Adapt, Armor & AvoidCheckmating the Next New Thing in Wage & Hour Litigation

McCray PettwaySenior Employment and Labor CounselAmerican Water Works Service Company, Inc.

Natalie PierceShareholderLittler, P.C.

Ruth ColvinLegal CounselDNV GL Group, Region Americas

Christine KurekSenior Director, Employment CounselActivision|Blizzard

Litigation Landscape

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• Targeting entire industry sectors with increased specialization.• Moving to new jurisdictions to avoid adverse authority.• Leveraging settlement with multiple employers to obtain

pre-suit settlements with other employers in the same industry.• Partnering with multiple firms to combine resources and target

large employers.• Partnering with state and federal enforcement agencies

(i.e., DOL amicus and “Bridge to Justice” programs).• Aggressive use of social media to “mine and find” prospective

plaintiffs.

Plaintiffs’ Counsel Are Changing Tactics

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Outten & Golden

Shavitz Law Group

Lieff Cabraser

Hepworth, Gershbaum &

Roth

StueveSiegel

Hanson

Klafter Olsen & Lesser

GoldsteinBorger

Lee & Braziel

Burr & Smith

Combining Resources

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Outten & Golden

TechnologyMisclassification of

Technical Employees

BankingMisclassification ofAsst. Branch Mgr.

UnderwritersOff-the-Clock work

Call CentersOff-the-Clock

HealthcareMisclassification of

Marketing RepsOff-the-Clock

Retail Restaurant-Tip credit

-Misclassification*Assistant Mgrs.

*Apprentices-Off-the-Clock

Financial Services-Assistant Branch Mgrs.

-Loan Officers-Audit Associates

-Advisory Associates-Relationship Mgrs.

-Associate Portfolio Mgrs.

InsuranceMisclassification of Adjusters

Publishing/BroadcastInterns

Targeting Entire Industries

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The Shavitz Law Group

Banking-Misclassification

*Relationship Manager *Asst. Branch Manager*Customer Service-Off-the-Clock work

Financial Services-Misclassification*Financial Advisors

*Financial Consultants-Off-the-Clock Work

Retail Restaurant-Misclassification

*Assistant Managers*Managers in Training

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Targeting Entire Industries

Goldstein Borgen

Food Service-Unreimbursed

Business Expenses-Commission

Challenge

Retail/Restaurant--Off-the-Clock work

-Tip Credit

Telecommunications-Improper Chargebacks

-Pre/Post Shift Work-Misclassification ofSoftware Engineers

InsuranceMisclassification of

Technology Workers

Financial Services-Misclassification of Loan

Originators and Loan Agents

TechnologyMisclassification of

Engineers, Project Managers and Tech Support

-Unreimbursed Business Expenses

BankingMisclassification of

Liability Risk Analysts & Loan Officers

Unreimbursed Business Expenses

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Targeting Entire Industries

Stueve Siegel

Hanson

Retail-Off-the-Clock work(inventory counting)

Telecommunication/Satellite

-Improper Chargebacks-Off-the-Clock Work

Insurance-Pre/Post Shift Work

Financial Services-Unpaid Training Time

Banking-Misclassification of

Loan Originators and Loan Officers

-Off-the-Clock Work

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Targeting Entire Industries

Retail/Restaurant--Misclassification of Assistant Managers

Klafter Olson & Lesser

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Lieff Cabraser

Technology-Misclassification of

Independent Contractors, IT Workers Involved in

Installing, Supporting and Repairing Computer

Systems-Wage Suppression

Targeting Entire Industries

• Internet and social media provide employees with ready access to information about legal requirements.

• Increased Government enforcement.• More sophisticated attorney solicitations directed toward current and

former employees.• Changed Tactics: Targeting by Industry.• Greater cooperation and information sharing between employee

advocacy groups, regulators and plaintiffs’ employment bar.• Absence of clear legal standards and inconsistent legal

interpretations.• Misclassification creep – in the search for new cases

plaintiffs’ counsel are moving to challenge positionslong thought to be exempt (i.e. underwriters).

Factors Driving Increase inWage and Hour Disputes

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• Plaintiffs class action counsel mine data sources to target employers and their employees:

• Search LinkedIn, monster.com and other resume sites to identify putative class members.

• Obtain employee names and addresses from publically available directories.

