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 Allows “Subgroup” Disparate-Impact Claims to Proceed Under The ADEA

Employers are well aware of the federal Age Discrimination in Employment Act (“ADEA”), which protects individuals over the age of forty, as well as its disparate-impact provision, which makes it unlawful for an employer to adopt a facially-neutral policy that adversely affects an individual employee’s status “because of such individual’s age.” However, in a precedential opinion filed on January 10, 2017, the U.S. Court of Appeals for the Third Circuit held that the ADEA allows plaintiffs to proceed with a disparate-impact claim whereby only a “subgroup” or segment of employees over the age of forty are alleged to have been disfavored relative to younger employees.

In Karlo v. Pittsburgh Glass Works, LLC, No. 15-3435, the defendant-employer underwent several reductions in force (“RIFs”) to offset disappointing sales during the height of the recession. Several employees who were terminated in one particular RIF, all of whom were over fifty years old, brought a putative ADEA collective action against the employer asserting, among other things, a disparate-impact claim. The district court thereafter decertified the plaintiffs’ collective action, which was “to be comprised of employees terminated by the RIF who were at least fifty years old at the time.” Additionally, the district court granted the defendant-employer’s motion for summary judgment as to the disparate-impact claim, holding that plaintiffs’ “fifty-and-older” disparate-impact claim was not permitted under the ADEA.

On appeal, the Third Circuit reversed the district court’s grant of summary judgment as to the disparate-impact claim. The court noted that disparate-impact claims may proceed under the ADEA “when a plaintiff offers evidence that a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age.” In Karlo, the plaintiff alleged that the specific RIF disproportionately impacted only a portion of the forty-and-older employee population: employees older than fifty. The Third Circuit found that this claim was cognizable, holding that plaintiffs may demonstrate the impact of facially-neutral policy “with various forms of evidence, including forty-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as that evidence meets the usual standards for admissibility.”

The court heavily relied upon the Supreme Court’s decision in O’Connor v. Consolidated Coin Caterers Corp., which held that the ADEA “does not ban discrimination against employees because they are aged 40 or older; it bans discrimination against employees because of their age, but limits the protected class to those who are 40 or older.” Thus, the court held that ADEA claims by subgroups of those aged forty or older are cognizable because “evidence that a policy disfavors employees” of such a subgroup “is probative of the relevant statutory question: whether the policy creates a disparate impact ‘because of such individual[‘s] age” under the plain language of the ADEA. The court found that it is “utterly irrelevant” whether the employer’s policy benefits younger members of those employees over forty, so long as an employee can show that his or her subgroup was adversely affected.

Following Karlo, employers should review their policies to confirm that they are in compliance with the ADEA and do not unintentionally discriminate against employees who are in “subgroups” over forty years old. For more information on the implications of the Karlo decision, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

Supreme Court Holds that Early Offer of Judgment Moots Nascent FLSA Collective Action

On April 16, 2013 the U.S. Supreme Court reversed the Third Circuit’s decision in Genesis HealthCare Corp. v. Symczyk and held that a Fair Labor Standards Act (“FLSA”) collective action became moot once the employer’s made a Rule 68 offer of judgment that fully satisfied the damages claims of the employee who brought the suit.

In Genesis, the employee filed an action in U.S. District Court in Philadelphia for unpaid wages under the FLSA. In her complaint, the employee claimed to represent similarly situated individuals but no one else had joined the lawsuit when the employer made a Rule 68 offer of judgment to the employee. The offer of judgment was for $7500 plus counsel fees and costs as determined by the Court. The employee did not respond to the offer of judgment and on the employer’s motion, the District Court dismissed the entire suit. The District Court found that the employee’s claim was moot since it was satisfied by the employer’s offer and, since no other parties had joined the action at that time, the complaint was dismissed.

On appeal the Third Circuit agreed that the offer of judgment was effective to have the individual employee’s claim dismissed, regardless of whether the offer was accepted, but not the collective action claims. The Third Circuit reasoned that the employer’s attempt to “pick off” the plaintiff before the collective action could be conditionally certified “frustrated” the purpose of the FLSA collective action process and remanded the case to the District Court for possible conditional certification of the collective action.

