New York Law Journal Discusses The Future of Class Litigation at SCOTUS

By Collection of the Supreme Court of the United States [Public domain], via Wikimedia Commons

By Collection of the Supreme Court of the United States [Public domain], via Wikimedia Commons

On August 8, 2016, the New York Law Journal analyzed the impact of Justice Antonin Scalia’s death on class action jurisprudence. Prior to his death in February 2016, Justice Antonin Scalia dramatically guided and shaped the Court’s class action jurisprudence. He authored numerous key opinions that largely raised the difficulty of proceeding on a class action basis. For example, in a seminal case from 2011, the Court greatly expanded Rule 23’s commonality requirement, turning what was previously a low bar into a significant obstacle to class certification. In Comcast v. Behrend, the Court expanded Rule 23’s predominance requirement, holding that plaintiffs must establish at the certification stage that damages are calculable on a class-wide basis, whereas class plaintiffs had in the past often litigated this issue at the merits stage. Justice Scalia additionally authored numerous decisions upholding the enforceability of contractual waivers of class arbitration rights.

To the extent the Court has faced class action issues in the wake of Justice Scalia’s death, the Court has indicated a willingness to back away from certain positions set forth by Justice Scalia. Not surprisingly, class defendants have been less inclined to have the Court decide class issues, as a favorable outcome becomes more unlikely. The full New York Law Journal article can be found by clicking here.

How Can Courts and Litigants Efficiently Resolve PAGA Disputes?

Venable’s Laura Reathaford examines this topic in Los Angeles Lawyer cover story

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Excerpted from June 2016 Los Angeles Lawyer magazine.

When it comes to litigating a representative action under the Private Attorney General Act (PAGA), there is no “one size fits all” approach. There is no requirement that it proceed as a class action, so parties and courts are left to their own creativity—and common sense—in determining how to proceed. Some courts have dismissed PAGA claims outright because the parties and the claims are too numerous or complex to be litigated, or tried, in any efficient manner.  Other courts have refused to do so even when the number of individual issues to be tried could result in clogging the court’s docket for months. Some courts have allowed a subset of the proposed group to proceed through discovery—and trial—while holding in abeyance the claims of the others. Still other courts have considered allowing a statistically significant sample of employees to represent the larger group in proving liability at trial.

In a time when more plaintiffs are filing “PAGA-only” cases—arguably to avoid class certification, federal court, and arbitration— and court dockets and state budgets are  overburdened, it seems logical that judges and litigants should consider whether a PAGA action can be efficiently tried despite its status as non-class action. As a representative enforcement action, plaintiffs who bring these lawsuits do so to remove the burden from state labor agencies and seek to collect civil penalties for current or former employees. However, this strategy does not always translate into efficient litigation. Instead, it may result in the potential to overburden another critical state agency: the courts.

Continue reading here.

Just When Employers Thought It Was Safe To Go Back Into The Arbitration Water…

The United States Court of Appeals for the Seventh Circuit has held that an arbitration agreement that waives an employee’s right to bring a class or collective action in any judicial forum as a condition of employment violates the National Labor Relations Act (NLRA) and is not saved by the Federal Arbitration Act (FAA).

In Lewis v. Epic Systems Corp., No. 15-2997, Epic Systems Corporation (Epic) distributed an arbitration agreement (the Agreement) via email that required, among other things, that: (1) any wage and hour dispute must be submitted to arbitration rather than pursued in court; and (2) employees must pursue claims only on an individual basis, and not on any available class, collective, or representative basis. The Agreement also provided that employees were “deemed to have accepted [the Agreement]” if they continued to work for Epic. The plaintiff accepted the terms of the Agreement.

Despite agreeing to arbitrate his disputes with Epic, the plaintiff sued Epic in federal court for violations of the Fair Labor Standards Act. Epic moved to compel individual arbitration in accordance with the Agreement. Plaintiff opposed the motion and argued that the Agreement violated Section 7 of the NLRA because it interfered with his right to engage in concerted activities. The district court denied Epic’s motion and the Seventh Circuit affirmed.

The Court held that contracts which force employees to renounce the ability to file or participate in class or collective actions are unenforceable because these actions constitute concerted activity under Section 7. And, since the Court found the arbitration agreement violated Section 7, the agreement was unlawful and therefore could not be saved by the FAA.

