© 2017 Fox Rothschild

Wage and Hour & Class Action Litigation

April 4, 2017Labor & Employment Associate Training Program

Colin Dougherty, Esq.

David Faustman, Esquire

FLSA – History and Overview

• The Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq. was enacted in 1938

• Primary purposes‒ Set minimum standards for working conditions

‒ Worker safety

‒ Child labor

• Difficulties in applying FLSA to modern business models

• The U.S. Secretary of Labor, head of the U.S. Department of Labor (“DOL”) can enforce the FLSA and individuals can bring civil actions

Expansion of Wage-and-Hour Litigation

• The number of wage-and-hour filings in federal court has steadily risen over the past 15 years and the trend remains, despite a slight decline in 2016‒ 2016 – 8,308

‒ 2015 – 8,954

‒ 2014 – 8,066

• This does not include cases filed in state court or DOL enforcement actions that do not result in a court filing

General Provisions - Coverage

• As a practical matter, the FLSA applies to nearly all workplaces

• Organizations / Businesses covered by the FLSA‒ “Enterprise” – an organization with at least 2 employees and which has

revenues of over $500,000

‒ Hospitals and other business providing medical care

‒ Schools and government agencies

• Even if a business itself does not fall into this category, any employee “engaged in interstate commerce” is entitled to the protections of the FLSA. “Interstate commerce” is interpreted very broadly to cover nearly all workers.

General Provisions – Minimum Wage• The federal minimum wage for covered nonexempt employees

is $7.25 per hour (effective July 24, 2009). 29 U.S. Code § 206(a).

• Many states also have minimum wage laws:‒ California - $10.50/hr. ($15.00/hr. by 2022)

‒ Colorado - $9.30/hr. ($12.00/hr. by 2020)

‒ Delaware - $8.25/hr.

‒ Florida - $8.10/hr.

‒ Illinois - $8.25/hr.

‒ Minnesota - $9.50/hr. (large employers) or $7.75/hr. (smaller employers)

‒ New Jersey - $8.44/hr.

‒ New York - $9.70/hr. (except NYC, Long Island, and Westchester)

General Provisions – Minimum Wage

* In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.• Many cities and counties have minimum wage ordinances as well:

‒ Chicago, IL - $11.00/hr. (non-tipped employees) ($13.00/hr. by 2019)‒ Cook County, IL - $10.00/hr. ($12.00/hr. by 2019)‒ D.C.- $11.50/hr. (to go up to 15.00/hr. by 2020)‒ Los Angeles, CA & L.A. County - $12.00/hr. (employers with 26 or more

employees) ($15.00/hr. by 2021)‒ Miami Beach, FL – $10.31/hr. beginning 1/1/18 ($13.31/hr. by 2021)‒ New York City, NY - $10.50-$11.00/hr. ($15.00/hr. by 2021)‒ Oakland, CA - $12.86/hr.

• San Francisco, CA - $13.00/hr. ($15.00/hr. by 2018)

General Provisions – Overtime

• Covered, nonexempt employees under the FLSA must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay. ‒ Under the FLSA, a “workweek” is considered any fixed and regularly recurring period

of 168 hours — seven consecutive 24-hour periods

• There is no limit on the number of hours employees 16 years or older may work in any workweek.

• The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.

• Some states such as California and Colorado, have overtime protections after a worker has worked a certain number of hours in a day, instead of only on a weekly basis.

General Provisions – Statute of Limitations - 29 U.S.C. § 255(a)

• Generally, the FLSA has a two-year Statute of Limitations

• However, the statute of limitations is extended to three years if a plaintiff can show that the employer’s violation of the FLSA was “willful”‒ In order to show that a violation was “willful,” a plaintiff has the burden

to show that the employer knew or showed reckless disregard for whether its conduct violated the FLSA.

• What evidence is indicative of willfulness?

General Provisions – Damages

Categories of Damages available for a violation of the FLSA include:

• Actual – amount of unpaid minimum wage or unpaid overtime wages

• Liquidated – double the amount of unpaid wages‒ BUT – employers have a “good faith” defense to an award of liquidated

damages

• Attorney’s Fees and Costs – defendant must pay the reasonable attorney’s fees and costs of a successful plaintiff ‒ In some instances, Defendants can seek attorney’s fees from an

unsuccessful Plaintiff, or the Department of Labor

• Punitive – sometimes awarded in cases of FLSA Retaliation

Compliance with State Law

• The FLSA does not preempt state wage-and-hour laws, but sets a “floor”‒ 29 U.S.C. 218, sometimes known as the “FLSA savings clause:”

• No provision of this chapter…shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter or a maximum work week lower than the maximum workweek established under this chapter…

• When counseling clients, lawyers must ensure their practices are compliant with state, local, and municipal laws/ordinances, not just the FLSA.

Overtime Exemptions

• The “white collar” exemption is a complete minimum wage and overtime exemption for bona fide executive, administrative, professional and outside sales employees.

• Secretary of Labor has broad power under 29 U.S.C. §213(a)(1) to establish the terms.

