D.Ariz.: Where Construction Inspector Was Salaried Misclassified, Damages to Calculated Using Default Time and a Half Methodology, Not FWW
Blotzer v. L-3 Communications Corp.
This case was before the court on the parties’ cross motions for summary judgment. Both plaintiff and defendant contended that they were entitled to judgment as a matter of law regarding the exempt status of plaintiff, a construction inspector. The parties further disputed whether the fluctuating workweek methodology or the FLSA’s default time and a half methodology was applicable to calculate plaintiff’s damages, assuming he had been misclassified. After finding plaintiff to be non-exempt, the court held that plaintiff’s damages had to be calculated using the FLSA’s default methodology, because: (1) it is contrary to the rationale of the FLSA to apply the FWW method in misclassification cases; (2) application of the FWW in misclassification cases runs counter to the intent of the FLSA; and (3) even if the FWW method were applied, the defendant had failed to prove the elements of the FWW method were present in the case.
The court explained:
The FWW method set forth in 29 C.F.R. § 778.114 is not intended to apply retroactively in a misclassification case. See Urnikis–Negro, 616 F.3d at 666 (stating that 29 C.F.R. § 778.114 is not a remedial measure that specifies how damages are to be calculated when a court finds that an employer has breached its statutory obligations). It was drafted by the Department of Labor as “forward-looking” and only describes how employers and employees should structure an agreement for future compensation. Id. at 677. Moreover, because the regulation was adopted without formal rule-making, it is entitled to less deference. See Hasan v. GPM Investments, LLC, 2012 WL 3725693, *2 (D.Conn.2012) (citing Christensen v. Harris Co., 529 U.S. 576, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000)). The Court concludes that the FWW should not be applied in the present case because: (1) it is contrary to the rationale of the FLSA to apply the FWW method in misclassification cases; (2) application of the FWW in misclassification cases runs counter to the intent of the FLSA; and (3) even if the FWW method were applied, Defendant has failed to prove the elements of the FWW method are present in this case.
Application of the FWW method in a misclassification case is contrary to FLSA’s rationale. The FWW method requires proof of a “clear mutual understanding” that: (1) the fixed salary is compensation for the hours worked each work week, whatever their number; and (2) overtime pay will be provided contemporaneously such that it fluctuates depending on hours worked per week. See 29 C.F.R. §§ 778.114(a) & (c). In a misclassification case, at least one of the parties initiated employment with the belief that the employee was exempt from the FLSA, paid on a salary basis, and therefore not entitled to overtime. When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth nor fifth legal prerequisites for use of the FWW method is satisfied. The parties do not have a “clear, mutual understanding” that a fixed salary will be paid for “fluctuating hours, apart from overtime premiums” because the parties have not contemplated overtime pay. In addition, because the employees were erroneously classified as exempt, overtime compensation was not provided contemporaneously. See Russell v. Wells Fargo and Co., 672 F.Supp.2d 1008 (N.D.Cal.2009); Hasan, 2012 WL 3725693 at * 4 (collecting cases which hold that, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week arrangement, ie. that overtime would be paid at different rates depending on the number of hours worked per week). As the court stated in Ransom v. M. Patel Enters., Inc., 825 F.Supp.2d 799, 810 n. 11 (W.D.Tex.2011):
The significance of the employee’s lack of knowledge of nonexempt status cannot be overstated. The fundamental assumption underpinning the FWW is that it is fair to use it to calculate overtime pay because the employee consented to the payment scheme. But in the context of an FLSA misclassification suit when consent is inferred from the employee’s conduct, that conduct will always, by definition, have been based on the false assumption that he was not entitled to overtime compensation. The job will have been advertised as a salaried position. The employee, if he raised the issue, will have been told that the salary is all he will receive, regardless of how many hours he works. That is the very nature of a salaried, exempt position. When it turns out that the employer is wrong, and it is learned that the FLSA required the employer to pay the employee an overtime premium, the notion that the employees conduct before he knew this is evidence that the employee somehow consented to a calculation method for the overtime pay that no one even knew was due, is perverse. If the FWW requires consent in some fashion, the employee’s actions before he knew he was due overtime pay just cannot logically be the basis of that consent.
