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Supreme Court Confirms That a Day Rate is Not a Salary
Helix Energy Solutions Group Inc. v. Hewitt
In a widely anticipated opinion, on February 22, 2023, the Supreme Court of the United States ruled that an employee who was paid a daily rate more than $684 per day, who received a total of more than $200,000 per year, was not paid on a “salary basis” as required for application of the highly-compensated employee (HCE) exemption. As such, the court held that he was entitled to overtime pay under the Fair Labor Standards Act (FLSA) notwithstanding his high total annual earnings.
The ruling will have wide-ranging implications the oil and gas industry, the nursing field, and other industries which often rely on “day rate only” pay schemes and pay schemes which pay high hourly rates (but no overtime) to attract workers to remote locations, often on short notice.
The case concerned an employee who alleged he had been misclassified as exempt from the FLSA’s overtime provisions, and improperly denied overtime premium compensation. He worked twenty-eight day “hitches” on an offshore oil rig where he would work daily twelve-hour shifts, often seven days per week, totaling 84 hours a week. Throughout his employment, the plaintiff was on a daily-rate basis, without overtime compensation, earning between $963 and $1,341 per day, an amount that equated with more than $200,000 annually.
Helix had argued that the plaintiff fell under the DOL’s exemption for highly compensated employees found in 29 C.F.R. §541.601. At the time of the toolpusher’s employment, the highly compensated employee (HCE) exemption applied to employees whose primary duties included performing office or non-manual work; who customarily and regularly performed at least one duty of an exempt executive, administrative, or professional employee; and who were paid at least $455 per week on a “salary or fee basis”; and who earned at least $100,000 annually. (Currently, the threshold salary and total compensation amounts are $684 per week and $107,432 annually, respectively.)
Opinion of the Court
In its decision, the high court stated that the “critical question” in this case was whether the plaintiff was paid on a “salary basis” pursuant to 29 C.F.R. §541.602(a). That regulation states that an employee is paid on a “salary basis” when the “employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.”
Helix had argued that in any week in which the employee performed any work, he was guaranteed to receive an amount above the $455 weekly threshold, such that his compensation met the requirements of the salary basis test.
The court rejected this argument, holding that §541.602(a) “applies solely to employees paid by the week (or longer)” and the test is “not met when an employer pays an employee by the day.” The court noted that a companion regulation, 29 C.F.R. §541.604(b), allows an employee’s earnings to be computed on an hourly, daily, or shift basis without violating the salary basis requirement, that regulation states that the arrangement must include a guarantee of at least the minimum weekly required amount paid on a salary basis and that there be a reasonable relationship between the guaranteed amount and the amount actually earned. However, the parties in this case agreed that the plaintiff’s compensation failed the reasonable relationship test, such that the sole issue was whether his admitted day rates qualified as a “salary basis” within the meaning of §541.602(a).
Writing for the court, Justice Elena Kagan stated that “[i]n demanding that an employee receive a fixed amount for a week no matter how many days he has worked, §602(a) embodies the standard meaning of the word ‘salary’” which generally refers to a “steady and predictable stream of pay.” Justice Kagan stated that even a “high-earning employee” who is compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”
The court’s decision will likely have wide-ranging impact. Employers have long-argued that the FLSA was not intended to protect highly-compensated employees, notwithstanding the unambiguous language of the statute itself and the DOL’s regulations. The majority squarely rejected this reasoning, adopting a typically conservative textualist approach and holding that the regulations mean precisely what they say and must be strictly construed to protect employees, both low-wage and higher-wage.
Click Helix Energy Solutions Group Inc. v. Hewitt to read the entire opinion of the court and the dissents.
9th Cir.: LA County Was Joint Employer of Home Healthcare Workers, Liable Under the FLSA
Ray v. Los Angeles County Department of Public Social Services
In a recent published opinion, the Ninth Circuit held that Los Angeles County is a joint employer of state-provided home health care aides and is liable for alleged failures to pay those aides sufficient overtime wages, the Ninth Circuit held Friday. The opinion partially reversed the lower court’s which held that the County was not jointly for the wage violations alleged.
The case arose from California’s In-Home Supportive Services program, a publicly-funded initiative under which the state and counties pay the wages of certain in-home care providers who assist low-income elderly, blind and disabled residents. In 2017, IHSS provider Trina Ray sued both the California Department of Social Services and the LA County Department of Public Social Services, alleging that the governments jointly employed her and failed to pay time and a half overtime premiums.
