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M.D.Fla.: Plaintiffs Entitled to Irrebuttable Presumption That Their Damage Calculations Are Correct Where Defendant Spoliated Payroll Records
Sec’y of Labor v. Caring First, Inc.
This case was before the court on the plaintiffs’ motion for sanctions. Specifically, plaintiffs sought sanctions as a result of the defendant-employers intentional destruction of the relevant payroll records pertaining to plaintiffs’ employment. While the court denied plaintiffs’ motion to the extent that it sought a default judgment, the court ordered that—to the extent plaintiffs prevailed on liability at trial—their calculation based on payroll records available from a third-party would be deemed irrebuttably correct, subject to the court’s approval.
The court provided the following history of the defendants’ egregious discovery misconduct:
This case arises under the Fair Labor Standards Act of 1938 (“FLSA“), as amended, 29 U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On December 3, 2015, this Court entered a scheduling order directing the parties to exchange all documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1). Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at 1-2). After a hearing on the matter, this Court found that sanctions were warranted against Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held the sanctions in abeyance so long as Defendants produced all relevant documents in their possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1-3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by the Department of Labor (“Department”). (Id. at 12-13). Additionally, Plaintiff asserted that since May 2015, an administrative employee had been deleting payroll records on a weekly basis by writing [*3] over them at the end of each work week. (Id. at 15-16). Defendants acknowledged that an employee was writing over the payroll week-to-week but claimed that the records prior to May 2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22, 2016, this Court entered an order denying the motion for sanctions because there was a factual dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6-7, 9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to “immediately halt the destruction of any Current Payroll Records” and produce all payroll records to Plaintiff on a bi-weekly basis. (Id. at 10). Now, Plaintiff again seeks sanctions against Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C. § 1927, and this Court’s inherent authority.
Following a discussion of the relevant standards for sanctions under Fed. R. Civ. Proc. 37, the court determined that the appropriate “punishment to fit the crime” in this case was to order that plaintiffs’ damages calculations would be subject to an irrebuttable presumption of correctness. Specifically, the court explained that plaintiffs could not show the extreme prejudice to warrant a default judgment, because they were apparently ultimately able to obtain the payroll records at issue from defendants third-party payroll company, notwithstanding defendants’ destruction of the copies in defendants’ possession.
Thus, the court held:
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be irrebuttably presumed to be correct, subject to Court approval.
This is definitely a case for all wage and hour practitioners to hold on to, because the circumstances of this case are unfortunately far from unique.
Click Sec’y of Labor v. Caring First, Inc. to read the entire Opinion of the court.
U.S.S.C.: Time Spent By Employees Waiting For and Undergoing Security Screenings Before Leaving Workplace Was Not Compensable Under FLSA
Integrity Staffing Solutions, Inc. v. Busk
The Supreme Court handed yet another victory to America’s corporations early last month, when it ruled that employers do not have to pay their employees for time spent waiting for and undergoing security screening before leaving the workplace, despite the fact that such screenings are solely for the benefit of the employers. Of note, while the decision reversed a contrary decision from the Ninth Circuit, other Circuits and the DOL itself (which filed an amicus brief in support of employers) have long held that such screenings do not constitute compensable work time.
The Court summarized its decision in its Syllabus, preceding the actual opinion as follows:
Petitioner Integrity Staffing Solutions, Inc., required its hourly warehouse workers, who retrieved products from warehouse shelves and packaged them for delivery to Amazon.com customers, to undergo a security screening before leaving the warehouse each day. Respondents, former employees, sued the company alleging, as relevant here, that they were entitled to compensation under the Fair Labor Standards Act of 1938 (FLSA) for the roughly 25 minutes each day that they spent waiting to undergo and undergoing those screenings. They also alleged that the company could have reduced that time to a de minimis amount by adding screeners or staggering shift terminations and that the screenings were conducted to prevent employee theft and, thus, for the sole benefit of the employers and their customers.
The District Court dismissed the complaint for failure to state a claim, holding that the screenings were not integral and indispensable to the employees’ principal activities but were instead postliminary and noncompensable. The U.S. Court of Appeals for the Ninth Circuit reversed in relevant part, asserting that postshift activities that would ordinarily be classified as noncompensable postliminary activities are compensable as integral and indispensable to an employee’s principal activities if the postshift activities are necessary to the principal work and performed for the employer’s benefit.
Held : The time that respondents spent waiting to undergo and undergoing security screenings is not compensable under the FLSA. Pp. –––– – ––––.
(a) Congress passed the Portal–to–Portal Act to respond to an economic emergency created by the broad judicial interpretation given to the FLSA’s undefined terms “work” and “workweek.” See 29 U.S.C. § 251(a); Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598, 64 S.Ct. 698, 88 L.Ed. 949. The Portal–to–Portal Act exempted employers from FLSA liability for claims based on “activities which are preliminary to or postliminary to” the performance of the principal activities that an employee is employed to perform. § 254(a)(2). Under this Court’s precedents, the term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” Steiner v. Mitchell, 350 U.S. 247, 252–253, 76 S.Ct. 330, 100 L.Ed. 267. An activity is “integral and indispensable” if it is an intrinsic element of the employee’s principal activities and one with which the employee cannot dispense if he is to perform his principal activities. This Court has identified several activities that satisfy this test—see, e.g., id., at 249, 251, 76 S.Ct. 330; Mitchell v. King Packing Co., 350 U.S. 260, 262, 76 S.Ct. 337, 100 L.Ed. 282—and Department of Labor regulations are consistent with this approach, see 29 CFR §§ 790.8(c), 790.7(g). Pp. –––– – ––––.
(b) The security screenings at issue are noncompensable postliminary activities. To begin with, the screenings were not the principal activities the employees were employed to perform—i.e., the workers were employed not to undergo security screenings but to retrieve products from warehouse shelves and package them for shipment. Nor were they “integral and indispensable” to those activities. This view is consistent with a 1951 Department of Labor opinion letter, which found noncompensable under the Portal–to–Portal Act both a preshift screening conducted for employee safety and a postshift search conducted to prevent employee theft. The Ninth Circuit’s test, which focused on whether the particular activity was required by the employer rather than whether it was tied to the productive work that the employee was employed to perform, would sweep into “principal activities” the very activities that the Portal–to–Portal Act was designed to exclude from compensation. See, e.g., IBP, supra, at 41, 126 S.Ct. 514. Finally, respondents’ claim that the screenings are compensable because Integrity Staffing could have reduced the time to a de minimis amount is properly presented at the bargaining table, not to a court in an FLSA claim. Pp. –––– – ––––.
While the decision was lauded by corporations throughout the country, it does not present a significant change to the existing law. However, depending on how the dicta in the decision is read in the future the case could have wide unanticipated consequences going forward. For this reason, and because it is from the United States’ highest court, wage and hour practitioners would be wise to read the entire decision.
Click Integrity Staffing Solutions, Inc. v. Busk to read the entire decision.
LPNs, Commercial Cleaners and Cable Installers: Recent Decisions Continue to Clarify That So-Called “Independent Contractors” May Actually Be Employees Under the FLSA
As the workforce becomes more and more aware of the differences between true independent contractors and employees under the FLSA—the latter entitled to minimum wages and overtime premiums under the FLSA—courts continue to address this factually intensive issue in a variety of industries. However, as many FLSA practitioners are no doubt aware, certain industries seem to have more than their fair share of employers who misclassify their employees as independent contractors. In 3 recent cases, all from within the Eleventh Circuit, courts addressed the issue of independent contractor misclassification. Significantly, all of the cases held that—under the FLSA’s very wide definition of employment, each of the workers at issue were employees (or in one case reversed the lower court’s ruling otherwise). Because the decisions themselves are factually intensive inquiries, the facts of each case are discussed in detail below.
