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

By:      David Garland and Douglas Weiner

In February 2011, the U.S. Court of Appeals for the Ninth Circuit gave a resounding victory to employers in the pharmaceutical industry by finding that pharmaceutical sales representatives are covered by the outside sales exemption of the Fair Labor Standards Act (“FLSA”). Christopher v. SmithKline Beecham, No. 10-15257 (9th Cir. Feb. 14, 2011). Plaintiffs, and the U.S. Department of Labor (“DOL”) in an amicus brief, had argued the exemption did not apply because sales reps are prohibited from making the final sale. Prescription medicine in the heavily regulated pharmaceutical industry can only be sold to the ultimate consumer with the authorization of a licensed physician. Sales reps use their “selling skills” to persuade doctors to prescribe their employer’s products when the doctor’s patients have a medical need for them. Sales reps do not transfer title to the medicine themselves.

Previously the Second Circuit, in In Re Novartis, took a contrary view and adopted the Secretary of Labor’s position that the outside sales exemption did not apply to pharmaceutical sales representatives specifically because they were prohibited by regulation from making direct sales. The Ninth Circuit rejected the plaintiffs’ and DOL’s “rigid, formalistic interpretation” of the FLSA’s definition of “sale,” which provides that “Sale” … includes any “sale … or other disposition.” 29 U.S.C. 203(k). Because of the uncertainty in this unsettled area of law, both the employee plaintiffs and the employer asked the U.S. Supreme Court to review the Ninth Circuit’s decision.

Pertinent to the aggressive approach the DOL has recently taken in submitting unsolicited amicus briefs in significant cases, another issue the Supreme Court may review is the degree of deference, if any, the court owes to an amicus brief submitted by the DOL. Again in stark contrast, the Second Circuit gave the DOL’s amicus brief “controlling deference” to interpret the DOL’s own regulations while the Ninth Circuit gave the DOL’s amicus brief “no deference” finding it was a departure from established industry norm that the DOL used to short-cut the public notice – and – comment rule making procedures.       

It would be a most welcome development for the Supreme Court to affirm the Ninth Circuit and resolve this dramatic split in the circuit courts. However, even if the Second Circuit’s view of the “outside salesman” exemption is upheld, there are circumstances when sales reps may be exempt by virtue of the administrative exemption. Employers need clarity to structure employment practices without the ever-present threat of class action litigation.

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 Amy Traub and Christina Fletcher

Once a settlement has been reached in an FLSA collective action, the defendant-employer typically wants that settlement to go into effect and end the case as soon as possible, so that the company can get past the myriad of distractions brought by the suit. However, as litigants increasingly are finding, the parties’ agreement to settle an FLSA collective action is nowhere near the end of the road, or the end of the case. There is a “judicial prohibition” against the unsupervised waiver or settlement of claims brought under the FLSA. Settlements must be “supervised” by the Department of Labor or a court, and gone are the days where the court would rubberstamp the parties’ FLSA collective action settlement agreement. Instead, courts nowadays are scrutinizing the settlement to ensure the “fairness” of the agreement.

A recent decision by District Judge Deborah K. Chasanow of the United States District Court for the District of Maryland describes the information that courts are requiring parties to provide in their settlement agreements and accompanying motions for approval of the settlement. In Lane v. Ko-Me, LLC, Judge Chasanow rejected the parties’ motion for approval of their FLSA settlement, finding the parties’ joint motion for approval to be “clearly deficient” in setting forth facts or arguments upon which the court could evaluate the fairness of the agreement.  The Lane decision is helpful in providing a roadmap as to what parties may want to consider including in their submissions to the court seeking approval of an FLSA collective action settlement:

• Provide a detailed description of the parties’ respective positions as to each issue so the court may assess whether there is, in fact, a bona fide dispute.  The Lane parties “simply listed the points of disagreement” they had regarding various issues, such as their dispute over whether the plaintiffs were properly classified as independent contractors and their disagreement regarding the amount of hours worked by the plaintiffs.  In the court’s view, this was not enough to allow the judge to evaluate the disputed issues resolved by the parties’ settlement.  For example, if an employee’s entitlement to overtime is in dispute, the employer should articulate the reasons for disputing the employee’s right to overtime, and the plaintiff should articulate the reasons justifying his/her entitlement to the disputed wages.

