Addressing an issue that the Second Circuit had not explicitly touched before, the court just held that parties cannot privately resolve and/or discontinue an FLSA claim, without the supervision of the DOL or court approval. Cheeks v. Freeport Pancake House, Inc., 2015 WL 466 4283 (2d Cir. 2015)
In rejecting a stipulation presented by
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?
It came as no surprise, as reported in a Law360 analysis on May 2, that cases brought under the Fair Labor Standards Act (FLSA) continue to trend upward. The FLSA was for many years a sleepy, antiquated, Depression-era statute the that saw only moderate litigation. But the plaintiffs’ bar woke up to the complexity –
Under the federal Fair Labor Standards Act (“FLSA”), it is unlawful “to discharge or in any other manner discriminate against any employee because such employee has filed any complaint … related to” the FLSA. Previously, the Second Circuit held that only an employee who actually filed a formal written complaint with a government agency was
A recent Seventh Circuit decision may provide ammunition for employers defending FLSA claims brought by commission-based employees or employees who work irregular hours.
In Ramon Alvarado, et al. v. Corporate Cleaning Services, Inc., et al., No. 13-3818 (7th Cir. April 1, 2015), the plaintiffs were 24 window washers employed currently or formerly by Corporate Cleaning Services (“CCS”), one of Chicago’s largest providers of window-washing services to high-rises. They filed a lawsuit against CCS for failure to pay overtime wages under the FLSA, alleging they worked in excess of 40 hours in individual work weeks for CCS but were not paid at a rate of one and a half times their regular hourly rate of pay for all the time they worked in excess of 40 hours per week.
There is a commission-related exception to the FLSA that requires satisfaction of three conditions: (i) the worker’s regular pay exceeds one and a half times the federal minimum wage; (ii) more than half of the worker’s compensation represents commissions on goods or services; and (iii) the worker must be employed by a retail or service establishment. See 29 U.S.C. § 207(i). CCS conceded that it did not pay the window washers for work in excess of 40 hours a week; and the window washers conceded that their regular pay exceeds one and a half times the federal minimum wage (under the exception’s first required condition).
Examining the “commission” issue, Circuit Judge Richard Posner reviewed certain facts, including CCS’s assignment of “points” to jobs based on complexity and the number of hours that the window washers took to complete the job, as well as how each worker usually received the same amount of points allocated to the job. CCS then used the number of points assigned to the job to determine the amount it charged the customer and often made price adjustments for the costs of permits, equipment rentals, competition, or the desire to maintain good relations with customers. Because the plaintiffs’ compensation was based on the points assigned to each job on which they worked, their compensation would vary from job to job.
Posner analyzed the differences between two compensation systems – commission based and piecework based compensation. In a piece-rate system the worker is paid by the item produced by him; but in a commission system, a worker is paid by the sale. Varying compensation does not invalidate the compensation system as a commission system. See Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 509-10 (7th Cir. 2007). Another important consideration is that commission-compensated work involves irregular hours of work. See Id. at 510. Furthermore, if sales are made at a uniform rate, so that the hours worked-to-pay ratio is constant, then an employee who is paid by the sale is not a commission worker. Piece-rate workers are not within the FLSA commission exception because they keep producing even when no sale is imminent – the hours-to-output tend to be constant.
Here, however, the plaintiffs could only work when CCS was hired (or sold its services), and therefore, their employment was irregular because of the peculiar conditions of the window-washing business. In addition, Posner listed other reasons why their work was irregular, such as: weather, unable to amass an inventory, delays due to other work being done on the buildings or failure to notify residents, slowdown in demand, and, oddly enough, peregrine falcon attacks. Posner concluded that the plaintiffs’ compensation represented commission because they were paid only if there had been a sale of window washing services.
Continue Reading The Seventh Circuit Further Clarifies FLSA Overtime Exceptions…For Window Washers
Following on the increase in wage class actions, this week brings us a hefty settlement for shoe retailer, Payless Shoesource Inc. Last March, former Payless store managers filed suit in Connecticut federal court, accusing the company of misclassifying them as exempt and failing to pay them overtime. The original case was then combined with a
On January 15, The Eleventh Circuit rejected an oft-used defense in employment cases – that an employee’s violation of company policy should relieve the employer from liability under the equitable defense of “unclean hands” or “in pari delicto” (Latin for “in equal fault”).
In Bailey v. TitleMax of Georgia, plaintiff Santonias Bailey
Blog co-editors Barbara Hoey and Mark Konkel will be speaking at IN FASHION, Kelley Drye’s Fashion & Retail Law Summit, on January 22nd. The event, taking place at the Affinia Manhattan, will feature discussion on the latest legal and regulatory issues facing executives
