Wage Cases

Published on: May 6, 2014

SUCCESSOR CORPORATIONS COULD BE LIABLE FOR PREDECESSORS’ FEDERAL WAGE LAW VIOLATIONS

Under Florida law, a corporation that acquires the assets of another corporation generally does not assume the liabilities of the predecessor corporation. The successor corporation will acquire its predecessor’s liabilities only to the extent it agreed to acquire those liabilities in the asset purchase agreement. Many states have similar laws regarding a successor corporation’s liability. The analysis changes, however, when the predecessor’s liability stems from federal statutes like the federal Fair Labor Standards Act (“FLSA”). In other words, a predecessor corporation’s failure to pay its employees minimum or overtime wages under the FLSA could result in liability to the successor corporation.

Some federal courts have held that a successor corporation could, as a matter of federal law, acquire the FLSA liabilities of its predecessor despite state law to the contrary. Under federal law, courts consider the following factors, or slight variants thereof, to determine whether a successor corporation acquired its predecessor’s FLSA liabilities: (1) whether the successor corporation had notice of the predecessor’s liabilities; (2) whether there is continuity in operations and work force of the successor and processor; and (3) whether the predecessor has the ability to directly provide adequate relief.

In March 2013, the Seventh Circuit applied those factors, among others, in Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763 (7th Cir. 2013), and found the successor corporation liable for its predecessor’s FLSA violations. The successor corporation in Teed purchased the assets of its predecessor through an auction. The asset transfer agreement contained a specific condition that the transfer be “free and clear of all Liabilities” including any liabilities stemming from the predecessor’s pending FLSA litigation. The federal appellate court noted that if “state law governed the issue of successor liability, [the successor corporation] would be off the hook.” Teed, 711 F.3d at 765. However, the court held that federal law, not state law, governed. Consequently the court found that the successor corporation acquired its predecessor’s FLSA liabilities despite the exclusion in the the asset transfer agreement. The court in Teed found that “[i]n the absence of successor liability, a violator of the [FLSA] could escape liability … by selling its assets without an assumption of liabilities by the buyer … and then dissolving.” Teed, 711 F.3d at 766.

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Published on: May 2, 2014

RETALIATION CLAIMS UNDER THE FEDERAL WAGE LAW

By Mavrick Law Firm

The Fair Labor Standards Act (“FLSA”) not only requires that employers pay minimum and overtime wages, it also prohibits employers from retaliating against their employees for complaining about their wages. The FLSA makes it unlawful for employers to “discharge or in any manner discriminate against any employee because such employee has filed a complaint or instituted … any proceeding under or related to [the FLSA].” 29 U.S.C. § 215(a)(3). To establish a case for retaliation under the FLSA, an employee must prove three elements: (1) the employee engaged in protected activity under the FLSA, (2) the employee subsequently suffered adverse action by the employer, and (3) a causal connection existed between the protected activity and the adverse action.

A “protected activity” can be either formal or informal. For example, if the employee formally files a complaint against the employer in court alleging unpaid wages, the employer cannot thereafter fire the employee for filing that complaint. However, “informal” complaints could also lead to an FLSA retaliation claim. For example, the employee may orally complain to the employer about unpaid overtime wages. If the employer thereafter fires or takes other adverse action against the employee, the employer could be held liable for unlawfully retaliating against the employee. The bottom line is: if the employee makes some form of complaint (either written or oral) that puts the employer on notice that the employee is asserting his or her rights under the FLSA, then the employee’s complaint will likely be considered “protected activity.” The employee does not need to mention the FLSA by name. However, the employee’s complaint also cannot be a general grievance; it must be sufficient in both content and context to put the employer on notice that the employee was asserting his or her rights under the FLSA. A federal court in Florida recently found that the employees’ complaints that they were “improperly paid” were too vague to constitute “protected activity.” Barquin v. Monty’s Sunset, L.L.C., 2013 U.S. Dist. LEXIS 144076, at *8-9 (S.D. Fla. Oct. 2, 2013).