Furthermore, 29 C.F.R. § 778.114(c) provides that the FWW method cannot be used “where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for non-overtime hours.” In a misclassification case, because employees have not been paid overtime premiums, they are compensated for those hours worked more than forty at a rate not greater than the regular rate. Russell, 672 F.Supp.2d at 1014. Thus, attempting to retroactively apply the FWW method to a miscalculation case is akin to “the old ‘square peg in a round hole’ problem [because it requires] apply[ing] § 778.114 to a situation it was not intended to address.” EZPawn, 633 F.Supp.2d at 402.
“In making its decision here, the Court is ‘mindful of the directive that the [FLSA] is to be liberally construed to apply to the furthest reaches consistent with Congressional direction.’ ” Russell, 672 F.Supp.2d at 1014 (citing Klem, 208 F.3d at 1089). Application of the FWW in a misclassification case gives rise to a “perverse incentive” for employers, because the employee’s hourly “regular rate” decreases with each additional hour worked. In fact, the difference between the FWW method and the traditional time-anda-half method can result in an employee being paid seventy-one percent less for overtime over a given year, and under the FWW method, the effective overtime hourly rate of an employee working sixty-one hours or more is less than the non-overtime hourly rate of an employee who worked no more than forty hours per week. See Russell, 672 F.Supp.2d at 1012;
see also Hasan, 2012 WL 3725693 at *2 (calculating the pay difference for a misclassified employer under both methods). This result is contrary to the FLSA’s purpose: encouraging employers to spread employment among more workers, rather than employing fewer workers who are then required to work longer hours. See Robertson v. Alaska Juneau Gold Min. Co. ., 157 F.2d 876, 879 (9th Cir.1946)
The court further explained that even if it had reached the opposite conclusion of law (i.e. that the FWW could be applicable in some misclassification cases), the facts of the case would still preclude its application here:
Finally, even if the Court concluded that the FWW method does apply in some miscalculation cases, it would not apply in the present case because Defendant has failed to demonstrate a “fluctuating” work week or a “clear mutual understanding” of straight pay and a contemporaneous overtime arrangement as required by the regulation. The FWW was intended to apply to “fluctuating” work schedules, ie. schedules in which an employee endures long hours some weeks but enjoys the benefit of short hours in other weeks, all at the same rate of pay. See Hasan, 2012 WL 3725693 at *4. In the present case, it is undisputed that Plaintiffs consistently worked more than 40 hours per week. Thus, Plaintiffs’ “variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the Court in Missel.” Id. In addition, by its plain terms, the FWW method applies only when the employee clearly understands that he will receive straight-time pay for all hours worked and extra compensation of at least half his regular rate of pay, in addition to the fixed salary, for overtime hours during the weeks when he works overtime. Hunter v. Sprint Corp., 453 F.Supp.2d 44, 59 (D.D.C.2006); Russell, 672 F.Supp.2d at 1013–14. No such clear, mutual understanding is present in this case. Defendant contends that Plaintiffs agreed to work for a set salary regardless of whether they worked “35 hours or 55 hours.” (Doc. 74, pg.13.) Defendant misquotes Plaintiffs’ testimony regarding the number of hours they anticipated working. Although Defendant describes the Plaintiffs’ testimony regarding their salary as their “sole source of income regardless of whether they worked 35 or 55 hours,” neither Plaintiff testified to any expectation of ever working less than 40 hours. (Doc. 71, pg. 10; Doc. 71–1, pgs. 35 & 52.) The undisputed evidence is that Plaintiffs expected to work 50 hours a week. Furthermore, even if Defendant could prove that Plaintiffs and Defendant had a clear, mutual understanding that Plaintiffs would work 50 hours a week without overtime pay, such an arrangement amounts to an agreement “not to receive their FLSA entitlement to overtime pay. This would be illegal. Employees cannot agree to waive their right to overtime pay.” Russell, 672 F.Supp.2d at 1014. The parties’ lack of “mutual understanding” regarding Plaintiffs’ salary is further supported by the fact that Plaintiffs, upon realizing that they were being required to work far more than 50 hours per week, complained about their hours and were eventually paid some overtime.