• Give the court sufficient data to allow it to assess the fairness of the settlement amount. In Lane, the judge rebuked the parties for only providing conclusory assertions that the proposed settlement fund of $90,000 represented the full amount due to the plaintiffs for all hours claimed to have been worked plus all liquidated damages, attorney’s fees, and costs. Instead, the judge wanted concrete data from the parties to allow her to assess whether the $90,000 settlement would fairly compensate the plaintiffs – i.e., the number of hours they claimed to have worked, the rates of pay they were owed, and the liquidated damages to which they claimed to be entitled.

• Remind the plaintiffs’ counsel of their duty to prove to the court that their proposed fee award is reasonable. Courts are charged with independently assessing the reasonableness of the fee award proposed in an FLSA settlement. While the level of detail required may vary by district or judge, Judge Chasanow wanted the plaintiffs’ counsel to provide her with sufficient facts to allow her to evaluate the requested award of attorneys’ fees under the lodestar method, including declarations establishing the hours counsel had expended on the matter, broken down for each task, and demonstrating that their hourly rate was reasonable. Judge Chasanow also noted that it was imperative that the parties inform the court how the $90,000 proposed settlement award was to be apportioned between the plaintiffs and their counsel.

• Present the court with a strong argument that any confidentiality provision in the settlement agreement is reasonable. The settlement agreement at issue in the Lane case contained a “Covenant of Confidentiality”, which compelled the plaintiffs’ silence as to the terms of the agreement and the negotiations leading to the agreement. Expressing doubt about the inclusion of such a provision, Judge Chasanow explained that confidentiality provisions in an FLSA settlement agreement operate in contravention of the FLSA, and, therefore, any agreement that contains such a provision must be rejected if it is unreasonable. The burden is on the parties to present arguments in support of their position that the proposed confidentiality provision is reasonable, enforceable, and should be approved by the court.

Following the steps outlined above when seeking court approval of an FLSA collective action may take more time and effort on the front-end, but may help smooth the way to getting the court’s approval and getting the case closed on the back-end.

By Betsy Johnson  and Evan J. Spelfogel

Employment litigation is growing at a rate far greater than litigation in general. Twenty-five times more employment discrimination cases were filed last year than in 1970, an increase almost 100 percent greater than all other types of civil litigation combined. Case backlogs at the U.S. Equal Employment Opportunity Commission ("EEOC") and in state and federal courts and administrative agencies nationwide number in the hundreds of thousands. Class and collective wage and overtime cases are inundating the courts. These types of cases now even outnumber discrimination cases. Most of the employment-related cases pending in the courts involve jury trials with lengthy delays and unpredictable results.

Alternate dispute resolution ("ADR") presents a significant alternative to litigation of these types of cases. While an agreement to submit a dispute to voluntary arbitration after the dispute has arisen is non-controversial and of some benefit, most often parties post-dispute become less flexible, gird for battle, and are less inclined to step back from judicial confrontation. The time for the parties to agree to ADR and binding arbitration is before the dispute has arisen. Drafting and implementing an ADR policy that ensures fundamental due process, with proper checks and balances, could protect the rights of both parties on a speedy, cost-effective basis. It could also reduce the burden on our judicial system.

For those employers that might wish to consider ADR, the Supreme Court of the United States has issued a series of decisions in five major cases, providing a road map. Not only do these decisions ratify the validity of carefully drafted pre-dispute ADR policies so as to bar individual employees from suing in court, but the most recent two decisions even allow employers to draft and enforce pre-dispute ADR policies that preclude both class action lawsuits and class action arbitrations. These decisions are summarized below.

