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

Recently, we discussed the standard applicable to collective action certification of FLSA claims at the so-called “second stage”, which occurs after factual discovery. This is a more stringent standard than that applied to cases at the initial “conditional certification” stage, where courts apply a standard that varies from circuit to circuit, but is typically lenient. However, in a case defended by Jackson Lewis attorneys led by former USDOL Wage and Hour Administrator and current Jackson Lewis Wage and Hour Practice Group Leader Paul DeCamp, Federal Judge J. Phil Gilbert of the Southern District of Illinois recently rejected a plaintiff’s request for conditional certification of a group of store managers. Drew v. Shoe Show, 2011 U.S. Dist. LEXIS 106503 (S.D. Ill. Sept. 19, 2011).

Drew concerned the putative collective action claim of a plaintiff who worked as a store manager for one of defendant’s retail shoe stores in Illinois. She alleged that her primary duties were non-managerial and equivalent to those performed by hourly, non-exempt employees. Specifically, she alleged that she: 1) was not responsible for hiring or firing employees at the store; 2) was not given access to financials and other information relevant to store management; and 3) was subject to intense scrutiny and micromanagement from a district manager, who presided over several stores. In analyzing whether plaintiff’s evidence (which was not supplemented by affidavits of support from other store managers, or other current and former employees) satisfied plaintiff’s obligation to make the “modest factual showing” of a common policy required within the Seventh Circuit and many other courts necessary for conditional certification, the Court noted that in support of her motion, along with her own affidavit, plaintiff pointed only to corporate policies and a job description she believed were applied uniformly across defendant’s store managers.  However, she admitted that her beliefs about store manager duties, other than at her own store, were “based on her limited experience at two or three other [of defendant’s] stores and on several conversations she had with other store managers, but which she cannot recollect with any degree of specificity.” This allegation was further undercut by Defendant’s practice of classifying some store managers as exempt, and others as non-exempt, based on an individual analysis of their duties.

The court concluded that plaintiff had provided “no evidence that, beyond responsibility for those core functions [of store management], all store managers perform similar activities for the same percentage of work time such as they are similarly situated with respect to the question of whether they are properly categorized as exempt under the FLSA.” Absent this showing, the court found that plaintiff failed to meet her burden, and denied conditional certification. 

While defendants in putative misclassification collective actions continue to urge that courts should take the case-by-case, fact-intensive exemption analysis into consideration, many courts continue to permit conditional certification (and notice to putative collective action members) based solely on the affidavit of a named plaintiff alleging a uniformly-applicable job description applied to the duties of all employees holding the position. Employers should consider ease of certification in determining whether to apply a uniform classification to store managers (or any other job title), or to engage in a case-by-case duties analysis before reaching classification decisions. In the same vein, employers should consider the pros and cons of national policies and procedures and job descriptions.

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While this space frequently discusses decisions adjudicating the merits of FLSA plaintiffs’ “off-the-clock” claims, allegations that employees were not compensated for all hours worked, FLSA collective action litigation often does not reach this merits stage of the proceeding. Frequently, courts first review plaintiffs’ claims in the context of determining whether FLSA plaintiffs are “similarly situated” – an elusive and difficult two-stage inquiry. Recently, a federal district court in Pennsylvania analyzed whether a group of some 700+ opt-in plaintiffs in a putative collective action brought against funeral home operator Alderwoods Group were similarly situated. The Court held that they were not. Prise v. Alderwoods Group, 2011 U.S. Dist. LEXIS 101817 (W.D. Pa. Sept. 9, 2011).

Prise concerned claims brought by the named plaintiffs that they, and individuals holding a variety of other non-exempt job titles at defendant’s funeral homes, were not paid for time relating to: “(a) community work; (b) on-call work; (c) overtime preapproval; (d) training for insurance licenses; and, (e) meal breaks.” Id. at * 5.

