Employers Beware: The Department of Labor is After You!

Since President Obama’s inauguration, employers and employees have been waiting for signals from Washington as to whether the Department of Labor will change the historical approach of prior administrations regarding the enforcement of wage and hour laws.  Due to delays in the confirmations of new DOL officials, the wait has been long.  Recently, though, some major new initiatives have been announced which shed light on the approach the Administration is taking on at least with respect to wage and hour matters.  The new approach appears to be more aggressive and even somewhat hostile, but perhaps only time will tell if this true.

In order to appreciate the change, it’s important to appreciate the system which has been in place for over a half-century.  A key part of that system was the use of Administrator Opinion Letters published by the DOL’s Wage and Hour Division (the agency which enforces the federal laws regarding overtime pay, as well as those regarding prevailing wages, the FMLA and youth employment).  For past few years, for example, the Wage and Hour Division published an average of two to five “Opinion Letters” per month.  These Opinion Letters were responses to inquiries – usually from employers – about how to comply with the overtime pay requirements of the Fair Labor Standards Act.  Typically, the employers would ask whether the manner in which they were calculating overtime pay complied with the FLSA, or if a particular class of employees were exempt from being paid overtime premiums.  In response, the Wage and Hour Administrator would give a legal opinion applying the facts provided by the requester to the law.  The Opinion would be published and would become a part of the body of interpretations on which employers could rely in designing pay plans for their employees.  Significantly, the law specifically provides that if any employer relies on an Opinion Letter, then that reliance is an absolute defense to liability for back-pay and other damages should a court later determine that the Administrator was in error.  In essence, the Opinion Letters not only provided guidance as to whether a practice or plan was legal, the employer was entitled to substantial legal protection if it adhered to the Administrator’s opinion.

In January 2009, the issuance of Opinion Letters came to an abrupt halt.  In late March 2010, the reason for this halt became clear.  The Wage and Hour Division is abandoning its long-standing (over 60 year) practice of issuing Opinion Letters, and will now provide its substantive guidance in the form of a new device – “Administrator Interpretations.” 

Administrator Interpretations differ from Opinion Letters in a key respect.  Instead of addressing a specific factual situation as under the Opinion Letter system, and as explained by the DOL, Administrator Interpretations will “set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue.  Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees.” 

But will it?  As explained by the DOL: “The Wage and Hour Division believes that [issuing Administrator Interpretations] will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome.  Requests for opinion letters generally will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented.” [Italics added]

In other words, when an employer wants to know if a practice or plan complies with the law, the Division will no longer give the employer a “yes” or a “no,” but instead it will only point the employer to existing law expecting the employer to figure out the law for itself.  While the broad stroke Administrator Interpretation may provide employers some guidance if they’re in a particular industry or interested in a particular job category, the interpretations will be too broad to address nuances of particular pay plans or jobs.  As a result, it is unlikely that Administrator Interpretations will help employers resolve specific questions, and further, it is even more unlikely that they will provide employers with an absolute defense to liability should they, in good faith, rely on the interpretation.

That is not to say that these Administrator Interpretations will have no significance.  To the contrary, these broad interpretations will likely be used as arguments to strike down specific practices and create more litigation. 

This is evidenced by the first Administrator Interpretation which – in a broad stroke – reversed a 2006 Opinion Letter recognizing that mortgage loan officers could be deemed exempt administrative employees.  Instead, the Administrator Interpretation concluded that, as a class, these workers are not entitled to be classified under that overtime pay exemption.  Not only does this a reverse prior interpretations, but it is also not narrowly tailored to a particular job.  That is, not all mortgage loan originators do precisely the same job.  Thus, despite the clear principle that an employee’s exempt status will depend on the specific facts at issue, the Department announced a broad rule that such employees will not be eligible for this exemption.

Interpretations of this kind are often given deference by the courts while reviewing a particular practice.  Since the interpretations will not be narrowly tailored to address nuances which in the past would have been recognized as being distinguishing enough to make a difference, courts (as well as attorneys for employees and DOL investigators) will attack practices with broader strokes.  If an employer wishes to distinguish itself from the broad-stroked interpretation, it will have no choice but to do so in the context of litigation.

When the abandonment of Opinion Letters is reviewed in the context of other recent DOL initiatives, it appears that the DOL is consciously going to do less to help employers comply with the law through meaningful advice and other cooperative tools, and will instead focus more on adversarial proceedings including claims and litigation. 

For instance, a week after announcing that it will no longer publish Opinion Letters, the DOL launched a new campaign, entitled “We Can Help,” to urge employees to file claims against their employers.  This campaign includes nine 30 to 60 second public service announcements (aka advertisements), some in Spanish, featuring officials and celebrities telling employees how to file claims with the DOL. 

