FLSA

FLSA: Litigating On Principle Costs $210K in Attorneys’ Fees

Robert C. Lockwood
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In FLSA claims, employers which litigate “as a matter of principle” may wind up paying big money in attorneys’ fees if they lose.

Last week, Judge David Proctor issued a decision in a Fair Labor Standards Act (“FLSA”) case, which provides a warning to employers who want to litigate claims “as a matter of principle.”  See Lopez-Easterling v. Charter Communications, Inc., No. 2:14-cv-01493-RDP, 2017 WL 6406520 (N.D. Ala. Dec. 15, 2017).  Karen Lopez-Easterling sued her employer, Charter Communications, for overtime violations.  On May 18, 2017, a jury awarded her $5,355.72 as payment for those violations.

The FLSA permits a “prevailing party” to recover their attorneys’ fees.  Ms. Lopez-Easterling’s three attorneys spent 507.8 hours working on the case at rates between $325.00 and $450.00 per hour.  Thus, they asked Judge Proctor to award them $215,685.00 in attorneys’ fees.

Judge Proctor’s opinion largely granted the request for fees.  After some additions and a few reductions, Judge Proctor awarded $211,710.00 in fees.  The opinion strongly suggests that Charter Communications’ attitude towards the litigation influenced the fee award.  Judge Proctor discussed the fact that Charter “made crystal clear that it had no interest in resolving the case and exercised its right to ignore all of Plaintiff’s proposals.”    He also noted that Charter brought a “contest everything” approach to the litigation.  Finally, Charter’s own communications with the Judge during pre-trial conference may have been the deciding factor:

[Charter] had multiple opportunities to resolve this case prior to trial and chose not to do so.  [Charter] stated that it was not interested in settlement and was trying the case on principle.  In light of that position, the court gave [Charter] a warning that went something like this:  “you have the absolute right to take that position, but if you lose at trial — in for a dime, in for a dollar.”

Clients frequently want to go to court “as a matter of principle.”  But, principles can frequently be costly.  In this case, Charter could have settled for a relatively small payment early in the litigation, and avoided the substantial fee that Judge Proctor required after trial.  Instead, Charter will face a triple-threat of losses:  (1) $5,355.72 in overtime payments; (2) $211,710.00 in payments to the employee’s attorneys; and, (3) payments to their own attorneys of at least that amount.

 

Take Your Son to Work: Trainee or Employee under the FLSA?

Robert C. Lockwood
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Employees are entitled to pay under the FLSA, but uncompensated trainees are not.

Under the Fair Labor Standards Act (“FLSA”)  “employees” are entitled to pay, but uncompensated “trainees” are not.  The Eleventh Circuit Court of Appeals recently wrestled with the issue of whether a son, who was “learning the business” from his father, was an employee or trainee.  Axel v. Fields Motorcars of Fla, Inc., No. 16-13829, 2017 WL 4461014 (11th Cir. Oct. 6, 2017).

Michael Axel worked as an automobile wholesaler for Fields Motorcars.  He asked the General Manager of Fields to hire his son, Scott Axel, but the General Manager claimed that Fields was not hiring any new employees.  Ultimately, the General Manager and Michael agreed on an arrangement under which Michael would hire Scott as his own employee and teach Scott how to become an automobile wholesaler.  Each day, Scott would arrive at work with his father, review inventory, attend a daily used-car meeting and then go to lunch.  After lunch, Scott posted cars on an internet website for Fields, discussed cars that could be listed for sale, and researched cars that were for sale at auction.  Over the course of his work, Scott purchased sixty or seventy cars for Fields.

After Michael was terminated from employment by Fields, Scott sued and claimed that he was an employee of Fields who was denied pay in violation of the FLSA.  Fields claimed that Scott was not entitled to pay because he was an uncompensated “trainee.”  A trial court in Florida agreed with that argument and dismissed Scott’s claims.  The Eleventh Circuit, however, found that more information was needed.

