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.

Seyfarth Synopsis: The New York Court of Appeals recently rejected the narrow view of the Unemployment Insurance Appeal Board and found that substantial evidence did not support a finding that certain yoga instructors were misclassified as independent contractors.

Co-authored by Robert S. Whitman and Howard M. Wexler

As wage and hour “gurus” are aware, the “mantra” of most federal and state agencies these days is a restrictive view of independent contractor status. Accordingly, in a rare yet welcome decision that we hope will yield some good “karma,” the New York Court of Appeals held in Matter of Yoga Vida NYC, Inc. that substantial evidence did not warrant the Appeals Board’s finding certain yoga instructors were misclassified as independent contractors.

In Yoga Vida, a yoga studio employed both staff instructors (who were classified as employees) and non-staff instructors (who were classified as independent contractors). The State’s Unemployment Insurance Appeal Board held that the non-staff instructors were misclassified, applying a strict reading of the employer-employee test under the New York Labor Law.

The Court of Appeals held that substantial evidence did not warrant the Appeals Board’s finding. The Court relied upon the facts that the non-staff instructors:

  • Were paid only if a certain number of students attend their classes (unlike staff instructors, who were paid regardless of whether anyone attends a class);
  • Had no restrictions on where they could teach, and were free to inform Yoga Vida students of classes they teach at other studios so the students can follow them; and
  • Were not required to attend meetings or receive training.

Rejecting the position of the Appeals Board and the dissenting judge, the court held that the above factors outweighed the fact that Yoga Vida:

  • Inquired if the instructors had proper licenses, published the master schedule on its web site, and provided the space for the classes;
  • Generally determined what fee was charged, collected the fee directly from the students, and provided a substitute instructor if the non-staff instructor was unable to teach a class and could not find a substitute; and
  • Received feedback about the instructors from the students.

In reaching this decision, the Court held that, “The requirement that the work be done properly is a condition just as readily required of an independent contractor as of an employee and not conclusive as to either.”

Although it is certainly a welcome decision for employers, it is not time to say “Namaste” just yet. The mere fact that a worker is labeled an “independent contractor” and willing to work as such (without receiving minimum wage or an overtime premium) is not enough to remove the worker from the coverage of wage-hour laws. Careful compliance for employers in classifying workers as independent contractors rather than employees remains as important as ever. Om.

Authored by Rob Whitman

Seyfarth Synopsis: Unpaid interns for Hearst magazines have been rebuffed again in their effort to be declared eligible to receive wages under the FLSA and the New York Labor Law.

In an August 24, 2016 ruling, Judge J. Paul Oetken of the Southern District of New York held that six interns, who worked for Marie Claire, Seventeen, Cosmopolitan, Esquire, and Harper’s Bazaar, were not employees as a matter of law and granted summary judgment to Hearst. After reviewing each of their circumstances individually, the court held:

These interns worked at Hearst magazines for academic credit, around academic schedules if they had them, with the understanding that they would be unpaid and were not guaranteed an offer of paid employment at the end of the internships. They learned practical skills and gained the benefit of job references, hands-on training, and exposure to the inner workings of industries in which they had each expressed an interest.

The six named plaintiffs were the only ones remaining after the Second Circuit, in July 2015, denied their bid for class and collective certification. The court in that decision also articulated a new set of factors for determining whether unpaid interns at for-profit companies are “trainees” (who are not entitled to compensation) or “employees” (who must receive minimum wage and overtime premiums).

The Second Circuit’s decision adopted the “primary beneficiary” test to determine internship status—i.e., whether the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” Applying that test to the Hearst interns, Judge Oetken concluded, “[w]hile [the six plaintiffs’] internships involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential, each Plaintiff benefited in tangible and intangible ways from his or her internship, and some continue to do so today as they seek jobs in fashion and publishing.”

Among the factors he relied on: the relatively brief duration of the internships, typically limited to college semesters or summer breaks; the interns’ opportunities for observation and learning, such as “Cosmo U,” a program in which senior editors spoke about their career paths; and the receipt of or opportunity for academic credit.

