Back on March 13, President Obama issued a memorandum to Secretary of Labor Perez directing his agency to propose revisions to the “white-collar” overtime regulations (29 CFR Part 541). Many observers are now speculating over what approach the DOL will take as it carries out its mission.
The rule-making process is expected to take from 12 to 18 months at a minimum, and a proposed rule is scheduled to be released this November. With an allowance for public comment, a final rule could be released near the end of 2015, all presuming the DOL acts quickly. The last time the regulations were updated in 2004 (the DOL issued its final rule on April 23), the rule-making process began with stakeholder meetings commencing during 2002 with a proposed rule released on March 31, 2003.
While it is unknown how the DOL will interpret the memorandum’s directive to “modernize and streamline” the existing regulations (it is doubtful the existing organizational structure will be scraped), many observers believe the minimum salary threshold will be moved up from its current $455 per week, or a further parsing of the job duties required to meet the various exemptions will be necessary, or both. Whatever follows, any proposed rule will require employers to reexamine their overtime pay classification schemes as they did back in 2003-2004.
If the DOL further delineates the job duties required to meet the exemptions, it will surely mean they will become more restrictive. After all, the thrust of the President’s memorandum is aimed at the “millions of Americans [who] lack the protections of overtime and even the right to the minimum wage.”
Job duties pertaining to managerial or supervisory responsibility (executive exemption), advanced knowledge in a particular field (professional exemption), or the exercise of independent judgment (administrative exemption) will most certainly be addressed. These fact-specific criteria are regularly the subject of a plethora of wage-hour class action litigation.
By Lorene D. Park
Medical marijuana is currently legal in 23 states plus the District of Columbia, but more states are in the process of legalizing it. Among these states, Colorado and Washington also allow recreational use and they may soon be joined by Alaska, Oregon, and the District of Columbia, depending on the outcome on the upcoming November vote. But the use of marijuana is still illegal under federal law. That leaves employers with a whole lot of questions and only piecemeal answers as courts and legislatures grapple with the changing legal landscape. Here are some recent developments.
Can employees still receive unemployment benefits if they were fired for failing an employer’s drug test after their medical use of marijuana? According to a Michigan Court of Appeals, employees cannot be denied unemployment benefits solely on this basis. The court consolidated the cases of three employees, who were qualified patients with registration identification cards under the Michigan Medical Marihuana Act (MMMA), and were not using or under the influence of marijuana on the job, but were fired for testing positive and then denied unemployment on that basis. The court held that it would be an impermissible penalty under the MMMA to require employees to forfeit unemployment benefits simply for using medical marijuana, so long as they did not disqualify themselves in other ways such as ingesting or being under the influence at work. The court was careful to point out that nothing in the opinion requires an employer to allow employees to ingest marijuana at work or to work while under the influence (Braska v Challenge Manufacturing Co).
Must an employer’s “zero tolerance” drug use policy make an exception for the use of medical marijuana? This remains an open question. Some states have laws that specifically prohibit employers from discriminating against employees based on medical marijuana use and protect employees from termination for simply having a medical marijuana card. But that doesn’t mean zero tolerance policies are per se unlawful and no state requires employers to condone marijuana use, or being under the influence of marijuana, while on duty.
The Colorado Supreme Court is currently considering this issue in Coats v Dish Network, LLC, a case involving a quadriplegic customer service rep who was fired after testing positive for marijuana in violation of the employer’s drug policy. He was licensed to use medical marijuana, and he did so while off-duty to ease his disability. He asserted that he never used the drug at work and was never impaired while on duty. The appeals court had held that Colorado’s Lawful Activities Statute, which prohibits employers in the state from firing employees for engaging in lawful off-duty conduct, does not bar the discharge of an employee who uses medical marijuana off the clock. Although Colorado’s Medical Marijuana Amendment permits use of the drug for medicinal purposes (and the state’s voters legalized its general use), marijuana is still prohibited under federal law, the majority noted, and thus was not a “lawful activity” under the statute at issue. Thus, the appeals court upheld the dismissal of the employee’s wrongful discharge claims. Oral arguments were heard by the state high court on September 30, 2014.
