Category: Wage & Hour Litigation

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and Zachary J. McCormack

Duane Morris Takeaways: On June 21, 2024, in Cinar v. R&G Brenner Income Tax, LLC, No. 20-CV-1362, 2024 U.S. Dist. LEXIS 110045 (E.D.N.Y. June 21, 2024), Magistrate Judge James R. Cho of the U.S. District Court for the Eastern District of New York recommended granting class certification in a suit accusing R&G Brenner Income Tax Centers, also known as R&G Brenner Income Tax Consultants (“R&G Brenner”) of failing to pay overtime wages in violation of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). Judge Cho was unpersuaded by R&G Brenner’s arguments that plaintiffs’ motion to certify the class and distribute notice to putative class and collective action members was untimely and that plaintiffs could not establish numerosity, commonality, predominance and superiority under Rule 23. The ruling recommended that R&G Brenner’s employees, working as income tax preparers since March 13, 2014, met the requirements for class certification.

In determining the timeliness of the class certification motion, Judge Cho opined that R&G Brenner should not have been surprised by the motion considering that earlier pleadings in the record alluded to its likelihood. Further, the rules governing class actions indicate there is no deadline to file a motion to certify a class. While explaining that plaintiffs could establish numerosity, commonality, predominance and superiority, Judge Cho relied on the terms of more than eighty tax preparers’ employment agreements, which were derived from a form template that R&G Brenner adjusted slightly to allow for individualized compensation and work schedules. Therefore, the Court recommended the tax preparers met the requirements to secure class certification in the lawsuit accusing R&G Brenner of failing to pay overtime.

Case Background

R&G Brenner operates a tax preparation business that maintains approximately thirty offices in the New York metropolitan area. Id. at *2. During tax season, R&G Brenner employs approximately 75 income tax preparers at these different offices, which it classifies as overtime exempt. Id. at *3. On March 13, 2020, tax preparers for R&G Brenner filed a class and collective action claiming the employer violated federal and state wage and hour law by denying them overtime and by taking unlawful deductions from their wages. Id. at *4.

R&G Brenner paid the income tax preparers on a commission-only basis, in which the employees received a weekly advance on their commissions that was later deducted from their final gross commissions at the end of the tax season. Id. at *3. At the end of the tax season, R&G Brenner then created a final reconciliation for each income tax preparer, including: (i) the gross commission earned for the tax season; (ii) all advances that were paid during the season; (iii) all deductions withheld from the employee’s wages; and (iv) the net commission earned by and payable to the income tax preparer for the tax season. Id. at *4. Plaintiffs alleged that this compensation structure denied overtime compensation to the tax preparers even though they routinely worked more than forty hours per week. Id. at *6.

In addition to the contention that R&G Brenner failed to compensate tax preparers for overtime worked, plaintiffs further claimed that R&G Brenner’s policies made unlawful deductions from tax preparers’ wages, including credit card service charges, chargeback receipts, missing deposit money, employee referrals, “early bird specials,” reward money and promo money. Id. Finally, plaintiffs claimed that R&G Brenner did not provide the tax preparers with accurate written wage statements each week and did not pay them at least monthly, as required by New York State law. Id.

The Court’s Decision

Plaintiffs brought their FLSA and NYLL claims under a single action using the procedural mechanisms available under 29 U.S.C. § 216(b) and Rule 23, and moved the Court to certify a class of all income tax preparers who worked for R&G Brenner in New York since March 13, 2014. Id. at *8. R&G Brenner opposed plaintiffs’ motion, arguing the motion was untimely and that plaintiffs had not established numerosity, commonality, predominance, and/or superiority to certify the proposed class action. Id. at *1.

Even though Rule 23 does not provide a deadline for filing a motion for class certification, R&G attempted to persuade the Court to deny the motion as untimely, and therefore prejudicial. Id. at *10. Unpersuaded by this argument, Judge Cho explained that the claims of surprise were contradicted by the plaintiffs’ complaint and amended complaint that put R&G Brenner on notice of the class-wide claim. Id. In addition, R&G Brenner’s timeliness argument was upended by its stipulation with plaintiffs containing an express reservation of plaintiffs’ rights to move for class certification. Id. at *12.

R&G Brenner also failed to persuade Judge Cho that plaintiffs could not fulfill the numerosity requirement to certify the class. Id. at *8. Numerosity is presumed when the putative class has 40 or more members, and plaintiffs identified at least 87 putative class members. Id. However, R&G Brenner argued that the Court should not consider 84 of the 87 collective action notice recipients for numerosity purposes because they declined to opt-in to the collective action. Id. R&G Brenner, however, could not offer any authority in support of this position, and the Court relied on Second Circuit precedent indicating that the number of opt-ins under the FLSA has no bearing on the numerosity requirement under Rule 23. Id.

