Labor Relations & Wages Hours Update August 2013

On reconsideration, the Second Circuit was faced with the question of whether an employee may invalidate a class action waiver provision in an arbitration agreement when the waiver removes the financial incentive for her to pursue her FLSA claim. As an initial matter, the appeals court concluded that the Amex I decision and the decisions that followed are no longer good law in light of the Supreme Court’s decision in American Express Co v Italian Colors Restaurant. Italian Colors held that plaintiffs could not invalidate a waiver of class arbitration under the so-called “effective vindication doctrine” by showing that “they had no economic incentive to pursue their antitrust claims individually in arbitration.”

Despite the obstacles facing the vindication of the employee’s claims, the Supreme Court’s decision in Italian Colors compels the conclusion that her class action waiver is not rendered invalid by virtue of the fact that her claim is not economically worth pursuing individually. The fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. Accordingly, the employee’s “effective vindication doctrine” argument was insufficient to invalidate the class action waiver provision.

The case number is 12-304-cv.

Attorneys: Max Folkenflik (Folkenflik & McGerity) for Stephanie Sutherland. Rex S. Heinke (Akin Gump Strauss Hauer & Feld) for Ernst & Young.

By Ronald Miller, J.D.

After dismissing the civil RICO claims brought in several wage and hour class actions against health care systems, a federal district court did not err by exercising supplemental jurisdiction over the employees’ remaining state law claims, ruled the Second Circuit (Gordon v Kaleida Health, August 21, 2013, per curiam). The employees had argued that the appropriate course of action for the district court was to remand their state law claims to state court. However, the appeals court concluded that the district court’s decision to exercise supplemental jurisdiction over the employees’ state law claims in this instance was a wise exercise of judicial economy, not an abuse of discretion.

Civil RICO claims. The employees alleged that their employers used a scheme to cheat them out of their lawful earnings in violation of RICO. In order to state a claim under civil RICO, a plaintiff must “allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a ‘pattern’ (4) of ‘racketeering activity’ (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an ‘enterprise’ (7) the activities of which affect interstate or foreign commerce.” The district court dismissed the RICO claim with prejudice.

The Second Circuit noted that it has recently rejected identical RICO claims brought by the same class action law firm against other health systems. As in those cases, the appeals again concluded that “the mailing of pay stubs cannot further the fraudulent scheme because the pay stubs would have revealed (not concealed) that Plaintiffs were not being paid for all of their alleged compensable overtime.” Thus, the RICO cause of action was properly dismissed for failure to state a claim.

The employees’ first state law claim was for breach of contract; however, the only clear allegation in the complaint was that the health systems breached an express and implied promise to “fulfill all of their obligations pursuant to state and federal law.” However, “a promise to perform a pre-existing legal obligation does not amount to consideration,” explained the appeals court. Further, the employees’ claims for breach of implied covenant of good faith and fair dealing, unjust enrichment, and quantum meruit were dismissed because they were sufficiently distinct from the breach of contract claim. The court also rejected the employees’ assertion that their quasi-contract claims may not be duplicative because there was a credible dispute over whether or not an underlying employment contract actually existed. Their remaining bald allegations supported no contractual duty extending beyond the statutory requirements already binding the health systems. Accordingly, the judgments of the district court were affirmed.

The case numbers are 12-0918 and 12-0654.

Attorneys: Guy A. Talia (Thomas & Solomon) for Catherine Gordon and Gail Hinterberger. Mark A. Molloy (Nixon Peabody) for Catholic Health Systems, Inc and Kaleida Health.

By Ronald Miller, J.D.

The Third Circuit has vacated the dismissal of an FLSA collective action filed by employees of the Southeastern Pennsylvania Transportation Authority (SEPTA), which the district court dismissed believing it would require the interpretation of collective bargaining agreements between SEPTA and the unions representing the employees (Bell v Southeastern Pennsylvania Transportation Authority, August 19, 2013, Barry, M). The minimum protections of the FLSA provided to individual workers “take precedence over conflicting provisions in a collectively bargained compensation arrangement,” concluded the appeals court.

Pre-trip inspections. Bus drivers and trolley operators (operators) employed by SEPTA sued to recover unpaid wages and overtime pay for work performed during morning “pre-trip” inspections required before the start of each operator’s daily run. At the start of each workday, operators must fulfill two sets of responsibilities: (1) reporting tasks, including checking with the dispatcher, collecting passenger transfers, checking daily detours and operating conditions, and determining the location of their vehicles; and (2) pre-trip vehicle safety inspections. Reporting tasks take approximately ten minutes to complete, while pre-trip inspections can be completed in about 15 minutes. Although operators were compensated for performing reporting tasks, that time was not included in the calculation of overtime. Moreover, the operators contended that inspections were performed “off the clock.”

In response to the operator’s collective action, and relying on the Third Circuit’s ruling in Vadino v A Valley Engineers, SEPTA filed a motion for summary judgment on the ground that the operators’ FLSA claim was dependent on the disputed interpretations of the CBAs regarding reporting time. SEPTA asserted that the parties were first required to submit the disputed issues to arbitration. The district court granted the motion, concluding that the resolution of the FLSA claim depended upon the interpretation of the CBAs.

