California: Waiver of Vacation Rights in Collective Bargaining Agreements Must Be Clear and Unmistakable

Last week a California appellate court held that collective bargaining agreements that waive the statutory right of terminating employees to receive payment for all vested vacation must contain “clear and unmistakable” language for the waiver to be effective.  A copy of the court’s opinion in Choate v. Celite Corporation can be downloaded here.

California Labor Code Section 227.3 has long provided that upon an employee’s termination, the employer must pay the employee for all vested vacation.  But the statutory requirement does not apply when “otherwise provided by a collective bargaining agreement.”

Employees of Celite Corporation worked under a collective bargaining agreement that provided between one and five weeks of vacation annually.  Each January, each employee received a yearly “vacation allotment” based on the employee’s length of employment and the number of hours that the employee worked during the previous year.  Terminating employees were entitled to “receive whatever vacation allotment is due them upon separation.”  Both Celite and the union understood this phrase to mean the vacation allotment provided each January.

Celite laid off three employees on March 1, 2007.  In accordance with past practice, Celite immediately paid them their entire 2007 “vacation allotment,” but did not pay them for any vacation accrued during January and February of 2007.  The employees filed a class action against Celite to recover that accrued but unpaid vacation time and also sought waiting time penalties for Celite’s alleged “willful” failure to pay them all vested vacation pay upon termination.  Celite denied that it owed the employees any additional vacation pay or waiting time penalties, citing the collective bargaining agreement provision waiving the Section 227.3 vacation payout requirement.

The trial court found in favor of the employees, determining that Celite’s reliance on the collective bargaining agreement was unreasonable because the purported waiver of the company’s statutory obligations under Section 227.3 was not stated in “clear and unmistakable” terms.

The Court of Appeal agreed that any waiver of the statutory requirement to pay terminating employees for all vested vacation must be “clear and unmistakable,”  meaning the waiver must go beyond broad general language, and must specifically mention either the statutory protection being waived or, at a minimum, the statute itself.  The agreement at issue did not do so, and therefore did not effectively waive Celite’s statutory obligation to pay the employees for pro rata vacation accrued during the first two months of 2007 before they were laid off.

But the court found that Celite did not owe waiting time penalties to the employees, because in failing to pay the employees for pro rata vacation earned during 2007, Celite had relied on the collective bargaining agreement in good faith.  There had been no previous appellate opinions deciding the standard for waivers under section 227.3 and, as a result, the company’s failure to comply with section 227.3 was not “willful.”

Most statutory employment rights are not waivable.  But when a statutory right can be waived by a collective bargaining agreement and both the employer and the union agree to waive it, they must ensure that the waiver language is “clear and unmistakable” and specifically identifies the statutory provision being waived.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

IS COMP TIME FOR PRIVATE SECTOR EMPLOYEES ON THE HORIZON?

Ask any employment law attorney about the availability of compensatory time (or “comp time”) in the private sector, and the answer will almost certainly be: “Comp time does not exist in the private sector.”  A bill pending in Congress, the Working Families Flexibility Act (HR 1406), could change that response.

THE ISSUE

The term “comp time,” as used in this context, refers to a practice under which an employee may work overtime during one work (i.e., more than 40 hours), and for each hour of overtime worked earn the ability to take 1.5 hours off in a subsequent workweek.   While many employers believe that there is a general ability to engage in this pay practice, that right is really quite limited.  In fact, it is currently only available to public sector employees.  Most public sector employees may accrue up to 240 hours of comp time if their employers permit comp time accrual.  Public safety employees, however, may accrue up to 480 hours.  As for the private sector, the framework is only available as to non-exempt employees who normally work fewer than 40 hours per week, and then only up to 40 hours, or to exempt employees since they are not subject to the overtime pay rules.  Public sector employees who earn comp time may use it in a manner that does not unduly disrupt their employer’s operations.

THE LEGISLATIVE HISTORY

Over the years, at least since 1995, bills have been introduced in Congress to allow comp time to be earned by employees in the private sector.  One of those bills passed the House in 1996, but otherwise the bills have stalled in committee or never came to votes by either house of Congress.  Except for the 1996 bill which passed the House a 225 to 195 vote, the bills have been largely promoted by Republicans and opposed by Democrats.

The Working Families Flexibility Act of 2013 is similar to its predecessors in many respects, including its partisan support and opposition.  This bill, though, which was only introduced on April 9^th, appears en route to being voted upon by the full House.  Hearings were quickly held on April 11^th, and through a procedural maneuver, the Committee voted to report it out of Committee on April 17^th by a 23-14 party-line vote.  The number of co-sponsors has since reached 166, on partisan lines, and therefore it is quite possible that it will pass the full House this year, on partisan lines.