In sum, the Court agrees with its sister district court in Northern California which held that “If Defendants’ position were adopted, an employer, after being held liable for FLSA violations, would be able unilaterally to choose to pay employees their unpaid overtime premium under the more employer-friendly of the two calculation methods. Given the remedial purpose of the FLSA, it would be incongruous to allow employees, who have been illegally deprived of overtime pay, to be shortchanged further by an employer who opts for the discount accommodation intended for a different situation.” Russell, 672 F.Supp.2d at 1014. Accordingly, the Court concludes that the FWW method to damages calculation is not applicable in the instant case.
Click Blotzer v. L-3 Communications Corp. to read the entire Order.
Recent Conditional Certification Decisions of Interest
Anyone who has ever moved for or opposed a motion for conditional certification (i.e. a “Stage 1” motion) of a collective action is likely familiar with the common defense tactic whereby a defendant asserts that the named plaintiff and members of the putative class are not similarly situated. Typically a defendant argues that individualized issues pertaining to the claims of the named plaintiff(s) (and members within the putative class) render the case ill-suited for class/collective treatment. As discussed below, three recent decisions discuss three separate issues related to this analysis. In the first, a court held that a pro se plaintiff could not adequately serve the interests of the putative class and denied conditional certification. However, in the second and third cases discussed below, the courts rejected the defendants’ contentions that: (1) an undocumented (“illegal”) immigrant was ill-suited to serve as a representative plaintiff; and (2) issues regarding whether specific putative class members signed binding arbitration agreements relating to the issues raised by the named-plaintiff were not properly raised at stage 1.
Pro Se Plaintiff Inadequate Representative for Collective Action
Koch v. CHS Inc.
In the first case, the pro se plaintiff (apparently fairly savvy) moved for conditional certification. Denying the motion, the court held that a pro se plaintiff cannot pursue their claims in a collective action for lack of adequacy of representation. Specifically, the court explained:
The issue of whether a pro se plaintiff can sue on behalf of other members in a collective action is one of adequacy of representation. Determining adequate representation is typically based on a two-part inquiry: “First, the named representatives must appear able to prosecute the action vigorously through qualified counsel, and second, the representatives must not have antagonistic or conflicting interests with the unnamed members of the class.” Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir.1978). Courts have generally concluded that a pro se plaintiff cannot pursue claims on behalf of others in a representative capacity. See Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir.2008); see also Johns v. County of San Diego, 114 F.3d 874, 876 (9th Cir.1997) (“While a non-attorney may appear pro se on his ow n behalf, he has no authority to appear as an attorney for others than himself.”); C.E. Pope Equity Trust v. United States, 818 F.2d 696, 697 (9th Cir.1987) (holding that a pro se litigant may not appear as an attorney for others). Here, because Koch is a pro se litigant, he cannot pursue claims on behalf of other CHS employees in a representative capacity.
The rule holds true for pro se plaintiffs seeking to bring collective action suits under the F LSA. Morgovsky v. AdBrite, Inc. ., No. C10–05143–SBA, 2012 WL 1595105 *4 (N.D.Cal. May 4, 2012) (denying pro se plaintiff’s motion to bring a collective action under the FLSA and dismissing collective action claims); Spivey v. Sprint/United Mgt. Co., No. 04–2285–JWL, 2004 WL 3048840 (D.Kan. Dec.30, 2004) (holding that a claim under 29 U.S.C. § 216(b) cannot be brought by a pro se plaintiff).