In addition, the DOL has also recently announced that is developing a new “Plan/Prevent/Protect” compliance initiative which will require employers to audit their pay practices, document how they reach determinations regarding each employee’s exempt status and pay calculations, as well as document the basis on which each independent contractor is not given employee status.  As the Assistant Secretary of Labor recently explained: “Employers and others in the Department’s regulated communities must understand that the burden is on them to obey the law, not on the Labor Department to catch them violating the law. This is the heart of the Labor Department’s new strategy.”  This initiative covers more than just wage and hour matters; it includes OSHA and other areas regulated by the DOL.  Employers will need written plans and track how they are implemented.  Employers who fail to do so to the DOL’s satisfaction would be deemed out of legal compliance and sanctioned.

Certainly, there is nothing wrong with expecting employers to comply with the law or providing employees with information on how to remedy violations.  But, in light of these recent initiatives, the goal of helping employers comply now appears to be secondary to the goal of catching employers who are not in full compliance.  While violating the law should not be tolerated, the vast majority of employers try to comply with it.  Wage and hour law is complex and nuanced, and therefore the borders of compliance vs. non-compliance are at times gray.  Employers still want to comply.  The DOL’s new game-plan is for employers to do their best, but the government is not “here to help.”

For these reasons, now – more than ever – employers must audit their pay and other employee practices, and develop a compliance plan and a compliance culture.  Navigating these obligations also is much more challenging now than in the past due to the DOL’s new tone and the fact that it has recently added 250 investigators to its staff.  Employers should therefore be proactive and contact their legal counsel to respond to this new culture and avoid being caught in what is developing to be a tidal wave of aggressive and expensive wage and hour enforcement initiatives and litigation.

Not So Fast My Friends! Judicial Approval & Settlement of FLSA Claims

Employers facing FLSA litigation will sometimes turn quickly to offers of judgment or settlement negotiations with named plaintiffs to minimize the costs of protracted litigation.  For some employers, this presents an appropriate strategy.  For others, this only invites further litigation with different plaintiffs.  In any event, the private settlement of FLSA disputes requires careful consideration beyond settlement of the “typical” case.  As a federal court in Florida recently held, “an employer undertakes a private resolution of an FLSA dispute at his peril.”

In Dees v. HydraDry, Inc., No. 8:09-cv-1405, 2010 WL 1539813 (M.D. Fla. Apr. 19, 2010), District Court Judge  Steven D. Merryday rejected a stipulation of dismissal of an FLSA claim and reminded employers and their counsel of potential pitfalls in the settlement of FLSA claims.  In particular, Judge Merryday held that “[a]n employee entitled to FLSA wages may compromise his claim only under the supervision of either the U.S. Department of Labor or a federal district court.” 

In Dees, the parties reached a settlement agreement on the plaintiff’s claims for overtime compensation and presented the district court with a stipulation of dismissal.  In the stipulation, the parties reported that the employer agreed to pay the plaintiff actual and liquidated damages and listed each amount.  The parties also reported a separate agreement to pay attorneys’ fees and costs of the plaintiff and again listed the amounts.  As a result, the parties concluded and noted in the stipulation that “no judicial scrutiny is needed.”  The district court disagreed.

In a 29-page opinion, Judge Merryday concluded that, in order to effectuate the purposes of the FLSA, settlements of FLSA claims based on payment of actual damages, liquidated damages, fees, and costs – even in full – require judicial approval if any compromise of an employee’s FLSA rights is included in the agreement.

For example, the employer in an FLSA case might offer full monetary compensation to the employee for the FLSA claim but might require the employee to refrain from informing fellow employees about the result the employee obtained.  Or the employer might require the employee to trim the shrubbery at the employer’s home each weekend for a year.  In either instance, the employee outwardly receives full monetary compensation for his unpaid wages but effectively the additional term (the “side deal”) confers a partially offsetting benefit on the employer. 

As a result, under Judge Merryday’s order, if an employee concedes or agrees to anything outside of full compensation, parties must seek judicial approval of the settlement agreement for FLSA claims, disclose to the court all disputes resolved by such agreements, and disclose all terms and conditions of the agreements to the court. 

Judge Merryday noted that in the Eleventh Circuit, settlement of FLSA claims outside the context of DOL supervised settlements has long required court review and approval.  Lynn’s Foods Stores, Inc. v. United States, 679 F.2d 1350 (11^th Cir. 1982).  Interpreting and applying the Lynn’s  Foods standard, Judge Merryday then set forth a two-step process to evaluate settlements of FLSA claims.  First, the court must evaluate the agreement to determine if it is “fair and reasonable” to the employee.  Second, if the agreement is fair and reasonable to the employee, the court must evaluate whether the agreement frustrates implementation of the FLSA.  If the agreement satisfies both conditions, courts within the Eleventh Circuit may approve settlements of FLSA claims.

Perhaps most interesting, Judge Merryday also opines on the enforceability of confidentiality provisions within settlements of FLSA claims.  Specifically, Judge Merryday concluded, “A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights.”  Accordingly, Judge Merryday opines that courts should reject any settlement of FLSA claims with such provisions because such provisions are “unreasonable.” 