Is an employee entitled to reimbursement for medical marijuana under workers’ compensation laws? A state appeals court in New Mexico has said yes on this issue in a case involving an employee who had numerous surgical procedures after a workplace back injury and suffered frequent and extremely severe pain as a result. Agreeing with a workers’ compensation judge that New Mexico’s Workers’ Compensation Act and its attendant regulations authorize reimbursement for medical marijuana, the appeals court affirmed the judge’s order requiring an employer to reimburse the employee for medical marijuana used under the Lynn and Erin Compassionate Use Act. Rejecting the argument that the judge’s order was contrary to federal public policy, the court noted that the Department of Justice has recently offered “equivocal statements” about state laws allowing marijuana use for medical and even recreational purposes, and has even informed the governors of two states that voted to legalize possession of the drug and regulate its production and distribution that it would defer its right to challenge those laws (Vialpando v Ben’s Automotive Services).
Employers should stay informed. Given the changing legal landscape as open questions are decided, and the potential for liability under antidiscrimination and other laws, employers should stay informed of new developments at both the state and federal levels. Note that marijuana is still a controlled substance under federal law but that Attorney General Eric Holder announced guidelines for prosecutors in states with medical marijuana laws, making it clear that the focus of federal resources is not on individuals whose actions comply with state marijuana laws. For an overview of Federal law, see “Federal law and marijuana use at work.”
Addressing what it labeled “the novel question of whether an employee could use his yearly FMLA leave allotment to essentially permanently change his position into one in which he was no longer required to work overtime,” a federal district court in Connecticut observed that the potential for such an outcome has been “noted since the inception of the FMLA and it appears to be a result contemplated by the statute and the DOL.” Thus, to the extent an employee was able to use his FMLA leave to essentially obtain an accommodation that might not be available under the ADA and, in effect, eliminate his job’s essential function of overtime, this result was permitted by the statute, the court concluded.
Headaches triggered by overtime. In his position as a material storage supervisor with the Connecticut Department of Transportation, the employee was required to work considerable overtime during the snowy winter months. In 2000, he was diagnosed as suffering from cluster headaches, a condition more intense than migraines. Several years later, he informed the DOT that his doctor had determined that working overtime was a main trigger for his headaches and requested that his supervisor be notified of his work restrictions.
OT is essential job function. In response, he was told that overtime was an essential function of his job and that under his union contract, if he couldn’t perform an essential function, he would be placed in a positon with “less arduous duties.” If no such position was available, he would have to apply for disability retirement or face separation proceedings.
Request for intermittent leave. Although he applied for FMLA leave, he failed to submit a complete application. After a subsequent meeting with HR, his union rep, and his supervisor, the employee indicated that he would apply for disability retirement. He was placed on leave while the separation process commenced but was not discharged since he had six months of accrued vacation and sick leave.
While on leave, he requested that he be allowed to return to work and take intermittent FMLA leave in the event of mandatory overtime. In response, the FMLA coordinator determined that he was not eligible for FMLA leave. Unable to financially support his family, he withdrew his retirement disability application and returned to work with no medical restrictions. He later left the DOT to work elsewhere, but returned in a job that did not require overtime. He subsequently sued, alleging that DOT officials interfered with his rights by denying him leave under the FMLA.
Intermittent leave for overtime allowed. The defendants argued that the employee was seeking a benefit not provided under the FMLA, which was “to be relieved of ever having to work overtime for his lifetime while employed” at the DOT. They further contended that he was only “entitled to medical leave during the times he was incapacitated by his headaches,” not medical leave each time he was required to work mandatory overtime to avoid the possibility of triggering a headache. Rejecting this contention, the court pointed out that the FMLA does not require a complete inability to work fulltime but rather permits leave to be taken “intermittently or on a reduced leave schedule when medically necessary.”
