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In a recent published opinion, the Ninth Circuit held that Los Angeles County is a joint employer of state-provided home health care aides and is liable for alleged failures to pay those aides sufficient overtime wages, the Ninth Circuit held Friday. The opinion partially reversed the lower court’s which held that the County was not jointly for the wage violations alleged.
The case arose from California’s In-Home Supportive Services program, a publicly-funded initiative under which the state and counties pay the wages of certain in-home care providers who assist low-income elderly, blind and disabled residents. In 2017, IHSS provider Trina Ray sued both the California Department of Social Services and the LA County Department of Public Social Services, alleging that the governments jointly employed her and failed to pay time and a half overtime premiums.
The district court granted LA County summary judgment, largely relying on the fact that the county had no hand in issuing paychecks to IHSS workers. Rejecting the reasoning of the lower court, the Ninth Circuit held that the county still had sufficient economic control over the program, noting that counties provide 35% of the program’s budget, and counties are able to negotiate for higher-than-minimum wages for home care workers among other things.
Thus, the panel held that counties were joint employers alongside the state under existing Ninth Circuit precedent, reasoning.
However, the panel split on whether the state-level centralization of the IHSS program’s payroll system meant that the county’s FLSA violations were willful. The majority concluded that the state’s ultimate control of pay processes meant counties had no ability to provide overtime pay without authorization.
Writing in partial dissent, U.S. Circuit Judge Marsha Berzon disagreed with the majority’s finding that the county’s FLSA violations were in good faith. Regardless of whether the county or state ordinarily handled payroll, Judge Berzon said that joint employers were individually and jointly responsible for ensuring compliance with the FLSA under Bonnette, prior Ninth Circuit precedent.
“Allowing joint employers to avoid liability for violations of the FLSA by showing they ordinarily did not perform a particular employer function would risk undermining the statute’s remedial purposes,” Judge Berzon said.
It would appear that the dissent is correct in that FLSA, does not permit a finding of “good faith” simply in reliance on or because a joint employer was more actively responsible for the unpaid wages. Rather, well-settled law requires an employer to demonstrate affirmative steps that it undertook to ascertain and comply with the FLSA’s requirements, which appear to be lacking here.
Click Ray v. Los Angeles County Department of Public Social Services to read the entire Opinion.
Click Nurse Wages to learn more about wage and hour rights of home health aides (HHAs), certified nurse assistants (CNAs), licensed nurse practitioners (LPNs) and registered nurses (RNs).
7th Cir.: Truck Driver Adequately Alleged He Was Misclassified as an Independent Contractor and Thus Entitled to Minimum Wage and Overtime
In this case, a truck owner-operator who contracted with an over the road hauling company contended that he was misclassified as an independent contractor, and thus entitled to overtime pay and minimum wages under the Fair Labor Standards Act (FLSA) and Wisconsin law (minimum wage). In addition, the plaintiff alleged that the contracts he signed with the defendant were unconscionable and thus defendant was unjustly enriched because it required him to bear overhead costs that should have been borne by defendant. Finally, plaintiff alleged that defendant violated the Truth in Leasing regulations, based on representations it made to him.
After the district court dismissed the case with leave to amend, the plaintiff amended his complaint, and the defendant moved to dismiss the amended complaint. The lower court again dismissed the complaint, but the second time with prejudice, and held that plaintiff’s claims were essentially barred by the very agreements he was challenging the legality of. On appeal, the Seventh Circuit reversed, noting that employee status is determined by application of the “economic reality” test and thus, reaffirmed the longstanding black letter law that FLSA rights may not abridged by contract.
While Schneider argued that this agreement established that the driver had a high degree of control over his work and that Schneider had therefore properly classified him as an independent contractor, the plaintiff argued that under the controlling test–the economic reality test–he was Schneider’s employee.
Under the FLSA, workers are employees when “as a matter of economic reality, [they] are dependent upon the business to which they render service.” As the Seventh Circuit noted, the economic reality test includes analyzing: (1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer’s business.
In reversing dismissal of the driver’s minimum wage claims, the Seventh Circuit concluded that the district court had “erred by giving decisive effect to the terms of [its] contracts,” when “what matters is the economic reality of the working relationship, not necessarily the terms of a written contract.”
For instance, while the operating agreement gave the driver the ability to choose the route and schedule to follow when delivering a shipment, the driver alleged that “the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.”
Similarly, while the operating agreement gave the driver the ability to choose which Schneider shipments to haul (and in theory, to select more shipments with higher profit margins), the driver alleged that he could not actually exercise this theoretical right to turn down shipments. The driver further alleged that, despite the terms of his contract, Schneider did not allow him to hire workers or haul freight for other carriers.
In light of these allegations, the Seventh Circuit concluded that the driver’s amended complaint had pled sufficient facts to allow a plausible inference that Schneider was his employer and he was its employee, and not an independent contractor. Thus, the Seventh Circuit reversed.
Click Brant v. Schneider National, Inc. to read the entire Opinion.
