Co-authored by Alex Passantino and Kevin Young

On Tuesday, the Wage & Hour Division announced a new program for resolving violations of the FLSA without the need for litigation. The Payroll Audit Independent Determination program—or “PAID”—is intended to facilitate the efficient resolution of overtime and minimum wage claims under the FLSA. The program will be conducted for a six-month pilot period, after which time WHD will review the results and determine how best to proceed.

PAID should be welcome news for compliance-minded employers. In the vast majority of cases, FLSA claims must be resolved through litigation or under WHD’s supervision. Given the proliferation of FLSA litigation, many employers have, in recent years, conducted proactive audits with legal counsel to ensure compliance with the Act. Oftentimes, employers who identified past issues through those efforts were reluctant to approach an enforcement-happy WHD to request supervision of back wage payments due to concern that doing so would trigger litigation. Employers were stuck between a rock and a hard place.

By providing a mechanism for proactively resolving wage-hour issues without the need for litigation, the PAID program should increase the incentive for employers to conduct formal audits of their wage-hour practices.

While we expect details on the PAID program, including an official launch date, to crystallize in the weeks to come, the WHD has already provided guidance on the contours of the program. According to WHD, an eligible employer who wishes to participate in the program must:

  • Specifically identify the potential violations,
  • Identify which employees were affected,
  • Identify the timeframes in which each employee was affected, and
  • Calculate the amount of back wages the employer believes are owed to each employee.

The employer must then contact WHD to discuss the issue(s) for which it seeks resolution. Following that discussion, WHD will inform the employer of the manner in which the employer must provide required information, including:

  • Each of the calculations described above—accompanied by evidence and explanation;
  • A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  • A certification that the employer reviewed all of the information, terms, and compliance assistance materials;
  • A certification that the employer is not litigating the compensation practices at issue in court, arbitration, or otherwise, and likewise has not received any communications from an employee’s representative or counsel expressing interest in litigating or settling the same issues; and
  • A certification that the employer will adjust its practices to avoid the same potential violations in the future.

At the conclusion of the process, the employer must make back wage payments. That process may look similar to the end of a WHD investigation in which violations are found. If an employee accepts the back wages, she will waive her rights to a private cause of action under the FLSA for the identified issues and timeframe. An employee who chooses not to accept the back wages will not be impacted.

We will share more as additional information becomes available. If you have any questions about the PAID program, the planning or execution of a proactive wage-hour audit, or any related issues, please do not hesitate to contact us.

Authored by Robert Whitman

Seyfarth Synopsis: The Second Circuit has upheld summary judgment against magazine interns seeking payment as “employees” under the FLSA.

In an end-of-semester decision that may represent the final grade for unpaid interns seeking minimum wage and overtime pay under the FLSA, the Second Circuit has firmly rejected claims by Hearst magazine interns challenging their unpaid status.

The interns served on an unpaid basis for various magazines published by Hearst Corporation, either during college or for a few months between college and graduate school. They sued, claiming they were employees because they provided work of value to Hearst and received little professional benefit in return.

Following discovery, District Judge J. Paul Oetken rejected the interns’ claim of employee status and granted summary judgment to Hearst. On appeal, the Second Circuit framed the question succinctly: “whether Hearst furnishes bona fide for‐credit internships or whether it exploits student‐interns to avoid hiring and compensating entry‐level employees.” If the former were true, the interns would be deemed trainees, who could permissibly be unpaid; if the latter were true, the interns would be entitled to minimum wage and overtime pay.

In support of their appeal, the interns argued that many of the tasks they performed were “menial and repetitive,” that they received “little formal training,” and that they “mastered their tasks within a couple weeks, but did the same work for the duration of the internship.” These points, they contended, outweighed their receipt of college credit and other indicia of an academic flavor to their experience.

The appeals court, in Wang v. Hearst Corp., appeared to have little trouble upholding the grant of summary judgment in favor of Hearst. Applying its test for assessing whether interns are employees or trainees, the court held that the factual record favored non-employee status on six of the seven pertinent factors, enough to sustain the judgment in the company’s favor.