The district court granted LA County summary judgment, largely relying on the fact that the county had no hand in issuing paychecks to IHSS workers. Rejecting the reasoning of the lower court, the Ninth Circuit held that the county still had sufficient economic control over the program, noting that counties provide 35% of the program’s budget, and counties are able to negotiate for higher-than-minimum wages for home care workers among other things.
Thus, the panel held that counties were joint employers alongside the state under existing Ninth Circuit precedent, reasoning.
However, the panel split on whether the state-level centralization of the IHSS program’s payroll system meant that the county’s FLSA violations were willful. The majority concluded that the state’s ultimate control of pay processes meant counties had no ability to provide overtime pay without authorization.
Writing in partial dissent, U.S. Circuit Judge Marsha Berzon disagreed with the majority’s finding that the county’s FLSA violations were in good faith. Regardless of whether the county or state ordinarily handled payroll, Judge Berzon said that joint employers were individually and jointly responsible for ensuring compliance with the FLSA under Bonnette, prior Ninth Circuit precedent.
“Allowing joint employers to avoid liability for violations of the FLSA by showing they ordinarily did not perform a particular employer function would risk undermining the statute’s remedial purposes,” Judge Berzon said.
It would appear that the dissent is correct in that FLSA, does not permit a finding of “good faith” simply in reliance on or because a joint employer was more actively responsible for the unpaid wages. Rather, well-settled law requires an employer to demonstrate affirmative steps that it undertook to ascertain and comply with the FLSA’s requirements, which appear to be lacking here.
Click Ray v. Los Angeles County Department of Public Social Services to read the entire Opinion.
Click Nurse Wages to learn more about wage and hour rights of home health aides (HHAs), certified nurse assistants (CNAs), licensed nurse practitioners (LPNs) and registered nurses (RNs).
7th Cir.: Truck Driver Adequately Alleged He Was Misclassified as an Independent Contractor and Thus Entitled to Minimum Wage and Overtime
Brant v. Schneider National, Inc.
In this case, a truck owner-operator who contracted with an over the road hauling company contended that he was misclassified as an independent contractor, and thus entitled to overtime pay and minimum wages under the Fair Labor Standards Act (FLSA) and Wisconsin law (minimum wage). In addition, the plaintiff alleged that the contracts he signed with the defendant were unconscionable and thus defendant was unjustly enriched because it required him to bear overhead costs that should have been borne by defendant. Finally, plaintiff alleged that defendant violated the Truth in Leasing regulations, based on representations it made to him.
After the district court dismissed the case with leave to amend, the plaintiff amended his complaint, and the defendant moved to dismiss the amended complaint. The lower court again dismissed the complaint, but the second time with prejudice, and held that plaintiff’s claims were essentially barred by the very agreements he was challenging the legality of. On appeal, the Seventh Circuit reversed, noting that employee status is determined by application of the “economic reality” test and thus, reaffirmed the longstanding black letter law that FLSA rights may not abridged by contract.
While Schneider argued that this agreement established that the driver had a high degree of control over his work and that Schneider had therefore properly classified him as an independent contractor, the plaintiff argued that under the controlling test–the economic reality test–he was Schneider’s employee.
Under the FLSA, workers are employees when “as a matter of economic reality, [they] are dependent upon the business to which they render service.” As the Seventh Circuit noted, the economic reality test includes analyzing: (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.
In reversing dismissal of the driver’s minimum wage claims, the Seventh Circuit concluded that the district court had “erred by giving decisive effect to the terms of [its] contracts,” when “what matters is the economic reality of the working relationship, not necessarily the terms of a written contract.”
For instance, while the operating agreement gave the driver the ability to choose the route and schedule to follow when delivering a shipment, the driver alleged that “the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.”
Similarly, while the operating agreement gave the driver the ability to choose which Schneider shipments to haul (and in theory, to select more shipments with higher profit margins), the driver alleged that he could not actually exercise this theoretical right to turn down shipments. The driver further alleged that, despite the terms of his contract, Schneider did not allow him to hire workers or haul freight for other carriers.
In light of these allegations, the Seventh Circuit concluded that the driver’s amended complaint had pled sufficient facts to allow a plausible inference that Schneider was his employer and he was its employee, and not an independent contractor. Thus, the Seventh Circuit reversed.
Click Brant v. Schneider National, Inc. to read the entire Opinion.