The defendants’ argument that the employee could only receive FMLA leave when he was actually incapacitated by headaches was also belied by the FMLA regulations, which provide that “absences attributable to incapacity [for chronic conditions] qualify for FMLA leave even though the employee . . . does not receive treatment from a health care provider during the absence, and even if the absence does not last more than three consecutive, full calendar days.” Indeed, the court pointed out, the FMLA regulations provide the example of an employee with asthma being unable to work because his doctor has advised him to stay home when the pollen count exceeds a certain level.
Avoid overtime during snow season? As to whether the employee could use his yearly FMLA leave allotment to essentially permanently change his position into one in which he was no longer required to work overtime, the court found that this potential result stemmed from the FMLA’s allowance for intermittent leave in hourly increments, which, given the yearly 12-week allotment, translated into 480 hours per year based on a 40-hour work week, or 9.2 hours per week, or 1.8 hours per work day. Because his position required overtime only during periods of snow, this yearly leave entitlement would be sufficient to relieve him from all of the overtime required for his position, except perhaps in the most severe of winters, the court reasoned. Thus, the FMLA could be used to essentially create a position with no overtime required.
After examining the history of the statute’s enactment, the court found that to the extent that the employee was able to use his FMLA leave to essentially obtain an accommodation that might not be available under the ADA — the elimination of an essential job function: mandatory overtime — this result was permitted by the statute. Although Congress has since considered imposing restrictions on intermittent leave, none have been imposed, the court noted, observing that nothing in the FMLA restricts an employee from using the statutory entitlement to leave to eliminate overtime. Accordingly, the employee was not precluded from taking leave due to the “indefinite and prophylactic” nature of his request.
By Lisa Milam-Perez, J.D.
Some of the most compelling (and potentially impactful) questions that labor and employment lawyers contend with these days go to the heart of the traditional employment relationship—the very notion of which is teetering on increasingly shaky ground. Who is an “employee” (or “independent contractor,” or “intern”)? Who is the “employer” — i.e., who is liable when an employee’s legal rights are violated? As for the latter, plaintiffs’ attorneys, labor unions, and worker advocates of late have been looking to hold large companies accountable for violations committed downstream by subcontractors, suppliers, staffing agencies, and related entities.
Federal and state agencies have, too. David Weil, the U.S. Department of Labor’s Wage and Hour Administrator, has written of “the fissured workplace,” suggesting (in a provocative tome that predated his April 2014 appointment to the post) that the DOL should focus its enforcement efforts on employers that ostensibly seek to off-load potential liability by deliberately structuring their business organizations and operations accordingly. “[L]arge corporations have shed their role as direct employers of the people responsible for their products, in favor of outsourcing work to small companies that compete fiercely with one another,” notes a teaser for the book. Among the business models deemed suspect: the franchise.
And it’s not just the DOL. NLRB General Counsel Richard Griffin caused quite a stir last August when he said he would authorize complaints against McDonald’s Corp. based on alleged labor law violations by McDonald’s franchisees, under a theory that the fast-food giant is a joint employer of the aggrieved workers. Of course, fast food makes up a sizeable chunk of the franchised industry, and these companies are already feeling the heat of an ongoing, labor-backed drive to raise workers’ wages and secure organizing rights through coordinated national protests and job actions.
State labor agencies and progressive state officials have taken up the cause as well. For example, when New York Attorney General Eric Schneiderman announced last week that he’d filed a $2 million lawsuit against a Papa John’s franchise for underpaying delivery drivers, Fast Food Forward, an “alt-labor” group behind much of the fast-food dust-up, was offered prime real estate in the attorney general’s official press release, with a quote from the group’s organizing director calling the lawsuit “the latest reminder that giant fast-food companies like Papa John’s must ensure that its franchise holders abide by the law and treat workers fairly.”
Fighting back. Facing attack on numerous fronts, the franchise industry has come out swinging. The International Franchise Association (IFA), the industry’s trade group, successfully lobbied California Governor Jerry Brown last month to veto S.B. 610, a bill that would have imposed stronger restrictions on a franchisor’s right to terminate a franchise agreement, among other provisions. Meanwhile, in Washington, IFA members testified at a September House Workforce Committee hearing on “expanding joint employer status”—the primary purpose of which was to lambaste the NLRB’s recent actions in that vein. As for those fast-food protests? The IFA quickly launched a PR counter-offensive, decrying the “union-led” campaign as “part of an overt effort to undermine franchising.”
