New York Wage-Hour Law

As noted in earlier postings, in March of this year, a federal judge in New York handed Chipotle Mexican Grill a significant victory, denying a request by salaried management apprentices alleging misclassification as exempt from overtime to certify claims for class action treatment under the laws of six states, as well as granting Chipotle’s motion to decertify an opt-in class of 516 apprentices under the Fair Labor Standards Act (“FLSA”).  The plaintiffs then sought—and in July 2017 the U.S. Court of Appeals for the Second Circuit granted—a discretionary interlocutory appeal of the ruling concerning the six state-law putative classes, allowing the plaintiffs to obtain immediate review of that decision under Rule 23(f) of the Federal Rules of Civil Procedure rather than waiting until after final judgment in the case to pursue an appeal as of right.

The plaintiffs also asked the district court for permission to appeal the order decertifying the FLSA collective action.  Under the pertinent statute, 28 U.S.C. § 1292(b), a district court may certify a non-final ruling for immediate appeal if the “order involves a controlling question of law as to which there is substantial ground for difference of opinion and … an immediate appeal from the order may materially advance the ultimate termination of the litigation[.]”  The plaintiffs argued that “a conflict exists in this Circuit between Rule 23 standards for class certification and FLSA Section [16(b)] standards for certification of a collective action” and that the court’s rulings regarding the FLSA and the state-law classes reflect uncertainty regarding the differences, if any, between the class certification standard and the FLSA decertification standard.

On September 25, 2017, the district court granted the plaintiffs’ motion for an interlocutory appeal.  Although the court “disagrees with Plaintiffs’ argument that there is a ‘rift’ between” those standards, the court nevertheless concluded that the “Plaintiffs’ assertions do point to controlling questions of law which may have substantial grounds for a difference of opinion.”  (Order at 2.)  The court emphasized that “[t]he Second Circuit will review this Court’s Rule 23 class certification decision pursuant to Rule 23(f)” but that this review “would not likely encompass the portion of this Court’s decision decertifying the . . . collective action.”  (Id.)  Because “Plaintiffs are adamant that the two standards need elucidation and that this Court erred in applying the standards, it seems proper to grant Section 1292(b) relief in order for the Circuit to review the entire” ruling—i.e., both the FLSA and the state-law class aspects of the decision—and thereby “avoid the possibility of conflicting decisions on Plaintiffs’ class motions, promote judicial efficiency, and avoid piecemeal appellate litigation.”  (Id.)  The court also remarked that “the Second Circuit has recognized that class certification decisions have the potential to materially advance the ultimate termination of the litigation which the Second Circuit has held may warrant Section 1292(b) relief.”  (Id. at 3.)

Stepping back from the specific wording of the court’s decision, the ruling reflects a pragmatic approach to the matter: because the Second Circuit has already decided to take up the Rule 23 class certification issue in the case, there is no real harm in allowing the appellate court the opportunity to decide whether it also wants to address the FLSA decertification issue at the same time.  The district court’s decision certifying the matter for interlocutory appeal does not require the Second Circuit to hear the full case at this time; instead, it authorizes the plaintiffs to proceed with a petition for permission to that court to appeal the decertification order.

It remains to be seen to what extent this court and other courts will apply the actual verbiage of this decision even-handedly when employers seek review of orders granting class certification or conditionally certifying FLSA collective actions.  Will being “adamant” that the law needs “elucidation” and that the court “erred” features of nearly every employer-side request for interlocutory review—or the “potential” for class certification decisions “to materially advance the ultimate termination of the litigation” similarly lead to interlocutory review when employers make comparable requests?  Stay tuned for further developments.

Our colleague Adriana S. Kosovych, associate at Epstein Becker Green, has a post on the Hospitality Employment and Labor blog that will be of interest to many of our readers: “Chipotle Exploits Wide Variation Among Plaintiffs to Defeat Class and Collective Certification.

