US Supreme Court Gives Green Light For Employers To Use Offers Of Judgment To Moot FLSA Collective Actions
Today the US Supreme Court issued its long-awaited opinion in Genesis Healthcare v. Symczk. In the case, the Court held that employers could effectively end collective action lawsuits under the Fair Labor Standards Act (FLSA) by agreeing to pay the named plaintiffs in those lawsuits whatever they claim they are owed. The Court held that because the named plaintiff was made completely whole by the employer’s offer her individual claim was moot, and because the named plaintiff’s claim was moot the entire collective action litigation was dismissed. This decision provides a helpful tactical weapon for employers that face the prospect of long and expensive collective action litigation.
How To “Pick Off” A Big FLSA Collective Action Lawsuit
Laura Symczk was employed as a nurse for Genesis, and was non-exempt under wage laws like the FLSA. She filed an FLSA “collective action” against Genesis claiming that it unlawfully failed to pay her and other nurses for meal breaks in which she had to work (the FLSA requires that employers pay employees for all their work time, including during meal breaks when the employee is not relieved of all work duties). Very early in the litigation, Genesis Healthcare issued what is called an “offer of judgment” under Federal Rule of Civil Procedure (FRCP) 68, offering to pay Symczk everything she claimed she was owed for her own unpaid work time (about $7,500, plus her attorney fees to date). The trial court then dismissed her entire collective action lawsuit, finding that because Symczk was made completely whole by Genesis’ offer and no others had yet joined the collective action, the case was “moot.”
The case was eventually appealed up to the Supreme Court, where Symczk’s attorneys argued that it was unfair to allow employers to end FLSA collective actions by “picking off” at an early stage the individual named plaintiffs bringing the lawsuit. The U.S. Supreme Court rejected Symczk’s argument, holding that the issue was resolved by basic principles of “justiciability”; the U.S. Constitution limits cases that can be in federal courts to only those live cases in which the parties have a genuine dispute. Once the only named plaintiff’s claims in a FLSA collective action are moot, there is no current controversy before the court.
Why Genesis Healthcare Matters
As any employer knows, wage and hour class or collective action lawsuits, which have boomed in recent years, can be extremely expensive and difficult to defend. While the amounts of disputed wages for each individual employee in such cases are often quite small (so small that the pay practices at issue often go unnoticed), when those claims are aggregated among hundreds or even thousands of employees over a several year period, they can quickly add up to big money in back wages and penalties (judgments or settlements in the millions, tens of millions, or more are not uncommon for large cases). Further, because of their large size, the cases involve very complex discovery and often take years to resolve, resulting in big legal fees.
Faced with such daunting potential costs, many employers with their eyes on the bottom line might jump at the chance to simply pay the individual plaintiffs bringing the lawsuit whatever they wanted for themselves (usually a few thousand dollars; in Symczk’s case it was $7,500) to make the whole thing go away. That is exactly what Genesis Healthcare did by issuing what’s called an “offer of judgment” under FRCP 68. An offer of judgment is a familiar tool to civil litigators in all types of cases—the offer stops the plaintiff from accruing attorney fees beyond the date of the offer unless the plaintiff wins more than the offer amount at trial.
Possible Limited Reach Of Genesis Healthcare
Obviously, Genesis Healthcare provides a powerful weapon for employers to use to potentially nip in the bud expensive wage and hour collective litigation under the FLSA at an early stage. The decision comes with caveats, however, and employers must be mindful of its possible limitations when considering using this litigation tactic:
- Smyczk's collective action only became moot because no other plaintiffs had yet joined. Under the FLSA, other employees must specifically choose to “opt in” to the collective action; that usually happens relatively early in the litigation during the “conditional certification” stage. Employers wishing to take advantage of the tactic approved in Genesis Healthcare must therefore do so early in the litigation.
- The dismissal of the FLSA collective action does not end it forever with respect to other employees not “picked off” by the offer of judgment. Those other employees are still free to file their own individual or collective lawsuits. Depending on the particular case, however, that may be a risk worth taking. Wage and hour class or collective actions are often driven by one or a few (often disgruntled) employees and, even more so, plaintiffs’ attorneys. When a lawsuit is dismissed, it can be difficult for the plaintiffs’ attorneys to find others willing to file additional lawsuits.
