Kentucky Employment Law Blog

No "Inherent Incompatibility" Between FLSA Collective Action & State Law Class Action In Same Suit, Third Circuit Rules

The Fair Labor Standards Act (FLSA) requires in a collective action that each claimant affirmatively opt-in to the suit to join the action and obtain relief. A state law class action under the Class Action Fairness Act (CAFA) and Federal Rule of Civil Procedure 23(b)(3), on the other hand, has an affirmative opt-out procedure. Are these conflicting procedures inherently incompatible in the same suit? Does a FLSA collective action pre-empt a state law class action based on the same conduct and facts? "No" to both questions answered the Third Circuit recently in Knepper v. Rite Aid Corporation, Nos. 11-1684 & 11-1685 (March 27, 2012). 

The suits were filed by assistant managers of Rite-Aid claiming that they were misclassified as exempt from overtime pay requirements. After a collective action suit was filed under the FLSA in the Middle District of Pennsylvania, a separate class action suit was filed in federal district court in Maryland claiming that the misclassification violated Maryland's state wage and hour law; it was dismissed and then refiled in the Middle District of Pennsylvania. Another class action suit was filed in federal district court in Ohio claiming that the misclassification violated Ohio's state wage and hour law; this case was transferred to the Middle District of Pennsylvania.  The district court then dismissed both suits reasoning that the opt-in procedures for an FLSA collective action and the opt-out procedures for a Rule 23(b)(3) class action were "inherently incompatible."

The Third Circuit reversed. First, the Court observed that the plain statutory language of the FLSA applied its affirmative opt-in procedures only to claims brought under the FLSA, saying nothing about causes of action for relief under state employment law. The Third Circuit joined the Second, Seventh, Ninth and DC Circuits in this ruling. 

Second, the Third Circuit held that the FLSA does not preempt the state wage and hour laws. The FLSA's savings clause, the court noted, "evinces a clear intent to preserve rather than supplant state law."  The court also rejected Rite Aid's argument that the FLSA's opt-in procedure preempted the opt-out procedures under CAFA observing that "federal law cannot preempt another federal law, and a statute from 1947 cannot impliedly repeal a law from 2005[.]"

Robert L. Abell
www.RobertAbellLaw.com 

 

Race Discrimination Class Action by Merrill Lynch Brokers Approved by Seventh Circuit

Reversing a district court's denial of class certification to some 700 black brokers in a race discrimination case against Merrill Lynch the Seventh Circuit has shown the limited scope and application of the Supreme Court's Wal-Mart v. Dukes ruling by its recent decision in McReynolds v. Merrill Lynch, No 11-3639 (February 24, 2012).

The main plaintiffs' claim before the court was that two Merrill Lynch policies, the "teaming" and "account distribution" policies, had racially disparate impacts. The "teaming" policy allowed but did not require brokers in the same office to form teams that would share clients and accounts.  The "account distribution" policy regarded the passing out of the accounts of a broker that left Merrill, a procedure that was driven principally by past performance and success.

The plaintiffs claimed team membership was advantageous and that the procedure for team selection and formation had a racially discriminatory impact. The Seventh Circuit, in an opinion authored by Judge Richard Posner, explained this dynamic as follows:

The teams, they say, are little fraternities (our term but their meaning), and as in fraternities the brokers choose as team members people who are like themselves. If they are white, they, or some of them anyway, are more comfortable teaming with other white brokers. Obviously they have their eyes on the bottom line; they will join a team only if they think it will result in their getting paid more, and they would doubtless ask a superstar broker to join their team regardless of his or her race. But there is bound to be uncertainty about who will be effective in brining and keeping shared clients; and when there is uncertainty people tend to base decisions on emotions and preconceptions, for want of objective criteria. 

The "account distribution" policy could likewise have racially disparate impacts in fact perpetuating the discriminatory effects of the "teaming" policy, as the court described:

If as a result of racial preference at the team level black brokers employed by Merrill Lynch find it hard to join teams, or at least good teams, and as a result don’t generate as much revenue or attract   and retain as many clients as white brokers do, then they will not do well in the competition for account distributions either; and a kind of  vicious cycle will  set in.  A portion of  a team’s   pre-existing revenues   are   transferred within a team to a new recruit, who thus starts out with that much “new” revenue credited to him or her—an advantage, over anyone who is not on a team and thus must generate all of his own “new” revenue, that translates into a larger share of account distributions, which in turn helps the broker do well in the next round of such distributions. This spiral effect attributable to companywide policy and arguably disadvantageous to black brokers presents another question common to the class, along with the question whether, if the team-inflected account distribution system does have this disparate impact, it nevertheless is justified by business necessity.

Robert L. Abell
www.RobertAbellLaw.com 

 

 

Is A Collective Action Under the FLSA Mooted When the Class Representative Receives a Rule 68 Offer of Judgment Prior to Moving for Conditional Class Certification?

