Department of Labor’s New Overtime Final Rule Carries Class Action Risk

The U.S. Department of Labor’s new Final Rule as to the Fair Labor Standards Act’s “white collar” exemptions to overtime could open employers up to class action liability as previously exempt employees fail to meet new salary requirements.

On May 18, 2016, President Obama and Secretary of Labor Thomas Perez announced the Department of Labor’s publication of a new Final Rule governing overtime under the executive, administrative, and professional exemptions to the FLSA’s overtime provisions—commonly referred to as the “white collar” exemptions. Readers interested in the finer details of the Final Rule should review the Jackson Lewis Wage and Hour Practice Group’s post on the subject.

In brief summary, the new Final Rule, which becomes effective on December 1, 2016, more than doubles the required salary threshold for the white collar exemptions to apply, increasing the annual salary threshold from $23,660 ($455 per week) to $47,476 ($913 per week). The Final Rule also raises the minimum threshold for an employee qualify under the “highly compensated employee” exemption from $100,000 to $134,004 in total annual compensation. Per the terms of the Final Rule, these thresholds will be automatically adjusted every three years.

These changes will effectively “un-exempt” large swathes of employees nationwide—the Department of Labor estimates over four million in the first year. As a result, following the effective date of the Final Rule, larger employers may be particularly vulnerable to class actions filed by employees who have been rendered non-exempt by the new salary thresholds. Lower level managers, administrative employees, and other professionals working for larger nationwide employers may be ripe for class certification where the common issue affecting all potential class members would be the simple question of whether each employee earns enough compensation to meet the new requirements.

Given these new developments, employers would be well-served to engage in wage and hour audits to identify possible exposure and review potential courses of action to address the issue before the Final Rule goes into effect.

The Jackson Lewis Wage and Hour Practice Group has published a useful webinar as to the Final Rule, which can be found here. Employers seeking advice should contact the Jackson Lewis attorney with whom they regularly work for further information.

Supreme Court Review Likely After Seventh Circuit Creates Split on Class and Collective Action Waivers

Setting the stage for U.S. Supreme Court review, the U.S. Court of Appeals for the Seventh Circuit has held that arbitration agreements that prohibit employees from bringing or participating in class or collective actions violate the National Labor Relations Act. Lewis v. Epic Systems Corp., No. 15-cv-82-bbc (7th Cir. May 26, 2016). This holding is contrary to that of the Second, Fifth, Eighth, and Ninth Circuit Courts of Appeals.

For complete information about the decision and a summary of its potential implications for employers, click here.

Fourth Circuit Allows Casino Workers to Proceed With Putative Class and Collective Action For Unpaid Training Time at “Dealer School”

The Fourth Circuit recently decided in Harbourt v. PPE Casino Resorts Maryland, LLC that casino workers may proceed with a putative class action alleging that their unpaid attendance at a Maryland casino’s “dealer school” violated the Fair Labor Standards Act (“FLSA”) and Maryland wage laws.

Background

Plaintiffs alleged that the Casino advertised for dealer positions after Maryland authorized the operation of table games.  The Casino invited approximately 830 applicants, including the named plaintiffs, Claudia Harbourt, Michael Lukoski and Ursula Pocknett, to attend a free twelve-week “dealer school” to be “held in conjunction with Anne Arundel County Community College” and aimed at teaching them “how to conduct table games” at the Casino.

The dealer school was scheduled for twenty hours per week over twelve weeks. Plaintiffs alleged that the advertised community college had no involvement in the school and the Casino authored the materials and provided the instruction.  Attendees completed new hire paperwork, submitted to a drug test and provided the Casino with information to conduct background checks required for the attendees to obtain gambling licenses.

Plaintiffs Harbourt and Pocknett attended the dealer school for eight and eleven weeks, respectively, and were not paid for their attendance.  Plaintiff Lukoski attended the dealer school for the full twelve weeks and began working as a dealer at the Casino.  He received minimum wage of $7.25 per hour for the last two days of his attendance at the dealer school.