Aside from its detailed discussion of the facts of the plaintiffs’ internships, the court’s decision, Wang v. The Hearst Corporation, is notable for two reasons:

  1. It shows the practical impact of a denial of class and collective certification. Although the court addressed the six named plaintiffs’ claims in a single opinion, it was effectively a series of rulings on each intern’s individualized circumstances. As the court noted, some of the factors—such as the receipt of college credit for the internships—weighed differently for the different plaintiffs. But in the end, the result for each of them, given the “totality of the circumstances” in their particular cases, was the same.
  2. The court’s decision applied equally to the plaintiffs’ claims under the FLSA and the NY Labor Law. This issue was left somewhat unsettled after the Second Circuit’s 2015 decision, which noted the similarities in the definitions of “employee” under the two statutes but did not explicitly say that the ruling pertained to both. Judge Oetken, following the earlier lead of a Southern District colleague, held that his ruling decided the claims under federal and NY law.

The Hearst decision is not the first to grant summary judgment under the Second Circuit’s factors. In March 2016, a Southern District Judge found that an intern for the now-late Gawker website was properly treated as such and was not entitled to wages. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that interns will be deemed to be employees, nor should they make for-profit employers complacent about not paying interns. But they signal that, where interns have a bona fide learning experience in coordination with their academic pursuits, they need not be paid as a matter of law.

Co-authored by Kat Jugo and Kevin Young

The lawyers in our readership are quite familiar with the fact that, as a general matter, practicing attorneys are not entitled to overtime pay under the FLSA. But does that exempt status change when an attorney is retained only to review and flag documents? No it does not, per a decision issued last week by a federal judge in New York.

The case, Henig v. Quinn Emanuel, et al., was filed by a licensed attorney who was employed by a staffing agency. Through the agency, the attorney was placed at Quinn Emanuel, an international law firm, for a two-month document review project. There, he was instructed and trained to review documents and apply tags to indicate whether they were: (i) responsive; (ii) privileged; (iii) confidential; and/or (iv) “Key” or “Interesting.”

In March 2013, the attorney filed suit in New York’s Southern District, claiming that he was misclassified as exempt from the overtime requirements of the FLSA and the New York Labor Law. After limited discovery, Quinn Emanuel and the staffing agency moved for summary judgment, arguing that the attorney was properly classified under the professional exemption. That exemption applies to various professionals, including, as a general matter, lawyers who (i) hold a license permitting the practice of law, and (ii) are engaged in the practice of law.

The attorney claimed that he was misclassified because he was not engaged in the practice of law. He asserted that his review work was rote and automated, and that it did not require him to exercise legal judgment. For example, he alleged that while reviewing a document for privilege, he was simply identifying whether it was authored, sent, or received by an attorney. Such work, he argued, did not require legal judgment and, therefore, did not constitute the practice of law.

The court disagreed and granted summary judgment to Quinn Emanuel and the staffing agency. Unmoved by the fact that document review may sometimes be routine or tightly restrained, the court found that the attorney exercised at least a modicum of legal judgment. Such judgment included, for example, his decisions to tag certain documents as “Key,” as well as his comments on the potentially privileged nature of other documents. For instance, the attorney testified that he tagged a document as “Key” because “it didn’t seem like something that should be buried.”

The ruling comes on the heels of a less than favorable Second Circuit ruling in Lola v. Skadden Arps, et al., a similar case filed by a contract attorney. The district court decision in that case, which we wrote about just over a year ago, dismissed the plaintiff’s claims on similar grounds, albeit pursuant to a Rule 12(b)(6) motion to dismiss (rather than a Rule 56 motion for summary judgment). Unfortunately, that decision was later vacated and remanded by the Second Circuit, which found that document review does not per se constitute the practice of law, and the plaintiff’s claim that he did not exercise any legal judgment was enough to survive a motion to dismiss.

If the story had ended with the Second Circuit’s decision in Skadden, then law firms in New York, Connecticut, and Vermont would be left to wonder whether courts might uphold an exempt classification for document review attorneys. This recent victory for Quinn Emanuel makes clear that they might, so long as the attorneys’ work includes some professional judgment.

The takeaway from this decision comes with two words of caution, however. First, as in Skadden, the decision is subject to appeal. It is difficult to predict whether the fact that the Second Circuit so recently weighed in on the exempt status of contract attorneys (in Skadden) will make it more likely or less likely to do so again in this case. Second, in assessing what constitutes the “practice of law,” both decisions—Skadden and Quinn Emanuel—looked to definitions from the state in which the given plaintiff was licensed to practice. Both state’s definitions included the exercise of legal judgment within their definitions. For states where the definitions vary, the analysis may vary as well.

Co-authored by Robert S. Whitman and Howard M. Wexler

Expert witness fees are not recoverable under the FLSA. So held the Second Circuit in a decision that highlights a strategy we have previously discussed for employers to fend off class/collective actions.