M.D.Fla.: LPNs Employees Not Independent Contractors
Solis v. A+ Nursetemps, Inc.
The first case discussed here concerned the defendant-employer’s misclassification of its LPN (licensed practical nurse) employees as independent contractors. Following a bench trial, the court held that the LPNs were employees and not independent contractors as the employer had maintained. Analyzing the issue, the court explained:
The Eleventh Circuit cases clearly establish that the “economic realities test” is the standard to be applied in determining whether a worker is an employee covered by the FLSA, or is an independent contractor who is not covered by the Act. Medrick v. Albert Enterprises, Inc., 508 F.2d 297 (5th Cir.1975); Villarreal v. Woodham, 113 F.3d 202 (11th Cir.1997); Freund v. Hi–Tech Satellite, Inc., 185 Fed. Appx. 782 (11th Cir.2006).9
See also Antenor, 88 F.3d 925 (applying the economic realities test in resolving a joint employer issue under the FLSA).
Each of those pertinent Eleventh Circuit decisions recite various factors to be considered in applying the economic realities test, and the lists are not identical. All of the cases agree, however, either implicitly or explicitly, that “[n]o one of these considerations can become the final determinant, nor can the collective answers to all of the inquiries produce a resolution which submerges consideration of the dominant factor—economic dependence.” Freund, supra, 185 Fed. Appx. at 783 (quoting Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir.1976)).
The factors listed in the cases include: (a) whether the alleged employer had the power to hire and fire the workers in question; (b) whether the alleged employer supervised and controlled the employee work schedules or conditions of employment; (c) whether the alleged employer determined the rate and method of payment; (d) whether the alleged employer maintained work time records; (e) whether the worker performed a specialty job requiring specialized training or skill; (f) whether the contractual terms of the employment varied in a material way as one worker succeeded another; (g) whether the workers had business organizations that could offer the worker’s services to others; (h) whether the alleged employer supplied the premises and/or the equipment necessary to perform the work; (i) whether the worker employed others to assist in performing the job; (j) the employee’s opportunity for profit or loss depending upon management skill; (k) the degree of permanency or duration of the working relationship; and (l) the extent to which the service rendered by the worker is an integral part of the employer’s business.
Applying each of the factors, the court reasoned:
(a) The right to hire and fire. The Court interprets this factor (taken from Villarreal, supra ) to require an examination of whether the employer has retained the usual common law right to hire and fire at will, or has placed limitations on those rights by contract as would often be the case in dealing with an independent contractor and a contractual clause imposing liability or a penalty for cancellation of the work. Here, of course, Nursetemps has sole control with respect to the selection of nurses to be assigned to shifts, and may withhold such assignments if it pleases. Just as the nurses are under no obligation to take assignments, Nursetemps is under no obligation to make them.
(b) Control of work schedules and supervision of the work. This factor (also taken from Villarreal, supra ) has two aspects as applied to this case. Control of the work schedules, in terms of assigning work to the nurses, is in the hands of Nursetemps. Supervision of the work, however, is not. That control is in the hands of the client facility, not Nursetemps. Thus, as stated earlier, if the common law test applied, Nursetemps would have a stronger case. In the context of an FLSA examination, however, this division of control does not help the nurses’ independent contractor argument because control of the work does not shift to the nurses, it shifts to another entity (which may thereby become a joint employer, Antenor v. D & S Farms, supra,) but it does not mean that the nurses thereby become independent contractors.
(c) Determining the rate and method of payment. In an independent contractor relationship, the independent contractor normally has at least an equal say in the rate to be charged for particular work by bidding on the job or by posting or advertising standard rates for the work to be performed. Here, by contrast, it is Nursetemps that fixes the hourly rate it will pay the nurses for each shift or each assignment. Individual nurses have the right to negotiate with respect to the rate they will earn, but Nursetemps retains the upper hand in deciding the rate it will pay; and it is Nursetemps that pays the nurses, not the facility where the work is performed.
(d) Maintenance of time records. While the nurses keep their own time records, they are paid by the hour, and such records are turned in to and maintained by Nursetemps (albeit not in full compliance with 29 C.F.R. § 516.2) for the purpose of calculating the nurses’ pay. Stated another way, the nurses are not paid a flat rate or piece rate per shift. They are hourly employees.
(e) Performance of a specialty job requiring specialized training or skill. While it cannot be denied that the work of a nurse requires highly specialized training and skill, such work in this society is not necessarily a specialty job in the sense that members of the public do not typically seek them out for private or individual engagements; rather, the nurses involved in this case work, instead, on an hourly basis in institutional settings like the hospices, hospitals and detention facilities.
(f) Variation in terms of employment. There is no evidence of any variation in the terms of employment as one worker succeeds another. Nurses are assigned to work shifts for rates established by Nursetemps and (subject to occasional negotiation of rates with an individual nurse) remain the same from nurse to nurse, shift to shift, week to week.
(g) Business organization for offering nurses services to others. While some of the nurses formed limited liability or corporate entities, the evidence is that those who did so were acting at the suggestion of Nursetemps, and the existence of such entities did not change the practical day-to-day relationship between Nursetemps and the nurses in any way. Also, the formation of such entities did not lead any of the nurses to use them as a vehicle to offer their services as entrepreneurs to other health care providers or to the public in general.
(h) Premises and equipment. Nursetemps does not supply the premises on which the work is accomplished, but neither do the nurses. The equipment necessary for the nurses to do their work—stethoscopes, blood pressure cuffs, thermometers and uniforms are provided by the nurses who also bear the cost of their continuing educational requirements.
(i) Employment of others. The nurses do not employ others to assist them in the performance of their work.
(j) Opportunity for profit. The nurses are paid by the hour for shift work. There is no opportunity for additional income or profit through the exercise of managerial skill or increased efficiency in the manner or means of accomplishing the work.
(k) Permanency of the relationship. A majority of Nursetemps nurses have accepted work assignments on a regular basis for a year or more.
(l) Whether the nurses work is an integral part of Nursetemps business. The work performed by the nurses is more than an integral part of Nursetemps’ business, it is the whole of Nursetemps’ business.
Per its analysis of each of the factors, the court concluded:
Consideration of the foregoing factors, both individually and collectively, leads inexorably to the conclusion that Nursetemps nurses are employees for purposes of the FLSA, not independent contractors. The same result is reached when one simply steps back to take a common sense look at the nature of the relationship between Nursetemps and the nurses. While it is certainly true that the nurses enjoy a degree of flexibility in their working lives, not shared by many in the work force, including an enhanced ability to “moonlight” by working for more than one agency at a time and by choosing when and where to make themselves available for work, the simple fact remains that when the nurses are available for work they are dependent upon Nursetemps to provide it, and when they are working on assignment for Nursetemps they are, during those workweeks, employees of Nursetemps.
Click Solis v. A+ Nursetemps, Inc. to read the entire Memorandum Opinion Including Finding of Fact and Conclusions of Law.
S.D.Fla.: Commercial Contractors Were Employees Not Independent Contractors
Robles v. RFJD Holding Co., Inc.
