Co-authored by Christopher Truxler and Coby Turner

Seyfarth Synopsis: Earlier this month, a California federal court dismissed the misclassification claims of 7-Eleven franchisees on the pleadings, finding they did not and could not plead facts sufficient to show that they were employees of their franchisor.

All is well with one of America’s most beloved convenience stores. In October 2017, four 7-Eleven franchisees filed a class action lawsuit alleging the company misclassified franchise owners in California as independent contractors instead of employees. The plaintiff-franchisees sought hundreds of thousands of dollars in overtime pay and business expenses for each franchisee. But on March 14, 2018, the presiding judge put the plaintiffs’ Big Gulp gamble to rest, ruling that the franchisees are, in fact, independent contractor franchisees, and not employees, under California law or the FLSA.

As with most misclassification lawsuits, the heart of the dispute concerned the right to control. The plaintiff-franchisees claimed that 7-Eleven’s franchise agreement created an employment relationship because, they alleged, the company exerts control over certain details of store operations, such as temperature, operating hours, and other matters. The plaintiffs also focused on franchisees’ time spent in initial training.

The court was unmoved. Finding the alleged facts “wholly insufficient” to create an employment relationship under the Martinez v. Combs test, District Judge John Walter ruled that the plaintiffs failed to show that 7-Eleven exerted control over their day-to-day operations. Instead, 7-Eleven and the franchisees entered a “business format” franchising relationship—similar to that which the California Supreme Court ruled on in Patterson v. Domino’s Pizza—which permitted 7-Eleven to exercise the control necessary to protect its trademarks, brand, and goodwill.

Not only did the plaintiffs’ allegations regarding improper control all relate to 7-Eleven’s right to protect and control its brand, service standards, merchandise selection, and hours of operation, but, the court found, such uniformity ultimately benefitted the franchisees because of the increased goodwill it brought to the brand.

Of particular note, the court looked to factors under Martinez to conclude the franchisees were properly classified as independent contractors. The court noted that franchisees were generally entrepreneurial people, willing to commit time and money and assume a risk of loss in order to own and profit from their investment. Some operated multiple locations. The court found it significant that there was no cap on how much plaintiffs could earn on their investment, that they had complete discretion to do things like hire and fire employees, and that they had complete control over the day-to-day operation of their store(s). The fact that franchisees could terminate their agreement with 72 hours’ notice, while 7-Eleven could only terminate “for cause,” further weighed against a common-law employment relationship.

The court thus took a Big Bite out of potential liability for franchisor companies in holding that even standards and guidelines that require a franchisee to follow a list of marketing, production, operational, and administrative tasks is not enough to transform a franchisor into an employer. Other companies engaging independent contractors should also take note. Even though this case was analyzed with regard to a franchisee-franchisor relationship, the court took a view of “control” over independent contractors that is, “thank heaven,” quite practical and positive.

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.

Co-authored by Kevin Young and Kara Goodwin

Even as FLSA litigation has surged to historic highs, it is rare to see a nefarious violation of the Act by a manager or supervisor. Far more prevalent, it seems, are stories of managers who, while intending to afford employees freedom and flexibility, instead trip over one of many hurdles scattered across the 1938 legislation. At a time when plaintiffs’ attorneys are more regularly naming individual managers, not just corporations, as FLSA defendants, preventing these stories is important as ever.

In our experience, managers across the corporate landscape grasp broad wage-hour ground rules and concepts, such as requiring employees to clock in before they start work and paying employees at least minimum wage. Training is important in these areas, but it is not quite where the rubber meets the road.

Far more important a topic, in our experience, are the ways in which a manager’s well-intentioned decisions can result in potential violations of the FLSA. Here, in honor of the Act’s upcoming 80th birthday, we offer eight hypothetical examples of this. (Eighty was a bridge too far for this post.) While far from exhaustive, these are the types of examples that can provide a basis for meaningful conversations with managers and supervisors about the relevant—and sometimes hidden—contours of the FLSA.

