By: Joshua A. Rodine and Christopher J. Truxler

Seyfarth Synopsis: California employers must use the formula prescribed by the Division of Labor Standards Enforcement Manual to calculate overtime on flat sum bonuses, not the bonus overtime formula used under federal law.

California law generally follows federal law as to how employers should calculate overtime pay on nondiscretionary bonuses for non-exempt employees. But California law on calculating bonus overtime has been somewhat unclear in relation to “flat sum” bonuses. On March 5, 2018, in Alvarado v. Dart Container Corp., the California Supreme Court decided that a formula invented by the Division of Labor Standards Enforcement—without engaging in any administrative rulemaking—is the proper method for calculating bonus overtime pay, and that the DLSE’s formula applies retroactively.

The Facts

Hector Alvarado worked as an hourly employee for Dart Container, which makes cups, plates, and other food service products. Alvarado earned an attendance bonus of $15 for each full weekend shift he worked. Dart, in calculating overtime pay generated by the bonus, followed the method established by the federal Wage Hour Division in 29 C.F.R. § 778.110. Under the federal formula, the regular rate for a weekly bonus would be the amount of the bonus divided by all weekly hours worked (both straight hours and overtime hours), and the regular rate would divided by two before multiplying it by the number of weekly overtime hours worked to calculate the amount of overtime pay generated by the bonus.

Alvarado sued Dart for unpaid bonus overtime. Alvarado argued that, for “flat sum” bonuses, California employers must determine the regular rate by dividing the bonus by only the straight time hours worked, as specified in the DLSE Manual, and not by the total hours worked.

The trial court granted Dart summary judgment, holding that Dart properly used the federal method. The Court of Appeal affirmed, opining that while the DLSE Manual’s formula represented a reasonable effort to prevent dilution of the regular rate by overtime hours, the Manual is not binding legal authority. Because no California law required otherwise, the Court of Appeal affirmed Dart’s use of the federal method.

The Supreme Court Decision

The Supreme Court, reversing the lower courts, adopted the formula proposed in the DLSE Manual, on a theory that the DLSE’s formula was necessary to discourage employers from requiring employees to work overtime hours. The Supreme Court announced that an employer, in determining the regular rate on a flat sum bonus, must divide the bonus by only the straight-time hours worked during the period, not by all hours. Moreover, the Supreme Court announced that the regular rate must be multiplied by 1.5, not 0.5, when applied to the number of overtime hours worked during the week. Adding insult to injury, the Supreme Court rejected Dart’s request that this judicially unprecedented holding apply prospectively only.

The Supreme Court justified its decision by emphasizing California’s longstanding policy of discouraging employers from imposing overtime work. To effectuate this policy, the Supreme Court reasoned, a flat sum bonus must be treated as if it were earned on an hourly basis throughout the relevant pay period. The Supreme Court rejected the Court of Appeal’s reasoning that no state law governed the issue, because the DLSE’s Manual, though not binding legal authority, was interpreting the underlying statutory law, and because courts interpreting that law are free to adopt the DLSE’s view if courts find that view persuasive.

In a remarkable concurring opinion, four of the Supreme Court’s seven justices acknowledged that the “spare language” of statutory law could have left employers “somewhat uncertain about how to proceed,” and that the DLSE Manual was not an “authoritative construction by a state agency.” The four concurring justices further acknowledged that employers who “fully intended to comply with state overtime laws” “may now be faced with substantial penalties”—an “unfortunate” state of affairs that “conceivably could have been avoided had an interpretative regulation of this subject been promulgated through formal APA rulemaking.” The concurring justices nonetheless agreed that the Supreme Court’s new interpretation should apply retroactively, even if, “[r]egrettably,” “more was not done to help employers meet their statutory responsibilities.”

What Alvarado Means For Employers

Alvarado is an unwelcome decision that takes a poorly reasoned DLSE provision in a nonbinding manual and declares it to be the law, applied retroactively. This development arguably might visit “substantial penalties” on employers who were not using the DLSE’s flat sum bonus formula, as four justices sadly acknowledge. Now would be a good time to revisit nondiscretionary bonuses for non-exempt employees with the lessons of Alvarado in mind.

