Fair Labor Standards Act Basics. FLSA Violations Are Extremely Expensive

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1 Recent Developments in Wage and Hour Cases, Fair Credit Reporting Act Cases, Telephone Consumer Protection Act Cases and Tag-Along Patent Class Actions Michael Best & Friedrich LLP Litigation Seminar December 4, 2014 Fair Labor Standards Act Basics The FLSA is the federal law that regulates: Minimum Wage Overtime Child Labor Recordkeeping The FLSA is also: Old, and in many respects, not updated to realities of the modern workplace Technical and arcane Unavoidable: It cannot be circumvented or ignored, even by a collective bargaining agreement 2 FLSA Violations Are Extremely Expensive Significant Recent Verdicts/Settlements Paid by Employers: $172 million (Wal-Mart; meal period violations) $100 million (Starbucks; tip-sharing violations) $89 million (UBS; overtime re brokers) $78 million (Wal-Mart; meal period/breaks) $65 million (IBM; overtime re IT employees) $53 million (Albertson s; off-the-clock ) $38 million (24-Hour Fitness; off-the-clock, meal period and overtime) $32.9 million (Huntington (CA) Memorial Hospital; regular rate violations) 3 1

2 FLSA Overtime & Off-the-Clock Lawsuits Have Become a Cottage Industry Common FLSA Pitfalls Exemptions and Overtime Disputes Off-The-Clock Violations Salary Basis and Deduction Mistakes 5 Who is Eligible for Overtime Pay? EVERYONE, unless specifically exempted Nonexempt = receive overtime Exempt = do not receive overtime Employer s burden to prove exemption; the law presumes nonexempt Exemption inquiry is fact specific The following are not enough to make an employee exempt : Employee is salaried Employee makes lots of money Employee has a fancy job title Employee not closely supervised 6 2

3 White Collar Exemptions Generally, exemptions have two components: Pay Component Duties Component 7 White Collar Exemptions There are several white collar exemptions from the minimum wage and overtime requirements of the FLSA: Executive Exemption Administrative Exemption Professional Exemption Outside Sales Exemption Computer Employee Exemption 8 White Collar Exemption Definitions Executive - Employee must be paid at least $455/week on a salary basis - Employee s primary duty must be management of a discrete unit of the business - Employee must direct the work of 2 or more full-time employees - Hiring/Firing Authority - Business Owners : Employee must own 20% equity interest and be actively engaged in management Administrative - Employee must be paid at least $455/week on a salary basis - Employee s primary duty must be office or nonmanual work directly related to management or general business operations - Employee s primary duty must include the exercise of discretion and independent judgment on matters of significance Professional - Employee must be paid at least $455/week on a salary basis - Employee s primary duty is the performance of work requiring advanced learning in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or - The performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor 9 3

4 Common Issues in Overtime Disputes The most common duties-based exemption pitfalls: The Bogus Manager Cases Overuse of Administrative Exemption Challenges Concerning Outside Salespersons Common salary-based exemption pitfall: Deduction Cases 10 Common Mistakes: Classification of Managers and Assistant Managers Reliance on title Overlooking the primary duty requirement Ignoring the customarily recognized department or subdivision requirement The two or more other employees problem No authority to hire or fire, and no weight given to recommendations Working Supervisors, Working Foremen, Team Leaders and/or Shift Supervisors 11 Overuse of the Administrative Exemption Another prominent category of duties-based exemption cases concerns proper application of the administrative exemption set forth in 29 C.F.R Plaintiffs lawyers have figured out that employers have historically over-used the administrative exemption as a catch-all to cover a host of white-collar employees whose duties do not meet the requirements of the executive or professional exemptions. For this reason, the administrative exemption is probably the most heavily litigated (and unpredictable) of the FLSA exemptions, often with severe consequences for employers. 12 4