*** Andrew Frisch and Morgan & Morgan are actively handling and investigating similar cases regarding independent contractor misclassification. If you believe you have been misclassified as an independent contractor by a current or former employer, contact us for a free consultation at (888) OVERTIME [888-683-7846] today. ***
The time a group of call center workers spent booting up their computers is inextricably intertwined with their work and therefore compensable under the Fair Labor Standards Act (FLSA), the Ninth Circuit ruled this week, overturning a win a district court handed to their employer, and joining sister circuits who have reached a similar conclusion.
In a unanimous published decision, the Ninth Circuit reversed a Nevada district court’s 2021 decision which had granted call center employer Customer Connexx LLC summary judgment on the workers’ overtime suit, reasoning that the workers needed to have a functional computer in order to do their jobs. Thus, the panel concluded that the time the call center workers spent booting up the computers is compensable under the Portal-to-Portal Act.
“The employees’ duties cannot be performed without turning on and booting up their work computers, and having a functioning computer is necessary before employees can receive calls and schedule appointments,” U.S. Circuit Judge Jay S. Bybee wrote on behalf of the panel.
Under the Portal-to-Portal Act, which amended the FLSA, employers are not required to pay for time workers spend traveling to and from the place of principal work activities or for time they spend on certain preliminary or postliminary activities which are not integral to their work.
Here, the workers sued in 2018, alleging that Connexx, failed to pay them overtime as required by the FLSA and Nevada law, because they failed to track and compensate them for the time they spent booting up and turning off their computers after they logged into and out of the company’s timekeeping system.
The district court granted Connexx summary judgment in July 2021, finding that the tasks the workers completed before and after they logged out of the company’s timekeeping system were not compensable preliminary and postliminary activities because they did not meet the legal standard to be considered part of their jobs.
The Ninth Circuit disagreed and reversed, saying the district court erred in focusing its reasoning on whether the activities were essential to the workers’ jobs and should have instead put emphasis on whether starting the computer led the call center workers to be able to perform their work. Discussing the issue, the Court explained:
When the employees’ duties are understood in this way, the electronic timekeeping system becomes a red herring. It is a convenience to the employer… It has no impact on the ‘integral and indispensable’ analysis except to show us when Connexx began counting the employees’ time.
Because the workers needed to have “a functional computer … turning on or waking up their computers at the beginning of their shifts is integral and indispensable to their principal activities,” the panel concluded.
The Ninth Circuit also rejected Connexx’s argument that the district court’s decision should be affirmed because the pre-shift time was de minimis and because the company was not aware of the alleged overtime, noting that those are “factual questions” that the lower court didn’t address, and thus not properly before it.
Of note, the panel clarified in a footnote that its opinion focused on the pre-shift activities, and stated that its opinion should not be read to hold that turning the computers off was an integral part of the workers’ jobs.
The Department of Labor had filed an amicus brief in support of the workers, in which it argued the time at issue was compensable under the FLSA, because the workers could not do their jobs without booting up the computers.
Click Cadena v. Customer Connexx LLC to read the entire decision.
*** Andrew Frisch and Morgan & Morgan are actively handling and investigating similar cases on behalf of call center workers. If you believe your call center employer is not paying you for all time worked, contact us for a free consultation at (888) OVERTIME [888-683-7846] today. ***
4th Cir.: Strippers Are Employees NOT Independent Contractors; Trial Court Properly Applied the Economic Reality Test
In this case, multiple exotic dancers sued their dance clubs for failure to comply with the Fair Labor Standards Act and corresponding Maryland wage and hour laws. The district court held that plaintiffs were employees of the defendant companies and not independent contractors as the clubs contended. Following a damages-only trial and judgment on behalf of the dancers, the Defendant-clubs appealed the court’s finding that the dancers were employees and not independent contractors. The Fourth Circuit held that the court properly captured the economic reality of the relationship here, and thus affirmed the judgment.
The Fourth Circuit summarized the salient facts regarding the dancers’ relationship with the defendant-clubs as follows:
Anyone wishing to dance at either club was required to fill out a form and perform an audition. Defendants asked all hired dancers to sign agreements titled “Space/Lease Rental Agreement of Business Space” that explicitly categorized dancers as independent contractors. The clubs began using these agreements after being sued in 2011 by dancers who claimed, as plaintiffs do here, to have been employees rather than independent contractors. Defendant Offiah thereafter consulted an attorney, who drafted the agreement containing the “independent contractor” language.
Plaintiffs’ duties at Fuego and Extasy primarily involved dancing on stage and in certain other areas of the two clubs. At no point did the clubs pay the dancers an hourly wage or any other form of compensation. Rather, plaintiffs’ compensation was limited to performance fees and tips received directly from patrons. The clubs also collected a “tip-in” fee from everyone who entered either dance club, patrons and dancers alike. The dancers and clubs dispute other aspects of their working relationship, including work schedules and policies.
After discussing the traditional elements of the economic reality test, the Fourth Circuit discussed each element and concluded that, overall, they supported the district court’s holding that the dancers were employees and not independent contractors.