Is a collective action under the Fair Labor Standards Act (FLSA) mooted when the class representative receives a Rule 68 offer of judgment prior to moving for class certification? "No" answered the Third Circuit recently in Symczyk v. Genesis Healthcare Corp., No 10-3178 (3d Cir., 8/31/2011).  

Apparently seeing big trouble from an FLSA class action complaint filed by a registered nurse the employer, Genesis Healthcare Corporation, tried to short-circuit it. The nurse, Laura Symczyk, filed the suit alleging that the cmployer violated the FLSA when "it implemented a policy subjecting the pay of certain employees to an automatic meal break deduction whether or not they performed compensable work during their breaks"  Before Symczyk could move for conditional certification of the class, the employer tendered a Rule 68 offer of judgment in the full amount claimed by Symczyk plus her attorneys' fees and costs.  The company then sucessfully moved to dismiss arguing that the offer of judgment had mooted Symczyk's claim and the suit.

The Third Circuit reversed and relied principally on the "relation-back" doctrine advanced in the Supreme Court's decision in Sosna v. Iowa, 419 U.S. 393 (1975). In Sosna, the Supreme Court ruled that a Rule 23 class action was not mooted where the named plaintiff's claim was extinguished before the district court reached the merits of the class certification. In such instances, the Court ruled, the issue of class certification relates back to the date the complaint was filed.

The FLSA, unlike a Rule 23 class, requires that class members affirmatively opt-in.  But the Third Circuit found this a distinction without a difference:

Although the opt-in mechanism transforms the manner in which a named plaintiff acquires a personal stake in representing the interests of others, it does not present a compelling justification for limiting the relation back doctrine to the Rule 23 setting. The considerations that caution against allowing a defendant's use of Rule 68 to impede the advancement of a representative action are equally weighty in either context.  Rule 23 permits plaintiffs to "pool claims which would be uneconomical to litigate individually." Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985). Similarly, section 216(b) affords plaintiffs "the advantage of lower individual costs to vindicate rights by the pooling of resources." Hoffman-La Roche, 493 U.S. at 170. Rules 23 promotes "efficiency and economy of litigation." Similarly, "Congress' purpose in authorizing section 216(b) class actions was to avoid multiple lawsuits where numerous employees have allegedly been harmed by a claimed violation or violations of the FLSA by a particular employer." Prickett v. DeKalb Cnty., 349 F3d 1294, 1297 (11th Cir. 2003).

When Rule 68 morphs into a tool for the strategic curtailment of representative actions, it facilitates an outcome antithetical to the purposes behind section 216(b). 

Robert L. Abell
www.RobertAbellLaw.com 

Tip Credit Not Applicable to Bartenders and Servers Where More Than 20% of Work Is Performing Related But Nontipped Duties

Bartenders and servers almost always are subject to the "tip credit" that makes up the difference between their hourly pay rate, which is $2.13, and the minimum wage. A group of current and former servers and bartenders at Applebee's restaurants filed a class action lawsuit under the federal Fair Labor Standards Act seeking unpaid wages and challenging the application of the "tip credit" to non-tip producing duties they performed during their shifts. Thus, the case presented the question of whether and to how much working time does the "tip credit" apply to time spent on tasks that produce no tips for the bartender or server.  

The United States Court of Appeals for the Eighth Circuit ruled recently in Fast v. Applebee's International, Inc., Nos. 10-1725/10-1726 ( April 21, 2011), as follows:

employees who spend 'substantial time' (defined as more than 20%) performing related but non-tipped duty should be paid the full minimum wage for that time without the tip credit[.]

The import of this ruling is that the "tip credit" does not apply to all the hours worked by a bartender, server or other tipped employee, provided that he or she spends more than 20% of the working time performing nontipped tasks and duties.

Robert L. Abell
www.RobertAbellLaw.com 

Call Center Employees Sue For Overtime

Call center employees for APAC have filed a class action lawsuit seeking overtime pay reports the LaCrosse Tribune, "Former APAC Employees Sue Call Center."  The suit claims that the employees are required to log onto their computers before and after their shifts and during breaks to review frequently changing billing rates, equipment prices and repair policies so they can answer questions from client customers during their shift.  

The federal Fair Labor Standards Act and Kentucky wage and hour law require that nonexempt employees be paid for all hours worked over 40 in a week at a rate one and half times their regular hourly rate.  

Robert L. Abell
www.RobertAbellLaw.com

Merrill Lynch Settles Employee ERISA Suit for $75 Million

Merrill Lynch has settled a class action ERISA lawsuit brought by its employees for $75 million according to a Reuters report, "Merrill Lynch Settles Employee Lawsuit for $75 Million." The employees claimed that Merrill Lynch breached its fiduciary duty to the plan by offering its stock as an investment vehicle for the individual employee accounts in the retirement plan at a time when the company's stock was plunging due to its investments in subprime mortgages and other bad debts. Merrill Lynch's stock lost more than 80% of its value from September 30, 2006, to December 31, 2008.

