Our colleague at Epstein Becker Green has a post on the Wage and Hour Defense blog that will be of interest to our readers in the retail industry: “Federal Court Concludes That 7-Eleven Franchisees Are Not Employees of 7-Eleven.

Following is an excerpt:

In November 2017, four convenience store franchisees brought suit in federal court against 7-Eleven, Inc., alleging that they and all other franchisees were employees of 7-Eleven. The case was filed in the United States District Court for the Central District of California, entitled Haitayan, et al. v. 7-Eleven, Inc., case no. CV 17-7454-JFW (JPRx).

In alleging that they were 7-Eleven’s employees, the franchisees brought claims for violation of the federal Fair Labor Standards Act (“FLSA”) and the California Labor Code, alleging overtime and expense reimbursement violations. The trial court granted judgment in 7-Eleven’s favor, concluding that 7-Eleven was not the four franchisees’ employer under California law or federal law. …

Read the full post here.

Featured on Employment Law This Week:  The Ninth Circuit held that certain auto service advisors were not exempt because their position is not specifically listed in the FLSA auto dealership exemption.

The 9th relied on the principle that such exemptions should be interpreted narrowly. In a 5-4 decision last week, the Supreme Court found no “textual indication” in the FLSA for narrow construction. Applying a “fair interpretation” standard instead, the Court ruled that the exemption applies to service advisors because of the nature of the work.

Watch the segment below and read our recent post.

In In re: Chipotle Mexican Grill, Inc., Case No. 17-1028 (10th Cir. March 27, 2017), the Tenth Circuit Court of Appeals reiterated its holding in Theissen v. GE Capital Corp., 267 F.3d 1055 (10th Cir. 2001), that a district court may utilize a variety of approaches to identify similarly situated workers for purposes of authorizing facilitated notice in FLSA collective actions.

The Tenth Circuit reaffirmed its position when denying Chipotle’s petition for a writ of mandamus. There, the district court issued an order in Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp. 3d 1300 (D. Colo. 2015), authorizing notice in a collective action resulting in 10,000 opt-in plaintiffs.  As part of its petition, Chipotle sought a writ of mandamus to dismiss the district court’s joinder of 10,000 opt-in plaintiffs, or, in the alternative, to remand to permit discovery to ascertain if the opt-ins are similarly situated and to provide an opportunity to file a motion to decertify the collective action.  The Tenth Circuit rejected Chipotle’s application because the district court’s order was “not such a gross abuse of discretion” to warrant mandamus relief.

That the Tenth Circuit denied mandamus relief is unremarkable based on factors presented. Of significance, however, is the court’s discussion and acknowledgment that Theissen’s three approaches (the ad hoc approach; Rule 23 approach; and spurious approach under pre-1966 Rule 23 amendments) remain available to district courts to use to determine who is similarly situated under FLSA Section 216(b) for purposes of facilitated notice.

In Turner, plaintiffs allege that Chipotle’s company-wide automated computer timekeeping system “arbitrarily cuts off the time clock at half past midnight,” allegedly resulting in some shift-closing hourly employees working off-the-clock without being compensated.

The district court analyzed “the proper procedural mechanism for pursuing a representative action ‘on behalf’ of employees similarly situated.” 123 F.Supp. 3d at 1305.  The court rejected so much of plaintiffs’ motion insofar it was characterized as one for conditional certification under a lenient standard of “substantial allegations” that the plaintiff and those similarly situated were victims of “a single decision, policy or plan.”  It also rejected Chipotle’s request for a stricter standard of review of plaintiffs’ motion for facilitated notice, as plaintiffs had discovery, and that certification should be limited to stores where there is “substantial evidence” of a common decision, policy or plan. Id.

The district court proceeded to identify the proper standard to authorize notice of collective action. It specifically rejected the two-step ad hoc conditional certification rubric as well as the Rule 23 approach to facilitate notice of the collective action because such approaches conflate the Rule 23 class certification standard with Section 216(b)’s permissive joinder standard.  Rather, it found that Section 216(b) collective action may be analogized under the spurious class action approach (old Rule 23(a)(3)), as both were “‘aggregated damages claims for only those who opted in and both were joinder liberalizations.’” Id. at 1306 (citation omitted).  It concluded that the proper approach in deciding a motion to facilitate notice “is to presumptively allow workers bringing the same statutory claim against the same employer to join as a collective, with the understanding that individuals may be challenged and severed from the collective if the basis for their joinder proves erroneous” (emphasis supplied).  The court placed the burden on Chipotle to “winnow” the collective at some later point in the proceeding through F.R.Civ.P. Rules 21 (misjoinder) and Rule 42 (severance) procedures.