Judge Merryday goes further, however.  While the parties do not appear to have filed their stipulation of dismissal under seal or to have sought leave to do so, Judge Merryday squarely rejected any potential argument or suggestion that FLSA settlements may be filed under seal or submitted for in camera review.  As Judge Merryday concluded:

Reviewing an FLSA settlement agreement under seal conflicts with the public’s access to judicial records, frustrates appellate review of a judge’s decision to approve (or reject) an FLSA compromise, contravenes congressional policy encouraging widespread compliance with the FLSA, and furthers no judicially cognizable interest of the parties. A proper consideration of the intent of Congress and the public’s interest in judicial transparency permits only one method to obtain judicial review of a compromise of an FLSA claim. The parties must file the settlement agreement in the public docket.

Consequently, Judge Merryday ordered the parties to move for approval of their settlement agreement and attach the agreement to their motion.  After the parties did so, Judge Merryday approved the settlement agreement on May 25, 2010.

While Judge Merryday’s decision and Eleventh Circuit’s Lynn’s Foods approval rule is not the law in other circuits, this recent decision raises a number of important issues that should be carefully considered by employers and their counsel in all jurisdictions to ensure the enforceability of agreements resolving FLSA claims.  Be careful out there.

By Eric P. Kelly and Michael F. Delaney, Spencer Fane Britt & Browne LLP

Pharmaceutical Sales Reps and the Outside Sales Exemption

Two recent federal cases have found in favor of pharmaceutical sales representatives concerning overtime claims. For years, pharmaceutical sales reps have been off the radar when it comes to overtime claims. Most sales reps were well-compensated, enjoyed the legendary perks that came with the job (high-end meals, golf trips, presentations at resorts with physicians, etc.) and never complained about working long hours.

But, perhaps a trend in new overtime cases is emerging where courts are finding that the overtime exemption for outside sales representatives does not necessarily apply, especially when the sales reps themselves are not making any sales.

In June of this year, Judge Ruben Castillo granted summary judgment in favor of a class of plaintiffs against Abbott Labs in Jirak, et al. v. Abbott Laboratories, Inc. (N.D. Ill., Case No. 1:07-cv-03626, June 10, 2010). The plaintiffs in Jirak were responsible for generating market share and growth for certain Abbott products and making “selling presentations” but not promoting the products to patients or end-users. After analyzing the issues, Judge Castillo found that the sales reps for Abbott Labs did not make sales, but were more akin to marketers and promoters. When cross-motions for summary judgment were filed by the parties, the Judge found in favor of plaintiffs on liability and retained jurisdiction to determine any back overtime and damages due the plaintiffs.

On July 6, 2010, another pharmaceutical company, Novartis, had a decision originally in its favor overturned by the U.S. Court of Appeals for the Second Circuit. In In re Novartis Wage and Hour Litigation (2d Cir., Dkt. No. 09-0437-cv, July 6, 2010), overtime claims for a class of approximately 2500 sales representatives were reinstated and remanded to the trial court. The trial court originally found that the Novartis reps were in fact exempt under the outside sales and administrative exemption and thus, not entitled to overtime pay. On appeal, the plaintiffs, joined by the U.S. Secretary of Labor as amicus curiae, argued that in fact, the reps did not make sales. The Court of Appeals pointed out that when delivering “samples” to physicians, no money actually changes hands. If it did, such a “sale” would be a federal crime. Ultimately, the claims for overtime compensation were reinstated and the only likely issues left for the trial court to determine are back overtime and damages due the plaintiffs.

Remember that in order to qualify for the Outside Sales Exemption, all of the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

There is no minimum salary requirement for an outside sales exemption.

According to the Department of Labor, “Making Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. “Obtaining Orders or Contracts for Services or for the Use of Facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.

An outside sales employee makes sales at the customer’s place of business, or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.

By Paul Bittner, Schottenstein, Zox & Dunn Co., LPA, Columbus, Ohio
Member, Wage & Hour Defense Institute

The Tip Credit & Tip Pooling Pitfalls

In the past year, there has been a sharp increase in lawsuits claiming that service industry employers are violating the Fair Labor Standards Act (“FLSA”) by not properly paying their tipped employees minimum wages and overtime.  Large numbers of hotels and restaurants in high tourism areas such as New York and Florida are now facing expensive litigation battles over the way in they pay tipped employees. The unfortunate problem is that many of these employers are following industry standards which violate the law, even if only technically.  Employers tend to believe that they are in compliance because “that’s how it is done in the industry.” In this case, however, there is no “safety in numbers”. Since this type of FLSA claim has become so prevalent, it is imperative that restaurants and other service industry employers claiming a tip credit understand the nuts and bolts of the tip credit. 

 Under the FLSA, employers may pay tipped employees less than the federal minimum wage if the tips received are sufficient to make up the difference between the wages paid by the employer (“direct pay”) and the federal minimum wage.[1]  The difference between the direct pay and the minimum wage is called a “tip credit.”  A “tipped employee” is an employee “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”  29 U.S.C. §203(m).  Currently, the FLSA allows employers to take a maximum tip credit of $5.12 and pay the tipped employee at least $2.13 per hour.  Federal law requires that tipped employees keep all of their tips but does allow “tipped employees” (and only tipped employees) to pool or share their tips with each other. 

