Tuesday, September 13, 2022 at 12:30pm ET Pay Equity & Transparency: Rising Workplace Trends

New York, which has over 9.3 million workers and counting, will soon join other jurisdictions in a growing trend of state and local pay transparency requirements for employers across the country. Currently there are 17 states (and numerous cities) that have laws requiring pay transparency and/or prohibit salary inquiries by current/prospective employers. Additionally, the recent focus on pay equity laws, both state and federal, has served as a catalyst for increased scrutiny by government agencies and resulted in an uptick in related class action lawsuits in recent years. While transparency is generally a virtue, compliance with the ever-evolving pay transparency and pay equity laws across multiple jurisdictions can create a quagmire of issues in attracting and retaining talent—not to mention the HR and legal landmines.

This webinar will cover:

• New pay transparency laws
• Review of pay equity and salary history ban laws
• Insights on compliance
• Practical implications for talent acquisition and retention

Tuesday, October 11, 2022 at 12:30pm ET Wake-up Call: The Resurgence of Unions

The death of union representation was probably not exaggerated—that is, before the pandemic. Now, with employers desperate to recruit and retain employees in a robust labor market, wages seeing the highest percentage increases in years, and a sense of worker-side empowerment not seen for years, unions are more powerful and relevant than at any time in decades.

This webinar will explore recent trends, strikes, organizing activity, and strategies to mitigate union-related risks and disruptions to your business.

This webinar will cover:

• The resurgence in union activity across all industries
• Changes at the NLRB that affect your everyday business operations
• Taking the temperature of your workforce

Tuesday, November 8, 2022 at 12:30pm ET Protecting Your (Human) Resources: Fighting Business Email Compromise and Ransomware

HR employees are, willingly or not, the guardians of the company’s most sensitive collection of data—its employee’s personal information. Cybercriminals often perceive the human resources department as the perfect gateway into a company’s employee data goldmine. Many scams and information theft are perpetrated through social engineering. Cybercriminals posing as job applicants, recruiters or new vendors prey on the fact that human resource employees often receive emails and attachments from unknown sources. Conversely, because of the central role that HR plays in employees’ lives, many employees reflexively open emails and attachments that appear to be sent from the HR department. Employees are just one click away from granting fraudsters the access they need to install ransomware or steal login credentials, potentially exposing employees’ sensitive and valuable personal information, and resulting in significant losses and legal exposure for your company.

This webinar will cover:

• Weapons and techniques fraudsters use to infiltrate company systems and current scam trends
• Proactive best practices for fraud and information theft prevention
• E! true HR stories: theft, lawsuits, and the one simple move that would have stopped it all
• What to do when the perpetrators are in-house

Gustavo Naranjo, a former security officer for Spectrum Security Services, Inc., filed a class action lawsuit alleging that Spectrum failed to provide its employees with meal and rest breaks. Naranjo’s suit sought damages and penalties for Spectrum’s alleged failure to report the premium payment on the employees’ wage statements and failure to timely provide the payments to the employees upon their discharge or resignation. The Court of Appeal held that employees are not entitled to pursue derivative waiting time and inaccurate wage statement penalties for meal and rest break premiums because such premiums are “penalties” not “wages.” Mr. Naranjo appealed the Court of Appeal’s decision.

The California Supreme Court granted review, and reversed the lower court’s ruling, holding that the premiums for missed meal and rest breaks constitute “wages” that must be reported on wage statements and timely paid to employees when they are discharged or voluntarily separated from a job. As such, employers can be liable under Labor Code section 226 for failure to provide an accurate itemized statement if they do not report missed meal and rest break premiums. Likewise, an employer that willfully fails to timely pay any missed meal and rest break premiums when an employee leaves the job can be liable for waiting time penalties under Labor Code section 203.

The Court’s decision raises the stakes for complying with meal and rest break laws. Specifically, the decision increases potential exposure for employers because it allows employees to bring derivative claims for violations of Labor Code sections 203 and 226 based solely on missed meal and rest break premiums. The decision is an important reminder that employers should audit their policies and procedures for meal and rest breaks, and evaluate their timekeeping and payment systems to ensure compliance with meal and rest break laws.

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JOIN US: TUESDAY, JULY 21, 2020","12:30PM EST<\/h4>\nFour months ago, the Dow was close to 30,000, employment rates were at historic highs, the coronavirus was still “novel,” and millions had not yet taken to the streets in global protests against police brutality and racial inequality. The workplace we now return to exists in this supercharged social and political climate, with new rules, laws, risks, and social issues creating new and uncharted waters for employers to navigate.\n\nJoin Kelley Drye’s

This decision does not impact private employers, because it relied on the specific language of the federal sector section of the Age Discrimination in Employment Act (ADEA). But could this signal a possible future loosening of the burden of proof for other plaintiffs? We will have to wait and see.

SCOTUS held that federal employees can establish age discrimination under the federal sector section of the ADEA, merely by proving that age bias “taints the employer’s decision-making process.” Babb v. Wilkie, Secretary of Veteran Affairs, No. 18-882. This is weaker than the “but-for” standard of causation applicable to age discrimination claims under Gross v. FBL Financial Services, Inc., 557 U.S. 167 (2009). In other words, the fact that the same employment decision would have been reached had age not been taken into account is not relevant for purposes of deciding a federal government employee’s age discrimination claim.

As a quick review, the ADEA prohibits employers from taking adverse employment actions or discriminating against any individual because of his or her age. To prove age discrimination, an employee must prove that the adverse employment action at issue would not have occurred “but-for” the employee’s age. By comparison, the federal-sector provision of the ADEA, which applies to employees of the federal government, states:

“All personnel actions affecting employees or applicants for employment who are at least 40 years of age…shall be made free from any discrimination based on age.” 29 U.S.C. § 633a(a) (emphasis added).

The VA moved for summary judgment, and the District Court granted the VA’s motion after finding that no jury could reasonably conclude that the VA’s legitimate, non-discriminatory reasons for the challenged actions were pre-textual. On appeal, Babb contended that – because of the specific language of the federal sector provision – she should prevail if the VA could not prove that each decision was “free from any discrimination”. The Eleventh Circuit denied Babb’s appeal, and the Supreme Court granted certiorari.

The Supreme Court agreed with Babb and held that the plain language of § 633a(a) meant that plaintiff could prove discrimination, simply by proving that the personnel actions might have been ‘tainted’ by any consideration of age.

While a plaintiff need not prove that age was a “but-for” cause of the employment decision at issue in order to establish a claim of age bias, “but-for” causation is nevertheless important in determining the appropriate remedy. According to the Court, a plaintiff cannot obtain back pay, compensatory damages, or other forms of relief related to the end result of an employment decision without showing that age discrimination was a but-for cause of the employment outcome. For example, an employee cannot obtain reinstatement without showing that age was the but-for cause of his or her termination. If discrimination played a lesser part in the employment decision, however, other remedies may be appropriate.