First, in 1991, the Supreme Court held in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), that courts may compel employees to honor pre-dispute arbitration agreements and to arbitrate age discrimination claims. In barring Gilmer from suing in court, the Supreme Court expressly held that the unequal bargaining power as between employer and employee was irrelevant, and that the agreement to arbitrate could not be set aside unless the employee could (a) prove "fraud in the inducement," or (b) show unawareness of the existence of the arbitration language in the agreement and, therefore, that the employee did not "knowingly or voluntarily" enter into the arbitration agreement (Gilmer, at 32-33).

Second, in 2001, in Circuit City Stores v. Adams, 532 U.S. 105 (2001), the Supreme Court extended Gilmer beyond age discrimination to all forms of statutory employment discrimination. This paved the way for the vast majority of private sector employers to bind their employees and applicants for employment to mandatory pre-dispute arbitration as a condition of employment.

Third, in mid-2009, in 14 Penn Plaza LLC v. Pyett, 129 S. Ct. 1456, 556 U.S. __, 173 L. Ed. 2d 398 (2009), the Supreme Court held that employers and unions could agree in their collective bargaining agreements that statutory discrimination claims of covered employees must be submitted to binding arbitration.

Fourth, in mid-2010, the Supreme Court held in Stolt-Nielson SA v. AnimalFeeds International Corp., 130 S. Ct. 1758, 559 U.S. __, 176 L. Ed. 2d 605 (2010), that, absent a party's express agreement in its arbitration undertaking, it could not be required to arbitrate on a class action basis. An agreement to arbitrate class claims could not be inferred from silence.

Finally, on April 27, 2011, the Supreme Court held in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ (2011), that a state law that banned class action waivers in arbitration agreements was invalid and preempted by the Federal Arbitration Act.

As a result of these five cases, the Supreme Court has set the bar in favor of employers that choose to mandate arbitration of all statutory employment discrimination and wage and overtime claims. Properly drafted arbitration agreements may not only preclude employees from initiating or participating in class actions in court (thereby avoiding employers having to deal with jury trials), but may also bar class arbitration and require separate, individual employee case-by-case determinations in arbitration.

What Employers Should Do Now

Employers should first determine whether, under their separate business models and cultures, they wish to implement arbitration agreements that bind their employees and applicants for employment to mandatory pre-dispute arbitration and, if so, whether they wish to prohibit class arbitration. There are pros and cons to mandatory arbitration. The arbitration process is generally quicker and less expensive and is conducted in a private forum. In addition, the arbitration process protects employers from "runaway" jury verdicts. On the other hand, arbitrations do not provide for some of the formal procedural safeguards found in judicial proceedings. For example, the traditional judicial rules of evidence and privilege do not necessarily apply, and there is limited judicial review and appeal of arbitration decisions. Further, there are judicial decisions and state and local rules that require employers to pay all of the fees of the arbitrators and of administering agencies, such as the American Arbitration Association or JAMS (except for the equivalent of a federal court filing fee).

Of course, as stated in Gilmer, arbitration is not available for statutory claims where Congress clearly expressed its antipathy to arbitration in the relevant statute. For example, the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Sarbanes-Oxley Act of 2002 ("SOX") to prohibit specifically the use of pre-dispute arbitration agreements for SOX claims. Further, the EEOC and the National Labor Relations Board take the position that an employee waiver of the right to file an administrative agency charge or complaint is void as against public policy and, in any event, cannot bar the agency from exercising its statutory rights. Thus, care must be taken in drafting a pre-dispute arbitration policy not only to exclude from the policy certain statutory claims, such as SOX claims, but also to carve out an employee's right to file agency charges while at the same time limiting the employee's right to share in any monetary relief that might be obtained in an agency proceeding.

Bear in mind that aside from mandating the arbitration of statutory employment-related claims, many other non-statutory forms of employment disputes may also be required to be arbitrated. These include, for example, contract and tort claims, such as wrongful discharge, assault and battery, defamation, negligent hiring and retention or supervision, and intentional infliction of emotional distress – claims that employees' attorneys typically assert with statutory claims to avoid the 1991 Civil Rights Act's $300,000 cap and to take advantage of the absence of caps on compensatory and punitive damages under state law.