• DOL’s regulations have generally required each of three tests to be met for the FLSA’s Executive, Administrative, and Professional exemptions to apply:‒ Salary Basis Test‒ Salary Level Test‒ Duties Test

Overtime Exemptions

• Three major exemptions (with duties tests):‒ Professional

• Paid on a salary or fee basis at least $455/wk.;

• Primary duty must be performance of work requiring advanced knowledge, and consistent exercise of discretion and judgment;

• The advanced knowledge must be in a field of science or learning; and

• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Overtime Exemptions cont.

‒ Executive• Paid on a salary basis at least $455/wk.;

• Primary duty to manage the enterprise;

• Regularly direct the work of at least two other full-time employees; and

• Authority to hire or fire or change status of other employees (or suggestions are given particular weight)

‒ Administrative• Paid on a salary or fee basis at least $455/wk.;

• Primary duty to perform office/non-manual work relating to management or business operations; and

• Primary duties must include the exercise of discretion and independent judgment

Overtime Exemptions – The Tests

• Salary Basis Test (Generally)‒ The employee regularly receives a predetermined amount of

compensation each pay period on a weekly, or less frequent, basis.

‒ The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.

‒ An exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.

• Exempt employees do not need to be paid for any workweek in which they perform no work.

Overtime Exemptions – The Tests

‒ Deductions:• If the employer makes deductions from an employee’s predetermined salary, i.e.,

because of the operating requirements of the business, that employee is not paid on a “salary basis.”

• If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

Overtime Exemptions – The Tests cont.

• Salary Level Test ‒ “Highly-Compensated Workers” who are paid total annual

compensation of $100,000 or more;• Must include at least $455 per week paid on a salary basis

‒ Primary duty includes performing office or non-manual work; and

‒ Regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee

• Job titles do not determine exempt status!

Overtime Exemptions Specific Examples

• Outside Sales Employees‒ The employee’s primary duty must be making sales (as defined in the

FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

‒ The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Overtime Exemptions Specific Examples

• Certain Computer Employees‒ Paid either on a salary or fee basis at least $455 per week (or not less

than $27.63/hr.);

‒ Must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below; and

Overtime Exemptions Specific Examples

‒ Primary duty must consist of:• 1) The application of systems analysis techniques and procedures, including

consulting with users, to determine hardware, software or system functional specifications;

• 2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

• 3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

• 4) A combination of the aforementioned duties, the performance of which requires the same level of skills.

Worker (Mis)Classification

• Employee or “Independent Contractor? (only “employees” entitled to FLSA protections)

• Industries in which Independent Contracting is prevalent:‒ Construction

‒ Telecommunications

‒ Hospitality

‒ Janitorial

‒ Health Care

• Benefits/Importance of independent contracting relationships

What is an Independent Contractor?• How do we determine independent contractor status? Look to the

“economic realities.”

• No uniform test, but most courts look to some combination of the following factors:‒ Nature and Degree of control as to the manner in which the wok is

performed‒ Opportunity for profit or loss depending on the worker’s managerial skill‒ Relative Investment in materials and equipment‒ Special Skill required to complete the work‒ Permanency & Duration of the working relationship‒ Services rendered are integral to the employer’s business

Worker Classification – Recent DOL Pronouncements

• DOL Misclassification Initiative – Since 2011, the DOL has partnered with state labor departments to address and enforce worker misclassification. The DOL has some type of cooperation agreement or “Memorandum of Understanding” with over 35 States.

• July 2015 Memo re: Worker Misclassification authored by Director of the DOL Wage and Hour Division signals that DOL intends to take a broad interpretation of the FLSA‒ Opined that the thrust of the “economic realities” test was to determine

whether the worker was “economically dependent” on the employer, concluding:

• “applying the economic realities test in view of the expansive definition of ‘employ’ under the Act, most workers are employees under the FLSA

‒ This was an “Administrator Interpretation,” which does not have the force of law or a federal regulation

Joint Employment

• Under the FLSA, more than one entity can be a workers’ employer, including individuals and corporate executives

• As with the employment question itself, there is no universal test, but most courts will to these factors (see Bonnette v. California Health and Welfare Agency (9th Cir. 1983)):‒ Authority to Hire and Fire

‒ Authority to set the Conditions of Employment (e.g., rules, assignments, work schedule, rate and method of pay)

‒ Day-to-day Supervision

‒ Control of Employee Records

Types of Joint Employment

• The DOL has identified two potential classes of Joint Employment. See Administrator’s Interpretation 2016-1 (January 20, 2016)

• “Horizontal” Joint Employment - when two (or more) employers each separately employ an employee and are closely associated or related to each other‒ Examples

• separate restaurants under the same franchise or that share management

• home health care providers that share staff and management

Vertical Joint Employment

• “Vertical” Joint Employment – when an employee of one employer (in this case, an “intermediary employer”) is also economically dependent on another employer‒ Examples

• Construction subcontractor and general contractor

• Restaurant franchise and parent company

Recent Vertical Employment Cases

• The Browning Ferris Decision (BFI Newby Island Recyclery, 362 NLRB No. 186 (2015))‒ NLRB held that a waste management company and a staffing agency which

supplied workers to a BFI site were “joint employers.”