Here, as in so many FLSA disputes, plaintiffs and defendants offer competing narratives of their working relationship. The exotic dancers claim that all aspects of their work at Fuego and Extasy were closely regulated by defendants, from their hours to their earnings to their workplace conduct. The clubs, not surprisingly, portray the dancers as free agents that came and went as they pleased and used the clubs as nothing but a rented space in which to perform. The dueling depictions serve to remind us that the employee/independentcontractor distinction is not a bright line but a spectrum, and that courts must struggle with matters of degree rather than issue categorical pronouncements.
Based on the totality of the circumstances presented here, the relationship between plaintiffs and defendants falls on the employee side of the spectrum. Even given that we must view the facts in the light most favorable to defendants, see Ctr. for Individual Freedom, Inc. v. Tennant, 706 F.3d 270, 279 (4th Cir. 2013), we cannot accept defendants’ contrary characterization, which cherry-picks a few facts that supposedly tilt in their favor and downplays the weightier and more numerous factors indicative of an employment relationship. Most critical on the facts of this case is the first factor of the “economic realities” test: the degree of control that the putative employer has over the manner in which the work is performed.
The clubs insist they had very little control over the dancers. Plaintiffs were allegedly free in the clubs’ view to determine their own work schedules, how and when they performed, and whether they danced at clubs other than Fuego and Extasy. But the relaxed working relationship represented by defendants—the kind that perhaps every worker dreams about—finds little support in the record.
To the contrary, plaintiffs described and the district court found the following plain manifestations of defendants’ control over the dancers:
Dancers were required to sign in upon arriving at the club and to pay the “tip-in” or entrance fee required of both dancers and patrons.
The clubs dictated each dancer’s work schedule. As plaintiff Danielle Everett testified, “I ended up having a set schedule once I started at Fuego’s. Tuesdays and Thursdays there, and Mondays, Wednesdays, Fridays, and Saturdays at Extasy.” J.A. 578 (Everett’s deposition). This was typical of the deposition testimony submitted in the summary judgment record.
The clubs imposed written guidelines that all dancers had to obey during working hours. J.A. 769-77 (clubs’ rulebook). These rules went into considerable detail, banning drinking while working, smoking in the clubs’ bathroom, and loitering in the parking lot after business hours. They prohibited dancers from leaving the club and returning later in the night. Dancers were required to wear dance shoes at all times and could not bring family or friends to the clubs during working hours. Violations of the clubs’ guidelines carried penalties such as suspension or dismissal. Although the defendants claimed not to enforce the rules, as the district court put it, “[a]n employer’s ‘potential power’ to enforce its rules and manage dancers’ conduct is a form of control.” J.A. 997 (quoting Hart v. Rick’s Cabaret Int’l, Inc., 967 F.Supp.2d 901, 918 (S.D.N.Y. 2013)).
The clubs set the fees that dancers were supposed to charge patrons for private dances and dictated how tips and fees were handled. The guidelines explicitly state: “[D]o not [overcharge] our customers. If you do, you will be kicked out of the club.” J.A. 771.
Defendants personally instructed dancers on their behavior and conduct at work. For example, one manager stated that he “ ‘coached’ dancers whom he believed did not have the right attitude or were not behaving properly.” J.A. 997.
Defendants managed the clubs’ atmosphere and clientele by making all decisions regarding advertising, hours of operation, and the types of food and beverages sold, as well as handling lighting and music for the dancers. Id.
Reviewing the above factual circumstances into account the Fourth Circuit held that the district court was correct to conclude that the dancers were employees of the clubs under the FLSA and not independent contractors. The Court reasoned:
Taking the above circumstances into account, the district court found that the clubs’ “significant control” over how plaintiffs performed their work bore little resemblance to the latitude normally afforded to independent contractors. J.A. 997. We agree. The many ways in which defendants directed the dancers rose to the level of control that an employer would typically exercise over an employee. To conclude otherwise would unduly downgrade the factor of employer control and exclude workers that the FLSA was designed to embrace.
None of this is to suggest that a worker automatically becomes an employee covered by the FLSA the moment a company exercises any control over him. After all, a company that engages an independent contractor seeks to exert some control, whether expressed orally or in writing, over the performance of the contractor’s duties and over his conduct on the company’s premises. It is rather hard to imagine a party contracting for needed services with an insouciant “Do whatever you want, wherever you want, and however you please.” A company that leases space or otherwise invites independent contractors onto its property might at a minimum wish to prohibit smoking and littering or to set the hours of use in order to keep the premises in good shape. Such conditions, along with the terms of performance and compensation, are part and parcel of bargaining between parties whose independent contractual status is not in dispute.
If any sign of control or any restriction on use of space could convert an independent contractor into an employee, there would soon be nothing left of the former category. Workers and managers alike might sorely miss the flexibility and freedom that independent-contractor status confers. But the degree of control the clubs exercised here over all aspects of the individual dancers’ work and of the clubs’ operation argues in favor of an employment relationship. Each of the other five factors of the “economic realities” test is either neutral or leads us in the same direction.