The court’s analysis borrowed from earlier decisions analyzing whether academic “interns” were entitled to compensation under the FLSA.  The “intern” test analyzes seven factors, which focus heavily on the academic nature of internships.   For non-academic “trainees,” the Court focused on:

  1. The extent to which the trainee and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the trainee is an employee — and vice versa.
  2. The extent to which the training period is limited to the period in which the trainee receives beneficial learning.
  3. The extent to which the trainee’s work complements, rather than displaces, the work of paid employees.
  4. The extent to which the trainee and the employer understand that the training opportunity is conducted without entitlement to a paid job at the conclusion of training.

The results of those factors were inconclusive.  The first and fourth favored Fields because Scott clearly understood that he was working without pay, and understood there was no promise of a job at the completion of training.  But, the other factors somewhat favored Scott.  The training period was of indefinite duration, and he did the work of other Fields employees when he did the online work for car sales.

The Court also noted that the analysis was not an “all or nothing” proposition.  Scott could have been a trainee at times and an employee at others.  As a result, the Eleventh Circuit vacated the dismissal of Scott’s claims and remanded the case back to the trial court.

The Axel case demonstrates how complex the issue of “interns” and “trainees” can be.  If somebody is working for you without pay, you need to proceed cautiously and make sure that you are not violating the FLSA.

 

 

Overtime Regulation Struck Down

Robert C. Lockwood
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The Department of Labor’s Overtime Regulation Was Struck Down By a Federal Judge.

Yesterday, United States District Court Judge Amos Mazzant struck down a Department of Labor overtime regulation which increased the threshold for salary exemption under the Fair Labor Standards Act from $23,000 per year to $47,476 per year.  Here’s an article from The Hill discussing Judge Mazzant’s ruling:  Texas Judge Strikes Down Obama Overtime Rule

I wrote about the overtime regulation when it was released, here:  Overtime Rule Released.  After the regulation was released, numerous interested parties filed suit in Judge Mazzant’s court challenging the regulations, and he issued a preliminary injunction, which prevented the regulation from going into effect:  Judge Halts Overtime Regulation

The DOL under the Obama administration was not satisfied with Judge Mazzant’s ruling and filed an appeal with the Fifth Circuit Court of Appeals:  DOL Appeals Overtime Ruling  That appeal remains pending, but many attorneys believe that the DOL under the Trump administration may abandon the appeal.  I will keep you updated as the appeal progresses.

EPL: Does Your Employment Practices Insurance Cover Wage Claims?

Robert C. Lockwood
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Employers should carefully review their EPL policies for coverage of wage claims or risk a denial coverage.

I strongly recommend that my business clients purchase Employment Practices Liability (“EPL”)Insurance.  Employment-related claims are extremely costly to defend — even frivolous claims.   But, it’s important to do your homework when purchasing EPL Insurance.   Many EPL Insurance policies do not cover claims related to employee wage disputes.  So, it’s vital that you ask your insurance agent about the full scope of coverage under your policy.   A Birmingham company learned that lesson the hard way in a recent decision issued in the Northern District of Alabama.  See American Chemicals & Equipment, Inc. v. Continental Casualty Co., No. 6:15-cv-00299-MHH, 2017 WL 2405102 (N.D. Ala. Jun. 2, 2017).

In American Chemicals, the employer purchased EPL Insurance.  But, the insurance policy contained an explicit exclusion for claims arising under the Fair Labor Standards Act as well as any “law anywhere in the world governing wage, hour and payroll practices.”  Also, the definition of a covered “loss” under the policy did “not include any compensation earned by the claimant but unpaid by the Insured ….”

One of American Chemicals’ employees sued in state court claiming that the company failed to pay him the salary and sales commission rate that he was promised when he accepted his offer of employment.  American Chemicals asked its insurance company for a defense of the claim, but the insurance company refused to provide that defense, because the claim was excluded by the policy.  After settling with the employee, American Chemicals sued its insurance company claiming breach of contract, bad faith failure to pay an insurance claim, negligence and wantonness.

