Ninth Circuit Clarifies Standards for Removal under Class Action Fairness Act

July 30, 2013 by

In two recent decisions, the Ninth Circuit Court of Appeals reversed district court remand orders and held that class actions were properly removed under the Class Action Fairness Act (CAFA).

In Roth v. CHA Hollywood Medical Center, which can be downloaded here, the plaintiffs filed a state law wage and hour class action in California state court in 2011.  They later filed an amended complaint in May of 2012, naming CHA Hollywood Medical Center as a defendant for the first time.  CHA and the other defendants removed the case to federal district court in September of 2012, based on a declaration from one class member establishing diverse citizenship (she lived in Nevada), along with CHA’s allegation that the amount in controversy exceeded $5 million.

The district court granted the plaintiffs’ motion to remand, rejecting the defendants’ argument that they could remove based on information they discovered from their own investigation.  The district court held that the defendants could only remove based on information received from the plaintiffs, citing the two 30-day periods specified in 28 U.S.C. section 1446(b)(1) and (b)(3).  Those provisions specify that a defendant must remove a case within 30 days of receiving from the plaintiff either an initial pleading, or some other document, showing that the case is removable.

The Ninth Circuit reversed, holding that the two 30-day removal periods cited by the district court are not the only bases for CAFA removal.  The Ninth Circuit noted that 28 U.S.C. section 1441(a) allows removal of any case that could have been originally filed in federal district court.  Reading sections 1441 and 1446 together, the court concluded that they “permit a defendant to remove outside the two thirty-day periods on the basis of its own information, provided that it has not run afoul of either of the two thirty-day deadlines.”  The court held that CHA had not violated either of the 30-day time limits, because the plaintiffs had not provided any information to CHA from which it could determine that the case was removable.  Further, CHA had “promptly” removed once it independently discovered grounds for removal (in this case a class member who satisfied CAFA diversity requirements).

In Watkins v. Vital Pharmaceuticals, which can be downloaded here, the plaintiffs filed a state law consumer class action in California state court, seeking damages “in the millions of dollars,” along with restitution, disgorgement and legal fees, based on allegations that Defendant Vital Pharmaceutical’s protein bars were erroneously marketed and labeled.  Vital removed the case on the basis of CAFA jurisdiction.  Vita’s removal papers included a declaration from outside counsel stating that in light of the allegations, there was “a legal certainty that the amount in controversy in this matter consists of an aggregate in excess of $5 million,” and another declaration from the company’s controller stating that sales of the protein bars at issue in the case “exceeded $5 million” during the relevant limitations period.  The district court remanded the case sua sponte (“on its own motion”), holding that the declarations were insufficient to establish, by a preponderance of the evidence, the $5 million amount in controversy necessary for CAFA jurisdiction.

The Ninth Circuit began its analysis by confirming that the right to appellate review of remand orders in CAFA cases applies to sua sponte remand orders, and not simply to orders issued in response to a party’s motion to remand.  Reaching the merits, the court agreed with Vital that the declaration from the controller stating that sales of the protein bar “exceeded $5 million” was “sufficient to establish that CAFA’s $5 million amount in controversy requirement” was met, noting that the declaration was “undisputed.”  This decision indicates that the amount in controversy can be established by a simple declaration containing competent evidence, at least where the evidence is undisputed by the non-removing party.

The removal standards clarified by these two cases are applicable beyond the specific facts of each case.  Roth was removed under CAFA, but the Ninth Circuit noted that its ruling addressing grounds for removal will apply to any diversity case.  And while Watkins was a consumer class action, its holding addressing the evidence needed to establish the $5 million minimum amount in controversy for removal under CAFA is applicable to employment class actions as well.

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

WHAT DO YOU KNOW ABOUT THE OUTSIDE SALES EXEMPTION?

July 24, 2013 by

The Fifth Circuit recently addressed one of the lesser used exemptions under the Fair Labor Standards Act (FLSA)…outside sales. 2013 WL 3013871 (C.A, 5, Tex., June 18, 2013). Meza v. Intelligent Mexican Marketing, Inc.  In the opinion, the court laid out a nice roadmap to use when determining if a driver/salesperson is truly exempt.

