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When an employee is employed by a company, as long as that company is an enterprise covered by the FLSA, it is subject to the wage and hour requirements of the FLSA. But what about when the company alleged to have violated the FLSA changes hands before its employees have initiated a lawsuit or claim for their unpaid wages. Does the successor company, who acquires the assets of the alleged violator have successor liability under the FLSA? Two recent decisions discuss this very issue. However, given the factually intensive nature of the inquiry, as discussed below, both courts denied the respective defendants’ motions based on issues of fact.
Paschal v. Child Development Inc.
In the first case, Paschal v. Child Development, Inc., the plaintiffs’ subsequent employer (“CDIHS”) sought judgment as a matter of law at the pleading stage of the case, asserting that it could not be plaintiffs’ employer under the FLSA, because it was not in existence when the plaintiffs’ claims arose. In denying the subsequent employer’s motion as premature, the court explained the parameters for successor liability in FLSA cases.
The court explained that the test for liability of a successor company under the FLSA requires the examination of several elements:
The doctrine of successor liability has [ ] been recognized to apply to FLSA violations.” The question of successor liability is difficult based on the “myriad [of] factual circumstances and legal contexts in which it can arise;” therefore, the court must give emphasis on the facts of each case as it arises. A finding of successorship involves two essential inquiries: (1) whether there is continuity of the business; and (2) did the successor know of the violations at the time it took over the business. A court may also consider whether: (a) the same plant is being used; (b) the employees are the same; (c) the same jobs exist; (d) the supervisors are the same; (e) the same equipment and methods of production are being used; and (f) the same services are being offered.
In their Reply, CDIHS argues that Plaintiffs failed to plead any facts that put them in the category of being a successor in interest. Specifically, they argue that “[t]he business was not transferred, nor were employees or property transferred. There was no purchase of the business in any sense.” However, Defendants fail to address the two essential questions of whether they had notice of the violations and whether there was continuity of the business… Plaintiffs argue that “[s]ubstantial continuity of operations between CDI and CDIHS is a given.” They point to CDIHS’s website that indicates all of the efforts on CDIHS’s behalf to maintain the continuity of program. They also argue that based on CDIHS’s intervention, they were “aware of CDI’s potential liability for FLSA and ERISA violations.”
Ultimately, the court denied CDIHS’ motion as premature.
Click Paschal v. Child Development Inc. to read the entire Order Denying Motion to Dismiss.
Battino v. Cornelia Fifth Ave., LLC
In the second case, Battino v. Cornelia Fifth Ave., LLC, a different court applied a similar test to that discussed above. However, because the Battino case was before the court on the defendants’ motion for summary judgment (rather than a motion to dismiss at the pleading stage), it provides a greater insight into how courts apply the multi-factor test in ascertaining whether there is successor liability under the FLSA. In Battino, the court denied the subsequent employers’ motion for summary judgment holding that issues of fact precluded a finding in the defendants’ favor on this issue. As discussed here, the court primarily focused its inquiry on the second factor enunciated above, whether the successor knew of the violations at the time it took over the business.
Regarding the specific test applied by the Battino court, the court explained:
The substantial continuity test in the labor relations context looks to “whether the new company has acquired substantial assets of its predecessor and continued, without interruption or substantial change, the predecessor’s business operations.” Fall River, 482 U.S. at 43 (citation and quotation marks omitted). Courts applying this test typically look at the nine factors enunciated by the Sixth Circuit in the Title VII discrimination context in EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1094 (6th Cir.1974): (1) whether the successor company had notice of the charge or pending lawsuit prior to acquiring the business or assets of the predecessor; (2) the ability of the predecessor to provide relief; (3) whether there has been a substantial continuity of business operations; (4) whether the new employer uses the same plant; (5) whether he uses the same or substantially the same work force; (6) whether he uses the same or substantially the same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether he uses the same machinery, equipment, and methods of production; and (9) whether he produces the same product. Musikiwamba, 760 F.2d at 750 (paraphrasing MacMillan Bloedel ). “No one factor is controlling, and it is not necessary that each factor be met to find successor liability.” EEOC v. Barney Skanska Const. Co., 99 Civ.2001, 2000 WL 1617008, at *2 (S .D.N.Y. Oct. 27, 2000) (citation omitted).