The U.S. Supreme Court reversed the Third Circuit but avoided resolving the circuit split regarding whether a Rule 68 offer of judgment can moot a plaintiff’s claim. The Court ruled narrowly that both the District Court and the Third Circuit were in agreement that the employee’s claim was moot after she received the employer’s Rule 68 offer. Then disagreeing with the Third Circuit, the Supreme Court held that, in the absence of any other claimant’s opting in, the collective action claims became moot once the employee’s individual claim became moot, because Ms. Symczyk lacked any personal interest in representing others in the action. The Court further emphasized the distinction between a class action brought under Rule 23 of the Federal Rules of Civil Procedure and an FLSA collective action. Specifically, the Court stated that conditional certification under the FLSA is not tantamount to a Rule 23 class certification because “[t]he sole consequence of conditional certification is the sending of court-approved written notice to employees . . . who in turn become parties to a collective action only by filing written consent with the court.”

In light of the Supreme Court’s decision, an employer that is named in a putative collective action in federal district court now has another option for resolving the claims early, by making a Rule 68 offer of judgment to the named plaintiff early on, before other employees and former employees opt in.

For more information about FLSA collective actions, including defending these suits, please contact Patrick W. McGovern, Esq., pmcgovern@nullgenovaburns.com, or Rebecca Fink, Esq., rfink@nullgenovaburns.com, in the Firm’s Labor Practice Group.

THIRD CIRCUIT CLARIFIES FINAL CERTIFICATION STANDARD FOR FLSA COLLECTIVE ACTIONS

The Third Circuit Court of Appeals recently clarified the procedure applicable to collective actions filed under the Fair Labor Standards Act. Still certain questions remain regarding the implications of a plaintiff’s failing to seek final certification and how the Third Circuit’s standard will be applied.
The increasingly popular FLSA collective action can be maintained and proceed to trial only on behalf of a group of similarly situated plaintiffs. There are two steps to collective action certification – conditional certification and final certification. Conditional certification is determined shortly after the action is filed but before discovery begins and requires only a modest factual showing that plaintiffs are similarly situated. Allegations that employees were victims of a single employer decision, policy, or plan can be enough to support conditional certification. Upon conditional certification the court orders notices sent to potential claimants to advise them of their rights to opt into the action and sets a discovery schedule. At least until the Third Circuit’s recent ruling, the practice had been that unless the employer challenged the conditional certification, plaintiffs were not required to ask the court for a final certification of the collective action and there was no clear standard in the Third Circuit for final certification of a FLSA collective action.
In Zavala v. Wal-Mart Stores, 691 F.3d 527 (3rd Cir. 2012), the Third Circuit clarified the procedure and the standard applicable to final certification. The court held that final certification must be proven by a preponderance of the evidence, using an ad hoc approach, with the burden of proof borne by the plaintiffs. Further, any appeal from the district court’s determination will be reviewed under a clearly erroneous standard.
The ad hoc approach requires the court at the second step, generally after discovery concludes, to consider all factors relevant to whether the plaintiffs are similarly situated. These factors include, but are not limited to, whether the plaintiffs: are employed in the same corporate department, division, and location; advance similar claims; seek substantially the same form of relief; and have similar salaries and circumstances of employment. Additionally, the court will consider whether the defendant has individualized defenses as to each plaintiff. This factor can be sufficient grounds for decertification. The court can also take into account other fairness and efficiency concerns.
In Zavala the conditionally certified class consisted of 114 Wal-Mart janitorial workers who alleged FLSA overtime violations. The Third Circuit found that the plaintiffs did not establish by a preponderance of the evidence that they were similarly situated. The plaintiffs worked at more than 180 different stores in 33 states and were employed by 70 different contractors and sub-contractors. The plaintiffs alleged a common scheme to hire and underpay illegal immigrant workers, but the court found that these allegations were not useful in streamlining resolution of the claims because of the many differences among the plaintiffs’ claims. Accordingly the Third Circuit affirmed the lower court’s decertification of the action.
To date, no District Court within the Third Circuit has applied Zavala to a motion for final certification of a collective action. Outside of the Third Circuit, however, the Zavala decision has been considered in connection with the disposition of a motion for final certification. In Marshall v. Amsted Rail Co., 2012 U.S. Dist. LEXIS 161768 (S.D. Ill. Nov. 13, 2012), 478 plaintiffs alleged FLSA underpayment and overtime violations. The District Court noted that the Seventh Circuit “has not announced a test to determine this FLSA ‘similarly situated’ question” so the court looked to the Zavala decision and others and decertified the claims of 476 opt-in plaintiffs, leaving only the two named plaintiffs to proceed in the action. The Illinois court considered the factual and employment settings of all the plaintiffs, individualized defenses of the employer, and other fairness and procedural concerns and found that each consideration weighed in favor of decertification.
The Zavala decision has important implications for FLSA collective actions going forward. At the close of discovery in a conditionally certified FLSA collective action, the plaintiff has the affirmative burden to prove, by a preponderance of the evidence, that the claimants are not only similarly situated to each other, but arguably are similarly situated to the named plaintiff as well, in order to have the action finally certified. As of this writing, it is unclear how courts within the Third Circuit will treat a conditionally certified FLSA action when the plaintiff fails to move for final certification after discovery and the employer fails to move to decertify the action.
If you have any questions or for more information about decertifying FLSA collective actions, please contact Patrick W. McGovern, Esq., pmcgovern@nullgenovaburns.com, or Rebecca Fink, Esq., rfink@nullgenovaburns.com, in the Labor Law Practice Group.

