Are You Employed in Retail? The Administration is Threatening Your Overtime Pay

Recently, the U.S. Department of Labor (“DOL”) issued a final rule that would seek to deprive large numbers of employees overtime wages. The Administration’s action eliminates helpful guidance about the types of employees who are not considered to work in “retail” and would presumably be entitled to overtime under the federal Fair Labor Standards Act (“FLSA”). Employees considered “exempt” from the FLSA do not benefit from its minimum wage and overtime pay requirements. Exempt workers usually include executive, administrative, or professional employees who meet the tests—including the salary-based test—for the exemption. “Retail” workers may also be considered exempt and be paid on a commission-only basis. For nearly 60 years, the DOL had a list of industries presumably excluded from “retail” as having no “retail concept” – like banking. The Administration’s action would seek to short-change these hundreds of thousands or millions of workers of their overtime.

More specifically, pursuant to Section 7(i) of the FLSA, certain employees paid primarily on commission in the retail and service industries have long been considered exempt from overtime benefits. To qualify for this exemption, the employee must have been employed by a “retail or service establishment,” which the DOL consistently interpreted as an establishment with a “retail concept.” Such establishments typically “sell[] goods or services to the general public,” “serve[] the everyday needs of the community,” “[are] at the very end of the stream of distribution,” dispose their products and skills “in small quantities,” and “do[] not take part in the manufacturing process.” Implementing this interpretation, the DOL maintained lists of establishments that could not claim the overtime exemption: (1) those that the DOL viewed as having “no retail concept” and were always ineligible to claim the exemption (such as banks, certain dry cleaners, tax preparers, laundries, roofing companies, and travel agencies), and (2) those that “may be recognized as retail” but were potentially ineligible for the exemption on a case-by-case basis (such as auto repair shops, hotels, barber shops, scalp-treatment establishments, taxidermists, and crematoriums).

The DOL’s new rule eliminates these lists that provided helpful guidance for more than half a century of what types of establishments could claim the overtime exemption. Employers that previously fit into these categories may now try to assert that they have a retail concept and may qualify for the overtime exemption.  According to the Administration, this rule provides greater simplicity and flexibility to retail industry employers because the DOL will now apply the same “retail concept” analysis to all businesses. 

We disagree. This rule may be used by employers to attempt to justify paying their workers on commission without overtime, which means employees working longer hours with less pay. Retail workers already have a low median annual income of about $29,000 according the U.S. Bureau of Labor Statistics and are subject to wage and hour abuses. The new rule simply adds confusion around long-standing FLSA guidance for employers and employees about who can and cannot qualify for overtime provisions. The DOL made this decision without a notice and comment period, stating that no such period is required since both lists were interpretive regulations originally issued without notice and comment in 1961. Some attorneys question the propriety of the DOL’s decision. 

Courts may disregard this rule change. The DOL’s interpretations and lists are not binding on courts but can serve as guidance and, in the past, have been afforded some deference. However, when the Administration casts aside tried-and-true guidance to support the political agenda of the moment, seemingly without undergoing any rigorous process or study, such a move will be entitled to no deference under Perez v. Mortgage Bankers Association. 135 S.Ct. 1199, 1208 n.4 (2015) (highlighting that an agency’s interpretation that conflicts with a prior interpretation of a regulation is entitled to considerably less deference than a consistently held agency view). Workers’ rights advocates anticipate that when the Administration changes – hopefully soon – helpful guidance will be restored distinguishing true retail from many other industries that would opportunistically try to claim an exemption where none should exist.

Bryan Schwartz Law has written about the Trump Administration’s antipathy toward workers, DOL shifts, and overtime before and remains committed to protecting workers’ wages. If you were denied overtime pay you believe you were owed, contact Bryan Schwartz Law today.

New (Watered-Down) Overtime Pay Rule Announced By Department of Labor

This week, the U.S. Department of Labor announced a final rule that starting January 1, 2020, 1.3 million more American workers will be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The final rule expands the definition of who “non-exempt” workers are, i.e. workers who are subject to minimum wage and overtime pay requirements. “Exempt” workers are exempt from minimum wage and overtime pay requirements. Exempt workers include, for example, those meeting the tests (including the salary-basis test) for the white-collar exemptions as executive, administrative, or professional employees.

