California Appellate Court Holds That Percentage Bonuses Can Be Calculated Using FLSA Method
In a pro-employer decision addressing the overlap of federal and California wage and hour law, the California Court of Appeal for the Second Appellate District upheld summary adjudication for the employer, finding that the employer’s calculation of overtime on a nondiscretionary bonus using the Fair Labor Standards Act’s (“FLSA”) calculation method set forth in 29 C.F.R. section 778.210 (“CFR 778.210”) was permissible, even though it resulted in less pay than the calculation method set forth in the California Division of Labor Standards Enforcement (“DLSE”) Manual.
In Lemm v. Ecolab, Inc. [callaborlaw.com], the plaintiff sued his employer, Ecolab, under the California Private Attorneys General Act (“PAGA”), claiming that Ecolab improperly calculated the overtime due on a nondiscretionary bonus paid to him and all other similarly situated employees. The parties stipulated to have the trial court determine the overtime calculation issue based on cross-motions for summary adjudication.
In this case, the plaintiff was employed as a nonexempt route sales manager who regularly worked more than 12 hours in a day and more than 40 hours in a week. He was paid hourly wages, including any applicable overtime and double-time wages, every two weeks. He was also eligible to receive a nondiscretionary, monthly bonus, which would be paid every four to six weeks. Eligibility for the bonus was governed by an Incentive Compensation Plan (the “Plan”). Under the Plan’s terms, eligibility for the bonus depended on meeting or exceeding certain targets. If eligible, the Plan provided for a bonus payment in the amount of 22.5 percent of the worker’s gross wages earned during the monthly bonus period. The percentage multiplier used to calculate the bonus amount could increase for workers who exceeded the eligibility targets (i.e., greater sales meant a percentage multiplier).
As a result, the bonus payments, as a percentage of gross wages earned comprised of regular and overtime wages, necessarily included additional overtime compensation. That methodology is expressly provided for under federal law, specifically, CFR 778.210. (Sample calculations are provided in the Court of Appeal decision.)
In the summary adjudication motions, the plaintiff argued that under California law, nondiscretionary bonus payments must be incorporated into the regular rate of pay, which in turn would affect overtime calculations. The plaintiff argued that the formula set forth in section 49.2.4 of the DLSE Manual should be used instead of the calculation permitted in CFR 778.210 because the DLSE Manual’s method resulted in higher pay, and thus, as stated by the California Supreme Court in Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, the court must use the formula more favorable to California employees.
Ecolab argued that CFR 778.210 was the proper method of calculating the overtime due on the monthly bonus because that section applied to bonuses that are known as percentage bonuses, which are paid as a percentage of gross earnings that have already incorporated straight time, overtime, and double time wages for each bonus period. Thus, Ecolab argued, if the plaintiff’s method of calculation were to be used, it would result in the double counting of overtime, or “overtime on overtime.”
The trial court granted Ecolab’s summary adjudication motion and denied the plaintiff’s motion, finding that Alvarado’s holding was limited to flat sum attendance bonuses, not percentage bonuses like the one at issue in this case. (The bonus at issue in Alvarado was a pre-determined, flat sum, attendance bonus, which is significantly different than the variable, percentage of wages production bonus at issue here.) Thus, using the calculation permitted by CFR 778.210, in this case, was not at odds with the rationale of Alvarado or the DLSE Manual’s guidance on calculating flat sum bonuses. The trial court stated, “Ultimately, [Ecolab’s] position makes logical sense. Simply put, a requirement for an employer to pay overtime on a percentage bonus that already includes overtime pay makes the employer pay ‘overtime on overtime.’ This is not a requirement under the law. By paying a bonus based on a percentage of gross earnings that includes overtime payments the employer automatically pays overtime simultaneously on the bonus amount.”
The Court of Appeal agreed. While recognizing that overtime compensation in California was governed by both federal and state law and that federal law did not preempt state law in this area, the Court stated that federal cases may provide persuasive guidance because California wage and hour laws were modeled to some extent on federal law. Similar to this case, courts in the Ninth Circuit and California District Courts had previously upheld using the percentage of bonus calculation set forth in CFR 778.210 under federal and California law.
