This case was before the Court on the plaintiff’s motion for summary judgment on a variety of issues. As discussed here, the plaintiff sought a finding that she was entitled to minimum wages under the FLSA as an employee, while the defendants contested that, arguing that any duties she had performed for them were volunteered. The case apparently followed the break-up of the plaintiff from the individual defendant in their romantic relationship. It was undisputed that the plaintiff performed many duties for the defendants- operators of a group home- over the approximate 2 years in question, including obtaining workers compensation insurance, attendance at residential training classes, cleaning and purchasing items for the facility, putting in business processes for the business (i.e. payroll services), marketing, hiring employees on behalf of defendants and other duties necessary for the defendants’ business to operate. While most of these facts were uncontested, the defendants maintained that this work was all volunteered, despite the fact, while the plaintiff asserted she expected to be paid as an employee.

After discussing various tests for employment under the FLSA (i.e. independent contractor vs employee), the court noted that there was no specific test for determining whether someone who performs duties for another is an employee or a volunteer under the FLSA. Thus, the court explained it was constrained only by a flexible “reasonableness” standard that takes into account the totality of the circumstances. The court explained:

In determining whether someone is an employer or a volunteer, this court has not stumbled upon any factored test similar to that of the 6–factor economic realities test used to differentiate independent contractors and employees. Rather, the court finds that the test for employment is governed by a reasonableness standard that takes into account the totality of the circumstances. The court is to review ” ‘the objective facts surrounding the services performed to determine whether the totality of the circumstances’ establish volunteer status, … or whether, instead, the facts and circumstances, objectively viewed, are rationally indicative of employee status.” Purdham, 637 F.3d at 428 (quoting Cleveland v. City of Elmendorf, 388 F.3d 522, 528 (5th Cir.2004)). In addition to the “economic reality” of the situation, other factors to consider include whether there was an expectation or contemplation of compensation, whether the employer received an immediate advantage from any work done by the individual, the relationship of the parties, and the goals of the FLSA. See Alamo Found., 471 U.S. at 300–01;
Rutherford Ford Corp. v. McComb, 331 U.S. 722, 730 (1947) (stating that the employer-employee relationship “does not depend on such isolated factors but rather upon the circumstances of the whole activity”); Lauritzen, 835 F.2d at 1534–35). It is the examination of objective indicia and the application of common sense with which this court arrives at its determination of whether the plaintiff here is an employee for purposes of the FLSA.

Applying this test to the facts at bar, the court held that the plaintiff was an employee rather than a volunteer:

According to Okoro, she never agreed to volunteer for Aegis; at all times, she expected to be compensated for her work. Specifically, Okoro expected to be paid $2,000 per month for her work, and in agreeing to defer her compensation until the facility garnered clients, she still worked with the expectation that she would be paid. (Okoro Aff. ¶¶ 4, 7–9.) Battles, while arguing that Okoro was a volunteer, also states that he intended to pay Okoro for her work if she qualified as an administrator and if the business had enough money in the future. (Battles Aff. ¶¶ 6, 25 .) The court notes Battles’s expectation not for the purpose of weighing the parties’ competing assertions (for this would surely contradict the FLSA’s remedial purpose) but to merely highlight that he too contemplated a compensation mechanism for Okoro’s work.

Expectations aside, it is not entirely correct for the plaintiff to assert that the defendants have failed to identify any personal benefit that Okoro purportedly received from her work for Aegis. In his affidavit, Battles avers that when Okoro sold him worker’s compensation insurance for Aegis, she told him “that she wanted to learn the group home business and therefore, she would learn the business by working at Pyramid 4 Aegis for no compensation.” (Battles Aff. ¶ 5.)

This court is not unmindful of any claim that Okoro may have wanted to learn and indeed did learn about the CBRF business. That may certainly have been part of her motivation in providing Battles some assistance in his effort to build the business. However, Battles does not deny that the work Okoro performed on behalf of Aegis conferred an immediate benefit to the company. Thus, the facts in this case stand in stark contrast to those in Walling. In Walling, the lower court’s finding that “the railroads receive[d] no ‘immediate advantage’ from any work done by the trainees” was unchallenged. 330 U.S. 148, 153. Indeed, “the applicant’s work [did] not expedite the company business, but … sometimes [did] actually impede and retard it.”   Id. at 150. In other words, the railroad was not receiving any immediate benefit from the training that was being given to the prospective brakemen.

Not so in the case at bar. The evidence here does not demonstrate that the work performed by Okoro on behalf of Aegis interfered in any way with the business of Aegis. To the contrary, the nature of the work that she performed, such as cleaning, picking up prescriptions, appearing in court on behalf of clients at the facility, and calling in hours for caregivers to Paychex, was undeniably of substantial assistance to Aegis. Even more to the point, such work was not akin to the “course of practical training,” which the prospective yard brakemen in Walling received. Id. at 150. One hardly needs to be trained in how to clean a facility, how to pick up prescriptions, and how to call in hours for caregivers.

Additionally, the economic reality of the situation was that Okoro worked for Aegis for a substantial length of time. The length of the “training course” that the prospective brakemen received in Walling was seven or eight days. Id. at 149. By contrast, Okoro worked for Aegis over the course of almost one year.

To be sure, Okoro and Battles had a “personal relationship” over the course of the relevant time period. (Okoro Aff. ¶ 6.) While it may be that at least some of the time Okoro spent at Aegis was to socialize with Battles, that particular matter may speak to the amount of damages to which she is entitled; after all, socialization may not be the equivalent of work. For purposes of Okoro’s motion, it is sufficient to find that, despite her relationship with Battles, she still performed substantial work for Aegis, Aegis reaped a direct and immediate benefit from her work, and she had a reasonable expectation that she would be compensated for her work. In sum, taking into account the totality of the circumstances in this case leads me to conclude that Okoro performed work for Aegis as an employee and not as a volunteer.