Following is an excerpt:

A New York federal court recently declined to certify under Rule 23 of the Federal Rules of Civil Procedure (“Rule 23”) six classes of salaried “apprentices” at Chipotle restaurants asserting claims for overtime pay under New York Labor Law (“NYLL”) and parallel state laws in Missouri, Colorado, Washington, Illinois, and North Carolina, on the theory that they were misclassified as exempt executives in Scott et al. v. Chipotle Mexican Grill, Inc. et al., Case No. 12-CV-8333 (S.D.N.Y. Mar. 29, 2017).  The Court also granted Chipotle’s motion to decertify the plaintiffs’ conditionally certified collective action under Section 216(b) of the Fair Labor Standards Act (“FLSA”), resulting in the dismissal without prejudice of the claims of 516 plaintiffs who had opted in since June 2013.

The putative class and collective action of apprentices working in certain of Chipotle’s 2,000-plus restaurants nationwide were provisionally employed while being trained to become general managers of new Chipotle locations. The Scott action challenged Chipotle’s blanket exempt classification of the apprentice position, claiming that the duties plaintiffs actually performed during the majority of their working time were not managerial, and therefore, as non-exempt employees they were entitled to receive overtime pay. …

Read the full post here.

Featured on Employment Law This Week:  Another Department of Labor action currently in limbo is the new federal salary thresholds for the overtime exemption. But New York went ahead with its own increased thresholds, sealing the deal at the end of 2016.

In New York City, the threshold is now $825 a week, or $42,950 annually, for an executive or administrative worker at a company with 11 or more employees. The salary thresholds will increase each year, topping out at $1,125 per week in New York City and in Nassau, Suffolk, and Westchester counties.

Watch the segment below and see our colleagues’ advisory.

Our colleagues, Susan Gross Sholinsky, Dean L. Silverberg, Jeffrey M. Landes, Jeffrey H. Ruzal, Nancy L. Gunzenhauser, and Marc-Joseph Gansah have written an Act Now Advisory that will be of interest to many of our readers: “New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees.

Following is an excerpt:

The New York State Department of Labor (“NYSDOL”) has adopted its previously proposed amendments to the state’s minimum wage orders to increase the salary basis threshold for executive and administrative employees (“Amendments”). The final version of the Amendments contains no changes from the proposals set forth by the NYSDOL on October 19, 2016. The Amendments become effective in only three days—on December 31, 2016.

While the status of the new salary basis threshold for exempt employees pursuant to the Fair Labor Standards Act (“FLSA”) is still unclear following the nationwide preliminary injunction enjoining the U.S. Department of Labor (“USDOL”) from implementing its new regulations,this state-wide change requires immediate action for employers that did not increase exempt employees’ salaries or convert employees to non-exempt positions in light of the proposed federal overtime rule.

Read the full post here.

Even employers who were opposed to the new overtime regulations are in a quandary after the District Court for the Eastern District of Texas enjoined the Department of Labor from implementing new salary thresholds for the FLSA’s “white collar” exemptions.

Will the injunction become permanent?  Will it be upheld by the Fifth Circuit? 

Will the Department of Labor continue to defend the case when the Trump Administration is in place? 

What does the rationale behind the District Court’s injunction (that the language of the FLSA suggests exempt status should be determined based only on an employee’s duties) mean for the $455-per-week salary threshold in the “old” regulations?

As noted in our post regarding the injunction, whether employers can reverse salary increases that already have been implemented or announced is an issue that should be approached carefully.

For example, employers should be aware that state law may specify the amount of notice that an employer must provide to an employee before changing his or her pay.

In most states, employers merely need to give employees notice of a change in pay before the beginning of the pay period in which the new wage rate comes into effect.

But some states require impose additional requirements.  The New York Department of Labor, for example, explains that if the information in an employee’s wage statement changes, “the employer must tell employees at least a week before it happens unless they issue a new paystub that carries the notice. The employer must notify an employee in writing before they reduce the employee’s wage rate. Employers in the hospitality industry must give notice every time a wage rate changes.”

Maryland (and Iowa) requires notice at least one pay period in advance.  Alaska, Maine, Missouri, North Carolina, Nevada and South Carolina have their own notice requirements.

