Kentucky Employment Law Blog

Attorney's Fees & the FLSA: the Sixth Circuit Firmly Rejects Limiting Attorney's Fees to a Percentage of the Recovery

Attorney's fees are recoverable in suits for unpaid overtime under the Fair Labor Standards Act (FLSA), and "a district court abuses its discretion if it limits the fees awardable under hte FLSA to a percentage of the plaintiff's recovery" the Sixth Circuit has held in Rembert v. A Plus Home Health Care Agency. 

The case is a pretty straightforward overtime case, remarkable mainly because (a) the plaintiffs got some good help from the Department of Labor; and, (b) defense counsel's general recalcitrance and failure to "act in accordance with his representations to the court or his obligations under the Rules." Eventually, the plaintiffs' counsel submitted a fee petition requesting an award for 119.9 hours, totaling $38,190 plus $575 in costs. The district court, after sitting on the petition for six months, "reduced counsel's total compensable hours from  a total of 119.9 to 46.2 -- a 61% reduction in compensable hours, and almost twice the reduction that defense counsel had sought." To add insult to injury, the district court, Hon. James E. Graham of the Southern District of Ohio, "cut the fee award an additional $1,660 on the ground that judges in the Southern District of Ohio 'typically approved' fee awards of no more than 35% of the 'total settlement amount' (meaning the amount of the judgment plus the amount of fees and costs awarded)," which left a total of $13,790. Plaintiffs appealed.

After reciting the lodestar calculation method, the Sixth Circuit turned to the district court's capping of the awardable fees at 35% of the total settlement amount. Capping the fees at a percentage of the recovery is an abuse of discretion, as "neither the text nor the purpose of the FLSA supports imposing a proportionality limit on recoverable attorney's fees." 

The Sixth Circuit also faulted the district court for failing to explain adequately why it had cut some of the hours submitted by the plaintiffs' counsel, especially in view of the fact that many "obtained 100% recovery due to them under the Act." First, the Sixth Circuit found it improper to exclude time devoted to gathering information from clients, since "attorneys may communicate directly with their clients" and "the law refers to an attorney-client privilege, not a paralegal-client one." Second, it was error to exclude as duplicative time devoted to communications between the plaintiffs' co-counsel, since "co-counsel may consult each other to avoid duplicative work and otherwise to maximize their efficiency and effectiveness." Third, the district court did not adequately consider to 100% recovery success rate "or that the actions and omissions of defense counsel indisputably prolonged this litigation and rendered it much less efficient than it could have been." 

The Sixth Circuit then did something extraordinary. It reviewed "both the district court's docket in this case, document-by-document, and the billing records of [plaintiffs'] counsel, line-by-line" and concluded that the "district court abused its discretion when it did not grant in full the amounts requested in counsel's fee petition." The Sixth Circuit remanded the case with instructions that plaintiffs' counsel be awarded the full requested amount and noted they were "also entitled to a reasonable fee and costs for this appeal ... which for everyone's sake we hope is not the subject of another appeal." 

Judge Raymond Kethledge authored the Sixth Circuit's opinion and was joined by Judges Eugene Siler and Julia Gibbons. 

Robert L. Abell
www.RobertAbellLaw.com

Independent Contractors vs. Employees; the Sixth Circuit Analyzes the Issue

Whether a worker is an employee or an independent contractor is a threshold question with regard to overtime: employees have to be paid overtime and independent contractors do not. The Sixth Circuit uses what it calls the "economic reality" test to distinguish between employees and independent contractors; there is no bright-line test, only an amalgam of factors to consider and apply in varying factual scenarios. The recent case of Acosta v. Off Duty Police Services illustrates.

Off Duty Police Services (ODPS) offers private security and traffic control services in and around Louisville, Kentucky. A typical work day might consist of "sitting in a care with the lights flashing or directing traffic around a construction zone." Both active, sworn police officers and nonsworn individuals work for ODPS doing the same type things; the sworn police officers are paid more and many people had worked regularly for ODPS for over a decade.

When someone needed ODPS's services they would go through a scheduler, who, in turn, would contact workers who met the needed qualifications. The workers could either accept or reject the offer, but there was important evidence that anyone declining a job offer would be punished, which meant no offers would be forthcoming for a while, a practice referred to as being placed in "time out."

ODPS provided some gear and equipment, but the workers had to provide some of their own, an example being an ODPS-branded shirt, the cost of which was deducted from their pay. They had to provide their own police style vehicles, which cost the nonsworn workers from $3000 to $5000.

There was minimal supervision by ODPS. At the job site, the workers had to follow the customer's instructions and wear a uniform; they were subject to grooming restrictions which were enforced occasionally.

The workers were required to sign "independent contractor agreements" when they started working for ODPS; these agreements included noncompete provisions.

The district court ruled that the sworn police officers were independent contractors, while the nonsworn personnel were employees. The Sixth Circuit reversed as to the former and affirmed the latter.

The "economic reality" test applies six factors: 1) the permanency of the relationship between the parties; 2) the degree of skill required for rendering the services; 3) the worker's investment in equipment or materials for the task; 4) the worker's opportunity for profit or loss, depending on his skill; 5) the degree of the alleged employer's right to control the manner in which the work is performed; and, 6) whether the service rendered in an integral part of the alleged employer's business. We turn to these from the easiest to the most difficult.

