Co-authored by Robert S. Whitman and Needhy Shah

Seyfarth Synopsis: A judge in the Southern District of New York held that FLSA off-the-clock claims could not proceed collectively because the employer’s policy enforcement and approval of overtime compensation varied by supervisor.

In Lynch v. City of New York, Judge Katherine Forrest rejected an attempt to prosecute a single collective action for off-the-clock claims of employees in different units reporting to different supervisors. Ordering the case decertified, she held that the plaintiffs’ own testimony showed “critical differences in what supervisors told their employees about overtime.”

A group of five representative plaintiffs–current and former administrative assistants–asserted FLSA claims against the New York City Department of Homeless Services. The group had been granted conditional certification of a FLSA collective action, which requires only a modest showing that the employees were similarly situated with respect to alleged FLSA violations. A total of 30 opt-ins remained at the final certification stage.

Following discovery and motion practice, the court granted the City’s motion for decertification of the FLSA collective, determining that the plaintiffs were not similarly situated under the more stringent standard applicable after discovery is complete.

To determine whether plaintiffs could proceed collectively, the court analyzed whether the employees worked in disparate settings, whether the City would have individualized defenses to the employees’ claims, and the impact of fairness and procedural considerations. The court sided with the City on all of these factors due to the highly individualized nature of plaintiffs’ experiences with overtime compensation.

The core issues were whether the City had knowledge of plaintiffs’ uncompensated work outside regular hours and whether supervisors had uniform practices. Plaintiffs’ depositions revealed variations by supervisor on what employees were told about overtime and whether overtime compensation requests were approved. Employees were responsible for recording their hours in an electronic timekeeping system and submitting requests to be compensated for overtime hours. Plaintiffs claimed they did not always request to be compensated for overtime work, even though requests were routinely granted—98.5% of requests since July 2013 were approved.

These individualized factual issues and proof, the court said, meant there were few procedural benefits and little judicial efficiency to be gained through collective action. However, Judge Forrest left open the possibility of collective treatment of appropriate subclasses by supervisor or unit.

This opinion is another example of why employers should not get discouraged after an early pre-discovery grant of conditional certification. Even though courts regularly invoke the “lenient standard” at that stage, and sometimes decline to review the defendant’s evidence, all bets are off by the time the factual record is complete and the time for final certification arrives.

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.

Co-authored by Christopher M. Cascino and Jennifer A. Riley

Seyfarth Synopsis: A federal district court last week decertified and effectively grounded a collective action of O’Hare Airport janitorial staff who claimed that their employer forced them to work off-the-clock without compensation. This decision, Solsol v. Scrub, Inc., stands out as a significant victory for employers because, even though all of the workers who joined the suit worked in one location and alleged off-the-clock work, the Court found their circumstances not similar enough to proceed to trial on a representative basis.

Case Background

Since at least October 2010, Scrub provided janitorial services at O’Hare airport. It did so pursuant to three types of contracts: (1) a contract with the City of Chicago to clean the domestic terminals; (2) contracts with airlines to clean gates; and (3) contracts with airlines to clean airplanes.

Plaintiffs, who worked for Scrub as janitors at O’Hare, sued Scrub, claiming that Scrub violated the FLSA in several ways. First, Plaintiffs claimed that Scrub only paid them for their scheduled, rather than actual, working hours. Second, Plaintiffs alleged that Scrub rounded their time in a way that undercompensated them. Third, Plaintiffs claimed that Scrub automatically deducted 30 minutes for meal breaks even when Plaintiffs worked during their breaks.

Plaintiffs alleged that Scrub did this to all its employees at O’Hare Airport, and the Court conditionally certified a collective action of Scrub employees who worked as janitorial staff at that airport. After discovery was complete, Scrub moved to decertify the collective action.

The Decision

In deciding that Plaintiffs’ collective action would not fly, the Court considered three factors. First, it considered whether the Plaintiffs and opt-ins had similar factual and employment settings. It found that, even though all opt-ins worked at O’Hare, it was at least questionable that all opt-ins worked in the same location given the size of O’Hare. The Court found that the opt-ins worked on different shifts for more than 40 different supervisors, weighing in favor of decertification.

The Court found that the claims of the opt-ins varied. Some claimed they were required to start work 15 minutes before their scheduled shift time every day; others claimed they worked only a few minutes before the start of their shift; still others claimed they did not work prior to the start of their shift. Some claimed their lunch breaks were interrupted for work about once per week; others claimed their lunch breaks were interrupted every day; others claimed they never took a lunch break; and others claimed they took full lunch breaks every day. Finally, the Court found that each supervisor had his or her own rounding policy. Given this, the Court found that Plaintiffs and the opt-ins had different factual and employment settings.

