Monthly Archives: October 2011

M.D.Fla.: Approval of Settlement Agreement That Hinged on Results of Lie Detector Test Denied

Brooke v. Administrative Maintenance Services, LLC

Generally, we post cases here that feature issues that are likely to come up in other cases.  Other times we post cases simply because they involve interesting fact patterns or scenarios.  This case falls in the latter category.  Here, the case was before the court on the parties’ joint motion to approve their settlement.  However, this was no ordinary settlement.  Instead, based on concerns pertaining to plaintiff’s credibility, regarding the number of improperly compensated overtime hours claimed by plaintiff, and the defendants’ assertions that they were due various offsets based on unrelated transactions between the parties, the parties entered into a unique settlement agreement, following mediation.

In order to resolve the various issues, largely involving the credibility of the parties, the parties agreed that the plaintiff would submit to a lie detector case, the results of which would dictate what, if any, amounts of damages plaintiff would recover under the settlement.

As described by the court:

“The parties… agreed that Mr. Brooke will be asked, in a format crafted by the operator of the lie detector, whether he worked five, ten, and, finally, fifteen hours per week, on average, of overtime. If the operator concludes Mr. Brooke worked no overtime, Mr. Brooke will dismiss his case and reimburse the Defendants one-half of the lie detector administrator’s fee to the Defendants. If the operator concludes Mr. Brooke did work overtime in the brackets described above, he will be paid the greatest number of average weekly overtime he credibly answers about, per week, times $12.00 (one-half his base rate of $12.00 per hour and an equal amount in liquidated damages), times the eighty one weeks he was employed by the Defendants. If the result is inconclusive, the Defendants will pay a total of $10,000.00, including fees and costs.”

While the court noted the settlement might be fair, depending on the amounts ultimately payable to plaintiff under the agreement, the court declined to approve the settlement citing the contingency nature of the settlement and the fact that it was unclear how much plaintiff would receive.  The court reasoned:

“The Court does not quarrel with the parties’ contention that this approach is quicker and cheaper than a jury. The same can be said, however, as dueling and coin flips. The standard is not whether a resolution is quick and cheap, but whether it is fair and reasonable. There is no showing here that conditioning an award based on the ability to pass a lie detector test is either of those things.

To be clear, the Court is not finding that settlement in the amounts suggested would not be fair. If the parties had presented an agreement for Defendant to pay $10,000, for example, the Court could evaluate that sum in view of all of the pertinent considerations supporting a settlement, and could issue a recommendation on same. As long as there was an agreement as to an amount rationally related to the claim, and the Court found the settlement to be voluntary and objectively fair and reasonable, it would not matter if the actual numbers were reached via lie detector test, rock-paper-scissors, or drawing straws. Here, however, the parties are not asking the Court to approve a settlement—they are asking the Court to approve a method of reaching a settlement. This is beyond the scope of the fairness finding duties set forth in Lynn’s Food.

For these reasons, it is respectfully recommended that the Court deny the motion, without prejudice to renewal, if appropriate, upon clarification of the status of the corporate Defendants and upon a presentation of terms that are consistent with the principles discussed herein.”

Click Brooke v. Administrative Maintenance Services, LLC to read the entire Report and Recommendation, which was ultimately adopted in full by the presiding District Court Judge.

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S.D.Fla.: “Gross Volume of Sales” For Purposes of Determining Enterprise Coverage Does Not Include Unrealized Revenue Attributable to Coupons or Discounts

Marckenson v. LAL Peker, LLC

Anyone who has been following for the last few years knows that the issue of “enterprise coverage,” relatively dormant for decades, has been hotly litigated throughout the Southern and Middle Districts of Florida-2 hotbeds of FLSA litigation- in recent years.  In another recent decision weighing in on the issue, Judge Michael Moore in the S.D.Fla. was asked to decide whether the $500,000 annual gross sales requirement must take into account unrealized sales/revenues attributable to coupons or discounts a business gives to its customers.  Specifically, here it was undisputed that the defendant-employer recorded actual sales of less than $500,000.00 per year during the relevant years.  However, when discounts and coupons (unrealized revenue) were factored in, its sales rose above the $500,000.00 threshold.  The defendants moved for summary judgment asserting that they were not a “covered enterprise” under the FLSA.  The court agreed and granted the defendants summary judgment.

