Category: Wage & Hour Litigation

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.

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

Duane Morris Takeaways: On February 29, 2024, in Miller II v. SBK Delivery, LLC, No. 2:21-CV-04744 (S.D. Ohio Feb. 29, 2024), Judge Michael H. Watson of the U.S. District Court for the Southern District of Ohio applied the Sixth Circuit’s standard in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023,) to decertify a collective action of delivery drivers seeking unpaid overtime under the FLSA.  As one of the first decertification rulings applying the Clark standard, the Court’s opinion is required reading for businesses litigating FLSA claims before courts in the Sixth Circuit.

Case Background

On September 22, 2021, the plaintiff in Miller II filed a Complaint against the defendant, SBK Delivery, LLC. The defendant contracted with multiple package carriers to provide delivery drivers. The package carriers paid the defendant for each package the drivers delivered. The defendant then paid each driver a percentage of the payment it received from the package carrier. The plaintiff asserted claims of unpaid overtime under the FLSA and Ohio law as well as a breach of contract claim. The plaintiff filed the FLSA claims on behalf of a proposed collective action of drivers who entered into independent contractor agreements with the defendant to provide services as delivery drivers.

On February 9, 2022, the Court approved the parties’ joint stipulation to conditionally certify and issue notice to a collective action consisting of current and former delivery drivers who performed work for the defendant between September 22, 2018 and the present who worked over 40 hours per workweek and were classified as independent contractors.

Nineteen (19) individuals filed consents to join the lawsuit as prospective opt-in plaintiffs.

On March 22, 2023, the defendant filed a motion to decertify the collective action. Prior to the close of briefing on the decertification motion, on May 19, 2023, the Sixth Circuit issued its pivotal decision in Clark.

In Clark, the Sixth Circuit articulated a “strong likelihood” standard for facilitating notice to potential opt-in plaintiffs pursuant to 29 U.S.C. § 216(b) of the FLSA. Under the new standard, only after demonstrating a “strong likelihood” that similarly situated other employees exist may opt-in plaintiffs become parties to the named plaintiff’s lawsuit.

Following the Sixth Circuit’s ruling, the parties filed supplemental briefing to address the similarly-situated status of the collective under Clark.

The Court’s Ruling

Because the parties had stipulated to conditional certification prior to the Sixth Circuit’s ruling in Clark, the Court had not had an earlier opportunity to rule on the plaintiff’s similarly-situated status relative to those in the collective action prior to the issuance of notice to potential opt-in plaintiffs.

Applying the Clark standard to the plaintiff’s claims for the first time, the Court held that the plaintiff failed to show a strong likelihood that he was in fact “similarly situated” to the putative opt-in plaintiffs.

The Court reasoned that it was not enough for the plaintiff to show that he was subject to the same alleged FLSA-violating policy of misclassification as an independent contractor of the defendant. The plaintiff also needed to establish that the question of the amount and extent of alleged unpaid overtime could be determined on a collective-wide basis.

The Court found the plaintiff dissimilar from the opt-ins in multiple key respects, including with respect to the route assignment a driver chose, since each route assignment had different start times, end times and duration. Based on individual differences in whether a driver worked overtime hours, the Court reasoned that evidence of the named plaintiff’s hours worked would not be representative of the claims of the opt-in plaintiffs. Accordingly, the Court concluded that it would need to analyze individually each opt-in plaintiff’s overtime claims to determine liability, which would be completely contrary to the purpose of the collective action mechanism.

As a result of the Court’s application of Clark, it held that the plaintiff’s FLSA claims must proceed on an individual basis only. For these reasons, the Court dismissed each of the opt-in plaintiff’s claims without prejudice.

Implications For Employers

The Court’s ruling in Miller II demonstrates that the Clark standard is a game changer for FLSA litigants in district courts within the Sixth Circuit.

To satisfy the “strong likelihood” iteration of the similarly-situated standard for FLSA certification, plaintiffs must show more than the existence of a common policy or practice that allegedly violates the FLSA. The ruling highlights the opportunity the Clark standard affords to defendants to whittle down the scope of an FLSA lawsuit significantly by marshaling facts of dissimilarity between the named plaintiff and others. To maximize the ability to prevail on a certification ruling under the Clark standard, companies ought to devote significant resources to managing FLSA compliance risks on the front end, before any litigation arises.

By Gerald L. Maatman, Jr., Alex W. Karasik, and Nicolette J. Zulli

Duane Morris Takeaways: In Ayala v. Nissan N. Am., Inc., No. 23-11027, 2024 U.S. App. LEXIS 2965 (11th Cir. Feb. 8, 2024), the Eleventh Circuit unanimously upheld a District Court’s decision granting Nissan’s motion for summary judgment in a wage & hour class and collective action. It held that none of the eight factors for determining joint employment weighed in favor of the company. The Eleventh Circuit further affirmed the District Court’s denial of both Rule 23 class action certification and conditional certification of the collective action under the FLSA.

