In In re: Chipotle Mexican Grill, Inc., Case No. 17-1028 (10th Cir. March 27, 2017), the Tenth Circuit Court of Appeals reiterated its holding in Theissen v. GE Capital Corp., 267 F.3d 1055 (10th Cir. 2001), that a district court may utilize a variety of approaches to identify similarly situated workers for purposes of authorizing facilitated notice in FLSA collective actions.

The Tenth Circuit reaffirmed its position when denying Chipotle’s petition for a writ of mandamus. There, the district court issued an order in Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp. 3d 1300 (D. Colo. 2015), authorizing notice in a collective action resulting in 10,000 opt-in plaintiffs.  As part of its petition, Chipotle sought a writ of mandamus to dismiss the district court’s joinder of 10,000 opt-in plaintiffs, or, in the alternative, to remand to permit discovery to ascertain if the opt-ins are similarly situated and to provide an opportunity to file a motion to decertify the collective action.  The Tenth Circuit rejected Chipotle’s application because the district court’s order was “not such a gross abuse of discretion” to warrant mandamus relief.

That the Tenth Circuit denied mandamus relief is unremarkable based on factors presented. Of significance, however, is the court’s discussion and acknowledgment that Theissen’s three approaches (the ad hoc approach; Rule 23 approach; and spurious approach under pre-1966 Rule 23 amendments) remain available to district courts to use to determine who is similarly situated under FLSA Section 216(b) for purposes of facilitated notice.

In Turner, plaintiffs allege that Chipotle’s company-wide automated computer timekeeping system “arbitrarily cuts off the time clock at half past midnight,” allegedly resulting in some shift-closing hourly employees working off-the-clock without being compensated.

The district court analyzed “the proper procedural mechanism for pursuing a representative action ‘on behalf’ of employees similarly situated.” 123 F.Supp. 3d at 1305.  The court rejected so much of plaintiffs’ motion insofar it was characterized as one for conditional certification under a lenient standard of “substantial allegations” that the plaintiff and those similarly situated were victims of “a single decision, policy or plan.”  It also rejected Chipotle’s request for a stricter standard of review of plaintiffs’ motion for facilitated notice, as plaintiffs had discovery, and that certification should be limited to stores where there is “substantial evidence” of a common decision, policy or plan. Id.

The district court proceeded to identify the proper standard to authorize notice of collective action. It specifically rejected the two-step ad hoc conditional certification rubric as well as the Rule 23 approach to facilitate notice of the collective action because such approaches conflate the Rule 23 class certification standard with Section 216(b)’s permissive joinder standard.  Rather, it found that Section 216(b) collective action may be analogized under the spurious class action approach (old Rule 23(a)(3)), as both were “‘aggregated damages claims for only those who opted in and both were joinder liberalizations.’” Id. at 1306 (citation omitted).  It concluded that the proper approach in deciding a motion to facilitate notice “is to presumptively allow workers bringing the same statutory claim against the same employer to join as a collective, with the understanding that individuals may be challenged and severed from the collective if the basis for their joinder proves erroneous” (emphasis supplied).  The court placed the burden on Chipotle to “winnow” the collective at some later point in the proceeding through F.R.Civ.P. Rules 21 (misjoinder) and Rule 42 (severance) procedures.

The Tenth Circuit found that the district court’s “presumptive” approach to facilitate notice, which it likened to the “spurious” approach, complies with Section 216(b). It noted that “under the spurious approach, courts incorporate into § 216(b) the pre-1966 requirements of Rule 23 based on Advisory Committee notes which are: (1) “the character of the right sought to be enforced … must be several,” (2) “there must be a common question of law or fact affecting the several rights,” and (3) “a common relief must be sought.”

The district court’s departure from the ad hoc/two-step approach is notable.  Under the ad hoc approach, the first step requires a named plaintiff to make a modest factual showing that the named plaintiff and potential opt-in plaintiffs are victims of a common decision, policy, or plan.  If shown, court-approved notice to potential collective action members will issue.  The second step, occurring after the completion of discovery, requires the district court, applying a more stringent standard of proof, to make factual findings whether the opt-in plaintiffs are in fact similarly situated to the named plaintiff.  The ad hoc approach is used by many district courts and has been acknowledged by a number of circuit courts, in addition to the Tenth Circuit, as an acceptable approach. See e.g. Zavala v. Wal Mart Stores Inc., 691 F.3d 527 (3d Cir. 2012); Myers v. Hertz Corp., 624 F.3d 537 (2d Cir. 2010).