The rule is a watered-down version of an Obama Administration proposal, which would have expanded overtime pay to around 4 million workers by raising the maximum salary for which non-exempt workers are entitled to overtime pay to $47,000 a year for full-time work, a highly-compensated employee (“HCE”) exemption level of $147,000, and (perhaps most importantly) tying future increases to the cost of living. That proposal was met by fierce opposition from various business groups, who teamed up with some Republican-controlled states to take the Obama Administration to court, resulting in the rule being blocked by a conservative federal judge in 2017.

Here are the main changes the new rule makes:

·         raises the “standard salary level” to qualify for a white-collar exemption from the current level of $455 per week (equivalent to $23,660 per year for a full-year worker) to $684 per week (equivalent to $35,568 per year for a full-year worker);

·         raises the total annual compensation level for “HCEs from the current level of $100,000 to $107,432 per year;

·         allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level; and

·         revises the special salary levels for workers in U.S. territories and in the motion picture industry.

What the new rule does not do is tie the standard salary level to the rate of inflation. Adjusted for inflation, the $23,660/year would rise to a current minimum salary level for non-exempt status of $55,000/year. By also allowing employers to take nondiscretionary bonuses and commissions into account in determining how much employees make and therefore if they’re eligible for overtime pay, the rule immediately undercuts the impact of the relatively small increase provided to the standard salary level. That 10% caveat creates room for confusion and discretion on the part of employers that could adversely affect the very workers the rule is supposedly designed to help. The $107,432/year level for HCEs is also laughably low for many parts of the country where such a salary is much closer to the average.

After 15 years of no updates to overtime pay eligibility, any update is welcome. But once again, the Trump Administration does far less than is needed (and far less than was approved by the prior Administration) to help vulnerable workers. The bottom line: If you make less than $35,568 a year for full-time work, starting next year, you’re more likely to be entitled to overtime pay. But, your employer can count up to 10% of your earnings from things like bonuses and commissions to determine if you qualify for overtime. Note that this new rule doesn’t affect the “outside sales exemption.”

Bryan Schwartz Law has written about overtime issues before here. If you believe you were denied overtime pay you were owed, contact Bryan Schwartz Law today.

SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

In recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

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[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.

Pass the Gravy, But Don't Hold the Wages

Tomorrow, many Americans will prepare their Thanksgiving feast from a box of assembled ingredients, opting to skip the crowded grocery store frenzy by ordering their Thanksgiving meal from a meal kit delivery service. However, customers may be left with a bad taste in their mouths to learn that many of the workers that assemble their meals are being subjected to unsafe, unlawful working conditions and unfairly compensated for their work. 

That is the subject of a recent class action lawsuit filed in Northern California against Blue Apron, claiming that Blue Apron failed to pay workers overtime and failed to provide them with mandatory meal and rest breaks.

Meal kit delivery services are growing in popularity, and there are number of brands to choose from like Blue Apron, Martha and Marley Spoon, HelloFresh, or Sun Basket. Forbes reports the trend for these online meal-kit delivery services will continue, forecasting online sales of meal kits to top $10 billion by 2020, up from about $1 billion in 2015. These meal kit delivery services have capitalized on their success by reinventing dinner, making it easy and accessible for cooks of all skill levels. 

However, there is one group of people who have plenty of complaints about this new industry: the workers. 

Blue Apron employs over 1000 employees at their warehouse center in Richmond, California where nearly 8 million meal kits are assembled each month. Even under fair conditions, the job is difficult. Blue Apron workers assemble the perishable meal kit boxes inside warehouses kept at a temperature below 40 degrees. According to an investigative report by Buzzfeed, Blue Apron employees reported working 12 hour shifts, five to six days each week on the assembly line in order to meet production deadlines. 

On October 5, 2018, a class action lawsuit was filed against Blue Apron in the Alameda County Superior Court, alleging that Blue Apron failed to properly pay its workers, failed to provide its workers with meal and rest breaks, and failed to provide workers with accurate itemized wage statements. The lawsuit covers all Blue Apron hourly employees that work/worked in California from October 5, 2014 to the present. Plaintiff and the putative class are represented by the Turley & Mara Law Firm, APLC. The case was removed to the United States District Court for the Northern District of California on November 19, 2018 (Fairley v. Blue Apron, Inc., Case No. 3:18-cv-07000).