Employers that decide to implement and embrace a mandatory pre-dispute arbitration program must carefully draft and implement the program. It must be bilateral – that is, it must be binding on employer as well as on employees, and the program must not over-reach. It must be fair, and it must afford due process. In short, it must merely substitute an arbitral forum for a judicial forum, while enabling employees to preserve all the rights and remedies that they would have been entitled to in a court of law. 

by Michael Kun and Aaron Olsen

In recent years, some plaintiffs' counsel bringing wage-hour claims have have made the strategic decision to bring "hybrid" class actions; that is, actions alleging both federal and state wage-hour claims.  These cases can cause logistical nightmares for the courts, and great benefits for plaintiffs, for two primary reasons: (1) the standard for certification of a class is differerent for federal and state claims, and (2) classes in federal claims are "opt in" classes while those for state claims are "opt out" classes.  Indeed, in bringing "hybrid" claims, plaintiffs may seek to take advantage of the lower threshold for achieving conditional class certification under the federal Fair Labor Standards Act ("FLSA"), only to later seek to take advantage of the Rule 23 requirement that one must affirmatively “opt out” of the class.  

The courts appear to be seeing through this gamesmanship.  A number of courts have refused to permit both federal and state wage-hour claims to proceed on the same issues, noting the inconsistencies and practical difficulties raised.  Most recently, on November 3, 2010, the Ninth Circuit denied the plaintiff’s petition to appeal the district court’s order granting defendants’ motion to dismiss the state wage-hour claims that were part of the "hybrid" complaint in Daprizio v. Harrah’s Las Vegas, Inc., Case No.: 2:10-cv-00604-GMN-RJJ (Nev., August 17, 2010.)  

In addressing the claims for alleged violations of  the FLSA and Nevada  law, the district court concluded that the the state law claims could not proceed because of the tension between the "opt in" procedure of an FLSA collective action and the "opt out" procedure of a typical Rule 23 class action.  Simply, those procedures are incompatible. 

The district court’s opinion in Daprizio is important for employers faced with "hybrid" class actions because it may be cited in opposing plaintiffs' efforts to use such claim to pick and choose which class action procedures to follow and when to do so. 

By: Douglas Weiner

A faculty comprised of Defense counsel and Plaintiffs’ counsel presented strategic insights to those who gathered at the American Conference Institute’s 9th National Forum on Wage Hour Claims and Class Actions. I had the pleasure of moderating a judicial panel comprised of six federal jurists who offered practitioners key insights from their experience in presiding over cases alleging violation of the Fair Labor Standards Act. In addition to the substantive issues of class and collective action litigation, I took the opportunity to ask the judges what tips they had for wage-hour litigators to make effective presentations in their courtrooms. After a lively discussion, led by the Honorable Roger B. Cosby, the consensus of the members of the judicial panel was that practitioners would benefit from the following points:

1. Know the Judge: Judges are not all the same, so find out as much as you can about the District Judge and Magistrate Judge assigned to your case. 
    
2. Know Opposing Counsel: Attorneys are not all the same either. 
    
3. First Impressions Count: The Initial Conference is often your first opportunity to make an impression on the judge. You want to be viewed as “competent” and “reasonable”. 
    
4. There is More Than One Way to Litigate a Wage Hour case: Litigation does not yield to universal, cookie-cutter strategies. If you are successful in simplifying a complex case for the Judge, you assume the role of Trusted Guide.
    
5. Be the Trusted Guide: Many cases are a jumble of disputed facts, conflicting theories and theories of claims. Judges often look for the one thread that will unravel the whole tangled mess. You want to be the person the Court will look to and trusts to show them how to emerge from the legal morass. Your role in this capacity depends a great deal on how the Court sees you from the outset.
    
6. Settlement Conference Submission: If the judge does not ask for pre-settlement conference submissions, ask for leave to submit a short one, and find out whether the court requires them to be exchanged. You want the settlement judge going into the conference with the notion that the outcome you espouse is the fairer one. 

