Tag Archives: Hybrid Action

10th Cir.: Award of Liquidated Damages Under FLSA Does Not Preclude Award of Similar Penalties Under Colorado Law (CWCA)

Evans v. Loveland Auto. Invs.

Following the entry of judgment on his behalf on both his FLSA and Colorado wage and hour claims, plaintiff appealed the district court’s judgment. Specifically, plaintiff appealed the district court’s holding that an award of liquidated damages under the FLSA precluded an award of penalties under the CWCA. Whereas the district court had held that plaintiff was entitled to an award of one or both because awarding both would have constituted a double recovery, the Tenth Circuit disagreed. Rather, the Tenth Circuit held that because liquidated damages under the FLSA and penalties under the CWCA serve different purposes, an employee who prevails on claim under both statutes may be awarded both liquidated damages and penalties.

Framing the issue before it, the Tenth Circuit explained:

The court then stated that “these claims give rise to similar and, at least partially, overlapping damages.” Aplt. App. at 15. The court cited Mason v. Oklahoma Turnpike Authority, 115 F.3d 1442, 1459 (10th Cir. 1997) (quoting U.S. Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1259 (10th Cir. 1988)), overruled on other grounds by TW Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011), for the principle that “‘[i]f a federal claim and a state claim arise from the same operative facts, and seek identical relief, an award of damages under both theories will constitute double recovery.'” Then without evaluating the nature of relief available under FLSA and CWCA, the court further concluded that Mr. Evans could “recover damages only on the statute which provides the greatest relief.” Aplt. App. at 15.

Without explaining why it believed CWCA provided greater relief than FLSA, the district court awarded Mr. Evans $7,248.75 in compensatory damages for unpaid wages under CWCA. Further, after finding that Mr. Evans had made a proper, written demand for payment under CWCA and that the defendants had willfully failed to pay the owed wages, the district court also awarded Mr. Evans a penalty under CWCA of 175% of the unpaid wages: $12,685.31. See Colo. Rev. Stat. § 8-4-109(3). Although noting that Mr. Evans had provided no support for his prejudgment-interest claim, the court nevertheless exercised its discretion and [*4]  awarded prejudgment interest—solely on the compensatory damages—in the amount of $1077.18, together with postjudgment interest. In addition, it ruled that Mr. Evans was entitled to his attorney fees and costs.

In reaching its holding that liquidated damages under the FLSA and penalties under the CWCA are not mutually exclusive, the Tenth Circuit differentiated the reasons underlying both types of damages, and explained:

On appeal, Mr. Evans contends that he is entitled to FLSA liquidated damages in addition to the CWCA penalty because the two monetary awards serve different purposes. More specifically, he contends that FLSA liquidated damages are meant to compensate employees wrongly unpaid their wages, but that the CWCA penalty is meant to punish employers that wrongly fail to pay their employees’ earned wages. We agree with Mr. Evans’s position.

In addition to requiring employers to pay wages owed, FLSA authorizes the imposition of an equal amount as liquidated damages unless “the employer shows both that he acted in good faith and that he had reasonable grounds for believing that his actions did not violate the Act.” Doty v. Elias, 733 F.2d 720, 725-26 (10th Cir. 1984); see also 29 U.S.C. §§ 216(b), 260. Liquidated damages awarded under FLSA are compensatory rather than punitive. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945). In other words, [*5]  they “‘are not a penalty exacted by the law, but rather compensation to the employee occasioned by the delay in receiving wages due caused by the employer’s violation of the FLSA.'” Jordan v. U.S. Postal Serv., 379 F.3d 1196, 1202 (10th Cir. 2004) (quoting Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 142 (2d Cir. 1999)); see also Renfro v. City of Emporia, 948 F.2d 1529, 1540 (10th Cir. 1991) (“The purpose for the award of liquidated damages is ‘the reality that the retention of a workman’s pay may well result in damages too obscure and difficult of proof for estimate other than by liquidated damages.'” (quoting Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 463 (D.C. Cir. 1976))).