The court also noted the duty to interpret the FLSA broadly in favor of coverage, given the FLSA’s remedial purpose:

Finally, it must not be forgotten that, by design, the FLSA’s purpose is “remedial and humanitarian.” Tenn. Coal, Iron & R.R. Co. v. Muscodoa Local No. 123, 321 U.S. 590, 597 (1944), superseded by statute, Portal–to–Portal Act of 1947, Pub.L. No. 80–49, 61 Stat. 86 (1947) (codified as amended at 29 U.S.C. § 254). To effectuate this purpose, the FLSA requires courts to interpret its application broadly. See id. With this in mind, allowing Aegis the benefit of Okoro’s free labor when there existed an expectation of compensation would not comport with the FLSA’s purpose.

Thus, to the extent that the plaintiff’s motion seeks a determination that she worked for Aegis and is therefore entitled to compensation for such work under the FLSA, her motion will be granted. Precisely how much work she performed for Aegis, and for how many hours she should be compensated by Aegis, are matters for trial. It is enough to say that the work she performed for Aegis, at least for purposes of the FLSA, was not as a volunteer, but rather as an employee.

Click Okoro v. Pyramid 4 Aegis to read the entire Decision and Order on Plaintiff’s Motion for Summary Judgment.

McLean v. Garage Management Corp.

In the first case, the defendant sought to avoid liquidated damages by relying on a series of involuntary misinformed DOL audits, which it claimed it reasonably relied upon in establishing their belief that its illegal pay methodology, whereby it treated hourly employees as executive exempt from the FLSA’s overtime provisions. While the DOL has in fact found the defendant’s classification to be proper, the court noted that the DOL’s finding was based on its examination of the employees’ duties alone, because the defendant had misrepresented to the DOL that the employees were paid on a salary basis, at the required rate under the applicable regulations in the initial audit. Subsequent audits simply compounded this initial incomplete investigation, based on the information the defendant provided to the DOL in the initial audit.

Significantly, the court rejected the defendants’ claimed reliance on the DOL audits for 3 separate reasons. First, it found that any informal conversations do not constitute “active steps” to ascertain the dictates of the law. Second, the court noted that the audits were involuntary and defendant had not requested same and thus, giving government investigators access to records and employees did not relieve defendant of its own obligation to determine what the labor laws require. Third, the court noted that defendant had not shown that any government investigator focused with care on its time and payroll records for the employees in question, and thus the DOL had not undertaken a review to see whether the defendant indeed paid a predetermined amount that did not vary, as required to meet the “salary basis” prong of the executive exemption. “Without such full disclosure, [the defendant] cannot reasonably rely on the existence of the investigations and their failure to find any inadequacies in the compensation system for [the employees].”

Finally, the court held that the defendant was not entitled to rely on the fact that it periodically consulted with outside counsel, because it had invoked its attorney-client privilege. The court explained that absent a waiver of the privilege, the defendant could not sustain a defense based on good faith reliance on the advice of counsel.

Click McLean v. Garage Management Corp. to read the entire Opinion and Order.

Solis v. R.M. Intern., Inc.

In the second case- concerning an alleged misclassification of drivers under the Motor Carrier Act (MCA) exemption- the defendant sought to avoid the imposition of liquidated damages, by relying on a prior involuntary Department of Transportation (DOT) audit/citations and the advise of counsel it received as part of the audit process. As in McLean above, the court rejected this evidence of “good faith” as insufficient to meet the defendant’s heavy burden.

The court noted:

Defendants maintain they have demonstrated both their subjective good faith and objectively reasonable belief that their failure to pay overtime wages to their drivers did not violate FLSA. To meet their burden, Defendants rely almost exclusively on their compliance with DOT rules and the DOT’s citation of “some” of their intrastate-only drivers. The DOT’s citation of “some” of Defendants’ intrastate-only drivers, however, does not provide a sufficiently reasonable basis for concluding all such drivers were under the DOT’s jurisdiction and, therefore, exempt from FLSA. The objective reasonableness of Defendants’ failure is undermined by the fact that the determination as to whether the Department of Labor or the DOT has jurisdiction is resolved on a driver-by-driver basis, as the Court explained at length on summary judgment, and, in any event, DOT jurisdiction for a driver who only occasionally drives in interstate commerce lasts only 4 months from the last such trip. See Reich v. Am. Driver Serv., Inc., 33 F.3d 1153, 1155–56 (9th Cir.1994). Furthermore, exemptions to FLSA, such as the Motor Carrier Exemption relied on by Defendants, are to be construed narrowly and only apply to employees who “plainly and unmistakably” fall within their terms. See Solis v. Washington, 656 F.3d 1079, 1083 (9th Cir.2011). Thus, the Court concludes Defendants’ generalizations about entire classes of their drivers on the basis of DOT citations of some of its drivers are insufficient to establish the objective reasonableness of Defendants’ failure to comply with FLSA. Similarly and in light of the lack of testimony in this regard, the fact that Defendants required both their interstate and intrastate drivers comply with DOT regulations neither establishes Defendant’s subjective belief nor its objective reasonableness.

