Paying Bonuses to Non-Exempt Employees: Avoiding Class-Wide Overtime Violations

Employers generally recognize that their non-exempt employees must receive overtime premiums on their base pay – in most cases, their hourly wage – when they work overtime. However, not all employers are as well attuned to the requirement that overtime premiums may also be required on other, “supplemental” components of compensation to nonexempt employees. Bonuses are a common example.

By law, employers are required to pay overtime premiums on non-discretionary bonuses to non-exempt employees when those employees have worked overtime during the timeframe for which the bonus is paid (i.e., whether it is paid on a monthly, quarterly, annual, or other basis). The legal risks involved in violating overtime laws when it comes to non-discretionary bonuses is exacerbated by the fact that this violation is typically repeated as to other non-exempt employees who receive bonuses from the employer. As such, this is a type of violation that plaintiffs’ attorneys often look to bring on a class, collective, and/or representative basis.

However, as suggested by the reference above to “non-discretionary” bonuses, employers are not required to pay an overtime premium on all bonuses. Certain types of bonuses (and other “supplemental” forms of compensation) are excluded from the overtime premium requirement. Federal regulations, which California and other states follow in making these determinations, provide that discretionary bonuses may be excluded. However, this exclusion is very limited. Moreover, like many things in the law, the line between a “discretionary” and a “non-discretionary” bonus is not always clear. Accordingly, employers face risks when they do not pay overtime premiums on bonuses on the premise that the bonus falls under the definition of a “discretionary” bonus. Amongst the guidance provided by federal regulations is that “the employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement . . . If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it.” Conversely, “[a]ttendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time payment is to be made and the like” fall in the “non-discretionary” category.

Employers who pay “holiday” or “end of the year” bonuses should also be cognizant of the potential requirement to pay overtime premiums on these payments. Federal regulations provide that “gifts made at Christmas time or on other special occasions, as a reward for service, the amount of which are not measured by or dependent on hours worked, production or efficiency” are excluded from overtime premium requirements. However, in a similar vein, if the amount of the gift, holiday or special occasion award is determined by hours worked, production, or efficiency, this exclusion is lost.

Ultimately, employers who pay bonuses and other forms of “supplemental” compensation to non-exempt employees should be cognizant of the potential requirement to pay overtime premiums on these payments and should consider seeking legal guidance in connection with their bonus programs. The need for proper guidance is especially important due to the class, collective, and/or representative action risks presented by violating this aspect of the law.

Class Action Fairness Act Author Introduces New Bill That Would Drastically Reform Class Action Litigation

House Judiciary Committee Chairman Bob Goodlatte (R-Va.), the author of the Class Action Fairness Act, introduced the “Fairness in Class Action Litigation Act of 2017” last week that would substantially change class action litigation to “assure fairer, more efficient outcomes for claimants and defendants.” The House Judiciary Committee approved the bill on February 15th by a vote of 19-12.

The bill (H.R. 985 available here), seeks to “maximize recoveries by deserving victims, and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.” What does this mean and, if passed, how will it affect class actions moving forward? Here are some of the highlights:

Class certification based on type and scope of injury. The bill would require class members to demonstrate that each proposed class member “suffered the same type and scope of injury as the named class representative or representatives.” The practical effect of this requirement would be a decrease in class actions where the plaintiffs have a wide variety of damages (or none at all).

Additionally, an order issued under Rule 23(c)(1) that certifies a class seeking monetary relief for personal injury or economic loss must include a determination, “based upon a rigorous analysis of the evidence presented,” that the requirement described above was met.

Explicit ascertainability requirement. While many Circuits have held there is an implied requirement of ascertainability, the bill would require plaintiffs to affirmatively demonstrate that there is “a reliable and administratively feasible mechanism” for the court to determine whether putative class members fall within the class definition and for distributing funds to them directly.

Attorneys’ Fees. In a class action seeking monetary relief, “no attorneys’ fees may be determined or paid . . . until the distribution of any monetary recovery to class members has been completed.” Further, the bill mandates that unless otherwise specified under federal statute, if a judgment or proposed settlement provides for a monetary recovery, the portion of attorneys’ fees to class counsel are “limited to a reasonable percentage of any payments directly distributed to and received by class members.” Under no circumstances can the fee award “exceed the total amount of money directly distributed to and received by all class members.”