Finally, plaintiffs successfully demonstrated commonality and typicality through R&G Brenner’s policy of failing to pay overtime compensation, failing to provide plaintiffs with accurate wage statements pursuant to NYLL, delaying payment to plaintiffs, and withholding unlawful deductions. Id. at *15. Plaintiffs, as well as all income tax preparers, were required to sign employment agreements prior to the tax season which included their compensation and work schedule. Id. Those agreements were based on form templates that R&G Brenner adjusted to allow for individualized compensation and work schedules, but were otherwise standardized. Id. Thus, the Court determined that the language of the agreements was similar with the exception of commission rates, salary draws, and work schedules. Id. Relying on the foregoing reasoning, Judge Cho recommended granting the motion to certify the class, allowing the parties until July 8, 2024 to object to his recommendation and report. Id. at *40.

Implications For Employers

Judge Cho’s recommendation and report serves as a cautionary tale for employers drafting standard employment agreements. Even with differing compensation and work schedules, employment contracts derived from standardized language may provide the necessary elements for a Court to find the commonality and typicality requirements of a proposed class under Rule 23 are satisfied for purposes of class certification. Moreover, the decision serves as a timely reminder that courts may find the opt-in rate of an FLSA collective action unrelated to the issue of Rule 23 class certification within the same litigation.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo

Duane Morris Takeaways:  On June 3, 2024, in Loonsfoot, et al. v. Stake Center Locating, LLC, No. 23-CV-3171, 2024 WL 2815422 (S.D. Ill. June 3, 2024), Judge David Dugan of the U.S. District Court for the Southern District of Illinois denied a plaintiffs’ motion to dismiss his own lawsuit – a wage & hour class action – for lack of subject matter jurisdiction.  This decision highlights one of the rare circumstances where a company may want to oppose a plaintiff’s proposed dismissal of his class action and force the plaintiff to address the merits of his arguments early in the litigation.

Case Background

Plaintiff Michael Loonsfoot (“Plaintiff”), a former employee of Stake Center Locating, LLC (“Stake Center”), brought claims for alleged wage & hour violations.  Stake Center is a company that provides “utility locating services across the country.”  Id. at *1.  From December 2021 through June 2024, Plaintiff worked in a variety of different roles for Stake Center.  Plaintiff, however, believed that his former employer allegedly deprived him of wages for “compensable ‘off the clock’ work” and failed to include certain amounts when calculating his overtime wages.  Id.

Based on those allegations, Plaintiff filed a lawsuit against Stake Center in the U.S. District Court for the Southern District of Illinois for alleged violations of the Illinois Minimum Wage Law and the Illinois Wage Payment and Collection Act.  In order to pursue those claims in federal court, Plaintiff argued that “jurisdiction is proper under [the Class Action Fairness Act (“CAFA”)] because the proposed class has more than 100 members, the minimal diversity requirement is met, and the amount in controversy exceeds $5 million dollars.”  Id. at *2.  Stake Center appeared, filed its answer, and then moved for judgment on the pleadings.

In response, Plaintiff filed a motion to dismiss his own complaint on the basis that the court lacked subject-matter jurisdiction to hear the dispute.  Plaintiff argued that because Stake Center denied the Plaintiff’s general allegation that “[t]his Court has original subject matter over this action pursuant to the jurisdictional provisions of the Class Action Fairness Act” as well as similar allegations, jurisdiction must not be proper.  Id.

The Court’s Opinion

The Court easily dispensed with what it called Plaintiff’s “unusual litigation tactic.”  Id. at *3.  The Court noted that where “the party that invoked the court’s jurisdiction in the first place” subsequently files a motion to dismiss “such motions are [considered] ‘unseemly.’”  Id. (citing Napoleon Hardwoods, Inc. v. Professionally Designed Benefits, Inc., 984 F. 2d 821, 822 (7th Cir. 1993)).  The Court explained that “[g]iven the procedural posture of the case, Plaintiff cannot unilaterally dismiss the action” and thus, decided to address the jurisdictional issue under the CAFA.  Id. at *1, n. 2.

The Court analyzed the elements of original jurisdiction under the CAFA.  It held that “there is no dispute that the parties are minimally diverse”; “that the proposed class exceeds 100 class members”; and that “the amount in controversy exceeds $5 million” as pled.  Id. at *4.  The Court further noted that “Plaintiff provides no legal authority for the contention that a Defendant’s denial of an allegation in an answer is controlling on any issues, including the existence of subject matter jurisdiction.”  Id. at *2, n. 5.  The Court, therefore, denied Plaintiffs’ motion to dismiss his own complaint — against the backdrop of Stake Center’s argument that Plaintiff was “only seeking dismissal to avoid a ruling on the pending Motion for Judgment on the Pleadings.”  Id. at *1.

Implications For Companies

It should go without saying that it is atypical for a company to “decline[ ] Plaintiff’s request to consent to dismissal of” a class action lawsuit.  Id. at *1, n. 2.  That said, the defendant here astutely recognized that Plaintiff’s dismissal request was simply a procedural dance to avoid addressing the merits of the employer’s dispositive motion.  The defendant recognized that the Plaintiff’s lawsuit would just be refiled in state court — which likely would be a less favorable forum to the corporate defendant.

