Hospitality Labor and Employment Law Blog

Hospitality Labor and Employment Law Blog

Coverall Case Pending in the First Circuit Could Have Major Impact on The Future of the Franchise Industry in Massachusetts

LinkedIn Tweet Like Email Comment

By:  Barry Guryan and Jeff Ruzal

In a highly publicized March 23, 2010 decision, Awuah v. Coverall N. Am., Inc., 707 F.Supp.2d 80 (D. Mass. 2010), U.S. District Judge William Young for the District of Massachusetts rocked the Massachusetts business community by ruling that a group of janitorial franchisees were improperly classified as independent contractors, and that they were instead “employees” of commercial cleaning franchisor Coverall who are entitled to statutory protection under Massachusetts’ Wage laws including, among others, minimum wage, overtime pay, meal breaks and workers’ compensation.

Massachusetts law is known to have one of the most stringent employment classification tests in the country. Commonly referred to as the “ABC Test,” G.L. c. 149, § 148B(a), putative employers must satisfy the following three conditions to establish an independent relationship with individuals who perform services for them: (a) the individual is free from control and direction in connection with the performance of service; (b) the service is performed “outside the usual course of the business of the employer,” and (c) the individual is customarily engaged in an independently established business of the same nature as that involved in the service performed.  Id.  Prong B is by far the most challenging part of the Test because, in most instances, the services to be performed fall within the employer’s usual course of business.  This requirement does not exist under most state law classification tests.     

Seizing on prong B of the Test, Judge Young rejected Coverall’s argument that its franchising business is separate and distinct from the franchisee’s individual businesses in commercial cleaning.  Judge Young instead found that:

franchising is not itself a business[;] rather a company is in the business of selling goods or services and uses the franchise model as a means of distributing the goods or services to the final end user without acquiring significant distribution costs.  Describing franchising as a business in itself, as Coverall seeks to do, sounds vaguely like a description for a modified Ponzi scheme—a company that does not earn money from the sale of goods and services, but from taking in more money from unwitting franchisees to make payments to previous franchisees.

Awuah, 707 F.Supp.2d at 84 (emphasis added).  Concluding that Coverall franchisees did not perform services outside the course of Coverall’s business, the Court held that the franchisees were not independent contractors but Coverall’s employees.  Coverall thereafter filed its notice of appeal of this decision to the First Circuit Court of Appeals.   

On February 3, 2014, Coverall filed its brief to the First Circuit, arguing, among other points, that its regular activities and the services it performs are entirely different from the activities and services performed by franchise owners.  As Coverall explained, its regular activities are selling franchises, promoting the Coverall® brand, soliciting customer contracts, and providing billing and collections services to franchise owners.  By contrast, Coverall argued, franchise owners independently operate commercial cleaning businesses, which include scheduling cleaning services, staffing cleaners, purchasing cleaning equipment and supplies, and supervising their own employees. 

Echoing Coverall’s argument, the International Franchise Association (“IFA”), the largest trade association in the world, argued as amicus curiae in its April 17, 2014 brief to the First Circuit that the District Court failed to recognize the significant differences between Coverall’s and the franchise owners’ regular activities and services, and instead incorrectly focused on the irrelevant fact that they both ultimately depend on the sale of commercial cleaning services. 

The IFA further argued that Judge Young’s decision will severely damage the Massachusetts franchising business, referencing staggering statistics that highlight the importance franchising has on Massachusetts’ economy.  According to the Economic Impact of Franchised Businesses, in 2007, the most recent year for which comprehensive data is available, 13,676 Massachusetts franchise establishments produced 149,600 Massachusetts jobs totaling $6.4 billion in payroll.  www.buildingopportunity.com/download/Part1.pdf.  What is more, those 13,676 Massachusetts franchise establishments helped create 323,900 additional independent Massachusetts jobs supporting, but not directly tied to, the franchised businesses.  The IFA argued that Judge Young’s decision puts Massachusetts’ robust franchising business in jeopardy by, among other things, disincentivizing franchisees from supplying their own financial capital into new and existing franchises because as salaried or hourly “employees” they will not be entitled under the law to the profits they produce.  