‒ The NLRB changed its joint employment standard and held that, “the Board may find that two or more statutory employers are joint employers of the same statutory employees if they share or codetermine those matters governing the essential terms and conditions of employment.” Id. at 2.

• Ochoa et al. v. McDonald's Corp. et al. (N.D. Cal.) – in late 2016, McDonald’s Corp. settled a proposed wage-and-hour class action filed by employees of a franchise owner

U.S. Department of Labor

Outlook

Fate of Obama Administration Overtime Overhaul• Proposed Changes

‒ Salary Threshold changed from $455/week to $913/week (Annualized -$23,6660 --> $47,476)

‒ DOL estimated number of workers who would have been eligible for overtime under the new rule:

• 4.2 million workers • 19% of all exempt employees• 56% are women• 82% have attended college

• Struck down in the courts – in November 2016, a judge in the Eastern District of Texas issued a nationwide injunction against the new Overtime Rules. See State of Nevada v. U.S. Dept. of Labor, No. 4:16-CV-00731-ALM (E.D. Tex.). The case is currently on appeal before the 5th Circuit, where it is expected to be upheld.

The DOL in the Trump Administration

• After Andrew Puzder took himself out of contention in February, President Trump nominated Alexander Acosta to be Secretary of Labor.‒ Legal background – Law Clerk for Justice Alito in the Third Circuit;

labor & employment attorney in private practice; served on the NLRB; attorney for the Department of Justice and former U.S. Attorney for the Southern District of Florida

• By most accounts, Acosta is expected to have an easier road to confirmation than Puzder, and will be confirmed.

Acosta’s Agenda

• Because Acosta never worked in the DOL, not much is known about his positions on specific issues, but it is expected that the DOL will:‒ Review or roll back certain Obama-era regulations, including the

Overtime Rules; the “Persuader Rule”; the “Fiduciary Rule”; new OSHA reporting requirements

‒ At his Confirmation Hearing, he did indicate some support for raising the Salary Threshold for certain overtime exemptions, though not to the level proposed by the Obama Administration

Acosta’s Agenda

• Effect of Budget Cuts – President Trump’s proposed budget would cut 20% from the DOL’s budget, leading many to speculate that the DOL will reduce its enforcement and rulemaking efforts

Rule 23 Class Actions

• What is a class action? A class action is a case in which one person (or persons), represents the interests of a larger group of similarly situated individuals.

• Purpose and Benefits –‒ Judicial economy and efficiency

‒ Protects defendants from duplicative litigation and inconsistent judgments

‒ Allows plaintiffs with small claims to address their rights

Prerequisites for Certification of a Rule 23 Class Action

• Statutory Requirements‒ Plaintiffs have the burden of affirmatively establishing:

• all requirements of Rule 23(a) are met, and

• that the class is maintainable pursuant to Rule 23(b)

• Initial Considerations. Not statutory requirements, but before considering the elements of Rule 23, we must determine that we have:‒ An adequate class definition; and

‒ An ascertainable class

Rule 23 Class Actions – Initial Considerations

• Adequate Class Definition – a class definition must be, “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member of the proposed class.” Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 537-38 (6th Cir. 2012).

• Ascertainable Class – plaintiffs need not identify each member of the class, but must have objective measures which can be used to determine who is or is not a member of the class

• Both assist the parties and the Court in making the initial class certification determination, and assure that members of the class will actually receive notice if the class is certified

Rule 23(a) Requirements

• Rule 23(a)(1) – Numerosity‒ “the class is so numerous that joinder of all members is impracticable”

• Such a finding cannot be based merely on speculation or conjecture, but on real evidence

‒ Some other considerations in addition to the number of claimants• Geographical location of claimants

• Size of each individual claim

• Ease with which claimants can be identified

Rule 23(a) Requirements

• Rule 23(a)(2) – Commonality‒ “there are questions of law or fact common to the class”

• The S.Ct. expanded the necessary showing for “commonality” in Walmart v. Dukes, nothing that, merely reciting the similarities of class members is not enough – “[w]hat matters ... [is] the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation”

‒ As with Numerosity, plaintiffs must back up their contentions with evidence

Rule 23(a) Requirements

• Rule 23(a)(3) - Typicality‒ “the claims or defenses of the representative parties are typical of the

claims or defenses of the class”• Plaintiffs can meet this burden by showing that the claims of the named plaintiff

and the class members arise from the same event or pattern or practice, and are based on the same legal theory

• Courts look to whether the claims or defenses of the named plaintiff are “markedly different” from the remainder of the class

• If there is a unique defense applicable to the named plaintiff, this often proves fatal to class certification

Rule 23(a) Requirements

• Rule 23(a)(4) – Adequacy of Representation‒ “the representative parties will fairly and adequately protect the

interests of the class”• Ensure that the interests of the class representative or aligned with the rest of the

class, not antagonistic

‒ Role of class counsel – some courts also consider whether class counsel is competent to represent the class and has no conflicts of interest

Rule 23(b) - Types of Class Actions

• Rule 23(b)(1) – Risk of Inconsistent or Dispositive Judgments‒ Applies when the maintenance of individual claims may dispose of or

impair the claims of other class members, such as cases in which there would be a limited fund available to pay damages

