Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

As discussed here, a New York appellate court recently upheld the conviction of a corporate officer who oversaw a policy of providing “loans” to employees in lieu of wages. Now, another intermediate New York court has followed suit, affirming the conviction, upon a guilty plea, of Spiridon Anthoulis for “grand larceny in the third degree and failure to pay wages in violation of Labor Law § 198-a(1).” People v Anthoulis, 2010 NY Slip Op 8126 (N.Y. App. Div. 2d Dep't Nov. 9, 2010).

This affirmance of Anthoulis’ conviction ends a saga arising out of a scheme perpetrated by Anthoulis and other principals of 4-A General Construction Corp., and SNA General Construction Corp. between February of 2000 and January of 2004, to illegally pay low wages to workers on construction projects contracted by the New York City Housing Authority (NYCHA), in violation of the state prevailing wage law rates contractors are required to pay employees working on public projects. In all, Anthoulis, the two corporate entities and two other individuals were ordered to pay $9.5 million dollars in fines and restitution, and all three individuals pled guilty to criminal charges, arising out of their failure to pay prevailing wage to the construction workers responsible for kitchen and bathroom renovations on various NYCHA projects. 

The investigation was conducted by the New York State Attorney General’s Office and the Department of Investigation’s Office of the Inspector General for the Housing Authority, and determined not only that the responsible parties had failed to pay prevailing wages, but had submitted sworn documents containing false assertions regarding compliance with prevailing wage. 

All employers, but especially those engaged in public works projects and covered by prevailing wage requirements, must take their wage payment, recordkeeping, and reporting obligations seriously. 

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In addition to the FLSA and New York Department of Labor’s (NYSDOL) Wage Orders, both of which contain minimum wage and overtime requirements, pursuant to Article 8 of the New York Labor Law, employers in New York may be required to pay “prevailing wage” to workers employed on public works projects, (There is a separate prevailing wage provision applicable to covered Building Service employees.) This obligation is triggered where a “public agency [is] party to a contract involving the employment of laborers, workmen, or mechanics, and the contract . . . concern[s] a public works project." Matter of Erie County Indus. Develop. Agency v Roberts, 94 AD2d 532, 465 N.Y.S.2d 301 (1983) affd 63 NY2d 810, 472 N.E.2d 43, 482 N.Y.S.2d 267. Rejecting a recent opinion letter from the NYSDOL, New York’s highest court recently held that charter schools do not satisfy the necessary prerequisite for application of the statute - requirement that a public agency be party to contract involving employment of laborers, workmen, or mechanics. Matter of New York Charter School Assn. v Smith, 2010 NY Slip Op 7375 (N.Y. Oct. 19, 2010).

Smith resulted from an August 31, 2007 NYSDOL opinion letter in which the Department reversed its position taken seven years prior and stated that  “the prevailing wage law mandate of Labor Law § 220 applie[s] to all charter school projects.” Following issuance of the 2007 opinion, the Commissioner of Labor immediately provided notice to charter school organizations of the Department’s intention to enforce the new policy interpretation. Litigation commenced immediately.

In its opinion, the Court of Appeals considered and rejected three separate bases put forward by the Commissioner of Labor for finding that charter schools, by their nature, are “public agencies party to a contract involving the employment” of construction workers:

1)      the charter agreement governing the operation of a charter school is itself a contract with a public entity that contemplates the employment of workers on facility projects;

2)      the charter school itself should be regarded as a public entity for purposes of the prevailing wage law; and

3)      charter schools may be regarded as a third-party intermediary when it enters into a charter school facility contract on behalf of or in place of the chartering entity (usually a school district), pursuant to the charter that created it.

Id. at * 3. 

As to the first argument, the court observed that a charter agreement in New York is “an authorizing agreement under which an agency has determined that an applicant school is competent to be licensed as an educational corporation and nothing more.” Id. at * 4. Thus, the charter agreement is not itself a contract involving the employment of covered workers. In rejecting the second argument, the Court noted that the Labor Law itself defines the four categories of public entity covered by the law: the state; a public benefit corporation; a municipal corporation; or a commission appointed pursuant to law – and that educational corporations were expressly excluded. Id.  Finally, the Court noted that while the Labor Law recently was amended to ensure prevailing wage coverage where “private parties are carrying out public work projects on behalf of public owners,” the amendment was not intended to extend to charter schools. Id. 

Smith highlights both the intricate nature of prevailing wage coverage analysis and, separately, how a modification of position by a state department of labor can cast uncertainty into an entire industry. Employers and counsel must stay abreast of these types of developments to ensure and appropriate and timely response is made. 

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FLSA lawsuits seeking unpaid minimum or overtime wages typically are brought as “collective actions,” pursuant to 29 U.S.C. § 216(b). State law claims typically are brought – often in the same lawsuit – as class actions under Federal Rule of Civil Procedure 23. Despite the large number of wage and hour class and collective actions brought in New York District Courts, the Court of Appeals for the Second Circuit has never articulated the standard district courts should apply in determining whether to “conditionally” certify a collective action under the FLSA, and there are few Second Circuit decisions reviewing the grant or denial of class certification under Rule 23 in a wage and hour case. In Myers v. Hertz Corp., 2010 U.S. App. Lexis 22098 (2d Cir., October 27, 2010), the Second Circuit addressed both issues. 

First, the Court affirmed the district court’s denial of a motion for class certification under Rule 23, finding individual inquiries regarding the application of the executive exemption predominated over common issues, making class certification inappropriate. The plaintiffs were Station Managers of Hertz Corp. classified as exempt from receiving overtime under the executive exemption. Plaintiffs argued that even though they were identified as managers, their management duties formed only a small part of their overall duties, and thus they were misclassified. Addressing only the “predominance” requirement under Rule 23, the Second Circuit held the district court did not abuse its discretion in concluding that individual inquiries would predominate, noting the applicability of the exemption requires an analysis of the actual duties performed by each manager, “a complex, disputed issue” which turns on the application of detailed DOL regulations.  The Court rejected the plaintiffs’ argument that simply because the employer promulgated a policy classifying all Station Managers as exempt, this alone demonstrated that common issues predominated. “The existence of a blanket exemption policy standing alone, is not itself determinative of the ‘the main concern in the predominance inquiry: the balance between individual and common issues,’” the Court held. The Court also clarified that all factual and legal issues are to be determined when evaluating the predominance requirement necessary for class certification, including affirmative defenses relating to the applicability of an exemption. 

Second, although the Court held it did not have jurisdiction to review the district court’s denial of the Plaintiff’s motion for conditional certification under the FLSA, it nonetheless approved the two-step method for certifying collective actions that has been adopted by district courts, calling this approach, “sensible.”  Under this approach, to obtain conditional certification (step one), plaintiffs must “make a modest factual showing that they and potential opt-in plaintiffs together were victims of a common policy or plan that violated the law.” This typically occurs before substantial discovery has been completed and was described by the court as a “low standard”. At the second stage, after a fuller record, the Court then determines whether the case should continue to go forward on a class basis or whether it should be decertified. 

While dicta (because the discussion was not necessary to the determination of the case), the decision provides guidance to district courts in determining conditional certification motions, and is likely to be often cited. Employers with operations in New York, Connecticut and Vermont should monitor the impact of the Hertz decision on class and collective action wage lawsuits. The Second Circuit is a difficult forum in which to defend collective actions under the FLSA and this decision will likely not dissuade the plaintiffs’ bar from continuing to file multiple collective actions on close to a daily basis.

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