Take 5 Views You Can Use: Wage and Hour Update

By: Kara M. Maciel

The following is a selection from the Firm's October Take 5 Views You Can Use which discusses recent developments in wage hour law.

  1. IRS Will Begin Taxing a Restaurant's Automatic Gratuities as Service Charges

Many restaurants include automatic gratuities on the checks of guests with large parties to ensure that servers get fair tips. This method allows the restaurant to calculate an amount into the total bill, but it takes away a customer's discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer's voluntary act, the Internal Revenue Service ("IRS") will begin classifying automatic gratuities as service charges, taxed like regular wages, beginning in January 2014.

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor automatic gratuities into the hourly wage of the employee, meaning the employee's regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount that its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit.

Considering that the IRS's ruling could disadvantage servers as well, restaurants may now want to consider eliminating the use of automatic gratuities. Otherwise, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday.

Some restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or increased food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure that employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.

  1. The New DOL Secretary, Tom Perez, Spells Out the WHD's Enforcement Agenda

On September 4, 2013, the new U.S. Secretary of Labor, Tom Perez, was sworn in. During his remarks, Secretary Perez outlined several priorities for the U.S. Department of Labor ("DOL"), including addressing pay equity for women, individuals with disabilities, and veterans; raising the minimum wage; and fixing the "broken" immigration system.

Most notably, and unsurprisingly, Secretary Perez emphasized the enforcement work of the Wage and Hour Division ("WHD"). Just last year, the WHD again obtained a record amount—$280 million—in back-pay for workers. Employers can expect to see continued aggressive enforcement efforts from the WHD in 2013 and 2014 on areas such as worker misclassification, overtime pay, and off-the-clock work. In fact, Secretary Perez stated in his swearing-in speech that "when we protect workers with sensible safety regulations, or when we address the fraud of worker misclassification, employers who play by the rules come out ahead." By increasing its investigative workforce by over 40 percent since 2008, the WHD has had more time and resources to undertake targeted investigation initiatives in addition to investigations resulting from complaints, and that trend should continue.

  1. DOL Investigates Health Care Provider and Obtains $4 Million Settlement for Overtime Payments

On September 16, 2013, the DOL announced that Harris Health System ("Harris"), a Houston health care provider of emergency, outpatient, and inpatient medical services, had agreed to pay more than $4 million in back wages and damages to approximately 4,500 current and former employees for violations of the overtime and recordkeeping provisions of the Fair Labor Standards Act ("FLSA"). The DOL made this announcement after the WHD completed a more than two-year investigation into the company's payment system, prompted by claims that employees were not being fully compensated.

Under the FLSA, employers typically must pay their non-exempt employees an overtime premium of time-and-one-half their regular rate of pay for all hours worked in excess of 40 hours in a workweek. Employers within the health care industry have special overtime rules. Notably, for all employers, an employee's "regular rate of pay" is not necessarily the same as his or her hourly rate of pay. Rather, an employee's "regular rate of pay" includes an employee's "total remuneration" for that week, which consists of both the employee's hourly rate as well as any non-discretionary forms of payment, such as commissions, bonuses, and incentive pay. The FLSA dictates that an employee's "regular rate" of pay is then determined by dividing the employee's total remuneration for the week by the number of hours worked that week.

The DOL's investigation concluded that Harris had failed to: (i) include incentive pay when determining its employees' regular rate of pay for overtime purposes, and (ii) maintain proper overtime records. As a result, Harris owed its employees a total of $2.06 million in back wages and another $2.06 million in liquidated damages.

Because an employee's "total remuneration" for a workweek may consist of various forms of compensation, employers must consistently evaluate and assess their payment structures and payroll systems to determine the payments that must be included in an employee's overtime calculations beyond just the hourly wage. Additionally, employers should conduct periodic audits to ensure that they are maintaining full and accurate records of all hours worked by every employee.

  1. Federal Court Strikes Down DOL Tip Pooling Rule

In 2011, the WHD enacted a strict final rule related to proper tip pooling and service charge practices. This final rule was met with swift legal challenges, and, this summer, the U.S. District Court for the District of Oregon ("District Court") concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the U.S. Court of Appeals for the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other "back of the house staff," so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the Ninth Circuit, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

In 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back-of-the-house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its final rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the issuance of the DOL's final rule, hospitality groups filed a lawsuit against the DOL challenging the agency's regulations that exclude back-of-the-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the District Court granted the plaintiffs' summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The District Court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit.

The District Court's decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL's regulations. Given the District Court's implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

  1. Take Preventative Steps When Facing WHD Audits

In response to a WHD audit or inspection, here are several preventative and proactive measures that an employer can take to prepare itself prior to, during, and after the audit:

  • Prior to any notice of a WHD inspection, employers should develop and implement a comprehensive wage and hour program designed to prevent and resolve wage hour issues at an early stage. For example, employers should closely examine job descriptions to ensure that they reflect the work performed, review time-keeping systems, develop a formal employee grievance program for reporting and resolving wage and hour concerns, and confirm that all written time-keeping policies and procedures are current, accurate, and obeyed. Employers should also conduct regular self-audits with in-house or outside legal counsel (to protect the audit findings under the attorney-client privilege) and ensure that they address all recommendations immediately.
  • During a DOL investigation, employers should feel comfortable to assert their rights, including requesting 72 hours to comply with any investigative demand, requesting that interviews and on-site inspection take place at reasonable times, participating in the opening and closing conferences, protecting trade secrets and confidential business information, and escorting the investigator while he or she is at the workplace.
  • If an investigator wants to conduct a tour of an employer's facility, an employer representative should escort the investigator at all times while on-site. While an investigator may speak with hourly employees, the employer may object to any impromptu, on-site interview that lasts more than five minutes on the grounds that it disrupts normal business operations.
  • If the DOL issues a finding of back wages following an investigation, employers should consider several options. First, an employer can pay the amount without question and accept the DOL's findings. Second, an employer can resolve disputed findings and negotiate reduced amounts at an informal settlement conference with the investigator or his or her supervisor. Third, an employer can contest the findings and negotiate a formal settlement with the DOL's counsel. Finally, an employer may contest the findings, prepare a defense, and proceed to trial in court.

In addition, employers should review our WHD Investigation Checklist, which can help them ensure that they have thought through all essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.

Following these simple measures could significantly reduce an employer's exposure under the FLSA and similar state wage and hour laws.

Second Circuit Holds That Participation In FLSA Collective Actions Can Be Waived In Favor Of Individual Arbitration

by John F. Fullerton III

The U.S. Court of Appeals for the Second Circuit recently took a significant step toward bringing uniformity to the law of class and collective action waivers under the Fair Labor Standards Act (FLSA). 

In Sutherland v. Ernst & Young LLP, the court held that employees can be contractually compelled to arbitrate their claims on an individual basis, and thereby waive their right to participate in a FLSA collective action. The decision is another in a series of cases that have required employees to arbitrate employment-related claims on an individual basis when they have clearly agreed to do so.

A little background is in order. In its 2011 decision in AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that, under the Federal Arbitration Act (FAA), states must enforce arbitration agreements even when the agreement requires individual, and not class action, arbitration. The Court found that states may not apply generally applicable contract defenses, such as unconscionability,” in a way that “disfavors arbitration.” 

Foreshadowing the direction of the law on this issue, in March of this year, the Second Circuit in Parisi v. Goldman, Sachs & Co., reversed a district court decision that had held that an employment agreement’s express “preclusion of class arbitration would make it impossible for [plaintiff] to arbitrate a Title VII pattern-or-practice claim, and that consequently, the clause effectively operated as a waiver of a substantive right under Title VII.” The court noted a few exceptions to the liberal policy favoring arbitration, in which the costs associated with the actions are prohibitive and preclude plaintiffs from bringing such claims. This is known as the “effective vindication” doctrine. The court observed that the doctrine was inapplicable in employment discrimination litigation.

In June, the U.S. Supreme Court issued its decision in American Express Co. v. Italian Color Restaurant, which addressed the issue of whether the “effective vindication” doctrine precluded class arbitration waivers in the antitrust context where expert testimony is required and therefore, it was argued, would be prohibitively expensive for individuals to pursue without the availability of class arbitration. The Court held that the FAA does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.

That brings us to Sutherland, and the question of whether these legal developments that apply to other types of class actions apply equally to FLSA collective actions, where the amounts at issue for each individual member of the potential class may indeed be much smaller than in a typical discrimination case. As a condition of employment, Sutherland had agreed to “binding arbitration … on an individual basis only.” She later filed a collective action under the FLSA. 

In its pre-Concepcion decision, the district court invalidated the agreement because plaintiff demonstrated that the waiver essentially resulted in her inability to assert the claims. The court reasoned that Sutherland, because of the small amount of potential individual recovery, (a) would not pursue her claims individually provided the high costs of litigation and (b) would be unable to obtain legal representation for such a small claim, which could be obtained on a class basis. 

Post-Concepcion, the employer moved for reconsideration, but the motion was denied. The court reasoned that the applicability of Concepcion was a “close question” but reconfirmed its view that Sutherland was unable to vindicate her rights on an individual basis. That decision was in conflict with other district court decisions within the Second Circuit under the FLSA, which had found that Concepcion was contrary to any argument that an absolute right to collective action is consistent with the FAA, and instead concluded that plaintiffs could be required to pursue their claims on an individual basis in arbitration. 

The Second Circuit has now subscribed to the same view, finding that the reasoning of the Supreme Court’s decision in Italian Colors abrogated the district court’s basis for invalidating the collective action waiver at issue. The court observed that there was no “contrary congressional command” requiring class-wide arbitration in the FLSA context, and that the recent Supreme Court decisions on class waivers pointed to the same conclusion. The court noted that a substantial majority of circuit and district courts had already concluded that the FLSA does not preclude the waiver of collective action claims. 

Pursuing FLSA claims in a collective action is not a “right;” it is a contractually waivable procedural mechanism that does not prevent an individual from effectively vindicating his or her claims for unpaid overtime wages on an individual basis through arbitration. The Second Circuit’s Sutherland decision therefore opens the door further to employers to draft broad class and collective action waivers in their handbooks and employment agreements that include FLSA claims and require such claims to be pursued in individual arbitrations.

Does A Retailer's Security Bag Check Violate the FLSA?

by Michael D. Thompson

Apple Inc.’s practice of requiring hourly employees to wait (off the clock) in order to undergo “personal package and bag checks” prior to meal breaks and at the end of shifts is the subject of a purported wage-hour collective action.