Whether the First Circuit will agree with the IFA and thus look to narrow Judge Young’s expansive reading of prong B is an open question.  In any event, franchisors operating in Massachusetts must be mindful of the stringent ABC Test, and should consult with an attorney on compliance and best practices in the franchising business.  Franchisors outside of Massachusetts must likewise be aware of the classification laws unique to the states in which they operate to ensure utmost compliance.                  

OSHA and NLRB Agreement Opens New Door To Whistleblower Claims

LinkedIn Tweet Like Email Comment

On Epstein Becker Green’s OSHA Law Update blog, Eric Conn reviews the agreement between the NLRB and OSHA, which allows employees to file out-of-date safety related whistleblower claims to be filed with the NLRB.

Following is an excerpt from the blog post:

On May 21, 2014, the National Labor Relations Board (NLRB) published a memorandum discussing a new agreement between NLRB and OSHA regarding a backdoor route for employees to file safety related whistleblower claims that are too stale to be filed with OSHA. The NLRB memo directs OSHA representatives to “notify all complainants who file an untimely [OSHA] whistleblower charge of their right to file a charge with the NLRB.” As a result of this agreement, employers should expect an increase in the number of unfair labor practice claims filed by employees alleging retaliation for protected safety related whistleblower activity.

To access the full blog post, please click here.

Kara Maciel Quoted in “For Fine Dining Sector, Tip Pools Can Be Legal Trap”

LinkedIn Tweet Like Email Comment

Kara Maciel, a Member of the Firm in the Labor and Employment, Litigation, and Health Care and Life Sciences practices, in the Washington, DC, office, was quoted in an article titled “For Fine Dining Sector, Tip Pools Can Be Legal Trap.” (Read the full version – subscription required.)

Following is an excerpt:

As a wave of lawsuits hits restaurants over tip pool violations, fine dining establishments packed with sommeliers, mixologists and other high-end specialists that tend to take on some managerial duties face the greatest risks of becoming targets for litigation or Department of Labor audits, attorneys say. …

“It’s always an open question whether someone like a maitre d’ or sommelier or expediter should be included in the tip pool,” said Kara M. Maciel, a labor and employment litigator with Epstein Becker & Green PC.

And the stakes for being wrong on this can be high, since if a tip pool is found to violate federal or state laws, it could invalidate the tip credit that the restaurant took or was banking on for that period of time, Maciel says. …

The same goes with catering hall banquet captains, who might be tasked with taking care of brides and grooms on their big days but who also often supervise staff, according to Maciel.

California Supreme Court Opens the Door to Class Action Waivers, Shuts Door to Waiver of Representative Actions

LinkedIn Tweet Like Email Comment

By Marisa S. Ratinoff and Amy B. Messigian

One of the main battlegrounds between employers and employees relates to the ability of employers to preclude class actions by way of arbitration agreements containing class action waivers. In California, the seminal case of Gentry v. Superior Court (“Gentry”) has had the practical effect of invalidating class action waivers in employment arbitration agreements since 2007. Gentry held that an employment class action waiver was unenforceable as a matter of California public policy if the class action waiver would “undermine the vindication of the employees’ unwaivable statutory rights” under the Labor Code. Thus, California hospitality employers and national hospitality employers with a business presence in California have found it extremely difficult, if not impossible, to enforce class action waivers in their employment arbitration agreements over the past seven years and have seen scores of California wage and hour cases proceed in court under the harsh hand of Gentry.

The landscape changed drastically in 2010 when the United States Supreme Court issued its decision in AT&T Mobility, LLC v. Concepcion (“Concepcion”). There, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state laws or policies that deem arbitration agreements unconscionable and unenforceable on the basis that they preclude class actions. While the Concepcion case related to a consumer arbitration agreement, many have questioned whether its impact extended to employment arbitration agreements, such as the ones invalidated on public policy grounds under Gentry.