Those seven factors, as loyal blog readers will recall from prior posts, first appeared in the court’s 2016 decision in Glatt v. Fox Searchlight, in which the court held that the “primary beneficiary” test governed whether interns were considered employees or trainees. The Glatt court rejected the Department of Labor’s multi-factor test and devised its own:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions;
  3. The extent to which the internship is tied to the internʹs formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the internʹs academic commitments by corresponding to the academic calendar;
  5. The extent to which the internshipʹs duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the internʹs work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern;
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The factors are non-exhaustive, and as the Second Circuit reiterated in the current case, need not all point in the same direction to support a conclusion of non-employee status.

The “heart of the dispute on appeal” was factor two — whether the interns received “training that would be similar to that which would be given in an educational environment.” The plaintiffs argued that, in order for this factor to weigh in favor of non-employee status, the internships would have to provide “education that resembles university pedagogy to the exclusion of tasks that apply specific skills to the professional environment.”

The court was not convinced. It recognized that the Hearst internships varied in many respects from classroom learning. But as it had said earlier in Glatt, this was precisely the point. “The [plaintiffs’] tacit assumption is that professions, trades, and arts are or should be just like school; but many useful internships are designed to correct that impression…. [P]ractical skill may entail practice, and an intern gains familiarity with an industry by day to day professional experience.”

Perhaps the most significant part of the ruling comes at the end, where the court discusses the propriety of summary judgment. The interns, and various amici curiae (unions, advocacy groups, and professors) who advocated on their behalf, argued strenuously that various “mixed inferences” on the seven internship factors precluded a grant of summary judgment. While acknowledging that application of the factors required some weighing of evidence, the court nonetheless said this did not mean the case required a trial.

“Status as an ‘employee’ for the purposes of the FLSA is a matter of law,” the court said, “and under our summary judgment standard, a district court can strike a balance on the totality of the circumstances to rule for one side or the other.” It continued: “Many of our FLSA tests that are fact‐sensitive and require the judge to assign weight are routinely disposed of on summary judgment [citing cases]. The amici contend that summary judgment is inapposite in all unpaid intern cases that turn on competing factors. Such a rule would foreclose weighing of undisputed facts in this commonplace fashion.”

In many ways, the Wang decision may be the epilogue to a textbook that has already been written. After the Glatt decision in 2016, the number of lawsuits filed by interns seeking unpaid compensation dropped precipitously. That may have been due to Glatt’s highly-employer-friendly resolution, both as to the merits of the employee-or-intern question and its pronouncements on the high threshold for collective/class certification on the question. Or perhaps it was due to the decisions by employers, reacting to the onslaught of intern lawsuits seeking pay under the FLSA and state law, to curtail or limit their internship programs or to pay interns compensation at or above minimum wage. Whatever the reason, the Wang decision cannot be heartening for plaintiffs’ lawyers, and the days of widespread lawsuits by interns are likely over.

Still, companies who remain interested in sponsoring unpaid interns should not get complacent. Paying minimum wage, of course, remains a fail proof antidote to the possibility of FLSA claims by these individuals. But if that is not an option, companies should take care to ensure that their programs have primarily educational aims and coordinate wherever possible with the interns’ educational institutions to ensure they meet the factors articulated by the court. Otherwise, the interns may be the ones teaching them a lesson.

Authored By Robert Whitman

Seyfarth Synopsis: The Second Circuit will soon decide key issues for FLSA practitioners: whether settlements pursuant to an Offer of Judgment are subject to court review and approval, and whether the standards for final collective certification of FLSA claims are different from those for class certification of state law wage claims under Rule 23.

Two cases now before the Second Circuit, one involving a small Japanese restaurant, the other involving Mexican fast-casual chain Chipotle, offer the court the opportunity to experience the gustatory pleasures of two prime cuts of FLSA procedural law: enforceability of settlements and the standards for collective certification. It is a veritable feast for wage and hour geeks in the New York metropolitan area and beyond.

In Yu v. Hasaki, the court on October 23 accepted for interlocutory review the question of whether a district court must approve the settlement of FLSA claims when the settlement is procured through an Offer of Judgment under FRCP 68.

Yu involves FLSA and New York Labor Law claims by a sushi chef. To settle the case, the defendants made an offer of judgment, which the plaintiff accepted. After the parties advised the court, Judge Jesse Furman ordered them to submit their agreement for his approval, along with letters explaining why the settlement is fair and reasonable. The defendants objected, arguing that, under Rule 68, court approval of an accepted offer of judgment is mandatory, leaving no role for the judge in reviewing the agreement’s terms. They based their argument on the language in Rule 68 that, if a plaintiff accepts an offer, the clerk “must then enter judgment.”

