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U.S.S.C.: Where Named Plaintiff Acknowledged That Unaccepted OJ Mooted Her Claim, Collective Action Mooted and May Not Proceed
Genesis Healthcare Corp. v. Symczyk
What effect, if any, does an unaccepted “full relief” offer of judgment have on the ability of a named plaintiff to continue with his or her putative collective action claims under the FLSA? This was the question FLSA practitioners had eagerly awaited the answer of from the Supreme Court, ever since the Court accepted certiorti of the Symczyk v. Genesis Healthcare Corp. However, in a decision of almost no real world value, the Court elected to dodge this question and instead answer its own hypothetical question/issue, so limited in scope, that Justice Kagan (in her dissent) points out, it has absolutely no value in practical application. For this reason, at least one practitioner surveyed regarding the opinion stated, “I don’t care about this decision at all. Really pretty meaningless.” In order to understand why such a seemingly important opinion actually means so little we must examine exactly what the Court decided and on what facts it made its decision.
As stated by the Court, its actual holding was that:
a collective action brought by single employee on behalf of herself and all similarly situated employees for employer’s alleged violation of the Fair Labor Standards Act (FLSA) was no longer justiciable when, as conceded by plaintiff-employee, her individual claim became moot as result of offer of judgment by employer in amount sufficient to make her whole.
Describing the relevant facts the Court explained:
In 2009, respondent, who was formerly employed by petitioners as a registered nurse at Pennypack Center in Philadelphia, Pennsylvania, filed a complaint on behalf of herself and “all other persons similarly situated.” App. 115–116. Respondent alleged that petitioners violated the FLSA by automatically deducting 30 minutes of time worked per shift for meal breaks for certain employees, even when the employees performed compensable work during those breaks. Respondent, who remained the sole plaintiff throughout these proceedings, sought statutory damages for the alleged violations.
When petitioners answered the complaint, they simultaneously served upon respondent an offer of judgment under Federal Rule of Civil Procedure 68. The offer included $7,500 for alleged unpaid wages, in addition to “such reasonable attorneys’ fees, costs, and expenses … as the Court may determine.” Id., at 77. Petitioners stipulated that if respondent did not accept the offer within 10 days after service, the offer would be deemed withdrawn.
After respondent failed to respond in the allotted time period, petitioners filed a motion to dismiss for lack of subject-matter jurisdiction. Petitioners argued that because they offered respondent complete relief on her individual damages claim, she no longer possessed a personal stake in the outcome of the suit, rendering the action moot. Respondent objected, arguing that petitioners were inappropriately attempting to “pick off” the named plaintiff before the collective-action process could unfold. Id., at 91.
The District Court found that it was undisputed that no other individuals had joined respondent’s suit and that the Rule 68 offer of judgment fully satisfied her individual claim. It concluded that petitioners’ Rule 68 offer of judgment mooted respondent’s suit, which it dismissed for lack of subject-matter jurisdiction.
Although discussed in detail by Justice Kagan in her dissent, the Court’s majority opinion, penned by Justice Thomas ignored the fact that the plaintiff actually received no money, no judgment and no settlement as a result of the unaccepted offer of judgment. Nonetheless, the Court reasoned, because the plaintiff had ostensibly stipulated at the district court that her claim was mooted by the unaccepted offer of judgment, and she had failed to cross-appeal to the Supreme Court (a decision which was entirely in her favor), the Court refused to entertain the plaintiff’s argument that the unaccepted OJ could not have mooted the case in the first place. Instead, charging ahead, under the false pretense that the unaccepted OJ had in fact mooted the plaintiff’s individual claim, the Court went on to hold that under such (imagined) circumstances, a defendant could “pick off” an FLSA collective action, where the plaintiff has not sought conditional certification of a collective action at the time he or she receives an offer of judgment that he or she acknowledges moots his or her individual claim.