If you believe you have been subjected to employment discrimination, unfair pay or unsafe working conditions, please contact Bryan Schwartz Law today. 

Ignorance of the Law is no Excuse

“Ignorance of the law is no excuse,” particularly when it comes to an employer’s responsibility to pay its workers according to current wage laws. That’s the upshot from the California Court of Appeal’s opinion in Diaz v. Grill Concepts Services, Inc., 23 Cal. App. 5th 859 (2018).

In Diaz, the employer claimed its failure to pay timely its workers was not “willful” – an element of proof for a waiting time penalty claim under Labor Code § 203 – because the employer was purportedly unable “to locate” an amendment to a local Los Angeles ordinance. This amendment to the local wage law required employers to pay certain hotel workers a specific living wage which exceeded the state minimum wage law. The court was unpersuaded.

The court explained several circumstances under which an employer’s failure to pay all wages due upon termination or resignation are not “willful,” including: (1) uncertainty in the law, (2) representations from a taxing authority that no further payment is warranted, and (3) “the employer’s ‘good faith mistaken belief that wages are not owed’ grounded in a ‘good faith dispute,’ which exists when the ‘employer presents a defense, based in law or fact which, if successful, would preclude any recovery on the part of the employee.” Id. at 868. None applied in this case.

To the contrary, the “undisputed facts show that Grill Concepts suspected it was underpaying its employees and went so far as to confirm that the living wage law was in the midst of being amended, but then did nothing else.” Id. at 869. The employer just kept running the same web search which failed to produce information about the amended statute. Id. Because the employer ignored multiple, obvious ways to inform itself of a change in the living wage law, the court affirmed that the employer’s “inability to locate the amended ordinance does not preclude the finding that its failure to pay was willful” for purposes of establishing Labor Code § 203 waiting time penalty liability. Id. [1]

While it should not have taken a court of appeal to state the obvious, nevertheless, workers and workers’ advocates should find comfort in knowing that California courts will not allow an employer to bury its head in the sand to avoid properly paying its workers.

If your employer refuses to pay you earned wages because it claims not to know the law, please contact Bryan Schwartz Law for a free case evaluation to determine if we can assist you.

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[1] The court also rejected the employer’s argument that the amended statute was unconstitutionally vague, in part because of “the absence of any evidence that any other hotelier or restauranteur had any problem reading the ordinance to pay its employees the proper living wage.” Id. at 873. In addition, the court rejected the employer’s misreading of Labor Code § 203 as purportedly allowing a trial court to waive waiting time penalties “for equitable reasons” when the relevant statutory language lacks any such discretionary authority and instead includes language mandating the imposition of such penalties upon a finding of willful violation, as was the case here. Id. at 874-75.

California Supreme Court Delivers Workers a Victory in Troester v. Starbucks Corp.

Though the U.S. Supreme Court’s recent decision in Janus v. AFSCME dealt a major blow to workers, and the nomination of Brett Kavanaugh to the high court might mean more devastation will follow, California has once again claimed its position as a progressive counter to an oppressive federal agenda. The California Supreme Court’s ruling today in Troester v. Starbucks Corp. defends the interests of working people by ensuring greater protection for those who regularly perform small amounts of uncompensated work - which add up to valuable unpaid wages, over time.

The plaintiff, a Starbucks employee named Douglas Troester, has argued Starbucks owes him wages for the time he spent running end-of-day computer software, activating a building alarm, locking the door, and walking coworkers to their cars as required by company policy. All of these duties, alleges Troester, add up to four to ten additional minutes each shift. Over a seventeen-month period, Troester’s unpaid time totaled twelve hours and fifty minutes, adding up to $102.67 at the then-applicable minimum wage of $8 per hour.

