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E.D.Pa.: For Application of Computer Exemption, Hourly Rate Must Be Measured Hour-by-Hour, Not On A Weekly Average Basis
This case was before the court on a variety of motions from all parties. As discussed here, the court was tasked with deciding how the hourly rate must be calculated for purposes of applying the computer exemption, where all parties agreed that the plaintiff was paid on an hourly not salary basis. Plaintiff’s primary contention was that the defendant misclassified him and other employees as exempt from the FLSA’a overtime provisions under 29 U.S.C. § 213(a)(17) (the FLSA’s computer-employee exemption), and subsequently failed to pay them overtime compensation.
Describing the relevant factual background, the court explained:
Defendant maintains a variety of pay structures for its employees. The pay structures at issue are the “Professional Day” and “Professional Week” agreements, which apply only to employees who Defendant has classified as exempt under the FLSA’s computer-employee exemption. Under the “Professional Day” agreement, an employee “will not be paid for more than eight hours in a day, unless that employee works more than ten hours in a day. If the employee works more than ten hours in a day and the manager approves, the employee will be entitled to be paid an additional fee for services provided after the 11th hour.” Under the “Professional Week” plan, employees receive a set hourly rate for every hour worked up to forty hours per week, and receive no additional compensation for hours worked in excess of forty hours per week. (Id. at ¶¶ 10, 15–18) (alterations omitted). Defendant considers employees designated under either structure as exempt under § 213(a)(17).
Plaintiff Morgan Jones initially contacted Defendant through one of its recruiters, Robert Helsel. In July 2011, Defendant successfully placed Plaintiff in a position as Senior Project Manager with Citigroup. When Plaintiff started at Citigroup, he was classified by Defendant as exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(a)(17) and was subject to Defendant’s “Professional Day” pay plan. (Id. at ¶¶ 20, 27, 30–31, 51.)
Like Defendant’s other employees, Plaintiff was required to enter his daily hours into Defendant’s “EaZyTyme system,” an online-based time reporting system maintained and controlled by Defendant. In addition to reporting his time in EaZyTyme, Plaintiff also reported his work hours directly to Citigroup for purposes of effectuating payment from Citigroup to Defendant for Plaintiff’s work. During his placement with Citigroup, Plaintiff routinely worked over forty hours per week and occasionally over fifty hours per week. (Id. at ¶¶ 39–40, 46, 52.) Beginning on November 14, 2011, Plaintiff was taken out of the Professional Day structure and paid on an hourly basis. (Id. at ¶¶ 13–14, 56–57.)
(1) that the employee perform certain “primary duties”; and (2) that he be compensated at a rate of at least $27.63 an hour.
Framing the issue presented by the respective parties, the court stated:
Defendant asserts that it is entitled to judgment on the second criteria, reasoning that the requirement is met so long as an employee is paid an average hourly wage of $27.63 or more in a given workweek (hereinafter, “the workweek method”). Defendant explains that because it is undisputed that, in any given week, Plaintiff was always paid an average hourly wage well above $27.63, there is no dispute that the exemption’s $27.63 requirement is met. (Def.’s Br. in Support of Mot. for Partial Summ. J. 7–14.)
Plaintiff counters that the statute sets forth an hour-by-hour, rather than an averaging, approach, and thus computer employees must be paid at least $27.63 for each hour worked (hereinafter, “the hour-by-hour method”). Because Plaintiff was paid $0.00 for hours nine and ten while he was paid under the “Professional Day” structure, he argues that the exemption’s second requirement was not met and he was thus misclassified as exempt. (Pl.’s Br. in Opp’n to Mot. for Partial Summ. J. 9–12.)
Noting that the issue presented was one of first impression and susceptible to different interpretations, the court held:
With the above precepts in mind, and after examination of the statutory language, the Department of Labor regulations and the canons of construction applicable to FLSA exemptions, we conclude that an employee paid on an hourly basis may only be classified as exempt under 29 U.S.C. § 213(a)(17) if that employee is compensated at least $27.63 for each and every hour he or she works
The court reasoned that the language in the exemption was not intended to merely mimic that of the minimum wage portions of the FLSA, but rather should be construed narrowly, as any other exemption should be:
We initially find that the statutory language is susceptible to different interpretations. Neither the FLSA nor the implementing regulations set forth a formula for determining whether an employee has received “not less than $27.63 an hour,” and both parties have presented plausible interpretations of the provision. That said, it appears that a more exact reading of the language is that it requires an employer to pay the requisite sum for each and every hour worked. Indeed, the language of the provision in question specifically refers to compensation on an “hourly basis,” and is silent regarding the use of a weekly or averaging basis.
Defendant argues we should treat the $27.63 hourly rate as a minimum wage provision, and points to Dove v. Coupe, 759 F.2d 167, 171–72 (D.C.Cir.1985), a case which allowed a minimum wage requirement to be met by looking at the average of hours worked. While we have carefully considered Dove, we decline to follow its holding, in part because that case focused on minimum wage requirements while the issue before us is Defendant’s exempting Plaintiff from overtime compensation.
Defendant also posits that applying the workweek standard effectuates congressional intent. Defendant asserts that the averaging approach ensures that the purpose of the minimum wage—the protection of “certain groups of the population from sub-standard wages … due to … unequal bargaining power,” Dove, 759 F.2d at 171 (quoting Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 706, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (internal quotation marks omitted))—is met. Defendant further argues that the Department of Labor’s Wage & Hour Division has adopted the workweek as the period for determining whether an employee has received wages at a rate not less than the statutory minimum, and that this interpretation of the statute is entitled to deference. (Def.’s Br. in Support of Mot. for Partial Summ. J. 8–10.) Again, Defendant’s arguments focus on minimum wage theories not at issue here.
We agree with Plaintiff’s view that, based on the allegations raised in this case, the $27.63 requirement is not a minimum wage test, but rather a compensation test for applicability of the exemption pertaining to overtime. Plaintiff correctly stresses that Defendant’s argument fails to recognize that his claims are for unpaid overtime under § 207, not for unpaid minimum wages under § 206, and that there is a significant distinction between those provisions. Section 206 is directed at providing a minimum standard of living while § 207 is concerned with deterring long hours by making those hours more expensive for the employer. In light of these two separate provisions, we conclude that Defendant’s reliance on minimum wage arguments and case law is misplaced. The fact that § 213(a) refers to both §§ 206 and 207 does not mean, as Defendant urges, that the overtime provisions of § 207 can be conflated with minimum wage principles.