According to a complaint filed in the U.S. District Court for the Northern District of California, these security checks take approximately 50 minutes to 1.5 hours per week of uncompensated time to search for “possible store items or merchandise taken without permission and/or contraband.”  

The lawsuit seeks to certify a nationwide collective action class under the federal Fair Labor Standards Act, as well as classes in California and New York class for alleged violations of those states' labor laws.

Bag check requirements are relatively common in the retail environment, and a similar lawsuit against Polo Ralph Lauren settled for $4,000,000.

Preliminary and Postliminary Activities

An analysis of the time spent waiting for security checks at the end of the workday is similar to the analysis in “donning and doffing” cases dealing with the compensability of “preliminary” or “postliminary” activities such as putting on uniforms or safety equipment before a shift begins.  

The FLSA, as amended by the Portal-to-Portal Act of 1947, generally precludes compensation for activities that are “preliminary” or “postliminary” to the “principal activity or activities” of the employee. 29 U.S.C. § 254(a).  But preliminary and postliminary activities are compensable if they are “integral and indispensable” to an employee’s principal duties. In IBP v. Alvarez, the U.S. Supreme Court ruled that an activity is “integral and indispensable” if it is (1) “necessary to the principal work performed” and (2) “done for the benefit of the employer.”

The Impact of Busk v. Integrity Staffing Solutions, Inc.

The compensability of time spent clearing security was recently addressed in Busk v. Integrity Staffing Solutions, Inc., and the Ninth Circuit created a distinction that may spur a new wave of litigation. 

In Busk, the District Court found time going through security checks to be non-compensable, and relied on Second Circuit and Eleventh Circuit precedent involving employees at a nuclear power plant and an airport construction project, respectively.

However, the Ninth Circuit reversed, concluding that those security screenings were not in place because of the nature of the employee's work, and indeed were applicable to employees and non-employees. Accordingly, those screening were not integral to the principal activities of the employees.

Conversely, the Ninth Circuit held that requiring “screening to prevent employee theft … stems from the nature of the employees' work (specifically, their access to merchandise),” and therefore may be compensable work time.

Perhaps with an eye towards this distinction, the complaint against Apple notes that its bag check policy applies to all employees, but not to customers.

De Minimis Time

To the extent that time spent on bag checks is not preliminary or postliminary, the time is likely to be compensable unless it is de minimis29 CFR 785.47 provides that “insubstantial or insignificant periods of time beyond the scheduled working hours … may be disregarded.” While there is no definitive maximum, periods of ten minutes or less will typically be regarded as de minimis.  

The de minimis rule “applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.” Furthermore, not all states recognize the de minimis principle.

Accordingly, employers with security check requirements should review those policies to determine whether the time involved is preliminary/postliminary, de minimis or compensable.

*The author appreciates the assistance of summer associate, Kristopher Reichardt, in the preparation of this article. 

The Ninth Circuit Joins Other Circuits In Recognizing "Hybrid" Wage-Hour Class Actions

By Michael Kun

“Hybrid” wage-hour class actions are by no means a new concept. 

In a “hybrid” class action, the named plaintiff files suit seeking to represent classes under both the federal Fair Labor Standards Act (“FLSA”) and state wage-hour laws.  As the potential recovery and limitations periods for these claims are often very different, so, too, are the mechanisms used for each. 

In FLSA claims, where classes can be “conditionally certified” if a plaintiff satisfies a relatively low burden of establishing that class members are “similarly situated” – a phrase nowhere defined in the statute – only those persons who affirmatively “opt in” to the lawsuit become class members.  In state wage-hour claims, governed by Federal Rule 23 (or a state law equivalent), a plaintiff generally must satisfy a higher standard – establishing numerosity, commonality, typicality, adequacy and superiority – and, if a class is certified, only those persons who affirmatively “opt out” are removed from the class.

The differences between these two mechanisms can be confusing even for lawyers, particularly in “hybrid” class actions where both are used simultaneously.  It is not difficult to understand how class members would find such proceedings even more confusing, especially if they receive notices telling them how to “opt in” to one type of wage-hour class and “opt out” of another, where the claims themselves sound identical to a layperson.  If class members wish to participate in both classes, they need to figure out that they must “opt in” to the FLSA class and do nothing as to the state law class.  And if they wish to participate in neither, they need to figure out that they should do nothing as to the FLSA class, yet “opt out” of the state class.  Anyone who has every received a class notice in the mail knows that, try as the court and parties might, those notices can be as difficult to navigate as trying to read the instructions for assembling a new bicycle. 

Because of the differences between the two mechanisms, the way the claims proceed under them, and the potential confusion, some employers have successfully argued that the two mechanisms were incompatible – a plaintiff had to choose whether to pursue federal or state law claims.  However, the circuit courts around the country have increasingly weighed in, ruling that the claims are not incompatible and that plaintiffs may pursue “hybrid” class actions.  Now, the Ninth Circuit has joined the chorus, issuing an opinion in Busk v. Integrity Staffing in which it determined that federal and state wage-hour claims may “peacefully co-exist” in the same action.

Unless and until the Supreme Court weighs in with a different opinion, it would seem that they “hybrid” class action is here to stay.  For employers, that means increased potential exposure in wage-hour class actions as plaintiffs can and will pursue both federal and state claims in the same action.  And it also means increased litigation activities, as parties in “hybrid” class actions normally will deal with two separate sets of class certification briefing – one on the FLSA claims, one on the state law claims – as well as two notices if classes are certified on each. 

