Tag Archives: Minimum Wage

E.D.N.Y.: In the Context of Litigation, Where Plaintiff Represented by Counsel, Court Approval of Accepted OJ Not Required

Picerni v. Bilingual Seit & Preschool Inc.

This case was before the Court on the Plaintiff’s motion to approve settlement, following his acceptance of an offer of judgment tendered by defendant pursuant to Rule 68. Although the plaintiff brought the case as a putative collective action, the accepted offer of judgment purported to resolve the case on an individual basis. Prior to the defendant having answered or appeared in the case, the plaintiff filed a notice of acceptance of an offer of judgment that defendant had made under Fed.R.Civ.P. 68. The offer of judgment provided that the case would be settled on an individual basis (not as a collective or class action) for $5000 payable to plaintiff, plus attorney’s fees of $4590, “which represents 7.65 hours at $600 an hour.” The court initially declined to enter judgment under Rule 68, instead issuing an order requiring the parties to seek the court’s approval of the settlement. Subsequently, the plaintiff complied with the October 19th Order, and filed a motion in an effort to explain that the settlement and his attorney’s fees had a reasonable basis. Upon consideration of the motion it had initially required however, the court essentially reversed itself, and in a lengthy opinion held that under the circumstances of the case- where the employee had filed a lawsuit and was represented by counsel- the parties’ private settlement of the claims did not require judicial approval.

Initially, the court discussed longstanding United States Supreme Court jurisprudence holding that employees cannot enter binding settlements waiving their rights under the FLSA, absent a showing there was a “bona fide dispute.”

Comparing the case before it the court reasoned the situation was not that contemplated by the Supreme Court, because the plaintiff had filed a lawsuit and was represented by counsel:

Curiously, however, none of the cases expressly consider the issue presented in this case, and that is presented in many others before me—settlement of a claim after the FLSA case has been commenced, i.e., a “private” settlement occurring in the context of a public lawsuit, where neither side invites, and in some cases, one or both sides actually resist, the Court’s determination of whether the settlement is fair and reasonable.

When an employer chooses to resolve an FLSA claim without pending litigation, or merely “under threat of suit” as opposed to actual suit, it is obviously taking a reasoned gamble. If the employee later sues notwithstanding the release, the employer may find itself in front of a court that simply disregards the release because it was not previously approved by a court or the Department of Labor. There are at least several reasons why an employer might take this risk: (1) it may be confident that it had a bona fide dispute with the employee; that the release fairly compromises that dispute; and that it will therefore be upheld; or (2) the employer may conclude that as a practical matter, the risk of the settling employee bringing a subsequent suit is small enough in relation to the amount paid as to warrant the settlement; or (3) the employer may not want the settlement publicized among other employees who may well want the same remedial treatment, and therefore may take the risk of subsequent litigation with the settling employee to reduce the likelihood of suit by other employees. The case law cited above, for the most part, involves employers who made these kinds of judgment calls, and when the releases have been subsequently challenged, the courts have either approved them or not.

In the cases before this Court, an employer rarely makes a different analysis just because the case is pending. In other words, the factors that compel parties to settle before litigation is commenced, notwithstanding the possibility that a release that an employer receives will be ineffective, often seem to be equally compelling in reaching a settlement once the litigation is commenced. Except in the less frequent context of a settled class action under the state supplemental claims or a collective action with a substantial number of opt-in plaintiffs, I have never had an employer ask me to conduct a fairness hearing so that it has the protection of a court-approved release. To the contrary, the usual context is the one I am seeing here—no participation by the employer at all, not even an appearance. In the usual case, I merely receive advice from plaintiff’s counsel that the case is over, either by a notice of voluntary dismissal under Rule 41 or a letter saying the same thing (often received the day before the scheduled initial status conference). I have then, following past practice, set the case down for a fairness hearing.

The instant case is somewhat different, but I think not materially so in terms of what steps, if any, this Court needs to take next—plaintiff has simply filed an acceptance of a Rule 68 offer of judgment. I would not even know who the attorney for the employer is but for the signature on the offer of judgment, which has been filed by plaintiff, not defendant. The employer seems quite content to have judgment entered against it, which presumably the employer will satisfy. Perhaps it views a satisfaction of judgment as more protective than a noncourt-approved release, and perhaps, with at least the possibility that a judgment will have res judicata effect where a release might not, it is. But until some court determines that there was a bona fide dispute as to how much plaintiff was owed in wages, and that the offer of judgment fairly compromises it, the employer has not eliminated its risk.