Second, the Court considered whether Scrub had individualized affirmative defenses. It found that Scrub could claim that it overpaid some opt-ins and that the unpaid time for some opt-ins was so minimal that it did not support a claim.

Third, the Court considered whether allowing the opt-ins’ claims to be decided in one proceeding would be fair. The court found that the only way to determine the number of hours that each opt-in worked without pay would be through individualized inquiries. Whereas Plaintiffs argued that the Court could determine the amount of off-the-clock work by comparing each employees’ time card with the time for which they were compensated, the Court found that this was, by necessity, individualized.

Finally, the Court found that the claims of the opt-ins could not be decided on the basis of “representative” testimony, especially in light of their different factual and employment settings. The Court, therefore, concluded that the collective action was not clear for trial and decertified the case.

Implications For Employers

The Court’s decision in Solsol provides a practical illustration of the fate that awaits many conditionally certified off-the-clock cases. Whereas employers facing conditionally certified collective actions have cause for concern, employers should remember that the standard at conditional certification is low and that plaintiffs often have a difficult time meeting the standard at decertification and showing that the claims of all opt-ins can be decided in one trial. This case provides a practical illustration of the shifting leverage that begins shortly after decertification as discovery shows that opt-ins assert different claims for different alleged violations at the hands of different supervisors.

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.

Authored by Michael Kopp

With all the drama of a get-away chase, the Third Circuit recently brought to a screeching halt plaintiffs’ counsel’s elaborate maneuvers to end run repeated decertification of their FLSA actions, and held as a matter of first impression in Halle v. West Penn Allegheny Health System, Inc. that opt-in plaintiffs have no right to appeal decertification. The decision is important for three reasons. First, it offers a road block against the use of opt-in plaintiffs to appeal a decertification order, including where the named plaintiffs’ claims have been mooted. Second, it offers instruction on how to structure class notices to foreclose potential opt-in appeals. Third, it underscores the heightened strategic value of Rule 68 offers to named plaintiffs in FLSA actions after decertification to block appeals.

In a long and winding procedural path, plaintiffs’ counsel employed a “whack a mole” strategy to keep the possibility of a collective action alive after successive certification defeats. Counsel originally filed two separate FLSA collective actions, asserting claims that two hospitals and their affiliates failed to compensate work performed during unpaid meal period times. After conditional certification of the separate actions, over 3,000 and 800 individuals respectively opted into the two actions. In a happier moment in this narrative, the district court judges decertified the actions, due to differences in practices for reversing the 30-minute automatic deduction for meal periods, and differences in job duties and supervision that would impact whether work was performed during meal periods.

Plaintiffs’ first escape maneuver was a voluntary dismissal of their claims with prejudice, in the hopes of prompt appellate review of the interlocutory decertification orders. Instead, the Third Circuit rejected this “procedural slight-of-hand,” and held that by dismissing their claims, the named plaintiffs had mooted their claims (along with any right to challenge decertification). The appeals were dismissed for lack of jurisdiction.

Not to be deterred, plaintiffs’ counsel filed two new class actions against the same hospital defendants, with only slight modifications to the proposed class. The district courts promptly slammed the brakes, struck the collective allegations, and held that issue preclusion barred the named plaintiffs (who were opt ins in the prior actions), from re-litigating the prior decertification decision. In what appeared to be the end of the road, the employers then mooted the named plaintiffs’ claims by extending Rule 68 offers which were all accepted.

Not willing to give up the chase, plaintiff’s counsel deployed opt-in plaintiffs to appeal the order striking the collective allegations, claiming the opt-ins were “party plaintiffs” with full rights to appeal. The Third Circuit rejected these “procedural gymnastics,” finding that (1) the order striking the collective allegations effectively dismissed the opt-ins as parties to the action, and they therefore could not appeal the subsequent judgments, and (2) the opt-ins had signed consent forms ceding the individual authority to litigate, including the right to appeal. The Third Circuit recognized the claimed “unfairness” of leaving the opt-in plaintiffs without an opportunity to appeal where the employer “picked off” the named plaintiffs. Nonetheless, the court found that the “potential for unfairness” cannot trump an absence of jurisdiction.

Halle is, accordingly, important guidance in structuring class notices, and highlights the continuing strategic value of Rule 68 offers later in the action, including to moot claims and thereby potentially obtain expedited finality for a decertification order.

Authored by Eric Lloyd

Seyfarth Synopsis: Minor league baseball players took a swing at class certification, and they missed—badly.