JOIN US: Tuesday, March 17, 2020 at 12:30 PM EST

Topics will include sick leave and other leaves of absence, work-from-home policies, health and safety, compensation, discrimination, and much more.

Click here to register.

There are three overriding rules that all employers should remember:

1. Think safety first. Keeping those employees who are infected or at risk of infection at home to ensure that the rest of the workforce is safe should be the number one priority.
2. Think about how you can keep your business going. Make sure your work-from-home policies and technology are up to date, and remind employees how to use them.
3. Avoid stereotypes. Do not allow employees to assume that people of certain ethnicities are at a higher risk than others. If you become aware of any discrimination or harassment—stop it immediately.

When should I require employees to stay home?

Use your judgment, but the following employees should be asked to remain at home:

• those who are ill or feel flu-like symptoms;
• those who have traveled to countries where there is a large exposure (China, Iran, South Korea, Italy, Japan, Hong Kong); and
• those who have been exposed to the virus, through family, a friend or some other meeting or contact.

In fact, for other employees who are entitled to a safe workplace, requiring those who are at risk of infection to remain out is the prudent thing to do.

When asking employees to stay home, employers should be aware of the FMLA and ADA, and should take steps to ensure confidentiality of all employee health information.

Consider whether an employee can work at home, and thus get paid. This may depend on whether they are home ill, or well and just quarantined.

Finally, don’t ask any questions or take any actions on the basis of race, ethnicity or national origin. Put the duty on the employee to come forward.

What if an employee comes to work with physical signs of COVID-19?

First, remember Rule 1 and think safety first. If an employee has questionable symptoms, send them home and encourage them to see a doctor and/or get tested.

Second, consider whether those who had contact with the sick employee also need to be sent home. This may wait until the first employee is tested.

Employers should be careful when questioning an employee regarding symptoms. While it is unclear whether COVID-19 will qualify as a disability under the ADA, employees may have other conditions, which do constitute as disabilities. Furthermore, if an employer regards an employee as disabled, state and federal laws may be implicated.

If you haven’t already, now is the time to train and retrain supervisors on how to deal with employees who arrive to work with symptoms. The employer’s primary goals should be ensuring workplace safety, maintaining employee confidentiality, and reducing panic among the workforce.

Note, most employers should not conduct medical testing.

What about employees who worked with ill or “infected” employees?

Employers should send home all employees who worked closely (between 3 to 6 feet) with an infected or ill employee for the 14-day quarantine period to ensure that infection does not spread.

In addition, employers should facilitate environmental cleanup of the affected employee’s workspace and any potentially contaminated areas.

Employers should make best efforts to not identify the infected employee by name. To respond to employee concerns, employers should inform workers of the steps taken to mitigate exposure, such as environmental cleanup.

What should employers do about employees who face increased risk of infection?

Consider flexible work arrangements and make plans for them. Government agencies and now many companies are encouraging work from home arrangements. This is an effective strategy for infection control.

Employers should also implement and enforce personal hygiene protocols, including handwashing and use of hand sanitizers, asking symptomatic employees to seek medical attention and allowing work from home.

Can employees refuse to come to work?

Maybe. But, you do not always have to pay them.

Employers should address employee refusal to come to work on a case-by-case basis. Employers should understand the basis of the employee’s refusal and what the employee is asking for before requiring an employee to come to work.

For example:

• Is the employee pregnant or elderly or immuno-suppressed?
• Was there a possible exposure in your workplace?

Employers should not undermine their employee’s legitimate fears. Why? Because employees could conceivably be protected under the FMLA, and/or state leave laws, and could have other interacting conditions that qualify them as disabled under federal and state laws.

However, if there is no ‘legitimate’ reason and the employee cannot work from home, you are not required to give paid time off.

Employers should under no circumstances rubberstamp employee refusal to work which is based on discriminatory reasons.

Can I prohibit an employee from traveling to a non-restricted area in their personal time?

Maybe. Employers can (and many are) asking employees to refrain from nonessential or personal travel. But, this request may be difficult to enforce.

As an alternative, employers should educate their employees regarding travel and the potential risk of exposure and consider asking employees to “self-quarantine” following their travel, rather than returning to the workplace.

In the event an employee does travel for personal reasons and the employer does not require a period of self-quarantine, employers should monitor their employees upon return for symptoms. Keep in mind employees do not necessarily need to be paid during a period of self-quarantine after personal travel.

How do I minimize workplace issues of harassment and discrimination?

Be vigilant. Continue to monitor anti-harassment and anti-bullying policies. Employees may, either consciously or unconsciously, exhibit bias toward their colleagues because of COVID-19. Do not let unfounded employee fears permeate the workplace regarding sick colleagues. Employers should take steps to immediately investigate and remedy signs of race or ethnicity discrimination and harassment in the workplace.

Should employers allow telecommuting?

Yes. In this situation, employers should consider flexible work arrangements as a possibility for all employees and, in particular, immunocompromised employees. In the event of a worsening outbreak, employers should contemplate flexible work hours for employees who commute (e.g., delayed start times).

Employers must be aware that they will need to pay nonexempt employees for all hours worked, including overtime. Accordingly, employers should have a system in place to verify hours worked.

If employers fail to establish methods for streamlining business operations now, they may be faced with business interruptions. Consider not only a method for tracking time, but for employee check-ins, approvals for overtime, and fielding technical questions and logistics pertaining to remote work.

Do I have to pay an employee who is quarantined or ill?

The answer depends on certain factors, including, employee classification, whether the employee is sick or “well,” and whether or not they are working remotely while out.

Sick vs. “Well”

• Sick employees may qualify for paid sick time or disability leave if the illness lingers. A sick employee may also work from home, if they are able.
• If the employee is well but just quarantined, they may not qualify for sick leave, but may work remotely.

• Exempt employees - under state and federal law, employers must always pay exempt employees’ full salary if they work any day, or in certain cases for part of the workweek. If the exempt employee is working at home, and doing their job, they should be paid for the days they are working.
• Non-exempt employees - are by law required to be paid only for hours actually worked. If the nonexempt employee is at home and cannot work remotely, you do not have to pay them.

First, check whether they qualify for sick pay or PTO, if through no fault of their own, are forced to be out of work due to quarantine or school closures. Some state and local laws (like the New York City’s paid sick leave law) require paid sick leave when a school or day care is closed, or they need time off to care for a family member.

Second, an employer could decide to loosen its sick pay policies for this unique situation, and offer pay to non-exempt workers who are forced off the job.

If you cannot pay them, look into whether they qualify for unemployment benefits or for sick pay.

Employers should additionally be aware of expanding state legislation in response to the crisis, which may provide broader protections for workers.