The American Chemicals decision focused upon the insurance company’s duty to defend.  Insurance companies frequently have a duty to defend a claim (i.e., pay for the lawyer), even if a claim is not covered.  American Chemicals asked United States District Court Judge Madeline Haikala to enter an order finding that the insurance company breached its duty to defend — even if the wage claim was not covered.  After interpreting the policy, however, Judge Haikala found that American Chemicals was not entitled to a defense — under its primary argument.  Nevertheless, Judge Haikala found an issue that the parties did not argue.  The employee’s underlying claim asked for punitive damages, and Judge Haikala found that a punitive damages request might require a defense from the insurance company.  So, Judge Haikala ordered the parties to submit briefs to her on that issue.  As a result, American Chemicals’ case is severely damaged, but still alive.

The key takeaway here is to ask your insurance agent if wage claims are covered by your EPL policy.  If there is a wage exclusion, you need to seriously consider purchasing a separate wage-based policy.  FLSA claims are becoming more frequent, and some employee-focused law firms are concentrating on wage and hour claims, because employers regularly make inadvertent mistakes in paying their employees.  Here’s a link to a good article discussing the pros and cons of obtaining coverage for wage claims:  EPLI Wage Claims

 

Employers Can Owe Compensation for the Drive to a Work Location

Robert C. Lockwood
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compensation employee driving FLSA portal-to-portal
Employers can sometimes be required to compensate employees for time spent driving to their work site.

A recent decision from the Eleventh Circuit Court of Appeals demonstrates that, sometimes, employers are required to compensate employees for time spent driving to a work location.  See Meeks v. Paco County Sheriff, No, 16-16932, 2017 WL 2116130 (11th Cir. May 15, 2017).  In Meeks, a deputy sheriff drove his personal car to a “secure location” at the beginning of every shift.  He retrieved a patrol car from the “secure location” and drove to his patrol zone.  His employer refused to compensate him for the time driving from the “secure location” to his patrol zone.

The Portal-to-Portal Act discusses activities, associated with work, that are not compensable under the Fair Labor Standards Act.  Employers are not required to pay employees for:  (1) traveling to and from the actual place of performance of the principal activity or activities which the employee performs; or, (2) activities which are preliminary to or postliminary to the employee’s principal activities.  29 U.S.C. § 254(a).   But, an employee’s principal activity or activities are compensable.  Meeks, 2017 WL 2116130 at *2.

In Meeks, the Eleventh Circuit found that the time driving to the patrol zone was compensable, because it was part of the deputy’s principal activities.  The term “principal activities” includes all activities that are an “integral and indispensable” part of the employee’s duties.    Meeks, 2017 WL 2116130 at *2.  An activity is “integral and indispensable” if it is an intrinsic element of the activity and one with which the employee cannot dispense if he is to perform the activities.  Id.  The Court found that driving the patrol car from the “secure location” to the patrol zone was an “intrinsic element” of  the deputy’s principal activity — patrolling for crime.  Because driving to the patrol zone was part of the deputy’s principal activities, that drive time was compensable.

In most cases, time spent by an employee driving to work is not compensable under the Fair Labor Standards Act — particularly time spent driving from home to work.  But, Meeks demonstrates that there are always exceptions in the law.  Employers should review their drive-time compensation policies to ensure that they are complying with the FLSA.

FLSA: Restaurant Owners Can Take Tips From Employees

Robert C. Lockwood
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The FLSA does not prohibit restaurant owners from taking the tips of employees who are otherwise paid the minimum wage.

In a one-sentence opinion, the Eleventh Circuit Court of Appeals recently held that the Fair Labor Standards Act (“FLSA”) does not prohibit restaurant owners from taking the tips of their employees:

Having carefully considered the written submissions and the arguments of the parties and of the amicus curiae, we conclude there is no free standing claim for relief under Section 203(m) of the Fair Labor Standards Act, 29 U.S.C. § 203(m), where, as here, there is no allegation that the employer does not pay the minimum wage.

Aguila v. Corporate Caterers IV, Inc., No. 16-15838, 2017 W 1101081 (11th Cir. Mar. 24, 2017).

With that one sentence, the Court affirmed the decision of the trial court in Auguila v. Corporate Caterers, II, Inc., 199 F.Supp.3d 1358 (S.D. Fla. 2016).  In that case, the plaintiffs were delivery drivers who claimed that they were supposed to receive tips, but their employer retained some or all of those tips.  They did not claim that their employer failed to pay them minimum wage.