Accordingly, the Court agrees with CHS that Koch, because he proceeds in the litigation pro se, cannot represent the class members on whose behalf he purports to bring suit. Therefore, proceeding with the litigation as a collective action is not permitted pursuant to 29 U.S.C. § 216(b). The motion will be denied.
Click Koch v. CHS Inc. to read the entire Memorandum Decision and Order.
Named-Plaintiff’s Immigration Status Has No Bearing on Similarly Situated Analysis
Torres v. Cache Cache, Ltd.
In the second case of interest, arising from alleged tip pool violations at defendant’s restaurant, the defendant opposed conditional certification, in part, based on the fact that the named-plaintiff was allegedly an undocumented immigrant. The court rejected this notion, citing well-established authority that an FLSA plaintiff’s immigration status is irrelevant to a claim inasmuch thereunder, inasmuch as same seeks payment for work already performed. Discussing this issue the court reasoned:
Finally, in an apparent attempt to distinguish Plaintiff from other proposed collective action members, Defendants note his status as an illegal immigrant and involvement in other similar FLSA lawsuits. Neither of these issues, however, is likely to provide Defendants with a valid defense that is unique to Plaintiff. First, there are a number of cases finding that evidence of immigration status has no relevance in an FLSA action. See e.g. Reyes v. Snowcap Creamery, Inc., 2012 WL 4888476 at *2 (D.Colo. Oct.15, 2012) (recognizing that “weight of authority clearly holds that a plaintiff’s immigration status is irrelevant in an FLSA action” and citing supporting authority). It is also questionable whether Defendants will be able to introduce evidence of other lawsuits involving Plaintiff. See Van Deelen v. Johnson, 2008 WL 4683022 at *2 (D.Kan. Oct.22, 2008) (evidence of plaintiff’s prior lawsuits cannot be admitted for purpose of proving that plaintiff is litigious but may be admissible for other purposes).
Click Torres v. Cache Cache, Ltd. to read the entire Order.
Whether Putative Class Members’ Claims Are Subject to Arbitration is an Issue Reserved for Stage 2
Hernandez v. Immortal Rise, Inc.
In the final decision, the court had before it the Report and Recommendation of the magistrate judge recommending conditional certification. As it had in its opposition to the underlying motion, the defendant argued that members of the putative class who had previously signed agreements to arbitrate their FLSA claims, were not similarly situated to the plaintiff and the remainder of the putative class. As such, the defendant argued such putative class members should be excluded from receiving notice of their right to join the case by opting in. Rejecting this contention, the court held that the issue of whether (and who) may have signed arbitration agreements, is an issue reserved for Stage 2 (decertification) analysis, and is not properly addressed at the conditional certification stage:
Next, defendants argue that the proposed class should be limited to cashiers and those who had not signed arbitration agreements, excluding grocery packers and delivery workers, whom defendants never employed, and employees subject to arbitration agreements. However, these are issues of fact that should be determined during discovery rather than at this preliminary stage. See D’Antuono v. C & G of Groton, Inc., No. 11–cv–33, 2011 U.S. Dist. LEXIS 135402, at *12–13 (D.Conn. Nov. 23, 2011) (holding that the enforceability of arbitration agreements should not be determined during conditional class certification); Lujan v. Cabana Mgmt., No. 10–cv–755, 2011 U.S. Dist. LEXIS 9542, at *23–24, 2011 WL 317984 (E.D.N.Y. Feb. 1, 2011) (quoting Realite v. Ark Rests. Corp., 7 F.Supp.2d 303, 307 (S.D.N.Y.1998)) (holding that defendants’ contention that its restaurants constituted separate entities raised a contested issue of fact, and was therefore not a basis for denying conditional class certification). Thus, Judge Bloom correctly found that the proposed class should not be limited as defendants propose.
