More than 7 months after hearing oral argument on an issue that will affect countless employers across the country – whether employers may implement arbitration agreements with class action waivers — the United States Supreme Court has issued what is bound to be considered a landmark decision in Epic Systems Corp. v. Lewis (a companion case to National Labor Relations Board v. Murphy Oil USA and Ernst & Young LLP v. Morris), approving the use of such agreements.

The decision will certainly have a tremendous impact upon pending wage-hour class and collective actions, many of which had been stayed while the courts and parties awaited the Supreme Court’s decision.  And it is likely to lead many more employers to implement arbitration agreements with class action waivers going forward, if only to avoid the in terrorem effect of those types actions.

In a 5-4 vote along the very lines that many commentators had predicted, with newest Supreme Court Justice Neil Gorsuch penning the majority opinion, the Supreme Court determined that the law is “clear” that class action waivers are enforceable under the Federal Arbitration Act (“FAA”) – and that they are not prohibited by the National Labor Relations Act (“NLRA”), as several Circuit Courts had concluded following the National Labor Relations Board’s (“NLRB”) DL Horton decision.

In reaching this decision, the Court took great pains to address – and reject – the various arguments presented by the former NLRB General Counsel, the related labor union and various amicus briefs submitted by the plaintiffs’ bar.  In so doing, the Court noted that for the first 77 years of the NLRA, the NLRB had never argued that class action waivers violated the Act; instead, the FAA and the NLRA had coexisted peacefully.  In fact, as the Court pointed out, as recently as 2010 the NLRB’s General Counsel had asserted that class action waivers did not violate the NLRA.

The decision is an unqualified victory for employers, particularly those who already have such arbitration agreements in place.  Given the prevalence of wage-hour class and collective actions, and the potential exposure in even the most baseless of suits, other employers would be wise to consider whether they, too, wish to implement such agreements.

Not unimportantly, the decision might give employers new grounds to argue that employees who sign such agreements are prohibited from pursuing representative claims under California’s Private Attorneys General Act (“PAGA”).  Even if those new arguments prove to be unavailing – to date, the California state courts have held that such claims cannot be compelled to arbitration because they belong to the state, not the employee –the Supreme Court’s decision could be used to require that an individual arbitrate his or her individual claims first such that he or she would not have standing to pursue the PAGA claims if the employer prevailed in arbitration.

And employers should be mindful that in some states (California again), an employer must pay virtually all of the costs of the arbitration process, a reality that has led more than a few plaintiffs’ lawyers to file multiple individual arbitrations in order to drive up employers’ costs to try to force them to the settlement table.

In a case of first impression that may have a significant impact upon wage-hour class actions in California, the California Court of Appeal has held that “joint employers” are not vicariously liable for each other’s alleged meal period violations.

In reaching this conclusion, the Court of Appeal affirmed an award of summary judgment in favor of a temporary staffing company in a class action where the plaintiffs sought to hold the staffing company liable for alleged meal period violations they alleged they suffered while working for its client.

The decision provides something of a roadmap for what companies should consider doing if they wish to shield themselves from “joint employer” liability on wage-hour claims in California.  Among the steps employers may want to take are providing employees with written instructions to inform the employer if they are ever prevented from taking meal periods, and including provisions in contracts requiring the entities that they do business with to comply with federal, state and local laws in their interactions with those employees.

A year ago, employers across the country prepared for the implementation of a new overtime rule that would dramatically increase the salary threshold for white-collar exemptions, on the understanding that the new rule would soon go into effect “unless something dramatic happens,” a phrase we and others used repeatedly.

And, of course, something dramatic did happen—a preliminary injunction, followed by a lengthy appeal, which itself took more left turns following the U.S. presidential election than a driver in a NASCAR race. The effect was to put employers in a constant holding pattern as they were left to speculate whether and when the rule would ever go into effect.

The current status of the overtime rule is but one of several prominent issues to reckon with as wage and hour issues, investigations, and litigation remain as prevalent as they have ever been.