The judicial panel was comprised of Hon. Donetta W. Ambrose, U.S. District Court, W.D. Pa; Hon. Warren W. Eginton, U.S. District Court, D. Conn.; Hon. Raymond L. Erickson, U.S. District Court, D. Minn., Hon. Roger B. Cosbey, U.S. District Court, N.D. Ind.; Hon. Suzanne H. Segal, U.S. District Court, C.D. Cal.; and Hon. Stephen J. Murphy, III, Eastern District of Mich.

Douglas Weiner is a Senior Trial Counsel in the Labor and Employment practice in the EpsteinBeckerGreen New York office. He has 30 years of federal wage-hour litigation experience with the U.S. Department of Labor. As Senior Trial Attorney for the New York Regional Solicitor's Office, Mr. Weiner was the lead prosecutor on many of the Department’s most significant wage-hour and whistleblower cases, including those pursuant to Sarbanes-Oxley and the Fair Labor Standards Act. Mr. Weiner now represents employers in government audits and defends employers in wage-hour class and collective actions.

A conflict is brewing in the federal courts over whether a defendant's offer to settle a collective action FLSA case for full relief can moot the case and effectively deprive the court of jurisdiction.  Plaintiff's lawyers view this tactic as a trick aimed at "picking off" class members to avoid a larger suit, while defendants argue that the courts should not be used to stir up litigation once a party's claim has been fully satisfied.  Put simply, why continue a lawsuit once the plaintiff has won everything he or she could collect?

In a recent decision out of North Carolina, a federal judge has waded into this mix by dismissing an overtime case filed against United Mortgage.  The defense counsel sent the attached letter to the plaintiffs' counsel offering to not only fully compensate the named plaintiffs, but to pay any claims submitted with an accompanying affidavit explaining the details of any alleged unpaid work.  The plaintiffs declined the offer and the judge dismissed the case.

The plaintiffs have appealed to the Fourth Circuit, which will no doubt lead to an important appellate decision affecting all FLSA collective actions.  The last time a circuit court weighed in on this issue, the Fifth Circuit held that offers of judgment did not deprive a court of jurisdiction except in very limited circumstances, and greatly limited the use of the technique in obtaining dismissal.  Hopefully, common sense will carry the day and those who would reject a win in favor of running up attorneys fees won't be rewarded.

by Douglas Weiner

EpsteinBeckerGreen was well represented at the National Advanced Forum on Wage & Hour Claims and Class Actions held in New York City on May 19 and 20. EBG attorney Douglas Weiner addressed the Conference regarding his experience as a former Senior Trial Attorney for the U.S. Department of Labor, identifying emerging trends of Fair Labor Standards Act litigation, and the most expensive mistakes employers make – and how to avoid them. The second day Mr. Weiner moderated a panel of Judges experienced in presiding over wage & hour class actions who gave their insights into effective trial management techniques and settlement strategies. 

Plaintiffs’ counsel, defense counsel, former Department of Labor officials, and seasoned Judges exchanged views on:

• The latest on exemption claims, independent contractor and employee misclassifications, donning and doffing, compensable work, off-the-clock activities and other current areas of wage and hour litigation.
• Plaintiffs’ new targets, including remote access, tip pooling, and where the plaintiff’s bar is particularly active and looking at new opportunities.
• With a new sheriff in town, and the economic stimulus package requiring the payment of Davis-Bacon prevailing wage rates for covered projects, the Department of Labor’s stepped up enforcement of Government contract work.
• Motions for conditional certification, and motions for decertification with a view of recent rulings in current cases.
• Making the call whether to settle early, late or not at all: Evaluating potential exposure, risks of litigation and managing a settlement structure where appropriate.
• Plaintiffs’ counsel expressed their view that wage hour class actions were accelerating “vertically” and “horizontally”. Using California as the epicenter of such litigation, their intent is to drill into industries and business groups that have not yet been targeted, thus expanding class action lawsuits vertically. Horizontally, they expect to give employers throughout the nation the same scrutiny that has resulted in the many large judgments that are reported on a nearly daily basis. 