Employers who are making changes to wage rates based on the status of the DOL’s regulations should be nimble – while also making sure that they are providing the notice required under state law.

Employers Under the Microscope: Is Change on the Horizon?

When: Tuesday, October 18, 2016 8:00 a.m. – 4:00 p.m.

Where: New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

Epstein Becker Green’s Annual Workforce Management Briefing will focus on the latest developments in labor and employment law, including:

  • Latest Developments from the NLRB
  • Attracting and Retaining a Diverse Workforce
  • ADA Website Compliance
  • Trade Secrets and Non-Competes
  • Managing and Administering Leave Policies
  • New Overtime Rules
  • Workplace Violence and Active-Shooter Situations
  • Recordings in the Workplace
  • Instilling Corporate Ethics

This year, we welcome Marc Freedman and Jim Plunkett from the U.S. Chamber of Commerce. Marc and Jim will speak at the first plenary session on the latest developments in Washington, D.C., that impact employers nationwide.

We are also excited to have Dr. David Weil, Administrator of the U.S. Department of Labor’s Wage and Hour Division, serve as the guest speaker at the second plenary session. David will discuss the areas on which the Wage and Hour Division is focusing, including the new overtime rules.

In addition to workshop sessions led by attorneys at Epstein Becker Green – including some contributors to this blog! – we are also looking forward to hearing from our keynote speaker, Former New York City Police Commissioner William J. Bratton.

View the full briefing agenda here.

Visit the briefing website for more information and to register, and contact Sylwia Faszczewska or Elizabeth Gannon with questions. Seating is limited.

Michael D. Thompson
Michael D. Thompson

In Gonzalez v. Allied Concrete Industries, Inc., thirteen construction laborers filed suit in the Eastern District of New York.  The plaintiffs claimed they worked in excess of forty hours per week, but were not paid overtime in violation of the Fair Labor Standards Act and the New York Labor Law.

To obtain information regarding the plaintiffs’ activities during hours they claimed to have been working, the defendants sought an order compelling discovery of their ATM and cell phone records.

ATM Receipts

The defendants asserted that records of the plaintiffs’ ATM transactions were likely to lead to the discovery of admissible evidence because they could reveal each plaintiff’s “whereabouts and activities during hours they claim to have been working.” The defendants relied in large part on Caputi v. Topper Realty Corp., a 2015 case decided by the same court.  In Caputi, a plaintiff asserting overtime claims was ordered to produce “a sampling of records of her ATM transactions” for the time period in question.

In denying the defendants’ motion, the Court acknowledged the ruling in Caputi.  However, the Court concluded that the discovery of ATM records was allowed in that case because the Caputi defendants stated that witnesses would testify that the plaintiff attended prolonged lunches during the workweek and withdrew cash from ATMs for that purpose.

Conversely, in Allied Concrete, the Court concluded that the defendants had not shown any “evidentiary nexus between the en masse discovery sought and a good faith basis to believe that such discovery material is both relevant and proportional to the needs of the case.”

Cell Phone Records

The defendants in Allied Concrete also sought the release of the plaintiffs’ cell phone records in order to determine whether the plaintiffs “engaged in personal activities such as non-work related telephone calls, extended telephone calls, [and] frequent text messaging” during times they claimed to have been working.

The defendants cited to Caputi and to Perry v. The Margolin & Weinreb Law Group, another Eastern District of New York case from 2015.  In both cases, the plaintiffs asserting wage hour claims were ordered to produce cell phone records based on testimony that they had made personal telephone calls during the workday.  Allied Concrete had not obtained any such testimony.  Accordingly, the Court stated that the defendants’ speculation that the cell phone records might contain relevant evidence did not warrant a “wholesale intrusion into the private affairs” of the plaintiffs.

Employers, therefore, should be aware that electronic evidence of an employee’s activities may be discoverable in FLSA cases – provided that there is a sufficient basis for seeking the discovery.

