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Proskauer on Class and Collective Actions

Fifth Circuit Addresses FLSA Tip Credits Once Again

Posted in FLSA

The Fifth Circuit has had tipping on its mind, as the decision of Steele v. Leasing Enterprises, Ltd., represents its second opinion within ten months addressing this pay practice. On the heels of Montano v. Montrose, the Steele decision tackles the question of whether an employer violates 29 U.S.C §203(m) of the Fair Labor Standards Act (FLSA) when it offsets tip credits to recover costs related to processing credit card transactions – essentially passing on some of those costs to the tipped employee. (No. 15-20139), 2016 WL 3268996, (5th Cir. June 14, 2016).

Under §203(m) of the FLSA, employers may only claim a tip credit toward minimum wage if all tips received by a tipped employee are retained by the employee. In Steele, the Fifth Circuit was asked to decide whether a restaurant employer violates this section when it deducts certain fees from tips paid by credit card. The defendant, the restaurant chain Perry’s, retained a flat 3.25% of all credit card tips to offset both credit card issuer fees and other costs which it contends it incurred in collecting and distributing tips (including administrative expenses related to converting the tips to cash for payment on a daily basis, as the employees had specifically requested).

Both parties relied on the only previous circuit decision to address this issue, Myers v. Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999). In Myers, the Sixth Circuit held that employers had a legal right to deduct the processing costs imposed by the credit card issuer. Perry’s argued that, under the reasoning of Myers, it also had the right to offset its own cash-delivery expenses. The Fifth Circuit disagreed and stated that Perry’s made a “business decision” by responding to employees’ demand to be tipped out in cash each night, instead of folding their tips into their bi-weekly pay checks. These costs were found to be “indirect and discretionary” – as opposed to “direct and unavoidable” costs such as the credit card company fees. Therefore, Perry’s system did not qualify for a tip offset under 29 U.S.C §203(m). However, the Court excused Perry’s from paying liquidated damages and applied the shorter two-year of statute of limitations. It found that Perry’s impermissible deduction was effectively less than 1% of the amount tipped, and a Department of Labor investigator at least tacitly advised Perry’s that its offset conformed with the FLSA.  Thus, the violation was held not to be willful, and the good faith defense applied. Employers should nonetheless be aware that, now that this point of law has been settled by the Fifth Circuit, future courts may find that employers should be “on notice” of this provision moving forward.

The Montano and Steele decisions, both authored by Judge Higginson, reflect the growing interest that both courts and the plaintiffs’ bars have taken with respect to tipping practices and the FLSA. Employers would do well to ensure that their tip system scrupulously complies with the FLSA. If you have any questions regarding tip offset practices or wage and hour compliance in general, please contact the authors of this post or your Proskauer attorney.

Supreme Court Takes Away a Class Action Defense Tool That We Couldn’t Really Use Anyway

Posted in Class/Collective Action

Yesterday, the Supreme Court held in Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Jan. 20, 2016), that when a defendant makes an offer to resolve the named plaintiff’s claim for full value, but the plaintiff turns it down, the case is not moot, and simply proceeds. Campbell-Ewald had argued that since it had offered to pay everything the plaintiff demanded, there was no longer any live controversy for the court to adjudicate, and the case should be dismissed. The Supreme Court disagreed, in a 6-3 decision authored by Justice Ginsburg.

In 2013, in a case called Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523, the Court had decided a related issue but left open the question decided today, and had raised the hopes of some class action defense practitioners that perhaps they could defeat class actions by mooting the case early in its lifespan by offering full relief to the named plaintiff. In Symczyk, the defendant made an offer of full relief to the named plaintiff, and she conceded that the offer mooted her personal claim, but sought to continue as a class representative. The Court said that, lacking any remaining claim of her own, she could not serve as a class representative.

Class action defenders took heart that perhaps they could knock out class actions in exchange for the usually trivial expense of satisfying the named plaintiff’s claim. To use the Symczyk decision to full advantage, though, the defense bar needed the answer to the question that wasn’t decided — whether the offer of full relief really did moot the named plaintiff’s claim in the first place. Campbell-Ewald forecloses that possibility, by holding directly that the plaintiff effectively controls mootness: if the plaintiff accepts an offer of full relief, the case will indeed be moot and the defendant won’t face a class action (at least until the plaintiff’s lawyer finds some other individual plaintiff to be the representative). But if the plaintiff turns down the offer, the case continues.