THE BILL’S CONCEPT OF COMP TIME

HR 1406 seeks to amend the Fair Labor Standards Act to authorize private employers to provide compensatory time off to private employees at a rate of 1.5 hours per hour of employment for which overtime compensation is required in accordance with an applicable collective bargaining agreement or, in the absence of such an agreement, an agreement between the employer and employee.  Among the other basic terms are:

• Employees could accrue up to 160 hours of compensatory time;
• By each January 31, the employer would have to cash out any unused compensatory time off accrued during the preceding year; 
• Comp time may only be earned by employees who have worked at least 1,000 hours during a period of continuous employment with the employer in the 12-month period before the date of agreement or receipt of compensatory time off;
• Employers may not intimidate, threaten or coerce employees in order to (1) interfere with an employee’s right to request or not to request compensatory time off in lieu of payment of monetary overtime compensation, or (2) require an employee to use such compensatory time;
• Employers could still choose whether or not to offer compensatory time as an option under the bill, and they can discontinue plans and cash-out hours accrued over 80 by giving employees a 30 day notice;
• Employees may also request to be cashed-out by giving a 30 day notice; and 
• Employees who are cashed-out, whether at the year-end, upon separation for any reason, or a plan’s discontinuance, must be paid at the higher of the rate the employee was earning at the time the comp time was earned or earning at the time of the payment.

THE DEBATE

To many, the concept of “Flexible Families” is centered on a view that the FLSA needs updating and that private sector employees should have rights to earn comp time in lieu of overtime pay similar to those of their public sector counterparts.  Put another way, in this day and age, some employees are more interested in earning extra time off to spend with their families than earning extra overtime pay.   The opposing side insists that the concept is a device to allow employers to work employees extra hours to save money, and to thereby unduly burden employees.

THE REALITY

Given the many protections in the bill, though, the belief that employers wish to have comp time available to exploit employees appears misplaced.  Employees can only earn comp time if they volunteer to partake in the comp time plan.  Employees also can opt out of the plan at their will, and be paid for the value of their accruals.  Therefore, it appears that the bill truly provides employees with significant control over the comp time program and would only choose to partake if they truly would prefer to have the extra time off, with pay.

Partisanship is the rule of the political process at this time, and therefore the likelihood of the Senate passing the bill is slight.  Other bills have been introduced as a Democratic alternative, such as bills allowing paid leave time for employees to attend their children’s school activities and take children to doctor appointments.  Bills to raise the minimum wage are also in play.  If comp time becomes law, it will likely be because some compromise on these issues is struck.  Compromise is, however, a four-letter word in “DC-speak.”

Whatever happens, the debate will serve to educate the general workplace of the commonly misheld rule, i.e., comp time is not currently available to private sector employees.  As the general workforce learns of this reality, employees may ask about comp time plans currently in place and whether they are due some extra pay.  Thus, as employees become more educated, employers may become more exposed to liability for providing employees with comp time in violation of the FLSA.  This potential liability is real, though ironic, in that many employees who are currently earning comp time are pleased with that arrangement and would not have otherwise worked the overtime.  Unfortunately, employees cannot waive their rights to overtime pay under the law.  Consequently, any private employers who are currently providing any of their employers with comp time should seek legal counsel without delay.

The Campaign to Increase the Federal Minimum Wage Gets Legs

The US Department of Labor is gearing up its campaign to increase the federal minimum wage.  In his recent State of the Union Address, President Obama announced that increasing the minimum wage, which is currently $7.25 per hour, was one of his policy objectives.  Last week, on the Department of Labor’s web-based internet newsletter, the President’s objective was kicked into action via two postings. 

One posting was entitled “Minimum Wage Myth Buster.”  Here’s what it said:

Myth: Small business owners can’t afford to pay their workers more, and therefore don’t support an increase in the minimum wage.

 

Not true: A recent survey conducted for the Small Business Majority found that more than two-thirds of small business owners support increasing the current federal minimum wage, and adjusting it yearly to keep pace with inflation as President Obama has proposed. The survey also found that 85 percent of the poll respondents already pay all of their workers more than the current federal minimum wage.

