A New York federal court recently declined to certify under Rule 23 of the Federal Rules of Civil Procedure (“Rule 23”) six classes of salaried “apprentices” at Chipotle restaurants asserting claims for overtime pay under New York Labor Law (“NYLL”) and parallel state laws in Missouri, Colorado, Washington, Illinois, and North Carolina, on the theory that they were misclassified as exempt executives in Scott et al. v. Chipotle Mexican Grill, Inc. et al., Case No. 12-CV-8333 (S.D.N.Y. Mar. 29, 2017).  The Court also granted Chipotle’s motion to decertify the plaintiffs’ conditionally certified collective action under Section 216(b) of the Fair Labor Standards Act (“FLSA”), resulting in the dismissal without prejudice of the claims of 516 plaintiffs who had opted in since June 2013.

The putative class and collective action of apprentices working in certain of Chipotle’s 2,000-plus restaurants nationwide were provisionally employed while being trained to become general managers of new Chipotle locations. The Scott action challenged Chipotle’s blanket exempt classification of the apprentice position, claiming that the duties plaintiffs actually performed during the majority of their working time were not managerial, and therefore, as non-exempt employees they were entitled to receive overtime pay.

According to their motion papers, the named plaintiffs’ work experience was common to all apprentices in each of the six state-specific classes they sought to certify. While the Court acknowledged that certain factors supported class and collective treatment of plaintiffs’ claims – such as a singular job description and corporate policies that applied nationwide and Chipotle’s classification of all apprentices as exempt – a number of factors impacting apprentices’ daily activities rendered a class and collective action certification of plaintiffs’ state and federal wage and hour claims inappropriate.

Denial of Rule 23 Class Certification

Applying Rule 23(a), the Court held that there was commonality and typicality among the plaintiffs and their claims. First, the question of whether apprentices were misclassified could be answered with common proof, particularly as Chipotle uniformly classified all apprentices as exempt, used a company-wide job description, and expected that their core duties would be the same regardless of the market in which the apprentice worked. The predominance requirement was also satisfied because the plaintiffs’ claims were based on the same legal theory and factual predicates, i.e., that Chipotle misclassified apprentices, depriving them of overtime pay to which they would otherwise be entitled.  The parties did not dispute the numerosity and adequate representation prongs of Rule 23(a) were met.

Rampant differences among the named plaintiffs and the opt-in plaintiffs led the Court to conclude that plaintiffs could not satisfy the predominance and superiority requirements of Rule 23(b). For example, of the six named plaintiffs, no two had like experiences in terms of what managerial duties they performed and how frequently they performed other non-exempt tasks on a daily basis.  The testimony of the opt-in plaintiffs also “rang dissonantly from the record” when it came to their performance of managerial tasks.  Factors like store structure, sales volume, staff size and managerial style affected the amount of time apprentices spent making personnel decisions, scheduling, supervising, and training, resulting in wide divergence among opt-in plaintiffs across the country.

The Court found that these differences were fatal to plaintiffs’ motion for class certification because: (1) plaintiff’s entitlement to relief would require individualized proof; and (2) the significant variation between the state laws under which the plaintiffs’ claims were brought would effectively require the court to conduct numerous “mini-trials” to determine whether Chipotle misclassified each individual apprentice as exempt. The Court therefore denied the motion for class certification under Rule 23.

Section 216(b) Decertification of Collective Action

Turning to Chipotle’s motion to decertify the FLSA collective action, the Court drew on its comparison of the named plaintiffs and opt-ins and concluded that apprentices had “vastly different” levels and amounts of authority in exercising managerial tasks. According to the Court, such disparities in job duties “seem[ed] axiomatic” given that the 516 opt-in plaintiffs worked in 37 states across Chipotle’s nine geographic regions.  In light of such differences, it would be difficult for Chipotle to rely on representative proof while asserting its defenses based on the “executive” and “administrative” exemptions from overtime pay.  For these reasons, the Court granted Chipotle’s motion to decertify the conditional collective action.

As shown in Scott, the question of whether misclassification claims may be certified to proceed on a class and collective action basis under Rule 23 and Section 216(b) will not be answered definitively by generic job classifications and/or job descriptions.  Rather, courts will assess the individualized work experiences of the named plaintiffs and opt-ins to determine whether generalized proof will be conducive to a class-wide resolution of those claims.  Employers and practitioners defending against such motions should focus their opposition on identifying differences and variation among the named plaintiffs and opt-in plaintiffs, and using outliers to highlight divergence among individual plaintiffs.  Otherwise, a court could find that the proposed class is homogeneous enough to warrant class and collective action certification.