- The holding only applies to collective actions under the FLSA; the Court specifically stated it may not work with class actions governed by FRCP 23. In states with their own wage and hour laws (like Washington, Oregon and California), plaintiffs often bring “hybrid” lawsuits alleging both collective actions under FLSA and class actions under state law pursuant to FRCP 23. In fact, because some state wage laws are so much more favorable to employees, such as in California and Washington, it is not uncommon for plaintiffs to raise only state law claims, and bring class action lawsuits, rather than bring the FLSA claim at all. Because of the procedural differences between collective and class claims (most notably, other employees must affirmatively “opt in” to FLSA collective claims, but state law class actions will usually include all affected employees except those who specifically “opt out”), employers facing such a “hybrid” claims may only succeed in ending the FLSA claims, but a (larger) law class action under state law could go on. Indeed, just several days ago in Busk v. Integrity Staffing Solutions, the Ninth Circuit Court of Appeals became the latest Circuit Court to allow these "hybrid" claims, despite the conflict between the FLSA collective "opt in" and FRCP 23 class action "opt out" procedures (blog post coming...).
- Somewhat strangely, the Court specifically declined to decide whether the offer of judgment actually rendered Smyczk's individual claim moot and simply assumed that it did because the parties did not dispute that point. In going out of its way to state this curious caveat the Court may have left the door open for arguments that class claims should survive because offers of judgment or settlement do not, in fact, moot a particular named plaintiff's individual claims.
Still, for the time being Genesis Healthcare represents a win for employers facing FLSA claims. We’ll have to continue to watch this very hot area of law as it continues to develop.
Although it’s almost been four years since it was issued in January 2009, Executive Order 13495, known as “Nondisplacement of Qualified Workers Under Service Contracts” (74 Fed. Reg. 6103) has not had much impact upon government contracting employers. That is about to change as the final rule and regulations that will make Executive Order 13495 enforceable go into effective January 18, 2013.
What Executive Order 13496 Says
Executive Order 13495 requires most federal service contractors (including subcontractors)under a contract that succeeds a contract for performance of the same or similar services at the same location to offer the predecessor contractor’s employees a right of first refusal of employment under the contract for those positions for which they qualify. The requirement imposed by the Executive Order does not require a successor contractor to hire all of its predecessor’s employees. Successor contractors may still reduce the size of the workforce and give first preference to certain members of its own workforce (those employees that have worked for the successor contractor for at least three months and face layoff if they are not employed on the new contract). Certain contracts are exempt from this hiring obligation and waivers may be granted by senior procurement executives in limited circumstances.
But, the purported overall goal of this new contracting requirement was to ensure a larger carryover workforce so that there is less disruption to the delivery of services during the period of transition between contractors. The new requirement is also intended to provide the Federal Government with the benefit of an experienced and trained workforce that is familiar with the Federal Government’s personnel, facilities, and requirements. As acknowledged in the Executive Order, it is already quite common for a successor contractor or its subcontractor to hire the majority of the predecessor’s employees when a service contract ends and the work is taken over from one contractor to another. But, there have been occasions where a whole new workforce has been hired, thus displacing all of the predecessor’s employees. The Executive Order was issued to end such practices – and it was undoubtedly coincidental that the Executive Order had effect of virtually ensuring that the new contractor is a “successor” for labor law purposes, thus requiring the new contractor to bargain with the union representing the predecessor contractor’s employees.
Why Did It Take So Long?
While the Executive Order was issued in 2009, it did not become immediately effective. Instead, implementation of the requirement imposed by the Executive Order was passed along to the Department of Labor (DOL). More than two years later, on August 29, 2011, DOL’s Wage and Hour Division published its final rule implementing the Executive Order. However, DOL stated that the final rule would not take effect until the Federal Acquisition Regulatory Council (the FAR Council) issued regulations to amend the Federal Acquisition Regulation. A proposed rule was published on May 3, 2012 (at 77 Fed. Reg. 26232) and several agencies and interested parties responded with comments and questions.