In Senne v. Kansas City Royals Baseball Corp., et al., minor league baseball players across the country asserted wage and hour claims under the Fair Labor Standards Act (“FLSA”) and various state laws against Major League Baseball (“MLB”), the Commissioner of MLB, and a number of MLB franchises. The players sought allegedly unpaid minimum wages and overtime for “work” performed during the baseball season (such as travel to and from games and pre-game activities) and during the offseason (such as participating in spring training and offseason conditioning). The U.S. District Court for the Northern District of California conditionally certified the Plaintiffs’ proposed collective under the FLSA in October 2015.

Plaintiffs moved to certify their state law wage and hour claims in April 2016. In support of their class certification motion, Plaintiffs submitted declarations and testimony from two experts. Plaintiffs proposed that one of their experts would offer a damages model at trial based on estimates of the number of hours worked by each player during each work week in the class period. They further posited that these estimates would be based upon players’ responses to a survey devised by another expert, which asked players to provide information concerning the amounts of time they spent performing purportedly work-related activities. The Defendants asked the court to exclude the experts’ declarations and testimony on the ground that the proposed survey was flawed and would collect unreliable data.

The court denied Plaintiffs’ motion to certify their state law claims, and, decertified the FLSA collective. While this was obviously a welcome development for class action-weary employers, Chief Magistrate Judge Joseph C. Spero’s opinion stands out from other recent certification decisions given its extensive discussion regarding the use of representative evidence in class actions.

Judge Spero granted the Defendants’ motion to exclude Plaintiffs’ experts’ declarations and testimony, finding the proffered survey evidence to be “fundamentally flawed.” The court was troubled that the players’ survey responses would be unreliable insofar as the survey asked players to provide information concerning “mundane events” that may have happened years in the past, such as when they arrived and departed from a baseball stadium on a given day, whether their baseball-related activities were “rained out,” or whether they missed a practice due to injury or illness. The fact that no time records which could verify the players’ responses existed cemented the court’s conclusion that the survey data would be unsound. In addition, the court expressed concern that the survey responses would be tainted by self-interest bias given that “virtually all minor league players have a vested interest in the outcome of this litigation.”

The court also rejected the Plaintiffs’ argument that the U.S. Supreme Court’s recent decision in Tyson Foods, Inc. v. Bouaphakeo permitted the use of survey evidence given the absence of time records for the players. As Judge Spero noted, the players who comprised the putative class were not at all similarly situated—for instance, they played for different organizations, with different work requirements, in different states, with different laws—making it inappropriate to “paper over significant material variations [among the plaintiffs] that make application of the survey results to the class as a whole improper.” In other words, Tyson Foods was inapplicable because the players’ working conditions were simply too different to draw any reliable conclusions about class members’ claims based on purportedly representative survey evidence.

Senne is the latest case showing that courts are reviewing trial plans based on representative evidence with increased scrutiny, as discussed previously here. Judge Spero’s thorough 104 page opinion exposes a number holes in the use of survey evidence to support a trial plan—for instance, that it may be unverifiable and contaminated by the respondents’ self-interest—and it therefore provides employers with strong arguments to present in opposition to class certification.

Co-authored by Sherry Skibbe and Andrew Paley

Allstate Insurance Company “insured” a major victory last week in an off the clock class action pending in Los Angeles Superior Court, vindicating employers’ argument that plaintiffs cannot simply intone the magical incantation of “statistical sampling” as a means of collective proof in a class action. Rather, plaintiffs must proffer a detailed and manageable trial plan that relies on sound statistical science. Likening Plaintiff’s trial plan to a house built on a poor foundation, Judge John Shepard Wiley rejected the statistically unsound trial plan because it would be “an enduring source of grief.”

After almost nine years of litigation, Judge Wiley granted Allstate’s motion to decertify both an off-the-clock and wage statement class because none of the multiple trial plans suggested by Plaintiff complied with the requirements in the California Supreme Court’s 2014 decision in Duran v. U.S. Bank National Association or last month’s U.S. Supreme Court decision in Tyson Foods, Inc. v. Bouaphakeo.

Over the past two years, Plaintiff offered several trial plans based on statistical sampling and extrapolation suggested by two different experts. The court, however, found that each of the plans failed to comply with sound statistical methodology and were “premised on invalid logic.” Recognizing that a 95% confidence interval and a 5% margin of error is the common convention, the court roundly criticized Plaintiff’s expert who proposed an 84% confidence interval and anywhere from a 10-20% margin of error. The court also rejected Plaintiff’s plea to let him proceed with trial and enter a directed verdict if he could not prove his claims because such a plan was “doomed to be an expensive waste of time.” Under proper sampling methodologies, the case would be unmanageable at trial as the sample size would require testimony from at least 495 class members.