Plaintiffs filed a putative class and collective action lawsuit asserting violations of the FLSA and Maryland wage laws claiming their time spent at the dealer school was compensable.  The district court granted the Casino’s motion to dismiss, finding that Plaintiffs “failed to show that the primary beneficiary of their attendance at the training was the Casino rather than themselves” and therefore the time spent at the dealer school was not compensable.

Decision on Appeal

The Fourth Circuit reversed, finding that Plaintiffs sufficiently alleged that those who attended the training school were employees performing “work” for the Casino within the meaning of the FLSA and Maryland wage and hour laws.  The Court relied on the Plaintiffs’ allegations that the Casino received an immediate benefit in a trained workforce of over 800 dealers, “the training was unique to the Casino’s specifications and not transferrable to work in other casinos” and attendees were paid minimum wage for the last two days of the dealer school, which suggested that the Casino considered the attendees working for at least those two days.  The Fourth Circuit also found sufficient allegations to conclude that the Casino “conceived or carried out” the dealer school in an effort to avoid paying minimum wage by advertising that the school was associated with a community college, when in fact the college had no involvement.

Takeaway

While the Fourth Circuit did not express an opinion about the likelihood of Plaintiffs’ success on the merits and noted that “[t]he fact that table games were not in operation during the training well may prove an insurmountable obstacle[,]” Harbourt is an important reminder for employers that  training may constitute compensable time under the FLSA and state wage and hour laws, particularly where the primary purpose of the training is to benefit the employer.

Ninth Circuit Affirms Dismissal of Wage-Hour Class Action Where Employees Could Edit Their Own Time Entries

In a case that could be of significant benefit to employers in California and elsewhere around the country, the Ninth Circuit Court of Appeals recently affirmed a ruling that plaintiffs failed to satisfy the “commonality” requirement essential to a collective action on their wage-hour claim where they had the authority to edit the time entries that served as the basis for their claim. Coleman v. Jenny Craig, Inc., 2016 U.S. App. LEXIS 7164 (April 6, 2016).

Plaintiff Hashonna Coleman brought suit against Jenny Craig, Inc. on behalf of herself and other current and former employees for alleged violations of the Fair Labor Standards Act (“FLSA”) and various California Labor Code sections providing for overtime payments and premiums for failure to provide or pay for meal and rest periods. With respect to the proposed Meal and Rest Break Class, Coleman alleged that Jenny Craig had a common practice of forcing hourly employees to miss meal breaks or take short or late meal breaks, and that the payroll system only paid the (California) required premium when employees’ timecards showed an entirely-missed meal break.

The evidence showed that Jenny Craig’s uniform compensation system was not programmed to automatically pay employees the premiums for short or late lunches, because employees were able to submit time edit requests for premiums whenever their meal breaks were short or late. The district court concluded that this feature of the Company’s payroll system did not amount to a policy or practice of non-payment of premiums for short of late lunches, because employees themselves could edit and correct any time entries they believed did not accurately reflect their hours worked. The district court concluded that the plaintiffs did not satisfy the “commonality” requirement for class certification and therefore it denied Plaintiff’s motion to certify a class.

The Ninth Circuit affirmed the lower court’s ruling and held that, for Coleman to show commonality on her claims, she must show a common practice of Jenny Craig to force employees to take short or late meal breaks, but that a common practice of simply not paying wage premiums, standing alone, is insufficient to show commonality under the FLSA and California statutes. Since the lower court found that Jenny Craig did not have a common practice of forcing employees to take short or late meal breaks, the Ninth Circuit held that the court was correct in finding that Coleman had not proven the existence of a common practice necessary to maintain a class claim.

The pivotal fact upon which the class certification question turned for the Ninth Circuit was that employees had the opportunity to edit their own time entries to ensure that they were paid for time worked if they had short or late meal breaks. Any employer with a time keeping system which provides employees the opportunity to review, edit and certify their time entries will arguably be in a position to assert that fact as a defense to any collective action wage claims they may face.

Employers Beware of Phishing Scams

On April 20, 2016, a class action lawsuit was filed in the United States District Court, Southern District of California against Sprouts Farmers Market, Inc. The lawsuit was initiated by a former employee whose W-2 was allegedly disclosed as part of a phishing scam that occurred in late March 2016 amid reports that Sprouts’ employees had their IRS tax refunds stolen. According to the complaint, the W-2s of Sprouts’ employees were disclosed to a third party as a result of the phishing scam.