Franchisee discrimination? Most recently, in a challenge to the city of Seattle’s new $15-an-hour minimum wage ordinance, the IFA filed suit contending that franchises were unfairly taking it on the chin. The organization hopes to prevent the municipality from enforcing the law against small franchised businesses, saying it was a “blatant discriminatory attack” against them. Why? The ordinance classifies franchises as “large employers” if the franchise network collectively employs more than 500 workers nationwide. In contrast, it grants a seven-year phase-in period for other employers with 500 or fewer workers. “Being classified as large businesses would require the small franchised businesses to pay higher wages sooner than other small businesses,” the IFA notes. “As such, they would be at a significant competitive disadvantage, potentially resulting in job losses and closed businesses.” According to the IFA, there are serious questions in play as to whether this “discriminatory treatment of small franchisees was motivated by economic protectionism, animus, and a desire to ‘break’ the franchise model.” The organization has asked a federal court to enjoin the city and require that “all small businesses be treated the same under the minimum wage ordinance.”
Janitors “franchisees”? The franchise industry has reason to be defensive these days, given that these entities have been on the hot seat. But there’s been overreaching on the industry’s part, to be sure. In one long-running Massachusetts case against Coverall North America, a commercial cleaning “franchisor,” the company called its janitorial workers “franchisees” and then misclassified them as independent contractors, in violation of the state’s Independent Contractor Statute. Coverall entered into “janitorial franchise agreements” with the janitorial workers to provide commercial cleaning services to third-party customers. Along with forking over an initial “franchise fee” to enter into an agreement, the franchisees paid additional installments to the company during the course of the contract. Coverall trained the franchisees, provided them with uniforms and identification badges, contracted with and billed customers, and received a percentage of the revenue earned on every cleaning service. It only paid the janitors for their services once the customers paid the company, rather than when they actually performed the work.
Coverall insisted it wasn’t in the cleaning business but rather, the franchising business, and it didn’t “employ” anyone who cleans. This troubled the court. “Describing franchising as a business in itself,” it wrote, “sounds vaguely like a description for a modified Ponzi scheme—a company that does not earn money from the sale of goods and services, but from taking in more money from unwitting franchisees to make payments to previous franchisees.” Quoting Justice Brandeis in a subsequent ruling in the case, the court noted there is a “general feeling that the whole system of paying fees for jobs is unjust.” But it stopped short of holding that the franchise distribution system at issue violated Massachusetts public policy.
A similar class action against Coverall was later brought by “franchisees” in California. In addition to California Labor Code violations, the janitors claimed the company breached their franchise agreements and committed fraud and unfair practices by removing customer accounts from them without cause so that it could resell those accounts to other franchisees. After two years of litigation, the suit culminated in a settlement agreement that included a $475 payment and injunctive relief for each plaintiff and an attorneys’ fee award of nearly $1 million.
The IFA had pushed back during the Coverall litigation as well—deploying its boilerplate language about the “threat to the entire franchise business model” and contending that the court’s holding “brings into question the legitimacy of every business that relies on contractually related firms as sources of revenue.” From the looks of things, it will become an increasingly familiar lament, as these “threats” to the franchise model will only continue to escalate.
The convergence of the collective action provisions of the FLSA, with the offer of judgment provision of FRCP 68, and the “case” or “controversy” requirement of Article III, Sec. 2 of the Constitution has resulted in the litigation strategy known as the “pick-off.” Essentially, the employer extends an offer of judgment to every plaintiff that fully satisfies their claims, thereby rendering the case moot under Article III and divesting the court of subject-matter jurisdiction before the case ripens into a collective action.
In Genesis Healthcare Corp v Symczyk, the U.S. Supreme Court let stand that strategy but left open a key question: when does an offer of judgment rejected by the named plaintiffs moot the lawsuit?