Defendants also maintain their belief that their drivers were exempt from FLSA is reasonable in light of the fact that they hired counsel to assist with the November 2009 DOT compliance audit. Although there is not any direct evidence as to the purpose of counsel’s representation, the Court concludes it is fair to infer that counsel was hired to ensure Defendants’ compliance with DOT regulations rather than to ensure Defendants were compliant with FLSA. In any event, there is not any evidence on this record from which the Court can find that Defendants took “the steps necessary to ensure [its] practices complied with [FLSA].” Alvarez, 339 F .3d at 910 (“Mistaking ex post explanation and justification for the necessary affirmative ‘steps’ to ensure compliance, [the defendant] offers no evidence to show that it actively endeavored to ensure such compliance.”). Thus, the Court concludes on this record that Defendants did not satisfy their “difficult” burden to show their subjective good faith failure to comply with FLSA or the objective reasonableness of their actions, and, therefore, the Court concludes Plaintiff is entitled to liquidated damages in the amount equal to the unpaid overtime wages.

Click Solis v. R.M. Intern., Inc. to read the entire Supplemental Findings of Fact and Conclusions of Law and Verdict.

Following an order granting the parties’ joint motion for approval of settlement agreement, the plaintiff moved for award of attorneys’ fees and renewed his motion to reopen discovery to discover defense counsel’s billing records. Over defendant’s objection, the court granted plaintiff’s motion, reasoning that the billing records were relevant and discoverable, because the defendant had put the reasonableness of hours and rates charged by plaintiff’s counsel at issue, by opposing plaintiff’s motion for attorneys’ fees.

Initially the court noted that cases have come down on both sides of the issue, with some courts holding that defenses counsel’s billing records are discoverable, while others have held that they are not.

Discussing the applicable law generally, the court explained:

The general principle underlying these divergent results seems to be that whether such information is discoverable depends on the nature of the objections raised to the fee request. Where the opposing party challenges the reasonableness of the rate or hours charged by the moving party’s counsel, courts are more likely to find that evidence of the nonmoving party’s counsel’s fees are relevant and discoverable. See State of New York v. Microsoft Corp., No. 98–1233, 2003 WL 25152639, at *2 and n. 3 (D.D.C. May 12, 2003) (stating that “some of the cases explicitly note that ‘ [w]hether discovery is appropriate depends, in part, on the objections raised by the opponent to the fee petition going to the reasonableness of the fee petition’ “) (quoting Murray v. Stuckey’s Inc., 153 F.R.D. 151, 152–53 (N.D.Iowa 1993)) (collecting cases); see, e.g., Pollard, 2004 WL 784489, at *3 (stating that because “DuPont objected to the excessiveness of the fees requested in the fee petition for the preparation of the fee petition …, it appears that DuPont’s own counsel’s time spent in preparing a response to Pollard’s petition for fees would serve as a logical yardstick from which to determine the reasonableness of such time expended by the plaintiff’s counsel”).

Addressing and rejecting the defendant’s contentions that their billing records were not subject to discovery, the court reasoned:

In the case at bar, defendants have not only challenged the reasonableness of the fees sought by plaintiffs, they have also expressly referenced their own fees in support of their arguments. For example, in their memorandum of law, defendants cite the specific fees and costs sought, and hours claimed, by plaintiffs’ counsel, and contrast them with those of defense counsel, noting that “Plaintiffs seek almost 3 times as much compensation for prosecuting this action as Radec spent to defend.” Dkt. # 334 at 6. Later, in discussing plaintiffs’ counsel’s hourly rates, defendants state that “the rates charged to Radec in this case are instructive.” Id. at 12. Similarly, defendants state that over a certain period, “Radec was charged only the flat fee of $175,000,” whereas “Plaintiffs claim $764,915.00 in fees for the same period….” Id. at 19.

Thus, defense counsel themselves have put at issue the reasonableness of the hours and rates charged by plaintiffs’ attorneys, and have used their own hours and rates as yardsticks by which to assess the reasonableness of those sought by plaintiffs. I therefore find that defense counsel’s billing records are relevant and discoverable. Cf. Marks Constr. Co. v. Huntington Nat’l Bank, No. 1:05CV73, 2010 WL 1836785, at *7 (N.D.W.Va. May 5, 2010) (“absent an attempt [by defendants] to claim a comparison between what Defendants paid and the claims of Plaintiffs as the basis for challenging the reasonableness of Plaintiffs’ claimed fees, there is no relevance shown with respect to the issues of the amount and reasonableness of attorneys fees and costs claimed by Plaintiffs’ counsel that justifies the required production of the billing records of [defense counsel]“).

Defendants’s argument that their detailed billing records are not discoverable because their opposition to plaintiffs’ fee request only cited the total hours and rates charged to defendants by their attorneys, see Def. Mem. of Law (Dkt. # 344) at 3, misses the point. In arguing that the hours claimed by plaintiffs’ attorneys are unreasonable, defendants have focused on specific hours and entries in plaintiffs’ counsel’s billing records. Defendants have stated, for example, that plaintiffs’ request for $15,000 for time spent preparing affidavits in connection with a particular motion is excessive, that one of plaintiffs’ attorneys billed 1.5 hours for a hearing that only took a half hour, and that plaintiffs’ allocation of 1443.2 hours of work on preparing binders is “outrageous.” Dkt. # 334 at 17–18. It is precisely because defense counsel then cite only their total time spent on the case that renders it difficult to determine whether this is a fair comparison.

While the court recognized that there may be significant differences in the ways that plaintiffs’ counsel and defense counsel litigate a case, and that this could cause a disparity between the two sides’ respective hours and hourly rates, the court explained that any such a disparity would not necessarily mean that one side’s fees were necessarily unreasonable or excessive. Further, the court held that such considerations go to the weight to be assigned to defense counsel’s billing records rather than rendering them non-discoverable. Thus, the court granted plaintiff’s motion.

Click Mendez v. Radec Corp. to read the entire Decision and Order.