While the Court’s majority went to great length to distinguish the collective action mechanism of 216(b) from the Rule 23 class action mechanism on which the reasoning of Circuit Courts have relied in reaching the opposite conclusion, the Court failed to acknowledge it was deciding an issue that was really not even before it, and in practicality unlikely to ever appear before any court ever again.
In a stinging must-read dissent Justice Kagan pointed this out and ridiculed the conservative majority for essentially wasting everyone’s time with a meaningless opinion. The Court ultimately failed to answer the real issue of interest- what effect does an unaccepted “full relief” offer of judgment have on the ability of a named-plaintiff to pursue a collective action. As Justice Kagan noted, the text of Rule 68 dictates it should have no effect at all. Pointing out that the plaintiff had actually received no recovery in the case, because the offer of judgment at issue was not accepted, Kagan went reasoned, the majority’s opinion had virtually no application outside of the contrived facts on which it was based. Kagan began:
The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it. The issue here, the majority tells us, is whether a ” ‘ collective action’ ” brought under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., “is justiciable when the lone plaintiff’s individual claim becomes moot.” Ante, at ––––. Embedded within that question is a crucial premise: that the individual claim has become moot, as the lower courts held and the majority assumes without deciding. But what if that premise is bogus? What if the plaintiff’s individual claim here never became moot? And what if, in addition, no similar claim for damages will ever become moot? In that event, the majority’s decision—founded as it is on an unfounded assumption—would have no real-world meaning or application. The decision would turn out to be the most one-off of one-offs, explaining only what (the majority thinks) should happen to a proposed collective FLSA action when something that in fact never happens to an individual FLSA claim is errantly thought to have done so. That is the case here, for reasons I’ll describe. Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.
Although this was a case watched most by FLSA practitioners for obvious reasons, it is a case which further highlights the absurd pro-big business mentality employed by today’s conservative majority on the court. In fact, as an aside Kagan took another parting shot at the similarly limited opinion just issued by the court in the Comcast case. (In footnote 2 to her dissent, she notes, “[f]or similarly questionable deployment of this Court’s adjudicatory authority, see Comcast Corp. v. Behrend, 569 U.S. ––––, ––––, 133 S.Ct. 1426, 1437, ––– L.Ed.2d –––– (2013) (joint opinion of GINSBURG and BREYER, JJ.) (observing in dissent that “[t]he Court’s ruling is good for this day and case only”).”).
In sum, this decision will leave practitioners scratching their heads. It is unclear what, if any, actual effect it will have on future cases. For this reason, one has to wonder- why did the Court take up the case in the first place. It would seem that absent a stipulation by a plaintiff that his or her case is mooted by a Rule 68 offer of judgment (which in fact is an impossibility) or an acceptance of such an offer of judgment, a defendant still may not moot a putative collective action with an offer of judgment.
Click Genesis Healthcare Corp. v. Symczyk to read the Court’s entire opinion and Justice Kagan’s dissent.
The Pittsburgh Post-Gazette reports that a new law defining who is an employee (versue independent contractor) is being greated enthusiastically by Pennsylvania workers:
“Union laborers are claiming victory now that Gov. Ed Rendell has signed a law aimed at curtailing construction companies’ ability to skirt taxes — and cut its own costs and liability — by labeling its workers independent contractors.
By classifying their workers as “independent contractors” instead of employees, companies can avoid paying unemployment compensation and workers’ compensation taxes.
Avoiding those taxes, according to labor groups, reduces employer costs and allows such companies to underbid contracting companies that are following the letter of the law.
The new law — formerly House Bill 400 and now Act 72 — is called the Construction Workplace Misclassification Act. Contracting companies that violate the act could be subject to fines and criminal prosecution. There’s also an “acting in concert” provision, which would penalize anyone who knowingly hires a contractor that is in violation of the act.
“It really will start to separate responsible contractors from irresponsible contractors,” said Jason Fincke, executive director of the Builders Guild of Western Pennsylvania, a labor management and contractor association group.