The Court of Appeal also recognized the principle stated in Alvarado that while the DLSE Manual could be considered as a compilation of the DLSE’s expertise and competence, a court could adopt the DLSE Manual’s interpretation only if the court, through its exercise of independent judgment, determined that the DLSE Manual’s interpretation was correct based on the facts at issue in the particular case. The Court then determined that the calculation used in Alvarado and the DLSE Manual dealt with how to calculate an employee’s overtime pay rate when the employee has earned a flat sum bonus during a single pay period, not the type of percentage bonus at issue in this case.
The Court of Appeal recognized that Ecolab demonstrated that the plaintiff and alleged aggrieved persons would have been paid the same amount regardless of whether Ecolab used the DLSE Manual formula as applied to percentage bonuses or the CFR 778.210 formula, so long as the calculation first eliminated overtime on overtime. The Court determined that while as a general rule, courts must adopt the construction that favors the protection of employees, that general rule did not require courts to interpret state law to give an employee “overtime on overtime,” when such an interpretation would be inconsistent with the fundamental principles of overtime and would result in a windfall to employees. This Court of Appeal decision emphasizes that California employers need not always follow the DLSE Manual’s guidance on calculating overtime on nondiscretionary bonuses if the guidance does not address the type of bonus at issue and does not make sense under the circumstances.
Dismissing Non-Willful Claims Under the FLSA – the Second Circuit Rules on an Issue of First Impression
Everybody knows that the statute of limitations for claims under the Fair Labor Standards Act (FLSA) is two years, unless the claim is for a willful FLSA violation, in which case the statute of limitations is three years. Okay, maybe everybody doesn’t know that—but attorneys who regularly bring or defend wage-and-hour claims certainly do (and if you’re reading this blog, you probably do as well). So an FLSA claim filed in 2021 based on allegations from 2017 can be easily dismissed at the outset of litigation, because such a claim is clearly beyond the longest possible statute of limitations of three years. Now, consider this: what if a plaintiff files a claim in May 2021, alleging an FLSA violation from June 2018? In that case, the only way the plaintiff can bring a valid FLSA claim is if the claim is willful, because then the plaintiff could utilize the three-year statute of limitations. But this raises two questions for the court:
- Can the court even consider an employer’s motion to dismiss a plaintiff’s FLSA claim on the basis that the plaintiff has not sufficiently pled willfulness?
- If the court can consider such a motion to dismiss, what standard do the plaintiff’s allegations have to meet in order to survive?
Believe it or not, before April 27, 2021, the Second Circuit had not definitively considered either question, and indeed is only the second Court of Appeals to do so.
On a motion to dismiss in federal court, the judge generally cannot consider any information outside of the plaintiff’s complaint. There are some exceptions, such as if the plaintiff submits documents with the complaint, or if the complaint cites specific documents. Likewise, the judge also must generally consider allegations to be true when deciding a motion to dismiss, but there are limits to this rule as well. The judge is not required to accept conclusory allegations, such as those that merely parrot legal elements or conclusions without providing factual support (e.g. “the defendant violated the FLSA”). And of the remaining, non-conclusory allegations, the judge’s task is to determine whether those allegations state a plausible claim of relief—not just that the plaintiff prevailing is possible, no matter how remote the possibility, but that if the plaintiff’s allegations are true, it is reasonable to conclude that a legal violation occurred.
And now we introduce FLSA claims into this mix. A plaintiff alleging that an FLSA claim was willful has the burden to prove willfulness—and yet if an employer raises the issue of the statute of limitations, that is an affirmative defense, and therefore the employer’s burden to prove. So on a motion to dismiss a willful FLSA claim, does a plaintiff have to show that he or she plausibly alleged willfulness, or (1) should the court not even consider the issue because it’s an issue of a statute of limitations defense, and (2) even if it does consider the issue, does a plaintiff have to allege willfulness with plausibility?
In the case of Whiteside v. Hover-Davis, the plaintiff argued that the court could not consider the issue, because the employer was raising an affirmative statute of limitations defense; that if the court could consider the issue, a plaintiff could just merely allege willfulness without pleading it plausibly; and, even if the court required pleading willfulness plausibly, the plaintiff had done so. In contrast, the employer argued that both the legislative history and Supreme Court jurisprudence of the FLSA demonstrated that the statute of limitations for FLSA claims was two years, with the limited exception of three years for willfulness. As a result, if a claim on the face of the complaint was outside the two-year window, the court could consider the issue on a motion to dismiss because willfulness was the plaintiff’s pleading burden, and because it was plaintiff’s pleading burden, it must be plead with plausibility. And finally, that the plaintiff in Whiteside had not plead willfulness with plausibility.
