Throw out the release?
Throw out the release?

Yesterday, I had the opportunity to talk at the Connecticut Legal Conference about employment law issues. My talk focused on free speech rights in the workplace — a topic I’ve covered well in some prior posts here and here, for example.

One of the other topics of our discussion was the Cheeks v. Freeport Pancake House case — a recent case by the Second Circuit discussing wage & hour claim settlements under the Fair Labor Standards Act.

I’ve talked about this issue in prior posts as well but the general takeaway from the discussion yesterday was a renewed emphasis on receiving approval from either a federal court or the U.S. Department of Labor on any wage/hour claim settlements.

In most employment law cases filed in federal court, when a settlement is reached, the parties typically stipulate to the dismissal of the claim under a rule of civil procedure (Rule 41).

In Cheeks, the Second Circuit said that wasn’t good enough due to the unique nature of wage/hour claims and that employees were particularly susceptible to bad settlements:

We conclude that the cases discussed above, read in light of the unique policy considerations underlying the FLSA, place the FLSA within Rule 41’s “applicable federal statute” exception. Thus, Rule 41(a)(1)(A)(ii) stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the DOL to take effect. Requiring judicial or DOL approval of such settlements is consistent with what both the Supreme Court and our Court have long recognized as the FLSA’s underlying purpose: “to extend the frontiers of social progress by insuring to all our able-bodied working men and women a fair day’s pay for a fair day’s work.”

The Court pointed out settlements in other cases which might be troubling.

In [one case], the proposed settlement agreement included (1) “a battery of highly restrictive confidentiality provisions ․ in strong tension with the remedial purposes of the FLSA;” (2) an overbroad release that would “waive practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage-and-hour issues;” and (3) a provision that would set the fee for plaintiff’s attorney at “between 40 and 43.6 percent of the total settlement payment” without adequate documentation to support such a fee award….. In [another case], the district court rejected a proposed FLSA settlement in part because it contained a pledge by plaintiff’s attorney not to “represent any person bringing similar claims against Defendants.” … “Such a provision raises the specter of defendants settling FLSA claims with plaintiffs, perhaps at a premium, in order to avoid a collective action or individual lawsuits from other employees whose rights have been similarly violated.”

Would these apply to claims that were not filed in federal court to begin with? The speakers said the decision left that open a bit but still recommended that parties seek USDOL approval or even file the suit in federal court and seek judicial approval at the same time.

While the court noted that this might be difficult, “the burdens…must be balanced against the FLSA’s primary remedial purpose: to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees.”

Note: These same rules do not apply to settlements under the state wage/hour laws and if you’re not covered by the FLSA, there isn’t much of a need to follow that — at least until the issue is raised in state courts.

But suffice to say that if you get a claim by a current or former employee regarding, say, past overtime wages, be wary of settling the claim without receiving outside approval.

A limo driver believes that he should be paid overtime.  He brings a lawsuit on both state and federal wage & hour laws.  But he believes that other similarly situated drivers should also be part of his lawsuit.

How does that happen? Well, he asks the court to represent all the other drivers as well. Most people know that as a “class action” but in wage & hour cases, there is also a significant difference too.

A new federal district court case in Connecticut illustrates that exact point fairly well.  (You can download the decision in Lassen v. Hoyt Livery here.)   In doing so, it also shows the key difference between federal law and state law.

A federal wage & hour claim on behalf of other employee is known as a “collective” action.   As the Supreme Court has said, a collective action is “fundamentally different” from a class action brought by the procedural rules set up for federal courts.

Unlike typical class action in which putative class members must opt out in order to remove themselves from the class, a FLSA collective action requires employees to affirmatively opt in to the case in order to join the collective action group.

But here’s where things get interesting, under Connecticut law, an employee who believes he is entitled to overtime, can also bring a claim. These claims can sometimes be brought in federal court too as a supplemental claim to the federal one.

In doing so, these claims are class actionsand not collective actions.  Thus, for state wage & hour class actions, the classes are opt-out.

Why is this important? Because in most instances, people do not typically opt out of class actions and are much more likely not to opt in.

In the limo driver case cited above, the court adopted both the collective and class actions into the case, thus requiring an opt-out notice for the state claim, and an opt-in notice for the federal claim.

How that shakes out in that particular case is anybody’s guess, but no doubt it’s a position that employers do not want to be in the first place.

Compliance with wage and hour laws — something I’ve preached for years — should remain a top priority for employers in the coming years.