Our colleague Michael S. Kun, national Chairperson of the Wage and Hour practice group at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the hospitality industry: “Stop! Texas Federal Court Enjoins New FLSA Overtime Rules.”

Following is an excerpt:

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016. …

Read the full post here.

Our colleague Jeffrey H. Ruzal, Senior Counsel at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the hospitality industry: “Decision Enjoining Federal Overtime Rule Changes Will Not Affect Proposed Increases Under New York State’s Overtime Laws.”

Following is an excerpt:

As we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions …

Read the full post here.

Our colleagues Jeffrey Ruzal and Michael Kun at Epstein Becker Green have a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the hospitality industry: “DOL Final White Collar Exemption Rule to Take Effect on December 1, 2016.”

Following is an excerpt:

Nearly a year after the Department of Labor (“DOL”) issued its Notice of Proposed Rulemaking to address an increase in the minimum salary for white collar exemptions, the DOL has announced its final rule, to take effect on December 1, 2016. …

According to the DOL’s Fact Sheet, the final rule will also do the following:

  • The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally.
  • The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will automatically update every three years to “ensure that they continue to provide useful and effective tests for exemption.”
  • The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.
  • The final rule does not in any way change the current duties tests. …

With the benefit of more than six months until the final rule takes effect, employers should not delay in auditing their workforces to identify any employees currently treated as exempt who will not meet the new salary threshold. For such persons, employers will need to determine whether to increase workers’ salaries or convert them to non-exempt.

Read the full post here.

CasinoWhether time spent in training is compensable time under the Fair Labor Standards Act (“FLSA”) is an issue that the courts have addressed in a variety of contexts. A new Fourth Circuit decision – Harbourt v. PPE Casino Resorts Maryland, LLC – addressed that issue in the context of pre-hire training provided to some casino workers in Maryland and concluded that the casino workers alleged sufficient facts to proceed with their claims that they should have been paid for pre-hire training.

After Maryland legalized full-fledged casino gambling in November 2012, the state had a supply and demand problem. Casinos had six months to hire workforces before the law went into effect, but they found that there were not enough trained dealers to staff the table games. Maryland Live!’s solution was to create a “dealer school.”

Needing approximately 830 dealers to work its 150 table games, the casino vetted more than 10,000 applicants to participate in a free, twelve-week instructional program to equip them with the skills needed to work as dealers at Maryland Live! The trainees attended 20 hours of instruction per week, receiving training in techniques that the trainees contend were specific to Maryland Live!’s operations

The trainees were not paid for attending the program, and, after completing much of the school, some of the trainees filed a putative class and collective action lawsuit alleging that they should have been compensated as employees under the Fair Labor Standards Act (“FLSA”) and Maryland state law for time spent attending the dealer school.

Maryland Live! moved to dismiss the lawsuit, which was granted by the District of Maryland. The Fourth Circuit reversed, allowing the lawsuit to proceed. In reaching its decision, the Fourth Circuit applied the “primary beneficiary” test to determine whether the attendees were “trainees” who were not eligible for compensation, or “employees” who were eligible. In so doing, the Fourth Circuit reaffirmed prior precedent and joined the Second and Eleventh Circuits in rejecting the application of the U.S. Department of Labor’s six-factor test to determine whether an individual is a trainee or employee.

The court concluded that the plaintiffs had alleged sufficient facts to state a claim that the casino was the primary beneficiary of the school such that the attendees would be “employees” under the FLSA.

In reaching the decision to permit the lawsuit to proceed, the court rejected the casino’s argument that it could not be the primary beneficiary of the school because the trainees did not interact with customers and the casino did not receive any monetary benefit from their training. Rather, the plaintiffs sufficiently alleged that the casino received an immediate benefit — “an entire workforce of over 800 dealers trained to operate table games to the casino’s specification at the very moment the table games became legal.”

Because the Fourth Circuit addressed this issue in the context of a motion to dismiss, it only considered the sufficiency of the plaintiffs’ allegations. Maryland Live! will have an opportunity to rebut the plaintiffs’ allegations as the case proceeds.

While Maryland Live! may still establish that the trainees, and not the casino, were the primary beneficiaries of its dealer school such that their training time is not compensable, the decision to permit the lawsuit to proceed highlights the need for employers to review their own policies and practices relating to training. Employers that have training programs that do not pay attendees for their time should review those programs closely to determine whether they are for the primary benefit of the attendees and, if not, consider either paying the attendees for their attendance or restructuring them so that they primarily benefit the attendees, not the employer.