The parties also dispute which construction of § 213(a)(17) best effectuates the purpose of the FLSA. Because neither legislative history nor the regulations clarify whether the computer-employee exemption’s $27.63 requirement is to be calculated on a weekly or hourly basis, our determination must necessarily rest on a construction that “best accords with the overall purposes of the statute.” United States v. Introcaso, 506 F.3d 260, 267 (3d Cir.2007) (internal quotation marks omitted).
Plaintiff argues that the FLSA is remedial in nature, and thus should be construed liberally in favor of employees. He also notes that, in light of this remedial purpose, courts have consistently found that FLSA exemptions must be narrowly construed, that is, against the employer. (Pls.’ Br. in Opp’n to Mot. for Partial Summ. J. 9–10.) Defendant counters that, because the FLSA contains criminal penalties for violations of the minimum wage and overtime requirements, the rule of lenity dictates that a less harsh meaning should be applied in interpreting the computer-employee exemption. (Def.’s Br. in Support of Mot. for Partial Summ. J. 10–11.)
Courts are to apply the rule of lenity only if, “after considering text, structure, history, and purpose, there remains a ‘grievous ambiguity or uncertainty in the statute.’ ” Barber v. Thomas, 560 U.S. 474, 130 S.Ct. 2499, 2508–09, 177 L.Ed.2d 1 (2010) (quoting Muscarello v. United States, 524 U.S. 125, 139, 118 S.Ct. 1911, 141 L.Ed.2d 111 (1998)). In other words, the rule of lenity’s application is limited to instances in which a court “can make no more than a guess as to what Congress intended.” United States v. Wells, 519 U.S. 482, 499, 117 S.Ct. 921, 137 L.Ed.2d 107 (1997) (quoting Reno v. Koray, 515 U.S. 50, 65, 115 S.Ct. 2021, 132 L.Ed.2d 46 (1995) (internal quotation marks omitted)). That is not the case here.
While the relevant unit for determining compliance with the computer-employee exemption’s compensation requirement is less than clear, and appears to be a matter of first impression, the appropriate construction of FLSA exemptions is not. The United States Court of Appeals for the Third Circuit has held that the FLSA must be construed liberally in favor of employees, and that statutory exemptions should thus be construed narrowly. Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir.2008) (citing Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 296, 105 S.Ct. 1953, 85 L.Ed.2d 278 (1985), Barrentine v. Arkansas–Best Freight Sys., Inc., 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) and Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960)). Therefore, an employer seeking to apply an exemption to the FLSA must prove that the employee and/or employer comes ‘plainly and unmistakably’ within the exemption’s terms and spirit. Id. (quoting Arnold, 361 U.S. at 392) (emphasis omitted).
With the above canon of construction in mind, we conclude that the hour-by-hour approach advocated by Plaintiff best accords with the remedial nature of the FLSA. Exemptions are to be construed narrowly and their application must be established by the employer. Defendant has not persuaded us that the computer-employee exemption “plainly and unmistakably” applies. Nor has Defendant demonstrated that its proposed interpretation is required by the plain language of the provision, that the legislative history or regulations support its interpretation, or that the interpretation best accords with the purpose of the FLSA. Therefore, we find that, as a matter of law, the computer-employee exemption is applicable only where, assuming the primary duties test is met, an employee paid on an hourly basis receives compensation at a rate of $27.63 for each and every hour worked.
Applying this standard, we conclude that Plaintiff was misclassified as exempt under § 213(a)(17). Accordingly, we will deny Defendant’s motion for partial summary judgment with respect to this claim.
Click Jones v. Judge Technical Services, Inc. to read the entire Memorandum Opinion.
Courts Continue to Hold That Exotic Dancers Are Misclassified as Independent Contractors When Actually Employees; Entitled to Minimum Wage For All Hours Worked
If you are someone who follows the trends in wage and hour law, you are no doubt aware of the recent proliferation of cases in which exotic dancers or strippers have challenged the seemingly industry wide misclassification of their positions. Whereas adult entertainment clubs have classified their exotic dancers as independent contractors for many years, for almost the same duration of time, courts have held that such a classification is erroneous and that the dancers are actually “employees,” as defined by the Fair Labor Standards Act (FLSA). In the continuing cat and mouse game, clubs typically utilize the misclassification of independent contractor, reap the additional profits, and only change their classification of the position if and when they are called to task when same is challenged in a lawsuit—typically brought by a dancer no longer employed by the club. In the two decisions discussed below, two addition courts joined the overwhelming majority of courts to have opined on the issue—albeit with slightly different fact patterns—and held that exotic dancers are “employees” and not independent contractors, as the clubs had classified them.
In the first case, the court—in the District of Maryland—summarized the relevant facts as follows:
Defendant PP & G, Inc. is the owner and operator of Norma Jean’s Nite Club, a night club located in Baltimore that features semi-nude female dancers. Plaintiff Unique S. Butler worked at various times as an exotic dancer at Norma Jean’s until August 2012, when she alleges that she was terminated.
Defendant has always classified the dancers who perform at Norma Jean’s as independent contractors. Defendant asserts that the dancers are permitted to elect, in writing, to become either an employee or independent contractor. To date, no dancer, including Plaintiff, has elected to be classified as an employee.
There is no dispute that, during her time as an exotic dancer at Norma Jean’s, Plaintiff did not receive compensation in the form of hourly wages. Rather, the only compensation Plaintiff received for her work as an exotic dancer was from customer tips. Defendant contends that dancers were permitted to keep the entirety of their tips, save a non-mandatory, $45 cleaning or maintenance fee that they could pay to the club per shift. Following her separation from Norma Jean’s, Plaintiff filed the present lawsuit against PP & G, Inc., arguing that, because she was misclassified by Defendant as an independent contractor rather than an employee, Defendant illegally failed to pay her wages. She claims that, as an employee, she is entitled to back pay under the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), and the Maryland Wage Payment and Collection Law, Md.Code Ann., Lab. & Empl. §§ 3–501 et seq. (“MWPCL”). Defendant argues that Plaintiff elected to be an independent contractor, and thus was not entitled to wages under the FLSA and MWPCL.