Despite the United States Supreme Court’s decisions in Concepcion (2011) and Italian Colors (2013), which permitted class action waivers in arbitration agreements, the Lewis Court limits the right of employees who are covered by the NLRA to enter into such agreements. Arguably, since supervisory employees are not protected by the NLRA, Lewis would not apply to arbitration agreements entered into by supervisors.

In any event, Lewis creates a circuit split on the issue of whether employees covered by the NLRA can enter into arbitration agreements containing class action waivers. While the Second, Fifth, Eighth and Ninth Circuits have unequivocally held that they can, the Seventh Circuit has now declared that they cannot. Employers now must be keenly aware of where such class action waivers are enforceable. Given the split among circuits, it is anticipated that this issue will reach the United States Supreme Court.

Much-Anticipated New FLSA Regulations Dramatically Change Minimum Salary Requirements for Certain Overtime Exemptions

GroupToday, the U.S. Department of Labor (the “DOL”) released its long-awaited revisions to the Fair Labor Standards Act’s (“FLSA”) executive, administrative and professional exemptions, commonly referred to as the “white collar” exemptions. In so doing, the DOL also significantly revised the prerequisites for treating an employee as exempt under the FLSA’s “highly-compensated” exemption.

While the new Regulations stem from President Obama’s March 2014 memorandum to the Secretary of Labor characterizing the existing white collar exemptions as out of step with the modern economy, the DOL’s initial proposals, released in June 2015, were met with strong reaction from employers concerned about potentially radical changes. Though today’s Regulations retreat slightly from the DOL’s June 2015 proposals, they will still have a profound impact on employers’ ability to treat certain employees as exempt from receiving overtime compensation.

Background

Generally, the FLSA requires employers to pay non-exempt employees an hourly rate of at least one-and-a-half times their regular rate of pay for time worked in excess of 40 hours in a workweek. Certain “white collar” workers, namely those employed in a “bona fide executive, administrative, or professional capacity,” may, under certain circumstances, be exempt from this overtime requirement. Under the previous Regulations, in order to properly treat an employee as exempt under one of the FLSA’s white collar exemptions, (i) the employee had to be compensated on a salary basis at a rate of at least $455 per week ($23,660 annually), and (ii) the employee’s primary duties must have fallen within the substantive parameters of one of the above-noted exemption categories. This latter criterion requires a fact-intensive assessment regarding the nature of the employee’s work and specific job responsibilities.

The New Regulations

“White Collar” Exemptions (Non-Highly-Compensated) Effective December 1, 2016, the new Regulations more than double the FLSA’s above-referenced minimum salary threshold to $913 per week ($47,476 annually). Notably, this figure materially exceeds the current minimum salary thresholds for the state-level white collar exemptions in every state and, as such, sets a new, across-the-board minimum salary to even consider whether an employee may be exempt. According to the DOL’s estimates, this change is expected to cause over 4.2 million currently-exempt white collar workers to become entitled to FLSA overtime rights, absent intervening action by their employers. Further, while the salary threshold under the prior Regulations remained static, pursuant to the new Regulations, the salary threshold will automatically update every three (3) years, beginning on January 1, 2020, and will be tied to the 40th percentile of weekly earnings of full-time salaried workers in the region of the country with the lowest wages (currently the Southeast). The DOL did not ultimately make any changes to the “primary duty” test.

Additionally, subject to certain details, the new Regulations will allow up to ten percent (10%) of the salary threshold for all non-highly compensated employees to be attributable to non-discretionary bonuses, incentive pay, or commissions, as long as such payments are made on a quarterly or more frequent basis.

Highly-Compensated Exemption The new Regulations also increase from $100,000 to $134,004 per year the required salary threshold for an employee to be considered for the FLSA’s “highly-compensated” exemption. Highly-compensated employees must also be paid in a manner that comports with the new salary basis, i.e., they must receive at least $913 per week. As with the above-noted white collar exemptions, the duties test for highly-compensated employees – generally requiring that, in addition to being paid at least $134,004 per year, such employees primarily perform office or non-manual work, including at least one of the duties of an exempt white collar employee – has not been changed.

Importantly, the salary threshold for the highly-compensated exemption will increase every three (3) years to the 90th percentile of earnings of full-time salaried workers nationally. Accordingly, the DOL estimates that this threshold will increase to $147,524 during the first automatic update in 2020.

The DOL will post all new salary thresholds 150 days in advance of their effective date, beginning August 1, 2019.