In denying the defendants’ motion, the court held that there were issues of fact precluding same, because the successor company could not be said to be an “innocent purchaser,” inasmuch as one of its principals was also a principal in the prior company.
The court explained:
This is not a case of an “innocent purchaser” who “exercised due diligence and failed to uncover evidence” of any potential liability. Musikiwamba, 760 F.2d at 750, 752. Rather, SCFAL was fully aware of the potential liabilities to the unpaid employees and attempted to negotiate the APA accordingly. Thus, the Court is unable to conclude as a matter of law that Canizales cannot be liable as a successor to Cornelia Fifth because of a lack of notice of the claim to SCFAL.
Click Battino v. Cornelia Fifth Ave., LLC to read the entire Opinion and Order.
1st Cir.: Municipality Need Not Give Notice To Its Public Safety Officers Before The Municipality Takes Advantage Of 29 U.S.C. § 207(k); Notice Not A Prerequisite To Application Of Public Safety Exemption
Calvao v. Town Of Framingham
Plaintiffs are police officers of the Town of Framingham who brought a putative class action suit against the Town in April 2005, alleging that the Town had failed to pay them sufficient overtime in violation of the FLSA, 29 U.S.C. §§ 201–19, and seeking damages. In anticipation of the Town’s defense, the officers sought a declaratory judgment that the Town was ineligible for the FLSA’s limited public safety exemption from overtime, 29 U.S.C. § 207(k), because the Town failed to adequately put them on notice of its intent to use 207(k), an exemption eases the FLSA’s overtime pay requirements on public employers who establish work schedules that meet statutory requirements. Affirming the decision of the Court below, the First Circuit held that a Town seeking to utilize 207(k) need not put its public safety employees on formal notice beforehand.
Initially, the Court discussed the legal background of the so-called “Public Safety Exemption” as follows:
“The history and scope of the FLSA public safety exemption set the background. “Congress enacted the FLSA in 1938 to establish nationwide minimum wage and maximum hours standards.” Moreau v. Klevenhagen, 508 U.S. 22, 25 (1993); Ellen C. Kearns et al., The Fair Labor Standards Act § 1.III, at 12-13 (1999). Later amendments in 1966 and 1974 extended the Act’s reach to state and municipal employers. See Moreau, 508 U.S. at 25-26. Despite congressional efforts to mitigate the effect of these amendments on municipal coffers, e.g., Kearns et al., supra § 11.V.B., at 687, the amendments triggered protracted litigation, as state and local public employers mounted constitutional challenges to the FLSA’s regulation of state-employer compensation schemes. See Moreau, 508 U.S. at 26 & n. 6 (collecting cases). In part, the employers were successful. See Nat’l League of Cities v. Usery, 426 U.S. 833, 851-52 (1976) (invalidating 1974 amendments to the FLSA to the extent that they “impermissibly interfere[d] with the integral governmental functions” of states and municipalities).
In February 1985, the Supreme Court upheld Congress’s power under the FLSA to regulate the payments due to state and local employees. See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985). State and municipal authorities reacted with “grave concern” to the decision, due in part to “[t]he projected ‘financial costs of coming into compliance with the FLSA-particularly the overtime provisions.’ “ Moreau, 508 U.S. at 26 (quoting S.Rep. No. 99-159, at 8 (1985)).
In response, both the House and Senate held hearings on the issue “and considered legislation designed to ameliorate the burdens associated with necessary changes in public employment practice.” Id. Congress ultimately enacted several provisions designed to allay public employers’ fears and contain costs. See, e.g., id. Congress also delayed enforcement of the FLSA against state and local employers until April 15, 1986, to give them time to comply with the Act’s amended requirements. See Fair Labor Standards Amendments of 1985, Pub.L. No. 99-150, § 2(c), 99 Stat. 787, 788-89.
Section 207(k) was originally passed in 1974. The provision created a partial FLSA exemption for law enforcement and fire protection personnel (“public safety personnel”). See29 U.S.C. § 207(k). When Garcia held the FLSA applied to municipal employees, § 207(k) became very important to municipalities. See Martin v. Coventry Fire Dist., 981 F.2d 1358, 1361 (1st Cir.1992).