 The study referenced was sponsored by the Small Business Majority, a small business advocacy group.  Five hundred small businesses were surveyed via an internet poll.  Whether this is scientifically sound, or not, may be an issue.  Nonetheless, the theme of the findings are significant for the campaign.  First, they say that 67% of small businesses favor increasing the federal minimum wage, and that only 15% of the businesses have any employees earning that wage.  The question on this point was: “Do you favor or oppose increasing the federal minimum wage, up from $7.25 currently, and adjusting it annually after that increase is enacted to keep pace with the cost of living?”  It would have been interesting to see how businesses would have responded to the question if it only regarded the option to increase the minimum wage but left out the indexing to the CPI issue.  By asking it as they did, it’s unclear as to whether businesses truly favor both components of the question.  Second, they say that small businesses (65%) believe that a minimum wage increase will result in more disposable income for low wage earners, and thereby result in more spending by them, which in turn will generate sales and economic growth.

 The second item in the newsletter was a diary of recent travels of Acting Secretary of Labor Seth Harris, entitled “Giving a Hand Up to Minimum Wage Workers.”   The opening paragraph sums up the theme of the campaign:

 Since President Obama’s State of the Union address in February, I’ve traveled across the country meeting workers trying to survive while earning at or near the minimum wage.  Everywhere I’ve gone their stories have been similarly poignant and powerful – hardworking Americans forced to decide which bill to pay, which meal to skp or which relative to borrow money from that month.  Every time I hear a worker share his or her story, I’m more convinced than ever that the president’s proposal to raise the national minimum wage to $9 (and index it to inflation thereafter) is the right thing to do – not just morally, but economically as well.

He then details a number of specific stories of workers he met, many of whom were homeless or based in shelters.  No doubt these are individuals who are prepared to work hard and wish to earn to more.  What’s unclear is whether these workers were typical of those paid minimum wages.

To further feed this campaign, four bills have already been introduced in Congress this session to increase the mimimum wage.  Some of these bills have been introduced during prior sessions, but the volume of bills just on this issue and so early in the session is somewhat unique.  The bills are as follows:

• The “Original Living American Wage Act” – a/k/a the “LAW Act” (HR 229), which has been introduced in each session of recent vintage, seeks to adjust the federal minimum wage every four years to be equal to “the minimum hourly wage sufficient for a person working for . . . 40 hours per week, 52 weeks per year, to earn an annual income in an amount that is 15 percent higher than the Federal poverty threshold for a family of 2, with one child under the age of 18, and living in the 48 contiguous States, as published for each such year by the Census Bureau.” 
• The “Working for Adequate Gains for Employment in Services Act” – a/k/a the “WAGES Act” (HR 650), would amend the Fair Labor Standards Act to establish a base minimum wage for tipped employees of at least: (1) $3.75 an hour beginning 90 days after the Act’s enactment; (2) $5.00 an hour one year thereafter; and (3) for every year thereafter, to be the greater of 70% of the minimum wage and $5.50 an hour.
• The “Fair Minimum Wage Act” (S 460 and HR 1010) seeks to amend the FLSA to increase the federal minimum wage to $8.20 in three months, to $9.15 one year later, to $10.10 two years later, and based on increases to the CPI each year thereafter.  Also, the minimum wage for tipped employees would increase to $3.00 per hour, and thereafter 70% of the federal minimum wage.
• The “Catching-Up to 1968 Act of 2013” (HR 1346) would increase the federal minimum wage to $10.50 per hour, and thereafter be indexed to the CPI.  The minimum wage for tipped employees would also be pegged to be 70% of the federal minimum wage.  The bill would also repeal the domestic service employment/companionship employee exemptions for overtime under the FLSA.

 It is far from clear whether Congress will tackle this issue or whether this is fodder for the next election cycle.  Time will tell, but it is important to know that this initiative is no longer simmering among a few; it is now a clear talking and policy point of the Administration.

 It is also important to recognize that 19 states and the District of Columbia have minimum wages in excess of the federal minimum wage (but less than the wages proposed in the bills pending before Congress).  For a summary of each state’s wage and hour laws, see the WDHI’s State-by-State Wage and Hour Summary.

Supreme Court Upholds Dismissal of Putative Collective Action Based on Rule 68 Offer

By Reed L. Russell and Craig S. Dawson

On April 16, 2013, in Genesis Healthcare Corp., et al., v. Symczyk, the United States Supreme Court held that, where the lone plaintiff’s individual claim in an FLSA collective action becomes moot, the entire collective action must be dismissed for lack of subject-matter jurisdiction.