Iskanian v. CLS Transportation Los Angeles, LLC is the first case to test this issue before the California Supreme Court. The decision takes one step forward and one step back. First, the Court held that Gentry has been abrogated by Concepcion. As such, courts may not refuse to enforce an employment arbitration agreement simply because it contains a class action waiver. The Court further rejected the argument that a class action waiver is unlawful under the National Labor Relations Act.

However, the Court also found that an employee’s right to bring a representative action under Private Attorney General Act (“PAGA”) is nonwaivable. Under PAGA, an employee may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. Of the civil penalties recovered, 75 percent goes to the State of California and the remaining 25 percent go to the “aggrieved employees.” The Court held that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.” The Court also found that “the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude [California’s] Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf.” The Court explained that PAGA waivers do not frustrate the FAA’s objectives because the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the State, which is being brought in a representative capacity by the employee. Because the State derives the majority of the benefit of the claim and any judgment is binding on the government, it is the “real party in interest,” making a PAGA claim more akin to a law enforcement action than a private dispute. Because of this, it is within California’s police powers to enact PAGA and prevent the waiver of representative PAGA claims.

The practical effect is that even if a class action waiver is enforceable, any purported waiver of a representative PAGA action will be unenforceable. As a result, a complaint filed in court that includes a PAGA cause of action will arguably remain with the court unless the claims are bifurcated. As for Iskanian and his former employer, the Court left these questions to the parties to resolve. While it is possible that Iskanian will be appealed to the United States Supreme Court for guidance, at least for the foreseeable future employers should expect plaintiffs’ counsel to include PAGA causes of action in order to frustrate employer efforts to move wage and hour claims to arbitration.

Going forward, hospitality employers may want to consider adopting agreements with their California employees that expressly permit representative PAGA claims to be brought in arbitration while waiving all other class claims to the extent allowed by law. Alternatively, employers may revise their agreements to allow for bifurcation of claims or expressly exclude PAGA claims from the scope of the agreement. In either case, employers should use this opportunity to review the terms of their arbitration agreements and put new agreements in place with California employees, if necessary.

Stuart Gerson on the Supreme Court’s Harris and Hobby Lobby Decisions

LinkedIn Tweet Like Email Comment

Our colleague Stuart Gerson of Epstein Becker Green has a new post on the Supreme Court’s recent decisions: “Divided Supreme Court Issues Decisions on Harris and Hobby Lobby.” 

Following is an excerpt:

As expected, the last day of the Supreme Court’s term proved to be an incendiary one with the recent spirit of Court unanimity broken by two 5-4 decisions in highly-controversial cases. The media and various interest groups already are reporting the results and, as often is the case in cause-oriented litigation, they are not entirely accurate in their analyses of either opinion.

In Harris v. Quinn, the conservative majority of the Court, in an opinion written by Justice Alito, held that an Illinois regulatory program that required quasi-public health care workers to pay fees to a labor union to cover the costs of wage bargaining violated the First Amendment. The union entered into collective-bargaining agreements with the State that contained an agency-fee provision, which requires all bargaining unit members who do not wish to join the union to pay the union a fee for the cost of certain activities, including those tied to the collective-bargaining process. …

An even more controversial decision is the long-awaited holding in Burwell v. Hobby Lobby Stores, Inc. Headlines already are blasting out the breaking news that “Justices Say For-Profits Can Avoid ACA Contraception Mandate.” Well, not exactly. …

Both sides of the discussion are hailing Hobby Lobby as a landmark in the long standing public debate over abortion rights. It is not EBG’s role to enter that debate or here to render legal advice, but we respectfully suggest that the decision’s reach is already being overstated by both sides.  In the first place, the decision does not allow very many employers to opt out of birth control coverage – only closely-held for-profit companies that have a good-faith ideological core, as clearly was the case for Hobby Lobby. That renders such companies functionally the same as non-profits that are exempted from the mandate by the government. Publicly-held companies are not affected by the decision (though some are likely to argue that Citizens United might require such an extension. Nor are privately-held companies that can’t demonstrate an ingrained belief system.

Read the full post here.