New York Attorney General Contends Domino’s is a Joint Employer with Franchisees

After spending the last few years litigating with Domino’s franchisees over wage hour violations, the New York Attorney General has filed suit contending that franchisor Domino’s Pizza Inc. is a joint employer with three franchisees, and therefore is liable for the “systematic underpayment” of franchise employees.

The New York Attorney General also claims that, regardless of whether it’s a joint employer, Domino’s is liable for misrepresentations and nondisclosures that led to the underpayment of employees at the three franchises and violated the New York Franchise Sales Act.

Background

Through settlements in March 2014 and April 2015, twelve Domino’s franchise owners paid a total of approximately $1.4 million to settle the Attorney General’s claims for violations of New York’s minimum wage and overtime laws.

After the second settlement, New York Attorney General Eric Schneiderman accused Domino’s Pizza, Inc. of “turn[ing] a blind eye to illegal working conditions.”  Mr. Schneiderman stated:  “My message for Domino’s CEO Patrick Doyle is this: To protect the Domino’s brand, protect the basic rights of the people who wear the Domino’s uniform, who make and deliver your pizzas.”

Domino’s was thus left to choose its poison:  It could involve itself directly in addressing the alleged “illegal working conditions” at the risk of making itself a joint employer; or it could maintain a hands-off approach in an effort to avoid joint employer status, while further violations might increase its potential liability.

Nevertheless, Domino’s attempted to balance these concerns.  In a March 18, 2016 letter to the New York Attorney General’s Labor Bureau Chief, Domino’s offered to fund legal compliance training for franchisees, require franchisee’s to accept a code of conduct and pay for a monitor to inspect franchisee stores for compliance.  Domino’s further stated that it would “work with its franchisees in an effort to create a pool of funds to pay restitution to any underpaid franchisee employees.”

Allegations of Joint Employment

The Attorney General apparently found Domino’s proposal to be insufficient.  Therefore, in May 2016, the Attorney General filed a Verified Petition in New York Supreme Court alleging that Domino’s was a joint employer with its franchisees because it had:

  • required Franchisees to purchase hardware and software for Domino’s PULSE management system;
  • maintained payroll and employment records for franchisees;
  • exerted control over franchisee hiring, firing and disciplining of employees;
  • controlled aspects of employee compensation at franchisee stores;
  • dictated staffing and scheduling requirements for franchisee stores;
  • imposed an antiunion policy on franchisees; and
  • required a franchisee purchasing existing stores to keep the prior staff largely intact and in the same positions at the same rates of pay.

Domino’s status as a joint employer in this case will be evaluated under New York law.  However, it is notable that in Patterson v. Domino’s, the California Supreme Court examined Domino’s practices in 2014 and found it was not a joint employer under California law.  The California Supreme Court based its decision on uncontradicted evidence that the franchisee (i) made day-to-day decisions involving the hiring, supervision, and disciplining of his employees, and (ii) ejected the franchisor’s suggestion that an alleged sexual harasser should be fired, and neither expected nor sustained any sanction for rejecting that suggestion.

Alleged Misrepresentations

In addition to joint employment, the Verified Petition alleges:

Domino’s itself caused many of the wage violations because Domino’s encouraged franchisees to use a “Payroll Report” function in the software system Domino’s required franchisees to install and use in their stores (known as “PULSE”), even though Domino’s knew since at least 2007 — yet failed to disclose to franchisees — that PULSE’s “Payroll Report” systematically under-calculated the gross wages owed to workers.

The Verified Petition further alleges that, while failing to tell franchisees about the problems with PULSE, Domino’s charged franchisees $15,000 to $25,000 for the PULSE hardware and software.

Therefore, the New York Attorney General contends that Domino’s is liable for fraud and violations of the New York Franchise Sales Act (which requires a franchisor to provide a prospective franchisee with detailed information regarding “all written or oral arrangements,” including those for the sale of goods or services, in which the franchisor has an interest).

Wage Hour Violations

Underlying these theories for imposing liability on Domino’s are the allegations that its franchisees failed to pay the proper overtime rates to tipped employees.