Significantly, the court’s decision implicitly rejects the Plaintiff’s argument that not all members of his proposed survey need to testify at trial. The decision is therefore powerful ammunition to counter plaintiffs’ oft repeated argument that a “sample of a sample” is sufficient to testify at trial. If sound statistical methodology requires a sample of 495 class members in order to extrapolate the results to the larger class consistent with the proper confidence interval and margin of error, then all 495 class members need to testify at trial so that the jury can determine their credibility and assess their testimony. Plaintiffs cannot simply propose that their expert will testify at trial as to the results of a survey of the sample. If this means that the trial will be unmanageable, then the case should be decertified.

Although Plaintiff argued that Tyson Foods was a “game changer,” the court found Tyson Foods to be entirely consistent with Duran. The court recognized that Tyson Foods and Duran prohibit the use of statistically inadequate evidence such as that presented by Plaintiff. Although representative proof sometimes can be used in a certified class action, statistical evidence only can be used if the proof is reliable.

This case provides employers with several important “take-aways.” Defense counsel should aggressively challenge a plaintiff’s proposed trial plan to ensure that the trial plan is statistically reliable. Additionally, neither Tyson Foods nor Duran stands for the proposition that statistical sampling and surveys can be used to prove liability in every case. Whatever the supposed benefits of a class action may be, they cannot defeat a defendant’s right to due process. Trial plans must be tailored to the specific facts of the claims alleged and an unmanageable trial plan that is not scientifically sound should be rejected.

Co-authored by Noah A. Finkel and Abad Lopez

The demise of bank loan underwriters’ exempt status has been greatly exaggerated—at least according to a recent Sixth Circuit decision upholding the dismissal of a putative collective action against Huntington Bank. The court disagreed with underwriters who alleged that they were improperly classified as exempt and thereby wrongfully denied overtime pay. Instead, the court agreed that underwriters are administrative employees and thus exempt from overtime. This ruling stands in stark contrast to the Second Circuit’s 2009 opinion in Davis v. J.P. Morgan Chase & Co., which held that such employees were non-exempt employees engaged in “production” type activities.

The underwriters at Huntington Bank at issue performed two main functions: (1) they reviewed the information in bank loan applications to verify its accuracy; and (2) they determined whether applicants qualified for a particular loan. While they utilized extensive guidelines in determining whether to approve a given loan, underwriters also exercised considerable discretion in either approving, denying, or modifying a given bank loan.

To qualify as administrative exempt under the FLSA, an employee must, as their primary duty, (1) perform office or non-manual work directly related to the management or general business operations of the employer or employer’s customers; and (2) exercise discretion and independent judgment with respect to matters of significance.

In applying the FLSA’s test for administrative employees, the court in Lutz v. Huntington Bancshares, Inc. focused on underwriters’ performance of duties that directly relate to the management or business operations of the bank. The court found that underwriters fit the DOL’s definition of administrative employees, or those who “perform work directly related to assisting with the running or servicing of the business,” as opposed to, for example, those working on a manufacturing production line or selling a product in a store. The court found that running and servicing of the bank’s business included making decisions about whether the bank should act on a particular credit risk, something that is ancillary to the bank’s principal “production” activity of selling loans. Unlike the Second Circuit’s opinion, which focused on whether an employee’s duties merely touch on a production activity, the Sixth Circuit focused on whether an employee “helps run or service a business.”

The court also found that underwriters exercised sufficient “discretion and independent judgment with respect to matters of significance” finding that, despite the use of proscribed guidelines, they had the authority and freedom to make an independent choice after considering multiple courses of action. In other words, even though underwriters relied on pre-set guidelines and manuals in making credit decisions, they exercised discretion in advising about which loans to accept.

Ultimately, the court rejected the plaintiffs’ plea to find underwriters non-exempt if they so much as touched the production area of the bank. This decision reinforces employers’ argument for a broader application of the administrative exemption, even outside of the financial industry, to counter the narrow view of the administrative exemption espoused by the Second Circuit.

Co-authored by Robert Whitman, Cameron Smith, and Meredith-Anne Berger

Former brokers of Fordham Financial Management will have to put this one in the “loss” column. Judge Paul Crotty of the Southern District of New York granted Fordham’s motion to decertify the FLSA collective in their lawsuit alleging they were misclassified as independent contractors.

