Defeating PAGA Claims in Wage-Hour Litigation
California law provides for a unique mechanism by which employees can file suit on behalf of other employees without bringing claims as class actions—the Private Attorneys General Act (“PAGA”). PAGA generally allows an employee to sue an employer on behalf of all “aggrieved employees” for alleged violations of the California Labor Code.
The potential recovery in a PAGA claim can be staggering. Each “aggrieved employee” can recover up to $100 for the first pay period in which a violation occurs, and up to $200 for each subsequent pay period in which a violation occurs. Moreover, PAGA provides for the recovery of costs and attorney’s fees. While the limitations period is only one year, it continues throughout the course of the litigation.
Epstein Becker Green has experience aggressively and successfully defending employers facing PAGA claims. For example, our California attorneys recently achieved a significant victory for a medical transportation client that was scheduled to commence a lengthy trial in a 6,000+ person wage-hour action under PAGA with substantial potential exposure. In this PAGA case, the plaintiff contends that our client does not provide emergency medical technicians and paramedics with compliant meal and rest periods.
The defense of this case was complicated by a recent California Supreme Court decision holding that it is unlawful for an employer to require employees to remain on-call and to carry communications devices with them when they are on breaks. Nevertheless, Epstein Becker Green convinced the trial court to grant our client’s motion to strike the PAGA claims on the grounds that the trial would be unmanageable because of the need to address individualized issues. Accordingly, unless the plaintiff appeals, rather than a lengthy trial involving thousands of employees and substantial potential exposure, our client will be trying a single-plaintiff case with limited exposure.
Defending Against Misclassification Claims
One of the most confusing and contentious issues for both employers and workers is identifying whether an individual is an employee or an independent contractor. The consequences to an employer of misclassifying employees as independent contractors can be severe and include penalties and liability for back taxes, overtime pay, workers compensation, and retirement benefits.
Epstein Becker Green has experience successfully defending employers against allegations of worker misclassification. For example, we recently achieved an important victory for a modeling agency client in an action brought by a “fit model” who claimed that she was misclassified as an independent contractor. (Fit models serve as living and moving mannequins on whom sample fabrics and designs are draped, sized, cut, and pinned by, and who give feedback and design suggestions to, designers and clothing manufacturers.) Epstein Becker Green convinced the district court to follow the holding handed down last year by a federal appeals court in a class and collective action alleging worker misclassification (a case in which Epstein Becker Green succeeded in proving that the plaintiff-drivers were independent contractors) and likewise rule that the fit model was an independent contractor. The district court also accepted Epstein Becker Green’s argument that our client does not hire models—rather, the models hire our client—which further proved that the plaintiff was an independent contractor.
Providing Protection from “Joint Employer” Liability
More and more, employees are bringing claims on a “joint employer” theory, seeking to hold their employer and another entity liable for alleged unlawful conduct. The “joint employer” argument frequently comes up in the context of temporary employees who are assigned by temporary staffing companies to work for clients. Often, employees will claim that one “joint employer” is liable for the other’s alleged conduct, sometimes doing so in class action lawsuits.
Epstein Becker Green has experience successfully representing companies on “joint employer” issues. For example, we recently achieved an important victory for our client, a temporary staffing company, in a joint-employer class action in California. The temporary staffing company had assigned the plaintiff, a temporary worker, to work for one of its clients, which the plaintiff alleged denied her statutorily required meal periods. The plaintiff filed a class action lawsuit in state court, claiming that both companies were “joint employers” and that the temporary staffing company was vicariously liable for alleged meal period violations committed by the client. This issue of vicarious liability for “joint employers” on such a claim is one that had never been addressed by the appellate courts in California. Epstein Becker Green convinced the lower court and, subsequently, an appellate court that “joint employers” are not vicariously liable for each other’s alleged meal period violations—and, in particular, that temporary staffing companies are not liable for the wage and hour violations committed by their clients. Accordingly, the plaintiff’s class action lawsuit was dismissed as to the temporary staffing company.
Protecting an Association’s Vacation Policy
Disputes frequently arise over whether an employee is entitled to be paid for accrued, but unused, vacation time at the end of his or her employment. Epstein Becker Green has experience protecting clients against and in such situations.