 Top Tip Pool Pitfalls To Avoid

 1.  Management Cannot Share In The Tip Pool

 Employers and supervisors cannot share the employees’ tips under any circumstances.  Any employee, regardless of title, that performs the supervisory functions may not benefit from tips. 

 2.  Only Tipped Employees May Share In The Tip Pool

 To be considered a tipped employee that “customarily and regularly” receives tips, the employee must have sufficient direct customer interactions to warrant benefiting from the tip provided by the customer.  Waitresses, bus boys and service helpers can participate in the pool.  The DOL, however, prohibits dishwashers or laundry room attendants from sharing in the tip pool.

 3. Percentage of Tips Shared Cannot Decrease Employees Below Minimum Wage

The tip pool cannot reduce the wages of the tipped employee below the direct minimum wage.  According to the DOL Wage & Hour Division, employers cannot require employees to pool tips in excess of 15% of the individual employee’s tips.[2]  When using percentages of overall sales as the benchmark for distribution of a tip pool, the key is not to require the employee’s contribution to exceed 15% of the total tips received by the employee.[3]

 4.  Employers Must Comply With Notice Requirements

 Many employers who validly claim the tip credit do not appropriately notify their employees about it.  When an employer elects to use the tip credit, the employer must:

 (a) Notify each tipped employee about the tip credit before the credit is utilized;

 (b) Prove that the employee is receiving at least minimum wage when the direct pay is aggregated to the tip credit; and

 (c) Allow the tipped employee to retain all tips unless there is a valid tip pooling system in place. 

One way to satisfy the notice requirement is to prominently display a DOL poster which includes a section on tip credit.  Alternatively, employers may have employees sign an acknowledgment form that specifies that the employer is aware that the employer is taking a tip credit against the minimum wage as permitted by federal and/or state law. 

 5.  Employers Cannot Take Improper Deductions From Minimum Wages

Employers cannot deduct the costs of uniforms, walk-outs, breakages of equipment, or cash register shortages from the minimum wages of tipped employees.         

6. Employers Must Correctly Calculate Overtime For Tipped Employees

 When tipped employees work overtime hours, employers must be careful to calculate and pay overtime wages based on the employee’s correct hourly rate.  In other words, overtime must be calculated based on the employee’s full minimum wage (currently $7.25 under the FLSA) and not based upon the employee’s reduced hourly wage (that reflects the tip credit). Only after overtime wages are calculated using the employee’s full minimum wage can employers subtract the total tip credit from the wages due.

 7. Employers Must Comply With State Tip Credit/Tip Pool Laws

Not to run afoul of state law, employers must be familiar with the laws enforced in their area.  Several states forbid or limit the amount of tip credit an employer can claim.  For example, employers in Alaska, California, Oregon and Washington cannot claim a tip credit.  Florida does not allow an employer to claim more than $3.02 for a tip credit.  Depending on job title and description, New York employers are entitled to claim a tip credit that ranges from $1.10 through $2.90.  Thus, familiarity with local laws is needed. 

 What happens if the tip credit or tip pool regulations are violated?

 If tip credit or tip pool regulations are violated, employers may forfeit the tip credit for both wage and hour and IRS purposes.  From a wage/hour perspective, employers may be responsible for the paying “tipped” employees their full minimum wages going back two years (or three years for willful violations).  From an IRS perspective, employers would be responsible for back taxes as well as contributions to the employees’ social security benefits. 

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[1] U.S. Dep’t. of Labor. Fact Sheet #15 Tipped Employees Under the Fair Labor Standards Act (FLSA) (hereinafter “DOL #15”). 

[2] Dep’t of Labor Field Operations Handbook (2000), (hereinafter “FOH”) H30(d)(04)(b).  See also, Opinion Letter WH-380 (March 26, 1976). 

[3] Opinion Letter WH-468 (September 5, 1978).

DIFFERENT NAMED PLAINTIFFS IS NOT AN IMPEDIMENT TO THE APPLICATION OF THE “FIRST-FILED” RULE TO FLSA COLLECTIVE ACTIONS

By:  Jason E. Reisman & Betina Miranda, Obermayer Rebmann Maxwell & Hippel LLP (Philadelphia, PA)

A recent case out of the New Jersey federal district court clarifies the application of the “first-filed” rule to collective actions brought under the Fair Labor Standards Act (“FLSA”).  According to the June 7, 2010, opinion in Abushalieh v. American Eagle Express, Inc., No. 1:10-cv-00211, the “first-filed” rule is indeed applicable to two consecutively filed proposed FLSA collective actions, where the named plaintiffs are different but both sets of plaintiffs seek to represent the same class.  The remedy in such a situation is the transfer of the latter-filed case to the district where the first-filed case is pending.

