Tag Archives: FLSA

Wage and Hour Lawsuits: Tips, Overtime, and Hours Worked Top the List

This month’s issue of Corporate Counsel includes an interesting article on wage and hour lawsuits brought under the Fair Labor Standards Act. The article includes a graph showing that the number of FLSA cases filed in federal court has risen steadily over the last five years. More than 7,700 cases were filed in the 12 months that ended on March 31, 2013, a new record.

According to Noah Finkel, a partner at Seyfarth Shaw who was interviewed for the article, the cases fall into three categories:

  • overtime exemptions, particularly employees who are paid a salary but believe they are entitled to overtime. 
  • hours worked cases, in which employees claim that they were not paid for all of their work time, and
  • disputes about the tip credit.

Finkel said he’s seen an increase in tip credit cases recently. Not all states allow a tip credit. In states that allow it, a tip credit lets employers pay less than the minimum hourly wage, as long as the tipped employee earns enough in tips to make up the difference. (The credit is the amount the employer doesn’t have to pay. For example, if a state’s minimum wage is $7.25, and the state allows employers to pay tipped employees a minimum wage of $4.25, the tip credit is $3.)

In 2011, the Department of Labor issued revised regulations on tip credits. Among other things, these regulations clarify the rules for tip pooling and require employers to give employees notice if they will be subject to a tip credit. Often, new regulations lead to more lawsuits, as employees and their attorneys test how the new rules will play out in practice. So, I guess the increase in tip credit cases isn’t much of a surprise. (For more on the rules, see our update Labor Department’s Final Regulations Clarify Tip Credit Rules.)

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.

Supreme Court: Pharmaceutical Reps Not Entitled to Overtime

In a 5-4 split, the Supreme Court decided yesterday that pharmaceutical detailers qualify as outside salespeople and are therefore not entitled to overtime pay. This case was closely watched in the pharmaceutical industry, which estimated that a change in industry practice to require overtime to these employees would cost billions of dollars.

The job of a detailer is to visit doctors in a particular sales territory and explain the uses, benefits, and risks of a particular set of the company’s prescription drugs. In the heavily regulated field of pharmaceuticals, the detailer’s goal is to obtain a “nonbinding commitment” from the doctor to prescribe the company’s drugs when appropriate. A portion of the detailer’s pay is incentive-based, determined by sales of the featured drugs in the detailer’s territory.

In this case, everyone agreed that the detailers routinely worked more than 40 hours a week and did not receive overtime pay. Their employer, GlaxoSmithKline, classified them as “outside salespeople,” a job category that is exempt from the overtime requirements. The issue before the court is whether what they do can really be called selling.

For the majority, Justice Alito found that it could. He determined that the regulations interpreting the outside salesperson exemption were intended to be broad enough to cover various industry practices, including the use of detailers. Although there is no sales contract (other than that oxymoronic “nonbinding commitment”), no money changes hands, and no orders are placed, the detailers were doing all that’s legally allowed in this heavily regulated field to sell the company’s products. Ultimately, doctors must be free to prescribe the medications appropriate to a patient’s condition, and patients may ultimately decide not to follow that advice, or to purchase a generic equivalent. The company can’t control this part of the transaction, but it can promote its products to those who write the prescriptions.

For the dissent, Justice Breyer pointed out that, unlike representatives who sell drugs to doctors for their own use (such as vaccines and medications to be administered in the doctor’s office), the detailers do not make any sales. Rather, their work looks more like promotional work, a category which the regulations treat as separate when the person performing it does not also make sales. The only sale is made at the pharmacy counter, not in the doctor’s office.

Interestingly, all of the Justices agreed that the Department of Labor’s recent efforts to interpret the outside salesperson exception more strictly (to entitle more employees to overtime) had failed. In opinion letters and in amicus briefs, the DOL stated that detailers didn’t qualify as outside salespeople because they did not transfer title to the property in question. (This is the most recent interpretation; the DOL had previously said that the employee would have to be involved in a “consummated transaction” in order to have made a sale.) Both the majority opinion and the dissent disregarded this recent reinterpretation and focused on the language of the statute and regulations, finding that the DOL’s opinion had been too much of a moving target to warrant deference to the agency.