Troester first filed his case in Los Angeles County Superior Court, but Starbucks removed the case to federal court, and the district court granted summary judgment for Starbucks based on the federal “de minimis” doctrine. First set forth in the 1946 U.S. Supreme Court decision, Anderson v. Mt. Clemens Pottery Co., the de minimis doctrine holds that employers need not compensate employees for small amounts of otherwise compensable time if the employer can show tracking that time is administratively difficult. On appeal, the Ninth Circuit recognized that although the de minimis doctrine applied to federal wage and hour law, the California Supreme Court had never addressed whether the doctrine applied to wage claims under California law. The California Supreme Court agreed to the Ninth Circuit’s request to answer specifically whether the doctrine applied to claims for unpaid wages under California Labor Code sections 510, 1194, and 1197. 

In today’s decision, the California Supreme Court first held that, based on a review of the relevant statutes and Industrial Wage Commission (“IWC”) Orders, California had not previously adopted the federal de minimis doctrine. The California Supreme Court, explains the decision, must interpret the Labor Code and IWC Orders liberally to best further their purposes. And, the Court held, California is free to offer greater protection to workers than federal regulations, which the state already has done, regarding, for example, on-call employees’ compensation for sleep and other personal activities (Mendiola v. CPS Security Solutions, Inc., 60 Cal.4th 833 (2015)), the definition of “employ” (Martinez v. Combs, 49 Cal.4th 35 (2010)), and transportation time (Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)).

Second, the Court held the relevant IWC Order and statute did not permit application of the de minimis doctrine to the particular facts of Troester’s case. For one, the Court explained, the modern availability of class actions undermines the rationale behind the de minimis rule for wage and hour actions. “The very premise” of wage and hour class actions, stated the Court, “is that small individual recoveries worthy of neither the plaintiff’s nor the court’s time can be aggregated to vindicate an important public policy.” The Court also found that the rationale behind the de minimis rule in Anderson is less relevant now because time-keeping technology has advanced far beyond what it was seventy years ago. The problems of recording employee time discussed in Anderson “may be cured or ameliorated by technological advances that enable employees to track and register their work time via smartphones, tablets, or other devices,” explained the Court. Although the Court found the de minimis doctrine did not apply to Troester’s case, it left open the possibility that certain circumstances may exist where compensable time is “so minute or irregular that it is unreasonable to expect the time to be recorded.”

The phrase “de minimis” comes from the longer maxim de minimis non curat lex, meaning “the law does not concern itself with trifles.” In this case, Starbucks argued the additional time Troester worked was insignificant. But while $102.67 may be insignificant to a multinational corporation, Justice Liu defended common sense and the dignity of working people in writing that $102.67 “is enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares. What Starbucks calls ‘de minimis’ is not de minimis at all to many ordinary people who work for hourly wages.” 

The lawsuit now returns to the Ninth Circuit, which will factor in the California Supreme Court’s decision when it rules on Troester’s case. We hope that fairness for working people will prevail, as it did today in our state’s high court.

If you believe your employer has violated wage and hour laws, contact Bryan Schwartz Law.

Read the full opinion here: Troester v. Starbucks Corp., 2018 BL 265635, Cal., S234969, 7/26/18.

The Fate of the Department of Labor's New Overtime Rule is in Limbo, and its Prospects are Dim

Recent developments in the judicial and executive branches of the federal government make it unlikely that a key effort by the Obama Administration to raise the wages of American workers will come to fruition. 

            I.                   Overtime Final Rule

Earlier this year, the Department of Labor announced a new rule which would have increased the salary threshold for the executive, administrative, and professional exemptions to the Fair Labor Standards Act (FLSA). The rule was expected to extend the FLSA’s overtime protections to an estimated 4.2 million additional white-collar employees around the country, including managers in the restaurant, retail, and hospitality industries. (Bryan Schwartz Law wrote about the overtime final rule announcement here). The overtime final rule was anticipated to go into effect on December 1, 2016. 

The final rule would:

• increase the salary level required for the white collar exemptions to apply, from $23,660 to $47,476;
• increase the compensation level required for the highly compensated employee exemption to apply, from $100,000 to $134,004; and,
• provide automatic increases to these salary levels every three years based on data reported by the Bureau of Labor Statistics, without requiring a separate rulemaking. 

II.                Final Rule Imperiled by the Courts

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an emergency motion to preliminarily enjoin the Department of Labor from implementing and enforcing the overtime final rule. Nevada, et al. v. U.S. Dept. of Labor, et al., No: 4:16-CV-00731, Docket No. 60 (E.D. Tex). The court applied the analytical framework set forth in Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), to conclude that the Department of Labor’s interpretation of the FLSA’s white collar exemptions, set forth in 29 U.S.C. § 213(a)(1), was not entitled to deference, and was contrary to the language and intent of the statute.

