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Employers, even with the most robust and well-intentioned human resources departments, can still face the dreaded misclassification lawsuit for their salaried employers. In many cases, exempt employees are properly classified as executive or administrative employees. A misclassification lawsuit, however, is difficult to dismiss early because plaintiffs are afforded great latitude in crafting factual disputes that can only be resolved at trial. On top of that, plaintiffs generally bring such claims as class or collective actions – making litigation costly as well. Further compounding the problem, settlement of wage and hour misclassification cases is the preferred mode of resolution – but only after a range of damages can be made with some degree of certainty.

What if I told you that if you included one simple sentence in your employment contracts, handbooks and policies for salaried employees, it would likely reduce your exposure by approximately two-thirds in FLSA cases? For starters, it would make it easier to settle at the right amount by avoiding unnecessarily inflated ceiling for damage calculations by plaintiffs. So what are the “magic words” in this simple sentence?

For exempt employees, your salary is intended to pay for all hours worked during each pay period, regardless of your scheduled or tracked hours.…
Continue Reading Add One Line in Your Employment Contracts and Policies to Reduce Exposure to Misclassification Liability

Partner Mark Konkel was mentioned as Saks Fifth Avenue’s defense counsel in a newly-filed wage-and-hour class action in the Law360 article “Saks Hit With NY Wage Class Action Over Sales Commissions.” The high-end retailer has been accused of violating New York state labor law at its flagship department store in Manhattan. Mr. Konkel and a…

In a ruling that widens the divide between federal appellate courts, the Ninth Circuit sided today with the Seventh Circuit and the National Labor Relations Board (“NLRB”) in holding that the class action waiver provision of a company’s arbitration agreement with employees violates the National Labor Relations Act (“NLRA”). Prior to this decision, the Seventh Circuit was alone in its dissention from the federal majority with respect to this issue.

The United States Supreme Court in AT&T Mobility v. Concepcion made clear that class waivers are enforceable under the Federal Arbitration Act (“FAA”), at least in the context of consumer class actions, and that state laws that inhibit the full effectuation of the FAA are void. The NLRB, however, in its continuing bid to establish its relevance in the contemporary workplace, has challenged class waivers executed by employees; in D.R. Horton, Inc. v. NLRB, the NLRB held in 2012 that employees’ Section 7 rights are violated by such waivers, and that the FAA does not override this right. The NLRB’s ruling in D.R. Horton spawned a great deal of commentary and litigation – the NLRB’s ruling that class waivers are unenforceable was itself rejected by an appellate court in the Fifth Circuit. A host of federal appellate courts, as well as lower courts, have also criticized the NLRB’s ruling and refused to adopt its reasoning. Notably, the Fifth Circuit decision emphasized that the use of class action litigation is a procedural, rather than a substantive right, and that prohibiting class action waivers would discourage arbitration and, thus, violate the spirit and purpose of the FAA.…

Continue Reading Ninth Circuit Invalidates Class Waiver in Arbitration Agreement

Ambiguities in employee arbitration agreements may force employers to litigate putative class action claims in arbitration. The California Supreme Court delivered this cautionary message by its recent holding in Sandquist v. Lebo Automotive, Inc. In Sandquist, the plaintiff, an African-American male, filed a discrimination class action on behalf of “current and former employees of color” following his separation from the company. The company filed a motion to compel individual arbitration, relying on an arbitration clause the plaintiff signed in three separate documents upon commencing his employment. The trial court granted the company’s motion, concluding that the existing case precedent required the court – rather than the arbitrator – to determine whether class arbitration was available. Ultimately, the trial court interpreted the arbitration agreements’ as impliedly prohibiting class arbitration and, on that basis, struck the class allegations.

Upon review, the Court of Appeal reversed the trial court, holding that the arbitrator, not the trial court, must determine whether an arbitration agreement permits class arbitration. The California Supreme Court granted review and, on July 28, 2016, a narrowly divided Court affirmed the Court of Appeal, holding that the question of whether a court or an arbitrator decides if an arbitration agreement permits class claims should be determined on a case-by-case basis, specifically focusing on the agreement’s terms and resolving any ambiguities in favor of the non-drafting party. By its decision, the Court placed itself at odds with numerous federal appellate courts that have held that such questions are for a court, not an arbitrator, to decide.…

Continue Reading Sandquist v. Lebo Automotive, Inc.: California’s Cautionary Tale About the Importance of Drafting Arbitration Agreements with Precision

In today’s era of social media and the internet, many of us have an insatiable desire for information and a knee jerk reaction when attacked:

  • What dirt can we find out about our adversary?

This often happens in litigation – someone sues you or your company, and your first reaction is to jump on Google or Facebook to get some bad information on the other side.  What can we find out about him?  What skeletons does she have in her closet?  What bad stuff have they done in the past?

However, in litigation the best defense is often NOT a good offense, and gathering irrelevant, and potentially harmful information about the other side can backfire.