What Does This Mean for Employers?

Clearly, the new Regulations will have a significant impact on employers of all sizes, and proactive steps will be necessary to best absorb and deal with these changes. For example, employers may consider raising salaries for positions whose salaries fall incrementally below the new $913 per week threshold. Employers may also consider implementing scheduling changes to limit their overtime costs, or altering the duties of certain employees to bolster the likelihood that they will, in fact, be considered to be exempt.

Of particular importance, employers should promptly assess their time- and record-keeping procedures, wage and hour policies, and employee classifications, to ensure compliance with the new Regulations. Given the Regulations’ escalating salary thresholds, employers must also be prepared to continually review and update their employee classifications, and must develop a plan to inform employees of any change in classification. And, given the light that the new Regulations shine on wage and hour matters at large, employers should be mindful of, and seek to address, already-lurking issues.

Ultimately, it is clear that the new Regulations will have a pervasive effect on employers in a wide range of industries. If you have questions about these issues, please feel free to contact a member of Venable’s national Labor and Employment team.

 

Compensable Time? What Employers Need to Know Regarding Their Non-Exempt Employees

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Image by: NY [CC BY-SA 3.0] via Picserver.org

Employers already should be alert to the U.S. Department of Labor’s (DOL) much-anticipated changes to the so-called white-collar exemptions under the federal Fair Labor Standards Act (FLSA). Those changes may effectively convert as many as five million employees from exempt to non-exempt status. The time to prepare is now. One area ripe for review is determining what constitutes “compensable time” for your employer’s non-exempt employees.

“Compensable time” is any time the employer suffers or permits an employee to perform the principal activity for which the employee was hired for the benefit of the employer. This includes all time worked while at the office, work performed at home, and even work that is performed before or after the regular workday that the employer “suffers or permits” to occur.

Sound simple? It’s not. It is a lot more complicated and nuanced than you might think, as discussed below. Here are some of the most common pitfalls and areas of confusion for non-exempt employees in the workplace.

  1. Off-the-Clock, On-Call, and Unreported Work

Employers must pay each non-exempt employee for all hours worked, including work performed outside the employee’s regular workday. For example, a non-exempt employee may report to the office 30 minutes early each day because of a commuter bus schedule. If the employee begins working prior to the start of the regular workday, that time is compensable and should be recorded on the employee’s time sheet. The same is true for the non-exempt employee who brings work home or responds to emails from home before or after the regular workday.

Sometimes, even the time an employee is merely “on call” is compensable. An employee who is required to remain on his or her premises, or so close thereto that he or she cannot use the time effectively for his or her own purposes, is considered to be working and must be compensated. For example, a hospital employee who must stay at the hospital in an on-call room but who may sleep, eat, watch television, or read a book may be required to be compensated, whereas a hospital employee who must carry a pager but need not remain at or close to the hospital may not need to be compensated. In sum, whether on-call time is compensable is a case-by-case determination.

Employers should instruct non-exempt employees not to perform work beyond their regular work schedule unless they receive prior approval from their supervisor. Employers take note: you must pay non-exempt employees who work without authorization—but you can discipline them for doing so.

  1. Comp Time

Compensatory time, or “comp time,” is a system that employers may use in certain limited circumstances to provide time off in lieu of overtime pay to non-exempt employees. Comp time generally is not permitted for private sector non-exempt employees (the rules are different for government employees and exempt employees). However, under federal law, there are two exceptions to the rule prohibiting comp time for private sector non-exempt employees: (1) employers may allow non-exempt employees to take comp time within a single week to avoid exceeding 40 hours worked; and (2) employers may require an employee to take time-and-one-half off (comp time) in one week to offset overtime hours worked in another week within the same pay period.

Importantly, federal law is only half the equation. Employers should check the state law governing comp time in the states in which they have employees, because certain states restrict the use of comp time for their state’s employees more tightly than federal law. For example, in states like California, overtime is calculated on a daily basis (in excess of 8 hours) rather than a weekly basis (in excess of 40 hours). Providing an employee with comp time, even if only to avoid exceeding 40 hours worked in a single week, may not be lawful under state law like that of California if more than 8 hours were worked in a single day. Moreover, exception (2) above has been expressly approved by federal courts only in certain parts of the country, whereas federal courts in other parts of the country have not considered its legality under the FLSA. Accordingly, employers should proceed with caution when implementing comp time policies for non-exempt employees. Beyond this, successful application of the exceptions requires significant administrative burdens and, in some instances, is illusory. For instance, if an employee works more than 40 hours in the second week of a two-week pay period, compensatory time is not available, even under the exceptions.