In a second recent case, a court in the Southern District of Florida was asked to decide whether commercial cleaners were employees or independent contractors, as the employer-defendant claimed. Applying the same test as the court above, the court granted the plaintiffs’ motion for summary judgment and denied the defendant’s motion—holding that the defendant had misclassified the commercial cleaners as independent contractors. Discussing the factors regarding its determination on the issue the court explained, in part:
1. Control of the Manner of Performing Work
When an alleged employer provides “specific direction for how workers, particularly lowskilled workers, are to perform their jobs, courts have weighed the control factor in favor of employee status.” Montoya v. S.C. C.P. Painting Contractors, Inc., 589 F.Supp.2d 569, 579 (D.Md.2008) (finding factors such as the provision of supervision of painters, instruction in what paint to use and how many coats to apply, and on-the-job training to be indicative of employee status). Similarly, the provision of written instructions and procedures for how to complete the job also indicates employee status. See Schultz v. Capital Int’l Sec., Inc. ., 466 F.3d 298, 307 (4th Cir.2006) (finding an eight-page standard operating procedure document outlining job tasks indicative of employee status); Solis v. Int’l Detective & Protective Serv., Ltd., 819 F.Supp.2d 740, 750 (N.D.Ill.2011) (finding a policy and procedure handout coupled with close monitoring of workers’ compliance with the procedures indicative of control). The provision of training likewise indicates an employee-employer relationship. See Gate Guard Servs. L.P. v. Solis, 2013 WL 593418, at *4 (S.D.Tex. Feb.13, 2013) (noting the significance of training and observing that the non-provision of training indicates an independent-contractor relationship). Finally, supervision need not be constant to establish an employee-employer relationship. See Brock v. Superior Care, Inc., 840 F.2d 1054, 1060 (2d Cir.1988) (citing Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1383–84 (3d Cir.1985)) (“An employer does not need to look over his workers’ shoulders every day in order to exercise control.”).
Here, the facts demonstrate that Defendants exercised substantial control over the manner of performing work. Defendants trained the cleaning crews in how to clean specific items, including what tools to use; they provided the crews with extensively detailed checklists of what to clean and how often to do so; they initially monitored the crews’ performance on-site and in person for an entire week; and, although there is some dispute as to how often any particular supervisor visited and inspected a specific restaurant,2 it is undisputed that Defendants’ supervisors regularly supervised the cleaning crews’ work. Viewed together, this all suggests that Defendants closely controlled the manner of Plaintiffs’ work as an employer would. While Defendants—as all businesses to some degree—may certainly have been concerned with “customer satisfaction,” Defendants manifested that concern through closely controlling and monitoring Plaintiffs’ work habits and methods. Accordingly, the first factor weighs in favor of finding that Plaintiffs were “employees” under the FLSA.
2. Opportunity for Profit or Loss Depending on Managerial Skill
Turning to the second half of the inquiry on this factor, the Court notes that Defendants do not point to any opportunity for loss that Plaintiffs risked. The opportunity for loss must extend beyond the mere threat of lost wages and must involve the risk of losing a capital investment. See Lauritzen, 835 F.2d at 1536;
Clincy v. Galardi S. Enters., Inc., 808 F.Supp.2d 1326, 1345–46 (N.D.Ga.2011). Beyond the occasional purchase of negligible cleaning supplies and tools, which is insufficient to present a risk of loss, Plaintiffs invested practically nothing but their labor in their cleaning work. See Lauritzen, 835 F.2d at 1536. To the extent that Defendants may contend that the back charges that they imposed on cleaning crews when customers were dissatisfied represent losses, see D.E. 56–1 at 9, the Court rejects this argument. Such back charges are not attributable to any discretionary managerial decision but, rather, are the result of poor cleaning performance.
When viewed as a whole, Plaintiffs’ opportunities to increase their profits support the idea that they were independent contractors, but the absence of any real risk of loss suggests Plaintiffs were “employees.” This factor is a wash.
3. Investment in Required Equipment or Materials and Employment of Workers
As discussed above, Plaintiffs were permitted to hire individuals on their own to accomplish their cleaning tasks but were not required to do so. D.E. 56–2, ¶ 5; D.E. 68–1, ¶ 5. During their fourteen-month tenure with Emmaculate, Plaintiffs Robles and Ulloa hired an individual only one time to help with their cleaning work. D.E. 56–2, ¶ 27; D.E. 68–1, ¶ 27. Plaintiffs’ investment in additional labor was minimal—even aberrant—and not indicative of independence. See Usery, 527 F.2d at 1312 (“Occasional exercise of the right to hire helpers also has not been found sufficiently indicative of independence to allow a finding of nonemployee status.”)…
Here, Plaintiffs made admittedly minimal purchases rather than large-scale investments in supplies and equipment. The lack of Plaintiffs’ substantial investment in equipment and materials tips in the direction of finding employee status.
4. Whether the Service Rendered Requires Special Skills
As other courts have found, cleaning services such as those provided by Plaintiffs require no special skills. See Quinteros v. Sparkle Cleaning, Inc., 532 F.Supp.2d 762, 770 (D.Md.2008); see also Usery, 527 F.2d at 1314 (“Routine work which requires industry and efficiency is not indicative of independence and nonemployee status.”). Defendants’ arguments to the contrary are unpersuasive. To the extent that Defendants suggest experience is required to do Plaintiffs’ work, D.E. 67 at 7, the Court does not agree that experience is, or is equivalent to, a specialized skill, and Defendants point to no authority that suggests otherwise. See Lauritzen, 835 F.2d at 1537 (citing Brock v. Lauritzen, 624 F.Supp. 966, 969 (E.D.Wis.1985) (holding that the development of occupational skill through experience “is no different from what any good employee in any line of work must do”). Put another way, one can quickly and easily develop experience at routine, unspecialized tasks…
Accordingly, this factor weighs in favor of finding employee status.
5. Permanency and Duration of the Working Relationship
The ability to readily reject jobs is not reflective of the permanency found in an employee-employer relationship and supports finding an independent-contractor relationship. On balance, the duration and permanency factor tips slightly in favor of Defendants.
6. The Extent to Which the Service Is an Integral Part of the Alleged Employer’s Business
Next, the Court considers the extent to which Plaintiffs’ cleaning services were an integral part of Defendants’ business. It is undisputed that Emmaculate is a “commercial cleaning business specializing in restaurant cleaning.” D.E. 56–2, ¶ 1; D.E. 68–1, ¶ 1. As Plaintiffs provide the cleaning services that Defendants’ offer, Plaintiffs’ services are indisputably integral, if not essential, to Defendants’ business. While Defendants attempt to cursorily dismiss this factor as “not determinative of one’s employee’s status,” D.E. 56–1 at 11, the reality is that this factor informs the inquiry as much as any other factor listed here. Freund, 185 F. App’x at 784;
Scruggs v. Skylink, Ltd., 2011 WL 6026152, at *8 (S.D.W.Va. Dec.2, 2011) (“Generally, the more integral the work, the more likely the worker is an employee, not an independent contractor.” (citation omitted)). Consequently, this factor weighs strongly in favor of finding an employee relationship.
Having weighed each of the factors, the court concluded that the commercial cleaner workers were defendant’s employees, as a matter of law:
Upon consideration of the six factors above and the circumstances as a whole, the Court finds that Plaintiffs were dependent on Defendants in their economic relationship and are considered employees under the FLSA. The fact that Robles and Ulloa worked exclusively for Emmaculate during their fourteen-month association highlights Plaintiffs’ economic dependency on Defendants. Further, Defendants’ significant control and supervision of Plaintiffs’ work habits and methods, Plaintiffs’ minimal capital investments and nonexistent risk of loss, Plaintiffs’ dependence on Emmaculate to find and engage restaurants to be cleaned, the lack of a need for specialized skills, and the integral and essential nature of Plaintiffs’ services to Defendants’ business all describe a relationship with the character of one between an employee and an employer, notwithstanding the few indicia of independent-contractor status found on the record. Taken together, these facts demonstrate that Plaintiffs were not in business for themselves but were, instead, dependent on Defendants for their continued employment in the restaurant-cleaning business. Accordingly, Plaintiffs’ motion for summary judgment is granted on this point, and Defendants’ motion is denied.