The relief available under FLSA and CWCA does partially overlap because both laws allow employees to recover unpaid wages as compensatory damages. And Mr. Evans concedes that he can recover his unpaid wages only once. But, as discussed above, FLSA allows for additional compensatory damages as liquidated damages. In contrast, CWCA imposes a penalty on an employer who receives an employee’s written demand for payment and fails to make payment within fourteen days, and it increases the penalty if the employer’s failure to pay is willful. See Graham v. Zurich Am. Ins. Co., 296 P.3d 347, 349-50 (Colo. App. 2012). No Tenth Circuit case directly addresses whether these damages duplicate one another.

Other jurisdictions have concluded that an award of both a state statutory penalty and FLSA liquidated damages does not constitute a double [*6]  recovery. See, e.g., Mathis v. Housing Auth., 242 F. Supp. 2d 777, 790 (D. Or. 2002) (“[A]n award of the penalty under [the state law] and an award of liquidated damages under the FLSA do not constitute a double recovery.”); Morales v. Cancun Charlie’s Rest., No. 3:07-cv-1836 (CFD), 2010 WL 7865081, at *9 (D. Conn. Nov. 23, 2010) (unpublished) (allowing recovery of liquidated damages under both FLSA and state law because the provisions “serve different purposes—the FLSA damages are compensatory and the [state law] damages serve a punitive purpose”); Do Yea Kim v. 167 Nail Plaza, No. 05 CV 8560 (GBD), 2008 WL 2676598, at *3 (S.D.N.Y. July 7, 2008) (unpublished) (“New York Labor Law provides separately for liquidated damages in overtime compensation claims, in addition to federal liquidated damages.”). We agree with the rationale of these cases.

We note further that, like FLSA liquidated damages, prejudgment interest also is meant “‘to compensate the wronged party for being deprived of the monetary value of his loss from the time of the loss to the payment of the judgment.'” Greene v. Safeway Stores, Inc., 210 F.3d 1237, 1247 (10th Cir. 2000) (quoting Suiter v. Mitchell Motor Coach Sales, Inc., 151 F.3d 1275, 1288 (10th Cir. 1998)). It follows that “a party may not recover both liquidated damages and prejudgment interest under the FLSA.” Doty, 733 F.2d at 726. Thus, on remand, if the district court awards FLSA liquidated damages it must vacate its award of prejudgment interest. See Dep’t of Labor v. City of Sapulpa, 30 F.3d 1285, 1290 (10th Cir. 1994) (“If the district court finds that liquidated damages should be awarded it must vacate [*7]  its award of prejudgment interest, because it is settled that such interest may not be awarded in addition to liquidated damages.”).

Therefore, we remand to the district court to recalculate the amount of damages in light of our determination that it is permissible for the court to award both FLSA liquidated damages and a CWCA penalty. If the court awards FLSA liquidated damages, it must vacate the award of prejudgment interest.

While this decision is limited in application to cases in which employees make claims simultaneously under the FLSA and CWCA, it’s application and reasoning can certainly be applied to other so-called “hybrid” cases in which FLSA claims are paired with state wage and hour law claims.

Click Evans v. Loveland Auto. Invs. to read the entire decision.

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W.D.Tex.: Hourly Pay for Weekend Work, Identical to Work Performed During Week and Purportedly Paid at “Day Rates,” Rendered So-Called “Hybrid” Day Rates Impermissible

Rodriguez v Republic Services, Inc.

This case was before the court on the parties’ cross-motions for summary judgment. At issue was whether the defendants pay policy—whereby they paid their trash collector employees purported “day rates” for days worked during the week (i.e. Monday-Friday) and hourly pay for weekend work—complied with 29 C.F.R. § 778.112, the regulation governing payment of day rates. The court held that it did not, because violated the clear language of the regulation and because the plaintiffs performed the same work during the week for the defendants as they did on the weekends (i.e. it was 2 different forms of pay for the same type of work). Following the court’s order denying their motion for summary judgment, the defendants sought reconsideration, which was also denied by the court with a further explanation. Both order are discussed here.