*** Andrew Frisch and Morgan & Morgan are actively handling and investigating similar cases regarding independent contractor misclassification. If you believe you have been misclassified as an independent contractor by a current or former employer, contact us for a free consultation at (888) OVERTIME [888-683-7846] today. ***
9th Cir.: Time Spent by Call Center Workers Booting Up Computers is Compensable
Cadena v. Customer Connexx LLC
The time a group of call center workers spent booting up their computers is inextricably intertwined with their work and therefore compensable under the Fair Labor Standards Act (FLSA), the Ninth Circuit ruled this week, overturning a win a district court handed to their employer, and joining sister circuits who have reached a similar conclusion.
In a unanimous published decision, the Ninth Circuit reversed a Nevada district court’s 2021 decision which had granted call center employer Customer Connexx LLC summary judgment on the workers’ overtime suit, reasoning that the workers needed to have a functional computer in order to do their jobs. Thus, the panel concluded that the time the call center workers spent booting up the computers is compensable under the Portal-to-Portal Act.
“The employees’ duties cannot be performed without turning on and booting up their work computers, and having a functioning computer is necessary before employees can receive calls and schedule appointments,” U.S. Circuit Judge Jay S. Bybee wrote on behalf of the panel.
Under the Portal-to-Portal Act, which amended the FLSA, employers are not required to pay for time workers spend traveling to and from the place of principal work activities or for time they spend on certain preliminary or postliminary activities which are not integral to their work.
Here, the workers sued in 2018, alleging that Connexx, failed to pay them overtime as required by the FLSA and Nevada law, because they failed to track and compensate them for the time they spent booting up and turning off their computers after they logged into and out of the company’s timekeeping system.
The district court granted Connexx summary judgment in July 2021, finding that the tasks the workers completed before and after they logged out of the company’s timekeeping system were not compensable preliminary and postliminary activities because they did not meet the legal standard to be considered part of their jobs.
The Ninth Circuit disagreed and reversed, saying the district court erred in focusing its reasoning on whether the activities were essential to the workers’ jobs and should have instead put emphasis on whether starting the computer led the call center workers to be able to perform their work. Discussing the issue, the Court explained:
When the employees’ duties are understood in this way, the electronic timekeeping system becomes a red herring. It is a convenience to the employer… It has no impact on the ‘integral and indispensable’ analysis except to show us when Connexx began counting the employees’ time.
Because the workers needed to have “a functional computer … turning on or waking up their computers at the beginning of their shifts is integral and indispensable to their principal activities,” the panel concluded.
The Ninth Circuit also rejected Connexx’s argument that the district court’s decision should be affirmed because the pre-shift time was de minimis and because the company was not aware of the alleged overtime, noting that those are “factual questions” that the lower court didn’t address, and thus not properly before it.
Of note, the panel clarified in a footnote that its opinion focused on the pre-shift activities, and stated that its opinion should not be read to hold that turning the computers off was an integral part of the workers’ jobs.
The Department of Labor had filed an amicus brief in support of the workers, in which it argued the time at issue was compensable under the FLSA, because the workers could not do their jobs without booting up the computers.
Click Cadena v. Customer Connexx LLC to read the entire decision.
*** Andrew Frisch and Morgan & Morgan are actively handling and investigating similar cases on behalf of call center workers. If you believe your call center employer is not paying you for all time worked, contact us for a free consultation at (888) OVERTIME [888-683-7846] today. ***
3d Cir.: FLSA Retaliation Provisions Protect Anticipated Collective Action Opt-ins
Uronis v. Cabot Oil & Gas Corp.
Resolving an issue of first impression, the Third Circuit recently held that a job applicant who was a potential member of a collective action, was entitled to the protections of the FLSA anti-retaliation provisions.
The FLSA prohibits discrimination against employees who have engaged in “protected activity” which, in part, includes having “testified” or being “about to testify” in any FLSA-related proceeding. 29 U.S.C. § 215(a)(3). However, until the Third Circuit’s recent decision, it was unclear whether an employee or potential employee’s status as a potential member of a collective action protected him or her from retaliation under the FLSA. The Third Circuit held that it does, and reversed the lower court’s opinion which had dismissed the Complaint and held that it did not.
In this case, a former coworker of plaintiff Matthew Uronis filed a collective action lawsuit against both Cabot Oil & Gas Corporation and a transport and rental company, claiming that the two companies were joint employers and that they failed to properly pay overtime to members of the class, in violation of the FLSA, in February 2019. Uronis, who was similarly employed by the same transport and rental company (and arguably jointly employed by Cabot), was allegedly similarly situated to the named-Plaintiff in that case, based on the definition of the putative collective action contained within the complaint in the initial case.