The Tenth Circuit found that the district court’s “presumptive” approach to facilitate notice, which it likened to the “spurious” approach, complies with Section 216(b). It noted that “under the spurious approach, courts incorporate into § 216(b) the pre-1966 requirements of Rule 23 based on Advisory Committee notes which are: (1) “the character of the right sought to be enforced … must be several,” (2) “there must be a common question of law or fact affecting the several rights,” and (3) “a common relief must be sought.”

The district court’s departure from the ad hoc/two-step approach is notable.  Under the ad hoc approach, the first step requires a named plaintiff to make a modest factual showing that the named plaintiff and potential opt-in plaintiffs are victims of a common decision, policy, or plan.  If shown, court-approved notice to potential collective action members will issue.  The second step, occurring after the completion of discovery, requires the district court, applying a more stringent standard of proof, to make factual findings whether the opt-in plaintiffs are in fact similarly situated to the named plaintiff.  The ad hoc approach is used by many district courts and has been acknowledged by a number of circuit courts, in addition to the Tenth Circuit, as an acceptable approach. See e.g. Zavala v. Wal Mart Stores Inc., 691 F.3d 527 (3d Cir. 2012); Myers v. Hertz Corp., 624 F.3d 537 (2d Cir. 2010).

The Tenth Circuit in In Re Chipotle repeated its position in Theissen, “that the two-step process is arguably the best of the three approaches we have experienced,” but, at the same time, noted that the differences between the approaches were minimal, as “[a]ll approaches allow for consideration of the same or similar factors.”  It deferred to the district court’s discretion whether to deny collective action treatment “for trial management reasons.” The Tenth Circuit rejected Chipotle’s argument that the ad hoc approach is mandated by Theissen.

Also, the Tenth Circuit rejected Chipotle’s argument that the spurious approach violates its due process rights because there is no threshold determination if the matter is suitable for collective action treatment and it places the burden on Chipotle to “winnow” the collective action thereafter. Acknowledging that the winnowing process may be burdensome, the circuit court observed that, at this stage of the litigation, Chipotle had not identified a basis relieving it from this task.

The Tenth Circuit concluded by opining that it made “no definitive determination of the merits of using the spurious approach as opposed to either of the others”, and noted that the district court’s approach “may be debatable”. Nevertheless, the Turner case proceeds as a collective action with 10,000 opt-in plaintiffs.

Takeaways

  1. Trial courts are given wide latitude in deciding how to identify and provide notice to similarly situated litigants of FLSA collective actions. In the Tenth Circuit, no one method is mandated under § 216(b).  Nevertheless, the Turner district court decision, if followed, may signal even larger collective actions.  The ad hoc or two step approach has enjoyed wide acceptance at the district court and, more important, acquiescence at the circuit level.  The standard of proof at the initial certification stage is low to meet its purpose “to determine whether ‘similarly situated’ plaintiffs do in fact exist.” Myers, 645 F.3d at 555 (emphasis in original).  Although the plaintiff’s initial burden is modest, “it is not non-existent.” Khan v. Airport Mgmt. Servs., LLC, No. 10-CV-7735, 2011 WL 5597371 at *5 (S.D.N.Y. Nov. 16, 2011).  The “modest factual showing” to support conditional certification at the first stage inquiry starts the winnowing process by determining “whether, ‘similarly situated’ plaintiffs do in fact exist.” Myers, 624 F.3d at 555 (citations omitted; emphasis in original).  Under the Turner district court decision, the winnowing process will start later through misjoinder and severance motion practice, possibly on an individualized basis.
  2. The Turner case highlights the risk associated with utilizing automated time and attendance tracking systems. The administrative efficiencies that such systems bring to the workplace can be offset by lawsuits alleging inaccurate recording of working time.  An automated timekeeping system may reduce administrative overhead and control payroll, but it may lead to incidents of off the clock work, when, for example, meals are not taken, but recorded as having occurred.  Or, as alleged in Turner, an employee working a closing shift cannot record time, because the automated timekeeping system is not operational after a certain hour.  Some employers have learned this lesson the hard way in auto-deduction class and collective actions, involving meal breaks, particularly where a monitoring system is not in place to verify that all hours worked are recorded.