This is a complicated and ever-changing issue. As questions arise, please do not hesitate to contact the Kelley Drye Labor and Employment group.

Know Your Resources

Employers should continue to monitor reliable guidance provided by the U.S. Centers for Disease Control and Prevention ("CDC") and local public health agencies. Understanding how COVID-19 is transmitted and what steps can be taken to protect diagnosed or exposed employees is essential to dispelling employee fears. Employers can educate employees on prevention and symptoms and should be prepared to answer employee concerns regarding workplace safety. The following are guides which may be helpful to employers:

• Up to date information on COVID-19 can be found here: Coronavirus Disease 2019 (COVID-19)
• The CDC’s interim guidance to employers can be found here: Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19), February 2020
• Information regarding employee travel can be found here: Traveler's Health
• The CDC’s Interim Guidance for Risk Assessment Guide can be found here: Interim US Guidance for Risk Assessment and Public Health Management of Persons with Potential Coronavirus Disease 2019 (COVID-19) Exposure in Travel-associated or Community Settings

Keep Your Workforce Informed

Employers can and should provide their workforce notice regarding potential exposure. However, when doing so, less is more. Employers should not identify diagnosed individuals by name, or provide other identifying information, which could expose confidential employee health information. This is because under federal, state, and local laws, infectious diseases may constitute disabilities, and thereby confer protected status. Employers should nevertheless address in detail the steps taken to mitigate exposure to COVID-19, including environmental cleaning and other preventative measures, such as supplying antibacterial wipes for employees to use at workspaces and hand sanitizer for use throughout the employer’s facility.

Understand the Interplay with Employment Laws

Although the breadth of COVID-19’s impact remains to be seen, employers must be careful to avoid discrimination against employees who are disabled or perceived as disabled because they are exhibiting symptoms of COVID-19, or because they belong to races or nationalities linked to the virus. Employers should also be aware that COVID-19 might present other legal risks. For example: employees suffering from, or caring for a family member suffering from COVID-19, may be eligible for protections under the FMLA; employees who contracted COVID-19 through occupational exposure may have Workers’ Compensation claims; and employees raising collective concerns regarding working conditions or changes to operations as a result of the virus may be protected under the NLRA.

Employer Tips

While much is still unknown regarding the scope of COVID-19’s impact on businesses and workforces throughout the US, employers should consider the following tips:

• Develop a written plan of action if someone become sick with COVID-19, which includes steps to ensure the confidentiality of any employee health information.
• Request employees limit non-essential travel to the affected regions, and provide notice in the event of such travel.
• Consider flexible work arrangements for pregnant or immunocompromised employees, or in the event of a worsening outbreak flexible work hours for employees that commute.
• Understand your workforce vulnerabilities, how staffing shortages could potentially interrupt your operations, and the implications (if any) on applicable collective bargaining agreements.
• Temper employee fears by circulating information from the CDC and other reliable sources.
• Never make determinations regarding employee risk based on race, or national origin.
• Combat potential discrimination by monitoring employee conduct and enforcing anti-bullying and anti-harassment policies.

The Supreme Court continues to limit the ability of employees to pursue class arbitration against their employers. The latest salvo—the Court’s decision in Lamps Plus, Inc. v. Varela—comes on the heels of last year’s Epic Systems Corp. v. Lewis, which found that class action waivers in individual arbitration agreements between employers and employees are enforceable. Taking the next natural step in limiting class actions, Lamps Plus now requires arbitration agreements to specifically permit class claims; if an arbitration agreement leaves the issue unaddressed, no class claim is available at all.

Bottom line: if the agreement doesn’t say an employee can pursue a class claim, an employee can’t pursue a class claim.

In Lamps Plus, an employee brought suit against his employer, Lamps Plus, due to a data breach causing a fraudulent tax return to be filed on the employee’s behalf. The employee brought the matter as a putative class action, seeking to represent all similarly situated Lamps Plus employees. Lamps Plus sought to compel individual arbitration based on the arbitration agreement the employee signed, and also argued that class arbitration was unavailable under the agreement.

The Ninth Circuit explained that the language of the agreement was ambiguous regarding class arbitration. As such, the Ninth Circuit held that class arbitration was allowed since the ambiguity was to be interpreted against the party that drafted the contract, in this case Lamps Plus.

The Supreme Court reversed, holding that even if an arbitration agreement is ambiguous on the availability of class arbitration, that ambiguity is not enough to show the parties specifically agreed to class arbitration.

The Court explained there is stark difference between individual arbitration and class arbitration, with the former allowing for more efficient resolution of disputes. On the other hand, class arbitration lacks these benefits, and is more likely to be “slower, more costly, and more likely to generate procedural morass than final judgment.” Due to the difference between individual and class arbitration, the Court explained that under the Federal Arbitration Act an agreement cannot “infer consent to participate in class arbitration” without an affirmative contractual basis showing the parties “agreed to do so.”

In other words, ambiguity is not enough – the arbitration agreement must have clear language showing both parties agree to allow class arbitration of claims. Without this clear language establishing consent between the parties, class arbitration is unavailable.

WHAT SHOULD EMPLOYERS DO NOW?

Employers should again take this opportunity to review their arbitration agreements with their employees. While the holdings of Epic Systems and now Lamps Plus provide more leniency for employers in staving off class arbitration, clarity is still key with these agreements.

Employers should strive to eliminate uncertainty by crafting clear language eliminating any chance of class arbitration. Employee arbitration agreements should be drafted to ensure that employees can only bring individual actions, that they are waiving their right to class action arbitration, and that both parties acknowledge they are in no way consenting to class arbitration. In doing so, employers will meet their objectives of ensuring individual arbitration while doing their best to side-stepping a costly court battle over the scope of arbitration.

The case (Rodriguez v. Taco Bell) challenged Taco Bell’s policy of offering discounted food to employees to be eaten during their meal breaks, as long as the employees agreed to remain in the store. Taco Bell’s reason for adopting the policy was apparently to prevent employees from leaving the premises and giving the food to friends or family. California law requires that during employees’ required meal breaks, employees must be relieved of all duty and be free to leave the premises.

The Court rejected the employee’s argument that by being required to remain in the store, the employee was “under the control” of Taco Bell and the meal period was invalid. The Court noted that purchasing the discounted food was “entirely voluntary,” and Taco Bell did not interfere in how the employee spent the meal break.

The obvious question is how far the reasoning in this case can be extended. The California Supreme Court held years ago that an employer is not liable if employees voluntarily choose not to take their meal break. Does this mean that employees can trade away their right to take meal periods or rest breaks in exchange for a company gift card, for example? What about a monthly bonus? Employees in California can waive their meal periods under certain circumstances. Can they also trade them away, and be required to work an eight-hour shift with no meal period, in exchange for a benefit?