‒ Applies when defendants would be required to treat all class members equally, and separate actions may create a risk of inconsistent judgment

Rule 23(b) - Types of Class Actions

• Rule 23(b)(2) Declaratory or Injunctive Relief‒ Employed when the class members seek declaratory or injunctive relief

rather than individualized claims for damages

‒ Applies when the defendant has engaged in a course of conduct that equally affected each of the plaintiffs

‒ Potential standing issues if some or all of the class is no longer subject to or affected by the defendants’ challenged conduct

Rule 23(b) – Types of Class Actions

• Rule 23(b)(3) – Predominance and Superiority‒ Predominance - “questions of law or fact common to class members

predominate over any questions affecting only individual members”• E.g., issues of liability, causation, and damages may all be proven on a classwide

basis

‒ Superiority – “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy”

• Courts will look to other potential methods of adjudication and whether any class members have already begun seeking individual relief

• Courts seek to determine if this class will be manageable

Rule 23 Class Actions – Notice / Right to Opt-Out

• State law claims can be certified under Rule 23 as “opt-out” classes.

• Rule 23(c)(2) requires that members of a class maintained under Rule 23(b)(3) receive “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.”

Rule 23 Class Actions – Notice / Right to Opt-Out

• The notice must advise the class members of their right to be excluded, if they so request by a specified date, that any judgment, whether favorable or not, will be binding upon those who do not request exclusion or “opt out,” and that those who do not opt out may enter an appearance through counsel.

Class Action Fairness Act of 2005 (“CAFA”)

• Enacted to curb perceived abuses of the class action device, including stated purposes to:‒ (1) assure fair and prompt recoveries for class members with legitimate

claims;

‒ (2) restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction; and

‒ (3) benefit society by encouraging innovation and lowering consumer prices.

Class Action Fairness Act of 2005 (“CAFA”)

• Before CAFA, federal courts had subject-matter jurisdiction over a class action only if the action met standard jurisdictional requirements:‒ Federal question jurisdiction under 28 U.S.C. § 1331

‒ “Traditional” (i.e., complete) diversity jurisdiction under 28 U.S.C. § 1332 or

Class Action Fairness Act of 2005

• CAFA changed the game on diversity jurisdiction for class actions, requiring only minimal diversity:‒ “The district courts shall have original jurisdiction of any civil action in

which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs,” and is a class action in which any member of a class of plaintiffs is a citizen of a State different from any defendant.” See 28 U.S.C. § 1332(d)(2).

• For CAFA purposes, a “class action” is an action filed under Rule 23 of the Federal Rules of Civil Procedure or a similar state statute or rule. See 28 U.S.C. § 1332(d)(1)(B).

Class Action Fairness Act of 2005

• CAFA diversity jurisdiction requires the matter in controversy to exceed $5,000,000, exclusive of interests and costs—aggregating the claims of at least 100 putative class members. See § 1332(d)(5)-(6).

• A class action still can be filed or removed on the ground of “traditional” diversity jurisdiction.

Rule 23 Class Actions

• FLSA opt-in claims may be pursued within lawsuits that also allege Rule 23 opt-out claims under state or federal law

• FLSA’s “opt-in” provisions do not prevent enforcement of similar state wage and hour laws through traditional “opt-out” class actions.‒ McLaughin v. Liberty Mut. Ins. Co., 224 F.R.D. 304, 308 (D. Mass. 2004)

(“Nothing in the [FLSA] limits available remedies under state law”);

‒ Beltran-Benitez v. Sea Safari Ltd., 180 F. Supp. 2d 772, 774 (E.D. N.C. 2001) (Denying defendant’s motion to dismiss state law claims because the FLSA does not prohibit Rule 23 opt-out class actions for related state law claims; noting that judicial economy is served by trying these claims together);

‒ Zelaya v. J.M. Macias, Inc., 999 F. Supp. 778, 781-782 (E.D. N.C. 1998) ( “While § 216(b) does prohibit opt-out class actions, it does so only for FLSA claims, and does not impact a state law-based claim”).

Potential Rule 23 Revamp• On March 9, 2017, the Fairness in Class Action Litigation Act of

2017 passed the House, 220-201, split almost entirely along party lines.

• On March 13, 2017, the bill was received in the Senate and referred to the Committee on the Judiciary.

• If it passes, it will be the most sweeping revision of federal class action law to date.

• Purpose: to “assure fair and prompt recoveries for class members and multidistrict litigation plaintiffs with legitimate claims” and to “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.”

Class Action Litigation Act of 2017

• Several substantive changes to class action procedures to accomplish these goals:‒ Uniform Damages – no class certification unless the party seeking class

certification “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative,” thus superseding Tyson Foods Inc.

‒ Disclosure of Conflicts – the proposed class complaint must describe “the circumstances under which each class representative or named plaintiff agreed to be included in the complaint.” Federal courts would also be prohibited from “granting certification of any class action in which any proposed class representative or named plaintiff is a relative or employee of class counsel.”