At its heart, the FLSA is designed to ensure that employees are paid:  (1) minimum wage; and, (2) applicable overtime.  Section 203(m) of the FLSA deals with the minimum wage for tipped employees.  It allows employer to pay less than the federally-mandated minimum wage by using the employees’ tips as part of wages.  In short, the employer-paid wage, plus tips, should exceed minimum wage.  This “tip credit” is frequently misused by employers, who are then sued under the FLSA for failing to pay the correct minimum wage.

But, the employees in Aguila did not claim that they were paid less than minimum wage.  Instead, they argued that Section 203(m) of the FLSA gave them an independent right to retain their tips.  The employees were asking the Court to expand the scope of the FLSA beyond minimum wage and overtime to include a new right to retain tips.  They based their arguments on 2011 regulations issued by the United State Department of Labor and a decision from the Ninth Circuit Court of Appeals (traditionally one of the most liberal federal courts).  Despite those arguments, the trial court and the Eleventh Circuit in Aguila declined to expand the FLSA.

Aguila should not be taken as carte blanche authorization for employers to seize their employees’ tips.  Aside from morale problems, employees could potentially sue in state court for fraud and conversion — both of which carry the possibility of punitive damages.  Instead, Aguila should merely be read as a decision limiting the scope of federal power over employers.

Migrant Farm Workers and the Fair Labor Standards Act

Robert C. Lockwood
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Migrant workers and the FLSA
Migrant workers and the FLSA

For purposes of the Fair Labor Standards Act, migrant farm workers can be joint employees of the farm where they work and the company which supplies their services to the farm.  See Garcia-Celestino v. Ruiz Harvesting, Inc., No. 16-10790, 2016 WL 7240150 (11th Cir. Dec. 15, 2016).  The issue of joint employment is raising its head frequently as companies try to limit their liability to the people providing services to them.  As I previously discussed, the issue is frequently whether an employer possesses control over the worker: MY ACHING “JOINTS” – JOINT EMPLOYEES UNDER THE FLSA

In Garcia-Celestino, Basiliso Ruiz provided migrant workers to pick oranges for Consolidated Citrus.  Consolidated paid based upon the number boxes of fruit picked by each worker.  If the worker did not pick enough boxes of fruit to achieve minimum wage, Consolidated Fruit paid additional “build-up pay” to raise the worker to minimum wage.  Unfortunately, Mr. Ruiz then deprived the migrant workers of minimum wage by requiring them to hand-over the “build-up pay” to him under threat of deportation.  Ultimately, the migrant workers sued both Mr. Ruiz and Consolidated Citrus for failure to pay minimum wage under the FLSA.

The primary issue in Garcia-Celestino was whether the migrant workers were joint employees of Consolidated Citrus for purposes of breach of contract and FLSA claims.  The trial court found that Consolidated Citrus was a joint employer for both claims, and relied upon the FLSA’s “suffer or permit to work” standard of “employer” to reach that conclusion.  Under that definition, the ultimate question is whether, as a matter of “economic reality,” the hired individual is “economically dependent” upon the hiring entity.

The Eleventh Circuit found that the trial court incorrectly applied the “suffer or permit to work” standard to the migrant workers’ breach of contract claims.  As a result, the Eleventh Circuit remanded the case for the trial court to determine whether the migrant workers were Consolidated Citrus’s employees under the common-law standard — which focuses mostly on control.  Nevertheless, for purposes of the FLSA minimum wage claims, the Eleventh Circuit found that the trial court correctly applied the “suffer or permit to work” standard, and concluded that Consolidated Citrus was a joint employer for purposes of the minimum wage claims.

Garcia-Celestino provides a cautionary tale for all employers — not just farmers.  If you are contracting-out labor, you run the risk of liability as a joint employer of the contract laborers.

DOL Appeals Order Halting Overtime Regulations

Robert C. Lockwood
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The Department of Labor has appealed an order which halted new overtime regulations

Yesterday, the United States Department of Labor filed an appeal challenging an order which halted DOL’s new overtime regulations.  Those new regulations were scheduled to go into effect on December 1, 2016 and would have raised the minimum salary for exempt employees to $47,476.00.  I previously wrote about the injunction which stopped the new regulations here:  Federal Judge Halts New Overtime Regulations!