Discussing the facts relevant to its inquiry, the court explained:

Defendant BFI Waste Services of Texas, LP d/b/a Allied Waste Services of San Antonio (“BFI”) operates a residential collection, recycling and waste disposal business in and around San Antonio, Texas. Gilbert Rodriguez (“Plaintiff Rodriguez”) and Refugio Campos (“Plaintiff Campos”) were employed by BFI as Residential Route Drivers and thus were primarily responsible for driving through various residential garbage routes collecting and disposing of residential waste. Plaintiff Rodriguez worked for BFI from August of 2012 until February of 2013, while Plaintiff Campos worked for BFI from September of 2012 until November of 2012. 

During the relevant time period, BFI paid Plaintiff Rodriguez and Plaintiff Campos (collectively “Plaintiffs”) under a “hybrid compensation plan” that included payments based on both a daily and hourly rate. For the five regularly scheduled work days of the week, Plaintiffs were paid a base day rate of $120. Plaintiffs were also required on occasion to work a day during the weekend (the “Sixth Day”) at the discretion of their supervisor. On the Sixth Day, despite Plaintiffs performing the same work as on the regularly scheduled days, Plaintiffs were paid at an hourly rate based upon each employee’s regular rate of pay for a trailing thirteen-week average. In addition, it appears that Plaintiffs were provided “incentive payments” of $10 for each day worked, including both the regularly scheduled days and the Sixth Day.

If Plaintiffs worked for more than forty hours in a workweek, BFI paid them overtime. The way in which BFI calculated this overtime is exemplified by the pay stub of Plaintiff Rodriguez for the week ending on September 1, 2012. During this week, Plaintiff Rodriguez worked for a total of 51.23 hours at a day rate of $120 over the five regularly scheduled work days. In addition, Plaintiff Rodriguez worked for 6.12 hours on the Sixth Day at an hourly rate of $15. Thus, when taking into account the $60 incentive payment, Plaintiff Rodriguez’s compensation for 57.35 hours was $751.80.

To calculate Plaintiff Rodriguez’s overtime compensation, BFI first determined the “regular rate of pay” by dividing Plaintiff Rodriguez’s total non-overtime compensation for the week by his total number of hours worked. Specifically, BFI divided Plaintiff Rodriguez’s total non-overtime compensation of $751.80 by his 57.35 hours worked. Accordingly, the resulting “regular rate of pay” obtained by BFI for the week ending on September 1, 2012, was $13.11.

BFI then paid Plaintiff Rodriguez overtime for all hours worked in excess of forty at half their regular rate of pay. For the week ending on September 1, 2012, this meant that BFI paid Plaintiff Rodriguez 17.35 hours of overtime at $6.55 per hour, for a total of $113.72 in overtime pay. BFI then added this overtime amount to Plaintiff Rodriguez’s “straight-time” compensation, found by applying the regular rate of $13.11 to all 57.35 hours, to arrive at Plaintiff Rodriguez’s total compensation of $865.52 for the week.

After a brief discussion of 778.112 and 778.115 (the regulation which permits an employer to pay 2 different amounts/types of pay for 2 different types of work), the court explained that 778.115 was inapplicable to the case, because the plaintiffs here performed the same type of work, regardless of the day of the week (i.e. the defendants could not substantiate the hourly pay on this ground). The court similarly analyzed and disposed of the defendants’ 3 remaining arguments as well.