The Eleventh Circuit’s opinion offers a treasure trove of insights regarding the crucial joint employer issue — particularly for employers who operate in a business-partnership dynamic where one entity (e.g., a manufacturer or staffing company) maintains oversight and/or indirect influence over the employees of the other entity (e.g., a car dealership or contractor) that handles payroll and/or hiring and firing processes.

Case Background

Two automotive service employees (“Technicians”) working at Florida Nissan dealerships filed suit against Nissan, alleging violations of the FLSA and the Florida Minimum Wage Act (“FMWA”), for failure to pay wages as required by law. Id. at *3. They also sought conditional certification as a collective action pursuant to the FLSA, 29 U.S.C. § 216(b), as well as certification of a class action under Rule 23.

The Technicians alleged they performed vehicle repair and maintenance on behalf of Nissan at the dealerships but were not compensated as required by law. Id. Specifically, they pointed to Nissan’s Assurance Products Resource Manual (“APRM”) and Dealership Agreements, which determined how much Nissan paid dealerships for warranty work conducted by technicians, regardless of how long the work took.  Pursuant to the APRM and the Dealership Agreements, Nissan agreed with each dealership to reimburse the dealership according to the “flat-rate” system. Id. at *3.

The Technicians argued that — when the warranty work took longer than the “flat-rate time” determined by Nissan, thus limiting Nissan’s reimbursement to the dealership — the result is that they were underpaid by the dealership. Id. at *4. As a result, the Technicians asserted that Nissan was a joint employer, which Nissan opposed. The District Court agreed with Nissan and granted its motion for summary judgment. The Technicians appealed. Id. at *2.

The Eleventh’s Circuit’s Decision

The Eleventh Circuit affirmed the District Court’s order granting summary judgment and denying class certification under Rule 23 and conditional certification of a collective action under 29 U.S.C. § 216(b). Id. at *20.

On appeal, the Technicians argued that the District Court erred in granting summary judgment, because it failed to consider all admissible record evidence that they presented. Id. at *2. They further argued that the District Court erred in denying their motions for certification. First, the Eleventh Circuit rejected the Technicians’ argument that summary judgment was improper, after applying the eight-factor test under Layton v. DHL Express (USA), Inc., 686 F.3d 1172 (11th Cir. 2012), which is guided by five principles that are focused on indicators of “economic dependence,” for evaluating whether an employment relationship exists under the FLSA. These factors include: (1) The nature and degree of control of the workers; (2) The degree of supervision, direct or indirect, of the work; (3) The power to determine the pay rates or the methods of payment of the workers; (4) The right, directly or indirectly, to hire, fire, or modify the employment conditions of the workers; (5) Preparation of the payroll and payment of wages; (6) Ownership of the facilities where work occurred; (7) Performance of a specialty job integral to the asserted joint employer’s business; (8) The relative investments of the asserted joint employer in equipment and facilities used by the workers. Id. at *6-7.

The Eleventh Circuit held that none of these factors weighed in favor of a finding that Nissan was a joint employer of the Technicians. Id. at *22. Its analysis greatly emphasized the Technicians’ (i) failure to identify any specific, substantive content in Nissan’s 233-page APRM or its Anomalous Repair Control Program, and (ii) their reliance on conclusory and uncorroborated allegations in declarations and affidavits. The Eleventh Circuit opined that this was  insufficient to show the District Court failed to consider relevant evidence. Id. at *8, *16. The Eleventh Circuit relied primarily upon a comparison to its prior decisions in Layton, Aimable v. Long & Scott Farms, 20 F.3d 434 (11th Cir. 1994), and Martinez-Mendoza v. Champion Int’l Corp., 340 F.3d 1200 (11th Cir. 2003), ultimately concluding that the relevant factors in this case weigh more heavily against joint employment. Id. at *18.

The Eleventh Circuit also rejected the Technicians’ argument that the District Court erred in denying both certification of a class action under Rule 23 and conditional certification of a collective action under § 216(b). The Eleventh Circuit opined that the putative class members would be employed by different dealers, making the inquiries about their pay “highly individualized and unwieldy.” Id. at *23. This, in turn, meant that the employees would not be similarly situated (as required for a collective action under the FLSA) and that there would not be sufficient common facts (as required for a class action under Rule 23). Id.