For example, we successfully represented a professional association in a trial involving an appeal from a decision by a wage collection referee denying the complainant’s claim for non-payment of unused vacation time at separation. The complainant presented a novel interpretation of the association’s vacation policy with respect to the payment of accrued, but unused, vacation at separation, which, if adopted, would have had a significant financial impact on the association beyond the complainant’s claim, as the relevant state’s statute of limitations on contract claims is six years. The association would have been exposed to multiple lawsuits and state administrative proceedings of an indeterminate value for unpaid vacation at the time of separation.In December 2016, the court held a trial de novo and took testimony from witnesses on the complainant’s appeal. After we presented our case, the court issued its ruling denying the complainant’s appeal and affirming the referee’s decision. The complainant did not appeal the decision to an appellate court.
Learn more about our Wage and Hour service team.
Epstein Becker Green Assists Insurer in Defeating Class Certification in Wage and Hour Case
In May 2017, Epstein Becker Green attorneys achieved a major victory for a national insurance company in a wage and hour class action pending in Los Angeles Superior Court. The Epstein Becker Green team convinced the trial court to deny the plaintiffs’ motion for class certification on all claims. The lawsuit had alleged that property inspectors who worked for the insurance company had been misclassified as independent contractors, had not been paid minimum wages or overtime, did not receive meal periods and rest periods, and were not reimbursed for business expenses, among other things.
The Epstein Becker Green team included Michael S. Kun and Kevin Sullivan.
Epstein Becker Green Achieves Victory in Class and Collective Action Against Transportation Client
Epstein Becker Green has obtained a significant victory for its client Corporate Transportation Company and affiliated entities (collectively, “CTG”) when the U.S. Court of Appeals for the Second Circuit handed down its long-awaited decision involving whether “black car” drivers in New York were employees or independent contractors. The Second Circuit, in Saleem v. Corporate Transportation Group, Ltd., Case No. 15‐88‐cv (2d Cir. April 12, 2017), unanimously ruled for CTG, holding that CTG’s “black car” drivers in the New York City area are independent contractors, not employees.
The drivers had brought this action in the U.S. District Court for the Southern District of New York, asserting claims pursuant to the Fair Labor Standards Act (FLSA) and the New York State Labor Law (NYLL) for unpaid overtime. Epstein Becker Green defeated plaintiffs’ motion for class certification in November 2013 and, in early 2014, filed a motion for summary judgment on behalf of CTG. The district court granted CTG’s motion for summary judgment on the FLSA and NYLL claims as to both the named and opt-in plaintiffs, concluding that, as a matter of law, plaintiffs were properly classified as independent contractors rather than employees for purposes of both statutes. The plaintiffs filed an appeal.
After Epstein Becker Green presented its oral argument to the appeals bench, the Second Circuit found that the plaintiffs independently determined (1) the manner and extent of their affiliation with CTG; (2) whether to work exclusively for CTG accounts or provide rides for CTG’s rivals’ clients and/or develop business of their own; (3) the degree to which they would invest in their driving businesses; and (4) when, where, and how regularly to provide rides for CTG clients. In short, the workforce was composed of individuals who came and went as they pleased. Thus, the Second Circuit agreed with the district court that, even when the historical facts and the relevant factors were viewed in a light most favorable to plaintiffs, the plaintiffs constituted independent contractors as a matter of law, despite the broad sweep of the FLSA’s definition of “employee.”
Attorney Evan J. Spelfogel led the Epstein Becker Green team in this case.
Epstein Becker Green Persuades California Court of Appeal to Uphold the Right to Contractual Arbitration Against Wage Claims By Independent Contractor
Epstein Becker Green (“EBG”) achieved a significant victory in the California Court of Appeal for its clients Prime Time Shuttle, Inc., and Rideshare Airport Management, LLC, on a motion to compel arbitration. In this case, Khalatian v. Prime Time Shuttle, Inc. et al., 2015 Cal. App. LEXIS 498 (Cal. App. 2d Dist. May 15, 2015), the plaintiff, an owner-operator driver, alleged that the defendants misclassified him as an independent contractor and, thus, failed to pay him all wages due, among other alleged violations of California’s wage and hour laws and Unfair Competition Law.