Among other things, employers who wish to implement or continue unpaid training programs should:

  • Ensure that attendees do not expect to be paid for the training;
  • Provide skills that are transferrable to other potential employers, rather than skills that are specific to the employer’s workplace;
  • To the extent possible, provide the training in an educational environment rather than the employer’s workplace.
  • In the context of internships, attempt to tie the training to a formal education program for the student or intern.
  • Not guarantee jobs to the attendees at the end of the training program; and
  • Not require the attendees to perform work that will displace current workers.
Brian W. Steinbach
Brian W. Steinbach

In rejecting the terms of a collective action settlement in Yun v. Ippudo USA Holdings, No. 14-CV-8706 (S.D.N.Y. March 24, 2016) the United States District Court for the Southern District of New York has confirmed the significance of last year’s Second Circuit Court of Appeals decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2015)Cheeks held that parties cannot enter into an enforceable private settlement of Fair Labor Standards Act (“FLSA”) claims without the approval of either the district court or the Department of Labor. Yun shows what this means in practice by highlighting the issues that may arise in seeking to obtain approval.

Yun involved 53 “Collective Members” – five “Named Plaintiffs” and 48 “Opt-In Plaintiffs.” The Court closely analyzed the terms of a proposed settlement agreement, guided by various previous decisions within the Southern District. It had little trouble finding that a recovery for the Collective Members of about 52% of estimated back wages was “fair and reasonable” due to the presence of certain defenses and the litigation risks of proceeding to trial. It also found that service awards to the five Named Plaintiffs totaling 5% of the settlement funds were also “fair and reasonable.” And it also found that a fee award representing one-third of the total recovery was appropriate, rather than a lower fee based on lodestar rates, particularly as the case settled relatively early and before any depositions occurred.

However, the court rejected a limited confidentiality provision that would require all the Collective Members to keep the aggregate settlement amount confidential. In so doing it rejected the Defendants’ argument that the aggregate amount created a “false and disproportional sense of culpability and liability,” particularly as the information was already disclosed in numerous places on the public record through ECF filings. It also emphasized that generally “confidentiality provisions in FLSA settlements are contrary to public policy.”

Finally, the court rejected release language for the Named Plaintiffs that waived not only the right to bring claims relating to payment of compensation (as did the release language for the Opt-In Plaintiffs), but also any and all other claims of any type that they might have against the Defendants. Following other, pre-Cheeks Southern District precedent, it held that while releases in an FLSA settlement may include claims not presented that arise from the same factual predicate as the settled conduct, they cannot include waivers of claims that have no relationship to wage and hour issues. As a consequence, the court ordered the parties to file a revised settlement proposal.

The Yun decision is a warning to FLSA settling parties that the Cheeks decision not only means settlement agreements must be submitted for approval, but also that approval will not be a mere rubber stamp, and provisions that the court feels are overreaching will be rejected. Employers as well as plaintiffs’ attorneys need to review local precedents as to what provisions will and won’t be approved.

The Fair Labor Standards Act (“FLSA”) permits employers to use “tip credits” to satisfy minimum wage obligations to tipped employees.  Some employers use those “tip credits” to satisfy the minimum wage obligations; some do not.  (And in some states, like California, they cannot do so without running afoul of state minimum wage laws.)

Many hospitality employers use “tip pools” to divide customer tips among staff.  Those “tip pools” normally provide for tips to be divided among “front of the house” employees who are involved in serving customers – servers, bartenders, etc. Some employers have extended the “tip pools” to include “back of the house” employees – dishwashers, cooks, etc. – particularly where they are not using a “tip credit.” 

In 2011, the Department of Labor (“DOL”) issued a rule prohibiting employers from including kitchen staff in “tip pools” – even where no “tip credit” was being taken.  Two separate district courts held that the DOL did not have authority to issue such a rule where no “tip credit” was taken, relying on the Ninth Circuit’s ruling in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).

On February 23, 2016, in Oregon Restaurant & Lodging Assoc. v. Perez, No. 13-25765 (9th Cir. Feb. 23, 2016), a divided Ninth Circuit Court of Appeals reversed those two district court decisions, holding that the DOL in fact has the authority to regulate the “tip pooling” practices of employers even when they do not take tip credits — including prohibiting employers from including kitchen employees in “tip pools.” While confirming that the FLSA permits the use of “tip credits” to fulfill minimum wage requirements, the Court concluded that the DOL was acting within its authority in concluding that employers that establish “tip pools” may only do so when the persons who are included are persons who normally receive tips – and that, as kitchen staff do not normally receive tips, they cannot be included in “tip pools.”