5 Common Mistakes Made by Employers in Over- Using the Administrative Exemption Assuming that all employees who work in an office environment are exempt administrative employees. Confusing day-to-day production-related activities with administrative functions related to general business operations. Confusing discretion and independent judgment with the use of highly-specialized, advanced skills. Ignoring the primary duty and matters of significance requirements. Using the administrative exemption as a catch-all for any white-collar employee who is paid a salary but does not fit within any other exemption. 13 Challenges Concerning Outside Salesperson Exemption challenges concerning outside salespersons are also becoming increasingly common. Employers in the Midwest should take note that there is a Minneapolis-based plaintiffs firm currently bringing numerous cases in Minnesota and elsewhere attacking outside salesperson exemption classifications. See 14 Other Outside Sales Concepts Currently under Scrutiny Where are the sales actually closing? When are the sales actually closing? The Home Office problem. The Lazy outside salesperson problem. The salesperson cold-calling from the office all day. 15 5

6 Off-the-Clock Violations: Failure to Pay Nonexempt Employees for All Hours Worked HOTTEST CASES FOR CLASS ACTIONS NATIONWIDE Preliminary & Concluding Activities Wash-up & Changing Clothes Time Meal Periods & Other Breaks Mandatory Meetings, Training On Duty Waiting Time & Off Duty On-Call Time Travel Time Smartphone Time? 16 Preliminary & Concluding Activities Very beginning and very end of workday GENERAL TEST: Is the activity an integral and indispensable part of the employee s regular job? If yes, it is hours worked. Examples: Setting up machinery, tools, equipment, etc., changing into required safety gear, cleaning up employer s equipment, machinery and tools If no, it is not hours worked. Examples: Walking from changing area or parking lot to job site. UNLESS, The CBA requires compensation for this time or the employer has a custom and practice of paying for it. Then it is hours worked. Case-by-case determinations Donning and doffing Computer start-up time 17 Wash Up & Changing Clothes Time Exception: One of the few areas where FLSA defers to agreement in CBA. If CBA excludes wash up or changing clothes time from hours worked, or if employer has a custom and practice of not paying for such time, it is not hours worked. If no CBA, question is whether wash up or clothes changing is indispensable to the job. If yes, hours worked If not, not hours worked Wash Up Time : Usually not indispensable in most jobs if for employees convenience; more likely indispensable if hazardous/toxic substances involved Changing Clothes : Usually not indispensable when no specific safety gear required by employer; more likely indispensable if gear is heavily specialized & unique, i.e. meat packing industry 18 6

7 Meal Periods & Other Breaks Neither Meal Periods or Rest Breaks required under FLSA But, the Illinois One Day Rest in Seven Act requires that workers receive 20 minute meal breaks after 5 hours worked if employee works at least a 7 ½ hour day Bona Fide Meal Period is Not Hours Worked if: At least 30 consecutive minutes long; and Employees completely relieved from duty ; If any one of these requirements is not met, the entire meal period counts as compensable hours worked. Rest Breaks Are Hours Worked if shorter than 30 Minutes 19 One Common Salary Basis Pitfall to Watch for: Deduction Cases Paying employees a salary and paying employees on a salary basis under the FLSA are not synonymous. Deduction mistakes can be extremely expensive. 20 Common Deduction Mistakes Made by Employers Deductions from salary for partial-day absences for any reason whatsoever (other than approved FMLA leave). Deductions from salary for disciplinary suspensions of less than one week caused by performance or attendance reasons. Week-long disciplinary suspensions without pay present no docking issue. Deductions for disciplinary suspensions are permitted in full-day increments under two circumstances only. Deductions from salary of less than one full week for absences caused by jury duty, attendance as a witness, or temporary military leave. Deductions from salary of less than one full week for absences occasioned by the employer. 21 7

8 Questions? 22 Background Checks & the FCRA I am ready to begin checking criminal backgrounds. What resources are available to me to obtain this information, and which resources are most reliable? State Court access programs State crime information bureau Third-party vendors 23 The Fair Credit Reporting Act The NEW FLSA The FCRA applies to employers who utilize third parties to collect information on applicants/employees for a fee IF violate the FCRA - Up to $1,000 per applicant in statutory damages PLUS attorney s fees and costs PLUS the potential for uncapped Punitive Damages 24 8