In effect, the defendants contended that Rule 68 creates an exception to the Second Circuit’s decision in Cheeks v. Freeport Pancake House, in which the court held that judicial approval of settlement terms is mandatory for dismissal of FLSA claims with prejudice and that many otherwise-customary settlement provisions, such as confidentiality and general releases, are not permissible. The U.S. Department of Labor weighed in as an amicus curiae, arguing that judicial approval is required, even when the settlement arises out of an accepted Rule 68 offer.

Judge Furman agreed, holding that the concerns articulated in Cheeks apply equally under Rule 68 as they do in standard FLSA settlements. But because other district judges had held differently, he certified his order for interlocutory appeal under 28 U.S.C. § 1292(b), holding, among other things, that there was a substantial basis for disagreement on the issue. The Second Circuit accepted the case for review, stating that the decision “clearly merits interlocutory review under section 1292(b), as Judge Furman sensibly recognized.”

In Scott v. Chipotle, the appeals court is considering whether to address an issue that has long vexed FLSA litigators: whether the standard for final collective action certification under 29 U.S.C. § 216(b) differs from the standard for class certification under Rule 23.

The plaintiffs in Scott are apprentices – managerial trainees – at Chipotle restaurants in several states. They sued under the FLSA and state law, claiming they were misclassified as exempt managers because they spent most of their time filling orders and operating cash registers. District Judge Andrew Carter granted conditional FLSA certification, and 516 employees opted in. But after discovery, the court refused to grant final FLSA certification, and likewise denied Rule 23 class certification of the state law claims, holding that the responsibilities of the seven named plaintiffs did not match those of the putative class or collective.

The plaintiffs appealed the state law class certification decision as of right under Rule 23(f). They also sought permission from Judge Carter to take an interlocutory appeal of his FLSA final certification ruling, contending that the court’s twin rulings highlighted a “rift” between the certification standards for FLSA and non-FLSA wage and hour claims that the Second Circuit could resolve. While disagreeing with the plaintiffs’ argument, Judge Carter nonetheless observed that they had indeed “point[ed] to controlling questions of law which may have substantial grounds for a difference of opinion,” and granted permission.

It is now up to the Second Circuit whether to allow the interlocutory appeal. If it takes the case, it will have the opportunity to issue a combined opinion, addressing both Rule 23 and section 216(b), that clarifies the standards for final certification under both regimes.

Whether one’s preferences run to wasabi or jalapeno, these cases are sure to satisfy even the hungriest of wage and hour lawyers.

 

Authored by Cheryl Luce

Employers often grapple with what to do when their policies prohibit off-duty work, like working on mobile devices after hours, that employees don’t follow. Even if it has a policy prohibiting off-duty work, if the employer knows (or should know) an employees is working, the employer must compensate the employee for the off-duty work. The same can be said if an employer has a policy requiring employees to report all off-duty time worked but knows (or should know) that employees are not reporting it. As the regulations put it, employers cannot “sit back and accept” work without compensating it, even though the employer has rules against it. 29 C.F.R. § 785.13.

But what about when the employer knows that employees are working off-duty, but does not know that employees aren’t reporting their time? Does the requirement that an employer must exercise “reasonable diligence” to unearth unreported work mean the employer has a responsibility to check what it knows of employees’ off-duty work against the time they report? Earlier this month, the Seventh Circuit agreed that the FLSA’s “suffer or permit to work” standard does not go so far.

In Allen v. City of Chicago, police officers at the Chicago Police Department’s Bureau of Organized Crime claimed that they were owed overtime pay for off-duty work on their BlackBerrys, even though they failed to report the overtime using the police department’s time slip reporting system. The trial court concluded that the Bureau supervisors knew the officers sometimes worked off-duty on their BlackBerrys, but they did not know or have reason to know that the officers were not submitting time slips for such work. Affirming the judgment in favor of the police department, the Seventh Circuit held that the trial court reasonably concluded that requiring the police department to check what they knew of the officers’ off-duty work against officers’ time slips they approved would be “extremely impractical.”

The Allen police officers also contended that the police department discouraged them from seeking overtime payment for off-duty BlackBerry work, which stopped them from submitting time slips for the work. Neither the trial court nor the Seventh Circuit were moved by the evidence in support of this argument. No supervisor ever told plaintiffs not to submit time slips for BlackBerry work, and no officer was disciplined for submitting such time slips. The plaintiffs’ de facto policy theory failed.