The respondent in Symczyk, a registered nurse, brought a collective action against her former employer on behalf of herself and other similarly-situated employees. She alleged that the petitioners violated the FLSA by automatically deducting 30-minute meal breaks from the employees’ time worked each shift, even when the employees performed compensable work during those breaks. Upon answering the complaint, and prior to any other plaintiffs opting in to the lawsuit, the petitioners served upon the respondent an offer of judgment under Federal Rule of Civil Procedure 68. The offer included $7,500 for alleged unpaid wages, in addition to attorneys’ fees and costs, and purportedly constituted full relief for the respondent’s individual claim for damages. The respondent was given ten days to consider the offer, after which time the offer would be deemed withdrawn.

When the respondent failed to respond to the offer within the ten-day period, the petitioners filed a motion to dismiss for lack of subject-matter jurisdiction. The petitioners argued that, having rejected the offer for full relief, the respondent no longer had a personal stake in the outcome of the suit and, therefore, the action was moot. The respondent countered that the petitioners were inappropriately attempting to “pick off” the named plaintiff before the collective action could get off the ground, and that such strategic offers of judgment frustrate the goals of collective actions. While the district court dismissed the action for lack of subject-matter jurisdiction, the Third Circuit agreed with the respondent and reversed the district court’s ruling. Notably, however, the Third Circuit only did so after acknowledging that no other potential plaintiff had opted into the suit, the petitioners’ offer fully satisfied the respondent’s individual claim, and that such an offer generally moots a plaintiff’s claim under Third Circuit precedent.

The Supreme Court reversed the Third Circuit’s ruling, however, holding that the collective action should have been dismissed. The Court explained that, “[i]f an intervening circumstance deprives the plaintiff of a ‘personal stake in the outcome of the lawsuit,’ at any point during litigation, the action can no longer proceed and must be dismissed as moot.” While the Court acknowledged a circuit split as to whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot, the Court declined to decide that issue for two reasons. First, both the district court and Third Circuit concluded that the respondent’s individual claim was moot. Second, the respondent had conceded before both lower courts that an offer of complete relief generally renders a claim moot, and the respondent failed to raise an argument to the contrary in her brief in opposition to the petition for certiorari. The Court, therefore, “assume[d], without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim.”

The Court went on to apply “well-settled mootness principles” in finding that the respondent’s action could not survive based on the collective-action allegations in her complaint. As stated by the Court, “[i]n the absence of any claimant’s opting in, respondent’s suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action.” The Court rejected reliance on precedent evaluating mootness principles in Rule 23 class actions, explaining that “Rule 23 actions are fundamentally different from collective actions under the FLSA” and because the cases relied on were factually inapposite.

The Court explained that FLSA collective actions, even if a court grants “conditional certification,” create no independent legal status for a class like a Rule 23 certification decision does, because “conditional certification” merely authorizes notice to potential collective action members, who must still file consents to join the case in order to become parties. Thus, even a conditionally certified collective action would not prevent mooting out a sole plaintiff’s claim. The Court also rejected application of the theory that mooting a named plaintiff’s claim does not necessarily moot the action if the class claim is “inherently transitory.” The Court reasoned that this theory was developed to apply to claims that were unreviewable because the conduct at issue was “fleeting” (like temporary pre-trial detention), not because of defendants’ litigation strategy, such as using Rule 68 offers to moot individual claims.

The Court’s holding is significant not only for the issues it addressed regarding FLSA collective actions, but also for those it declined to decide. Significantly, the Court declined to resolve the circuit split regarding whether an unaccepted offer of judgment is sufficient to moot an action, and the dissent argued that evidence of an unaccepted offer cannot be introduced to demonstrate mootness. As such, employers should carefully evaluate how Rule 68 offers have been treated in their jurisdictions. Further, employers should consider what collateral effects this decision could have on the behavior of plaintiffs’ counsel, including whether it causes counsel to be more aggressive in probing the employer’s workforce for potential opt-in plaintiffs prior to filing suit, particularly with the prevalence of social media. Finally, the Court’s repeated statements regarding the difference between Rule 23 class actions and FLSA collective actions warrant a careful examination of the Court’s recent Rule 23 jurisprudence and its impact on FLSA collective actions more generally.