It’s hard to read the Connecticut Law Tribune’s Editorial this week on “The Problem of Workplace Arbitration Clauses” with a straight face. It is dripping with sarcasm, filled with sweeping generalities, and reserves its greatest enmity for employers and the lawyers that represent them.

If the editorial is to be believed, employers and their lawyers apparently routinely use “deceptive” arbitration clauses — often pushed by a “third assistant personnel clerk” — that are hidden until “defense counsel raises the jury waiver or arbitration agreement from its dusty grave in the company’s personnel files.”

But perhaps I’m overreacting. So let’s review the editorial more closely and try to separate fact from fiction.  The editorial, in its full unedited version, is in italics. 

Over the last decade, employers have more and more often incorporated jury waiver or mandatory arbitration clauses into their employment arrangements to avoid the perceived horror of facing jury review of the way they treat their employees. These clauses are often presented in circumstances that many argue are deceptive, if not downright coercive.

On the first premise — that employers are using arbitration agreements more — the editorial doesn’t provide numbers. But I’ll tend to agree with the notion that the use of arbitration agreements are increasing. However, most employers are not concerned with “jury review.”  Just a handful of cases ever see a court room. Only 2.9 percent of federal employment cases even reach trial! The reasons for their use are complicated but part of it is that the cost of defending cases has skyrocketed. Indeed, from 2010 to 2013, the median time from filing to trial of a civil case in federal court in Connecticut has risen from 27.9 months to 35.7 months (nearly three years!).  Arbitration is much quicker and more cost effective for both sides.

As to the second premise — that the clauses are presented in circumstances that are “coercive” — I suppose that is up for debate. But it depends on your definition of “coercion”.  The legal definition of coercion typically means through “force” or “duress”.  The classic law school example of being forced to sign a contract at gunpoint is clearly “coercion.”  But an employee who wants a job and signs an agreement if he wants the job? In my view (and many courts), that is not “coercion.”

But let’s agree to disagree on this point and move on.

Despite the significance of an employee signing away a legal right that lies at the very base of our civil justice system, there is almost never any effort to explain to the employee what the waiver or arbitration agreement means or even that they are giving up any right at all. In fact, quite the reverse is the rule.

“Almost never”?  That statement barely deserves any credence.  There is no evidence to support this statement.  And additionally, what does it mean to “explain to the employee what the waiver” means? Typically, the provisions state that any claim out of an employee’s employment must be submitted to arbitration instead of the courts. Isn’t that enough? (Yes, say the courts.)

Regardless, employers have been advised to make sure that arbitration agreements are highlighted and not merely stuck in page 32 of a handbook.

And the editorial seems to ignore the positive attributes that alternative dispute resolution can bring to the employee as well.  Arbitration has a place in our “civil justice system” too.  (Indeed, in a 2012 editorial, the Law Tribune voiced its support for passage of the Uniform Arbitration Act. The drafters of that act noted that “the enforceability of arbitration agreements cannot be treated any differently from the enforcement of contracts generally under state contract law” and avoided specific references to employment agreements.)

Continue Reading Law Tribune’s Editorial on “Downright Coercive” Employment Arbitration Clauses Is Off-Base

While the temperatures this morning didn’t feel much like summer, the season is upon us. And be honest — when you think of summer do you think a) hot dogs or b) wage & hour issues for interns? If you answered b), you probably need some help.  Which is why my colleague Jarad Lucan has drafted this timely post to remind us all about the rules of the road for interns.

While we have discussed the rules on unpaid interns in the past, it seems that every summer a court gives employers a reason to review their internship programs to make sure that they comply with the requirements of the Fair Labor Standards Act (FLSA).

Recently, a federal judge in the Southern District of New York granted a conditional certification of a possible nation-wide class action involving current and former unpaid interns of Warner Music Group.

Essentially, the interns claim they were entitled to the minimum wages and overtime because they performed similar work as actual employees, did not receive academic credit, and Warner derived a direct benefit from their work.

In order to assist employers with designing a valid unpaid internship program, the Department of Labor (DOL) has outlined six factors to determine whether an intern is exempt from wage an hour laws.  We’ve touched on them before but they are worth repeating here:

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

But, in plain English, what do these factors really mean?

Put simply, the first two factors mean that the primary purpose of your internship program must be for the intern to learn, with performing work being only secondary.

The third, fifth, and six factors mean that your internship program should clearly set out which current employee will oversee the intern, and that the intern will not be offered a job following completion of the program.

The fourth factor means that the intern is essentially getting in the way of your operations. As a reminder, all six factors must be met for your unpaid internship program to pass scrutiny.

