Third Circuit Stymies Employer’s Attempt to Force FLSA Overtime and Meal Break Pay Claims into Collectively Bargained Arbitration

Earlier this month, in a 2-1 decision, the Third Circuit Court of Appeals held that certified nursing assistants covered by a collective bargaining agreement are not required to arbitrate their FLSA claims before seeking court relief despite a mandatory arbitration clause in their labor agreement. The assistants claimed that their shift differentials should be included in the calculation of their overtime pay and challenged the deductions from their pay for meal breaks they did not take. The Third Circuit held that resolution of the assistants’ FLSA claims did not depend on an interpretation of language in the labor agreement and, therefore, the assistants were not required to arbitrate their claims. Jones v. SCO Silver Care Operations LLC (May 18, 2017).

The Court of Appeals explained that a court may compel arbitration of an FLSA claim when (1) the arbitration provision clearly and unmistakably waives the employee’s ability to vindicate federal statutory rights in court; and (2) the statute does not exclude arbitration as an appropriate forum. Here, the labor agreement’s grievance-arbitration provision did not expressly refer to FLSA or wage-hour claims, so there was no effective waiver of the right to go to court. Nonetheless, the Third Circuit recognized that even where a labor agreement’s arbitration clause fails to refer to the FLSA, the FLSA claimant may be forced to arbitrate disputes over an interpretation of a labor agreement if the FLSA claims are “inevitably intertwined with the interpretation or application” of the labor agreement.

On the issue of shift differentials, SCO Silver Care argued that the FLSA claim alleging miscalculation of the overtime rate consisted of a dispute over an implicit term of the labor agreement and whether shift differentials already include an overtime pay component. The Court rejected this argument and held that the overtime claim was governed by the FLSA, no analysis of the labor agreement’s treatment of shift differentials was required, and the Court should determine only whether the shift differentials at issue are remuneration that the FLSA requires to be included in the calculation of an employee’s regular hourly pay rate.

On the question whether the assistants’ meal breaks must be treated as hours worked, the employer argued that resolution of this issue depends on determining various meal break practices that occurred while the labor agreement was in effect and that this determination should be made by an arbitrator. The Court rejected this argument as well and found that the alleged meal break practices raised factual issues as to what work was performed during meal breaks and did not require a review of language in the labor agreement. The Court stated that the employer could not “transform these factual disputes inherent to any FLSA claim into disputes over provisions of the CBA subject to arbitration.”

If you would like to discuss how the Third Circuit’s decision affects your pay policies, arbitration clauses, wage and hour compliance program, and your business, please contact Patrick W. McGovern, Esq., Partner in the Firm’s Wage and Hour Compliance Practice Group at 973-535-7129 or at pmcgovern@nullgenovaburns.com.

 

 

 

Third Circuit Adopts New Test for Determining Whether Meal Breaks Are Compensable

On November 24, 2015, a divided U.S. Court of Appeals for the Third Circuit found that the “predominant benefit” test should be applied when determining whether mealtime breaks constitute compensable time under the Fair Labor Standards Act (“FLSA”).

In Babcock v. Butler County, No. 14-1467 (3d Cir. November 24, 2015), the Third Circuit ruled that meal periods are compensable if the meal period is primarily for the employees’ benefit. In Babcock, the named-plaintiff, a county corrections officer, brought a putative collective action under the FLSA seeking overtime compensation for 15 minutes of an hour long meal break for which the plaintiffs were not compensated (the employer did pay plaintiffs for the remaining 45 minutes).  The prison’s meal period policy provided that corrections officers were not permitted to leave the prison without permission, must remain in uniform and in close proximity to the emergency response equipment, and must be prepared to respond to emergencies.  Plaintiffs argued these restrictions interfered with their ability to use their meal period for their own benefit, such as running personal errands, sleeping, taking fresh air breaks or smoking a cigarette, and that they were therefore entitled to be paid for the full hour long meal period and not just the first 45 minutes.