The upside for employers?  To the extent there is one, it is that the inclusion of the FLSA claim ensures that the case can be removed to federal court at the outset.           

Supreme Court Applies Strict Analysis in Bouncing FLSA Collective Action, Even After "Conditional Certification."

by Stuart Gerson

In Genesis Healthcare Corp. v. Symczyk, the Unites States Supreme Court held that a collective action under the FLSA was properly dismissed for lack of subject matter jurisdiction after the named plaintiff ignored the employer’s Fed. R. Civ. P. 68 offer of judgment. The Court concluded that the plaintiff had no personal interest in representing putative, unnamed claimants, nor did she have any other continuing interest that would preserve her suit from mootness.

The plaintiff’s collective action was originally filed in District Court for the Eastern District of Pennsylvania, and the employer made an offer of judgment that would have fully satisfied the plaintiff’s individual claim before any other claimants joined the case. Although the plaintiff did not respond to the offer of judgment, the District Court dismissed the case as moot.

The Third Circuit reversed and held that, while the plaintiff’s individual claim was moot, her collective action could go forward on the theory that a defendant should not be allowed to “pick off” named plaintiffs and thereby avoid certification of a collective action. 

The Supreme Court stated that the Courts of Appeals disagree over whether a Rule 68 offer that fully satisfies a plaintiff’s individual claim renders that plaintiff’s claim moot even if the offer is not accepted. However, the plaintiff in Symczyk had conceded that issue below. The Supreme Court therefore assumed (but did decide) that the plaintiff’s individual claim was moot even though she had not accepted the offer of judgment.

Distinguishing several cases with regard to headless classes being able to go forward where a named plaintiff’s case becomes moot, Justice Thomas, writing for a 5-4 majority (a straight conservative/liberal breakout) reversed the Circuit, holding that well-settled mootness principles control and that when the named plaintiff’s suit became moot (because the ignored Rule 68 motion covered all of her interests, including attorneys’ fees), she had no personal interest remaining that would allow her to represent others.

In so doing, the Supreme Court’s majority opined that while under Fed. R. Civ. P. 23, a putative class acquires an independent legal status once it is certified, no such independent status is conferred by” conditional certification” under the FLSA.

You may recall that I recently blogged about the Court’s decision in the Comcast case, suggesting that it presented a useful precedent that could be employed, not just in Rule 23 cases, but under the FLSA’s collective action jurisprudence, to require a court to hear merits arguments prior to certification and rule on standing then.  In fact, the Court’s decision today not only punctuates that view, it suggests that the FLSA allows for more stringent analysis of standing, even after “conditional certification.”

Wage & Hour FAQ #2: What to Do When a Wage Hour Investigation Team Arrives to Start Auditing

By Douglas Weiner

Last month, we released our Wage and Hour Division Investigation Checklist for employers and have received terrific feedback with additional questions. Following up on your questions, we will be regularly posting FAQs as a regular feature of our Wage & Hour Defense Blog.

In this post, we address an increasingly common issue that many employers are facing in light of aggressive government enforcement at the state and federal level from the Department of Labor.

QUESTION: If a DOL team of Wage Hour Investigators arrive unannounced demanding the immediate production of payroll and tax records and access to employees for confidential interviews what should we do?

ANSWER: An unannounced arrival to investigate signals some adverse information has been submitted to the DOL concerning your wage and hour practices from either an employee complaint or referral from another law enforcement agency such as a state or federal taxing authority, or even possibly from a competitor or labor union. Effectively managing the investigation from the very beginning is essential to obtaining the best possible results. First, advise the leader of the DOL’s investigation team that you are contacting your designated wage and hour representative  to promptly arrive to provide the investigators with assistance. Courteously direct the investigation team to a comfortable but secure location such as a conference room where normal business operations will not be disrupted.

Upon arrival, our practice is to verify the credentials of the investigators, and conduct an opening conference to ascertain the purpose and focus of the investigation. Our immediate goal is to engage the DOL in a discussion to learn what they are seeking. Clarifying the specific focus of the DOL’s inquiry enhances initial communication, and allows narrowly tailored responses. For clarity, we ask the DOL to provide written requests for documents and employee interviews. Reminding the DOL the employer has the right to cooperate with the investigation in a manner that does not disrupt normal business operations, we ascertain from our client and discuss with the DOL an acceptable protocol for the conduct of the investigation. 

Upon ascertaining the specific focus of the investigation, we advise the DOL we understand what they seek, and propose continuing the investigation in a few days after the identified documents have been gathered (and internally reviewed). We invite the investigators to our firm’s conference rooms where payroll records and other documents may be inspected without returning to our client’s facilities. If the lead investigator is unreasonable in demanding immediate access to records and employees, we consider requiring the DOL to obtain a subpoena. If possible it is preferable to establish an agreed protocol to an investigation to avoid giving the DOL reason to believe you have something to hide, the loss of control over the scope of the investigation and the benefits of good faith cooperation. 

In sum, we suggest three things to do, and three things not to do:

Do:

1.      Notify your representative immediately.

2.      Allow your representative to take control of the management of the DOL’s investigation.

3.      Maintain a courteous and forthright demeanor until your representative arrives.

Do not:

1.      Ask if the investigation has been prompted by a complaint.

2.      Ask the DOL to identify a complainant.

3.      Allow immediate inspection of records or employee interviews to take place before your representative has arrived or an opening conference has been conducted.

