On September 21, 2017, a federal district judge rejected a $19.1 Million proposed deal to end a nationwide wage-hour class action against the TGI Friday’s restaurant chain. In Zorrilla v. Carlson Restaurants Inc., 14-cv-2740 (SDNY), a class of nearly 29,000 tipped workers in nine states alleged violations of the FLSA and state wage-hour laws, including that the restaurant improperly took a tip credit, required an unlawful tip pool, and failed to pay spread-of-hours and uniform-related expenses. After more than four years of litigation, the parties reached perhaps the largest wage-hour settlement for the restaurant industry and sought court approval as required under the FLSA.
On September 28, 2017, the Supreme Court agreed to review whether service advisors at auto dealerships qualify as exempt from overtime under the Fair Labor Standards Act, in Encino Motorcars, LLC v. Navarro. The employer’s petition asks the Court to overturn the Ninth Circuit’s decision that the employees who advise customers about repair work could continue their wage-hour lawsuit against a California Mercedes Benz dealership. A Supreme Court decision could have wide-ranging impact on how lower courts interpret exemptions under the FLSA. (We’ve previously written about misclassification issues here.)
The Court also agreed to rehear the issue of whether requiring non-union employees in the public sector to pay fees to unions violates their First Amendment rights, in Janus v. AFSCME, Council 31. The petitioners seek to overturn the Court’s 1997 decision in Abood v. Detroit Board of Education, which affirmed that unions can require fees from non-members to cover costs of collective bargaining, contract administration, and grievance handling. The Court reheard the issue in March 2016 shortly after Justice Scalia’s death, but the case ended in a 4-4 tie. Newly-appointed Justice Gorsuch is expected to provide the clinch vote to ban to fees.
In related news, the Court will hear oral argument on Monday, October 2, 2017, in the consolidated cases asking whether arbitration agreements that bar employees from pursuing class or collective action claims violate Section 8(a)(1) of the NLRA.
Overtime claims continue to dominate class action filings and cause significant exposure for companies in all industries. In July alone, plaintiffs filed more than 200 class action complaints alleging overtime violations in federal courts across the country (not counting the number also filed in state court). And because courts calculate back wages at time-and-a-half the regular rate, plus liquidated damages and other penalties, overtime mistakes can cause significant damage to a company’s bottom line.
This post kicks off a series for Steptoe’s Labor & Employment blog on the top five overtime pay violations alleged in class action complaints. The first in the series focuses on one of the most common (and most expensive) kinds of overtime blunders: misclassification of employees as exempt.
Today, the Ninth Circuit in Mendoza v. Nordstrom, No. 12-57144, affirmed dismissal of the plaintiffs’ California Private Attorneys General Act (PAGA) claims. The plaintiffs sought to recover from the luxury retailer on behalf of themselves and other employees for violations of California’s day-of-rest rules, Cal. Labor Code §§ 551 and 552. The court rejected the plaintiffs’ arguments that it should remand the case to permit them to name a new PAGA class representative after their underlying claims failed, reasoning that nothing prevented a proper plaintiff from filing a new suit.
Yesterday the Second Circuit cast doubt on whether an arbitrator can certify a class that includes absent class members. The court remanded for the district court to decide “whether the arbitrator exceeded her authority in certifying a class that contained absent class members who have not opted in.” Jock v. Sterling Jewelers, Inc., No. 15-3947-cv (2d Cir. July 24, 2017). The case poses potentially big implications for class arbitration’s ability to resolve cases with finality.
As many people hit the road this summer for vacations and family trips, one recently filed class action serves as a reminder that certain driving activities qualify as compensable time under federal and state wage laws.
In Smith v. Allegheny Technologies, Inc., No. 2:17-cv-00911-RCM (W.D. Pa. filed 7/10/17), a metal manufacturer hired temporary replacement workers during a seven-month lockout with its union at multiple plant locations. According to the complaint, the replacement workers needed to cross active picket lines to get into the plants. To do so safely, the employer required the temporary workers to meet at a central location outside of the plant before work so that they could ride together in company vans to the plant. The company returned the employees to the central location in company vans at the end of the work day. A temporary replacement worker typically drove the van.
The complaint alleges that the time from the central location to the plant and back each day qualified as “integral and indispensable to the principal activities,” and thus counted as working time under the FLSA. The complaint claims underpayment of 10.5 to 14 hours of time, per employee, per week, in violation of the FLSA’s overtime provisions and Pennsylvania and Oregon state law. With potentially thousands of temporary workers, it’s easy to see how liability could reach the millions-of-dollars if the plaintiffs proved their case.
Key Takeaway: Employers should carefully review their travel and commuting practices to ensure that they compensate employees for all travel that qualifies as working time. As illustrated in the Smith complaint, employers should take particular note of any travel where the employer exercises control over the employee, e.g., by requiring him/her to travel from specific locations or in company vans. Of course, employers should have written, lawful travel pay policies in place. But, it’s also important to train on-site managers about potential travel-pay issues so that they know to reach out for advice before implementing a local practice that might expose the company to liability. Regular on-site audits by legal counsel or experienced HR personnel also help to catch potential issues before they turn into litigation.
On July 7, the California Court of Appeals issued a decision in Espejo v. The Copley Press, No. D065397, with potentially far-reaching implications for companies facing current or future expense-reimbursement class action claims. In a superficial analysis, the court ruled that expenses qualify as “wages” for purposes of California’s unfair competition law, Bus. & Prof. Code, § 17200 et seq. That holding potentially expands companies’ exposure in claims for unpaid expenses under California Labor Code § 2802; the ruling paves the way for plaintiffs to bring additional “piggyback” claims for waiting time penalties under California Labor Code § 203 and wage statement penalties under California Labor Code § 226.
The court also ruled that employers who pay employees “enhanced compensation” to cover their expenses must tell employees how much of their pay covers expenses at or near the time of payment. Otherwise, the employer will get no credit for such payments.
The trial court awarded plaintiffs more than $4.95 million in damages on their expense claim and in prejudgment interest, plus an additional $6.1 million in attorneys’ fees. However, the court of appeals remanded for recalculation of the expenses (as well as the attorneys’ fees) to give The Copley Press credit for the expenses that records showed it did pay.
Key Takeaway: Employers in California need to take a close look at their expense-reimbursement policies and practices because the risk of not properly reimbursing expenses just got more costly. In addition, employers who pay employees “enhanced compensation” must correctly identify it to employees.