In analyzing whether all 700 opt-in plaintiffs’ were similarly situated at the second, more stringent stage of the collective action process, the Court reviewed extensive record testimony from numerous plaintiffs across a number of states regarding the similarities and differences in the application of the allegedly “uniform” FLSA policies used by Defendant. This review constituted the required “fact specific review of each class member who has opted-in, taking into account factors such as employment setting, termination procedures, defenses asserted against various plaintiffs, and other procedural issues.” Id. at * 55. This analysis allows the court to consider “1. disparate factual in employment settings of the individual plaintiffs; 2. the various defenses available to defendant which appear to be individual to each plaintiff; and, 3. fairness and procedural considerations.” Id. citing Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1103 (10th Cir. 2001). 

Under this test, the court concluded, particularly in light of recent Western District of Pennsylvania authority as well as the denial of class certification of similar claims in a California lawsuit against the same Defendant, that “each of the factors reviewed for the classes supports decertification…because [plaintiffs] did not set forth substantial evidence that the opt-in plaintiffs are similarly situated to the named plaintiffs. Testimony from sample plaintiffs and management in each class were inconsistent regarding [Defendant’s] compensation practice.” Id at * 86-87.

Prise represents a victory for employers, as the court required the plaintiff to not merely allege a common policy applicable to a broad class of employees, but to adduce evidence through the discovery process supporting such an allegation in order to proceed to trial on a collective action basis. Where plaintiffs failed to do so, the court determined that they could not proceed collectively. Collective action litigation continues to be costly and complex, and employers must continue to take risk management steps to minimize their exposure to FLSA claims, particularly broad collective actions.  

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While courts continue to issue varied rulings regarding the appropriateness of collective action certification in FLSA litigations, employers continue to attempt to limit exposure to such broad allegations through several mechanisms. One of these strategies is inclusion of class/collective waiver provisions in arbitration, employment or separation agreements. Such provisions bar initiation and participation in class or collective claims. The enforceability of such waivers in arbitration agreements recently received a boost from the Supreme Court, which held a California rule which presumptively invalidated such waivers contained in arbitration agreements to be preempted by the Federal Arbitration Act. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744, 179 L. Ed. 2d 742 (2011). 

In one of the first rulings issued applying Concepcion, a Connecticut federal court upheld a class and collective action waiver contained in an arbitration agreement, forcing two of the three named plaintiffs in the lawsuit (which seeks unpaid wages on behalf of a class of exotic dancers) to arbitrate their claims on an individual basis. D'Antuono v. Serv. Rd. Corp., 2011 U.S. Dist. LEXIS 57367 (D. Conn. May 25, 2011). D’Antuono is being defended by Jackson Lewis attorneys including Detroit partner Allan Rubin and Wage/Hour Practice Group head Paul DeCamp. 

The Plaintiffs in D’Antuono were exotic dancers who performed at Defendant clubs pursuant to independent contractor agreements. These agreements provided for the leasing of space within the club by the dancer, and provided that any claims arising under the arrangement between the parties be submitted to individual arbitration. In holding that the two Plaintiffs in D’Antuono who were parties to the agreement at issue were required to submit their claims to individual arbitration (a third Plaintiff was not party to a signed agreement), the Court considered Plaintiffs arguments that the agreement was both procedurally and substantively unconscionable – i.e., that the agreement was formed under unlawful conditions, and that the terms of the agreement itself were unlawful. 

Addressing the former, the Court held that the waiver provision – which was prominently located on page four of the four-page document, above the signature block – was not hidden from Plaintiffs, and that the unequal bargaining power between the parties did not render it “procedurally unconscionable.” As to the latter, the Court rejected the Plaintiffs’ contention that such arbitration would be “prohibitively expensive”, thus requiring invalidation of the agreement. This ruling was made possible in part by Defendants’ agreement not to enforce provisions of the agreements which could drive up expenses (such as the potential shifting of defendants’ attorneys fees to plaintiff if unsuccessful). Citing earlier Connecticut authority, the Court held that Plaintiffs’ claims were large enough to warrant pursuit on an individual basis, and thus the class or collective action mechanism was not necessary to recovery, particularly since the Plaintiffs could recover separate attorneys fees in the contemplated arbitration, just as if proceeding before the Court. Id. citing Pomposi v. Gamestop, Inc., 2010 U.S. Dist. LEXIS 1819 (D. Conn. Jan. 11, 2010).