Meza was an employee who worked for about a year as a route salesman for a company that sells and delivers food and beverage items to convenience stores.  He was paid a weekly salary, plus commissions.  As a route salesman, he generally worked about 72 hours a week and his wage averaged $6.66 per hour.  The employee filed suit alleging he was owed money for unpaid minimum wages and overtime.  Under the FLSA the employer has the burden of proving that an employee is ineligible for overtime or minimum wage compensation and in this case the court found in the company’s favor, saving it nearly $20,000 in wages and overtime.  Why? As usual when dealing with FLSA exemptions, it all had to do with the employees actual duties, regardless of title.

Here, the employee drove the delivery truck as well as sold products.  He was also encouraged to visit new stores to bring in new business. And he received commissions based on the sales. The critical factor in this situation was that the employee was not just driving and delivering.  The company did have employees whose only job was to drive and deliver pre-ordered goods.  Those employees were not exempt under the FLSA and accordingly, were paid at least minimum wage and overtime if applicable.

But Meza had more duties than just driving and delivering goods.  The court reviewed the FLSA regulations on outside sales and went through each factor to see how it applied to Meza.  To be considered outside sales, the primary duty has to be: 1) making sales or obtaining orders, and; 2) the employee has to be regularly away from the employer’s place of business when performing the primary duty.  Besides this basic guideline, there are also 9 factors to consider and the court went through each one to see how they compared to Meza’s duties.  Ultimately the court decided that only one factor favored Meza, five favored the company and two were not applicable to this case.  So with the score of one for Meza and five for company, the company won.

Bryant S. Banes
Managing Shareholder
Neel, Hooper & Banes, P.C.
Houston, Texas

Second Circuit Examines Pleading Requirements for FLSA Overtime Claims, Rejects FLSA “Gap-Time” Claims

July 22, 2013 by

The U.S. Court of Appeals for the Second Circuit recently ruled that a group of current and former employees of New York area hospitals and health care systems may be able to plead statutory overtime claims for alleged off-the-clock work, as well as some common law claims, but could not maintain a “gap-time” claim under the Fair Labor Standards Act (“FLSA”).  Nakahata v. New York-Presbyterian Healthcare System, Inc., __ F.3d __, 2013 WL 3743152 (2d Cir. July 11, 2013).

In four lawsuits filed against more than thirty hospitals, health care systems, corporate heads, and related entities, the plaintiffs alleged that they were regularly required to (1) work during meal breaks even though defendants had a policy of automatically deducting time allotted for such breaks from the plaintiffs’ paychecks, (2) engage in work activities both before and after their shift without compensation, and (3) attend training sessions for which they were not compensated.  The plaintiffs sought to recover the allegedly unpaid compensation pursuant to the FLSA, New York Labor Law (“NYLL”), and New York common law.  Plaintiffs further alleged that their paychecks were misleading and part of a fraudulent scheme to disguise the underpayment in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York common law.  The United States District Court for the Southern District of New York granted the defendants’ motions to dismiss, and disposed of each complaint in its entirety.

On appeal, the Second Circuit found as an initial matter that the allegations regarding the plaintiffs’ overtime claims lacked the requisite specificity.  Citing its recent decision in Lundy v. Catholic Health System of Long Island Inc., 711 F.3d 106 (2d Cir. 2013), the Court of Appeals held that “[t]o plead a plausible FLSA overtime claim, plaintiffs must provide sufficient detail about the length and frequency of their unpaid work to support a reasonable inference that they worked more than forty hours in a given week.”  Absent allegations that the plaintiffs were scheduled to work more than forty hours per week, the overtime claims were insufficiently pleaded.

