Last week, in McCaster et al. v. Darden Restaurants, Inc. et al., No. 15-3258 (7th Cir. Jan. 5, 2017), the Seventh Circuit relied on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) and affirmed the district court’s denial of class certification of Plaintiffs’ claims for vacation pay under state law. The Seventh Circuit’s reliance on Dukes demonstrates that the Supreme Court’s holding extends beyond the discrimination context and applies with equal force in wage and hour class actions (at least within the Seventh Circuit). The Court concluded that Plaintiffs’ proposed class definition constituted an impermissible “fail safe” class because an individual’s membership in the class turned on the merits of his or her claim, and that Plaintiffs’ alternative class definition did not satisfy the commonality requirement of Rule 23 under Dukes. This decision exemplifies the critical balance plaintiffs must strike in defining their proposed classes; while a “fail safe” class will not be permitted, a class definition that is too broad will not satisfy the requirements of Rule 23. Continue Reading
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).
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.
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.
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.
Proskauer partner Mark Harris, along with associate John Roberts, recently published an article “Appealing Class Certification Orders Under Rule 23(f)” which appeared in the New York Law Journal. To read the article, click here.
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.
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:
- 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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.
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.
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 considered “nonseaman” 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.