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Wage & Hour Law Update

U.S. Open Tennis Umpires Properly Classified As Independent Contractors

Service providers vendors (and those vendors’ employees) are free to assert claims that they  “employees” of the entity for which they are providing services under the FLSA under independent contractor misclassification and joint employer theories.  Service providers continue to do so despite limited success, the most recent example being Judge Andrew Carter’s (SDNY) summary judgment ruling that the USTA properly classified U.S. Open umpires as independent contractors.  Meyer v. United States Tennis Ass’n, 2014 U.S. Dist. LEXIS 128209 (S.D.N.Y. Sept. 11, 2014).

Analyzing the “economic realities” of the relationship between the Open and its umpires, Judge Carter observed that the umpires had control over whether to participate, how to umpire, and opportunity for profit or loss developing their business as tennis umpires both with the Open and within the tennis industry at large.  Further, the relationship was temporally sporadic in nature. Thus, the presence of neutral or contrary factors, including the Open’s investment in the business relative to the umpires’ and the umpire’s “integral” role, did not negate contractor status or create a question of fact.

The USTA’s victory in Meyer joins Major League Baseball’s win earlier this year employee misclassification claim brought by volunteers at the MLB All-Star game FanFest.  Employers must continue to monitor these issues.

Manhattan Federal Court Finds Contract Attorney “Practiced Law,” Exempt From Overtime

An attorney and his lawyer made headlines recently when he asserted an FLSA claim against prominent Manhattan law firm Skadden Arps claiming the firm owed him overtime pay for his work as a contract attorney on large scale litigation handled by Skadden.  On Wednesday, Judge Richard J. Sullivan granted Skadden’s motion to dismiss the claim.  Lola, et al. v. Skadden, Arps, et ano., No. 13-CV-5008, DKT 35 (S.D.N.Y., Sept. 16, 2014).

While Skadden argued that the agency through which Plaintiff Lola worked was his employer, and that Plaintiff failed to plead that Skadden was his “joint employer” under the FLSA, Judge Sullivan declined to reach that argument because he answered the dispositive question of whether Lola was “exempt from the overtime requirement by virtue of being ’the holder of a valid license…permitting the practice of law…[who] is actually engaged in the practice thereof’” in favor of the defendants.  After a lengthy analysis in which the court determined that the operative inquiry under the applicable FLSA regulation (29 C.F.R. § 541.304) was whether Plaintiff Lola was practicing law as defined under North Carolina state law, Judge Sullivan determined that Lola’s document review for Skadden constituted practicing law within the meaning of a North Carolina State Bar ethics opinion amplifying the term “legal services.”  The Judge declined Plaintiff Lola’s invitation to utilize an analysis similar to that utilized for the other “white collar” exemptions, i.e., to “scrutinize his precise job responsibilities to determine whether they required legal judgment and discretion.” finding that approach “at odds with [the] regulatory framework…[placing] licensed attorneys and doctors…in a special class of workers that may be deemed to be professionals even without a fact intensive inquiry into the nature of their job duties.”

Judge Sullivan’s thoughtful and technical analysis confirms what may seem obvious to lay people and many practitioners: lawyers practicing law are not overtime-eligible under the FLSA.  However employers must analysis their compensation obligations to all professional employees under the FLSA and state law.  Of course, Plaintiff Lola’s counsel has indicated he will appeal this matter to the Second Circuit, and counsel represents at least one other attorney in a similar pending claim.  Henig v. Quinn Emanuel Urquhart & Sullivan, LLP, No. 13-cv-1432 (S.D.N.Y. Dec. 11, 2013).

NYS Commissioner of Labor Issues Official Wage Board Charge

On Monday, New York Commissioner of Labor Peter Rivera formally issued his Charge to the recently convened 2014 Wage Board.  The Charge, available here, asks the Board to answer the following question:

What modifications, if any, should be made to the required cash wage rates and the allowable credits for tips, meals, and lodging, for food service workers and service employees in the hospitality industries?