Some in the defense bar are decrying Campbell-Ewald as depriving the defense bar of an important tool, but it was not a tool that we ever really had. Efforts to build a mootness argument on top of Symczyk were not really working anyway; most courts were reluctant to hold that an unaccepted offer moots the claim, and the Supreme Court confirmed yesterday that that skepticism was justified.

So what happens now? For the most part, Rule 68 — the rule of civil procedure that underlies these cases — goes back to being the moribund, frequently useless tool that it has always been. It is still true, as the Rule provides, that if the plaintiff turns down an offer, and eventually recovers less than the amount of the offer, the plaintiff must pay the costs incurred after the date of the offer. But “costs” in most cases excludes all of the significant costs, such as attorneys’ fees, and so the risk that the plaintiff takes on by rejecting a Rule 68 offer is minimal.

The Court yesterday did leave one other odd trap door open, but its applicability seems quite limited. The majority opinion said the Court was declining to reach a situation in which the defendant went beyond making an offer, and actually deposited the amount in a bank account payable to the plaintiff, after which “the court then enters judgment for the plaintiff in that amount.” How, exactly, that might come to pass, the Court did not say. The idea came from some old railroad tax cases cited by Campbell-Ewald, in which a California statute provided that certain tax obligations were automatically “extinguished” by a taxpayer’s deposit of the amount due in a California account in the name of the state. There is no comparable mechanism in most class litigation, of course, and little reason to think that a court would dismiss a pending case merely because the defendant made a deposit to a bank account instead of a written offer. The Court’s exception does technically leave some discretion in the district courts on this subject, at least for now, but defense efforts in most cases are probably better directed at defeating class certification rather than trying to devise a way to moot the case over the plaintiff’s objection.

Eleventh Circuit Adopts Second Circuit’s “Primary Beneficiary” Test for Unpaid Interns

Posted in Class/Collective Action, FLSA

On September 11, 2015, the Eleventh Circuit became the first appellate court to address the standard for lawful unpaid internships since the Second Circuit’s ruling in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. (For more on Glatt, see our post here). The new decision adopts the Glatt test and reasoning wholesale, and provides helpful guidance on applying the Glatt factors. The case also strengthens the trend away from relying on the DOL’s Fact Sheet 71, which purports to provide restrictive guidance on unpaid internships.

The plaintiffs in Schumann v. Collier Anethesia were twenty-five former student registered nurse anesthetists (“SRNAs”) enrolled in a master’s program. As part of their academic program, and as required by Florida law, the SRNAs completed a clinical curriculum and participated in a minimum of 550 clinical cases. After completing their unpaid clinical program, the SRNAs brought suit against their college, the corporation with which they completed their clinical work, and individual directors of both. They alleged that through their clinical work they served as “employees” of the defendants for purposes of the FLSA and were entitled to wages and overtime pay.

The district court granted summary judgment for the defendants, finding that the SRNAs were not employees under the FLSA and thus not entitled to minimum wage or overtime. The SRNAs appealed, arguing, in part, that the district court erred by not following the DOL’s six-factor test.

Echoing the Second Circuit in Glatt, the Eleventh Circuit disagreed with the SRNAs and rejected the DOL’s six-factor test. As a threshold matter, the court noted that because the six-factor test is not a regulation it is only due deference “proportional to its power to persuade.” The court “[did] not find it persuasive.” Relying heavily on Glatt, the court characterized the six-factor test as too rigid and posited that “no circuit has accepted it wholesale [nor] deferred to the test’s requirement that ‘all’ factors be met for a trainee not to qualify as an ‘employee’ under the FLSA.”

Instead of the DOL’s test, the court endorsed the primary beneficiary test from Glatt, which calls for the evaluation of “a non-exhaustive set of considerations” which are helpful for determining the “primary beneficiary” of an intern’s work. The court then remanded the case to the district court so that it may apply the Glatt factors and permit the parties to supplement the record.