Supreme Court Vacates 7th Circuit Class Certification Ruling, Signaling Shift In The Landscape Of Wage-And-Hour Litigation

A mere five days after issuing Comcast v. Behrend, wherein it held that the Wal-Mart Stores v. Dukes standard applies to certification determinations under Rule 23(b), the Supreme Court vacated and remanded the Seventh Circuit’s pro-certification ruling in RBS Citizens, N.A. v. Ross, sending a clear message that Behrend applies to wage-and-hour class actions.  In Ross, the Seventh Circuit had upheld the certification of two classes of bank employees who brought claims for overtime pay under the Illinois Minimum Wage Law. The Seventh Circuit rejected the bank’s contentions that certification did not comply with Rule 23 and was inconsistent with Dukes, and instead found that Dukes was distinguishable on the facts. However, the Supreme Court order vacating and remanding Ross calls that decision into question and will force the Seventh Circuit to consider whether damages are subject to class-wide measurement.

As the Court’s handling of Ross demonstrates, the lower courts must carefully consider both Dukes and Behrend when asked whether to certify wage-and-hour claims. Last week, two federal district courts addressed this issue but reached opposite conclusions. In Roach, et al. v. T.L. Cannon Corp., d/b/a Applebee’s, et al., a New York federal court relied on Behrend and refused to certify a class of Applebee’s employees under Rule 23, reasoning that employees failed to offer a damages model capable of measurement across the entire class.

On the other hand, in Martins, et al. v. 3PD, Inc., a Massachusetts federal court granted a class of delivery drivers’ motion for Rule 23 class certification. The court recognized that Behrend called into question the proposition that class certification is proper even if individual damages issues remain, but ultimately interpreted Behrend more narrowly, finding that it did not foreclose the possibility of certification in cases like Martins, where individual damages issues were not particularly complicated or numerous.

How the Seventh Circuit comes out on the issue in Ross remains to be seen, but the import of Behrend in the wage-and-hour arena cannot be overlooked. Indeed, Behrend provides another arrow in defense counsels’ quiver when opposing class certification of state law claims under Rule 23, and plaintiffs’ counsel will be forced to adapt to the additional hurdle of demonstrating that not only liability, but potentially damages, must be subject to proof on common evidence.

Joseph E. Tilson and Jeremy J. Glenn, Meckler Bulger Tilson Marick & Pearson

Piece Rate Workers in California Must Be Paid Separately For Time That Falls Outside the Scope of the Piece Rate Work

A California appellate court recently held that California law requires piece rate workers to be paid separately, at least at the minimum wage rate, for any work time that falls outside the scope of the work that is the subject of the piece rate.  A copy of the court’s recently published opinion in Gonzalez v. Downtown LA Motors, LP can be downloaded here.

Downtown LA Motors, LP (DTLA) compensated its automobile service technicians on a piece-rate basis for repair tasks completed.  Under DTLA’s system, technicians were paid a flat rate that varied based on the technician’s experience, for each “flag hour” a technician accrued.  Flag hours were assigned to every repair task that a technician performed, and were intended to correspond to the amount of time a technician would likely need to perform the task.  A technician who completed a repair task accrued the number of flag hours assigned to that task, regardless of how long the technician actually took to complete it.  Technicians accrued flag hours only when working on a repair order.

In addition to tracking a technician’s flag hours, DTLA also kept track of all the time a technician spent at the work site, whether or not the technician was working on a repair order.  Technicians were required to clock in at the beginning of a shift, clock in and out for lunch, and clock out at the end of the shift.  Technicians did not always have vehicles available to work on, but were required to remain at the work site.  While waiting for repair work, technicians were expected to perform various non-repair tasks, including obtaining parts, cleaning their work stations, attending meetings, participating in training, and performing other duties.  Technicians accrued no flag hours while performing these non-repair tasks.

At the end of each two week pay period, DTLA calculated each technician’s pay by multiplying flag hours accrued during that pay period by the technician’s flat rate.  DTLA then compared the technician’s flat rate/flag hour pay to the technician’s “minimum wage floor,” which is the amount the technician would have earned if being paid the minimum wage for all recorded work hours.  If the technician’s flat rate/flag hour pay fell short of the minimum wage floor, DTLA would supplement the technician’s pay to cover the shortfall.

A class of technicians sued DTLA, claiming the company violated California law by not paying them a minimum wage for time when they were on the clock, but not performing repair work.  After a bench trial, the trial court ruled in favor of the technicians, concluding that DTLA violated California law by not paying its technicians separately for non-repair work time.

On appeal, DTLA argued that it complied with California law by ensuring, through its “minimum wage floor,” that each technician received an amount equal to or greater than the amount the technician would have earned if paid the minimum wage for all hours worked.  DTLA further argued that requiring employers to pay their piece-rate employees separately for any work not subject to the piece rate would undermine the piece-rate system, which is intended to reward piece-rate workers for performing piece-rate tasks efficiently.