Two of those factors relate logically to one other: “the worker’s opportunities for profit or loss dependent on his managerial skill” and “the worker’s investment in equipment or material, or his employment of other workers.” Schultz, 466 F.3d at 305. The relevance of these two factors is intuitive. The more the worker’s earnings depend on his own managerial capacity rather than the company’s, and the more he is personally invested in the capital and labor of the enterprise, the less the worker is “economically dependent on the business” and the more he is “in business for himself” and hence an independent contractor. Id. at 304 (quoting Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 570 (10th Cir. 1994)).
The clubs attempt to capitalize on these two factors by highlighting that dancers relied on their own skill and ability to attract clients. They further contend that dancers sold tickets for entrance to the two clubs, distributed promotional flyers, and put their own photos on the flyers. As the district court noted, however, “[t]his argument—that dancers can ‘hustle’ to increase their profits—has been almost universally rejected.” J.A. 999 (collecting cases). It is natural for an employee to do his part in drumming up business for his employer, especially if the employee’s earnings depend on it. An obvious example might be a salesperson in a retail store who works hard at drawing foot traffic into the store. The skill that the employee exercises in that context is not managerial but simply good salesmanship.
Here, the lion’s share of the managerial skill and investment normally expected of employers came from the defendants. The district court found that the clubs’ managers “controlled the stream of clientele that appeared at the clubs by setting the clubs’ hours, coordinating and paying for all advertising, and managing the atmosphere within the clubs.” J.A. 1001. They “ultimately controlled a key determinant—pricing—affecting [p]laintiffs’ ability to make a profit.” Id. In terms of investment, defendants paid “rent for both clubs; the clubs’ bills such as water and electric; business liability insurance; and for radio and print advertising,” as well as wages for all non-performing staff. Id. at 1002. The dancers’ investment was limited to their own apparel and, on occasion, food and decorations they brought to the clubs. Id. at 1002-03.
On balance then, plaintiffs’ opportunities for profit or loss depended far more on defendants’ management and decision-making than on their own, and defendants’ investment in the clubs’ operation far exceeded the plaintiffs’. These two factors thus fail to tip the scales in favor of classifying the dancers as independent contractors.
As with the control factor, however, neither of these two elements should be overstated. Those who engage independent contractorsare often themselves companies or small businesses with employees of their own. Therefore, they have most likely invested in the labor and capital necessary to operate the business, taken on overhead costs, and exercised their managerial skill in ways that affect the opportunities for profit of their workers. Those fundamental components of running a company, however, hardly render anyone with whom the company transacts business an “employee” under the FLSA. The focus, as suggested by the wording of these two factors, should remain on the worker’s contribution to managerial decision-making and investment relative to the company’s. In this case, the ratio of managerial skill and operational support tilts too heavily towards the clubs to support an independent-contractor classification for the dancers.
The final three factors are more peripheral to the dispute here and will be discussed only briefly: the degree of skill required for the work; the permanence of the working relationship; and the degree to which the services rendered are an integral part of the putative employer’s business. As to the degree of skill required, the clubs conceded that they did not require dancers to have prior dancing experience. The district court properly found that “the minimal degree of skill required for exotic dancing at these clubs” supported anemployee classification. J.A. 1003-04. Moreover, even the skill displayed by the most accomplished dancers in a ballet company would hardly by itself be sufficient to denote an independent contractor designation.
As to the permanence of the working relationship, courts have generally accorded this factor little weight in challenges brought by exotic dancers given the inherently “itinerant” nature of their work. J.A. 1004-05; see also Harrell v. Diamond A Entm’t, Inc., 992 F.Supp. 1343, 1352 (M.D. Fla. 1997). In this case, defendants and plaintiffs had “an at-will arrangement that could be terminated by either party at any time.” J.A. 1005. Because this type of agreement could characterize either an employee or an independent contractor depending on the other circumstances of the working relationship, we agree with the district court that this temporal element does not affect the outcome here.
Finally, as to the importance of the services rendered to the company’s business, even the clubs had to concede the point that an “exotic dance club could [not] function, much less be profitable, without exotic dancers.” Secretary of Labor’s Amicus Br. in Supp. of Appellees 24. Indeed, “the exotic dancers were the only source of entertainment for customers …. especially considering that neither club served alcohol or food.” J.A. 1006. Considering all six factors together, particularly the defendants’ high degree of control over the dancers, the totality of circumstances speak clearly to an employer-employee relationship between plaintiffs and defendants. The trial court was right to term it such.
Significantly, the Fourth Circuit also affirmed the trial court’s holding that the performance fees collected by the dancers directly from the clubs’ patrons were not wages, and that the clubs were not entitled to claim same as an offset in an effort to meet their minimum wage wage obligations. Discussing this issue, the Court explained:
Appellants’ second attack on their liability for damages targets the district court’s alleged error in excluding from trial evidence regarding plaintiffs’ income tax returns, performance fees, and tips. The clubs contend that fees and tips kept by the dancers would have reduced any compensation that defendants owed plaintiffs under the FLSA and MWHL. According to defendants, the fees and tips dancers received directly from patrons exceeded the minimum wage mandated by federal and state law. Had the evidence been admitted, the argument goes, the jury may have awarded plaintiffs less in unpaid wages.