Under the FLSA, employees other than public safety personnel are generally entitled to payment “at a rate not less than one and one-half times” their regular wages for any time worked in excess of forty hours in a seven day period. 29 U.S.C. § 207(a)(1). However, the partial exemption in § 207(k) set a higher threshold number of hours that public safety personnel can work in a twenty-eight day work period-or a proportional number of hours in a shorter work period of at least seven days-before these employees become entitled to overtime compensation. See id. § 207(k).”
After discussing the elements of the 207(k) exemption in detail, the Court addressed the pointed issue in the case, holding that formal notice of the imposition of a 207(k) work schedule is not an element required for a municipality to reap its benefits. The Court reasoned, “Plaintiffs assert that the Town was required to give affected employees notice in order to establish a § 207(k) work period and qualify for the public safety exemption. Plaintiffs’ claim raises an issue of statutory interpretation and is before us on summary judgment. For both of these reasons, our review is de novo. See Chiang v. Verizon New England Inc., No. 09-1214, 2010 WL 431873, at *5 (1st Cir. Feb. 9, 2010). “We may affirm the district court on any basis apparent in the record.” Id.
We reject plaintiffs’ argument in light of § 207(k)‘s text and history, as well as the interpretive guidance given by the Department of Labor in its regulations. On the undisputed facts, the Town’s actions were sufficient to establish a qualifying work period, despite the asserted lack of notice to its employees. Summary judgment was appropriate.
We start with the statutory text. The text of § 207(k) does not specify that a public employer is required to establish a work period or identify how an employer might do so. Further, the text contains no requirement of notice to the affected employee. 29 U.S.C. § 207(k).
The Town points to related legislative history. Congress explicitly rejected a proposal mandating employee agreement before a § 207(k) work period could be established. Barefield v. Vill. of Winnetka, 81 F.3d 704, 710 (7th Cir.1996) (citing H.R.Rep. No. 953, 93d Cong., 2d Sess. (1974) (Conf.Rep.)); see also Agawam, 350 F.3d at 291 (noting that “employees’ approval is not required” under § 207(k)). The Town argues this is indicative that not only was no agreement required but no notice was required. This reading is consistent with Congress’s goal of “ensur[ing] that public agencies would not be unduly burdened by the FLSA’s overtime requirements.” Kearns et al., supra § 11.V.B., at 687; see alsoH.R. Rep. 93-913, at 2837-38 (1974) (describing the House’s original version of § 207(k), which provided for a complete overtime exemption for public safety personnel to help ensure that the FLSA would have a “virtually non-existent” impact on state and local governments).
It is true that § 207(k)‘s text does not prohibit giving notice either. However, Congress expressly delegated responsibility for implementing the statute to the Secretary of Labor, see Moreau, 508 U.S. at 27 (citing 29 U.S.C. § 203), who, after notice and comment, promulgated regulations, see52 Fed.Reg.2012;51 Fed.Reg. 13402 (Apr. 18, 1986). These regulations make it clear the Secretary rejected a notice requirement under § 207(k). Under these circumstances, “Congress clearly ‘expect[ed] the agency to be able to speak with the force of law,’ “ and we “must defer to the regulations’ resolution of a statutory ambiguity, so long as it is ‘reasonable.’ “ Rucker v. Lee Holding Co., 471 F.3d 6, 11 (1st Cir.2006) (quoting United States v. Mead Corp., 533 U.S. 218, 229 (2001)).
During rulemaking, the Secretary of Labor reviewed and rejected a proposal to impose a notice requirement for § 207(k). 52 Fed.Reg. at 2024-25. The Secretary observed that unlike other sections of the FLSA, which “require [ ] that there be an agreement or understanding concerning compensatory time prior to the performance of work, there is no requirement in the Act that an employer formally state its intention or obtain an agreement in advance to pay employees under section 7(k).” Id. at 2025 (emphasis added).