In Gortat v. Capala Brothers, Inc., the plaintiffs alleged that they were denied wages, including overtime compensation, throughout their employment. After six years of litigation, the case went to trial and the plaintiffs prevailed, winning unpaid wages as well as $514,284.00 in attorney’s fees and $68,294.50 in costs. In support of their claims, the plaintiffs retained an economic expert to aid in establishing their alleged damages.

In their appeal to the Second Circuit of the fee award, the defendants argued that the expert fees (which constituted $10,425 of the attorney’s fee award ) are not recoverable under the FLSA. The court agreed. It relied on the text of the FLSA, which states that where a defendant has violated the Act, “the court … shall, in addition to any judgment awarded to the … plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” Based on this language, the court said that the plaintiffs were not entitled to be reimbursed for the expert fees, as the FLSA does not explicitly provide for such reimbursement. The Second Circuit then vacated the award and remanded the case to the District Court to determine if the New York Labor Law authorizes the award of such fees.

In isolation, this decision is hardly a game changer. However, we have previously written about the increasing importance of a trial plan for wage and hour class/collective actions to ensure that cases can effectively be tried on a multi-plaintiff basis rather than wind up as hundreds (or potentially thousands) of mini-trials. In Tyson Foods, Inc. v. Bouaphakeo, which the Supreme Court will hear next Term, one of the issues before the Court will be whether liability and damages may be determined by statistical techniques that presume all class or collective members are similar.

Plaintiffs often resist coming up with a trial plan during discovery or briefing on certification of the class/collective action, arguing that such details can be left until the eve of trial. Now, to the extent plaintiffs retain an expert to aid in formulating a trial plan earlier in the case, Gortat makes it clear that, at least in the Second Circuit, they will have to pay for the expert out of their own pocket. Having to foot the bill for such costs, with no chance of recouping them later on, may cause plaintiffs’ counsel to rethink the scope of the class/collective action they wish to pursue, or whether to pursue one at all.

Co-authored by Robert S. Whitman and Howard M. Wexler

With Wimbledon in full swing, and the U.S. Open just a few weeks away, the Second Circuit awarded game, set and match to the U.S. Tennis Association in a challenge to the independent contractor status of the tournament’s umpires. In Meyer v. USTA, which we previously wrote about here, the court upheld a District Court’s 2014 ruling that the umpires were properly classified as contractors, not employees, under the FLSA and NY Labor Law.

The plaintiffs in Meyer were umpires who worked at the U.S. Open pursuant to independent contractor agreements prepared by the USTA. Each umpire received a fixed daily rate (between $115 and $200) as well as reimbursement for some travel, meal and equipment costs. They filed a putative class/collective action alleging that they should have been classified as employees, and thus were entitled to overtime pay.

The District Court applied the “economic reality” test for whether the umpires were employees or independent contractors under the FLSA. The factors were: (1) the degree of control exercised by the putative employer; (2) the workers’ opportunity for profit or loss; (3) the degree of skill and independent initiative required to perform the work; (4) the permanence or duration of the working relationship; and (5) the extent to which the work is an integral part of the employer’s business. Based on a review of these factors, the District Court declared held that the USTA aced the misclassification test and that the chair umpires were properly classified. It reached the same conclusion under the New York Labor Law as well.

Similar to the “Hawk-Eye” review system used to review chair umpire calls during the U.S. Open, the Second Circuit undertook a de novo review and the USTA held serve by getting the decision affirmed. In relevant part, the Court noted:

  • The umpires exercise a high degree of independent initiative and control in officiating tennis matches;
  • They are free to decide independently each year whether to apply to officiate at the U.S. Open, which lasts only a few weeks, as well as which days they wish to officiate;
  • They are free to serve as umpires for other tennis associations, and maintain other non-umpiring jobs throughout the year;
  • They do not receive fringe benefits and are not on the USTA’s payroll; and
  • They generally claimed independent contractor status on their income tax returns.

This was by no means a straight-sets victory for the USTA given the litigation costs it incurred and risks it faced in the event the Second Circuit held that the District Court double-faulted in reaching its decision. The case should be an object lesson for employers: the mere fact that a worker is labeled an “independent contractor” and willing to work as such (without receiving minimum wage or an overtime premium) is not by itself enough to remove the worker from the coverage of wage-hour laws. Careful compliance for employers in classifying workers as independent contractors rather than employees, with an eye toward eliminating any unforced errors, remains as important as ever.