In most wage and hour cases, each workweek gives rise to a separate claim, at least for statute of limitations purposes. Thus, an employee seeking payment for alleged off-the-clock work or an independent contractor claiming misclassification and entitlement to overtime ordinarily may seek back wages and related recovery only for work performed within a set amount of time—usually two to six years preceding the filing of the complaint, depending on the jurisdiction—preceding the filing of the complaint. …
Following is an excerpt:
Recently, a number of proposed class and collective action lawsuits have been filed on behalf of so-called “gig economy” workers, alleging that such workers have been misclassified as independent contractors. How these workers are classified is critical not only for workers seeking wage, injury and discrimination protections only available to employees, but also to employers desiring to avoid legal risks and costs conferred by employee status. While a number of cases have been tried regarding other types of independent contractor arrangements (e.g., taxi drivers, insurance agents, etc.), few, if any, of these types of cases have made it through a trial on the merits – until now.
In Lawson v. GrubHub, Inc., the plaintiff, Raef Lawson, a GrubHub restaurant delivery driver, alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws. In September and October 2017, Lawson tried his claims before a federal magistrate judge in San Francisco. After considering the evidence and the relevant law, on February 8, 2018, the magistrate judge found that, while some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that he was an independent contractor. …
Following is an excerpt:
In a potentially significant decision following the New Jersey Supreme Court’s ruling in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), a New Jersey appellate panel held, in Garden State Fireworks, Inc. v. New Jersey Department of Labor and Workforce Development (“Sleepy’s”), Docket No. A-1581-15T2, 2017 N.J. Super. Unpub. LEXIS 2468 (App. Div. Sept. 29, 2017), that part C of the “ABC” test does not require an individual to operate an independent business engaged in the same services as that provided to the putative employer to be considered an independent contractor. Rather, the key inquiry for part C of the “ABC” test is whether the worker will “join the ranks of the unemployed” when the business relationship ends. …
Chipotle recently obtained decertification of a conditionally certified collective action of salaried “apprentices” under Section 216(b) of the Fair Labor Standards Act (“FLSA”) in Scott et al. v. Chipotle Mexican Grill, Inc. et al., Case No. 12-CV-8333 (S.D.N.Y. Mar. 29, 2017), a case in New York federal court involving claims of unpaid overtime based on misclassification. In that case, Chipotle effectively leveraged disparities between the job duties and activities of putative class and collective action members across six states to show that they were not similarly situated.
Chipotle could not repeat its success in a more recent FLSA collective action brought by plaintiff employees and former employees filed in Minnesota federal court. In Harris et al. v. Chipotle Mexican Grill, Inc., Case No. 13-CV-1719 (D. Minn. June 12, 2017), hourly employees who worked in Chipotle’s Crystal, Minnesota restaurant asserted claims for unpaid wages and overtime under the FLSA and Minnesota law. The Minnesota federal court found that the named and opt-in plaintiffs were similarly situated for purposes of pursing their claims in an FLSA collective action, and denied Chipotle’s motion to decertify.
In Harris, five named plaintiffs holding various hourly positions – including crew member, kitchen manager and service manager – claimed that Chipotle had a company-wide unwritten policy of requiring hourly employees to work “off the clock” without pay. Specifically, the plaintiffs alleged that after the restaurant stopped serving the public and the closing shift ended, employees were required to clock out and continue working until the restaurant was fully cleaned and all work was completed. Chipotle’s timekeeping system also reset at a certain time each night, automatically clocking out any employee who had not already done so. These unwritten policies, the plaintiffs alleged, resulted in hours of unpaid work time each week.
Early on in the Harris litigation, the court conditionally certified as a collective employees at Chipotle’s Crystal, Minnesota restaurant who either (1) were automatically punched off the clock by the timekeeping system and continued to work, or (2) otherwise worked “off the clock” during closing shifts, resulting in non-payment of regular wages or overtime wages. Twenty-three opt-in plaintiffs subsequently filed a consent to join the collective action.
Chipotle argued in its recent motion to decertify that the only “superficial common thread” binding the putative collective action members was the location of the restaurant at which they worked, and that the alleged unpaid after-hours work stemmed from scattered and unrelated causes, rather than a common policy (i.e., managerial directive versus automatic clock-out, among other reasons). Disagreeing with Chipotle’s argument, the court pointed out that the FLSA collective it had conditionally certified encompassed both types of off-the-clock work, and noted that the collective was “limited to a single store, a single shift, and to a relatively small number of plaintiffs who worked in generally three positions (crew member, kitchen manager, and service manager), for a limited number of general managers and apprentice managers.” The court also rejected Chipotle’s contention that the alleged FLSA violations were attributable to different types of work for varying amounts of time. To the contrary, the court held, the collective action members at issue performed the same duties in one restaurant: cleaning, counting money, prepping food, locking up, and attending meetings. Viewing the facts in this context, the court held that decertification was not appropriate.