Our colleague Jeffrey H. Ruzal, Senior Counsel at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the retail industry: “Decision Enjoining Federal Overtime Rule Changes Will Not Affect Proposed Increases Under New York State’s Overtime Laws.”

Following is an excerpt:

As we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions …

Read the full post here.

Retail employers should take note that the U.S. Department of Labor (“DOL”) updated its mandatory posters notifying employees of their rights under the Fair Labor Standards Act (“FLSA”) and Employee Polygraph Protection Act (“EPPA”).  The FLSA and EPPA posters no longer identify the civil monetary penalties that may be assessed for violations.  The FLSA poster also provides information regarding the rights of nursing mothers under the FLSA.  Employers are required to post the revised mandatory posters as of August 1, 2016, and may download the revised posters from the DOL’s website.

Employers should review their workplace employment law postings to ensure those displayed are up-to-date and in compliance with all applicable laws.

Employers should also be reminded of their responsibilities under the FLSA, including their responsibilities to nursing mother employees who are subject to the FLSA’s overtime requirements. Those nursing mothers are entitled to reasonable break time to express breast milk for one year after the child’s birth and a private place, other than a bathroom, to do so.

My colleagues Michael S. Kun and Jeffrey H. Ruzal at Epstein Becker Green has a Wage and Hour Defense blog post that will be of interest to all retailers: “Proposed DOL Rule To Make More White Collar Employees Eligible For Overtime Pay.”Clock

Following is an excerpt:

More than a year after its efforts were first announced, the U.S. Department of Labor (“DOL”) has finally announced its proposed new rule pertaining to overtime. And that rule, if implemented, will result in a great many “white collar” employees previously treated as exempt becoming eligible for overtime pay for work performed beyond 40 hours in a workweek – or receiving salary increases in order that their exempt status will continue.

Read the full original post here.

Regarding the Supreme Court’s Integrity Staffing Solutions v. Busk opinion, issued today, our colleague Michael Kun at Epstein Becker Green has posted “Supreme Court Holds That Time Spent in Security Screening Is Not Compensable Time” on one of our sister blogs, Wage & Hour Defense.

Following is an excerpt:

In order to prevent employee theft, some employers require their employees to undergo security screenings before leaving the employers’ facilities. That is particularly so with employers involved in manufacturing and retail sales, who must be concerned with valuable merchandise being removed in bags, purses or jacket pockets.

Often in the context of high-stakes class actions and collective actions, parties have litigated whether time spent undergoing a security screening must be compensated under the Fair Labor Standards Act (“FLSA”). On December 9, 2014, a unanimous United States Supreme Court answered that questionno.

The Court’s decision in Integrity Staffing Solutions v. Busk may have a far-reaching practical and legal impact. Not only may it make more employers comfortable conducting security screenings of their employees, but it may bring an end to most class actions and collective actions filed against employers seeking compensation for employees’ time spent in such screenings.

On Epstein Becker Green’s Management Memo blog, I review New Jersey U.S. District Court’s ruling in Naik v. 7-Eleven that four franchise owner-operators may pursue overtime and minimum wage claims against franchisor 7-Eleven under both the federal Fair Labor Standards Act (“FLSA”) and the New Jersey Wage and Hour Law (“NJWHL”).

Following is an excerpt from the blog post:

On July 29, 2014 the NLRB’s General Counsel announced a decision to treat McDonald’s, USA, LLC as a joint employer, along with its franchisees, of workers  43 McDonald’s franchised restaurants with regard to unfair labor practices charges filed by unions on behalf of the  workers and authorized charges against of both the franchisees and McDonalds. (See our July 30 blog post  and Aug. 14 blog post)

To access the full blog post, please click here.

 

By Aaron F. Olsen

The United States Supreme Court declined to review the Second Circuit’s decision in Irizarry v. Catsimatidis in which the Court of Appeals affirmed the District Court’s decision holding a Supermarket CEO personally liable for violations of the Fair Labor Standards Act (FLSA).

By way of background, in July 2013, the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision that the CEO of a supermarket chain could be held personally liable for damages in Irizarry v. Catsimatidis.  The District Court had granted summary judgment in favor of plaintiffs in the class action case and held that plaintiffs were entitled to liquidated damages on their claims concerning reduction of hours, withholding of overtime, misclassification as exempt employees, and retaliation.  The parties entered into a settlement agreement.  However, the corporate defendants later defaulted on their obligations under the agreement.  Plaintiffs then moved for partial summary judgment on the CEO’s personal liability as an employer.