Click Robles v. RFJD Holding Co., Inc. to read the entire Order on Motions for Summary Judgment.
11th Cir.: Cable Installers May Be Employees; Summary Judgment For Employer Reversed
Scantland v. Jeffrey Knight, Inc.
The final case was before the Eleventh Circuit on the appeal of cable installer employees, following the district court’s order in which it held that the installers were independent contractors rather than employees, notwithstanding many cases holding to the contrary on similar facts. Applying the economic realities test discussed above, and taking the facts in the light most favorable to the plaintiffs (as the non-movants), the Eleventh Circuit held that a reasonable jury could find that the cable installers were employees under the FLSA. As such, the court reversed the decision below and remanded the case for trial on the issue.
Weighing the various factors, the court explained:
A. Control
The first factor considers the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed. Control is only significant when it shows an individual exerts such a control over a meaningful part of the business that she stands as a separate economic entity. Usery, 527 F.2d at 1312–13. The facts, viewed in the light most favorable to plaintiffs, indicate that Knight exercised significant control over plaintiffs such that they did not stand as separate economic entities who were in business for themselves.
Technicians were required to report to a Knight facility by 7:00 to 7:15 each morning. Technicians would turn in equipment from the previous day and submit their work orders, which included the billing codes that determined their pay for particular jobs. These billing codes were set by Knight, and managers could unilaterally change the codes that technicians reported, thereby reducing a technician’s pay.4 Plaintiffs would also receive a route detailing the current day’s work orders, which were generally assigned in two-hour timeslots. Though plaintiffs’ Independent Contractor Service Agreements provided that they could decline any work assignments, plaintiffs testified that they could not reject a route or a work order within their route without threat of termination or being refused work in the following days. Thus, while a technician might consider a specific route or work order unprofitable, because, for example, it was low-paying or far away, plaintiffs had no power to decline the assignment. Technicians also might be required to attend quality control meetings and classes on new equipment or participate in a monthly equipment inventory conducted by BHN, which required technicians to unload their trucks and account for all BHN equipment. This morning routine could last up to two hours. Plaintiff Sperry testified that he had to arrive by 5:30 a.m. in order to make it to his first job assignment on time. During occasional downtime, technicians could request additional jobs; they could also be required to assist other technicians or be assigned additional jobs that they could not refuse. Technicians might be required to stay on the job until all the technicians in their area had completed their work; they could also be called back to jobs long after completing them to address problems. Plaintiffs could upsell by convincing customers to add additional BHN services, but those orders had to be approved by Knight. Plaintiffs could not sell non-BHN services to customers and could not work for other companies, either because they were told they could not do so or because the schedule Knight imposed prevented them from doing so. Plaintiffs could, according to their contract, employ others to help them, but any such employees had to be technicians already engaged by Knight, and were therefore bound by Knight’s policies. Plaintiffs were subject to meaningful supervision and monitoring by Knight. Technicians routinely communicated with dispatch during the day and were required to log in and out of Work Force Management—a service on their cellular phones that they paid for via payroll deductions—to indicate when they arrived on a job, when they completed a job, and what their estimated time of arrival was for their next job. Knight or BHN also conducted site checks of technicians’ work, and Knight tracked technicians’ quality control discrepancy rate. Technicians with consistent quality control issues could be given remedial training at a mock house or they could be terminated. An installation manager also might counsel a technician regarding his physical appearance or the appearance of his vehicle. Knight levied uncontestable fines called chargebacks for not meeting specifications, not using Work Force correctly, misplacing inventory, or being late to a job. Typically, $100 would be deducted from the technician’s pay for chargebacks on residential jobs and $150 for commercial jobs. Plaintiff Downs testified that chargebacks could mount up to the point where they surpassed the amount of money a technician could earn on a job. Technicians could also be downloaded, i.e., fired, for consistently misbilling, fraudulently billing, stealing, having a bad attitude, having consistently low quality control ratings, and being rude to customers, other technicians, or Knight employees. Knight’s Jill Williams testified that she and another installation manager had downloaded more than one hundred technicians. Plaintiff technicians worked five to seven days a week; some were required to work six days a week and sometimes seven days a week because of a requirement that they work rotating Sundays. Plaintiffs regularly worked more than forty hours a week.7 Technicians either had to inform their supervisors that they would be taking time off or request time off in advance, sometimes in writing.
In sum, Knight controlled what jobs plaintiffs did, how much they were paid, how many hours they worked, how many days they worked, their daily work schedule, whether they could work for others, whether they could earn additional income from customers, and closely monitored the quality of their work. Plaintiffs could not bid for jobs or negotiate the prices for jobs. Their ability to hire and manage others was illusory. This alleged control strongly suggests that the plaintiffs were economically dependent upon Knight…
B. Opportunity for Profit or Loss
The second factor considers the alleged employee’s opportunity for profit or loss depending upon his managerial skill. The facts, taken in the light most favorable to plaintiffs, indicate that plaintiffs’ opportunity for profit or loss depended more upon Knight’s provision of work orders and technicians’ own technical skill and efficiency than their managerial skill.
Plaintiffs’ opportunity for profit was largely limited to their ability to complete more jobs than assigned, which is analogous to an employee’s ability to take on overtime work or an efficient piece-rate worker’s ability to produce more pieces. An individual’s ability to earn more by being more technically proficient is unrelated to an individual’s ability to earn or lose profit via his managerial skill, and it does not indicate that he operates his own business. As the Supreme Court has explained, a job whose profits are based on efficiency is more like piecework than an enterprise that actually depend[s] for success upon the initiative, judgment or foresight of the typical independent contractor. Rutherford Food, 331 U.S. at 730, 67 S.Ct. at 1477. Technicians could not negotiate or otherwise determine the rates they were paid for jobs. In fact, the billing codes they submitted were subject to unilateral change by Knight. They were also subjected to uncontestable chargebacks that could wipe out their earnings from a single job.12 Knight’s argument that plaintiffs could control losses by avoiding chargebacks is unpersuasive. Chargebacks relate to the quality of a technician’s skill, not his managerial or entrepreneurial prowess. Plaintiffs’ ability to earn additional income through their own initiative was limited. Though plaintiffs could upsell, any jobs added to a work order by a technician had to be approved by Knight, and plaintiffs testified that the extra income was minimal and often not worth the additional effort. Plaintiffs could not sell non-BHN services to customers, nor work for other companies because of either a flat prohibition or because the schedules demanded by Knight prevented them from pursuing other work. Plaintiffs were able to exert some control over their opportunity for profits by pairing up to complete jobs and trading jobs among each other, but this ability was ultimately limited by the number and types of jobs Knight assigned them and whether Knight’s assigned schedule permitted them time to do so. Furthermore, as previously discussed, though the parties’ contract provided that technicians could hire helpers, this authority was illusory. Any helpers were required to be contracted with Knight as technicians, thus precluding the exercise of any real managerial skill over such helpers.
Assuming factual inferences in favor of plaintiffs, and in light of the minimal opportunity for profit (and that being little different from the usual path of an employee), this factor suggests economic dependence, and points strongly toward employee status.
C. Investment in Equipment or Materials
The third factor considers the alleged employee’s investment in equipment or materials required for his task, or his employment of workers. This factor favors independent contractor status, although it does so only weakly.
