Tag Archives: Coverage

Are the FLSA’s Enterprise Coverage Requirements Outdated in Today’s Economy?

In his recent article, “Taking the Employer Out of Employment Law? Accountability for Wage and Hour Violations in an Age of Enterprise Disaggregation,” Professor, Timothy P. Glynn of Seton Hall School of Law makes a compelling argument that the answer is yes.

In the abstract to his article, Professor Glynn explains:

“Violations of wage and hour mandates are widespread at the low end of the labor market. The disaggregation of business enterprises into smaller, independent parts has been an important factor in this growing problem. Limitations on liability for work-law violations invite such arrangements since statutory protections for workers usually impose duties only on “employers.” That status, in turn, hinges on the level of control a firm exercises over the work, and when exacting control is not necessary, firms usually can avoid accountability by shifting work to independent third-party suppliers. This creates severe enforcement obstacles: detection becomes difficult, labor suppliers often are undercapitalized, and coverage uncertainties lead to unprosecuted claims and discounted settlements. Thus, disaggregation does far more than shift legal responsibility from one entity to another: it allows end-user firms to avoid noncompliance risks while benefiting from labor at a price discounted by the unlikelihood of enforcement.”

Thus, Professor Glynn proposes “eliminating the ‘employer’ coverage barrier altogether.”  Under his approach, “commercial actors would be held strictly liable for wage and hour violations in the production of any goods and services they purchase, sell, or distribute, whether directly or through intermediaries. The only limitation is that a firm’s liability would not exceed the proportion of the violations attributable to the goods or services it purchases, sells, or distributes.”

Adopting this less restrictive coverage requirement would lead to easier enforcement of wage and hour laws and thus, fewer abuses at the low end of the labor market.  It doesn’t appear that there’s any push to adopt these logical changes which would no doubt further the remedial goals of wage and hour laws, but it’s a refreshing perspective nonetheless.  In this day and age, Professor Glynn’s recognition that a modern fractured economy is far different than the economy of the past, with fewer larger actors, is largely unaddressed by wage and hour laws that are currently on the books.

Click Abstract to read more on Professor Glynn’s work.

Thanks to the Workplace Prof Blog for bringing this to our attention.

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W.D.Pa.: Although FLSA Does Not Provide Coverage For Work Performed In Foreign Countries, Pennsylvania Wage And Collection Act (PMWA) Does

Truman v. DeWolff, Boberg & Associates, Inc.

Plaintiff commenced this action against Defendant alleging violations of section 16(b) of the Fair Labor Standards Act of 1938 (“FLSA”) 29 U.S.C. 216(b); the Pennsylvania Minimum Wage Act of 1968 (“PMWA”) 43 P.S. §§ 333.101-333.115; and the Pennsylvania Wage Collection Act of 1961, 43 Pa. Cons.Stat. Ann. §§ 260.1-260.45. Before the Court is Defendant’s motion for Partial Summary Judgment seeking dismissal of Mr. Truman’s claim that he is due overtime pay under the FLSA for the period of time he worked outside of the United States. Defnedant filed a Reply to Mr. Truman’s Response arguing for the first time that Mr. Truman was also not entitled to overtime payments under the PMWA for the period of time he worked in foreign countries. Thereafter, Plaintiff filed a Sur-Reply opposing the imposition of Partial Summary Judgment to his PMWA claim. The Court denied the motion for Partial Summary Judgment with regards to the PMWA claim.

After discussing the statutory basis for granting Defendant’s Motion regarding the FLSA and the foreign work, the Court turned to Plaintiff’s claims for the same work under the PMWA, stating, “[t]he Pennsylvania Minimum Wage Act guarantees that employees will be paid one and one-half times their regular rate for any overtime worked. 43 P.S. § 333.104(c). Exemptions to this statutory provision are recorded in 43 P.S. § 333.105. Unlike the FLSA, the PMWA does not contain an explicit exemption for work performed outside of the United States. However, the PMWA has been construed to extend its protections to employees who work outside of Pennsylvania. Friedrich v. U.S. Computer Systems, Inc., 1996 WL 32888 (E.D.Pa. Jan.22, 1996). In Friedrich the Court permitted the PMWA to apply to Pennsylvania-based employees who perform work in states outside of Pennsylvania. 1996 WL 32888, at *8-9. Allowing employees who perform work outside of Pennsylvania to benefit from the PMWA is in accord with the PMWA’s Declaration of Policy. 43 P.S. § 333.101 (“Employes employed in such occupations are not as a class on a level of equality in bargaining with their employers in regard to minimum fair wage standards … wages in such occupations are often found to bear no relation to the fair value of the services rendered”). Thus, there is nothing within the PMWA that restricts the benefits of the PMWA to work performed within the United States.