Discussing the issue, the court stated:

“The issue before the Court is whether “gross volume of sales made or business done” as used in 29 U.S.C. § 203(s)(1)(A) incorporates unrealized revenue attributable to coupons or discounts provided to customers. Interpretations of the FLSA are determined ultimately by the Court. See Mitchell v. Zachry, 362 U.S. 310, 80 S.Ct. 739, 4 L.Ed.2d 753 (1960); Kirschbaum v. Walling, 316 U.S. 517, 62 S.Ct. 1116, 86 L.Ed. 1638 (1942); see also 29 C.F.R. § 779.8 (2011). In interpreting the FLSA, the Court may rely on official interpretations of the FLSA promulgated by the Department of Labor. Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944) (“[T]he rulings, interpretations and opinions of the Administrator under [the FLSA], while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.”); Dade Cnty. Fla. v. Alvarez, 124 F.3d 1380, 1385 (11th Cir.1997).  Title 29 C.F.R. § 779.259 provides helpful guidance in interpreting “gross volume of sales made or business done”:

The gross volume of sales made or business done means the gross dollar volume (not limited to income) derived from all sales and business transactions including, for example, gross receipts from service, credit, or other similar charges. Credits for goods returned or exchanged and rebates and discounts, and the like, are not ordinarily included in the annual gross volume of sales or business…. Gross volume is measured by the price paid by the purchaser for the property or service sold to him …

29 C.F.R. § 779.259 (2011) (emphasis added). When a coupon or discount is provided to a customer free of consideration, a true price reduction occurs, and the new price paid by the customer represents the sale amount. This is consistent with the Department of Labor’s view that “gross volume of sales” is measured by the price actually “paid by the purchaser for the property or service sold to him.” Id. Consequently, having found this interpretation reasonable, this Court adopts a view of “gross volume of sales made or business done” that excludes lost revenue attributable to coupons or discounts provided to customers.

In light of this interpretation, it is clear that enterprise coverage does not apply to Defendants. Excluding approximately $103,000 in discounts provided to customers from Plaintiff’s FY 2010 gross sales calculation, Defendants “gross volume of sales made or business done” falls well short of the $500,000 threshold required by 29 U.S.C. § 203(s)(1)(A). This is substantiated by the tax forms submitted on behalf of Defendants for fiscal years 2009 and 2010. Moreover, Plaintiffs alleged personal knowledge that Defendants’ weekly sales revenues “averaged above $8,000.00 per week and on occasions exceeded $11,000.00,” is insufficient to create a genuine issue of material fact in light of Plaintiff’s implicit acceptance and overt reliance on Defendants’ monthly sales reports from August 2009 through April 2011. Even discounting Plaintiffs acceptance of Defendants’ monthly sales reports, Plaintiffs’ alleged personal knowledge in no way conflicts with the amount of income reported by Defendants. Without any further specificity as to how much revenue Defendants’ collected, or without any articulation by Plaintiff as to how often and for what duration he closed Defendants’ register, Plaintiff’s assertion does not amount to more than a conclusory allegation. Thus, summary judgment on the issue of enterprise coverage is awarded in favor of Defendants.”

Click Marckenson v. LAL Peker, LLC to read the entire Order.

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W.D.Pa.: Following Denial of Class Cert as Incompatible With 216(b) Collective Action, Plaintiffs’ Motion to Dismiss State Law Claims to Re-File in State Court Granted

Bell v. Citizens Financial Group, Inc.

Although all circuit courts that have taken up the issue have held that so-called hybrid wage and hour cases- comprised of both opt-in collective actions (FLSA) and opt-out class action (state wage and hour law)- are permissible, some courts within the Third Circuit continue to hold otherwise.  As a result, not surprisingly, defendant-employers in such cases continue fighting the class action components of such cases on “inherent incompatibility” grounds.  Such was the case here, where the court had previously conditionally certified the FLSA claims, but denied plaintiffs related motion for class certification of Pennsylvania Minimum Wage Act (“PMWA”) claims on compatibility grounds.  However, in what may become a frequently cited case going forward, the plaintiffs took the logical next step and asked the court to dismiss the PMWA claims so they could re-file them in state court alone, where there would be no issue of compatibility.  Not surprisingly, the defendants then threw up their arms, essentially arguing that the plaintiffs should not be able to bring their class claims in federal court and therefore not be able to proceed as a class in any venue.  The court rejected the defendants argument, permitting the voluntary dismissal of the state law claims to be pursued separately in state court.