As previously discussed, technicians’ ability to employ workers was illusory. As regards investment in equipment and materials, Knight provides, via BHN, the hardware that is actually installed in customers’ homes and businesses, such as cable boxes, DVRs, and cable modems. Technicians are required to have vehicles, auto insurance, tools and safety equipment, and commercial general liability insurance. However, in light of the fact that most technicians will already own a vehicle suitable for the work and that many technicians purchased specialty tools from Knight directly via payroll withholdings, there seems to be little need for significant independent capital and very little difference from an employee’s wages being increased in order to pay for tools and equipment. Furthermore, even though a technician who initially bought his tools from Knight and paid for them via withholdings has some economic independence when the tools are paid for, it is analogous to the independence any employee has who has gained experience and the ability to market himself to competing employers.
In sum, these expenditures seem to detract little from the worker’s economic dependence on Knight, which is the lens through which we evaluate each of the several factors. Thus, to the extent that this factor weighs in favor of independent contractor status, the weight in that direction is minimal.
D. Special Skill
The fourth factor considers whether the service rendered requires a special skill. This factor favors independent contractor status, but it does so only weakly.
Plaintiffs were clearly skilled workers. The meaningfulness of this skill as indicating that plaintiffs were in business for themselves or economically independent, however, is undermined by the fact that Knight provided most technicians with their skills. Technicians could come to Knight from other installation outfits or be completely inexperienced. Most technicians, however, were inexperienced and underwent some length of unpaid training by Knight, which was followed by some period of unpaid ride-alongs with experienced technicians, before performing work on their own. Robert Collins, a former Knight installation manager, testified that Knight generally provided about two weeks of training and technicians did about a week of ride-alongs, and he estimated that only 10 to 15 percent of technicians did not require training.
Plaintiffs were, therefore, dependent upon Knight to equip them with the skills necessary to do their jobs. The skills attained by technicians point toward a degree of economic independence insofar as a highly trained technician could gain economic independence by the ability to market his skills to a competing employer. This does not, however, significantly distinguish such a worker from the usual path of an employee. To the extent that this factor favors independent contractor status, it does so weakly.
E. Permanency and Duration
The fifth factor considers the degree of permanency and duration of the working relationship. This factor points strongly toward employee status.
Named plaintiffs worked for Knight for an average of more than five years. Their contracts were for year terms, were automatically renewed, and were terminable only with thirty days’ notice. These facts suggest substantial permanence of relationship…
Assuming factual inferences in favor of plaintiffs, and looking through the lens of economic dependence vel non, long tenure, along with control, and lack of opportunity for profit, point strongly toward economic dependence. Thus, this factor strongly indicates employee status.
F. Integral Part of Alleged Employer’s Business
The sixth and final factor considers the extent to which the service rendered is an integral part of the alleged employer’s business. This factor weighs clearly and strongly toward employee status.
Approximately two-thirds of Knight’s business consists of the telecommunications installation and repair services it performs for BHN. Knight relies on approximately five hundred technicians to perform installations and repairs in BHN customers’ homes and businesses. Knight’s website described its Installation Services department as the backbone of its business.
The integral role played by technicians in Knight’s business shows that the arrangement follows more closely that of an employer-employee relationship than an independent contractor dynamic. If Knight had truly outsourced such a large portion of its business, as would be true if plaintiffs were independent contractors, then the company would retain far less control over the business. However, because of Knight’s concern with the quality of the services it provides through this arrangement, it does, as one might expect, control the relationship in much the same way a company would control its employees. The technicians’ integral part in Knight’s business follows the usual path of an employee.
Assuming factual inferences in favor of plaintiffs, this factor points strongly toward employee status.
Given these factual circumstances, the Eleventh Circuit concluded:
When all the facts are viewed in the light most favorable to the plaintiffs and all reasonable inferences are drawn in their favor, four of the six factors weigh strongly in favor of employee status. The two factors that do not—investment and special skill—weigh only very slightly toward independent contractor status. Neither contributes in any significant manner to the workers’ economic independence or to distinguishing the workers from the usual path of an employee. Thus, we conclude that, viewing the facts most favorably toward plaintiffs and with all justifiable inferences drawn in their favor, plaintiffs were employees—not independent contractors—under the FLSA. Because there are genuine issues of material fact, and because plaintiffs were employees if all reasonable factual inferences are found in plaintiffs’ favor, the district court erred in granting summary judgment to Knight.
Click Scantland v. Jeffrey Knight, Inc. to read the entire Opinion and DOL Amicus Brief to read the brief submitted by the Department of Labor in support of the Plaintiffs-Appellants.
Click independent contractor misclassification for more information on industries where employees are frequently misclassified as independent contractors.
W.D.Mo.: Plaintiffs Sufficiently Pled a “Rounding” Claim, Where Alleged Defendants’ Policy of Rounding Resulted in Improper Denial of Wages
McClean v. Health Systems, Inc.
The Plaintiffs, Certified Nursing Assistants (“CNAs”) for Defendant, claimed that they were required to work off the clock during automatically deducted meal breaks, during mandatory meetings and training sessions, and while performing mandatory data entry known as “dart charting.” The result of these policies was to allegedly deny the Plaintiffs wages and overtime. After the Plaintiffs amended their Complaint the Defendants filed a motion to dismiss regarding several of Plaintiffs’ allegations. As discussed here, the court denied Defendants’ motion as it pertained to Plaintiffs’ claims arising from Defendants’ policy of rounding their time to the nearest quarter of an hour, regardless of actual time worked.
Discussing the sufficiency of the rounding claim, the court explained:
“One of the Plaintiffs’ substantive allegations is that the Defendants have a practice of “reduc[ing] [their] employees’ work hours by rounding their hours to the nearest quarter hour of time to their detriment (i.e., the rounding did not average out to equally benefit Defendants and its employees over time) which results in Defendants not paying its employees for all time worked.” Doc. 51 at ¶ 112. Defendants cite federal regulations which expressly allow the practice of rounding to the nearest 15–minute increment. 29 C.F.R. § 785.48(b) (“For enforcement purposes this practice of [rounding to 5, 10 or 15–minute increments] will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”). The Defendants submit Harding v. Time Warner, Inc. in support of their position that the Plaintiffs have not sufficiently pled a claim of improper rounding. No. 09cv1212–WQH–WMC, 2010 WL 457690 (S .D.Cal. Jan. 26, 2010). In Harding, the court found that, despite describing the allegedly improper rounding procedures in detail, Harding had failed to provide “specific factual allegations” showing that employees had been underpaid. Id. at *5. The Plaintiffs provided the following statements regarding rounding in their Amended Complaint:
112. Defendants further reduce its [sic] employees’ work hours by rounding their hours to the nearest quarter hour of time to their detriment (i.e., the rounding did not average out to equally benefit Defendants and its [sic] employees over time) which results in Defendants not paying its [sic] employees for all time worked. This practice results in Plaintiffs and all other similarly situated employees being denied wages including overtime premiums and Defendants’ illegal rounding practices are not de minimus. [sic]
113. Even though Defendants had a computerized timekeeping system in place and could have easily recognized and paid Plaintiffs’ and other similarly situated employees’ actual hours worked, Defendants deliberately disregarded the system’s records and rounded Plaintiffs’ and other similarly situated employees work time down to the nearest quarter of an hour.”
114. Defendants willfully and illegally rounded Plaintiffs’ and other similarly situated employees’ work time down to the nearest quarter of a [sic] hour.
Doc. 51 at ¶¶ 112–14 (legal conclusions in bold). Iqbal requires “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. The Plaintiffs allege that the rounding did not average out properly. They further allege that the Defendants maintain a computerized system which keeps time, but still chose to use rounding. Assuming the truth of these allegations, the Court can plausibly infer that the Defendants chose to round time because it would be more favorable than paying for actual time worked on a minute by minute basis, thus violating the averaging rationale inherent to rounding. While the Plaintiffs could have chosen to state more, to require them to plead, for example, specific minutes on specific days for which they were denied wages would be fact pleading inconsistent with Iqbal. Hamilton v. Palm, 621 F.3d 816, 817 (8th Cir.2010) (noting that “Iqbal did not abrogate the notice pleading standard of Rule 8(a)(2)”). The Defendants’ Motion to dismiss the Plaintiffs’ rounding claim is DENIED.”