This case serves as a reminder that employers are only required to pay for off-duty work that they know or should have known was performed—not what they could have known was performed. Assuming it has no reason to believe an employee who sometimes works off hours is working off the clock, an employer in the Seventh Circuit is generally not required to cross-check the employee’s timecards to make sure they are reporting all time worked.

Authored by Alex Passantino

Seyfarth Synopsis: On July 26, 2017, the U.S. Department of Labor will publish its anticipated Request for Information on the White-Collar Overtime Exemption in the Federal Register. The RFI will give the regulated community 60 days to provide its comments in response.

The RFI seeks input on a wide variety of topics, many of which involve issues that have been raised since the Department published its final rule increasing the salary level over a year ago. With the salary level on hold, the Department has the opportunity to revisit the level–or at least to take the temperature of the regulated community.

The issues on which the Department seeks comment are:

  • Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
  • Would duties test changes be necessary if the increase was based on inflation?
  • Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
  • Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
  • Is the appropriate salary level based on the pre-2004 short test, the pre-2004 long test, or something different? Regardless of answer, would changes to the duties test be necessary to properly “line up” the exemption with the salary level?
  • Was the salary level set in 2016 so high as to effectively supplant the duties test? At what level does that happen?
  • What was the impact of the 2016 rule? Did employers make changes in anticipation of the rule? Were there salary increases, hourly rate changes, reductions in schedule, changes in policy?  Did the injunction change that? Did employers revert back when the injunction was issued?
  • Would a duties-only test be preferable to the current model?
  • Were there specific industries/positions impacted? Which ones?
  • What about the 2016 provision that would permit up to 10% of the salary level to be satisfied with bonuses? Should the Department keep that? Is 10% the right amount?
  • Should the highly compensated employee exemption salary level be indexed/how? Should it differ based on locality/employer size?
  • Should the salary levels be automatically updated? If so, how?

Of course, the value of these responses ultimately is dependent on the Fifth Circuit’s decision on whether the salary test is permissible to begin with. Should the Fifth Circuit rule in the Department’s favor on that issue, the RFI responses will provide the Department with the information it needs to proceed on a new rulemaking adjusting the salary level…assuming the employer community responds.

For additional information on how to respond to the RFI, please contact OTRuleHelp@seyfarth.com or Alex Passantino at apassantino@seyfarth.com. We’ll continue to update you as additional information becomes available.

Authored by Holger G. Besch 

Perhaps signaling the importance of the issue for American businesses and jurisprudence, the U.S. Supreme Court‎ chose the first day of its term beginning in October as the date to set oral arguments in three petitions for certiorari asking whether employees can be required to waive their rights via arbitration agreements to file class and collective actions against their employers. The arguments in Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis; and NLRB v. Murphy Oil USA Inc., will all be heard on October 2nd, so mark your calendars.

The cases before the Supreme Court originated either before the National Labor Relations Board, which had ruled that such agreements violate workers’ rights under the National Labor Relations Act to take collective action to ameliorate their working conditions, or with district courts that had used the NLRB’s ruling to reject employers’ motions to compel bilateral arbitration of putative collective and class actions.

SCOTUS will be resolving the resulting Circuit split, in which the Ninth and Seventh Circuits backed the NLRB’s position when they ruled against Ernst & Young and Epic Systems, respectively, and the Fifth Circuit ruled in favor of Murphy Oil. Opening briefs are already on file and address, at bottom, whether the Federal Arbitration Act or the NLRA should take precedence.

Co-authored by Noah Finkel and Andrew Scroggins

Employers have faced questions about the enforceability of arbitration agreements with class and collective action waivers since the NLRB’s highly controversial D.R. Horton decision in 2012, which held that the waivers violate employees’ right to engage in protected concerted activity. The Fifth Circuit refused to enforce the decision, and other courts followed, but the NLRB refused to change course. In 2016, the Seventh and Ninth Circuits also adopted the NLRB’s view, as has the Sixth Circuit in 2017.

In January 2017, the U.S. Supreme Court agreed to hear the issue, consolidating cases from the Fifth, Seventh, and Ninth Circuits. Oral argument is scheduled to take place during its Fall 2017 term.

