Jackson Lewis Class Action Trends Report 2022: Wage and Hour Developments
Novel wage and hour claims emerged in 2021, arising from employers’ efforts to respond to the COVID-19 pandemic. The coming year also could bring a pandemic-related uptick in the more routine types of wage and hour allegations that comprise the lion’s share of employment class and collective actions. Another factor likely to drive an increase in class litigation is the Biden Administration’s reversal of Trump-era rulemaking.
Lawsuits seeking compensation for activities undertaken by employees pre- and post-shift are premised on a variety of factual underpinnings. The COVID-19 pandemic has ushered in new ways of working and new potential “off-the-clock” scenarios, which may spur a rise in claims involving both new and familiar fact patterns.
Boot-up time. In October, the U.S. Court of Appeals for the Tenth Circuit ruled that call center employees were entitled to compensation for time they spent booting up their work computers and launching software programs prior to clocking in before each shift, finding these activities were integral and indispensable to their primary duties. In addition, applying the de minimis doctrine, the appeals court concluded the employer failed to establish that, as a practical matter, it would be administratively unfeasible to record or estimate the time at issue.
The employer urged the appeals court to consider the policy implications of finding computer boot-up time compensable “in our modern and digital age, including during the COVID-19 pandemic, when telework is increasingly common.” However, the appeals court wrote, “we need not speculate about the FLSA’s application to teleworkers or the pandemic’s broad implications for our digital age. We need only decide the case before us, which doesn’t concern teleworking.” With the dramatic expansion of the virtual work model accelerated by the pandemic, however, telework-related claims may soon make up a considerable share of off-the-clock wage and hour class and collective actions.
Security checks. The U.S. Supreme Court, in its 2014 decision in Integrity Staffing Solutions, Inc. v. Busk, ruled that post-shift security screenings were not integral to employees’ primary duties, and thus were not compensable under the FLSA. The question remains, however, whether such off-the-clock time is compensable under state wage and hour laws — particularly in those states that have not adopted the federal Portal-to-Portal Act, which established the FLSA’s “integral and indispensable” framework for determining the compensability of pre- and post-shift work.
In July, the Pennsylvania Supreme Court held the time spent by warehouse workers going through security screening after clocking out is compensable under the Pennsylvania Minimum Wage Act. Answering certified questions from the Sixth Circuit and accepting as true the Sixth Circuit’s finding of fact that the employer required employees to remain on the premises during that time, the state’s high court concluded the screenings constitute “hours worked” under Pennsylvania law and there is no statutory de minimis exception. The defendant, an online retail giant, later agreed to pay $13.5 million to Nevada workers to settle another case, part of a long-running multidistrict litigation.
In December, the Ninth Circuit asked the Oregon Supreme Court to decide whether time spent onsite waiting for and undergoing security screenings is compensable under Oregon law. The federal district court concluded Oregon had incorporated the Portal-to-Portal Act (if not expressly) and granted judgment on the pleadings to the employer in an off-the-clock class action suit. However, the Ninth Circuit found it unclear whether Oregon adopted the federal standard, and so certified the question to the state’s high court.
California continues to be an active forum for security screening class actions. As 2021 drew to a close, a federal court granted preliminary approval to a $29.9 million settlement in a long-running suit involving a 14,000-member class of retail workers. A federal court initially concluded the time spent waiting to undergo baggage checks was not compensable; however, the Ninth Circuit certified the question to the California Supreme Court, which advised in a unanimous decision that the mandatory security checks (and time waiting time to undergo such screening) was indeed compensable under California Wage Order No. 7.
COVID-19 screening. Employers in several states are defending class action suits filed by employees seeking pay for pre-shift time spent waiting to have their temperature checked before entering the worksite or responding to COVID-19-related symptom questionnaires. Like post-shift security check cases, these claims — several dozen of which have been filed so far — rely on state wage laws that do not incorporate the Portal-to-Portal Act. And, like all class and collective actions, the suits pose a risk of significant exposure if they survive early dismissal.