Robert L. Abell
www.RobertAbellLaw.com

Nurses File Class Action Suit Seeking Training Time and Missed Meal Break Time Pay

Nurses have filed a class action lawsuit against the Pittsburgh Mercy Health System claiming that they were not paid for training time and work they performed while supposedly on meal breaks the Pittsburgh Post-Gazette reports, "Nurses File Lawsuit Against Mercy Health System."  The nurses claim that they are allotted 30 minutes each shift for a meal break but either are unable to take a meal break or are compelled to work through much of it. They also claim that they were not paid for certain training time. 

The suit appears similar to one filed last November against 2 Syracuse, New York area hospitals as reported in the Kentucky Employment Law Blog, "Interrupted Lunch Breaks Cited In Wage Class Actions."

Employers are not required to pay employees for their meal breaks. Employers are required to pay employees for the time they work. If an employee works through his or her lunch break, they are supposed to be paid. Also, if an employee's lunch break is interrupted by work duties, the employee must be paid according to the U.S. Department of Labor. 

Robert L. Abell

www.RobertAbellLaw.com

Breach of Fiduciary Duty Suit Arising From Medical Insurance Overcharges Settled

Hospital employees, who were charged higher fees by a group health plan it owned than it charged employees of other client companies, have settled a lawsuit alleging that the overcharges violated the employer's fiduciary duties under ERISA reports the Winston-Salem Journal, "Baptist Hospital Settles Suit On Health Plan."

The lawsuit claims that the hospital, North Carolina Baptist Hospital (NCBH) charged its employees higher fees for services rendered at the hospital through a group health plan, MedCost, which was owned by the hospital, than those charged to employees of other corporate clients. The hospital employees also had higher co-pays and lower discounts.  The report is:

"NCBH selected its subsidiary, MedCost, as the network provider for the plan knowing that MedCost would include NCBH in its provider network at substantially inflated reimbursement rates," according to the lawsuit. "The selection was made not on the basis of quality or cost from a fiduciary standpoint, but rather was based on NCBH's own economic interests."

The settlement will allow employees to recover damages for their overpayments going back to 2002 and will limit their charges in the future.  

Robert L. Abell
www.RobertAbellLaw.com

Wal-Mart Settles Overtime and Break Time Lawsuits

Wal-Mart has agreed to settle dozens of lawsuits for unpaid overtime, claims that employees were forced to work off-the-clock, claims that employees' time cards were changed by store managers and claims that employees were denied break time required by wage and hour laws in many states, the New York Times reports, "Wal-Mart Settles 63 Lawsuits Over Wages."  The amount of the settlement will be between $352 and 640 million that will depend on workers' filing claims for wages due them.  The settlement covers 63 lawsuits pending in 42 state and federal courts.  

Wal-Mart recently settled a wage and hour lawsuit in Minnesota for $54 million, see "Working Off The Clock and Missed Breaks Law Suit Settled by Wal-Mart."  That settlement followed a state court verdict against Wal-Mart, see "Wal-Mart Found Liable For Underpaying Workers." 

Robert L. Abell

www.RobertAbellLaw.com

Overtime Case Yields $35 Million To Dollar General Store Managers

Store managers for Dollar General stores were awarded $35 million plus in an unpaid overtime case decided by the Eleventh Circuit Court of Appeals in Atlanta, Morgan v. Family Dollar Stores, Inc., No. 07-12398 (11th Cir. December 16, 2008).  The court ruled that 1424 store managers were due $17,788.029.74 in unpaid overtime and an equal amount as unliquidated damages based on Dollar General's willful violations of the Fair Labor Standards Act (FLSA).

 

The case turned on whether the store managers were exempt employees falling within the "executive exemption" to the FLSA.  The court ruled that the store managers were not exempt based on the following:

• store manages spent 80-90% of their time performing manual labor tasks such as stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors and bathrooms   
• performing manual labor was included in the job description as "Essential Job Functions" of the store managers 
• store managers rarely exercised any discretion because the operations manuals or district managers controlled virtually every aspect of a store's day-to-day operations 
• store managers were closely supervised by district managers, who exercised practical managerial authority over each store 
• the store managers' pay rate was only slightly higher than the hourly rate of their assistant store managers

These factors led the court to conclude that "sweeping corporate micro-management, close district manager oversight, and fixed payroll budgets left store managers little choice in how to manage their stores and with the primary duty of performing manual, not managerial, tasks."  Therefore, the Dollar General store managers did not fall within the "executive exemption" to overtime pay under the Fair Labor Standards Act.

Another class action lawsuit for overtime was recently filed by misclassified store managers in Jacksonville, Florida. See "Misclassified Managers Sue Dollar General for Overtime."

Store managers for Lush Cosmetics filed suit also in Florida claiming that they were misclassified as exempt from overtime. See "Claiming They Were Misclassified Managers Sue for Overtime."
Robert L. Abell

www.RobertAbellLaw.com