The tea leaves at the Supreme Court give many reason to believe that the NLRB’s position will be struck down. Newly-appointed Justice Neal Gorsuch is considered by many observers to be likely to follow the pro-arbitration stance of his predecessor, Justice Scalia. The Office of the Solicitor General recently reversed its position, filing an amicus brief in support of the employers that details the flaws it sees in the NLRB’s position and leaving the NLRB on its own to argue the case before the Court. And the appointment of new Board members and the end of the NLRB General Counsel Richard Griffin’s term in November 2017 raise the possibility the agency may revisit its position, thus eliminating any argument that courts should defer to the NLRB’s current position on the legality of class waivers.

Some, from both sides of the bar, speculate that if the Supreme Court rejects the D.R. Horton theory nearly all well-advised employers seeking to minimize their risks will adopt mandatory arbitration programs with class waivers, and that wage-hour litigation as we know it will be over. That hope/fear, however, may be overstated.

This post is the first of several that will consider what the future may hold if employers find themselves confident that they will be able to issue enforceable, mandatory arbitration programs containing class and collective waivers. To what extent will the wage-hour class and collective action landscape change?

A recent Sixth Circuit decision, Taylor v. Pilot Corporation, et al., provides a glimpse into one part of the future. The employer had in place an arbitration agreement with a collective action waiver that applied to most, but not all, of its 50,000 hourly employees. One of the employees who was not bound by the agreement filed an FLSA collective action alleging that she had not been paid for all of her overtime hours. She asked the court to authorize sending notice of conditional certification to those “similarly situated” to her, which she contended included all 50,000 hourly employees.

The employer protested that the plaintiff was not similarly situated to the tens of thousands of employees bound by the arbitration agreement. After all, even if those employees opted in to the suit, the court would lack subject matter jurisdiction, and their claims would be dismissed and sent to arbitration. The district court disagreed, reasoning that it would determine whether the arbitration agreements were enforceable only after learning who had opted-in to the litigation. Notice to all 50,000 hourly employees was approved. The decision was affirmed on appeal, with the Sixth Circuit concluding it did not have jurisdiction to consider questions about the enforceability of the arbitration agreement at this stage.

The decision illustrates how even carefully prepared arbitration agreements can have unintended consequences if not carefully rolled out. Suppose that notice to 50,000 employees results in just 1,000 opt-in plaintiffs, and all of them have signed enforceable arbitration agreements with a collective action waiver. While those employees ultimately may not be able to participate in the collective action for which they received notice, they nonetheless have now been in touch with a lawyer or group of lawyers who can file individual arbitration demands on behalf of all 1,000 employees who had filed consents to join the lawsuit for which they received a collective action notice after conditional certification.

And it gets worse. Consider that most third-party arbitration services require that the employer pay an initial fee when the employee’s claim is filed. The American Arbitration Association, for example, imposes a non-refundable fee of at least $1,500 on the employer for cases filed by an employee. Continuing with the example from above, the employer could be hit with $1,500,000 in costs just as the price to play. Costs begin to rise exponentially when it comes time to mount a defense and arbitrator and hearing fees begin.

In other words, employers should not expect that a Supreme Court endorsement of arbitration agreements with class and collective action waivers will act as a complete bar to collective claims. After all, to adopt a famous movie phrase, plaintiffs’ lawyers “find a way.” The Taylor decision shows the potential power of finding the “unicorn” plaintiff who is not bound by the same agreement as her co-workers, and shows that employers will have to ensure that each and every one of their employees will have to be bound by an arbitration program to maximize a class waiver’s protection. But even then, the unicorn for a plaintiff’s lawyer may merely be someone who had been employed by the defendant-employer within the last three years (the longest of the FLSA’s potential limitations periods), but whose employment had ended before the arbitration program had been enacted. Other novel workarounds are sure to arise if new rules about arbitration force plaintiffs to get more creative.

Supreme-Court-seaslCo-authored by Kara Goodwin and Noah Finkel

Pending before the United States Supreme Court is a petition for writ of certiorari asking the Court to determine whether an employer may use payments for bona fide meal periods as an offset/credit against compensable work time. If the Supreme Court accepts the case, it would also provide an excellent opportunity for the Court to address repeat questions regarding the level of deference owed to statutory interpretations by agencies advanced for the first time in litigation and whether pay practices not expressly prohibited by the FLSA are permissible.