We disagree. The district court found that evidence related to plaintiffs’ earnings was irrelevant or, if relevant, posed a danger of confusing the issues and misleading the jury. See Fed. R. Evid. 403. Proof of tips and fees received was irrelevant here because theFLSA precludes defendants from using tips or fees to offset the minimum wage they were required to pay plaintiffs. To be eligible for the “tip credit” under the FLSA and corresponding Maryland law, defendants were required to pay dancers the minimum wage set for those receiving tip income and to notify employees of the “tip credit” provision. 29 U.S.C. 203(m); Md. Code Ann., Lab. & Empl. § 3-419 (West 2014). The clubs paid the dancers no compensation of any kind and afforded them no notice. They cannot therefore claim the “tip credit.”
The clubs are likewise ineligible to use performance fees paid by patrons to the dancers to reduce their liability. Appellants appear to distinguish performance fees from tips in their argument, without providing much analysis in their briefs on a question that has occupied other courts. See, e.g., Hart, 967 F.Supp.2d at 926-34 (discussing how performance fees received by exotic dancers relate to minimum wage obligations). If performance fees do constitute tips, defendants would certainly be entitled to no offset because, as noted above, they cannot claim any “tip credit.” For the sake of argument, however, we treat performance fees as a possible separate offset within the FLSA’s “service charge” category. Even with this benefit of the doubt, defendants come up short.
For purposes of the FLSA, a “service charge” is a “compulsory charge for service … imposed on a customer by an employer’s establishment.” 29 C.F.R. § 531.55(a). There are at least two prerequisites to counting “service charges” as an offset to an employer’s minimum-wage liability. The service charge “must have been included in the establishment’s gross receipts,” Hart, 967 F.Supp.2d at 929, and it must have been “distributed by the employer to its employees,” 29 C.F.R. § 531.55(b). These requirements are necessary to ensure that employees actually received the service charges as part of their compensation as opposed to relying on the employer’s assertion or say-so. See Hart, 967 F.Supp.2d at 930. We do not minimize the recordkeeping burdens of the FLSA, especially on small businesses, but some such obligations have been regarded as necessary to ensure compliance with the statute.
Neither condition for applying the service-charge offset is met here. As conceded by defendant Offiah, the dance clubs never recorded or included as part of the dance clubs’ gross receipts any payments that patrons paid directly to dancers. J.A. 491-97 (Offiah’s deposition). When asked about performance fees during his deposition, defendant Offiah repeatedly stressed that fees belong solely to the dancers. Id. Since none of those payments ever went to the clubs’ proprietors, defendants also could not have distributed any part of those service charges to the dancers. As a result, the “service charge” offset is unavailable to defendants. Accordingly, the trial court correctly excluded evidence showing plaintiffs’ earnings in the form of tips and performance fees.
This case is significant because, while many district courts have reached the same conclusions, this is the first Circuit Court decision to affirm same.
Click McFeeley v. Jackson Street Entertainment, LLC to read the entire Fourth Circuit decision.
9th Cir.: Employers May NOT Retain Employee Tips Even Where They Do Not Take a Tip Credit; 2011 DOL Regulations Which Post-Dated Woody Woo Due Chevron Deference Because Existing Law Was Silent and Interpretation is Reasonable
In a case that will likely have very wide-reaching effects, this week the Ninth Circuit reversed 2 lower court decisions which has invalidated the Department of Labor’s 2011 tip credit regulations. Specifically, the lower courts had held, in accordance with the Ninth Circuit’s Woody Woo decision which pre-dated the regulations at issue, that the DOL lacked the authority to regulate employers who did not take a tip credit with respect to how they treated their employees’ tips. Holding that the 2011 regulations were due so-called Chevron deference, the Ninth Circuit held that the lower court had incorrectly relied on its own Woody Woo case because the statutory/regulatory silence that had existed when Woody Woo was decided had been properly filled by the 2011 regulations. As such, the Ninth Circuit held that the lower court was required to give the DOL regulation deference and as such, an employer may never retain any portion of its employees tips, regardless of whether it avails itself of the tip credit or not.
Framing the issue, the Ninth Circuit explained “[t]he precise question before this court is whether the DOL may regulate the tip pooling practices of employers who do not take a tip credit.” It further noted that while “[t]he restaurants and casinos [appellees] argue that we answered this question in Cumbie. We did not.”
The court then applied Chevron analysis to the DOL’s 2011 regulation at issue.
Holding that the regulation filled a statutory silence that existed at the time of the regulation, and thus met Step 1 of Chevron, the court reasoned:
as Christensen strongly suggests, there is a distinction between court decisions that interpret statutory commands and court decisions that interpret statutory silence. Moreover, Chevron itself distinguishes between statutes that directly address the precise question at issue and those for which the statute is “silent.” Chevron, 467 U.S. at 843. As such, if a court holds that a statute unambiguously protects or prohibits certain conduct, the court “leaves no room for agency discretion” under Brand X, 545 U.S. at 982. However, if a court holds that a statute does not prohibit conduct because it is silent, the court’s ruling leaves room for agency discretion under Christensen.