The FLSA does not preempt state minimum wage acts from offering greater protection to state employees than does the FLSA. For example, the FLSA states that, “[n]o provision of this Act … or of any order thereunder shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this Act.”29 U.S.C. § 218(a). Additionally, several courts have found that explicit FLSA exemptions do not preempt state laws from offering state employees greater protections than FLSA. See e.g., Pacific Merchant Shipping Ass’n v. Aubry, 918 F.2d 1409, 1417 (9th Cir.1990) (“We hold that [29 U.S.C.] section 213(b)(6) does not preempt California from applying the state’s overtime pay laws to FLSA-exempt seamen working off the California coast.”); Pennsylvania Dept. of Labor and Industry v. Whipple, 1989 WL 407328, at *3 (Pa.Com.Pl., 1989) (Overtime exemptions under FLSA “do not affect coverage under Pennsylvania Minimum Wage Act”); Ploufe v. Farm & Ranch Equip. Co., 174 Mont. 313, 320, 570 P.2d 1106 (Mont.1977) (holding that FLSA did not preempt Montana from regulating overtime and wages under the Montana Minimum Wages and Hours Act). In light of the FLSA’s explicit recognition that states may offer greater protections to its employees than the FLSA, we are reluctant to find an unstated foreign-work exemption in the PMWA based solely on the fact that the FLSA contains such an exemption. Baum v. Astrazeneca LP, 605 F.Supp.2d 669, 674 (W.D.Pa.2009) (finding that “[b]ecause the FLSA is a remedial act, the exemptions are typically narrowly construed”).

In Williams v. W.V.A. Transit Co., 472 F.2d 1258 (D.C.Cir.1972), the Court of Appeals for the District of Columbia found that the District of Columbia Minimum Wage Act was not limited by an explicit FLSA exemption:

[A]n employee does not lose his status of being employed in the District merely because he receives an assignment, for a relatively short period, that calls on him to spend all his time for that period at some location outside the District. Otherwise, that status would be lost or suspended through relatively isolated or occasional employment outside the District, and from the common sense of the matter we conclude that this is not the legislative intent. 472 F.2d at 1265-1266. As in Williams, we find that, although there is an applicable FLSA exemption, we cannot find an implied foreign work exemption in the PMWA to remove coverage from Pennsylvania residents who have been given assignments outside of Pennsylvania. If the Pennsylvania legislature had wanted to exempt foreign work from the PMWA it could have expressly included that exemption within the PMWA. See Friedrich, 1996 WL 32888, at *5 (“The Pennsylvania legislature enacted the PMWA to protect those employees who do not benefit from federal protection [under the FLSA].”) Our conclusion is in accord with the FLSA and its regulations that permit state laws to offer greater protections than the FLSA. See29 U.S.C. 218(a) (Section 218“expressly contemplates that workers covered by state law as well as FLSA shall have any additional benefits provided by the state law higher minimum wages; or lower maximum work week.” Williams, 472 F.2d at 1261);29 C.F.R. § 778.5 (“[n]othing in the act, the regulations or the interpretations announced by the Administrator should be taken to override or nullify the provisions” of state and local laws.)

In support of its argument that the FLSA and PMWA should have an identical analysis, DBA relies on Paul v. UPMC Health Sys., C.A. No. 06-1565, 2009 WL 699943 (W.D.Pa. Mar.10, 2009). In Paul, the defendant argued that the plaintiff was properly classified as an administrative employee and was therefore exempt from the overtime requirements under both the FLSA or the PMWA. The Paul Court noted that the “administrative exemptions” set forth in both the FLSA and PMWA are identical, and therefore only analyzed “the applicability of the administrative exemption to plaintiff’s FLSA claim,” noting that “the same analysis, however, also applies to plaintiff’s PMWA claim.” 2009 WL 699943, at *8, n. 1. The Paul Court applied an identical analysis only because both Acts contain express administrative exemptions. The Paul case does not address the circumstance when the FLSA contains an explicit exemption and the PMWA contains no corresponding exemption.