Initially the court concluded that FLSA cases are not exempt from FRCP 41, which permits parties to stipulate to dismissal:

I cannot agree with the largely unstated assumption in the cases that refuse to allow voluntary dismissals that the FLSA falls within the “applicable federal statute” exception to the Rule. Nothing in Brooklyn Savings, Gangi, or any of their reasoned progeny expressly holds that the FLSA is one of those Rule 41–exempted statutes. For it is one thing to say that a release given to an employer in a private settlement will not, under certain circumstances, be enforced in subsequent litigation—that is the holding of Brooklyn Savings and Gangi—it is quite another to say that even if the parties want to take their chances that their settlement will not be effective, the Court will not permit them to do so.

The court then went on to examine Lynn’s Food and distinguished the case from the facts before it:

I believe Lynn’s Food should be confined to its rather egregious facts. Not only did the employer settle on the cheap with unsophisticated employees, but it circumvented the DOL’s investigation in doing so, and then had the audacity to seek a judicial imprimatur validating its aggressive strategy. A narrower reading of Lynn’s Food would be that if the proposed settlement would never have been approved if presented in the context of a pending litigation, then it cannot be approved in a subsequent litigation. In contrast, had the employer paid 100% of the maximum to which the employees might have been entitled plus liquidated damages in a bona fide dispute, the broad language used by the Eleventh Circuit might well have been unnecessary. Indeed, the Eleventh Circuit has recently expressed a similar view. See Dionne v. Floormasters Enterprises, Inc., 667 F.3d 1199 (11th Cir.2012) (if the employer tenders 100% of the unpaid wages claimed by the employee, plus liquidated damages, even while denying liability, the case is moot and no fairness hearing is necessary, nor is the employee a prevailing party entitled to an attorney’s fee). It is hard to conceive of any reason why, if a court is presented with an eminently reasonable, albeit after-the-fact, settlement, it is precluded from giving it legal effect. That is essentially what the Fifth Circuit held recently in upholding a private settlement, distinguishing Lynn’s Food because of its one-sided facts. See Martin v. Spring Break ’83 Productions, L.L .C., 688 F.3d 247, 253–256 & n. 10 (5th Cir.2012).

More importantly, Lynn’s Food does not expressly address the issue of whether parties can voluntarily withdraw a case under Rule 41. It does not preclude the plaintiff or the parties from proceeding unilaterally or bilaterally, depending on the timing, from withdrawing a case and taking their, principally the employer’s, chances in effectuating a settlement without court approval. It simply says, like all of the cases in this area, that the courts will not recognize an unreasonable FLSA settlement, whether the settlement is asserted by the employer as a defense in the settling employee’s subsequent suit, or, as in Lynn’s Food, as the basis for declaratory relief in an action that the employer has brought. Lynn’s Food thus does not dispose of the issue of whether parties in a pending action can voluntarily dismiss the case without any judicial assurances if that is what they want to do.

Recognizing the risks of unsupervised settlements of FLSA cases, the court said:

This is not to say that there is an absence of arguably undesirable consequences in allowing private settlements of FLSA litigation without court oversight. As noted above, in the typical cases I have, like this one, where private resolutions are reached and judicial scrutiny is neither sought nor desired, the case is brought as a collective action but resolved before a collective action notice has gone out to other employees. Although one employee, the named plaintiff, has presumably benefitted to at least some extent from the private resolution, other similarly situated employees will likely not even know about it, and to the extent they have not received their minimum wages or overtime, they will be no better off. Indeed, in at least one case, I have had the employer’s attorney candidly tell me that the reason he wished to avoid a fairness hearing was to prevent other employees from learning of the settlement and seeking the same relief.

I am not suggesting that plaintiff in the instant case or his attorney, who is an experienced and well-regarded practitioner in this Court, have committed any impropriety. But the scenario is conducive to a dynamic that allows both a plaintiff and his employer—not to mention the plaintiff’s attorney, who frequently receives a fee that greatly exceeds the plaintiff’s recovery—to leverage a comparatively cheap settlement on the backs of the plaintiff’s co-employees. This obviously runs contrary to the intent of Congress in enacting the FLSA and in particular to its creation of the collective action mechanism. Using the potential of a collective action as a Sword of Damocles to extract a small settlement and a large, but still comparatively small in relation to the exposure the employer would face in a true collective action, attorney’s fee could not have been what Congress had in mind in authorizing collective actions.

The court went on to discuss issues of confidentiality (the body of law that says there should be no confidential settlements of FLSA cases because same flies in the face of the remedial nature of the statute) and dismiss the typical argument against non-supervised settlements (the threat that they may end up being settled on the cheap), ultimately recognizing that the defendant is the one that is taking a risk often where there is no approval, rather than vice versa:

The problem of non judicially approved confidentiality provisions in private settlements is resolved by the same allocation of employer risk as is the case with private settlements of FLSA claims generally—if a settling employee subsequently breaches the confidentiality provision, then the employer is going to have to try to enforce it, or seek rescission or damages for its violation. At that point, under the authorities cited above, the courts may well hold it unenforceable.