This sort of internet scam, referred to as “phishing,” occurs when someone attempts to acquire sensitive or confidential information under the guise of a legitimate request. For the average internet user, phishing scams often come in the form of a fake email from a bank or other financial institution asking you to click on a link to confirm your password on a web site that looks like a legitimate web site for the business. The fake web site often uses the actual logos and branding from a legitimate site to trick the user.

In this case, the complaint alleges an email was sent to an employee in the payroll department asking for the W-2s of all Sprouts’ workers by a Sprouts executive. The employee responded to the email sending the W-2s of approximately 21,000 Sprouts employees. Unfortunately, Sprouts later discovered that the original email requesting the information was not legitimate, and notified the authorities.

The class action complaint alleges that Sprouts was negligent in its protection of private employee information, violated California Civil Code sections 1798.80 et seq. (including California’s data breach law), and engaged in unfair business practices in violation of California Business and Professions Code section 17200. The complaint alleges that while Sprouts offered credit monitoring services for 12 months for the impacted employees, the service chosen did not protect against identity theft, and only notifies the consumer after identify theft or other fraudulent activity has occurred. The complaint also alleges that Sprouts had “lax” security procedures for its employee data, and concealed that fact from its employees.

This case highlights the necessity that employers have protocols in place to protect employee information, and the risks associated with not having such protocols in place.

Facebook Files Motion to Dismiss Birthday Text Messages Class Action

Facebook, Inc. (“Facebook”) recently filed a motion to dismiss class action claims alleging that Facebook sent unsolicited text messages to users containing birthday announcements in violation of the Telephone Consumer Protection Act (“TCPA”). The TCPA generally restricts telephone solicitations (i.e., telemarketing) and the use of automated telephone equipment, and limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines.

Plaintiff Colin Brickman filed a putative class action on February 12, 2016, “to stop Facebook’s practice” of sending unsolicited and unauthorized text messages announcing that it is a Facebook friend’s birthday and stating “[r]eply to post a wish on his timeline or reply with 1 to post ‘Happy Birthday!’” A copy of the Complaint is available here.  Plaintiff alleges that these text messages are in violation of individuals’ statutory and privacy rights and, further, that individuals are paying to receive messages that were sent without their prior express consent (this latter argument would only be applicable to consumers that do not have an unlimited text messaging cell phone plan).  The benefit to Facebook, plaintiff alleges, is significant, as the messages encourage interaction among users on its site, and any time its users interact the company earns revenue.

In its motion to dismiss, Facebook argues that (1) plaintiff fails to plausibly allege that Facebook sent the birthday text message with an “automatic telephone dialing system,” as defined by 47 U.S.C. §227(a)(1), (2) plaintiff provided express consent to receive calls from Facebook, and (3)  the TCPA violates the First Amendment on its face as applied to the birthday text message at issue. Facebook states in its motion that plaintiff brought a putative class action under a statute that protects against mass telemarketing and spam, however plaintiff gave Facebook his cell phone number and received personalized messages regarding his friends, in contrast to the mass communications that the TCPA intends to prohibit. Further, Facebook argues that plaintiff  consented to receiving birthday messages by providing the company with this wireless number. “Unlike cases involving ‘recycled phone numbers’ or other cases involving disputes over whether a plaintiff provided his phone number, plaintiff’s admission makes this a textbook case of prior express consent,” Facebook said. Facebook also argues that, if the Court does find the TCPA applicable to the birthday text messages at issue, the Court should find the statute itself in violation of the First Amendment on the basis that it’s a content-based restriction of speech that cannot survive strict scrutiny.