The operators contended that the time spent — approximately 25 minutes — conducting the reporting tasks and inspections was compensable “time worked” for purposes of the FLSA and that SEPTA unlawfully failed to include this time in the computation of overtime. Because many operators worked 40 hours a week exclusive of the time performing inspections, they contended that SEPTA’s failure to compensate them for this time resulted in unpaid overtime wages, constituting a willful violation of the FLSA.

FLSA protections take precedence. The Third Circuit disagreed with SEPTA’s contention that the FLSA claim depended upon the interpretation of the CBAs and had to be decided in the first instance by an arbitrator. Under Barrentine v Arkansas-Best Freight System, Inc, the minimum protections the FLSA provides to individual workers “take precedence over conflicting provisions in a collectively bargained compensation arrangement,” concluded the appeals court. Therefore, an employee’s right to relief under the FLSA is distinct from an employee’s contractual rights as provided in a CBA.

In some instances, however, an employee’s FLSA claim is intertwined with the interpretation or application of the CBA. That was the case in Vadino, where the employee acknowledged that the employer paid him one and one-half times his “normal” hourly rate for overtime hours. But he argued that his overtime rate should have been one and one-half times the “journeyman” rate provided for in the CBA. There, the employee’s FLSA claim was entirely derivative of his breach of contract claim and dependent on an interpretation of that CBA. As a consequence, the Third Circuit held that FLSA claims that rest on interpretations of the underlying CBA must be resolved pursuant to procedures contemplated under the LMRA.

However, unlike the employee in Vadino, the operators in this case did not contend they were entitled to additional under the CBA, nor did they contend that SEPTA failed to compensate them in the amounts set forth in the CBAs for time spent performing their duties prior to the scheduled starting time. Rather, they argued that their FLSA claim existed independently of any rights they had under their CBAs. Resolution of the FLSA claim required a factual determination of the amount of time operators were required to work prior to their scheduled start and a legal determination regarding whether this time was compensable and subject to the overtime provisions of the FLSA. Accordingly, the order of the district court was vacated.

The case number is 12-4031.

Attorneys: Bruce Bodner (Kaufman, Coren & Ress) for David Bell. Jo Bennett (Stevens & Lee) and Zachary R. Davis (Hangley, Aronchick, Segal, Pudlin & Schiller) for Southeastern Pennsylvania Transportation Authority.

5th Cir.: Supervisor lacked qualified immunity; prior ruling that public employees could be individually liable under FMLA was “fair warning” his conduct was objectively unreasonable

By Joy P. Waltemath, J.D.

On interlocutory appeal, the Fifth Circuit agreed in an unpublished opinion that a state university board member was not entitled to qualified immunity from a discharged employee’s suit alleging that her clearly established statutory right to FMLA leave was violated by his objectively unreasonable termination of her (Bellow v LeBlanc, July 30, 2013, per curiam).

During her employment at the LSU Health Sciences Center, the employee was diagnosed with a facial tumor that, if left untreated, would eventually have been fatal. She sought and was approved for eight weeks of FMLA leave by her supervisor. When she attempted to return to work, however, her parking card and ID pass did not work, and she received written notification of her termination three days later, signed by the supervisor who granted her FMLA leave. She alleged her termination violated both her employer’s policies and was in retaliation for taking FMLA leave and sued her supervisor in his individual capacity. He invoked qualified immunity and moved to dismiss, but the district court disagreed.

On appeal, the Fifth Circuit considered two issues: (1) did the employee have a clearly-established statutory right not to be terminated for taking leave under the FMLA, and (2) if so, was terminating her for taking FMLA leave objectively unreasonable in the light of that clearly established law? To abrogate a public official’s right to qualified immunity, the official’s conduct must have violated a constitutional or statutory right, and the official’s actions must be objectively unreasonable in light of clearly established law at the time of the conduct, the court emphasized.

Don’t confuse qualified immunity with sovereign immunity. Here the supervisor suggested the employee, as a state employee, had no statutory rights under the relevant FMLA subsection because states enjoy sovereign immunity from such claims, citing the Supreme Court’s 2012 Coleman v. Court of Appeals of Maryland opinion. That reliance was misplaced, said the court, because Coleman addressed state sovereign immunity, not the qualified immunity at issue here. Nor did the Fifth Circuit concede that the state of Louisiana was the real party in interest, thereby extending sovereign immunity to the supervisor, relying on both Supreme Court and circuit precedent that state sovereign immunity is no bar to suit against a public official in his individual capacity.

Additionally, the appeals court would not adopt a position contrary to its own circuit, which held that the FMLA’s plain language “permits public employees to be held individually liable,” meaning that officials such as the supervisor could be considered “employers” under the FMLA and be sued in their individual capacities, regardless of what other circuits had done. Because the employee had the statutory right to take medical leave and alleged that her supervisor in his individual capacity terminated her in retaliation for properly exercising that statutory right, she satisfied the first qualified-immunity prong.

The case number is 13-30075.