The resulting regulation, 29 C.F.R. § 553.224, plainly rejected both a requirement that municipalities make a formal statement of intention and a requirement that they obtain agreement. The regulation explains that “any established and regularly recurring period of work which, under the terms of the Act and legislative history, cannot be less than 7 consecutive days nor more than 28 consecutive days” suffices as a work period, noting that “[e]xcept for this limitation, the work period can be of any length, and it need not coincide with the duty cycle or pay period or with a particular day of the week or hour of the day.” Id. § 553.224(a).
Section 553.224‘s reference to an “established” work period is the foundation of plaintiffs’ claim that an employer must provide notice to employees to set up a § 207(k) work period. But § 553.224 includes no procedural steps of any kind, let alone a notice requirement.
Our caselaw reflects in dicta the Secretary’s interpretation that federal law in § 207(k) does not require notice to the affected employee, see Agawam, 350 F.3d at 291;see also id. at 291 n .21 (“The work period requirement is ordinarily not a high hurdle.”), as does the law in other circuits to have considered the issue, see Milner, 165 F.3d at 1223 (per curiam) (“[T]he [§ 207(k) ] exemption need not be established by public declaration.”); Spradling v. City of Tulsa, 95 F.3d 1492, 1505 (10th Cir.1996) (“[A] public employer may establish a 7(k) work period even without making a public declaration, as long as its employees actually work a regularly recurring cycle of between 7 and 28 days.”) (internal quotation marks and citation omitted); Barefield, 81 F.3d at 710 (finding a municipal employer entitled to § 207(k) exemption, even though the work schedule at issue predated the enactment of the provision and the employer “made no declaration of intent to come under Section 7(k)”) (internal quotation marks omitted).
Here, the Town has used a § 207(k)-compliant work period at all relevant times. The Town’s memo of April 11, 1986, shows that its “4-2” and “5-3” work cycles are component parts of a fixed, recurring twenty-four day work period. Cf. Agawam, 350 F.3d at 291 (rejecting public employer’s claim to the § 207(k) exemption when the employer used six-day work cycles and could “not point to a single statement or document indicating that it adopted a work period longer than six days”). Both of these schedules are consistent with the identified work period, as both divide evenly into a twenty-four day period. See Avery, 24 F.3d at 1344 (holding that a “five days on, two days off duty cycle, repeated four times” constitutes a “valid twenty-eight day work period”) (internal quotation marks omitted). Additional memoranda discussing the FLSA’s imminent effective date and expressing the Town’s intention to take advantage of the public safety exemption further support this conclusion.
Plaintiffs do not directly challenge the regulatory framework outlined above. They instead urge that a subsequent letter ruling by an administrator at the Department of Labor mandates a notice requirement and is entitled to deference by this court under Auer v. Robbins, 519 U.S. 452, 461 (1988), or Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). That argument was not properly presented to the district court and is waived. E.g., McCoy v. Mass. Inst. of Tech., 950 F.2d 13, 22 (1st Cir.1991). We nonetheless address the claim to ensure clarity on this point of law, and we reject plaintiffs’ assertion for three distinct reasons.
First, the administrator’s letter ruling made no mention of a notice requirement. It said only that “[a]n employer must designate or otherwise objectively establish the work period … and pay the affected employees in accordance with its provisions.” Dep’t of Labor Ltr. Rul. FLSA-1374 (Jan. 3, 1994). The letter’s emphasis on “objectively establish[ing]” a work period is not inconsistent with 29 C.F.R. § 553.224. To the contrary, it merely paraphrases the regulation’s requirement that employers make use of an “established and regularly recurring period of work,” id. § 553.224(a), in order to claim the benefits of the exemption.
Second, the letter responded to an inquiry regarding a specific decision by this court, Martin v. Coventry Fire Dist., 981 F.2d 1358 (1st Cir.1992), which addressed different issues. When responding to the inquiry, the administrator plainly stated that the letter ruling was “based exclusively on the facts and circumstances” presented. Dep’t of Labor Ltr. Rul. FLSA-1374. The letter is irrelevant to plaintiffs’ present argument.