Beyond simply ordering the lower court to apply Glatt, the Eleventh Circuit provided guidance on applying some of its factors. Concerning the duration of internships, the court suggested that “designing an internship is not an exact science” and that “an internship that is longer than absolutely necessary to accomplish the educational and experiential goals of the program does not necessarily weigh in favor of a determination that the intern is an ‘employee’.” Instead, the court instructed, “the court should consider whether the duration of the internship is grossly excessive in comparison to the period of beneficial learning.”

Additionally, the court discussed Glatt’s suggestion that judges evaluate the extent to which an intern’s work displaces the work of paid employees. The court opined that judges should consider how external rules come into play. For example, it found that the fact that Medicare permits one supervising anesthesiologist to work with two SRNAs shed some light on whether the clinical program at issue, which used the same ratio, was exploitative.

The court concluded by cautioning that employee status may not always be an all-or-nothing determination. In the event that an intern does some work that is for his primary benefit and some work that is not, it could be possible to classify him as an intern for some of the work and as an employee for the other.

The Second Circuit’s Glatt decision is persuasive authority in the largely uncharted waters of unpaid internships, and with Schumann its test becomes a more reliable guide for employers with these programs.

 

Fifth Circuit Tips Its Hand as to Analysis of FLSA’s Tip Credit

Posted in FLSA

Restaurants throughout the Fifth Circuit, and even beyond, should review the recent decision of Montano v. Montrose Restaurant, which discusses the often tricky and always fact-intensive question of whether a restaurant employee is properly included in a tip pool.

In Montano, the issue presented to the Fifth Circuit was whether a restaurant’s “coffeeman” was properly included in a tip pool with waiters, bartenders and busboys. For restaurant employers, the inquiry is important because the federal Fair Labor Standards Act allows employers to claim a tip credit towards satisfying the minimum wage requirement for any employees in a properly constituted tip pool. However, a tip pool is limited to “employees who customarily and regularly receive tips.” 29 U.S.C. § 203(m). Thus, improperly including even a single employee may invalidate the entire tip pool.

The Montano plaintiff, a waiter, alleged that the restaurant had wrongly included the coffeeman in the tip pool. The parties submitted conflicting evidence regarding the coffeeman’s duties. In general, the evidence showed that he worked behind the scenes making coffee and occasionally would bring bread and food to the dining room. The Fifth Circuit began its analysis by noting that it “is not easy to determine” whether the coffeeman customarily and regularly received tips, stating that his inclusion in the tip pool was insufficient to satisfy the FLSA’s requirement that he “customarily and regularly” received tips. Consequently, the court re-fashioned the question as follows: whether the customer – that is, the person who leaves the tip – would have intended the coffeeman to receive a portion of the tip.

In its analysis, the Fifth Circuit discussed several factors that may be relevant to answering the re-fashioned question, including, but not limited to, whether the employee had “more than a de minimis interaction with the customers who leave the undesignated tips” and whether the employee “is engaging in customer service functions.” (As Judge Dennis noted in his concurring opinion, these are not the only potentially relevant considerations, as the analysis is individualized by the facts at issue including each employee’s particular job duties). The court rejected any attempt to rely on mere job title or “front of house”/”back of house” designation, because “[l]abels are easily molded to fit a party’s goals and cannot be determinative of whether an employee customarily and regularly receives tips.” Moreover, the coffeeman’s job duties changed in June 2011 – raising the possibility that he was properly included in the tip pool for a portion of the relevant time period. In short, the court found that the tip analysis is a “fact-intensive inquiry that requires a case-by-case analysis of the employee’s duties and activities,” and that the district court erred in resolving that conflicting evidence on summary judgment.

If you have any questions regarding tip pool practices or wage and hour compliance in general, please contact the authors of this post or your Proskauer attorney.

Second Circuit Revives Contract Attorney’s Misclassification Suit

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On July 23, 2015, the Second Circuit, in Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, Tower Legal Staffing, Inc., revived a putative collective action brought by David Lola, a contract attorney, against Skadden and Tower Legal Staffing, Inc., alleging violations of the overtime provisions of the Fair Labor Standards Act.  The Second Circuit held that the plaintiff adequately pled that document review may not necessarily constitute “practicing law” under North Carolina law.