No doubt hiring unpaid interns is now a risky endeavor. If you have some this summer, make sure that they meet the DOL’s guidance on the subject.  Once you’ve done so, you can enjoy the summer.

In a 2-1 decision, the U.S. Court of Appeals for the Fifth Circuit (which does not include Connecticut) held on Tuesday that the NLRB erred in disallowing an employer’s mandatory arbitration agreement that waived the rights of employees to participate in class actions.

The decision in D.R. Horton v. NLRB (download here from Bloomberg Law) has long been anticipated by employers.  Indeed, when I wrote about the NLRB’s original decision in January 2012, I cautioned employers not to rip up their mandatory arbitration agreements just yet.

While the decision doesn’t directly impact employers in Connecticut, the decision is important because it removes an argument that the NLRB has been using for the last few years. Indeed, the Second Circuit (which covers Connecticut and New York) recently affirmed the right to use mandatory arbitration agreements with class action waivers as well.

The decision in D.R. Horton boiled down to whether the Federal Arbitration Act was given the “proper weight”. The Fifth Circuit concluded that the National Labor Relations Act “should not be understood to contain a congressional command overriding the application of the FAA”.

Without a split in the circuits on this issue, it is quite possible that this is the last of this issue for some time. Employers who are looking to reduce risk ought to get advice from their legal counsel about whether mandatory arbitration agreements may be right for their business.

Indeed, the court did find that the arbitration agreement here could be understood by employees to preclude them from bringing unfair labor practice claims to the NLRB and upheld the NLRB’s order to the employer that the document be revised. So caution is still strongly encouraged before implementing such arrangements.

For those of us that have been practicing for a while, it had seemed that the days of the big settlements for race discrimination cases were behind us.

After all, when the Coca-Cola and Texaco settlements were announced back in the late 1990s and 2000, many companies took notice.

But the news today is a reminder for employers that the risks still remain.

The New York Times reported this morning that Merrill Lynch has agreed to pay $160M to settle claims of race discrimination.  The monies will reportedly be available to all black brokers and trainees employed at the company since May 2001.

It is one of the largest settlements for a discrimination case ever reported.  (The Texaco and Coca-Cola suits reportedly settled for $176M and $192.5M.)

There is little doubt this case will be analyzed in the weeks and months ahead for the facts and legal theories presented.

For now, however, the case ought to serve as a reminder to employers that race discrimination claims are not yet behind us as a society and that employers need to be vigilant in ensuring that its anti-discrimination policies are followed.

Merrill Lynch has such a policy, but as the settlement shows, a policy is only as good as the enforcement behind it.

 

2d Circuit Opens Door to Class Action Waivers

Continuing my series of posts this week on recent Second Circuit FLSA cases, today I’ll talk about class action waivers and arbitration clauses.

If that last clause is just legalese to you, let me try to walk you through it and why employers should care deeply about it.

As I’ve covered in prior posts, wage & hour claims, typically brought by one employee on behalf of others (known as a collective or class action) have been all the rage for the last decade.  Employers have struggled with how to rein such actions in because litigation them can be costly.

In doing so, employers have tried to use two defense mechanisms. First, employers have tried to get employees to agree to arbitrate all claims before a neutral third party. That typically keeps costs down because arbitrations are quicker and more efficient.

Second, employers have tried to get employees to forego their ability to join a class action. In other words, employees can sue to recover their own missing overtime, but not for hundreds of other employees too. I foreshadowed this in a post back in March.

Recent pronouncements by the U.S. Supreme Court have opened to door to these arguments. Earlier this month, the Second Circuit just made that door a lot wider.

The case, Sutherland v. Ernst & Young, strengthened the ability of employers to use arbitration agreements and to include a class action waiver in them even under the Fair Labor Standards Act.  It upheld both types of provisions relying on the U.S. Supreme Court cases.

For employers, this decision is important because it now provides employers with a tool to use to try to limit exposure in wage & hour cases and more.   Of course, whether arbitration agreements or class action waivers is right for your particular business is something that you should discuss with counsel and may depend on a variety of circumstances.

In the meantime, though, this is not the end of the battle on this issue. The National Labor Relations Board has come to a different conclusion and it remains to be seen how the U.S. Supreme Court will confront the issue. However, I have a hunch based on the prior precedent, that its just a matter of time before the U.S. Supreme Court decides this issue once and for all (and probably in the employer’s favor.)

 

Last week, while most of us were focused on the events in Boston, the U.S. Supreme Court came down with a notable decision last week involving a wage & hour class action (it’s actually called a “collective” action, but for the non-lawyers out there, just think of it as a class action) and what should happen when a class representative fails to accept an offer to compromise by the employer that would have made the plaintiff “whole”. 

