Category: Wage Cases

FEDERAL OVERTIME WAGE COLLECTIVE ACTIONS (SOMETIMES CALLED “CLASS ACTIONS”): DISTRICT COURTS SHOULD CONSIDER ALTERNATIVES TO THE TWO-TIER SYSTEM IN SECTION 216(b) COLLECTIVE ACTIONS

The use of the two-tier method to determine whether collective actions should proceed under Section 216(b) of the Fair Labor Standards Act (“FLSA”) is inappropriate because it: (1) conflates Rule 23 standards with non-applicable wage and overtime claims under the Fair Labor Standards Act; and (2) wastes judicial resources and the resources of the parties. While the two-tier approach is popular among the district courts, the Eleventh Circuit has stressed that “[n]othing in [the Eleventh Circuit’s] precedent … requires district courts to utilize this approach. Hipp v. Liberty Nat. Life Ins. Co., 252 F.3d 1208, 1219 (11th Cir. 2001). Thus, courts should consider the utility of authorizing notice under Section 216(b) rather than relying on jurisprudential concerns that are based in “imprecise pleading and stare decisis yield[ing] path-dependence and lock-in.” Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp. 3d 1300, 1306 (D. Colo. 2015).

The two-tier approach is a method of determining whether collective actions should proceed under Section 216(b). The first phase uses a very lenient standard to determine whether the named plaintiffs are similarly situated to the putative opt-in plaintiffs and whether there are similarly situated individuals who want to join the litigation. Most plaintiffs clear the low bar of the first phase, just to, in most cases, have their classes de-certified in second phase when the court makes a factual determination on the “similarly situated” issue. See Hipp 252 F.3d at 1218 (“Based on our review of the case law, no representative class has ever survived the second stage of review”).

The conflation of Rule 23 class action standards with the application of 216(b) to collective actions can traced to the 1976 enactment of the Age Discrimination Enforcement Act (“ADEA”). The ADEA authorized similarly situated plaintiffs to aggregate their claims by incorporating 216(b) as its enforcement mechanism. As a result of the proliferation of ADEA lawsuits, the leading cases that address collective action proceedings under section 216(b) are ADEA actions, rather than actions brought under the FLSA. Moreover, because ADEA 216(b) cases often import Title VII discrimination standards that are subject Rule 23 class certification. Thus, what should be a relatively straightforward analysis of wage and overtime claims under the FLSA, is now a confounding analysis that assesses wage and overtime claims with the Rule 23 like two-tiered method, which was designed to address patterns and practices of discrimination. See Turner 123 F. Supp. 3d at 1305–06 (finding that reliance on Rule 23 “class certification” concepts in true 216(b) FLSA cases to be the result of a confluence of factors, including haphazard terminology, a misunderstanding of precedent and legislative intent, and excessive path dependence in the application of stare decisis.) “Rule 23 actions are fundamentally different from collective actions under the FLSA,” Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1530 (2013), as such, courts should not default to the use of the two-tier method when determining if a class should be conditionally certified.

The use of the formulaic two-tier system to authorize court facilitated notice or conditional certification of a “class” under 216(b) wastes resources. Congress authorized collective treatment of actions under 216(b) for the purposes of judicial economy. See Holt v. Rite Aid Corp., 333 F. Supp. 2d 1265, 1269 (M.D. Ala. 2004) (““the judicial system benefits by efficient resolution in one proceeding of common issues of law and fact arising from the same alleged discriminatory [or illegal] activity.”) However, the pervasiveness of the two tiered method has made the “[s]eeking out and notifying sleeping potential plaintiffs”- an activity that “was once demeaned as a drain on judicial resources” – into a misguided “tool of judicial administration.” See Hoffmann-La Roche Inc. v. Sperling, 493 U.S. 165 (SCALIA, J., dissenting). As many courts grant conditional certification without “cognizan[ce] of the factual and legal issues presented by the case,” West v. Verizon Communications, Inc., WL 2957963, at *4 (M.D. Fla. Sept. 10, 2009), the goal of judicial economy is vitiated by the futile litigation regarding class certification. “To create a collective action class, including the cost associated with that when a Court is convinced that there is insufficient support for the same prior to certification would be an exercise in futility and wasted resources for all parties involved.” Hart v. JPMorgan Chase Bank, N.A., WL 6196035, at *6 (M.D. Fla. Dec. 12, 2012). Thus, courts should use their discretion to practically assess the appropriateness of conditional certification. See id. at *4 (“[d]istrict [c]ourts enjoy broad discretion in deciding how best to manage the cases before them”). For a discussion regarding how employers can successfully defend against Section 216(b) collective actions, please our article addressing this topic and the defense of “individualized” claims.