The “First-Filed” Rule

The “first-filed” rule directs that, in cases of federal concurrent jurisdiction, the court which first has possession of the subject matter must decide it, for reasons of judicial economy and sound judicial administration.  To be applicable, the latter-filed case must be truly duplicative of the first-filed case, “on all fours” in material aspects.[1]  The issues do not have to be identical but must be so similar that a determination in one case would leave little or nothing to be resolved in the other.

The Pre-Abushalieh Cases

Prior to the filing of Abushalieh on January 14, 2010, two other similar cases were filed against American Eagle Express, Inc. (“AEX”).  All three cases allege that AEX improperly classifies delivery drivers as independent contractors when they are actually employees.  The first case, Sherman v. AEX, was filed February 10, 2009, in the U.S. District Court for the Eastern District of Pennsylvania, as a putative class action under Federal Rule of Civil Procedure (“FRCP”) 23.  The case was brought exclusively pursuant to Pennsylvania wage and hour laws, and was filed on behalf of all AEX delivery drivers in Pennsylvania between February 10, 2006, and the present, who were designated by AEX as independent contractors.

The second case, Spellman v. AEX, was filed in the U.S. District Court for the District of Columbia, on September 1, 2009, under the FLSA and Maryland and District of Columbia wage and hour laws.  The Spellman plaintiffs seek to represent all AEX delivery drivers who drove delivery vehicles of less than 10,001 pounds gross vehicle weight for AEX.  The Spellman plaintiffs also ask that two subclasses be designated for their Maryland and District of Columbia claims.  The Spellman case was later transferred on April 9, 2010, to the Eastern District of Pennsylvania at the plaintiffs’ request, principally because of the pending Sherman matter, although it has yet to be consolidated with that matter. 

Is Abushalieh on “All Fours” with Sherman and Spellman?

The Abushalieh plaintiffs bring claims solely under the FLSA as a collective action on behalf of all AEX delivery drivers who, between January 15, 2007, and the present, drove delivery vehicles with a gross vehicle weight of 10,000 pounds or less in New Jersey, Pennsylvania, Maryland, and Delaware.  AEX filed a motion to dismiss on the basis of the “first-filed” rule citing the Spellman action.  The Abushalieh plaintiffs opposed the motion, arguing that (1) the rule is inapplicable because the named plaintiffs were different; (2) the rule should not apply because of concerns about coordinating opt-in FLSA collective actions with opt-out state class actions under FRCP 23; (3) if the rule applies, then Sherman is the first-filed case; and (4) if the rule applies, transfer and not dismissal is the appropriate remedy. 

After considering the parties’ arguments, the court issued a ruling which essentially split the baby.  First, the court found that Spellman and Abushalieh brought virtually identical FLSA claims seeking the same relief.  While Spellman additionally sought relief under state law, its FLSA claim fully encompassed the entire Abushalieh matter.  However, Sherman did not encompass the Abushalieh matter, as Sherman brought only state law claims while Abushalieh only brought federal claims.  The court found that these facts precluded Sherman from being considered the “first-filed” case. 

Second, the Abushalieh court found that the plaintiffs’ concerns about coordinating FLSA collective actions with state law class actions to be inconsequential.  While the combination of an opt-out state law class action and an opt-in FLSA collective action could have the effect of nullifying the opt-in requirement, the court noted that there would be adequate remedies for such a conflict, including the dismissal or severing of the state law class action claim, or creating the state law class to include only those who opt in.

Third, and of particular interest, the court found that the parties in Spellman and Abushalieh were sufficiently similar for purposes of the “first-filed” rule despite the different named plaintiffs.  The Third Circuit has yet to address the situation where, in two proposed collective actions, the named plaintiffs are different but seek to represent the same class of individuals against the same defendant.  So, the Abushalieh court looked to a 2009 decision in the District of New Jersey, Alvarez v. Gold Belt, LLC, No. 08-4871, 2009 WL 1473933.  The Alvarez court, while technically not applying the “first-filed” rule because both cases at issue were pending before the same court, drew upon the principles of the rule, especially the importance of judicial economy and consistent judgments.  Applying these principles, the Alvarez court stayed proceedings on the case at bar until the judge in the other case ruled on the earlier class certification request. 

Relying on the principles of Alvarez, the Abushalieh court ruled that when different named plaintiffs seek to represent the same class against the same defendant with virtually identical FLSA claims, the “first-filed” rules applies.  The court further held that the appropriate remedy is transfer of the latter-filed case to the district where the first-filed case is pending, pursuant to the forum non conveniens requirements of 29 U.S.C. 1404(a).  Thus, the Abushalieh matter was ordered transferred to the U.S. District Court for the Eastern District of Pennsylvania, where it could be consolidated with the pending Spellman case.

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[1]   The colorful phrase “on all fours with” has been explained by the story, perhaps apocryphal, of a case involving a dispute over a living cow.  One of the attorneys, in making his argument, cited a prior decision involving a dead cow.  Opposing counsel cited a different decision that involved a living cow. The judge sided with opposing counsel, stating that he had better authority because it was “on all fours” (i.e., alive).