For that reason, if corporate counsel has a winning argument that it can raise in a Rule 12 motion, it often makes sense to put plaintiffs to their proofs in federal court, and not indulge in procedural gymnastics that will only lead to a case being heard in a less favorable forum.

By Gerald L. Maatman, Jr., Shireen Y. Wetmore, Nathan K. Norimoto, Nick Baltaxe

Duane Morris Takeaways: In Huerta v. CSI Electrical Contractors, Case No. S275431, 2024 Cal. LEXIS 1446 (Cal. Mar. 25, 2024), the California Supreme Court held that time spent on an employer’s premises to undergo a security check could constitute compensable hours worked; that time spent traveling on an employer’s premises may be compensable as employer-mandated travel time; and that employees covered by the Labor Code’s “construction occupation” exception to meal periods may be entitled to minimum wage for the time spent working during an on-duty meal period. As a result, companies operating in California should review and adjust their pay policies on these issues to ensure complaint pay procedures.

Case Background

Plaintiff George Huerta worked at a solar power facility in Central California that was managed, in part, by Defendant CSI Electrical Contractors (“CSI”).  Id. at 3.  At the start and end of each shift, employees waited at the facility’s entrance to partake in a security check, which included rolling down a window and showing an ID badge, a visual inspection of the vehicle, and at times, a search of the vehicle.  Id.  Huerta alleged that CSI owed him compensation for the time spent waiting to pass through the security checkpoints.  After passing through the checkpoint, Huerta then drove down the facility’s roads to reach the employee parking lot.  Huerta, again, claimed he should have been compensated for the time spent driving from the facility’s entrance to the parking lot.  Huerta was also covered by a collective bargaining agreement (“CBA”) that mandated an off-duty, unpaid 30-minute meal period.  Id.  CSI’s rules required workers to spend meal periods near their designated worksite for the shift, which Huerta alleged entitled him to additional compensation.  Id. at 4-5.

Huerta filed a wage-and-hour class action against CSI seeking unpaid wages.  He subsequently appealed his case to the Ninth Circuit, which, in turn, certified three questions to the California Supreme Court, including: (1) is time spent waiting to pass through a security checkpoint on an employer’s premises compensable time; (2) does time spent traveling from a security checkpoint to the employee parking lot constitute compensable time; (3) are workers entitled to paid meal periods when they are prohibited from leaving the jobsite during meal periods?  Id. at 1, 5.

The California Supreme Court’s Decision

Industrial Welfare Commission (IWC) Wage Order No. 16-2001 (“Wage Order No. 16”) that governs wages, hours, and working conditions in the construction, drilling, logging, and mining industries covered Huerta’s work at the facility.  Id. at 1.  To answer the three certified questions, the California Supreme Court interpreted Wage Order No. 16 as follows:

First, the Supreme Court held that under Wage Order No. 16, the time an employee spends on an employer’s premise waiting to undergo a mandatory security check could constitute compensable “hours worked” depending on the amount of “control” exercised over the employee.  Id. at 11.  The Supreme Court noted that CSI required Huerta to participate in the security check; confined him to the premises until he finished the entrance and exit procedure; and made him perform “specific and supervised tasks” of waiting in his vehicle, rolling down his window, and allowing his personal vehicle to be searched by a guard.  Id. at 9-10.  Thus, CSI exercised a sufficient amount of “control” over Huerta to render the time spent passing through the security checkpoint compensable time worked under the Wage Order.  Id. at 9.

Next, the Supreme Court held that under Wage Order No. 16, travel time may be compensable where (1) “the employer required the employee’s presence at an initial location before mandating travel to a subsequent location” and (2) “the employee’s presence was required for an employment-related reason other than accessing the worksite.”  Id. at 18.  Here, the Supreme Court offered an example of a worker who reported to an initial jobsite, retrieved work supplies, received the work order, and then traveled to a second jobsite.  Id. at 16.  Based on this example, the time spent travelling between jobsites represents compensable time.  Id.  Since Huerta and CSI offered contradictory evidence on this point, the Supreme Court declined to express a “view” on whether the facility’s security checkpoint was a “first location” that CSI mandated Huerta’s presence.  Id. at 17.

Finally, the Supreme Court held that “an employee must be paid a minimum wage for meal periods when an employer’s prohibition on leaving the premises or a particular area forecloses the employee from engaging in activities he or she could otherwise engage in if permitted to leave,” even if the employee is covered by a CBA-meal period exception under a Wage Order.  Id. at 33.  The Supreme Court did not express any opinion on whether CSI’s rules for meal periods prohibited Huerta from the leaving the facility during his 30-minute meal periods, but noted that “if Huerta’s ‘unpaid meal period’ is compensable under the wage order as ‘hours worked,’ he is entitled to seek compensation for that time under Labor Code section 1194.”  Id. at 35.