In a 2-1 decision, the Second Circuit held for the employer, upholding the dismissal of the plaintiff’s claim. In her opinion, Chief Judge Livingston cited the Supreme Court’s decision in McLaughlin v. Richland Shoe, 486 U.S. 128 (1988), stating that Congress intended to create a “significant distinction between ordinary violations and willful violations” of the FLSA (emphasis in original). As a result, not only can a court consider such claims on a motion to dismiss, but such claims must be pled with plausibility, not generally. (The Second Circuit stated that the other Court of Appeals to consider the question, the Tenth Circuit, had incorrectly found that the mere allegation of willfulness is sufficient for the three-year statute of limitations to apply.) The court went on to find that the plaintiff—who alleged that he had done non-exempt tasks for a number of years, but had not alleged that he had ever complained to a supervisor, and had not alleged that the employer had ever changed his salary or said anything to him that suggested any awareness of wrongdoing—had not made a plausible allegation of willfulness, and thus could not utilize the three-year statute of limitations. While Judge Chin dissented, he did not opine on the court’s ruling that willful FLSA claims must be plausibly pled; he only argued that he found the plaintiff’s allegations of willfulness to be plausible.
In short, in the Second Circuit, it is now settled that claims of willful FLSA violations must plead willfulness plausibility to enjoy a three-year statute of limitations on a motion to dismiss.
Michael D. Billok authored this article, and represented Hover-Davis in Whiteside v. Hover-Davis. He is a member (partner) in the Labor & Employment practice at Bond, Schoeneck & King, PLLC, and a member of the Wage & Hour Defense Institute, an organization of attorneys who represent employers in wage and hour matters.
California Employers Should Remember the Federal and California White Collar Exemptions Are Different
In Rob Boonin’s post below, he summarizes the U.S. Department of Labor’s proposal to change the regulations governing the so-called “white collar” overtime exemptions for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA).
As Rob mentioned, the proposed changes are expected to have little impact in California and some other states, because some of the salary thresholds for white collar exemptions under state law are higher than the proposed new FLSA salary threshold, and to be exempt from overtime under both the FLSA and state law an employee must satisfy both the federal and state exemption requirements in full.
Employers with California employees should be aware that the California white collar exemptions differ in other important respects. Below is a summary of the most important ways in which the FLSA and California white collar exemptions differ.
California’s salary threshold for white collar exempt employees is set at twice the state minimum wage for a 40-hour work week. Under the current $12 state minimum wage for employers with 26 or more employees, California’s salary threshold is $960 per week ($49,920 per year). California’s minimum wage for employers with 26 or more employees is set to increase according to the following schedule, and by doing so cause corresponding increases in the salary threshold for white collar exempt employees:
Effective Date Minimum Wage Salary Threshold
January 1, 2019 $12.00 per hour $960 per week / $49,920 per year
January 1, 2020 $13.00 per hour $1,040 per week / $54,080 per year
January 1, 2021 $14.00 per hour $1,120 per week / $58,240 per year
January 1, 2022 $15.00 per hour $1,200 per week / $62,400 per year
No Use of Incentive Pay
Unlike the proposed new FLSA exemption rules recently announced by the DOL, California does not allow employers to include bonuses or commissions to satisfy the salary threshold.
No Exemption for Highly Compensated Employees
California does not have a separate threshold for “highly compensated employees.”
More Stringent “Duties” Test
Unlike the FLSA, California’s “duties” test requires exempt employees to spend a majority of their working time performing exempt (as opposed to nonexempt) work consistent with the exemption under which they are classified.
To avoid liability for unpaid overtime arising from employee misclassification, employers should ensure their white collar exempt employees satisfy all the exemption requirements under both federal and state law.
Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Supreme Court Clarifies Required Method for Calculating Overtime On Flat-Rate Bonuses (and it isn’t the FLSA method)
Earlier this week, the California Supreme Court issued an opinion in Alvarado v. Dart Container Corporation of California, holding that when an employee has earned a flat sum bonus during a single pay period, the employer must calculate the employee’s overtime pay rate using only the regular non-overtime hours worked by the employee during the pay period, not the total hours worked.