DBA’s reliance on Mitchell v. Abercrombie & Fitch, No. C2-04-306, 2005 WL 1159412 (S.D.Ohio May 17, 2005) is also misplaced. The Mitchell case concerned application of the Ohio Minimum Fair Wage Standards Act to a plaintiff who not only did all of his work outside of Ohio, but also did not reside in Ohio. The Mitchell Court found that the Ohio legislature did not intend the Act to apply to workers, “who perform no work within the territorial limits of the State of Ohio [and that] the Commerce Clause of the United States Constitution prohibits Ohio from regulating the working conditions of a non-resident who performs work and earns wages outside of the state.” 2005 WL 1159412, at *3 (emphasis added). The Mitchell Court also noted that there was “no claim that [plaintiff] ever worked for even a brief period of time in Ohio, which would change the analysis as to the applicability of Ohio law to his employment relationship.” 2005 WL 1159412, at *4. Here, there is no dispute that Mr. Truman is a Pennsylvania-based employee.

The employer has the burden of proof of to show that an employee fits into an exemption. Baum, 605 F.Supp.2d at 674. Mr. Truman has conceded that work he performed outside of the United States is not protected by the FLSA, and thus we will grant DBA’s motion in this respect. However, DBA has failed to show that Mr. Truman is an exempt employee under the PMWA for the work performed in England and Canada. Nothing within the language of the statute implies that work performed in a foreign country by a Pennsylvania resident does not deserve the same protections as work performed within Pennsylvania by the same resident and for the same company. Accordingly, we will deny the motion for partial summary judgment with regards to the PMWA claim.”

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S.D.N.Y.: Members Of Restaurant Co-op Are Akin To Partners And Not Employees Within Meaning Of FLSA

Godoy v. Restaurant Opportunity Center of New York, Inc.

Plaintiffs, brought suit against Defendants Restaurant Opportunity Center of New York, Inc. (“ROC-NY”), 417 Restaurant LLC a/k/a ROC N.Y. Restaurant LLC d/b/a Colors, ROC-NY Worker Owner Restaurant, LLC a/k/a RWOR, Saru Jayaraman, and Grace Gilbert, as President of ROC-NY (“Defendants”), alleging breach of contract, fraud, and violations of the federal Fair Labor Standards Act (“FLSA”), 28 U.S.C. § 216(b), and New York State Labor Law. Plaintiffs, former restaurant workers and members of Defendant not-for-profit corporation ROC-NY, alleged that Defendants broke their agreement with Plaintiffs that Plaintiffs would gain equity in and employment at the “worker-owned” restaurant they helped ROC-NY to create in exchange for the hundreds of hours that Plaintiffs contributed to that effort. Plaintiffs sought through this action damages and injunctive relief in the form of their promised shareholder status in and employment at the restaurant, now known as “Colors,” back pay for the work they performed on behalf of ROC-NY during the period of 2002-2005 and the wages they did not earn because they were not employed at the restaurant once it opened, and costs and attorneys’ fees in prosecuting this action. Defendants moved to dismiss Plaintiffs’ First Amended Complaint in its entirety, pursuant to Fed.R.Civ.P. 12(b)(6). In granting Defendants’ Motion, the Court discussed the unique situation under which the Plaintiffs worked for and with the co-op, applying the various economic reality tests to determine that they were not “employed” by Defendants, and therefore dismissing the Complaint.

Several Plaintiffs became members of Defendant ROC-NY in August 2002. Several months later, ROC-NY began seeking grants to launch what was described as a “cooperatively owned restaurant” which would be run by-workers displaced after the September 11 terrorist attacks, and a “Cooperative Committee” of ROC-NY was created to direct that effort. Several Plaintiffs were initial members of the Cooperative Committee. Other Plaintiffs joined ROC-NY and the Cooperative Committee in around 2003, and one Plaintiff joined in around 2004. All of the Plaintiffs joined the Cooperative Committee when they joined ROC-NY, and many served on the Committee’s Board of Directors at various times.