The court further found that Chipotle’s assertion of individualized defenses against certain named and opt-in plaintiffs similarly did not warrant decertification, including the following: (1) lack of notice to Chipotle of any work performed after an automatic clock out due to the timekeeping system’s nightly reset; (2) lack of evidence that managers issued directives to work off-the-clock; (3) certain types of activities allegedly performed by the plaintiffs did not constitute compensable work; (4) work allegedly performed off-the-clock was de minimis and therefore not compensable; (5) employees failed to utilize Chipotle’s procedures for accurately recording hours or remedying errors in recorded work time; and (6) criminal history of certain plaintiffs affecting their credibility. The court held that each of these defenses went to the merits of the plaintiffs’ claims and did not weigh in favor of decertification.
Based on the lack of discernible differences among the named and opt-in plaintiffs, the court found that the issues in the case were appropriate for classwide resolution and that a collective action would serve the interests of judicial economy and more efficiently resolve the plaintiffs’ claims.
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The Harris decision highlights the types of issues owners/operators in the hospitality industry face when defending against collective actions under the FLSA, even those in which the universe of putative plaintiffs may be small or limited to one or two locations. Minor nuances in the nature of work performed, variety in the reason for the work, and individualized defenses that go to the merits of the claims at issue may not be sufficient to decertify a collective action. In seeking to obtain decertification, owners/operators should emphasize as many disparities as possible in the policies and practices governing work time and timekeeping that may result in differences that would prevent a putative collective group of employees from being considered a similarly situated class.
Jeffrey H. Ruzal, Member of the firm and leader of Epstein Becker Green’s Hospitality industry service team is featured in the afternoon General Session on May 22, 2017 and will discuss misclassification of club staff.
Jeff is looking forward to sharing his knowledge in hospitality law and discussing best practices to avoid many of the recurring legal issues plaguing the hospitality industry.
Click here for a conference schedule at-a-glance.
California Governor Jerry Brown has signed two employment-related bills into law, raising the stakes for employers doing business in California. The two laws, which increase the penalties for employers that wrongly classify employees as independent contractors or engage in "wage theft," both go into effect on January 1, 2012.
Misclassification of Workers as Independent Contractors
The first of the new laws, SB 459, directly impacts employers that classify workers as independent contractors. Referred to by critics as the "Job Killer Act," the legislation adds Sections 226.8 and 2753 to the California Labor Code ("Labor Code"). Section 226.8 prohibits the "willful misclassification" of an individual as an independent contractor, and also prohibits an employer from charging fees to a misclassified individual for items that an employee is not normally required to purchase, such as equipment, space rental, services, or licenses. Section 2753 imposes joint and several liability on any person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor simply to avoid the employee designation. (Attorneys who advise employers are exempted from Section 2753.)
SB 459 imposes steep civil penalties for employer violations. Those penalties can compound substantially and quickly. Labor Code Section 228.6 imposes a penalty of between $5,000 and $15,000 for each violation, in addition to other penalties permitted by law. When an employer is found to have engaged in a pattern or practice of violations, the penalty increases to between $10,000 and $25,000 per violation.
SB 459 also imposes non-monetary penalties. An employer found to have violated Labor Code Section 228.6 may also be ordered to post on its website (or, if the employer has no website, in a prominent physical location) a notice stating that the employer has committed a "serious violation of the law." This notice must be posted for a year, and it must invite aggrieved individuals to contact the California Labor and Workforce Development Agency, among other requirements.
Although SB 459 requires the misclassification to be "willful," it is unclear how California courts will interpret this threshold requirement. SB 459 amends Labor Code Section 226.8(h)(4) to now define "willful misclassification" as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor." Until there is guidance from courts as to what constitutes "voluntary and knowing" misclassification, California employers must be more careful than ever in classifying workers as independent contractors – and must be more prepared than ever to justify that designation.
The Wage Theft Prevention Act
The second new law is AB 469, also known as the Wage Theft Prevention Act of 2011 ("WTPA"). For employers with operations in New York, the WTPA may appear familiar, as California based its WTPA on similar legislation passed in New York last December. (See Act Now Advisory: "Governor Paterson Signs Overhaul of New York State Labor Law".) Under the WTPA, Section 2810.5 was added to the Labor Code. As of January 1, 2012, certain employers must provide each new non-exempt employee with a written notice at the time of hiring, in the language that the employer normally uses to communicate employment-related information, which contains the following:
- The employee’s pay rate or pay rates, and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any overtime rates, as applicable;
- Allowances included as part of the minimum wage calculation, including meal or lodging allowances;
- The employer’s regular payday;
- The employer’s name, including any "doing business as" names;
- The employer’s physical address of its main office or principal place of business, and a mailing address, if different;
- The employer’s telephone number;
- The name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and
- Any other information the California Labor Commissioner ("Commissioner") deems material and necessary.