Case Background and Circuit Split

In Smiley v. E.I. DuPont De Nemours & Company, the plaintiffs filed an FLSA collective action seeking compensation for unpaid time spent donning and doffing uniforms and safety gear and performing other activities before and after shifts. This unpaid time averaged approximately 30 to 60 minutes per day. The plaintiffs worked 12-hour shifts and were paid for three 30-minute breaks per shift. The company counted the paid break time as hours worked for overtime purposes, even though the FLSA did not require it to do so, and included the payments in the calculation of the employees’ regular rate of pay. The paid break time always exceeded the amount of unpaid pre-shift and post-shift off-the-clock work (i.e., it was undisputed that the plaintiffs were paid for more hours than they actually worked—the employees had a total of 11 to 11.5 hours worked per day, including pre- and post-shift activities and excluding the paid break time, and were paid for 12 hours worked per day). The district court held that the employer could “completely offset the plaintiffs’ unpaid donning and doffing and shift relief activities with plaintiffs’ paid meal periods,” and granted summary judgment for the employer.

On appeal, the Third Circuit rejected the offset argument and overturned the dismissal. Giving deference to an amicus curiae brief submitted by the DOL, the Third Circuit held that the company’s pay practice violated the FLSA because “[n]othing in the FLSA authorizes the type of offsetting [the company] advances here.”  Although acknowledging that the FLSA is silent and does not “expressly prohibit offsetting,” the Third Circuit nonetheless determined that the company’s pay practice was contrary to the goals and broad remedial purpose of the FLSA.

The Third Circuit’s decision conflicts with decisions by the Seventh Circuit Barefield v. Village of Winnetka and the Eleventh Circuit in Avery v. City of Talladega, which both upheld the use of compensation paid for non-work time as a credit against overtime compensation owed for pre- and post-shift work time. More specifically, in Barefield, the employer required its employees to attend a 15-minute roll call before the scheduled start of their shifts but also paid employees for a 30-minute bona fide meal break each day. The Seventh Circuit held that “the meal periods are not compensable [hours worked] under the FLSA and [defendant] may properly offset the meal break against the compensable roll call time worked by plaintiffs.”

Similarly, in Avery, the Eleventh Circuit held that an offset/credit is appropriate when an employer pays for bona fide meal breaks under the FLSA: “If the meal break is not compensable time under the FLSA, then the [employer] should be allowed to offset the amount it pays for the meal break against any amount it owes the plaintiffs for pre- and post-shift time at work.” Thus, under the current state of the law, an employer who compensates employees for bona fide meal breaks (even though the FLSA does not require it) may properly offset that meal break against alleged off-the-clock work for an employee who works in Illinois or Florida, but the same pay practice, if used for an employee in New Jersey, would violate the FLSA. The Supreme Court has been asked to resolve this Circuit split to “restore uniformity to this important area of federal law.”

Other Important Questions To Be Resolved

The Supreme Court also has an opportunity to resolve an important question (and one causing division among courts of appeals and federal district courts) regarding the level of deference owed to statutory interpretations by agencies advanced for the first time in litigation, such as in amicus briefs. Here, the DOL’s amicus curiae briefs were its first statement on the offset pay practice at issue—the DOL has never promulgated a regulation prohibiting the use of compensation for non-work time included in the regular rate as an offset/credit; has not issued any opinion letters, published statements of policy, or guidance on this subject; has not taken any enforcement actions with respect to this issue; and before this case, has never submitted an amicus curiae brief on this issue. Nonetheless, and even though it did not find the statute at issue to be ambiguous, the Third Circuit accorded Skidmore deference to the DOL’s position that the employer’s pay practices ran afoul of the FLSA. Although the Supreme Court recently has criticized attempts by the DOL to offer guidance or positions not subject to notice and comment rulemaking or that reverse long-standing practice, the Supreme Court has not squarely addressed whether Skidmore deference is owed to an agency’s statutory interpretation expressed for the first time in litigation. The answer to this question is especially important given that amicus positions can flip-flop quickly with a change in administration and, as another appellate court has noted, “[t]he Secretary of Labor has been particularly aggressive in attempt[ing] to mold statutory interpretation and establish policy by filing ‘friend of the court’ briefs in private litigation.”