Cumbie falls precisely into the latter category of cases—cases grounded in statutory silence. When we decided Cumbie, the DOL had not yet promulgated the 2011 rule. Thus, there was no occasion to conduct a Chevron analysis in Cumbie because there was no agency interpretation to analyze. The Cumbie analysis was limited to the text of section 203(m). After a careful reading of section 203(m) in Cumbie, we found that “nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken” and therefore there was “no statutory impediment” to the practice. 596 F.3d at 583. Applying the reasoning in Christensen, we conclude that section 203(m)‘s clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule. Whereas the restaurants, casinos, and the district courts equate this silence concerning employers who do not take a tip credit to “repudiation” of future regulation of such employers, we decline to make that great leap without more persuasive evidence. See United States v. Home Concrete & Supply, LLC, 132 S. Ct 1836, 1843, 182 L. Ed. 2d 746 (2012) (“[A] statute’s silence or ambiguity as to a particular issue means that Congress has . . . likely delegat[ed] gap-filling power to the agency[.]”); Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222, 129 S. Ct. 1498, 173 L. Ed. 2d 369 (2009) (“[S]ilence is meant to convey nothing more than a refusal to tie the agency’s hands . . . .”); S.J. Amoroso Constr. Co. v. United States, 981 F.2d 1073, 1075 (9th Cir. 1992) (“Without language in the statute so precluding [the agency’s challenged interpretation], it must be said that Congress has not spoken to the issue.”).
In sum, we conclude that step one of the Chevron analysis is satisfied because the FLSA is silent regarding the tip pooling practices of employers who do not take a tip credit. Our decision in Cumbie did not hold otherwise.
Proceeding to step 2 of Chevron analysis, the court held that the 2011 regulation was reasonable in light of the existing statutory framework of the FLSA and its legislative history. The court reasoned:
The DOL promulgated the 2011 rule after taking into consideration numerous comments and our holding in Cumbie. The AFL-CIO, National Employment Lawyers Association, and the Chamber of Commerce all commented that section 203(m) was either “confusing” or “misleading” with respect to the ownership of tips. 76 Fed. Reg. at 18840-41. The DOL also considered our reading of section 203(m) in Cumbie and concluded that, as written, 203(m) contained a “loophole” that allowed employers to exploit the FLSA tipping provisions. Id. at 18841. It was certainly reasonable to conclude that clarification by the DOL was needed. The DOL’s clarification—the 2011 rule—was a reasonable response to these comments and relevant case law.
The legislative history of the FLSA supports the DOL’s interpretation of section 203(m) of the FLSA. An “authoritative source for finding the Legislature’s intent lies in the Committee Reports on the bill, which represent the considered and collective understanding of those Congressmen [and women] involved in drafting and studying proposed legislation.” Garcia v. United States, 469 U.S. 70, 76, 105 S. Ct. 479, 83 L. Ed. 2d 472 (1984) (citation and internal quotation marks omitted). On February 21, 1974, the Senate Committee published its views on the 1974 amendments to section 203(m). S. Rep. No. 93-690 (1974).
Rejecting the employer-appellees argument that the regulation was unreasonable, the court explained:
Employer-Appellees argue that the report reveals an intent contrary to the DOL’s interpretation because the report states that an “employer will lose the benefit of [the tip credit] exception if tipped employees are required to share their tips with employees who do not customarily and regularly receive tips[.]” In other words, Appellees contend that Congress viewed the ability to take a tip credit as a benefit that came with conditions and should an employer fail to meet these conditions, such employer would be ineligible to reap the benefits of taking a tip credit. While this is a fair interpretation of the statute, it is a leap too far to conclude that Congress clearly intended to deprive the DOL the ability to later apply similar conditions on employers who do not take a tip credit.
The court also examined the Senate Committee’s report with regard to the enactment of 203(m), the statutory section to which the 2011 regulation was enacted to interpret and stated:
Moreover, the surrounding text in the Senate Committee report supports the DOL’s reading of section 203(m). The Committee reported that the 1974 amendment “modifies section 3(m) of the Fair Labor Standards Act by requiring . . . that all tips received be paid out to tipped employees.” S. Rep. No. 93-690, at 42. This language supports the DOL’s statutory construction that “[t]ips are the property of the employee whether or not the employer has taken a tip credit.” 29 C.F.R. § 531.52. In the same report, the Committee wrote that “tipped employee[s] should have stronger protection,” and reiterated that a “tip is . . . distinguished from payment of a charge . . . [and the customer] has the right to determine who shall be the recipient of the gratuity.” S. Rep. No. 93-690, at 42.
In 1977, the Committee again reported that “[t]ips are not wages, and under the 1974 amendments tips must be retained by the employees . . . and cannot be paid to the employer or otherwise used by the employer to offset his wage obligation, except to the extent permitted by section 3(m).” S. Rep. No. 95-440 at 368 (1977) (emphasis added). The use of the word “or” supports the DOL’s interpretation of the FLSA because it implies that the only acceptable use by an employer of employee tips is a tip credit.