First, the court rejected the defendants’ reliance on a 1967 DOL opinion letter, again reasoning same was distinguishable because there the employees performed 2 different types of work, unlike here:

Defendants have provided the Court with a 1967 DOL opinion letter which Defendants argue demonstrates the DOL’s approval of a compensation plan “very similar to the one at issue in this case.” The scenario addressed in the opinion letter revolved around school bus drivers who were also employed as custodians and who were compensated at a day rate of $10. In addition, these bus drivers were paid $2.00 per hour for taking extra bus trips. The letter goes to outline the method for calculating an employee’s regular rate of pay under sections 778.112 and 778.115, before appearing to conclude that the regular rate of pay for these employees could be calculated under section 778.112 by adding the wages earned at both the day and hourly rates and then dividing by the total hours worked in the week. From this, Defendants reason that the DOL has previously approved “essentially the same compensation structure” as the one at issue.

As an initial matter; and despite Defendants assertions to the contrary, the Court finds that the scenario described in the DOL opinion letter is distinguishable from the compensation scheme employed by BFI. Specifically, it is stated in the letter that the employment arrangement being addressed is one “[w]here employees perform two types of duties.” As noted above, however, the employment arrangement between BFI and its Residential Route Drivers involves the performance of identical work on different days for different rates. Accordingly, the Court finds the arrangement described in the 1967 DOL letter to be different from BFI’s employment arrangement and compensation scheme in this significant respect. Moreover, the Supreme Court has recognized that opinion letters like the one provided by Defendants are “entitled to respect in proportion to their power to persuade.” Wos v. E.M. A., ––– U.S. ––––, ––––, 133 S.Ct. 1391, 1402, 185 L.Ed.2d 471 (2013). Here, in indicating that the employees could be compensated under the day rate regulation despite receiving an additional hourly rate, the opinion letter appears to completely ignore the language in section 778.112 concerning any “other form of compensation.”

Next the court rejected the defendants contentions relying on the text of 778.112 itself:

Defendants also argue that, when viewed in the proper context, the DOL regulation concerning day rates supports BFI’s “hybrid” compensation plan. To reach this conclusion, Defendants correctly note that following section 778.109 in the FLSA regulations is a list of “some” different compensation arrangements and the proper method for calculating the employee’s regular rate of pay under each. See 29 C.F.R. § 778.109. Given this context, Defendants reason that section 778.112 merely sets forth one specific situation in which the DOL chose to illustrate the proper regular rate calculation. In other words, Defendants believe that section 778.112 only demonstrates the proper calculation method for scenarios in which an employee is paid a day rate and “no other form of compensation for services.” Defendants therefore conclude that while this regulation exemplifies one way that a regular rate of pay may be determined, it does not serve as a categorical rule prohibiting employers from providing additional compensation to employees paid on a day rate basis.

Once again, the Court is not persuaded by Defendants’ argument. The Court does not find that the DOL regulations provide support for the possibility of a compensation scheme awarding both day and hourly rates for the completion of the same type of work. The only regulation which explicitly covers employment arrangements involving two different rates being paid to an employee is section 778.115, and this section expressly requires that the employee undertake “different kinds of work.” See
29 C.F.R. § 778.115 (section titled “Employees working at two or more rates”). Further, section 778.112, upon which Defendants rely, appears to directly contradict the notion that an employee may be compensated on the basis of both a day and hourly rate. Rather, section 778.112 states that it covers employees that are paid a day rate and who also receive “no other form of compensation for services.” Id. at § 778.112.

Finally, the court rejected the defendants’ reliance on 778.111:

Finally, Defendants argue that BFI’s payment scheme is consistent with the compensation arrangement set out in section 778.111 which discusses employees compensated on a piece rate basis. See 29 C .F.R. § 778.111. Defendants assert that the piece rate regulation endorses a hybrid compensation plan like BFI’s because it provides an example of an arrangement under which an employee is paid on both a piece rate and hourly basis.14 The example cited by Defendants appears in the regulation as follows:

[I]f the employee has worked 50 hours and has earned $ 491 at piece rates for 46 hours of productive work and in addition has been compensated at $ 8.00 an hour for 4 hours of waiting time, the total compensation, $ 523.00, must be divided by the total hours of work, 50, to arrive at the regular hourly rate of pay—$ 10.46.