Finally, if the Supreme Court accepts this case, it would provide an opportunity to confirm that only practices Congress has prohibited in the FLSA can constitute violations of that Act. Put another way, if there is no express prohibition of a practice in the FLSA (i.e., the FLSA is silent concerning whether compensation paid for breaks that is included in the regular rate may be used as an offset/credit against compensable work time), the practice is permissible.

iStock-513046321Authored by John P. Phillips

Seyfarth Synopsis: Recently the Ninth Circuit doubled down on its decision that service advisers at car dealerships are not exempt from the FLSA, despite being overturned once by the U.S. Supreme Court. This case gives the Supreme Court an excellent opportunity to address the proper construction of FLSA exemptions and allow the plain and common sense reading of the statute to govern.

A pending petition for writ of certiorari gives the U.S. Supreme Court a second opportunity to establish two important Fair Labor Standards Act issues: first, administrative agencies and courts should not lightly disregard decades of established practice when interpreting the FLSA, and second, the old canard that “exemptions should be narrowly construed against employers” should finally be put to bed. Employers across the country are hoping that the Supreme Court takes up Navarro, et al. v. Encino Motorcars, LLC  for the second time. And with the addition of Justice Gorsuch to the Court, the time may be ripe to address these issues.

Just as this case gives the Supreme Court a second chance to resolve important FLSA-related issues, this is our second opportunity to write about this case. In early 2016, we explained how the Supreme Court had the chance to address far-reaching implications on the interpretation of FLSA exemptions. Unfortunately, the Supreme Court did not do so, instead deciding only that the Ninth Circuit had improperly relied on faulty Department of Labor regulations, and remanding the case to the Ninth Circuit.

Case Background

In Navarro, et al. v. Encino Motorcars, LLC, a group of current and former car dealership employees who worked as service advisors brought a collective action under the FLSA in the Central District of California alleging that their dealership employer unlawfully failed to pay them overtime wages. As service advisors, the plaintiffs would meet and greet car owners as they entered the service area; evaluate customers’ service and repair needs; suggest services to be performed on the vehicle to address the customers’ complaints; solicit supplemental services to be performed (such as preventive maintenance); prepare price estimates for repairs and services; and inform the owner about the status of the vehicle. Service advisors did not receive an hourly wage or a salary but were instead paid by commission based on the services sold.

The district court dismissed the overtime claim and agreed with an unbroken line of authority from federal and state courts across the country. But the Ninth Circuit reversed, deferring to a DOL regulatory definition while acknowledging that its holding conflicted with every other court to have considered the question, and citing to the “rule” that FLSA “exemptions are narrowly construed against employers.”

The Supreme Court granted the dealership’s petition for a writ of certiorari and agreed to answer the question of “whether ‘service advisors’ at car dealerships are exempt.” Unfortunately, the Supreme Court did not answer the question. Instead, the Court analyzed the DOL regulations, found them to have been issued without a reasoned or adequate explanation and, accordingly, ruled that the Ninth Circuit should not have relied upon them. Having decided this, the Supreme Court remanded the case to the Ninth Circuit rather than answer the ultimate question of whether the service advisers were exempt.

Predictably, the Ninth Circuit doubled down on its earlier opinion, ruling that the service advisers were not exempt under the FLSA. In its ruling, the Ninth Circuit admitted that service advisers fit in the “literal” reading of the statute, but decided that the literal reading was not what Congress intended. In addition, the Ninth Circuit again cited to the “longstanding rule” that FLSA exemptions “are to be narrowly construed against the employers seeking to assert them.”

Recently, Encino Motorcars appealed the Ninth Circuit’s ruling, filing a petition for writ of certiorari asking the Supreme Court to hear the case again. The Supreme Court has not yet decided whether it will take the case, but employers and attorneys (not to mention car dealerships) around the country are hoping the Court takes this opportunity to address the important FLSA issues at stake in this case.

Potential Implications for FLSA Collective Actions

First, this case demonstrates the willingness of federal agencies and some courts to upend years of established industry practice. Here, car dealerships have relied on settled precedent and practice to treat service advisors as exempt since the 1970s. Every court to have examined the issue had found that service advisors were properly exempt from the FLSA. However, the DOL first departed from this precedent in 2011, and the Ninth Circuit followed suit.

In recent years, the Supreme Court has taken legal theories that would upend years of long-settled industry practice with a large grain of salt. As the Court recently noted, “while it may be ‘possible for an entire industry to be in violation of the [FLSA] for a long time without the Labor Department noticing,’ the ‘more plausible hypothesis’ is that the Department did not think the industry’s practice was unlawful.” Encino Motorcars pointed this out in their petition for writ of certiorari, and hopefully the Supreme Court will provide succinct guidance to agencies and courts that long-standing industry practice should be considered before any ruling that upends such reliance.