By Robert A. Fisher and Molly C. Mooney

Seyfarth Synopsis: In an important decision, the Massachusetts Supreme Judicial Court clarified the scope of personal liability for unpaid wages under the Massachusetts Wage Act.  The SJC held that board members and directors of a company generally cannot be held personally liable for unpaid wages, unless they take on significant management duties of the company. 

On December 28, 2017, the Massachusetts Supreme Judicial Court clarified the scope of individual liability under the Massachusetts Wage Act (Massachusetts General Laws Ch. 149, §§ 148 and 150). While the statute specifies that the president and treasurer of a corporation may be liable for unpaid wages, “agents having the management” of a company may be liable, as well.  The SJC has now clarified exactly who those “agents” are not.  In Segal v. Genitrix, the SJC held that investors and board members, when acting solely in those capacities, do not fall within the purview of the Wage Act and may not be held personally liable for unpaid wages.

In Segal, the plaintiff Andrew Segal was the president and chief executive officer of Genitrix LLC, a biotechnology startup. Defendants H. Fisk Johnson, III and Stephen Rose were former board members and investors in the company. Under the terms of his employment agreement, Segal was responsible for conducting the company’s business and managing its finances, subject to the overall direction and authority of the board. Consistent with the terms of his agreement, Segal was responsible for all day-to-day operations and was the only person authorized to sign checks from the company’s bank accounts, including payroll checks for employees’ wages.

In 2006, Segal informed the board that the company was running out of money to pay its employees. Despite this, Rose limited further investments into the company, and those that were made were earmarked for specific purposes. In 2007, Segal stopped taking his salary so that he could continue paying the one remaining employee. Segal proposed a cost-cutting plan, but that proposal was not authorized by the board. By the middle of 2007, the company had run out of money, and the board was deadlocked.

In 2009, Segal sued Fisk and Rose in Massachusetts Superior Court for unpaid wages under the Massachusetts Wage Act. The case ultimately went to trial and the jury concluded that both Johnson and Rose were individually liable under the Wage Act.

On appeal, the Supreme Judicial Court held that Johnson and Rose could not be liable under the Wage Act. Because the parties agreed that neither Johnson nor Rose were officers of the company, they could only be liable if they were “agents having the management” of Genitrix. The Court found it significant that the statute does not include board directors or investors in its definition of employer. Further reviewing the statutory language and the legislative history, the Court determined that only individuals who have assumed significant management responsibilities over a corporation, in their individual capacities, similar to those performed by a president or treasurer, should be liable under the Wage Act.

The Court held that investors and board members are ordinarily not considered agents of a company. With respect to Johnson and Rose, because management powers, particularly over the payment of wages, were expressly delegated to Segal as president and CEO, the Court found that they had limited agency authority. Similarly, the Court explained that individual board members exercising normal corporate oversight, and acting collectively with other board members, do not have the management of the company. Segal argued that the board’s rejection of his cost-cutting plan established that Rose and Johnson had authority.  The Court disagreed, explaining that “corporate boards are regularly required to make difficult decisions that have an impact on the company’s finances.” The Court concluded that such decisions are not the acts of individual board members as agents and do not impose Wage Act liability. Segal also argued that Rose’s restrictions on additional investments constituted management of Genitrix.  Again, the Court disagreed, explaining that investors invariably exercise some control over the businesses in which they invest, including when the business seeks new funds. The Court concluded this is separate and distinct from having the management of the company.

Segal is significant because it limits the circumstances that corporate directors and investors can be on the hook for unpaid wages, particularly when the company itself is defunct. So long as investors and board members act solely in those capacities and do not take on the day-to-day management of the business, they should not be personally liable for the company’s failure to pay wages.


‘Twas the week before Christmas, and the WH-L-PG

Contemplated the wage-hour year lyrically;

We considered the issues our readers would most like to savor

And decided the tastiest one was class waiver.


“Employers and employees,” begins the debate,

“Are free to agree that they shall arbitrate.”

But a critical question remains–it is whether

Employees can be stopped from proceeding together.


Will class waivers be cool?  Can’t we be more prophetic,

Than continuously repeating that the case will be Epic?