Unlike the recent Fifth Circuit case discussed here, this case does not seem to signal any significant change in longstanding jurisprudence, prohibiting (binding and enforceable) private settlements of FLSA cases. Rather, here the court simply confirmed that the parties to an FLSA case can resolve the case and circumvent the court’s approval, leaving open the question of whether such settlements are enforceable.

Click Picerni v. Bilingual Seit & Preschool Inc. to read the entire Memorandum Decision and Order.

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11th Cir.: Student Externs, Required to Complete Externship in Order to Graduate, Were Not “Employees”

Kaplan v.Code Blue Billing & Coding, Inc.

This case was before the court on the consolidated appeal of three student externs who sued the administrators of their respective externships asserting that they had not been paid proper minimum wages. The courts below had all granted the respective defendants summary judgment, holding that the plaintiffs could not satisfy the “economic reality” test, and therefore they were not “employees” subject to the FLSA’s coverage. The Eleventh Circuit affirmed, applying the DOL’s six-factor test applicable to trainees. In so doing, the court rejected the plaintiffs’ contentions that the defendants benefitted from their work, while they essentially received no academic or monetary benefit.

The court reasoned:

Although Kaplan and O’Neill argue that their externship experiences were of little educational benefit, they did in fact engage in hands-on work for their formal degree program. Kaplan and O’Neill also received academic credit for their work and, by completing an externship, were eligible to earn their degrees.

Kaplan and O’Neill argue that, because they were performing tasks for Defendants’ businesses, Defendants benefitted economically from their work. The undisputed evidence, however, demonstrates that Defendants’ staff spent time—time away from their own regular duties—training Plaintiffs and supervising and reviewing Plaintiffs’ work. Even viewing the evidence in the light most favorable to Plaintiffs, Plaintiffs caused Defendants’ businesses to run less efficiently and caused at least some duplication of effort. Defendants received little if any economic benefit from Plaintiffs’ work. Thus, under the “economic realities” test, Plaintiffs were not “employees” within the meaning of the FLSA. See New Floridian Hotel, Inc., 676 F.2d at 470.

The Eleventh Circuit applied the DOL’s six factor test, derived from the Supreme Court’s decision in Portland Terminal—pertinent to determining whether a trainee qualifies as an employee under the FLSA, to reach its holding.

As explained in footnote 2, under the Administrator’s test, a trainee is not an “employee” if these six factors apply:

(1) the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school; (2) the training is for the benefit of the trainees; (3) the trainees do not displace regular employees, but work under close supervision; (4) the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded; (5) the trainees are not necessarily entitled to a job at the completion of the training period; and, (6) the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. Wage & Hour Manual (BNA) 91:416 (1975); see also Donovan v. Am. Airlines, Inc., 686 F.2d 267, 273 n. 7 (5th Cir.1982).

Reasoning that the externs at issue were not “employees” the court concluded:

The externship programs at Code Blue and EFEI satisfy all six of the Administrator’s criteria. The training provided was similar to that which would be given in school and was related to Plaintiffs’ course of study. The training benefitted Plaintiffs, who received academic credit for their work and who satisfied a precondition of graduation. Both Kaplan and O’Neill were supervised closely and did not displace Defendants’ regular employees. Defendants received no immediate advantage from Plaintiffs’ work and, at times, were impeded by their efforts to help train and supervise Plaintiffs. And both Kaplan and O’Neill admit that they were unentitled to a job after their externships and that they understood that the externship would be unpaid.

Click Kaplan v.Code Blue Billing & Coding, Inc. to read the entire decision.

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2 Recent Cases Draw Distinction Between Volunteers and Employees

With the uptick in FLSA case filings in recent years, a previously rarely litigated issue- whether certain types of workers are volunteers or “employees” subject to FLSA coverage- has increasingly come under judicial scrutiny. And, while case law has long interpreted the FLSA in a liberal manner, with the stated purpose of erring on the side of coverage for workers, two recent cases demonstrate that definition is not without its limits. In the first case, the domestic partner/girlfriend of a Domino’s Pizza store manager helped the manager with his management duties, in the hopes that eventually such efforts would lead to the partner’s advancement within the company. In the second case, an alumni for a public high school served as a mentor to students following his graduation from school. As discussed below, in both cases, the courts employed the “economic reality” test, and held that the workers were volunteers as opposed to employees.

Emanuel v. Rolling in the Dough, Inc.

