francisco—it won. Last week, the judge found that the workers’ ostensible agency theory required too many individualized inquiries to be decided on a class basis.

Under an ostensible agency theory, the FFG is on the hook for the franchisee’s actions if the worker can prove: (1) in dealing with the franchisee, the worker reasonably believed the franchisee had the authority to act on the FFG’s behalf; (2) the worker’s belief was caused by something the FFG did or failed to do; and (3) the worker wasn’t negligent in relying on the franchisee’s apparent authority.

The workers argued that the questions of law or fact common to potential class members outweighed the questions that affected only individual members, and that a class action was the best way to fairly and efficiently decide their claims. In support of this argument, the workers asserted that the “belief” prong of the first requirement—that the potential class members believed the franchisee had the authority to act for the FFG—could be inferred from the circumstances. The judge wasn’t convinced that the law allows such an inference, nor was he convinced that the evidence supported such an inference. Instead, the evidence showed that class members received different information about the franchisee’s authority, and some actually understood that the FFG was not their employer. So, the question of belief had to be decided on an individual basis.

The judge also found that there was no way to determine, on a class basis, whether such a belief was reasonable and not negligent. Rather, what each worker knew (or should have known) varied depending on the circumstances. Some workers, for example, were told during orientation that the franchisee was their employer and the FFG was not. Some workers received and read documents informing them that the franchisee, not the FFG, was their employer; others either did not receive or did not read that paperwork. In other words, whether a belief was reasonable and not negligent depended on the information available to each worker.

Likewise, the judge found that reliance can’t be determined on a class-wide basis. The workers—pointing to out-of-context case law—argued that courts often presume reliance when there is no evidence that the plaintiff knew or should have known that the purported agent was not an agent of the principal. But even if that case law applies in the franchise context, the workers’ argument begged the question; the presumption couldn’t apply on a class-wide basis because, as the judge had already explained, the knew-or-should-have-known question couldn’t be answered on a class-wide basis. The order: individualized inquiries, all the way.

The workers also argued that the court should certify a class because they were seeking injunctive relief on a class-wide basis. But the judge didn’t see how an injunction against the FFG could help the franchisee’s employees, when he had found in his summary-judgment opinion that the FFG didn’t control the aspects of their employment at issue in the case. Simply put, where’s the beef?

The workers’ PAGA claim fared no better; the judge found that a representative PAGA action wouldn’t be manageable because it relied on the ostensible agency theory, which could only be established through individualized inquiries. So, while the three plaintiffs can still pursue their individual claims against the FFG on an ostensible agency theory, those are small fries compared to the representative claims they had hoped to bring on behalf of more than 1,200 other workers.

The take-home for the notorious FFGs who franchise independent restaurant owners, of course, is to stay out of the kitchen when it comes to the relationship between the franchisee and its employees. And, for the FFGs’ sake, franchisees should make sure employees know where their bread is buttered.

Co-authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis: In McCaster v. Darden Restaurants, the Seventh Circuit affirmed the District Court’s order denying class certification of claims for denial of earned vacation benefits at separation and granting summary judgment on part-time workers’ claims for accrual of benefits under policies that limited eligibility to full-time employees. The decision is an important one for vacation pay claims, as well as defense strategies to block class certification in wage & hour litigation.


Employers who offer vacation benefits have been subject to confusing and inconsistent rulings about eligibility requirements and accrual of benefits, along with litigation from enterprising plaintiffs’ class action lawyers seeking to take advantage of such uncertainty. On January 5, 2017, the U.S. Court of Appeals for the Seventh Circuit provided some welcome clarity when it rendered an employer-friendly decision in McCaster v. Darden Restaurants, Inc., No. 15-3258 (7th Cir. Jan. 5, 2017).

The Seventh Circuit ruled that eligibility requirements, like those limiting paid vacation benefits to full time employees, do not run afoul of “length of service” concepts that prohibit forfeiture of earned vacation benefits upon separation. Further, the Seventh Circuit set the bar for plaintiffs seeking to pursue such violations on a class-wide basis, holding that they may not do so without demonstrating an unlawful practice that spans the entire class of individuals subject to the vacation policy. As such, the Seventh Circuit’s opinion should have far-reaching implications.