This case was before the court on defendant’s motion for summary judgment. The defendant contended that the case should be dismissed, due to plaintiff’s failure to file a written consent to join within the relevant 3 year statute of limitations, as required by the FLSA. The case revolved around the somewhat novel issue of whether a named Plaintiff, who fails to file a written consent to join her own FLSA case, can nonetheless be deemed to have satisfied the consent requirement, by virtue of filing a written affidavit with the court that states her intention to proceed with an FLSA claim in court. Here, the court found that, on the facts presented, it was a close call. However, in line with the remedial purposes of the FLSA, the court agreed that plaintiff “consented” to join her FLSA case when she filed a prior affidavit in opposition to defendant’s motion to dismiss, because it was written evidence of her intention to participate in the case.

Framing the issue before it, the court explained:

The question presented is whether Mr. Cruz’s signed March 11, 2011 affidavit, attached as an exhibit to Plaintiffs’ response in opposition to a motion to dismiss, constitutes a signed, written consent filed with the court. In full, the only possibly relevant statement provides: “Given my current financial circumstances and my understanding of the costs associated with arbitration, I cannot afford to arbitrate my claims and I could not afford to undertake this litigation and pursue my rights if I had the risk of paying the Defendants’ costs if I lost at arbitration.” Pls.’ Mem. in Opp’n [doc. # 26–4] Ex. D ¶ 9 (Decl. of Ramona Cruz). At the time it was filed, Ms. Cruz was one of three named plaintiffs in this suit. All of the three named plaintiffs submitted signed affidavits with final paragraphs substantially similar to the text quoted above. See Pls.’ Mem. in Opp’n [docs. # 26–2, 26–3] Ex. B ¶ 13 (Decl. of Nicole D’Antuono), Ex. C ¶ 12 (Decl. of Karen Vilnit).

Discussing the authority cited by the parties, the court found no case to be on all fours with the facts presented:

The Court has located no dispositive precedent or closely analogous case. The cases most often cited by the parties are all distinguishable on the facts. See, e.g., Manning, 2011 WL 4583776, at *2–3 (finding that named plaintiff who had submitted a signed declaration stating ” ‘I am the named Plaintiff in this action’ ” and describing the facts of the litigation had met the consent requirement, but that named plaintiffs who had been deposed but had submitted no signed documents did not); Perkins, 2009 WL 3754097, at *3 n. 2 (holding that named plaintiff who submitted a signed declaration in support of a motion for class certification describing her job duties and stating that she ” ‘did not release any claims relating to unpaid overtime wages which are the subject of this litigation’ … insufficient to demonstrate her desire to take part in this action as a plaintiff”); Mendez, 260 F.R.D. at 52 (finding that named plaintiff who had submitted a signed affirmation in support of a motion for class certification stating ” ‘I am the Named Plaintiff in the above-captioned matter’ ” sufficient to meet the consent requirement).

Holding that plaintiff’s prior affidavit satisfied the requirement that all plaintiffs file a consent to join, the court reasoned:

Defendants’ arguments on the facts of prior cases are not convincing. It is irrelevant that Ms. Cruz does not explicitly claim to be a named plaintiff in the action; furthermore, the caption on her signed declaration states as much. Additionally, the fact that her declaration was submitted in response to a motion to dismiss, rather than in support of a motion for class certification, carries little weight. While a declaration attached to a motion for class certification may bolster a plaintiff’s argument that the declaration was meant to serve as a notice of consent, the inverse is not true.

Instead, the Court must determine, as a matter of law, whether Ms. Cruz’s signed declaration manifests a clear intent to be a party plaintiff. This question is a close one, and one which would not have arisen had Ms. Cruz’s counsel simply ensured that a written consent form was filed along with the complaint. Despite this lapse, the Court reads Ms. Cruz’s affidavit broadly as implicitly verifying the complaint, expressing an interest that legal action be taken to protect her rights, and expressing an interest in being a party plaintiff. See Manning, 2011 WL 4583776, at *3; Perkins, 2009 WL 3754097, at *3 n. 2; Mendez, 260 F.R.D. at 52. Unlike the plaintiff in Perkins, Ms. Cruz has expressed an interest not only in preserving her legal claims, but in “undertak[ing] this litigation and pursu[ing her] rights.” Pls.’ Mem. in Opp’n [doc. # 26–4] Ex. D ¶ 9 (Decl. of Ramona Cruz). Furthermore, while participation in a deposition is not dispositive or sufficient for the notice requirement, see Manning, 2011 WL 4583776, at *3, the Court finds that the fact that Ms. Cruz has already willingly undergone a lengthy deposition relevant in the evaluation of whether she intended to participate in this case. Finally, the Court notes that the two potential purposes of the notice requirement-ensuring both that the Defendants are aware of all potential plaintiffs and that each individual plaintiff intends to participate in the lawsuit—are both satisfied.

Thus, the court concluded that plaintiff’s affidavit was sufficient to meet the notice requirement.  Moreover, since the affidavit was filed within the three year statute of limitations, the court determined that plaintiff had satisfied the notice or consent requirement of the FLSA.

Click D’Antuono v. C & G of Groton, Inc. to read the entire Memorandum of Decision.

This case was before the court on the parties’ cross-motions for summary judgment. Plaintiffs asserted 2 distinct claims: one for time spent donning and doffing their firefighter uniforms for temporary assignment, and one based on their assertion that defendant erred in failing to include payments made for buy-back of “Annual Leave” in their regular rates (and corresponding overtime rates). As discussed here, the court granted the defendant’s motion and held that the “Annual Leave” buy-back need not be included in the calculation of plaintiffs’ regular rate, while denying plaintiffs’ motion. In so doing the court distinguished the case from others reaching the opposite conclusion regarding a similar issue.