In the first case, the plaintiff- apparently the girlfriend of the general manager of a Domino’s franchise store- assisted her boyfriend in his duties as the general manager. After the boyfriend’s employment with the defendant ceased, the plaintiff sought renumeration for all of the work she had previously performed on behalf of defendants, while he boyfriend had been employed. Interestingly, it appears from the style of the case that the defendants- who denied that the plaintiff was ever their employee- sought to bring a claim for indemnification/contribution against the boyfriend by impleading him as a third-party defendant. Looking at the totality of the circumstances, the court concluded that she was a volunteer and not an employee under the FLSA. Thus, the court granted the defendants’ motion for summary judgment.

Elucidating the relevant facts, the court explained that at some point in 2007, the plaintiff (Emanuel) told her boyfriend that she wanted to work at the store he managed on behalf of the defendants. Apparently, the plaintiff wanted to help with her boyfriend’s effort to become a Domino’s Pizza franchise owner.In response the boyfriend said he’d have to speak to the defendants about Emanuel working at the Elmhurst store. Thereafter, the boyfriend conveyed to Emanuel that defendants “believed your talents can be better utilized somewhere else.” Nonetheless, sometime later, the boyfriend (Shafer) communicated to Emanuel that she could begin working at the Elmhurst store. Significantly, the plaintiff acknowledged that she could not have worked in the store pursuant to the defendants anti-nepotism policy and that defendants would have told her to “get the hell out of my store,” had they known she was performing work in the store.

It was undisputed that neither the defendants, nor plaintiff’s boyfriend or anyone for that matter, ever promised plaintiff any compensation for the work she performed.

Ultimately, the plaintiff’s boyfriend and defendants got into a dispute regarding their agreement about his [plaintiff's boyfriend's] compensation, and as a result both plaintiff and her boyfriend ceased working for defendants. Subsequently, she filed the lawsuit, seeking compensation for the approximately 3 years of work she performed on behalf of defendants (and her boyfriend).

Laying out the elements of the “economic reality” test, the court explained:

Courts look to the totality of the circumstances when determining whether an individual is an “employee” under the FLSA and examine the “economic reality” of the working relationship. See, e.g., Vanskike v. Peters, 974 F.2d 806, 808 (7th Cir.1992). Courts have considered a variety of factors when examining the “economic reality” of a purported employment relationship, though none are dispositive or controlling. Secretary of Lab. v. Lauritzen, 835 F.2d 1529, 1534 (7th Cir.1987). Six commonly applied factors are: (1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer’s business. Id. at 1534–35.

Rejecting the plaintiff’s contention that she was defendants’ “employee,” the court reasoned:

“Here, plaintiff Emanuel advances an absurd position. Emanuel argues that defendant Lindeman’s repeated statement that he would not pay her to work at the Elmhurst store was not a refusal to hire her as an employee, but an offer for her to work for free. Since Emanuel claims to have worked at the Elmhurst store without compensation and without [defendants] forcibly ejecting her from the store or otherwise preventing her from working, it is her position that an employment relationship impliedly exists.” However, noting the no one ever promised plaintiff compensation and that her work likely violated one or more of defendants corporate policies, the court held it was unreasonable for plaintiff to believe she was actually their employee, rather than a volunteer. Thus, the court granted the defendants’ motion for summary judgment.

Click Emanuel v. Rolling in the Dough, Inc. to read the entire Memorandum Opinion and Order.

Brown v. New York City Dept. of Educ.

In the second case, the plaintiff, Brown, graduated from the New School for Arts and Sciences, a high school that shared space with Banana Kelly. After graduation, Brown maintained ties with Banana Kelly and occasionally came in to visit former teachers. In October 2007, when Plaintiff expressed an interest in mentoring students, the school offered Plaintiff the opportunity to do so at Banana Kelly. Neither Brown nor the school raised the issue of compensation at this time, and neither discussed Brown’s employee status. No one interviewed Brown about his background or qualifications. Thereafter, the plaintiff went to Banana Kelly and continued at the school for more than three years, finally leaving in December 23, 2010, apparently because he was being investigated for inappropriate conduct related to his comments to a freshman student. During his time at the school, with minor exceptions, the plaintiff reported five days a week throughout the academic year, working 7-8 hours per day on a regular basis.

Citing the fact that the plaintiff never submitted to the normal, legal requirements for employment by the Department of Education: application, interview, background check, job classification, and assignment, the court rejected plaintiff’s assertion that he was an employee, because he expected compensation for his services. Although it was undisputed that the defendant told plaintiff that there was not enough money in the budget to pay him, according to the plaintiff, defendant promised that he would attempt to search the budget for the funding.

Again, looking at the “economic realities” and the totality of the facts of the situation, the court held that plaintiff was a volunteer and not an employee, subject to FLSA coverage. Thus, the court granted defendant’s motion for summary judgment.