Impact of DOL’s June 16, 2010 Interpretation of FLSA Section 203(o)

In its June 16, 2010 Interpretation, the DOL opined that employers with a unionized workforce can no longer negotiate with the workers’ union to exclude time spent donning and doffing “protective equipment” from paid work time, reversing two opinion letters issued during the Bush Administration on June 6, 2002 and May 14, 2007.  For nearly a decade, unionized employers have relied on the DOL’s June 6, 2002 opinion letter which concluded that “protective equipment,” including the mesh equipment and plastic guards typically worn by meat packing employees, fell within the definition of “clothes” under § 203(o), a position which the DOL reiterated in an opinion letter dated May 14, 2007.  According to the DOL’s “new” Interpretation, however, the term “clothes” does not include protective equipment worn by employees in the meat packing industry, and in other industries where employees are required to wear similar protective equipment.

In this Interpretation, the DOL stated that it was returning to an opinion it expressed first in 1997 under the Clinton Administration that the §203(o) exemption does not cover protective equipment.  Instead, according to the DOL, “clothing” means “apparel” like the clothes worn by employees in the baking industry in 1949.  Importantly, though, in a footnote, the DOL noted that its opinion may be at odds with three Circuit Court decisions holding that the equipment worn by employees in poultry processing plants is “clothing” under § 203(o).

In a second “about face” from its May 14, 2007 opinion, the DOL goes on to state that even if clothes changing time is excluded from paid time under §203(o), it may still be a principal activity that starts the clock for purposes of pay during the continuous work day.  Thus, any walk time and wait time that follows “clothes changing” must still be compensated, according to the DOL’s new view.  Significantly, the DOL warned that “[t]hose portions of the 2002 opinion letter that address the phrase “changing clothes” and the 2007 opinion letter in its entirety, which are inconsistent with this interpretation, should no longer be relied upon.”  (Emphasis added.)

Thus, the practical effect of this Interpretation is that employers can no longer rely on the 2002 and 2007 opinion letters to establish the “good faith defense,” which is a complete bar to liability under FLSA §259.  That is not to say, however, that employers cannot still argue that §203(o) applies to exclude pay for donning and doffing the protective clothing and equipment worn by their union employees. A number of federal courts have interpreted “clothes” more broadly than the DOL’s June 16, 2010 Interpretation.  Moreover, given the DOL’s vacillation on this topic, from 1997 to 2002 to 2010, deference from the courts to the DOL’s latest opinion as expressed in this Interpretation may be less likely.  Nevertheless, the DOL’s June 16, 2010 Interpretation makes future reliance on Section 3(o) to exclude “clothes changing” time much riskier.

By Joseph Tilson and Jeremy Glenn, Meckler Bulger Tilson Marick & Pearson LLP

WAGE-HOUR DIVISION REVERSES POSITION

           On June 16, 2010, the Obama Department of Labor’s Wage-Hour Division issued “Administrator’s Interpretation” No. 2010-2 which reverses the previous position of the DOL with respect to the proper interpretation of Section 3(o) of the Fair Labor Standards Act concerning “changing clothes.”  In 2002 and again in 2007, the DOL issued “Opinion Letters” which stated that the donning and doffing of safety clothing and equipment in the meat packing industry pursuant to a collective bargaining agreement should be excluded from compensable time.  Additionally, the 2007 Opinion Letter stated that the donning of safety clothing and equipment could not be considered the first principal act for determining the start of the continuous workday. 

             The June 16, 2010, Administrators Interpretation (equilivent to the previous Opinion Letters) returns to the 1997, 1998 and 2001 opinions that safety equipment worn over clothes is not “clothes” within the meaning of that word in Section 3(o) of the FLSA.  Additionally, the Administrative Interpretation states that whether or not the donning of safety equipment is compensable or not, the act would still constitute the first principal act for purposes of commencing the continuous workday.  The Administrative Interpretation can be found at   http://www.dol.gov/whd/opinion/adminIntrprtnFLSA.htm

By W. Bernie Siebert, Sherman & Howard LLC

TYSON DOL AGREEMENT MAY BE PATTERN

     Donning and doffing cases have been a thorn in the side of the meat packing industry for decades.  In such cases employees claimed that they should be compensated for the time spent putting on and taking off safety clothing and equipment prior to commencing work.  Following a 2005 Supreme Court decision, employees expanded their claims to include the time spent walking to their job station after donning safety clothing and equipment and prior to doffing the clothing and equipment. 

      Numerous lawsuits have been filed across the country by union and non-union employees.  Union employees had a higher hurdle with the FLSA and specifically Section 3(o).  That statutory provision excludes from time worked the “time spent in clothes changing at the beginning or end of each workday” where such exclusion involved a custom or practice under a collective bargaining agreement.  While DOL has vacillated in its interpretation of Section 3(o), the emerging judicial view seems to be that “clothes” includes safety equipment unique to employees using knives and hooks as well as standard hard hats, safety glasses, frocks or coveralls and similar routine items..   