An “adverse action” is any action taken by the employer that causes some injury or harm to the employee. The most straight-forward example of “adverse action” is an employer terminating or firing the employee. However, demotions or pay cuts could also constitute “adverse action.” Other employment actions, such as job transfers or reassignments, will generally not be considered “adverse actions” on their own, but could rise to the level of “adverse action” under certain circumstances. In general, if the employer’s actions would dissuade a “reasonable worker” from making or supporting a charge against the employer, then the employer’s actions would likely be considered “adverse.”

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Published on: April 27, 2014

“INDEPENDENT CONTRACTOR” VS. “EMPLOYEE” UNDER THE FAIR LABOR STANDARDS ACT

By Mavrick Law Firm

A common dispute that arises in overtime and minimum wage litigation is whether an individual hired by the defendant is an independent contractor or an employee. Many companies choose to hire independent contractors to perform work instead of hiring employees. Because independent contractors are not considered “employees” under the Fair Labor Standard Act (“FLSA”), the minimum wage and overtime wage provisions of the FLSA do not apply to independent contractors. Hiring independent contractors might also be beneficial to companies for tax purposes. However, as many companies have learned through litigation, labeling a worker an “independent contractor” will not automatically preclude that individual from being considered an “employee” under the FLSA.

Courts look to the “economic realities” of the relationship between the company and the individual the company hired to determine whether the individual is an “employee” or an “independent contractor.” To determine whether the individual is an employee as a matter of economic reality, courts consider the following 6 factors: (1) the degree of control exercised by the company on the individual; (2) the individual’s opportunity for profit and loss based on managerial skills; (3) the individual’s investment in equipment or personnel; (4) the skill required to perform the work; (5) the duration of the relationship between the company and the individual; and (6) whether the services performed by the individual are integral to the company’s business.

As the 6 factors suggest, the determination of whether an individual is an “independent contractor” or “employee” depends on the specific facts of each case. Adding more complexity to the analysis, courts do not mechanically apply the six factors. The weight that courts attribute to each factor ultimately depends on the court’s analysis and on the facts of each case. A good example of the distinction between “employee” and “independent contractor” is detailed in recent cases regarding adult entertainers. For example, in Stevenson v. Great Am. Dream, Inc., 2013 U.S. Dist. LEXIS 181551 (N.D. Ga. Dec. 31, 2013), a class of adult entertainers sued the nightclub that hired them (the “Nightclub”) for minimum and overtime wages. The court analyzed the facts in the case in relation to the six factors detailed above and found that the entertainers were “employees” because 5 of the 6 factors of the economic reality test suggested “employee” status.

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Published on: April 16, 2014

OVERTIME WAGE LAW: EMPLOYEES WORKING FROM HOME

By Mavrick Law Firm

When an employee brings a claim for unpaid overtime under the Fair Labor Standards Act (“FLSA”), the employee must prove that he or she worked overtime without proper compensation. If the employer kept accurate records of the employee’s work hours, the employee could easily prove his or her case by referring to those records. For that reason, the FLSA requires that employers keep proper and accurate records of the hours its employees work. However, employers sometimes fail to keep accurate time records. As the Supreme Court has held, “[t]he solution … is not to penalize the employee by denying him any recovery on the ground that he is unable to prove the precise extent of uncompensated work. Such a result would place a premium on an employer’s failure to keep proper records.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946). Instead, when the employer fails to maintain accurate records, the employee could prove its case by (1) proving that he or she has in fact performed work without proper compensation and (2) producing sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.

In Brown v. ScriptPro, LLC, 700 F.3d 1222, 1230 (10th Cir. 2012), the employee, Mr. Brown, claimed that he worked overtime hours from home. Neither ScriptPro, LLC, (“ScriptPro”) the employer, nor Mr. Brown kept time records for the hours that Mr. Brown allegedly worked from home. Through his and his wife’s testimony, Mr. Brown provided uncontroverted evidence that he worked overtime at home. However, Mr. Brown also had to prove the amount and extent of the overtime worked. Mr. Brown argued that because ScriptPro violated its statutory duty to maintain proper and accurate time records, Mr. Brown’s burden prove the amount and extent of his uncompensated overtime work should be relaxed. The court disagreed.