The court gave the following overview of the analysis applicable to the issue:

Whether one is a volunteer is to be determined “in a common-sense manner, which takes into account the totality of the circumstances surrounding the relationship between the individual providing services and the entity for which the services are provided.” Purdham, 637 F.3d at 428;City of Elmendorf, 388 F.3d at 528; Todaro, 40 F.Supp.2d at 230. Accordingly, courts should 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. The court then examined 2 factors to determine whether the plaintiff was an employee or a volunteer. First, the court considered whether Brown performed the tasks at Banana Kelly for “civic, charitable, or humanitarian reasons,” pursuant to 553.101(a).

Looking at this factor, the court reasoned:

One is a volunteer, if motivated by an altruistic sense of civic duty, see Krause, 969 F.Supp. at 276, as opposed to the expectation of compensation, see Rodriguez, 866 F.Supp. at 1019. When the situation is one of mixed motives, “the regulatory definition does not require that the individual be exclusively, or even predominantly, motivated by ‘civic, charitable or humanitarian reasons. Rather, what is required is that the individual must be motivated by civic, charitable or humanitarian reasons, at least in part.”   Purdham, 637 F.3d at 429 (citing Todaro, 40 F.Supp. at 230); see also Benshoff v. City of Virginia Beach, 9 F.Supp.2d 610, 623 (E.D.Va.1998) (finding that firefighters were volunteers when motivated primarily, but not exclusively, by civic, charitable and humanitarian concerns). Here, Brown accepted Jerome’s offer to mentor, in part, because he wanted “[s]omeone … to stand up, and make a change, and show the kids that we do care.” (Welikson Dec. Ex. C, Brown Dep. at 35:21–22.) He felt that the school needed the change because in his experience as a student, “nobody cared” (id. 35:14–17). This motivation remained unchanged as Brown started performing non-mentorship tasks. Brown testified that he helped with lunch duty, dismissals and escorting students despite his displeasure with being asked because he wanted to be a “team player” and that he “want[ed] to help and [he] care[d].” (38:14–39:5.) He felt obligated because he did not want to “let[ ] the school down.” (id. at 150:20–22.) These statements show a continued civic and charitable intent to improve the environment at Banana Kelly. At the same time, Brown testified that he worked because he believed (“hoped”) that money was forthcoming. (Okoronkwo Dec. Ex. 13 Brown Dep. 231:18–19). Accepting Brown’s acknowledgements, the Court turns to whether, in this mixed motive case, Brown acted at least in part, by the proper humanitarian concerns. See Purdham, 637 F.3d at 429. Plaintiff’s testimony shows that his actions at Banana Kelly, had their source, at least in part, in his concern for what would become of students if he did not show up, and was thus properly motivated.

Next the court looked at whether there was a “promise, expectation or receipt of compensation for services rendered.” 29 C.F.R. § 553.101(a). Noting that plaintiff was not compensated, was not offered “under-the-table” compensation, and was not promised compensation, the court concluded that the plaintiff had no reasonable expectation of compensation. Looking at all the circumstances the court concluded that:

There is ample evidence that Brown knew and understood, despite his hopes to the contrary, that he would not be compensated. Brown admitted that he understood that he would not get paid for mentoring. No one led Plaintiff to believe that he would get paid for non-mentoring tasks. Laub testified that he had conversations with Plaintiff in which he relayed to Brown that he was volunteer and intern. Banana Kelly gave him certificates of appreciation that acknowledged his services as an intern and volunteer which Brown accepted without objection. While labels used by the parties do not control the outcome (P. Opp. at 11), the parties’ understanding of their arrangement is a relevant factor in the totality-of-circumstances analysis. See Rodriguez v. Township, 866 F.Supp. 1012, 1020 (S.D.Tex.1994) (declining to hold that the plaintiff was a volunteer in part because both parties understood their relationship as an employment, rather than volunteer, relationship).

Taking all of the circumstances into consideration, the court concluded that the plaintiff was a volunteer.

Click Brown v. New York City Dept. of Educ. to read the entire Opinion and Order.

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E.D.Wisc.: Plaintiff Who Helped Set Up Defendants’ Business Was an Employee Subject to FLSA Coverage, Not a Volunteer

Okoro v. Pyramid 4 Aegis

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.

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5th Cir.: Member of LLC Lacked Sufficient Day-to-Day Involvement In Operation of Nightclub to be “Employer” Under FLSA

Gray v. Powers

This case was before the Fifth Circuit on Plaintiff’s appeal of an Order granting an individual defendant summary judgment, having held that there were insufficient facts to render the individual defendant to be an “employer” subject to FLSA liability.  Affirming the decision below, the Fifth Circuit held that the individual defendant- who was not involved in the day-to-day operations of the defendant nightclub as a member of the LLC that owned same- lacked sufficient involvement to be an “employer.”