Implications For Employers

California continues to redefine what constitutes compensable time worked at the start and end of shifts.  This decision is a must read for employers with mandatory security checkpoints, and such employers are advised to review their security protocols as it may constitute compensable hours worked.

By Eden E. Anderson and Gerald L. Maatman, Jr.

Duane Morris Takeaways:  On March 25, 2024, the California Court of Appeal for the Second District held in Gramajo v. Joe’s Pizza on Sunset, Inc., Case Nos. B322992/B323024 (Cal. App. Mar. 25, 2024), that awards of attorneys’ fees and costs to prevailing plaintiffs in actions for unpaid minimum or overtime wages are mandatory.  Consequently, a trial court lacks discretion to deny fees and costs recovery, even when a plaintiff engages in bad faith litigation tactics and recovers a negligible amount.  On a bright note, mandatory fee and cost awards must still be reasonable, and a trial court retains discretion to reduce the amount sought if it is unreasonable. 

Case Background

Elinton Gramajo worked as a pizza delivery driver.  He sued his employer for failing to pay him minimum and overtime wages, failing to provide meal and rest breaks, failing to reimburse business expenses, and other related claims. He sought a total recovery of $26,159.23.  Coincidentally, that amount was just above the $25,000 jurisdictional threshold for an unlimited civil proceeding.  After four years of litigation, the case proceeded to trial.  A jury found in Gramajo’s favor, but only on his claims for unpaid minimum and overtime wages. The jury awarded him just $7,659.63.

Gramajo then sought to recover a whopping $296,920 in attorneys’ fees, and $26,932.84 in costs.  The trial court denied any recovery.  It found that Gramajo acted in bad faith by artificially inflating his damages claim to justify filing the case as an unlimited civil proceeding.  As evidence of bad faith, the trial court highlighted that, although Gramajo sought $10,822.16 in unreimbursed expenses, he submitted no evidence at trial to support that claim.  He also alleged an equitable claim for injunctive relief, but then never pursued that claim.  Additionally, the trial court found that the case had been “severely over litigated” with Gramajo noticing 14 depositions and serving 15 sets of written discovery requests, while ultimately using just 12 exhibits at trial.  Id. at 4.

The trial court’s denial of Gramajo’s motion for fees and costs was premised upon § 1033(a) of the California Code of Civil Procedure, which vests discretion in a trial court to deny attorneys’ fees and costs recovery when a plaintiff recovers less than the $25,000 jurisdictional minimum for an unlimited civil case.  Gramajo appealed.

The Court of Appeal’s Decision

On appeal, the California Court of Appeal for the Second District reversed.

It held that § 1194(a) of the California Labor Code applied, and not § 1033(a) of the Code of Civil Procedure.  Section 1194(a) of the Labor Code provides than a plaintiff who prevails in an action for unpaid minimum or overtime wages “is entitled to recover in a civil action . . . reasonable attorneys’ fees, and costs of suit.”  The Court of Appeal reasoned that § 1194(a) mandates a fee award to a prevailing plaintiff who alleges unpaid minimum and/or overtime wages, and that it was more specific than § 1033(a) of the Code of Civil Procedure, and more recently enacted.

On a bright note, the Court of Appeal cautioned that its reversal “should not be read as license for attorneys litigating minimum and overtime wages cases to over-file their cases or request unreasonable and excessive cost awards free of consequence” and that § 1194(a) mandates only the recovery of a “reasonable fee and cost award.”  Id. at 15. While remanding that issue to the trial court, the Court of Appeal highlighted an example of a fee award it deemed reasonable.  It noted that, in Harrington v. Payroll Entertainment Services, Inc., 160 Cal.App.4th 590 (2008), the plaintiff recovered just $10,500 in unpaid overtime wages and was awarded attorneys’ fees of just $500.

Implications Of The Decision

While it is an unfortunate outcome that attorneys’ fees and costs awards in overtime and minimum wage cases are mandatory to a prevailing plaintiff, and not entirely discretionary, the silver lining in Gramajo is that a trial court at least retains discretion to award only what is reasonable.

By Gerald L. Maatman, Jr., Natalie Bare, and Harrison Weimer

Duane Morris Takeaways: A recent ruling by Judge Joshua Wolson of the U.S. District Court for the Eastern District of Pennsylvania highlights important distinctions in how courts analyze conditional certification motions under the Fair Labor Standards Act (“FLSA”) and class certification motions under Rule 23 of the Federal Rules of Civil Procedure. In Fayad v. City of Philadelphia, Case No. 23-CV-32 (E.D. Pa. Mar. 18, 2024), the Court conditionally certified plaintiff’s FLSA overtime claims on behalf of a proposed collective action of paralegals at the City of Philadelphia District Attorney’s Office, but denied Rule 23 class certification of the same claims under the Pennsylvania Minimum Wage Act (“PMWA”). According to the Court, conditional certification was appropriate because the District Attorney’s Office had a uniform policy of classifying paralegals as administratively exempt under the FLSA and therefore not paying overtime wages. However, the same evidence fell short of clearing the higher hurdle posed by the predominance requirement of Rule 23. The decision reminds employers to factor these differing standards into their litigation strategy.