In a “normal” case, an appellate court can take a year or longer to issue a decision on an appeal.  Most likely, this appeal will be fast-tracked by the Fifth Circuit Court of Appeals.  Even so, employers should not expect a decision any earlier than some time in the first quarter of 2017.  Here is the DOL’s press release concerning the appeal: https://www.dol.gov/whd/overtime/final2016/litigation.htm

Fluctuating Workweek Overtime: An Alternative to Time and a Half

Robert C. Lockwood
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The fluctuating workweek provides an alternative method for calculating overtime.

Many of my clients are calling with questions about the new overtime regulations, which become effective on December 1, 2016.  Those calls and a recent decision from the Eleventh Circuit Court of Appeals merit a discussion of the “fluctuating workweek” method of calculating overtime.  See Garcia v. Yachting Promotions, Inc., No. 16-10095, 2016 WL 6276046 (11th Cir. Oct. 27, 2016).  In summary, an employee with a fluctuating work schedule can be paid:  (1)  a fixed weekly salary; and (2) half-time (instead of time-and-a-half) as overtime compensation for all hours over 40.

This methodology should only be applied to employees who work irregular work hours.  Most importantly, their hours must fluctuate both above and below 40 hours per week. 

If an employee truly works a fluctuating workweek, then it is possible to pay them overtime at half-time rather than time-and-a-half.  But, there are numerous requirements that must be satisfied.  Critically, the employee must be paid a fixed weekly salary as straight time pay.  The employee receives this amount if they work less than 40 hours in a week, or more than 40 hours.  Additionally, the Department of Labor’s regulations provide:

  1. The employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
  2.  The straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
  3.  The straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
  4. In addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.
See 29 C.F.R. § 778.114.  

In Lopez-Garcia, the issue was whether there was a clear mutual understanding between the employer and the employee to apply the fluctuating workweek methodology.   “The employee does not have to understand every contour of how the fluctuating workweek method is used to calculate salary, so long as the employee understands that his base salary is fixed regardless of the hours worked.”  Lopez-Garcia, 2016 WL 6276046 at *2.  In Lopez-Garcia, the plaintiff possessed limited proficiency in English.  Nevertheless, he signed a memorandum acknowledging his understanding of the fluctuating workweek, and he knew that he was a “salary employee who did receive overtime.”  Id.  Those facts were sufficient for the Court to find that the employee was properly paid under the fluctuating workweek method.

The Department of Labor is concerned that employers might attempt to use the fluctuating workweek methodology to limit overtime paid to employees — particularly employees who do not truly work a fluctuating schedule.  Thus, application of this methodology should be approached very carefully.  But, if you have employees whose schedule truly fluctuates over and under 40 hours per week, this is a potential alternative method for calculating overtime.

Bad News For Lawyers: No Overtime For You!

Robert C. Lockwood
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No overtime for attorneys.
Attorneys are not entitled to overtime.

The Eleventh Circuit Court of Appeals recently ruled that attorneys are not entitled to overtime under the Fair Labor Standards Act (“FLSA”).  Okonkwo v. The Callins Law Firm, No. 16-10192, 2016 WL 4916850(11th Cir. Sep. 15, 2016).

This ruling really should come as no surprise to any attorney who practices wage and hour law.  The FLSA expressly exempts those employees who are “employed in a bona fide … professional capacity.”  29 U.S.C. 213(a)(1).  Moreover, the United States Department of Labor (“DOL”) has defined a “bona fide professional” as “[a]ny employee who is the holder of a valid license or certificate permitting the practice of law … and is actually engaged in the practice thereof.”  29 C.F.R. 541.304(a)(1).

Nevertheless, the plaintiff in Okonkwo argued that, as a matter of policy, she should receive overtime because she was paid an hourly wage instead of on a salary basis.  The Eleventh Circuit rejected that argument because DOL regulations expressly provide that the salary basis test does not apply to licensed attorneys.  29 C.F.R.  541.304(d).  The Court deferred to those regulations.

Okonkwo simply reinforces that professionals like doctors and lawyers are not entitled to overtime.