However, the Second Circuit also determined that the district court abused its discretion by not allowing the employees an opportunity to amend their complaints before entering final judgment in the case.  Though, notwithstanding the district court’s dismissal of their suits, the plaintiffs remained free to re-file new actions alleging the same basic FLSA and NYLL violations, the error was not harmless, as the plaintiffs lost the opportunity to pursue some claims that had become time-barred.  The Court of Appeals therefore remanded the FLSA and NYLL overtime claims back to the district court to allow the plaintiffs an opportunity to file amended complaints stating plausible overtime pay claims, if possible.

As to the plaintiffs’ gap-time claims, the Second Circuit, again relying on Lundy, noted that the FLSA does not provide a cause of action for unpaid time worked under forty hours per week, or gap-time, provided the alleged uncompensated time does not drop employees’ remuneration below the minimum wage, as the FLSA “is unavailing where wages do not fall below the statutory minimum and hours do not rise above the overtime threshold.”  Although the Court of Appeals upheld the lower court’s dismissal of the plaintiffs’ gap-time claims under the FLSA, it at the same noted “that a gap-time claim would be consistent with the language of NYLL § 663(1), which states that ‘if any employee is paid by his or her employer less than the wage to which he or she is entitled he or she shall recover in a civil action the amount of any such underpayments.’”  Accordingly, the Second Circuit remanded the plaintiffs’ NYLL gap-time claim to be considered in light of any amended pleadings.

The Second Circuit then considered the plaintiffs’ contention that the district court improperly dismissed their common law claims as preempted by the applicable collective bargaining agreements and Section 301 of the Labor-Management Relations Act.  Without resolving the merits of the preemption issue, the Circuit Court reversed on the ground that the district court erred by considering materials outside the pleadings, namely the collective bargaining agreements attached by the defendants to their dismissal motions.

Finally, the Second Circuit affirmed the dismissal of the plaintiffs’ claims accusing the defendants of committing mail fraud in violation of RICO because, rather than perpetuating a fraud, the paychecks “would have revealed (not concealed) that plaintiffs were not being paid for all of their alleged compensable overtime.”

This was the second time in a matter of months that the Second Circuit addressed the pleading requirements for FLSA overtime claims and rejected gap-time claims under the FLSA.  Nakahata applies the holding of Lundy that, so long as wages do not fall below the statutory minimum, employees do not have a claim for uncompensated hours under forty per week pursuant to the FLSA.  In Lundy, the Second Circuit held that employees must plead “some” amount of uncompensated but compensable time worked over 40 hours in a week in order to state a cognizable FLSA overtime claim, while leaving open the possibility, depending on the case, that employees may need to also plead an approximation of overtime hours.  Nakahata clarifies that plaintiffs need only provide sufficient detail about the “length and frequency of their unpaid work.”

Lawrence Peikes

Caroline Park

Wiggin and Dana LLP

Massachusetts SJC Decides that Managers at LLCs Can Individually Liable For Wage Act Violations

June 14, 2013 by

Yesterday, the Massachusetts Supreme Judicial Court held that managers of limited liability companies can be individually liable under the Massachusetts Wage Act for unpaid wages due to employees.  Historically, the Wage Act has been interpreted to impose individual liability on officers of corporations, but not on managers of LLCs.  In Cook v. Patient Edu, the SJC dramatically departed from past interpretations of the Act and determined that managers of LLCs may have to personally pay the price for wage and hour violations affecting employees. 

The decision arises out of a lawsuit originally brought in Massachusetts Superior Court, against Patient Edu, LLC and two of its managers by Cook, a former employee, for unpaid wages.  Cook claimed that he accepted a position as Patient Edu’s business development director, for which he was to be paid a sizable base salary and bonuses, but was not paid during the first six months of his employment and then only sporadically thereafter.  The Superior Court dismissed the claim against the two managers, concluding that the Wage Act “does not, by its plain language, impose individual liability on the managers of an LLC.” 