The decision not only appears to be inconsistent with the Ninth Circuit’s own Cumbie decision, but with other courts that have reviewed this same issue.

The National Restaurant Association, a co-plaintiff in the case, has already indicated that it may seek review of the decision by a full panel of the Ninth Circuit.  And it is certainly possible that the decision will be reviewed by the United States Supreme Court.  But unless and until the decision is reversed, restaurant employers in the Ninth Circuit – which encompasses Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington –would be wise to review their “tip pooling” practices promptly with counsel.

              

 

Employers of all industries should be aware of the following five recent developments under New York State and New York City employment law.Evan J. Spelfogel

  1. Increased Minimum Wage

Effective December 31, 2015, three separate minimum wage increases took effect across New York State: (i) the nonexempt employee minimum wage increased from $8.75 per hour to $9.00 per hour; (ii) the minimum salary for executive and administrative exemptions increased from $656.25 per week to $675.00 per week; and (iii) the minimum pre tip wage for tipped employees in the hospitality industry increased to $7.50 per hour, with a corresponding reduction in the state’s tip credit to $1.50 per hour (provided that affected employees earn enough gratuities to cover the difference).

In addition, wages for fast food workers increased to $15 per hour, phased in over three years for workers in New York City, and over five-and-a-half years for workers in the rest of the state. Effective January 1, 2016, the new minimum wage rate for fast food workers became $10.50 per hour in New York City and $9.75 per hour throughout the rest of the state.

  1. Expanded Workplace Protections for Women

On January 19, 2016, a series of bills commonly as the “Women’s Equality Act” took effect. The bills expand the state’s gender-based employment protections and narrow the circumstances under which male and female employees may be paid different wage rates for jobs that require equal skill, effort, and responsibility, and that are performed under similar working conditions. Among other protections, the new laws:

  • bar employers from prohibiting employees from inquiring about, discussing, or disclosing their wages or the wages of other employees;
  • provide that aggrieved employees may recover liquidated damages equal to 300 percent of the unpaid wages owed for willful violations of the state’s equal pay law;
  • amend the state’s anti-discrimination laws to require that employers provide reasonable accommodations to employees because of a “pregnancy-related condition”;
  • add “familial status” (including child care) to the list of protected classes under the state’s anti-discrimination law, placing it on equal footing with race, sex, age, religion, and other statutorily protected characteristics
  • permit, for the first time, state courts and the New York State Division of Human Rights to award attorneys’ fees  to prevailing parties on sex discrimination claims; and
  • provide that sexual harassment claims may be asserted against employers regardless of the number of persons employed (previously, the law only applied to employers with four or more employees).

For more information about these bills, please see the Epstein Becker Green Act Now Advisory entitled “New York State Passes Five New Laws to Effectuate Gender Equality in the Workplace.”

  1. Limited Background Checks

Last autumn, New York City enacted two new laws that limit what employers may ask during the hiring process.

The first law, the “Stop Credit Discrimination in Employment Act,” bars employers from requesting or considering a prospective or current employee’s “consumer credit history” for employment purposes. There are narrow exemptions with respect to the employment of persons who would (i) have regular access to trade secrets and other highly sensitive employer information, or (ii) have fiduciary and signatory authority over third-party funds or assets valued at $10,000 or more.

The second law, the “Fair Chance Act,” prohibits employers from inquiring about a job applicant’s or current employee’s pending arrest or criminal conviction record until after an employer extends a conditional offer of employment to an applicant or has made a conditional offer of a promotion or wage increase to a current employee. After a conditional offer is extended, the employer may make such inquiries but must comply with procedures similar to those set forth in the federal Fair Credit Reporting Act.

For more information on these two new laws, please see the Epstein Becker Green Act Now Advisory entitled “Now That New York City’s Credit Check and “Ban the Box” Laws Are in Effect, How Do Employers Comply?

  1. Enhanced Transportation Benefits

Effective January 1, 2016, under New York City’s new Affordable Transit Act, employers with 20 or more “full-time employees” (defined as those working 30 or more hours per week) must offer their employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits (other than parking). Essentially, the new law requires employers to take advantage of the Internal Revenue Code’s qualified transportation fringe benefits provisions by allowing employees to pay for certain commuter expenses with pre-tax dollars.

Moreover, if, at any time, a covered employer’s workforce is reduced to fewer than 20 full-time employees, the employer must continue to offer the pre-tax benefit to all employees who were eligible for the benefit before the headcount reduction, for the duration of their employment.