The point of the law isn’t to eliminate the use of independent contractors in the construction industry, he said.
“If there’s a service that you need that you don’t normally provide, you would get someone to do that for you,” Mr. Fincke said. “That’s a legitimate independent contractor.”
The law applies to the construction field only, to the regret of the Teamsters, who had hoped the law would be expanded to include truck drivers (and other kinds of workers) as well. The Teamsters have been fighting with Moon-based FedEx Ground, which classifies its drivers independent contractors. FedEx says its drivers are “small business owners” because they own their own equipment.”
To read the entire article go to Pittsburgh Post-Gazette.
Today’s Boston Globe reports that:
“Beth Israel Deaconess Medical Center and other CareGroup Inc. affiliates have agreed to settle a class-action lawsuit against the hospital chain that alleges workers were not paid for working through lunch breaks or beyond their scheduled shifts. The settlement, if given court approval, will cover as many as 9,000 current and former CareGroup employees.
CareGroup Inc. and its affiliates — Beth Israel, Beth Israel Deaconess-Needham, Mount Auburn Hospital, and New England Baptist Hospital — will pay up to $8.5 million. The settlement will include payments to cover back wages. CareGroup and its affiliates deny any wrongdoing.”
To read the entire story, click here.
M.D.Fla.: Approval Of Confidential Settlement In FLSA Case Rejected; Confidentiality Frustrates Remedial Purposes Of The FLSA
Dees v. Hydradry, Inc.
This case was before the Court on the parties’ Joint Stipulation of Dismissal. Although, the Court noted that, “a private settlement and stipulation for dismissal ends the typical case without judicial intervention, the Eleventh Circuit requires the district court to review the settlement of an FLSA claim. See Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir.1982).”
As part of a lengthy discussion of the remedial purposes behind the FLSA, the history of the FLSA and the applicable case law regarding waiver and settlements, and the role of the Court in the settlement process, the Court reasoned that no such resolutions of FLSA cases should involve confidentiality provisions, because such provisions contravene the public policy behind the FLSA’s implementation.
“ii. A Confidentiality Provision Contravenes FLSA Policy
Because of worry that settling with one employee will encourage other employees to assert FLSA rights, the employer may seek to maintain the confidentiality of the settlement agreement. But a confidentiality provision furthers resolution of no bona fide dispute between the parties; rather, compelled silence unreasonably frustrates implementation of the “private-public” rights granted by the FLSA and thwarts Congress’s intent to ensure widespread compliance with the statute. To further Congress’s intent, the Department of Labor requires the employer of an employee covered by the FLSA to display conspicuously in the workplace a detailed notice of the employee’s FLSA rights. By including a confidentiality provision, the employer thwarts the informational objective of the notice requirement by silencing the employee who has vindicated a disputed FLSA right.
Furthermore, Section 15(a)(3) of the FLSA proscribes an employer’s retaliating against an employee for asserting rights under the FLSA. If an employee covered by a confidentiality agreement discusses the FLSA with fellow employees or otherwise asserts FLSA rights, the employer might sue the employee for breach of contract. The employer’s most proximate damages from the employee’s breach are the unpaid FLSA wages due other employees who learned of their FLSA rights from the employee who breached the confidentiality agreement. A confidentiality agreement, if enforced, (1) empowers an employer to retaliate against an employee for exercising FLSA rights, (2) effects a judicial confiscation of the employee’s right to be free from retaliation for asserting FLSA rights, and (3) transfers to the wronged employee a duty to pay his fellow employees for the FLSA wages unlawfully withheld by the employer. This unseemly prospect vividly displays the inherent impropriety of a confidentiality agreement in settlement of an FLSA dispute.
A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights. “The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered the national health and efficiency and as a result the free movement of goods in interstate commerce.” Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 706-07 (1945). The district court should reject as unreasonable a compromise that contains a confidentiality provision, which is unenforceable and operates in contravention of the FLSA.”