• Participate in ABA Bridge to Justice program to obtain employee referrals from DOL

• Establish case specific websites to convey information and obtain employee “consents” (i.e., www.hospitalovertime.com).

• Send “investigatory” letters offering assistance to protect employee rights.

• Review DOL press releases and back wage locator to identify target employers.

Role of Internet, Social Media and Other Sources of Public Information in Wage and Hour Litigation

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• Review employer websites to obtain information about pay practices, job descriptions and locations for use in targeting employees.– Use vendors such as “Services to Lawyers” to “bust”

employer email conventions and send emails soliciting employees.

– Employ private investigators to identify possible plaintiffs.– Utilize Facebook “pop-up”

advertisements to targetemployees who have identifiedtheir employers in on-line profiles.

Role of Internet, Social Media and Other Sourcesof Public Information in Wage and Hour Litigation

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• The existence of an industry-wide practice/exempt job classification susceptible to challenge.

• Court orders granting conditional certification against competitors for similar practices.

• Significant settlements by competitors forsimilar practices.

• The industry-wide pay practice/exempt jobclassifications impact significant numbersof current and former employees.

• High growth, high wage industries.• Ability to boot strap early successes to

achieve broader in-roads in an industry(i.e., small to big box retailers).

What Factors Make an Industry an Attractive Target?

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MISCLASSIFICATION• Technology

– Independent contractors– Shift/first line supervisors– Workers in low to mid level IT positions involved in

servicing, maintaining, and repairing computer systems– State law misclassification claims where state law exempt

tests differ from FLSA• Restaurant/Food Service

– Restaurant and assistant managers– State law misclassification claims where state law exempt

tests differ from FLSA

The “Current” and “Next” New Possible Claims

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MISCLASSIFICATION• Retail/Distribution

– Assistant Managers for big box retailers– Shift supervisors in warehouse/distribution operations– Loss prevention– Store managers in small to mid-size retailers– State law misclassification claims where state law

exemption tests differ from FLSA.• Industries Servicing Retailers

– Territory managers (who do not make sales)– State law misclassification claims where state law exempt

tests differ from FLSA

The “Current” and “Next” New Possible Claims

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MISCLASSIFICATION• Manufacturing

– Sales and sales support personnel

– State law misclassification claims where state law exempt tests differ from FLSA

• Banking/Financial Services– Assistant banking managers

– Shift supervisors in transactional/call centers

– IT positions involved in servicing and maintaining computer and web-based systems

– Underwriters

– Loan officers

– State law misclassification claims where state law exempt tests differ from FLSA

The “Current” and “Next” New Possible Claims

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Litigation Armoring™

• A strategic planning process guided by in-house and/or outside counsel,

• Protected by the attorney-client privilege, and

• Used by employers to:– Identify future litigation risks– Conduct a “Day One” assessment of

the strength of a company’s defenses to likely litigation

– Develop and amplify the evidentiary support for litigation defenses

– Mitigate risk through corrective measures

What is Litigation Armoring™?

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• 91% of all complex employment litigation involves federal and state class and collective wage and hour claims.

• Wage and hour class claims are expensive to defend and pose significant financial risk.

• The risk posed by wage and hour claims can often be successfully mitigated through advance planning and relatively inexpensive corrective measures.

• A recent study by the U.S. Chamber Institute for Legal Reform cited “settlements of wage and hour cases totaled about $2.7 billion from 2007 – 2012, with $467 million coming from 2012.”

Why Should We Focus on Wage and Hour Risk?

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Litigation Armoring™:Non-Exempt Pay Practice Claims

• Identify payroll practices vulnerable to litigation challenge.

• Conduct “day one” litigation analysis to test existing defenses and evidence.

• Develop and amplify evidentiary support.

• Mitigate identified litigation risk through corrective measures.