29 C.F.R. § 778.111.

The Court is not persuaded by Defendants’ analogy between BFI’s hybrid compensation plan and the arrangement described in the piece rate regulation. Rather, the Court finds that it is more appropriate to compare this example, which involves payment based upon both a flat piece rate as well as an hourly rate to compensate the employee for waiting time, to the scenario in which hospital personnel are compensated for being on-site and on-call. This latter scenario was at issue in Townsend v. Mercy Hospital of Pittsburgh, a Third Circuit case involving hospital personnel that received one wage for their performance of active duties, and another for working “on-premises-on-call” shifts. 862 F.2d at 1010–11. During these “on-premises-on-call” shifts, the hospital personnel were required to stay on the hospital’s premises, but had no assigned duties and were free to eat, sleep, read, and watch television. Id. at 1011. Given the substantive difference in duties, the Third Circuit determined that the personnel’s active periods constituted a different kind of work from the on-call shift when the only responsibility was to be present. Id. at 1011–12.

Viewing the section 778.111 example in light of such authority, the Court finds that the “waiting time” compensation described therein is easily analogous to the “on-premises-on-call” compensation received by the hospital personnel in Townsend. Thus, the employee’s “waiting time” in the example is best viewed as a different kind of work from the active duties being compensated under a piece rate. As noted above, however, the work being performed by BFI’s Residential Route Drivers remains the same throughout the entirety of the workweek, including the occasional Sixth Day. Consequently, rather than endorsing a hybrid compensation arrangement like the one employed by BFI, the example provided in the piece rate regulation and cited by Defendants is distinguishable.

In light of the foregoing, the court denied the defendants’ motion for summary judgment, and held the plaintiffs’ motion in abeyance.

Thereafter, the defendants sought reconsideration of the Order denying their motion for summary judgment. The court denied the defendants’ motion and granted the plaintiffs’ still pending motion for summary judgment. Using even stronger language the second time around, and again denying the defendants’ motion, the court reasoned:

In this case the parties appear to agree that if Plaintiffs only worked Monday through Friday and Defendants had merely paid the Plaintiffs their day rate, section 778.112 would apply. In this scenario, rather than receiving overtime at one and one-half times the regular rate, Plaintiffs would only receive overtime at half-time the regular rate. For whatever business reasons, the employer here employed two additional compensation methods in the payroll system. To acquiesce to this system, however, the court would have to rewrite section 778.112 as follows: If the employee is paid a flat sum for a day’s work … without regard to the number of hours worked in the day …, and if he receives no other form of compensation for services, his regular rate is determined by totaling all the sums received at such day rates … in the workweek and dividing by the total hours actually worked. See Rodriguez v. Carey Intern., Inc., 2004 WL 5582173 (S.D.Fla. Sept.15, 2004) (“[Section 778.112] does not provide definitional contours, nor is there case law to explain the clause. But the most logical and likely reasoning is that the regulation does not apply if one of the other forms of compensation delineated in the surrounding regulations is also utilized, or if the employee is given some other form of compensation separate and apart from the job rate. For example, if besides a job rate, an employee also receives an hourly rate, salary, or commission, for some of his work, the job rate regulation would not apply.”).

While these 2 decisions should seem to be “no-brainers” based on the clear statutory language of 778.112, surprisingly not all courts have agreed the language in 778.112 means what it says. For this reason, these decisions are noteworthy.

Click Rodriguez v Republic Services, Inc. to read the initial Order denying the defendants’ motion for summary judgment and Order on Reconsideration for the Order denying the motion for reconsideration.

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9th Cir.: Hybrid Actions Permissible; State Law Opt-out Class May Proceed In Same Case As FLSA Opt-in Collective

Busk v. Integrity Staffing Solutions, Inc.