Later in the opinion the Court discussed the issue of confidentiality in greater detail, reasoning that beyond evaluating a settlement for “reasonableness,” the Court has other functions when reviewing FLSA settlements, specifically to ensure that such settlements and records of same are available for public review:
“B. External Factors: Does the Compromise, Although Reasonable, Otherwise Frustrate Implementation of the FLSA
In evaluating a compromise, the district court should also consider an array of “external” or contextual factors pertinent to the statutory purpose of the FLSA. Compromise of a retrospective dispute may be permissible if, for example, the FLSA issue in a case is unresolvably close on the facts or the law or some extraordinary circumstance (say, a suddenly disabled claimant or an employer in liquidation) commends a speedy or certain resolution. On the other hand, several factors may commend rejecting a proposed compromise, including the presence of other employees situated similarly to the claimant, a likelihood that the claimant’s circumstance will recur, a history of FLSA non-compliance by the same employer or others in the same industry or geographic region, or the requirement for a mature record and a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace. In all instances, the district court should faithfully execute the congressional mandate for “minimum wages, promptly paid … for the lowest paid segment of the nation’s workers.” D.A. Schulte v. Gangi, 328 U .S. 108, 116 (1946).
IV. The Effect of Judicial Review: “Confidential” FLSA Settlement Agreements and Public Access to Court Records
“Parties who settle a legal dispute rather than pressing it to resolution by the court often do so, in part anyway, because they do not want the terms of the resolution to be made public.” Jessup v. Luther, 277 F.3d 926, 928 (7th Cir.2002). See generally Laurie Kratzky Dore, Secrecy by Consent: The Use and Limits of Confidentiality in the Pursuit of Settlement, 74 Notre Dame L.Rev. 283 (1999). In an FLSA action, the employer worries that compromise with an employee who has vindicated a valuable FLSA right will inform and encourage other employees, who will vindicate their FLSA rights (or who will wrongly, but expensively for the employer, conclude that additional wages are due). Although perhaps both uncomfortable and expensive to an employer, vindication of FLSA rights throughout the workplace is precisely the object Congress chose to preserve and foster through the FLSA.
In the typical settled case, the district judge remains unaware of the terms of compromise, and the parties enforce the settlement agreement, if necessary, only through a separate action. The parties maintain the confidentiality of their compromise by submitting a stipulation for dismissal under Rule 41, Federal Rules of Civil Procedure. In an FLSA case, however, Lynn’s Food requires the parties to obtain judicial approval of the compromise. Forced to submit the agreement to the court after filing a motion for approval, the parties often seek to preserve the confidentiality of the compromise either by moving to submit the agreement under seal or by requesting an “in camera review” of the agreement.
In the typical FLSA case, however, neither attempt to conceal the compromise comports with the public’s right of access to a judicial proceeding, which right is “an essential component of our system of justice [and] instrumental in securing the integrity of the process.” Chicago Tribune Co. v. Bridgestone/Firestone, Inc., 263 F.3d 1304, 1311 (11th Cir.2001). The judge’s “approving” a settlement constitutes a “public act,” and the public “has an interest in knowing what terms of settlement a federal judge would approve.” Jessup, 277 F.3d at 929. As an active component of the judge’s decision, the settlement agreement is presumptively a public record. See Brown v. Advantage Eng’g, Inc., 960 F.2d 1013, 1016 (11th Cir.1992) (“Once a matter is brought before a court for resolution, it is no longer solely the parties’ case, but also the public’s case.”); Bank of Am. Nat’l Trust & Sav. Ass’n v. Hotel Rittenhouse Assocs., 800 F.2d 339, 343 (3d Cir.1986) (“[T]he common law presumption of access applies to motions filed in court proceedings and to the settlement agreement … filed and submitted to the district court for approval.”). The public enjoys the right both to attend a trial or hearing and to inspect and copy a judicial record.