In California, the Division of Labor Standards Enforcement’s Enforcement Policies and Interpretations Manual (the “DLSE Manual”) sets forth a formula for calculating overtime due on non-discretionary bonus payments. (Whether a bonus is “non-discretionary” is the subject of detailed FLSA regulations, which California generally follows.) The DLSE overtime formula requires dividing the bonus by only the regular non-overtime hours worked in the pay period (i.e., not both the non-overtime and overtime hours), and using a multiplier of 1.5 to calculate the overtime premium due on the bonus. In Tidewater Marine Western, Inc. v. Bradshaw, however, the California Supreme Court held that certain portions of the DLSE Manual were void as “underground regulations.” Tidewater (1996) 14 Cal.4th 557, 571.
Dart Container paid a $15 “attendance bonus” to employees who worked on a Saturday or Sunday. For employees who worked overtime during a pay period in which they received an attendance bonus, the company calculated overtime on the bonus by dividing the bonus by the total number of hours worked in the pay period (both non-overtime and overtime hours). The company then used a multiplier of 0.5 to determine the amount the bonus added to the employee’s hourly overtime pay.
Employee-plaintiff Hector Alvarado contended Dart Container’s method of calculating overtime pay was illegal because it did not comply with the DLSE Manual. Alvarado argued the company should have divided the bonus only by the number of non-overtime hours worked during the pay period, and should have applied a multiplier of 1.5.
Dart Container argued that because the DLSE’s method was void as an underground regulation, its method of calculating the overtime rate was proper because it complied with the FLSA, which permits an employer to divide a bonus by total hours worked and apply a 0.5 multiplier. The Court of Appeal agreed with Dart Container, and held its method of calculating overtime was permitted under California law.
The California Supreme Court reversed, holding that even though the DLSE’s method is void as an underground regulation, it nevertheless is the proper method for calculating overtime on flat-rate bonuses. The court reasoned that because California’s state policy is to discourage overtime, the method used by an employer must not encourage the use of overtime. The FLSA formula does just that, because every hour of overtime worked incrementally decreases the regular rate, thereby incentivizing employers to require their employees to work more overtime.
Based on this reasoning, the court further held that only the non-overtime hours the employee actually works in a pay period should be the divisor, rather than all the potential full-time non-overtime hours in a pay period, and that the proper multiplier for the bonus premium is 1.5, not 0.5: “We conclude that the flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.”
This decision firmly establishes the method employers must use to calculate a California employee’s overtime pay rate when the employee has earned a non-discretionary flat sum bonus during a single pay period. Additionally, because the same policy consideration of discouraging overtime applies to other types of bonuses, the California Supreme Court’s reasoning very likely applies to bonuses that cover multiple pay periods, such as annual non-discretionary bonuses. Employers should immediately review their payroll policies and practices to ensure their California employees receive overtime pay calculated in a manner consistent with this opinion. In particular, multi-state employers that use centralized payroll systems must now ensure overtime pay for California employees is calculated using a different method than overtime pay for employees who work outside California.
One final note: Dart Container argued that if the California Supreme Court adopted the DLSE calculation method, its decision should be applied only prospectively because, up to now, no California statute, regulation or wage order clearly required that method. The court declined the request, which effectively means the court’s decision applies retroactively. Look for overtime litigation in California to spike in the near future.
Paul, Plevin, Sullivan & Connaughton LLP
San Diego, CA
U.S. Department of Labor WHD Issues Administrator’s Interpretation on Independent Contractors and Asserts that “Most Workers are Employees”
As promised earlier this summer, on July 15, 2015, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued an “Administrator’s Interpretation” (AI) regarding when individuals are misclassified as independent contractors under the Fair Labor Standards Act (FLSA). The AI sends a signal to employers that the WHD has set a demanding standard for establishing when an individual is properly classified as an independent contractor and indicates that the agency views the issue as an enforcement priority. The AI states that, in the view of the WHD, “most workers are employees under the FLSA’s broad definitions.”
As background, unlike regulations, AIs are not subject to the rulemaking process such as that which is now underway for the proposed amendments to the white collar overtime rules. Rather, the AI provides the WHD’s view of the law, and that view is very unfriendly to those attempting to classify workers as independent contractors. In media interviews this week, the WHD’s Administrator David Weil stated that the AI was designed to give employer’s “fair notice” that they will run into the agency’s crosshairs if they misclassify individuals.