Case Background

On January 4, 2023, Plaintiff Marybelle Fayad, a former paralegal for the City of Philadelphia District Attorney’s Office, sued her former employer, alleging that it misclassified paralegals and those with similar job duties as exempt and failed to pay them overtime wages in violation of the FLSA and the PMWA.

Plaintiff moved for conditional certification under 29 U.S.C. § 216(b) of the FLSA and for class certification of the PMWA claims under Rule 23 based on deposition testimony from Unit supervisors, job descriptions, company policies, and declarations of putative plaintiffs establishing that the District Attorney’s Office uniformly classified paralegals (and others with similar job duties) as exempt. In opposing both motions, the District Attorney’s Office argued that due to the paralegals’ varying job duties, responsibilities, working conditions, hours, shifts, and units, they were not similarly situated and individualized issues would predominate.

The Court’s Ruling

On March 18, 2024, Judge Wolson granted Plaintiff’s FLSA conditional certification motion, but denied her Rule 23 class certification motion, explaining that, “Rule 23 class certification and FLSA collective action certification are fundamentally different creatures.” Id. at 20.

While Judge Wolson declined to include non-paralegals with “substantially similar job duties” in the collective action membership, he found that Plaintiff met her relatively light burden to make a “modest factual showing” that the paralegals were “similarly situated” because the “evidence shows the DAO has a policy of classifying paralegals as administratively exempt under the FLSA, and that it therefore fails to pay the paralegals overtime.” Id. at 20-21. The Court also noted that it would reach the same result applying a heightened intermediate standard.

Judge Wolson opined that Rule 23, however, requires more; specifically, it requires the Court to conduct a “rigorous assessment” of the available evidence and the methods by which the plaintiff proposes to use that evidence to prove the requirements of Rule 23, including the requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Id. at 22.

The Court explained that showing predominance required Plaintiff to “proffer class-wide evidence to show that a) the DAO improperly classified paralegals under the PMWA and b) the paralegals worked overtime hours.” Id. According to the Court, Plaintiff did the former but not the latter.  Specifically, Plaintiff did not “proffer common proof to show that the DAO’s paralegals worked over forty hours in a given week.” Id. As a result, Judge Wolson concluded “individual issues will predominate” because there would be no way of knowing each paralegals hours worked without individual inquiry. Id.

The Court found Plaintiff’s testimony from one Unit supervisor fell short of the “common evidence” of hours the paralegals worked required to show predominance under Rule 23 because the testimony did not apply to all 200 paralegals employed by the District Attorney’s Office. This single supervisor’s testimony was not common evidence to prove injury in fact to all paralegals. Id.

The Court also explained that the common proof “doesn’t have to be time records, but it has to be ‘sufficient to show the amount of the employees’ work as a matter of just and reasonable inference.’” Id. Plaintiff offered no alternate to time records; rather, as the Court put it: “She just asks me to draw an inference from the absence of records.” Id. The Court clarified that demonstrating predominance does not require a plaintiff “to prove the measure of each paralegal’s damages,” but rather the plaintiff “must be able to demonstrate the fact of damage (meaning injury or impact) on a class-wide basis.” Id.

Implications For Employers

The Fayad decision underscores the low burden that plaintiffs must typically meet to demonstrate that their proposed FLSA plaintiffs are “similarly situated” for purposes of conditional certification. As we reported in the Duane Morris Class Action Review [https://blogs.duanemorris.com/classactiondefense/2024/01/09/it-is-here-the-duane-morris-class-action-review-2024/], courts granted 75% of FLSA conditional certification motions in 2023.

Employers facing both class and collective actions in the same litigation should be proactive and strategic in managing the timing of discovery and motion practice in light of the differences in how courts will analyze FLSA conditional certification motions versus Rule 23 class certification motions. The decision also provides a helpful analysis for employers opposing class certification of misclassification claims in cases where plaintiffs offer no common method of providing overtime work

By Gerald L. Maatman, Jr., Brandon Spurlock, and Nicolette J. Zulli

Duane Morris Takeaways: As the threat of wage & hour collective actions continue to pose litigation risks for businesses, especially given the typically low threshold to obtain FLSA condition certification, a recent Georgia federal court opinion offers a positive lesson for companies facing such actions where plaintiffs are unable to show that other similarly situated workers want to join the lawsuit. In Parker v. Perdue Foods, LLC, No. 5:22-CV-268, 2024 U.S. Dist. LEXIS 45542 (M.D. Ga. Mar. 14, 2024), Judge Tilman E. Self of the U.S. District Court for Middle District of Georgia denied Plaintiff’s motion for conditional certification in an FLSA 216(b) collective action on the grounds that Plaintiffs failed to demonstrate that other similarly situated workers desired to opt-in to the lawsuit.