The Tenth Circuit in In Re Chipotle repeated its position in Theissen, “that the two-step process is arguably the best of the three approaches we have experienced,” but, at the same time, noted that the differences between the approaches were minimal, as “[a]ll approaches allow for consideration of the same or similar factors.”  It deferred to the district court’s discretion whether to deny collective action treatment “for trial management reasons.” The Tenth Circuit rejected Chipotle’s argument that the ad hoc approach is mandated by Theissen.

Also, the Tenth Circuit rejected Chipotle’s argument that the spurious approach violates its due process rights because there is no threshold determination if the matter is suitable for collective action treatment and it places the burden on Chipotle to “winnow” the collective action thereafter. Acknowledging that the winnowing process may be burdensome, the circuit court observed that, at this stage of the litigation, Chipotle had not identified a basis relieving it from this task.

The Tenth Circuit concluded by opining that it made “no definitive determination of the merits of using the spurious approach as opposed to either of the others”, and noted that the district court’s approach “may be debatable”. Nevertheless, the Turner case proceeds as a collective action with 10,000 opt-in plaintiffs.

Takeaways

1. Trial courts are given wide latitude in deciding how to identify and provide notice to similarly situated litigants of FLSA collective actions. In the Tenth Circuit, no one method is mandated under § 216(b).  Nevertheless, the Turner district court decision, if followed, may signal even larger collective actions.  The ad hoc or two step approach has enjoyed wide acceptance at the district court and, more important, acquiescence at the circuit level.  The standard of proof at the initial certification stage is low to meet its purpose “to determine whether ‘similarly situated’ plaintiffs do in fact exist.” Myers, 645 F.3d at 555 (emphasis in original).  Although the plaintiff’s initial burden is modest, “it is not non-existent.” Khan v. Airport Mgmt. Servs., LLC, No. 10-CV-7735, 2011 WL 5597371 at *5 (S.D.N.Y. Nov. 16, 2011).  The “modest factual showing” to support conditional certification at the first stage inquiry starts the winnowing process by determining “whether, ‘similarly situated’ plaintiffs do in fact exist.” Myers, 624 F.3d at 555 (citations omitted; emphasis in original).  Under the Turner district court decision, the winnowing process will start later through misjoinder and severance motion practice, possibly on an individualized basis.
2. The Turner case highlights the risk associated with utilizing automated time and attendance tracking systems. The administrative efficiencies that such systems bring to the workplace can be offset by lawsuits alleging inaccurate recording of working time.  An automated timekeeping system may reduce administrative overhead and control payroll, but it may lead to incidents of off the clock work, when, for example, meals are not taken, but recorded as having occurred.  Or, as alleged in Turner, an employee working a closing shift cannot record time, because the automated timekeeping system is not operational after a certain hour.  Some employers have learned this lesson the hard way in auto-deduction class and collective actions, involving meal breaks, particularly where a monitoring system is not in place to verify that all hours worked are recorded.

Following is an excerpt:

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016. …

Read the full post here.

Following is an excerpt:

As we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions …

Read the full post here.

Employers should review their workplace employment law postings to ensure those displayed are up-to-date and in compliance with all applicable laws.

Employers should also be reminded of their responsibilities under the FLSA, including their responsibilities to nursing mother employees who are subject to the FLSA’s overtime requirements. Those nursing mothers are entitled to reasonable break time to express breast milk for one year after the child’s birth and a private place, other than a bathroom, to do so.

1. Before hiring new employees, offer additional work hours (either in writing or by posting the offer in a conspicuous location) to qualified part-time employees who have performed similar work for the covered retail establishment, and afford those part-time employees 3 days to accept the offered hours;
2. Provide new employees with a “good faith” written estimate of the number of scheduled shifts per month and the days and hours of those shifts;
3. Provide employees with their work schedules 2 weeks in advance, and provide “predictability pay” if schedules change with less than seven days’ advance notice;
4. Provide pay for on-call shifts when the employee is not called into work, subject to exceptions;
5. Provide part-time employees with the same starting hourly wage, access to time off, and eligibility for promotions as full-time employees who perform at the same level; and
6. Provide for continued employment of all employees for a period of 90 days if the covered retail establishment changes ownership, subject to certain conditions.