In its motion Facebook also questions whether plaintiff has sufficient standing under Article III to assert a TCPA claim since plaintiff alleges that “individuals frequently pay their cell phone service providers for the receipt of . . . unwanted texts,” yet fails to allege that he pays for receipt of each of his text messages (as opposed to having an unlimited text messages cell phone plan, in which case he would not have suffered any economic harm). Facebook cites to the pending Spokeo, Inc. v. Robins case, pending before the  Supreme Court, to support  this argument. See more here.  If the Facebook complaint survives dismissal and the suit proceeds, plaintiff can seek $500 per violation, i.e. each text message, or $1,500 per violation if plaintiff can show a willful violation. A copy of Facebook’s pending motion can be found here.

U.S. Supreme Court Finds Representative Statistically-Valid Evidence Supports Wage-Hour Class Certification

In a case for overtime compensation for time spent by workers putting on and taking off protective gear, the U.S. Supreme Court in a 6-2 ruling has upheld the use of representative sampling as evidence for common claims among the class action plaintiffs, workers killing hogs and trimming pork products at processing plants in Iowa. Tyson Foods v. Bouaphakeo, No. 14-1146 (Mar. 22, 2016).

Contending they were due overtime pay, the workers sought certification of their Fair Labor Standards Act claims as a “collective action” and certification of their state claims as a class action under Federal Rule of Civil Procedure 23. (The state claims were brought under Iowa’s wage payment statute, which the parties assumed required the same proof as for the FLSA claim.)

Before certifying a class under Rule 23, a district court must find that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The parties agreed that the most significant question common to the class was whether donning and doffing protective gear is compensable under the FLSA. The company claimed that individual inquiries into the time each worker spent donning and doffing predominated over this common question. The workers argued that individual inquiries were unnecessary, because it could be assumed for purposes of establishing liability that each employee donned and doffed for the same average time observed in a study done by their industrial-relations expert.

The plaintiffs relied on the study done by an industrial-relations expert to show the amount of time the workers spent donning and doffing because the employer did not keep records of this time. The study drew on a representative sample of 744 observations of workers. The federal district court agreed to allow the study as evidence and certified the class and a jury awarded about $2.9 million in unpaid wages to the class of 3,344 members. The appellate court affirmed the district court decision and the U.S. Supreme Court, in turn, affirmed the lower court decisions.

Justice Anthony Kennedy, writing for the majority, said “a representative or statistical sample, like all evidence, is a means to establish or defend against liability.” If a sample is good statistical analysis, it is admissible to establish a common class. The Court has allowed this kind of evidence into a trial of a class action or other type of case, depending “on the degree to which the evidence is reliable in proving or disproving the elements” of the legal claim at stake, since its decision in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946).

On the facts of this case, the majority found the use of the “representative evidence,” which was not explicit as to each individual worker, is proper to show the group could have had the same legal claim, without having to prove it individually. The decision is notable in its limited holding. The Court’s decision applies only to cases in which the courts have determined that the representative evidence offered by the plaintiffs is a statistically valid sample that can be extrapolated to show the amount of time for the class as a whole. This determination was not contested on appeal in Bouaphakeo. The decision’s impact, therefore, is likely to be limited.

Chief Justice John Roberts filed a concurring opinion in which Justice Samuel Alito joined, in part, while Justice Clarence Thomas filed a dissenting opinion in which Justice Alito joined also. Justice Roberts’ concurrence highlights the narrowness of the decision, noting that this decision does nothing to solve the problem of what to do with class members for whom the average amount of off-the-clock time fails to establish liability.

Court Denies Class Certification in Telephone Consumer Protection Act Case, Citing Plaintiff’s “Unique” Circumstances

For employers who are facing class claims under the Telephone Consumer Protection Act, you may have more support for your defense: The U.S. District Court for the Southern District of California recently granted Wilshire Consumer Capital’s (WCC) motion to deny class certification in a putative class action filed under the TCPA.

Judge Roger T. Benitez found that although the plaintiff was probably annoyed by the robocalls at issue, her case was “unique to herself and perhaps a small subset of the class”: Her father was a frequent user of the phone, and therefore there was a factual issue as to whether he may have consented to the calls. Based upon such facts, the court held that “the majority of the proposed class may suffer as Plaintiff will be engrossed with disputing WCC’s arguments regarding Plaintiff’s individual case.” For employers looking to distinguish the named plaintiff in their own TCPA cases, this case may have your number.