      Tyson Foods battled both union and non-union employees in the red meat and poultry industries for years in their attempt to garner monies allegedly unlawfully not paid for donning, doffing and walk time.  Several years ago, the DOL filed suit against Tyson on behalf of the non-union workers at the company’s Blountsville, Alabama poultry processing plant.  DOL claimed that the employees were entitled to be paid for donning, doffing of their clothing and equipment and the walk time to their job station. 

      On June 3, 2010, Tyson announced that it had reached agreement with the DOL regarding the employees at the Blountsville plant.  Additionally, the agreement would be expanded to cover more than 30 poultry and prepared food plants of Tyson.  The settlement agreement does not apply to plants where employees are represented by a labor organization.  After years of litigation, Tyson elected to “resolve the case and modify [their] pay practices for certain jobs to avoid the continued expense and disruption of further litigation.” 

      The highlights of the settlement are:

      Tyson will modify its timekeeping practices over the next two and one-half years;

1. Tyson will provide 8-12 minutes additional pay per shift to certain classifications of employees on an interim basis;
2. By December 2012, Tyson must implement permanent modifications whereby employees will be paid from the time they clock-in before donning safety clothing and equipment until the time they clock-out after doffing their safety clothing and equipment;
3. Union represented employees will have 60 days to “opt-in” the post 2012 agreement.

      While a number of meat and poultry companies have settled donning and doffing lawsuits, the Tyson settlement covers a substantially greater number of plants and employees.  Will this settlement set a standard for the poultry industry?  And will it gain traction in the meat packing industry? 

      Although the Tyson settlement applies to employees in the poultry processing industry, employees in other industries, not only the meat packing industry, who have also commenced litigation seeking compensation for donning and doffing will certainly view the settlement as a an incentive to continue to press their demands.  Finally, the settlement demonstrates the zeal with which DOL will pursue employers for claimed violations of even unclear regulations.  Solicitor of DOL, Patricia Smith has cited the Tyson agreement as an example of the type settlement DOL will be seeking.  According to Smith, “…if we find a violation at one facility, it should be corrected at all the company’s facilities.”   

 By W. Bernie Siebert, Sherman & Howard, Denver, Colorado

California Supreme Court Holds Buyers of Agricultural Products are not “Employers” of Agricultural Workers and Therefore Not Liable for Unpaid Wages Under California Law

written by Aaron A. Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

The California Supreme Court has held that buyers of agricultural products, as well as their individual managers, are not “employers” of the agricultural workers under California law, and therefore are not civilly liable for the bankrupt employer’s failure to pay minimum wages.  Martinez v. Combs, No. S121552, 2010 WL 2000511 (Cal. May 20, 2010).

Plaintiffs were seasonal agricultural workers employed by Munoz & Sons.  Munoz sold strawberries to produce merchants Apio, Inc. and Combs Distribution Co.  Munoz failed to pay all wages due to the workers, and eventually declared bankruptcy.  Plaintiffs sued Apio, Combs, and individual managers employed by Combs for the unpaid wages, contending that they were all “employers” as defined by the California Industrial Welfare Commission’s (IWC) wage order regulating the wages of agricultural workers, commonly known as Wage Order No. 14.  The trial and appellate courts rejected plaintiffs’ argument, and the California Supreme Court affirmed.

Plaintiffs argued that defendants “suffered or permitted” plaintiffs to work and therefore qualified as “employers” under the wage order because they had contracts with Munoz from which they benefitted, and they knew Munoz would need to hire workers to fulfill those contracts.  Plaintiffs further argued that defendants exercised control over plaintiffs’ wages, hours and working conditions because plaintiffs’ wages were to be paid from the proceeds of sales under the contracts.

The Supreme Court began its analysis by noting that in actions under California Labor Code section 1194 to recover unpaid minimum wages, the IWC wage orders define the employment relationship, and thus who may be liable.  The Court further noted that the definition of “employer” is different under federal and California law.

Applying the language of the wage order to the facts of the case, the Court found that the defendant buyers and their agents were not “employers” as defined by the wage order, and therefore could not be held liable.  To be “employers” under California law, the defendant buyers would have to (1) know that persons are working without being paid minimum wage; (2) fail to prevent it; and (3) have the power to prevent it.  Under the evidence presented, it was clear that the defendant buyers did not have the power to hire or fire the workers, set their wages and hours, or tell them when and where to report for work.  Also significant was the fact that the defendant buyers lacked the ability to prohibit plaintiffs from working.

The Court further held that the individual manager employees of the buyers could not be personally liable as “employers” under Reynolds v. Bement, 36 Cal.4th 1075 (2005), in which the Court held that the IWC’s definition of “employer” does not impose individual liability on individual corporate agents acting within the scope of the agency.

