Category Archives: wage-and-hour

Overtime Rules and Flexible Work

The U.S. Department of Labor’s proposed overtime rules may or may not go into effect on Dec. 1 of this year.

But if the new regulations do become reality, large employers could face unintended and unanticipated consequences, according to new WorldatWork research.

The Scottsdale, Ariz.-based non-profit HR association’s recent Quick Survey on Implementation of New FLSA Rules survey polled 948 WorldatWork members with compensation and HR generalist in their titles.

When asked how they are addressing or plan to address employees that were exempt under the old overtime rules who fall below the new standard salary level threshold, 73 percent of employers said they did or will raise some to the new minimum threshold, while reclassifying others to non-exempt. (Fifteen percent indicated that they did or will raise all to the new minimum salary threshold and maintain exemption, while 9 percent intend to reclassify all to non-exempt, and 4 percent said they were unsure of their plans.)

Among those who plan to reclassify employees to non-exempt, 49 percent said their workplace flexibility options will decrease. The number of large organizations planning to go this route is “of particular concern,” according to a WorldatWork statement summarizing the findings.

For example, 62 percent of responding companies with 10,000 to 39,999 employers said they intend to reduce the flexibility options they offer workers.

“The fact that larger employers are more likely to decrease flexibility will obviously affect more employees,” says Kerry Chou, senior practice leader at WorldatWork. “That being said, this result could be a byproduct of the fact that larger organizations are more likely to have formalized flex programs as opposed to ad hoc programs.”

Naturally, the new rules figure to have a significant financial impact on employers, with 69 percent of respondents telling WorldatWork that their overall costs have already increased or will increase as a result of the new standard salary-level threshold. Just 13 percent said that net costs have stayed or will stay the same, and they won’t require taking separate actions such as reclassifying employees as non-exempt to contain costs.

Some employers may look at cutting flexible work options as one way to offset additional expenses connected to new overtime rules, says Chou, adding that workplace flexibility can be a big factor in recruiting and retaining talent.

As such, companies that choose to offer fewer flexible work options may ultimately see higher turnover and greater difficulty in attracting replacements for departing employees, he says.

“The increased cost of overtime compliance, coupled with high turnover—or at least lower job satisfaction of current workers—are consequences that will need to be addressed.”

Reflecting on Uber’s Classification Settlement

Worker classification can be a major headache for companies of all shapes and sizes, but for employers embracing the shared-economy business model, it can be one of migraine proportions.

Uber_ride_Bogota_(10277864666)No one knows this better than Uber, which has been facing an onslaught of lawsuits from drivers seeking employee status. Were the drivers to win that battle in the courts, the implications for the firm’s business would be huge.

Well, as you may have heard, Uber avoided that potential outcome in California and Massachusetts when it settled two class-action lawsuits: O’Connor vs. Uber and Yucesoy vs. Uber, respectively.

In the settlement, the parties agreed that …

  • Drivers will remain independent contractors, not employees;
  • Uber will pay $84 million to the plaintiffs (and there would be a second payment of $16 million if Uber goes public and its valuation increases one-and-a-half times from its December 2015 financing valuation within the first year of an IPO);
  • The firm will provide drivers with more information about their individual rating and how it compares with their peers. (It would also introduce a policy explaining the circumstances under which it deactivates drivers in these states from using the app); and
  • The parties would work together to create a driver’s association in both states, with Uber helping to fund these two associations.

In a post about the settlements, Uber CEO Travis Kalanick wrote that Uber is “pleased that this settlement recognizes that drivers should remain as independent contractors, not employees,” noting that drivers value their independence—the freedom to push a button rather than punch a clock.

Kalanick admitted that, as Uber has grown, “… we haven’t always done a good job working with drivers.”

As a story in the Los Angeles Times points out, the settlement still needs to be approved by a judge in the District Court of Northern California, which could take months.

“If approved,” the paper reports, “the payment will be distributed among drivers in California and Massachusetts who performed at least one trip up until the date of the preliminary settlement approval. Distribution will be based on miles driven while a passenger was in the car.”

The plantiffs’ attorney, Shannon Liss-Riordan, released a statement to various press outlets saying the settlement was the right move, considering the risk of having a jury rule against the plaintiffs.

Earlier today, I spoke to Thomas Lewis, a shareholder in the Princeton, N.J., office of Stevens & Lee, who told me it was probably a smart move for Uber, too.