As more and more circuit courts come into conformity and hold that so-called hybrid actions—where employees seek to certify state law claims as opt-out class actions, along with seeking to certify opt-in FLSA collective actions—are permissible, each such decision becomes less notable on its own. However, because employers continue to argue that such hybrids raise so-called incompatible issues in circuits where the issue remains undecided, this recent case from the Ninth Circuit is an important one.

In this case, the plaintiff-employees brought a putative class action against their former employer, alleging violations of the Fair Labor Standards Act (FLSA) and Nevada labor laws. Citing the incompatibility of the state-law claims, the District Court granted the defendant-employer’s motion to dismiss same. The plaintiff-employees appealed and the Ninth Circuit reversed and remanded, holding that, as a matter of first impression, a FLSA collective action and a state law class action could be brought in the same federal lawsuit.

Agreeing with the other circuit court’s to have already decided the issue, the Ninth Circuit reasoned:

Our sister circuits have correctly reasoned that FLSA’s plain text does not suggest that a district court must dismiss a state law claim that would be certified using an opt-out procedure. Its opt-in requirement extends only to “any such action”—that is, a FLSA claim. See 29 U.S.C. § 216(b); Knepper, 675 F.3d at 259–60 (noting Section 216(b) “explicitly limits its scope to the provisions of the FLSA, and does not address state-law relief”); Ervin, 632 F.3d at 977 (“Nothing” about FLSA’s text “suggests that the FLSA is not amenable to state-law claims for related relief in the same federal proceeding.”). FLSA also expressly permits more protective state labor laws. See 29 U.S.C. § 218(a) (“No provision of this chapter … shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter or a maximum work week lower than the maximum workweek established under this chapter….”). This savings clause provides further evidence that a federal lawsuit combining state and federal wage and hour claims is consistent with FLSA. See Ervin, 632 F.3d at 977;Shahriar, 659 F.3d at 247–48.

 Nor does the legislative history of Section 216(b) support the view of some district courts that allowing both actions to proceed simultaneously “would essentially nullify Congress’s intent in crafting Section 216(b) and eviscerate the purpose of Section 216(b)‘s opt-in requirement.” Otto v. Pocono Health Sys., 457 F.Supp.2d 522, 524 (M.D.Pa.2006), overruled by Knepper, 675 F.3d at 253–62. We agree with the Third Circuit that the “full legislative record casts doubt” on the contention that Section 216(b) was intended to eliminate opt-out class actions. Knepper, 675 F.3d at 260; see also Ervin, 632 F.3d at 977–78;Shahriar, 659 F.3d at 248. When Congress created Section 216(b)‘s opt-in requirement as part of the Portal–to–Portal Act of 1947, it was responding to concerns about third parties filing “representative” FLSA actions on behalf of disinterested employees. See Hoffman–La Roche, 493 U.S. at 173. Accordingly, it amended FLSA “for the purpose of limiting private FLSA plaintiffs to employees who asserted claims in their own right and freeing employers of the burden of representative actions.” See id.

This purpose does not evince an intent to eliminate opt-out class actions for state wage and hour claims brought in federal court. Even if it did, Congress has expressed a contrary intent in the Class Action Fairness Act of 2005, which confers federal jurisdiction over class actions where certain diversity and amount-in-controversy requirements are met. See Class Action Fairness Act of 2005, Pub.L. No. 109–2, 119 Stat. 4. Because the Class Action Fairness Act provides that federal courts should exercise jurisdiction over certain class actions (including those alleging violations of state wage and hour laws), and these class actions are certified pursuant to Rule 23‘s opt-out procedure, we cannot conclude that Congress intended such claims be dismissed simply because they were brought in conjunction with FLSA claims.

While no longer groundbreaking, it is still significant that an issue once very much uncertain is further clarified by this decision.

Click Busk v. Integrity Staffing Solutions, Inc. to read the entire Opinion.