All NLRB Decisions and Actions From August 27, 2011 Through July 17, 2013 Are Invalid or in Doubt

LinkedIn Tweet Like Email Comments Off

By: Adam C. Abrahms, Kara M. Maciel, Steven M. Swirsky, and Mark M. Trapp

The U.S. Supreme Court today held that the US Senate was not in recess on January 4, 2012, when President Obama made three “recess” appointments to the National Labor Relations Board under the Constitution’s Recess Appointment Clause. In simple terms that means that the recess appointments were not proper and s decisions in which the recess appointees participated were not valid.

What this now means is that hundreds of cases decided by the NLRB following the January 4, 2012 recess appointments to the Board from January 4, 2012 until the Senate confirmed the current Board members who joined the NLRB as of August 12, 2013, were unconstitutionally decided because the Board lacked a quorum and could not decide cases or issue orders. Additionally, while Noel Canning concerned the January 2012 recess appointments, there is also doubt as to earlier decisions in which previous recess appointees participated going back to August 2011.

The Court’s decision upheld the January 2013 decision of the US Court of Appeals for the District of Columbia Circuit which found that the panel of the NLRB that had previously decided an unfair labor practice case against Noel Canning, a Pepsi bottler, was unconstitutionally constituted and therefore the decision was invalid. There the DC Circuit held that because the Senate, whose advice and consent is required for appointments to the NLRB had not been in recess when the President made his appointments, the company’s “understanding of the constitutional provision is correct, and the Board’s is wrong. The Board had no quorum, and its order is void.” The Court of Appeals for the Third Circuit had also reached a similar conclusion concerning the lack of a quorum due to the Senate not having been in recess when the January 2012 appointments were made.

This decision now casts into doubt and makes suspect more than 1,300 NLRB decisions, including both published and unpublished, issued by the NLRB. An excellent summary of the cases that are implicated by the Court’s decision, and the issues involved in each has been prepared by the US Chamber of Commerce Litigation Center.

The Court’s holding, which found that the Senate was not in recess while it was conducting pro forma sessions during December 2012, arose in the context of a challenge to a Board Order in which recess appointees participated; the implications however are far greater and may implicate a wide range of other Board actions such as the appointment of Regional Directors, the consolidation of Regional offices and other administrative and personnel actions requiring Board approval or authorization. Notably, in a case decided by a District Court in the Eastern District of Washington last August an employer successfully challenged not only the Board’s authority to authorize a Regional Director to pursue an injunction under Section 10 (j) of the National Labor Relations Act, but the appointment of then Acting NLRB General Counsel Lafe Solomon, who was then a recess appointee. That case turned on other provisions of the Pay Act, a federal law authorizing the payment of salary to properly appointed recess appointees.

In a relatively understated press release following the Court’s decision, Board Chair Mark Gaston Pearce emphasized the fact that “the National Labor Relations Board has a full contingent of five Senate-confirmed members who are prepared to fulfill our responsibility to enforce the National Labor Relations Act.”

What this means to Employers, Unions and Others With Cases Before the NLRB

If the Board’s actions following the Supreme Court’s decision concerning an earlier attempt by the NLRB to delegate its decision making authority to a two member panel in the face of earlier disputes between the President and the Senate is any precedent, it is likely that at least three members of the current five member Senate confirmed Board will try to essentially adopt and approve as many as possible of the Board Orders and actions that would be invalid under Noel Canning. As shown in the Chamber’s chart, there are a large number of cases that are essentially on hold in Courts of Appeal across the country that have been waiting for the Court’s ruling today. It is likely that the courts will dismiss these matters or that the NLRB will seek to withdraw those in which it is seeking enforcement of Board Orders.

However, as we and others have pointed out since the issue of the 2012 and earlier recess appointments were placed in doubt, employers and others with matters before the Board, the most prudent course of action would have been to make sure that in addition to any other defenses or grounds for appeal, that parties specifically raise the issue that the Board lacked a quorum and the authority to act when it made decisions, issued orders and took other action. However even in those cases that were decided by the Board during the period that it lacked a proper quorum, parties may be able to raise the lack of quorum argument in light of today’s decision. Each matter will require an analysis based on its own individual facts and issues.