Significantly, the Court noted, “[ha]ving surveyed the various economic reality tests and factors applied by the courts, this Court finds lacking any standard applicable to the question presented by the particular facts of this case-that is, whether workers laboring for and together with a not-for-profit corporation to develop a business that they would co-own are employees of that corporation for purposes of the FLSA. Instead, the Court finds company with the Tenth Circuit in its decision in Wheeler v. Hurdman, 825 F.2d 257 (10th Cir.1987). In that case, the Circuit considered whether a general partner of an accounting firm was an “employee” of that firm for purposes of a FLSA action. After reviewing the traditional “economic reality” factors employed by the courts, the Court noted the “absence … of any coherent standard of ‘economic reality’ for supposed application to partners” in a business, and concluded that “the specific independent contractor/employee factors … are largely useless in a general partnership context.” Id. at 271-72. The Court explained that while “[t]he focal point in deciding whether an individual is an employee” under the “economic realities” jurisprudence, “is whether the individual is economically dependent on the business to which he renders service … or is, as a matter of economic fact, in business for himself,”

Consideration of the factors used by the Tenth Circuit in Wheeler to assess the economic reality presented by a partnership supports the absence of an employer-employee relationship in this instance. See Wheeler, 825 F.2d at 274-75. Like partners at a firm. Plaintiffs, as putative co-owners of the business they were working to create, “assume[d] the risks of loss and liabilities” of the venture, and had a real opportunity to share in its profits upon success. Plaintiffs’ hours of “sweat-equity” represented their “capital” contribution to the business, and one that “would earn [Plaintiffs] equity in the RWOR” as “sweat equity converted to cash equivalent in stock.” While Plaintiffs’ “right to share in management” once the restaurant opened is not specifically alleged in the Complaint, the Court notes that Plaintiffs were members of the Board of Directors of the Cooperative Committee tasked with the management of the restaurant’s planning and development phase. Taken together, the balance of these “economic realities” weighs against the existence of an employment relationship in this case. As Plaintiffs and Defendants were at all relevant times putative co-owners of the restaurant they were working to create, the Court finds that Plaintiffs were not, as a matter of economic reality, the employees of Defendants. As such. Plaintiffs have no claims under the FLSA, see Alamo, 471 U.S. at 296-97, and Defendants’ Motion to Dismiss these claims is GRANTED.”

This unfortunate result, seems unavoidable given the fact that the Plaintiffs were technically “owners” of the business for which they worked, and it is likely that the decision will have limited application in future cases.

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9th Cir.: FLSA Applicable To Retail Business Located On An Indian Reservation, Owned By Indian Tribal Members

Solis v. Matheson

Appellant Paul Matheson is a member of the Puyallup Tribe. The Puyallup Tribe is a Pacific Northwest Indian tribe that has a reservation in the State of Washington. Paul Matheson owns and operates a retail store known as Baby Zack’s Smoke Shop (“Baby Zack’s”), located on trust land within the Puyallup Indian Reservation. Appellant Baby Zack’s sells tobacco products and sundries to Indians and non-Indians. Some of the goods sold by Baby Zack’s have been shipped in from locations outside the State of Washington. Baby Zack’s accepts credit card and debit card payments and uses electronic or telephonic means of communication to banks and credit card companies located outside of the State of Washington. Baby Zack’s regularly employs both Indian and non-Indian workers.

In 2004 and 2005, Baby Zack’s had an annual gross volume of sales of not less than $500,000. Paul and Nick Matheson are employers within the meaning of the FLSA. If the FLSA applies, the amount of wages due to employees and former employees is $31,354.87.

Although they acknowledged that they were enterprises otherwise covered by the FLSA, Defendants argued that they were exempt from the FLSA, because they qualify for either or both the intramural affairs exception set forth in Donovan v. Coeur d’Alene Tribal Farm, 751 F.2d 1113, 1115-16 (9th Cir.1985), or the treaty rights exception.  The Court disagreed holding:

“In this opinion we resolve whether the overtime provisions of the Fair Labor Standards Act (“FLSA”) apply to a retail business located on an Indian reservation and owned by Indian tribal members.  We also resolve whether Appellee the Secretary of Labor for the United States Department of Labor (the “Secretary”) has the authority to enter the Indian reservation to inspect the books of that business… We conclude that the overtime requirements of the FLSA apply to the retail business at issue in this case.  Because the FLSA applies to the retail business, we conclude that the Secretary had the authority to enter the Indian reservation to audit the books of the business, as she would regularly do with respect to any private business.  We therefore affirm the decision of the district court on these two issues.”