* * * * * * * * * *

In subsequent FAQs, we will discuss in more detail a protocol to produce documents, and what information your wage-hour representative needs to respond to DOL audits, whether scheduled or surprise. But, in the meantime, regular internal reviews and audits of your wage and hour practices and documentation is key to protecting against costly exposure from a government investigation.

Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection.

The First "Suitable Seating" Trial In California Results In A Victory For The Employer - And Guidance For Plaintiffs For Future Cases

By Michael Kun

As we have written before in this space,  the latest wave of class actions in California is one alleging that employers have not complied with obscure requirements requiring the provision of “suitable seating” to employees – and that employees are entitled to significant penalties as a result.

The “suitable seating” provisions are buried so deep in Wage Orders that most plaintiffs’ attorneys were not even aware of them until recently.  Importantly, they do not require all employers to provide seats to all employees.  Instead, they provide that employers shall provide “suitable seats when the nature of the work reasonably permits the use of seats.” 

Because the “suitable seating” provisions were so obscure, there is scant case law or other analysis for employers to refer to in determining whether, when and how to provide seats to particular employees.  Among other things, the most important phrases in the provisions – “suitable seats” and “nature of the work” – are nowhere defined.  While those terms would seem to suggest that an employer’s goals and expectations must be taken into consideration – including efficiency, effectiveness and the image the employer wishes to project – plaintiffs’ counsel have not unexpectedly argued that such issues are irrelevant.  They have argued that if a job can be done while seated, a seat must be provided. 

The first “suitable seating” case has gone to finally gone to trial in United States District Court for the Northern District of California.  The decision issued after a bench trial in Garvey v. Kmart Corporation is a victory for Kmart Corporation on claims that it unlawfully failed to provide seats to its cashiers at one of its California stores.  The decision sheds some light on the scope and meaning of the “suitable seating” provisions.  But it also may provide some guidance to plaintiffs’ counsel on arguments to make in future cases. 

Addressing the “suitable seating” issue at Kmart’s Tulare, California store, the court rejected plaintiffs’ counsel’s arguments that Kmart was required to redesign its cashier and bagging areas in order to provide seats.  Importantly, the court recognized that Kmart has a “genuine customer-service rationale for requiring its cashiers to stand”:  “Kmart has every right to be concerned with efficiency – and the appearance of efficiency – of its checkout service.”  That concern is one likely shared by many employers. 

In reaching its decision, the court expressed concern not only about safety, but also about the cashiers’ ability to project a “ready-to-assist attitude”: “Each time the cashier were to rise or sit, the adjustment exercise itself would telegraph a message to those in line, namely a message that the convenience of employees comes first.”  The court further explained:  “In order to avoid inconveniencing a seated cashier, moreover, customers might themselves feel obligated to move larger and bulkier merchandise along the counter, a task Kmart wants its cashiers to do in the interest of good customer service.” 

While recognizing that image, customer service and efficiency goals must all be taken into consideration in determining whether seating must be provided, the court then appeared to provide some guidance to plaintiffs.  The court addressed the possibility that these issues could be addressed through the use of “lean-stools.”  Acknowledging that the use of “lean-stools” had not been developed at trial, the court invited arguments about them at the trial of “suitable seating” claims for the next Kmart store.  Thus, while expressly refusing to decide whether Kmart employees should have been provide “lean-stools,” the court may have provided plaintiffs’ counsel with an important argument to make in future trials.

And, as a result, employers in California – particularly in the hospitality and retail industries – should now be expected to address whether they could or should be providing “lean-stools” to employees whom they expect to stand during their jobs. 

Clarification of California's Obscure "Suitable Seating" Requirement Should Be Forthcoming In Two Pending Cases

By Michael Kun

Employers with operations in California have become aware in recent years of an obscure provision in California Wage Orders that requires “suitable seating” for some employees.  Not surprisingly, many became aware of this provision through the great many class action lawsuits filed by plaintiffs’ counsel who also just discovered the provision.  The law on this issue is scant.  However, at least two pending cases should clarify whether and when employers must provide seats – a case against Bank of America that is currently before the Ninth Circuit Court of Appeal, and a case against K-Mart that is now being tried in the United States District Court for the Northern District of California.

The wave of representative and class action lawsuits alleging that employers failed to provide suitable seating in violation of Labor Code § 1198 and Wage Orders was triggered by the Court of Appeal ruling in Bright v. 99 Cents Only Stores, 189 Cal.App.4th 1472 (2010), permitting “suitable seating” claims to proceed under California Private Attorney General Act.    

Prior to that ruling, “suitable seating” lawsuits were few and far between.   All it took was a single published opinion to let the plaintiffs’ bar know about this potential claim and to begin to seek plaintiffs to bring these claims against their employers.

Importantly, the seating provisions of the Wage Orders do not require all employers to provide seating to all employees.  Instead, the provisions state that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” 

As the former Chief Deputy Labor Commissioner explained in 1986, these seating provisions were “originally established to cover situations where the work is usually performed in a sitting position with machinery, tools or other equipment.  It was not intended to cover those positions where the duties require employees to be on their feet, such as salespersons in the mercantile industry.”