Additionally, today’s ruling has broad impact even in cases which are currently being investigated at the Regional level or are currently pending before the Board. Not only can we expect even further delay in Board action (including at the Regional level) as the agency attempts to deal with the backlog created by having to address hundreds cases directly impacted by the Decision. Specifically, there are thousands of cases which are currently being prosecuted or advanced at various stages which explicitly or tangentially rely on theories or precedents relying on a now invalid Board decision. Specifically, cases involving at-will employment agreements, arbitration agreements, employee investigations, employee access, dues deductions post-contract expiration, and bargaining over employee discipline have all now been stripped of much of the precedence on which a Region, a union or an employee may be relying. Again each matter will require an analysis based on its own individual facts and issues.

Management Missives

  • If the “invalid” Board issued a decision impacting an employer it should promptly analyze its options;
  • If an employer has a case in abeyance or pending based on Noel Canning it should obviously expect action in the coming weeks;
  • Employers should look for settlement opportunities with Regions, unions and individuals which may be present as these adverse parties may be more amendable to now that the theory of the case now lacks valid authority or based on their increased workloads;
  • Employers should explore filing supplemental position statements or other filings in any case where a Region, union or employee is relying on an “invalid” decision;
  • Employers should still remain cautious as while many decisions have been put into question, the current composition of the Board provides absolutely no reason for employers to rejoice or be less vigilant, as the current, lawfully confirmed, Board is unlikely to view most issues any differently.

Offset as Defense to FLSA Suit May Mitigate Unpaid Wage Claims

LinkedIn Tweet Like Email Comment

Our colleague Jeffrey H. Ruzal recently wrote an article entitled “Offset as Defense to FLSA Suit May Mitigate Unpaid Wage Claims,” which appears in the June 2014 issue of Hospitality Law.

Following is an excerpt:

A federal district court in Michigan recently preserved for trial the question of whether a defendant employer may mitigate its back wage liability by offsetting paid break time, which would effectively extinguish plaintiff employees’ claims under the Fair Labor Standards Act.

In Hayes, et al., v. Greektown Casino, LLC, et al., No. 12-1552 (E.D. Mich. 03/31/14), a group of
current and former security officers who were employed by Greektown Casino alleged that their employer violated the FLSA by failing to compensate them for all hours worked.

Read the full article here.

Reprinted with permission from Hospitality Law. Copyright 2014 by LRP Publications. Palm Beach Gardens, FL 33418. All rights reserved. For details on this or other related products, visit www.shoplrp.com/hospitality.html or call toll free 1-800-341-7874.
 

Kara Maciel Quoted in “Six Tips on Not Getting Tripped Up by FLSA’s Tipped Employee Rules”

LinkedIn Tweet Like Email Comment

Our colleague Kara Maciel, the editor of Hospitality Labor and Employment Law Blog, was quoted in an article titled "Six Tips on Not Getting Tripped Up by FLSA’s Tipped Employee Rules" that was recently published in Thompson’s HR Compliance Expert.

Following is an excerpt:

Employers need to make sure they are following both federal Fair Labor Standards Act requirements and state laws regarding tipped employees, said Kara Maciel of the firm Epstein Becker Green during a recent seminar focused on tipped employees. …

However, every state has its own set of rules regarding tipped workers and employers must make sure they also are compliant with those local requirements. States such as Hawaii, Massachusetts and New York are particularly challenging and in some cases have seen increased litigation over tip practices in recent years, Maciel noted. …

Click here to read more.

EEOC Challenges Employer Separation Agreements

LinkedIn Tweet Like Email Comment

We recommend our colleagues’ post on the Retail Labor and Employment Law blog: Three Lawsuits Brought by the U.S. EEOC Challenge Employer Separation Agreements, by Lauri F. Rasnick, Susan Gross Sholinsky, Frank C. Morris Jr., and Nancy L. Gunzenhauser.

Following is an excerpt:

The federal Equal Employment Opportunity Commission (“EEOC” or “Agency”) has been spending a fair amount of time in recent months challenging the validity and legality of employers’ separation agreements. This is apparently part of the EEOC’s core priorities, including “targeting policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts.” … A summary of recent lawsuits follows …

Read the full post here and also see their client advisory: The EEOC Is Scrutinizing Separation Agreements: Does Yours Hold Up?