After laying out the factors to be applied under the “economic reality” test, the court explained that the factors required a finding that the dancers were employees:
The ultimate question for the Court’s consideration is whether the dancers were, “as a matter of economic reality, dependent on the business they served, or, conversely, whether they were in business for themselves.” Schultz, 466 F.3d at 305.
With regard to the first factor, “degree of control,” the court discussed same specifically in regard to voluminous case law that has now developed regarding exotic dancers:
Courts considering the status of exotic dancers under the FLSA generally look not only to the guidelines set by the club regarding the entertainers’ performances and behavior, but also to the club’s control over the atmosphere and clientele. For example, in Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir.1993), the court determined that the club exerted significant control where the defendant set weekly work schedules, fined the dancers for absences and tardiness, set price levels for table dances and couch dances, set standards for costumes, and managed song selection, among other things. Id. at 327. Similarly, in Morse v. Mer Corp., the defendant exercised control by publishing “Entertainer Guidelines” that set minimum shift lengths, minimum charges, and behavioral prohibitions. No. 1:08–cv–1389–WTL–JMS, 2010 WL 2346334, at *3 (S.D. Ind. June 4, 2010). Additionally, although the court in Priba Corp. noted that the defendant exercised control over the entertainers by setting show times and establishing behavioral guidelines, it emphasized that “the real touchstone” of the control factor was the “reality of the employment relationship.” 890 F.Supp. at 592. Thus, the Priba court focused on the dancers’ dependence on the club for earnings, and the club’s control over advertising and atmosphere. Id.
Here, unlike in many of the cases involving exotic dancers, see, e.g., Hart v. Rick’s Cabaret Int’l, Inc., ––– F.Supp.2d ––––, 2013 WL 4822199, at *6 (S.D.N.Y.2013) (club exerted control where it had written behavioral guidelines, imposed fines, and imposed a dress code); Thompson v. Linda And A., Inc., 779 F.Supp.2d 139, 148 (D.D.C.2011) (significant control exercised where dancers were required to “sign in,” follow a schedule, were permitted to dance only for set durations, and the defendant enforced certain behavioral rules); Harrell v. Diamond A Entertainment, Inc., 992 F.Supp. 1343, 1349–50 (M.D.Fla.1997) (economic dependence found where the club set fees, had a “stage rotation,” controlled customer volume and atmosphere, and required dancers to abide by written rules and regulations), Defendant does not appear to manage the day-to-day aspects of the dancers’ performance. Defendant does not create work schedules for the dancers, but rather permits them to work at other clubs and to “come and go as they please.” Walter Alexander Robinson, III Dep. 45:15–21, 79:1–4, Aug. 9, 2013. Defendant did not mandate that Plaintiff dress or dance a certain way, did not limit the amount of lap dances she could perform, and did not limit the number of beverages a customer could purchase for her. Unique S. Butler Dep. 40:1–10, Aug. 9, 2013. The only behavioral guidelines that Defendant required Plaintiff to follow were those set by the Maryland State Liquor Board and the adult entertainment laws. Robinson Dep. 51:1–14.
Defendant asserts that the only fee imposed on the Plaintiff was a non-mandatory $45 cleaning or maintenance fee. Id. at 71:10–14. Although Defendant recommends a minimum fee for lap dances, the manager testified that each dancer can set her own fee. Id. at 55:13–56:4. Plaintiff asserts that Defendant also imposed a “late fee,” mandated that she pay the DJ prior to getting on stage, and required her to tip the house mom. Butler Dep. 20:9–13, 31:14–32:9. Plaintiff also stated that Defendant required her to dance at particular times. Id. at 19:11–19. Further, she testified that, if dancers were sanctioned for any matter, they were instructed to work the day shift as punishment. Id. at 32:6–15.
It is undisputed, however, that the Defendant alone is responsible for advertising and creating the atmosphere of the club. Robinson Dep. 30:16–20 (“Q [:] The Defendant is responsible for the advertising, location, business hours, maintenance of facility, aesthetics, and inventory of beverages and food? A [:] Yes. There’s no food.”); 33:6–12 (“Q[:] Okay. The Plaintiff’s employment with Defendant was dependent on Defendant’s financial savvy and business know-how to keep Defendant’s business financially sound so as to keep the doors open and afford Plaintiff the opportunity to work at Norma Jean’s Nightclub? A [:] Yes.”). Like in Priba Corp., the visibility and quality of the club itself “dictates the flow of customers into the club.” 890 F.Supp. at 592. Plaintiff is thus entirely dependent on the Defendant to provide her with customers, and her economic status “is inextricably linked to those conditions over which [Defendant has] complete control.” Id.
Thus, although viewing the facts in the light most favorable to the Defendant suggests that Defendant does not exercise control over the day-to-day decisions and work of its dancers, it exercises significant control over the atmosphere, clientele, and operation of the club. Thus, this factor likely tips in favor of economic dependence, as Defendant exclusively controls the flow of customers, on which Plaintiff depended for her income.
Applying the second factor, “opportunity for profit or loss,” the court held that same supported a finding of employment, based on the defendant’s acknowledgement that plaintiff did not share in the profits or losses of the club. The court similarly held that plaintiff made virtually no investment in equipment or material, the third factor considered, and the little or no skill was required for her job (the fourth factor).
While the court acknowledged that the fifth factor, “permanence of the working relationship was not as clear, it nonetheless concluded that, the mere fact that the plaintiff was free to come and go as she pleased and work at other clubs, did not belie classification as an employee:
As to the permanence and duration of the working relationship, Plaintiff was generally permitted to work without a specified end date and could come and go as she pleased. Robinson Dep. 45:15–21, 79:1–4. Additionally, she was free to work at other adult entertainment clubs. This factor tends to weigh in favor of independent contractor status. As other courts have noted in considering this factor, however, “it is entitled to only modest weight in assessing employee status under the FLSA.” Hart, ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14; see also Priba Corp., 890 F.Supp. at 593 (“Because dancers tend to be itinerant, the court must focus on the nature of their dependence.”). As the District Court for the Southern District of New York recently noted in regard to a similar challenge, “[t]hat dancers were free to work at other clubs or in other lines of work, and that they were not permanent employees, do[es] not distinguish them from countless workers in other areas of endeavor who are undeniably employees under the FLSA-for example, waiters, ushers, and bartenders.” Hart, ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14.