In a separate issue, the Court found that the District Court’s appointment of a receiver due to Defendants’ failure to pay overtime wages was premature and reversed on that issue, stating, “[w]e conclude that the district court’s decision with respect to the automatic appointment of a receiver over the retail business in the event the overtime payments were not made was premature. We therefore vacate that portion of the judgment.”

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S.D.Fla.: Issue Of FLSA Coverage Not Jurisdictional; Simply An Element Of The Claim

Rodriguez v. Diego’s Restaurant, Inc.

The parties reached a settlement and on August 7, 2008, the Court conducted a fairness hearing pursuant to Lynn Food Stores v. United States, 679 F.2d 1350, 1352-53 (11th Cir.1982). On the same day, the Court issued an Order dismissing the case with prejudice and retaining jurisdiction to enforce the terms of the settlement until October 15, 2008. The defendants did not make the scheduled payment and on September 19, 2008, the plaintiff filed Plaintiff’s Motion for Final Default Judgment Against Defendants. Defendants moved to dismiss the case for lack of subject matter jurisdiction, despite the fact that they had stipulated on multiple occasions that FLSA jurisdiction had been met.

The Court acknowledged that the Eleventh Circuit has yet to address the issue head on of whether FLSA coverage is jurisdictional, stating, “[t]he issue of whether individual or enterprise coverage is jurisdictional or only a required element of the plaintiff’s claim has not been resolved in this Circuit. The Eleventh Circuit in Turcios v. Delicias Hispanas Corp., 275 Fed. Appx. 879, *2 (11th Cir. Apr. 29, 2008) found that “the question of enterprise coverage was intertwined with the merits of an FLSA claim.” In Turcios, the district court dismissed the plaintiff’s complaint for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). The plaintiff appealed the ruling. On appeal, the Eleventh Circuit reversed the district court holding that the lower court should have applied the Rule 56 summary judgment standard. Id. at *1. The Eleventh Circuit observed that the same operative facts determine whether the plaintiff can recover under the FLSA and the scope of the FLSA’s coverage. “In short, the sections of the FLSA that provide the substantive relief, § § 206 and 207, are interwined with and dependent on the section of the FLSA that defines the scope of the FLSA, § 203.” Id. at 2. The Eleventh Circuit acknowledged that the First Circuit in Chao v. Hotel Oasis, Inc., 493 F.3d 26, 33 (1st Cir.2007) concluded that enterprise coverage was not jurisdictional under the FLSA in light of the Supreme Court’s ruling in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006). Id. at * 2 n. 5. Nonetheless, the Eleventh Circuit declined to decide the issue in Turcios because the parties did not dispute the jurisdictional nature of enterprise coverage. Id.”

After discussing the case law related to the issue from around the country, the Court concluded, “[i]n sum, the Court finds that the individual or enterprise coverage prongs are elements of the plaintiff’s claim and are not jurisdictional. Because these are elements of the plaintiff’s claim, the defendant was required to raise any attacks on these elements in a timely manner. “[T]he objection that a complaint ‘fail[s] to state a claim upon which relief can be granted,’ Rule 12(b)(6), may not be asserted post trial.” Here, the instant case settled on the eve of the calendar call. The Court held a fairness hearing, approved the settlement and dismissed the case on August 7, 2008. Fifty-five days after the case was dismissed, the defendants filed their motion to dismiss. Under these facts, any motion for failure to state a claim under Rule 12(b)(6) is untimely. Additionally, the defendants waived the right to assert any affirmative defenses to individual or enterprise coverage by stipulating that these elements were met. See Chao v. Hotel Oasis, Inc., 493 F.3d 26, 33 (1st Cir.2007) (finding no abuse of discretion in district court’s decision to hold the defendants to their stipulation that the $500,000 gross annual sales element had been met).”

In so doing, the Court joined the majority of Courts who have decided the issue.  While the question is still one that is open in some courts, more and more courts seem to be adopting the majority view that FLSA coverage is non-jurisdictional in nature.

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