Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By Evan J. Spelfogel

For several years, employers’ counsel have moved to block the combining of state wage and overtime claims with federal Fair Labor Standards Act (“FLSA”) claims, arguing that Rule 23 opt-out class actions were inherently inconsistent with FLSA collective opt-in actions. For support, they cited to the decision of the Third Circuit in De Asencio vs. Tyson Foods, Inc., 342 F. 3d 301 (3^rd Cir. 2003) reversing a district court’s exercise of supplemental jurisdiction because of the inordinate size of the state-law class, the different terms of proof required by the implied contract state-law claims, and the general federal interest in opt-in wage actions. Since De Asencio, numerous district courts in the Third Circuit have dismissed state law wage claims that paralleled FLSA claims because of the “inherent incompatability” between opt-in collective actions and opt-out class actions. 

On September 26, 2011, the Second Circuit U.S. Court of Appeals approved the combining of state law Rule 23 opt-out class wage claims with an FLSA opt-in collective action. Salim Shahriar, et al. vs. Smith & Wollensky Group, Inc. d/b/a Park Avenue Restaurant, et al., __________ F. 3d _________ (2^nd Cir. No. 10-1884). The Court noted that nothing in the FLSA statutory language or legislative history precluded joint prosecution of FLSA and state law wage claims in the same federal action. The U.S. Department of Labor weighed in with an amicus brief stating that the Restaurant had misinterpreted the FLSA, urging the court to reject any attempt to use the FLSA to bar certification of a class action of state law wage claims in federal courts merely because a FLSA collective action was pending.

The Second Circuit in Smith & Wollensky approved and relied substantially upon the Seventh Circuit’s decision in Irvin vs. OS Restaurant Services, Inc., 632 F. 3d 971 (7^th Cir. 2011) holding that a district court had abused its discretion in denying Rule 23 class action certification of state claims merely because of the existence of a parallel FLSA collective action. The Seventh Circuit noted that neither the text of the FLSA nor the procedures established by that statute suggested that the FLSA was intended generally to oust other ordinary procedures used in federal courts, or that class actions in particular could not be combined with an FLSA proceeding. 

The Ninth and District of Columbia Circuits also concluded that any alleged incompalability between the FLSA and Federal Rule 23 was insufficient to deny supplemental jurisdiction. See, Wang vs. Chinese Daily News, Inc., 623 F. 3d 743 (9^th Cir. 2010) (vacated and remanded in light of Walmart, 564 U.S. _____, 10/3/11); and Lindsay vs. Government Employees Insurance Co., 448 F. 3d 416 (DC Cir. 2006). In summary, these Circuits have held that, while there may in some cases be exceptional circumstances or compelling reasons for declining jurisdiction, the “conflict” between the opt-in procedure under the FLSA and the opt-out procedure under Rule 23 was not a sufficient cause by itself to decline jurisdiction.   

Ultimately, the US Supreme Court may be called upon to review an apparent split in the Circuits on this issue. In the meantime, employers are urged to continue to raise the issue in courts that have not yet ruled, and to urge “exceptional circumstances” and “compelling reasons” for courts in the Second, Fourth, Seventh, Ninth and D.C. Circuits to bar hybrid state Rule 23 opt-out claims from the federal processes. 

This might include, for example, the size of the putative opt-out Rule 23 class in the state law claims as compared with the number of opt-ins in the FLSA collective action. Hybrid collective and class actions typically arise where only a small number of potential opt-in plaintiffs under a FLSA claim actually opt-in, while there are hundreds and perhaps thousands of putative class members with potential state law claims. One purpose of Congress in enacting the FLSA opt-in provision, it may be argued, was to control the volume of litigation and ensure that absent individuals would not have their rights litigated without their input or knowledge. The opt-in mechanism under the FLSA limits FLSA claims to those affirmatively asserted by employees “in their own right” and frees employers from the burden of representative actions. Allowing a Rule 23 opt-out option to be combined in the same lawsuit with an opt-in FLSA option allows plaintiffs to evade the requirements of the FLSA by permitting litigation through a representative action and bringing unnamed plaintiffs into the lawsuit. See, e.g., Dell vs. Citizens Financial Group, Inc., Western District Pennsylvania No. 2:10-Civ-00320, 6/8/11.

by Michael Kun

As we have mentioned previously on thisblog, the latest wave of wage-hour class actions to hit California employers is based on a claim that employees were not provided "suitable seating" under an obscure provision of California's Wage Orders.  To avoid having these cases removed to federal court,and to avoid the burden of establishing the elements for class certification, many plaintiffs' counsel have taken to filing these lawsuits not as class actions, but as representative actions under California's Private Attorneys General Act ("PAGA").

PAGA -- sometimes referred to as the "Bounty Hunter Law" or the "Sue Your Boss Law" -- allows a single employee to pursue claims on behalf of all "aggrieved employees," with potential recovery of up to $100 per employee for the first violation and $200 per employee for each subsequent violation.  The potential recovery can be enormous, and a plaintiff need not certify a class.

The constitutionality of PAGA has long been a matter of concern and dispute.  We and other defense counsel often raise constitutionality defenses to PAGA claims and raise those arguments at various stages of the cases.  Unfortunately, judges rarely take interest.

Los Angeles Superior Court Judge Daniel Buckley apparently has seized on this issue and has articulated his intention to dismiss a PAGA seating case against Whole Foods Market on the grounds that PAGA is unconstitutional.  He appears to be one of the first judges, if not the first, to make such a ruling about PAGA. 