The presumption that the record of a judicial proceeding remains public “is surely most strong when the ‘right at issue is of a ‘private-public character,’ as the Supreme Court has described employee rights under the FLSA.” Stalnaker, 293 F.Supp.2d at 1264 (quoting Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 708 (1945)). Sealing an FLSA settlement agreement between an employer and employee, reviewing the agreement in camera, or reviewing the agreement at a hearing without the agreement’s appearing in the record (in any event precluding other employees’ and the public’s access to, and knowledge of, the agreement) thwarts Congress’s intent both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.
Furthermore, before sealing a document, the district court must identify and articulate “an overriding interest based on findings that [a seal] is essential to preserve higher values and is narrowly tailored to serve that interest. The interest is to be articulated along with findings specific enough that a reviewing court can determine whether the [sealing] order was properly entered.” Press-Enterprise Co. v. Superior Court of California, 464 U.S. 501, 510 (1984). Preventing the employee’s co-workers or the public from discovering the existence or value of their FLSA rights is an objective unworthy of implementation by a judicial seal, which is warranted only under “extraordinary circumstances” typically absent in an FLSA case. Absent an “overriding interest” in the preservation of some “higher value,” the court should not abide the parties’ request for a seal
The parties’ stipulation to seal the agreement (and the absence of a third-party objection to sealing the compromise agreement) fails to justify a seal. In Citizens First National Bank of Princeton v. Cincinnati Insurance Co., 178 F.3d 943, 944-45 (7th Cir.1999), Judge Posner states:
The parties to a lawsuit are not the only people who have a legitimate interest in the record compiled in a legal proceeding…. [T]he public at large pays for the courts and therefore has an interest in what goes on at all stages of a judicial proceeding. That interest does not always trump the property and privacy interests of the litigants, but it can be overridden only if the latter interests predominate in the particular case, that is, only if there is good cause for sealing a part or the whole of the record in that case. The determination of good cause cannot be elided by allowing the parties to seal whatever they want, for then the interest in publicity will go unprotected unless the media are interested in the case and move to unseal. The judge is the primary representative of the public interest in the judicial process and is duty-bound therefore to review any request to seal the record (or part of it). He may not rubber stamp a stipulation to seal the record. See also Wilson v. American Motors Corp., 759 F.2d 1568, 1571 (11th Cir.1985) (“[I]t is the rights of the public, an absent third party, which are preserved by prohibiting closure of public records….”).
Reviewing an FLSA settlement agreement under seal conflicts with the public’s access to judicial records, frustrates appellate review of a judge’s decision to approve (or reject) an FLSA compromise, contravenes congressional policy encouraging widespread compliance with the FLSA, and furthers no judicially cognizable interest of the parties. A proper consideration of the intent of Congress and the public’s interest in judicial transparency permits only one method to obtain judicial review of a compromise of an FLSA claim. The parties must file the settlement agreement in the public docket. See Stalnaker, 293 F.Supp. at 1262-64; see also Hanson v. Wells Fargo Bank, No. 08-80182-CIV, 2009 WL 1490582 (S.D.Fla. May 26, 2009) (requiring the parties to submit an unsealed copy of their settlement agreement).
To ensure that “all our able-bodied working men and women [receive] a fair day’s pay for a fair day’s work,” the FLSA requires a covered employer to pay each employee a minimum wage and overtime. To combat the typically unequal bargaining power between employer and employee, Congress prohibits a private agreement altering FLSA rights. An employee entitled to FLSA wages may compromise his claim only under the supervision of either the Department of Labor or the district court.