In our view, a significant expansion of this case is unlikely. California courts are simply too protective of employee rights (or perhaps paternalistic, depending on your viewpoint) to permit employees themselves to trade away significant rights. The Court in this case suggested that if the employee had been “under the control” of Taco Bell during the meal period, even voluntarily as part of receiving discounted meals, the practice would have been struck down. Indeed, California law provides that even if an employee prefers to work (and be paid) during his/her meal period, an employer can only do so if the nature of the job makes it necessary.

Still, this case does provide an opportunity that California employers may use to their advantage. Companies might consider ways to lessen the inconvenience that comes with certain legally-protected employee rights (such as the right to leave the premises during a meal period) in exchange for a benefit. Employers should just be aware that any limitation on employee rights will be viewed with suspicion by California courts.

The Court, when looking at the Arbitration Act and the National Labor Relations Act (“NLRA”), decided the two provisions could be read in harmony. “When confronted with two Acts of Congress allegedly touching on the same topic, this Court is not ‘at liberty to pick and choose among congressional enactments’ and must instead strive ‘to give effect to both.’” (Id., slip op. at 10) (quoting Morton v. Mancari, 417 U.S. 535, 551 (1974). The Court was unable to find any “clear and manifest” intent, as required by Morton, of Congress to displace the Arbitration Act with the NLRA.

The Court found that their holding was consistent with the prior decisions in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991) and NLRB v. Alternative Entertainment, Inc., 858 F. 3d 393, 413 (CA6 2017) finding that the Fair Labor Standards Act and Age Discrimination in Employment Act do not displace the Arbitration Act. The Court likened the employee’s theory to an “interpretive triple bank shot” that “raise[s] a judicial eyebrow.” (Epic Systems Corp., slip op., at 15). Justice Gorsuch also reminded the employees that Congress “does not, one might say, hide elephants in mouseholes.” (Id., quoting Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001). Therefore, the Court sided with the employers and held that “Congress has instructed that arbitration agreements like those before us must be enforced as written.” (Id., slip op., at 25).

Justices Roberts, Kennedy, Thomas, and Alito joined in the majority. Justice Thomas also issued a concurring opinion, stating that the arbitration provisions should be enforced because the illegality issue is a public-policy defense that does not concern whether the contracts were properly made. (Id., Thomas, J., concurring). Justices Ginsburg, Breyer, Sotomayor, and Kagan dissented, finding that the majority’s decision “egregiously wrong” because the Arbitration Act does not permit employers to insist their employees “seeking redress for commonly experienced wage loss, go it alone.” (Id., Ginsburg, J., dissenting). Nor does the Arbitration Act require “subordination of the NLRA’s protections.” (Id.). Justice Ginsburg also articulated her fears that “individualized arbitrations of employee complaints can give rise to anomalous results.” (Id.).

What Does This Decision Mean For Employers Going Forward?

If employers have an arbitration provision in their contracts with their employees, that arbitration agreement will be enforced. That means when the employer and employee have an agreement to pursue arbitration rather than litigation, employees are not allowed to pursue class action litigation. As Justice Gorsuch explained, “[t]he parties before us contracted for arbitration. They proceeded to specify the rules that would govern their arbitrations, indicating their intention to use individualized rather than class or collective action procedures. And this much the Arbitration Act seems to protect pretty absolutely.” (Id., slip op., at 6). Therefore, if an employer is already using an employment contract that contains an agreement to arbitrate, they can expect that the agreement will be enforced and the costs of defending a class action litigation will be avoided.

What if I told you that if you included one simple sentence in your employment contracts, handbooks and policies for salaried employees, it would likely reduce your exposure by approximately two-thirds in FLSA cases? For starters, it would make it easier to settle at the right amount by avoiding unnecessarily inflated ceiling for damage calculations by plaintiffs. So what are the “magic words” in this simple sentence?

For exempt employees, your salary is intended to pay for all hours worked during each pay period, regardless of your scheduled or tracked hours.

Wait, what? In short, many courts would treat any overtime hours as unpaid as a default for calculations. Damages, therefore, would be 1.5 times the regular rate based on 40 hours (salary divided by 40 hours) for the overtime hours. See Ramos v. Telgian Corp., 176 F. Supp. 3d 181, 193, 2016 U.S. Dist. LEXIS 44321 (E.D.N.Y. 2016) (explaining that “[i]n the case of salaried, rather than hourly, employees, … the FLSA … ‘presum[es] that [] a weekly salary covers only the first forty hours, unless the parties intend and understand the weekly salary to include overtime hours at the premium rate’”).

If the “magic words” are properly inserted, a salary will cover all hours worked at the non-overtime, regular rate of pay (salary divided by all hours worked in a week). In these cases, damages will only be limited to the “overtime premium” for overtime hours – or just 0.5 more than the regular rate of pay. The impact of this one simple sentence in wage & hour claims was recently highlighted in a recent decision by the Southern District of New York. District Judge Paul Engelmeyer held in Thomas v. Bed Bath & Beyond, 2018 U.S. Dis. LEXIS 27904 (S.D.N.Y. Feb. 21, 2018) that a signed acknowledgment by an employee stating “I understand that my base weekly salary is compensation for all hours I work in a week” was sufficient to merit damages at just 0.5 times the regular rate.

To illustrate the financial impact and disparity of the two calculation methods, take a look at the difference:

Example: Salaried employee earns $900 per week and alleges 45 hours of work per week

FWW Method Without The “Magic Words”:

Regular rate of pay: $900 divided by 40 hours = $22.50

Overtime rate of pay: 1.5 times $22.50 (regular rate of pay) = $33.75

Unpaid wages: 5 hours x $33.75 (overtime) = $167.75

With the “Magic Words”:

Regular rate of pay: $900 divided by 45 hours = $20

Overtime rate of pay: 1.5 times $20 (regular rate of pay) = $30

Overtime premium: $30 (overtime rate) minus $20 (regular rate of pay) = $10

Unpaid wages: 5 hours x $10 (overtime premium) = $50

Now, the requirement of an “express understanding” may, as a gut reaction, seem asinine. Applying a time based damages formula would be seem paradoxical to common sense and needlessly cruel based on the impact on damages. There are fair, but wonky arguments that the default calculation methods is improper as a matter of law. This is, however, a situation where litigation to challenge this assumption, or awaiting definitive regulatory guidance is impractical. Rather, this risk can easily be mitigated by habitually including the one simple sentence into all your employment contracts, handbooks and policies for salaried employees. Taking such steps requires little effort or thought, and as demonstrated above, could mitigate financial liability by significant amounts.

As a caveat, this suggestion applies to wage & hour rules governed by the FLSA. Some state laws have not adopted the FLSA’s rules and may have their own methods on calculating overtime rates and damages for misclassified employees. However, it is unlikely that inclusion of the recommended terms would create greater risk of liability – such terms would likely be set aside in such limited jurisdictions.

