By David S. Baffa, Noah A. Finkel, and Joseph S. Turner

Seyfarth Synopsis: Congress has once again proposed legislation that would seek to ban mandatory workplace arbitration of employment claims, despite a string of United States Supreme Court decisions upholding arbitration and class/collective action waivers as a lawful and appropriate mechanism to resolve workplace disputes. 

H.R. 7109, the Restoring Justice for Workers Act, was introduced by Representative Jerrold Nadler, D-N.Y., and Representative Bobby Scott, D-Va., with 58 Democratic co-sponsors.  Similar legislation is expected to be introduced in the Senate by Senator Patty Murray, D-Wash, with eight Democratic co-sponsors.  The proposed legislation would  overturn the U.S. Supreme Court’s decision in Epic Systems, and would amend the National Labor Relations Act to specifically prohibit class and collective action waivers under a new “Section 8(a)(6).”

As proposed, the new law would prohibit any pre-dispute agreement requiring arbitration of employment disputes.  The law also would prohibit post-dispute agreements to arbitrate, unless the agreement is obtained without coercion or condition of employment-related privilege or benefit.  Employees entering into voluntary post-dispute agreements also must be made aware of their rights under what would be a new section of the National Labor Relations Act.  That new section would make it an unfair labor practice to “enter into or attempt to enforce any [pre-dispute] agreement” that would bar or prohibit class or collective actions relating to employment, or to retaliate against any employee for refusing to promise not to pursue a class claim.

While there is no chance that this bill will move in the House of Representatives as currently comprised, it previews the legislation Democrats are likely to pursue if the House changes control next week.  A bill like this could even put a narrowly-controlled Republican Senate to the test, as the perceived unfairness of pre-dispute mandatory arbitration has been the target of considerable media attention, social media campaigns, and as recently as yesterday — large-scale employee activism.  As such, protecting mandatory arbitration of workplace disputes may be an issue on which even conservative legislators might waver.

Indeed, this is not Congress’ first attempt to ban workplace arbitration.  Before the Supreme Court’s decision in Epic Systems, and as part of the #metoo movement, Congress introduced in December 2017, bi-partisan legislation ostensibly aimed at preventing employers from enforcing arbitration agreements of sexual harassment claims.  That bill, “Ending Forced Arbitration of  Sexual Harassment Act,” was introduced by Senator Kristen Gillibrand, D-NY (and attracted some Republic support), but was penned in a way that would actually ban workplace arbitration in its entirety.  We figured it was an oversight at the time, as written in our blog, “Slow Down Congress: You Are About to Render the FAA Inapplicable to Employment Disputes (and Class Waivers), and You Probably Don’t Realize It.”  Clearly, this week’s Halloween bill was no accident.

Most legislative action against workplace arbitration has centered on the idea of prohibiting arbitration of sexual harassment claims, and by extension all other Title VII claims.  Among the earliest efforts begun in 2009, when — perhaps ironically — then-Senator Al Franken pursued the Arbitration Fairness Act, which sought to prohibit the mandatory arbitration of sexual harassment claims.  While that legislation was not successful, Senator Franken’s efforts led to provisions in the Department of Defense Appropriations Act of 2010, which to this day prohibits contractors to the U.S. DoD, with limited exceptions, from requiring arbitration of Title VII claims (including sexual harassment claims).  Under President Obama, the DoD prohibition was expanded by his Fair Pay and Safe Workplaces Executive Order on July 31, 2014, effective January 2016, to all federal contractors.  President Trump, however, rescinded this EO shortly after taking office in late 2016.

Several state legislatures have sought to ban mandatory arbitration of sexual harassment claims.  Washington, Maryland, and New York each passed laws that would prohibit mandatory arbitration of sexual harassment claims, but those laws are either explicitly or presumptively preempted by the Federal Arbitration Act.  See our Client Alert on the New York Ban.

Facing increasing headwinds against mandatory arbitration of sexual harassment claims, several large companies have proactively and publicly declared that they will exempt sexual harassment claims from existing mandatory arbitration programs.  Other companies also are considering more limited arbitration programs, such as mandatory arbitration and class waivers for wage-hour claims only.  But the Halloween bill and other attempts to ban workplace arbitration altogether are also becoming more common following Epic.  The California legislature passed a law that would have barred arbitration of any violation of the California Labor Code or the Fair Employment and Housing Act, but it was vetoed by Governor Brown on September 30, 2018.  Governor Brown’s term ends this year, and on November 6th Californians will pick a new Governor of California to take office on January 7, 2019.