Subsequent to February 2019, in August 2019, Uronis alleged that he applied for a position with GasSearch Drilling Services Corporation (GDS), a subsidiary of Cabot. In response, on August 28, 2019, a GDS manager sent Uronis a text message stating that, despite his clear qualifications, GDS could not hire Uronis because he was a putative member of the collective action lawsuit against Cabot and the transport and rental company. That same day, Uronis signed his consent to join the collective action. However, he had not informed anyone at Cabot or GDS that he planned to join the lawsuit.
Following GDS refusal to hire him, based on his status a potential opt-in plaintiff, Uronis filed his own lawsuit, against Cabot and GDS, alleging they violated Section 215(a)(3) of the FLSA when GDS refused to hire him and others because they were “about to testify” in his former coworker’s lawsuit. Uronis referenced the text message from the GDS manager and attached a copy to his Complaint.
In response to the Complaint, the defendants filed a motion to dismiss on the basis that Uronis had not pled conduct constituting protected activity under Section 215(a)(3). The district court agreed, granted the defendants’ motion, and dismissed the case.
The district court concluded that Uronis was not “about to testify” because he had not alleged he was scheduled to provide testimony in the underlying collective action. On appeal, the Third Circuit reversed.
Noting first that “Congress included in the FLSA an antiretaliation provision . . . to encourage employees to assert their rights without ‘fear of economic retaliation [which] might often operate to induce aggrieved employees to quietly accept substandard conditions,” the Third Circuit stated that the FLSA “must not be interpreted or applied in a narrow, grudging manner.” In support of this position, the Court of Appeals cited to the U.S. Supreme Court’s decision in Kasten v. Saint-Gobain Performance Plastics Corporation, 563 U.S. 1 (2011), in which the Court held that an oral complaint of an FLSA violation constitutes protected activity, even though the statute (in a companion subsection) refers to a complaint that has been “filed,” which most commonly is interpreted to require a written document.
In so holding, the Supreme Court reasoned that to limit the scope of Section 15(a)(3) to the filing of written complaints would foul Congress’ intent by ‘prevent[ing] Government agencies from using hotlines, interviews, and other oral methods of receiving complaints’ and ‘discourag[ing] the use of desirable informal workplace grievance procedures to secure compliance with the [FLSA].’” The Court further noted that it had interpreted an analogous provision of the National Labor Relations Act (NLRA) to protect conduct not explicitly listed in that NLRA, specifically, to extend anti-retaliation protection to individuals who merely had participated in a National Labor Relations Board investigation, even though the language of the NLRA itself referred only to those who had “filed charges or given testimony.”
The Court of Appeals further noted that previously, in Brock v. Richardson, 812 F.2d 121 (3d Cir. 1987), it had extended the protections of Section 215(a)(3) to individuals whom the employer believed had filed a complaint with the Department of Labor, even though they had not actually done so. “Even though the statute could be narrowly read to not include retaliation based on perception, such retaliation ‘creates the same atmosphere of intimidation’ as does discrimination based on situations explicitly listed in Section 15(a)(3),” the Court of Appeals reiterated, adding that “[s]uch an atmosphere of intimidation is particularly repugnant to the purpose of the FLSA in the context of collective actions.” Similarly, “[i]f employers can retaliate against an employee because the employer believes the employee has or will soon file a consent to join an FLSA collective action, this enforcement mechanism – and employee protection – will be gutted.
However, added the Third Circuit, “Section 15(a)(3) is not a per se bar against any adverse employment action against an employee who is or might soon be a collective action member. Rather, it bars discrimination because of protected activity.” Again citing to Kasten, the Court of Appeals emphasized that to qualify as arguably protected activity, the employer must be given “fair notice” that a reasonably detailed and clear complaint, whether oral or written, has been asserted (as in Kasten) or, as here, that the individual was “about to testify” in an FLSA proceeding (as the Third Circuit now broadly interprets that phrase) and there must be plausible evidence (or allegations) that the employer was aware of the conduct.
Reversing the district court, the Third Circuit explained:
The reasoning of Kasten and Brock compel the conclusion that to ‘testify’ under Section 15(a)(3) includes the filing of an informational statement with a government entity. A consent to join a collective action is just that: it is an informational statement (that an employee is similarly situated to the named plaintiff with respect to the alleged FLSA violation) made to a government entity (the court).
Accordingly, concluded the Third Circuit, “an employee testifies under Section 15(a)(3) when the employee files a consent to join an FLSA collective action.”