Employers take note: federal and state departments of labor and the courts take a skeptical view of comp time practices in general. It is crucial that employers considering the use of comp time for non-exempt employees consult with legal counsel to determine what is permissible in the states in which they have employees. For employers that do implement comp time policies for non-exempt employees, it is imperative to keep accurate records that reflect that comp time off is properly calculated and provided to the employee within the appropriate pay period.

  1. Seminars, Lectures, Training

Attending lectures, meetings, training programs, and similar activities outside the office is compensable time for non-exempt employees unless all of the following criteria are met:

  • Attendance is outside the employee’s regular working hours;
  • Attendance is voluntary;
  • The course, lecture, or meeting is not directly related to the employee’s job; and
  • The employee does not perform any productive work during such attendance.

Training is considered related to the employee’s job if it is designed to help the employee manage his or her job more effectively. If training is for a different job or a new skill, then it is not job-related, even if the course incidentally improves the employee’s performance of his or her regular duties. For example, an IT employee who takes classes toward an accounting degree may incidentally improve his or her organizational skills, but that training is not job-related and is not compensable.

Voluntary attendance at independent training, courses, and college after hours is not compensable time, even if the employer pays or reimburses the employee for part of the tuition through an employee benefit plan. Similarly, if an employer offers a lecture or training session for the benefit of employees, voluntary attendance outside of work hours is not compensable time, even if it is job-related or paid for by the employer. For example, an employer may offer all employees an opportunity to attend a lecture on improving management skills. If it is during work hours, the time spent at the session is compensable time. If the speaker event is outside of regular hours and is completely voluntary, it is not compensable time.

  1. Receptions, Dinners, and Social Events

Employers that require non-exempt employees to attend social events (whether the events are sponsored by the employer or by another organization) must treat that time as compensable, even if the employee is not performing his or her regular duties. Employers must clearly communicate to non-exempt employees what is, and is not, required attendance, preferably in writing. Prudent employers train supervisors not to pressure non-exempt employees to attend an event that is not mandatory.

  1. Meal Time/Breaks

Bona fide meal breaks of 30 minutes or more are not compensable. To be a bona fide meal break, the non-exempt employee must be relieved of all duties to perform work during the break. Even merely permitting non-exempt employees to work through lunch (when they are not required to do so) must be treated as compensable. For example, a receptionist who is required to answer the telephone while having his or her lunch is not on a bona fide meal break and must be compensated for his or her lunch time. Consequently, non-exempt employees should be required to take daily meal breaks, and such breaks should be required to be taken away from their desks. Rest time of 5 to 20 minutes is common and is compensable work time, as breaks of less than 20 minutes are generally considered to be insufficient to enable the employee to engage in personal pursuits.

  1. Interns, Volunteers, and Stipends

The proper treatment of interns and volunteers for employment and tax purposes is a subject unto itself. Whether an employer may utilize unpaid interns, or must pay them as employees, has become a very hot topic in recent years. The principal potential liability for the use of unpaid volunteers and unpaid interns is substantially the same—the risk that the individual will be deemed to be an employee for wage payment and tax purposes.

Unpaid interns and unpaid volunteers, if properly classified, are not employees for purposes of many federal laws. This means that an employer that provides for (properly classified) “interns” or “volunteers” generally is not required to pay the individuals wages or provide employee benefits, pay employment taxes to the IRS, or provide other employment-related insurance and tax contributions. However, whether an individual is properly classified as an intern or volunteer is a tricky issue, and requires looking beyond the label and reviewing the underlying relationship between the individual and the employer, and a review of both federal and state law and standards.

With respect to volunteers, the DOL’s position is that charitable, religious, and other, similar organizations may properly utilize volunteers where the individual donates his or her services for public service, religious, or humanitarian objectives, usually on a part-time basis and without the expectation of pay. Interns, on the other hand, are considered to be “trainees.” The DOL has issued guidance stating that in order for interns in for-profit enterprises to be properly classified as non-employees, the intern experience must be for the benefit of the intern, the organization must not derive an immediate advantage from the intern’s services, the intern must receive training similar to training that would be provided in an educational environment, the intern must not displace regular workers, the intern must not be entitled to a job at the conclusion of the internship, and there must be an understanding from the beginning that the intern is not entitled to wages. While the DOL suggests in a footnote that “non-profit charitable organizations” will not be subject to the same standards, there is no blanket exclusion for nonprofit employers, and the best practice among all employers has become to follow the DOL guidance for for-profit entities.