The court framed the issue as follows:

Plaintiffs’ second claim alleges that Defendant violated the FLSA by failing to include Annual Leave buy-backs for unused “sick leave” in their regular rate of pay which, in turn, negatively affected their overtime pay. The FLSA requires employers to pay their employees overtime based on one and a half times the employee’s “regular rate” for hours worked in excess of 40 hours a week. 29 U.S.C. § 207(a)(2)(c). The “regular rate” of pay “at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee,” subject to certain enumerated exceptions. Id. § 207(e). One exception is for payments made for periods when no work is performed. Id. § 207(e)(2). The exception states that the regular rate should not include:

Payments for occasional periods when no work is performed due to vacation, holiday, illnesses, failure of the employer to provide sufficient work, or other similar cause …; and other similar payments to an employee which are not made as compensation for his hours of employment.

Id. (emphasis added). The regulations implementing this exclusion reiterate that when an employee is not at work due to vacation or illness but nonetheless is paid, said payment need not be used in calculating the employee’s regulate or overtime rate of pay. 29 C.F.R. § 778.218(a). The exclusion also applies when an employee foregoes a vacation but still receives vacation pay in addition to his or her customary pay for all hours worked. Id. § 779.218(a); see Chavez v. City of Albuquerque, 630 F.3d 1300, 1307–309 (10th Cir.2011) (citing, inter alia, 29 C.F.R § 779.218(a) and holding that “vacation buy back-payments are not part of the regular rate.”).

Discussing the relevant law, the court explained:

The Ninth Circuit has not yet addressed the issue of whether buy-back compensation for unused sick leave must be included in an employee’s regular rate for purposes of the FLSA, and other circuits are split on the issue. In Featsent v. City of Youngstown, 70 F.3d 900 (6th Cir.1995), the Sixth Circuit held that a cash-out for unused sick leave is not pay for hours worked, and need not be included in the employee’s regular rate. Id. at 905. The court reasoned that “awards for nonuse of sick leave are similar to payments made when no work is performed due to illness, which may be excluded from the regular rate” under 29 U.S.C. § 207(e)(2). Id. In contrast, the Eighth Circuit in Acton v. Columbia, 436 F.3d 969 (8th Cir.2006) reached the opposite conclusion. In its analysis, the Acton court relied on 29 U.S.C. § 207(e), which requires money paid for general or specific work-related duties to be included in the regular rate of pay. Id. at 976–77. Noting that “the primary effect of the buy-back program is to encourage firefighters to come to work regularly over a significant period of their employment tenure,” the court concluded that work attendance was a specific work-related duty and that the buy-back payments must be included as remuneration for employment. Id. at 977.

Following Action, as well as a Department of Labor interpretive bulletin, the Tenth Circuit in Chavez held that sick leave buy-backs—but not vacation buy-backs—must be included in the regular rate. 630 F.3d at 1309;
see U.S. Dept. of Labor, Wage and Hour Opinion Letter FLSA–2009–10, dated Jan. 16, 2009, 2009 WL 649021. The Chavez court explained this distinction as follows:

To be sure, both vacation and sick leave buy-back reward attendance, in some sense, because they reward an employee for not taking days off. The key difference lies in the way each type of day off operates. A sick day is usually unscheduled or unexpected, and is a burden because the employer must find last-minute coverage for the sick employee. In contrast, vacation days are usually scheduled in advance, so their use does not burden the employer in the way that unscheduled absences do. An employee has a duty not to abuse sick days, whereas there is no corresponding duty not to use vacation days. Buying back sick days rewards an employee for consistent and as-scheduled attendance, which are the aspects of good attendance that provide additional value to an employer. Thus, sick leave buy-backs are compensation for additional service or value received by the employer, and are analogous to attendance bonuses. In contrast, payments for non-use of vacation days are analogous to holiday work premiums or bonuses for working particular undesirable days.

Id. at 1309–1310.

Rejecting plaintiffs’ assertion that the payments at issue must be included in the regular rate calculations and distinguishing out-of-circuit case law, the court reasoned:

Plaintiffs urge the Court to follow Acton and Chavez and to find that the District’s buy-backs under its Annual Leave program should have been included in Plaintiff’s regular rate. The Court disagrees. Both of those cases involved dedicated buy-back programs specifically for sick time. This case is different. The District no longer separates sick leave from vacation time. Rather, the District now maintains an Annual Leave program which makes no distinction between vacation or sick time when time is withdrawn from the Annual Leave Bank. As discussed, under the terms of the governing MOU, Annual Leave accrues pursuant to separate formulas for “sick leave” and “vacation.” MOU § 10.1 & Ex. B. However, once sick leave and vacation time have accrued, they are deposited into an Annual Leave Bank. Once in the Annual Leave Bank, the employee’s accrued time is simply treated as Annual Leave, which can be used for both unscheduled and scheduled absences. In other words, an employee may use his or her Annual Leave without regard to the reason the employee is taking time off. Thus, unlike the sick leave buy-back program in Chavez, the District’s buy-back of annual leave does not “reward[ ] an employee for consistent and as-scheduled attendance” and is not “analogous to attendance bonuses.” 630 F.3d at 1309–310.

The court rejected plaintiffs argument regarding the significance of the fact that under the MOU, leave time accrues separately on either the vacation or sick leave schedule, and that when time is debited from the Annual Leave Bank, it is classified as either “annual level scheduled” or “annual leave unscheduled.” The court also questioned the significance of the fact that the hours accrued at the vacation rate are segregated into an Annual Leave Restricted Bank until they can be scheduled and used. Because no deductions could be made from the Annual Leave Restricted Bank nor does the District buy-back any leave in that bank. Id. Instead, only at the end of the calendar year in which the leave accrued are those hours are rolled in the Annual Leave Bank where they can be used for any purpose. Finally, the court dismissed plaintiffs argument that, as a practical matter, the “vast majority” of them use their Annual Leave for scheduled absences, meaning that any leftover hours cashed-out are, in effect, for sick leave, due to the lack of evidence in support of this proposition.