Recently, in Anjum v J.C. Penney Co, Inc, retailer J.C. Penney attempted to avoid an FLSA collective action by making Rule 68 offers of judgment to the named plaintiffs in the case. Although opt-in plaintiffs filed written consents to join the collective action after J.C. Penney had extended its offer and the named plaintiffs rejected it, a federal district court in New York determined that the rejected offers would moot the lawsuit only when it had entered a judgment, and that the offer itself did not moot the lawsuit.
“Pick-off strategy”. J.C. Penney extended offers of judgment under Rule 68 to the named plaintiffs in an effort to “pick-off” the plaintiffs and avoid a lengthy collective action. The employer’s offer was purported to extend complete relief to all named plaintiffs, including damages, liquidated damages, interest, and reasonable attorneys’ fees and costs to be determined by the court. With respect to the opt-in plaintiffs, J.C. Penney moved to strike their consents on the ground that the named plaintiffs improperly solicited the forms. The employer hoped to defeat the plaintiffs’ anticipated argument that its failure to offer relief to the opt-in plaintiffs preserved the case.
Here, the plaintiffs raised four primary theories as to why the lawsuit remained a justiciable controversy: (1) the pick-off play is disfavored as a matter of public policy; (2) an FLSA case cannot be mooted if a motion for conditional certification is pending (even where, as here, the plaintiffs filed the motion after rejecting the offer); (3) J.C. Penney’s offer did not in fact extend all the relief the plaintiffs could possibly recover in the lawsuit; and (4) the presence of opt-in plaintiffs with unsatisfied claims preserves the controversy. Objections such as those raised by the plaintiffs have often defeated motions to dismiss such as J.C. Penney’s.
The Second Circuit first held in Abrams v. Interco Inc., that a defendant’s tender of everything the plaintiff could conceivably recover in a lawsuit will render the lawsuit moot, even if the plaintiff insists on maintaining the action. Although the Second Circuit has not directly applied this rule to an FLSA collective action, district courts in the circuit have generally concluded that the rule does apply to such actions.
Genesis Healthcare emphatically rejected two express exceptions to mootness that the Second Circuit previously carved out in the context of Rule 23 class actions, including the relation back doctrine. The relation back doctrine cannot apply in an FLSA collective action because a Rule 23 class has independent legal status, whereas an FLSA collective class does not. Second, Genesis Healthcare strongly implied that broader policy-based objections simply will not revive an otherwise moot lawsuit after the named plaintiffs’ claims have been satisfied. Thus, the Court refused to reject the use of the pick-off maneuver.
Still, the court determined that the Second Circuit’s rulings in McCauley v. Trans Union, L.L.C., and Cabala v. Crowley, compelled the conclusion that an offer of judgment affording complete relief does not extinguish the live controversy unless and until the court actually enters judgment over the plaintiffs objections. Without jurisdiction, the court could not impose the obligation to pay damages extinguishes the controversy, nor achieve the disposition that resolved the controversy such that the court loses jurisdiction.
Effect of offer of judgment. Although the court determined that J.C. Penney’s methodology for calculating damages was basically sound, it found flaws in the damages period established by J.C. Penney, the fact that it included only one liquidated damages award for both the FLSA and NYLL claims, and it did not include a separate award for pre-judgment interest.
However, the court pointed out that many offers of judgment might be so obviously sufficient that they do not raise the question of whether the offer affords complete relief. On the other hand, other offers will call for closer scrutiny to determine whether they afford complete relief. In applying that scrutiny, the court directly determines the value of the plaintiff’s stake in the lawsuit, and then determines whether the offer meets or exceeds the maximum. Thus, while the value of the plaintiff’s stake remains a contested question, the underlying controversy cannot be considered dead.
In this instance, the court was not convinced that J.C. Penney’s offer afforded all of the remedy to which the named plaintiffs were entitled. The mere existence of issues concerning whether the offers afforded complete relief, and the consequent need for court adjudication of the maximum value of each plaintiff’s stake foreclosed the possibility that the Rule 68 offer of judgment extinguished the controversy at the time J.C. Penney made the offer.