To answer it, the Board must, first and foremost, determine whether the state should 1) increase the current tip credit available under the Wage Order for the Hospitality Industry (12 NYCRR 146-1 et seq.) consistent with federal law (an unlikely outcome), 2) keep the same tip credit (permitting a cash minimum wage of $5.00/hour for food service workers as long as at least $3 of tips are received for each hour worked) or 3) decrease the tip credit (thereby requiring a higher wage to be paid by the employer than the current $5.00/hour for food service workers).  The Board will conduct a series of hearings on the issue, and issue a report providing the Commissioner, “with an understanding of what minimum wage means in today’s hospitality industries,” including the difficult question of assessing the role of tip income in the minimum wage scheme.  The Commissioner then will issue an Order accepting or rejecting the recommendations contained in the Wage Board’s report.

Watch this space for further updates regarding the tenor of Wage Board hearings and the various information provided to the Board, as well as the final Board recommendations and response by the Commissioner.

Florida Judge Holds That Oyster Shucking Not Part of “Agriculture” For The Purposes Of Migrant Workers’ Act

The Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C. § 1801 et seq. (“AWPA”), provides certain protections to guest workers employed through the federal H-2B program.  This week, Judge Richard Smoak of the Northern District of Florida rejected a claim from workers employed pursuant to such program that their employment shucking oysters was covered by the AWPA.  Araiza-Calzada v. Webb’s Seafood, 2014 U.S. Dist. LEXIS 127021 (N.D. Fla. Sept. 10, 2014).

Araiza-Calzada arose in an unusual procedural setting:  plaintiffs settled their monetary claims under the AWPA and other statutes, however finalization of the settlement was contingent on submission to the Court for a declaratory ruling addressing the legal issue of whether, prospectively, oyster shucking at Defendant Webb’s oyster processing facilities should be covered by the statute.  The principal question for the court was whether oysters were “agricultural or horticultural commodities” within the meaning of the AWPA, a term which the statutory scheme did not define and an issue upon which the Court located little regulatory guidance.  Judge Smoak found that Congress did not intend for oyster (or other seafood) workers to fall under the AWPA and that oysters were not such an agricultural commodity.  Judge Smoak concluded that the AWPA, and its predecessor statute, had their roots in the FLSA’s definition of agriculture which, in the judge’s view, was “clear [as of] 1938, [and that] Congress intended ‘agricultural’ to be limited to the land.”  The Court found “no evidence that Congress has changed its mind” and thus declined to extend the AWPA’s definition of agricultural work to the sea.

Employers utilizing workers through the H-2B or other regulated employment program must analyze AWPA and all other statutory coverage.

Brooklyn Federal Court Judge Reiterates And Expands on Prior Opinion Regarding Plaintiff’s Attorneys’ Fees

As the volume of FLSA litigation remains high, an impediment to resolving such cases (even where the underlying claimant’s wage claim already has been resolved) is the issue of the appropriate fee to be paid to counsel representing the worker pursuant to the fee shifting provision of the FLSA and/or applicable state labor law.  Central to this discussion is the appropriate hourly rate for such work.  Brooklyn-based Eastern District of New York Judge Brian Cogan recently issued a second opinion on this issue.  Encalada v. Baybridge Enters., 2014 U.S. Dist. LEXIS 122783 (E.D.N.Y. Sept. 2, 2014).

Judge Cogan’s opinion in Encalada joins his ruling last year in Fawzy v. Gendy, 2013 U.S. Dist. LEXIS 144323 (E.D.N.Y. Oct. 6, 2013) in observing that fee awards in judicially reviewed settlements where the defendant did not dispute the appropriate fee are not instructive as to what the prevailing market rate ought to be, because under that scenario “the degree of judicial scrutiny naturally declines.”  Observing the high volume of FLSA cases in the District, and a relatively flat market for legal services in the last number of years, Judge Cogan opined that this “robust ‘buyers’ market’ for plaintiffs looking for FLSA lawyers will have a depressive effect on the reasonable hourly rate.”  Thus the Court awarded $350/hour, a figure he deemed at the top of the range and attributable only to the plaintiff’s counsel’s “very substantial FLSA experience,” rejecting counsel’s request for $500 to $600/hour.