Click McClean v. Health Systems, Inc. to read the entire Order.
D.Colo.: Pizza Hut Delivery Drivers’ Minimum Wage Claims, Premised on Claim That Defendants Failed to Reasonably Estimate Vehicle-Related Expenses for Reimbursement Can Proceed; Defendants’ Motion to Dismiss Denied
Darrow v. WKRP Management, LLC
This matter was before the Court on the defendants’ motion to dismiss plaintiff’s second amended complaint. Plaintiff, a Pizza Hut delivery driver, alleged that defendants, Pizza Hut franchisees, violated the Fair Labor Standards Act (“FLSA”) and the Colorado Minimum Wage of Workers Act (“CMWWA”) by failing to reasonably approximate his automotive expenses for reimbursement purposes, and thereby, failing to pay him minimum wage.
Significantly, defendants paid plaintiff and opt-in plaintiffs at or near the Colorado minimum wage from 2007 to 2009. According to the court, on average, the plaintiff and opt-in plaintiffs delivered two to three orders per hour and drove five miles per delivery. Plaintiff alleged that defendants required their delivery drivers to ‘maintain and pay for safe, legally-operable, and insured automobiles when delivering WKRP’s pizza and other food items.’ Defendants reimbursed Plaintiff between $0.75 and $1.00 per delivery for the vehicle expenses incurred by plaintiff to make deliveries. Plaintiff alleged that it was defendants’ policy and practice to unreasonably estimate employees’ automotive expenses for reimbursement purposes, which caused Plaintiff and other similarly situated individuals to be paid less than the federal minimum wage and the Colorado minimum wage from 2007 to 2009 in violation of the FLSA and the CMWWA.
Rejecting defendants’ argument that plaintiff failed to state a claim for unpaid minimum wages under these facts, the court looked to the section 7(e)(2), which states that an employee’s regular rate does not include travel or other expenses incurred in furtherance of the employer’s interest:
“The FLSA provides a definition for “wages,” but does not address an employer’s reimbursement of expenses. However, “[Department of Labor] regulations are entitled to judicial deference, and are the primary source of guidance for determining the scope and extent of exemptions to the FLSA,” including expense reimbursement. Spadling v. City of Tulsa, 95 F.3d 1492, 1495 (10th Cir.1996). Therefore, the Court will look to the Department of Labor regulations to determine whether, under the FLSA, an employee may claim that his wages are reduced below the minimum wage when he is under-reimbursed for vehicle-related expenses. Under 29 C.F.R. § 531.35, “the wage requirements of the [FLSA] will not be met where the employee ‘kicks-back’ directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.” A kickback occurs when the cost of tools that are specifically required for the performance of the employee’s particular work “cuts into the minimum or overtime wages required to be paid him under the Act.” Id. Section 531.35 specifically incorporates § 531.32(c), which in turn incorporates § 778.217, which states:
Where an employee incurs expenses on his employer’s behalf or where he is required to expend sums solely by reason of action taken for the convenience of his employer, section 7(e)(2) [which provides that employee’s regular rate does not include travel or other expenses incurred in furtherance of the employer’s interest] is applicable to reimbursement for such expenses. Payments made by the employer to cover such expenses are not included in the employee’s regular rate (if the amount of the reimbursement reasonably approximates the expenses incurred). Such payment is not compensation for services rendered by the employees during any hours worked in the workweek. 29 C.F.R. § 778.217(a). In Wass v. NPC International, Inc. (Wass I), 688 F.Supp.2d 1282, 1285–86 (D.Kan.2010), the court concluded that these regulations “permit an employer to approximate reasonably the amount of an employee’s vehicle expenses without affecting the amount of the employee’s wages for purposes of the federal minimum wage law.” However, if the employer makes an unreasonable approximation, the employee can claim that his wage rate was reduced because of expenses that were not sufficiently reimbursed. Id. at 1287.
Plaintiff alleges that his under-reimbursed vehicle expenses constituted a kickback to Defendants because Defendants failed to reasonably approximate Plaintiff’s vehicle-related expenses and Plaintiff was specifically required to use and maintain a vehicle to benefit Defendants’ business. Plaintiff further alleges that Defendants’ unreasonable approximation of Plaintiff’s vehicle-related expenses led to Plaintiff’s wage being reduced below the minimum wage.
Defendants argue that Plaintiff cannot use an estimated mileage rate as a substitute for actual vehicle-related expenses. Without pleading his actual expenses, Defendants contend that Plaintiff is unable to prove (1) that Defendants’ reimbursement rate was an unreasonable approximation, and (2) that Defendants paid him below the minimum wage as a result of the under-reimbursement. Plaintiff responds that he does not have to produce his actual automotive expenses in order to state a claim under the Iqbal and Twombly standard because he can raise the plausible inference that Defendants’ approximation of his vehicle-related expenses was unreasonable without knowing his actual expenses. For the following reasons, the Court finds that Plaintiff’s Amended Complaint meets the pleading standard under Iqbal and Twombly.”
After a recitation of the applicable law, the court held that plaintiff had sufficiently pled his estimated costs of running his vehicle, using a variety of facts, including the reimbursement rate paid by defendants versus the IRS’ mileage reimbursement rate. Further, when taken together with plaintiff’s hourly wages, he had sufficiently pled that defendants failed to pay him at least the federal and/or Colorado minimum wage(s). Therefore, the court denied defendants’ motion in its entirety.
Click Darrow v. WKRP Management, LLC to read the entire Order.
Florida’s Minimum Wage Increases to $7.31 Per Hour
The Florida minimum wage increased to $7.31 per hour, effective today, June 1, 2011. Florida law requires the Agency for Workforce Innovation to calculate an adjusted minimum wage rate each year. The annual calculation is based on the percentage change in the federal Consumer Price Index for urban wage earners and clerical workers in the South Region for the 12-month period prior to September 1, 2010.
On November 2, 2004, Florida voters approved a constitutional amendment which created Florida’s minimum wage. The minimum wage applies to all employees in the state who are covered by the federal minimum wage.
Employers must pay their employees the hourly state minimum wage for all hours worked in Florida. The definitions of “employer”, “employee”, and “wage” for state purposes are the same as those established under the federal Fair Labor Standards Act (FLSA). Employers of “tipped employees” who meet eligibility requirements for the tip credit under the FLSA, may count tips actually received as wages under the Florida minimum wage. However, the employer must pay “tipped employees” a direct wage. The direct wage is calculated as equal to the minimum wage ($7.31) minus the 2003 tip credit ($3.02), or a direct hourly wage of $4.29 as of June 1, 2011.
Go to the Palm Beach Post’s website or the State of Florida’s Agency for Workforce Innovation to read more about the increase.
M.D.Tenn.: Contract Cleaners Not Joint Employees of the Restaurants Cleaned, Despite Fact They Exclusively Cleaned Defendant’s Restaurants
Politron v. Worldwide Domestic Services, LLC
Plaintiffs filed this action for unpaid wages and overtime pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq. Plaintiffs’ alleged that they were hired by Defendant Worldwide Domestic Services, Inc. (“Worldwide”) during the time period of October 2010 to December 2010 to clean Chili’s restaurants in the Middle Tennessee area. The case arose from Plaintiffs’ contention that paychecks issued to the Plaintiffs by Worldwide bounced due to insufficient funds. Plaintiffs alleged that Defendants’ failure to pay Plaintiffs at least minimum wage for each hour worked is a violation of the FLSA and, as discussed here, that Defendants Worldwide, Elite Commercial Cleaning, LLC and Chili’s, Inc. were “joint employers” under the FLSA.