Kentucky also recently joined the fray.  On September 27, 2018, the Kentucky Supreme Court, in Northern Kentucky Area Development District v. Snyder shot down a workplace arbitration agreement on the basis that a mandatory arbitration agreement for employment claims is prohibited by Kentucky law, and not preempted by the Federal Arbitration Act.   Kentucky’s law prohibits any employer from requiring as a condition of employment an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit…”.  The Court ruled that the statute was not an anti-arbitration clause provision, but an anti-employment discrimination provision.  Of course, calling arbitration a diminution of rights are “fightin’ words” to the U.S. Supreme Court, so we remain on the lookout for a cert petition.

For now, employers are staying the course.  Many companies remain interested in implementing dispute resolution procedures and mandatory arbitration programs that would limit their exposure to class and collective actions.  Most employers report faster and more efficient resolution of workplace grievances and concerns, with more ability to direct money and time to the resolution of real complaints, rather than simply to line the pockets of class action plaintiffs’ lawyers.

For more information on this topic, please contact the authors, your Seyfarth Attorney, or any member of the Firm’s Labor & Employee Relations Team.

Authored by Andrew L. Scroggins, Noah A. Finkel, and David S. Baffa

Seyfarth Synopsis:  The NLRB has withdrawn the significant concession it offered at oral argument on the nature of the NLRA rights it seeks to assert in the face of employers’ mandatory arbitration programs.

As noted in our earlier blog post, the Supreme Court heard oral argument on October 2, 2017, on one of the most significant employment law cases in some time, to consider whether to permit employers to use mandatory arbitration programs that contain waivers of collective and class actions.

In the most dramatic moment of the morning, the NLRB’s General Counsel Richard Griffin made a significant admission.[1]

In response to a series of questions by a skeptical Chief Justice Roberts, Griffin agreed that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this. He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Next to the podium was counsel for the employees, Daniel Ortiz of the University of Virginia School of Law. Ortiz did not agree with that concession, thus seeming to highlight a fundamental dissent from the NLRB’s position. This gap was all the more notable for the fact that the Solicitor General already had abandoned the NLRB to side with the employers.

In an unusual development, just one day after the argument, the NLRB’s Griffin sent a short letter to the Court disavowing its argument and adopting the position staked out by Ortiz:

I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning by Chief Justice Roberts found at pages 47-50 of the transcript of the oral argument.  My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts found at pages 60-64 of the transcript of the oral argument, were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions.

Such letters are not unprecedented. Still, it is a remarkable about face. For the justices who already seemed skeptical of the NLRB’s position, this change of position may only serve to highlight that the NLRB is not clear in the reasoning of its position or the effects such reasoning may have if ordered more broadly by the Court to apply to future cases.

[1] The New York Times highlighted Griffin’s concession:

The labor board’s general counsel, Richard F. Griffin Jr., argued for the workers. He made a concession at odds with the position of another lawyer on his side.

Mr. Griffin said that employment contracts could not require workers to give up collective action in arbitration but that the private entities that conduct arbitration could require that cases be pursued one by one.

If that is so, Justice Samuel A. Alito Jr. responded, “you have not achieved very much because, instead of having an agreement that says no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.”

Daniel R. Ortiz, a law professor at the University of Virginia who also argued for the workers, took a different approach…

Authored by Holger G. Besch 

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

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

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

Co-authored by Noah Finkel and Andrew Scroggins

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

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

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

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

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

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

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

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

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

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

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

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

Case Background and Circuit Split

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

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

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

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

Other Important Questions To Be Resolved

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

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

iStock-513046321Authored by John P. Phillips

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

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

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

Case Background

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

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

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

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

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

Potential Implications for FLSA Collective Actions

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

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

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

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

ghost-582113_1920Authored by Jeff Glaser

 

Seyfarth Synopsis: The Eleventh Circuit Court of Appeals cites to the FLSA’s purpose and spirit in upholding the dismissal of a minimum wage and overtime claim brought by a highly paid computer software and hardware engineer.