1. Integral Part of the Business - this asks whether the worker is doing what is the company's business, or could the company function without the services the workers provide. Since ODPS was about and only about providing the services the workers provide, this "factor cuts heavily in favor of finding an employment relationship between ODPS and all its workers."
   
2. Degree of Skill Required - ODPS required only a four hour training session for its workers, a reality favoring "employee status for all of ODPS's workers."
   
3. Investment in Specialized Equipment - This factor compares the worker's and the company's total investments. The biggest cost to the workers was the police-style vehicles that the nonsworn individuals had to obtain, which cost about $3000 to $5000, an amount, as the district court found, paling in comparison to ODPS's annualized business expenses of around $200,000.
   
4.  Permanency of the Relationship - although intermittent, at least theoretically, many of the ODPS's workers worked only for it and many more had worked for it for well over a decade. The permanence factor favors employee status.
   
5. Opportunity for Profit or Loss - This considers whether the worker can get better at his job such that he can make more money doing it than someone else can. This weighed in favor of employee status, because "ODPS's jobs required limited skill, experience or initiative" and, in any event, the workers received a set hourly wage.
   
6. Right to Control the Work - This requires consideration of whether the company tells the worker how and when to do the job. The practice of punishing the worker (placing them in "time out"), the noncompete provision in the contracts and the dress and grooming policies tipped the analysis in favor of employee status for the nonsworn individuals but was in equipoise for the sworn workers.

Robert L. Abell
www.RobertAbellLaw.com

 

 

Wage Theft from Carwash Workers; The Little Guys Win One

Workers at New York City area car washes have recovered about $8.5 million in a wage theft case, the New York Times reports, A Multi-million Dollar Payoff at the Carwash.

A musical tribute:

Every now and then the little guys win one ... and Justice for All.

Robert L. Abell
www.RobertAbellLaw.com

Wage theft is wage theft and "What a thief does with his loot is immaterial to the victim's claim against him"

Katisha Ednacot claimed that her employer, Mesa Medical Group, stole her money -- wages she had earned and was owed -- and used the money to cover its portion of FICA and federal unemployment taxes it owed. She pleaded claims of conversion, breach of contract and failure to pay earned wages under Kentucky's wage and hour law, KRS 337.385. Nevertheless, her suit was removed to federal court, recast as one seeking to recover wrongfully withheld taxes and then dismissed, because claims for wrongfully withheld taxes must first be presented to the IRS. 

The Sixth Circuit affirmed the dismissal of Ednacot's suit, Ednacot v. Mesa Medical Group, based on a prior ruling in Berera v. Mesa Medical Group. Being bound by the prior precedential decision Judge Alice Batchelder concurring in the ruling but recognized the essence of Ednacot's claim: that her earned wages had been stolen by her employer and then used to pay off the employer's obligations as to FICA and federal unemployment taxes. Wage theft is wage theft as Judge Batchelder so eloquently stated:

But what a thief does with his loot is immaterial to the victim's claim against him.

The Sixth Circuit denied en banc review of the Berera case; perhaps Judge Batchelder's analysis will spur the court to reconsider that and grant en banc review in this instance. Hopefully, it will not prove that the court's misguided opinion in Berera lives to create a wage theft shelter.

Robert L. Abell
www.RobertAbellLaw.com

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An Employer Who Knows or Has Reason To Know That An Employee's Time Records Underreports Their Work Hours May Not Escape FLSA Liability Based on the Employee's Failure to Fully Report the Hours Worked

Can an employer that knows or has reason to know an employee has worked overtime get out of paying overtime if the employee does not complain immediately about not being paid the overtime? "No" answered the Eleventh Circuit recently in Bailey v. Titlemax of Georgia in reversing a summary judgment granted by U.S. District Judge Marvin H. Shoob of the Northern District of Georgia.

Santonias Bailey was a victim of wage theft while working for Titlemax of Georgia. His supervisor told him that Titlemax did not pay overtime and made him work off the clock. His supervisor also altered his time cards to reduce the amount of time they reported Bailey had worked. Bailey sued for his overtime pay after leaving Titlemax's employment.

Titlemax's answer was, basically, so what? It blamed Bailey and pointed out that he had not followed its policies of reporting his supervisor's misconduct and accurately reporting his time worked on his time cards. According to Titlemax, Bailey was to blame for having his wages stolen and was entitled to nothing. This succeeded in the district court, which granted Titlemax summary judgment and dismissed Bailey's overtime claim.

The Eleventh Circuit reversed. It framed the question as follows:

if an employer knew its employee underreported his hours, can it still assert equitable defenses based on the employee's conduct in underreporting as a total bar to the employee's FLSA claim?

Put another way, the question is whether an employer can get away with intimidating an employee into letting wage theft slide? The FLSA was intended to police and prevent just that sort of abuse the Eleventh Circuit observed: "the goal of the FLSA is to counteract the inequality of bargaining power between employees and employer."  This principle guided the court's holding:

If an employer knew or had reason to know that its employee underreported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that underreporting. To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA's purposeful reallocation of that power.