After noting that the FLSA does not directly address the issue of the compensability of meal periods, the Third Circuit analyzed the two tests commonly used in other circuits – (1) the “predominant benefit test” – whether the employee is primarily engaged in work-related duties during meal periods; or 2) the “relieved from all duties test” – whether the employee is relieved from performing all work-related duties during the meal period.  The Third Circuit held that the predominant benefit test was the more appropriate standard.

The predominant benefit test is a fact-intensive inquiry focusing on the totality of the circumstances. Factors considered include whether the employee is free to leave the premises, the frequency and number of interruptions during the meal period, whether the employee is in fact relieved from work for the purpose of eating a regularly scheduled meal, and the existence of collective bargaining agreement (“CBA”) provisions addressing meal periods.

While the employer in Babcock placed a number of restrictions on the corrections officers’ meal periods, the Court concluded that the officers were not primarily engaged in work-related duties during the meal period and therefore the meal break predominantly benefited the officers, not the employer. In its analysis, the Court highlighted the fact that the corrections officers had the ability to request permission from the employer to leave the prison for their meal period and were not required to eat at their desks or stations.

Additionally, the corrections officers were covered by a CBA which required partial meal period compensation and overtime compensation if the meal period was interrupted by work, which suggested a recognition that the officer generally is not working during the meal period.  Under the totality of these circumstances, the Court concluded that the 15 minute meal period was not compensable.

The Third Circuit now joins the Second, Fourth, Fifth, Seventh and Eighth Circuits in adopting the predominant benefit test for determining if employee time is compensable. The Ninth and Eleventh Circuits follow the relieved of all duties test.

In light of the Third Circuit’s decision, employers should review their policies on meal periods to determine whether a meal period is compensable under the FLSA.  Employers should also be mindful that the Babcock decision represents the Third Circuit’s position on when a meal period is compensable and the State Departments of Labor for the states within the Third Circuit (New Jersey, Pennsylvania, and Delaware) are free to take a different enforcement posture. For assistance in reviewing meal period break policies or other Wage and Hour issues, please contact John R. Vreeland, Esq., Director of the Wage & Hour Compliance Practice Group, at 973.535.7118 or  jvreeland@nullgenovaburns.com.

Second Circuit Rules Court Approval or USDOL Supervision of Settlements Required in FLSA Suits

On August 7, 2015, the Second Circuit ruled that suits brought under the Fair Labor Standards Act (“FLSA”) cannot be resolved privately and require approval of a federal court or supervision by the U.S. Department of Labor (“DOL”).

In Cheeks v. Freeport Pancakes House, Inc., 2d Cir., No. 14-299, 8/7/15, the plaintiff sued his former employer seeking to recover unpaid overtime wages, liquidated damages and attorneys’ fees under the FLSA and New York labor laws.  After engaging in some discovery, the parties reached a private settlement to dismiss the employee’s claims with prejudice and, pursuant to Rule 41 of the Federal Rules of Civil Procedure (“Rule 41”), filed a joint stipulation and order to dismiss the lawsuit.  Under Rule 41, parties may voluntarily agree to dismiss an action without court order unless there is a federal statute prohibiting such agreement.  The District Court denied the parties’ application to dismiss the lawsuit.

As part of its ruling, the District Court directed the parties to file a copy of the settlement agreement on the public docket and to “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought by an employer’s overreaching.”  The parties jointly sought certification of an appeal to the Second Circuit instead, seeking a ruling on whether the parties could stipulate to dismissal of the action without court approval.

In affirming the lower court’s decision to deny the stipulation of settlement, the Second Circuit decided, given the unique policy considerations underlying the FLSA, that the FLSA fell within Rule 41’s “applicable federal statute” exception, thus making district court or DOL approval a requirement to dismiss an FLSA cause of action with prejudice via private settlement.  The Court reasoned that “the FLSA is a uniquely protective statute … with a strong remedial purpose: to prevent abuses by unscrupulous employers and remedy the disparate bargaining power between employers and employees.”  Accordingly, the Second Circuit held that judicial or DOL approval will protect susceptible employees from feeling coerced into accepting unreasonable or discounted settlement offers quickly.

