Third Time Is Not a Charm for Chicago EMS Paramedics; Great American Sues to Avoid D&O Coverage

EMS paramedics employed by the City of Chicago have brought and had summary granted on three FLSA lawsuits filed by the same attorney. The first two cases were consolidated by a federal judge sitting in the Northern District of Illinois because the cases were "not distinguishable...other than the timelessness of their claim." The same federal judge granted summary judgment to the City of Chicago on the consolidated case holding that the cases were "hopelessly heterogeneous" and therefore not properly collective actions with so many factual distinctions. In granting summary judgment in the newest collective action alleging the same facts by EMS paramedics against the City of Chicago, Judge Darrah also of the Northern District of Illinois noted that the plaintiffs' counsel stated during the earlier cases' consolidation hearing that he was going to file a third suit on "claims [that are] identical" to the consolidated case claims and Judge Hibbler's opinion in the consolidated case was "persuasive based both on the facts (identical to those here) and his analysis and application of controlling authority." To read the Memorandum Opinion and Order in Baley et al. v. City of Chicago, Case No. 09 C 228 (N.D. Ill. July 7, 2009), click here.

As a footnote to our entry on June 25, 2009 regarding an OT claim coverage dispute involving Great American Insurance Co., Great American has sued for a declaratory ruling that oil-and-gas exploration company GeoStar Corp. defendants are not covered by the insurance company's excess D&O liability policies in a suits against GeoStar for alleging defrauding investors. Great American states in the complaint that but for material misrepresentations by GeoStar, Great American would never have issued the policy at the same premium or with the same terms (if at all). To read the Complaint for Declaratory Judgment filed by Great American in Great American Insurance Co. v. GeoStar Corp. et al., case number 1:09-cv-12488 (E.D. Mich.), click here.

Federal Minimum Wage Rate Increase

The Federal minimum wage will increase from $6.55 an hour to $7.25 an hour, effective July 24, 2009.

Employers should note this ten percent increase, take the necessary steps to implement the change and update their required postings, and ensure that they are complying with all applicable minimum wage laws. In doing so, it is important for employers to know the minimum wage laws in each state where they have employees. Some states have higher minimum wage rates than the Federal rate, while many others follow the Federal rate. (For example, under North Carolina law, employers must pay the higher of the Federal minimum wage or $6.15 per hour.) The U.S. Department of Labor makes available this handy chart summarizing the minimum wage laws of each state.

Iqbal Followup

In a recent post, we discussed the Supreme Court's surprise May 18 decision in Iqbal v. Ashcroft - holding that a plaintiff needs to have some real facts in a complaint rather than just "formulaic conclusions." We predicted that the defense bar would rise to the occasion by filing motions to dismiss in Fair Labor Standards Act cases in which the skeletal allegations fail to say what it is that the defendant did which is claimed to violate the law. Here are two of the early returns:

Qureshi v. Panjwani, 2009 WL 1631798 (S.D. Tex., June 9, 2009): The court reviewed the pivotal language of Iqbal - "the pleading standard ... does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation" - and allowed the plaintiff to amend the complaint to supply additional facts.

Noble v. Serco, Inc., 2009 WL 1811550 (E.D.Ky., June 25, 2009): The employer's motion to dismiss was filed on February 2, and class certification proceedings were stayed pending the court's ruling on the motion. Since the briefing was long over when the Iqbal decision issued, the Judge didn't mention Iqbal but relied on the opinion two years earlier in Bell Atlantic Corp. v. Twombly. Twombly had announced a new rule for deciding motions to dismiss: A complaint must contain (1) "enough facts to state a claim to relief that is plausible," (2) more than "a formulaic recitation of a cause of action's elements," and (3) allegations that suggest "a right to relief above a speculative level." The court said there was enough in the complaint to meet these tests, and did not require plaintiff to amend to say more.

One swallow doesn't make a spring, but examination of these two decisions - and of the large number of other cases in which Iqbal motions have been filed - strongly suggests that there are lessons to be learned for both sides. Defendants will continue to file motions to dismiss, and plaintiffs will counter with amendments of the complaint (at the motion-to-dismiss stage, the complaint usually can be amended as a matter of right if no answer has been filed). Situations in which the court throws the case out based on a sketchy complaint may be rare. Life would be simpler if plaintiffs' counsel included enough facts to show what position plaintiff held, what the general nature of the claim is (e.g., misclassification as exempt, failure to pay for hours spent at the beginning and end of the workday, deductions from salary of exempt personnel, and so on), and whether the plaintiff or counsel had brought the claim to the employer's attention. That will require a little more work at the beginning, but could cut down on the number of arguments by both sides over truly threshold issues.

I rest my case.

No Insurance Coverage for OT Suits? Lawsuits Against Insurers Look to Be on the Rise

Vozzcom, Inc., a cable and electrical contracting services provider based in Florida, has sued its insurance carrier, Great American Insurance Co. of New York, to determine the insurer's obligation to defend and indemnify Vozzcom in a putative collective action filed by an employee asserting wage and hour violations. The suit was filed in the U.S. District Court for the Southern District of Florida.