‒ Funding Disclosures – class counsel would have to disclose any person or entity “who has a contingent right to receive compensation from any settlement, judgment, or other relief obtained in the action.”

Class Action Litigation Act of 2017

‒ Administrative Feasibility –requirement that the class to be defined with reference to objective criteria. The party seeking class status “must affirmatively demonstrate that there is a reliable and administratively feasible mechanism” for determining whether individuals are within the class definition.

‒ Heightened Standard for—or Elimination of—Issue Class Certification – class certification under Rule 23(c)(4) “with respect to particular issues” only if “the entirety of the cause of action from which the particular issues arise satisfies all the class certification prerequisites” of Rules 23(a) and (b). (The act would, therefore, eliminate or significantly reduce the use of Rule 23(c)(4), since those classes typically cannot meet class certification standards of Rule 23(a) and (b).

Class Action Litigation Act of 2017

‒ Automatic Stay of Discovery – automatic stay on all discovery and other proceedings in federal class actions during the pendency of any motion to dismiss, transfer, strike class allegations, or otherwise dispose of the class allegations “unless…particularized discovery is necessary to preserve evidence or to prevent undue prejudice.”

‒ Attorneys’ Fees – payment of fees to class counsel delayed until after distribution of monetary recovery to the class and limited to “a reasonable percentage” of the payments actually distributed and received by class members (rather than tying them to total amount of the class settlement fund).

‒ Appeals –an appellate court must consider an appeal from an order granting or denying class-action certification under Rule 23 (currently, appellate review is discretionary).

FLSA Collective Actions (216(b))

• Section 216(b) of the FLSA provides a private cause of action against an employer “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.” 29 U.S.C. § 216(b) (emphasis added)

• While the FLSA does not define “similarly situated” or expressly provide a procedure for certification, most courts follow a two-step procedure

The First Step – Condition Certification & Notice

• Conditional Certification – Plaintiffs must make a, “modest factual showing that the plaintiffs are similarly situated” (this is a low bar for plaintiffs)

‒Courts look to allegations in the Complaint as well as declarations/affidavits submitted by Plaintiffs to determine whether job duties or conditions of employment are similar

Notice to Potential Class Members

• If Plaintiffs make this showing, the Court conditionally certifies a class, approves a Notice to be issued to potential class members, and sets a Notice/Opt-in period

• Is “solicitation” of class members by plaintiffs’ attorneys allowed prior to conditional certification and an approved Notice?‒ E.g., website, online advertisements, direct contact

Discovery and Motion for Certification

• After the Notice/Opt-In period, the parties conduct discovery to determine whether the class members are “similarly situated”‒ Strategy for Defendants

‒ Strategy for Plaintiffs

‒ Limits on Discovery• Who selects the opt-ins to be deposed?

• Deposition length

• Number/extent of Interrogatories and RPDs

Motion for Certification

• In order to succeed at this state, Plaintiff must make a stronger showing

• Burden is to show that the opt-ins are “similarly situated” such that the factual and legal issues in the case are appropriate for collective treatment‒ Facts used by defendants to argue against certification?

• This is the “main event” in some collective actions, with the decision shaping whether the parties will agree to settle or continue to litigate

Statute of Limitations Considerations

• Unlike Rule 23 class actions, the statute of limitations is not tolled pending the court’s determination of whether the plaintiffs can maintain a proper class.

• Rather, under the FLSA, the statute of limitations as to an individual claimant continues to run until that claimant has filed a consent to opt-in.

• As a result, the statute of limitations may have already run as to some putative members of the collective action before they receive notice that a lawsuit has been filed.‒ This is one reason why Plaintiffs’ attorneys push for the allowance of pre-certification

solicitation and the early filing of opt-in consents.

Approval for Settlement Agreements

• Most Circuits hold that all settlements of FLSA claim (individual or collective actions) require either Court or DOL approval. See Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982)‒ Therefore, while there are some benefits, it is imperative to counsel clients

that there is no guarantee that a private settlement will be legally binding

• Some Courts, such as the 5th Circuit, have approved private settlements of FLSA claims (i.e., a settlement not approved by a District Court), where settlement, “resolved a bona fide dispute about the amount of wages owed by the employer.” See Martin v. Spring Break ’83 Productions LLC, 688 F.3d 247 (5th Cir. 2012).

Breakdown/Comparison of Rule 23 Class Action v. FLSA Collective Action

Rule 23 FLSA

Terminology Class Action Collective actionStatute Fed. R. Civ. P. 23 29 U.S.C.§ 216(b)Jurisdiction Class Action Fairness Act Rule 12(b)Prerequisites to Certification Nu mer osi t y, Commonality, Typi cality,

Adequacy of RepresentationCondi ti onal Certifi cation– “ modest f act ualshowing that the plaintiffs are similarly situated”Cl ass Certifi cati on – stri ct er st andar d t odet er mi ne whet her t he case i s amenabl e f orcollective treatment

Class Participation “ Opt- Out” – all appli cabl e cl ass me mber s ar eparti es and ar e bound by any j udgmentrendered

“ Opt-I n” – onl y t hose who affir mati vel y consentto j oi n are parti es. Non- parti es neit her benefitfrom nor are bound by any judgment.

