The United States Department of Labor, Wage and Hour Division (WHD) recently released a press release detailing how it recovered more than $77,000.00 in back wages for employees that were not properly paid for “on-call” work hours. Specifically, the WHD found that 21 emergency medical technicians (EMTs) in Worthington, Minnesota were required to be on-call while at home and had to be ready to report to their ambulances within six minutes during such on-call periods. The EMTs were not properly compensated for their “on call” work hours which caused them to work over 40 hours within a single workweek.  Thus, the EMTs were wrongfully denied overtime compensation under the Fair Labor Standards Act (FLSA).   The on-call hours in this particular case were compensable, the WHD held, because of the particularly restrictive on-call conditions that the EMTs were subject.

In recent years, district courts within the Third Circuit have frequently held that workers cannot bring “hybrid” federal wage and hour claims under the FLSA as a collective action under 29 U.S.C. §216(b) along side state wage and hour class action claims under Federal Rule of Civil Procedure 23. See, e.g., Otto v. Pocono Health Sys., 457 F. Supp. 2d 522, 524 (M.D. Pa. 2006) (“To allow an Section 216(b) opt-in action to proceed accompanied by a Rule 23 opt-out state law class action claim would essentially nullify Congress’s intent in crafting Section 216(b) and eviscerate the purpose of Section 216(b)’s opt-in requirement.). The notion that such claims cannot be simultaneously pursued in federal court has become known as “inherent incompatibility.”

However, in an opinion issued on January 18, 2011, the Seventh Circuit Court of Appeals rejected this idea, holding that “there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA.” Ervin v. Os Restaurant Services, Inc., 2011 U.S. App. LEXIS 863, *3-4 (7th Cir. Ill. Jan. 18, 2011). “Nothing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding.” Id. at *4.

In Ervin, former employees of an Outback Steakhouse restaurant brought claims under both the Fair Labor Standards Act and the Illinois Minimum Wage Law alleging that Outback failed to pay them minimum wage and overtime due to their tip sharing/pooling practices. The district court declined to certify the state law claims under Rule 23 because “of what he saw as a conflict between the two different forms of aggregate litigation.” Id. at *7-8.

The Seventh Circuit examined Congressional intent behind the FLSA and disagreed with the district court, noting that “[t]here is ample evidence that a combined action is consistent with the regime Congress has established in the FLSA.” Id. at *15. Moreover, the Seventh Circuit rejected the notion that §216(b)’s opt-in procedure and the opt-out nature of Rule 23 would create confusion among class members. In fact, the Court noticed that having two parallel actions, one in federal court and one in state court, would create more potential for confusion than having a class’s wage and hour claims proceed in one venue. Id. at *18-19.

The Ervin Court also addressed whether a district court could have supplemental jurisdiction over state wage and hour claims pursuant to 28 U.S.C. §1367. It held that the requirements of §1367(a) are satisfied where the state wage claims are closely related to the FLSA collective action. Id. at *21. The court also held that “a simple disparity in numbers should not lead a court to the conclusion that a state claim ‘substantially predominates’ over the FLSA action” as precluded by §1367(c). Id. at *24. In fact, the court observed that the 45 current and former Outback workers who had joined the suit (compared to the 180 to 250 who may be covered by the Rule 23 claims) was a “low” ratio ,suggesting that the state claims did not predominate over the FLSA claims in this case. Id. at *25. In closing, the Ervin court stated:

We agree with the D.C. Circuit in Lindsay and the Ninth Circuit in Wang that the Third Circuit decision in De Asencio represents only a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining an FLSA count with a state-law class action. In our case, the record reflects no reason to doubt that it is sensible to litigate all theories in a single federal proceeding. The identity of the issues, the convenience to both plaintiffs and defendants of not having to litigate in multiple forums, and the economy of resolving all claims at once suggests that an exercise of supplemental jurisdiction will normally be appropriate. In all but the most unusual cases, there will be little cause for concern about fairness or comity.

Id. at *26.

While the Seventh Circuit’s opinion is not the first circuit court to reject inherent incompatibility, see, e.g, Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753-55, 760-62 (9th Cir. 2010) (holding that a district court properly certified a Rule 23(b)(2) class along with an FLSA collective action and properly exercised supplemental jurisdiction over the state-law claim), the Third Circuit Court of Appeals has yet to address this issue. As a result, overtime lawyers in Pennsylvania, New Jersey and Delaware must still confront this issue when planning any class/collective action litigation.