Attorneys: Dale Edward Williams (Law Office of Dale Edward Williams) for Kristie Bellow. Lance Sterling Guest, Louisiana Department of Justice, for Kim Edward LeBlanc.

5th Cir.: Lower court erred in disregarding fluctuating workweek (FWW) method to calculate overtime for store managers

By Ronald Miller, J.D.

Following a jury’s finding that executive managers at certain Party City retail stores were misclassified as exempt from overtime, a district court erred when it adopted a magistrate judge’s unorthodox methodology for calculating overtime damages and disregarded the fluctuating workweek method (FWW), ruled the Fifth Circuit (Ramson v M. Patel Enterprises, Inc dba Party City, August 16, 2013, Jolly, E). The evidence demonstrated that the employees’ salary was intended to compensate for all hours worked, and that those hours would fluctuate. However, there was no support in the record for the magistrate’s conclusion that the parties had an understanding that the employees’ salary was only intended to compensate for a set 55-hour workweek.

Executive managers (EMs) at Party City retail stores alleged that the employer misclassified them as exempt from the overtime provisions of the FLSA and paid them only a weekly salary that did not vary even though they often worked weeks of irregular and long hours. According to the employees, they were owed overtime for such workweeks. The matter proceeded to a jury trial presided over by a magistrate judge. After a jury found that the plaintiff and other executive managers were misclassified as exempt, they became eligible for an award of overtime wages. In computing damages, the district court disregarded the fluctuating workweek (FWW) method and instead used the magistrate judge’s unorthodox methodology.

In this case, the magistrate divided the employees’ weekly salary by 55, the number of hours he found their weekly salary was intended to compensate. According to the magistrate, the employees had been paid for all they were entitled to for the hours zero to 40; for hours over 40 and up to 55, they had been paid their regular rate; and for hours over 55, they had not been paid at all. The magistrate awarded one-half the regular rate for each hour over 40 and up to 55, and for all hours over 55, the employees received one and one-half times their regular rate.

On the other hand, testimony that the magistrate did not consider clearly showed that the employees knew their hours would fluctuate and that their salary would not increase or decrease with those fluctuations. Moreover, the employer’s job application explicitly stated that stores had extended hours for certain occasions, and applicants were asked: “Can you work flexible schedules where days and number of hours scheduled is different each week?” Further, a review of the weekly data revealed only a handful of times that any of the employees worked a precise 55-hour week, but more often 58 or 59 hours. Thus, the magistrate erred in finding that the mutual understanding was for a workweek specifically of only 55 hours.

The appeals court observed that Blackmon v Brookshire Grocery Co was the controlling authority in the circuit for resolving this case. Blackmon and Missel reflect the same instruction: FWW is the proper method of calculating overtime when an employee is paid a weekly wage and is expected to work fluctuating hours. Consequently, the ruling of the district court was reversed and the amount of damages vacated and remanded for recalculation.

The case number is 12-50534.

Attorneys: Edmond S. Moreland, Jr. (Floreani & Moreland) and David Weiser (Kator, Parks & Weiser) for Abigail F. Ramson. Justin Michael Welch (Blazier Christensen Bigelow & Virr) for M. Patel Enterprises, Inc.

By Sheryl C. Allenson, J.D.

A six-month limitations provision in an employment agreement operated as a waiver of rights under the FLSA and Equal Pay Act; because such waivers are barred, the provision was invalid, ruled the Sixth Circuit, reversing a district court’s decision granting FedEx’ motion for summary judgment (Boaz v FedEx Customer Information Services, Inc, August, 6, 2013, Kethledge, R). Moreover, FedEx’ alternate arguments did not resuscitate its motion for summary judgment; the appeals court rejected each one in turn.

Employment agreement. When the employee joined FedEx in 1997, she executed an employment agreement that included a provision that stated: “To the extent the law allows an employee to bring legal action against Federal Express Corporation, I agree to bring that complaint within the time prescribed by law or 6 months from the date of the event forming the basis of my lawsuit, whichever comes first.”

Employee’s positions. FedEx categorized its employees by grade levels, which corresponded to compensation rates. In late 2003 and early 2004, the employer decided to eliminate a number of positions, including a grade-27 position held by a male coworker. At the time, the employee held a grade-7 position, but when her male coworker left in January 2004, she assumed some of his responsibilities. Although the employee performed those duties through June 2008, her compensation did not immediately reflect that change. Instead, she remained a grade-7 employee until December 1, 2004, when she accepted a new position that was classified as grade-25. Just six months later, FedEx downgraded the employee’s position two levels. About three years later, she accepted yet another new position where she would not be responsible for performing her former coworker’s duties, and was downgraded one more grade.

The employee received her last paycheck as a grade-23 employee on June 30, 2008. Ten months later, she filed suit against FedEx asserting claims under the FLSA and the Equal Pay Act. According to the employee, FedEx violated the FLSA by failing to pay her overtime compensation, and the EPA by paying her less than it paid her male coworker for performing the same duties. FedEx filed a motion for summary judgment, asserting that under the employment agreement, the employee’s claims were untimely.