A new administration, a new regulatory environment
Under the Biden Administration, new leadership at the U.S. Department of Labor (DOL) moved to revoke three Trump-era regulations in 2021.
Independent contractor rule. In May, the DOL withdrew its final rule addressing independent contractor status under the FLSA. The rule, which never took effect, would have established the “economic reality” test as the uniform standard for determining whether an individual is in business for themselves (an independent contractor) or is economically dependent on a putative employer for work (an employee). Consequently, the judicial precedents and DOL regulations and guidance that were in place prior to the final rule’s publication continue to apply.
Joint employer rule. In July, the DOL announced it was rescinding the joint employer rule issued during the Trump Administration, effective September 28. The 2020 rule provided clearer guidance for the business community in determining joint employer status under the FLSA, in the form of a four-factor balancing test to determine when an entity is acting directly or indirectly in the interest of an employer in relation to the employee.
Tip rule. On the tail end of the Trump Administration, the DOL issued a final rule eliminating the “80/20” rule, which the DOL and some courts had adopted to assess whether tipped workers were sufficiently engaged in tip-generating duties so that their employer could take the tip credit against the minimum wage rate. The tip rule was scheduled to become effective in March 2021, but the Biden DOL delayed its enactment. In October, the DOL reinstated the 80/20 rule and added a new “30-minute” rule. Under the final rule, an employer may not take a tip credit when work directly supporting tips exceeds 20 percent of the hours worked during the employee’s workweek or is performed for a continuous period exceeding 30 minutes. The new rule, which took effect December 28, also addresses tip-sharing and other provisions related to tipping.
The net result will be greater uncertainty for employers with respect to complex legal questions about employee-employer status and the extent to which tipped employees can perform tasks that do not directly generate tips. Confusion breeds litigation and — particularly in the wage and hour context — class action litigation.
Other wage and hour decisions of note
Per diem allowance for traveling expenses. In an FLSA collective action, the Ninth Circuit ruled that per diem payments a healthcare staffing agency paid to “traveling clinicians” amounted to compensation for work rather than reimbursement for expenses. Therefore, reductions in the payments for failing to work full shifts were improperly excluded from the employees’ regular rate of pay for purposes of calculating overtime pay. In its February decision, the appeals court cited a combination of factors indicating the payments functioned as compensation for hours worked, including the connection between per diem deductions and shifts not worked regardless of the reason for the missed time, the “banking hours” system, the payment of per diem on a weekly basis regardless of whether expenses were actually incurred on a given day, and the payment of the same amount of per diem to both local clinicians and traveling clinicians.
The employer filed a petition for certiorari asking the Supreme Court to take up the question of “[w]hether, under the FLSA, per-diem allowances for traveling expenses, which are reduced when the employee fails to work a contractually required shift, are excluded from the employee’s ‘regular rate’ as ‘reasonable payments for traveling expenses ... incurred by an employee in the furtherance of his employer’s interests.’” The U.S. Chamber of Commerce (and several other industry groups) filed supporting briefs urging the Supreme Court to reverse the Ninth Circuit’s decision. However, in December, the Supreme Court denied certiorari.
Bonuses and fluctuating workweek. The Eleventh Circuit ruled that an employer’s practice of paying salaried nonexempt employees two types of bonuses (a night shift premium and holiday pay) on top of a fixed salary did not preclude it from using the fluctuating workweek method of calculating overtime. The appeals
court thus revived an employee’s individual claim alleging he was denied overtime pay in violation of the FLSA. (The court below had denied conditional certification of a collective action, finding the plaintiff failed to establish there were other employees who wanted to opt-in to the suit or that any employees who might opt in were similarly situated.)
Reviewing the statutory text, the Supreme Court’s 1942 decision in Overnight Motor Transportation Co. v. Missel, and regulatory guidance, the Eleventh Circuit squarely rejected the employee’s contention that all payments to an employee other than overtime pay must be deemed part of his fixed salary, explaining that “compensation an employee receives is not the same as the fixed salary; the salary is a subset of the employee’s compensation."