Acknowledging that the Sixth Circuit had yet to formulate a specific test for the application of joint employment under the FLSA, the court instead discussed law from other courts, who have developed such tests. Applying the various factors other courts have used, the court determined that the restaurant owner Defendant, was not properly alleged to be a joint employer here.
The court reasoned:
“Here, the Court finds that the agreement between Brinker and Worldwide, as alleged in Plaintiffs’ Amended Complaint, was an outsourcing type of relationship. Worldwide contracted with Brinker to have its restaurants cleaned after hours. Plaintiffs admit that they worked at the direction of Worldwide. Plaintiffs’ work was dependent upon Worldwide’s ability to get and keep contracts for cleaning. Plaintiffs agree that no one from Brinker supervised, trained or directed them; no Brinker employees were even present when Plaintiffs worked. Brinker had no control over their wages, no authority to hire, fire or discipline them, and kept no employment records for Plaintiffs. Plaintiffs received their relevant income tax information from Worldwide or from Defendant Elite Commercial Cleaning. There is no allegation that Brinker knew which employees worked or how many hours they worked.
Although Plaintiffs contend that every hour they worked was at Chili’s and they used some equipment from the restaurants (they also used equipment from Worldwide), the Court finds that the factors indicating a joint employer are outweighed by those which indicate no such relationship between Plaintiffs and Brinker.”
Although the case is not groundbreaking, it does demonstrate the flaws in allowing such “outsourcing” to abrogate a company’s responsibilities to those who provide its essential services under the FLSA.
Click Politron v. Worldwide Domestic Services, Inc. to read the entire Memorandum Decision.
6th Cir.: Applying “Primary Benefit” Test, Students in Work-Study Program Were Not Employees Under FLSA
Solis v. Laurelbrook Sanitarium and School, Inc.
This case was before the Sixth Circuit on the Secretary of Labor’s appeal of the decision below, holding that the student-workers at Defendant’s sanitarium were not “employees” under the FLSA, and thus, were not entitled to the child labor protections afforded by the FLSA. Of interest here, the Sixth Circuit clarified the test to be used under circumstances where students perform work as part of a work-study program, in which they are not compensated for such work monetarily. After surveying the applicable case law, the DOL’s regulations and its interpretations of same, the court held that the applicable test was the “primary benefit” test. In other words, the issue of whether such student-workers are covered by the FLSA or not turns on whether the “employer” or they themselves derive the “primary benefit” of the work performed. Here, reviewing the specific facts of the case, the Sixth Circuit held that the trial court had properly concluded that the student-workers were non-employees, properly excluded from the coverage of the FLSA.
Describing the general factual background, the court explained:
“In conformity with its beliefs, Laurelbrook operates a boarding school for students in grades nine through twelve, an elementary school for children of staff members, and a 50–bed intermediate-care nursing home that assists in the students’ practical training (the Sanitarium). The school has been approved and accredited by the Tennessee Department of Education since the 1970s. The State of Tennessee accredits certain private schools through independent authorized accrediting agencies. The E.A. Sutherland Education Association (EASEA) is one such agency, whose purpose is to consider and adjudicate requests for accreditation from self-supporting (as opposed to denominational) schools, like Laurelbrook, which are operated by members of the Seventh–Day Adventist Church. Laurelbrook is currently accredited through EASEA.”
After surveying the applicable law and deeming the “primary benefit” test to be the proper test for determining whether the student-workers were employees, the court reasoned the student-workers here were not “employees” under the FLSA:
“In applying the primary benefit test, the district court recognized that students’ activities at Laurelbrook contribute to Laurelbrook’s maintenance, thereby benefitting Laurelbrook’s operations. Laurelbrook receives payment for services it provides to patients at the Sanitarium; some of these services are performed by students at no cost to Laurelbrook. Hours worked by students in the Sanitarium also contribute to the Sanitarium’s satisfaction of its licensing requirements. Laurelbrook sells flowers and produce grown at Laurelbrook with student help. The proceeds from these sales go directly to Laurelbrook’s operations. As part of a course on collision repair, students assist in repairing cars for the public. Beneficiaries of these services pay Laurelbrook directly and the money is recycled back into school programs. Laurelbrook also earns revenue from the sale of wood pallets the students help build.
The value of these benefits to Laurelbrook, however, is offset in various ways. The district court found that Laurelbrook students do not displace compensated workers, and instructors must spend extra time supervising the students at the expense of performing productive work. Specifically, the court found that Laurelbrook is sufficiently staffed such that if the students did not perform work at the Sanitarium, the staff members could continue to provide the same services there without interruption. And while not specifically mentioned by the district court in its findings, there was evidence at trial that the same was also true of the work performed by students outside the Sanitarium. There was also testimony that, were it not for the instructors’ supervisory responsibilities, instructors would be able to complete more productive tasks in less time. Moreover, as the district court found, Laurelbrook is not in competition with other institutions for labor, so Laurelbrook does not enjoy an unfair advantage over other institutions by reason of work performed by its students…
Students do not receive wages for duties they perform. They are not entitled to a job with Laurelbrook upon graduation, and are expected to move on after graduation.”
On the other side of the ledger are the tangible and intangible benefits that accrue to the students. The district court found that Laurelbrook provides it students with significant tangible benefits. Students are provided with hands-on training comparable to training provided in public school vocational courses, allowing them to be competitive in various vocations upon graduation. Students learn to operate tools normally used in the trades they are learning, while being supervised by instructors. Students engage in courses of study that have been considered and approved of by the state accrediting agency. In short, the educational aspect of the instruction at Laurelbrook is sound, in contrast to the training program at issue in Baptist Hospital, where the supervision was inadequate, the exposure to various aspects of the trade limited, and the overall value to the students nil. None of these educational shortcomings is present here. Indeed, the Tennessee Department of Education, through EASEA, has determined that Laurelbrook’s vocational program provides benefits to the students sufficient to warrant accreditation.
Significant, too, are the intangible benefits students receive at Laurelbrook. As the district court found, receiving a well-rounded education—one that includes hands-on, practical training—is a tenet of the Seventh–Day Adventist Church. Laurelbrook provides students with the opportunity to obtain such an education in an environment consistent with their beliefs. The district court found that the vocational training portion of the education teaches students about responsibility and the dignity of manual labor. Thought not mentioned in the district court’s opinion, there is ample evidentiary support for these findings. Parents testified to the benefits their children received from the program, stating that the students learn the importance of working hard and seeing a task through to completion. Some parents testified that their children have become more responsible and have taken on leadership roles since participating in Laurelbrook’s program. Service in the Sanitarium engenders sensitivity and respect for the elderly and infirm. Laurelbrook alumni testified that the leadership skills and work ethic developed at Laurelbrook have proved highly valuable in their future endeavors. Employers also testified that Laurelbrook alumni have a strong work ethic, leadership skills, and other practical skills that graduates of other vocational programs lack.
The Secretary discounts the value of these intangible benefits, but we agree with the district court that they are of significant value. Courts that have addressed the value of such benefits have likewise concluded that they are significant enough to tip the scale of primary benefit in the students’ favor even where the school receives tangible benefits from the students’ activities. See, e.g., Blair, 420 F.3d at 829; Woods, 400 F.Supp.2d at 1166; Bobilin, 403 F.Supp. at 1108. The overall value of broad educational benefits should not be discounted simply because they are intangible.