Finally, the court dismissed the defendant’s argument that plaintiff’s services were not of an “integral nature” to its business operations:
It is undisputed that Defendant maintains an adult entertainment business at Norma Jean’s Nite Club. Defendant asserts that, although the club features dancers, dancers are not integral to the operation of the business. Rather, Defendant characterizes Norma Jean’s as “a sports bar” with pool tables, and contends that dancers constitute but one of the features. Robinson Dep. 19:5–10, 31:2–7. Defendant states that it makes all of its profits off of the sale of alcoholic beverages, not the exotic dancers.
Courts have routinely noted that the presence of exotic dancers are “essential,” or “obviously very important,” to the success of a topless nightclub. See, e.g., Harrell, 922 F.Supp. at 1352; Martin v. Circle C. Invs., Inc., No. MO–91–CA–43, 1991 WL 338239, at *4 (W.D.Tex. Mar. 27, 1991). For example, the court in Hart stated, in considering the club owners’ argument that “the Club’s restaurant, bar, and televisions served to attract customers,” that “[n]o reasonable jury could conclude that exotic dancers were not integral to the success of a club that marketed itself as a club for exotic dancers.” ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14.
Here, any contention that the exotic dancers were not integral to the operation of Norma Jean’s flies in the face of logic. The presence of the exotic dancers was clearly a major attraction of the club, and increased significantly the sales of alcoholic beverages and, accordingly, the profits earned by PP & G. Further, unlike the club in Hart, Norma Jean’s does not serve food or have a restaurant. Rather, the only attractions, aside from exotic dancers, are televisions and pool tables. Because no reasonable jury could determine that exotic dancers were not integral to the success of Norma Jean’s, this factor also tips in favor of employee status.
Holding that all factors together supported an employment relationship the court concluded:
Considering the preceding factors in conjunction, and resolving all disputes of fact in favor of the Defendant, the Court concludes that Plaintiff was an employee, not an independent contractor, at Norma Jean’s Nite Club. Although Defendant asserts that Plaintiff elected to become an independent contractor, neither the label placed on an employment relationship, nor an individual’s subjective belief about her employment status, are dispositive. See, e.g., Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326, 1329 (N.D.Ga.2011). Defendant controlled the economic opportunity of the Plaintiff. Plaintiff did not have the opportunity for profit or loss, did not invest in the club, and did not have any specialized skills. Moreover, work of the type performed by Plaintiff as an exotic dancer is integral to the operation of the club. Regardless of the Defendant’s characterization of the relationship as that of an independent contractor, “[w]here the work done, in its essence, follows the usual path of an employee, putting on an ‘independent contractor’ label does not take the worker from the protection of the [Fair Labor Standards] Act.” Rutherford, 331 U.S. at 729.
Click Butler v. PP & G, Inc. to read the entire Memorandum opinion.
In a second recent opinion, on very similar facts, a court within the Northern District of Georgia reached the same conclusion. Applying the same “economic reality” test to the facts before it, the court explained:
To begin, this is not a matter of first impression for this Court. In Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326 (N.D.Ga.2011), this Court found that adult entertainers-working under conditions similar to the Plaintiffs in this action-were “employees” protected by the FLSA. Many other courts have reached the same conclusion. See Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir.1993); Reich v. Priba Corp., 890 F.Supp. 586 (N.D.Tex.1995); Harrell v. Diamond A Entertainment, Inc., 992 F.Supp. 1343 (M.D.Fla.1997); Morse v. Mer Corp., 1:08–CV–1389–WTL–JMS, 2010 WL 2346334 (S.D. Ind. June 4, 2010); Hart v. Rick’s Cabaret Intern., Inc., No. 09 Civ. 3043, 2013 WL 4822199 (S.D.N.Y. Sept. 10, 2013).
Here, five out of the six factors support finding “employee” status. First, Pin Ups exercised a significant amount of control over the Plaintiffs. The Plaintiffs were issued a document titled “General Policies and Procedures.” (Pls.’ Statement of Facts ¶ 59.) These rules laid out standards for appropriate dress5 and how the entertainers were to conduct themselves on stage. (Id., Ex. 4.) They also stipulated that the DJ would ultimately select the music that the entertainers would perform to. (Id.) These rules applied not only to how the Plaintiffs conducted themselves on the main stage, but also to how they conducted themselves in the VIP room. (Id.) Further, these rules were enforced. Violations could result in dismissal. (Id. ¶¶ 16–17.) The “house moms” made sure that the Plaintiffs complied with the appearance standards. (Id. ¶ 23.) If there was a dispute regarding proper dress, the manager would make the final call. (Id. 43.) In addition to these regulations, the Plaintiffs were required to pay several fees. Upon arriving for a shift, they had to pay a house fee. (Id. ¶¶ 31–32.) They also paid fees that went to the house mom and the DJ. (Id. ¶¶ 22, 24.) Moreover, Pin Ups was responsible for settling disputes arising within the club. For example, disputes concerning the entertainer tip pool were resolved by the house mom and the manager. (Id. ¶ 49.) Pin Ups also handled disputes between the Plaintiffs and the customers. (Id. ¶ 18.) The Defendants argue that the entertainers could set their own schedules. But this was true in several cases where courts found that the entertainers were nonetheless employees. See, e.g., Priba Corp., 890 F.Supp. at 591; Harrell, 992 F.Supp. at 1348. Control over scheduling is minimal compared to all of the elements of the job that Pin Ups controlled. See Usery, 527 F.2d at 1312 (“Each operator is given the right to set her own hours … [i]n the total context of the relationship … the right to set hours [does not indicate] such lack of control by [the defendant] as would show these operators are independent from it …. [c]ontrol is only significant when it shows an individual … stands as a separate economic entity.”). Here, “the entertainer’s economic status is inextricably linked to those conditions over which defendants have complete control.” Priba Corp., 890 F.Supp. at 592.
