New California Law Limiting When Prevailing Employers Can Recover Attorney's Fees In Wage-Hour Cases Is Bound To Lead To Even More Meritless Lawsuits

By Michael Kun

A California plaintiff who prevails in a wage-hour lawsuit generally may recover his or her attorney’s fees.  The same is so for employers -- but only for the next few months. 

A new statute will take effect in January 2014 that will change whether and how an employer who prevails in such a case may recover its fees.  In a state already overrun with wage-hour lawsuits with questionable merit, that new statute seems to ensure that even more meritless wage-hour lawsuits will be filed by plaintiffs’ counsel who count on the in terrorem effect of those lawsuits to force employers to settle such claims – and who pocket 40% of what they recover. 

Governor Jerry Brown has signed into law a bill that raises the standard for a prevailing employer to recover fees when they prevail in wage-hour actions.  Effective January 2014, an employer must meet a higher standard than an employee to recover fees.   It must not only prevail in the lawsuit, but it must establish that the lawsuit was brought in “bad faith.”  

While the authors of the bill contended that it was needed to correct an injustice that discouraged workers from pursuing such claims, one has to wonder whether those legislators could identify a single California employee who did not pursue a valid wage-hour claim because of the fear of paying attorney’s fees.  The California courts have been overrun with wage-hour lawsuits.  There is little, if anything, to suggest that employees have been deterred from filing these lawsuits.  If anything, they have been greatly encouraged to do so, and plaintiffs’ counsel sometimes file these suits with little effort to determine if they have any merit beforehand.  Indeed, it is not unusual for an employee not to even meet his or her attorney before the attorney files a wage-hour suit, or for that attorney to file a wage-hour class action with minimal, if any, investigation. 

In this way, the new statute seems to be aimed to benefit the plaintiffs’ bar, not employees.  Until now, the only thing that prevented plaintiffs’ counsel from filing a meritless wage-hour action was the possibility that the employer would be able to recover its attorney’s fees.  Now, knowing that an employer is only going to be able to recover fees in meritless cases if it can establish that it was brought in “bad faith,” there is every reason to expect the filing of even more meritless wage-hour actions. 

              

More Confirmation That Time-Rounding Policies Are Permissible In California

By Michael Kun and Aaron Olsen

Following up on the California Supreme Court’s recent decision in See’s Candy v. Superior Court, a California federal court has now dismissed a time-rounding class action against H.J. Heinz Company.  And, once again, the court has relied upon the decision in our case Alonzo v. Maximus

This, of course, is more good news for employers with operations in California.  Between See’s Candy and Maximus, it will be exceedingly hard for plaintiffs to proceed with time-rounding class actions against employers who have even-handed time-rounding policies, i.e. policies that round time both up and down.

California Court of Appeals Confirms That Time Rounding Is Permissible

By Michael Kun and Aaron Olsen

Agreeing with the recent federal district court opinion in our case Alonzo v. MAXIMUS, Inc., 832 F.Supp.2d 1122, 1126 (2011), the California Court of Appeals has confirmed in a case against See’s Candy that California employers may round employees’ time entries so long as the employer’s rounding policy does not consistently result in a failure to pay employees for time worked.

In  Alonzo, a federal district court granted summary judgment in favor of our client MAXIMUS, Inc. on the plaintiffs’ time rounding claims.  The Alonzo Court explained that the federal standards regarding time rounding apply to employees’ time rounding challenges brought under California law.  In the case against See’s Candy , the plaintiff urged the California Court of Appeals to reject the federal court’s analysis in Alonzo.  The California Court of Appeals, however, stated, “We agree with the Alonzo court.  In the absence of controlling or conflicting California law, California courts generally look to federal regulations under the FLSA for guidance….  Assuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.” 

Given the number of employers throughout California that have time-rounding policies, the California Court of Appeals' decision to adopt the reasoning from the federal court in  Alonzo is another welcome development for employers.  Indeed, plaintiffs’ counsel likely had a number of time rounding class actions lined up to file in the event the Court of Appeals held that time rounding policies were unlawful.  Those class action complaints have likely found their way to the recycling bin.