Employers should feel free to adopt the above recommendations or use their own language as they see fit. If you need strategic assistance regarding the above, Mark Konkel of Kelley Drye & Warren LLP is available to discuss your wage & hour practices.

To read the full article, please click here. Access may require subscription.

The United States Supreme Court in AT&T Mobility v. Concepcion made clear that class waivers are enforceable under the Federal Arbitration Act (“FAA”), at least in the context of consumer class actions, and that state laws that inhibit the full effectuation of the FAA are void. The NLRB, however, in its continuing bid to establish its relevance in the contemporary workplace, has challenged class waivers executed by employees; in D.R. Horton, Inc. v. NLRB, the NLRB held in 2012 that employees’ Section 7 rights are violated by such waivers, and that the FAA does not override this right. The NLRB’s ruling in D.R. Horton spawned a great deal of commentary and litigation – the NLRB’s ruling that class waivers are unenforceable was itself rejected by an appellate court in the Fifth Circuit. A host of federal appellate courts, as well as lower courts, have also criticized the NLRB’s ruling and refused to adopt its reasoning. Notably, the Fifth Circuit decision emphasized that the use of class action litigation is a procedural, rather than a substantive right, and that prohibiting class action waivers would discourage arbitration and, thus, violate the spirit and purpose of the FAA.

In Morris v. Ernst & Young, 9th U.S. Circuit Court of Appeals, No. 13-16599, the three-judge panel held 2-1 that Ernst & Young’s arbitration agreement containing a class action waiver violated the NLRA. In doing so, the court summarily rejected the employer’s argument that the FAA effectively supersedes the NLRA. Instead, the court reasoned that the FAA’s “saving clause”, which validates arbitration agreements save for instances in which grounds exist for their revocation, is rendered moot due to the fact that the contract requires employees to waive their substantive federal right to pursue legal claims together. Judge Sidney R. Thomas wrote for the majority: “The problem with the contract at issue is not that it requires arbitration…it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.”

In a pointed dissent, Judge Sandra S. Ikuta cited U.S. Supreme Court precedent in support of her position, setting the stage for the Highest Court to weigh in and clarify what, until today, appeared to be settled law. Per Judge Ikuta’s dissent, Supreme Court precedent unequivocally requires that, when a party claims that a federal statute precludes the enforcement of an arbitration agreement, the courts should examine whether the cited federal statute includes a “contrary congressional command” that the regulation supersedes the FAA. Judge Ikuta further reasons that, after applying the requisite analysis, the Supreme Court has upheld the validity of every arbitration agreement it has addressed. Judge Ikuta’s strongly-worded dissent describes the Ninth Circuit’s reasoning as “specious because it is based on the erroneous assumption that the waiver of the right to use a collective mechanism in arbitration or litigation is ‘illegal,’…but such a waiver would be illegal only if it were precluded by a ‘contrary congressional command’ in the NLRA, and here there is no such command.”

The Morris ruling does not change the law in most jurisdictions, including the Second, Fifth, Eighth, and Eleventh Circuits, which have rejected the NLRB’s D.R. Horton decision and maintain that arbitration agreements with a waiver of class/collective actions are enforceable. In the states within the Ninth and similarly dissident Seventh Circuit, on the other hand, employers should assume that arbitration agreements that contain a waiver of class or collective actions are likely to be held to be invalid. Because the circuit split has widened regarding the impact of the NLRA on arbitration agreements in the employment context, the open question seems to when, and in what context, the issue will reach the United States Supreme Court. The uncertainty regarding the current makeup of the Supreme Court, in light of the death of Justice Scalia, only adds to the intrigue.

Upon review, the Court of Appeal reversed the trial court, holding that the arbitrator, not the trial court, must determine whether an arbitration agreement permits class arbitration. The California Supreme Court granted review and, on July 28, 2016, a narrowly divided Court affirmed the Court of Appeal, holding that the question of whether a court or an arbitrator decides if an arbitration agreement permits class claims should be determined on a case-by-case basis, specifically focusing on the agreement's terms and resolving any ambiguities in favor of the non-drafting party. By its decision, the Court placed itself at odds with numerous federal appellate courts that have held that such questions are for a court, not an arbitrator, to decide.

In examining the language of the instant arbitration agreement, the majority found that class arbitration was available to the plaintiff because the agreement broadly allowed for any employment-related disputes to be resolved by an arbitrator, and the agreement did not include an express waiver of class claims. Moreover, the agreement did not make clear whether the court or an arbitrator must resolve questions of arbitrability. As such, the Court held that this ambiguity be resolved in favor of arbitration and against the employer’s interpretation as the drafting party.

The takeaway? In the vast majority of scenarios, the employer is the drafting party of the arbitration agreement, meaning that any ambiguities in the agreement will likely be resolved in employees’ favor. As such, employers contemplating the use of an arbitration agreement that precludes class action litigation should include narrowly-tailored waiver language that places the interpretation of the arbitration agreement in the hands of the court, not the arbitrator.

Employers, especially those in California, who foresee utilizing an arbitration agreement with a class action waiver should consider the following:

• Review your current arbitration agreements. If you currently employ an arbitration agreement, it is worthwhile to have the language reviewed by qualified employment counsel to ensure that the relevant provisions are clear and unambiguous.
• Revise your current agreement to include additional language expressly prohibiting cases brought on a class basis, and making clear that the court, not an arbitrator, should resolve any disputes regarding the agreement. In Sandquist, the Court found that while the employer “could have prepared an arbitration provision that explicitly addressed any unstated desire to have the availability of class arbitration resolved by a court,” it chose not to do so. If you revise your arbitration agreement, we recommend consulting with qualified employment counsel to discuss how the new agreement should be “rolled out” to employees.
• Understand the risks associated with litigating before an arbitrator. Although many benefits are generally associated with arbitration as a dispute resolution mechanism, such as expediency and confidentiality, it can also be costly for an employer. This is especially so in California, where employers are responsible for paying for all of the arbitration costs, including the arbitrator fees. Moreover, given the limited judicial review available for arbitration awards, employers often face higher risks in arbitration should the arbitrator decide that employment claims can be arbitrated on a class basis.

In sum, the Court’s endorsement of evaluating the enforceability of class waivers in arbitration agreements on a case-by-case basis means that the totality of the agreement, and the context in which it was presented to employees, will be scrutinized. Such an individualized inquiry reinforces the import of including precise language in arbitration agreements and remaining cognizant of the circumstances under which those agreements are presented to employees. Kelley Drye's Labor and Employment Group routinely assists employers in the review, drafting, and “rolling out” of arbitration agreements. Please feel free to contact our team if you need assistance in preparing, reviewing, or defending the enforceability of employment and arbitration agreements.

• What dirt can we find out about our adversary?