Likewise, the Court of Appeals held that “‘about to testify’ includes testimony that is impending or anticipated, but has not been scheduled or subpoenaed.” As set forth in several other district court decisions, “‘about to’ . . . includes activity that is ‘reasonably close to, almost, on the verge of,’ or ‘intending to do something or close to doing something very soon.’” This includes individuals who, like Uronis, intended to soon file his consent to join the collective action and testify in that lawsuit, the Third Circuit noted. Finally, the Court of Appeals held, Uronis had sufficiently pled – as evidenced by the text to him from the GDS manager – not only that Cabot and GDS were aware, or at least assumed, that he would join the collective action, but that GDS was flatly refusing to hire him for this very reason. Based on these allegations, “[i]t is plausible that [GDS would not hire Uronis] because they anticipated [he] and his former co-workers would soon file consents to join the putative collective action, or otherwise provide evidence relating to it.” Accordingly, the Third Circuit said, the complaint should not have been dismissed on the pleadings and the case was due to be remanded for further consideration.
Congratulations to Morgan & Morgan attorney Angeli Murthy for her outstanding advocacy on behalf of Uronis! Ms. Murthy was supported by the Department of Labor who filed amicus in support of Uronis as well.
Click Uronis v. Cabot Oil & Gas Corp. to read the entire decision.
Morgan & Morgan Investigating Claims Against Arise Virtual Solutions for Failing to Pay Legally Due Wages to Customer Service Agents
The Claims Assert That Arise Illegally Profited by Unlawfully Misclassifying Customer Service Agents as Independent Contractors Rather than Employees, Denying Workers Money and Benefits
Morgan & Morgan is investigating allegations of wage theft against Arise Virtual Solutions, Inc. on behalf of customer service representatives. Arise is a customer service support company that contracts with a multitude of companies to outsource their customer service needs. The investigation has revealed that Arise improperly denied customer service agents minimum wage, overtime, and other benefits by misclassifying them as independent contractors rather than employees. Arise’s scheme is believed to have injured tens of thousands of workers.
“We belive that Arise has been constructed to intentionally flout wage and hour laws and to avoid paying workers the minimum wage, overtime, and other benefits that employees are typically entitled to. Companies like Arise cannot escape the application of wage and hour laws by labeling itself a gig economy company and/or labeling its workers contractors if they are truly employees under the law as we believe. We will hold companies like Arise accountable if they shortchange workers.”
Worker misclassification is illegal, and occurs where an employer deprives employees minimum wage, overtime, and/or other benefits typically earned by employees, by classifying them as “independent contractors,” who are generally not entitled to the same protections.
Arise is a customer support services company that operates in the gig economy and employs a workforce of customer support agents, many of whom work remotely from their homes. Arise contracts with many Fortune 500 clients that are looking to cut costs by outsourcing call-center services. Arise maintains an online platform that allows its clients’ customer service calls to be routed to an Arise agent to resolve the issue. Arise has employed thousands of customer support agents nationwide and subjects them to the same common scheme.
Our investigation has revealed that Arise has systemically misclassified its agents as independent contractors, denying them their rights to minimum wage, overtime, another benefits. We believe the agents are legally employees because Arise has the power to hire and fire them, determines their rate of pay, requires agents to meet with supervisors and managers, and controls agents with a digital surveillance apparatus that tracks their performance down to the precise second. Moreover, Arise’s agents do the work at the very heart of the company’s business—Arise could not operate its customer support business without its customer support agents. In other words, we believe that the “economic reality” test utilized by federal courts, as applied to the Customer Service Agents, renders them employees rather than true contractors under the law.
Arise uses numerous methods to unlawfully short agents the wages they rightfully earned. Many agents work at hourly rates that are blatantly below the applicable minimum wage. Arise also further cuts into agents’ pay by charging them for training and certification fees, requiring agents to purchase their own work equipment, requiring agents to work unpaid hours (such as meeting with supervisors), and docking agent pay for failing to meet perforance goals. Additionally, it appears that Arise does not pay any of its Customer Service Agents overtime premiums when they work overtime hours.
In these lawsuits, Morgan & Morgan intends to seek damages for wages owed to agents as a result of Arise’s minimum wage, and overtime violations.
If you are a current Customer Service Agent, or previously worked for Arise as a Customer Service Agent, you may have a claim for unpaid wages, including minimum wages and overtime wages, as well as other damages.
Contact us for a free consultation at (888) OVERTIME [888-683-7846] to discuss your rights today.