Second, the Plaintiffs and Pin Ups did not share equally in the opportunities for profit and loss. Although the Plaintiffs risked a loss equal to the fees they paid-assuming they made nothing in tips-“The risk of loss [was] much greater for the Club.” Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326, 1346 (N.D.Ga.2011). It bore the vast majority of overhead costs. Pin Ups also had more of an impact on potential profits. It was “primarily responsible for attracting customers to the Club, as decisions about marketing and promotions for the Club, its location, its maintenance, aesthetics, and atmosphere, and food and alcohol availability and pricing are made by” Pin Ups. Id. The Defendants argue that the entertainers could earn more profit based on their interactions with the customers. (Defs.’ Resp. to Mot. for Summ. J., at 17–18.) This argument was rejected in Clincy. See Clincy, 808 F.Supp.2d at 1345–46. The Plaintiffs’ control over profits was minor compared to Pin Ups’. “[B]ut for defendants’ provision of the lavish work environment, the entertainers at the club likely would earn nothing.” Priba Corp., 890 F.Supp. at 593.
Third, Pin Ups invested far more than the Plaintiffs on necessary personnel and equipment. It provided bartenders, waitresses, cashiers, security staff, and disc jockeys. (Pls.’ Statement of Facts ¶¶ 12–13, 70.) Pin Ups also provided the facility, the stages, and the poles. (Id. ¶ 71.) As other courts have noted, the amount spent on clothing, hair styling, and make-up “is minor when compared to the club’s investment.” Harrell, 992 F.Supp. at 1350; see also Reich, 998 F.2d at 328 (“A dancer’s investment in costumes and a padlock is relatively minor to the considerable investment Circle C has in operating a nightclub.”). Many employees in many different fields are also financially responsible for maintaining an appearance suitable to their respective work environments.
Fourth, little skill is required. Pin Ups does not require that its entertainers undergo formal training. (Id. ¶ 73.) The Defendants argue that the entertainers get better as they gain experience. Although different entertainers may possess varying degrees of skill, there is no indication that a high degree of skill or experience is necessary. Taking your clothes off on a nightclub stage and dancing provocatively are not the kinds of special skills that suggest independent contractor status. See Priba Corp., 890 F.Supp. at 593 (“The scope of her initiative is restricted to decisions involving what clothes to wear or how provocatively to dance. Such limited initiative is more consistent with the status of an employee than an independent contractor.”).
Fifth, and most definitively, the Plaintiffs’ services were an integral part of Pin Ups’ business. Pin Ups is an adult entertainment club and so it needs adult entertainers. Kelly Campbell, the general manager of Pin Ups, acknowledged this. (Campbell Dep. at 20.) (“Because we are an entertainment facility and we could not be such without an entertainer.”). Pin Ups’ General Policies and Procedures issued to the entertainers states: “Your job as an entertainer is the most important one in our organization.” (Pls.’ Statement of Facts, Ex. 4.)
The court did recognize that the final factor did not necessarily weigh in favor of an employment relationship, but—citing some of the identical language as the Butler court had—it held that same was not terribly important in its inquiry:
Only the duration factor supports the Defendants’ position. There is no indication that all of the Plaintiffs worked at Pin Ups for an extended period of time, and all of the Plaintiffs were permitted to work as entertainers at other clubs. However, “[t]hat dancers were free to work at other clubs or in other lines of work, and that they were not permanent employees, do not distinguish them from countless workers in other areas of endeavor who are undeniably employees under the FLSA-for example, waiters, ushers, and bartenders.” Hart, 2013 WL 4822199, at *14. In light of the other factors, this alone cannot nudge the Plaintiffs out of the protective sphere of the FLSA.7 See Reich, 998 F.2d at 328–29 (“The transient nature of the work force is not enough here to remove the dancers from the protections of the FLSA. In analyzing the … factors, we must not lose sight of economic reality.”).
Click Stevenson v. Great American Dream, Inc. to read the complete Opinion and Order.
S.D.N.Y.: Existence of Arbitration Agreements for Some (Not All) Employees in Putative Class, Irrelevant re “Similarly Situated” Inquiry at Stage I
This case was before the court on plaintiff’s motion for conditional certification. The case concerned allegations of impermissible tip credit, inadequate notice of same (under 203(m)), and other allegations of unpaid minimum wages. As further discussed here, defendants largely focused their attack on their twin contentions that the class proposed by plaintiff was not similarly situated to him and/or was too broad, because it contained English speakers (the plaintiff did not speak English) and employees and former employees who had signed arbitration agreements (the plaintiff did not). The court rejected both of these contentions, and reasoned that neither of these factors were appropriately considered at Stage I, the conditional certification stage.
Rejecting the defendant’s arguments in this regard, and holding that such issues were more properly reserved for Stage II or decertification analysis, the court reasoned:
The Court disagrees with defendants’ arguments. Case law imposes only a very limited burden on plaintiffs for purposes of proceeding as a conditional collective action. “[C]ourts have conditionally certified collective actions under the FLSA where plaintiffs, based on their firsthand observations, identify an approximate class of similarly situated individuals.” Hernandez v. Immortal Rise, Inc ., 2012 WL 4369746, at *4 (E.D.N.Y. Sept. 24, 2012). Here, Romero has done just that, stating in his declaration that he “personally observed … Defendants’ policy to pay below the statutory minimum wage rate to all tipped employees,” that he and other tipped employees were compensated “all at rates below the minimum wage,” that he has never seen a tipped employee “receive proper notice explaining what a tip credit is,” that he and other tipped employees had to spend more than 20% of their daily time in non-tipped related activities, that he observed defendants engaging in time-shaving, that he observed when employees were sent home without call-in pay if the restaurant was not busy, and that he “personally observed that all non-exempt employees received the same form of wage and hour notice.” Romero Decl. ¶¶ 2–9. The affidavit of a plaintiff attesting to the existence of similarly situated plaintiffs is sufficient for the purposes of a motion to approve a collective action. See Cheng Chung Liang v. J.C. Broadway Restaurant, Inc., 2013 WL 2284882, at *2–3 (S.D.N.Y. May 23, 2013) (“For the purposes of this motion, … plaintiffs’ evidence—in the form of [one employee’s] affidavit—is sufficient to establish that … there may be class members with whom he is similarly situated.”). Thus, Romero has made a sufficient showing that he and potential plaintiffs “were victims of a common policy or plan that violated the law.” Hoffman, 982 F.Supp. at 261.