As we’ve discussed on this blog before, the Supreme Court’s decision in Christopher v SmithKline Beecham Corp. had many layers. In holding that pharmaceutical sales representatives were subject to the FLSA’s outside sales exemption, the Court touched on the purpose and spirit of the Act. Justice Alito, the author of the majority opinion, explained that highly paid employees, such as pharmaceutical sales representatives, are “hardly the kind of employees that the FLSA was intended to protect.” This dicta could apply well beyond the confines of pharmaceutical representatives and the outside sales exemption. It could suggest an additional consideration in any FLSA lawsuit involving highly paid individuals.

Last week, the Eleventh Circuit picked up and expanded this line with its decision in Pioch v. Ibex Engineering Services, Inc. Pioch worked at Ibex for almost ten years as a computer software and hardware engineer. Ibex paid him on an hourly basis, ranging from $50 to $85.40 per hour. He received straight time for any hours he worked over 40 in a week, but, based on the computer professional exemption, Pioch did not receive an overtime premium. The computer professional exemption applies to employees who perform certain computer-related duties and are paid at least $455 per week or, if compensated on an hourly basis, $27.63 per hour.

Pioch resigned from Ibex after an internal investigation concluded that he improperly collected per diem payments amounting to nearly $150,000. As a result of the investigation, Ibex withheld Pioch’s final paycheck of $13,367.20, which represented three weeks of work. Pioch brought suit in the Southern District of Florida, alleging, among other things, that Ibex violated the FLSA’s minimum wage and overtime requirements by withholding his last paycheck and failing to compensate him at all for three weeks of employment.

The district court granted Ibex summary judgment on Pioch’s FLSA claims, finding that the computer professional exemption applied to Pioch’s entire employment with Ibex, including the last three weeks of employment when he didn’t receive any pay at all.

The Eleventh Circuit agreed. In reaching this decision, the court followed the Supreme Court’s lead in Christopher, and engaged in its own analysis of the purpose and spirit of the FLSA. It explained that “read[ing] the FLSA blindly, without appreciation for the social goals Congress sought, would … do violence to the FLSA’s spirit.” After reviewing these goals, the court concluded that Congress intended the FLSA to “aid the unprotected, unorganized, and lowest paid of the nation’s working population”—not “a highly-paid hourly employee typically earning over six figures a year,” like Pioch.

Guided by this interpretation, the Eleventh Circuit held that Pioch’s exempt status did not “evaporate” simply because Ibex withheld his final paycheck. Ibex promised to pay Pioch many times more than the minimum amount required under the computer professional exemption. Ibex’s alleged failure to follow this promise by withholding Pioch’s final paycheck is a matter for state contract law, not the FLSA. To this point, the court explained that “[w]hat Mr. Pioch is essentially trying to do is assert a state-law breach of contract claim, for his agreed-to hourly rate, through the FLSA.” The FLSA, though, is “not a vehicle for litigating breach of contract disputes,” and therefore Pioch’s FLSA claim was properly dismissed.

Like Christopher, the Pioch decision is helpful to employers on multiple levels. Narrowly, it finds that the withholding of a final paycheck does not invalidate the exempt status of an hourly employee otherwise subject to the computer professional exemption. More broadly, it indicates, as the Supreme Court did, that the spirit and purpose of the FLSA is a valid consideration when determining the Act’s application to highly paid employees.

Co-authored by Gerald L. Maatman, Jr., Christina M. Janice, Michael W. Stevens, and Kylie R. Byron

Make no mistake, the role of Justice of the U.S. Supreme Court profoundly impacts the balance of power among the branches of our government.  Now, with the untimely passing of Justice Antonin Scalia on February 13, the void created in the balance within the Supreme Court itself cannot be overstated. President Obama’s promptly convened news conference about nominating a replacement, and the Republican presidential debate’s focus on confirming – or not confirming – a nominee, demonstrate that in the space of 24 hours the future composition of the Supreme Court has become one of the most important issues facing the country and its governance.

So what does this mean for employers?