Litigation Armoring AgainstPay Practice Claims

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Pay Practices Commonly Challenged• Automatic meal

deductions• Missed or interrupted

meal periods• Short meal periods• Pre and post shift work

activities• Remote work using

technology (iPhone, iPad, remote portals)

• Rounding time entries

• Long-punching• Late payment of

commissions and overtime on commissions

• Failure to reimburse for work-related expenses

• Donning and doffing personal protective and safety equipment

• Failure to include bonuses in overtime

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• Develop Evidence Which Shows:• Employer is committed to accurate and

timely payment of wages• Employees understand:

– What is working time– How to accurately report all working time– What to do if not paid correctly or someone

instructs them to work off-the-clock– How to report remote work– How to report missed or interrupted meal period– Who to contact with questions or complaints

Goal of Pay Practice Armoring

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• Supervisors understand:– Key legal requirements– What is working time– Under what circumstances a time record may be edited– Prohibitions against off-the-clock work– How to properly handle wage and hour questions and complaints– How to handle missed or interrupted meal periods– Resources available to assist supervisor with pay

related question or concerns• Employees review, and if correct,

certify the accuracy of daily time records

Goal of Pay Practice Armoring

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• Policies must address all areas of potential wage and hour compliance

• Policies must be well-publicized and easy to locate

• All employees should reviewpolicies on a regular basis and acknowledge receipt of same

• All employees should be trained on key policies

An Effective Set of Wage and Hour Policies

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• Require non-exempt employees to review time records. • Daily review is ideal but something less frequent can be used

provided employees have the opportunity to review actual records. • Provided records are correct, require employee certification

as to accuracy. • If records are not correct, require employee to identify any

inaccuracies to permit immediate correction. • Require employees to review accuracy

of paycheck and, if systems permit,certify secondary review. On-linetools make this level of reviewmore available.

• Certification should cover off-the-clock work and meal periods.

Certification of Time Records

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• An effective and confidential complaint mechanism allows the employer to uncover and correct issues before litigation.

• Give employees a choice:– Ethics or compliance hotline (1-800 #)– Designated HR professional – A senior manager

• Revise existing complaint mechanism to ensure it specifically addresses wage and hour issues.

• Must be well publicized: Publicize complaint mechanism in handbooks, open door policies, collective bargaining agreements, ethicshandbooks, and other employeecommunication channels.

Implement A Complaint Mechanism

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• Your organization must follow through on complaints– Written investigation procedures– Assign accountability so issues

do not fall through the cracks• Ensure confidentiality where possible• Investigate promptly and thoroughly• Provide closure to complaining

employee• Fix problems promptly

Follow Through:Investigate & Resolve

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• In some reported cases, employers have been criticized for quickly disciplining employees for timekeeping violations but not doing so for manager violations.

• Manager misconduct is increasingly being characterized as wage theft.

• Manager misconduct should be promptly addressed and, where confirmed, considered serious violation of the company's most important policies.

Impose Appropriate Discipline for Policy Violations by Employees and Managers

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• Most employees and managers don’t know the basic rules or understand why they are important.– Rules are complex– Laws not common sense– Often ideas that seem great can

violate policy or the law• The best policies are useless if

employees don’t understand them and you don’t enforce them.

Train, Train, Train

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• Prevent inadvertent federal and state law violations.

• Prevent claims:– Policies are clear and

irrefutable.– Plaintiff credibility?– More difficult to certify a

class.• Reduce damage awards and

potentially build a good faith defense.

• Build a culture of compliance.

How Training Helps Defeat Off-the-Clock Work Claims

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• Timekeeping policies and procedures should be reinforced through available communication means– Annual letter to all employees– Newsletters– Postings– Refresher trainings

Periodic Reminders

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Litigation Armoring™:Misclassification Claims

• Littler survey of HR, legal and business executives found:

• 57% of those recently involved in misclassification litigation or a DOL audit have had employees misrepresent exempt job duties

• Mid-level manager position drove majority of disputes • 49% are concerned about being the subject of an exemption

challenge, largely due to the potential costs• Employers are taking actions to prepare:

– 54% have conducted audits of their exempt classifications and evidentiary records and 14% intend to in the next year

– Majority are monitoring trends in their industries, providing an early warning sign of litigation

Employer Concern

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• Target of Plaintiffs’ attorneys: 2011-2012: the average settlement in published class misclassification cases was $8.2 million

• Exempt misclassifications are a primary target for federal regulators– 2011: DOL collected $225 million

in back wages in from employers• DOL Right to Know Initiative• New DOL regulations may shift

exemptions

Employer Cost

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• “Conditional Cert Granted” remains the rule• Lack of contemporaneous business records • “Plaintiff Said/Employer Said” disputes over

exempt duties defeat summary judgment• Courts discount the evidentiary value of

evidence traditionally offered by employers– Testimony of immediate supervisors– Testimony of co-workers (“happy campers”)– Resumes

Litigation Remains Challenging

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• Inventory Current Classifications: Where, how, why were these decisions made in the past?