When EBG took over the case from predecessor counsel, a motion was made to compel arbitration pursuant to the arbitration provision in the parties’ services contract. The trial court denied Prime Time and Rideshare’s motion. The trial court ruled that the plaintiff’s wage and hour claims were based on statute, the California Labor Code, and therefore were not arbitrable, and that the defendants waived arbitration.
In cases where plaintiffs alleged that they were misclassified as independent contractors and denied unpaid wages and other obligations owed to employees, California courts have held that Labor Code claims are based on statutory rights, not a contract between the parties. Courts have held that Labor Code claims are not subject an arbitration agreement because the claims do not “arise out of or relate to” the parties’ services contract. (See Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1206-1208, and Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 23-24.)
However, an exception to California’s rule against arbitration of statutory wage claims exists when the arbitration agreement is governed by the Federal Arbitration Act (“FAA”). The FAA preempts any contrary state rule restricting arbitration. EBG appealed the trial court’s ruling and successfully persuaded the Court of Appeal that the FAA applied to the plaintiff’s claims. Unlike the defendants in Hoover and Elijahjuan, Rideshare presented ample evidence that the parties’ contract affected interstate commerce, resulting in the FAA’s preemption of any contrary California rule preventing arbitration, and that the plaintiff’s claims did, in fact, arise out of or relate to in the parties’ services contract. EBG also successfully persuaded the Appellate Court that the defendants did not waive arbitration. On May 1, 2015, the Court of Appeal reversed the trial court’s ruling in full, and on June 9, 2015, the Court of Appeal granted EBG’s request to publish its Opinion.
This victory is important in upholding the defendants’ right to contractual arbitration. In addition, this published Opinion provides favorable precedent for alleged employers defending against wage and hour claims by independent contractors and provides guidance on drafting arbitration agreements with independent contractors.
The EBG team representing Prime Time and Rideshare included David Jacobs, William O. Stein, and Rhea G. Mariano.
Epstein Becker Green Is Victorious in Persuading a Federal Court to Dismiss a Class and Collective Action Alleging Worker Misclassification
On September 16, 2014, Judge Jesse Furman of the U.S. District Court for the Southern District of New York handed down a major victory for Epstein Becker Green and its client Corporate Transportation Group in the case Saleem and Singh v. Corporate Transportation Group, a class and collective action brought two years ago under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL), alleging that defendants, black car companies in New York City, had for years misclassified approximately 1,500 drivers as independent contractors. Plaintiffs sought reclassification as employees and seven-figure amounts of damages in this “bet the company” case.
Epstein Becker Green defeated plaintiffs’ motion for class certification in November 2013 and, in January and February 2014, filed a motion for summary judgment on behalf of defendants and opposed a competing motion for summary judgment brought by plaintiffs. On September 16, 2014, Judge Furman concluded that plaintiffs were properly classified as independent contractors rather than employees for the purposes of both the FLSA and the NYLL.
Member of the Firm Evan J. Spelfogel and Associate Margaret C. Thering led the Epstein Becker Green team, along with Associate Dustin E. Stark.
Epstein Becker Green Persuades California Court to Deny Class Certification Against Insurance Client
On March 24, 2014, after five years of litigation, Epstein Becker Green succeeded in defeating a motion for class certification in a significant class action lawsuit brought against our client Farmers Group, Inc., an insurance company, in Los Angeles Superior Court. In the case, the plaintiffs alleged that the persons who work for vendors performing property inspections for Farmers Group were wrongly classified as independent contractors, that Farmers Group was their "joint employer," and that they were entitled to overtime pay, minimum wages, reimbursement for business expenses, and a variety of penalties on a class-wide basis. Epstein Becker Green convinced the court that there were individualized issues that prevented class-wide determinations of whether the individuals had been misclassified as independent contractors, whether Farmers Group was their "joint employer," and whether Farmers Group could be held liable on any of the substantive claims. EBG also succeeded in convincing the court that the plaintiffs had not established the critical "superiority" element for class treatment.
The Epstein Becker Green team that represented Farmers Group included Michael S. Kun, Aaron F. Olsen, Lisa M. Watanabe, and Amy B. Messigian.