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3d Cir.: Hybrids Are Permissible; Rule 23, FLSA Claims Not Incompatible

Knepper v. Rite Aid Corp.

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).

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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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D.Mass.: Where Arbitration Agreement Silent On Class Action And Parties Did Not Stipulate That There Was ‘No Agreement’ Re: Class Action Arbitration, Arbitrator Properly Decided Class Claims Could Proceed

Smith & Wollensky Restaurant Group, Inc. v. Passow

This case is of interest, because it offers some incite into how courts and arbitrators will interpret the Supreme Court’s recent decision in Stolt-Nielsen.

This matter was before the court on Petitioner-Respondent’s (the employer or “S&W”) Motion to Vacate Arbitrator’s Clause Construction Award.  The Claimants in the underlying proceeding were four current and former employees.  The parties had a dispute resolution agreement (“DRA”), that provided for binding arbitration of claims between them arising out of the Claimants’ employment.  Pursuant to the DRA, the Claimants commenced an arbitration proceeding with the AAA.  In a document styled “Class Action Complaint,” they alleged that the Petitioner-Respondent had violated the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq., the Massachusetts Minimum Wage Act, Mass. Gen. Laws ch. 151 §§ 1, 7, and the Massachusetts Tip Statute, Mass. Gen. Laws ch. 149 § 152A.

Petitioner-Respondent asserted that the case could not proceed as a class action, inasmuch as the DRA did not contemplate the arbitration of class or collective claims. On July 2, 2008, the Arbitrator issued a Partial Final Award on Arbitration Clause Construction (“Initial Clause Construction Award”), holding that the DRA permitted the claims to proceed in arbitration.  On April 27, 2010, the Supreme Court of the United States issued Stolt-Nielsen S.A. v. AnimalFeeds International Corp., —U.S. —-, —-, 130 S.Ct. 1758, 1766, 176 L.Ed.2d 605 (2010), which dealt with the arbitration of class claims.  Subsequently, the Arbitrator, at the request of the Petitioner-Respondent, reconsidered his Initial Clause Construction Award in light of Stolt-Nielsen. On July 28, 2010, the arbitrator issued a Memorandum and Order Regarding Reconsideration of the Arbitration Clause Construction (the “Revised Clause Construction Award”), in which he affirmed the Initial Clause Construction Award as consistent with Stolt-Nielsen . This Motion followed.

Holding that the Arbitrator properly ruled the case could proceed as a class/collective action, the court reasoned:

“S & W contends that Stolt-Nielsen prevents the claim from proceeding in arbitration. The Court disagrees. In Stolt-Nielsen, “the parties stipulated that there was ‘no agreement’ on the issue of class-action arbitration.” Id. at 1776 n. 10. Here, there was no such stipulation and, thus, the arbitrator was authorized “to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.” Id. The arbitrator ruled that the parties intended that class-action claims and relief were contemplated and permitted by the DRA and the Court concludes that the language of the DRA supports such a ruling.

The arbitrator found that the arbitration clause in the DRA was broad in its reach, covering “any claim that, in the absence of this Agreement, would be resolved in a court of law under applicable state and federal law.” The arbitrator noted that “any claim” is defined as “any claims for wages, compensation and benefits” and that both the FLSA and Massachusetts wage laws statutorily authorize an individual employee to bring a class-action in a court of law. The arbitrator further found that the DRA expressly provided that the “[a]rbitrator may award any remedy and relief as a court could award on the same claim,” that the applicable statutes provide for class relief and the statutes were in existence when the DRA was executed. The arbitrator also noted that “wage and hour claims like those in play here are frequently pursued as class or collective actions, and both the Claimants and S & W must be deemed to understand that.”

The arbitrator’s award was the result of a reasonable interpretation of the DRA. Given this Court’s limited standard of review, such interpretation must stand. See Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000) (“[C]ourts will set aside the arbitrator’s interpretation of what their agreement means only in rare instances.”); Paperworkers v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) (“[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.”).