Will California Restaurants Have To Provide Seats To Hosts, Hostesses And Line Cooks? Will Hotels Have To Provide Seats To Their Front Desk Staffs?

LinkedIn Tweet Like Email Comments Off

By Michael Kun

Several years ago, employees in California began filing class action lawsuits against their employers alleging violations of the “suitable seating” provision buried in the state’s Wage Orders.  The unique provision requires some employers to provide “suitable seating” to some employees when the “nature of their work” would “reasonably permit it.” 

The use of multiple sets of quotation marks in the previous sentence should give readers a good idea just how little guidance employers have about the obscure law.  

The California Supreme Court is now poised to explain what that obscure law means for those employers who do business in California.  And the Court’s ruling could mean that restaurants in California will have to provide seats to hosts, hostesses and line cooks, or that hotels and other institutions will have to provide seats to their front desk staffs.

A little history: The “suitable seating” provision was written to cover employees who normally worked in a seated position with equipment, machinery or other tools.  For decades, it had been the subject of little litigation and even less discussion.  But after a court of appeal decision brought the obscure law to the attention of plaintiffs’ lawyers in California, employers in a wide variety of industries have been hit with class actions alleging that they have not provided seats to their employees.  Like many class actions, those cases have typically been brought by a single plaintiff who was well aware that the employer expected him or her to be standing while performing the job at the time he or she applied for a job.  Just as typically, those employees have not even requested a seat before filing suit and seek recovery of millions of dollars.

To date, the parties and courts dealing with these lawsuits have done so largely in the dark.  Simply put, there is little case law or legislative history explaining what the provision’s various terms mean or how they are to be applied or analyze.  Which employees are covered by the law?  What is a “suitable seat”?  What does the “nature of their work” mean?  What does “reasonably permit” mean?  What should be considered?  What should not be considered?

Earlier this year, the Ninth Circuit Court of Appeals threw up its hands and asked the California Supreme Court to clarify the law.  It asked the California Supreme Court whether the term “nature of the work” refers to individual tasks that an employee performs during the day, or whether it should be read “holistically” to cover a full range of duties.  It also asked the California Supreme Court to clarify whether an employer’s business judgment should be considered in determining whether the nature of the work “reasonably permits” the use of a seat, as well as the physical layout of the workplace and the employee’s physical characteristics.  Finally, it asked the California Supreme Court to clarify whether the employee must prove what would constitute a “suitable seat” to prevail.

After some speculation that the California Supreme Court might decline to answer these questions, it agreed to do so.  While the process will take time, employers in California should finally have much-needed guidance on this obscure law, allowing them to alter their practices as necessary and avoid these class actions.

Depending on what the California Supreme Court says, its opinion could have a great impact upon the hospitality industry. 

A few examples:

Hosts and hostesses at restaurants and clubs often stand behind a desk or podium when greeting customers.  Such employees (or their lawyers) might argue that they could perform their jobs just as effectively from a high stool or a half-seat. 

What about line cooks?  The thought of line cooks working while seated is an unusual one.  But, again, such employees (or their lawyers) might argue that they could do their jobs while seated.  Can an employer consider the layout of the kitchen?  Can it consider whether seats would block the often-tight passageways in the kitchen?  Can it consider the safety and health implications?  How about whether placing seats in the kitchen would violate local fire ordinances?

Like hosts and hostesses in restaurants, the staffs at the reception desks at hotels, spas and other institutions typically are standing while greeting and assisting customers.  Could they do their jobs while seated on a high stool or a half-seat?  Can a hotel take the position that the physical layout of the reception area would not allow chairs at the reception desk?

While the California Supreme Court’s decision is unlikely to address any of these hospitality-based questions specifically – the cases before it do not involve the hospitality industry – hospitality employers will need to review the decision carefully to determine whether the Court’s opinion suggests that some of its employees must be provided with seats.

.
Lexblog