ALVAREZ V. CITY OF CHICAGO: SEVENTH CIRCUIT FURTHER CLARIFIES THE PROPER AND IMPROPER USE OF SUBCLASSES

By Ashe, Rafuse & Hill, LLP

In a recent decision reversing the district court, the Seventh Circuit illustrated a fundamental difference between legal questions and fact-intensive questions when evaluating subclasses. According to the Seventh Circuit, while differences among employees with respect to the latter may warrant decertification, differences among employees with respect to the former may not always be fatal. In Alvarez v. City of Chicago, — F.3d —-, 2010 WL 2011500 (7th Cir. May 21, 2010), the Seventh Circuit reversed the decision of the district court to dismiss two consolidated lawsuits brought by paramedics against the city, and its decision sheds light on the proper and improper use of subclasses to deal with manageability concerns in collective actions.

In August of 2006, 54 paramedics filed a collective action complaint against the City of Chicago to recover unpaid overtime based on alleged miscalculation of the regular rate of pay. See Alvarez v. City of City of Chicago, No. 06-cv-4639 (N.D. Ill.). The court granted conditional certification, and over 300 opt-ins joined the lawsuit. Some, however, were dismissed for joining after the expiration of the 60-day notice period. Four of those dismissed then filed a new individual lawsuit devoid of class claims. See Caraballo v. City of Chicago, 07-cv-2807 (N.D. Ill). The court consolidated the cases in September 2007. In June 2008, the individual Caraballo plaintiffs moved for summary judgment, identifying 10 FLSA subclaims. The first six subclaims were types of pay the plaintiffs identified as inappropriately excluded from their “regular rate” of pay, such as driving pay when they drove the ambulance or acting pay when they temporarily worked at a higher rank. Another group of subclaims involved items the plaintiffs identified as excludable from “hours worked” (such as continuing education), as their inclusion decreased the overtime rate.

The City filed a cross-motion for summary judgment against all plaintiffs, including those from Alvarez, as well as a motion to decertify and to dismiss the collective action claims. The court granted the employer’s motions, applying them to both the Alvarez and Caraballo plaintiffs, holding that the class was not similarly-situated because each plaintiff raised a different combination of the ten different FLSA subclaims “such that the plaintiffs could not readily be divided into homogenous subgroups.” Alvarez v. City of Chicago, — F.3d —-, 2010 WL 2011500 (7th Cir. May 21, 2010). The court also noted that arbitration under the collective bargaining agreement, which was not mandatory but available, may be a more efficient way to resolve the claims. The Seventh Circuit reversed, holding that the named plaintiffs have a right to proceed individually. The Seventh Circuit also noted, in dicta, that the district court may have been mistaken in rejecting the manageability of the class, because the analysis underlying the subclaims was not itself necessarily fact-intensive.

The Seventh Circuit begins its analysis by describing the precedent upon which the district court relied – Jonites v. Exelon Corp., 522 F.3d 721 (7th Cir. 2008). There, according to the Seventh Circuit, it affirmed the dismissal of a collective action consisting of over one thousand employees seeking compensation for two categories of uncompensated time. The plaintiffs challenged the “call-out” policy, which required employees to respond to a certain percentage of off-duty calls, as well as the lunch policy, which required workers to remain on site to deter trespassing and theft. The Seventh Circuit affirmed the dismissal because liability for both policies “would require significant individual fact-finding and many of the workers had no conceivable claim at all.” Alvarez, — F.3d —-, 2010 WL 2011500, *3. The frequency of calls to employees under the “call out” policy varied significantly, while the lunch duty claims only potentially applied to day shift workers. In contrast, in Alvarez, liability with respect to any subclaim is not necessarily fact-intensive, but instead legal questions. “For example, whether any given paramedic is entitled to recover on the uniform pay theory depends on the legal question of whether such pay should have been included in the base rate, and the simple factual question of whether the particular paramedic received uniform pay.” Id. Since the district court agreed with this characterization of liability, the Seventh Circuit noted that the court “may have mistakenly read Jonites to forbid it from [evaluating whether subclasses made the collective action manageable].” Id. at *4.

The Seventh Circuit also held that the lower court erred in its evaluation of arbitration efficiency. The district court only evaluated the efficiency of proceeding collectively. It never evaluated the efficiency of proceeding individually, or through more tailored classes. As the Seventh Circuit noted, plaintiffs have a right to proceed individually, and the twelve Caraballo plaintiffs both filed and moved for summary judgment as individual named plaintiffs. Further, the district court never undertook any analysis to determine if the fifty-four named plaintiffs in Alvarez could proceed individually. The court concluded by holding it was error to dismiss the claims of the named plaintiffs. Instead, when a collective action is decertified, it must “revert[] to one or more individual actions on behalf of the named plaintiffs.” Id. at *5.

The Seventh Circuit noted that the district court has wide discretion to manage collective actions, and even individualized damage questions could justify decertification despite common liability. On remand, the district court will at least have to determine whether the named plaintiffs should proceed individually in one action or several.

Ashe Rafuse & Hill