9 FCRA Violations Are Extremely Expensive Significant Recent Verdicts/Settlements Paid by Employers: $20.7 million (Lexis-Nexis) $6.8 million (Publix Super Markets) $4.4 million (Swift Transportation) $4 Million (Dollar General) $3 million (K-Mart ) $2.5 Million (Domino s Pizza) 25 The Fair Credit Reporting Act The FCRA applies to employers who utilize third parties to collect information on applicants/employees for a fee (such as criminal checks, credit checks, educational histories) Explicit disclosure and notice requirements The language contained in application documents is critical Many hoops to jump through 26 Background Checks: When does the FCRA Apply? The FCRA applies to consumer reports prepared for an employer by an outside screening company. When a third party compiles a report, the FCRA requires (1) that the employee/applicant is notified that an investigation may be performed, (2) that he/she is given the opportunity to consent, and (3) that he/she is notified if information in the report is used to make an "adverse" decision. Under the FCRA, if the employer does not hire a third party to conduct the investigation, but compiles the report itself, many provisions of the FCRA do not apply. State laws may vary. 27 9

10 Important Definitions Consumer Report Section 603(d) Any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used in whole or in part for the purpose of serving as a factor in establishing the consumer s eligibility for employment purposes (among other things). Interpretations case law or opinion letter Public record information Drug lab reports Driving record checks 28 Obligations of Users when Consumer Reports are Obtained for Employment Purposes Sec. 604(b) If information from a CRA is used for employment purposes, the user has specific duties, as set forth in Section 604(b) of the FCRA. The user must: Make a clear and conspicuous written disclosure to the consumer before the report is obtained, in a document that consists solely of the disclosure, that a consumer report may be obtained. Obtain from the consumer prior written authorization. 29 The Fair Credit Reporting Act (cont.) What if you don t want to hire someone based on information in the consumer report? Example: Based in part on information you learn in a credit report, you decide not to hire an employee for a managerial position. Pre-adverse action disclosure Adverse action notice 30 10

11 Important Definitions Employment Purposes Section 603(h) Means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment, or retention as an employee. Adverse Action Section 603(k) As related to employment, means a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee. 31 Obligations of Users under the FCRA Users must have a permissible purpose Congress has limited the use of consumer reports to protect consumers privacy Section 604 specifies that a CRA may furnish a CR only under the following circumstances: In response to a court order or subpoena In accordance with the written instructions of the consumer To a person who it has reason to believe Intends to use the information in connection with a credit transaction, or for employment purposes, or for the underwriting of insurance, or to determine license eligibility 32 Obligations of Users under the FCRA Users must provide certification to the consumer reporting agency (CRA) Must certify the permissible purposes for which the report is being obtained, and certify that the report will not be used for any other purpose 33 11

12 Best Practices Decide whether to conduct a background check Decide scope of check What is reasonable? What is job related? Evaluate disparate impact Don t apply decisions for one job to all jobs Decide whether to conduct check internally Comply with FCRA if applicable (bring checks in-house if possible) 34 Questions? 35 TCPA Overview Was enacted in 1991 to address consumer privacy concerns. Prohibits automated calls and unsolicited faxes for the purpose of commercial solicitation. Residential covers telemarketing telephone calls that are initiated using an artificial voice or prerecorded message Mobile covers virtually all calls or messages that are initiated using an artificial voice or prerecorded voice message OR an automatic telephone dialing system (i.e. autodialer) unless prior express consent or sent for emergency purposes (i.e. marketing, collection, political) Fax covers any unsolicited fax (and solicited faxes for the purposes of the opt-out requirements). Number of cases filed increased by 54% in

13 TCPA Cases Are on the Rise Businesses are increasingly turning to mobile marketing efforts TCPA class action complaints are easy and inexpensive to file Limited defenses to TCPA claims Cases often settle in the multi-million dollar range. Statutory damages when aggregated can become very large. Statutory damages $500 per call, fax or message and up to $1,500 per occurrence for willful or knowing violations. (i.e. 10,000 calls = $5 million 37 Today s Mobile Society 38 Today s Mobile Society 39 13