Since then, employers in the government contracting world have been waiting with anticipation for the FAR Council to issue its final regulations. The final regulation and amendment to the FAR (new subpart FAR 22.22 and new clause at FAR 52.222-17) finally issued on December 21, 2012 (77 Fed. Reg. 75766). This final rule will become effective January 18, 2013 and apply to solicitations issued on that date and thereafter. The final rule and amendments to the FAR address various comments submitted and questions raised after the DOL’s final rule issued in August 2011 and the FAR Council’s proposed rule was issued in May 2012. The responses to the comments and questions are helpful in understanding how this new hiring requirement impacts both successor and predecessor contractors and how successor contractors should address certain issues that may arise during their efforts to comply with the new requirement.
Now That It’s Here Employers Need To Get Ready!
Given that January 18th is right around the corner, employers covered by the final rule should immediately evaluate what, if any, obligations they may have moving forward and take any steps necessary to ensure timely compliance with the final rule. The DOL and Federal Register provide some helpful info on the basic nuts and bolts of the new requirements, including a sample notice. Employers may also want to consult with their outside legal counsel to ensure all compliance requirements are met.
Most employers grapple with the better-known aspects of the Family and Medical Leave Act (FMLA), such as determining whether an employee’s illness constitutes a serious medical condition, obtaining required certification or providing adequate coverage for workers on intermittent leave. All too often employers focus on the leave itself and breathe a sigh of relief when notice is provided confirming the dates of leave or when the employee has resumed his or her usual schedule. But an employer’s compliance with federal law includes the obligation to maintain adequate records related to the leave. Failure to do so can have significant consequences.
What Records Must You Keep?
FMLA recordkeeping requirements can be found in a single regulation, 29 C.F.R. § 825.500. That regulation requires employers to keep and preserve records in accordance with the recordkeeping requirements of the Fair Labor Standards Act (FLSA). Records must be retained for no less than three years. Although no particular order or form is required, the records must be capable of being reviewed or copied.
Covered employers with eligible employees must also maintain records that include basic payroll and data identifying the employee’s compensation. Failure to maintain accurate records can have significant consequences for employers, who have the burden of establishing eligibility for leave. Accuracy is important: for example, the regulations demand that records document hours of leave taken in cases of leave in increments less than a full day. Lack of suitable records documenting when leave was taken can also doom an employer’s defense to claims for leave. Special rules apply to joint employment and to employees who are not covered by or are exempt from the FLSA.
Importantly, copies of employee notices of leave furnished to the employer under FMLA, if in writing, and copies of all general and specific written notices given to employees are required under FMLA regulations. The required copies may be maintained in employee personnel files. In the event of a dispute between the employer and an eligible employee regarding designation of leave as FMLA leave, employers must present the required records, including any written statement from the employer or employee regarding the reasons for the designation and for the disagreement. All too often employers fail to audit their own personnel files to confirm that the required documentation is in place.
Documents (defined to include written and electronic records) describing employee benefits or employer policies and practices regarding the taking of paid and unpaid leaves must also be maintained, along with records of premium payments, if any, of employee benefits.
Compounding The Recordkeeping Requirement: Don't Forget About Confidentiality
Of particular consequence for employers is the requirement that records and documents relating to medical certifications, recertifications or medical histories of employees or employees’ family members, created for purposes of FMLA, shall be maintained as confidential medical records separately from the usual personnel files. In those circumstances where the Americans with Disabilities Act (ADA) also applies, employers have a duty to maintain such records in conformity with the confidentiality requirements of the ADA.
Be Proactive, Audit Your Records
Well-intentioned employers recognize that it’s never too late to conduct a compliance audit to determine whether their organization is complying with FMLA requirements. Identifying and fixing any problems with your recordkeeping processes now could save a lot of headaches down the road.
On Halloween, the National Labor Relations Board (“Board”) General Counsel’s Division of Advice handed out a rare treat to employers by issuing two Advice Memos (Mimi's Café, Case No. 28-CA-0844365 and Rocha Transportation, Case No. 32-CA-086799), deeming two particular (and common forms of) at-will employment policies contained in employee handbooks lawful under the National Labor Relations Act (the “Act").