Well, we expect that class waivers will finally be decided,

More likely than not, from a Court that’s divided.


But which way it breaks, we’ll have to just see

On which side of the case we find Justice Kennedy.

So for now, just sit tight and await the decision

(Unless Congress intervenes with a “minor” revision.)


Where shall we go next?  It’s a place we know well.

As we take a close look at this year’s DOL.

They started out slowly, yes a slight hesitation.

As the Senate could not seem to provide confirmation.


But the overtime reg case could simply not wait,

Until it did, then the new guys pronounced the reg’s fate:

“That double-high salary, we firmly reject.

But our authority to set it at all, please respect.”


Then in an effort to avoid an adverse citation,

DOL told the court “We need more information.”

Now we’ll wait and we’ll see what the Department will do,

And we’ll see a new level in a year (prob’ly two).


WHD also announced the opinion letter’s return,

And the guidance on J/E and I/C got burned.

And when the tip pooling reg lost in the Ninth Circuit,

DOL finally gave up and declared “We’ll rework it.”


Tipped employees and janitors and bankers grew frustrated

As increasingly courts determined they were not situated

Similarly to those for whom they wanted to proceed.

It may be a low hurdle, but it still can impede.


Maybe that is why cases are down . . . although slightly

They’re still filed at a rate of 320, fortnightly.

They crowd up the dockets, they test judges’ mettle,

Yet it seems like they’re making it harder to settle.


But the cases get filed, regardless of position,

From the lowest-paid worker to half a mil in commission.

And up to this point, we’ve neglected to warn ya

About salary increases — New York, California.


Just a couple of points that are worth a short mention,

The debate on the reading of narrow exemptions,

Bag checks, franchises, and PAGA, so zany!

Up to our eyeballs in wagehour miscellany.


From calculating rates (which requires division)

To ordinances that require scheduling with precision.

Franchise liability, meal breaks, and more,

Who knows what 2018 has in store?


But before we proceed to the next year apace,

Let us make sure our commas are properly placed,

And let’s get one last thing off our chests:

We thank you, dear readers, you guys are the best!



Authored by Robert Whitman

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
ContractorsJoint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic realityRight to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!


Co-authored by Robert Whitman, Joanna Smith, and Samuel Sverdlov

Joining a budding national trend, renowned restaurateur Danny Meyer of Union Square Hospitality Group last week announced that he will eliminate formal tipping at his restaurants starting in 2016. Meyer stated that the new policy, aptly named “Hospitality Included,” is meant to better compensate “back of house” staff, who are legally restricted from receiving tips, and to make the dining experience less complicated for diners.

But is there a more subtle, yet potentially more significant, legal benefit as well? By eliminating tipping, Meyer and other like-minded restauranteurs might be shielding themselves from costly legal exposure for wage and hour violations.

Historically, restaurants have been able to offset part of their payroll costs by taking advantage of federal and state tip credits, which allow them to pay waiters and other customer-facing “front of house” employees at a lower hourly rate, provided they receive a certain amount in tips. Despite the obvious financial advantage to this approach, the industry has been plagued in recent years with class and collective actions stemming from alleged tipping violations. (See examples here, here, and here.) Such claims include failing to pay minimum wage, improperly including kitchen workers in servers’ tip pools, using a portion of tips to servers of alcohol and wine to pay sommeliers’ salaries, and failing to provide required notice of the tip credit.

Furthermore, some hospitality industry experts, such as Michael Lynn of the Cornell University School of Hotel Administration, believe that tipping inherently disadvantages minority workers, suggesting that tipping practices could put employers at risk of disparate impact discrimination class action suits.

A “no tipping” policy eliminates these litigation risks. In addition to simplifying an employer’s payroll and reducing paperwork, the end of tipping could mean the end of costly class action allegations of tip pool, tip share, and service charge violations, as well as minimum wage and overtime violations predicated on an improper tip pool or share.