14 Federal Jurisdiction over TCPA Claim Mims v. Arrow Financial Services, 132 S. Ct. 740 (2012) TCPA claims arise under federal law and may be asserted in federal court even absent diversity Settled dispute among circuits that federal and state courts have concurrent jurisdiction 40 Implications for Companies Defending Statute of limitations defenses does state or federal limitations apply? 4 year federal limitations period applies, even if state law period is shorter. Giovanniello v. ALM Media, 660 F.3d 587 (2d Cir. 2011) State laws limiting statutory class actions are not applicable. Bank v. Independence EnergyGroup, 736 F.3d 660 (2d Cir. 2013) 41 Frequent Issues Litigated With the flood gates open, what are frequent issues that arise in TCPA cases? Was there consent? Is it revoked? What counts as an automatic telephone dialing system (ATDS)? Third party liability who is liable? 42 14

15 Scope of Consent and Revocation The TCPA prohibits the use of any automatic telephone dialing system to call any cellular telephone absent an emergency purpose or the prior express consent of the called party. 47 U.S.C. 227(b)(1)(A). The TCPA is silent on whether and under what circumstances a consumer can revoke consent. 43 What Is Consent? The burden is on the calling party to show it obtained the necessary prior express consent because they are in the best position to have records kept in the usual course of business showing such consent. 23 FCC Red. at 565. The TCPA does not require that calls be made for the exact purpose for which the number was provided, but rather that the call bear some relation to the product or service for which the number was provided. See Olney v. Job.Com., Inc., No.1:12-cv LJO-SKO, 2014 U.S. Dist. LEXIS 60843, at *22 (E.D. Cal. May 1, 2014). 44 What Is Consent? Providing a cell phone number as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt. In Re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 23 FCC Rcd. 559, 564 (January 4, 2008). Providing a cellular phone number to an insurance claims adjuster in connection with investigation of a car accident did not consent to be contacted by an entity attempting to collect on the insurer's subrogation claim against her. Thrasher-Lyon v. CCS Commercial, LLC, No. 11-c-4473, 2012 U.S. Dist. LEXIS , at *2-3, *7, *8 (N.D. Ill. Sept. 4, 2012) The FCC has established no general rule that if a consumer gives his cellular phone number to a business, she has in effect given permission to be called at that number for any reason at all, absent instructions to the contrary. Rather, to the extent the FCC's orders establish a rule, it is that the scope of a consumer's consent depends on its context and the purpose for which it is given. Consent for one purpose does not equate to consent for all purposes. Kolinek v. Walgreen Co., No. 13 C 4806, 2014 U.S. Dist. LEXIS 91554, at *10-11 (N.D. Ill. July 7, 2014) 45 15

16 Can Consent Be Revoked? Split among District Courts (1) Some courts have concluded that once customers provide consent, it cannot be revoked. These courts concluded that because neither the TCPA nor any FCC regulation or advisory opinion construing the statute contains any provision allowing revocation of consent, revocation was not possible. E.g., Saunders v. NCO Fin. Sys., Inc., 910 F. Supp. 2d 464 (E.D.N.Y. 2012) 46 Can Consent Be Revoked? (cont.) (2) Other courts have concluded that consent can be revoked, but only through writing. - These cases primarily involve debt collection calls and under the FDCPA, a debtor can ask a debt collector to cease and desist collection effects, but the request must be in writing. 15 U.S.C. 1692c(c). The courts concluded that because the cases were essentially about debt collection, the writing requirement of the FDCPA should apply. E.g., Gager v. Dell Fin. Servs., LLC, 727 F.3d 265 (3d Cir. 2013); Starkey v. Firstsource Advantage, LLC, No. 07-CV-662A, 2010 U.S. Dist. LEXIS 60955, (W.D.N.Y. Mar. 11, 2010); Cunningham v. Credit Mgmt., L.P., No. 3:09-CV-1997, 2010 U.S. Dist. LEXIS (N.D. Tex. Aug. 30, 2010); Moore v. Firstsource Advantage, LLC, No. 07-CV-770, 2011 U.S. Dist. LEXIS ,(W.D.N.Y. Sept. 15, 2011); Moltz v. Firstsource Advantage, LLC, No. 08- CV-2395, 2011 U.S. Dist. LEXIS (W.D.N.Y. Aug. 1, 2011); Sengenberger v. Credit Control Servs., Inc., No. 09-C-2796, 2010 U.S. Dist. LEXIS (N.D. Ill. May 5, 2010). 47 Revocation (cont.) (3) Some courts have determined that consent can be revoked orally or in writing. Consumers have the right to revoke consent to receive autodialed calls under the Telephone Consumer Protection Act and that they may do so orally or in writing. Although neither the text of the Act nor its legislative history addresses the possibility of revoking prior express consent, a traditional understanding of consent includes the possibility of revocation. Under common law, [c]onsent is a willingness in fact for conduct to occur and consent is terminated when the actor knows or has reason to know that the other is no longer willing for him to continue the particular conduct. This unwillingness may be manifested to the actor by any words or conduct inconsistent with continued consent... Beal v. Wyndham Vacation Resorts, Inc., 956 F. Supp. 2d 962, 977 (W.D. Wis. 2013) Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242 (11th Cir. 2014); Gutierrez v. Barclays Group, No. 10cv102, 2011 U.S. Dist. LEXIS 12546, at *11-12 (S.D. Cal. Feb. 9, 2011); Adamcik v. Credit Control Servs., 832 F. Supp. 2d 744, (W.D. Tex. 2011); 48 16