Click Balisteri v. Menlo Park Fire Protection Dist. to read the Order Granting Defendant’s Motion for Summary Judgment, and Denying Plaintiffs’ Motion for Summary Judgment.

This case was before the court on plaintiff’s motion for conditional certification of a collective action, seeking to permit court approved notice.  The court noted that another court, presented with a similar motion for conditional certification had previously denied same due to very significant differences in the factual circumstances in the employees’ work, depending on location.  Nonetheless the court granted plaintiff’s motion and conditionally certified the case with respect to the district in which the plaintiff was employed.  As discussed here, the court also granted plaintiff’s motion to equitably toll the statute of limitations for putative class members, as of the date the plaintiff filed his motion for conditional certification.  In so doing, the court joined other courts who have held that court delay in issuing a decision on a motion for conditional certification is of itself an “extraordinary circumstance” warranting the tolling of the statute of limitations.

Addressing the equitable tolling issue, the court said:

Normally in a FLSA collective action, the statute of limitations for each plaintiff runs when he or she files written consent with the court electing to join the lawsuit, not when the named plaintiff files the complaint. See 29 U.S.C. § 256(b). However, courts have discretion to equitably toll the limitations period in appropriate cases in order “to avoid inequitable circumstances.” Yahraes v. Restaurant Assocs. Events Corp., 2011 WL 844963, at *1 (E.D.N.Y. Mar.8, 2011). The Honorable Steven M. Gold stated that “the delay caused by the time required for a court to rule on a motion, such as one for certification of a collective action in a FLSA case, may be deemed an ‘extraordinary circumstance’ justifying application of the equitable tolling doctrine.” Id. at *2 (collecting cases). While plaintiffs wishing to pursue their rights cannot sit on them indefinitely, those whose putative class representatives and their counsel are diligently and timely pursuing the claims should also not be penalized due to the courts’ heavy dockets and understandable delays in rulings. Accordingly, the statute of limitations will be tolled as of the date of the filing of this motion.

While courts remain split on this issue, this is a good example of a court ruling on equitable tolling with the remedial purposes of the FLSA in mind.

Click McGlone v. Contract Callers, Inc. to read the entire Opinion.

This case was before the court on the parties’ cross-motions for summary judgment and plaintiff’s related motion to strike. As discussed here, one of the issues before the court was whether a recommended 20% gratuity constituted a tip or a mandatory service charge, as defined by the FLSA. Significantly, defendant did not include the gratuity in plaintiffs regular rate for purposes of calculating his overtime each week. If it constituted a tip, it was properly excluded from the calculation of plaintiff’s regular rate and resulting overtime rate of pay. However, if it was a mandatory service charge, defendant was required to include it in calculating plaintiff’s overtime, and its failure to do so constituted a violation of the FLSA. Based on the facts before the court, the court concluded that the gratuity was simply a recommended (not mandatory) tip amount, and thus was properly excluded from plaintiff’s regular rate of pay.

The court explained:

“Where an employer, such as Commonwealth, is not using a “tip credit” to satisfy the FLSA’s minimum wage provision, any tips the employee receives “need not be included in the regular rate” for purposes of calculating proper overtime wages. 29 C.F.R. § 531.60 (2012). Federal regulations define a tip as:

a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity.

29 C.F.R. § 531.52 (2012). However, “[a] compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer’s establishment, is not a tip.” 29 C.F.R. § 531.55 (2012).

Here, there is no genuine factual dispute that the Recommended Tip was discretionary, and not a mandatory 20% charge. There is no dispute that Commonwealth’s invoices noted next to the Recommended Tip charge that “[t]he actual amount of the tip is in the discretion of the customer; any tip received will be remitted in full to the chauffeur.” (Rutter Aff. Ex. C.) Rutter, as well as Diane Pessolano, Commonwealth’s controller, both attested that the Recommended Tip was not mandatory and clients could and would pay either more or less than the recommended 20%. (Id. ¶ 24; Aff. of Diane Pessolano, dated Apr. 8, 2011, Dkt. Entry 26–12 at ¶¶ 7–8.). Plaintiff has failed to point to anything in the record rebutting this evidence. Therefore, the court finds that the Recommended Tip was a tip as a matter of law. See Chan v. Sung Yue Tung Corp., 2007 WL 313483, at *14 (S.D.N.Y. Feb.1, 2007) (Lynch, J.) (as opposed to a tip, “a ‘service charge’ is a mandatory charge imposed by an employer on a customer that is the property of the employer, not the employees, and becomes part of the employer’s gross receipts.”)…

For the forgoing reasons, the court finds that there is no genuine material question of fact as to the whether the Recommended Tip is mandatory, thus requiring that it be included in Plaintiff’s “regular rate.” Summary Judgment is granted to Defendants on this ground.”

Click Ellis v. Common Wealth Worldwide Chaueffuered Transp. of NY, LLC to read the entire Opinion and Order.

Continuing a split with virtually every other circuit, another court within the Third Circuit has held that a pharmaceutical representative, performing typical duties is administratively exempt under the FLSA (and PMWA, which requires exercise of discetion and independent judgment, but not that same be exercised with regard to matters of significance) is exempt from overtime under the administrative exemption.