St at ut e of Li mitati ons“ Lookback”Date

Dat e of fili ng acti on, wit h t olli ng duri ngdetermination of class certification.

Dat e of consent t o opt-i n. Gener all y no SOLtolli ng whil e t he Cour t det er mi nes condi ti onalcertification.

Hot Topics

Recent Supreme Court

Cases and Outlook

for the Future

Walmart v. Dukes, 131 S. Ct. 2541 (2011)• Facts – proposed nationwide class action of 1.5 million female

employees of Walmart for sex discrimination in employment• Procedure – N.D. Cal. certified the class and Ninth Circuit upheld• Supreme Court (Scalia, J.) – unanimous decision to decertify

because plaintiffs could not satisfy the “commonality” requirement‒ Court explained that Rule 23(a)(2) requires plaintiffs to demonstrate that class

members “have suffered the same injury,” not “merely that they have all suffered a violation of the same provision of law”

‒ “Here, proof of commonality necessarily overlaps with respondents' merits contention that Wal-Mart engages in a pattern or practice of discrimination. The crux of a Title VII inquiry is 'the reason for a particular employment decision,' and respondents wish to sue for millions of employment decisions at once...Without some glue holding together the alleged reasons for those decisions, it will be impossible to say that examination of all the class members' claims will produce a common answer to the crucial discrimination question

Walmart v. Dukes, 131 S. Ct. 2541 (2011)

• This decision was seen by many as “raising the bar” for what is required of Plaintiffs to gain certification of a Rule 23 class action

Tyson Foods, Inc. v. Bouaphakeo (2016)

• Facts – employees working in pork processing plant brought suit in Rule 23 Iowa class / FLSA collective action for time for donning and doffing of required protective gear‒ Composition of the protection gear differed among class members‒ Some paid and other not paid for donning and doffing‒ Employer did not record time employees spent donning and doffing (Mt.

Clemens inference) – employees relied on study by industrial relations expert instead and introduce a representative sample to fill an evidentiary gap created by the employer’s failure to keep adequate records:

• (1) review of videos to average time spent• (2) calculate hours worked by individual

• Procedure – $2.9 million damages following jury trial; Eighth Circuit affirmed the judgment and award

Tyson Foods, Inc. v. Bouaphakeo (2016)• Supreme Court (Kennedy, J.) – use of representative evidence

affirmed ‒ Distinguished Dukes

• Dukes – employees were not similarly situated, so none of them could have prevailed in an individual suit by relying on depositions detailing the ways in which other employees were discriminated against by their particular store managers.

• Tyson – employees worked in the same facility, did similar work, and paid under the same policy, and, therefore, could have introduced their expert’s study in a series of individual suits.

‒ Allocation plan can address “uninjured” class members‒ The district court did not err in certifying and maintaining a class of employees

who allege that the employer’s failure to pay them for donning and doffing protective gear violate the FLSA, notwithstanding the employees’ reliance on “representative evidence” to determine the number of additional hours that each employee worked, when the employer had failed to keep adequate records.

Campbell-Ewald Company v. Gomez (2015)• Facts – nationwide class action brought by individuals who did not

“opt in” to receiving text messages from company (Campbell-Ewald) hired by U.S. Navy for recruiting campaign alleging violation of Telephone Consumer Protection Act (“TCPA”)‒ Campbell made a Rule 68 offer of judgment to named class member (Gomez)

prior to deadline for Gomez to file motion for class certification ($500 per TCPA violation)

‒ After Campbell’s offer of judgment lapsed on expiration of time specified in the Rule (14 days) and then moved to dismiss under Rule 12(b)(1) for lack of subject-matter jurisdiction, arguing its Rule 68 offer mooted Gomez’s individual claims by providing him with complete relief which, in turn, mooted the putative class claims (due to Gomez’s failure to move for class certification before his individual claims became moot)

Campbell-Ewald Company v. Gomez (2015)• Procedure – the District Court denied Campbell’s 12(b)(1) motion;

however, it later granted summary judgment in Campbell’s favor on the basis it acquired the Navy’s sovereign immunity from suit under the TCPA (the Ninth Circuit reversed, concluding Campbell was not entitled to “derivative sovereign immunity”)

• Supreme Court (Ginsburg, J.) – An unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case‒ A case does not become moot as long as the parties have a concrete interest,

however small, in the litigation’s outcome‒ Under basic principles of contract law, Campbell’s settlement bid and Rule 68

offer of judgment, once rejected, had no continuing efficacy‒ With no settlement offer operative, the parties remained adverse; both

retained the same stake in the litigation they had at the outset

Arbitration Agreements / Class Action Waivers • NLRA Provisions

‒ NLRA § 7: “concerted activities” for “mutual aid or protection”• E.g., class action by one plaintiff (see text, purpose, history of NLRA, plus deference to NLRB)

‒ NLRA § 8: employer cannot interfere with, restrain, or coerce employee in exercise of § 7 rights

• E.g., contract stipulating renunciation of § 7 rights; motion to compel individual arbitration

‒ Purpose: equalize bargaining power

• Case law‒ Second, Fifth, Eight Circuits: No right established by NLRA/NLGA‒ Lewis v. Epic Systems (7th Cir.) (May 26, 2016) (Wood): NLRA and NLGA established

substantive right to collective activity, including class and collective actions. ‒ Morris v. Ernst & Young LLP (9th Cir.) (Aug. 22, 2016) (Thomas) (Ikuta, dissenting):

Same, but opt-out exception (from Johnmohammadi) preserved

Will the Supreme Court take up Joint Employment?