Another common area of confusion is when an employer’s paid employees wish to perform unpaid volunteer service for the employer. This situation may arise when a non-exempt employee asks to volunteer at an employer-sponsored event after work hours or on the weekend. Individuals who volunteer or donate their services for public service or employers are not considered employees of the employer organizations that receive their service. However, non-exempt employees who perform volunteer work during their normal working hours must be paid, and non-exempt employees who perform volunteer work after normal work hours that is similar to their normal work duties also must be paid. In addition, employers must be vigilant not to expressly or implicitly pressure paid non-exempt employees to volunteer after normal work hours, since “volunteer” work performed under coercion is not bona fide volunteer work and must be compensated. Employers must clearly communicate volunteer opportunities to non-exempt employees and should educate managers to avoid any appearance of coercion on attendance at volunteer events.

Lastly, many employers seek to give their volunteers stipends to cover costs associated with volunteer service. The DOL allows volunteers to be paid/reimbursed for out-of-pocket expenses, reasonable benefits, and/or a nominal fee for their service without losing their status as volunteers. The DOL has not specifically defined a financial threshold for what constitutes a “nominal” fee, but generally a nominal fee must not be a substitute for compensation or be tied to productivity. Other relevant factors include the distance traveled and the time and effort expended by the volunteer; whether the volunteer has agreed to be available around the clock or only during certain specified time periods; and whether the volunteer provides services as needed or throughout the year. Incidental or insubstantial stipends are acceptable under DOL regulations.

  1. Travel

Travel incidental to employment by an employer falls into two categories: (1) travel as a passenger during non-shift hours where no work is performed; and (2) travel as a passenger during shift hours. As a general rule, a non-exempt employee who travels from home before his or her regular workday and returns home at the end of the workday is engaged in ordinary home-to-work travel that is a normal incident of employment and is not compensable.

Often non-exempt employees are asked to travel longer distances to attend conferences or other out-of-town events. Such travel to a different city is not considered compensable time if (1) the employee is a passenger on an airplane, train, boat, or automobile; (2) the travel is during non-shift hours; and (3) no work is performed during the travel time. For example, an employee who takes a four-hour plane trip to a week-long conference during non-shift hours but performs no work on the plane need not be compensated for this travel time.

On the other hand, if a non-exempt employee travels to an out-of-town conference during shift hours, that employee must be compensated for all of the commuting time to the conference which exceeds that employee’s regular commute, whether or not he or she performed any work during the commute. For example, an employee whose regular commuting time is 30 minutes, and who takes a three-hour train trip to a conference in another city during regular shift hours, must be compensated for the two and a half hours that are not part of his or her regular commute, even if he or she performs no work on the train. Finally, it goes without saying that if a non-exempt employee performs work during travel time which is otherwise non-compensable, he or she must be compensated for that time.

  1. Employee Time Records

In the event of litigation, courts place the burden on the employer to support its position as to an employee’s hours worked through adequate contemporaneous records. In the absence of proper records, an employee may substantiate an FLSA claim merely by offering sufficient evidence to permit a reasonable inference as to his or her hours worked. Personal records kept by the employee without the employer’s knowledge may be particularly damaging if the employer has no means of proving the hours worked by its employees. In addition, evidence that an employer has directed employees not to record time actually worked will be used against the employer. Employers are required to keep track of the hours worked by non-exempt employees. While time clocks are not required, some comparable means of keeping contemporaneous records of hours worked (such as weekly time sheets approved by employees) are essential to protect the employer. Employers should follow federal and state record-keeping requirements meticulously, as good record-keeping practices often make the difference in litigation.

Conclusion

The challenge for employers of properly paying for “compensable time” will only intensify when the upcoming changes to the FLSA’s “white-collar” exemptions reclassify millions of employees nationwide as non-exempt, and thus overtime-eligible. Employers have always borne the burden of properly classifying employees and maintaining complete and accurate records of hours worked and wages paid. That burden is about to increase.