For class actions that provide equitable relief, the bill requires that any portion of attorneys’ fees be limited to “a reasonable percentage of the value of the equitable relief, including any injunctive relief.”

Mandated reporting regarding funds paid.   Attorneys’ fees may not be paid to class counsel until an accounting of the disbursement of all funds paid by the defendant pursuant to the settlement agreement is submitted to the Director of the Federal Judicial Center and the Director of the Administrative Office of the United States Courts. This accounting must include, among other things, the total amount paid to all class members, the actual or estimated total number of class members, the average amount paid, the largest amount paid to any class member, each amount paid to any other person (including class counsel) and the purpose of the payments.

Class action attorneys cannot represent relatives and other conflicts of interest rules. The bill would prohibit federal courts from granting certification of any class action in which “any proposed class representative or named plaintiff is a relative of, is a present or former client of (other than with respect to the class action), or has any contractual relationship with (other than with respect to the class action) class counsel.

Discovery stay. All discovery would be stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

Appeals of certification orders. Currently, appeals of certification grants or denials are available now only upon discretion of the appeals court. The bill would require that the appeals court “shall permit an appeal from an order granting or denying class-action certification under Rule 23 of the Federal Rules of Civil Procedure.”

Goodlatte stated in his remarks during the House Judiciary Committee’s markup of H.R. 985 that “[f]ederal judges are crying out for Congress to reform the class action system, which currently allows trial lawyers to fill classes with hundreds and thousands of unmeritorious claims and use those artificially inflated classes to force defendants to settle the case.” A copy of Goodlatte’s full remarks can be found here.

We will continue to monitor how this proposed bill progresses in the current Congress. For more information or to discuss the potential implications of this bill in more detail, please contact the attorney(s) listed or the Jackson Lewis attorney with whom you regularly work.

ALERT: United States Supreme Court Delays Oral Argument in Class Action Waiver Cases

Yesterday, the United States Supreme Court notified the parties in National Labor Relations Board v. Murphy Oil USA, Case No. 16-307; Epic Systems Corp. v. Lewis, Case No. 16-285; and Ernst & Young LLP v. Morris, Case No. 16-300 that the cases will be heard in October 2017. Jackson Lewis has represented Murphy Oil USA throughout these proceedings. As reported in Jackson Lewis’ earlier post, on January 13, 2017, the Supreme Court consolidated the three cases and granted certiorari. The cases generally present the question of whether class action waivers in employment arbitration agreements violate the National Labor Relations Act. We anticipate that by October, the vacancy on the Court will be filled.

We will keep you informed on the issue. In the meantime, please contact Jackson Lewis P.C. if you have any questions about drafting or enforcing arbitration agreements.

Are You Ready for Some Football? A Pocket Playbook for HR Managers Navigating Competitive Recruiting

The Patriots, Falcons, and . . . class actions?

Just five days before Super Bowl LI, the intersecting crosshairs of antitrust and employment law class actions zeroed in on its latest target: the National Football League. On January 31, 2017, a former cheerleader for the San Francisco 49ers filed a putative class action in the Northern District of California, alleging that the NFL and its member teams conspired to suppress cheerleader wages. Doe v. NFL Enterprises LLC, et al. (N.D. Cal. Case No. 3:17-cv-00496-MEJ).  Specifically, the NFL and its member teams allegedly conspired to:

  1. Refrain from recruiting cheerleaders from fellow teams;
  2. Pay cheerleaders a low, flat wage for each game performed;
  3. Not pay cheerleaders for time spent rehearsing;
  4. Not pay cheerleaders for time spent on various community outreach events;
  5. Prohibit cheerleaders from being employed by other professional cheerleading teams, not just within the NFL;
  6. Prohibit cheerleaders from discussing their earnings with each other in an effort to suppress earnings by ensuring that they would not become aware of the nature of their employment and compensation, thus further depressing and suppressing the market; and
  7. File with the NFL all cheerleader contracts to ensure participation with and enforcement of the conspiracy.