Third Circuit Clarifies Test for Joint Employer Status under FLSA

On June 28 the U.S. Court of Appeals for the Third Circuit refined the standard for deciding whether an organization is a joint employer under the Fair Labor Standards Act (“FLSA”) for purposes of liability for unpaid minimum and overtime wages owed another entity’s employees.

This issue arose in a collective action suit by assistant branch managers at Enterprise Rent-A-Car locations who claimed they were denied overtime pay in violation of the FLSA. Both the subsidiary company Enterprise Rent-A-Car and the parent company Enterprise Holdings, Inc. were named defendants. The District Court granted Enterprise Holdings’ motion for summary judgment on the basis that Enterprise Holdings did not qualify as a joint employer, and the Third Circuit affirmed.

In determining whether a company is a joint employer for purposes of FLSA liability, the Third Circuit articulated a four-prong, “economic reality” test. The Court stated it would require proof of significant control, instead of ultimate control, by one entity over another’s employees and “even indirect control may be sufficient.” The test is as follows:
1) Does the entity have authority to hire and fire?
2) Does the entity have authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits and hours?
3) Does the entity conduct day-to-day supervision, including employee discipline?
4) Does the entity control employee records, including payroll, insurance, taxes?

The plaintiffs argued that Enterprise Holdings was a joint employer because it provided its Rent-A-Car branches with human resources best practices guides, employee benefit plans and compensation recommendations, constituting sufficient control under the four prong test for joint employer. The Third Circuit disagreed and found controlling the facts that the subsidiary branch offices were free to choose whether to use any or all of the parent’s suggested guidelines at their own discretion and none of the parent’s guidelines was mandatory. The Court also stressed that the four factors were by no means an exhaustive list and should not be blindly applied. Instead, according to the Court, they should be evaluated in light of other relevant factors that show the first entity is exerting significant control over the other entity’s employees, such as interlocking directorates and the common nature of the businesses each conducted.

Joint employer status under the FLSA continues to require a fact-specific analysis consistent with the Third Circuit’s guidance. If your organization needs assistance in reviewing potential joint employer issues, please contact Jim McGovern, Pat McGovern or Doug Solomon in our Labor Law Practice Group.