The Smith & Wollensky Restaurant Group, Inc.’s Motion To Vacate Arbitrator’s Clause Construction Award (Docket No. 2) is, hereby, DENIED.”

Click Smith & Wollensky Restaurant Group, Inc. v. Passow to read the entire decision.

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Filed under Arbitration, Class Certification, Collective Actions

7th Cir.: Collective Action FLSA Claims May Proceed In A “Hybrid Action” With State Law Rule 23 Claims

Ervin v. OS Restaurant Services, Inc.

In this appeal the Seventh Circuit considered “whether employees who institute a collective action against their employer under the terms of the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq. (“FLSA”), may at the same time litigate supplemental state-law claims as a class action certified according to Federal Rule of Civil Procedure 23(b)(3). The district court thought not; it rejected the plaintiffs’ effort to proceed as a class under Rule 23(b)(3) on the ground that there is a “clear incompatibility” between the FLSA proceeding and the proposed class action.”  Answering this question in the affirmative (finding that so-called “hybrid actions” are permissible) the Seventh Circuit reversed the lower court’s decision holding otherwise and remanded the case for further findings in accordance with its opinion.

The court explained:

“The problem, as the court saw it, stems from the fact that the FLSA requires potential plaintiffs to opt in to participate in an action, while the plaintiffs in a Rule 23(b)(3) class action are included in the case unless they opt out. Trying to use both systems side-by-side would be rife with complications, it concluded; more formally, it held that one could never find the superiority requirement of Rule 23(b)(3) satisfied if the case also involved an FLSA collective action.

The question whether these two distinct types of aggregate litigation may co-exist within one case has divided the trial courts in this circuit and elsewhere. In the Northern District of Illinois alone, compare Barragan v. Evanger’s Dog and Cat Food Co., 259 F .R.D. 330 (N.D.Ill.2009), and Ladegaard v. Hard Rock Concrete Cutters, Inc., 2000 WL 1774091 (N.D.Ill.2000), with Riddle v. National Sec. Agency, Inc., 2007 WL 2746597 (N.D.Ill.2007), McClain v. Leona’s Pizzeria, Inc., 222 F.R.D. 574 (N.D.Ill.2004), and Rodriguez v. The Texan, Inc., 2001 WL 1829490 (N.D.Ill.2001). As far as we can tell, no court of appeals has yet had occasion to address it. But see Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753-55, 760-62 (9th Cir.2010) (holding that a district court properly certified a Rule 23(b)(2) class along with an FLSA collective action and properly exercised supplemental jurisdiction over the state-law claim); Lindsay v. Government Employees Ins. Co., 448 F.3d 416, 420-25 (D.C.Cir.2006) (concluding, in the context of an appeal under Rule 23(f), that the FLSA does not necessarily preclude an exercise of supplemental jurisdiction over related state-law claims); De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 307-12 (3d Cir.2003) (concluding that a district court presiding over an FLSA collective action should not have exercised supplemental jurisdiction over parallel state-law claims).

We conclude that there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA. (We refer to these as “combined” actions, rather than “hybrid” actions, to avoid confusion with other uses of the term “hybrid”-e.g., for cases certified under more than one subsection of Rule 23(b).) In combined actions, the question whether a class should be certified under Rule 23(b)(3) will turn-as it always does-on the application of the criteria set forth in the rule; there is no insurmountable tension between the FLSA and Rule 23(b)(3). Nothing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding. We reverse the district court’s class-certification determination and remand for further consideration in accordance with this opinion.”

Click Ervin v. OS Restaurant Services, Inc. to read the entire opinion.

The DOL had submitted an Amicus Brief in support of the Plaintiffs in this case.  Click DOL Amicus Brief to read the Amicus Brief the US DOL filed in support of the plaintiff’s in this case.

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Filed under Class Certification, Collective Actions, Hybrid