FLSA Issues Kick Off 2016

This week has brought two developments impacting FLSA compliance and claims.  First, the federal Department of Labor issued an Administrative Interpretation 2016-1 concerning joint employment.  Essentially, the AI describes when two businesses will become liable for wages and overtime worked by a shared employee even if that overtime was earned while working for the other employer.   It describes both horizontal (i.e., related) and vertical (i.e., staffing) relationships that can lead to joint employment.  Second, the U.S. Supreme Court issued a class action decision involving spam text messages, but the holding about offers of judgment and mootness of claims will be important to employers attempting to defend FLSA class actions by making offers of judgment (i.e., complete relief) to the class representatives.   Campbell-Ewald Co. v. Gomez, No. 14-857 (1-20-16).  The Court held that an offer of judgment rejected by the class representative does not moot the pending litigation claim, even if the offer was rejected before the certification of the class.  As discussed here a few years ago, if the rejected offer of judgment mooted the claim, then the FLSA case was left moot and was dismissed.   The Court left open for another day whether the result would be different if the defendant had actually deposited the amount of the offer into an account payable to the plaintiff and then the court entered judgement in that amount in the plaintiff’s favor.

In the Administrative Interpretation, the DOL summarized its position on when two or more employers may be held jointly liable for the FLSA obligations regarding an employee who works for each of the employers.  It describes one situation as horizontal joint employment when the two or more technically separate businesses are associated or related (through common ownership, management, contracts to share employees, etc.)  The focus of the analysis is on the relationship of the businesses with each other (because it is already clear that the worker is an employee of each entity)   This can happen, for instance, with restaurants and home health care, property management, etc. When joint employment is identified, each employer becomes jointly and severally liable for the employee’s wages for each week worked, including overtime wages, regardless of how many hours the employee worked for that particular entity.  See 29 C.F.R. §791.2(a).

The following facts may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

·        who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);

·        do the potential joint employers have any overlapping officers, directors, executives, or managers;

·        do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);

·        are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);

·        does one potential joint employer supervise the work of the other;

·        do the potential joint employers share supervisory authority for the employee;

·        do the potential joint employers treat the employees as a pool of employees available to both of them;

·        do the potential joint employers share clients or customers; and

·        are there any agreements between the potential joint employers.

Of course, merely because an employee holds more than one job does not make his or her employers joint employers. “Joint employment does not exist, however, if the employers “are acting entirely independently of each other and are completely disassociated” with respect to an employee who works for both of them. 29 C.F.R. 791.2(a).”

The AI describes a second situation  -- called vertical joint employment -- where there is an intermediary employer which supplies workers to a client and the economic realities show that the client exercises sufficient control over the worker to make that worker economically dependent on it and, thus, its employee for purposes of the FLSA.   Unlike horizontal relationships, the analysis in vertical relationships is on the economic realities of the relationship between the worker and the client to determine whether the employee is economically dependent on the client.   These situations arise for instance in construction (when a subcontractor supplies employees to the general contractor), in agriculture (when laborers are supplied to a grower) and in warehouses (when workers are supplied to the operator or owner of the warehouse) and medical (where nurses are placed by a staffing agency). 

The AI lists the following factors are relevant in determining the economic realities and economic dependence:

A.     Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer. The potential joint employer’s control can be indirect (for example, exercised through the intermediary employer) and still be sufficient to indicate economic dependence by the employee. See Torres-Lopez, 111 F.3d at 643 (“indirect control as well as direct control can demonstrate a joint employment relationship”) (citing pre-1997 MSPA regulation); Antenor, 88 F.3d at 932, 934; 29 C.F.R. 500.20(h)(5)(iv). Additionally, the potential joint employer need not exercise more control than, or the same control as, the intermediary employer to exercise sufficient control to indicate economic dependence by the employee.¹⁷

B.     Controlling Employment Conditions. To the extent that the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the potential joint employer. Again, the potential joint employer may exercise such control indirectly and need not exclusively exercise such control for there to be an indication of joint employment.

C.     Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the potential joint employer suggests economic dependence. This factor should be considered in the context of the particular industry at issue. For example, if the work in the industry is by its nature seasonal, intermittent, or part-time, such industry condition should be considered when analyzing the permanency and duration of the employee’s relationship with the potential joint employer.

D.     Repetitive and Rote Nature of Work. To the extent that the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training, those facts indicate that the employee is economically dependent on the potential joint employer.

E.      Integral to Business. If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer. Whether the work is integral to the employer’s business has long been a hallmark of determining whether an employment relationship exists as a matter of economic reality. See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722, 729-30 (1947).

F.      Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer. The potential joint employer’s leasing as opposed to owning the premises where the work is performed is immaterial because the potential joint employer, as the lessee, controls the premises.

G.     Performing Administrative Functions Commonly Performed by Employers. To the extent that the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, those facts indicate economic dependence by the employee on the potential joint employer.

See 29 C.F.R. 500.20(h)(5)(iv).