Unlike New York’s anti-wage theft legislation, which requires that all New York employees receive notice of pay rates and paydays, the WTPA explicitly excludes the following individuals from the notice requirements:
- Employees who work for the state or any political subdivision, including any city, county, city and county, or special district;
- Employees exempt from the payment of overtime wages by statute or wage orders of the Industrial Welfare Commission; and
- Employees covered by collective bargaining agreements who earn a regular hourly rate of pay – that is, not less than 30 percent more than California’s minimum wage.
The WTPA also requires that employers notify their employees, in writing, of any changes to the information set forth in the notice within seven calendar days after the time of the changes, unless all the changes are reflected in a timely wage statement as required by Labor Code Section 226 or if the changes are noted in another writing required by law within seven days of the changes.
Additionally, the WTPA requires the Commissioner to create a template for employers to use to comply with the above requirements. According to the California Department of Industrial Relations, the template and related materials should be available in mid-December 2011 on its website.
In addition to the new notice requirements, the WTPA also increases penalties and creates new penalties for employers that violate the Labor Code. New sections of the Labor Code created under the WTPA include:
- Labor Code Section 1197.2, which imposes civil and criminal penalties on employers that, despite their ability to pay, willfully fail to pay a final court judgment or final order issued by the Commissioner for all wages due to an employee whose employment was terminated within 90 days of the date that the judgment was entered. In this case, the violating employer will face civil penalties between $1,000 and $20,000 and will be charged with a misdemeanor for each offense.
- Labor Code Section 200.5, which extends the time that the Division of Labor Standards Enforcement may commence a civil action from one year to three years from the date that the penalty or fee becomes final.
- Labor Code Section 1194.3, which allows employees to recover attorneys’ fees and costs incurred relating to enforcement of a court judgment for unpaid wages.
The WTPA also modifies existing sections of the Labor Code. Employers that violate the Labor Code must now pay restitution of wages to the employee and will be subject to civil penalties.
Additionally, prior to the passage of the WTPA, existing law provided that the Commissioner could require an employer convicted of a subsequent wage violation (or that failed to satisfy a judgment) to post bond in order to continue its business operations. The Labor Code, as amended by the WTPA, extends the time that a violating employer would have to maintain a bond from six months to two years and the Commissioner may require that a subsequently convicted employer provide an accounting of its assets.
What Employers Should Do Now
- Be prepared to assess whether workers are properly classified as independent contractors under California law. This must be done with great care to avoid triggering the very lawsuit you are trying to avoid.
- If you perform an audit of the independent contractor designation for your workers, do so in cooperation with legal counsel so that the audit may be protected by attorney-client privilege. If you determine that you need to reclassify workers, do so carefully and, again, in cooperation with counsel.
- Be sure that the template explanation you provide new employees of their non-exempt status is ironclad. If it isn’t, you may be handing them an invitation to a lawsuit.
- Prepare notices with the above-referenced requirements to comply with the WTPA for all new hires beginning January 1, 2012.
- Consider providing notice to exempt employees. Although not statutorily required, in the event there is a misclassification dispute of an employee’s exempt status, at least there will not also be penalties for failure to comply with the WTPA.
EBG is holding its annual NY briefing for clients and friends on Oct. 28. This full-day program will feature a special, two-hour workshop just for employers in the hospitality and retail industries, updating the many recent and significant labor and employment law developments affecting the industry. We will provide real-world guidance on how to manage the risks your company faces from increasingly aggressive plaintiffs’ lawyers and government investigators who have openly and unabashedly targeted the industry.
Topics on the workshop agenda include:
- Wage and hour class actions and government investigations: The prime targets are the misclassification of employees, the failure to provide or pay for meal and rest periods, tip pooling, and the failure to reimburse for business expenses, including uniforms. These pitfalls are eminently avoidable – learn how.
- Union organizing: UNITE HERE, SEIU, and other unions are continuing to aggressively target employees in the hospitality industry and they are newly emboldened by an increasingly union-friendly legal and political environment. Understanding why employees reach out for, or are receptive to, a union is the key to remaining union-free.
- Leave laws and other hot-button issues: ADA and FMLA requests – and, often, legal action – tend to increase during tough economic times, as do discrimination and retaliation charges. We will address the most common issues faced by hospitality employers in these and a host of other areas, including OSHA and immigration.
Come for the workshop; stay for the day! The workshop for hospitality employers is part of a day-long briefing covering a wide range of labor and employment challenges all employers are facing these days. We invite you to view the full agenda and join us for the entire program.