17 What Counts as an ATDS? Equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers. 47 U.S.C. 227(a)(1). The FCC has expansively interpreted ATDS to include predictive dialers : equipment that dials numbers and, when certain computer software is attached, also assists telemarketers in predicting when a sales agent will be available to take calls. The hardware when paired with certain software, has the capacity to store or produce numbers and dial those numbers at random, in sequential order, or from a database of numbers. In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 F.C.C.R 14014, (July 3, 2003). 49 What Counts as an ATDS? (cont.) The question is not how the defendant made a particular call, but whether the system it used had the capacity to make automated calls. Nelson v. Santander Consumer USA, 931 F. Supp. 2d 919, 930 (W.D. Wis. 2013) (decision vacated by parties joint motion and stipulation on June 7, 2013) [A] system need not actually store, produce, or call randomly or sequentially generated numbers, it need only have the capacity to do it. Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 951 (9th Cir. 2009). 50 TCPA and Third-Party Liability Who is liable when there is a TCPA violation? The answer depends upon the form of communication 51 17

18 Liability for Telemarketing Calls In re DISH Network, LLC, 28 F.C.C. Rcd (2013) (declaratory ruling by the FCC) Addressed third-party liability for prerecorded messages FCC found that direct liability under the TCPA attached only to the person or entity that initiated a telephone call. A person or entity initiated a call when it takes the steps necessary to physically place a telephone call. Nevertheless, the FCC found that sellers may be held vicariously liable under the federal common law agency principles. 52 Liability for Telemarketing Calls Factors that could demonstrate apparent authority: Evidence that the seller allow[ed] the outside sales entity access to information and systems that normally would be within the seller s exclusive control ; The ability of the outside sales entity to enter customer information into the seller s systems Authority to use the seller s trademarks; Whether the seller wrote or reviewed the telemarketing script; and If the seller knew or reasonably should have known of a third party s telemarking violations and failed to take effective steps to address the conduct These factors may be sufficient to at least shift the burden to a seller to demonstrate that a reasonable consumer would not assume the telemarketer is acting as the seller s authorized agent. 53 Liability for Text Messages Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th. Cir. 2014) The U.S. Navy hired a marketing company, Campbell- Ewald Co. to conduct a Navy recruitment marketing campaign. Campbell-Ewald Co. contracted a third party, Mindmatics, to send text messages related to the campaign. Mindmatics sent text messages to individuals who did not consent to receive text messages and a class action suit was filed against Campbell-Ewald. The court held that vicarious liability under the TCPA extends to those who contract for messaging services Vicarious liability does not only extend to the merchants whose goods or services are being promoted. The court held the TCPA applies to any person responsible for sending unsolicited text messages