Additionally, we find that the purpose of the FLSA does not support the view that Congress clearly intended to permanently allow employers that do not take a tip credit to do whatever they wish with their employees’ tips. The district courts’ reading that the FLSA provides “specific statutory protections” related only to “substandard wages and oppressive working hours” is too narrow. As previously noted, the FLSA is a broad and remedial act that Congress has frequently expanded and extended.
Considering the statements in the relevant legislative history and the purpose and structure of the FLSA, we find that the DOL’s interpretation is more closely aligned with Congressional intent, and at the very least, that the DOL’s interpretation is reasonable.
Finally, the court explained that it was not overruling Woody Woo, because Woody Woo had been decided prior to the enactment of the regulation at issue when there was regulatory silence on the issue, whereas this case was decided after the 2011 DOL regulations filled that silence.
This case is likely to have wide-ranging impacts throughout the country because previously district court’s have largely simply ignored the 2011 regulations like the lower court’s here, incorrectly relying on the Woody Woo case which pre-dated the regulation.
Click Oregon Rest. & Lodging Ass’n v. Perez to read the entire decision.
E.D.Pa.: Late Payment of Wages Constitutes Non-Payment of Wages, Subjecting Employer to Liquidated Damages Under FLSA
This case was before the court on the defendant’s motion to dismiss plaintiff’s complaint for failure to state a claim. The issue before the court was whether a defendant/employer who makes payment to its employee of his or her wages, but does so 1 week after such wages are due, is nonetheless liable for liquidated damages under the FLSA. Answering the question in the affirmative, the court held that late payment (in this case 1 week after the regular payday) constituted non-payment under the FLSA, and therefore liquidated damages were due under the FLSA notwithstanding the fact the employer had ultimately made payment of the wages due.
As a starting point for deciding the issue, the court examined the purpose of liquidated damages, as stated previously stated by the Third Circuit:
[t]hese liquidated damages … compensate employees for the losses they may have suffered by reason of not receiving their proper wages at the time they were due.” Id. at 1299 (emphasis added). Our Court of Appeals clearly contemplated that injury from lost wages under the FLSA is to be measured from the payday on which wages are ordinarily to be paid.
Explaining that the Third Circuit had not spoken on the issue subsequent to the 1991 case, Selker, that it quoted, the court turned to the case law from other circuits for guidance on the issue:
[t]he Court of Appeals for the Ninth Circuit cited the Selker decision favorably in Biggs v. Wilson, 1 F.3d 1537, 1542 (9th Cir.1993). There the court undertook a detailed analysis of whether late payment constitutes nonpayment under the FLSA. The issue in that case was whether the State of California, in paying its highway maintenance workers 14–15 days late as a result of a budget impasse, violated the FLSA. Drawing on the language of the statute, mandatory and persuasive authority from other federal courts including Selker, the opinion of the Department of Labor, and policy considerations, the court concluded that payment at a point after payday is tantamount to nonpayment under the FLSA. Id . at 1539–44. Invited by the state to craft a balancing test to distinguish late payment from nonpayment, the court found that any such line drawing would be unworkable under the statutory scheme and detrimental to employees seeking the statute’s protection. Id. at 1540.
The court also rejected the argument that this was an overly harsh result, especially because of the FLSA’s remedial purpose:
This may appear to be a harsh result, causing an otherwise diligent employer who misses payday by a day or two to be subject to liability under the statute. Nonetheless, it must be remembered that the FLSA is to be liberally construed to achieve its purpose. Mitchell v. Lublin, McGaughy & Assocs., 358 U.S. 207, 211, 79 S.Ct. 260, 3 L.Ed.2d 243 (1959). The law is there to protect those who are receiving a minimum wage and are living from paycheck to paycheck. A delay of a few days or a week in the remittance of wages may only be a minor inconvenience to some, but for those at the lower end of the economic scale, even a brief delay can have serious and immediate adverse consequences.
Thus, the court denied the defendant’s motion to dismiss.
Click Gordon v. Maxim Healthcare Services, Inc. to read the entire Memorandum Opinion.
Editor’s Note: Within weeks of this decision, the Court of Federal Claims was called upon to rule upon the same issue and agreed with the Gordon court’s analysis and holding. In the context of government workers, whose paychecks were delayed approximately 2 weeks, by the government’s shutdown in the fall of 2013, the court held that late payment constitutes non-payment, such that the FLSA’s liquidated damages provisions were triggered. Click Martin v. United States to read the Opinion and Order in that case.
Rother v. Lupenko
As with many concepts in the law, many practitioners know something to be true, but they are not exactly sure why or what the authority for the position is. Such seems to be true with regard to the notion that an employer’s failure to tender an employee’s paycheck on the regular payday, constitutes a minimum wage violation. For anyone who is ever faced with this issue, a recent decision from the Ninth Circuit provides clear authority for this position. After a jury verdict in the plaintiff’s favor, all parties appealed various parts of the final judgment. As discussed here, the plaintiff appealed the District Court’s Order granting the defendants summary judgment on her late last paycheck (minimum wage) claim. The Ninth Circuit reversed the decision and held that the defendants failure to tender the plaintiff’s final paycheck on the normal payday was a minimum wage violation under the FLSA.