After reviewing the applicable standards under Rule 41, the court granted plaintiffs’ motion for voluntary dismissal of the PMWA claims.  The court reasoned:

“Here, defendants have already filed an answer and do not stipulate to the dismissal. Therefore, the court must weigh the equities and decide whether to enter an order of dismissal. Defendants do not assert, and the court cannot ascertain, that they would suffer any plain legal prejudice as a result of dismissal of Watson’s claims. Watson’s intent to re-file a PMWA claim in state court is not plain prejudice. Pouls, 1993 WL 308645, at *1.

Upon weighing the factors set forth in Pouls, we conclude that it is appropriate to grant Watson’s motion to voluntarily dismiss her case. Defendants are not prejudiced by their efforts and expenses in this litigation, because other opt-in plaintiffs remain and the instant suit will continue. Defendants have failed to identify any efforts or expenses unique to Watson. Similarly, the progression of the litigation and Watson’s diligence in moving for dismissal are not determinative factors, due to the ongoing nature of the collective action suit. Consideration of the final factor, the duplicative or excessive expense of subsequent litigation, yields some possibility of prejudice to defendants. If Watson does file a PMWA case in state court and if defendants successfully remove it to federal court, defendants might incur some duplicative expenses in future federal court litigation on issues of claim incompatibility. However, at this time, such expenses are highly speculative. Therefore, we do not find plain prejudice to defendants based on duplicative expenses.

Accordingly, because there is no plain legal prejudice and because the equities weigh in favor of dismissal, we will grant plaintiff Watson’s motion to dismiss her claims without prejudice to her right to refile these claims in state court. An appropriate order follows.”

With the issue of permissibility of so-called hybrids up at the Third Circuit right now it will be interesting to see if this decision gains legs in its trial courts.  For now however it is safe to say that defendants in so-called hybrid cases should be careful what they wish for in seeking dismissal of state classes, because two is not always better than one.

Click Bell v. Citizens Financial Group, Inc. to read the entire Memorandum and Order.

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5th Cir.: Weight of Pickup and Trailer Combined to Calculate Gross Vehicle Weight (Whether 10,001 LBs) Under MCA Exemption

Albanil v. Coast 2 Coast, Inc.

Following an award of summary judgment to the defendants in this case plaintiffs appealed.  Specifically, the court below determined that plaintiffs were exempt from the FLSA’s overtime provisions, pursuant to the so-called Motor Vehicle Act (MCA) exemption.  As discussed here, the plaintiffs disputed the methodology used to calculate the gross vehicle weight of the vehicles they drove for defendants and subsequently, whether same qualified as “commercial motor vehicles” under the motor carrier act.  Affirming the court below, the Fifth Circuit held that the weight of both the pickup truck hauling the trailer and the trailer itself must be considered together in calculating the gross vehicle weight.  Here, since the weight of the vehicle, when added to the trailer was over 10,000 pounds (and the nature of plaintiffs’ interstate driving was undisputed), the Fifth Circuit affirmed the holding below.

Discussing this issue the Fifth Circuit reasoned:

“The first issue on appeal is whether the Motor Carrier Act (“MCA”) exemption to the FLSA’s overtime requirements applies. Appellants challenge the district court’s conclusion that it does. This issue involves determining whether C2C operated “commercial motor vehicles” during the relevant time period. A “commercial motor vehicle” is defined by statute as a “self-propelled or towed vehicle used on the highways in interstate commerce to transport passengers or property, if the vehicle has a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater” or meets certain other criteria not relevant here. The parties dispute whether the weight of the pickup truck and the trailer may be combined to reach the 10,001 pound threshold, as stated in a Department of Transportation regulation, or whether the use of the disjunctive “or” in the statutory definition requires them to be considered separately. We hold that the district court correctly combined the weights of the pickup and trailer to conclude that the MCA exemption applies, and that summary judgment was appropriate on Plaintiffs’ overtime claims.”