Employees covered by the ordinances include any person, including temporary and seasonal personnel, who in a particular week performs at least 2 hours of work for a covered retail establishment within the geographical boundaries of the City and County of San Francisco and who qualifies for state minimum wage, or is scheduled for an on-call shift of at least 2 hours, regardless of whether the person actually reports for the on-call shift.  Covered retail establishments must also maintain and retain records of scheduling (including schedule changes and notices) for at least 3 years.

Covered retail establishments must post a notice at the workplace to inform covered employees of their rights under the new laws.  The OLSE has published the required poster and guidance in the form of Frequently Asked Questions and a Fact Sheet.  The OLSE is to prepare new versions of the poster and guidance to incorporate the changes required by the July 7, 2015 amendment to the ordinances.

Janitorial and security contractors of covered retail establishments must also comply with the ordinances.  Covered retail establishments must provide their janitorial and security contractors with a copy of the ordinances and include a provision in all service contracts for janitorial or security services requiring the contractor to comply with the ordinances.

Covered retail establishments should review their scheduling, on-call, and hiring practices to ensure compliance with the new ordinances.  Document retention policies and service contracts should also be reviewed for compliance.

Following is an excerpt:

More than a year after its efforts were first announced, the U.S. Department of Labor (“DOL”) has finally announced its proposed new rule pertaining to overtime. And that rule, if implemented, will result in a great many “white collar” employees previously treated as exempt becoming eligible for overtime pay for work performed beyond 40 hours in a workweek – or receiving salary increases in order that their exempt status will continue.

Read the full original post here.

Some of the proposed regulations include:

• To determine an employer’s size, the number of employees at all locations will be counted, not just those employees in Massachusetts. For example, if a company has 25 employees in New York and three employees in Massachusetts, the employer will be required to provide paid sick leave to the Massachusetts employees because the employer has 11 or more employees in total.
• Employees may use sick leave in hourly increments. However, if the employer has to hire a replacement, and does so, the employer may charge the employee for the entire missed shift.
• If an employer decides to pay employees for their accrued, unused sick leave at the end of the calendar year, the employer need only frontload 16 hours in the following calendar year (as opposed to all 40 hours the employee will receive that year).[1]
• An employer may choose to frontload 40 hours of sick leave per year rather than tracking accrual rates throughout the year.
• An employer may not request documentation about an employee’s need for leave until the employee has taken 24 consecutive hours of sick leave.
  • At that point, an employee may provide documentation in the form of a doctor’s note or a written statement evidencing the need to use sick leave.[2]
  • If leave is related to domestic violence, an employee may provide alternative documentation.
  • The employee may submit any of the above documentation in any form customarily used to communicate, including via text message, e-mail, or fax.
• Employers must provide written notice to employees at the beginning of employment as to what constitutes a “calendar year” for accrual and use purposes.
• Employers must post the notice of the Earned Sick Time Law in the workplace and provide a copy to all employees.

The AGO will be holding six public hearings throughout the state, including one in Boston on May 18, 2015, to entertain comments to the proposed regulations. The deadline for written comments, which may be submitted by mail or electronically, is June 10.  If you would like assistance in preparing any comments, please contact us. We will provide an update upon adoption of the regulations (whether in this form, or revised after the comment period).

[1] This is more employer-friendly than the New York City Earned Sick Time Act, which requires that 40 hours be frontloaded if an employer pays out sick leave at the end of the calendar year.

[2] The AGO will create a model form for this use, but such form has not been posted yet.

By Aaron F. Olsen

The United States Supreme Court declined to review the Second Circuit’s decision in Irizarry v. Catsimatidis in which the Court of Appeals affirmed the District Court’s decision holding a Supermarket CEO personally liable for violations of the Fair Labor Standards Act (FLSA).

By way of background, in July 2013, the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision that the CEO of a supermarket chain could be held personally liable for damages in Irizarry v. Catsimatidis.  The District Court had granted summary judgment in favor of plaintiffs in the class action case and held that plaintiffs were entitled to liquidated damages on their claims concerning reduction of hours, withholding of overtime, misclassification as exempt employees, and retaliation.  The parties entered into a settlement agreement.  However, the corporate defendants later defaulted on their obligations under the agreement.  Plaintiffs then moved for partial summary judgment on the CEO’s personal liability as an employer.