The Court of Appeal took note of previous decisions holding that California laws and regulations governing employee pay differ substantially in both language and intent from federal minimum wage laws, which allow employers to average the total compensation of piece rate workers over an entire work week to satisfy minimum wage obligations.  After analyzing relevant California Labor Code and wage order language, the court held that California law requires employees to be paid at least at the minimum wage rate for each hour of work, which effectively prohibits employers from averaging out the piece rate compensation over an entire work week.  In other words, California law requires that for each work hour (or part of an hour), an employee must be paid either an agreed rate or the minimum wage rate, and prohibits an employer from applying any part of any employee’s piece-rate pay as a credit against its minimum wage obligation for work falling outside the scope of the work that is subject to the piece rate.

This case serves as a blunt reminder that California wage and hour laws differ from federal law in many important respects, and compliance with federal law does not necessarily protect an employer from wage claims brought pursuant to California law.  Any company employing workers in California, especially companies based outside the state who may have less familiarity with California wage laws, should review their wage practices on a regular basis.

Employers that have piece-rate employees working in California should immediately review their pay practices to make sure that all employee work time is being compensated at either the agreed piece rate, at an agreed hourly rate, or at the applicable minimum wage rate.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

NO PRESSURE: ALLEGATIONS OF CENTRALIZED LABOR-BUDGET PRESSURE INSUFFICIENT TO SURVIVE DECERTIFICATION

Recognizing the inherently individualized nature of most off-the-clock cases, plaintiffs have been searching for new areas of “common” evidence to justify the certification of class and collective actions. The existence of company-wide labor budgets has frequently been relied upon in wage and hour cases, despite case law holding that the lawful, and eminently rational, decision of a corporation to limit unnecessary expenses is not a common policy sufficient upon which to ground certification.¹ A recent decertification decision by the Eastern District of Pennsylvania highlights the inadequacy of “labor-budget pressure” allegations as a justification for certification. See Martin v. Citizens Financial Group, Inc., Slip Copy, 2013 WL 1234081 (E.D. Pa. Mar. 27, 2013).

In Martin, the Court decertified a collective consisting of over 800 non-exempt bank employees seeking compensation for work performed off the clock. While the employer had in place a lawful written policy requiring the payment of all hours worked, and overtime for hours over 40, the plaintiffs alleged that budgetary pressures forced a pattern and practice of off-the-clock work. The Court rejected the argument, and decertified the collective. Because liability was dictated by the decentralized decisions of various actors, and because the defendant would need to present individualized testimony in its defense, collective treatment was inappropriate.

Summary of the evidence
The plaintiffs submitted declarations from 435 of the 843 opt-in plaintiffs, and their expert testified that the declarants claimed as follows:
• 100% were denied overtime pay;
• 90.65% were pressured or instructed not to report all overtime hours;
• 86.54% were offered comp time in future weeks instead of overtime;
• 70.43% had their time adjusted to remove overtime hours;
• 83.64% were pressured to alter their own timesheets to remove overtime hours; and
• 89.79% were required to perform work during uncompensated breaks.
Id. at *2.

Decertification analysis
Citing variations in the deposition testimony, the employer highlighted how different plaintiffs claimed denied overtime for different time periods, and that numerous plaintiffs testified that their experience was limited to a particular location or manager. The plaintiffs countered that the similarities in the practices described by their expert outweighed the differences. The Court agreed with the employer. According to the Court, while plaintiffs’ evidence “tends to establish that the putative class members may have experienced a denial of overtime,” the evidence was individualized. Id. at *5. The numbers did not help the plaintiffs. As the Court noted, the number of plaintiffs who claimed to have been subjected to each of the five different methods of depriving employees of overtime differed. While 89.79% alleged that they were required to work through breaks, only 70.43% alleged that management unlawfully adjusted their time entries. Id.

According to the Court, individualized defenses also warranted decertification. Individual plaintiffs testified that certain supervisors instructed them to work off the clock, but the supervisors denied the allegations. To resolve these testimonial disputes, the Court acknowledged that the fact finder will have to determine who was being truthful, and “resolving this question with regard to one manager and one employee would not accomplish the task for any of the others.” Id. at *6.