If presented in an FLSA action with a notice of settlement, a stipulation for dismissal, an offer of judgment, or the like, the judicial approval required by Lynn’s Food and the public’s right of access to a judicial proceeding compel the parties to file their agreement in the public docket of the district court. As an initial matter, the district court must determine whether the employee purports to compromise an FLSA right. If judicial scrutiny confirms that the parties’ settlement involves no compromise, the district court should approve the settlement and dismiss the case (if the employer has paid) or enter judgment for the employee (if the employer has not paid). If the parties’ proposed resolution requires the employee to compromise an FLSA right, the district court must scrutinize the compromise for “fairness.”
An employee’s right to a minimum wage and overtime is unconditional, and the district court should countenance the creation of no condition, whether confidentiality or any other construct, that offends the purpose of the FLSA. An employer is obligated unconditionally to pay a minimum wage and overtime to the complainant and his fellow employees; the district court should not become complicit in any scheme or mechanism designed to confine or frustrate every employee’s knowledge and realization of FLSA rights. Accordingly, the district court evaluating an FLSA compromise should examine first the “internal” fairness of the compromise, including the existence of a bona fide dispute and the absence of a prospective waiver, confidentiality agreement, or other provision antithetical to the FLSA. If the proposed compromise is fair and reasonable to the employee, the court should consider whether any other external factor, such as the need to resolve definitively an issue affecting similarly situated employees, recommends rejecting the compromise. If the compromise is fair and reasonable to the employee and furthers the implementation of FLSA rights in the workplace, the court should approve the compromise.
For the reasons stated in this order, the parties’ stipulation of dismissal is rejected.”
Needless to say, it will be interesting to see if other court’s follow the Court’s reasoning.
EDITOR’S NOTE: Less than a week after this opinion, Judge Merryday, who authored the opinion, went a step further in another case, holding that settlement agreements in FLSA cases that prohibit an employee from disparaging his or her employer are equally inappropriate. See McGowan v. CSPS Hotel, Inc., 8:09-cv-02311-SDM-MAP (M.D.Fla. Apr.29, 2010).
The AP reports that, “[a]cross the nation, the long-simmering problem of employers who don’t pay their workers appears to be getting worse, especially for immigrant laborers.
In the absence of aggressive federal action, some states and local governments have begun to tackle the issue on their own. They say employers who don’t pay overtime or minimum wage are unlikely to pay into state workers’ compensation or unemployment insurance funds — bilking taxpayers even as they’re cheating workers.
Workers rights centers say wage theft has become the No. 1 complaint they’ve heard in recent months.”
To read the entire story go to the AP’s website.
To speak with Wage and Hour Attorney Andrew Frisch call 1-888-OVERTIME or click here today.
Cintas Corp. To Pay $6.5 Million To Settle Case That Alleged It Violated L.A. ‘Living Wage’ Ordinance, L.A. Times Reports
The L.A. Times is reporting that industrial laundry company, Cintas Corp., has settled a longstanding lawsuit that alleged it violated a Los Angeles municipal ordinance pertaining to ‘living wages.’
According to the report, Cintas “[a] major firm providing laundry services to business and governments nationwide has agreed to pay $6.5 million to settle a lawsuit brought by hundreds of Southern California laundry workers who alleged the company violated Los Angeles’ “living wage” laws.
Cintas Corp., which operates industrial laundries and other facilities in the United States and Canada, denied any wrongdoing but agreed to settle the 5 -year-old case “in order to avoid the additional expense and distraction of ongoing litigation,” the Cincinnati-based company said in a statement.
Labor leaders who helped file the complaint said it was believed to be the largest monetary amount ever paid for alleged violations of living wage ordinances, which set salary and benefit standards for contractors and other firms engaged in government business.
The settlement provides $3.3 million in back wages and interest for more than 500 laundry employees who worked at Cintas facilities in Ontario, Pico Rivera and Whittier, according to Workers United/Service Employees International Union, which assisted in the lawsuit. The remainder of the $6.5 million goes to penalties and legal fees arising from the case.”
A copy of the entire story can be obtained from the L.A. Times website.