Vozzcom is no stranger to wage and hour suits having defended itself from several claims over the past few years. Vozzcom had previously been sued by an employee for wage and hour violations in 2007. At the time of the first wage and hour suit against Vozzcom, Vozzcom was not insured by Great American. Vozzcom's insurer at the time of the first wage and hour suit defended and settled the suit for Vozzcom. In 2008 (and continuing through the present time), Vozzcom purchased a claims-made employment practices claims policy from Great American for calendar years 2008 and 2009. A second wage and hour suit commenced against Vozzcom in 2008 that resulted in a court award of nominal back wages for the plaintiff although the court ruled that Vozzcom met its burden of acting in good faith and with reasonable grounds to believe its wage and hour practices were compliant. The second suit led to a dispute between Great American and Vozzcom's prior insurer as to who might be liable for defense costs and indemnity. Ultimately, a court ruled that the prior insurer was liable because the suit arose from the first wage and hour suit.

Once again in January 2009 (while the Great American policy remained in effect), a third wage and hour suit was filed against Vozzcom. Vozzcom requested Great American to defend and indemnify Vozzcom in the third suit. Great American denied the claim as part of the same single claim as the prior two wage and hour lawsuits. Whether Great American can successfully avoid coverage remains to be seen, but the case raises interesting issues for employers reviewing their current and past insurance coverage. This suit serves as a reminder to an employer to check insurance policies and, in the case of multiple suits over similar practices, assess which policy or policies may cover a wage and hour suit.

To read the complaint in the Great American suit, please click here.

Arbitration Can Be Troublesome

The conventional wisdom that arbitration is a way to avoid the expense, time and risk of litigation has been challenged repeatedly as plaintiffs, courts, and even legislators seek to impose new requirements which can make the arbitration process just as costly as litigation, with the added downside that there's no meaningful way to appeal an arbitration award. That lesson was brought home in the ongoing fight known as In re Cintas Corp. Overtime Pay Arbitration Litigation (N.D.Cal. No. 06-1781), involving the Cincinnati-based uniform and business services supplier. This long-running dispute started in 2003 with a collective action filed by Cintas sales representatives who claimed they should not have been classified as exempt.

(Round 1) The court allowed the sending of notices to the alleged class, and about 2400 opted into the case.
(Round 2) Cintas then argued that most of the claims had to be arbitrated, and the court agreed as to nearly 80 percent of the group, and Cintas asked 70 different courts to order the claimants to arbitrate.
(Round 3) The claimants asked the Judicial Panel for Multidistrict Litigation to consolidate all those cases back to San Francisco, aand the JPML agreed.
(Round 4) After the California court named an arbitrator, the court concluded that the claimants were refusing to arbitrate by angling for the class arbitration and threatened to send the cases back to the 70 district courts. That decision is on appeal.
(Round 5) The arbitrator disagreed with the district judge and allowed the claimants to proceed with their class arbitration.
(Round 6) Cintas asked the court to order the arbitration halted. The court refused to enter an injunction.

Where will this go? What will it cost? When will it end? One major difference between the Cintas case and a sporting event is the lack of a single referee with authority to dispose of disputes. Once the arbitration genie was loosed from its bottle, the law of unintended consequences took hold. So the next time you think, "Wouldn't it be nice if we could channel our wage-hour disputes into a simple procedure?," think again to see what could go wrong. Plaintiffs' counsel may be sufficiently motivated and financed to see the match through to the final bell.

But That's What a Bonus is For!

We frequently remind you that in order to utilize the executive or administrative "white collar" overtime exemptions, it is necessary that the employee in question be paid on a "salary basis" - an amount which doesn't fluctuate when the quantity or quality of work varies. The US Court of Appeals for the Sixth Circuit (covering Kentucky, Michigan, Ohio and Tennessee) recently brought this lesson home - expensively - in Winterwood v. Life Time Fitness, Inc. In 2005, the year after the new FLSA regulations took effect, the employer looked at the results suggested by its compensation plan and decided to "claw back" overpayments of bonuses which department heads had received, determining that those bonuses had not been "earned."

The District Court for the Southern District of Ohio sided with the 8-plaintiff class, reasoning that the recoupment of the bonuses destroyed the "salary basis" because it was a reduction in pay based on quality of work; however, since there were actual pay reductions levied in only three pay periods, the trial court ordered back pay for only those losses. The appeals court viewed the situation as more serious, saying that as of the effective date of the new plan the managers were not paid on a salary basis, were no longer exempt, and were entitled to overtime compensation for all hours worked in excess of 40 in any workweek. The bonus plan, the appellate panel said, created a "significant likelihood of improper deductions" even though, looking at what has actually happened, that "likelihood" had materialized in only three payroll cycles in 2005.

The moral? Just because something makes sense from the standpoint of business judgment has little to do with whether the FLSA's requirements have been met.

Family Dollar Mounts Vigorous Defense

Originally published May 7, 2009

In another chapter in the hotly-contested multidistrict litigation involving FLSA claims against the discount retailer, Family Dollar has won a battle and continues to press the plaintiffs to comply with procedural rules. Since "class" members have to file written consents to join in federal wage-hour suits, they are subject to discovery requirements, including answering interrogatories. When a number of the consenters failed to provide responsive, signed responses, Family Dollar asked the court for help, and got it: For the ruling by Judge Graham Mullen of the US District Court for the Western District of North Carolina, see http://www.wcsr.com/resources/pdfs/flsa_blog042909.pdf.

Now the employer has filed motions to dismiss noncomplying plaintiffs' claims. Watch these pages for further developments.

Update (6/22/09): Docket and New Filing

Update (6/12/09): Judge Mullen denied the motion to dismiss

Update (6/5/09): The Court on Defendant's Motion to Dismiss

Update (5/14/09): "Judge says plaintiffs' attorneys are spiteful."