U.S. Supreme Court

Before you get too excited, its worth noting to the human resources professional out there that it’s hard to see how this case is going to change the day-to-day advice you are giving.  This Supreme Court’s decision is one only a lawyer could love.

But the case is important for employers and lawyers, because it provides another tool to use in defending against wage & hour claims. 

Indeed, combined with the court’s recent decisions limiting class actions (see Comcast Corp v. Behrand case) and enforcing arbitration provisions (see AT&T v. Concepcion line of cases), it demonstrates how the court system is grappling with an increasing number of wage & hour claims that threaten to overwhelm the system.

The Symczyk case has been neatly recapped in the Employment Class Action blog here:

The plaintiff brought FLSA claims challenging the employer’s use of an “auto-deduct” policy for meal periods. Along with its answer, the defendant made a Rule 68 offer to the plaintiff of judgment for $7,500, plus attorney fees and costs to be determined by the court….

When the plaintiff did not respond to the offer, the defendant moved to dismiss the case. The district court dismissed the FLSA claims on the basis of Rule 68 and remanded the remaining state law claims….

 The Supreme Court … found that the district court had correctly dismissed the case. Because the plaintiff did not contest that her own personal claim would have been satisfied by the offer, the majority assumed that it did, indeed, moot her individual claim. .

Ultimately, the Court held that an offer of judgment under Rule 68 that satisfies the representative plaintiff’s claims moots a potential collective action under the FLSA. Continue Reading Offers of Judgment in FLSA Collective Actions: Another Tool for Wage & Hour Claims

Suppose you have your employees’ sign agreements to arbitrate all of  their employment disputes.  (I’ve talked about arbitration agreements in many posts before.)

Can you have an arbitration agreement that says that an employee is precluded from bringing a Title VII (race or gender discrimination) class action claim in Court?

Employees have argued that because most arbitration agreements preclude an employee from bringing a class-wide claim in arbitration, they should be allowed to go to court because of a right to bring class actions — despite what the agreements might say.

The Second Circuit, which is the federal circuit covering Connecticut, last week disagreed saying that there is no “substantive statutory right” to pursue these types of “pattern or practice” class actions. 

The case, Parisi v. Goldman Sachs & Co., can be downloaded here.

As the Court stated,”we see no reason to deviate from the liberal federal policy in favor of arbitration.”

Still left to be decided by the Second Circuit  is whether it will reach the same conclusion for wage & hour collective actions (under the Fair Labor Standards Act).  A decision on that issue is expected this year.

Why is this important?

Because even after many years, wage & hour class action litigation continues unabated. 

If employers can reduce the threat of wage & hour class actions through an arbitration agreement, then that would represent the first real barrier to those claims. 

For now, the stage is set.  How the story will go for wage & hour class actions, however, is still to be determined.

Supreme Court

I’m going to let you in on a little secret.

Not all employment law cases decided by the U.S. Supreme Court matter are of equal significance and importance to employers.

What? How can that be, you say? It’s the SUPREME COURT!  Isn’t everything that they say important?

Well, sort of.

The truth is that sometimes the court decides thick procedural issues disguised as an employment law case.  But from a practical matter, how the court rules in these cases probably isn’t going to affect how most employers run their businesses. 

One case that is likely to be decided this year in just such a fashion is Genesis Healthcare Corp v. Symczyk, which was argued earlier this month.   Jon Hyman, over at the Ohio Employer’s Law Blog, sums up the principle at issue here:

Let’s say an employee sues you, claiming that you withheld certain wages owed under the Fair Labor Standards Act. In addition to defending the lawsuit, you make her what is called an “offer of judgment” to make her whole for all wages she claims she is owed (including any liquidated damages and attorneys’ fees). Does the offer render her lawsuit—that she not only brought on her own behalf, but also sought on behalf of a class of similarly situated co-workers—moot? Alternatively, does the fact that she sought relief on behalf of others keep her lawsuit alive, despite the fact that she no longer has any personal skin in the game? 

I have a difficult time believing this case is going to impact more than just a few wage & hour cases.  Most employment law cases never get an offer of judgment made on them and typically involve more than one person.  While it may impact the tactics in class actions, the overwhelming majority of employers will never have to deal with a class action ever.

Put another way, this case is not likely to have any impact on how employers manage their workforce on a day-to-day basis.

So, if you like reading about the U.S. Supreme Court and the intracacies of procedures, this case should be right up your alley. For most employers though, it’s a reminder that not all employment law cases are of equal importance.