Moreover, over the next few years, the benefit to employers from tipping will be greatly reduced as more municipalities and states raise their minimum wage rates while reducing the tip credit. For example, as of December 31, 2015, the minimum wage rate in New York is set to rise to $9.00 an hour. New York’s Acting Commissioner of Labor has accepted the recommendation of a Wage Board to reduce the tip credit from $4.00 an hour to $1.50 an hour as of December 31, 2015. This will effectively increase the minimum wage for tipped workers in New York from $5 to $7.50 an hour at the end of this year. Other increases in minimum wage rates are occurring nationwide—San Francisco voted last November to increase its minimum wage to $15 per hour by 2018, Chicago will bring the minimum wage to $13 by 2019, and many other cities and states have follow suit.

The success of Meyer’s “Hospitality Included” approach remains to be seen. For now, it seems that adopting a no-tipping policy has several strategic benefits that will help the hospitality industry combat class and collective actions stemming from tipping violations and a rapidly increasing minimum wage.

Seyfarth Shaw has updated its definitive guide to the litigation of wage and hour lawsuits. Co-authored by three Seyfarth partners and edited by the chair of the firm’s national wage-hour practice, Wage & Hour Collective and Class Litigation is an essential resource for practitioners. The unique treatise provides insight into litigation strategy through all phases of wage & hour lawsuits, and is now updated with additional significant cases through early 2015.

Among many other topics, the treatise’s authors examine how employers in multiple industries are targeted for wage-hour lawsuits and provide substantive, procedural and practical considerations that determine the outcome of such actions in today’s courts. Principally designed to assist employment litigators and in-house counsel, the treatise also proves useful to senior management seeking to fend off wage-hour actions before they strike.

Authors Noah Finkel, Brett Bartlett and Andrew Paley, who practice in the firm’s Chicago, Atlanta and Los Angeles offices respectively, as well as Boston-based Richard Alfred, who is Chair of Seyfarth’s National Wage & Hour Litigation Practice Group, are each experienced wage and hour litigators who have handled numerous collective and class actions asserting violations under both state and federal law.

Wage & Hour Collective and Class Litigation covers the complex rules surrounding all types of wage and hour lawsuits. These include claims under the Fair Labor Standards Act, claims under state wage and hour laws, or hybrid cases involving both, as well as special issues involving government contractors. It provides readers guidance around: how to respond to a wage and hour complaint; what to consider when deciding whether to remove a case to federal court; how to assess the particular merits of a claim; whether to settle; how to oppose plaintiffs’ motion to facilitate notice for conditional certification; what kinds of affirmative defenses are best; and how to tilt the odds in favor of the defense.

In its fifth update to the treatise, Wage & Hour Collective and Class Litigation features discussions of recent decisions from appellate and trial courts and their effect on wage and hour litigation, emphasizing the following developments:

  • The United States Supreme Court’s decision in Integrity Staffing Solutions v. Busk in which the Court held that time spent by employees going through anti-theft metal detectors at the end of their shifts was not compensable because it was not integral or indispensable to the employees’ principal activities.
  • The United States Supreme Court’s decision to hear Tyson Foods v. Bouaphakeo, a case that will provide the Supreme Court with the opportunity to clarify the extent to which Wal-Mart Stores, Inc. v. Dukes applies to FLSA collective actions.
  • Federal District Court decisions refusing to follow the California Supreme Court’s decision in Iskanian and ruling that the FAA preempts California’s rule against the waiver of PAGA claims.
  • The Ninth Circuit joining the First, Second and Third Circuits in requiring allegations that a plaintiff worked more than 40 hours in a given work week without being compensated for those additional hours to avoid a motion to dismiss, and the Eighth Circuit requiring proof of such conduct to avoid summary judgment.
  • A number of Federal District Court cases specifying how notice of conditional certification must be provided and what must be contained in the notice, including notifying potential class members that they could be liable for costs.

The 2015 update to Wage & Hour Collective and Class Litigation is published by American Lawyer Media’s Law Journal Press.  It is available online at

We are thrilled to announce that thanks to the feedback of clients and friends like our loyal blog readers, Seyfarth’s Labor & Employment group has just been recognized for excellence with one of the most prestigious awards in the legal profession. Earlier this week, the team was named Labor & Employment Team of the Year at the 10th annual Chambers USA Awards for Excellence ceremony in New York. The Chambers Awards honor the achievements of leading law firms and lawyers across the country for pre-eminence in key practice areas and notable achievements during the past 12 months, including outstanding work, impressive strategic growth, and excellence in client service. Chambers described Seyfarth as “the market-leading labor & employment practice in the country with an expertise and track-record of successful, strategically effective defenses to complex, high-stakes  wage & hour litigation, employment discrimination class actions, and bet-the-company EEOC lawsuits.”