Earlier this year, an Administrative Law Judge frightened many employers by ruling a particular company’s “at-will” policy violated the Act because it theoretically could make employees believe that they could not form a union or otherwise advocate to change their at-will employment status. That challenged policy stated, “I further agree that the at-will employment relationship cannot be amended, modified or altered in any way.” The case, American Red Cross Arizona Blood Services Division, Case No. 28-CA-23443 (February 1, 2012), was settled before the NLRB could review it on appeal.
The Division of Advice’s Halloween memoranda distinguished American Red Cross case from Mimi's Café and Rocha Transportation – noting that the at-will policy in American Red Cross used the personal pronoun “I” (“I further agree that the at-will employment relationship cannot be amended, modified or altered in any way”), which as written essentially constituted an impermissible waiver of any right of employees to try and change at-will status (i.e., to try to form a union). The Division of Advice also noted that the policy in American Red Cross declared that the at-will employment relationship could never be modified under any circumstances whatsoever, which could be interpreted as chilling employees’ rights under the Act to engage in protected concerted activity such as forming a union. Finally, the Division of Advice, perhaps dismissively, noted that American Red Cross had settled before getting to the Board level.
In contrast, in the two cases and policies analyzed by the Division of Advice’s Halloween memoranda, one employer’s handbook specifically provided for possible changes to an employee’s at-will employment status if made in writing and signed by the company president, and the other employer’s handbook merely said that no one in management had authority to make changes to the at-will policy. Specifically, the two at-will policies validated by the Division of Advice provided:
The relationship between you and Mimi’s Café is referred to as “employment at will.” This means that your employment can be terminated at any time for any reason, with or without cause, with or without notice, by you or the Company. No representative of the Company has authority to enter into any agreement contrary to the foregoing "employment at will" relationship. Nothing contained in this handbook creates an express or implied contract of employment.
Statement of At-Will Employment Status
Employment with Rocha Transportation is employment at-will. Employment at-will may be terminated with or without cause and with or without notice at any time by the employee or the Company. Nothing in this Handbook or in any document or statement shall limit the right to terminate employment at-will. No manager, supervisor, or employee of Rocha Transportation has any authority to enter into an agreement for employment for any specified period of time or to make an agreement for employment other than at-will. Only the president of the Company has the authority to make any such agreement and then only in writing.
The Rocha Transportation handbook also contained an "Acknowledgment of Receipt" that employees were required to sign, acknowledging that "nothing in the employee handbook creates or is intended to create a promise, contract, or representation of continued employment ...” The Division of Advice noted this was important in showing that the employer was trying to protect against contract claims, as opposed to trying to restrict employees’ rights under the Act.
The Division of Advice’s memoranda provide a welcome respite from an otherwise troubling (for employers) spate of Board decisions affecting both non-union and unionized employers on topics such as social media, off-duty access, and confidentiality policies. Although the Division of Advice’s memoranda are technically not binding, the Board’s Acting General Counsel has instructed all NLRB Regional Offices to consult with the Division of Advice before issuing any complaint challenging an employer’s at-will policy. And employers now have some helpful guidance from these memoranda concerning how to word at-will policies.
Employers and the courts continue to wrestle with issues involving “zero tolerance” drug testing policies and whether employers must accommodate medical marijuana use by their employees. Marijuana use is illegal under the federal Controlled Substances Act, and therefore does not need to be accommodated under the federal Americans with Disabilities Act (“ADA”). However, 15 states currently have legalized some form or another of medical marijuana use: Alaska, Arizona, California, Colorado, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington as well as the District of Columbia. The language of each state’s law can differ, and the courts therefore interpret these state law issues on a case-by-case basis.
Most recently, in Casias v. Wal-Mart Stores, Inc., a Michigan federal district court ruled that an employee who was terminated by Wal-Mart after testing positive for validly obtained medical marijuana stated no legal claims for wrongful discharge. The court accepted Wal-Mart’s argument that Michigan’s medical marijuana law does not regulate private employment; rather, it merely provides a potential affirmative defense to criminal prosecution or other adverse action by the state. The court rejected the plaintiff’s argument that the law created a new protected employee class, which “would mark a radical departure from the general rule of at-will employment in Michigan.” The Casias decision is currently being appealed.