2d Cir.: Accepted Rule 68 Offers of Judgment Not Subject to Judicial Review for Fairness
Mei Xing Yu v. Hasaki Restaurant Inc.
Clarifying murky law regarding when FLSA settlements require judicial versus when they are self-effectuating, a divided Second Circuit panel recently held that settlement proposals in the form of accepted offers of judgment under Federal Rule of Civil Procedure 68 are not subject to judicial review and approval. Although FLSA settlements generally require judicial or U.S. Department of Labor (DOL) approval to be enforceable, the Second Circuit held that the statutory language of Rule 68 overrides that conventional wisdom and thus are an exception to the general rule.
In this case, the plaintiff sued his restaurant-employer on behalf of himself and similarly situated employees for overtime violations under the FLSA and New York Labor Law (NYLL). During the pendency of his lawsuit, the defendant-restaurant sent the plaintiff, an offer of judgment (OJ) pursuant to FRCP 68(a), which the plaintiff accepted. Per FCRP 68, the clerk of the court was required to “enter judgment” once the offer and notice of acceptance had been filed with the court.
Notwithstanding the clear dictates of FRCP 68, the district court sua sponte ordered the parties to submit the settlement offer to the court for fairness review, relying on the Second Circuit’s opinion in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), in which, the Second Circuit previously held that stipulated dismissals of FLSA claims under FRCP 41(a) require judicial approval notwithstanding the self-effectuating nature of that rule. The district court read Cheeks to stand for the proposition that parties to an FLSA claim could not “evade the requirement for judicial (or DOL) approval by way of Rule 68.”
In a 2-1 decision, the Second Circuit held that Cheeks does not extend to FRCP 68 offers of judgment, and that accepted OJs are an exception to the general rule requiring approval of private FLSA settlements. The majority distinguished FRCP 68(a)’s mandatory dismissal language from FRCP 41(a), which contains an exception to the self-executing nature of the dismissal where a federal statute governing the claim requires court approval. Because FRCP 68(a) contains no such exception to mandatory entry of judgment, the majority declined to read one into the rule.
The majority recognized the Cheeks court’s concern about “private, secret settlements and waivers of an employee’s FLSA rights that the Supreme Court [has] refused to endorse.” However, the Court reasoned that FRCP 68(a) requires public disclosure of the terms of FLSA settlements—unlike FRCP 41(a) stipulated dismissals—because the accepted offers must be publicly filed on the court’s docket. Furthermore, the majority reasoned that settlement agreements reached during the course of ongoing litigation in this manner are distinguishable from “private, back‐room compromises that could easily result in exploitation of the worker and the release of his or her rights,” the latter of which are more likely to be tainted by pressure applied by the employer.
The decision, which was the first from any Court of Appeals on this issue resolves a split among district courts in the Second Circuit. It also provides a blueprint for employees and employers who wish to avoid judicial scrutiny of their settlements reached in arm’s length negotiations during litigation.
Click Mei Xing Yu v. Hasaki Restaurant Inc. to read the entire decision.
11th Cir.: Arbitration Clause Requiring Fee/Cost Splitting Violates the FLSA
This case was before the Eleventh Circuit on the defendant-employer’s appeal of the district court’s denial of its motion to compel arbitration. Specifically, the district court held that the parties’ agreement to arbitrate was unenforceable because the arbitration clause required each party to bear its own attorneys’ fees and costs. The Eleventh Circuit affirmed in part and vacated and remanded in part, so that the district court could decide whether the offending provision could be severed, which the lower court had already held it could not.
Describing the relevant arbitration clauses at issue, the court explained:
Those arbitration clauses provide:Any dispute arising out of this agreement shall be resolved by mediation or arbitration, each party agrees, the parties will equally divide cost of mediation. Each party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration. The arbitrat[or] may conduct the hearing in absence of either party. After notified of such hearing. [sic](Emphasis added).