The act contains several exemptions: it does not apply to (i) employees of government entities, (ii) employers that are parties to a collective bargaining agreement covering more than 20 full-time employees, or (iii) employers that are not required by law to pay federal, state, and city payroll taxes. Also, the law provides a six-month grace period: employers will not be subject to civil penalties for violations that occur before July 1, 2016.

For more information about these enhanced transportation benefits, please see the Epstein Becker Green Act Now Advisory entitled “NYC Affordable Transit Act: Employers Will Be Required to Offer Qualified Transportation Benefits in the New Year.”

  1. Added Protections for Transgender Workers

Effective this past October. 23, 2015, Governor Cuomo issued an executive order expanding the state’s anti-discrimination law to ban discrimination and harassment based on transgender status, gender identity, and gender dysphoria.

 

 

Under the Federal Fair Labor Standards Act (and state wage hour laws) certain hourly paid employees must be paid time and one-half their regular rate of pay for all hours worked over 40 in a regular work week.

But certain employees (for example many general managers and lead managers) are exempt from this requirement if they satisfy three qualifications imposed by federal regulations:

  1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
  2. the amount of salary paid must be at least $455 per week; and
  3. the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

On July 6, 2015, the U.S. Department of Labor proposed a major change in the salary level test from $455 per week to $970 per week which if implemented would invalidate the exemption of any  currently exempt employee earning less than $970 per week ($50,440 annually) and reclassify those employees as non-exempt employees (pdf).

Such a reclassification could adversely impact the self-respect of many employees who believe that their salary is a mark of status superior to hourly paid rank and file employees and assures them of a regular paycheck in a regular amount each week.

In addition there is the specter of an employer having to pay hefty amounts for employees working many overtime hours or increasing head count to avoid overtime.

But there may be a silver lining for employers.  If the employer sets the regular rate for an employee reclassified from exempt to non-exempt at a rate which would yield an amount similar to the former salary when regular overtime is factored in, the employer may not be economically impacted and the employee will not get a government imposed raise for doing the same work s/he had always done.

Alternatively, under certain circumstances, the employer is permitted to pay a salary to non-exempt employees, which would help avoid the potential stigma of losing a salary and instead being paid an hourly wage, as discussed above.  This is known as the fluctuating work week method of paying overtime.

Here is how it works:

A non-exempt employee whose hours typically vary from week to week is paid a salary which is agreed to cover all hours worked in each regular workweek.  Thus, salary status is preserved.

To determine the amount of overtime owed, the regular rate is calculated by dividing the employee’s weekly salary by the number of hours worked each week. Since the salary covers all hours worked each workweek, the employer is only required to pay an additional half time amount for each hour worked over 40 in a workweek.

Here is an example:

Under the hourly rate of pay method of compensation, a non-exempt employee paid $20 per hour earns $800 for a forty hour week and must be paid $30 per hour for each hour worked over 40 in a workweek

If s/he works an additional 10 hours the employer must pay an additional $300 for that workweek for a total of $1,100 per week.

Under the fluctuating workweek calculation, the employee would be paid a salary.  Assuming the employee’s weekly salary is $800, if the employee works 50 hours in one workweek, the employer would calculate overtime by dividing $800 by 50 hours yielding a regular rate of $16 per hour.  Because the $800 salary is paid for all hours worked, the employer is only required to pay an additional half-time, which in this case is $8.00, for each of the ten hours worked in excess of 40.  Thus, the employer’s overtime exposure for this workweek is only $80 for a total of $880 per week, as opposed to $1,100 under the hourly rate of pay method.

Assuming the DOL’s proposed new regulations to increase the salary basis are implemented, employers can take measures to avoid the significant increase in their operating costs and help sustain profitability.

CAVEAT:  Check your state laws to see if the fluctuating work week method is allowed.  The New York State Hospitality Regulations (pdf) do not permit the fluctuating work week method for restaurant operations.  Thus, New York restaurant operations employers should set an hourly rate so as to minimize the cost of regular overtime.

I recently wrote a Wage and Hour Defense blog post with my colleague Michael S. Kun and it will be of interest to all hospitality employers – “Proposed DOL Rule To Make More White Collar Employees Eligible For Overtime Pay.”Clock

Following is an excerpt:

More than a year after its efforts were first announced, the U.S. Department of Labor (“DOL”) has finally announced its proposed new rule pertaining to overtime. And that rule, if implemented, will result in a great many “white collar” employees previously treated as exempt becoming eligible for overtime pay for work performed beyond 40 hours in a workweek – or receiving salary increases in order that their exempt status will continue.

Read the full original post here.