Individual liability under the FLSA turns on whether an employment relationship exists between the employee and the purported employer, the individual defendant.  The FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee….”  29 U.S.C. § 203(d).  An “employee” is defined as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  Quoting from the U.S. Supreme Court’s  decision Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947), the Court of Appeals in Irizarry stated that the FLSA contains “no definition that solves problems as to the limits of the employer-employee relationship under the Act.”

The District Court reasoned that the CEO hired managerial employees, signed all paychecks to the class members, had the power to close or sell the stores, routinely reviewed financial reports, worked at the corporate office and generally presided over the day to day operations of the company.  The District Court concluded that there was no area of the store which was not subject to the CEO’s control, whether or not he chose to exercise it, and therefore the CEO had “operational control” and could held liable as an employer.

The CEO argued that he was a high-level employee who made symbolic or, at most, general corporate decisions that only affected the plaintiffs through an attenuated chain of causation.

The Court of Appeals noted that it had previously set forth four factors to determine the “economic reality” of an employment relationship: (i) whether the alleged employer had the power to hire and fire the employees, (ii) supervised and controlled employee work schedules or conditions of employment, (iii) determined the rate and method of payment, and (iv) maintained employment records.  However, the Second Circuit also stated that it had examined different indicia of “operational control” in other cases, with the intent of assessing whether a defendant exercised functional control over a worker.

In conducting its analysis, the Court of Appeals noted that the CEO personally owned the building where the headquarters were located.  In addition, he stayed apprised of how the supermarket chain was doing, reviewing the overall profit and loss statements as well as the “sales to purchases” statements of particular stores. He received weekly gross margin reports from all the “perishable departments” and a comprehensive Profit and Loss report on a quarterly basis that he studied in depth and sometimes used to make general recommendations. He also made “big picture” merchandising decisions, like whether to push Coca-Cola or push Pepsi-Cola” and the decisions on having pharmacies in the stores.  He would also visit the stores regularly and make comments to the store managers about displays, merchandising decisions and discuss what is going right and what is going wrong.

The Court of Appeals concluded, in what it described as a “close case,” that there was no evidence that the CEO was responsible for the FLSA violations, or that he ever directly managed or otherwise interacted with the plaintiffs.  Nevertheless, the supermarket CEO was an “employer” for the purposes of the FLSA because his control over the hiring of managerial employees, and his overall financial control of the company meant that he possessed “operational control” over the plaintiffs’ employment.

The potential to be held personally liable for violations of the FLSA understandably creates concern for CEOs – especially those of medium-sized companies that have a large enough number of employees to create significant exposure but not enough resources for the Company to pay for a large judgment that may come from losing a class-action.

On March 13, 2014 President Obama issued a memorandum instructing the Department of Labor (“DOL”) to review and revise overtime regulations under the Fair Labor Standards Act (“FLSA”).  Under the FLSA employees are eligible to receive overtime for all hours worked over 40 per week, unless they fall within certain specified exemptions.  The most common of exempt classifications in the retail industry are executive, administrative, and commission sales.

The executive exemption applies to managers and supervisors who direct the work of others and who earn a salary of at least $455 per week. The administrative exemption applies to employees who (i) earn a minimum weekly salary of $455, (ii) perform non-manual work directly related to the employer’s business operations and (iii) have as a primary duty the exercise of discretion and independent judgment with respect to matters of significance. The commissioned sales person exemption applies to employees who receive more than half of their earnings from commissions.

The upcoming changes to overtime regulations will be the first since 2004, when the threshold for the executive exemption was raised from $250 to $455 per week.

While the exact changes the Obama administration has in mind remain unclear, the impact on the retail industry, and indeed nearly all employers, may be be significant because the express purpose of the mandated review is to increase the number of workers eligible for overtime. One likely change will be a further increase to the minimum weekly salary threshold for executive and administrative exemptions. Inasmuch as many, if not most, exempt employees already have salaries of more than $455 per week, the change to the salary threshold alone might not be significant – depending on the new minimum. But, other changes cannot be ruled out.

The DOL has not indicated when it expects to issue the proposed amendments. A comment period will follow before any rule amendments are adopted, however.   Rulemaking may take a year or more. We will be monitoring the process and will alert you here to developments.

In addition, you may wish to download the EBG Wage & Hour app to your smart phone,  where changes to the regulations will also be posted.