California One Step Closer to Mandating Overtime and Meal Periods for Private Home Housekeepers and Babysitters

By:  Adam C. Abrahms

Last week Assembly Bill 889 cleared a California State Senate Committee, advancing it one step closer to becoming state law.  The bill, authored by Assemblyman Tom Ammiano (D – San Francisco), seeks to extend most of California’s strict wage and hour regulations to domestic employees working in private homes.  While the bill excludes babysitters under the age of 18, it extends California wage and hour protections to babysitters over the age of 18 as well as any other housekeeper, nanny, caregiver or other domestic worker.

Should the bill become law individual Californians and California families who employ the services of these domestic workers will be required to follow the same overbearing regulations that currently plague California’s small and large businesses.  Specifically, absent the applicability of narrow and limited exceptions, individuals/families using domestic services from babysitting to adult caregiving and transportation to housekeeping will, among other mandates, be required to:

  • Pay their domestic workers in accordance with California overtime rules including time and half for over 8 hours in a day; ·

  • Provide duty-free meal periods for domestic workers working over 5 hours in a day; ·        

  • Permit paid rest periods for domestic workers working over 3 ½ hours in a day; ·       

  • Maintain and record the actual start and end time for all work periods (including meal periods);

  • Provide detailed and regular itemized pay check statements detailing hours of work, rates of pay and deductions; and

  • Comply with certain notice posting and record keeping requirements.

 Above and beyond the regular requirements of California law, the bill imposes a new and special requirement that individuals/families employing domestic workers provide them specific food items of their worker’s choosing if meals are part of the worker’s compensation.  The bill also explicitly provides domestic workers the protections of California’s Workers Compensation System and requires individuals/families employing the services of domestic workers to comply with the applicable workers compensation laws. 

In addition to any other damages and attorney’s fees resulting from an individual/families’ failure to comply with California’s complex wage and hour laws, the bill imposes a new $50 penalty for each day an individual/family violates the bill’s mandates. 

The bill now moves onto the full California State Senate for consideration. In unrelated news, California’s unemployment rate is amongst the highest in the nation as businesses find friendlier climates in neighboring states. 

Landmark Fifth Circuit Ruling Allows Private FLSA Settlements Without DOL/Court Supervision

By: Greta Ravitsky and Jordan Schwartz

On July 24, 2012, the Fifth Circuit became the first federal appellate court in over thirty years to enforce a private settlement of a wage and hour dispute arising under the Fair Labor Standards Act (“FLSA”) in Martin v. Spring Break ’83 Productions LLC.

For decades, federal courts have consistently held that FLSA wage and hour disputes may not be settled privately without approval from either the Department of Labor (“DOL”) or a federal district court.  This apparently “settled” area of law was based exclusively on the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States. As a result, courts and employment attorneys alike have cautioned employers to undertake a private resolution of an FLSA dispute at their own peril.  Until now, the Eleventh Circuit wasthe only court of appeals that had ruled on this issue. In this recent groundbreaking decision, the Fifth Circuit declined to apply Lynn’s Food Stores’ requirement of supervision and approval of private settlements, finding that a private settlement unapproved by either the DOL or federal district court can be enforceable under certain circumstances.

In Martin, the plaintiffs,several unionized lighting and rigging technicians, filed a grievance claiming they had not been paid for all hours worked during the filming of the upcoming movie “Spring Break ’83.” Upon concluding that it would be impossible to determine that the plaintiffs worked the days they alleged to have worked, the union and the employer entered into a settlement agreement with regard to the disputed hours worked, waiving the claimants’ right to file any claims with regard to those disputed hours. Before the settlement agreement was signed by union representatives, the plaintiffs filed this lawsuit against Spring Break’ 83 Productions, L.L.C. Thereafter, once the settlement agreement was executed, the plaintiffs accepted and cashed the disbursed payments. The district court granted defendants’ motion for summary judgment, enforcing the private settlement agreement. 