Wal-Mart To Pay $40 Million To Massachusetts Workers For Off-the-Clock Work Claims, Boston Globe Reports
The Boston Globe is reporting that the United States’ largest retailer, Wal-Mart has agreed to settle a collective action in Massachusetts for approximately $40 Million.
“Wal-Mart Stores Inc., the world’s largest retailer, has agreed to pay $40 million to as many as 87,500 current and former employees in Massachusetts, the largest wage-and-hour class-action settlement in the state’s history.
The class-action lawsuit, filed in 2001, accused the retailer of denying workers rest and meal breaks, refusing to pay overtime, and manipulating time cards to lower employees’ pay. Under terms of the agreement, which was filed in Middlesex Superior Court yesterday by the employees’ attorneys, any person who worked for Wal-Mart between August 1995 and the settlement date will receive a payment of between $400 and $2,500, depending on the number of years worked, with the average worker receiving a check for $734…
The Massachusetts case is similar to many others that have been brought against the retail behemoth by employees across the country, most alleging that the Bentonville, Ark.-based company violated laws by requiring employees to work through breaks, to work beyond their regular shifts, and similar practices. Wal-Mart has denied the allegations, but in December, the merchant agreed to pay up to $640 million to settle 63 federal and state class-action wage-and-hour lawsuits.”
To read the full story go to the Boston Globe website.
S.D.Ohio: Hybrid Salary Plus Commissions Plan Violated FLSA, Because Commissions Did Not Comprise More Than 50% Of Wages; 7(i) Exemption Not Applicable
Keyes v. Car-X Auto Services
This case was before the Court on Plaintiff’s Motion for Summary Judgment, relative to his FLSA claims. Defendants contended that they were entitled to the exemption from the overtime wage requirement under 7(i) of the FLSA, 29 U.S.C. § 207(i), the so-called “Retail Exemption,” because Plaintiff’s regular rate of pay exceeded one and one-half times the minimum wage rate and over half of Plaintiff’s compensation came from commissions earned on the sale of goods and services. The Court granted Plaintiff’s Motion, explaining that Defendants were not entitled to the benefit of 7(i), because they were unable to show that 50% or more of Plaintiff’s income was derived from commissions, as differentiated from salary.
Discussing the elements of the Retail Exemption and applying the exemption to the pay policy at issue, the Court explained, “The parties do not dispute that Defendant Car-X is a retail establishment or that Plaintiff’s regular rate of pay exceeded one and one-half times the minimum wage rate. Thus, the issue before the Court is whether more than one-half of Plaintiff’s compensation consisted of commissions on goods or services.
Federal regulations recognize that employees of retail or service establishments are usually compensated in any one of five ways:
(1) Straight salary or hourly rate: Under this method of compensation the employee receives a stipulated sum paid weekly, biweekly, semimonthly, or monthly or a fixed amount for each hour of work.
(2) Salary plus commission: Under this method of compensation the employee receives a commission on all sales in addition to a base salary (see paragraph (a)(1) of this section).
(3) Quota bonus: This method of compensation is similar to paragraph (a)(2) of this section except that the commission payment is paid on sales over and above a predetermined sales quota.
(4) Straight commission without advances: Under this method of compensation the employee is paid a flat percentage on each dollar of sales he makes.
(5) Straight commission with “advances,” “guarantees,” or “draws.” This method of compensation is similar to paragraph (a) (4) of this section except that the employee is paid a fixed weekly, biweekly, semimonthly, or monthly “advance,” “guarantee,” or “draw.” At periodic intervals a settlement is made at which time the payments already made are supplemented by any additional amount by which his commission earnings exceed the amounts previously paid.29 C.F.R. § 779.413(a).
By definition, each of these compensation plans, except for the “straight salary or hourly rate,” qualify as “bona fide commission plans” under § 207(i). Viciedo v. New Horizons Computer Learning Center of Columbus, LTD, 246 F.Supp.2d 886 (S.D.Ohio 2003).