  1. You had a great January, but let’s have an even better in February. Whoever makes 50 sales will get a $150 bonus. This isn’t the company’s thing, it’s my thing.” In a vacuum, incentivizing employees to perform isn’t just okay—it is good management. Unfortunately, the nature of the incentive can have serious wage-hour implications. First, if the incentive is non-discretionary, it must be included in the “regular rate” of pay, upon which overtime pay is based. It makes no difference if the incentive is offered company-wide or only on a small team. As a distant second, occasionally production bonuses can have an unintended effect of encouraging after-hours work, which could be an issue if those hours aren’t recorded and paid. Supervisors should take care to ensure that any incentive payment is: (i) accounted for, if necessary, in the overtime calculation; and (ii) not interpreted as a relaxation of standing policies, such as those prohibiting off-the-clock work.
  2. Of course you can take it home!” It’s 5 pm and an hourly employee scheduled until 6:00 asks his supervisor if he may leave early to pick up his kid—he promises to finish his work at home later that night. Wanting to promote balance and flexibility, the supervisor agrees. While there is nothing illegal about this, the supervisor must understand potential wage-hour ramifications. An employer must pay for work it knows about or reasonably should know about, regardless of when or where the work occurs. If a supervisor is going to authorize after-hours remote work, it is essential that he or she also enforce timekeeping practices that prevent that work from going unrecorded and unpaid.
  3. Have a minute to help me out? You can take the remaining 20 minutes of your 30-minute lunch break after we’re done.” It seems harmless enough—after all, the employee will end up getting a full 30 minutes either way. But if the employer treats meal breaks, including this one, as unpaid, this could create an issue. The FLSA generally requires that an unpaid meal break like this one be uninterrupted and contiguous. Here, the supervisor should know that the employee must either (a) be paid for the whole break, or (b) be permitted to take his or her full break at a later time.
  4. Rather than recording overtime this week, why don’t you take off a few hours early next Friday and spend the afternoon with your kid?” If an employee works over 40 hours in a workweek, the FLSA requires that the employee be paid overtime. Private-sector employers should not offer or allow compensatory time off in future workweeks in lieu of overtime, even if an employee requests it.
  5. Jim volunteered an additional hour last night because he wants to prove he’s worth the promotion. I respect that sort of drive…heck, I did the same thing.” In nearly every context, the fact that an employee “volunteers” his or her work time is not a sound reason for failing to pay the employee for the associated work.
  6. Our team party starts at 3 pm. You can work through it, but I’d certainly prefer to see you there—it’s important to our team culture.” Social gatherings during the workday should typically be paid. Even if scheduled after hours, the time needs to be paid for nonexempt employees required to attend. The grey area, of course, lies between mandatory and purely voluntary attendance. Proof that attendance was strongly encouraged could support a finding that attendance was not purely voluntary and that the time should be paid.
  7. My team knows that if they ask for OT, I will always approve it. The only reason I didn’t pay Alexa’s overtime last week is that she forgot to seek preapproval—I can’t allow that to happen, and Alexa realizes that.” It is certainly permissible to require employees to seek approval prior to working overtime. It is not permissible, however, to condition payment of overtime hours worked on an employee’s compliance with that requirement. As a general rule, once the overtime is worked, the employer must pay for the time.
  8. We actually don’t need you today. And didn’t you tell me your daughter is home from college today? This works out perfectly—why don’t you head home and spend the day with her.” A growing number of states require employers to pay for “show up” or “reporting” time. This refers to a minimum amount of pay—for instance, 3 or 4 hours at the applicable minimum wage—if an employee scheduled to work longer is sent home after reporting to work for the day. There are exceptions, of course, but these rules can create traps for the unwary.

As these examples help to demonstrate, the FLSA is too thorny a place to entrust compliance to managers’ and supervisors’ intentions alone. Even top-notch, employee-first managers can find themselves trapped in one of the FLSA’s various pitfalls, potentially exposing the employer—and possibly even the supervisor herself—to potential liability.

Given these realities, employers are well served by considering the subtle ways in which FLSA issues may arise in their workplace and taking a proactive approach to training supervisors to address those issues. If we can be of assistance in that effort, please do not hesitate to reach out to us.

Authored by Robert Whitman

Seyfarth Synopsis: The Department of Labor has scrapped its 2010 Fact Sheet on internship status and adopted the more flexible and employer-friendly test devised by Second Circuit.

In a decision that surprised no one who has followed the litigation of wage hour claims by interns, the US Department of Labor has abandoned its ill-fated six-part test for intern status in for-profit companies and replaced it with a more nuanced set of factors first articulated by the Second Circuit in 2015. The move officially eliminates agency guidance that several appellate courts had explicitly rejected as inconsistent with the FLSA.

The DOL announced the move with little fanfare. In a brief statement posted on its website on January 5, it said:

On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The DOL rolled out the six-part test in 2010 in a Fact Sheet issued by the Wage and Hour Division. The test provided that an unpaid intern at a for-profit company would be deemed an employee under the FLSA unless all six factors—requiring in essence that the internship mirror the type of instruction received in a classroom setting and that the employer “derive[] no immediate advantage from the activities of the intern”—were met. The upshot of the test was that if the company received any economic benefit from the intern’s services, the intern was an employee and therefore entitled to minimum wage, overtime, and other protections of the FLSA.