In Green v. Bank of America, the district court relied upon this opinion in dismissing a putative “suitable seating” class action with prejudice, holding that an employer need only give seats to individuals who request them – and there was no allegation in the complaint that any employee had requested a seat.  That decision is now on review before the Ninth Circuit, which presumably will determine what “provide” means in the context of the “suitable seating” requirements.  The Court may well look to the California Supreme Court’s Brinker v. Superior Court decision for guidance on that issue.  There, in the context of requirements that employers “provide” meal and rest periods to employees, the California Supreme Court determined that “provide” means that the employer make the meal and rest periods available, but need not ensure they are taken.  That would suggest that, in the “suitable seating” context, an employer must make seats available to appropriate employees, but need not ensure they take them.  That, of course, would beg the question of who is entitled to seats in the first place.

The “suitable seating” trial relating to K-Mart’s cashiers that has commenced in San Francisco – Garvey v. Kmart -- promises to look at that and other issues.  Among other things, that trial should address the impact employers’ expectations and preferences have upon whether “the nature of the work reasonably permits the use of seats.” 

Plaintiffs in “suitable seating” cases normally argue that a seat must be provided if the job “could” be done seated.  Of course, that is not what the Wage Orders state.  Many jobs “could” be done while seated.  Whether they can be done as well while seated is a different issue entirely.  (One is reminded of the famous Seinfeld episode where George Costanza insisted on getting a rocking chair for a jewelry store security guard; the guard then fell asleep as the store was robbed right in front of him.)

Among other things, employers in the hospitality and retail industries often wish to have persons in some positions standing in order to make eye contact with customers, establish a relationship with them and be in the best position to assist them.  It is too easy for customers to ignore someone who is seated, or not even notice that person.  The Kmart trial should provide some guidance as to whether such expectations and preferences are to be given weight.

These two cases should provide some much needed clarity as to whether and when seats must be provided to certain employees.  In the meantime, employers would be wise to let employees know whether and why certain jobs are expected to be performed while standing. 

Independent Contractor Misclassification Should Remain Key Area of Concern for Employers

By Frederick Dawkins and Douglas Weiner

Earlier this month, at the ABA Labor and Employment Law Conference, Solicitor of Labor M. Patricia Smith reaffirmed that investigating independent contractors as misclassified remains a top priority of the U.S. Department of Labor’s (“DOL”) enforcement initiatives.  The DOL will continue to work with other federal and state agencies, including the IRS, to share information and jointly investigate claims of worker misclassification.  The joint enforcement effort is certainly driven by, among other things, an interest in collecting unpaid tax revenue, and could result in significant liability to employers.  

In addition to potential liability resulting from strengthened federal enforcement initiatives, in previous blog posts, we have emphasized that misclassification could become the subject of the next wave of class and collective actions, particularly in view of states enacting new legislation providing for higher penalties.  Further, the re-election of President Obama may augur the re-emergence of the Employee Misclassification Prevention Act, would require employers to keep records of all workers performing labor or services for them, and to notify each worker of their classification and exemption status.  Finally, the Affordable Care Act (“ACA”) adds yet another challenge to employee misclassifications as the reclassification of workers from independent contractors to employees could push an employer over the 50 full-time employee threshold for ACA coverage. 

The expenses of  misclassification are often significant – including calculations of unpaid overtime wages, back employment taxes, income tax withholdings, unpaid workers’ compensation and unemployment insurance premiums, contributions to Social Security and Medicare, and perhaps 401K matching and pension contributions. 

In short, over the next four years of the Obama Administration, which will continue to fund the DOL’s aggressive enforcement efforts, it is undeniable that contractor misclassification investigations will continue to increase in volume and strength.  Employers are best advised to scrutinize their own independent contractor classifications in self-audits before federal and state investigators, or perhaps even worse, plaintiffs’ class action lawyers target what had been common practices.

California Supreme Court Holds That Attorney's Fees Are Not Recoverable On Meal And Rest Period Claims

By Michael Kun

Yesterday, only weeks after its long-awaited Brinker v. Superior Court decision, the California Supreme Court issued another important ruling on California meal and rest period laws. 

In Kirby v. Immoos Fire Protection, Inc., the Supreme Court ruled that neither party may recover attorney’s fees on claims involving meal and rest periods.  The Court analyzed the legislative history of the meal and rest period provisions and concluded, “We believe the most plausible inference to be drawn from history is that the Legislature intended [meal and rest period] claims to be governed by the default American rule that each side must cover its own attorney’s fees.” 

Although plaintiffs’ counsel throughout the state have tried to put a happy face on this decision, claiming a victory because plaintiffs cannot be made to pay an employer’s attorney’s fees should the employer prevail, the decision is plainly a victory for employers.  Rarely, if ever, are plaintiffs made to pay an employer’s attorney’s fees in a meal and rest period case, while employers are routinely asked to do as part of the resolution of such cases.  And as employers who have faced meal and rest period class actions know, the resolution of those cases has often turned on disputes over plaintiffs’ counsel’s fees, where it has not been unusual for plaintiffs’ counsel to seek fees that dwarf the recovery they seek for the employees themselves. 

While Kirby will have a great impact on meal and rest period cases, it is unlikely to spell the end of those cases.  Instead, employers can expect that plaintiffs’ counsel will include claims for which attorney’s fees can be recovered, such as claims for unpaid overtime or claims under the Private Attorneys General Act, and that they will later contend that most of their time was devoted to those claims, not the meal and rest period claims.