Courts apply a two-step analytical framework to determine whether an agency's interpretation of a statue is entitled to judicial deference. First, the court determines “whether Congress has directly spoken to the precise question at issue.” Id. at 842. “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43. Second, if Congress’s intent is ambiguous regarding the precise question at issue, then the court will defer to the agency’s interpretation unless it is “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844.

In Nevada, the court concluded that the final rule was not entitled to Chevron deference. At the first step of analysis, the court interpreted the language of the FLSA's white collar exemptions as describing employee job duties, not employee salaries. Slip. Op. at 11. The Department of Labor added regulations shortly after the FLSA was enacted in 1938 which added salary basis and minimum salary requirements. The court concluded that by significantly raising the salary level required for the white collar exemption to apply, the Department of Labor exceeded its delegated authority because it allowed minimum salary level to supplant the duties test. Slip. Op. at 13.

The court went on to explain that the final rule would also fail at the second stage of the Chevron analysis, because it was not “based on a permissible construction of the statute. Id. (quoting Chevron, 467 U.S. at 843). The court interpreted the final rule as creating a de facto salary-only test. The court concluded that by doing so, the final rule was “contrary to the statutory text and Congress’s intent,” and not entitled to deference on that basis. Slip. Op. at 14.

In a statement released on the agency’s website, the Department of Labor states that it “strongly disagrees with the decision by the court,” explaining that, 

Since 1940, the Department's regulations have generally required each of three tests to be met for the FLSA's executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees. The Department has updated the salary level requirements seven times since 1938.

III.             Final Rule Imperiled by the President-Elect

The overtime final rule is likely to die during the presidency of Donald Trump.

On December 1, 2016, the Department of Labor filed a notice of appeal to the Fifth Circuit Court of Appeals – home of some of the most conservative appeals judges in the country. Given the high stakes of this case, the non-prevailing party on appeal will probably seek certiorari before a Supreme Court containing one or more nominee selected by president-elect Trump. If Trump’s selection for the Supreme Court is anything like his recent pick to head the Department of Labor, the High Court will have an additional vote in support of the district court’s ruling.

On December 8, 2016, President-elect Trump named Andy Puzder, a fast-food executive, as his pick to head the Department of Labor. Mr. Puzder is vocal opponent of recent efforts to raise the minimum wage, and government regulation of the workplace generally. In a May 18, 2016 Forbes Op-Ed, Mr. Puzder criticized the overtime final rule as “another barrier to the middle class, rather than a springboard.” If confirmed, Mr. Puzder can be expected to impose additional barriers to implementation of the overtime final rule.

In an economy where middle-class workers’ wages have stagnated, President Obama's Administration sought to lift white-collar wages through the overtime final rule. The court’s wrong decision, and president-elect Trump’s signaled direction, will allow the wealthy few to continue to pocket the economy’s profits while middle-class workers watch their standards of living decline. This is an existing trend that will likely grow throughout the Trump presidency. For the next four years, at least, the movement to raise minimum wages should not expect gains at the federal level. In the meantime, the movement should continue to seek victories where possible – on the state and local levels.  

IV.       Possible Silver Lining? Some Employers May be Contractually Obligated to Raise Wages

Because the preliminary injunction issued just one week before the overtime final rule was supposed to take effect, by that time, many employers may have taken steps toward raising their employees’ wages. Even without the rule, some employers may already have contractually obligated themselves to raise their employees’ wages. 

Ninth Circuit Allows CA Wage and Hour Class Action to Move Forward, Affirming the District Court's Grant of Class Certification

The Ninth Circuit recently affirmed the District Court’s certification of a wage and hour class action against Stoneledge Furniture, a wholly owned subsidiary of Ashley Furniture Industries. 

Stoneledge Furniture operates 14 retail furniture stores in California and employs about 600 sales associates, who primarily sell furniture and accessories to Stoneledge’s customers. Stoneledge paid its sales associates on commission.