Case Background

Perdue, “the third largest boiler chicken company in the country,” contracts with approximately 1,300 so-called “growers” — farmers who raise chickens for Perdue — throughout the nation.  Id. at *2. Parker, a former grower for Perdue, filed a lawsuit seeking relief under the Fair Labor Standards Act (“FLSA”). He claimed that growers were entitled to at least the federal minimum wage and overtime pay, which Perdue did not pay them. Id. at *3. Specifically, Parker alleged that he often worked over 60 hours per week, was expected to be on call 24 hours a day, and, after paying for expenses, he was making a fraction of the federal minimum wage. Id. at *2 (internal quotations and citations omitted). Parker claimed that he and other growers nationwide were misclassified as independent contractors, when they were in fact employees. Id. at *3.

The parties engaged in six months of targeted discovery on conditional certification issues, including extensive written discovery, a Rule 30(b)(6) deposition, and the depositions of Parker and the sole opt-in plaintiff to the action. Id.

Plaintiffs sought to conditionally certify a proposed collective action that included at least 1,300 growers who raised chickens for Perdue under a Perdue Poultry Producer Agreement in the past three years. Id. at *5. Plaintiffs also sought the Court’s approval for a proposed notice to be sent to potential collective action members who met this definition, as well as Perdue’s disclosure of a list of individuals in the potential collective action so that notice could be sent. Id. at *6.

Perdue objected to conditional certification because, among other things, Plaintiffs failed to provide sufficient evidence to show that other growers in the nationwide collective action wished to opt-in. Id. Plaintiffs argued that the opt-in consent filed by the only opt-in plaintiff indicated that other growers desired to join the suit and would join if given notice, and that one or two opt-in plaintiffs are sufficient to permit conditional certification in the Eleventh Circuit. Id.

The Court’s Decision

Judge Self agreed with Perdue. He held that Plaintiffs failed to meet their burden of showing that there were a substantial number of growers who desired to opt-in to the collective action. Id. at *14. Accordingly, the Court denied Plaintiffs’ motion for conditional certification and dismissed the opt-in plaintiff from the suit without prejudice. Id.

The Court addressed the merits of Perdue’s objection under the first prong of the analysis of Dybach v. Florida Dep’t of Corrections, 942 F.2d 1562, 1567 (11th Cir. 1991). Dybach held that Plaintiffs bear the burden of showing that the individuals in the proposed collective action (1) “desire to opt-in” to the collective action and (2) are “similarly situated.” Because the Court found Plaintiffs failed to meet their burden on the first prong, it did not reach the issue of whether members of the proposed collective action were similarly situated. Id. at *6-7.

Importantly, the Court applied a somewhat heightened standard of scrutiny in this case because the Parties had already engaged in six (6) months of discovery focused on conditional certification. Id. at *7. The Court explained that although it typically applies a fairly lenient standard for conditional certification, the rationale for that standard disappears once a plaintiff has had an opportunity to conduct discovery. Id. In other words, the standard may become less lenient as the litigation progresses. Id.

The Court also highlighted that despite Plaintiffs having six months to conduct discovery and gather evidence for conditional certification, the only evidence they presented suggesting that other growers desired to opt-in to the case was (i) a single opt-in and (ii) statements from Parker and the opt-in that they believe other growers would be interested in joining the lawsuit. Id. at *10. Specifically, the Court noted that “one opt-in is insufficient to show substantial interest” in a proposed collective action “of over 1,300 individuals in 11 locations in nine (9) states across the country, even under the most lenient of standards.” Id. (emphasis added).

In addition to being unpersuaded by Plaintiffs’ position, which aimed to establish a bright line rule regarding the number of opt-in consents sufficient to satisfy its burden, the Court found that the declarations filed by Parker and the opt-in (stating that they believe other growers would be interested in joining the collective action) were speculative and thus insufficient. Id. at *11-12. Furthermore, the Court noted that in their depositions, both Parker and the opt-in conceded that they were not aware of any growers who wish to join the action. Id. at *12.

In the end, the Court opined that “[b]ottom line: two out of 1300+ just isn’t enough” for conditional certification. Id. at *13.

Implications For Employers

Perdue Foods provides specific and valuable insight for employers on how best to defend against conditional certification in cases where (1) the parties have engaged in discovery on conditional certification issues; and (2) the number of opt-ins who have consented to the action are nominal in comparison to the size of the proposed collective action. The decision provides a roadmap for employers as to FLSA conditional certification following the parties’ engagement in extensive pre-certification discovery targeted toward conditional certification. Namely, that the court may apply a heightened standard of scrutiny in such circumstances, thereby requiring Plaintiffs to show that more than just “one or two” opt-ins are interested in joining the action.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther

Duane Morris Takeaways: In Chamber of Commerce of the U.S.A. et al. v. NLRB et al., No. 6:23-CV-00553, 2024 WL 1045231 (E.D. Tex. Mar. 8, 2024), Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas granted the Plaintiffs motion for summary judgment and denied the Defendants cross-motion for summary judgment. Under the NLRB’s 2023 joint employer rule, even companies who exercise just “indirect control” over the employees of another entity could be considered a joint employer under federal labor laws. The Court held that the NLRB’s 2023 joint employer rule did not provide a meaningful two-part test to determine joint employer status, and that the NLRB’s reason for rescinding the 2020 Rule was arbitrary and capricious.  Accordingly, the Court vacated the 2023 Rule and reinstated the 2020 Rule. 