However, in litigation the best defense is often NOT a good offense, and gathering irrelevant, and potentially harmful information about the other side can backfire.

It is also critical to remember that whether in-house or at a firm, as lawyers, our conduct must be above reproach. That means that even in the heat of battle, you should never forget your ethical obligations and your mandate as an officer of the court to conduct litigation, at all times, within the bounds of the law.

• Chief example: Uber and the latest developments in the antitrust lawsuit, now playing out in a federal court in New York. As I will discuss below, a recent decision sanctioning Uber should send a message to any litigant who is thinking about doing an investigation into the other side of a pending case.

Since then, the company has fought the case very aggressively. As part of that fight, Uber apparently engaged a private investigator to look into the plaintiff, Spencer Meyer, and his lawyers.

This investigation was first brought to the Judge’s attention in May, when the plaintiff alleged that “Ergo,” the investigative firm that Uber had hired, was using aggressive and possibly illegal tactics to investigate the plaintiff and his lawyers. The plaintiff alleges that the investigator lied to third parties, for example, by misrepresenting why he was making inquiries. At one point, the investigator, falsely claiming to be a reporter writing an article about up-and-coming labor lawyers, asked to speak with plaintiff’s counsel.

This has made the judge very unhappy. In June, Judge Rakoff first ordered Uber to release discovery to the plaintiff about the investigation, including potentially privileged communications among Uber’s in-house counsel on this subject. At that time, the Judge stated that he was concerned about potentially criminal conduct by Uber, thus invoking the crime fraud exception to the attorney client privilege:

“[T]he Court finds that plaintiff has provided an entirely ‘reasonable basis’ to suspect the perpetration of a fraud and to suspect that Uber communications furthered such a fraud. Defendant has stated — and Uber has effectively confirmed — that employees of Uber ‘initiated an investigation concerning the plaintiff in this case,’ and that Ergo was retained by Uber’s Legal Director of Security and Enforcement...”

The court found that Uber personnel gave “instructions or assignments” to Ergo and “were involved in engaging and instructing Ergo.” All of this provides a reasonable factual basis to suspect that a fraud occurred and that Uber’s communications may have been in furtherance of it.

Then on July 25^th, Judge Rakoff ordered Uber and its investigative firm, Ergo, to cease their background investigations and enjoined Uber from using any information found during the investigation in the antitrust proceeding. The court also noted that Uber had agreed to pay plaintiff “a reasonable (though publicly undisclosed) sum in reimbursement of plaintiff’s attorneys’ fees and expenses incurred in conjunction with these matters.”

Judge Rakoff, referring to the proceedings before him as a “sad day,” was plainly dismayed by the tactics of Uber and stated that:

“…the Court cannot help but be troubled by this whole dismal incident. Potential plaintiffs and their counsel need to know that they can sue companies they perceive to be violating the law without having lies told to their friends and colleagues so that their litigation adversaries can identify ‘derogatories.’ Further, the processes of justice before the Court requires parties to conduct themselves in an ethical and responsible manner, and the conduct here fell far short of that standard.”

Not knowing the facts in the Uber case, or the merits (or lack thereof) of the antitrust claim, this episode should send some strong reminders to all attorneys (and clients) as to the boundaries of aggressive litigation. Indeed, while Uber may have very strong defenses to the antitrust claim, and may also have had good reasons for undertaking this investigation - it now has incurred the ire of the judge who is overseeing the case. Was it worth it? Only time will tell.

Thus, as you litigate, remember:

• You as counsel are responsible for your conduct – Litigators like to be aggressive, but there are limits. Litigation is not a blood sport and we as lawyers cannot adopt a ‘win at all costs attitude. Whether in-house or at a law firm, we have an obligation when representing a client to do so within the bounds of the law. Notably, Judge Rakoff did not allow Uber’s counsel to ‘hide’ behind the veil of privilege to hide their communications with their client. Once he became concerned about potential illegal conduct, he abrogated the privilege and counsel’s communications had to be revealed to the other side and to the public.
• You are responsible for the conduct of your agents and contractors – Lawyers must always remember that you are ultimately responsible for the conduct of your agents and contractors. Whether in house or outside counsel, if you hire a private investigator, you must ensure that the investigator at all times investigates legally and ethically. It was unclear from the orders in the Uber case whether the court ever concluded that Ergo, the private investigator, had done anything unlawful. However, the Court clearly believed it was possible that Ergo had misbehaved and faulted Uber and its counsel for that behavior.
• In litigation, everything you do matters – When strategizing about the next move in litigation, remember the big picture and the overall goal of winning the case. The idea of getting ‘dirt’ on the plaintiff or an adversary may seem attractive, but does that really advance your position or your client’s position? How will this help your client prevail? If you are unsure, then ask yourself why you are spending time looking for this information. You also don’t want some mistake with discovery or an investigator to ‘take over’ the case and become a huge distraction.

On April 4, 2016, the Supreme Court denied a Petition for Writ of Certiorari by Wal-Mart Stores, Inc. arising out of a December 2014 ruling by the Pennsylvania Supreme Court. The Pennsylvania high court’s decision in Braun v. Wal-Mart Stores Inc., 47 A.3d 1174 (Pa. 2012), affirmed a nearly $188M judgment against the national retailer for 187,979 class member employees allegedly forced to work through meal and rest breaks mandated by state law and Wal-Mart policy. The Plaintiffs in Braun relied on expert reports that analyzed 24,000 individual employee work shifts in twelve Pennsylvania Wal-Mart stores and concluded that some 40% of hourly workers had not received the number or duration of rest breaks to which they were entitled. The Plaintiffs argued that this finding squared with the results of a prior audit conducted by Wal-Mart.

As we previously reported, the Supreme Court’s Tyson decision came as a surprise to many who had come to rely on Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend for the broad proposition that liability in class actions could not be satisfied through representative sampling because such proof failed the commonality and/or predominance requirements under the Federal Rules of Civil Procedure. The Tyson decision did not overrule Wal-Mart or Comcast, but it weakened these decisions and sent a strong signal that SCOTUS never intended to say that representative sampling can never be used for a damages model in class actions, even where the plaintiffs had some individual experiences.

The Supreme Court’s refusal to review the Pennsylvania high court’s decision in Braun solidifies the Tyson opinion, and leaves the contours of what representative proof will suffice on a case-by-case basis to lower courts. The Braun decision remarkably traces the reasoning of the Supreme Court’s decision in Tyson – finding that Wal-Mart v. Dukes and Comcast Corp. v. Behrend did not overrule longstanding, recognized and acceptable methods of proof in wage and hour cases where an employer failed to keep adequate records of time.

As we advised, employers must continue to regularly review and revamp their timekeeping policies, and follow-up these efforts with repeating and vigorous notice and training to their employees. Counsel for Wal-Mart, responding to the Supreme Court’s refusal to hear the case, stated that the company has taken additional steps in the years since the Braun suit was initiated to enhance its timekeeping system and create more employee training.