Additionally, employers should be aware that the Supreme Court all but invited the state legislature to add an attorney’s fees provision for meal and rest period violations: “it is up to the Legislature to decide whether [minimum wage law’s] one-way fee-shifting provision should be broadened to include [meal and rest period] actions.”

California Supreme Court Issues Largely Employer-Friendly Ruling In Long-Awaited Brinker Decision

By:  Michael Kun

This morning, the California Supreme Court has just issued its long-awaited decision in the Brinker case regarding meal and period requirements.   It is largely, but not entirely, a victory for employers.  A copy of the decision is here.

A few highlights of the decision:

On rest periods, the Court confirmed the certification of a rest period class because Brinker’s written policy arguably did not comply with the law as to the second rest period in a day.  In so doing, it clarified when employees are entitled to rest periods:

·         Employees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on. (page 20)

On meal periods, the Court confirmed that meal periods need not be “ensured,” and that employers have no obligation to “police” them:

·         An employer’s duty with respect to meal breaks under both section 512, subdivision (a) and Wage Order No. 5 is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so….. On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay under Wage Order No. 5, subdivision 11(B) and Labor Code section 226.7, subdivision (b). (page 36)

The Court also rejected the plaintiffs’ argument in favor of “rolling” meal periods (i.e., the argument that an employee who takes an early meal period is entitled to another meal period within the next five hours, even if he or she works less than 10 hours):

·         We conclude that, absent waiver, section 512 requires a first meal period no later than the end of an employee’s fifth hour of work, and a second meal period no later than the end of an employee’s 10th hour of work. (page 37)

Unfortunately, confirming that meal period claims will continue to be litigated in California for years to come, the Court added the following caveat:

·         What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.   (page 36)

A more comprehensive analysis of the decision and its impact upon California employers – and the meal and rest period class actions that have besieged California employers – will be forthcoming. 

In the Name of "Fairness," a New Jersey Federal Court Strikes the Confidentiality and Release Provisions from a Fair Labor Standards Act Settlement Agreement

By Douglas Weiner and Meg Thering

In one of the many “wrinkles” in Fair Labor Standards Act (“FLSA”) litigation, settlements of wage and hour disputes between an employer and its employees are only enforceable if supervised by the U.S. Department of Labor or approved by a court. Courts will approve settlements if they are “fair”; however, as demonstrated in a recent decision arising out of New Jersey - Brumley v. Camin Cargo Control - courts may need to be reminded that employers also have rights and legitimate interests. The Brumley Court took what was a bargained-for exchange between both parties and turned it into what could only be considered a one-sided deal, good only for the plaintiffs. 

After litigating and negotiating alleged overtime violations with 112 opt-in plaintiffs over a four year period, Camin Cargo Control, Inc. ultimately offered to pay $3.9 million in exchange for the release of all wage claims and a confidentiality provision. Plaintiffs then filed an unopposed motion to approve these terms of settlement.  Unfortunately for Camin Cargo Control, Inc., the Court granted Plaintiffs their full benefit of the bargain – including $1.3 million in costs and attorneys’ fees – but in the name of “fairness” denied the portion of the motion containing the confidentiality provision and release of claims.

In Brumley,the Honorable Jose Linares, citing Brooklyn Sav. Bank v. O’Neil, a U.S. Supreme Court case from 1945 and Dees v. Hyradry, Inc., a 2010 casefrom the Middle District of Florida, refused to approve the parties’ agreement as submitted because he found that the confidentiality provisions ran afoul of “the ‘public – private’ rights granted by the FLSA and thwart[ed] Congress’s intent to ensure widespread compliance with the statute.” Additionally, citing Dees, he stated: “[i]n practice, leaving an FLSA settlement to wholly private resolution conduces inevitably to mischief.” He also deemed the release unfair because he interpreted it as a release of both prior and prospective claims.

In light of this opinion, employers should double check the language of release provisions in FLSA settlement agreements to make sure that they unambiguously release all claims prior to the date of the agreement (and no claims after the date of the agreement). 

Employers should also keep in mind that courts are becoming increasingly hostile to confidentiality provisions in FLSA settlements. Thus, employers may no longer assume that their confidentiality provisions will be approved. 

We will keep an eye on this decision and report if it is appealed or distinguished by courts in other jurisdictions.

EBG Complimentary Webinar: Don't Be a Target of the Wage and Hour Class Action Epidemic: Tips for Avoiding Exposure

Wage and hour investigations and class action lawsuits continue to be a potentially serious problem for many employers, resulting in an abundance of new cases filed and many large settlements procured.  In addition, in September 2011, under the guidance of the Obama Administration, the Department of Labor and IRS announced an effort to coordinate with each other to address misclassification of employees as independent contractors, which is resulting in additional investigations, fines, and/or legal liability levied on an employer.

Click here to register for this complimentary webinar.

Thursday, April 12, 2012
9:00 a.m. - 10:00 a.m. CDT - Program and Q&A Session 
 

Payday for Unpaid Interns?

By Amy Traub and Desiree Busching

Like the fashions in the magazines on which they work and the blockbuster movies for which they assist in production, unpaid interns are becoming one of the newest, hottest trends— the new “it” in class action litigation. As we previously advised, there has been an increased focus on unpaid interns in the legal arena, as evidenced by complaints filed by former unpaid interns in September 2011 against Fox Searchlight Pictures, Inc. and in February 2012 against Hearst Corporation. In those lawsuits, unpaid interns working on the hit movie “Black Swan” and at Harper’s Bazaar magazine, respectively, alleged that their high-profile employers violated federal and state wage-and-hour laws by failing to pay them for work they claim was more aptly suited for paid employees.