Finally, “[i]nterpretations such as those in opinion letters … do not warrant Chevron-style deference.” Christensen v. Harris County, 529 U.S. 576, 587 (2000). To the contrary, such letters “are ‘entitled to respect’ … only to the extent that th[eir] interpretations have the ‘power to persuade.’ “ Id. (quoting Skidmore, 323 U.S. at 140). Here, the Secretary of Labor explicitly rejected the very position that plaintiffs ascribe to the administrator’s letter, stating clearly during rulemaking that employers need not formally declare their intentions to pay employees under § 207(k). 52 Fed.Reg. at 2024-25. Even if plaintiffs’ reading of the letter were accurate, the letter’s inconsistency with the Secretary’s earlier pronouncement would render it unpersuasive. See Skidmore, 323 U.S. at 140.”
Thus, the Court concluded, “Plaintiffs’ argument fails. The Town was not required to notify plaintiffs that it had established a § 207(k) work period. Summary judgment was appropriately granted.”
D.Neb.: Plaintiffs’ Motion To Extend Opt-in Deadline Granted—Good Cause Shown—Over 500 Notices Initially Went To Old (Incorrect) Addresses
Cortez v. Nebraska Beef, Inc.
This matter was before the court on the plaintiffs’ Motion to Extend Deadline for Putative Class Members to Join the Collective Action. Since, it found the Plaintiffs met the requisite good cause showing, the Court granted Plaintiffs’ Motion.
The relevant facts were as follows: “On June 23, 2009, the plaintiffs filed the instant motion to extend the deadline to allow putative class members to join the FLSA claims. The plaintiffs seek an extension from June 9, 2009, to July 31, 2009. The court held a telephone conference with counsel for the parties on June 26, 2009, and scheduled expedited briefing. The plaintiffs state they contacted putative class members during the process of preparing for class certification and learned several putative class members had not received notice of their right to opt-in. The plaintiffs contend the failure was due to the notice packets being sent to old addresses. The plaintiffs show 504 notice packets (14% of the putative class) were returned as undeliverable. Conversely, 416(12%) opt-in consent forms have been received. The plaintiffs propose re-mailing notices to more current addresses and sending a reminder notice to others in an attempt to increase opt-in participation. The plaintiffs argue the defendants will not suffer undue prejudice by this procedure, which would promote the goals of the FLSA. The plaintiffs contend any putative class members who are not allowed to join this lawsuit may file a parallel lawsuit, thus wasting judicial resources.”
The defendants contended that “the plaintiffs have failed to show good cause to extend the expired opt-in deadline. First, the defendants argue the plaintiffs fail to show how (or how many) updated addresses they have received for putative class members, who have not since had an opportunity to opt-in. Second, the defendants contend the plaintiffs have failed to offer a solution for determining updated information. Third, the defendants assert other forms of notice, such as posted and radio notices, were employed to provide notice in the event the mailing was not successful. Finally, the defendants argue there is no justification to extend the deadline for putative class members who did receive the notice by mailing. The defendants contend the extension would prejudice them by allowing otherwise barred claims.
The company providing administrative services for the opt-in process notes it originally received 907 undeliverable class notices, then promptly sent out 803 notices with updated addresses. As of the date of the declaration 403 of the updated notices had been returned as undeliverable, leaving a total of 504 as “truly undeliverable.” Id. The service company described its efforts at obtaining deliverable addresses.
The court found that the plaintiffs demonstrated “good cause for the extension of time (out of time) to allow putative class members to opt-in to the FLSA claims. See Fed.R.Civ.P. 6(b) (excusable neglect); Fed.R.Civ.P. 16(b ) (good cause); Bradford v. DANA Corp., 249 F.3d 807, 809-10 (8th Cir.2001); see also Thorn v. Blue Cross & Blue Shield of Fla., Inc., 192 F.R.D. 308, 309 (M.D.Fla.2000). The defendants will not suffer unfair prejudice by an extension of time. The defendants failed to show any prejudice. The plaintiffs’ brief extension of time will not delay the resolution of the issues. Although, it is unclear how the plaintiffs would find deliverable addresses for any of the truly undeliverable notices. Similarly, it is unlikely a reminder mailer will generate opt-in responses in the time period requested. It appears the plaintiffs actually seek additional time for known putative plaintiffs to finalize their consents. Under the circumstances, the court finds good cause has been shown for the short extension of the opt-in deadline.” Therefore, Plaintiffs’ Motion to Extend the Opt-in Deadline was extended.