The brokers initially succeeded in obtaining conditional certification of their misclassification claims under the relatively lenient FLSA standard in Griffith v. Fordham Financial Management, Inc. About a year later, the Plaintiffs moved for class certification under Rule 23, but the court denied the motion because they “failed to demonstrate that the primary dispute–whether Defendants ‘misclassified potential class members as independent contractors, rather than employees’–was capable of resolution by classwide proof.” Buoyed by that success, the Defendants then sought decertification of the FLSA collective action.

The court granted that motion. The court noted that plaintiffs must meet a higher standard at the second stage of the FLSA certification analysis – specifically, a burden “similar to Rule 23’s commonality requirement.” Taking the analogy further, Judge Crotty said that “functionally there is little difference” between the commonality inquiry and the second stage of FLSA certification.

Judge Crotty then held that the issue of employee vs. independent contractor status for the Fordham brokers “require[s] highly individualized inquiries.” Specifically, he noted that the deposition testimony of the opt-ins revealed widely differing schedules and contractual arrangements, as well as varying levels of control exercised over the plaintiffs’ daily responsibilities. On the whole, the court said, the case would require “individualized inquiries into each plaintiff’s work schedule, compensation, and the level of control Fordham exerted.”

Judge Crotty further noted that the low opt-in rate among the potential members of the collective, while not dispositive, suggested an “apparent lack of enthusiasm” and that individualized actions were more appropriate. (He did not state how low the rate was.)

Griffith is a potent reminder that all is not lost when FLSA conditional certification is granted. Where there is compelling evidence that the ultimate issue will require individualized factual determinations, employers can and should return to the judge to highlight those distinctions among the opt-in plaintiffs–and, if applicable, the low opt-in rate–in an effort to reverse their fortunes without the yoke of the “lenient standard” of stage one. Given the importance of certification to the outcome of cases, the effort can yield high dividends.

internship blog image 8.jpgCo-authored by Robert Whitman and Adam Smiley

While most New Yorkers rode out last weekend’s blizzard by binge watching television or enjoying playoff football, three Second Circuit judges apparently spent their time more productively, as the court on Monday issued an amended decision in its landmark ruling from last summer on unpaid internships.

As we have previously reported, the court’s July 2015 decision in Glatt v. Fox Searchlight held that the “primary beneficiary” test should be used to decide whether unpaid interns should be deemed employees or trainees. The court also held that this test requires highly individualized inquiries—a conclusion that may deal a blow to plaintiffs’ abilities to obtain class or collective certification in these cases.

In its amended decision, the Court added a third “salient feature” to the primary beneficiary test, holding that the “intern-employer relationship should not be analyzed in the same manner as the standard employer-employee relationship because the intern enters into the relations with the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.” The court also inserted a statement that its analysis of the intern v. trainee question is limited to internships and not to “training programs in other contexts.”

Later in the amended opinion, after the listing of the seven non-exhaustive factors that determine the “primary beneficiary” of an internship, the court noted that the “touchstone” of its analysis was the economic reality of the relationship. In light of this, the court said, it is relevant to consider evidence “about an internship program as a whole rather than the experience of a specific intern.” This is an important addition because it may render the specific experiences of a named plaintiff less important in the overall “primary beneficiary” analysis and make it easier for an employer to satisfy the test even if a particular manager did not administer a compliant program.

The court also modified its analysis of the previously vacated Rule 23 claims under New York law. It deleted the prior reference to “individualized” inquiries driving the denial of class certification, and replaced it with “highly context-specific” inquiries regarding an internship program as the barrier to a finding of commonality. The holding now reads as follows: “[T]he question of an intern’s employment status is a highly context-specific inquiry. [E]vidence that the defendants received an immediate advantage from the internship program will not help to answer whether the internship program could be tied to an education program, whether and what type of training the internship program provided, whether the internship program continued beyond the primary period of learning, or the many other questions that are relevant in this case.”

After the court issued its first decision in Glatt last July, the plaintiffs filed a petition for en banc review. Despite the denial of en banc review in Wang v. Hearst Corp., the companion case involving Hearst interns, the Glatt petition has remained pending. We suspect that this amended opinion reflects a compromise by the court’s judges to avoid a potentially contentious review by the full court. We now expect a decision on the en banc petition to be issued soon.

Although the court has now revised the “primary beneficiary” to apply only to intern cases, the Glatt decision still has broad implications for employers that use unpaid interns. In particular, courts within the Second Circuit are still required to take a holistic view of an internship program, and the hurdles to class and collective certification remain in place. As always, however, employers should conduct a careful analysis of their internship programs to ensure full compliance with any wage and hour obligations and protect themselves from future litigation.