The articles in this edition of Take 5 include the following:

  1. The Status of the Department of Labor’s 2016 Overtime Rule
  2. Recent Developments Regarding Tip Pooling
  3. Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
  4. “Time Rounding”: The Next Wave of Class and Collective Actions
  5. The Department of Labor, Congress, and the Courts Wrestle with the Definition of “Employee”

Read the full Take 5 online or download the PDF.

by Steven M. Swirsky

An NLRB Administrative Law Judge issued a decision on April 29th in which he found that when a waiter in a restaurant in New York City, acting alone, instituted a class action lawsuit claiming violation of state or federal wage and hour laws, he was engaging in concerted activity on behalf of himself and co-workers, even if none of those co-workers are aware of the filing. While the decision does not mention whether the waiter was represented by a union, it seems pretty clear that there was no union in this case.  

Thus, the Judge concluded, when the restaurant terminated the waiter, it did so because, whether he knew it or not, he was engaging in concerted, protected activity with the restaurant’s other employees. The Judge also noted that when the owners read the complaint and saw that it had been filed on behalf of a class of similarly situated employees as well, the employer likely believed that the waiter was acting with others for their mutual benefit.

The case involved the issue of whether such an employee, whose employer terminated his employment the day it received a copy of the employee’s lawsuit in the mail from the employee’s counsel terminated the employee for engaging in protected, concerted activity as that term is defined under the National Labor Relations Act (the Act or the NLRA) or whether the employee was fired for something he alone did for himself. If he was not acting in concert with co-workers the Judge opined that the employee’s termination would not have violated the Act (although it may have violated other laws).

ALJ Raymond Green distilled the case down to this fundamental question: when an employee files a lawsuit “relating to wages,” is that employee “engaged in concerted activity within the meaning of Section 7 (of the National Labor Relations Act),” or is such an employee “acting solely in pursuit of his own interests?” The Judge concluded although it was clear that the charging party acted alone, the very language of the complaint, which stated that it had been filed on behalf of the named plaintiff and “on behalf of a class of similarly situated employees who work or have worked at the (restaurant) over a three year period of time,” it "could be argued that (the waiter) sought ‘to initiate or to induce or to prepare for group action.’”

The Judge recommended that the NRLB issue an order directing the waiter’s reinstatement with full back pay and seniority. He also recommended that the employer post a notice to employees that advised employees that, among their rights under the Act, is the right to “file lawsuits on behalf of themselves and others relating to their wages or other terms and conditions of employment.”

The decision is a reminder that with the current NLRB, with its mindset of expanding its reach into non-union workplaces, a broad range of actions that an employee may take on his or her own behalf are likely to implicate the rights of co-workers and thus be found to be protected under the NLRA as concerted activity. Surely this would be the case in virtually every class action lawsuit under state or federal wage and hour laws.  

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.           

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.

On September 19, 2012, several members of EBG’s Wage and Hour practice group will be presenting a briefing and webinar on FLSA compliance.  In 2012, a record number of federal wage and hour lawsuits were filed under the Fair Labor Standards Act (FLSA), demonstrating that there is no end in sight to the number of class and collective actions filed against employers. Claims continue to be filed, raising issues of misclassification of employees, alleged uncompensated "work" performed off the clock, and miscalculation of overtime pay for non-exempt workers.

In this interactive briefing and live webinar, we will discuss the recent trend in enforcement and class action lawsuits, as well as highlight several common mistakes that managers make when trying comply with the ever-changing and confusing area of the FLSA. Specifically, this briefing will teach you how to:  

  • Determine overtime eligibility
  • Determine whether an employee is exempt
  • Calculate overtime compensation correctly
  • Avoid unauthorized overtime
  • Navigate tip credits, tip pooling, and overtime calculation for wait staff
  • Understand what constitutes off-the-clock work and other traps
  • Develop strategies for avoiding additional wage and hour risks 

You can register for the complimentary briefing here.

By Kara Maciel and Aaron Olsen

After five years of litigation, a Los Angeles Superior Court has denied class certification of a class action against Joe’s Crab Shack Restaurants on claims that it managers were misclassified as exempt and denied meal and rest periods in violation of California law.  The court found that the plaintiffs had not established adequacy of class representatives, typicality, commonality or superiority, and emphasized a defendant’s due process right to provide individualized defenses to class members’ claims.

Because the case was handled by our colleagues in our Los Angeles office, we think it best not to comment on the decision other than to say that it highlights the need for creative strategies in defending against wage-hour class actions. 

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.    

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.