On appeal, the SJC reversed the lower court, holding that “a manager who ‘controls, directs, and participates to a substantial degree in formulating and determining’ the financial policy of a business entity . . . may be a ‘person having employees in his service’ . . . and thus may be subject to liability for violations of the Wage Act.”  The court recognized that the Wage Act does not, by its plain language, impose liability on managers at LLC’s (but rather only on individuals involved in the management of a “corporation”), but explained that this was in part because when the individual liability language was added to the statute, limited liability companies did not exist as a form of business association.  The court concluded that a more expansive interpretation of the Wage Act was justified because “the legislative intent of the Wage Act, to hold individual managers liable for violations, is clear.”

The SJC’s decision greatly expands the potential liability of managers of LLCs, making clear that they cannot use that form of business entity to avoid personal liability.  In a civil action under the Wage Act, a successful plaintiff is entitled to treble damages as well as attorneys’ fees.   Massachusetts-based LLCs, as well as other LLCs with employees working in Massachusetts, should be aware of the expanded potential liability.

Unpaid Hollywood “Interns” Are Really “Employees”

June 12, 2013 by

Fox Searchlight Pictures violated federal and state labor laws by misclassifying photocopying and coffee-fetching interns as employees, according to a recent decision handed down by the United States District Court for the Southern District of New York.  The case, Glatt v. Fox Searchlight Pictures, Inc., __ F. Supp. 2d. __, 2013 WL 2495140 (S.D.N.Y. June 11, 2013), arises from the set of the Academy Award winning motion picture “Black Swan,” and reinforces the narrow application of the “trainee” exception to the minimum wage requirements of the Fair Labor Standards Act (“FLSA”).

Eric Glatt and Alexander Footman were low-level staffers who performed a variety of menial tasks during production and post-production “internships” on “Black Swan.”  Despite being labeled as “interns,” Glatt and Footman argued they were in fact “employees” covered by the FLSA and New York Labor Law.  Following a brief review of the U.S. Supreme Court’s landmark decision in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), which created the “trainee” exception, the Court, in the absence of any guiding precedent from the Second Circuit, endorsed the U.S. Department of Labor’s approach to determining whether internships may indeed be unpaid.  Citing to the Department’s Fact Sheet #71, the Court focused on the following criteria:

(1)   The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

(2)   The internship experience is for the benefit of the intern;

(3)   The intern does not displace regular employees, but works under close supervision of existing staff;

(4)   The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;

(5)   The intern is not necessarily entitled to a job at the conclusion of the internship; and

(6)   The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

In applying these criteria to the undisputed facts of the case, the Court ruled that the benefits received by Glatt and Footman “such as knowledge of how a production or accounting office functions or references for future jobs—are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.  They received nothing approximating the education they would receive in an academic setting or vocational school.”  Indeed, had Glatt and Footman not performed the tasks they did, the work would have been done by paid employees.  Fox’s assertion that Glatt and Footman understood they would not be compensated for their services made little difference, as the FLSA does not allow employees to waive their entitlement to be paid at least the statutory minimum wage.

In the end, the Court concluded that the relationship was a clear one-way street favoring Fox, and, moreover, “a far cry from Walling.”  Glatt and Footman’s motion for summary judgment was granted, and the Court’s reliance on Fact Sheet #71 over the “primary benefit test” utilized by other circuits puts a feather in the cap of the Department of Labor.  The decision also serves as another timely reminder to employers that legal analyses under federal and state labor laws will transcend workers’ assigned titles and focus on the substance and benefit of their roles.

Lawrence Peikes and Joshua Walls, Wiggin and Dana LLP

In California, Managers Who Perform Non-Exempt Tasks While Managing Can Be Found Non-Exempt

June 11, 2013 by

The assistant manager of a Safeway grocery store sued for overtime, claiming that she spent most of her working time performing the same type of work that non-exempt employees performed.  She said she spent most of her time bookkeeping, cashiering and stocking shelves, and that Safeway’s decision to classify her as exempt from overtime was therefore improper.  At trial, the assistant manager admitted that when she was performing non-exempt tasks, she was able to simultaneously supervise the hourly employees and manage the store.  But the trial court found that the “primary purpose” of the multitasking was the non-exempt work she performed, as opposed to the managerial work, and that Safeway’s decision to classify her as an exempt employee was improper.  The trial court awarded her damages for unpaid overtime, and the appellate court affirmed the judgment.  A copy of the court’s opinion in Heyen v. Safeway Inc. can be downloaded here.

