Monthly Archives: April 2013

Supreme Court’s FLSA Decision on Collective Actions

Last week, the Supreme Court decided a case about collective actions under the Fair Labor Standards Act (FLSA). Collective actions are similar to class actions, in that they give an employee the right to file a lawsuit on behalf of a group of employees who have the same basic claim against the employer. The Court’s decision took a strange turn, resulting in a victory for the employer that skirted a primary issue in the case.

Here’s what happened: Laura Symczyk filed a collective action against her employer, Genesis Healthcare, claiming that it had an unfair policy of docking employees for a 30-minute meal break every shift, whether or not the employee had to work during that time. (If an employee must work through a meal, the employee is entitled to be paid; nobody disputes this basic assertion underlying the employee’s case.) Symczyk was the only named employee in the case, but anticipated that others would join in once the collective action was conditionally certified: that is, once the court found that the group of employees were similarly situated to Symczyk because they were subject to the same policy or practice.

Before Symczyk tried to certify the collective action, Genesis offered to settle her claim. Genesis said it would pay her $7,500, plus fees and costs. Symczyk didn’t respond, and Genesis withdrew the offer.

This settlement offer was made under Rule 68 of the Federal Rules of Civil Procedure. Under Rule 68, if one party doesn’t accept a settlement offer, that party will be responsible for all of its lawsuit costs after the date the offer was made, unless that party gets a judgment that’s better than the settlement offer. The purpose of this Rule is to give both sides a strong incentive to settle: The defendant has good reason to offer a generous settlement, both to get out of the lawsuit and to make it more likely that the plaintiff won’t do better at trial. The plaintiff has a good reason to accept, both because the offer is likely to be generous and because the plaintiff may have to foot a large litigation bill if the judgment isn’t better than the settlement.

With me so far? Because here’s where things get weird. The trial court threw out the lawsuit, finding that Symczyk no longer had an active dispute against the company because she had been offered all of the relief to which she was entitled. Because Symczyk no longer had a claim, she couldn’t represent other employees, and so the whole case got tossed.

The problem is that Symczyk didn’t accept the settlement offer; she turned it down. She didn’t get any money in settlement and, because the court tossed her case, she won’t get any money at trial. This should not be possible: Plaintiffs who turn down a Rule 64 settlement offer have a right to take their chances in court. The plaintiffs may win or they may lose, but they buy the opportunity to take their best shot by forgoing the settlement. It isn’t fair to throw a case out when the plaintiffs have neither settlement nor judgment in hand. Nonetheless, one federal judiciary circuit has interpreted Rule 64 to allow this type of penalty, presumably in an effort to put a stop to unnecessary litigation.

But the Court skipped right past this issue to decide that, if Symczyk’s case was properly dismissed, then she can no longer represent the group. Employee attorneys take issue with this, arguing that employees should have a chance to replace the named plaintiff-employee when this happens and continue with the lawsuit. Otherwise, defendant-employers could “pick off” the named employee (by making a Rule 68 offer) and get any collective action filed against it thrown out of court.

This is an interesting argument, but not the one the Court should have decided. In almost any federal court, Symczyk’s case would not have been dismissed and she would still be capable of representing the group. By leaving this fundamental issue undecided, the Court hasn’t clarified things very much for those on either side of an FLSA collective action.

Hiring and Firing Rates Stay Low

As reported in the New York Times, the Department of Labor recently released its Job Openings and Labor Turnover Survey. The survey asks employers about changes in their workforce over the past month: how many employees they started with, how many employees left or were hired, and how many employees they had at the end of the month.

The statistics show that the rate of involuntary separations — firings and layoffs – has stayed really low. Just over 1% of the total workforce were discharged or laid off in February 2013, the month for which the survey collected data. In fact, more employees quit voluntarily than were fired or laid off. However, the survey also revealed that hiring rates remain low, at 3.3%. With total separations, voluntary and involuntary, at 3.1%, you can see why the monthly job numbers continue to disappoint.

Among other things, these numbers mean that the unemployed are still quite likely to stay that way. There are just too few jobs opening up to absorb everyone who is looking for work. In response to this continuing problem, a few states and local governments — most recently, New York City — have passed laws prohibiting discrimination against the unemployed. Although these laws don’t magically expand the number of available jobs, they at least attempt to level the playing field by prohibiting employers from excluding those who are currently unemployed from consideration when hiring. For more information about these laws, and possible discrimination claims based on unemployed status, check out Discrimination Against the Unemployed.

Employee Theft Blacklist: What Could Possibly Go Wrong?

Last week, the New York Times reported that large retail chains are pooling data on employees accused of theft, so they can avoid hiring those employees in the future (“Retailers Track Employee Theft in Vast Databases.”) That’s right: It’s an industry blacklist. And it’s not just for employees who have been convicted of theft or admitted to it. One employee interviewed for the article reported that she got into the database for failing to report another employee’s theft; another employee was reported for theft after leaving a pair of socks at a cash register.

And now the lawsuits are coming. The Federal Trade Commission is investigating whether these databases comply with the Fair Credit Reporting Act (FCRA), which requires employers who get reports on employees (such as credit reports or criminal background checks) from outside agencies to get the employee’s consent, notify the employee if the employer plans to rely on the report to take adverse action, and give the employee information on how to correct errors in the report. From the Times story and others I’ve read, it sounds like neither the employers nor the agencies gathering the alleged theft information followed these rules. (For more on the rules employers and agencies must follow, see Running Credit Checks on Job Applicants.)

But the potential legal violations go well beyond the FCRA. Many states prohibit blacklisting, for example. And, job applicants might have a claim for defamation against their former employer, if the information reported to the database is false. If there are racial or ethnic disparities in the database — for example, if a disproportionately large number of African American or Latino employees appear in its data — an employee who is turned down for a job might have a discrimination claim.

As a practical matter, the database blacklist might also lead to more claims against the former employer for wrongful termination. An employee might be willing to walk away after being fired for alleged theft, even if the accusation is false. Retail employees are often living paycheck to paycheck, and the imperative to get a new job may well outweigh the desire to clear one’s name at the old one. However, if the former employer takes steps to guarantee that the employee will never work again, the balance obviously shifts. Suddenly, a claim for defamation or false imprisonment might look a lot better if the alternative is waiting for the unemployment to run out.

Spare a thought for the employers caught in this web: Employee theft is a serious problem, accounting for almost half of all theft and $15 billion in lost merchandise in 2011, according to data From the National Retail Federation reported in the Times article. You can see why an employer would want to take any help available to avoid putting a thief on the payroll. But secret databases that report accusations and suspicions aren’t the way to do it.