Plaintiff Ricardo Vaquero, a former sales associate of Stoneledge, asserts that Stoneledge violates California’s minimum wage and hour laws because it requires sales associates to do many tasks unrelated to sales.   Vaquero alleges that Stoneledge requires sales associates to clean the store, attend meetings, and carry furniture.   According to Vaquero, Stoneledge does not pay its sales associates for such work, beyond what they earn in commissions, and this policy violates California wage and hour laws.

Under the Class Action Fairness Act  of  2005,  28  U.S.C.  § 1332(d)(2), Defendants removed the case to federal court, and Vaquero moved to be named a class representative.   He asked to represent four subclasses, three of which were derivative of the  first:    (1)  a  class  of  all  California  sales  associates employed from August 24, 2008, to the present who were paid less than minimum wage for non-sales time worked; (2) sales associates who were not provided with itemized wage statements; (3) former sales associates who were not paid all wages due at separation; and (4) sales associates who were  subject  to  unlawful  business  practices.

The district court granted class certification for all of the classes except for the third subclass. 

Defendant Ashley Furniture moved to appeal the district court’s decision to certify the remaining subclasses pursuant to Federal Rule of Civil Procedure 23(f). The sole issue before the court is whether the district court properly granted class certification.

Defendants argued that Vaquero failed to meet the requirements of Rule23(a), alleging that Plaintiffs failed to establish commonality and predominance of class claims among the class.  Defendants also asserted that class certification altered the parties’ substantive rights in violation of the Rules Enabling Act, 28 U.S.C. § 2072(b).

 

Defendants relied on Wal-Mart Stores, Inc. v. Dukes, arguing that commonality did not exist among the class.  However, the court disagreed, distinguishing Dukes from the present case.  Dukes involved a class action against Walmart for sex discrimination, alleging that the corporate culture and the retailer’s delegation of promotion decision to individual managers denied a class of female employees equal pay and promotional opportunities in violation of Title VII.  The Supreme Court held that subjective decision by many managers in different locations could not be considered a common injury across a class of more than one million plaintiffs.

 

Unlike in Dukes, the Ninth Circuit found that the class in Vaquero had commonality because the class all had the common contention that Defendant’s compensation structure violated California’s minimum wage laws for all such employees, a relatively small number of class members who all generally performed the same work.

 

Defendants also argued that Vaquero’s class failed to establish predominance, asserting that predominance cannot be reached when damage calculations cannot be performed on a class-wide basis. Defendant’s based their argument on Comcast Corp. v. Behrend, an antitrust case where the Supreme Court reviewed certification of a class of consumers that offered a complex damages model to show how customers were subject to anti-competitive pricing.

 

The Ninth Circuit has interpreted Comcast to mean that plaintiffs must be able to show that damages resulted from the Defendant’s conduct in order to establish predominance.  The Ninth Circuit found that Vaquero easily established predominance because the class alleges that Defendant’s consciously chosen compensation policy deprived the class of earnings in violation of California minimum wage laws.  The court also held that the Vaquero class’s inability to prove individual damages cannot alone defeat class certification and held that the permissibility of using representative or statistical models to establish damages turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disapproving the elements of the cause of action.

 

Defendants also argued—relying heavily again on Dukes—that allowing the class to use representative evidence to prove damages would inevitably change the substantive rights of the parties by preventing Defendants from individually cross-examining and challenging each class member’s claim.  In Dukes, the Supreme Court rejected plaintiffs’ trial plan to determine damages through statistical sampling because Wal-Mart would lose the right to litigate its statutory defenses to individual claims.

However, the Ninth Circuit found Ashley Furniture’s reliance on Dukes misplaced.  The court found that Defendants’ concerns about damages were hypothetical at this stage of the litigation and that the district court’s grant of class certification did not expand Vaquero’s substantive rights or those of the class. The court explained that Defendants could challenge the viability of Vaquero’s evidence at a later stage of the proceedings and that it was immature to decide at the stage of class certification.

Millions of Salaried Workers Are Newly Eligible For Overtime, Thanks to an Updated Department of Labor Rule

Starting in December 2016, millions 

of additional workers will be entitled

to overtime under federal law.