What means the most to us are the quotes from our clients, which included: “Aside from being legal experts in their fields, the firm’s attorneys are incredibly responsive and provide pragmatic, value-add legal advice,” and “I’ve had several occasions when they’ve given advice contrary to that of other firms—in every instance the lawyers at Seyfarth have been correct.”

At the end of the day, what motivates each and every L&E lawyer at Seyfarth is the goal of providing our clients with the level of service they deserve. It’s the driver of everything we do, and that’s why this award means so much to us.

THANK YOU to all our loyal blog readers for coming along on this ride with us. We appreciate it more than we can say.

Co-authored by Steve Shardonofsky and Howard M. Wexler

In 2011, the U.S. Supreme Court held in Kasten v. Saint-Gobain Performance Plastics Corp., that oral complaints of a violation of the Fair Labor Standards Act can constitute protected activity under the FLSA’s anti-retaliation provision.  But the question whether an oral complaint made to a private employer rather than to the government qualifies as protected activity was not before the Court in Kasten, and the case did not resolve a split among the Courts of Appeals on this issue.

In Greathouse v. JHS Security Inc. et al., the Second Circuit Court of Appeals joined the First, Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits and held that Section 215(a)(3) of the FLSA does not require an employee to complain to a government agency as a predicate for an FLSA retaliation claim.  The Court, however, took pains to emphasize that not every “oral complaint” will be enough to state an FLSA retaliation claim as the complaint must be “sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute [FLSA] and a call for their protection.”

Second Circuit’s Decision

The Greathouse plaintiff complained to his boss that he had not been paid in several months. The plaintiff alleged that his employer responded by saying that he would pay the plaintiff when he felt like it and by then pointing a gun at the plaintiff.  Understanding this exchange as ending his employment, the plaintiff two weeks later filed a lawsuit for unpaid wages as well as retaliation.  He alleged that his employer constructively discharged him in retaliation for his complaint about unpaid wages, thereby violating the FLSA and New York Labor Law’s anti-retaliation provisions.  The district court entered a default judgment in favor of the plaintiff on his claim for unpaid wages, but rejected his retaliation claim because the Second Circuit previously held that informal oral complaints to supervisors did not amount to “filing a complaint” under the FLSA and therefore could not support a retaliation claim.

The Second Circuit, “[b]oth impelled and guided by Kasten,” examined the legislative history of the FLSA and reversed its prior stance, holding that the “FLSA’s remedial goals counsel in favor of construing the phrase ‘filed any complaint’ in section 215(a)(3) broadly, to include intra-company complaints to employers.”  But the Second Circuit emphasized that not all oral complaints constitute protect activity.  Whether an oral complaint constitutes protected activity is a “context-dependent inquiry” and not all “grumbles in the hallways about an employer’s payroll practice” will rise to the level of protected activity as “some degree of formality” is required.  This holding is consistent with other Courts of Appeals that have addressed the issue, such as the First Circuit and Ninth Circuit.

Implications for Employers

Employers are well advised to be attentive to their employees’ complaints.  Following Kasten, and now Greathouse, it is even more important for employers to be sensitive to employees’ intra-company oral as well as written complaints regarding wages, overtime, and hours worked.  Managers and supervisors should be trained to recognize complaints under the FLSA and corresponding state laws and to respond to them appropriately.  Whether an internal complaint rises to the level of protected activity is a context-specific inquiry.  While the courts continue to assert that there are no “magic words” that an employee must use to assert a complaint and that generalized statements or complaints regarding pay practices may not rise to the level of protected activity under the FLSA (or even under the National Labor Relations Act), this should not embolden employers to ignore vague complaints.  After all, although you may believe today that a particular complaint is mere “venting” or “blowing off steam,” a court or a jury may later disagree.  Of course, following an employee’s complaint, employers need to ensure that any adverse action is based on legitimate, non-retaliatory reasons and not in response to the complaint.