According to the court it was undisputed that- after participating in the initial construction of the nightclub- the individual defendant in question (“Powers”) had little day-to-day involvement in the club’s operations:

“After completion of the construction, Powers was not involved in the day-to-day operation of the Pasha Lounge. Powers only visited the club on five or six occasions during the seventeen months the club was open for business. He denies that he supervised any employee, defined employee job duties, controlled work schedules, or maintained employment records. During his rare trips to the lounge, the bartenders would tell him how much they made in tips. Powers was, however, a signatory on PEG’s checking account, along with Kathleen and the club’s general manager, and he occasionally signed several pages of pre-printed checks.

Other members, Kathleen in particular, were much more involved in the operation of the club. Kathleen kept the books, was a signatory on the accounts, received nightly numbers, and served as the point of contact for the general manager. The members of PEG collectively made significant business decisions such as hiring John W. Ritchey, Jr. as the first general manager. Ritchey’s job duties included hiring and firing staff, handling promotions, setting operation hours, and supervising day-to-day operations. In Ritchey’s words, he was “in charge of pretty much everything that went on at the club.” Ritchey was later removed by the members of PEG because his salary was too expensive.

Appellant Gray was a bartender at Pasha Lounge from February to September 2007 and replaced Ritchey as general manager from March to September 2008. Gray asserts that while he was a bartender under Ritchey’s supervision, he and his fellow bartenders were not paid an hourly wage and were compensated solely by tips. Gray considered Ritchey to be his boss at that time because Ritchey hired him and defined his job duties. Though Gray asserts that Powers was another “supervisor,” Gray admitted in a deposition that Powers was not involved in the club’s day-to-day operations. Powers rarely visited the club, but on one visit he did tell Gray that he was doing a “great job.” Also, on two occasions Powers asked Gray to serve specific people while Powers was a patron at the club. Beyond these three instances, Gray could not remember any other occasion when Powers “directed” his work as a bartender. Gray contends, however, that Powers asked him to fill in as general manager after Ritchey was let go. Stephen disputes that fact because he allegedly enlisted Gray to fill in as general manager.”

After going through each element of the economic reality test, the court concluded that there was insufficient evidence that Powers was an “employer” under the FLSA:

“Applying the economic reality test to Powers, we reaffirm the district court’s conclusion that no reasonable jury could have found him to be an employer. The dominant theme in the case law is that those who have operating control over employees within companies may be individually liable for FLSA violations committed by the companies. An individual’s operational control can be shown through his power to hire and fire, ability to supervise, power to set wages, and maintenance of employment records. While each element need not be present in every case, finding employer status when none of the factors is present would make the test meaningless. We decline to adopt a rule that would potentially impose individual liability on all shareholders, members, and officers of entities that are employers under the FLSA based on their position rather than the economic reality of their involvement in the company. In this case, Powers was simply not sufficiently involved in the operation of the club to be an employer. The district court’s judgment is AFFIRMED.”

Click Gray v. Powers to read the entire decision.

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C.D.Cal.: Where Defendant’s Rounding Policy Was Facially Neutral No FLSA Violation

Alonzo v. Maximus, Inc.

In this case, brought under the FLSA and California State laws, plaintiffs alleged a variety of wage and hour violations, including failure to include all appropriate compensation when calculating regular rates (and resulting overtime premiums), unpaid off-the-clock work and impermissible rounding of work-time.  Following discovery, the case was before the court on defendant’s motion for summary judgment.  As discussed here, the court granted defendant’s motion with regard to plaintiffs’ rounding claim, because the evidence demonstrated that the rounding was facially neutral and did not have the overall effect of reducing plaintiffs’ reported time and resulting wages.

Significant to the rounding claim, it was undisputed that defendant’s timekeeping policy required plaintiffs to round their time worked to the nearest quarter of an hour (whether higher or lower) and that plaintiffs self-reported and thus self-rounded their reported time each day/week.

Discussing the rounding issue the court reasoned:

“Defendant moves for summary judgment on Plaintiffs’ Rounding Claim on the basis that Defendant’s time rounding policy is facially neutral, and, therefore, permissible under California law. For the reasons set forth below, Defendant’s Motion is GRANTED.

While no California statute or regulation expressly addresses the permissibility of using a rounding policy to calculate employee work time, the United States Department of Labor has adopted a regulation regarding rounding pursuant to the Fair Labor Standards Act (the “FLSA”) that permits employers to use time rounding policies under certain circumstances:

It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.  29 C.F.R. § 785.48(b) (2011).