California’s criteria for overtime exemptions are similar to those found in the federal Fair Labor Standards Act (FLSA), but not identical.  One key difference is that while the FLSA looks to an employee’s “primary duty,” California law employs a quantitative approach requiring exempt employees to spend the majority of their working time performing exempt work.  When an employee claims that he or she was misclassified as exempt, the finder of fact must determine whether the employee spent most of his or her working time performing either exempt or non-exempt work.  The burden to prove that the majority of working time was spent on exempt tasks falls on the employer.

In cases involving retail store managers, California employers have long argued that even when managers are performing non-exempt tasks such as cashiering, stocking shelves, and tidying up the store, they are simultaneously managing the store because they are still able to observe and supervise employees and respond to customer inquiries.  The argument has been that this time should be counted as exempt managerial time.

In this case, the assistant manager agreed that even when she was performing non-exempt tasks she was still able to observe and manage the store.  But the trial court rejected Safeway’s argument that this multitasking time should automatically be counted as exempt, and instructed the jury that when she was performing both exempt and non-exempt work, it should look to the “primary purpose” of the multitasking time, and classify that time as either exempt or non-exempt.  Given this instruction, the jury determined that the primary purpose of the multitasking time was the non-exempt work being performed, and that Safeway had failed to prove that the assistant manager spent most of her time performing exempt managerial work.  The appellate court found no error in the trial court’s instructions and affirmed the judgment against Safeway.

This decision serves as a reminder to California employers with exempt managers who occasionally “pitch in” during busy periods and perform non-exempt tasks.  These employers should limit the amount of non-exempt work performed by managers, and ensure that policies and performance reviews emphasize that a manager’s primary duty, at all times, is to supervise and manage the store.  Employers that need managers to multitask should plan ahead as to how, if and when challenged, they can prove that their managers spent the majority of their working time performing exempt managerial duties.

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

Wage and Hour Class Actions Can Still Be Certified, at Least in the Ninth Circuit and California

June 4, 2013 by

Several notable court decisions over the last few months have given rise to speculation that wage and hour class actions are likely to become more difficult to certify.  Joe Tilson and Jeremy Glenn discussed some of those cases here.

But over the last couple of weeks at least two appellate decisions seem to indicate that wage and hour class actions are alive and well, at least in the Ninth Circuit and California courts.

Last week the Ninth Circuit reversed a district court’s denial of class certification and remanded the case with directions to certify the class.  In Leyva v. Medline Industries, Inc., which can be viewed here, an employee challenged the employer’s time-rounding practices and also alleged that the employer failed to include nondiscretionary bonuses in the calculation of overtime pay rates.  The plaintiff sought to certify a class of 538 current and former employees.  But the district court denied class certification, concluding that individual questions predominated over common questions because damage calculations varied from individual to individual.  The Ninth Circuit reversed, holding that the need for individual damage determinations alone cannot defeat class certification, and that in denying class certification on that basis the district court abused its discretion.  In its opinion the Ninth Circuit interpreted the United States Supreme Court’s recent decision in Comcast v. Behrend as holding that a plaintiff seeking class certification need only show that damages attributable to the theory of liability in question can be calculated separately from damages attributable to other theories.  Some commentators had read Behrend as supporting the proposition that class certification is inappropriate where individual damage issues are present, but the Ninth Circuit’s narrower interpretation of Behrend could make class certification less difficult in that circuit.