“What’s interesting about the Uber case is that the class-action settlement came just short of effectively giving certain rights to these independent contractors that should belong to employees,” he said. “So this is telling me that Uber is clearly aware that there could be a push to classifying independent contractors as employees were it to go through the court system and there was an adjudication.”

And it’s no secret, of course, that, were Uber to come up on the losing end of a court battle, it would be costly, considering the company’s business model.

Of course, there’s no way to know if this will put an end to the worker-classification issue at Uber. Lewis noted if a new class action is filed, it would be need to be filed with a different set of facts or issues that were brought forth.

But at least for the time being, you would think Uber executives should be able to rest a little easier.

Looking Ahead at Litigation Trends

looking aheadIf December was the time for workplace experts to parse the year that just went by, then January is when those same experts shift into prediction mode and forecast what may happen in the 12 months ahead.

In its 11th annual Workplace Class Action Litigation Report, Chicago-based labor and employment law firm Seyfarth Shaw does a bit of both.

The 844-page report, an executive summary of which is available here, analyzed 1,219 class-action rulings on a circuit-by-circuit and state-by-state basis to “capture key themes from 2014 and emerging trends facing U.S. companies in 2015,” according to a Seyfarth Shaw press release.

For example, two cases—Wal-Mart Stores Inc. v. Dukes and Comcast Corp. v. Behrend—continued to serve as “the most influential ‘pivot points’ for Rule 23 decisions in 2014, having a wide-ranging impact on virtually all class actions pending in federal and state courts,” the report notes. According to Seyfarth Shaw, Wal-Mart was cited 571 times across lower federal and state courts in 2014, while Comcast was cited 261 times, “which in turn generated a bevy of new case law.”

These decisions have reshaped settlement strategies, according to the report, which found governmental enforcement litigation settlements dropping to their lowest levels in a decade last year, while ERISA settlements shot up nearly tenfold from 2013. (Employment discrimination and wage-and-hour class-action settlements remained flat, however.)

Other key trends the Seyfarth Shaw report sees as poised to continue in 2015 include:

  • Wage-and-hour litigation, which represents the prime litigation risk in the workplace, as case filings increased yet again in 2014.
  • FLSA collective actions and state law wage-and-hour class actions, which produced more decisions than any other area of complex employment litigation in 2014.
  • The Department of Labor and Equal Employment Opportunity Commission continued their aggressive litigation approaches with mixed results in 2014, marked by several losses in the federal courts and their lowest aggregate settlement recoveries since 2006.
  • The Class Action Fairness Act, which experienced a “transformative” year in 2014, solidifying defense strategies to secure removal of class actions to federal courts.

“In response to recent Supreme Court decisions on class-action issues, Rule 23 law is undergoing a major transformation, and as a result, employers litigated an increased number of novel defenses in 2014,” says Gerald L. Maatman Jr., co-chair of Seyfarth Shaw’s class-action defense group and author of this year’s report.

“At the same time, wage-and-hour class actions and collective actions also continued their meteoric rise to new record levels, while the U.S. Department of Labor and U.S. Equal Employment Opportunity Commission advanced their litigation agendas in an aggressive fashion,” continues Maatman. “All told, employers face a much more challenging landscape for defending workplace class-action litigation in 2015.”

Part-Timers’ Woes Spur New Legislation

Members of Congress, states, municipalities and unions are reacting forcefully to complaints from many part-time workers that their work schedules have become too unpredictable and erratic to allow for time to take care of other important matters, such as child care or attending college classes, according to a front-page story in yesterday’s New York Times by reporter Steven Greenhouse.

As Greenhouse documents in his story, employers that make heavy use of part-time workers — such as retail and restaurant chains — are increasingly relying on “on-call” scheduling of their part-timers, with the aim of ensuring that hours worked are more closely tailored to peak customer traffic, which is not always predictable. This can result, as the story documents, in situations like that experienced by Mary Coleman, an employee of the Popeyes fast-food chain in Milwaukee, who — after taking an hour long bus commute — arrived at her job one day only to be told by her boss to go home without clocking in, even though she was scheduled to work that day.

U.S. Rep. George Miller (D.-Calif.) plans to introduce legislation this summer that would require organizations to pay their employees for an extra hour if they were notified they had to work with less than 24 hours’ notice. He also wants to guarantee that workers receive four hours’ worth of pay if they’re sent home after only a few hours on shift because of low customer traffic at the establishment at which they’re employed.