• While most Circuits have used the Bonnette factors to determine joint employment, other tests have recently been devised/adopted to determine the question‒ E.g., Browning Ferris – entities that “share or codetermine those

matters governing the essential terms and conditions of employment”

‒ E.g., Salinas v. Commercial Interiors Inc., No. 15-1915, ___ F.3d ___, 2017 WL 360542 (4th Cir. Jan. 25. 2017) – new six factor test

• “two-step framework for analyzing FLSA joint employment claims, under which courts must first determine whether two entities should be treated as joint employers and then analyze whether the worker constitutes an employee or independent contractor of the combined entity.”

• Uses six main factors

Six Salinas Factors

(1) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;

(2) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to—directly or indirectly—hire or fire the worker or modify the terms or conditions of the worker's employment;

(3) The degree of permanency and duration of the relationship between the putative joint employers;

Six Salinas Factors

(4) Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;

(5) Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and

(6) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers' compensation insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.

Class Actions in California

California class actions governed by California Code of Civil Procedure § 382:

“…when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.”

Class Actions in California

FLSA Collective Actions: “Opt-in” • Plaintiffs must opt-in to be considered part of the action

California Class Actions: “Opt-out”• Plaintiffs will be part of the action and bound by any settlement or

judgment UNLESS they opt-out of the action

Ascertainability Requirement

Ascertainability• Because class members are bound by class actions, courts must be

able to determine who will be bound by a class action judgment

• California law has been primarily focused on whether a class member who receives notice would be able to determine that he/she is part of the class

“The ascertainability requirement is a due process safeguard, ensuring that notice can be provided ‘to putative class members as to whom the judgment in the action will be res judicata.’” Sotelo v. MediaNews Group Inc., 207 Cal. App. 4th 639, 647-48 (2012).

Ascertainability Requirement

Lack of ascertainability can provide a defense for defendants in California state

• Plaintiffs alleged that newspaper carriers were misclassified as ICs and class definition focused on those who performed carrier job duties

• Many carriers who signed written IC agreements subcontracted with others to perform their carrier duties

• Class definition did not meet the ascertainability requirement because court could not easily determine who performed carrier duties due to all the subcontractors who remained unknown to defendants

Ascertainability in Ninth Circuit

Different approach for claims in Federal Court.

Briseno v. ConAgra Foods, Inc. 844 F.3d 1121 (9th Cir. 2017)

• “the language of Federal Rule of Civil Procedure 23 neither provides nor implies that demonstrating an administratively feasible way to identify class members is a prerequisite to class certification. The panel therefore joined the Sixth, Seventh, and Eighth Circuits in declining to adopt an administrative feasibility requirement.”

Manageability in CA Class Actions

California courts require that class actions be manageable to proceed to trial

Sav-on Drug Stores v. Sup. Ct., 34 Cal.4th 319 (2004)

• Plaintiffs alleged operating managers and assistant managers were misclassified

• Potential class of 600 to 1,500 potential class members was large, but job duties for class members and policies/procedures were standard across locations

• The CA Supreme Court considered judicial economy and determined that because there were so many common issues and evidence, the alternative to proceeding as a class action would mean repeated individual trials that would present the same evidence and the assertion of the same affirmative defenses

Manageability in CA Class Actions

Duran v. U.S. Bank National Association, 59 Cal.4th 1 (2014)

• CA Supreme Court held that a trial court erred in trying a misclassification claim by means of statistical sampling that failed to determine liability and did not allow defendant its due process right to litigate affirmative defenses

• CA Supreme Court:o A class should not be certified without a manageable trial plano Certification should continue to be reevaluated and decertification

is proper if individual issues predominateo Defendants cannot be denied right to present their affirmative

defenses

Manageability in CA Class Actions

Squaring Sav-on and Duran

• California courts are more willing to overlook manageability concerns when it involves calculation of damages and less willing to overlook manageability concerns involving liability determination

Takeaway for defendant employers: Argue individual issues predominate determination of liability

Common CA Wage and Hour Class Action Claims

Common and unique CA Labor Code Claims

• Failure to provide meal periods

• Failure to provide rest periods

• Failure to pay waiting time penalties

• Suitable seating claims

• Violation of the Fair Pay Act

Meal Periods in CA

• Uninterrupted unpaid meal period of at least 30 minutes if a non-exempt employee works > 5 hours in a day and a second meal period if they work > 10 hours

• If employee works no more than 6 hours, the first meal period may be waived by mutual consent. If employee works more than 10 hours but not more than 12 hours, the second meal period may be waived by mutual consent

• Penalty pay for failing to provide compliant meal period is one hour of employee’s normal hourly rate of pay