The court also noted that it could find no case where an employer's wage theft had been excused where the employer knew the employee's work hours were underreported and still it got away with wage theft because the employee did not immediately demand full compensation.  

The Eleventh Circuit's unanimous opinion was authored by Circuit Judge Beverly Martin joined by Circuit Judge Lanier Anderson and visiting District Judge Denise Cote of the Southern District of New York.

Robert L. Abell
www.RobertAbellLaw.com

 

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The Gender Wage Gap: An Infographic

There exists a gender wage gap of 23 cents on the dollar; in other words, women make 77 cents for each dollar made by a man. Some say there are legitimate even good reasons for this disparity. In some instances, of course, this is true. But 25+ years of practicing employment law has taught me beyond a reasonable doubt that in the vast majority of instances there is no reason other than lingering vestiges or actual, daily practice of gender discrimination. 

Infographic World provides an excellent post on the Wage Gap in America.

In April, the Paycheck Fairness Act, a bill aimed at closing the illegal reasons for the gender wage gap, was blocked from passage by a filibustering minority of Senate Republicans led by Kentucky's own, Senator Mitch McConnell, see Paycheck Fairness Act Filibustered by Minority of Senate Republicans.

Robert L. Abell
www.RobertAbellLaw.com

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Is Wage Theft A National Epidemic?

According to the latest information from the U.S. Department of Labor wage theft is a national epidemic: more money in earned wages are stolen each year from working people than is robbed from gas stations, banks and convenience stores put together. The wage theft comes in two forms: (1) overtime that is earned but not paid; or, (2) straight wages that are simply not paid. 

The Huffington Post reports: L0w-Wage Workers Are Robbed More Than Banks, Gas Stations and Convenience Stores Combined. 

Robert L. Abell
www.RobertAbellLaw.com

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Tip Sharing: Starbucks Baristas Receive $14 Million Judgment

Starbucks operated in Massachusetts a tip sharing program that distributed weekly accumulated tips to baristas and shift supervisors in proportion to their hours worked that week.  The Massachusetts Tips Act allows tip sharing only among employees with, among other things, "no managerial responsibility." But does "no" really mean "no"? Yes it does answered the First Circuit Court of Appeals in Matamoros v. Starbucks Corporation, No 12-1189 (November 9, 2012), in affirming a $14 million judgment in a class action brought by baristas.

The Massachusetts Tips Act permits tip pooling and sharing among wait staff employees that serve food or beverages and have "no managerial responsibility." Starbucks argued that its shift supervisors could participate in tip sharing because 90% of the time they performed the same work tasks as baristas and that there was a difference between a supervisor and a manager.  The First Circuit had none of this argument:

 The Tips Act states unequivocally that only employees who possess "no managerial responsibility" may qualify as "wait staff." "No" means "no," and we interpret that easily understood word in its ordinary sense: "not any."

 Baristas like bartenders, waiters and waitresses are subject to rules regarding both the tip credit, which allows them to be paid far less than the minimum wage with the assumption that tips make up the difference, and tip sharing and pooling. Unlawful application of the tip credit by Applebee's Restaurants was discussed in an earlier post: Tip Credit Not Applicable to Bartenders and Servers Where More Than 20% of Work Is Performing Related But Nontipped Duties.

Robert L. Abell
www.RobertAbellLaw.com

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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 

Racing Officials Not Exempt From Overtime Requirements

Racing officials, a placing judge, a paddock judge, a horse identifier, and a clerk of scales, are not exempt from the overtime compensation requirements of the Fair Labor Standards Act (FLSA) the Fourth Circuit has ruled in Desmond v. PNGI Charles Town Gaming, No. 08-1216 (April 30, 2009). The Court reversed a district judgment and ruled that the racing officials’ positions did not fall under the administrative exemption to the FLSA.

The plaintiffs worked as racing officials at the Charles Town race course in the positions of placing judge, paddock judge, horse identifier, and clerk of scales during horse racing at that facility. They filed suit under the FLSA seeking overtime compensation, because they regularly worked more than 40 hours per week.

The issue was whether the racing officials’ positions fell under the administrative exemption to the overtime requirement. The administrative exemption has three components: (1) the employee must be compensated at a salary rate of not less than $455 per week; (2) the employee’s primary duty must consist of the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

The court ruled that the racing officials’ jobs were not directly related to the general business operations of the race course. The court noted that the racing officials have no supervisory responsibility and do not develop, review, evaluate, or recommend business policies or strategy with regard to the horse races put on by their employer. While acknowledging that the racing officials’ jobs were important to the operation of the racing business and indeed that state law required the positions to exist, the court concluded that the positions “are unrelated to management or the general business functions of the company.”

 The court also analogized the racing officials’ work to those of a manufacturing production employee, stating that the position of racing official consists of “the day-to-day caring out of [Charles Town Gaming’s] affairs to the public, a production-side role.” Therefore, the court ruled that the racing officials’ position does not satisfy the requirements for the administrative exemption under the FLSA.

Robert L. Abell
www.RobertAbellLaw.com