Plaintiff David Lola, a contract attorney, conducted document review for Skadden in 2012 and 2013 in connection with a multi-district litigation.  Lola alleged that his document review was closely supervised and primarily consisted of:

  • looking at documents to see what search terms appeared;
  • categorizing those documents into predetermined categories; and
  • redacting documents based on specific protocols.

Lola was paid $25 an hour and generally worked between 45 and 50 hours per week.  He was classified as exempt under the FLSA and therefore did not not receive overtime pay.

Lola brought suit against Skadden and Tower Legal Staffing, Inc. as putative joint employers, on behalf of himself and similarly situated employees, alleging that he was misclassified as exempt  under the FLSA and seeking overtime pay.  While attorneys generally qualify for the FLSA’s professional exemption, Lola alleged that he and other contract attorneys performing document review for Skadden were not engaged in the practice of law because they “performed document review under such tight constraints that [they] exercised no legal judgment whatsoever.”  The defendants moved to dismiss the complaint, arguing that  Lola, as an attorney, was exempt under the FLSA’s professional exemption.

The district court granted the defendants’ motion to dismiss Lola’s complaint.  The court first found that the definition of “practice of law” is “primarily a matter of state concern,” and that because Lola resided at all relevant times in North Carolina, that state’s law should apply when analyzing whether he was practicing law under the FLSA.  The court then concluded that Lola was engaged in the practice of law under North Carolina law, and therefore an exempt employee under the FLSA.  Lola appealed the decision to the Second Circuit.

As a threshold matter, the Second Circuit agreed with the district court that North Carolina law should control the question of whether Lola was practicing law within the meaning of the FLSA’s professional exemption.  Constrained to accept the allegations in the complaint as true for purposes of the defendants’ motion to dismiss, however, the Court of Appeals disagreed with the district court’s conclusion that by undertaking the document review he was hired to conduct Lola was necessarily “practicing law” within the meaning of North Carolina law. To the contrary, the Second Circuit found that if all facts pled by Lola are taken as true, and he “provided services that a machine could have provide,” then he was not “practicing law” within the meaning of the FLSA and therefore did not qualify for the professional exemption.  For this reason, the Court of Appeals vacated the judgment of the district court dismissing the complaint, and remanded the case for further proceedings.

Second Circuit Adopts The “Highly Individualized” Primary Beneficiary Test In Unpaid Intern Lawsuits

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On July 2nd, the United States Court of Appeals for the Second Circuit issued its decisions in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. and Wang et al.  v. The Hearst Corp., the two unpaid intern lawsuits heard in tandem by the court on January 30, 2015.  The court’s opinion in Glatt, and summary order in Wang, adopted the employer-proposed “primary beneficiary” test to determine whether an unpaid intern should be considered an “employee” under the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) and thus entitled to compensation.

The court rejected the six-factor test promoted by the U.S. Department of Labor, and applied by the district court in Glatt, finding that it was “too rigid” and ill-suited to apply to the “particular facts [of] all workplaces.”  The “primary beneficiary” test examines “whether the intern or the employer is the primary beneficiary of the relationship.”  This test was preferred because “it focuses on what the intern receives in exchange for his work” and “accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.”  This approach, the court remarked, “reflects a central feature of the modern internship—the relationship between the internship and the intern’s formal education,” as it recognizes the integration between the internship and classroom studies, as well as the receipt of academic credit.

In applying the “primary beneficiary” test, the court provided seven (7) factors, none of which is dispositive, to aid lower courts in examining the lawfulness of an unpaid internship.  These factors are not exhaustive, and a court may consider any other relevant factor; this requires “weighing and balancing all of the circumstances.”  The seven factors are set forth below:

  1. The extent to which the intern and employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.   

While the factors include several of the six factors previously urged by the DOL as relevant to the analysis, one previous requirement is excluded:  that the “employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.”  The exclusion of this factor was notable because it was the most difficult for any employer to satisfy in the context of an unpaid internship.  The court then vacated the district court’s ruling that Eric Glatt and Alexander Footman, former production interns on the Black Swan film, were “employees” and entitled to minimum wage, and remanded the decision to the district court.