According to the AI, in order to determine whether an individual is an employee or independent contractor, the “economic realities” need to be examined to determine the true relationship. This test is to determine “whether an individual is economically dependent on the [putative] employer (and thus an employee) or is really in business for him or herself (and thus is an independent contractor).”
The AI uses a six-factor test commonly used by courts in determining status under the FLSA. The factors are (1) whether the work performed is integral to the employer’s business; (2) whether the worker has an opportunity for profit and loss based on his/her skills; (3) the relative investments of the employer and the worker; (4) whether the work requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. The AI emphasizes that no one factor is determinative.
While the factors discussed above are not new, the WHD’s application of them is more expansive than ever articulated by the federal government. In weighing the factors in the AI, the WHD clearly puts its thumb on the scale in favor of employee status. For example, in discussing the “control” factor — which many have viewed as the most indicative factor in determining status — the AI emphasizes that “it should not play an oversized role in the analysis” and states that an employer’s “lack of control over workers is not particularly telling if the workers work from home or offsite.” It also states that “workers’ control over the hours when they work is not indicative of independent contractor status.”
Importantly, the AI states it will give no weight to the parties’ understanding or agreement concerning the relationship. The AI states that “an agreement between an employer and a worker designating or labeling the worker as an independent contractor … is not relevant to the analysis of the worker’s status.”
Notably, the FLSA is only one of many laws governing worker classification. Many states, including Massachusetts, have set a high bar for establishing that an individual is an independent contractor. Given these trends, we expect to see litigation and enforcement action to increase.
WHAT DO YOU KNOW ABOUT THE OUTSIDE SALES EXEMPTION?
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
Neel, Hooper & Banes, P.C.
Supreme Court to Decide if Offer of Judgment Moots Collective Action
The Supreme Court has agreed to decide whether a defendant in a Fair Labor Standards Act case can avoid a collective action by offering full relief to the plaintiff before other employees join the case.
The practice in FLSA cases is for plaintiffs’ lawyers to file a lawsuit on behalf of the original named plaintiff, and then seek to expand the case into a collective action by issuing notices of right to opt-in to other similarly situated employees. To avoid the prospect of a collective action, employers sometimes choose to make an offer of full relief to the named plaintiff early in the case. They then argue that the case should be dismissed as moot, leaving no pending lawsuit for other employees to join.
This approach has received a mixed reception in the federal courts of appeals. The Ninth and Eleventh Circuits held that a case should be dismissed when the named plaintiffs’ claims have been resolved. The Third and Fifth Circuits have held that a collective action, like a class action under a Rule 23, takes on a life of its own when the case is filed and does not become moot when the named plaintiff’s claim is resolved. The arguments involve some arcane issues involving the distinction between collective actions and class actions and the “case or controversy” requirement under Article III of the Constitution.
In the case that the Supreme Court agreed to hear, the defendant company operates over 200 nursing homes and other facilities. The plaintiff worked for one of those homes for only several months. She filed suit claiming that the company violated the FLSA by making automatic deductions for meal breaks. To make the case go away quickly, the company responded to the court complaint by making an offer of judgment for $7,500 in alleged unpaid wages and liquidated damages, plus attorneys’ fees, costs and expenses. The district court granted the company’s motion to dismiss the case as moot, but the Third Circuit reversed, holding that the company could not preempt a collective action by “picking off” the named plaintiff.
The Supreme Court will hear oral argument in the case, Genesis Healthcare Corporation v. Symczyk, in its term starting October 2012.
HOW TO (AND HOW NOT TO) CUT OFF ACCRUAL OF PLAINTIFFS’ ATTORNEYS’ FEES
It often happens that by the time the parties to a FLSA lawsuit discuss settlement, the claim for attorneys’ fees exceeds the backpay and liquidated damages that the plaintiff could recover if the claim prevailed. Knowing this, employers have tried to cut off accrual of plaintiffs’ attorneys’ fees by paying, or offering to pay, the amount the plaintiff could recover early in the case. Two recent decisions illustrate successful and unsuccessful ways of going about this.