19 Liability for Unsolicited Faxes Palm Beach Golf Center-Boca, Inc. v. Sarris, No , 2014 U.S. app. LEXIS 20870(11th Cir. Oct. 30, 2014) The defendant, Sarris, was the owner of a dental practice who gave free rein to an independent contractor to market his practice. Business to Business Solutions ( B2B ) solicited the independent contractor to send out mass fax advertisements. After receiving payment from Sarris for $420, B2B sent out 7,085 successful transmissions of an advertisement promoting the dental practice. 55 Liability for Unsolicited Faxes Under DISH Network, it would seem that Sarris would not be in violation of the TCPA for B2B s actions. Sarris was found liable. The court stated: A person whose services are advertised in an unsolicited fax transmission, and on whose behalf the fax is transmitted, may be held liable directly under the TCPA s ban on the sending of junk faxes. Id. at * The FCC Letter Brief Sarris court solicited the FCC s position regarding liability for violations of the TCPA s ban on junk faxes. In response, FCC stated the DISH Network ruling applie[d] only to liability for telemarketing calls. Id. at * FCC emphasized distinction in language used - TCPA prohibits the send[ing] as opposed to the initiat[ing] of unsolicited faxes. Id. at * The TCPA ban on telephone calls makes it unlawful to initiate calls without the prior consent of the called party. See 47 U.S.C. 227(b)(1)(B)(2006). The TCPA s provision pertaining to junk faxes makes it unlawful to send, to a telephone facsimile machine, an unsolicited advertisement. See 47 U.S.C. 227(b)(1)(C)(2006)

20 Questions? 58 Tag-Along Patent Class Actions New Breed of Consumer Class Actions Based on a court or agency determination that a product infringes on someone else's patent; or that a patent is invalid Breach of warranty and/or diminution of value First example: Deng v. Samsung Electronics Co. 59 Deng v. Samsung Electronics Co.: The Background First and only Tag-Along case filed to date Based on the high profile Apple v. Samsung Patent saga $930 million jury verdict against Samsung for willful infringement of design and utility patents (21 products at issue) International Trade Commission ruling of infringement and ban on importation of various Samsung products Grant of partial summary judgment of infringement on a patent that covers a method, system and interface for predictive word suggestion

21 Deng v. Samsung Elec. Co. Theories of Liability Breach of Warranty Unfair Trade Practices under New York, New Jersey and California law Unjust Enrichment 61 Deng v. Samsung Elec. Co. Breach of Warranty UCC Warranty Against Infringement: Every state except Louisiana Wis. Stat (3) Unless otherwise agreed a seller warrants that the goods shall be delivered free of the rightful claim of any 3rd person by way of infringement or the like 62 Deng v. Samsung Elec. Co. Breach of Warranty Remedy for Breach of Warranty: Wis. Stat Difference in value due to breach of warranty versus value of non-breaching product? Plaintiffs claim 100% loss of value: Section 337 of the Tariff Act of 1930 makes it illegal for an owner to sell an imported product that infringes a patent. General reduction in resale market price due to infringement 63 21

22 Deng v. Samsung Elect. Co. Unfair Trade Practices New York, New Jersey and California law Could be the laws of any state or all states Here Samsung USA is a New York Corporation located in New Jersey Statutory damages (NY $50 per violation), actual damages, disgorgement, attorneys fees Theory is by not disclosing the infringement they withheld critical information to the detriment of the consumer 64 Deng v. Samsung Elec. Co. Unjust Enrichment Alternative Theory Does not require proof that Samsung did anything illicit Must prove Samsung received a benefit (money) under circumstances that makes it inequitable to retain it Remedy is payment for the benefit conferred Here difference in value between product with infringement and purchase price 65 Deng v. Samsung Elec. Co. Harbinger of Sorrow First of its kind not a one off Why? It s certifiable and that s the end game UCC Warranty is essentially a national standard 50 state classes Damages are statutory or a single calculation for diminution of value 66 22

23 Questions? 67 Recent Developments in Wage and Hour Cases, Fair Credit Reporting Act Cases, Telephone Consumer Protection Act Cases and Tag-Along Patent Class Actions Presented by: Mitch Quick, Michelle Dama, and Joe Olson 68 23