Finally, the Court held that fairness and procedural considerations justified decertification. The plaintiffs’ preliminary trial plan proposed the use of representative testimony, but the Court held that sampling would be inappropriate under the circumstances: “Drawing liability conclusions about a large group based upon a small portion of statements can be problematic, especially when testimony among the representatives themselves is disparate. Id. at *7 (quoting Prise v. Alderwoods Group, Inc., 817 F. Supp. 2d 651, 677, n.20 (W.D. Pa. 2011)).

Conclusion
As Martin demonstrates, centralized labor-budget pressure is not enough for certification. When the common action or policy directed toward the putative class is lawful, liability is premised on the unlawful actions of individual actors. Absent special facts, determining whether a supervisor decided to break the law (and company policy) to achieve business outcomes is an individual question, and the answer to this question cannot be applied to other actors. Under these circumstances, the case cannot continue in a collective and representative fashion.

Rafuse Hill & Hodges LLP

---

1 See, e.g., Eng-Hatcher v. Sprint Nextel Corp., 2009 WL 7311383, *4 (S.D.N.Y. Nov. 13, 2009) (denying conditional certification and Rule 23 certification; centralized control over labor budgets insufficient for certification when individual managers have discretion to authorize work); Bernard v. Household Int’l, Inc., 231 F. Supp. 2d 433, 435 (E.D. Va. 2002) (management incentive plan rewarding managers for minimizing overtime hours and increasing unit productivity insufficient for conditional certification); Basco v. Wal-Mart Stores, Inc., 2004 WL 1497709, at *7 (E.D. La. 2004) (corporate policy to reign in wage costs insufficient to support certification).^↩

 

California Court Holds Class Certification Properly Denied in Store Manager Misclassification Case

A California appellate court recently affirmed the denial of class certification in a misclassification case involving managers and assistant managers at Sears auto centers. In Dailey v. Sears, Roebuck and Co., the court rejected the plaintiff’s argument that liability could be determined on a class-wide basis, holding that the trial court acted within its discretion when it denied class certification based on evidence showing a substantial variation in the way different managers allocated their working time. A copy of the court’s opinion can be downloaded here.

Plaintiff William Dailey worked as an assistant manager and manager at the Sears auto center in Carlsbad, California from 2007 to 2009. Sears classified all auto center managers and assistant managers as exempt from overtime. In April 2009, Dailey filed a class action lawsuit against Sears on behalf of himself and a proposed class of all Sears auto center managers and assistant managers who worked in California during the previous four years. In his complaint, Dailey alleged that uniform policies and procedures effectively required all managers and assistant managers to work at least 50 hours per week, and that a majority of their working time was spent performing nonexempt work. Dailey alleged that the duties of the managers and assistant managers was “virtually identical” at all Sears auto centers throughout California. In his motion for class certification Dailey submitted declarations from himself and four other managers stating that they spent most of their working time performing nonexempt work. He also argued that representative sampling of the class members could be used to determine both liability and damages.

In opposing class certification, Sears presented declarations and deposition testimony from 21 class members and six corporate managers. The declarations stated that wide variations existed with respect to how managers and assistant managers allocated their time, and that auto center managers had substantial discretion to set their own weekly work schedules, adjust staffing levels, and make adjustments to displays and pricing. Sears’ evidence also tended to show that managers and assistant managers spent a majority of their time on managerial tasks, but that the amount of time spent on nonexempt tasks varied substantially, anywhere from 1% to 40% of their working time. The trial court denied certification, finding that individual issues predominated over common issues.

The Court of Appeal held that the trial court acted within its discretion in denying class certification, holding that the existence of uniform policies is not by itself sufficient to support class treatment. Rather, the proper focus is on how much time class members spend on exempt versus nonexempt tasks. The court further held that the trial court acted within its discretion in crediting one party’s (in this case, Sears’) evidence over another, and that doing so was not an improper evaluation of the merits of the case.

The court also held that the trial court properly rejected Dailey’s proposed plan to determine liability by employing representative sampling techniques. The court explained that even if sampling might be permissible to determine liability in some cases, it was not proper in this case given the predominance of individual issues among the class members.

This case is good news for California employers who may be faced with wage and hour class actions alleging employee misclassification. It is also a timely reminder to employers that the job duties of exempt employees should be periodically reviewed to ensure that they are spending the majority of their working time on exempt, managerial tasks.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

Eleventh Circuit Rules Liquidated Damages Are Not Mandatory In FLSA Retaliation Claims

On February 13, 2013 in the case of Moore, et al. v. Appliance Direct, Inc., the Eleventh Circuit was faced with a question of first impression: When the employer is found liable for retaliation but provides no evidence of reasonable good faith, does the Fair Labor Standards Act (“FLSA”) require an award of liquidated damages or are liquidated damages discretionary?  The Eleventh Circuit recently joined the Sixth and Eighth Circuits and held that liquidated damages for retaliation claims under the FLSA are discretionary when liability is found, but the employer does not present any evidence of  reasonable good faith. 