This ruling is a huge win for businesses, as it reinstates the 2020 Rule’s heightened “substantial direct and immediate control” standard for determining joint-employer status.

Case Background

In 2020, the NLRB issued a joint-employer final rule, providing that an entity “is a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment” (the “2020 Rule”).  Id. at 12 (quoting 29 C.F.R. § 103.40(a) (2020)).  Under the 2020 Rule, a company is a joint employer when it exercises “substantial direct and immediate control” over one or more of the following “essential terms or conditions of employment” – “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”  Id. at 12-13 (quoting 29 C.F.R. § 103.40(a), (c)(1) (2020)).

In 2023, the NLRB rescinded the 2020 Rule and enacted a new joint-employer final rule (the “2023 Rule”).  Id. at 14.  The 2023 Rule defined a joint employer as an entity that exercised “reserved control” or “indirect control” over one of seven terms and conditions of employment, including: “(1) work rules and directions governing the manner, means, and methods of the performance, and (2) working conditions related to the safety and health of employees.”  Id. (29 C.F.R. § 103.40(d)-(e)).

In 2023, Plaintiffs sued the Defendants, challenging the 2023 Rule on two grounds: (i) that it is inconsistent with the common law; and (ii) that it is arbitrary and capricious.  Id. at 14-15.

In response, the Defendants cross-moved for summary judgment on the Plaintiffs claims, alleging that the 2023 Rule was based on, and is governed by, common law principles, that it is not arbitrary and capricious, and that the Board acted lawfully in rescinding the 2020 Rule.  Id. at 20.

The Court’s Decision

The Court granted the Plaintiffs motion for summary judgment, and denied Defendants cross-motion for summary judgment, thereby “vacating the 2023 Rule, both insofar as [the 2023 Rule] rescind[ed] the [2020 Rule] and insofar as it promulgate[d] a new version of [the 2020 Rule].”  Id. at 30.

First, the Court focused on the main dispute between the parties, i.e., whether the 2023 Rule had a meaningful two-step test to determine an entity’s joint employer status, or the 2023 Rule only had one step for all practical purposes.  Id. at 20-21.  The Defendants argued that the 2023 Rule’s joint-employer injury had the following steps: (i) “an entity must qualify as a common-law employer of the disputed employees”; and (ii) “only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment.”  Id.  The Court disagreed, finding that “an entity satisfying step one, along with some other entity doing so, will always satisfy step two,” since “an employer of a worker under the common law of agency must have the power to control ‘the material details of how the work is to be performed,” and the Defendants proposed step two included “work rules and directions governing the manner, means and methods of the performance of duties.”  Id. at 22-23 (internal citations omitted).

The Court then analyzed whether the Board lawfully rescinded the 2020 Rule.  It opined that “to survive arbitrary-and-capricious review, agency action must be ‘reasonable and reasonably explained.”  Id. at 28-29.  The Court held that the Board did not provide a “reasonable or reasonably explained” purpose for rescinding the 2020 Rule, and therefore, its recension was arbitrary and capricious.  Id. at 29.  Since “vacatur of an agency action is the default rule” in the Fifth Circuit when such rule “is found to be discordant with the law or arbitrary and capricious”, the Court vacated the 2023 Rule.  Id. at 30.

Implications For Employers

The Court’s vacatur of the 2023 Rule in Chamber of Commerce of USA et al. v. NLRB et al. is an important victory for employers. The 2023 Rule would have made “virtually every entity that contracts for labor . . . a joint employer.” Id. at 25. Moreover, the 2020 Rule, in addition to imposing the heightened “substantial direct and immediate control standard,” provides integral guidance for what actions are considered joint, and what actions are not.  The Court’s decision to reinstate the 2020 Rule, therefore, is also a significant win for employers.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown

Duane Morris Takeaways: On March 12, 2024, in Parker v. Battle Creek Pizza, Inc. No. 22-2119 (6th Cir. Mar. 12, 2024), a three-judge panel of the Sixth Circuit addressed the issue of what standard applies for calculating reimbursements of vehicle expenses owed under the FLSA to delivery drivers who use their own vehicles for their jobs. The consolidated appeal arose from dueling opinions of U.S. District Courts in Michigan and Ohio on the same issue.

The Sixth Circuit concluded that neither the IRS standard mileage rate (the approach of the court in Michigan), nor an employer’s “reasonable approximation” of vehicle costs (the approach of the court in Ohio), satisfies an employer’s minimum wage obligations under the FLSA. The Sixth Circuit vacated the district court opinions and sent the cases back to their respective courts for further proceedings on remand. The Sixth Circuit’s decision is essential reading for all businesses with delivery drivers, particularly those defending minimum wage claims involving drivers’ expenses, a hot-button litigation issue percolating in courts across the country.