The Plaintiffs in Tyson Foods Inc. v. Bouaphakeo et al. are pork-processing workers at a Tyson facility in Iowa, who sought to bring a class action on behalf of approximately 3,000 employees in the same facility seeking compensation for their time “donning and doffing” protective gear.

Tyson challenged the class on many grounds claiming, among other things, that damages would be impossible to ascertain for the class, as no two people will put on or take off a uniform in the exact same fashion. Plaintiffs faced an uphill battle to construct a damages model, relying primarily on an expert who had observed hundreds of videotapes, to calculate the average number of minutes which various donning and doffing activities took.

The company also faced its own challenges, as Tyson had not recorded the time employees spent donning and doffing. Tyson did not challenge the expert report with a Daubert motion, nor did it produce a rebuttal expert in opposition. In its opposition to class certification, Tyson argued that the varying times it took employees to don and doff protective gear was too speculative for class-wide recovery and that the study overstated donning and doffing time.

However, a class was certified and the case went to trial. In 2011, a federal jury found in favor of the employees, and the Eight Circuit later affirmed, and so they all ended up at the Supreme Court.

I am sure the high court judges never imagined they would be so immersed in the world of pork processing!

Many expected a reversal of the decision to certify the Tyson class, as contrary to the Court’s recent landmark opinions in Wal-Mart Stores Inc. v. Dukes and Comcast Corp. v. Behrend. In Comcast, the Court held that the lack of a common methodology for proving damages is fatal to Rule 23 predominance because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.” The Wal-Mart decision reversed the certification of a class of nearly 1.5 million women across the nation who accused the retailer of gender bias on the basis of representative evidence of the treatment of over 100 female employees. The Court found such representative proof deprived Wal-Mart of the right to litigate individual defenses.

In a decision that came as a surprise to many, the Supreme Court rejected Tyson’s reliance on Wal-Mart and upheld the jury verdict, holding that “Wal-Mart does not stand for the broad proposition that a representative sample is an impermissible means of establishing class-wide liability.” Rather, the Court found that representative sampling could be appropriate on a case-by-case basis, and that the circumstances of Tyson’s case were distinguishable. “While the experiences of the employees in Wal-Mart bore little relationship to one another, in this case each employee worked in the same facility, did similar work, and was paid under the same policy.” Unlike the putative class members in Wal-Mart, each of the over 3,000 Tyson employees would likely be able to rely on the same statistical analysis presented for the class if they were to bring their actions individually.

All told, the Supreme Court refused to draw a bright line on the use of representative samples, and rejected the broad and categorical rules proposed by both sides. The decision will cause employers’ counsel to attack faulty representative evidence through an evidentiary challenge to the Court or through rebuttal expert reports, rather than rely solely upon Wal-Mart, Comcast, and general arguments regarding commonality and predominance under Rule 23.

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• What can employers and their counsel take away from this decision?
  • Class actions are back (assuming they ever went away)! The Tyson decision did not overrule Wal-Mart or Comcast, but it certainly weakened these decisions and sent a strong signal that SCOTUS never intended to say that representative sampling can never be used for a damages model in class actions, even where the plaintiffs had some individual experiences.
  • Plaintiffs' counsel will now certainly be revving up their engines, and looking for more areas to construct class-wide claims against employers.

• What should you do?
  • It sounds “old,” but the constant changes in wage/hour law required employers to regularly review and revamp their timekeeping polices.
  • Look for those ‘hidden pockets’ of the workday which for some reason may not be captured, such as: meal and rest breaks, ‘work’ time at the start or end of the workday, time spent ‘opening’ or ‘closing’, time spent cleaning up after clocking out, travel time between jobs or assignments, and training time. The list can go on and on. If that time is not paid, you need to make sure it is not compensable time.
  • Even if you do not think the time is compensable, you may want to informally keep track of it – in case you are sued later. Think about Tyson.
  • Also, the more you can get employees to ‘agree’ that their hours are accurate, the better. Make them sign off, on paper or electronically, at the start and end of the work shift and affirmatively indicate that they have been paid properly and that all of their hours are accurate.
  • Create a record that meal breaks (especially if unpaid) were taken.
  • Post notices everywhere, on the walls and on your company websites, and remind employees two, three and four different ways that it is their ‘job’ to tell their manager when they work extra time or miss a break.
  • Make it ‘easy’ for employees to report extra hours, and again remind them of those procedures over and over.
  • Get employees to ‘sign off’ that they have received these reminders.

In recent years, the U.S. Department of Labor and state workforce agencies have investigated hundreds of businesses that allegedly were misclassifying employees as independent contractors. Some notable cases include enforcement activities against a cable company for misclassifying cable installers, a telemarketing company for misclassifying telemarketers and failing to pay them overtime compensation, a drilling rig company for misclassifying crane operators, a janitorial service subcontractor and its payroll services company for misclassifying custodians, and an Internet information provider for misclassifying agents who answered text messages from website users.

The Uber decision has potential ramifications for any company that relies on engaging independent contractors as part of its business model – including a majority of start-ups trying to succeed in the competitive technology field by relying on independent contractors as a means of lowering their overall costs. One possible way for a company to avoid a potential class action of the kind filed against Uber is by utilizing contractual clauses that limit the resolution of disputes with independent contractors to arbitration proceedings that exclude class actions.

Click here to read the full Kelley Drye Client Advisory, Class Action Suits By Independent Contractors -- the Uber Class Certification Decision.

The plaintiffs in the case, Tierney v. Sirius XM Radio Inc., No. 14-cv-02926 (S.D.N.Y), were “interns” that received no compensation for the hours they worked during their internships. The suit alleged that they were in fact “employees” entitled to minimum wage and overtime compensation. To support this claim, the plaintiffs asserted that they performed tasks necessary to Sirius XM’s operations, such as running errands, placing orders, obtaining breakfast items for Sirius XM employees, and compiling data. Furthermore, the plaintiffs asserted, Sirius XM did not provide them with any academic or vocational training during their internships. The plaintiffs sought compensation for unpaid wages, interest, liquidated damages, attorneys’ fees, and costs under the Fair Labor Standards Act and New York Labor Law.

This settlement comes in the shadow of the guidance provided by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. et al., Nos. 13-4478 & 13‐4481 (2d Cir. 2015) and Wang v. Hearst Corp., No. 13‐4480‐cv (2d Cir. 2015). Plaintiffs in those cases were also unpaid interns claiming they worked for many hours during their internships for which they should have been paid. The Second Circuit made it harder to certify a class of interns, holding that the question of intern classification is a “highly specialized inquiry.” Although it may be harder for putative plaintiff interns to bring their claims on a class-wide basis, class certification of interns is still possible under the proper circumstances. Importantly, the Second Circuit provided employers with guidance on how they can design and maintain a legal unpaid internship program: in determining whether or not an “intern” is actually an “employee” subject to minimum wage and overtime laws, the question to be asked is “whether the intern or the employer is the primary beneficiary of the relationship.” While unpaid interns may gain exposure, contacts, and experience during their internships, the bottom line is that, in order for an unpaid internship program to pass muster, the interns must be educated during the internship.