For example, the Verified Petition alleges that PULSE fails to properly calculate overtime pay for tipped employees under New York law.  12 NYCRR § 146-1.4 states that when “an employer is taking a credit toward the basic minimum hourly rate…, the overtime rate shall be the employee’s regular rate of pay before subtracting any tip credit, multiplied by 1½, minus the tip credit.”  The regulation goes on to state:

It is a violation of the overtime requirement for an employer to subtract the tip credit first and then multiply the reduced rate by one and one half.

The New York minimum wage was $8.75 per hour in 2015, and the maximum tip credit was $3.10 per hour.  Thus, the overtime rate of any tipped employee should have been at least ($8.75 per hour x 1.5 for overtime) minus ($3.10 per hour tip credit), or $10.03 per overtime hour.

However, according to the Verified Petition, the software used by the Domino’s franchisees subtracted the tip credit first, and then multiplied the reduced rate by 1.5.  The Petition states:  “PULSE calculates the employee’s overtime rate at $8.48 per hour ($5.65 times 1.5), which is $1.55 per hour less than the then-current 2015 legal overtime rate for tipped delivery employees.”

Accordingly, the Verified Petition contends that “PULSE systematically undercalculates the gross overtime wages owed to franchise delivery workers who were paid tipped rates.”

The New York Attorney general further contends that Domino’s is liable because the franchisees (i) did not aggregate the hours worked by employees who worked at more than one location; (ii) claimed tip credits for employees on days when they works at a non-tipped position for more than 20% of the employee’s shift or for two hours or more during the shift; (iii) did not calculate or pay the required “spread of hours” pay when a daily shift is longer than 10 hours; and (iv) required drivers to pay their own expenses for delivery vehicles in violation of New York Labor Law §193.

Conclusion

Undoubtedly, the franchise business model will continue to give rise to claims of joint employment.  To the extent possible, franchisors should attempt to eliminate any appearance that they control the employment with a franchisee, particularly in regard to hiring, firing and the payment of wages.  Where involvement by the franchisor is unavoidable, a franchisor must make every effort to comply with the law and communicate any potential concerns to franchisees.

The top story on Employment Law This Week is California’s statewide $15 minimum wage.

On April 4, Governor Jerry Brown signed a bill that will raise California’s minimum wage to 15 dollars an hour by 2022 for companies with more than 25 employees. The increase will begin next year, moving from 10 dollars an hour to $10.50. California – one of the world’s biggest economies – is the first U.S. state to commit to a 15 dollar minimum wage. And the trend is continuing, with similar legislation signed in New York last week as well. David Jacobs from Epstein Becker Green has more on the trend and what employers in California can do to prepare.

View the episode below or learn more about the New York legislation in an EBG Act Now Advisory.

Evan J. Spelfogel
Evan J. Spelfogel

On March 31, 2016, New York Governor Andrew Cuomo signed into law a bill increasing the statewide minimum wage on a phased in basis over the next five years, to $15.00 per hour in some, but not all New York counties (“Minimum Wage Law”).  This is in addition to a bill enacted on December 31, 2015, that increased the subminimum wage for tipped employees in the hospitality industry from $5 to $7.50 per hour.

The Minimum Wage Law now provides for a tiered increase from the current statewide rate of $9.00, to $11, $13, and $15 per hour effective December 31, 2016, 2017, and 2018 respectively, for work performed in New York City for employers with more than 10 employees.  A slightly longer phase in period, running to December 2019, is provided for New York City employers with 10 or fewer employees and for Westchester, Nassau, and Suffolk counties. For these counties, the minimum wage is set to increase to $10.00 per hour by December 31, 2016, and then $1 every year until reaching $15.00 per hour on December 31, 2021.

For work performed in other counties throughout NY State, the minimum wage increase will be more gradual, increasing to $9.70 per hour on December 31, 2016, followed by a 70 cent increase every year until December 31, 2020, when the minimum wage will reach $12.50 per hour.  After December 31, 2020, the minimum wage in these counties will continue to increase on an indexed schedule to be set by the Director of the Division of Budget (“DOB”) in consultation with the Commissioner of Labor.