UPDATE (November 30, 2016): The implementation of this rule, which was supposed to take effect in on December 1, 2016, has been delayed, perhaps indefinitely. Bryan Schwartz Law wrote about the delay here.
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Today the Department of Labor issued a new rule that updates federal overtime regulations and dramatically increases the number of salaried workers entitled to overtime pay. The final rule will go into effect on December 1, 2016. At that time, an estimated 4.2 million additional workers will automatically be eligible for overtime compensation, according to the Department.

The Fair Labor Standard Act entitles certain white-collar employees to overtime pay. Previously, only workers earning up to $23,660 were entitled to overtime compensation, a static amount set in 2004. Under the new rule, most salaried workers who earn up to $47,476 annually must receive time-and-a-half pay for every hour worked in excess of 40 per week. That amount is pegged to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South, and will automatically update every three years, based on the latest wage growth data. Thus, the cutoff for overtime eligibility is expected to increase every three years.

                       

The new rule also increases the annual compensation requirements for highly compensated employees.

It remains to be seen how employers will respond to the new rule. However, many employee advocates believe the new rule will result in higher earnings, or at least more free time, for middle class workers.

High Court Affirms Workers’ Right to Prove Mass Wage Theft Cases With Statistical Evidence

Today, the United States Supreme Court affirmed a basic principal underlying lawsuits challenging mass wage theft – if employers fail to keep records of employees’ work, then employees get to use their best estimate to prove their employer’s wage theft, including estimates based on statistical and representative evidence. The Court also confirmed that representative evidence may be used beyond the wage and hour context.

As we wrote here, the Court seemed unpersuaded at oral argument last fall that it should overrule seventy years of precedent, first established in Anderson v. Mt. Clemens Pottery Co., that employees may use a “representative sample to fill an evidentiary gap created by the employer’s failure to keep adequate records.” Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, 2016 WL 1092414, at *9 (Mar. 22, 2016). Writing for a 6-2 majority, Justice Kennedy affirmed this long-standing and critical rule of law.

Importantly, the Court went beyond the lenient standard of proof established in Mt. Clemens, which is unique to the Fair Labor Standards Act context, and thereby confirmed that representative evidence can be used as common proof of classwide liability and damages in other legal contexts. In particular, the Court clarified that Wal-Mart Stores, Inc., v. Dukes, the infamous decision that struck down a nationwide gender discrimination class action and has been the cause of much consternation for worker and consumer advocates, “does not stand for the broad proposition that a representative sample is an impermissible means of establishing classwide liability.” Id. at *10. Instead, the Court correctly recognized that representative evidence, like any evidence, can be persuasive or unpersuasive to a jury depending “on the purpose for which the sample is being introduced and on the underlying cause of action.” Id. at *8. In cases where “each class member could have relied on that sample to establish liability if he or she had brought an individual action,” representative evidence is more appropriate in contrast to cases where affected individuals are not sufficiently “similarly situated.” Id. at *8, *11. Thus, any doubt about the propriety of representative evidence to prove classwide liability in the wake of Wal-Mart and Comcast Corp. v. Behrend has been dispelled. The new battleground appears to be not if, but when representative evidence can be deployed to establish an element of a cause of action on a classwide basis. Id. at *8.

Interestingly, the Court observed that the district court would have erred in denying class certification if its sole basis for denying class certification were the lower court’s perception of the expert report as unpersuasive. Id. at *11. Only if the lower court “concluded that no reasonable juror could have believed that the employees spent roughly equal time donning and doffing” would denying class certification have been proper. Id. See also Amgen Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1194-95 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.”) The takeaway appears to be that the Court will require aggrieved plaintiffs seeking to use representative evidence to first establish that they were “similarly situated” such that the defendant’s harmful conduct affected them “roughly” in the same way. Id. However, once this threshold is met, the representative evidence may be used to establish classwide liability if it is otherwise admissible – no “Trial by Formula” concerns in sight.

Also, as anticipated by comments at oral argument, the Court declined to consider the important question of whether the possibility of uninjured class members prevents a district court from certifying a class action because Defendants abandoned the issue. The district court will have to address this issue in the first instance on remand. If not addressed in this case, the issue of possibly uninjured class members likely will continue to be raised by employers seeking to avoid accountability for their wrongdoing by arguing that if they didn’t steal from each of its employees, then its victims cannot stand together because unaffected employees might possibly receive a windfall. Thus, the employer should be let off the hook, or so the defense bar’s argument goes. A patently ridiculous argument, but one that will be resolved another day. 