Click Hernandez v. Immortal Rise, Inc. to read the entire Order.
D.N.J.: District Court Denies Motion to Vacate Clause Construction Permitting Arb to Proceed on Class Basis, Where Contract Was Silent as to Class Issues; U.S.S.C. to Take Up Issue
Opalinski v. Robert Half Intern., Inc.
Another court, this one within the Third Circuit (which had previously ruled on the issue), has held that an arbitrator does not exceed his or her authority when the arbitrator permits FLSA claims to proceed on a class-wide basis, in the face of an arbitration agreement that the parties stipulate is “silent” as to class issues. Determining that same was permissible under Stolt-Nielsen and under principles of New Jersey contract law, the court explained:
At issue here is whether the Award should be vacated because the Arbitrator exceeded her powers by finding that the Agreements allow for class arbitration. Defendants contend that the Arbitrator’s finding was erroneous and violates Supreme Court precedent. See Stolt–Nielsen v. AnimalFeeds Int’l Corp., –––U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (finding that arbitration panel exceeded its powers by imposing its own policy choice instead of interpreting and applying the agreement of the parties, and explaining that a party cannot be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so). Defendants note that the Agreements did not expressly authorize class arbitration and argue that an agreement to arbitrate does not implicitly authorize class arbitration, nor does the non-existence of an express class action waiver imply that the parties agreed upon class arbitration.
Defendants’ arguments are unpersuasive particularly given the binding precedent of Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir.2012), which is directly on point. In light of Stolt–Nielsen, the Third Circuit Court of Appeals in Sutter evaluated an arbitrator’s decision that class arbitration was allowed under a contract that was silent on the issue of class arbitration. The court explained that while “Stolt–Nielsen does prohibit an arbitrator from inferring parties’ consent to class arbitration solely from their failure to preclude that procedure,” it did not establish a rule that class arbitration is only allowed where an arbitration agreement expressly provides for class arbitration procedures. Sutter, 675 F.3d at 222, 224 . Instead, an arbitrator can interpret an arbitration clause to allow for class arbitration, even if the clause does not expressly provide for it, if the arbitrator articulates a contractual basis for that interpretation. Id. at 224. The arbitrator in Sutter examined the parties’ intent and used contract interpretation principles to reach his conclusion. He described the text of the arbitration clause—which provided that “no civil action concerning any dispute arising under this [a]greement shall be instituted before any court”—as broad and embracing all conceivable court actions including class actions. He further explained that an express carve-out for class arbitration would be required to negate this reading of the clause. Id. at 218. When reviewing the award, the court explained that the arbitrator had the authority to find for class arbitration because such a finding had a contractual basis. Id. at 223–24.
In light of binding Third Circuit authority and basic principles of New Jersey law regarding contract interpretation, the court held that the arbitrator was within her powers to hold that the arbitration of plaintiff’s claims could proceed on a class-wide basis, in the absence of an explicit class-waiver in the arbitration agreement.
Click Opalinski v. Robert Half Intern., Inc. to read the entire Opinion & Order.
*************************************************************************************************************************************************************************************************************
Significantly, within days of the Opalinkski decision, the Supreme Court agreed to take up this very issue. To that end, the Supreme Court accepted cert of the Sutter case, on which the Opalinski relied. The question certified by the Supreme Court is:
Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.
Click Oxford Health Plans LLC v. Sutter to read more about the Supreme Court’s decision to accept cert.
E.D.Mo.: Where Common Tip Pool Violations Alleged, Employees of Franchise Stores as Well as Those at Company-Owned Stores Similarly Situated at Stage 1
White v. 14051 Manchester, Inc.