The Cheeks ruling makes it clear that, at least in the Second Circuit, a privately negotiated settlement agreement requires court or DOL approval in order to extinguish FLSA claims in a lawsuit. This means the settlement agreement must be filed in open court.  Failure to do so in New York, Connecticut and Vermont puts the employer at risk that it will be sued again by the same claimants.

For more information regarding this decision and best practices, please contact John Vreeland, Esq., Director of the Wage & Hour Compliance Practice Group, at jvreeland@nullgenovaburns.com or 973-533-0777.

 

 

Employer Can Be Liable For Its Predecessor’s FLSA Violations

The Third Circuit Court of Appeals recently held that an employer can be liable for its predecessor’s violations of the Fair Labor Standards Act. Thompson v. Real Estate Mortgage Network, No. 12-3828 (3d Cir. Apr. 4, 2014). The Third Circuit joins the Seventh and Ninth Circuits on the list of federal circuit courts that have extended successor liability –  a doctrine which has been applied to violations of Title VII, the NLRA, ERISA, the MPPAA, and the ADEA – to violations of the FLSA.

In light of Thompson, every employer in the Third Circuit that intends to acquire another business should fully vet its predecessor’s wage and hour practices for the three-year period that precedes acquisition. Such employers should also take into consideration that owners, officers, and other supervisory personnel may be personally liable for violations under the FLSA.

For more information about the impact of Thompson and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

Jersey City Business Owners Must Provide Paid Sick Time

On September 25, 2013, Jersey City became the first municipality in the state of New Jersey to pass legislation mandating that businesses provide paid sick time to their employees. Jersey City joins San Francisco, Washington, D.C., Seattle, Portland, Ore., and New York City. The city of Newark, New Jersey is also considering similar sick time legislation.

Beginning on January 24, 2014, businesses in Jersey City with 10 or more employees must provide up to 40 hours of paid sick time to each employee each year, including part-time and temporary employees.  Under the ordinance, an employee accrues one hour of sick time for every 30 hours worked beginning on the first day of employment. However, employees may not use sick time until after completing 90 days of employment. Employees may use the sick time for their own health care or the care of a family member. Employers who already have a paid leave policy in place that provides at least an equal amount of paid leave as required by the ordinance are not required to provide additional paid sick time.

Major requirements of the law include:

  • Paid sick time is carried over to the next calendar year, but an employer need not carry over more than 40 hours of sick time in any calendar year, and employees may only use 40 hours of sick time in any calendar year, regardless of carryover.
  • Employers are not required to pay out accrued but unused sick time at the time of an employee’s separation from employment.
  • Employees must provide only oral notice to their Employer of their need to use sick time “as soon as practicable.”
  • Employers may not require an employee using sick time to find a replacement worker to cover his or her shift.
  • Sick time may be used in the smaller of hourly increments or the smallest increment that the employer’s payroll system uses to account for absences or use of other time.
  • Employers may require reasonable documentation from the employee for sick time of more than 3 consecutive days.
  • The ordinance prohibits retaliation against employees for using sick time.
  • Use of paid sick time may not count as an absence for purposes of discipline or any other adverse action.

The ordinance also requires Employers to provide written notice to new hires, to display a poster approved by the Jersey City Department of Health and Human Services, and to retain records of employee pay and sick time usage for three years. The ordinance prohibits retaliation, and Employers found in violation of the ordinance can face a fine of up to $1,250 and/or up to 90 days of community service per violation. Employees who feel their employer has violated the ordinance may complain to the Department of Health and Human Services and/or may bring a cause of action in a court of competent jurisdiction.

For more information on the new ordinance, or for information on paid sick time laws in other jurisdictions, please contact John R. Vreeland, jvreeland@nullgenovaburns.com or Rebecca Fink, rfink@nullgenovaburns.com, in the firm’s Labor Group.

Home Health Care Worker Exemption Narrowed by USDOL Final Rule

On September 17, 2013, the United States Department of Labor issued its final rule extending the minimum wage and overtime provisions of the Fair Labor Standards Act (“FLSA”) to home health care workers.  This new rule is expected to bring almost 2 million workers under the FLSA’s protection.