            Lastly, the Court cautions that any representative evidence that relies upon expert witnesses, sampling, and similar evidence remains subject to a Daubert challenge, and thus, must be methodologically sound. This is in line with California Supreme Court jurisprudence that a class action may be certified using representative evidence, but the methodology behind the representative evidence must be credible and free of defects such as sampling errors. See Duran v. U.S. Bank Nat. Assn., 59 Cal. 4th 1, 13, 50-8 (2014) (Liu, J., concurring). See also here and here for discussion of the holding in Duran, and issues relating to the use of representative proof to advance the cause of workers.

            Thus, Tyson Foods, far from spelling the end of representative evidence in class actions, has breathed new life into class actions used to protect the interests of consumers, workers, and the general public. 

Court Gives Uber Drivers Green Light for Class Action

Today, a district court granted class certification to Uber drivers alleging they have been misclassified as independent contractors. As discussed in previous posts to this blog earlier this year and last year, the growing sharing economy continues to pose challenges for hard-won worker protections – today’s decision is an important step towards ensuring technological innovation does not undermine important worker protections.

The court’s 68-page order lucidly lays out California’s test for an employment relationship, as stated in S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (“Borello”), 48 Cal. 3d 341 (1989), and more recently clarified in Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014). Order at 10-13.

Under Borello, whether an employment relationship exists depends on one primary factor and several secondary factors.[1] The “most significant consideration” is the putative employer’s “right to control work details.” Borello, 48 Cal. 3d at 350. The California Supreme Court’s recent decision in Ayala clarified that the “pertinent question under California’s right-of-control test is not how much control a hirer [actually] exercises, but how much control the hirer retains the right to exercise.” Order at 11 (citing Ayala, 59 Cal. 4th at 533 (emphases in original) (citation omitted)).

Importantly, the court concluded that the Borello test can be answered for each Uber driver on a common basis. That is, the central question in the case – whether Uber drivers are independent contractors or employees – can be resolved by reference to common policies, common practices, and common evidence including evidence that Uber uniformly sets its rates for drivers, uniformly monitors drivers’ performance, and uses uniform employment contracts for each of its drivers. Order at 38.

In reaching its decision to certify the class, the court rejected Uber’s argument that individualized issues would bog down the litigation because:

[O]n one hand, Uber argues that it has properly classified every single driver as an independent contractor; on the other, Uber argues that individual issues with respect to each driver’s “unique” relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a classwide determination of its drivers’ proper job classification.

Order at 6.

Thus, the fact that Uber itself made a uniform determination in misclassifying its drivers as independent contractors weighed in the court’s holding that such a determination could also be made uniformly by a court or trier of fact. Order at 6 (citing In re Wells Fargo Home Mortgage Overtime Pay Litig., 571 F.3d 953, 957 (9th Cir. 2009)

After an exhaustive review of each factor under the Borello common law employment test, the court held that, “every (or nearly every) consideration under the California common-law test of employment can be adjudicated with common proof on a classwide basis.” Order at 56.

Similar lawsuits have been filed against other app-based companies such as Lyft. See Cotter v. Lyft, Inc., 13-cv-4065-VC (N.D. Cal.). Moreover, the Department of Labor has recently released guidance reaffirming the basic principle that “most workers are employees under the FLSA’s broad definitions.” In light of these legal developments, companies that have benefitted from the fast-growing sharing economy should reevaluate their employee classification decisions.

For example, Instacart, a company that provides online grocery deliver services, recently reclassified its workforce, citing the positive business benefits of maintaining employees rather than independent contractors. Similar companies that seek similar benefits from independent contractors face the real possibility of expensive legal action.

In you have concerns that you may have been misclassified in your job please contact Bryan Schwartz Law.

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[1] The secondary factors are:

(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee;

(i) the alleged employee’s opportunity for profit or loss depending on his managerial skill;

(j) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

(k) whether the service rendered requires a special skill;

(l) the degree of permanence of the working relationship; and

(m) whether the service rendered is an integral part of the alleged employer’s business.

Borello, 48 Cal. 3d at 351, 354-55.