FLSA compliance remains the best tool for confronting and avoiding litigation issues.

Indiana Appeals Court: Club Not “Employer” For Purposes of Commissions Claim

While wage-and-hour laws, like other employment laws. are generally “broad” and intended to foster the goal of worker protection, the scope of such laws is not limitless, as demonstrated by a recent decision from an Indiana appeals court addressing an alleged multiple or joint employer scenario.  Rodriguez v. S. Dunes Golf, LLC, 2014 Ind. App. Unpub. LEXIS 882 (Ind. Ct. App. June 30, 2014).

Southern Dunes, a golf club, employed plaintiff Rodriguez as its Banquet Manager, and then its Special Events Coordinator.  When Southern Dunes outsourced its food and beverage catering to Najem Catering, Rodriguez transitioned to Najem’s employ.  Several weeks later, Najem terminated Rodriguez.  Rodriguez  then filed suit for commissions relating to events she booked while employed by Southern Dunes which did not take place until after her termination.  The filing was based on an Indiana statutory provision requiring that “the unpaid wages or compensation of [an] employee shall become due and payable at regular payday for pay period in which separation occurred.”  Ind. Code § 22-2-9-2.  Rejecting such claim against Southern Dunes, the court held that Najem was the sole proper “employer” with respect to any such commissions as the commissions were paid only on actual food and beverage sales at the time of the event (not the initial banquet fee), and here such sales (and corresponding commissions) occurred after Najem assumed responsibility for the catering function (including employment of Rodriguez and receipt of those food and beverage sales).

Not all joint employer stories end with such clarity.  Businesses utilizing vendors, contractors or other business partners – part of what new Wage/Hour Administrator Prof. David Weil calls the fissured economy – must analyze all potential labor and employment law considerations.

Manhattan Restaurant Prevails On Wage-and-Hour Claims Following Trial

Demoralized by the attendant costs of litigation and a shifting compliance environment in numerous jurisdictions, many hospitality industry employers have resolved wage-and-hour lawsuits brought in New York City and elsewhere over the last number of years.  Bucking this trend, one such employer recently successfully defended its wage practices at trial.  Mendez v. Int’l Food House, 2014 U.S. Dist. LEXIS 121158 (S.D.N.Y. Aug. 28, 2014).

In Mendez, after Judge Paul Oetken conducted a bench trial, the Court rejected all of Plaintiffs’ claims, including the following New York Labor Law claims:

  • Plaintiffs’ claim that they spent too much time performing non-tipped duties and therefore should have not been paid at the tip-credit rate of those hours.  As to this claim, Judge Oetken found far more credible Defendant’s testimony that plaintiffs servers spent less than an hour on the setup and cleaning duties;
  • Plaintiffs’ claim they were “required by . . . management . . . to share tips with the bartenders, hostess, hookah preparers, and management” – In doing so, the Court noted that these were appropriately tipped positions and/or the credible evidence established that any such tip sharing was voluntary; and
  • Plaintiffs’ claim alleging unlawful deductions from their wages for uniform purchases and customer walkouts.  As to the former, the Court ruled that the Plaintiffs voluntarily purchased costumes for certain theme nights, with the restaurant simply coordinating such purchases, and as to the latter found no evidence of an actual deduction for a customer walkout.  The Court emphasized that Plaintiffs had clearly been “building a case by making recordings” for several years, and thus the absence of documentary proof as to this claim was especially telling.

The Court also rejected Plaintiffs’ claims that they did not receive appropriate wage notices and statements, as well as their allegations that they were not paid for all hours worked.

Mendez is a reminder that allegations must be proven, and the employees failed to do so here.