 

In Gomez, the Court addressed the issue which is passed on in 2013 in Genesis HealthCare Corp., 569 U. S., at ___, and adopted Justice Kagan’s dissenting opinion from that case:

We hold today, in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.

However, the Court left open the possibility that a claim could be mooted by the offer of complete relief:

We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff ’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Two 5-4 Decisions On FLSA and ERISA

This morning, the United States Supreme Court issued two employment decisions which had two things in common.  They both were both 5-4 decisions and they both reversed the Third Circuit Court of Appeals.  Justice Kennedy was the swing vote.  In the first case, Justice Thomas’ opinion found that a FLSA lawsuit brought by a single plaintiff on behalf of herself other others similarly situated could not proceed after her individual claim was mooted by her failure to accept an offer of judgment from the defendant hospital employer.  In the second lawsuit, Justice Kagan’s opinion found that an employer’s ERISA plan could properly recover in a lawsuit from its employee/beneficiary funds which employee recovered in a personal injury lawsuit from a third-party based on the equitable lien in the ERISA plan to recover funds already paid by the plan to the employee for his injuries.  However, because the ERISA plan was silent on the subject of attorney fees, the common law doctrine concerning a common fund would be applied to reduce the ERISA’s plan’s recovery by the 40% contingency fee that the plaintiff paid his personal injury attorney to recover the funds.

In the FLSA lawsuit, the plaintiff employee alleged that she and other similarly situated employees were not paid in accordance with the FLSA because her hospital employer automatically deducted 30 minutes each day from their paycheck for lunch whether they worked through lunch or not.   Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (4-16-13).  No other employees joined her lawsuit.  Upon filing its answer to her complaint, her savvy employer made an offer of judgment under Civil Rule 68 – i.e., offered her the full requested relief of $7500 of unpaid wages plus any attorney fees, costs and expenses that the court might deem appropriate.  She was given 10 days to accept the offer, which she ignored.  The trial court, however, was impressed.  By offering her full relief, the employer mooted her individual claim (under the law of the Third Circuit – which is not universally accepted on this point), which was dismissed.  Because no one else had joined her lawsuit, and she had no personal interest in the pending lawsuit,  the case was dismissed.  The Third Circuit reversed, objecting to allowing employers to cherry pick cases by paying off the representative plaintiff.  However, the Supreme Court reversed.

While the FLSA authorizes an aggrieved employee to bring an action on behalf of himself and “other employees similarly situated,” 29 U. S. C. §216(b), the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.

                . . . . .

The Court of Appeals concluded that respondent’s indi­vidual claim became moot following petitioners’ Rule 68 offer of judgment. We have assumed, without deciding, that this is correct.

Reaching the question on which we granted certiorari, we conclude that respondent has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness. Respondent’s suit was, therefore, appropriately dismissed for lack of subject-matter jurisdiction.

The Court distinguished this case for damages from equitable cases where the fleeting nature of the underlying claim (such as the lawfulness of pre-trial detentions) would almost always render a case moot before it could be heard.  Notably, the Court did not address the larger issue of whether a rejected offer of judgment renders the case moot, which is an unsettled issue of law.  The lower courts held that it did and the plaintiff did not appeal that issue to the Supreme Court.

In the second case, an employee was injured in a car accident and his employer’s health plan paid $66,866 in medical costs.  US Airways, Inc. v. McCutchen, No. 11-1285 (4-16-13).   The employee then retained a lawyer to sue the driver of the car which injured him.  That driver had also killed and/or seriously injured 3 other people, had limited insurance coverage and settled for $10,000.  However, the employee’s own insurance carrier paid $100,000.  Of the $110,000  recovered by the employee, 40% of it went to his attorney’s contingency fee.  Although he was left with only $66,000, the employer’s health plan then sued him under §502(a) of ERISA to recover reimbursement of the $66,888 in medical expenses it paid on his behalf. The terms of the health plan provided:

“If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a  third party, . . . [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise.”

The health plan’s right to reimbursement is an equitable lien by agreement on the proceeds of the personal injury litigation.   Nonetheless, it is a contractual right and is not subject to common law rules concerning equitable liens.  Therefore, the plan’s contractual rights could not be defeated by the common law doctrines of unjust enrichment, double recovery, or common fund.  However, because the plan was silent on the allocation of attorney fees, the Court’s majority (and the point on which the minority dissented because the terms of the plan were plain and uncontested), concluded that the silence would be filled by the common law doctrine of the common fund.  The plan did not specify whether its right to recovery went to the first dollar or only to the dollars recovered (i.e., after deduction for attorney fees).  

The majority found that the plan’s contractual right to recovery was reduced by the 40% attorney contingency fee.   Otherwise, the plan would receive a full ride at the employee’s expense.  The employee here would be out of pocket for bringing the lawsuit that the plan failed to bring or contribute towards. To rule otherwise, would also create a disincentive for the employee to have brought the personal injury lawsuit in the first place.    Of course, employers could avoid having to share with personal injury attorneys in the future by revising the terms of their ERISA plans to explicitly avoid responsibility for those fees and/or specify how its recovery would be calculated.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.