On appeal, the Fifth Circuit upheld the district court’s decision, holding that the payment offered to and accepted by the plaintiffs pursuant to the settlement agreement constituted an enforceable resolution of their FLSA claims, which were predicated on a bona fide dispute about the time worked. The court further noted that the settlement agreement was not a compromise of guaranteed substantive rights under the FLSA, but simply a compromise of plaintiffs’ claims; therefore, it did not contravene the Supreme Court’s restriction on union representatives’ waiver of substantive FLSA rights of their members. The Fifth Circuit found Lynn’s Food Stores to be distinguishable in that, unlike the Lynn’s Food Stores employees, the Martin plaintiffs were represented by counsel who had filed a lawsuit specifically seeking overtime pay for the plaintiffs before the settlement agreement was executed, and thus, the settlement constituted a valid release.  “The money [plaintiffs] received and accepted . . . for settlement of their bona fide dispute did not occur outside the context of a lawsuit, hence the concerns that the Eleventh Circuit expressed in Lynn’s Food Stores [were] not implicated.”

Martin’s common sense reasoning is certainly welcome news for employers who have been hesitant to enter into a private settlement agreement, given the myriad of issues inherent in obtaining approval of the settlement from the DOL or federal district court.  Certainly, the ability to settle FLSA disputes privately and confidentially should help employers avoid the potential of facing “copycat” lawsuits as a result of a settlement that has been put in the public record.  While this decision provides support for entering into an unsupervised private settlement agreement of wage and hour claims in the Fifth Circuit (Texas, Louisiana and Mississippi), particularly where the FLSA claimant is represented by counsel and an adversary process is underway, it is still advisable for employers in other jurisdictions to seek DOL or court approval for FLSA settlements in order to ensure the validity of the release of claims.

We will be sure to keep you apprised of any trends or developments arising out of this landmark decision that could pave the way for private FLSA settlements to be treated and enforced in the same manner as settlement agreements in all other employment-related disputes.

Unpaid Internships May Prove to be Meal Ticket After All . . .

By Amy Traub and Desiree Busching

Just as designers must be cognizant of copycat fashions, employers must be cognizant of copycat lawsuits.  In February of this year, Xuedan “Diana” Wang filed a lawsuit against her former employer, Hearst Corporation, on behalf of herself and others similarly situated, alleging that the company violated federal and state wage and hour laws by failing to pay minimum wage and overtime to interns working for Harper’s Bazaar.  Wang had worked for Harper’s Bazaar during the fall of 2011.  Her lawsuit was filed in February 2012, only five months after a similar one had been filed by interns working for Fox Searchlight Pictures, Inc., who claimed that unpaid interns were performing compensable work in connection with the production of the film, “Black Swan.”  Following Wang’s February lawsuit, in March 2012, a third intern filed suit against her employer, “The Charlie Rose Show,” citing the same claims as her predecessors.

On Tuesday, July 3rd, yet another lawsuit was filed.  This time, however, the copycat was Wang herself.  Wang’s second lawsuit is now against Dana Lorenz and her company, Fenton Fallon, for whom she worked in the summer of 2011 – before she worked for Hearst Corporation at Harper’s Bazaar.  Not surprisingly, the allegations in the lawsuit are strikingly similar to the allegations in her previous lawsuit against Hearst Corporation, and those against Fox Searchlight Pictures, Inc., and those against the “The Charlie Rose Show.”  Wang is alleging that she and interns with whom she worked side-by-side were not paid appropriate wages for their work.

As we previously advised in February and March, these cases should have alerted employers to examine their own practices and policies with regard to their internship programs in order to protect themselves from future wage and hour liability under both federal and state wage and hour laws.  Considering that the FLSA has a 2-year statute of limitations, or a 3-year statute of limitations if a violation is “willful,” employers should now be looking back to examine past practices and proactively assessing potential risk and liability in the event a former intern of their own “follows suit.”  In fact, although Wang’s first lawsuit against Hearst Corporation was filed in February 2012, the company now finds itself defending against alleged violations from three years ago.  On Thursday, July 12, 2012, U.S. District Court Judge Harold Baer in Manhattan conditionally certified a class of interns that includes all persons who worked as unpaid or underpaid interns at any of Hearst’s magazines dating back to February 2009.