First, many cases pending on the Supreme Court’s docket now almost certainly will reach a different outcome than they would have had Justice Scalia remained on the Supreme Court through the end of the June 2016 Term.  Several key cases, including some with important ramifications for employers, have not yet been decided.

Second, the previous ideological makeup of the Supreme Court — generally thought of as five conservatives and four liberals — now has shifted to an even split between conservative and liberal Justices as the work of the Supreme Court continues.  This tenuous balance likely will change again, but the complexion of the Supreme Court largely will depend on whether President Obama is able to secure the confirmation of a replacement, or if the vacancy remains open through the upcoming presidential election.  Whether President Obama or his successor nominates the next Justice may influence the direction of the Supreme Court for years or decades to come.

Some Context Regarding The Supreme Court

The death of Justice Scalia means that the normally nine-member Supreme Court will probably be down to eight Justices when it rules this Term on such divisive issues as abortion rights, immigration, affirmative action, and the power of public-sector unions.

President Obama already has stated that he intends to nominate a replacement, and the White House has signaled that it has been preparing a slate of potential nominees. However, it is unclear whether the Republican-controlled Senate will allow a nomination to proceed, or if the Senate will confirm an Obama nominee.  Even if a nominee is confirmed, he or she is unlikely to join the Supreme Court prior to the end of its 2016 Term in June.

Given the political showdown that is all but sure to consume the White House and Congress, it is substantially likely that several important decisions will be split on a 4 – 4 vote.  When the Supreme Court is equally divided, the lower court ruling remains in place but no national precedent is set.  Thus, several rulings this Term that were expected to change American law instead may only extend the status quo.

Moreover, Justice Scalia’s death affects more cases on the Supreme Court’s docket than those that have yet to be argued, or voted upon by the Supreme Court. His death also affects cases where oral argument has taken place, but rulings have not yet been issued.  His previous votes in any such cases no longer count.  Thus, if a preliminary vote on a case was 5 – 4 with Scalia in the majority, that opinion would have provided national precedent.  Now, with his vote eliminated, a 4 – 4 decision emerges that does not affect the state of the law.

Cases On The Docket

Over the past decade, the U.S. Supreme Court – with its conservative faction led by Justice Scalia – increasingly has shaped the contours of complex litigation through its rulings on class actions, employment-related litigation, and governmental enforcement issues.  Justice Scalia was at the center of these rulings. Two significant examples include his authorship of the 2011 decision in Wal-Mart Stores, Inc. v. Dukes  and the 2013 decision in Comcast Corp. v. Behrend, both of which dramatically changed the rules for when and how class actions may proceed.

This Term also includes several cases that have the potential to affect employers in the realm of consumer or employment class actions, labor relations, and affirmative action.  Supreme Court prognosticators were expecting several of these decisions to be decided 5 – 4 and set national precedent.  Although we cannot predict with certainty how the Supreme Court will rule, it now appears substantially likelier that many of the decisions will turn out 4 – 4, leaving the lower court decision intact and, in some cases, failing to resolve circuit splits that led to the grant of certiorari in the first place.

Key cases affecting employers include:

  • Spokeo, Inc. v. Robins, No. 13-1339 – Widely considered the most important class action case of the current Supreme Court term, Spokeo concerns whether individuals who lack allegations of actual injury, but claim a technical violation of a statutory right, can still file class actions.  The case involves the Fair Credit Reporting Act and liability for hiring procedures. Oral argument took place in November of 2015.
  • Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 – The case presents an opportunity for the Supreme Court to allow or forbid class actions that rely on a composite or “average plaintiff” or “average class member” for damages purposes, sometimes dubbed as “trial by formula.”  Brought under the Fair Labor Standards Act, this case presents an opportunity for the Supreme Court to determine whether differences between class members essentially prohibit class treatment or that averaging and aggregation are permissible.  Oral argument also took place in November of 2015.
  • Friedrichs v. Calif. Teachers Association, No. 14-915 – At issue in this case is whether public-sector employees may be compelled to contribute dues to a union.  Oral argument took place in January of 2016, and the five conservative Justices seemed ready to invalidate the law.  A 4 – 4 split would leave intact the lower court ruling that permitted the law to stand.
  • CRST Van Expedited, Inc. v. EEOC, No. 14-1375 – This closely watched case concerns the largest fee sanction award – approximately $4.7 million – ever issued against the Commission.  The fee was issued in favor of an employer after a district court ruled that the EEOC failed to meet its pre-suit investigation obligations in a case involving dozens of claimants.  The Supreme Court is expected to clarify the obligations of the EEOC in prosecuting systemic lawsuits, and the grounds on which it may be sanctioned for initiating litigation without satisfying its duties under Title VII.  Oral argument is set for March.
  • Fisher v. University of Texas, No. 14-981 – This case involves the use of affirmative action programs in public university admissions processes.  Fisher had previously been up to the Supreme Court in 2013, at which point the it was remanded to the lower court for reconsideration.  At oral argument in December of 2015, the conservative Justices seemed ready to strike down the law. Because Justice Kagan has recused herself, it is possible that this case may still be decided on a 4 – 3 vote.
  • Heffernan v. Patterson, No. 14-1280 – This case concerns First Amendment freedoms of speech and association.  The Supreme Court is likely to determine what standards apply to public employers taking action on the basis of the assumed speech or assumed political affiliation of employees.  Oral argument took place in January of 2016.
  • Zubik v. Burwell, No. 14-1418 – This case addresses whether or not the government places an undue burden on religiously-affiliated employers by requiring them to opt out of the Affordable Care Act’s contraception coverage mandate.  Oral argument is set for March of 2016. A 4 – 4 split would affirm the Third Circuit’s holding that the Act places no substantial burden on employers and religiously-affiliated employers will be required to comply with the Act or face statutory penalties.

Seyfarth is monitoring each of these cases carefully, and likewise will be paying close attention as the process unfolds for the nomination of the next Supreme Court Justice.  The stakes for the future of employment law are high, and Seyfarth will keep you updated in real-time as developments occur.

Co-authored by Kara Goodwin and Noah Finkel

The U.S. Supreme Court recently agreed to resolve the question of whether “service advisors” at car dealerships—workers whose primary job responsibilities involve identifying service needs and selling service solutions to the dealership’s customers—are exempt from the Fair Labor Standard Act’s (“FLSA”) overtime pay requirements. Although the case involves a somewhat-discrete exemption that has been ruled on only a handful of times in the past four decades, far-reaching implications on the interpretation of FLSA exemptions may ride on the Supreme Court’s decision.

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 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 concluded (consistent with an unbroken line of authority from federal and state courts across the country) that service advisors fall within the FLSA’s exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles,” 29 U.S.C. § 213(b)(10)(A), because service advisors are “salesm[e]n … engaged in … servicing automobiles.”

The Ninth Circuit reversed, deferring to a Department of Labor regulatory definition stating that the exemption is limited to salesmen who sell vehicles and mechanics who service vehicles, thus excluding from the exemption service advisors (i.e., salesmen who sell services). In doing so, the Ninth Circuit acknowledged that its holding “conflicts with decisions of the Fourth and Fifth Circuits, several district courts, and the Supreme Court of Montana”—i.e., every other court to have considered the question—which had uniformly ignored or refused to defer to the Department of Labor’s “restrictive” interpretation of § 213(b)(10)(A) and recognized that the use of the disjunctive “or” in § 213(b)(10)(A) between the words “selling” and “servicing” means that the exemption applies to any salesman, partsman, or mechanic who is primarily engaged in either of those duties. In contrast, the Ninth Circuit concluded that a “natural reading” of the exemption suggested that Congress could not have intended that “selling” and “servicing” would apply to all three subjects (salesman, partsman, mechanic), proposing a similarly structured phrase involving what to do if “my dogs or cats were barking or meowing” and stating that the interpretation adopted by the other courts “would include a meowing dog and a barking cat.” Accordingly, the Ninth Circuit took a more narrow approach to interpreting the exemption, holding that Congress likely intended “salesman” to be connected only to “selling” automobiles, thus excluding service advisors (salesmen who sell services) from the exemption.

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 under 29 U.S.C. § 213(b)(10)(A) from the FLSA’s overtime-pay requirements.”