D’Antuono highlights the potential use of arbitration agreements with class/collective action waiver provisions to avoid class/collective claims. Employers should consider arbitration agreements, as well as numerous other risk-reducing mechanisms, in consultation with counsel to minimize exposure to claims, particularly in areas where class exposure is prevalent.    It is vital to note however that while Concepcion provides high court support for the class waiver concept in the arbitral setting, the law as to the enforceability of such waivers outside of the arbitration context is more unsettled.

[UPDATE]  On June 7, 2011, the Court in D'Antuono granted Plaintiffs' request to certify its Order for interlocutory appeal to the Court of Appeals for the Second Circuit.  D'Antuono v. Serv. Rd. Corp., 11-CV-33, Dkt. Entry 62 (D. Conn. June 7, 2011).  In granting Plaintiffs' request, the Court observed that, in light of Concepcion, "there is now a great deal of uncertainty surrounding the continuing validity of the federal common law of arbitrability doctrines on which Plaintiffs rely" and that the "continuing validity of those doctrines . . . are . . . controlling questions of law." 

[UPDATE]  On August 8, 2011, the Court of Appeals for the Second Circuit denied Plaintiffs’ request for an interlocutory appeal of the ruling compelling arbitration, finding “an immediate appeal is unwarranted.”  D’Antuono et al. v. Service Road Corporation, et al., Case No. 11-2451 at Dkt Entry 17 (2d Cir. Aug. 8, 2011).

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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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As the surge of wage and hour collective actions continues, one strategy utilized by employers to avoid such multi-plaintiff litigations is the use of arbitration agreements with class/collective action waivers.  In essence, such provisions mandate that an employee arbitrate any wage and hour and other (subject to certain limitations) disputes on an individual basis.   Arbitration agreements containing these provisions prohibit individual and collective court actions as well as class/collective arbitration proceedings.  While there are potential hurdles to the enforceability of these agreements -- such as consideration, unconscionability and even (as discussed here) the National Labor Relations Act – in general an arbitration agreement with a well-drafted class/collective action waiver is enforceable as to wage and hour claims.  A recent decision of the United States District Court for the Eastern District of Virginia, Richmond Division, upholding such a class/collective action waiver is instructive.   See Johnson v. Carmax, Inc., 2010 U.S. Dist. LEXIS 70700 (E.D. Va. July 14, 2010). 

In Johnson, plaintiffs filed an FLSA collective action in federal court.  The employer moved to dismiss, asserting that each plaintiff signed an arbitration agreement requiring resolution of all disputes on an individual basis through arbitration.  In granting the employer's motion, the Court relied on the plain language of the relevant documents which "clearly prohibit Plaintiffs from bringing their claim in this Court and furthermore from pursuing this claim on a collective basis in any forum."  

The Court rejected Plaintiffs' assertion that the failure of the relevant documents to mention "collective actions" mandated denial of the motion stating that the documents both specifically referred to FLSA claims being covered and mandated arbitration on an individual basis.  Plaintiffs' argument that the arbitration agreement was procedurally and substantively unconscionable also was not given credence by the court.  Judge James R. Spencer stated that the presence of "alleged unequal bargaining" power based on the fact that the agreement was a condition of employment was insufficient to demonstrate unconscionability.  Similarly, the court held that since all remedies available to each plaintiff through a collective action are available through an individual arbitration proceeding: "[r]equiring Plaintiffs to arbitrate their claims individually does not diminish either the remedial or protective functions of the FLSA."

All employers must not only be vigilant in regard to wage and hour compliance but also constantly analyze potential strategies to limit the breadth of potential actions and properly implement such strategies.  In fact, in another decision issued the same week in the very same federal district, an employer was unable to foreclose potential collective arbitration of wage claims.  Davis v. Terminix International Co., 09-CV-00309 (E.D. Va. July 15, 2010).  In Davis, the arbitration agreement did not expressly address collective action claims, and referred generally to the parties’ obligations being governed by North Carolina’s arbitration statute.  The Court scheduled a hearing to determine whether the arbitration of the wage claims should proceed on a “consolidated” (i.e., collective action) basis with the approximately 30 opt-in Plaintiffs. 