Third Circuit Joins Second Circuit In Rejecting Vague Pleadings of FLSA Violations

The Court of Appeals for the Third Circuit has joined the Second Circuit’s recent opinions requiring plaintiffs in FLSA cases to provide more than generalized allegations regarding hours worked in order to satisfy the the Supreme Court’s Iqbal/Twombly standard (all arising in the medical setting).   Davis v. Abington Mem. Hosp., 2014 U.S. App. LEXIS 16472 (3d Cir. Aug. 26, 2014).

Davis, like the Second Circuit’s decision in Lundy v. Catholic Health System of Long Island Inc., 711 F.3d 106 (2d Cir. 2013), concerned an FLSA complaint alleging in very general terms that Defendant hospital “did not compensate them for hours worked in excess of forty per week during meal breaks, at training programs, and outside of their scheduled shifts.”  The Third Circuit rejected this pleading, citing the Second Circuit’s opinion in Lundy and explaining that some factual specificity regarding work in excess of 40 hours that went uncompensated is necessary.

With the rising volume of FLSA litigation, complaints that are poorly drafted and contain inadequate facts should be dismissed, and employers who find themselves FLSA defendants should evaluate the complaint in light of this decision.

Sixth Circuit: Employee Did Not Have to be “Double Paid” Based On Layoff Plan Election

The term “severance pay,” is often used loosely, sometimes mixing together potential obligations under the law with those under employer policies, collective bargaining agreements or benefits plans.  In many states, such as New York, there is no obligation to give severance as a matter of state labor law.  See generally Glenville Gage Co. v. Industrial Bd. of Appeals, 70 A.D.2d 283 (3d Dep’t 1979).  However, some severance, separation or benefit programs have elaborate structures, and employers must assess the interplay between those policies and wage-and-hour law, as illustrated in a new decision from the Sixth Circuit rejecting a novel minimum wage claim.  McCarthy v. Ameritech Publ., 2014 U.S. App. LEXIS 15517 (6th Cir. 2014).

Plaintiff McCarthy was given two options under an involuntary layoff program: (1) receive a lump sum and retire; or (2) continue to work at 85% of her prior pay rate.  She chose Option 2.  In a later lawsuit alleging minimum wage violations, she argued that because the payments she received pursuant to the severance plan under Option 2 “constituted a preexisting severance obligation” rather than wages, she had not been compensated for the hours she worked.”  The Sixth Circuit was not convinced and rejected this minimum wage claim, holding that even though Plaintiff might be able to show that defendant fraudulently induced her to make the unfortunate choice (she claimed that she was misled into selecting Option 2 based on false information concerning health insurance coverage), she could not “import her fraud claim into a separate FLSA claim.”

Reductions in force with severance payouts can trigger wage/hour claims and employers should carefully consider all potential claims when implementing a reduction in force with severance payouts.

Virginia Governor Signs Executive Order Establishing Joint Task Force on Worker Misclassification and Payroll Fraud

Virginia employers may see more robust worker misclassification enforcement and enhanced cooperation between state agencies with respect to misclassification issues in the near future.  Following the lead of the federal government and other states, Governor Terry McAuliffe’s recent Executive Order, signed on August 14, 2014, calls for the establishment of an interagency task force on worker misclassification and “payroll fraud.”

According to the text of Executive Order 24, the Joint Legislative Audit and Review Commission (JLARC) estimates that worker misclassification has a significant negative impact on Virginia’s state income tax collections.  Instead of piecemeal enforcement, JLARC recommended that various state enforcement agencies, including the Virginia Employment Commission, the Department of Labor and Industry, the Department of Professional and Occupational Regulation, the State Corporation Commission’s Bureau of Insurance, the Department of Taxation, and the Workers’ Compensation Commission, work together to target worker misclassification and payroll fraud in the Commonwealth.  The Governor’s Executive Order makes JLARC’s recommendation official, adding the above-listed Virginia organizations to the ranks of government agencies who have sought to coordinate efforts in this area.

Among the stated purposes of the Virginia task force are evaluating the enforcement practices of the various agencies, developing procedures for more effective cooperation and joint enforcement, and making recommendations for legislative or administrative reform.  A progress report is due to the Governor by December 1, 2014.