Implications For Employers

The Ayala decision is notable in that it offers a novel glimpse into the Eleventh Circuit’s approach to construing the language of employer policies to determine joint-employer status. To that end, the decision not only calls for employers to assess their business relationships to those it considers employees versus contractors, but also highlights the importance of constructing written policies and procedures with an eye toward the eight factors used to determine joint employer status.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis

Duane Morris Takeaways: Complex wage & hour litigation has long been a focus of the plaintiffs’ class action bar. The relatively low standard by which plaintiffs can achieve conditional certification under the Fair Labor Standards Act (FLSA), often paired with state law wage & hour class claims, offers a potent combination by which plaintiffs can pursue myriad employment claims. To that end, the class action team at Duane Morris is pleased to present the second edition of the Wage & Hour Class And Collective Action Review – 2024. This new publication analyzes the key wage & hour-related rulings and developments in 2023 and the significant legal decisions and trends impacting wage & hour class and collective action litigation for 2024. We hope that companies and employers will benefit from this resource and assist them with their compliance with these evolving laws and standards.

Click here to download a copy of the Wage & Hour Class And Collective Action Review – 2024 eBook.

Stay tuned for more wage & hour class and collective action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.

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

Duane Morris Takeaways: In Martinez v. Fedex Ground Package System, Inc., No. 20-CV-1052, 2024 WL 418801 (D.N.M. Feb. 5, 2024), Judge Steven C. Yarbrough of the U.S. District Court for the District of New Mexico granted the intervention motion of 16 putative class members to join the lawsuit,  The Court held that the plaintiff-intervenors met the standard for permissive intervention under Rule 24(b)(2).  The Court’s decision in this case serves as an important reminder that Rule 23 and Rule 24 employ two separate commonality standards, and that class action cases are not automatically over when a court denies class certification.

Case Background

On October 12, 2020, Plaintiffs Fernandez Martinez and Shawnee Barrett (collectively, “Plaintiffs”) filed suit against Defendant Fedex Ground Package System, Inc. (“Fedex”), alleging that Fedex misclassified them as independent contractors and failed to pay them and putative class members overtime wages in violation of the New Mexico Minimum Wage Act (“NMMWA”).

On November 8, 2022, Plaintiffs moved to certify a class of all current or former New Mexico FedEx drivers who were paid a day rate without overtime compensation.  On October 27, 2023, the Court denied Plaintiffs’ motion on the basis that Plaintiffs failed to demonstrate that common questions predominated over individualized issues pursuant to Rule 23(b)(3).  Martinez v. FedEx Ground Package Sys., No. 20-CV-1052, 2023 WL 7114678 (D.N.M. Oct. 27, 2023).

On December 15, 2023, a group of 16 putative class members (the “Intervenors”) filed a motion to intervene as plaintiffs in the Lawsuit under Rule 24.  Martinez, 2024 WL 418801, at 1. In their motion, the Intervenors alleged that they, like Plaintiffs, were “current or former New Mexico FedEx delivery drivers who were paid the same amount of money regardless of how many hours they worked in a day, resulting in no premium payment for overtime hours worked in violation of the [NMMWA].”  Id.

The Court’s Decision

The Court granted the Intervenors’ motion.  Id. at 2.  It held that the Intervenors presented sufficient “questions of law and fact in common with the main action” under Rule 24.  Id.

The Court noted that permissive intervention under Rule 24 is appropriate where (i) a federal statute creates a conditional right, or (ii) where the “intervenor has a claim or defense that shares with the main action a common question of law or fact.”  Id.

In its opposition, FedEx asserted that because the Intervenors were employed by independent service providers (“ISPs”) to deliver packages on behalf of FedEx, and were not employed by FedEx directly, FedEx was not liable under the NMMWA for allegedly unpaid overtime.  Id.  Further, FedEx argued that the commonality requirement of Rule 24 was not met because the Court already found the absence of a common question when it denied class certification.  Id.

While the Court recognized that it denied class certification under Rule 23’s commonality requirement, it was not persuaded by FedEx’s arguments.  The Court underscored that under Rule 24, “rather than asking whether a question is susceptible to resolution ‘in one stroke,’ courts must ask whether intervenors present ‘questions of law and fact in common with’ the main action.”  Id.

The Court concluded that the “existing plaintiffs and every intervenor [would] assert that certain common aspects of [FedEx’s] contracts with ISPs [made FedEx] a joint employer and, consequently, jointly liable for any [NMMWA] violations.”  Id.  Accordingly, the Court ruled that the Intervenors satisfied the Rule 24 commonality standard and were permitted to join the lawsuit as plaintiffs.  Id. at 3.

Implications For Companies

The decision in Martinez v. FedEx serves as an important reminder for defendants that class actions are not necessarily over once class certification is denied – and some members of the putative class may take a run at joining the lawsuit per Rule 24.  Additionally, it underscores the distinct commonality analyses under Rule 23 and Rule 24.