This, of course, falls on the heels of the now-resolved litigation that roiled Silicon Valley regarding allegations of similar anti-poaching and wage suppression conspiracies.

So what is an HR Manager to do? The competition for talented and skilled employees is fierce, and it can often feel like your competitors are constantly picking-off your best and brightest.  Is there a way to stop the bleeding, both in terms of employees and the company’s pocketbook?

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have issued some guidance to HR professionals on the issue.[1]  The bad news: naked agreements between competitors to fix employee wages or refrain from soliciting or hiring a competitor’s employees are per se illegal and may subject the company, you, or both to criminal prosecution.  The somewhat better news: there is a way for competing employers to share employee wage and recruiting information.  The DOJ and FTC have established an “antitrust safety zone,” wherein wage and recruiting information sharing is permissible if (1) a neutral third party manages the exchange; (2) the exchange involves information that is relatively old; (3) the information is aggregated to protect the identity of the underlying sources; and (4) enough sources are aggregated to prevent competitors from linking particular data to an individual source.  It’s a small island of sanctuary, and the sharing of old information may not be entirely useful, but you’ll avoid a class action or, worse, prosecution.

So, enjoy your Super Bowl Sunday, no matter who you’re rooting for. And remember, sometimes the safety zone is a good thing.

[1] https://www.ftc.gov/system/files/documents/public_statements/992623/ftc-doj_hr_guidance_final_10-20-16.pdf

The Impermissible “Fail-Safe” Class under Federal Rule of Civil Procedure 23

The Supreme Court, in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), set a high standard for class certification under Federal Rule of Civil Procedure 23 (“Rule 23”).  Under Rule 23(a), the party seeking certification must demonstrate that: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.  Fed. R. Civ. P. Rule 23.  Additionally, the proposed class must satisfy at least one of the three requirements in Rule 23(b).  Id.  In determining whether these requirements are met, the Supreme Court has instructed district courts to conduct a “rigorous analysis,” which frequently “will entail some overlap with the merits of the plaintiff’s underlying claim.”  Dukes, 131 S. Ct. at 2551.

Several Circuits also recognize an “implied requirement of ascertainability” in Rule 23. See, e.g., Brecher v. Republic of Argentina, 802 F.3d 303, 304 (2d Cir. 2015); Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 538 (6th Cir. 2012).  In essence, among other things, a class must be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member.”  Brecher, 802 F.3d at 24.  A so-called “fail-safe” class is “one that is defined so that whether a person qualifies as a member depends on whether the person has a valid claim,” and thus the existence of the claim “cannot be ascertained until the conclusion of the case, when liability is determined.”  Zarichny v. Complete Payment Recovery Servs., 80 F. Supp. 3d 610, 623 (E.D. Pa. 2015); see also Erin L. Geller, The Fail-Safe Class as an Independent Bar to Class Certification, 81 Fordham L. Rev. 2769, 2775 (2013) (noting that “[c]ourts have recognized that class definitions are inadequate when the definition does not allow for an ascertainable class, finding it “axiomatic” that for a class action to be certified a class must exist”).  For example, in Zarichny, plaintiffs’ putative TCPA class was comprised of individuals who received telephone calls initiated using an automatic telephone dialing system without the recipient’s “prior express consent,” which the court determined to be a “fail-safe” class.  Zarichny, 80 F. Supp. 3d at 625.

Further, “[t]he class must…be defined in such a way that anyone within it would have standing.” Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006). Federal courts have recognized that, if a class definition is “so broad that it sweeps within it persons who could not have been injured by the defendant’s conduct, it is too broad.” Kohen v. Pac. Inv. Mgmt. Co. LLC & PIMCO Funds, 571 F.3d 672, 677 (7th Cir. 2009).