Rest Periods in CA

• Employers must provide uninterrupted paid rest period for nonexempt employees who work at least 3.5 hours in a day

• Rest periods provided at the rate of 10 minutes for every four hours worked or “major fraction” thereof

• Penalty for failing to provide compliant rest period: Penalty pay equal to one hour of employee’s normal hourly rate of pay

Brinker case

Brinker Restaurant Corporation v. Sup. Ct., 53 Cal.4th 1004 (2012)

• Employer had non-compliant written rest period policies

• Court clarified that first meal period must commence no later than the end of the fifth hour of work and second meal period must commence no later than the end of the tenth hour of work

• Employers do not have to ensure employee take their meal breaks, but must make them available to employees

Augustus case

Augustus v. ABM Security Services, Inc., 2 Cal.5th 257 (2016)

• Employer maintained policy requiring security guard employees to leave pagers and radio phones on during rest breaks and employees had to be prepared to respond if needed

• CA Supreme Court held that “on-call” rest periods are not allowed

• Employees must be relieved of all work duties during rest periods

Meal and Rest Periods in CA

Takeaways from Brinker and Augustus

• Implement compliant written policies and ensure distribution to employees

• Ensure that employees are taking their meal and rest periods and if they are missed, determine why they were missed

• Employers should prohibit employees from carrying employer-provider pagers, walkie-talkies, etc. during breaks

• Employers should ensure that managers and supervisors effectively communicate policies and practices

Waiting Time Penalties

CA Labor Code § 203 Waiting Time Penalties

• If employer fails to pay employee all owed wages at the end of his/her employment, the employer must pay employee penalty of daily wage for each day payment is late up to 30 days

• Example: o Employee is terminated and does not receive final paycheck for 40 days

o Employee earns $15.00/hr. and typically works 8 hours in a day

o Entitled to $3,600.00 in waiting time penalties ($15.00 x 8 hrs. x 30 days)

Claim for Waiting Time Penalties will almost always accompany a claim for unpaid wages/overtime.

Inaccurate Wage Statements

CA Labor Code § 226 requires employers to provide employees with accurate wage statements listing all of the following:

• Gross wages earned

• Total hours worked

• Number of piece-rate units and piece rate earned (if paid by piece-rate)

• All deductions

• Net wages earned

• Pay period start and end date

• Name of employee and only last four digits of SSN or employee ID number

• Name and address of legal entity employer

• All hourly rates in effect during the pay period

Inaccurate Wage Statements

If employer fails to provide accurate wage statement, employee is entitled to recover greater of actual damages or $50 for initial pay period in with violation occurs and $100 per each subsequent violation with a cap of $4,000. CA Labor Code §226(e)(1).

Suitable Seating Claims

CA Industrial Welfare Commission Wage Orders - Sec. 14. Seats

(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.

(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

(emphasis added)

Suitable Seating Claims

In Kilby v. CVS Pharmacy, 63 Cal.4th 1 (2016) the CA Supreme Court addressed employers’ obligations to provide “suitable seating.”

• “If the tasks being performed at a given location reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for.”

• “Whether the nature of the work reasonably permits sitting is a question to be determined objectively based on the totality of the circumstances.”

• “An employer seeking to be excused from the requirement bears the burden of showing compliance is infeasible because no suitable seating exists.”

Fair Pay Act

CA Labor Code § 1197.5

Employees who perform “substantially similar work” under similar working conditions, must be paid equally, unless the employer can demonstrate that the wage differential is based on either:

• A seniority system;

• A merit system;

• A system that measures quality or quantity of production; or

• A bona fide factor other than sex, race or ethnicity (such as education, training, or experience.)

Note: Prior salary shall not, by itself, justify any disparity in compensation

PAGA

CA Labor Code § 2698 - California Private Attorneys’ General Act (“PAGA”)

• Allows aggrieved employees to file lawsuits to recover civil penalties for Labor Code violations on behalf of themselves and other aggrieved employees

• 75% of recovered penalties go to Labor and Workforce Development Agency (“LWDA”) and 25% go to aggrieved employees

• Aggrieved employees entitled to recover attorneys’ fees

• One year SOL

PAGA

• Exhaustion requirement prior to filing suit

• LWDA has 60 days to decide whether to investigate. Investigations are very rare

• Any settlement of a PAGA action must be approved by court, regardless of whether the settlement includes an award of PAGA penalties

• A copy of proposed settlement must provided to LWDA at the same time it is provided to the court

PAGA

Notable cases• Iskanian v. CLS Transportation, 59 Cal.4th 348 (2014)

o Employee’s right to bring a representative action under PAGA is unwaiveable

o Arbitration agreements requiring employee to waive PAGA action is contrary to public policy

o FAA does not preempt state law because a PAGA claim “is a dispute between an employer and the state …”

• Arias v. Superior Court, 46 Cal.4th 969 (2009)o Claims brought under PAGA are not subject to class action

requirements (i.e. suing plaintiff need not go through class certification process)

Colin Dougherty, Esquire(610) 397-3908

cdougherty@foxrothschild.com

David Faustman, Esquire(415) 364-5550

dfaustman@foxrothschild.com