Additional Resources

Proposed Changes to the FLSA’s White-Collar Exemption Criteria: What Nonprofits Need to Know about the Current Rules, Where Things Are Heading, and How to Avoid Employee Classification Traps and Pitfalls (webinar recording)

U.S. Department of Labor Proposes Sweeping Changes to FLSA Overtime Exemption Criteria (article)

California Supreme Court Clarifies Suitable Seating Law

StoolsAs we discussed here, pending before the California Supreme Court was its interpretation of California’s suitable seating requirement. Specifically, how employers should interpret whether the “nature of the work” requires a seat. The Court issued its decision on April 4, 2016.

California’s labor regulations require that all employees “be provided with suitable seats when the nature of the work reasonably permits the use of seats.” The California Supreme Court determined that the “nature of the work” refers to the tasks performed at the employee’s particular workstation, as opposed to using a holistic consideration of all tasks performed throughout the workplace over the course of the day. Thus, according to the Court, the relevant tasks under consideration are those performed at the cash register or at the teller window, as opposed to the supplemental tasks performed in other locations of the store or bank.

The Court clarified what factors should be considered in assessing whether the “nature of the work” reasonably permits an employee to sit. These factors include, but are not limited to (i) the frequency and duration of tasks, (ii) the feasibility and practicability of providing seating, (iii) the physical layout of the workspace, and (iv) the employer’s business judgment (i.e., a judgment that standing employees are better able to provide prompt and effective customer service). Finally, regardless of the nature of the work, the employer bears the burden of proving the unavailability of seating if the employer argues that no suitable seats were available.

An employer’s business judgment, while not dispositive, is still an important factor in determining whether the “nature of the work” reasonably permits an employee to sit. And, how an employer exercises this judgment (i.e. in a uniform way across job categories and locations versus in a varied way) could impact the scope of suitable seating cases. Since these cases typically arise as an effort to collect civil penalties under PAGA, they need not be certified as class actions. However, as we have discussed here, courts may narrow the scope of PAGA actions where the purported violations were not the result of a uniform employer practice or policy. Employers who carefully consider the use of seats for each job category and each specific location may less likely to face state-wide PAGA actions.

California employers should also take care to distinguish between the California Labor Code seating rule and the requirements of the federal Americans with Disabilities Act. Under the latter, which involves a distinct analytical framework, an employer may be required to provide seating as a possible form of reasonable accommodation to a qualified employee with a disability as opposed to providing suitable seats, where reasonable, to employees in a specific job category.

Where You Do Business Could Determine Whether You Pay Your Underwriters Overtime

World CompassIn Lutz v. Huntington Bancshares, Inc., the Sixth Circuit affirmed the dismissal of a putative class action finding that underwriters were properly classified as exempt employees because they fall on the “administrative” side of the administrative-production dichotomy. The Court reasoned that any loans underwritten were already “sold” to the customer by the time they touched them. The underwriters merely determined whether the risks presented by the sold loans were of the type the bank was willing to undertake, and thus “ancillary to the Bank’s principal production activity of selling loans.”

This decision runs contra to the Second Circuit’s decision in Davis v. J.P. Morgan Chase & Co. wherein the court classified underwriters as non-exempt employees engaged in production activities. Key to the Lutz analysis was that the underwriter does not generate business for the bank. The customer has already consulted with a loan originator—effectively the sales person—and picked the loan product of her choice. The underwriter therefore was tasked to advise the bank on whether it should accept the credit risk posed by the customer. In doing so, the underwriters merely collected and analyzed customer financial information. In contrast, the Davis underwriters were lumped with the sales team in the “production” department per the bank’s own policies and procedures. Indeed, the Davis underwriters were evaluated by their productivity in the number of decisions made rather than the ultimate accuracy of their advice, i.e. whether the approved loans were repaid.

The amount of discretion afforded the underwriters was also determinative to their exempt status. The Lutz court focused on the extensive discretion exercised by the underwriters despite being governed by various manuals and procedures. The Court found that the underwriters in Lutz were expected to exercise judgment and permitted to override the recommendations per the manuals. In contrast, the Davis court saw no discretion exercised by the underwriters. The underwriters were provided a “detailed Credit Guide” articulating the credit policies of the bank and trained to apply those policies as is.

Financial institutions outside the Sixth Circuit should carefully analyze the duties and discretion assigned to underwriters if they intend to escape the narrower interpretation of the administrative exception imposed by the Second Circuit. The less inter-lineated with the loan sales process and the more discretion exercised by the underwriters, the more likely the underwriters will be classified as exempt employees. Until the Supreme Court has an opportunity to resolve this Circuit-split, whether loan underwriters are exempt under the FLSA will likely depend on where those underwriters are employed.