As the court noted, “courts only relax the plaintiff’s burden to show the amount of overtime worked where the employer fails to keep accurate records.” Brown, 700 F.3d at 1230. The court held that ScriptPro did not fail to maintain proper and accurate time records because ScriptPro had implemented a time-keeping system that employees were required to use to record their hours worked, and becuase ScriptPro’s time-keeping system was accessible to employees from their respective homes. “Mr. Brown easily could have entered his hours; in fact, he was required to do so. … There was no failure by ScriptPro to keep accurate records, but there was a failure by Mr. Brown to comply with ScriptPro’s timekeeping system.” Brown v. Scriptpro, LLC, 700 F.3d 1222, 1230 (10th Cir. 2012). Under those circumstances, the court found that ScriptPro did not violate the FLSA.

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Published on: April 2, 2014

ARBITRATION AGREEMENTS AND THE FLSA: THE EFFECT OF FEE-SPLITTING AND FEE-SHIFTING PROVISIONS

By Mavrick Law Firm

Because arbitration usually is cheaper and faster than litigation, employers often include arbitration agreements in their employment contracts. However, courts do not always enforce arbitration agreements. Although federal law favors arbitration, state and federal courts may find an arbitration agreement unenforceable for several reasons. One such reason is when the arbitration agreement contains a provision that contrary a federal statutory remedy.

Generally, a “fee-splitting” provision is a contractual provision requiring that the parties to an arbitration agreement share (or “split”) the costs of arbitration. Moreover, a “fee-shifting” provision is a contractual provision that requires the losing party in an arbitration proceeding to pay the prevailing party’s fees and costs associated with the arbitration, i.e., the costs of arbitration “shifts” to the losing party. “Fee-splitting” and “fee-shifting” provisions would normally not render an arbitration agreement unenforceable. However, the analysis changes when federal statutory rights are subject to arbitration. The rule is as follows: an arbitration agreement is unenforceable if the cost of arbitration effectively precludes the employee from vindicating his federal statutory rights. One such federal statutory right is the right to payment of minimum and overtime wages under the Fair Labor Standards Act (FLSA).

In Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), the U.S. Supreme Court held that the “risk” that a party will be saddled with prohibitive arbitration costs is too speculative to render an arbitration agreement unenforceable. Following Green Tree, several federal court have upheld the validity of arbitration agreement containing fee-splitting provision. For example, in Maldonado v. Mattress Firm, Inc., 2013 U.S. Dist. LEXIS 58742 (M.D. Fla. Apr. 24, 2013), an employee argued that the arbitration agreement’s fee-splitting provision rendered the agreement unenforceable against his FLSA claim. The federal court held that in order to prevail on his argument, the employee was required to present evidence of (1) the amount of costs he is likely to incur and (2) his inability to pay those costs. A showing of the “possibility” of incurring prohibitive costs is not sufficient. The federal court held that the arbitration agreement was enforceable despite the employee’s FLSA claim.

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Published on: April 2, 2014

UNPAID OVERTIME: THE RETAIL SERVICE COMMISSION EXCEPTION AND TIPPED EMPLOYEES

By Mavrick Law Firm

The Fair Labor Standards Act (FLSA) requires that all employers covered by the FLSA pay their employees overtime wages for hours worked over 40 hours per workweek. Generally, “overtime” wages are 1.5 times the regular wage. The FLSA, however, identifies several classes of employees who are exempt from the overtime provision. One such class of exempt employee is the “retail service commission” employee.

To qualify as an exempt “retail service commission” employee, three elements must be satisfied: (1) the employer is a retail or service establishment; (2) the employee’s regular rate of pay exceeds 1.5 time the applicable minimum wage; and (3) more than half of the employee’s compensation in a “representative period” must consist of commissions. If the employee does not satisfy all three elements, the employer must pay overtime wages for those hours worked over 40 per workweek.

To satisfy the first element, the employer must be a retail or service establishment. A retail or services establishment is one which sells goods or services to the general public. Under federal regulation, typical retail or services establishments are as follows: “Grocery stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants, hotels, watch repair establishments, barber shops, and other such local establishments.” 29 C.F.R. § 779.318(a). If the employer falls under any of those categories, the employer will likely qualify as a retail or service establishment.

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