In light of this new test, the court also vacated and remanded the Glatt district court’s Rule 23 class and FLSA collective certifications brought by Plaintiff Eden Antalik, a former corporate intern in Fox Searchlight’s New York Publicity Office.  Specifically, the court found that the Glatt district court “misconstrued” the Circuit’s standards to evaluate whether common questions predominate over individual ones under Rule 23(b)(3), and vacated the district court’s Rule 23 certification.  In this regard, the Second Circuit remarked that the “question of an intern’s employment status is a highly individualized inquiry,” and even if the district court properly found that “Fox had a policy of replacing paid employees with unpaid interns, it would not necessarily mean that every Fox intern was likely to prevail on her claim that she was an FLSA employee under the primary beneficiary test, the most important issue in each case.”

The court concluded in the same manner with respect to the FLSA conditional certification decision, acknowledging that the “proposed collective presents an even wider range of experience than her proposed class because it is nationwide in scope, rather than just limited to New York interns.”  The court found that under the standard it adopted, “courts must consider individual aspects of each intern’s experience” and “none of the common proof identified by Antalik and relied on by the district court, will address these questions.”  Indeed, the court concluded that “the plaintiffs in Antalik’s proposed collective are not similarly situated even under the minimal pre-discovery standard.”

In Wang, the Second Circuit, in a summary order, applied the same “primary beneficiary” test and affirmed the district court’s denial of Rule 23 certification, which was in accord with its decision in Glatt that the test for employment is a “highly individualized inquiry.”  The court also affirmed the district court’s denial of plaintiffs’ summary judgment motion, where the district court concluded that genuine issues of material facts prevailed when evaluating the question of whether several unpaid interns at Hearst were FLSA and NYLL “employees.”

These decisions established new law in the realm of unpaid internships, and provided explicit guidance to district courts in the Second Circuit as to how this test should be applied.  In addition, the decisions are important because the spate of unpaid internship lawsuits have all been brought as Rule 23 class and/or FLSA collective actions, and these decisions certainly suggest that classes and collectives will now be harder to certify.  The Second Circuit’s remark that the test is “highly individualized” casts doubt on whether district courts will certify Rule 23 classes under the “rigorous” standards set forth by the Supreme Court in Dukes and Comcast.  The court’s remark that Plaintiff Eden Antalik in Glatt failed to even satisfy the lower threshold for FLSA conditional certification is also noteworthy, and suggests that in evaluating unpaid internships, plaintiffs may have great difficulty meeting the “similarly situated” standard for FLSA certification.

Magistrate Recommends Denial of Class Certification in Goldman Sachs Gender Discrimination Suit

Posted in Class/Collective Action

On March 10, 2015, a group of plaintiffs suing Goldman Sachs for gender discrimination suffered another setback in their attempt to certify a company-wide class in the case of Chen-Oster et al. v. Goldman, Sachs & Co., 10 Civ. 6950, pending in the Southern District of New York.  In that decision, linked here, Magistrate Judge Francis issued a report and recommendation holding that individualized issues of causation would “swamp” any classwide questions and that the predominance requirement of Rule 23(b)(3) was not met.

The Chen-Oster plaintiffs allege that Goldman Sachs’ internal evaluation, promotion, and compensation policies disfavor women.  They rely primarily on an expert report stating that women tend to score lower than men on Goldman Sachs’ yearly evaluations, known as “360 Reviews,” even after controlling for factors such as experience and education; and that women were likely to be rated in a lower “quartile” by their supervisors as compared to similarly situated men.  The court held that, while this statistical evidence met the low burden of showing a common question under Rule 23(a), it did not meet the “more demanding” predominance standard of Rule 23(b)(3).  Even if the expert report created a “presumptive causal link” between the challenged processes and an individual class member’s alleged injury, “Goldman Sachs would retain the right to demonstrate that there were other, legitimate explanations for any shortfall in compensation or failure to be promoted.”  Certain factors that are necessarily unique to each potential plaintiff – her “particular skills, the nature of the work in her business unit, the unit’s profitability relative to other units, and, indeed, the extent to which the employee’s manager considered 360 review and quartiling evaluations — would effectively swamp the common question of whether the evaluative policies have, on average a discriminatory impact.”  Thus, even though the expert report may establish that, on average, women were disadvantaged by these processes, it was impossible to show that any particular plaintiff suffered an adverse employment action because of the challenged policies rather than because of her own individual job performance or her business group’s profitability. The Court also held that individualized factors were likely to play an even greater role with respect to plaintiffs’ intentional disparate treatment claims.