Briefly discussing the issue, the court reasoned:
Although there is no provision in the FLSA that explicitly requires an employer to pay its employees in a timely fashion, this Circuit has read one into the Act. Biggs v. Wilson, 1 F.3d 1537, 1541 (9th Cir.1993). In Biggs, we held that payment must be made on payday, and that a late payment immediately becomes a violation equivalent to non-payment. Id. at 1540. “After [payday], the minimum wage is ‘unpaid.’ ” Id. at 1544. The district court misread Biggs. For purposes of the FLSA, there is no distinction between late payment violations and minimum wage violations: late payment is a minimum wage violation. See id. Accordingly, we reverse the district court’s entry of summary judgment for Defendants on Plaintiffs’ federal minimum wage claim.
Click Rother v. Lupenko to read the entire Memorandum Opinion.
S.D.N.Y.: De Minimis Exception Applies Only in Cases Where There is a “Practical Administrative Difficulty in Recording Time”
Chavez v. Panda Jive, Inc.
Anyone who handles more than a handful of FLSA cases no doubt knows that defendants often raise an affirmative defense regarding the de minimis nature of the work. Typically the defense asserted claims that even if the defendants failed to properly pay the plaintiff for all time due and owing under the FLSA, such time was de minimis, so no damages are due and owing. And, while most of the decisions discussing the issue focus on the amount of time that is (or is not) de minimis as a matter of law, a recent case sheds light on the narrow circumstances where the defense is even available to an employer. And, as it turns out, the defense is likely applicable far less than you might have thought, only in circumstances where there is a “practical administrative difficulty in recording [the employee’s] time,” as discussed briefly in this case.
In this case, the plaintiff’s time records clearly showed overtime hours worked, however the defendant paid him only straight time for his overtime hours, and not time and a half. As the court’s opinion indicates, initially the defendant had raised an exemption defense, however because the plaintiff was admittedly paid by the hour, the defendant ultimately conceded that the plaintiff was generally entitled to overtime (which he was not paid) when he worked over 40 hours in a work week. However, the defendant asserted that because such time was “de minimis” it was not recoverable under the FLSA. Rejecting defendant’s contention, the court explained:
The de minimis exception applies, however, only in cases where there is a “practical administrative difficulty of recording additional time,” such as an employee’s commuting time. Singh v. City of New York, 524 F.3d 361, 371 (2d Cir.2008) (Sotomayor, J.); Reich v. N.Y. Transit Auth., 45 F.3d 646, 652 (2d Cir.1995). This is not such a case: defendants concede that they paid Chavez only straight time for hours for which their own records explicitly show he was owed time and a half. See, e.g., Reply Memorandum of Law in Support of Defendants’ Motion for Summary Judgment dated May 4, 2012 at 4–5; Tr. at 5–6. Accordingly, the Court grants summary judgment to plaintiff on the issue of liability against defendant Panda Jive for overtime hours Chavez worked prior to moving back to Penelope’s kitchen in December 2009.
Click Chavez v. Panda Jive, Inc. to read the entire Memorandum Order.
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.
S.D.Fla.: Defendants Did Not Moot FLSA Case By Tender of Unpaid Wages and Liquidated Damages Without Attorneys Fees and Costs
Diaz v. Jaguar Restaurant Group, LLC
In the first post-Dionne II case, a court in the Southern District has denied an FLSA defendants’ motion to dismiss based on tender of unpaid wages and liquidated damages, absent payment of attorneys fees and costs. The bizarre procedural history involved the defendants “tender” of wages and liquidated damages, only after prevailing at trial, and reversal at the Eleventh Circuit due to the trial court’s order permitting the defendants to amend their answer to assert a previously unpled exemption during the trial.
The Order reads in part:
“To a great extent, the pending motion to dismiss has now been rendered moot by the Eleventh Circuit’s substitute opinion entered in the case of Dionne v. Floormasters Enterprises, Inc., No. 09-15405 (11th Cir. Jan. 13, 2012), which clarified that the Court’s opinion in that case is limited to its very narrow facts and, specifically, requires a concession of mootness and does not apply to the tender of full payment of amounts claimed by the employee in a FLSA case before trial or after judgment. The pending motion is based entirely upon a proposed extension of the Court’s now-withdrawn original opinion. Moreover, other cases that considered the issues raised here rejected attempts to expand the scope of the original opinion. See, e.g., Tapia v. Florida Cleanex, Inc., No. 09-21569 (S.D. Fla. Oct. 12, 2011) (Ungaro, J., D.E. 67, collecting cases). Judge Ungaro’s opinion has now been sustained by the Eleventh Circuit on rehearing. And, even under the original panel opinion, the Court could not possibly find that Defendant’s unilateral actions taken after a trial and an appeal rendered Plaintiff’s claim for damages and attorneys’ fees moot. But, in any event, the entire issue is now moot for purposes of this case.”
Click Diaz v Jaguar Restaurant Group, LLC to read the entire Order (contained in the Docket Sheet for the case at Docket Entry 108).
Thanks to Rex Burch for the head’s up on this Order.