While few Courts have interpreted this regulation, those that have recognize that the regulation permits employers to use a rounding policy for recording and compensating employee time as long as the employer’s rounding policy does not “consistently result[ ] in a failure to pay employees for time worked.” See, e.g., Sloan v. Renzenberger, Inc., No. 10–2508–CM–JPO, 2011 WL 1457368, at *3 (D.Kan. Apr.15, 2011).

That is, an employer’s rounding practices comply with § 785.48(b) if the employer applies a consistent rounding policy that, on average, favors neither overpayment nor underpayment. East v. Bullock’s, Inc., 34 F.Supp.2d 1176, 1184 (D.Ariz.1998) (granting summary judgment in employer’s favor where “evidence show[ed] that [employer's] rounding system may not credit employees for all the time actually worked, but it also credits employees for time not actually worked” so that the employer’s “rounding practices average[d] out sufficiently to comply with § 785.48(b)”); see also Adair v. Wis. Bell, Inc., No. 08–C–280, 2008 WL 4224360, at *11 (E.D.Wis. Sept.11, 2008) (approving policy where there was no evidence to suggest it systematically favored employer); Contini v. United Trophy Mfg., No. 6:06–cv–432–Orl–18UAM, 2007 WL 1696030, at *3 (M.D.Fla. June 12, 2007) (granting employer’s motion for summary judgment where the “[employer], throughout [the employee's] employment, [used] a consistent policy as to the rounding of clocking-in and clocking-out, which [was] both fair and evenly applied to all employees.”).

An employer’s rounding practices violate § 785.48(b) if they systematically undercompensate employees. See, e.g., Russell v. Ill. Bell Tel. Co., 721 F.Supp.2d 804, 820 (N.D.Ill.2010) (time rounding and log-out policies may violate FLSA if they “cause[ ] plaintiffs to work unpaid overtime”); Austin v. Amazon .com, Inc., No. C09–1679JLR, 2010 WL 1875811, at *3 (W.D.Wash. May 10, 2010) (denying defendant’s motion to dismiss where policy “allows rounding when it benefits the employer without disciplining the employee; but disciplines the employee when the rounding does not work to the employer’s advantage”); Eyles v. Uline, Inc., No. 4:08–CV–577–A, 2009 WL 2868447, at *4 (N.D.Tex. Sept.4, 2009) (granting summary judgment for plaintiff where defendant’s rounding policy “encompasses only rounding down”); Chao v. Self Pride, Inc., No. Civ. RDB 03–3409, 2005 WL 1400740, at *6 (D.Md. June 14, 2005) (ruling that employer’s practice of rounding employee time down violated FLSA).

The parties concede that the federal standard governs this case, as California courts look to federal regulations under the FLSA for guidance in the absence of controlling or conflicting California law, Huntington Mem’l Hosp. v. Superior Court, 131 Cal.App.4th 893, 903, 32 Cal.Rptr.3d 373 (2005), and the California Division of Labor Standards Enforcement (the “DLSE”) has adopted the Department of Labor regulation in its Enforcement Policies and Interpretation Manual (“DLSE Manual”), DLSE Manual §§ 47.1–47.2.

It is undisputed that Defendant employed a facially neutral time rounding policy. Defendant’s Corporate Employee Manual required employees to self-report their time “on a daily basis by recording hours worked to the nearest quarter hour” on timesheets provided at the beginning of the pay period. (Doc. 127–13, Ex. R at 110; id., Ex. S at 127.) And Defendant’s human resources managers testified that Employment Case Managers in each of Defendant’s San Diego, Orange County, and Los Angeles locations adhered to this policy by rounding their hours worked to the nearest quarter hour and entering that figure on a daily basis into an electronic time sheet on Defendant’s computer system. (Doc. 127–17 ¶ 5 (San Diego); Doc. 130–15 ¶ 5 (Orange County); Doc. 130–14 ¶ 5 (Los Angeles).)

Plaintiffs do not dispute the mechanics of Defendant’s time reporting policy. In fact, their expert acknowledges that “class members were required to and did round [the total hours worked] to the nearest quarter hour” on their self-reported time sheets. (Doc. 126–5 ¶ 12.) Rather, Plaintiffs contend that “[o]ver a period of time, such rounding resulted in putative class members being paid for less than all the time they actually worked” in violation of § 785.48. (Doc. 126–5 ¶ 12.)