Also addressed in the opinion, but not discussed here at length, the Fifth Circuit reversed the trial court’s sua sponte order granting defendants summary judgment on plaintiffs’ minimum wage allegation– an issue no party briefed in their papers.  The appellate court reasoned that such a sua sponte order denied plaintiffs the fair opportunity to address the issues.

Click Albanil v. Coast 2 Coast, Inc. to read the entire Opinion.

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S.D.N.Y.: Delay in Asserting Equitable Tolling Not a Bar to Its Application

Chen v. Grand Harmony Restaurant, Inc.

This case was before the court in an unusual procedural posture on defendants’ proactive motion requesting that the court deny tolling of the statute of limitations on plaintiffs’ FLSA and NYLL claims arguing that (1) it is too late for Plaintiffs to make a request for equitable tolling; (2) the equitable tolling doctrine cannot be applied to the remaining individual defendants, as they were not obligated by federal or state law to post the notices at issue; and (3) there is no justification to toll the statute of limitations.  The Magistrate Judge held that plaintiffs had not waived their right to assert a right to equitable tolling based on the passage of time.  The defendants then objected to the Magistrate’s R&R on this ground.  Adopting the Magistrate’s reasoning the court reasoned:

“In his Report, Magistrate Judge Katz properly concluded that Plaintiffs are not barred from invoking the doctrine of equitable tolling because of a delay in raising the issue. Equitable tolling is a matter within the sound discretion of the Court. Defendants do not cite any relevant statutory or case law authority to support their claim that Plaintiffs have waived their right to request that the Court equitably toll the statute of limitations by waiting until this stage in the litigation. Further, Defendants had prior notice that Plaintiffs intended to seek damages back to the beginning of their employment. Plaintiffs alleged in their complaint that Defendants’ actions occurred throughout Plaintiffs’ employment and Defendants acknowledged that the entire period of Plaintiffs’ employment was at issue both in their answer and throughout discovery. The issue of equitable tolling was therefore present, at least implicitly, from the beginning of the action.”

Click Chen v. Grand Harmony Restaurant, Inc. to read the entire Memorandum Decision and Order.


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D.Mass.: FLSA Provides For “Gap Time” Claims Where Plaintiff Paid Nothing For Certain Hours, Notwithstanding Fact That Average Hourly Wage Exceeded Minimum Wage

Norceide v. Cambridge Health Alliance

This case was before the court on multiple motions.  As discussed here, the court denied the defendants’ motion to dismiss plaintiffs’ so-called “gap time” claims.  The case is of significance because the court bucked the predominant trend, and- rather than accepting prior case law as gospel- examined the issue anew.  In so doing, the court held that “gap time” claims are permissible under the FLSA.

Before we get to the court’s analysis though, it’s important to actually explain what gap time is.  Gap time is comprised of non-overtime hours (their inclusion in an employee’s time in the workweek would not bring the employee above the 40 hour overtime threshold), typically worked off-the-clock.  Because some employees have a sufficiently high hourly rate, when all hours (including those the employer failed to specifically pay the employee for) are divided into the renumeration paid to the employee in a given week, the resulting number can be higher than the minimum wage.  The question then arises as to whether the FLSA only provides for an employee to receive minimum wage when all hours are divided into the weekly renumeration OR whether it requires an employee to be paid the minimum wage on an hourly basis for all such hours worked.  These extra hours- which do not bring the average hourly wage below minimum rate- are referred to as “gap time.”  Most courts have held that the FLSA does not provide for recovery of such “gap time” hours.  However, this court disagreed.

Examining the issue, the court reasoned:

“According to CHA, Plaintiffs’ minimum wage claims should be dismissed because they do not allege that CHA ever paid them less than the operative minimum wage. Specifically, CHA argues that, if the total wages paid to any given plaintiff in a week were divided by the total hours worked in the week, then the average hourly wage would be greater than the minimum wage. For instance, suppose that one week Barbatine was scheduled to work 26 hours at a rate of $10.00 an hour and was paid accordingly, meaning she earned $260. However, in fact, she worked an additional 4 hours during her breaks and before/after her shifts and was not paid for this time. According to CHA, Barbatine has no claim for a minimum wage violation, since $260 divided by 30 hours is an average hourly wage of $8.67, which still exceeds the minimum wage.