Second, the Ninth Circuit—in both of its opinions—relied on the doctrine that the FLSA’s exemptions should be narrowly construed against employers. This maxim has been increasingly questioned by the Supreme Court. In its petition, Encino Motorcars highlighted the late-Justice Scalia’s words, where he stated that the goal of a court interpreting a statute “should be neither liberally to expand nor strictly to constrict its meaning, but rather to get the meaning precisely right.” In fact, Justice Thomas, joined by Justice Alito, even referred to it as a “made-up canon” in the Supreme Court’s decision, and stated that it rests on an “elemental misunderstanding of the legislative process.” Nor are Justices Thomas and Alito likely to be alone. Although it is still a little early to speculate on Justice Gorsuch’s views, the justice once famously stated that “when the statute is plain it simply isn’t our business to appeal to legislative intentions.”

If the Supreme Court accepts the case, it would provide the Court an excellent opportunity to address repeat problems in FLSA jurisprudence and help support a more just and statute-based approach to interpreting FLSA exemptions.

Book that says JusticeCo-authored by Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: A New York federal court denied a motion for conditional certification of a nationwide collective action against Barnes & Noble. The ruling highlights that, even though the burden for “first stage” certification is modest, courts may not approve such motions without evidence that the named plaintiffs are similarly situated to the putative collective action members they wish to represent.

Foreword

Plaintiffs’ counsel frequently cite the “low” burden required for conditional certification under the FLSA. But a recent decision in the Southern District of New York denying conditional certification highlights that some courts are willing to “do the reading” and not “skip pages,” and will actually review the plaintiffs’ proffered evidence to ensure that there is a factual nexus to bind the pages of the certification motion together.

Chapter 1: The Complaint

In Brown v. Barnes and Noble, Inc., the plaintiffs are former Barnes & Noble, Inc. café managers. They allege that they, and similarly situated others, were misclassified as exempt, and sought unpaid overtime and other pay under the FLSA and the New York Labor Law.

Chapter 2: The Conditional Certification Motion

Two months after filing the complaint, and before conducting any discovery, the plaintiffs moved for conditional certification of their FLSA claim. They argued that, because the café managers had been uniformly classified as exempt, were all reclassified as non-exempt, work under the same job description, and because Barnes & Noble maintains detailed policies, procedures and rules that control how the café managers, regardless of location, performed their work, that all such managers are “similarly situated” to the named plaintiffs.

Chapter 3: The Court’s Decision

Magistrate Judge Katharine H. Parker authored the court’s decision. Before getting to the main plot of this conditional certification story, Judge Parker dispelled three oft-cited theories advanced by plaintiffs to obtain conditional certification:

  1. that a uniform classification of exempt status, standing alone, can satisfy the low threshold for conditional certification;
  2. that the employer’s reclassified of a position from exempt to non-exempt shows that the position was uniformly misclassified previously; and
  3. that a common job description means the position is the same everywhere.

Judge Parker had little trouble untangling the plot on the first point, holding that a uniform classification of exempt status is not sufficient, in and of itself, to establish the commonality required for conditional certification. She was equally unpersuaded on the second point, and held that “there could be many legitimate business reasons for an employer to reclassify employees.” On the third point, Judge Parker reiterated prior decisions holding that “a common job description does not mean that conditional certification is per se warranted in every case.” In this case, she added, the job description “is of little utility…when, under Plaintiffs’ own theory of the case, [it] did not accurately reflect the duties they personally performed.”

In her final pages, Judge Parker held that based on the evidence before her, she could not “infer that Defendant had a de facto policies of requiring all 1,100 café managers to perform non-exempt work based on the personal experiences of the nine people who have joined this suit” and “nor can it infer such a policy from general assertions” and “cookie-cutter declarations.”

Epilogue: What’s Next?

Brown is another reminder that, despite the lenient standard for conditional certification under the FLSA, courts may assess the evidence rather than simply read the “Cliffs Notes” version of the parties’ submissions, and that, where appropriate, they will deny certification if plaintiffs have failed to show that they are similarly situated to others. It remains to be seen whether the plaintiffs will propose a sequel by filing a new motion with additional evidence or simply choose to litigate on behalf of the named plaintiffs alone. This decision—while perhaps not a scintillating beach read for summer—may still become a “best seller” for employers in fending off conditional certification motions.