In his R&R, the magistrate judge determined the language of the arbitration provisions plainly prohibited Appellees from recovering their fees and costs, and thus the fees and costs clauses were unenforceable as they contravened the FLSA. The magistrate judge went on to note the arbitration provisions did not contain severability clauses, and that in the absence of a severability clause, the objectionable language could not be severed. Accordingly, the magistrate judge determined the arbitration provisions were unenforceable in their entirety. PIP filed objections to the R&R, arguing the fees and costs clauses merely required the parties to “pay their own way” while the arbitration is proceeding, and that nothing in the ECAs prohibited the arbitrator from shifting the fee if and when the Appellees were determined to be prevailing parties. And, even if the fees and costs clauses were unenforceable, the magistrate judge erred in concluding the “objectionable language could not be severed solely because the arbitration clauses do not contain a severability provision.” PIP asserted that Eleventh Circuit case law does not hold that any arbitration agreement that contains an unenforceable remedial restriction is completely null and void in the absence of a severability clause. Instead, the court is required to determine whether the unenforceable clauses are severable, which is decided as a matter of state law, here the law of Florida. PIP claimed Florida law allowed an unenforceable clause to be severed as long as the unenforceable clause does not go to the essence of the agreement. Thus, PIP asserted, even if the court were to sever the offending clause, there would still be a valid agreement to resolve employment-related disputes through arbitration.The district court adopted the magistrate judge’s R&R and denied PIP’s motion to compel arbitration after concluding the arbitration provisions in the relevant contracts were unenforceable because they denied the Appellees a substantive right under the FLSA—the right to recover fees and costs pursuant to 29 U.S.C. § 216(b). Furthermore, the court concluded that because the arbitration provisions did not provide for severability, the arbitration provisions were unenforceable in their entirety.
On appeal, the Eleventh Circuit affirmed the district court’s holding that the fee/cost splitting provision violated the FLSA. However, it remanded for further decision on whether the offending provision could be severed notwithstanding the absence of a severability clause.
Holding the fee/costs splitting provision to be unenforceable, the court explained:
Appellees contend the arbitration provisions improperly deny them their statutory right to recover fees and costs under the FLSA.The district court did not err in concluding that the statement “[e]ach party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration,” does not leave any discretion with the arbitrator to award fees and costs. (Emphasis added). We have held the terms of an arbitration clause regarding remedies must be “fully consistent with the purposes underlying any statutory claims subject to arbitration.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054, 1059 (11th Cir. 1998). Thus, the clause providing that each party will pay its own fees and costs is unenforceable, as the FLSA allows fees and costs as part of a plaintiff’s award. Id. at 1062 (“When an arbitration clause has provisions that defeat the remedial purpose of the statute, … the arbitration clause is not enforceable.”); 29 U.S.C. § 216(b)… Appellees have met their burden of establishing that enforcement of the fees and costs clauses in the arbitration provisions would preclude them from effectively vindicating their federal statutory rights in the arbitral forum. See id. at 1259. Thus, the district court did not err in concluding the fees and costs clauses are unenforceable.
However, the Court rejected the portion of the district court’s opinion which had held–consistent with Florida law–that the absence of a severability clause rendered the arbitration cause unenforceable in its entirety. As such, it reversed and remanded this issue for further consideration, reasoning:
The district court then reasoned that if the arbitration provisions contained a severability clause, the offending clauses could potentially be severed. Because the ECAs did not contain a severability provision, the court stated the objectionable language could not be severed and determined the arbitration clauses were unenforceable in their entirety.However, we have rejected the proposition that an “arbitration agreement that contains an unenforceable remedial restriction is completely null and void unless it also contains a severability clause.” Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1331 (11th Cir. 2005). Instead, if a provision is “not enforceable, then the court must determine whether the unenforceable provisions are severable. Severability is decided as a matter of state law.” Id.Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision. Id. The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law, despite PIP arguing this issue in its objections to the R&R. Thus, we remand to the district court to decide in the first instance the issue of whether the offending clauses are severable under Florida law.
Thus, the Eleventh Circuit affirmed the district court’s conclusion the fees and costs clauses of the arbitration provisions were unenforceable, but reversed the district court’s conclusion the arbitration provisions are unenforceable in their entirety solely because they lack a severability provision, and remanded for the district court to determine whether the fees and costs clauses are severable as a matter of Florida law.
Click Hudson v. P.I.P., Inc. to read the entire Opinion.
9th Cir.: Nevada Waived Sovereign Immunity from FLSA Claims by Removing Lawsuit to Federal Court
This case was before the court on the State of Nevada’s interlocutory appeal, following the district court’s denial of its motion to dismiss on jursidictional grounds. Addressing an issue of first impression, the Ninth Circuit held that removal from state court to federal court constitutes a waiver of sovereign immunity as to all federal claims, including the FLSA claims at issue here.
In Walden, state correctional officers alleged that the Nevada Department of Corrections improperly failed to pay them for pre- and post-shift work at state prisons and other facilities. They filed suit in state court, alleging minimum wage and overtime claims under the FLSA, in addition to a minimum-wage claim under Nevada’s Constitution, a overtime claim under Nevada law, and a claim for breach of contract.