Averaging The Way To Classwide Liability

CalulatingThe Supreme Court this week in Tyson Foods, Inc. v. Bouaphakeo, 577 U. S. ____ (2016), upheld a $2.9 million verdict for unpaid overtime owed by Tyson Foods to its employees for uncompensated time spent putting on and taking off (i.e., “donning and doffing”) protective gear before and after their shifts. Tyson paid workers for time spent at their workstations, but neither tracked nor paid the time workers spent donning and doffing their gear. The verdict represented overtime pay owed where the donning and doffing caused the total time worked to exceed 40 hours per week.

Tyson argued that the employees’ claims were too individualized to be resolved on a classwide basis because different workers wore different equipment and took varying amounts of time to put on and take off their equipment. Plaintiffs, on the other hand, argued that individual inquiries were unnecessary because the average time to don and doff protective gear could be used. To this end, the plaintiffs hired an expert who conducted hundreds of videotaped observations, analyzed how long various donning and doffing activities took, and calculated the average time.

Tyson argued this type of averaging, or “representative evidence,” was improper in class actions. The District Court and Court of Appeals for the Eighth Circuit (in a decision we commented on here), and now the Supreme Court disagreed. Justice Kennedy’s majority opinion explained that, in some circumstances, representative evidence can be used to show classwide liability. The key inquiry is “whether the sample at issue could have been used to establish liability in an individual action.” In this case, the expert’s averages could have been used by the individual employees if they had each brought separate suits because “each employee worked in the same facility, did similar work, and was paid under the same policy” and “under these circumstances the experiences of a subset of employees can be probative as to the experiences of all of them.” Therefore, it was permissible to use the representative evidence to show classwide liability.

Notably, the Supreme Court contrasted Wal-Mart Stores, Inc. v. Dukes, 564 U. S. 338 (2011), which involved a class of 1.5 million female employees alleging discrimination. In that case, the Court found that the employees were not similarly situated, and therefore, if they employees had all brought individual suits, “there would be little or no role for representative evidence.”

To rebuke the potential for plaintiffs to use representative evidence in this way, employers should take measures to accurately track and pay for all time worked including non de minimis donning and doffing time. As we mentioned in our previous post, the consequences of failing to do so can result in possibly overpaying employees for wages they did not rightfully earn.

Oops, They Did It Again: New PAGA Legislation Proposes the LWDA Take Back Previously Delegated PAGA Power

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PAGA was enacted in 2004 to enable private litigants to recover penalties for Labor Code violations that previously could only be pursued by the Labor Commissioner and Labor Workforce Development Agency (“LWDA”). In an apparent “take back” of some of this power, Governor Brown asked the Legislature for $1.6 million to “stabilize and improve the handling of [PAGA] cases.” The Governor acknowledged that very few, if any, PAGA filings are scrutinized, employers are being sued for frivolous claims and that when PAGA claims are settled, the state is not receiving enough of the civil PAGA penalties at issue.

Governor Brown’s proposal asks for more staff to review and investigate PAGA claims and also proposes amendments to PAGA which will purportedly provide increased oversight and protect the government’s interest in any penalties ultimately recovered by the private litigant. The proposed revisions include:

  • Requiring the employee to provide a legal basis for pursuing PAGA penalties when it notifies the LWDA of an intent to file a PAGA action;
  • Requiring that claims for ten or more employees be verified and accompanied by a proposed complaint;
    extending the LWDA’s time to review PAGA notices from 30 to 60 days;
  • Permitting employers to request for the LWDA to investigate a PAGA claim;
  • Extending the time for the LWDA to investigate and accept a claim from 120 to 180 days;
  • Requiring the Director of Industrial Relations be served with a copy of any complaint when a PAGA case is filed;
  • Requiring that the Director of Industrial Relations be served with a notice and an opportunity to object to any PAGA settlement before court approval;
  • Allowing employers, under very limited circumstances, to apply for amnesty while it repays employees back wages for potential Labor Code violations.

Whether this proposal hurts or helps employers’ remains to be seen. On the one hand more oversight and stricter exhaustion requirements may curb frivolous claims. On the other hand, the LWDA’s involvement in the settlement process will likely drive up the settlement value of PAGA cases.

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