In reality, Plaintiffs counter, Barbatine was being paid at a rate of $0 per hour for her additional 4 hours. CHA intended for its payment of $260 to cover her scheduled shifts and nothing more. Barbatine’s payment statement for the week in question on its face would indicate that she was getting paid for 26 hours of work, not 30. I agree with Plaintiffs.

The weekly average wage measuring rod that CHA argues should be utilized when assessing minimum wage violations stems from the Second Circuit’s decision in United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487 (2d Cir.1960). In that case, due to some financial difficulties their employer faced, security guard employees agreed to work an additional six hours per week but not be paid for this time until some later date. Id. at 489–90. The employer, however, never provided compensation for this extra work. The federal government charged the company with violating the FLSA. The Second Circuit dismissed the government’s minimum wage claim on the basis of the weekly average wage theory. Id. at 490. Articulating the purpose of the FLSA only as “guarantee [ing] a minimum livelihood to the employees,” the court found that “the Congressional purpose is accomplished so long as the total weekly wage paid by an employer meets the minimum weekly requirements of the statute, such minimum weekly requirement being equal to the number of hours actually worked that week multiplied by the minimum hourly statutory requirement.” Id. at 490 (citing H.R.Rep. No. 75–2738, at 28 (1938); Sen. Rep. No. 75–884, at 1–3 (1937); H.R.Rep. No. 75–1452, at 8–9 (1937)).

Since the court’s decision in 1960, several other circuits have adopted the Second Circuit’s approach—what has come to be known as the Klinghoffer rule. However, they have mostly done so by citing to Klinghoffer without any further analysis of whether, in fact, the weekly average rule effectuates the legislative intent of the FLSA’s minimum wage law. See, e.g., U.S. Dep’t of Labor v. Cole Enter., Inc., 62 F.3d 775, 780 (6th Cir.1995) (simply noting what “several courts have held”); Hensley v. MacMillan Bloedel Containers, Inc., 786 F.2d 353, 357 (8th Cir.1986) (citing to Klinghoffer without analysis); Blankenship v. Thurston Motor Lines, 415 F.2d 1193, 1198 (4th Cir.1969) (stating without explanation that Klinghoffer “contains a correct statement of the law”). The D.C. Circuit is a notable exception, accepting the weekly average wage rule in Dove v. Coupe only after its own analysis. 759 F.2d 167, 171–72 (D.C.Cir.1985).  The First Circuit, however, has yet to address whether to use the hour-byhour or the Klinghoffer weekly average measure for evaluating minimum wage law compliance. In my view, as explained below, the Klinghoffer weekly average method ignores the plain language of the minimum wage provision and undermines the FLSA’s primary purpose of ensuring a fair wage for workers.

My review of the FLSA is guided by principles of statutory construction; my interpretation “depends upon reading the whole statutory text, considering the purpose and context of the statute, and consulting any precedents or authorities that inform the analysis.” Dolan v. Postal Service, 546 U.S. 481, 486, 126 S.Ct. 1252, 163 L.Ed.2d 1079 (2006).

I begin by looking to the language of the statute. See Kasten v. Saint–Gobain Performance Plastics Corp., ––– U.S. ––––, ––––, 131 S.Ct. 1325, 1331, 179 L.Ed.2d 379 (2011). The FLSA’s minimum wage provision mandates that an employer pay to each non-exempt employee “wages at the following rates: (1) except as other provided … not less than—(A) $5.85 an hour, beginning on the 60th day after May 25, 2007; (B) $6.55 an hour, beginning 12 months after that 60th day; and (C) $7.25 an hour, beginning 24 months after that 60th day.” 29 U.S.C. § 206(a). As the other courts to have considered this language concede, it speaks only of an hourly wage. Thus, while it is does not explicitly state how to calculate what an employee has been paid for a hour’s worth of work, the statute’s text is explicit that, with respect to the minimum wage, the only metric Congress envisioned was the hour, with each hour having its own discrete importance.