In a case from Florida, the plaintiff filed a collective action complaint in federal court. The employer denied liability, but tendered full payment to the individual plaintiff of the amount it estimated as his backpay, liquidated damages and interest, totaling $638. The plaintiff opposed the tender, claiming that it underestimated the value of his claim, which he said was worth $3,000. Again denying liability, the employer tendered $3,000, split between backpay and liquidated damages. The plaintiff was forced to agree that his individual claim had become moot, but requested that the court award him attorney’s fees and costs, as a prevailing party.
The district court denied that request. The Eleventh Circuit affirmed that denial, holding that under the statutory language, attorney’s fees and costs are allowed “in addition to any judgment awarded to the plaintiff or plaintiffs.” “The FLSA plainly requires that the plaintiff receive a judgment in his favor to be entitled to attorney’s fees and costs,” the court wrote. It went on, however, to hedge its ruling with a confusing footnote that seeks to limit the holding to situations in which the employee concedes that his claim should be dismissed before trial as moot. What the footnote means may be fleshed out in future rulings. For now, the lesson from this case is that it may be possible to avoid paying attorney’s fees and costs in their entirety, if the employer tenders the most the plaintiff could recover early in the case. Dionne v. Floormasters Enterprise, 2012 WL 104906 (11th Cir. Jan. 13, 2012). Of course, a tender is not a settlement agreement, and there is no possibility, under this scenario, of obtaining a confidentiality agreement from the employee.
A case from North Carolina illustrates how to fail to cut off accrual of attorney’s fees. In that case, defense counsel sent plaintiffs’ counsel offers of full relief to all plaintiffs including costs and attorneys fees to date. (The defense was not trying to avoid paying attorneys fees and costs in their entirety, but to cut off their future accrual). The offer did not specify amounts, but said that amounts would be based on affidavits to be provided by each plaintiff. The letter further stated that the offer was to enter into a settlement agreement including a confidentiality clause. The purpose of the offer was not to avoid paying attorney’s fees and costs in their entirety, but to cut off their continuing accrual.
Based on this offer, the district court dismissed the lawsuit as moot, on the grounds that the defense had offered everything that plaintiffs could possibly recover. On appeal, the Fourth Circuit reversed on several grounds. First, the defense did not offer to permit entry of a judgment, but only a contractual settlement agreement, which is more difficult to enforce than a judgment. Second, the offer was deficient because it was conditional. Instead of offering a sum certain, it offered to permit calculation of backpay and liquidated damages based on affidavits. Third, the offer was deficient because it contained a confidentiality clause. A judgment, the court wrote, would not be confidential. Simmons v. United Mortgage and Loan Investment, 634 F.3d 754 (4th Cir. Jan. 21, 2011). One lesson from this case is that if an employer wants to put an end to litigation by making an offer of full relief, it must bite the bullet and tender what the plaintiffs would receive if they won, with no strings attached.
Neither of these decisions addresses the related concern whether an offer of full relief to the named plaintiff can make a case moot, and require dismissal before the court certifies a collective action. For a discussion of how offers of judgment affect motions for collective action notice, see the September 25, 2011 posting in this blog.
DOL’s “Bridge to Justice Program” – Solicitor Smith Provides Crucial New Information at PLI Conference
This posting arises from comments on the “Bridge to Justice Program” by Department of Labor (DOL) Solicitor Patricia Smith, during the panel discussion “The Obama Administration’s Enforcement of the Wage and Hour Laws” at the Practicing Law Institute’s “Managing Wage & Hour Risks 2011” conference held on February 7, 2011, in New York City. David Fortney was co-chair of the conference and led the panel discussion with Ms. Smith. Leslie Stout-Tabackman was a conference speaker and led a panel discussion on wage hour compliance reviews.
The “Bridge to Justice” Program was launched by the DOL’s Wage and Hour Division on December 13, 2010 (See “DOL’s Wage and Hour Division Connects Workers to New Attorney Referral System” posted November 29, 2010; See also November 29, 2010 Entry by Robert Boonin). Under this program, the Wage and Hour Division provides attorney referral information to complainants whose Fair Labor Standards Act or Family Medical Leave Act claims the DOL declines to pursue. In addition, when the Wage and Hour Division has conducted an investigation, the complainant is provided information about the Wage and Hour Division’s determination regarding violations at issue and back wages owed. This information is given to the complainants in the same letter informing them that the Wage and Hour Division will not be pursuing further action, and will be very useful for attorneys who may take the case. In announcing the program, the Wage and Hour Division stated that it had developed a “special process” for complainants and representing attorneys to quickly obtain “certain relevant case information and documents when available.” However, until just recently, the DOL had declined to provide any details as to what information it would release, the process by which the information would be released, and whether and by what means the employer would have access to information released to employees.