In Adeva v. Intertek USA, 2010 U.S. Dist. LEXIS 1963 (D.N.J. Jan. 11, 2010), the District of New Jersey, the Court was faced with a question of whether an employer can use the Fluctuating Workweek Method of pay (which is unfortunately sometimes referred to as “Chinese Overtime”) when it gives employees special payments for days off, off shore pay and holiday pay. Under the Fluctuating Workweek Method, an employer must pay its employees a “fixed amount as straight time pay for whatever hours he is called upon to work in a workweek.” 29 C.F.R. § 778.114(a). Judge Chesler held that when an employee receives such payments, the employer is not adhering to the regulation’s fixed salary requirement. “The record demonstrates that Plaintiffs’ compensation for non-overtime hours varied, depending upon earned offshore pay, holiday pay or day-off pay. The Court is convinced that due to such payments, Plaintiffs cannot receive the fixed salary required to apply the FWW.” Adeva, 2010 U.S. Dist. LEXIS 1963, at *7. In reaching this conclusion, the court relied on a 2007 opinion from the Southern District of New York, titled Ayers v. SGS Control Services, Inc., 2007 U.S. Dist. LEXIS 19634 (S.D.N.Y.) which held that since the plaintiffs received sea-pay and day-off pay, their salaries were not fixed, precluding the use of the FWW. Judge Chesler also relied on the First Circuit’s opinion in O’Brien v. Town of Agawam, 350 F.3d 279 (1st Cit. 2003) which held that workers who received additional compensation in the form of shift differential payments could not have received a fixed amount as required by the FWW.
Employees who are paid under the FWW method where they get “half-time” for their hours over forty should be aware if their pay is subject to the bumps described above.

In a recent decision from the Middle District of Pennsylvania, Plaunt v. Dolgencorp, Inc., 2010 U.S. Dist. LEXIS 132135 (M.D. Pa. Dec. 14, 2010), Judge James A. Munley held that a store manager’s cause of action seeking overtime-pay under the Fair Labor Standards Act, (FLSA), 29 U.S.C. § 213(a)(1), could proceed past the summary judgment stage. In that case, the plaintiff was a former Store Manager for Dollar General. While employed as a Store Manager, the plaintiff was never paid any overtime for hours worked over forty within a workweek; instead, she was paid on a salaried basis. Defendant argued that Plaintiff was not entitled to overtime because, according to Defendant, her primary duty was management. Plaintiff in turn argued that although her job title was “Store Manager,” a review of her daily job duties demonstrated that she in actuality spent a large portion of her day performing non-managerial functions.
After a thorough review of the applicable federal caselaw and regulations, Judge Munley held that a jury could decide that plaintiff’s primary duty while employed as a store manager was not management. The District Court focused on five factors which steered its analysis: 1) the amount of time plaintiff spent on managerial duties; 2) the relative importance of the plaintiff’s managerial and non-managerial duties; 3) the frequency with which the plaintiff exercised discretion; 4) the degree to which the plaintiff was supervised; and 5) the relative salaries paid to the employee as compared to a non-exempt employee who performs the same non-managerial tasks. Within this analysis, Judge Munley found that a jury could find that the plaintiff “could not alter store hours or change the store’s layout,” “could not set pay rates, but only recommend advancements,” “could not hire or fire employees, but only make recommendations,” and that she was “required to operate within the payroll budget.” Id. at *36.
In sum, this decision indicates that one must look beyond an employee’s job title in determining whether an employee was wrongfully denied overtime compensation under federal law. As the Supreme Court of Massachusetts observed in Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 296 (Mass. 2000): “A manager in name does not a manager make.”

Managers and Assistant Managers are on a roll when it comes to obtaining conditional certification of claims that they have been misclassified as exempt under the FLSA’s executive exemption. Most recently, Southern District of New York Judge Paul A. Crotty conditionally certified the FLSA claims of Assistant Store Managers employed by the CVS drug store chain. The decision appears at Cruz Hook-SuperX, L.L.C., 2010 U.S. Dist. LEXIS 81021 (S.D.N.Y. Aug. 5, 2010). Judge Crotty observed that, at the conditional certification stage, plaintiff’s burden to establish that other employees are similarly situated is “minimal” and merely requires a “modest factual showing.” The Judge also observed that the public policy underlying the collective action device favors conditional certification: “This Circuit reads [sec.] 216(b) as permitting, rather than prohibiting, the sending of notice to similarly situated individuals.” The Judge — like so many other judges — also rejected the company’s arguments that “variances” in the plaintiffs’ job duties defeated conditional certification, observing that “[a] fact intensive inquiry . . . is inappropriate at the notice stage.” In this regard, the Judge cited to numerous conditional certification decisions involving allegedly misclassified drug store managers. Finally, the Judge rejected as premature the company’s attempt to strike various Rule 23 class action claims arising under the Massechusetts, Michigan,Pennsylvania, New Jersey, New York and North Carolina overtime laws.