The FLSA currently exempts a large category of in-home workers who care for elderly, ill, injured, and disabled individuals from its minimum wage and overtime provisions.  These workers are exempt under the companionship or live-in domestic services exemption, which has been broadly defined to include a variety of services and jobs from babysitting to providing home health care services.

Under the new rule, which becomes effective on January 1, 2015, the exemption for companionship and live-in domestic services has been narrowed to exclude employees of home health care agencies and other third-party employers.  Such workers will be entitled to minimum wage for all hours of work and overtime pay for all hours over 40 hours worked in any workweek.   Employers will also be required to keep records of hours worked by live-in domestic service workers and can require such employees to record their hours and submit the records to them.

Despite the narrowing of the companionship exemption, it can still apply to employees who are employed directly by families if the employees provide fellowship and protection services such as reading, playing cards, going on walks, etc.  Also, live-in domestic service workers who reside in the home of the employer for an extended period of time and are employed by the family remain exempt from the overtime provisions of the FLSA (though they are not exempt from the minimum wage provisions).

If you need advice with respect to this final rule or other Fair Labor Standards Act matters, contact John R. Vreeland, Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com or Brett M. Pugach, Esq., bpugach@nullgenovaburns.com, in the Labor Law Practice Group.

New York Court of Appeals Issues Opinion Addressing Tip Pool Arrangements

The New York Court of Appeals recently issued an opinion addressing Starbucks’ tip pooling practices with regard to its shift supervisors and assistant store managers, which we discussed here.  New York’s highest court was asked to decide what factors determine which employees may participate in a tip pool and whether employers may exclude otherwise eligible employees from a tip pool under New York Labor Law 196-d.

In answering the first question, the Court declared that customer service employees with “meaningful or significant authority or control over subordinates” – not necessarily full or final authority – may not participate in an employer-mandated tip pool arrangement.  The Court provided examples of “meaningful authority,” such as the ability to discipline employees, assisting in performance evaluations or the hiring or termination process, and influencing the creation of work schedules. But, employees whose principal or regular duties involve serving customers may participate in an employer-mandated tip pool even if they are vested with limited supervisory responsibilities.

The Court answered the second question in the affirmative.  Nevertheless, the Court stated it was leaving “open the possibility that there may be an outer limit to an employer’s ability to excise certain classifications of employees form a tip pool.”  Given the case’s procedural nature, the Second Circuit will ultimately determine how these legal principles apply to Starbucks’ shift supervisors and assistant store managers.

The Court of Appeals’ decision comes weeks after a federal district court judge for the District of Oregon invalidated regulations issued by the United States Department of Labor in 2011.  The regulations prevented employers from including “non-tipped employees,” such as line cooks and dishwashers, in a tip pool when employers did not claim a tip credit.  Oregon Restaurant & Lodging v. Hilda L. Solis, No. 3:12-cv-01261-MO (D. Or. June 7, 2013).

While these decisions are favorable for employers, their precedential value is limited, as both cases control only their respective jurisdictions and neither case is necessarily final.  Accordingly, employers should consult with counsel to evaluate their current tip pool practices and before implementing a new tip pool arrangement.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

Reducing Exposure for Independent Contractor Misclassification

Federal and state agencies continue to crackdown on employers who misclassify “employees” as “independent contractors.” Employers can realize significant cost savings when they classify workers as independent contractors as opposed to employees. Independent contractors are not entitled to overtime compensation and businesses avoid employment taxes and costs associated with unemployment and workers’ compensation coverage requirements. These savings sometimes lead employers to be overly aggressive when classifying workers. However, the penalties for misclassifying employees as independent contractors can be costly, including payment of back taxes and hefty fines.

What to do when you think you have misclassified.  The first step is determining whether the worker in question is in fact improperly classified as an independent contractor. Counsel should be retained to review the various tests used to determine if the classification is appropriate. If the worker has been misclassified, the next step is to determine whether the employer can take advantage of one of the available “safe harbors” to reduce exposure for the misclassification. The “safe harbor” providing the most protection is contained in Section 530 of the Revenue Act of 1978.  Under this section, if an employer has a reasonable basis for classifying workers as independent contractors, the employer may be relieved from the tax liability if it can demonstrate: 

  1. it reasonably relied on a judicial precedent, technical advice, prior government audit, long-standing recognized practice in the industry or had some other reasonable basis to classify the workers as independent contractors;
  2. it consistently treated the workers in question as nonemployees for employment tax purposes; and
  3. it filed all necessary tax returns (e.g., Form 1099).