The Sirius XM settlement should serve as another warning to employers that use unpaid interns, as these positions continue to be in the “eye” of the plaintiffs class action bar. The settlement figure in the Sirius XM case show why these claims are popular. Assuming that the settlement passes the scrutiny of a fairness hearing, the plaintiffs’ attorneys will collect fees of approximately $300,000, while the 1,853 class members will be paid an average of slightly less than $538 each, paid proportionally based upon the number of “internship sessions” that the person participated in between 2008 and 2015.

What to take away – Remember that Employers who teach their interns and provide them with real training will continue to be able to maintain unpaid internship programs.

On the other hand, if interns are treated as free labor and do not receive any real training or education, they may be found to actually be an employee entitled to minimum wage and overtime compensation.

The world of internships has not been so rosy over the past several years, as the plaintiffs’ employment bar seized the gauntlet, and launched an avalanche of class actions accusing many employers of unlawfully failing to pay their interns. Suddenly the young people who once seemed grateful for the experience, and who accepted internships at prestigious companies, suddenly decided that they should have been classified as “employees” and looked for hefty payouts. Many of these cases have resulted in multi –million dollar settlements. At the forefront of this intern tsunami were two class actions which were both on appeal to the Second Circuit in New York - - Glatt et al. v. Fox Searchlight Pictures Inc., No. 13 - 4478 (2d Cir.) and Wang et al. v. The Hearst Corp., No. 13-4480 (2d Cir.).

In a holiday gift to employers, on July 2 the Second Circuit issued decisions in Glatt and Wang, refusing to certify the classes and finding that the interns were not employees under the law. These decisions have dealt a significant blow to this budding industry of intern class actions, instead adopting a common sense test for whether interns should be treated as “employees,” which many plaintiffs lawyers are likely bemoaning. Rejecting the Department of Labor’s (“DOL”) rigid approach to defining an unpaid internship, the Court adopted the more “nuanced” “primary beneficiary” test , which focuses more on whether the intern is receiving some real educational benefit from the experience. The decisions also provide employers with some valuable guidance as to how they can design and maintain a legal unpaid internship program.

The good news is these decisions should slow the juggernaut of class actions. The better news is they give employers some real practical guidance as to how they can design an internship program, without a fear that the intern today will become the plaintiff of tomorrow. We think the best news is for the interns – as now young people who truly crave the experience of an internship are not looking at a future where companies who cannot afford to pay simply throw up their hands and decide that they will not bother to sponsor such programs. So, putting aside the plaintiffs’ lawyers, there are winners on all sides as the result of these decisions.

Background

The Glatt and Wang cases both arose out of the same basic set of facts, interns who claimed they toiled for many hours over weeks and/or months, and were never paid. In each instance, the claim was that claims on behalf of all interns for the two companies should be certified as class actions. Interestingly, the two judges at the district court had each reached the opposite conclusions on the claims. First, in May 2013, Judge Harold Baer denied the plaintiff’s motion to certify a class of unpaid interns in the Wang case. Wang v. Hearst Corp., No. 12 CV 793 (HB) (S.D.N.Y. May 8, 2013). A month later, in June 2013, District Judge William Pauley in the Glatt case, relying on the DOL’s six-factor test, ruled that Fox Searchlight Pictures violated minimum wage and hour laws by failing to compensate interns for their work on the set of “Black Swan.” Glatt v. Fox Searchlight Pictures, Inc., No. 11. Civ. 6784 (WHP) (S.D.N.Y. June 11, 2013). Judge Pauley found that Fox made no effort to educate or train the interns and had them perform routine tasks that would otherwise have been performed by regular employees.

The issue that was presented at the Second Circuit was whether the Court should require employers to satisfy all six of the DOL factors to establish a valid unpaid internship – the approach the plaintiffs’ bar favored. The defense asked the Court to apply the more flexible “primary beneficiary” test, which looks at all of the facts and determines who benefits most from the internship, the employer or the intern. Those who observed the oral arguments at the Second Circuit reported that several judges were critical of the DOL’s six-factor test, finding it to be overly rigid, and thus seemed to be leaning toward the “primary beneficiary” test, which allows the court to consider the “totality of the circumstance” in deciding whether or not an internship qualified for compensation.

The Decisions

In keeping with the predictions from oral argument, the Second Circuit rejected the DOL’s six factor test and ruled that the “proper question” to ask in determining whether an intern was an employee is “whether the intern or the employer is the primary beneficiary of the relationship.” It noted that the test had two salient features: what the intern receives in exchange for the work, and the “flexibility to examine the economic reality” of the arrangement. The court instructed that courts would have to “weigh the diverse set of benefits to the intern against an equally diverse set of benefits received by the employer.”

The overall theme of the decisions was that interns need to be educated in order for an internship program to pass muster. The Court explained: “The purpose of a bona fide internship is to integrate classroom learning with practical skill development in a real-world setting… By focusing on the educational aspects of the internship our approach better reflects the role of internships in today’s economy than the DOL’s six factors.”

The Court then laid out seven “non-exhaustive” factors to consider in evaluating whether an intern should be viewed as an employee. It seems no coincidence that 4 of those 7 factors focused on the educational aspects of the experience, including:

• the internship provides training that would be similar to that given in an educational setting;
• the internship is tied to the intern’s formal educational program by integrated coursework or the intern is receiving educational credit;
• the internship accommodates the intern’s academic commitments by corresponding with the academic calendar;
• the internship duration is limited to the period in which the internship provides the intern with beneficial learning.

The overriding message one gets from these decisions is the Court’s view of the importance of the educational aspect of internships. As such, if employers truly teach their interns and provide them with some real training – they should not have to pay them. In contrast, if the interns are treated as just free labor, and are not getting any real training or are not part of a program where they receive educational credit, then the intern may in reality be an employee.

Employers should not be lulled into thinking that this intern issue is going away. In fact, due to all of the publicity of these cases, the interns of today are much more attuned to their rights than were those of just a few years ago. These decisions should be a guidepost for employers. Look at your interns and ask yourself the hard question: are they really the “primary beneficiary” of this relationship? It is not as if they cannot perform any services for the company, but is the program tied to an educational program or institution? Do you offer the interns the opportunity for course credit? Are you really providing them with training and skills that they can use in their field? Does the work schedule respect their academic schedule? If you can answer yes to these types of questions, you should be able to establish that it is a bona fide internship.