To be sure, other parts of the FLSA speak of a “workweek.” But, this unit of time is used for determining worker entitlement to other protections, most importantly overtime, not for assessing violations of the minimum wage law. See, e.g., 29 U.S.C. § 207(a)(2) (“[N]o employer shall employ any of his employees who in any workweek is engaged in commerce … for a workweek longer than forty hours … unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.”). In fact, the other provisions of the FLSA support the conclusion that, for the purpose of determining a minimum wage violation, the use of any unit of time other than an hour is a contrivance. When Congress meant to use the word “workweek” it did so. When it meant to use “hour” that was the word it used.

The FLSA’s legislative history does not explicitly address whether an hour-by-hour or weekly-average method should be employed when determining compliance with the minimum wage law. However, it does makes clear that Congress’ overriding riding purpose when enacting the FLSA was to ensure, as the bill’s name implies, fairness for workers. “The principal congressional purpose in enacting the [FLSA] was to protect all covered workers from substandard wages and oppressive working hours, ‘labor conditions [that are] detrimental to the maintenance of the minimum standard of living necessary for health, efficiency and general well-being of workers.’ ” Barrentine v. Arkansas–Best Freight Sys. Inc., 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) (citing 29 U.S.C. § 202(a)). One way Congress attempted to effectuate this somewhat amorphous goal through the FLSA was by “guarantee[ing] a minimum livelihood to the employees covered by the Act,” Klinghoffer, 285 F.2d at 490 (citing H.R.Rep. No. 75–2738, at 28 (1938); Sen. Rep. No. 75–884, at 1–3 (1937); H.R.Rep. No. 75–1452, at 8–9 (1937)). While the Senate and House reports do not indicate whether Congress had in mind a formula for determining the amount necessary for “a minimum livelihood,” they do reveal that Congress considered the test to be whether a worker received “ ‘a fair day’s pay for a fair day’s work,’ ” Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 578, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942) (quoting 81 Cong. Rec. 4983 (1937) (message of President Roosevelt)); see also Barrentine, 450 U.S. at 739.FN5

Congress’ primary concern with protecting worker—not employers—buttresses the above conclusion that the plain language of the minimum wage provision should be read as an endorsement of the hour-by-hour method. When a statute is susceptible to two opposing interpretations—here, the hour-by-hour and weekly average methods—it must be read “in the manner which effectuates rather than frustrates the major purpose of the legislative draftsmen.”   Shapiro v. United States, 335 U.S. 1, 31–32, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948). While the weekly method does ensure that workers earn a base amount after working a certain number of hours in a week, it frustrates the overall purpose of promoting fairness for workers.

Take the Barbatine example above. There, CHA intended for the $260 to compensate for only the 26 hours she was scheduled to work. CHA, therefore, got four free hours of work from Barbatine, while Barbatine received the same amount of compensation after working 30 hours as she would have for working 26 hours. Such a compensation scheme does promote not an environment in which a worker is ensured “a fair day’s pay for a fair day’s work.’ ” See Travis, 41 F.Supp. at 9 (“[I]f the act is given a very strict construction[,] averaging is probably not permitted.”); see also Dove, 759 F.2d at 171.

Taken together, the plain language of the minimum wage provision, the remaining parts of the FLSA, and the Congress’ primary goal of protecting workers buttresses the conclusion that Congress intended for the hour-by-hour method to be used for determining a minimum wage violation.  Here, Plaintiffs have alleged that CHA knew the Plaintiffs were working more hours than reported on their time sheet and that it was not compensating its employees for this time. In other words, Plaintiffs have alleged that CHA intentionally paid its workers $0 for each unrecorded hour worked during their meal breaks and before/after their shifts.  This allegation is sufficient to state a claim for a minimum wage violation at this stage, and CHA’s motion to dismiss Plaintiffs’ FLSA minimum wage claim is DENIED.”

It will be interesting to see if other courts begin following this well-reasoned opinion, and allowing for the recovery of “gap time” under the FLSA.

Click Norceide v. Cambridge Health Alliance to read the entire Memorandum and Order re: Motion to Dismiss, Motion to Amend, Motion for Conditional Certification.

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D.Conn.: In “Salary Misclassification” Case, Unpaid OT Calculated at Time and a Half Rate, Not FWW

Perkins v. Southern New England Telephone Co.