Potential Implications for FLSA Collective Actions

While the Supreme Court’s ruling on this issue undoubtedly will have immediate and significant impact on the nation’s 18,000 franchised car dealerships and estimated 45,000 service advisors, it may also have far-reaching implications for the interpretation of FLSA exemptions generally.

For example, in 2012, the Supreme Court rejected a “narrow” interpretation of the outside sales exemption in Christopher v. SmithKline Beecham Corp., which would have excluded pharmaceutical sales representatives, and favored a “functional,” “flexible,” and “realistic” rather than “technical” and “formalistic” approach to interpreting the FLSA exemption. Similarly here, the dealership is asking the Supreme Court to reject the Ninth Circuit’s narrow interpretation and to take a functional and realistic approach to interpreting § 213(b)(10)(A) because service advisors are “a paradigmatic example of a salesman engaged in servicing automobiles,” are “functionally equivalent” to salesmen, partsmen, and mechanics, and are similarly responsible for the selling and servicing of automobiles.” If the Supreme Court agrees, it would provide further evidence to support a more flexible and elastic approach to interpreting FLSA exemptions—a critical development as the Department of Labor issues its upcoming revisions to the white-collar exemptions.

Authored by Noah Finkel

As noted by this blog on several occasions, including most recently here, the U.S. Supreme Court and several appellate courts have grappled with the question of whether and to what extent a defendant facing a class or collective action can moot a case by offering a plaintiff complete relief under Rule 68 or in a settlement offer. Today the Supreme Court made clear in Campbell-Ewald Co. v. Gomez that an unaccepted offer of complete relief under Rule 68 does not render a case moot and thus does not end a purported class or collective action.

To be sure, the Court’s ruling narrows the grounds on which a defendant can obtain an early dismissal of a class or collective action by making a Rule 68 offer of complete relief to the class representative. As our colleagues explain here, the Court has now held that if a class representative rejects or declines to accept the offer, then “basic principles of contract law” mean that the offer has no force, and the class representative’s claim is not mooted. Indeed, under the express terms of Rule 68, an unaccepted offer of judgment expires after 14 days. (If an offer is accepted, then that may be a different story—particularly if the case is a collective action and not a class action, as discussed here.)

But does this make the mootness maneuver moot? No—and especially not in wage-hour cases, where in several classes of cases a defendant-employer readily can determine the maximum amount of a class representative’s claim for damages. As this blog has explained here, there is a better way for a defendant-employer to moot a class action, and that is by making a tender of complete relief to the plaintiff/class representative without reliance on Rule 68. Do not even reference a settlement agreement or release. Rather, make the tender unconditional. As many courts have held, if the plaintiff/class representative has been provided with all relief sought in the lawsuit for him or herself, and this is done before a class is certified or opt-in plaintiffs join a collective action, then there is no longer a live controversy between the parties on the merits and the court no longer has subject matter jurisdiction over the claim. Indeed, today’s opinion expressly noted that “[w]e need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff … .”

What about the attorneys’ fees that the plaintiff’s counsel incurred in bringing the putative class or collective action? Depending on the statute, those might not need to be included. Under the FLSA, for example, only a “prevailing plaintiff” is entitled to attorneys’ fees, and if a case is dismissed as moot, the plaintiff did not prevail.

A tender of complete relief is not for every case. There are several reasons why a defendant employer would not seek to moot a wage-hour case by making such a payment. Many regular-rate cases, failure to pay overtime or minimum wage claims, tip credit matters, certain off-the-clock theories, and other pleadings that contain specifics on the amount of alleged underpayments may be amenable to calculating a plaintiff’s maximum recovery, but calculating “complete relief” in many wage-hour cases may not be so clear. In other types of cases, the amount needed to pay complete relief may be calculable but exorbitant. And in all cases, there is a risk that other potential plaintiffs may be waiting in the wings, and a tender of full relief to the first current or former employee who files a claim can lead others to make similar claims—leading to an endless and expensive game of whack-a-mole. Ultimately, each employer in each case needs to decide the propriety of the mootness maneuver on a case-by-case basis, weighing the cost of an offer (or offers) of complete relief against the cost of defending a collective or class action. As Justice Kagan warned in her dissent in Genesis Healthcare v. Symczyk—the Supreme Court’s most recent foray into the mootness issue before today—“don’t try this at home.”