Case Background

To set the stage, the FLSA requires payment of the minimum wage (currently $7.25 an hour) to employees “free and clear.” In the U.S. Department of Labor regulations interpreting the statute, 29 C.F.R. § 531.35 states that employers cannot shift business expenses to their employees if doing so causes the employees’ wages to drop below the minimum wage. In another section of the FLSA regulations, the DOL addresses how to calculate an employee’s “regular rate of pay” for overtime calculations when the employer reimburses an employee’s business expenses. In that regulation at 29 C.F.R. § 778.217(c), the DOL says employers may “reasonably approximate” the amount of the expenses to be reimbursed. The DOL regulations say nothing, however, about how to calculate such an approximation, and whether the analysis applies to wages owed other than overtime wages.

The district court in Parker v. Battle Creek Pizza, Inc., 20-CV-00277 (W.D. Mich. Apr. 28, 2022), held that use of the IRS mileage rate satisfied the FLSA. The court deferred to the DOL’s Field Operations Handbook, the internal manual that guides investigators for the Wage and Hour Division. In the Field Operations Handbook. The DOL takes the enforcement position at § 30c15(a) that employers may, in lieu of reimbursing an employee’s actual expenses, use the IRS standard business mileage rate to determine the amount of reimbursement owed to employees for FLSA purposes. By contrast, the district court in Bradford v. Team Pizza, Inc., 20-CV-00060 (S.D. Ohio Oct. 19, 2021), rejected the IRS mileage rate in favor of an employer’s “reasonable approximation” of the drivers’ expenses.

The IRS standard business mileage rate, currently $.67 a mile, is intended to represent gasoline, depreciation, maintenance, repair and other fees pertaining to vehicle upkeep. Employers’ “reasonable approximation” of an employee’s costs in using their personal vehicles to perform work typically is lower than the IRS rate.

The Sixth Circuit’s Ruling

The Sixth Circuit highlighted the basic requirement of the FLSA to pay employees at least the minimum wage for hours worked. As the Sixth Circuit stated, when an employee’s hourly wage is the minimum $7.25 an hour, any underpayment of the employee for costs they expended to benefit the employer necessarily causes them to receive less than the minimum wage.

Although it acknowledged the difficulty of calculating vehicle expenses on an employee-by-employee basis, the Sixth Circuit reasoned that any “approximation” of an employee’s personal vehicle costs — whether it be the employer’s own calculation or the IRS’s standard business mileage rate — is contrary to the FLSA where it results in an employee receiving less than the minimum wage.

The Sixth Circuit declined to defer to the DOL’s interpretation in the FLSA regulations or the agency’s Field Operations Handbook. It emphasized that the FLSA regulation supporting the “reasonable approximation” method — 29 C.F.R. § 778.217(c) — addressed overtime calculations, not minimum wage. The Sixth Circuit also found use of the IRS standard business mileage rate to be fatally flawed. As it explained, the IRS’s rate, though more generous in application than the “reasonable approximation” method, disfavors high-mileage drivers like delivery drivers and fails to account for regional and other differences inherent in maintaining a vehicle. Id. at 6.

The Sixth Circuit did not announce a new standard to replace the two approaches it rejected. However, it offered a three-part framework for the district courts to consider on remand. Similar to the burden-shifting framework in Title VII disparate treatment cases, the Sixth Circuit suggested that an FLSA plaintiff might present prima facie proof that a reimbursement was inadequate. The employer would then bear the burden to show that the amount it reimbursed bore a reasonable relationship to the employee’s actual costs. The plaintiff would have an opportunity to attack the employer’s reasoning while bearing the ultimate burden to prove failure to receive minimum wages.

Implications For Employers

Although the Sixth Circuit’s ruling in Parker is binding only on federal courts in Ohio, Michigan, Tennessee and Kentucky, the opinion may prompt courts around the country to reconsider reliance on the DOL’s “reasonable approximation” standard and the IRS’s standard business mileage rate when evaluating minimum wage claims of delivery drivers. Considering that FLSA claims asserting underpayment for vehicle expenses already is a favorite topic of the plaintiffs’ class action bar, we expect the opinion to unleash a flood of new lawsuits in this area. All businesses with delivery drivers ought to keep a close watch on how the Michigan and Ohio district courts apply the Sixth Circuit’s ruling on remand.

A silver lining in the decision may well be the notion that as calculating the appropriateness of reimbursement is required on a driver-by-driver basis, such claims seem difficult to ever certify.

The opinion in Parker is also significant in light of the Supreme Court’s forthcoming ruling on the viability of the Chevron doctrine, the framework in which courts generally defer to agencies’ interpretation of federal statutes. In rejecting the DOL’s interpretation of the FLSA, the reasoning in Parker may be a harbinger of future rulings under the FLSA and a panoply of other statutory schemes if the Supreme Court abandons Chevron deference.