Here’s what Miller (who serves on the House Committee on Education and the Workforce) told Greenhouse:

It’s becoming more and more common to put employees in a very uncertain and tenuous position with respect to their schedules, and that ricochets if workers have families or other commitments. The employer community always says it abhors uncertainty and unpredictability, but they are creating an employment situation that has huge uncertainty and unpredictability for millions of Americans.”

The story notes that Vermont and San Francisco have laws that give workers the right to request flexible or predictable schedules to make it easier to take care of children or aging parents and that New York City is considering similar legislation. Unions such as the United Food and Commercial Workers and other organizations are promoting the “Fair Workweek Initiative,” which is encouraging the passage of legislation in cities across the nation that would discourage employers from using “just-in-time” scheduling.

Don’t expect this issue to disappear anytime soon. As Susan J. Lambert, a University of Chicago professor, told Greenhouse: “The issue of scheduling is going to be the next big effort on improving labor standards. To reduce unpredictability is important to keep women engaged in the labor force.”

Ruling on ‘Trial-by-Formula’ Still Reverberating

Employment lawyers continue weighing in on the California Supreme Court’s recent ruling in Duran v. U.S. Bank National Association. Granted, this is California, but attorneys courthouse 158540094say the case will still be looked at and referred to beyond California for years to come in terms of whether, and how, plaintiffs may use statistical sampling — so-called “trial by formula” — to prove liability.

Duran was a wage-and-hour class-action brought under the California Labor Code and unfair competition law on behalf of 260 “business banking officers” who claimed they were misclassified and denied overtime compensation. The question was whether they worked more than 50 percent of their time outside the branch.  If they did, they weren’t entitled to overtime or meal/rest breaks; if not, they were.

In Duran, the trial court allowed plaintiffs to prove liability for the entire class based on a sample of 20 plaintiffs “randomly selected” to testify at trial. From that sample, the court extrapolated that all 260 class members had been denied overtime, even though 78 of them — fully 25 percent of the class — swore under oath that they were not misclassified.

The trial court ignored that evidence in favor of statistics, and entered judgment against the employer for nearly $15 million (including $6 million on behalf of the workers who denied they were misclassified). The Court of Appeal reversed, concluding that the trial court’s flawed trial plan amounted to an improper “trial by formula,” which deprived the employer of its due-process rights because the employer could not raise individual challenges to absent class members’ claims. On this basis, the Court of Appeal also ordered the class decertified. Plaintiffs appealed, and the California Supreme Court rendered its decision upholding the appeals-court reversal.

This alert by William L Stern, a partner with Morrison & Foerster in San Francisco, lays the facts out nicely. In his opening, Stern writes:

‘There are three kinds of lies: lies, damned lies and statistics.’ The California Supreme Court could have been channeling Mark Twain when it rejected, emphatically, the unbridled use of statistical sampling to prove liability in a class-action wage/hour case. In a unanimous decision, California’s high court … gave the heave-ho to the kind of ‘trial by formula’ that has become a feature of modern-day wage/hour litigation. At the same time, the court restored some sanity to class-action litigation generally.”

Of course, on a national precedent-setting scale, Duran only has to be followed by California courts and by federal courts (in California and elsewhere) considering class actions brought for violations of California law. Nevertheless, Stern told me privately, it is persuasive in that “two of its holdings simply reaffirm what the U.S. Supreme Court already said in Wal-Mart v. Dukes — that any trial plan has to accommodate a defendant’s affirmative defenses, and that convenience can’t be exalted over a defendant’s due-process rights.”

On the face of it, California or no, the decision is pretty far-reaching, attorneys say. This more recent post by Brendan G. Dolan and Heather M. Sager, attorneys with Chicago-based Vedder Price, says that, “while many observers anticipated a narrowly written decision limited to the particular facts of the Duran case, the California Supreme Court endorsed a significantly increased level of academic rigor on statistical evidence and survey and sampling methodologies relied upon by courts and plaintiffs’ lawyers to support class certification in wage-and-hour litigation.” This obviously bodes well for all employers.

As for the court’s reasoning, this alert on the California Employment Law Blog by Los Angeles attorney and author Steve Pearl quotes the ruling’s introduction. I’ll just leave it with you here. It gives a pretty clear sense of the case and the decision:

We encounter here an exceedingly rare beast: a wage-and-hour class-action that proceeded through trial to verdict. Loan officers for U.S. Bank National Association sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside-salesperson exemption. this exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office. After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person. As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage-and-hour class-actions. However … the trial court’s particular approach to sampling here was profoundly flawed.”