For additional details regarding the decision, please see the post from our colleagues in the Privacy, e-Communication and Data Security Group

 

For Employers in California, New Proposed “PAGA Unit” of State Agency May Complicate PAGA Representative Actions

Governor Jerry Brown of California recently submitted a proposed budget for the 2016-17 fiscal year which contains significant proposed changes to the operation of the Labor & Workforce Development Agency (“LWDA”), the agency responsible for overseeing the Private Attorney Generals Act of 2004 (“PAGA”), including the creation of a “PAGA Unit” with the authority to intervene and object to the adequacy of the settlement funds designated to PAGA claims. At this point, legislation is still required to effectuate the proposed changes, but employers should monitor the issue as developments occur.

For more information, see Jackson Lewis’ California Workplace Law Blog: http://www.californiaworkplacelawblog.com/2016/02/articles/calosha-2/governor-browns-proposed-paga-unit-may-have-power-to-challenge-paga-settlement-in-court/

 

Is Equal Pay the Next Big Thing in Class Actions?

On February 1st, the EEOC announced it would begin requiring employers to submit information on employee wages and work hours broken down by gender, race and EEO-1 category as part of its annual EEO-1 reporting process.  For the first time, the EEOC (and the OFCCP) will have nationwide data on employee pay to help identify employers who may be unwittingly contributing to the wage gap by paying women less than men for the same type of work without a legitimate business reason for doing so, or by steering women into lower paying positions.  There is no doubt this will lead to an increase in class-based investigations by EEOC under Title VII and the Equal Pay Act.

 

But the EEOC is not the only one looking closely at equal pay issues. Indeed, the EEOC’s announcement comes at a time when the nation is experiencing a heightened awareness of equal pay issues.  National celebrities like Patricia Arquette are speaking out on the issue sparking a public debate across social media – when Twitter is afire with equal pay discussions, it is safe to call it a national conversation.

 

The private plaintiffs’ bar has also been paying attention to compensation issues, as the federal government and some states has implemented new rules making it easier to establish claims of pay discrimination. The strictest of these new laws, California’s Fair Pay Act, took effect on January 1.  Under this Act, employees in California are no longer required to show they were paid less than a member of the opposite sex for “equal” work in the same establishment – they can now make a prima facie case under state law based on colleagues doing “substantially similar” work, regardless of location.

 

New York also amended its equal pay laws in January, making it easier for employees in that state to sue their employers for pay discrimination.   In several other states, changes to equal pay laws have recently been enacted or are currently being considered, including Connecticut, Colorado,  Delaware, Illinois, Massachusetts, North Dakota, Oregon, and Washington.

 

Adding fuel to the fire of employee awareness, many of these new laws include “pay transparency” requirements that make it unlawful to take adverse action against employees for asking about or talking with colleagues about compensation.

 

The increased attention to equal pay has already resulted in an uptick in complaints filed by private class-action plaintiffs’ law firms. In many cases, pay discrimination may be an attractive “tack on” claim for plaintiffs to include in a complaint alleging another type of discrimination, or even in a class or collective wage-and-hour action.

 

One thing that makes pay claims particularly attractive for plaintiffs is the availability of data. All employers are required to keep copious pay records.  To a private plaintiff law firm, for every one person who walks in the door alleging pay discrimination, there may be dozens or even hundreds of other potential clients identifiable in the employer’s data.

 

The EEOC may have just made the task of finding those other potential claims easier. Now that (it appears) employers will be required by EEOC to prepare annual reports on employee pay, they should anticipate private plaintiffs’ lawyers will be seeking to obtain copies of those reports and analyzing them for class-based claims of pay discrimination.

 

So, What Should Employers Do Now?

In the wake of the increased enforcement of equal pay laws on both the federal and state level, all employers should be reviewing their pay policies and practices to ensure they comply with current law and are not creating risk for the company.

 

Employers should also periodically analyze their pay data with the help of qualified statisticians or other experts. Moreover, it is now more important than ever that these analyses be conducted under the attorney-client privilege – the EEOC and private plaintiffs’ lawyers are going to ask for copies of pay analyses, and there is nothing worse than having the results of your own analysis used against you.

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