Defense counsel emphasized the advice EpsteinBeckerGreen gives our clients. Conduct a wage hour self-audit, and ensure compliance with applicable law, to gain the upper hand.

A similar National Forum on Wage & Hour Claims and Class Actions is scheduled to take place in San Francisco in October. We hope to see you there.

by Michael Kun

How quickly can $87 million go up in smoke?

Pretty darned quickly, especially if you are referring to the $87 million that was awarded to plaintiffs and their attorneys in a tip-pooling class action against Starbucks in San Diego.

In Chau v. Starbucks (CA4/1 D053491 6/2/09), Jou Chau, a former Starbucks barista, brought a class action against Starbucks challenging the Company's policy that permits certain service employees, known as shift supervisors, to share in tips that customers place in a collective tip box.
If you've ever been to a Starbucks, you know exactly where that tip box is. (And if you haven't been to a Starbucks, then you must be new to the country. Welcome.)

Chau alleged the Company's policy violates California's Unfair Competition Law, Bus. & Prof. Code, § 17200, based on a violation of Labor Code section 351. After certifying a class of current and former baristas and conducting a bench trial, the trial court found Chau had proved his claim, and awarded the class $87 million in restitution, plus interest and attorney's fees.

And now it's gone.

Up in smoke that smells vaguely like soy latte.

A California Court of Appeal has overturned the decision, ordering the trial court to enter judgment in Starbuck's favor.

The Court of Appeal concluded that applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The Court explained that the trial court's ruling was improperly based on a line of decisions that concerns an employer's authority to require that a tip given to an individual service employee must be shared with other employees. As the Court explained, the policy challenged in Chau presented the flip side of this mandatory tip-pooling practice as it concerned an employer's authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.

This one can be chalked up as a major victory not just for Starbucks, but for the entire hospitality industry, which has been hit with an epidemic of wage-hour class actions in California. To those who represent employers in these matters, congratulations must go out now only to Starbucks' attorneys, but to Starbucks itself, for holding firm rather than paying an enormous settlement, as plaintiffs surely sought both before and after their trial court victory.

Now we can sit back and wait to see if the California Supreme Court wishes to hear the case, as plaintiff's counsel will certainly request.

While it's always a fool's game to bet on what the California Supreme Court might do, the early read on this case is that it is not a matter that the Supreme Court will have interest in.
 

Making FLSA collective actions go away quickly just got harder in Texas.  In a recent decision in December 2008, the Fifth Circuit Court of Appeals (with jurisdiction over Texas) significantly limited the availability of a valuable defensive tactic regularly asserted by defendants in FLSA collective actions – the offer of judgment under Federal Rule of Procedure 68. Prior to the Court’s ruling, defendants were often able to reduce their liability under the FLSA by preemptively offering a settlement to class representatives, satisfying theirclaims in full. By doing so, the representative’s claims were deemed moot; and, the representative was unable to proceed in his or her capacity for the class of employees. This principle has been accepted by a wide spectrum of federal courts.

 However, in Sandoz v. Cingular Wireless, 553 F.3d 913 (5th Cir. 2008) the Fifth Circuit determined this approach was available in only limited circumstances. The Court recognized the practice created an “incentive for employers to use Rule 68 as a sword, ‘picking off’ representative plaintiffs and avoiding ever having to face a collective action.” Further, it was acknowledged that the tactic had the potential to “frustrate” the objectives of the FLSA, while sustaining duplicative individual lawsuits under the Act. According to its ruling in Sandoz, a claim would be deemed “moot” only if the representative failed to file a timely motion to certify the class of employees; or, the motion to certify is denied.

While the ultimate consequence of Sandoz has yet been realized by employers, it is certain the offer of judgment tactic in FLSA collective actions has been dealt a serious blow in the Fifth Circuit. 

Despite the lenient standards for conditionally certifying an FLSA collective action, a federal court in Miami recently ruled that a collective action against a local auto dealership was inappropriate.