Peter T. Mavrick has successfully represented many businesses in labor and employment law litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

DEFENDING AGAINST OVERTIME WAGE COLLECTIVE ACTIONS (SOMETIMES CALLED “CLASS ACTIONS”): INDIVIDUALIZED NATURE OF CLAIMS CAN PREVENT COLLECTIVE ACTIONS UNDER SECTION 216(b)

Employers that are faced with collective actions under the Fair Labor Standards Act may be able to defeat Motions for Conditional Certification if they can demonstrate the individualized nature of named plaintiff’s claims. See Caballero v. Kelly Services, Inc., WL 12732863, at *7 (S.D. Tex. Oct. 5, 2015) (denying certification where alleged violations were “not the result of a systemic policy,” so “assessment of the[ ] issues necessitates an individual inquiry for each Plaintiff, thereby making a collective action inappropriate.”) Employers can prove that the potential plaintiffs’ claims are individualized and unfit for collective action by establishing the disparate nature of the putative class’ and its representatives job requirements and pay provisions. The need for individualized inquires contravenes the basic theory of judicial economy upon which the certification of collective actions is based. See id. at *1. Therefore, employers who highlight the individualized defenses and inquiries may prevent a collective proceeding. See Lugo v. Farmer’s Pride Inc., 737 F. Supp. 2d 291, 300–01 (E.D. Pa. 2010).

To determine whether 216(b) collective actions are appropriate, most courts utilize the two-tier method. See Hipp. at 1208. At the first “notice stage,” the district court makes a decision—usually based only on the pleadings and any affidavits which have been submitted— as to whether the putative class should be conditionally certified. See id. When assessing the pleadings and affidavits, courts in the Southern District of Florida satisfy themselves that “(1) there are similarly situated with regard to their job requirements and pay provisions; and (2) there is a desire among similarly situated individuals to opt-in to the class.” See Martinez at 1853.  Put another way, there is a two-part analysis to assessing the first tier, which determines whether conditional certification will be granted.

A defendant that successfully highlights the differences in pay and job requirements between the putative plaintiffs will probably defeat a Motion for Conditional Certification. Defendants should contrast on the job requirements and pay provisions of the named plaintiff with those that the named plaintiff seeks to represent. Thus, defendants should bring attention to inconsistencies in the pleadings and affidavits or declarations to establish that plaintiff differences in pay provisions and job requirements: defendants should highlight differences such as exempt status, job duties, and schedules, among other things. See Palacios v. Boehringer Ingelheim Pharm., Inc., WL 6794438, at *1 (S.D. Fla. Apr. 19, 2011) (denying first stage “notice” authorization because an individualized analysis was required to determine whether putative class members are exempt from the FLSA overtime provisions); Holt v. Rite Aid Corp., 333 F. Supp. 2d 1265, 1272 (M.D. Ala. 2004) (denying conditional certification because “similarly situated” inquiry must be analyzed in terms of the nature of the job duties performed by each putative plaintiff); Udo v. Lincare, Inc., WL 5354589, at *11 (M.D. Fla. Sept. 17, 2014) (denying notice authorization partly due to the variance in schedules among the potential opt-in plaintiffs.)

Moreover, even if named plaintiffs prove that they are similarly situated in pay provisions and job requirements, a Motion for Conditional Certification can still be defeated if the defendant can prove that there are no similarly situated individuals who wish to join the litigation. Statements or claims that reference that plaintiffs have “spoken to multiple other employees… who advised that, if given formal notice in this case, they would opt-in….”  are insufficient as they are hearsay. See Davis v. Charoen Pokphand (USA), Inc., 303 F.Supp.2d 1272, 1277 (M.D.Ala.2004) (holding that plaintiff failed to demonstrate other plaintiffs exist who want to opt-in when only evidence was that plaintiff spoke to employees who stated that they would join the suit.) Further, unsupported assertions that are based on “beliefs” “anticipation” and “conversations” are considered to be conclusory and fall short of the “substantial” and “detailed” allegations necessary to satisfy the “similarly situated” element. See Louis–Charles v. Sun–Sentinel Co., 2008 WL 708778 (S.D.Fla. Mar.14, 2008) (holding that plaintiff’s “anticipation” is merely his own opinion and, therefore, insufficient to certify the class); see also Hipp at 1219.