While not all courts agree on the treatment of these fail-safe classes, the Seventh Circuit recently issued a decision affirming the district court’s order denying class certification, in part because plaintiffs failed to define an ascertainable class.  In McCaster v. Darden Rests., Inc., No. 15-3258, 2017 U.S. App. LEXIS 213 (7th Cir. Jan. 5, 2017), Plaintiffs Demiko McCaster and Jennifer Clark, employees at two different restaurants owned by Darden Restaurants, Inc., alleged that Darden failed to pay accrued vacation pay allegedly owed to them upon separation in violation of the Illinois Wage Payment and Collection Act (“IWPCA”).  Plaintiffs’ proposed class definition consisted of all individuals subject to the vacation policy at issue “who did not receive all earned vacation pay benefits.”  Id. at *5.  The district judge rejected this definition because it described an improper fail-safe class.  Upholding this decision, the Seventh Circuit agreed, holding that this definition “plainly turns on whether the former employee has a valid claim.  That is a classic fail-safe class, and the district judge properly rejected it.”  Id. at *10.  Alternatively, plaintiffs’ fallback argument suggested removing the defective, fail-safe language from the class definition, which the district court also rejected, for failure to satisfy the requirements of Rule 23.  The Seventh Circuit agreed that the alternative class definition failed to satisfy the commonality requirement under Rule 23.  Plaintiffs failed to identify any unlawful conduct on defendant’s part that spanned the entire class and caused all class members to suffer the same injury.  Rather, plaintiffs simply argued that some separated employees did not receive all the vacation pay that they were due under the applicable policy.  The Seventh Circuit recognized that while that “may be true . . . establishing those violations (if there were any) would not involve any classwide proof.”  Id. at *13.  A copy of the McCaster opinion can be accessed here.

Decisions like McCaster highlight the critical importance of scrutinizing proposed class definitions, not only to ensure that they meet the explicit requirements of Rules 23(a) and 23(b), but also to ensure that they are not impermissible fail-safe classes.  By failing to identify and reject such circular class definitions, courts and parties are placed in the unmanageable position of litigating class actions where the putative class members cannot be ascertained until the case has been fully litigated on the merits—a result that turns the Rule 23 process completely on its head.

ALERT: United States Supreme Court Agrees to Review Class Action Waiver Cases

Earlier today, the United States Supreme Court granted certiorari in National Labor Relations Board v. Murphy Oil USA, Case No. 16-307, Epic Systems Corp. v. Lewis, Case No. 16-285 and Ernst & Young LLP v. Morris, Case No. 16-300, consolidating them for argument. The three cases present the question whether class action waivers in employment arbitration agreements violate the National Labor Relations Act (“NLRA”).  The Supreme Court’s action promises the much-anticipated resolution of the circuit split on the issue.

Background

Arbitration agreements that require employees to pursue claims in arbitration rather than in court have long been enforced pursuant to the Federal Arbitration Act (“FAA”). Due to a series of Supreme Court decisions, employers increasingly have included class and collective action waivers in such agreements. However, the National Labor Relations Board (“NLRB”) has taken the position that employers violate the NLRA when they make such waivers in arbitration agreements a condition of employment.

Disagreeing with the NLRB, in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013) and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), the United States Court of Appeals for the Fifth Circuit generally held that class and collective action waivers do not violate the NLRA.  Since then, the Second and Eighth Circuits followed the Fifth Circuit and enforced arbitration agreements requiring employees to submit their employment claims to individual arbitration. (Click for more information on the D.R. Horton case.)

Last May, the Seventh Circuit created a circuit split in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), holding that arbitration agreements that prohibit employees from bringing or participating in class or collective actions violate the NLRA.  Most recently, in Morris v. Ernst & Young, No. 13-16599, 2016 U.S. App. LEXIS 15638 (9th Cir. Aug. 22, 2016), the Ninth Circuit agreed with the Seventh Circuit and the NLRB. (Click for more information on the Epic Systems Corp. case and the Ernst & Young case.)

In September 2016, the employers in Epic Systems Corp. and Ernst & Young and the NLRB in Murphy Oil each petitioned the Supreme Court to decide the issue once and for all. Reflecting the state of uncertainty on the issue, cases presenting this same question are currently before several other Courts of Appeals.

Analysis of Supreme Court’s Action

Given the issue’s importance and the requests by both employers and the NLRB to have the Supreme Court decide the issue, it is unsurprising that the Supreme Court granted certiorari and consolidated these cases. In the past, critical Supreme Court’s decisions regarding class action waivers (albeit outside the employment context) were decided by 5-4 and 5-3 votes and were authored by the late Justice Antonin Scalia. By the time the Court decides the issue, Justice Scalia’s replacement is likely to be on the Court.