This case, concerning allegations that the plaintiffs were “salaried misclassified” was before the court on the parties’ cross-motions in limine for a determination as to how damages should be calculated by the jury.  While the defendants argued that they should be entitled to calculate any back wages due at “half-time” pursuant to the fluctuating workweek (“FWW”), the plaintiffs argued that the damages must be calculated using the FLSA’s default methodology of time and a half.  Because the FWW would result in back wages of less than 1/3 of the amount of a time and a half calculation, the stakes were big.  Because this case was not one of first impression, the court surveyed the previous cases from around the country, as well as DOL interpretive bulletins in reaching its decision.  Significantly, the court declined to follow prior Circuit decisions, which it reasoned were not well-founded, instead opting to follow a series of district court decisions that discussed the issue in far more detailed and well-reasoned opinions.

Holding that plaintiffs’ damages were to be calculated at time and a half, the court reasoned:

“Although the Second Circuit has not addressed the use of the fluctuating workweek method in a misclassification case, other Courts of Appeal have applied section 778.114 to misclassification cases. See Clements v. Serco, Inc., 530 F.3d 1224, 1230–31 (10th Cir.2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir.1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir.1988).  None of these cases, however, provide any meaningful analysis regarding the merits of adapting the fluctuating workweek method to the misclassification context.  Instead, the Tenth Circuit and the First Circuit base their finding on another case, Bailey v. County of Georgetown, wherein the Fourth Circuit held that section 778.114 does not require that the employee understand the manner in which overtime pay is calculated in order to apply the fluctuating workweek method. See Bailey v. Cnty. of Georgetown, 94 F.3d 152, 156 (4th Cir.1996). The plaintiffs in Bailey, however, were contesting the rate of overtime they were receiving, not whether they were entitled to overtime at all. See id. at 153–54 (describing the facts of the case). Consequently, Bailey is easily distinguishable from the case at hand. Also failing to address the applicability of the fluctuating workweek method to misclassification cases, Blackmon provides only a cursory explanation of computing overtime according to section 778.114. Blackmon, 835 F.2d at 1138–39.

In contrast, several district courts have held that applying the fluctuating workweek method to a misclassification violates the plain language of section 778.114. Generally, these courts hold that the language of section 778.114 requires both “(1) a clear mutual understanding that a fixed salary will be paid for fluctuating hours, apart from overtime premiums; and (2) the contemporaneous payment of overtime premiums.” See Russell v. Wells Fargo & Co., 672 F.Supp.2d 1008, 1013 (N.D.Cal.2009) (emphasis in original); Ayers v. SGS Control Servs., Inc., 2007 U.S. Dist. LEXIS 19634 at *40–42 (S.D.N.Y. Feb. 27, 2007); Rainey v. Am. Forest & Paper Assoc., Inc., 26 F.2d 82, 100–02 (D.D.C.1998) (finding that as a matter of law, the employer cannot prove a clear mutual understanding or contemporaneous payment of overtime premiums in a misclassification case); see also Urnikis–Negro, 616 F.3d at 678 (“Besides looking forward rather than backward, the interpretive rule plainly envisions the employee’s contemporaneous receipt of a premium apart from his fixed wage for any overtime work he has performed.”); 29 C.F.R. 778.114, supra at 4–5. Because the employer in a misclassification case has necessarily not made any contemporaneous payment of overtime premiums, these courts find that section 778.114 is inapplicable in a misclassification case. In addition, courts have found that assessing damages according to section 778.114 may actually frustrate the purpose of the FLSA. See, e.g., In re Texas EZPawn Fair Labor Standards Act Litig., 633 F.2d 395, 404–05 (W.D.Tex.2008) (using a hypothetical situation to demonstrate that the fluctuating workweek method may result in overtime compensation that is 375% lower than the traditional method, and asserting that using the fluctuating workweek method to calculate damages in misclassification cases allows employers to “escape the time and one-half requirement of the FLSA”).

This court agrees with other district courts that have analyzed this issue and concludes that section 778.114 does not support the use of the fluctuating workweek method in the circumstances presented in this misclassification case.”

As noted by the court, the Second Circuit has not weighed in on this issue as of yet.  Therefore, it will be interesting to see if this case ends up there, giving another Circuit an opportunity to weigh in on this issue, which the Supreme Court recently declined to take up.

Click Perkins v. Southern New England Telephone Co. to read the entire Ruling on the cross-motions in limine.


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Filed under Damages, Exemptions, Fluctuating Workweek