Peter T. Mavrick has successfully represented many businesses in labor and employment law litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

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.

On April 3, 2014, the Third Circuit also applied those factors to find that the successor corporation could have acquired its predecessor’s FLSA liabilities.  Thompson v. Real Estate Mortg. Network, 2014 U.S. App. LEXIS 6150 (3d Cir. Apr. 3, 2014).  The court based its decision on the fact that the successor corporation might have “had knowledge of [the predecessor]’s allegedly improper overtime practices prior to the transfer”; that “all facets of the [predecessor’s] business … including operations, staffing, office space, email addresses, employment conditions, and work in progress, remained the same”; and that the predecessor was defunct, which meant that “it is likely incapable of satisfying any award of damages.”  Thompson, 2014 U.S. App. LEXIS 6150, at *22-24.

As the above cases demonstrate, a corporation’s liability under the FLSA should be a factor to consider when determining the purchase price in any asset purchase agreement.  Judging from the Seventh Circuit’s decision in Teed, even if the asset purchase agreement expressly states that the successor corporation does not assume any liabilities, and even if state law imposes a contrary rule, federal law could impose such liabilities on the successor corporation.  Although neither the Sixth Circuit nor the Third Circuit incorporates Florida, some federal courts in Florida have found that if the Eleventh Circuit—i.e., the circuit court of appeals incorporating Florida—were “faced with the issue, the Eleventh Circuit Court of Appeals would find that successor liability exists under the FLSA.”  Cuervo v. Airport Servs., 2013 U.S. Dist. LEXIS 163239, at *5-6 (S.D. Fla. Nov. 15, 2013).

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

RETALIATION CLAIMS UNDER THE FEDERAL WAGE LAW

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.”

Finally, the employee must establish “a causal connection” between the protected activity and the adverse action.  Unless the employer explicitly states, “I am firing you because you filed an FLSA complaint,” it is unlikely that the employee can show direct evidence of the existence of a “causal connection.”  However, the employee could show a “causal connection” through circumstantial evidence.  For example, if the employer took adverse action against the employee within days after the employee engaged in protected activity, the close temporal proximity could serve as circumstantial evidence of a “causal connection” between the protected activity and the adverse action.

Employers should keep in mind that the FLSA retaliation provision also covers employees who are exempt from the FLSA’s minimum wage and overtime wage provisions.  In other words, even when the employer is not required to pay the employee minimum or overtime wages, the employer might still be held liable for retaliating against the employee if the employer took adverse action against the employee based on the employee’s mistaken but reasonable complaint that the employer was violating the FLSA’s minimum or overtime wage provisions.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

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

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.

As to the first factor (i.e., degree of control) the court found that while the entertainers were allowed to set their own schedules, the Nightclub possessed substantial control over them.  The Nightclub made and enforced rules regarding the entertainers’ dress and makeup, the entertainers’ conduct with customers, the music that the entertainers would perform to, and the procedure for settling disputes arising with the Nightclub.

As to the entertainers’ opportunity for profit and loss, the Court found that the Nightclub bore the vast majority of the overhead costs in comparison to the entertainers.  While the entertainers paid a daily fee to the Nightclub, the Nightclub was responsible for attracting customers, and making decisions regarding marketing, promotions, location, and pricing.  The entertainers could increase their profit depending on their interactions with customers, but the court found that such opportunity for profit and loss was minimal.

The court also found that although the entertainers spent their own money on hair, makeup, clothing, and styling, the Nightclub spent substantially more money on necessary personnel and equipment.  The third factor (i.e., investment in equipment) therefore suggested “employee” status.

The Nightclub argued that because the entertainers get better as they gain more experience, the work the entertainers performed required special skill.  The court disagreed.  The court acknowledged that different entertainers may possess varying degrees of skill, but found nothing to indicate that special skill was necessary for the work.  As the court noted, “[t]aking your clothes off on a nightclub stage and dancing provocatively are not the kinds of special skills that suggest independent contractor status.”  Stevenson, 2013 U.S. Dist. LEXIS 181551, at *15.