Spurred by the DOL’s guidance, plaintiffs filed a flurry of lawsuits, especially in the Southern and Eastern Districts of New York. But despite some initial success, their claims were not well received. The critical blow came in 2015 from the Second Circuit, which in Glatt v. Fox Searchlight Picture Searchlight emphatically rejected the DOL’s test, stating, “[W]e do not find it persuasive, and we will not defer to it.” Instead, it said, courts should examine the internship relationship as a whole and determine the “primary beneficiary.” It crafted its own list of seven non-exhaustive factors designed to answer that question. Other courts soon followed the Second Circuit’s lead, capped off by the Ninth Circuit’s ruling in late December.

For the new leadership at the DOL, that was the final blow. In the wake of the Ninth Circuit’s decision, the agency not only scrapped the six-factor test entirely, but adopted the seven-factor Glatt test verbatim in a new Fact Sheet.

While the DOL’s action marks the official end of the short-lived six factors, the history books will note that the Glatt decision itself was the more significant event in the brief shelf-life of internship litigation. As we have noted previously in this space, the Glatt court not only adopted a more employer-friendly test than the DOL and the plaintiffs’ bar had advocated; it also expressed grave doubts about whether lawsuits by interns would be suitable for class or collective action treatment. The DOL’s new Fact Sheet reiterates those doubts, stating, “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”

That aspect of the ruling, more than its resolution of the merits, was likely the beginning of the end for internship lawsuits. In the months and years since Glatt was decided, the number of internship lawsuits has dropped precipitously.

At this point, only the college student depicted recently in The Onion  seems to be holding out hope. But as we’ve advised many times, employers should not get complacent. Unpaid interns, no matter how willing they are to work for free, are not a substitute for paid employees and should not be treated as glorified volunteer coffee-fetchers. As the new DOL factors make clear, internship experiences still must be predominantly educational in character. If not, it will be the interns (and their lawyers) giving employers a harsh lesson in wage and hour compliance.

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 Kara Goodwin and Noah Finkel

Seyfarth Synopsis: The Ninth Circuit recently joined the Second, Fourth, Eighth, and D.C. Circuits in holding that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole, rather than each individual hour within the workweek.

Yes, Virginia, contrary to the contentions of some plaintiffs’ counsel, the FLSA does allow for flexibility in how employers compensate their employees. In the recent case of Douglas v. Xerox Business Services, the Ninth Circuit rejected the argument that the FLSA measures minimum-wage compliance on an hour-by-hour basis; instead, the Ninth Circuit copied the other circuits that have addressed the issue and concluded that minimum-wage compliance is measured by weekly per-hour averages.

The plaintiffs—customer service representatives at call centers run by Xerox—were paid under what the court described as a “convoluted” and “mind-numbingly complex payment plan” where employees earned different rates depending on the task and the time spent on that task. In reality, the pay arrangement was not terribly difficult to discern. For certain defined activities like trainings and meetings, employees received a flat rate per hour; for time spent managing inbound calls, employees were paid a variable rate calculated based on a matrix of qualitative and efficiency controls; all remaining tasks had no specific designated rate.

At the end of each workweek, Xerox totaled all amounts earned (for defined activities and for activities paid at the variable rate) and divided that total by the number of hours worked that week. If the resulting average hourly wage equaled or exceeded minimum wage, Xerox did not pay the employee anything more. But if the average hourly wage fell below minimum wage, Xerox gave the employee subsidy pay to bump the average hourly wage up to minimum wage.

In the plaintiffs’ view, because Xerox averaged across a workweek, it compensated above minimum wage for some hours and below minimum wage for others, thereby violating the FLSA. Plaintiffs sought back pay for each hour they worked at sub-minimum wage because, they claimed, the FLSA bars an employer from paying below minimum wage for a single hour.

The Ninth Circuit disagreed and concluded that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole and, as such, Xerox properly compensated employees for all hours worked by using a workweek average to arrive at the appropriate wage.

Although the FLSA’s “text, structure, and purpose” provided “few answers” to the per-hour versus per-workweek question, the Department of Labor’s longstanding per-workweek construction and decisions by sister circuits shaped the Ninth Circuit’s holding. The Department of Labor adopted the per-workweek measure just over a year and a half after the FLSA was passed in 1938 and has never deviated from this understanding: “[T]he workweek [is] the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of [the minimum wage].”

Courts—including every circuit that has addressed the issue—have overwhelmingly followed the Department of Labor’s guidance. The Second Circuit first embraced the per-workweek construction in 1960 in United States v. Klinghoffer Brothers Realty Corp., explaining that “the [c]ongressional purpose is accomplished so long as the total weekly wage paid by an employer meets the minimum weekly requirements of the statute.” The Fourth (Blankenship v. Thurston Motor Lines, Inc.), Eighth (Hensley v. MacMillan Bloedel Containers, Inc.), D.C. (Dove v. Coupe), and now Ninth Circuits have also agreed that minimum wage compliance is measured by the workweek as a whole. No circuit has taken a contrary position.