In support of their contention, Plaintiffs point to records generated at Defendant’s San Diego locations by an electronic system used to record when employees entered and exited Defendant’s offices (the “Simplex System”). The Simplex System was “essentially the electronic equivalent of a sign in/sign out sheet. An employee could punch in their number when they arrived at the workplace and then punch in the number when they left the workplace.” (Doc. 127–17 ¶ 6.; see also Doc. 136–2, Ex. A. 52:9–22.) Based on those entries, the Simplex System generated reports “in a variety of formats [showing] various clock-in and clock-out times for each employee for each date” (the “Simplex Records”). (Doc. 127–18 ¶ 16.) At least some employees also used the Simplex System to record the beginning and end of their lunch breaks. (Doc. 136–2, Ex. A. at 54:8–13.)

Plaintiffs used a sample of these Simplex Records to perform two statistical analyses. In the first, Plaintiffs compared the clock-in/clock-out times recorded by Simplex on a particular day with shift beginning and end times for that day. Plaintiffs conclude that their analysis shows that the number of minutes that would have been subtracted from employees’ time under Defendant’s rounding policy was 5.4% more than the number of minutes that would have been added to their time under Defendant’s rounding policy. (Doc. 129–4 ¶ 5; Doc. 127–18 ¶ 19.) In the second, Plaintiffs compared the total hours reflected on Simplex Records for a given employee on a particular day with the total amount paid to that employee reflected on his or her timesheets. Plaintiffs conclude that analysis reveals a net underpayment of 472.72 minutes for the sample group. (Doc. 129–4 ¶ 8.) Based on these statistical comparisons, Plaintiffs assert a triable issue of fact as to whether Defendant’s rounding policy is invalid under California law because it “result[ed], over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). Plaintiffs are mistaken.

Even assuming the accuracy of Plaintiffs’ mathematical calculations, which Defendant disputes, Plaintiffs’ statistical analysis of Simplex Records does not create a genuine issue of material fact as to their Rounding Claim. At oral argument, Plaintiffs’ counsel conceded that the evidentiary record is devoid of evidence that Simplex Records reflect time actually worked by Plaintiffs, as opposed to time Plaintiffs may have been present on Defendant’s premises but not engaged in work activities. Rather, Plaintiffs’ counsel clarified that the Rounding Claim is based on Plaintiffs’ contention that all on-premises time reflected by Defendant’s Simplex Records constitutes time during which Plaintiffs were subject to Defendant’s control, and, therefore, compensable as a matter of law under the California Supreme Court’s decision in Morillion v. Royal Packing Co., 22 Cal.4th 575, 94 Cal.Rptr.2d 3, 995 P.2d 139 (2000). The Court disagrees with Plaintiffs’ reading of Morillion.

In Morillion, the California Supreme Court considered whether employees who were required by their employer to travel to a work site on the employer’s buses were “subject to the control of [the] employer” such that their travel time constituted compensable “hours worked” under Industrial Welfare Commission wage order No. 14–80. Id. at 578. The Court concluded that the employees were “subject to the control of [their] employer” during the time they traveled to the employer’s work site because the employer “require[d] plaintiffs to meet at the departure points at a certain time to ride its buses to work,” “prohibited them from using their own cars,” and “subject[ed] them to verbal warnings and lost wages if they [did not use the employer's transportation].” Id. at 587. Accordingly, the employees’ compulsory travel time constituted compensable “hours worked.” Id. at 594. In so ruling, however, the Court clarified that:

[E]mployers do not risk paying employees for their travel time merely by providing them with transportation. Time employees spend traveling on transportation that an employer provides but does not require its employees to use may not be compensable as ‘hours worked .’ Instead, by requiring employees to take certain transportation to a work site, employers thereby subject those employees to its control by determining when, where, and how they are to travel.  Id. at 588 (emphasis added). “The level of the employer’s control over its employees, rather than the mere fact that the employer requires the employee’s activity, is determinative.” Id . at 587.

This case does not present a situation in which Plaintiffs were “subject to the control of [Defendant]” such that all time spent on Defendant’s premises is compensable under the reasoning and holding of Morillion. Here, unlike in Morillion, Plaintiffs have presented no evidence that Defendant required them to arrive at its offices before their shifts began or to remain on the premises after their shifts ended. Nor have they presented evidence that Plaintiffs were engaged in work during any of the on-premises time reflected on their Simplex Records that was not accounted for in their electronic time sheets. In the absence of such evidence, the Simplex Records are simply immaterial to whether Defendant’s rounding policy systematically undercompensated Plaintiffs, and, therefore do not create a genuine issue of material fact as to the legality of Defendant’s rounding policy.

Accordingly, Defendant’s Motion for Summary Judgment is GRANTED as to Plaintiffs’ Rounding Claim.”

Click Alonzo v. Maximus, Inc. to read the entire Order Granting in Part and Denying in Part Defendant’s Motion for Summary Judgment and Granting in Part and Denying in Part Plaintiffs’ Motion for Summary Judgment.

 

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

Chen v. Grand Harmony Restaurant, Inc.

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

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

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


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