The court further noted that, in a previous decision in this action, District Judge Leonard B. Sand had found that the plaintiffs had no standing to seek certification for injunctive relief under Rule 23(b)(2) because they were no longer employed with Goldman Sachs.  The court declined to reconsider that decision despite its misgivings, citing the law of the case doctrine. Thus, because neither of the Rule 23(b) requirements for certification were met, Plaintiffs’ motion was denied.

Judge Francis’s report and recommendation emphasizes the heightened standard that plaintiffs face in certifying disparate impact classes in light of the Supreme Court’s seminal 2011 decision of Wal-Mart Stores, Inc. v. Dukes. This report is still subject to review by District Judge Analisa Torres and, potentially, the Second Circuit. Nonetheless, it is yet another sign that lower courts are paying close heed to the Supreme Court’s admonition that defendants are entitled to present individual defenses to individualized claims, and that a presentation of overarching classwide statistical evidence cannot override this right.

Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Dispute

Posted in Appeals, Class/Collective Action, FLSA, Misclassification

On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considerednonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s  application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements.  For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.

Lawful Shmawful: Ninth Circuit Ignores Lawful Written Policy and Uses Statistical Sampling to Certify Class Based on Alleged “Unofficial Policy”

Posted in FLSA, Uncategorized

On September 3, 2014, the U.S. Court of Appeals for the Ninth Circuit upheld certification of a class of approximately 800 nonexempt insurance claims adjusters who claimed they worked overtime without compensation despite the employer’s lawful written policy to pay nonexempt employees for all hours worked.

In Jimenez v. Allstate Ins. Co., the Ninth Circuit upheld certification by finding three common questions existed.  First, whether Allstate had an unofficial policy of discouraging employees from reporting overtime.  Second, whether the employees’ workload forced them to work hours in excess of eight in one day or 40 in one week and third, whether Allstate’s timekeeping method caused an underpayment of overtime.

Specifically, the court found that the adjusters were not responsible for preparing time sheets or clocking in and clocking out.  Rather, their time cards were set to a default of eight hours per day and 40 hours per week, and their supervisors could submit “deviations” or “exceptions” for hours worked outside of this schedule.  Accordingly, the Ninth Circuit determined that a common question existed regarding whether this timekeeping method led to the adjusters working unpaid overtime.

Notably, the Ninth Circuit held that liability on these issues, as well as the issue of whether the employer should have known that employees were working off the clock, could be resolved via statistical sampling.  Importantly, neither the Ninth Circuit nor the trial court orders specified how the proposed statistical sampling would actually resolve these issues.  Similarly, neither decision explains how the certified claims will be managed at trial.

Even so, the court held that statistical sampling could only get the plaintiffs so far.  Indeed, the court held that plaintiffs would be prohibited from utilizing representative testimony or statistical sampling during the damages phase of the case because a contrary finding would prevent the company from exercising its right to raise individualized defenses.

Based on the Jimenez decision, an employer’s lawful written policy is not enough to insulate it from class certification.  The Court’s decision also deviates somewhat from the U.S. Supreme Court’s decisions in Walmart Stores v. Dukes and Comcast Corp. v. Behrend and the California Supreme Court’s decision in Duran v. Superior Court.  All of these decisions instruct trial courts to examine how any purportedly unlawful policy is applied to the putative class when deciding to certify the class and how any individualized issues surrounding this application will be managed at trial.  While the courts continue to sort these issues out, employers can help themselves by ensuring that employees accurately track and report their hours worked.