I just read an especially thoughtful opinion by Judge Catherine D. Perry of the United States District Court for the Eastern District of Missouri in an FLSA misclassification lawsuit entitled Kanatzer v. Dolgencorp, Inc., 2010 U.S. Dist. LEXIS 67798 (E.D. Missouri July 8, 2010). The decision is important in two respects. First, the Court finds disputed facts concerning the issue of whether plaintiff, a Dollar General Store Manager was properly classified as an FLSA-exempt “executive.” Applying the four factors described in 29 C.F.R. 541.700(a), the Court emphasized the common-sense notion that the amount of time a supposed “executive” spends performing non-exempt duties such as working the cash register, assisting customers, and performing other “hourly” tasks really DOES matter under the misclassification analysis. Second, the Court rejected Dollar General’s argument that, in calculating damages, plaintiffs’ economic expert was required to utilize the fluctuating workweek method (“FWM”) of overtime compensation. Here, the Court emphasized that the FWM cannot be applied retroactively since, among other reasons, the method requires that the employee actually received overtime pay. This opinion will provide guidance to retail employees seeking to vindicate their overtime rights.

Overtime lawyers and attorneys in Pennsylvania, New Jersey, and Delaware should be aware of two recent Third Circuit holdings that pharmaceutical sales representatives fell within the FLSA’s administrative exemption to overtime coverage. In the first decision, Smith v. Johnson and Johnson, 593 F.3d 280 (3d Cir. 2010), the court emphasized that it was not adopting a per se rule that pharmaceutical sales representatives can never fall outside of the exemption. See 593 F.3d at 293 n.1. The court then concluded, based on the underlying factual record, that the plaintiff was exempt based on her own admissions during deposition that she exercised significant discretion and independent judgment. After reading the opinion, one is left puzzled as to why this plaintiff thought she could win an appeal. In the second case, Baum v. Astrazeneca, 2010 U.S. App. LEXIS 6047 (3d Cir. Mar. 24. 2010), the court affirmed the grant of summary judgment against another pharmaceutical sales rep after observing that her duties “were very similar to the palintiff’s duties in Smith.” As usual, bad facts make bad law.

Just read a great opinion reversing a district judge’s summary judgment dismissal of an overtime lawsuit in which who repaired telecommunications and cable lines in the wake of the Katrina disaster alleged that they were misclassified as independent contractors.  The opinion is entitled Cromwell v. Driftwood Electrical Contractors, Inc., 2009 U.S. App. LEXIS 22389 (5th Cir. Oct. 12, 1009).  Applying the “economic realities” test, the Circuit Court emphasized that the cable workers worked full-time and exclusively for the defendant employer and, as such, were economically dependent on the defendant employer and did not have any meaningful opportunity to operate their own businesses.

On November 20, 2009, the Second Circuit decided Davis v. J.P. Morgan Chase & Co., 2009 U.S. App. LEXIS 25481 (2d Cir.  Nov. 20, 2009), wherein it reversed a summary judgment finding against a loan underwriters who allege that they are entitled overtime pay under the FLSA.  The Court flatly rejected the district court’s holding that such employees are covered by the FLSA’s administrative exemption.  This is an important victory for loan underwriters, loan officers, staff accountants, non-licenced accountants, bank tellers, and other financial service employees who are frequently misclassified as FLSA exempt.  The Court emphasized that, to fall within the administrative exemption, employees perform work that is related to the management policies or general business operations.  In other words, true administrative employees are “at the heart of the company’s business operations,” and those “functional” employees who perform day-to-tasks of the business – even if those tasks are comples — are not covered by the exemption.  In sum, this is a big victory for the plaintiffs and their New York overtime lawyers.    

On November 17, 2009, Judge Claudia Wilken of the Northern District of California issued an extraordinarily thoughtful opinion in a case involving the overtime rights of bank employees.  Judge Wilken explained that employers who misclassify employees as exempt from overtime cannot retroactively use the dreaded Fluctuating Workweek Method (“FWM”) of overtime compensation to calculate overtime damages.  After summarizing the legal landscape in great detail, the Judge explained that it is impossible for the employer to retroactively satisfy the FWM’s prerequisites when, in fact, it never paid overtime to the misclassified employees in the first place.  The case is published at Freedman v. Wells Fargo & Co., 2009 U.S. Dist. LEXIS 107044 (N.D. Cal. Nov. 17, 2009), and it is a must-read for any trial lawyer litigating FLSA misclassification cases.