If the employer can satisfy these criteria, it may avoid IRS employment tax liability despite misclassifying independent contractors.  Employers should be aware that Section 530 is limited to federal employment taxes and does not reach any applicable state and local employment taxes.

For more information about Section 530 safe harbors and employee versus independent contractor classification, please contact John R. Vreeland, Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Douglas J. Klein, dklein@nullgenovaburns.com.

 

New York Court of Appeals to Decide Whether Supervisors May Pool Tips With Employees

On May 28, 2013, the New York Court of Appeals heard oral argument in two cases, which are likely to impact New York’s restaurant and hospitality industries.  In the companion cases of Barenboim v. Starbucks and Winans v. Starbucks, the Court is being asked to decide what factors determine whether an employee is considered an employer’s “agent.”  Under New York Labor Law 196-d, agents are prohibited from pooling tips with employees.  The Court is also being asked to determine whether an employer may exclude an otherwise eligible employee from tip pooling under the law.

In Barenboim, Starbucks baristas argue that Starbucks’ policy of distributing pooled tips between baristas and shift supervisors is illegal because shift supervisors are agents.  Conversely, in the companion case of Winans, Starbucks assistant store managers argue that Starbucks has impermissibly excluded them from tip pools because they are not agents, and that New York Labor Law 196-d prevents employers from excluding otherwise eligible employees from tip pools.  Whichever way the Court decides these issues is almost certain to have a significant effect on New York employers and the way in which they compensate tipped employees who also have supervisory or managerial responsibilities. Hospitality industry groups estimate that the decision will impact 42,000 businesses statewide and a quarter-million workers in New York City.  Last year, the First Circuit Court of Appeals determined that Starbucks’ policy of tip pooling between baristas and shift supervisors violated a Massachusetts law which prevents food service employees with “managerial responsibility” from tip pooling.  Consequently, the First Circuit upheld a $14.1 million award against Starbucks.

We will continue to report on these cases and their effect on New York employers.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

New York DOL Issues Proposed Wage Deduction Regulations

The New York Department of Labor (NYDOL) finally posted proposed wage deduction regulations on its website. While the amended wage deduction law took effect last November, employers have been unable to take advantage of their right to recoup inadvertent overpayments under the law without NYDOL’s implementing regulations covering notice and procedural requirements. With proposed regulations now published in the NYS Register, New York employers are one step closer to realizing new benefits under the law. The public comment period is open until July 6, 2013.

The proposed regulations would permit employers to make wage deductions for overpaid wages due to a mathematical or other clerical error as follows:

  • The employer must provide notice of its intent to make deductions either three days or three weeks before the deduction, depending on the amount to be deducted. Notice must include the amount overpaid in total and per pay period, the total amount to be deducted and the date and amount of each deduction.
  • Notice must be made within eight weeks of the overpayment, although the wage deductions may continue for up to six years from the original overpayment.
  • Employees must be given notice that the overpayment may be contested, including the deadline and procedure for challenging the employer’s determination.
  • If the overpayment is less than or equal to the net wages earned in the next pay period, the employer may recover the entire amount in that next wage payment. However, if the overpayment exceeds the net wages in the next pay period, the employer may only recover up to 12.5% of gross wages earned in that wage payment, and the deduction may not reduce the effective hourly rate below minimum wage.
  • Employers must adopt procedures for employees to dispute the overpayment, the terms of recovery and/or the timing of the recovery. For unionized employers, dispute resolution provisions in collective bargaining agreements which provide at least as much protection to the employee shall be deemed to be compliant with the law.

The proposed regulations also permit employers to make deductions for repayment of advances of wages or salary with similar notice and procedural requirements.

We will continue to monitor developments on the proposed wage deduction regulations. For more information about the regulations, the public comment period and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Douglas J. Klein, Esq., dklein@nullgenovaburns.com.