As is often the case, plaintiffs relied heavily on the fact that the “FLSA is remedial legislation” that “must be construed broadly in favor of employees” (if you are a frequent reader of this blog you are aware of our feelings on this language as described in detail here) and argued that a per-hour approach is necessary to ensure workers are protected from wage and hour abuses. But, as the Ninth Circuit pointed out, there is no empirical evidence that broad application of the workweek standard disadvantages employees in any way. As this case makes clear, even if employees (or their attorneys) are unhappy with an employer’s pay plan, there is no violation of the FLSA’s minimum wage provision so long as an employee’s total compensation for the week divided by total hours worked results in a rate that is at or above the minimum wage.

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.

Co-authored by Cheryl Luce, Kyla Miller, and Noah Finkel

Seyfarth Synopsis: A recent decision highlights why the FLSA is not always the remedial statute created to protect low-income workers by holding that four commission-based sales representatives, each earning six figures, were not exempt from the overtime requirements because they were not paid on a salary basis.

Our readers are well aware that under the FLSA, employers are required to pay employees overtime equal to time and one-half the regular rate for all hours worked over 40 hours in a workweek unless an exemption applies. When making exempt classification decisions, the focus tends to be on whether employees are doing the kind of work that would satisfy the applicable duties test and whether employees are making enough to satisfy the income thresholds. But the FLSA exemptions don’t concern only how much employees are paid, but also how they are paid. Though sometimes overlooked, technical requirements about how employees are paid can carry the day in a misclassification lawsuit, leaving a trail of decisions that often seem contrary to the purpose set out by the creators of the FLSA. This was one such decision.

This decision illustrates how the FLSA often is applied in a way that is a far cry from what it was originally intended to be: an Act passed during the Great Depression to ensure a living wage for working Americans. In this case, the U.S. District Court for the Eastern District of Tennessee denied the defendants’ motion for summary judgment, finding that four highly compensated sales representatives, who were paid on a commission basis, were not exempt from FLSA’s overtime provisions despite the fact that the plaintiffs each earned well over $100,000 per year. In fact, one sales representative topped out at over $900,000 per year. Across the relevant period, the plaintiffs’ compensation averaged about $470,00 per year.

The defendants argued that the plaintiffs were exempt from overtime wages under the highly compensated employee exception. Under this exemption, the employee must perform office or non-manual work and be paid a total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) and must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee. The defendants argued that even though the plaintiffs were paid by commissions on sales, the highly compensated employee exemption applies because the commissions are “fees,” so they were paid on a fee basis. The plaintiffs argued that the highly compensated employee exemption applies only when employees are paid on a salary basis and that the commissions they received were not “fees.” The court agreed with the plaintiffs, holding that the plaintiffs’ compensation did not meet the highly compensated employee exemption’s salary basis test.

We previously have discussed courts’ construction of the FLSA as “remedial and humanitarian in purpose and must not be interpreted or applied in a narrow, grudging manner.” We have argued that courts apply this construction inconsistently and often illogically. And this case serves as one more challenge to the unsupported dicta that we find in many cases stating that, because the FLSA is “remedial and humanitarian,” its exemptions must be “narrowly construed.” Here, we have employees who are very high earners, with two employees making close to one million dollars in a single year, and whose employer is now forced to pay them additional compensation and liquidated damages (and a fee petition for their lawyers is sure to come next). The court construed the FLSA exemptions against these employees narrowly, and we can discern no remedial or humanitarian purpose that the FLSA is serving here. Rather, this decision reflects the FLSA as a statue riddled with technical traps and rigid rules that do not necessarily serve to ensure a living wage for working Americans.

Authored By Alex Passantino

As we’ve reported previously, among the items the Department of Labor identified earlier this year in its Regulatory Agenda was a Notice of Proposed Rulemaking (NPRM) seeking to rescind portions of a 2011 rule that restricted tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. On October 24, 2017, that NPRM was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval. One of the cases challenging the validity of the 2011 rulemaking may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on November 7. With that deadline looming, it’s possible that the Administration is seeking to moot the issue before the Supreme Court has the chance to address some of the issues related to agency deference.

After OIRA clears the NPRM, it will be sent to the Federal Register for the public to provide comments in response to the Department’s proposal. At that time, we’ll know the specifics of the proposal and will be able to provide more guidance on what this means for employers. Stay tuned.

 

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.