Discussing the Third Circuit precedent, the court stated:

The Third Circuit has recently found pharmaceutical sales representatives exempt as administrative employees under the FLSA and the PMWA. In Smith v. Johnson & Johnson, the Court held a sales representative was engaged in work directly related to the management or general business operations of the employer because the “position required her to form a strategic plan designed to maximize sales in her territory,” which “involved a high level of planning and foresight.” Because Smith “executed nearly all of her duties without direct oversight” and considered herself “the manager of her own business who could run her own territory as she saw fit [,]” the Court concluded that Smith was subject to the administrative employee exemption under the FLSA.

In Baum v. AstraZeneca, the Court, relying on Smith, held that plaintiff’s work related to her employer’s general operation because she marketed and advertised its pharmaceutical products. The plaintiff also had “significant discretion in how she would approach physicians, whether it be through access meals, peer-to-peer meetings, or other means,” “spent the majority of her time in the field, unsupervised,” “decided how much time she would spend with a given physician …. [and] whether she would use a detail aid,” such that her “day-to-day activities involved making numerous independent judgments on how best to promote [her employer's] products.” The Third Circuit therefore held that plaintiff was subject to the administrative employee exception to the PMWA.

The court rejected plaintiff’s contention that her duties were distinguishable from prior cases within the Third Circuit:

Having carefully considered the undisputed and stipulated facts of this case, Kesselman’s deposition testimony, and record documents reflecting Kesselman’s own assessment of her job responsibilities and accomplishments, the Court finds Smith and Baum controlling. Like the plaintiffs in Smith and Baum, Kesselman spent most of her working hours unsupervised and was responsible for developing her own target list of physicians, daily and monthly sales call itineraries, and a business plan for her territory based on her extensive knowledge of clients and sales data. Although, like Smith and Baum, she often worked from company-approved materials and was expected to convey certain product information during calls, she otherwise had discretion as to how to organize and conduct the calls. In general, she considered herself the “boss” of her territory.

These activities, which closely parallel the activities of Smith and Baum, “reflect [her] ability to develop strategies; to approach, communicate, and cultivate relationships with physicians; and to operate without constant supervision in the field.” Furthermore, they “are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial… work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance….”

While the issue of whether the outside sales exemption applies to pharmaceutical representatives has reached the Supreme Court, with a resolution to be forthcoming shortly, it is not clear whether the administrative exemption issue will have the same fate. Whereas the outside sales exemption issue hinges on the legal definition of the term “sale,” the administrative exemption requires a more fact specific inquiry. Thus, for the foreseeable future, pharmaceutical representatives whose cases are decided in New Jersey, Delaware and Pennsylvania may be exempt from the FLSA under the administrative exemption, while those whose cases are adjudicated in the other 47 states are not. Of course, to the extent that the Supreme Court holds that their positions are outside sales exempt, the whole issue will be rendered moot.

Click Kesselman v. Sanofi-Aventis U.S. LLC to read the entire Memorandum Opinion and Order.

In an emerging trend in FLSA cases, this case was before the court on the plaintiffs’ motion for decertification.  The motion followed the defendants’ motion to dismiss, pursuant to FRCP 19, for failure to join necessary parties, franchisees who owned and operated its franchises.  The court granted plaintiffs’ motion, but noted that it was not considering the motion so much as a decertification motion in the collective action context, as a motion to subclass the existing opt-ins by geographic region (state).

Describing the relevant background the court explained:

Happy’s Pizza is a chain of franchise restaurants that sells pizza, chicken, seafood, and ribs in several states. Happy’s Pizza Franchise, LLC, sells the right to operate restaurants and use the Happy’s name and recipes to what it contends are independent franchisee corporations. Happy Asker is the sole member of Happy’s Pizza Franchise, LLC. Happy’s Pizza Chicago # 1, Inc. and Happy’s Pizza Chicago # 2, Inc. are two of the franchisee corporations. They operate restaurants in Chicago.

Plaintiffs filed suit in May 2010, alleging that Happy’s regularly directed them to work more than forty hours a week but did not pay them overtime wages in violation of the FLSA. All three plaintiffs alleged that they had worked at the Chicago Happy’s restaurants operated by the defendant corporations. Medina and Escobar also alleged that they had worked in Happy’s restaurants in Lansing and Ann Arbor, Michigan and that they had been subjected to the same practices there. Plaintiffs sought to include in the case similarly situated Happy’s employees who likewise had not been paid appropriate overtime wages.

The Court granted conditional certification and authorized the plaintiffs to send notice to Happy’s employees. At least 254 plaintiffs have opted into the lawsuit, although the parties dispute the exact number. Among the opt-in plaintiffs, a majority worked for Happy’s restaurants in either the Eastern or Western Districts of Michigan. Approximately fifty plaintiffs worked for Happy’s restaurants in Ohio, all in the Northern District of Ohio, and twenty-three of the opt-in plaintiffs worked for Happy’s restaurants in Illinois, all in the Northern District of Illinois. Only about twenty of the opt-in plaintiffs worked for Happy’s restaurants that are operated by the two Happy’s franchises named as defendants, Happy’s Pizza Chicago # 1 and Happy’s Pizza Chicago # 2. The remaining opt-in plaintiffs worked for forty-six other Happy’s restaurants. Defendants contend these restaurants are all operated by distinct franchisee corporations that are not defendants in this suit.

Following the defendants’ motion to dismiss, based on plaintiffs’ failure to join the franchisees whom various opt-ins worked for as defendants, the plaintiffs moved for what they called partial decertification, asking the court to transfer all of the opt-in plaintiffs who had not worked for Happy’s restaurants in this district to the appropriate districts in Michigan or Ohio.