A similar ruling is under review by the Washington State Supreme Court. I argued the case for the employer on January 18, 2011. As I previously blogged, the Washington Court of Appeals in Roe v. Teletech Customer Care Management affirmed a trial court’s ruling and held that Washington’s Medical Use of Marijuana Act (“MUMA”) does not protect medical marijuana users from adverse hiring or disciplinary decisions based on an employer’s drug test policy. In so doing, the Court of Appeals stated, “MUMA neither grants employment rights for qualifying users nor creates civil remedies for alleged violations of the Act.” Rather, the Court held that MUMA merely protects qualified patients and their physicians from state criminal prosecution related to the authorized use of medical marijuana. The Court further held that when Washington’s voters passed MUMA through the initiative process, they did not intend to impose a duty on employers to accommodate employee use of medical marijuana. A decision from the Washington Supreme Court is anticipated later this year.
Three other state Supreme Courts have already issued rulings on workplace medical marijuana issues, and all have found in the employer’s favor. In Ross v. RagingWire, the California Supreme Court ruled that it is not discrimination to fire an employee for using medical marijuana. The court held that employers in California do not need to accommodate the use of medical marijuana, even when users only ingest or smoke marijuana away from the workplace.
In Johnson v. Columbia Falls Aluminum Company, the Montana Supreme Court ruled, in an unpublished decision, that an employer is not required to accommodate an employee's use of medical marijuana under the federal ADA or the Montana Human Rights Act.
Also previously covered on World of Employment, in Emerald Steel Fabricators, Inc. v. Bureau of Labor & Industries, the Oregon Supreme Court ruled that because federal criminal law takes precedence over Oregon’s medical marijuana law, employers in Oregon do not have to accommodate employees' use of medical marijuana. Stoel Rives filed a “friend of the court” brief on behalf of the employer in that case.
There are many sound reasons why employers have zero tolerance policies and engage in drug testing of applicants and/or employees, including, without limitation, customer requirements, government contracting requirements (including the federal Drug Free Workplace Act), federal or state laws (including DOT requirements for transportation workers), workplace safety, productivity, health and absenteeism, and liability. To best protect themselves, employers should review their policies to make sure that illegal drug use under both state and federal law are prohibited, and that their policies prohibit any detectable amount of illegal drugs in an applicant’s or employee’s system as opposed to using an “under the influence” standard. Employers should also ensure that all levels of their human resources personnel know how to handle medical marijuana issues as they arise. Finally, given the continued efforts by marijuana advocates and civil rights groups to “push the envelope” of medical marijuana laws into the workplace, it is important for employers to continue to closely monitor legislative and legal developments. A recent effort to include workplace protections for medical marijuana users via amendments to Washington’s medical marijuana laws was defeated, but we anticipate similar efforts will be made in Washington and other states in the coming years.
The Oregon Bureau of Labor and Industries recently announced that Oregon's minimum wage will increase by ten cents to $8.50 an hour effective January 1, 2011. Oregon's minimum wage has been $8.40 an hour since January 1, 2009. Click here to read Labor Commissioner Brad Avakian's press release on the minimum wage increase.
As a result of Ballot Measure 25, passed by voters in 2002, the minimum wage is adjusted annually based on changes in inflation as measured by the Consumer Price Index (CPI). The Labor Commissioner is charged with adjusting the minimum wage for inflation every September, rounded to the nearest five cents.
And for your viewing pleasure, here's a fascinating video of an employee who we hope earns much more than minimum wage. At least we know we wouldn't do this job for under $1,000 an hour:
President Obama is today expected to sign the Hiring Incentives to Restore Employment (HIRE) Act, which in its final form passed The House of Representatives 217-201 on March 4 and the Senate 68-29 on March 17. Click here to download the final version of the HIRE Act.