Assuming that Judge Buckley issues that ruling, it is all but certain that plaintiff's counsel will appeal.  The case will bear watching because a ruling by the Court of Appeal or, eventually, the California Supreme Court striking down PAGA on constitutionality grounds could shut down all claims under PAGA.  While that would not spell the end of wage-hour class actions, it would close off one of the avenues often relied upon by plaitniffs' counsel to increase the potential exposure in a case for settlement purposes.  And it may force plaitniffs to bring wage-hour claims as potential class actions, which would not only increase the likelihood of removal to federal court, but require plaintiffs to carry a significant burden in convincing a court to certify a class.

by Dean L. Silverberg, Jeffrey M. Landes, Susan Gross Sholinsky, and Jennifer A. Goldman

On September 21, 2011, the Internal Revenue Service ("IRS") announced a new program that will give businesses the opportunity to resolve prior worker classification issues by voluntarily reclassifying their non-employee workers (such as consultants, freelancers, and independent contractors) as employees for federal employment tax purposes. Officially called the "Voluntary Classification Settlement Program" ("VCSP"), this program is part of a larger "Fresh Start" initiative at the IRS to aid taxpayers and businesses in addressing their federal tax liabilities.

Read the full advisory online

By Michael Kun

It appears that oral argument before the California Supreme Court in Brinker Restaurant Corp. v. Superior Court will be broadcast live on-line on the California Channel on November 8, 2011 at 9 a.m.   While it is unlikely this will inspire families to gather around their computers as they gathered around their radios to listen to breaking news decades ago, more than a few employers with operations in California may want to listen to this oral argument on a critical issue that affects all such employers – whether employee meal and rest breaks must be “ensured” or merely made “available.”

If the California Supreme Court rules that meal and rest breaks must be “ensured,” most employers will need to implement new policies and practices the very next day.  And most will be vulnerable to the very type of wage-hour class actions that have besieged California employers for the past decade. 

By Michael Kun, Regina Musolino and Aaron Olsen

Since the Supreme Court’s historic ruling in Wal-Mart Stores, Inc. v. Dukes, attorneys have debated the scope and impact of the decision.  Not surprisingly, plaintiffs’ counsel have argued that the decision was limited to its facts, or to discrimination cases, or to cases involving nationwide claims.  And they have argued that Wal-Mart has no application whatsoever to wage-hour class actions and collective actions.  In only a few words, the Supreme Court may have answered some of these questions.

Earlier this month, the United States Supreme Court quietly vacated a $7.7 million award in a wage-hour class action in Chinese Daily News v. Wang, remanding the case to the Ninth Circuit for further consideration in light of Wal-Mart.  While the Supreme Court did not provide any further analysis or guidance, and while the Ninth Circuit’s ultimate ruling cannot be predicted, the vacation order alone would seem to undermine a few of the arguments that many plaintiffs’ counsel have been making since Wal-Mart was decided – particularly that Wal-Mart was limited to its facts and has no application to wage-hour matters.  Simply, if the Supreme Court believed Wal-Mart was not applicable to wage-hour claims, there would have been no reason to vacate Chinese Daily News. 

The history of the Chinese Daily News class action is a long and tortured one that most readers of this blog would have little interest in.  It is a hybrid class action alleging claims under both the federal Fair Labor Standards Act (“FLSA”) and California state law for unpaid overtime wages, meal and rest break violations, wage statement violations and waiting time penalties as to approximately 300 employees working at a single facility.  A California district court certified a class under the FLSA, as well as under both Rule 23(b)(2) and Rule 23(b)(3).  The matter ultimately went to trial, where the class prevailed.  The Ninth Circuit subsequently affirmed the district court's decision to certify the class under Rule 23(b)(2), but declined to address whether certification was appropriate under Rule 23(b)(3).   

Given no guidance from the Supreme Court, it would be pure speculation how the Ninth Circuit will ultimately rule.  However it rules, the Ninth Circuit’s ruling on remand will have an enormous impact upon the defense of wage-hour actions throughout the country.  That impact could be short-lived, though.  However the Ninth Circuit rules, we should not be surprised to see one party seeking to take the ruling up to the Supreme Court.  And the Supreme Court reverses Ninth Circuit rulings in approximately 80% of the Ninth Circuit cases it hears.

By Michael Kun

Some were beginning to wonder whether it would ever happen.  After more than two years, the California Supreme Court has announced a hearing date in the much-awaited Brinker v. Superior Court case -- November 8, 2011.

Unless the Court takes a detour, California employers should finally know the answer to a question that has long driven California's billion dollar wage-hour class action industry -- must an employer "ensure" that employers take meal and rest periods, or are they only required to make them "available" to employees. 

Should the Supreme Court rule that employers need only make them "available," wage-hour class actions will not grind to a halt.  Plaintiffs' counsel will merely change their allegations to allege that meal and rest breaks were not made "available."  But most employers should have valid defenses to such claims, and, perhaps just as importantly, they will not need to revise the way they operate. 

However, should the Supreme Court rule that employers must "ensure" that meal and rest breaks be taken, virtually every employer that does business in California will be vulnerable to wage-hour actions reaching back four years.   

While it is tempting to do so, employers should not sit back and merely wait for the Brinker ruling.   While employers should hope for the best, they would be wise to prepare for the worst.  Indeed, because the Brinker Court may well rule that meal and rest periods must be "ensured," employers should be prepared to implement new policies and practices the very next day.  Having those new policies and practices drawn up and ready to implement on short notice could help stave off future claims, damages and penalties.   

With any luck, those policies and practices may never be needed.