Defendants’ principal argument is that because other employees signed arbitration agreements, Romero is not similarly situated to these other employees. Def. Mem. at 6–14. Defendants assert that the claims here are “properly pursued solely in arbitration, on an individual basis, by all of Ruhlmann’s employees who signed such an agreement” and therefore that “Ruhlmann’s employees are dissimilar from Plaintiff Romero and must pursue any claims they may have in an arbitral forum rather than federal court.” Def. Mem. at 8–9. Romero challenges both the enforceability and the validity of these arbitration agreements. He argues that the agreements are not enforceable because they violate the fee-shifting provision of the FLSA. Reply at 6–7. Romero also argues that defendants caused several of these agreements to be signed by coercion, that it is highly likely that several employees did not actually sign arbitration agreements, and that the validity of the signatures on several agreements are questionable. Reply at 7–9; Pl. May 31 Letter at 2. Additionally, he asserts that the agreements are unenforceable because they limit the statute of limitations on employees’ claims to six months and because they were not provided to employees in their native language. Pl. Aug. 20 Letter at 2–3.
As already noted, the question on a motion to proceed as a collective action is whether the proposed plaintiffs are similarly situated “with respect to their allegations that the law has been violated.” Young, 229 F.R.D. at 54; accord Meyers, 624 F.3d at 555 (in conditional collective action approval, question is whether the proposed plaintiffs are similarly situated to the named plaintiffs “with respect to whether a FLSA violation has occurred”). The arbitration agreements do not create any differences between Romero and the proposed plaintiffs with respect to Romero’s claims that defendants have violated the FLSA. That is, the validity vel non of the agreements is unrelated to any claims of a violation of the FLSA. Under this reasoning, the existence of differences between potential plaintiffs as to the arbitrability of their claims should not act as a bar to the collective action analysis. Indeed, courts have consistently held that the existence of arbitration agreements is “irrelevant” to collective action approval “because it raises a merits-based determination.” D’Antuono v. C & G of Groton, Inc., 2011 WL 5878045, at *4 (D.Conn. Nov. 23, 2011) (citing cases); accord Hernandez, 2012 WL 4369746, at *5;Salomon v. Adderly Indus., Inc., 847 F.Supp.2d 561, 565 (S.D.N.Y.2012) (“The relevant issue here, however, is not whether Plaintiffs and [potential opt-in plaintiffs] were identical in all respects, but rather whether they were subjected to a common policy to deprive them of overtime pay ….”) (alteration in original) (internal citation and quotation marks omitted).
In support of its argument that the existence of arbitration agreements merits denial of collective action approval, defendants make arguments about the eventual enforceability of the arbitration agreements and rely on cases in which courts granted motions to dismiss and compel arbitration because of such agreements. See Def. Mem. at 6–7. Critically, defendants do not even address the cases holding that consideration of the validity of arbitration agreements is inappropriate in the context of a motion to approval an FLSA collective action. The situation here is thus akin to the situation in Raniere v. Citigroup Inc., 827 F.Supp.2d 294 (S.D .N.Y.2011), rev’d on other grounds, 2013 WL 4046278 (2d Cir.2013), in which the court remarked:
Defendants have failed to cite a single authority finding that due to the possibility that members of the collective [action] might be compelled to bring their claims in an arbitral forum, certification is not appropriate. Such arguments are best suited to the second certification stage, where, on a fuller record, the court will examine whether the plaintiffs and opt-ins are in fact similarly situated.
Id. at 324.
Defendants’ strongest argument is that “[i]t would be a waste of judicial and party resource to force defendants” to send notice to individuals ultimately bound to arbitrate claims. Def. June 4 Letter at 3. But the notice requirement is not unduly burdensome in this case and the defendants’ proposal essentially amounts to an invitation for the Court to adjudicate the validity of the arbitration agreements. But, as already noted, case law makes clear that this sort of merits-based determination should not take place at the first stage of the conditional collective action approval process. Plaintiff has raised at least colorable arguments to support the invalidity or unenforceability of the arbitration agreements, some of which are fact-intensive. Case law holds, however, that issues of fact surrounding arbitration agreements are properly resolved at the second stage of the two-step inquiry. D’Antuono, 2011 WL 5878045, at *5; accord Salomon, 847 F.Supp.2d at 565 (“[A] fact-intensive inquiry is inappropriate at the notice stage, as Plaintiffs are seeking only conditional certification.”) (citing cases); Ali v. Sugarland Petroleum, 2009 WL 5173508, at *4 (S.D.Tex. Dec. 22, 2009) (“The Court will make the determination [of whether to exclude those who signed arbitration agreement from the class] at the conclusion of discovery, when it may properly analyze the validity of the arbitration agreement.”). Defendants not only fail to distinguish these cases, they do not even proffer any argument as to why the reasoning of these cases is wrong.
Defendants have submitted evidence contradicting Romero’s claim that he is similarly situated to other employees with respect to other aspects of his claims, such as his understanding of the tip credit. See Collin Decl. ¶ 9. However, “the two-stage certification process exists to help develop the factual record, not put an end to an action on an incomplete one.” Griffith v. Fordham Fin. Mgmt., Inc., 2013 WL 2247791, at *3 (S.D.N.Y. May 22, 2013) (granting collective action approval where defendant had put forth “contravening evidence”) (emphasis omitted) (internal citations and quotation marks omitted). For these reasons, Romero’s motion for conditional approval of a collective action is granted.
Click Romero v La Revise Associates, L.L.C. to read the court’s entire Opinion & Order.