This case was before the court on the plaintiffs’ motion for conditional certification. As discussed here, the plaintiffs sought to facilitate class notice to employees who worked at the franchise locations of the franchisee who employed them, as well as those who worked for “Hotshots” franchisor or company-owned locations. In support of their motion, plaintiffs argued that all tipped employees at all Hotshots locations, regardless of the owner, were required to participate in illegal tip pools whereby they were required to tip out back-of-the-house employees not eligible to participate in a valid tip pool. Rejecting the defendants’ argument that the court should limit the putative class to those tipped employees employed by the franchisee who employed plaintiffs the court explained, that it would be inappropriate to resolve the merits issue regarding which entities employed each putative class member at Stage 1.
Discussing this issue the court opined:
The Supreme Court has noted that whether a relationship is covered by the FLSA turns on the economic realities of the working relationship rather than technical definitions relating to employment. Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961). The FLSA defines “employee” broadly to include “any individual employed by an employer.” 29 U.S.C. § 203(e)(1)(2006). In turn, “employ” is defined as “to suffer or permit to work” 29 U.S.C. § 203(g), and an “employer” is any person “acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). “Thus, based on the language of the statute, an employee is any individual who is permitted to work by one acting directly or indirectly in the interest of an employer.” Helmert v. Butterball, LLC, No. 4:08CV00342, 2010 U.S. Dist. LEXIS 28964, at *6 (E.D.Ark. Mar. 5, 2010); see also Nicholson v. UTi Worldwide, Inc., No. 3:09–cv–722, 2011 U.S. Dist. LEXIS 41886, at *3 (S.D.Ill. Apr. 18, 2011)(conditionally certifying class of “forklift operators employed” by defendant that included workers hired through temporary staffing agencies).
The Court finds that, for purposes of this Motion, Defendants “permitted or suffered to work” all Hotshots employees, even those at the franchise locations. Given the FLSA’s broad definition of the “employee” and its remedial purpose, Defendants’ franchise arrangement demonstrates sufficient “control” for conditional class certification. Moreover, the employment relationship for franchise employees is disputed by the Plaintiffs, and the Court cannot make credibility determinations at this juncture. See Arnold v. DirecTv, Inc., No. 4:10–CV–352–JAR, 2012 U.S. Dist. LEXIS 140777, at *8 (E.D.Mo. Sept. 28, 2012)(“The Court will not make any credibility determinations or findings of fact with respect to contradictory evidence presented by the parties at this initial stage.”).
The Court also finds that the proper class definition is all Hotshots employees who shared in any tip pool. Employees who participated in the tip pool were allegedly victims of the same policy or plan and denied compensation as a result of the tip-pooling arrangement. While the Court acknowledges that distinctions exist among the Hotshot’s teams and locations, Plaintiffs’ affidavits provide enough evidence at this stage to demonstrate employees were similarly situated and subject to a common practice. McCauley, 2010 U.S. Dist. LEXIS 91375, at *12–13 (citing Busler v. Enersys Energy Products, Inc., No. 09–00159, 2009 U.S. Dist. LEXIS 84500, at *9–10, 2009 WL 2998970 at *3 (W.D.Mo. Sep. 16, 2009)); see also Fast v. Applebee’s Intern., Inc., 243 F.R.D. 360, 363–64 (W.D.Mo.2007) (citations omitted) (“To be similarly situated, however, class members need not be identically situated. The ‘similarly situated’ threshold requires only a modest factual showing.”); Schleipfer v. Mitek Corp., No. 1:06CV109, 2007 U.S. Dist. LEXIS 64042, at *9 (E.D.Mo. Aug. 29, 2007)(class members need not be identically situated). “[A]rguments concerning the individualized inquiries required and the merits of Plaintiffs’ claims are inappropriate at this stage of the proceeding and can be raised before the Court at the second, or decertification, stage.” Dominquez v. Minn. Beef Indus., No. 06–1002, 2007 U.S. Dist. LEXIS 61298, at *10 (D.Minn. Aug. 21, 2007)(internal quotation omitted).
Click White v. 14051 Manchester, Inc. to read the entire Memorandum and Order.
Overtime Law Blog 