 In Moore, the plaintiffs were former delivery drivers for Appliance Direct, Inc. (“Appliance Direct”).  The plaintiffs filed suit against their employer and the Company’s Chief Executive Officer seeking overtime.  While the overtime lawsuit was pending, Appliance Direct outsourced the position of delivery driver.  While other drivers formerly employed by Appliance Direct received offers to become independent contractors, the plaintiffs did not, and their employment was terminated when their jobs were outsourced.  Following this termination, the plaintiffs filed another lawsuit alleging retaliation under the FLSA.  Appliance Direct filed for bankruptcy, and the retaliation case proceeded to a jury trial against only the CEO.  At the end of the trial, the jury returned a verdict in favor of the plaintiffs for economic damages in the amount of $30,000 each.  The parties filed cross-appeals on the verdict and the Court’s denial of requests for a reduction of the award, a new trial, and an award of liquidated damages. 

The Eleventh Circuit upheld the District Court’s rulings on the various motions.  Of key importance is the Court’s ruling on the issue of liquidated damages in FLSA retaliation cases.  First, the Court considered the language of 29 U.S.C. §216(b).  The first sentence applies only to damages for violations of Sections 206 (minimum wage) and 207 (overtime).  The second sentence applies to violations of Section 215(a)(3) (retaliation).  There is no discretion for the court in awarding liquidated damages for employers found liable for violating Section 206 and 207.  However, the portion of the statute addressing retaliation claims states that an employer shall be held liable for damages “as may be appropriate to effectuate the purposes of section 215(a)(3).”  The statute also gives examples of possible damages, including, but not limited to, reinstatement, promotion, lost wages, and liquidated damages.  The Court found that this language does not require an award of liquidated damages in a retaliation case.  Instead, the language indicates that whatever is awarded must be appropriate to effectuate the purposes of the retaliation provision, which is within the discretion of the Court.

Second, the Court found that the plaintiffs’ cited cases from the Fifth and Seventh Circuits did not thoroughly address the issue on mandatory liquidated damages in FLSA retaliation cases.  See Lowe v. Southmark Corp., 998 F.2d 335 (5th Cir. 1993) and Avitia v. Metro. Club of Chicago, Inc., 49 F.3d 1219 (7th Cir. 1995).  The Court did find that the cases cited by the defendant from the Sixth and Eighth Circuits were more instructive and well-reasoned on this issue.  In short, the Eleventh Circuit followed the reasoning outlined in Braswell v. City of El Dorado, Ark., 187 F.3d 954 (8th Cir. 1999) and came to the same result: upholding the District Court’s refusal to award liquidated damages in a FLSA retaliation case.  Blanton v. City of Murfreesboro, 856 F.2d 731 (6th Cir. 1988) outlined similar reasoning and found that the trial court erred in awarding damages because such an award would not effectuate the purposes of the statute.

The holding in Moore is beneficial for employers found liable for FLSA retaliation claims: unlike FLSA overtime and minimum wage claims, an award of liquidated damages is not mandatory when the employer presents no evidence of a reasonable good faith belief; instead such an award is in the discretion of the Court and must effectuate the purposes of the statute.

Decertification of Class Due to Infeasibility of Trial Plan

by Malani L. Kotchka, Lionel Sawyer & Collins

The Seventh Circuit held in Espenscheid v. DirectSat USA, LLC on February 4, 2013, that the district court was correct in decertifying a proposed class of subclasses because the trial plan submitted by the plaintiffs was infeasible. The technicians who installed and repaired home satellite dishes were paid on a piecework basis. They claimed they were forbidden from recording time for tasks such as calling customers, filling out paperwork and picking up tools from one of the company’s warehouses. The plaintiffs proposed to try the case by selecting 42 representative members of the class to testify. However, plaintiffs did not use any sampling methods in statistical analysis to select the 42 representatives. Moreover, they could not explain how these 42 representatives were representative of the class where every member of the class worked different amounts, worked different hours and were not paid the same wage. The court concluded that there may be no way a case will qualify for class treatment if the class members are each harmed to a different extent and many are not harmed at all.