In an announcement that has long been awaited by workers advocates and those in the home health industry as well, today the United States Department of Labor (DOL) announced a final rule, to go into effect on January 1, 2015, which extends the FLSA’s minimum wage and overtime protections to home health aides that perform typical CNA tasks in the homes of the aged and infirm. In an email blast, the DOL reported:
The U.S. Department of Labor’s Wage and Hour Division announced a final rule today extending the Fair Labor Standards Act’s minimum wage and overtime protections to most of the nation’s direct care workers who provide essential home care assistance to elderly people and people with illnesses, injuries, or disabilities. This change, effective January 1, 2015, ensures that nearly two million workers – such as home health aides, personal care aides, and certified nursing assistants – will have the same basic protections already provided to most U.S. workers. It will help ensure that individuals and families who rely on the assistance of direct care workers have access to consistent and high quality care from a stable and increasingly professional workforce.
Among other things, the final rule overrules the 2007 holding of the Supreme Court in Long Island Care at Home, Ltd. v. Coke, and requires 3rd party employers such as staffing agencies to pay companions and home health workers overtime under the FLSA when they work in excess of 40 hours per week.
The New York Times provides a pretty good synopsis of the changes to the Companionship Exemption, provided by the final rule:
Under the new rule, any home care aides hired through home care companies or other third-party agencies cannot be exempt from minimum wage and overtime coverage. The exemptions for aides who mainly provide “companionship services” — defined as fellowship and protection for an elderly person or person with an illness, injury or disability who requires assistance — are limited to the individual, family or household using the services.
If an aide or companion provides “care” that exceeds 20 percent of the total hours she works each week, then the worker is to receive minimum wage and overtime protections.
The new rule defines care as assisting with the activities of daily living, like dressing, grooming, feeding or bathing, and assisting with “instrumental activities of daily living,” like meal preparation, driving, light housework, managing finances and assisting with the physical taking of medications.
The companionship exemption will not apply if the aide or companion provides medically related services that are typically performed by trained personnel, like nurses or certified nursing assistants.
Live-in domestic service workers who reside in the employer’s home and are employed by an individual, family or household are exempt from overtime pay, although they must be paid at least the federal minimum wage for all hours worked.
S.D.Tex.: Defendant (Group Home) May Not Exclude Sleep Time Where Plaintiff Was Not On Premises for “Extended Periods of Time”
Boman v. All The Little Things Count, L.L.C.
This case was before the court on plaintiff’s motion for summary judgment. As discussed here, plaintiff asserted that the defendants—a group home and it’s individual owner—were not entitled to exclude any time within plaintiff’s scheduled shifts, because plaintiff did not reside on defendants’ premises for an “extended period of time” as defined by the C.F.R. regulations applicable to the situation. Analyzing the applicable regulations and 2 DOL opinion letters, the court concluded that the plaintiff was correct and granted her motion for summary judgment—holding that defendants improperly excluded eight hours per shift, because same were compensable under the FLSA.
Describing the issue before it the court explained:
Plaintiff Lori Boman works as a supervised living provider at a residential group home operated by Defendants All The Little Things Count, L.L.C. and Sandra Graves. She filed this case under the Fair Labor Standards Act (“FLSA”), seeking to be paid for the time she is required to be at the group home, but during which she may sleep. Defendants do not pay Boman for her designated sleep time, even when she has to wake up in the middle of the night to handle an incident. The parties agree on the facts concerning Boman’s weekly work schedule and designated sleep times, but dispute how Department of Labor (“DOL”) regulations apply to those undisputed facts.
Per the stipulated facts:
[Plaintiff] begins work at 3:00 p.m. for four consecutive days, Monday through Thursday, and leaves at 9:00 a.m. the next morning, so that she finishes the work week on Friday. The hours on these shifts between 11:00 p.m. and 7:00 a.m. are deemed unpaid sleep time. During these sleep-time hours, Boman is required to stay on the premises and assist the clients as needed through the night. Defendant provides Boman with her own sleeping quarters to use during the overnight hours, which consist of a sleeping area, a sitting area, a dresser, a nightstand, a small couch, a desk, and a television. According to Boman, her supervisor told her not to record the instances in which her sleep was interrupted during the night to assist residents, interruptions that could last from ten minutes to over an hour.
After a brief discussion of the general rule pertaining to when sleep time is deemed compensable work under the FLSA, the court examined the more specific regulation pertaining to the facts at issue in the case:
Defendants contend that they do not have to pay Boman for her sleep time because she resides at the facility for an “extended period of time” within the meaning of section 785.23. The DOL has issued two interpretations defining what constitutes an extended period of time in the group home industry. The first, a 1981 DOL Opinion Letter, states the following:
[W]here employees are on duty for less than 120 hours in a week, they can be considered as residing on the employer’s premises, provided that they spend five consecutive days or five consecutive nights on the premises. This rule can best be illustrated by concrete examples….
Employees who are on duty from 9 a.m. Monday until 5 p.m. Friday would also be considered to reside on the employer’s premises. Even though on duty for less than 120 hours, they are on duty for five consecutive days (Monday through Friday). The fact that they sleep over only four nights does not matter. Similarly, employees who are on duty from 9 p.m. Monday until 9 a.m. Saturday would also be considered to reside on their employer’s premises since they are on duty for five consecutive nights (Monday night through Friday night).
Opinion Letter Fair Labor Standards Act (FLSA), WH–505, 1981 WL 179033 (Dep’t of Labor Feb. 3, 1981). Defendants contend that Boman’s work schedule satisfies this Opinion Letter’s “five consecutive days” standard because, excluding the sleep time, she is on duty from 3:00 p.m. until 11:00 p.m. on Monday through Thursday, and then from 7:00 a.m. until 9:00 a.m. on Friday. A full reading of the 1981 Opinion Letter, however, casts doubt on whether a single shift that starts on Thursday but carries into Friday would count as two “consecutive days.”
