BLOGS: Fair Labor Standards Act Law

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Tuesday, June 30, 2009, 3:13 PM

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.

Thursday, June 25, 2009, 11:14 AM

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.

Wednesday, June 24, 2009, 10:49 AM

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.

Thursday, June 18, 2009, 4:39 PM

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.

Friday, June 5, 2009, 1:18 PM

Just the Facts

While Congress, the Department of Labor, and the plaintiffs' bar seem intent on pushing the envelope toward new claims and new employer liability, care should be taken to consider the teaching of the Supreme Court's decision in Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937 (May 18, 2009). The case involved a Muslim Pakistani pretrial detainee who claimed he had suffered under harsh prison conditions and brought suit against the former Attorney General and the FBI director. The question presented for review was a narrow one: did the plaintiff "plead factual matter that, if taken as true, states a claim that [Ashcroft and Mueller] deprived him of his clearly established constitutional rights." However, the 5-4 ruling by Justice Kennedy applies to all complaints filed in US District Courts, and carries the potential for more rigorous scrutiny of such pleadings given the heightened standard the Court explained.

Iqbal builds on the 2007 precedent established in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, which had announced a "flexible 'plausibility standard'" - reciting conclusory statements in the complaint will not always suffice to keep a case alive. In other words, a complaint needs more than legal conclusions - it must provide some factual context, which crosses the line between possibility and plausibility, in order to survive a motion to dismiss. Accordingly, the Court found that two claims in the complaint did not meet that threshold:

(1) that the defendants "knew of, condoned, and willfully and maliciously agreed to subject" [Iqbal] to harsh conditions of confinement "as a matter of policy, solely on account of [his] religion, race and/or national origin and for no legitimate penological interest"; and

(2) that Ashcroft was "the principal architect" of the policy and that Mueller was "instrumental" in adopting and executing it.

The problem was in the failure of the complaint to explain the chasm between those assertions and the conclusion that the defendants' purpose in formulating the policy was based on race, religion or national origin. Iqbal argued that these issues could be dealt with in the discovery process, the the Court disagreed on grounds that "it is counterproductive to require the substantial diversion that is attendant to participating in litigation and making informed decisions as to how it should proceed" just because the plaintiff has put together a complaint which, if all the allegations were proved, might result in liability for the defendant. In the most significant aspect of the decision for employment litigation, the Court warned that it is not enough to claim discrimination; there must be a factual context presented to allow the judge to assess whether the case should be allowed to proceed.

The four dissenters - Justices Souter, Stevens, Ginsburg and Breyer - deemed the majority's analysis "cursory," contending that the two claims discussed above were selected without regard for other concessions made by the defendants. It is instructive to note, however, that whatever concessions a defendant might make in an answer or otherwise are not pertinent to an analysis of the complaint itself. Iqbal stands for the proposition that something is needed beyond leaps of faith to enable a complaint to be answered at all.

How does this lesson apply? Using FLSA litigation as an example, there are plaintiffs' attorneys who file complaints which are formulaic, bare-bones documents in which the changes from one case to another are so minimal as to suggest a simple filling in of the blanks. Often there is no identification of the plaintiff's job, department, or working conditions; instead, there is a simple assertion that the employer violated the law by failing to pay plaintiff (and all those similarly situated) in accordance with the law. Nor are Department of Labor complaints much better (and often, since there is no plaintiff other than the Secretary of Labor, there may be even less detail). Will this become an issue in FLSA litigation? Will plaintiffs' counsel need to be a bit more specific in drafting their complaints? The answer to the first question is clearly yes; the answer to the second will be provided over the next few years, assuming, of course, that there is no revisiting of the subject by the Supreme Court.
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