In assessing the potential exposure associated with a wage and hour claim by unpaid interns, employers should also consider ancillary costs, such as the effect of negative publicity on a company’s image, disclosure of confidential business information during litigation proceedings, or the substantial litigation costs of defending against a potential class action claim.  If an employer believes that it may be vulnerable to a potential lawsuit by former unpaid interns, understanding its potential liability and legal options before a lawsuit is filed could prove to be an invaluable decision.

Bottom line – Employers must be wary of the fact that copycat lawsuits are continuing in this arena and take affirmative steps to avoid being the subject of one.  Indeed, as soon as the first “unpaid intern” potential class/collective action hit the scene, other interns immediately took note, following with their own similar lawsuits.  And now, some may even be considering making careers as full-time plaintiffs.

Spring Tune-Up: Gas Stations Should Review Their Pay Policies and Recording Practices to Steer Clear of the DOL's Recent Enforcement Initiative Targeting Them

By Douglas Weiner and Meg Thering

The U.S. Department of Labor (“DOL”) has announced that it has been finding “patterns of violative pay practices” in gas stations throughout New York, Long Island, and New Jersey. Last year, in New Jersey alone, the Department of Labor, through its multi-year enforcement initiative, conducted 74 investigations of gas stations and ordered employers to pay over $1 million in back pay to employees.

As many commuters know, long daily and weekly hours are the norm for many employees in the gas station industry. Enhanced enforcement activity is now focused on this industry. Specifically, DOL wage and hour investigators are looking for off-the-clock work, flat salaries paid for all hours without variation for overtime, minimum wage and overtime violations. 

STEER CLEAR OF THE DOL’S ENFORCEMENT INITIATIVE BY KEEPING GOOD RECORDS

 Maintaining a strong set of payroll records is the primary defense to a wage challenge. Keeping accurate records of all hours worked protects employers from claims by employees who may later exaggerate and over-generalize the number of hours they have actually worked. Also, record-keeping violations fuel investigators’ suspicions of wage violations. Failure to keep the payroll records required by law (29 C.F.R. § 516; NYLL § 195; N.J.S.A. 34:11-4.6) greatly increases an employer’s risk of exposure to wage claims. Robust payroll records showing each employee’s daily arrival and departure times, the start and stop times of rest periods and meal periods, and the amounts employees are paid in straight and overtime pay, provide the evidence an employer needs to prove proper pay for the daily and weekly hours actually worked. Of course, employers should also record the actual payments made. Records demonstrating minimum wage and overtime compliance are the best defense to a wage and hour challenge, whether questions arise from a government audit or plaintiffs’ class action lawsuit. 

DON’T GET STUCK IN TRAFFIC: MAKE SURE YOU HAVE GOOD UNDERLYING PAY PRACTICES, AS WELL AS PROPER RECORD-KEEPING PRACTICES

Good record-keeping will get you nowhere if your underlying pay practices do not comply with the law. An “industry norm” defense may not suffice. Depending upon the circumstances, employers may consider a variety of strategies to ensure compliance with federal and state wage and hour laws.  A salary method of compensating non-exempt employees may be designed to comply with the overtime requirements of state and federal law. Using the principles of the “fluctuating work week,” an employer may use the payment of half-time overtime advantageously. 

Employers should also ensure that improper deductions are not taken from wages, employees are given requisite notice of their pay, and workers are properly classified as employees versus independent contractors and as non-exempt versus exempt employees.

In light of this new enforcement initiative, we recommend all gas station employers conduct a “spring tune-up” review of their pay practices and records. Better you conduct this tune-up now rather than having to deal with picking up the pieces of a crash after the DOL or a plaintiff’s attorney comes in and finds violations.