Individual liability under the FLSA turns on whether an employment relationship exists between the employee and the purported employer, the individual defendant.  The FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee….”  29 U.S.C. § 203(d).  An “employee” is defined as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  Quoting from the U.S. Supreme Court’s  decision Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947), the Court of Appeals in Irizarry stated that the FLSA contains “no definition that solves problems as to the limits of the employer-employee relationship under the Act.”

The District Court reasoned that the CEO hired managerial employees, signed all paychecks to the class members, had the power to close or sell the stores, routinely reviewed financial reports, worked at the corporate office and generally presided over the day to day operations of the company.  The District Court concluded that there was no area of the store which was not subject to the CEO’s control, whether or not he chose to exercise it, and therefore the CEO had “operational control” and could held liable as an employer.

The CEO argued that he was a high-level employee who made symbolic or, at most, general corporate decisions that only affected the plaintiffs through an attenuated chain of causation.

The Court of Appeals noted that it had previously set forth four factors to determine the “economic reality” of an employment relationship: (i) whether the alleged employer had the power to hire and fire the employees, (ii) supervised and controlled employee work schedules or conditions of employment, (iii) determined the rate and method of payment, and (iv) maintained employment records.  However, the Second Circuit also stated that it had examined different indicia of “operational control” in other cases, with the intent of assessing whether a defendant exercised functional control over a worker.

In conducting its analysis, the Court of Appeals noted that the CEO personally owned the building where the headquarters were located.  In addition, he stayed apprised of how the supermarket chain was doing, reviewing the overall profit and loss statements as well as the “sales to purchases” statements of particular stores. He received weekly gross margin reports from all the “perishable departments” and a comprehensive Profit and Loss report on a quarterly basis that he studied in depth and sometimes used to make general recommendations. He also made “big picture” merchandising decisions, like whether to push Coca-Cola or push Pepsi-Cola” and the decisions on having pharmacies in the stores.  He would also visit the stores regularly and make comments to the store managers about displays, merchandising decisions and discuss what is going right and what is going wrong.

The Court of Appeals concluded, in what it described as a “close case,” that there was no evidence that the CEO was responsible for the FLSA violations, or that he ever directly managed or otherwise interacted with the plaintiffs.  Nevertheless, the supermarket CEO was an “employer” for the purposes of the FLSA because his control over the hiring of managerial employees, and his overall financial control of the company meant that he possessed “operational control” over the plaintiffs’ employment.

The potential to be held personally liable for violations of the FLSA understandably creates concern for CEOs – especially those of medium-sized companies that have a large enough number of employees to create significant exposure but not enough resources for the Company to pay for a large judgment that may come from losing a class-action.

 

By Nancy L. Gunzenhauser

On March 13, 2014 President Obama issued a memorandum instructing the Department of Labor (“DOL”) to review and revise overtime regulations under the Fair Labor Standards Act (“FLSA”).  Under the FLSA employees are eligible to receive overtime for all hours worked over 40 per week, unless they fall within certain specified exemptions.  The most common of exempt classifications in the retail industry are executive, administrative, and commission sales.

The executive exemption applies to managers and supervisors who direct the work of others and who earn a salary of at least $455 per week. The administrative exemption applies to employees who (i) earn a minimum weekly salary of $455, (ii) perform non-manual work directly related to the employer’s business operations and (iii) have as a primary duty the exercise of discretion and independent judgment with respect to matters of significance. The commissioned sales person exemption applies to employees who receive more than half of their earnings from commissions.

The upcoming changes to overtime regulations will be the first since 2004, when the threshold for the executive exemption was raised from $250 to $455 per week.

While the exact changes the Obama administration has in mind remain unclear, the impact on the retail industry, and indeed nearly all employers, may be be significant because the express purpose of the mandated review is to increase the number of workers eligible for overtime. One likely change will be a further increase to the minimum weekly salary threshold for executive and administrative exemptions. Inasmuch as many, if not most, exempt employees already have salaries of more than $455 per week, the change to the salary threshold alone might not be significant – depending on the new minimum. But, other changes cannot be ruled out.

The DOL has not indicated when it expects to issue the proposed amendments. A comment period will follow before any rule amendments are adopted, however.   Rulemaking may take a year or more. We will be monitoring the process and will alert you here to developments.

In addition, you may wish to download the EBG Wage & Hour app to your smart phone,  where changes to the regulations will also be posted.