First, some background on FLSA collective actions. The Fair Labor Standards Act provides that an action for overtime compensation “may be maintained . . . by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.”  29 U.S.C. § 216(b). The Eleventh Circuit Court of Appeals, which covers Alabama, Florida, and Georgia, has instructed district courts to follow a two-tiered procedure to determine whether plaintiffs are “similarly situated” for purposes of class certification under § 216(b).  At the initial stage, or “notice stage,” the district court’s decision is based only on the pleadings and any affidavits which have been submitted. The second stage of the two-tiered procedure typically occurs at the end of discovery when the matter is ready for trial and defendant has filed a motion for decertification of the class.

In deciding whether to authorize notice at the “notice stage,” the Court should strike a balance between allowing the named plaintiffs to contact potential class members to inform them of their rights, and the prohibition against solicitation of clients and the desire to avoid frivolous claims. One district court explained the rationale for this requirement as follows:

In seeking court-authorized notice, plaintiffs are in effect asking this court to assist in their efforts to locate potential plaintiffs and thereby expand the scope of the litigation. As a matter of sound case management, a court should, before offering such assistance, make a preliminary inquiry as to whether a manageable class exists. Moreover the sending of notice and consent forms to potential plaintiffs implicates concerns in addition to orderly case management. The courts, as well as practicing attorneys, have a responsibility to avoid the “stirring up” of litigation through unwarranted solicitation.

Severetson v. Phillips Beverage Co., 137 F.R.D. 264, 266 (D. Minn. 1991).

The Eleventh Circuit has held that a district court has the authority to enter an order requiring notice to individuals who are “similarly-situated,” but “before determining to exercise such power…the district court should satisfy itself that there are other employees…who desire to ‘opt in’ and who are ‘similarly situated.’” Dybach v. State of Florida Dep’t of Corrections, 942 F.2d 1562, 1567-68 (11th Cir. 1991). A plaintiff must offer “detailed allegations supported by affidavits which successfully engage defendants’ affidavits to the contrary.” Id.  Generalized, unsupported allegations are insufficient to discharge the plaintiff’s burden. Rather, a plaintiff has the burden of demonstrating a reasonable basis for crediting her assertion that aggrieved individuals exist in the proposed class. Rodgers, 2006 U.S. Dist. LEXIS 23272, at *7-8 (citing Haynes v. Singer Co., Inc., 696 F.2d 884, 887 (11th Cir. 1983)). 

Thus, plaintiff or her counsel’s mere belief in the existence of other employees who desire to opt in, and “unsupported expectations that additional plaintiffs will subsequently come forward, are insufficient to justify” certification of a collective action and notice to a potential class. Id.  Moreover, “[c]ertification of a collective action and notice to a potential class is not appropriate to determine whether there are others who desire to join the lawsuit.” Id. (citing Dybach, 942 F.2d at 1567-68). Rather, a plaintiff must show that others desire to opt in before the court can authorize notice. Id. 

When there is a lack of evidence to support a finding that other employees are interested in opting in to the litigation, a court should deny the Plaintiffs’ motion for conditional certification. 

That was exactly the result reached in a recent decision by United States District Court Judge Ursula Ungaro in Galban v. Bill Seidle's Nissan, Inc., Case No. 1:09-cv-20310-uu (S.D. Fla.)  The plaintiffs, former salesmen, alleged in their complaint that they were denied the federal minimum wage based on the dealership's "commission-only" pay plan.  They moved for conditional certification of a class, but failed to demonstrate that any other similarly situated salespeople had an interest in joining the litigation.  Absent such evidence, Judge Ungaro did not hesitate in denying the plaintiffs' motion.

The Galban decision illustrates an important principle of FLSA litigation.  A so-called "collective action" is not a collective action until the court says it is.  And although the standards for certifying a collective action at the initial, "notice" stage are lenient, there are certain minimum requirements that a plaintiff must meet.  It is defense counsel's role to hold plaintiffs to those standards and demonstrate, if possible, that a collective action is inappropriate.