It is also critical to remember that whether in-house or at a firm, as lawyers, our conduct must be above reproach.  That means that even in the heat of battle, you should never forget your ethical obligations and your mandate as an officer of the court to conduct litigation, at all times, within the bounds of the law.…

Continue Reading Lessons to be Learned from Uber’s “Wrong Turn” with a Private Investigation

Wal-Mart may have felt the first aftershock of the Supreme Court’s March 2016 opinion in Tyson Foods, Inc. v. Bouaphakeo, which undercut overbroad interpretations of its landmark 2011 Wal-Mart v. Dukes decision and found that representative sampling of absent class members is not a per se improper method of establishing class-wide liability or damages.…

In a highly anticipated decision, the Supreme Court last week affirmed a $5.8 million judgment against Tyson Foods and held that damages in a class action can be established by “statistical sampling” – a phrase that may now haunt many employers for years to come.

The Plaintiffs in Tyson Foods Inc. v. Bouaphakeo et al.…

In a closely-watched decision involving a challenge to the business model used by ride-hailing company Uber Technologies, Inc., a California federal judge agreed to certify a class of California drivers who claim to have been misclassified as independent contractors instead of employees.  On September 1, 2015, in O’Connor, et al. v. Uber Technologies Inc.,…

Many of us spent summers working as interns, getting access to the industry of our choice, making contacts, learning – and yes running errands and filing and stuffing envelopes and doing other “grunt” work. Most young people value this experience, not for the money, but for the exposure, the contacts and the experience.

The world of internships has not been so rosy over the past several years, as the plaintiffs’ employment bar seized the gauntlet, and launched an avalanche of class actions accusing many employers of unlawfully failing to pay their interns.  Suddenly the young people who once seemed grateful for the experience, and who accepted internships at prestigious companies, suddenly decided that they should have been classified as “employees”  and looked for hefty payouts. Many of these cases have resulted in multi –million dollar settlements. At the forefront of this intern tsunami were two class actions which were both on appeal to the Second Circuit in New York – – Glatt et al. v. Fox Searchlight Pictures Inc., No. 13 – 4478 (2d Cir.) and Wang et al. v. The Hearst Corp., No. 13-4480 (2d Cir.).

In a holiday gift to employers, on July 2 the Second Circuit issued decisions in Glatt and Wang, refusing to certify the classes and finding that the interns were not employees under the law.  These decisions have dealt a significant blow to this budding industry of intern class actions, instead adopting a common sense test for whether interns should be treated as “employees,”  which many plaintiffs lawyers are likely bemoaning. Rejecting the Department of Labor’s (“DOL”) rigid approach to defining an unpaid internship, the Court adopted the more “nuanced” “primary beneficiary” test , which focuses more on whether the intern is receiving some real educational benefit from the experience.  The decisions also provide employers with some valuable guidance as to how they can design and maintain a legal unpaid internship program.

The good news is these decisions should slow the juggernaut of class actions.  The better news is they give employers some real practical guidance as to how they can design an internship program, without a fear that the intern today will become the plaintiff of tomorrow.   We think the best news is for the interns – as now young people who truly crave the experience of an internship are not looking at a future where companies who cannot afford to pay simply throw up their hands and decide that they will not bother to sponsor such programs.  So, putting aside the plaintiffs’ lawyers, there are winners on all sides as the result of these decisions.

Background

The Glatt and Wang cases both arose out of the same basic set of facts, interns who claimed they toiled for many hours over weeks and/or months, and were never paid.  In each instance, the claim was that claims on behalf of all interns for the two companies should be certified as class actions. Interestingly, the two judges at the district court had each reached the opposite conclusions on the claims. First, in May 2013, Judge Harold Baer denied the plaintiff’s motion to certify a class of unpaid interns in the Wang case.  Wang v. Hearst Corp., No. 12 CV 793 (HB) (S.D.N.Y. May 8, 2013).  A month later, in June 2013, District Judge William Pauley in the Glatt case, relying on the DOL’s six-factor test, ruled that Fox Searchlight Pictures violated minimum wage and hour laws by failing to compensate interns for their work on the set of “Black Swan.”  Glatt v. Fox Searchlight Pictures, Inc., No. 11. Civ. 6784 (WHP) (S.D.N.Y. June 11, 2013).  Judge Pauley found that Fox made no effort to educate or train the interns and had them perform routine tasks that would otherwise have been performed by regular employees.

The issue that was presented at the Second Circuit was whether the Court should require employers to satisfy all six of the DOL factors to establish a valid unpaid internship – the approach the plaintiffs’ bar favored.  The defense asked the Court to apply the more flexible “primary beneficiary” test, which looks at all of the facts and determines who benefits most from the internship, the employer or the intern. Those who observed the oral arguments at the Second Circuit reported that several judges were critical of the DOL’s six-factor test, finding it to be overly rigid, and thus seemed to be leaning toward the “primary beneficiary” test, which allows the court to consider the “totality of the circumstance” in deciding whether or not an internship qualified for compensation.

The Decisions 

In keeping with the predictions from oral argument, the Second Circuit rejected the DOL’s six factor test and ruled that the “proper question” to ask in determining whether an intern was an employee is “whether the intern or the employer is the primary beneficiary of the relationship.” It noted that the test had two salient features: what the intern receives in exchange for the work, and the “flexibility to examine the economic reality” of the arrangement. The court instructed that courts would have to “weigh the diverse set of benefits to the intern against an equally diverse set of benefits received by the employer.”…
Continue Reading The Unpaid Internship: Who “Really” Benefits from This Arrangement?