Key provisions of the HIRE Act include:
- An exemption from Social Security payroll taxes for private employers for each worker hired in 2010 who previously had been unemployed for at least 60 days;
- A $1,000 income tax credit, or a credit of 6.2% of total wages paid, for private employers for each new employee hired in 2010 and retained for at least 52 weeks and claimed on the employer's 2011 income tax return;
- An extension of the small business “expensing” tax break for one year, allowing small businesses to continue writing off up to $250,000 of certain capital expenditures instead of depreciating them over time;
- A $4.6 billion Build America Bonds program, which would provide an optional direct subsidy payment in lieu of a tax credit for tax credit bonds issued for certain school and energy projects; and
- Expanded federal aid for highway programs estimated to save or create 1 million jobs.
As previously reported in the Stoel Rives World of Employment, a slightly different version of the HIRE Act passed through the Senate on February 24. While the bill was in the House, several changes were to the Act, including increased funding to the Build America Bonds program and greater flexibility to the hiring tax credit program.
This week the Oregon House voted to prohibit employers from using credit histories for any employment purposes including hiring, discharge, promotion and compensation. The Oregon Senate passed the bill last week, and Governor Ted Kulongoski is expected to sign the bill into law effective July 1, 2010. Click here to download a copy of the bill, SB 1045.
A violation of the new law will be an unlawful employment practice, and an aggrieved employee could either file a complaint with the Bureau of Labor and Industries (BOLI) or file a civil lawsuit for injunctive relief, reinstatement or back pay, and attorney's fees.
The new law will have some narrow exceptions: banks and credit unions, public safety and law enforcement officers, employers who are required by state and federal law to use credit histories for employment purposes, and other employment if credit history is "substantially job-related" and the use of the credit check is disclosed in writing. The bill does not give any guidance on what it means for a credit check to be "substantially job-related," but we're assuming that courts will construe that requirement very narrowly.
Oregon employers who are currently using credit checks as part of their employment processes should make sure they fit into one of the exceptions and, if not, find alternatives by July 1. The law only prohibits the use of credit history, so other background checks - such as criminal background checks - are not affected.
A new Oregon bill will prohibit employers from requiring employees to attend mandatory or "captive audience" meetings on, among other topics, labor unions. Governor Ted Kulongoski is expected to sign the bill, which would them become law effective January 1, 2010. Click here to read SB 519.
SB 519 prohibits an employer from taking action against an employee who refuses to participate in communications concerning the employer’s opinions on religious or political matters. Religious or political matters is defined broadly and includes communications to employees about unionization. An employee who suffers economic loss (through termination or suspension) as a result of the bill can sue his or her employer and recover treble damages. The bill also allows employees to obtain an injunction prohibiting additional "captive audience" meetings.
This law might not be long-lived: the U.S. Supreme Court found a similar California law to be preempted by federal labor law. Click here to read that opinion in Chamber of Commerce v. Brown. Even if a court finds Oregon's statute to be similarly preempted (and we believe a court will), the law could still apply to employers that are not covered by federal labor law - namely, Oregon public and agricultural employers. Also, the word from Salem is that the legislature will still revise the law to provide additional protections for religious employers (such as churches and some hospitals) who hold religious meetings, so keep an eye out for those changes in the next week or so.
The New York Times is reporting that Starbucks has settled with the National Labor Relations Board an unfair labor practice claim filed by a former employee who alleged he was terminated for attempting to organize his coworkers to join the Industrial Workers of the World, aka "the Wobblies."
Under the terms of the settlement, Starbucks will post a notice in the employee's store for 60 days informing workers they have a right to unionize under federal law. Starbucks will also remove from its files any reference to the employee's firing and will repay him for any loss of earnings. (Starbucks had already voluntarily reinstated the employee before he filed his charge with the NLRB). For more about the Starbucks Workers' Union (a branch of the IWW), click here.
This case is a reminder to employers that it is unlawful to discharge or take any other adverse action against an employee because of that employee's support for or activities on behalf of a labor union. Just because the employee supports a union does not require you to give him or her special treatment, nor does it make them immune for discipline unrelated to their union activities; however, if you terminate a union organizer, you proceed at your own (substantial) risk.