• Audit employment laws: The law is continually changing -- and so should your practices.

• Identify Business Case: Where do you want to draw the line, and who cares about the decision?

• Assess Risk: Are we in the Grey Zone, and how much will it cost if we get it wrong?

• Decision Mechanics: Who decides, how will the decision be made, and how do we want to documentthe process?

The Exemption Decision

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The Legal Landscape:• FLSA Section 259: Reliance on DOL Administrator

opinion/ruling provides full immunity– Employer must show reliance on opinion/ruling– Employer must act in conformity with opinion/ruling– Employer must act in good faith

• FLSA Section 260: Proving act oromission was in good faith avoids liquidated damages

“Good Faith in a Box”

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Building the Box: Pre-Work

• Gather documentary resources relevant to exemption analysis (job description, work product, evals)

• Identify stakeholders, and knowledgeable supervisors and incumbents

• Assess exposure• Critical: Any prior legal advice?

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• Section 259: Reliance, Conformance, and Good Faith– Identify Opinion/Ruling– Review of documents only?– Interviews with supervisors/incumbents?– Advice of Counsel? (Don’t ask if you don’t want it. . .)– Witness considerations

• Section 260: Specific “Acts” Taken in Good Faith– At least, review of legal requirements– And specific efforts taken

to comply

Building the Box:Documenting the Analysis

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• Key Considerations:– Reliance upon advice of

counsel is a strong defense– But you cannot use the privilege

as both a shield and a sword: reliance will mean waiver

• Key Questions:– Assume a broad waiver, what

gets disclosed?– Who will testify?– What to do with outdated legal

advice?

Attorney-Client Privilege Waiver

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• After the classification decision has been made armor the decision in consideration of litigation defenses

Defending the Decision and Armoring Exempt Status

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• Assemble a strategic planning team.

• Look at performance measures, job descriptions, training materials, industry benchmarking, recruiting materials, performance evaluations, operational documents, etc.

• Get commitment by senior management to remedy identified risks.

Armoring Program

• Utilize sample complaint allegations drawn from competition and industry litigation

• Gather and analyze relevant evidence• Identify relevant defenses • Evaluate available evidence and

determine whether this evidence supports/contradicts defenses

• Identify gaps and areas in which defenses can be improved

Day One Litigation Analysis™

• Build evidentiary record around target position

• Explore “Big Data• Identify options for building an

amplified evidentiary record

Day One Litigation Analysis™

• Up-to-date job descriptions• Job postings or recruiting

materials• The employee’s resume that

lists his/her job duties• Employee performance reviews• Employee self-assessment• Time sheets reviewed &

approved by supervisors• Training materials• Onboarding documents &

orientation materials

Documentation Available to Defend Exempt Misclassification Claims

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• Use self-evaluations to build stronger defenses. – Employee affirmed

statements provide the strongest evidence in litigation

– Only 33% of employers have employee self-assessments describing job duties in employee’s own words

• Utilize performance reviews to evaluate primary duties

The Performance Review Cycle

• “Plaintiff has failed to meet his minimal burden of establishing the possibility of similarly situated individuals. We note as an initial matter that plaintiff's reliance on the centralized job descriptions maintained by defendants is misplaced. While defendants do keep general descriptions of the responsibilities expected of Warehouse Managers and Operations Managers Khan is not attacking the formal policies embodied in these descriptions. Rather, Khan is asserting that he and other employees were not given duties in conformity with these policies.” Khan v. Airport Management Services, LLC, Case No. 10 Civ. 7735, 2011 U.S. Dist. LEXIS 133134, at *12 (S.D.N.Y. 2011)

A Well-Crafted Job Description Can Help Defeat Certification Efforts

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• “Heartland points out that the California Plaintiffs present a difficult hurdle to certification. California Store Managers executed “Exempt Employee Agreements,” acknowledging, among other things, that they were expected to spend more than 50% of their time engaged in management duties and agreeing to inform Human Resources immediately if their management tasks did not exceed 50% of their working time in any work week... The Court concludes that consideration of this factor weighs against certifying the class for collective representation.” Smith v. Heartland Automotive Services, Inc., 404 F. Supp. 2d 1144, 1154 (D. Minn. 2005)

Requiring Employee To Certify Performance of Exempt Duties Aids Defense

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