Among other things, in opposition to the plaintiffs’ motion, the defendants argued: (1) partial decertification followed by transfer of the opt-in plaintiffs, was inappropriate, because decertification of a collective action results in dismissal of opt-in plaintiffs; (2) that the court lacked the authority to transfer the Ohio and Michigan plaintiff subclasses to district courts in those states; (3) that the court should have considered their motion to dismiss prior to addressing plaintiffs motion; and (4) that neither 1 nor the proposed 4 collective actions were appropriate because the plaintiffs were not similarly situated to one another, having worked for different franchisees.

The court rejected each of the defendants’ contentions, reasoning in part:

In this case, the use of subclasses, based on the judicial districts in which the plaintiffs worked, will similarly be a more efficient mechanism for adjudicating the plaintiffs’ claims. As defendants have argued, the plaintiffs from the different judicial districts worked at different restaurants, which suggests that a significant part of the evidence for each subclass would be distinct. Defendants also note that the Michigan and Ohio plaintiffs cannot bring supplemental claims under Illinois law, as the named plaintiffs have done, and that they may be in a position to assert supplemental state law claims based on Michigan and Ohio law, which the Illinois plaintiffs cannot bring. Dividing the plaintiffs into subclasses will allow those claims to be more effectively handled as well…

Because there is no basis to conclude at this point that the plaintiffs are not similarly situated, there is no reason to decertify the collective action and dismiss the opt-in plaintiffs. Instead, the Court divides the opt-in plaintiffs into subclasses and severs from this case the three subclasses containing the Michigan and Ohio opt-in plaintiffs.

Click Medina v. Happy’s Pizza Franchise, LLC to read the entire Memorandum Opinion and Order.

In one of the most anticipated wage and hour decisions pending at the circuit court level, the Third Circuit held yesterday that Rule 23 state law wage and hour class actions (opt-out) are not inherently incompatible with FLSA collective action (opt-in).  Likely ending one of the longest running and hotly contested issues in wage and hour litigation the Third Circuit “join[ed] the Second, Seventh, Ninth and D.C. circuits in ruling that this purported ‘inherent incompatibility’ does not defeat otherwise available federal jurisdiction.”

At the court below the plaintiffs had asserted a hybrid cause of action– claims under both the FLSA’s collective action mechanism and multiple states’ wage and hour laws (Rule 23 class actions).  Unlike some so-called hybrids though, here the Court’s jurisdiction over the Rule 23 state law claims was based on the original jurisdiction of CAFA, rather than the supplemental jurisdiction of 1367.  While the court below had held that the Rule 23 claims could not be brought together with the FLSA collective action claims, based on “inherent incompatibility” the Third Circuit disagreed and reversed.

Framing the issue, the court explained:

“This case involves a putative conflict between an opt-out Fed.R.Civ.P. 23(b)(3) damages class action based on state statutory wage and overtime laws that parallel the federal Fair Labor Standards Act (FLSA) and a separately filed opt-in collective action under 29 U.S.C. § 216(b) of the FLSA. Both suits allege violations arising from the same conduct or occurrence by the same defendant. At issue is whether federal jurisdiction over the Rule 23 class action based solely on diversity under the Class Action Fairness Act (CAFA), 28 U .S.C. § 1332(d), is inherently incompatible with jurisdiction over the FLSA action, and whether the FLSA preempts state laws that parallel its protections. ”

Although there had been many prior trial level decisions from the courts within the Third Circuit holding that so-called hybrids were “inherently incompatible,” the panel noted that “The concept of inherent incompatibility has not fared well at the appellate level. Four courts of appeals have rejected its application to dual-filed FLSA and class actions.”

Looking first to the text of the FLSA, the court agreed with the Seventh Circuit “that that the plain text of § 216(b) provides no support for the concept of inherent incompatibility.”  The court then explained that a look at legislative history was unnecessary in light of the unambiguous nature of the FLSA’s text in this regard.  Nonetheless, looking at the legislative history, the court concluded, “we disagree that certifying an opt-out class based on state employment law contravenes the congressional purpose behind the Portal–to–Portal Act.”

Perhaps most significantly, the court revisited its decision in De Asencio and noted that it was “distinguishable, as the Seventh, Ninth, and D.C. Circuits have all concluded. Ervin, 632 F.3d at 981 (“De Asencio represents only a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining an FLSA count with a state-law class action.”); Wang, 623 F.3d at 761; Lindsay, 448 F.3d at 425 n. 11. Unlike the state law claims at issue in De Asencio, there is no suggestion that the claims under the MWHL and the OMFWSA are novel or complex; Rite Aid’s principal objection is that these state claims are too similar to federal claims with which the federal courts are well familiar. Nor does this case present an instance of supplemental jurisdiction, where there is statutory authority to decline jurisdiction in the factual circumstances of De Asencio.  Here, independent jurisdiction exists over plaintiffs’ claims under CAFA, which provides no statutory basis for declining jurisdiction in this instance. For these reasons, we do not believe De Asencio supports dismissal.”

The court concluded:

“In sum, we disagree with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure. Nothing in the plain text of § 216(b) addresses the procedure for state-law claims, nor, in our view, does the provision’s legislative history establish a clear congressional intent to bar opt-out actions based on state law. We join the Second, Seventh, Ninth, and D.C. Circuits in ruling that this purported “inherent incompatibility” does not defeat otherwise available federal jurisdiction.”

The court also rejected the contention that the FLSA somehow preempts more beneficial state wage and hour laws.

Click Knepper v. Rite Aid Corp. to read the entire Opinion of the Court.  Click here to read the Secretary of Labor’s amicus brief in support of the plaintiff-appellant and here to read the amicus brief submitted on behalf of several employee rights’ organizations, including the National Employment Law Association (NELA).