Nevada removed the case to federal court and moved for judgment on the pleadings with regard to the FLSA claims, and contended that it was “immune from liability as a matter of law.” Nevada did not explicitly mention state sovereign immunity or the Eleventh Amendment, though.
The district court requested briefing on the question whether state sovereign immunity applies to the FLSA claims against the state following its removal of the case to federal court.
The district court held that Nevada had waived its sovereign immunity as to the officers’ FLSA claim by virtue of its removal of the case to federal court, and denied the state’s motion to dismiss. Nevada filed an interlocutory appeal to the Ninth Circuit.
While the particular issue at bar was one of first impression, the Ninth Circuit looked to other cases in which states had been held to waive soverign immunity when they removed federal claims to federal court, to reach its holding.
The Ninth Circuit noted that the Supreme Court had previously held that a state can waive sovereign immunity with regard to state law claims by removing them to federal court and the Ninth Circuit itself had previously held that, at least in some circumstances a state can waive soverign immunity by removing federal statutory claims to federal court.
The court then went one step further: “We now hold that a State that removes a case to federal court waives its immunity from suit on all federal-law claims in the case, including those federal-law claims that Congress failed to apply to the states through unequivocal and valid abrogation of their Eleventh Amendment immunity,” it wrote.
As the Supreme Court had observed, it was inconsistent for a state simultaneously to invoke federal jurisdiction, thus acknowledging the federal court’s authority over the case at hand, while claiming it enjoyed sovereign immunity from the “Judicial Power of the United States” in the matter before it.
Thus, the Ninth Circuit held that a state waives soverign immunity as to all federal statutory claims in a case which the state has removed to federal court, including those federal claims that Congress did not apply to the states through unequivocal and valid abrogation of their Eleventh Amendment immunity (like the FLSA).
Click Walden v. State of Nevada to read the entire decision.
S.D.Ohio: Employer Cannot Avoid Imposition of Liquidated Damages Based on Claimed Reliance on PEO
Parks v. Central USA Wireless, LLC
This case was before the court on the parties’ cross-motions for summary judgment following what appears to be an aborted settlement. As discussed here, plaintiffs sought summary judgment imposing liquidated damages on defendants, and contended that defendants had failed to demonstrate the requisite good faith.
After discussing the well-defined standards regarding an employer’s burden to show “good faith” to avoid an otherwise mandatory imposition of liquidated damages, the court discussed the evidence proffered by defendants:
Defendants assert as “a possible claim of good faith and reasonable grounds” the fact that Central USA Wireless relied on the aforementioned third-party professional employment organization, HUMACare, “to take care of Central’s payroll and employee administrative obligations.” (Doc. 29 at PageID 1091).
Regarding Plaintiffs’ compensation, Chris Hildebrant testified:
A: I didn’t. John, as I said, went to Michigan, Huffman, had conversations
with [Plaintiffs], and told me what they agreed upon.
Q: Did you do any analysis as to whether what they agreed upon was in
compliance with the Fair Labor Standards Act?
Q: Did you ask anybody else to do any analysis?
A: We submitted documentations to our PEO company, and we didn’t think
anything else about it.
Q: What does PEO company mean?
A: Professional Employment Organization.
Q: Did you ask your attorneys to look into whether or not the compensation
structure was in compliance with the –
Mr. Ash: Objection. I’ll allow the question to be answered just the
way you asked, obviously the content of the question from the very beginning.
Mr. Kimble: Sure.
Mr. Ash: Go ahead.
The Witness: No.
(Doc. 15-3, Hildebrant Dep. at PageID 255–56 (39:10–40:7)).
The court held that “[t]his evidence falls far short of creating a question of material fact or meeting the ‘substantial’ burden Defendants shoulder to prove ‘both good faith and reasonable grounds’ for a failure to pay overtime.”
Elaborating, the court explained:
Hildebrant made no special inquiry to HUMACare or legal counsel about whether Plaintiffs were exempt employees. See generally id. at 857 (caselaw usually cites discussion with attorneys or government officials or sometimes accountants as evidence of good faith). Rather, he “didn’t think anything else about it.” This statement concedes negligence, which “is sufficient to support an award of liquidated damages.” Fulkerson v. Yaskawa America, Inc., No. 3:13-cv-130, 2015 WL 6408120 at *2 (S.D. Ohio Oct. 23, 2015) (citing Martin, 381 F.3d at 584).
Thus, the court held that the plaintiffs were entitled to liquidated damages.
Click Parks v. Central USA Wireless, LLC to read the entire Order.