After considering all of the evidence, the district court found that there is benefit to Laurelbrook’s operations from the students’ activities, but the primary benefit of the program runs to the students. We find no error in the district court’s application of the primary benefit test.”
Click Solis v. Laurelbrook Sanitarium & School to read the entire opinion.
M.D.Fla.: Employer Not Entitled to Offset Unpaid Overtime Damages Based on Provision of Car, Car Insurance, Gasoline, or a Cell Phone It Provided
Vancamper v. Rental World, Inc.
This case was before the court on plaintiff’s motion for summary judgment. Among the issues of interest ruled upon, the court held that plaintiff’s pre-arranged shuttling of defendants’ clients to and from the airport to defendants’ rental office for pre-arranged rental of defendant’s cars and the cleaning of such cars, satisfied the individual coverage test of the FLSA. As discussed here, the court also addressed defendants’ argument that it should be entitled to offset plaintiff’s minimum wage and overtime damages, if any, due to its provision of a car, car insurance, gasoline and cell phone to plaintiff, during his employment. Holding that such offsets are impermissible under the FLSA, the court explained:
“The parties dispute whether Vancamper’s use of a car, car insurance, gasoline, and a cellular phone provided by Rental World offset the overtime compensation that Rental World owed Vancamper as permitted by 29 U.S.C. § 207(h)(2). (Doc. No. 27 at 14; Doc. No. 33 at 5–6.) The Defendants bear the burden of establishing a credit for overtime compensation under Section 207(h)(2). See Leonard, 614 F.Supp. at 1187 (noting that an employer bears the burden of establishing a credit under 29 U.S.C. § 203(m) against the overtime owed to an employee (citing Donovan, 676 F.2d at 473–76)).
Under Section 207(h)(2), the forms of compensation described in 29 U.S.C. § 207(e)(5)-(7) are creditable toward overtime compensation. Those forms of compensation are as follows:
(5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day or workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) of this section or in excess of the employee’s normal working hours or regular working hours, as the case may be;
(6) extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days;
(7) extra compensation provided by a premium rate paid to the employee, in pursuance of an applicable employment contract or collective-bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection (a) of this section, where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek;
These provisions plainly contemplate a dollar-for-dollar credit against overtime pay for premium pay awarded on particular days and times. Wheeler v. Hampton Twp., 339 F.3d 238, 245 (3d Cir.2005). The parties do not cite, and the Court does not find, any authority that these provisions encompass use of a car, car insurance, gasoline, or a cellular phone provided by an employer. Moreover, because Vancamper’s uncontroverted time sheets show that he was never paid extra compensation for working during the periods described in Section 207(e)(5)-(7), (Doc. No. 27–5 at 1–102), Defendants are not entitled to any overtime credit under Section 207(h)(2).”
Click Vancamper v. Rental World, Inc. to read the entire order.
S.D.Fla.: Employer Need Not Pay Employee MW For All Hours Worked to Take Advantage of Tip Credit
Goldin v. Boce Group, L.C.
This case was before the court on defendant’s motion to dismiss, for failure to state a claim. The plaintiff’s theory of relief for minimum wage violations arose from the fact that while he worked 51 hours per week, each week, Defendants paid Plaintiff the required reduced minimum wage for only forty hours, and failed to pay him at all for the additional eleven hours of overtime. Plaintiff claimed that because Defendants “did not pay Plaintiff the required amount for every hour he worked,” they were not permitted to take advantage of the tip credit at all and must disgorge the entire tip credit. Inasmuch as the FLSA requires that employers who seek to take the tip credit must pay tipped minimum wage in order to do so, this theory would seem to make perfect sense, however the court disagreed and dismissed the case.
The court reasoned:
“There is no basis in the FLSA for the relief Plaintiff seeks. The FLSA clearly lays out the prerequisites an employer must meet in order to claim the tip credit. There are only two: (1) the employer must inform the employee that the employee will be paid the reduced minimum wage; and (2) all tips received by the employee must be retained by the employee. 29 U.S.C. § 203(m). There is no “condition precedent” that the reduced cash wage be paid for every hour worked before an employer is entitled to claim the statutorily-mandated tip credit. See id. Congress could, and did, write into the FLSA express conditions precedent to the application of the tip credit. The Court declines to read a condition precedent into the statute where Congress did not create one. In re Tennyson, 611 F.3d 873, 877 (11th Cir.2010) (stating that where statute is “clear, unambiguous, and does not result in any absurd consequences,” the Court “will not … read into the text of the statute an unstated purpose.”).
In addition, the FLSA very clearly lays out the remedies available to employees who are subject to FLSA violations by employers. Successful FLSA plaintiffs are entitled to recover “the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and [ ] an additional equal amount as liquidated damages.” 29 U.S.C. § 216(b). Congress wrote specific remedies into the statute. Congress did not choose to include as a remedy disgorgement of the tip credit where the plaintiff is a tipped employee. The Court will not write this additional remedy into the statute where Congress did not see fit to do so. See In re Tennyson, 611 F.3d at 877.
In addition, two other divisions of court in this District have rejected Plaintiff’s theory on almost identical facts. See Muldowney v. Mac Acquisition, LLC, Case No. 09–22489–CIV, 2010 WL 520912 (S.D.Fla. Feb. 9, 2010) (Huck, J.); Perez v. Palermo Seafood, Inc., Case No. 07–21408–CIV, 2008 WL 7505704 (S.D.Fla. May 8, 2008) (O’Sullivan, M.J.). In both cases, a tipped employee who was paid the reduced minimum wage for some hours claimed their employers were not entitled to claim the tip credit because they were not paid for “off-the-clock work.”
In Palermo Seafood, Magistrate Judge O’Sullivan found no textual support in the statute for the plaintiff’s position, observing: “The cases that have disallowed the tip credit have done so because the employer failed to comply with one, or both, of the following requirements: (1) the employee receive proper notice of the tip credit and (2) that the employee is not required to share his or her tips with non-tipped employees.” 2008 WL 7505704 at *2. Accordingly, Judge O’Sullivan found tip credit should apply to the plaintiff’s regular shift hours, for which she was compensated at the reduced minimum wage. Id. at *1.
In Muldowney, Judge Huck came to the same conclusion:
Section 203(m) merely prescribes the method for calculating a tipped employee’s wages and sets forth two explicit requirements that must be met for an employer to claim the tip credit, both of which are satisfied in this case. The statute says nothing about unpaid wages due to off-the-clock hours. Further, by rejecting Plaintiff’s interpretation, she is not left without a remedy: she can seek unpaid wages for her alleged off-the-clock hours under state law or other sections of the FLSA. Therefore, the Court finds that Defendants are entitled to the tip credit for hours where Plaintiff was paid the specified reduced cash wage.2010 WL 520912 at *1.
The Court agrees with these two well-reasoned decisions. However, this does not mean, as Plaintiff argues, that employers are therefore not required to pay employees the minimum wage for every hour worked. Of course employers must compensate employees at the required rate for every hour worked, and of course the failure to do so is a violation of the FLSA. 29 U.S.C. § 206(a)(1) (providing minimum wage amounts); 29 U.S.C. § 215(a)(2) (creating cause of action for violation of minimum wage and overtime provisions).”
It should be noted that this decision and the 2 decisions on which it relies were all rendered in the Southern District of Florida. As tipped employee cases continue to become more and more prevalent though, as a result of tremendous amount of abuses of tipped workers in various industries, it will be interesting to see if courts outside of the Southern District of Florida have a different take, based on the text of 203(m).
Click Goldin v. Boce Group, L.C. to read the entire order.
Overtime Law Blog 