Of course, use of an arbitration agreement poses numerous other considerations for employers.

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As wage and hour litigation continues to be the majority of litigation in the workplace law arena, many employers are faced with defending federal and state law claims in the same federal court lawsuit.  This poses a practical issue as the FLSA provides for an opt-in class while state laws generally provide for opt-out classes.   Many members of the defense bar feel that allowing the actions to coexist in a federal case renders the opt-in process practically irrelevant.  Further, such dual actions often have the result of a minimal opt-in class and a large opt out class.

While district courts within the Second Circuit (which covers New York, Connecticut and Vermont) have held that such claims can coexist in a federal court action, the Second Circuit Court of Appeals has not yet ruled on the issue. Such a ruling is expected in the near future as the Second Circuit recently agreed to consider a restaurant employer’s appeal of the district court’s decision allowing federal and state claims to proceed in a situation where only 22 of approximately 300 of the putative plaintiffs who comprise the state law opt-out class opted in to the FLSA action.  Shahriar et al. v. Smith & Wollensky Restaurant Group Inc. et al., Second Circuit Case No. 10-477-mv (Order dated May 14, 2010). Courts within other Circuits are divided as to the appropriateness of the “hybrid” opt-in/opt-out lawsuit which permits such claims to coexist.  Compare De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 306 (3d Cir. 2003)(upholding refusal to certify 4,000+ member state law opt-out class in wage case with 447 potential opt-in participants) with Lindsay v. Gov't Emples. Ins. Co., 448 F.3d 416 (D.C. Cir. 2006)(reversing denial of certification of state law claim in certified federal action and holding that dual actions are permissible).   

Should the Second Circuit rule that such claims cannot coexist in a federal court action, there may be a significant reduction in wage and hour actions initiated in federal court within the Circuit, as Plaintiffs’ counsel seek solely large opt-out state law classes in New York state courts.  However, such a finding and strategic shift could also have the effect of requiring employers to simultaneously defend parallel cases in federal and state court.  This site will keep you apprised of the Court’s decision.

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On the heels of its ruling in Shady Grove regarding the inapplicability of state procedural rules in federal court (discussed here), on April 19, 2010, the Supreme Court issued a decision reviving another dismissed class action.  In Holster v. Gatco Inc., Case Number 08-1307, the Court granted the appeal petition of an individual seeking to bring a class action in New York federal court under the Telephone Consumer Protection Act (a different law than the one at issue in Shady Grove), and sent the case immediately back to the Second Circuit to consider whether the plaintiff could proceed with a Rule 23 class action in light of Shady Grove. Holster v. Gatco, Inc., 2010 U.S. LEXIS 3118 (U.S. Apr. 19, 2010).  This second ruling reinforces the initial interpretation of Shady Grove: namely, that class actions brought in federal court (including those alleging state law claims under statutes such as the New York Labor Law) are governed by Rule 23, and procedural limitations on those class actions contained in the state’s procedural rules may not apply. 

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In the Second Circuit, employees generally can waive their right to bring a class or collective action as long as the cost of arbitrating the case on an individual basis is not cost-prohibitive  and does not “remov[e] the plaintiff’s only reasonably feasible means of recovery.”  See In Re American Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009).   In late March, Judge Gleeson of the Eastern District of New York analyzed the viability of such a collective/class action waiver in the wage and hour context.  The court upheld the waiver finding that the plaintiffs did not demonstrate that individual litigation would be “cost-prohibitive.”  Judge Gleeson rejected the plaintiffs’ claim that incurring arbitration costs of up to $1,500 to process the arbitration rendered the agreement substantively unconscionable.” See Reid, et al. v. Supershuttle International, Inc., 2010 U.S. Dist. LEXIS 26831 (E.D.N.Y. March 22, 2010).

This decision parallels the Southern District of New York’s recent decision in Arrigo v. Blue Fish Commodities Inc., 2010 U.S. Dist. LEXIS 9547 (S.D.N.Y. Feb. 4, 2010), in which the court also  dismissed an employee’s Fair Labor Standards Act collective action and required him to arbitrate his claim on an individual basis pursuant to the Federal Arbitration Act.  See “Federal Courts in New York Continue to Enforce Arbitration Agreements” http://www.jacksonlewis.com/legalupdates/article.cfm?aid=1989 for a further discussion of this decision and other recent New York federal court decisions addressing mandatory arbitration.