Factual Background

Plaintiffs worked intermittently as hourly employees at Darden-owned restaurants for a period of time spanning roughly eight years. Id. at 2. McCaster worked primarily worked at a Red Lobster before June 1, 2008, and Clark primarily worked at an Olive Garden after June 1, 2008. Id. at 2-3.

During this time, Darden paid eligible employees vacation or “anniversary” pay when they reached the annual anniversary of their hiring date. Id. at 3. When an employee ceased working for the company, Darden included in the employee’s final paycheck the pro rata amount of anniversary pay he had earned prior to the date of separation. Id. Starting June 1, 2008, Darden limited vacation pay to full-time employees, defined as those who worked at least 30 hours per week. Id.

In this proposed class action, McCaster alleged that, prior to June 1, 2008, Darden failed to pay him accrued vacation pay when he left his job at Red Lobster, even though he had earned about 12 vacation hours in violation of the Wage Payment Collection Act (“IWPCA”). Id. Clark alleged that, after June 1, 2008, Darden failed to pay her vacation pay when she separated from employment. Id. at 3-4.

Plaintiffs moved to certify a class of “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy … and who did not receive all earned vacation pay benefits.” Id. at 4. The District Court rejected this definition because it described an improper fail-safe class. The District Court also rejected the plaintiffs’ proposed alternative definition because it failed to meet the requirements of Rule 23. Id.

Darden moved for partial summary judgment on Clark’s individual claim. Id. The company argued that Clark was not eligible for vacation pay during the relevant time period because she worked part-time. The District Court agreed and granted the motion. Id. at 5. McCaster subsequently settled his individual claim but reserved the right to appeal the denial of class certification. This appeal followed.

The Seventh Circuit’s Opinion

The Seventh Circuit affirmed the District Court’s orders denying class certification and granting summary judgment.

At the outset, the Seventh Circuit held that, because Darden’s vacation-pay policy covered only full-time employees, Clark did not qualify for benefits. Id. at 5. Clark argued that if an employer provides paid vacation to its full-time employees on a pro rata length-of-service basis, it may not deny this same benefit to its part-time employees. The Seventh Circuit rejected Clark’s argument.

The Seventh Circuit held that Clark’s interpretation had no support in the text of the IWPCA, its implementing regulations, or in Illinois cases interpreting it: “[T]he Act merely prohibits the forfeiture of accrued earned vacation pay. Whether an employee has earned paid vacation in the first place depends on the terms of the employer’s employment policy.” Id. at 6. Because Clark did not work full time, she did not accrue benefits subject to forfeiture at separation.

The Seventh Circuit further concluded that the District Court did not abuse its discretion in denying class certification. Id. at 8. The Seventh Circuit held that, under Plaintiffs’ class definition, class membership turned on whether class members had valid claims. As such, Plaintiffs defined “a classic fail-safe class,” which the District Court properly rejected. Id. at 9.

Although Plaintiffs offered an alternative definition free from fail-safe concerns, including “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy.” the Seventh Circuit held that the District Court properly rejected it for failure to satisfy the requirements of Rule 23. Id. at 10.

The Seventh Circuit concluded that Plaintiffs’ alternative class failed to satisfy the commonality requirement. Id. at 11. Whereas the proposed alternative class consisted of all separated employees from December 11, 2003, to the present, Plaintiffs failed to identify any unlawful conduct on Darden’s part that spanned the entire class and caused all class members to suffer the same injury. Plaintiffs simply argued that some separated employees did not receive all the vacation pay they were due. The Seventh Circuit noted that “[t]hat may be true, . . . But establishing those violations (if there were any) would not involve any classwide proof.” Id. at 12.

Implications For Employers

The Seventh Circuit provided welcome clarity for employers that maintain vacation policies by cutting through conflicting case law and setting the bar for class certification of supposed violations. McCaster establishes that employers may set eligibility requirements that differentiate workers and rejects the notion that part-time workers accrue vacation benefit under a policy that limits participation to full-time employees. Further, in setting a bar for certification of such cases, the Seventh Circuit made clear that the commonality requirement remains a significant threshold for plaintiffs seeking to litigate their claims on a representative basis. It rejected the notion that mere violations of a pay policy are eligible for resolution on a class basis without some evidence of a state-wide practice that caused all class members to suffer the same injury. As a result, the opinion should have far-reaching and lasting impact.