The newest case to hit the scene on this issue has been filed by Lucy Bickerton, a former unpaid intern of “The Charlie Rose Show” on PBS. In her March 14, 2012 complaint, Bickerton alleges that she worked for the show in 2007 for approximately 25 hours per week and that the show and its host had her performing “productive work”—work for which she claims she, and other interns like her, should have been paid.

According to a press release issued by the plaintiffs’ firm that has filed all three of these prominent unpaid intern cases, “[s]ince filing a lawsuit on behalf of unpaid Fox [Searchlight Pictures, Inc.] interns late last year, our office has received numerous calls from other current and former interns who were not paid for the productive work they performed. This [Bickerton] lawsuit should send a clear message to employers that the practice of classifying employees as ‘interns’ to avoid paying wages runs afoul of federal and state wage and hour laws.”

The clear message received is that this firm is on the offensive, and others will undoubtedly soon follow suit. For employers who have checked their unpaid internship programs to ensure that they are in compliance with the tests utilized by both federal and state agencies and courts in analyzing whether individuals qualify as “interns,” it is time to double-check. With the attention this issue is seeing in the media and before the courts, it is clear that if misclassified unpaid interns are not paid now, employers may just be paying later.

An Overview of Wage Hour Laws and Litigation: Avoiding the Pitfalls of Back Wage Claims

Wage Hour laws and regulations are complex, non-intuitive, and constantly changing.  Mistakes in wage and salary administration have led to class actions resulting in six and seven figure recoveries against the most sophisticated employers - banks and major industrial giants as well as smaller employers without in-house legal and high level Human Resources officials.  Peter M. Panken, Lauri Rasnick and Douglas Weiner in our New York Office have recently authored an article in conjunction with a major national Continuing Legal Education program in Washington entitled: “ An Overview of Wage Hour Laws and Litigation: Avoiding the Pitfalls of Back Wage Claims” which outlines the major traps employers can fall into and outlines ways to avoid the problems before litigation begins.

The Administrative Exemption from Overtime Pay Continues to Plague Employers: Is There a Cure?

By John F. Fullerton, III, Douglas Weiner, and Meg Thering

The plague of lawsuits for unpaid overtime compensation by employees who claim that they were misclassified by their current or former employer as “exempt” from overtime under the “administrative” exemption of the Fair Labor Standards Act shows no signs of receding.  These lawsuits continue to present challenges to employers, not just in terms of the burdens and costs of defending the cases, but in the uncertainty of the potential financial exposure.

Read the full article online

California District Court Holds That Motor Carrier Exemption Preempts Meal And Rest Period Claims In Trucking Industry

By Michael Kun and Aaron Olsen

Plaintiffs seeking to bring state law wage-hour class actions against employers in the trucking industry have run into a significant road block in California.  For the second time in a year, a United States District Court has held that claims based on California’s meal and rest period laws are preempted by federal law.

In Esquivel et al. v. Performance Food Group Inc., the plaintiffs claimed the defendant scheduled their delivery routes such that the plaintiffs were unable to take duty-free meal periods.  The defendant argued that the Federal Aviation Administration Authorization Act (“FAAA”) preempted California’s meal and rest period laws.  Judge Nguyen of the U.S. District Court for the Central District of California agreed with the defendant and dismissed the plaintiffs’ complaint with prejudice.  This decision comes only months after the Southern District of California’s October 2011 ruling in Dilts v. Penske Logistics, LLC, also holding that California’s meal and rest period laws are within the preemptive scope of the FAAAA.  Both courts found that the length and timing of meal and rest periods are “directly and significantly related to such things as the frequency and scheduling of transportation” such that requiring off-duty meal and rest periods at specific times would interfere with competitive market forces within the industry.

As employers with operations in California know, class actions alleging that employees missed meal or rest periods have become commonplace.  These two victories are significant ones for employers in the trucking industry.  However, the plaintiffs in both cases are seeking to appeal the decisions.  Trucking industry employers will want to monitor those appeals closely as it is always difficult to predict how the Ninth Circuit Court of Appeals will rule.    

U.S. Supreme Court Grants Review of the "Outside Sales" Exemption Found Applicable to Pharmaceutical Sales Representatives

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.

Combining State Court Rule 23 Class Action with Federal FLSA Collective Action

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 (3rd 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 _________ (2nd 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 (7th 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 (9th 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.

Settling an FLSA Collective Action? Not So Fast!

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.

The Future of Employment Arbitration Agreements - The Legacy of AT&T Mobility LLC v. Concepcion

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. 

Are Courts Reining in Hybrid Class Actions?

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. 

 

 

Wage Hour Class Action/Collective Action Litigation: A View From the Bench

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.

When is a Win Not Enough?

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.

National Wage Hour Conference Highlights Class and Collective Action Litigation

by Douglas Weiner

Epstein Becker Green 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.

California Court of Appeals Overturns $87 Million Award Against Starbucks in Tip-Pooling Class Action

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.
 

Federal Appeals Court Takes Away Offer of Judgment Tactic in Collective Actions

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. 

 

Federal Court Denies FLSA Class Certification Against South Florida Auto Dealership

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.