Under Defendant’s compensation plan, employees were paid the greater of either the commission rate on the total gross sale of services and products attributable to the employee during a given pay period or a “default” guaranteed wage rate, which was calculated by multiplying the employee’s regular hourly rate by the number of hours actually worked in a given pay period. (Deposition of Robert Keyes at 14, 15-16, 101-02, 213-17; Govind Aff. at ¶¶ 10-14, Govind Dep., Ex. 3, Employee Sales/Commission Reports). Car-X did not calculate a setoff or overpayment in weeks in which Plaintiff earned extra for commissions. (Keyes Dep. at 101-102; Govind Dep. at 104-105). While Defendants avoid designating which of the above examples under 29 C.F.R. § 779.413(a) best fits the characteristics of Car-X’s compensation plan, Plaintiff argues that Defendants’ compensation plan is based on a hybrid system and is not a bona fide commission plan under the FLSA. As in Viciedo, we find the present facts remarkably similar to those in Donovan v. Highway Oil Inc., Case No. 81-4245, 1986 WL 11266 at *4 (D.Kan. July 18, 1986), in which that court found the defendant’s compensation plan possessed the characteristics of both a salary plus commission plan and a quota bonus plan. In Donovan, managers of a gas station bringing suit to recover overtime wages allegedly due under the FLSA were paid a set commission for selling a threshold amount of gasoline, and then a small commission for each additional gallon of gasoline sold in excess of the threshold amount. The court found that “the only true commission portion of the salaries appears to be those amounts over the threshold level” and that the amount of said commissions did not meet the requirements of 29 C.F.R. § 207(i) as they did not comprise more than half of the managers’ compensation. Donovan, 1986 WL 11266 at *4. While Defendants argue that all Car-X technicians were paid based on commissions from services and products sold, we find, as did the court in Donovan, that the plan’s operation, as explained by Defendants’ witness and Plaintiff himself, belies such an argument. (See Govind Dep. at 60-62, 65-66, 72; Ex. 3, Employee Sales/Commission Reports; Keyes Dep. at 14, 101-102, 213-17). For this reason, we find that the default guaranteed wage represents a salary and only that amount in excess of such constitutes the true commission portion. Defendant has failed to demonstrate that more than fifty percent of Plaintiff’s compensation for any representative period consists of commissions.”
Accordingly, the Court granted Plaintiff’s Motion for Summary Judgment as to his FLSA claim.
The Quad City Times is reporting that, “[a] class-action lawsuit filed eight years ago in Clinton County accusing Wal-Mart of intimidating employees into working overtime without pay has been settled, with the company agreeing to pay $11 million. The lawsuit was filed in June 2001 by Sally Mussmann and Taylor Vogue, two former employees of the Wal-Mart store in Clinton.”
The article stated that, “[t]he lawsuit alleged that Wal-Mart gave its employees tasks that were impossible to complete during their scheduled work hours, then intimidated them into working extra hours without pay to complete their assignments.”
To read the entire article go to the Quad City Times website.
The Central Valley Business Times is reporting that Lowe’s has settled an overtime class action accusing the home improvement retailer of forcing thousands of employees to work “off the clock.”
“Home improvement retailer Lowe’s Companies Inc. (NYSE: LOW) has agreed to pay $29.5 million to settle a class action lawsuit that argued it had required “thousands” of hourly workers to toil “off the clock.”
Two former Lowe’s employees alleged that they and thousands of other hourly Lowe’s workers were required to work before and after their normal shifts but were not paid for the extra work…
Earlier, Lowe’s denied all of the claims raised in the lawsuit. The company, contacted Wednesday for comment, said it could not comment directly on the settlement but a spokeswoman said the company believes it is in compliance with all laws and regulations.
The settlement was approved Tuesday by the Los Angeles Superior Court, shortly before the case was to finally go to trial.”
To read the entire story go the the Central Valley Business Times’ website.