The court found that the fifth factor (i.e., the duration of the relationship between the company and the individual it hired) was the only factor that suggested “independent contractor” status because some of the entertainers’ relationships with the Nightclub were relatively short.  However, because this was the only factor that suggested “independent contractor” status, this factor alone could not nudge the entertainers out of their status as “employees.”

Finally, the court found the last factor (i.e., whether the work performed by the entertainers was integral to the Nightclub’s business) to be “most definitive.”  Because the Nightclub was an adult entertainment club, it required adult entertainers.  Without the entertainers, the Nightclub could not conduct tis business.  The entertainers’ work was therefore integral to the Nightclub’s business.  Finding that 5 of the 6 factors suggested “employee” status, the court held that the entertainers were “employees” and not “independent contractors.”

The Stevenson case serves as an example that even when a company labels the individuals it hires “independent contractors,” courts might nonetheless consider those individuals “employees” under the FLSA.  Companies could be required to pay those individuals unpaid minimum and overtime wages dating as far back as 3 years.  The potential liability to the company can increase significantly if, as in Stevenson, several workers collectively sue the company in a class action.  It is also important for companies to note that courts will generally not consider whether the hired individual signed a contract with the company wherein he or she agreed to be an “independent contractor.”  For those reasons, companies should consider all aspects of an individual’s work and consult with an experience labor and employment attorney before deciding to treat a hired worker as an independent contractor.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

OVERTIME WAGE LAW: EMPLOYEES WORKING FROM HOME

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.

Although the Brown case was decided in the Tenth Circuit—covering Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming—it nonetheless should encourage all employers with workers who allegedly work from home to implement a time-keeping system that its employees can readily access from home.

With the proliferation of overtime wage law cases in Miami-Dade, Broward, and Palm Beach counties, it is critical that employers be aware of the record-keeping requirements of the Fair Labor Standards Act.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

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

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.

Several months later, a Florida state court held that a fee-shifting provision rendered an arbitration agreement unenforceable against the employee in an FLSA case.  In Hernandez v. Colonial Grocers, Inc., 124 So. 3d 408 (Fla. 2d DCA 2013), the Florida state court held that an arbitration agreement containing a fee-shifting clause was unenforceable because the fee-shifting provision was directly at odds with the FLSA’s remedial purpose.  The FLSA allows the prevailing employee to recover his attorney’s fees and costs.  However, the FLSA does not have a similar provision favoring the employer.  Therefore, the Florida state court in Hernandez held that the fee-shifting provision “renders the potential cost of arbitration to be far greater to [the employee] than the potential cost of civil litigation” and that the arbitration agreement exposes the employee “to a potential liability to which he would not be exposed if the litigation occurred in civil court because the federal statute specifically protects him from such liability.”  Hernandez, 124 So. 3d at 410.  The state court therefore found that the arbitration agreement was unenforceable.

Arbitration can be a much cheaper and quicker alternative to litigation.  However, arbitration is a creature of contract.  If not properly drafted, a court may find that the arbitration agreement is unenforceable and require that the parties litigate their case in court.  Although every case is different, proper drafting is essential to an enforceable arbitration agreement.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Employment attorney Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

 

UNPAID OVERTIME: THE RETAIL SERVICE COMMISSION EXCEPTION AND TIPPED EMPLOYEES

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.

Next, the employee’s regular rate of pay must exceed 1.5 times the applicable minimum wage.  The minimum wage may vary from year to year and from state to state.  Furthermore, while federal law establishes a federal minimum wage, states including Florida have established a minimum wage higher than the federal requirement.  If the employee’s regular hourly rate is greater than 1.5 times the applicable minimum wage, then the second element of the “retail service commission” exemption is satisfied.

Finally, more than half of the employee’s total compensation must be composed of “commissions” for a “representative period.”  A representative period can be anywhere from one month to one year.  If the employee is paid entirely by commission, then he or she will satisfy the third element of the exemption.  If the employee is paid a salary plus commission, then the commission must make up more than half of the employee’s total compensation to satisfy the third element.

Tips do not count as commission for the purpose of the retail service commission exception.  However, it is important to keep in mind that mandatory “tips” are not true tips.  Under the FLSA, a mandatory “tip” is considered a service charge and will count as “commission” for the purpose of this exemption.  While the FLSA has considered mandatory “tips” to be service charges for some time, effective January 2014, mandatory “tips” are also considered service charges for tax purposes.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.