New information provided by Ms. Smith
Ms. Smith told the PLI conference attendees that employers will not be notified when the attorney referral letter is sent to employees, but that employers will know that such a letter has been sent if it receives a communication from the DOL that the case has been closed and remains unresolved at the time of case closure. Of course, it is unknown how many of the recipients of the letter will elect to follow up with the ABA attorney referral process and retain counsel.
Regarding the information that the DOL will provide to employees and their attorneys, Ms. Smith provided the following information:
First, in keeping with its longstanding practices, the DOL will release case information only when a case has been closed.
Second, in general, the DOL will follow the normal Freedom of Information Act (FOIA) process, which requires a written request and processing under FOIA procedures, for requests for case information. However, there are two areas of information and documents that the DOL will release to the employee and/or the employee’s attorney –BUT NOT TO THE EMPLOYER –in response to an informal request: (1) any documents or information that the claimant provided to the DOL (claimant interview, documents related to the claim) and (2) the DOL’s computations of damages/back pay deemed owed. Documents and information released to the employee or employee’s attorney based on an informal request will be provided on an expedited basis.
Third, the DOL will not provide notice to the employer of the release of information to the employee or the employee’s attorney.
Fourth, the employer will need to file a written FOIA request to determine whether information has been provided to an employee or the employee’s counsel, and to obtain the same information that was provided to the employee or employee’s counsel without a FOIA request.
Fifth, for information or documents other than the type described above, both the employee (and the employee’s counsel) and the employer will need to make a FOIA request.
We anticipate that the Bridge to Justice Program will result in more private litigation under the FLSA and FMLA. In addition, with the expedited provision of certain documents and information by the DOL to employees and their attorneys, employers should focus on taking steps to protect information provided to the DOL in an investigation and to be prepared to move quickly if they receive case closure letters for unresolved claims. Specifically:
- Employers should continue to carefully review and mark as Confidential and Proprietary Commercial Information all financial and other business proprietary information provided to the DOL in the course of an audit/investigation.
- Employers that receive a case closed letter in a complaint that has not been resolved, should consider quickly filing a FOIA request for the case file documents, including a request for any documents provided to the employee or the employee’s counsel.
- If the employee or other third party files a FOIA request for the employer’s documents or other information marked as Confidential and Proprietary Commercial Information, the DOL must provide the employer with notice and the opportunity to object to the disclosure. Employers should have a process in place for the prompt review and response to the notice by a designated employer representative.
- The DOL must notify the employer if it intends to release objected to documents and information and the date of release. Employers should have a process in place to review the notice and make a determination about filing a complaint in federal court seeking an injunction to prevent disclosure of the documents.
New Associate SOL for Fair Labor Standards Division
Jennifer Brand has been named the new Associate Solicitor for the Fair Labor Standards Division of the Department of Labor (“DOL”) and will start in her position March 2, 2011. Ms. Brand is moving to the Associate Solicitor job from her current position as the Executive Director of the Misclassification Task Force at the New York State Department of Labor. Previously, she served 20 years in the Labor Bureau of the New York State Attorney General’s office first as a staff attorney, then Section Chief, Deputy Bureau Chief and finally as Bureau Chief. Ms. Brand has extensive litigation experience, both trial and appellate, in wage hour cases arising under New York’s Fair Labor Standards Act and the state’s mini Davis-Bacon Act.
The choice of Ms. Brand, with her leadership and experience on the Misclassification Task Force, is in line with the DOL’s stated enforcement priority regarding employers that misclassify their workers as independent contractors. Just recently, among other steps being taken by the DOL in its misclassification initiative, DOL Solicitor Patricia Smith announced at the Practicing Law Institute’s February 7 “Managing Wage & Hour Risks 2011” conference, that the DOL was in the process of negotiation a Memorandum of Understanding with the Internal revenue Service so that the two agencies could share information on misclassified worker matters.