But the Court need not decide the outcome of this case under the 1981 Opinion Letter, because the DOL provided further guidance in 1988 that speaks directly to this question. The 1988 Wage and Hour Memorandum provided “further clarification and guidance as to the conditions under which” the DOL’s Wage and Hour Division “will not require that sleep time [of group home employees] be compensated.” Wage and Hour Memorandum 88.48, 1988 WL 614199 (Dep’t of Labor June 30, 1988). This Memorandum cites the 1981 Opinion Letter and “refine[s] and restat[es] the minimum conditions required” to constitute an “extended period of time”:
An employee will be found to reside on the premises for extended periods of time if:
(1) The employee is on duty at the group home and is compensated for at least eight hours in each of five consecutive 24–hour periods; and
(2) The employee sleeps on the premises for all sleep periods between the beginning and end of this 120–hour period.
Applying 785.23, based upon the above-referenced opinion letters, the court reasoned:
Boman’s schedule does not satisfy the first requirement because she is not “on duty [and] compensated for at least eight hours in each of five consecutive 24–hour periods.” Id. The 24–hour period starts when she reports for duty on Monday at 3:00 p.m. She is compensated for at least eight hours in the first period through 3:00 p.m. Tuesday; at least 8 hours in the second period through 3:00 p.m. Wednesday; at least 8 hours in the third period through 3:00 p.m. Thursday; and at least 8 hours in the fourth period through 3:00 p.m. Friday. But she does not work after that fourth period, and thus is not considered to reside at the group home for an extended period. See Nelson v. Ala. Inst. for Deaf and Blind, 896 F.Supp. 1108, 1112 (N.D.Ala.1995) (holding that plaintiffs did not reside at their employer’s premises for an extended period in part because they did not work “for at least 8 hours in each of five consecutive 24–hour periods”). The examples provided in the 1988 Memorandum further support this determination. See 1988 Memorandum, 1988 WL 614199 (explaining that “an employee who is on duty and is compensated from 6:00 a.m. to 9:00 a.m. and 5:00 p.m. to 10:00 p.m., Monday through Friday, and who sleeps Monday through Thursday nights on the premises, would be considered to reside on the premises for extended periods of time”). The DOL’s 1988 interpretation of its sleep-time regulations therefore demonstrates that Boman was not staying at the group home for a period of time lengthy enough to be considered “extended,” in which the employer’s premises becomes a kind of second home where the employee enjoys considerable “freedom.” 29 C.F.R. § 785.23.
Defendants do not dispute this calculation but instead argue that the 1988 interpretation applies only to “relief workers” and not full-time employees like Boman. Although the 1988 Memorandum does discuss relief workers, even a cursory reading demonstrates that the “five consecutive 24–hour period” requirement applies to full-time employees. The Memorandum begins by addressing the DOL’s policy of “allow[ing] ‘relief’ employees who are provided with private quarters in a home-like environment to be treated the same as ‘fulltime’ employees (i.e. those who either reside on the employer’s premises permanently or for ‘extended periods of time’).” Id. But, the DOL explains, “[a]n essential requirement for this special [relief] position is that a group home have one or more full-time employees who either reside on the premises permanently or ‘for extended periods of time.’ ” So the Memorandum turns to that prerequisite and focuses on when full-time employees are considered to reside “for extended periods.” Id. Indeed, the next sentence cites the 1981 Opinion Letter Defendants rely on, and explains that “it has become clear that further guidance is necessary for employers and employees in the industry.” Id.
If doubt somehow remains about whether the 1988 Memorandum is clarifying the 1981 Opinion Letter on when full-time employees reside for an extended period, the DOL reiterates that “these employees are called ‘full-time’ employees” after citing examples of how the “five consecutive 24–hour period” standard works. Id .; see also id. (further explaining that the Memorandum is talking about requirements for “deduct[ing] sleep time for full-time and relief employees”). And numerous courts have applied the 1988 Memorandum to full-time employees. See, e.g., Nelson, 896 F.Supp. at 1112–13 (relying on the 1988 guidance in deciding whether “non-relief employees” resided on the employer’s premises for an extended period); Lott, 746 F.Supp. at 1085, 1089 (citing the 1988 Memorandum “as defining under what circumstances an employee must be compensated for sleep time” in case involving plaintiffs who worked full time at public group home); Shannon v. Pleasant Valley Cmty. Living Arrangements, Inc., 82 F.Supp.2d 426, 432–33 (W.D.Pa.2000) (examining the 1988 Memorandum in determining whether the parties’ agreement concerning sleep-time compensation was reasonable). Indeed, the 1988 Memorandum’s clarification of the “extended period of time” requirement so plainly refers to full-time employees that the Court has given this defense argument more attention than it deserves.
As such, the court granted plaintiff’s motion and held that FLSA requires compensation for Boman’s time spent at the facility from 11:00 p.m. to 7:00 a.m.
Click Boman v. All The Little Things Count, L.L.C. to read the entire Memorandum and Order.
Rother v. Lupenko
As with many concepts in the law, many practitioners know something to be true, but they are not exactly sure why or what the authority for the position is. Such seems to be true with regard to the notion that an employer’s failure to tender an employee’s paycheck on the regular payday, constitutes a minimum wage violation. For anyone who is ever faced with this issue, a recent decision from the Ninth Circuit provides clear authority for this position. After a jury verdict in the plaintiff’s favor, all parties appealed various parts of the final judgment. As discussed here, the plaintiff appealed the District Court’s Order granting the defendants summary judgment on her late last paycheck (minimum wage) claim. The Ninth Circuit reversed the decision and held that the defendants failure to tender the plaintiff’s final paycheck on the normal payday was a minimum wage violation under the FLSA.
Briefly discussing the issue, the court reasoned:
Although there is no provision in the FLSA that explicitly requires an employer to pay its employees in a timely fashion, this Circuit has read one into the Act. Biggs v. Wilson, 1 F.3d 1537, 1541 (9th Cir.1993). In Biggs, we held that payment must be made on payday, and that a late payment immediately becomes a violation equivalent to non-payment. Id. at 1540. “After [payday], the minimum wage is ‘unpaid.’ ” Id. at 1544. The district court misread Biggs. For purposes of the FLSA, there is no distinction between late payment violations and minimum wage violations: late payment is a minimum wage violation. See id. Accordingly, we reverse the district court’s entry of summary judgment for Defendants on Plaintiffs’ federal minimum wage claim.
Click Rother v. Lupenko to read the entire Memorandum Opinion.
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.
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.
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