Earlier, an appellate court in California reversed an order denying class certification, and remanded the case to the trial court with directions to certify the class.  In Bluford v. SafewayStores, Inc., which can be viewed here, truck drivers were paid based on a piece rate formula that took into account the number of miles driven, the time of day the trips were taken, and the locations where the trips began and ended; along with fixed rates for certain tasks and an hourly rate for other tasks and delays.  None of the applicable rates specifically included compensation for rest periods, but Safeway had the drivers sign time cards that acknowledged they were authorized and permitted to take rest breaks.  The trial court denied certification, but the appellate court reversed on the grounds that neither the piece rate, nor the fixed rate, nor the hourly rate specifically compensated drivers for rest periods, and that this fact created a common issue for determining liability.  Likewise, the court also reversed the trial court’s denial of certification to a meal period class on the ground that the company’s meal period policy (which was contained in a collective bargaining agreement) did not mention that drivers were allowed a second meal period for shifts exceeding ten hours.  The trial court had denied certification because there was evidence that some drivers were aware that they could take second meal periods, and did take them.  But the court of appeal held that despite such evidence, the company’s non-compliant policy supported class certification.

Together, these two cases show that wage and hour class actions remain viable, and employers should be vigilant about ensuring their pay practices fully comply with state and federal law.

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

Out-of-State Workers May Bring Suit under Massachusetts Independent Contractor Statute

June 3, 2013 by

In a decision issued in late May 2013, the Massachusetts Supreme Judicial Court (SJC) held that plaintiffs who live and work outside of Massachusetts for Massachusetts-based companies can sue for purported violations of Massachusetts’ independent contractor law.  In Taylor v. Eastern Connection Operating, Inc., the SJC held that out-of-state plaintiffs may bring suit where a written contract between the parties contains an enforceable Massachusetts choice of law and forum selection provision, and where Massachusetts law is not contrary to a fundamental policy of the state where the plaintiffs live and work.  This ruling is particularly important because the Massachusetts independent contractor law sets more stringent criteria for engaging a worker as an independent contractor than many other states’ laws.

The SJC’s ruling arises out of a case brought by three individuals who live in New York but work for a courier company headquartered in Massachusetts.  Under their contracts, they were classified as “independent contractors” who were to perform pickup and deliveries exclusively in New York.  The contracts further provided that the contract and all rights and obligations of the parties were to be construed under Massachusetts law and that any lawsuits between the parties were to be brought in a court in that jurisdiction.  In 2010, the plaintiffs brought a class-action lawsuit in Massachusetts Superior Court against the courier company, alleging that they were misclassified as independent contractors rather than employees in violation the Massachusetts independent contractor statute and that they were not paid wages and overtime in violation of the Massachusetts wage statute and overtime statute.  The Superior Court dismissed the lawsuit, concluding that the Massachusetts independent contractor statute did not apply to non-Massachusetts residents working outside of Massachusetts and that, as independent contractors, the wage and overtime statutes did not apply to the plaintiffs. 

On appeal, the SJC held that the choice-of-law provision in the contracts was enforceable, finding both that Massachusetts has a “substantial relationship” to the transaction between the plaintiffs and defendant given the defendant’s Massachusetts headquarters, and that the application of Massachusetts law would not contravene a fundamental policy of New York.  Given the parties’ agreement, the Court concluded that the plaintiffs could assert a claim under the Massachusetts independent contractor statute.  Furthermore, because the plaintiffs could ultimately be deemed employees rather than independent contractors under the statute, the plaintiffs may also be able to assert claims under the Massachusetts wage and overtime statutes.

The SJC’s decision greatly expands the potential liability of Massachusetts companies that have independent contractors and employees who live and work outside of Massachusetts.  The decision makes clear that Massachusetts companies are not immune from claims under Massachusetts wage-and-hour statutes simply because their workers live and work outside of the Commonwealth.  In light of the SJC’s decision, Massachusetts-based companies that have independent contractors or employees living and working outside of Massachusetts should carefully review their contracts and employee handbooks to assess whether those documents leave them exposed to potential liability under Massachusetts law.

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

May 8, 2013 by

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?

April 30, 2013 by

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 9th, appears en route to being voted upon by the full House.  Hearings were quickly held on April 11th, and through a procedural maneuver, the Committee voted to report it out of Committee on April 17th 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.


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