A LOOK AT OPT-IN/OPT-OUT COMPATIBILITY

Hybrid wage and hour litigation, involving federal and state claims, have been a hot topic recently. Courts around the country have gone in different directions when faced with plaintiffs seeking to simultaneously certify federal collective actions under the FLSA and state class actions under Rule 23. In the past few months, two district courts evaluating two different state wage and hour schemes held that overtime claims were preempted by the FLSA, and now the Second Circuit has agree to address the issue.

On May 4th, a district court in Arizona held that the FLSA preempts claims for overtime compensation under the Arizona Wage Act. Rose v. Wildflower Bread Co., No. 09-cv-1348-PHX-JAT, 2010 WL 1781011 (D. Ariz. May 4, 2010). In Rose, a restaurant assistant manager challenged his exempt status under the FLSA and Arizona law. The basis for the violation of Arizona law was the FLSA violation itself. The Arizona Wage Act does not contain overtime provisions. Rather, the Act requires that employees be paid wages in a timely fashion. Thus, under Plaintiff’s theory, if the employer “owed Plaintiff overtime wages under the FLSA, then she did not receive those ‘wages’ in the time required by the Arizona Wage Act.” Id. at *1. As the court indicated, the motivation for seeking relief under state law is obvious. First, unlike the opt-in nature of FLSA collective actions, state classes certified under Rule 23 are opt-out classes, which by their inclusive nature are larger. Second, the Arizona Wage Act permits treble damages, as opposed to the possibility of double damages under the FLSA.

While acknowledging a split of authority within the district, the court granted the defendant’s motion to dismiss the state law claims on the basis of obstacle preemption. It did so for three reasons. First, citing Ninth Circuit dicta, the Court reasoned that the Circuit court would come to the same conclusion. “Claims that are directly covered by the FLSA (such as overtime and retaliation disputes) must be brought under the FLSA.” Id. at *5 (citing Williamson v. Gen. Dynamics, 208 F.3d 1144 (9th Cir. 2000) (finding no preemption because the anti-retaliation provisions of the FLSA did not cover such fraud claims)). Second, it rejected arguments that the FLSA’s savings clause permits more generous remedies. The savings clause,[1] according to the court, simply permits states to set higher rates of pay or a shorter workweek – it does not authorize alternative remedies for FLSA violations. Id. at *8. Finally, the court held that permitting the state claims to proceed on a representative basis “would frustrate one of the express objectives of Congress in passing the Portal-to-Portal amendments to the FLSA,” and, as the court had noted previously, “[t]he ‘ultimate touchstone of pre-emption analysis’ is the purpose of Congress.” Id. at *4, 8.

On March 30th, a district court in Michigan clarified that an employer subject to the FLSA is exempt from the overtime requirements of the Michigan Minimum Wage Law (MMWL), even if it is subject to the state minimum wage provisions. Pacheco v. Boar’s Head Provisions Co., Inc., 2010 WL 1323785 (W.D. Mich. Mar. 30, 2010). Unlike the Arizona statute, which does not contain explicit overtime provisions, the Michigan law has parallel provisions to the FLSA. Section 14 of the MMWL, however, states that the law “does not apply to an employer who is subject to the minimum wage provisions of the Fair Labor Standards Act of 1938 unless those federal minimum wage provisions would result in a lower minimum wage than provided in this act.” Id. at *3 (citing Mich. Comp. Laws § 408.394(1)). In October of 2006, the Michigan minimum wage was increased above the federal minimum wage, subjecting certain employers to the MMWL for the first time. As the court in Pacheco clarified, however, this coverage was only for minimum wage claims, not overtime. Section 14 of the MMWL also states that Section 4a (the overtime provisions) do not apply to “an employer who is subject to this act only by application of this subsection.” Id.

The Rose decision directly challenges the viability of using general wage collection statutes to sustain state-level overtime claims. Its analysis of the savings clause, however, has broader relevance, and is a strong argument that states are free to set higher minimum wage rates or greater employment benefits, but cannot create alternative remedies for what are essentially FLSA violations. The Michigan Minimum Wage Law, with its nonapplicability provisions, is an example of legislation that recognizes this balance.

Finally, in some cases, plaintiff’s argue that the FLSA opt-in procedures and Rule 23 opt-out procedures are incompatible. The Court of Appeals for the Second Circuit recently agreed to consider this argument when it granted the application of the employer to appeal the Rule 23 certification of the class of employees challenging the employer’s use of the tip credit under both the New York Labor Law and the FLSA. See Shahriar et al. v. Smith & Wollensky Restaurant Group Inc., et al., 1:08-cv-00057, Dkt. #65 (S.D.N.Y. May 14, 2010).

Ashe Rafuse & Hill

BACK TO POST “No provision of this chapter or of any order thereunder shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter or a maximum workweek established under this chapter, and no provision of this chapter relating to the employment of child labor shall justify noncompliance with any Federal or State standard established under this chapter.” 29 U.S.C. 218(a).

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