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The Supreme Court dealt a blow to New York wage-and-hour defendants sued in federal court last week, overruling established precedent requiring plaintiffs bringing New York Labor Law (“Labor Law”) class actions in federal court to waive the 25% liquidated damages “penalty” in order to proceed on a class basis.  In Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 2010 U.S. LEXIS 2929 (U.S. Mar. 31, 2010), the Supreme Court applied the age-old test from Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and held that the state law rule requiring such a waiver is “procedural” as opposed to “substantive”, and has no application in federal court, where opt-out class actions are governed by Federal Rule of Civil Procedure 23. 

Class action Labor Law plaintiffs in federal court now may seek a 25% penalty in behalf of all class members, increasing the potential class-wide damages.  It remains a divided question, unanswered by the higher courts, as to whether any wage-and-hour plaintiff may recover the 25% penalty and the 100% liquidated damages under the FLSA for the same time period.  Compare Yu G. Ke v. Saigon Grill, Inc., 595 F. Supp. 2d 240, 261 (S.D.N.Y. 2008) with Jin v. Pac. Buffet House, Inc., 2009 U.S. Dist. LEXIS 74901 at * 24 (E.D.N.Y. Aug. 24, 2009).

Other states containing class action limitations in their state procedural codes, whose federal courts previously had deferred to the state rule, may now also be subject to class actions in federal court seeking relief under the state’s wage-and-hour laws.   However, the Court did not conclusively state that all such provisions were unenforceable but rather focused its analysis on the intent of the New York provision requiring waiver of penalties.

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 In 1981, the Supreme Court issued general guidance as to what an employer can say to “putative class members” In doing so, the Court explained that the judiciary has the power to control communications See generally Gulf Oil v. Bernard, 452 U.S. 89 (1981) (holding a district court has both the “duty and broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties,” including the duty and authority to enter orders limiting communications by class counsel for the plaintiff to members of the class). Since then, counsel for all parties in a class action have wrestled with the strategic and ethical implications of communicating with an individual who is not formally represented by either side (Note: this issue is further confounded by the collective action “opt-in” nature of the FLSA – an issue for another day). 

This communication process is made all the more difficult in the employment context, where management must interact with putative class members on a daily basis – because they still work for you! One recent opinion addressing communications from both plaintiff and defense counsel in a putative class action is Clincy v. Galardi S. Enters., 2010 U.S. Dist. LEXIS 22796 (N.D. Ga. March 12, 2010). In Clincy, a putative collective wage and hour action filed by several dancers at Club Onyx, an adult entertainment night club in Atlanta, counsel for plaintiffs sent a communication about the lawsuit to the homes of dancers who had not joined the lawsuit. In response, counsel for defendants circulated a memo to potential class members, correcting what they perceived to be misleading information contained in plaintiffs’ letter. Id. at * 8-11.

After reviewing these two submissions (and in light of already-substantiated allegations of retaliatory acts by the employer and other Defendants – some of which were partially captured on audiotape by the Plaintiffs), the Court cautioned Defendants strongly against any further retaliation or coercive behavior. Id. at * 10-11. Acknowledging Defendants’ need to communicate with putative participants in order to defend the case, the Court permitted future communication with those individuals, but required that any further written communication contain an “introductory paragraph” with specified language in a font “that is bold and larger than the text contained in the body of the communication”, reading:

This communication represents the opinion of the management of Club Onyx. It is unlawful for Club Onyx, its management, or any other Defendant, to retaliate against employees who choose to participate in this case or assist Plaintiffs' counsel in this case.

Id. 

Interaction with putative class members is one of the most difficult and subtle aspects of class action defense. It is important to consider all of the ramifications of any proposed communication, even when the subject matter does not directly relate to the lawsuit, before implementing a communication strategy. Employers do not want to put themselves in a position whereby by court mandate the credibility of their communication is expressly circumscribed.

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