Following the Supreme Court’s decision today, the Petitioners’ merits briefs will likely be due within 45 days from today, the Respondents’ briefs will likely be due 30 days after the Petitioners’ briefs are filed, and reply briefs will likely be due 30 days thereafter.  Still, the briefing schedule may be slowed, as many amicus briefs are anticipated.

Until the Supreme Court decides the matter one way or another, employers with such waivers will continue to face an uncertain landscape. We will keep you informed on the issue. In the meantime, please contact Jackson Lewis P.C. if you have any questions about drafting or enforcing arbitration agreements.

Employee Cannot Maintain Collective Action for Employer’s Failure to Post FMLA Notice

We all know that the FMLA is fraught with pitfalls that can lead to costly mistakes. But a collective action for simply failing to post a notice?  On January 6, 2017 a U.S. District Court in Maryland rejected such an attempt.  In Antoine v. Amick Farms, LLC the plaintiffs claim that a class of employees were prejudiced by the company’s failure to post a notice of FMLA protections because they did not know they had the right to request or take protected FMLA leave.  The Court held that there is no private right of action by an individual based on an employer’s failure to post the general FMLA notice required by the regulations.  Only the Department of Labor (“DOL”) has the authority to enforce the posting requirement and seek penalties against the employer.  It is important to note, however, that the decision is limited to the general notice requirements of the FMLA, and not the individual notice requirements.

The FMLA requires two types of notice by employers. The “general” notice provision requires an employer to post a DOL approved notice summarizing the provisions of the FMLA and the rights provided to employees.  The regulations state that the DOL may issue a civil penalty against an employer who fails to meet the posting requirements.  The FMLA also requires that employers provide an “individual” notice to affected employees regarding their rights and responsibilities and whether an absence qualifies under the FMLA.  Failure to comply with the individual notice requirements may constitute an interference with the exercise of an employee’s FMLA rights and result in liability to the employee.

In addition to the collective action for failure to post the general notice, the plaintiffs in Antoine v. Amick Farms also brought claims for violation of the individual notice requirements which were not dismissed and will proceed through the litigation process.  This is a good reminder to check on your FMLA general notice postings and your process for providing individual notice.  Once an employer is aware that an employee is taking time off that is potentially FMLA-qualifying, the employer must, within five business days, notify the employee of his or her eligibility to take FMLA leave and the employee’s rights and responsibilities under the FMLA.  Individual notice requirements also include the requirement to notify the employee in writing whether the leave will be designated as FMLA leave and the specific amount of leave that will be counted against the employee’s FMLA leave entitlement.

Jackson Lewis Class Action Trends Report Winter 2016 Now Available

Below is a link to the latest issue of the Jackson Lewis Class Action Trends Report.  This report is published on a quarterly basis by our firm’s class action practice group in conjunction with Wolters Kluwer.  We hope you will find this issue to be informative and insightful.  Using our considerable experience in defending hundreds of class actions over the last few years alone, we have generated another comprehensive, informative and timely piece with practice insights and tactical tips to consider concerning employment law class actions.

Jackson Lewis Class Actions Trends Report – Winter 2016

ALERT: Former EEOC General Counsel to Join Outten & Golden LLP’s New Office

David Lopez, who served as General Counsel of the Equal Employment Opportunity Commission for six years and served the EEOC in various capacities for approximately 25 years, is joining Outten & Golden LLP on January 1, 2017, in its new Washington, D.C. office.  He will join the firm as a Partner, and his practice will focus primarily on class action anti-discrimination litigation, as well as cases involving individual plaintiffs.  Outten & Golden is also in the process of hiring additional attorneys to round out the ranks of its new office.

Employers around the country, and those in the Washington D.C. area in particular, should take note of Lopez’s new position and firm, since it will likely result in an increase in employment class actions both in the D.C. area and nationwide. For employers who may be concerned about their potential exposure to liability on a classwide basis, please contact a Jackson Lewis attorney in your area or Stephanie Adler-Paindiris at Stephanie.Adler-Paindiris@jacksonlewis.com.

 

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