Epstein Becker Green Obtains Dismissal of Wage and Hour Class Action Brought Against Health Care Client
In March 2014, Epstein Becker Green obtained a significant victory in a wage and hour class action brought against a health care client in California. Although our client was confronted with potential exposure in the millions of dollars, the case was resolved without any payment by our client. Epstein Becker Green obtained this result by first filing motions to dismiss and to strike portions of the Complaint. Those motions were granted in part, essentially cutting the case in half (the court dismissed the class claims, subject to plaintiff's right to attempt to amend the Complaint). When the plaintiff's attorneys chose not to try to amend the Complaint during the time permitted, Epstein Becker Green was able to convince the plaintiffs to dismiss the rest of the case based on documentation showing that the remaining claims were meritless.
The Epstein Becker Green team representing our client included Adam C. Abrahms, Michael S. Kun, and Deanna L. Ballesteros.
Epstein Becker Green Persuades Federal Court in California to Deny Certification of Wage and Hour Claims Against Technology Client
Epstein Becker Green has achieved a major victory in a wage and hour collective/class action in a federal court in California. In this case, the plaintiffs filed a collective and class action alleging violations of the Fair Labor Standards Act ("FLSA") and the California Labor Code against one of our clients, a global technology company. The named plaintiffs are former information technology employees who alleged that their job duties consisted primarily of providing computer support, trouble shooting, testing related to repairs and problem-solving, and technical services. The plaintiffs claimed that they were improperly classified as exempt, worked in excess of 40 hours per week without overtime pay, and were not provided with required meal and rest breaks. Previously, the judge had conditionally certified an FLSA class. Ruling on the parties' respective motions in September 2013, the court denied the plaintiffs' motion to certify a Rule 23 class action under California law, and it granted our client's motion to decertify the conditionally certified FLSA class.
Interestingly, the law firm that represented the plaintiffs in this case represented a similar group of employees in a prior class action brought against a prior owner, and settled that case for approximately $16 million. The Epstein Becker Green team, which was led by Michael S. Kun and included Aaron F. Olsen and Lisa M. Watanabe, crafted and executed a creative strategy that led to a very different result for our client.
Epstein Becker Green Wins Dismissal of Leave and Wage Claims Against Senior Living Center
On July 31, 2012, Epstein Becker Green, on behalf of a senior living center, succeeded in obtaining a dismissal of a claim of retaliation under the District of Columbia Family and Medical Leave Act ("DCFMLA") and summary judgment on a claim under the D.C. Wage Payment Collection Law ("DCWPCL") brought in the District of Columbia Superior Court by the plaintiff, a former employee of the center. See Tisdale v. 1330 OPCO LLC, d/b/a Residences at Thomas Circle, No. 2011 CA 009761 B (D.C. Superior Court, July 31, 2012).
In an 18-page decision, Judge Natalia M. Combs Greene made several significant findings:
- On a matter of first impression under the DCFMLA, the Court held that an employee who has not yet met the minimum eligibility requirements for DCFMLA leave has no rights under the statute. Accordingly, the plaintiff, who requested DCFMLA leave that would have begun before she met the minimum eligibility requirements, did not engage in protected activity and could not state a claim for retaliation under the DCFMLA. The Court adopted the analysis of this question under the similar provisions of the federal FMLA by the U.S. Court of Appeals for the Sixth and Eleventh Circuits.
- The Court also found that the plaintiff could not state a claim for equitable estoppel because, even if the senior living center failed to provide timely notice that she was ineligible pursuant to D.C. regulations, she had conceded that she was ineligible and did not allege that she took any action in reliance on the center's silence.
- Finally, on another matter of first impression, the Court held that a handbook provision stating that involuntarily terminated employees were not entitled to be paid for unused accrued paid time off ("PTO") hours, to which the plaintiff was deemed to have agreed, did not violate a provision of the DCWPCL that prohibits modification of its provisions by private agreement. In so doing, the Court held that as an employer is not required to offer paid leave, it is free to set limitations on payment for such leave. Such a limitation does not violate the DCWPCL's provisions governing when wages are due but merely establishes what wages will be due on termination.
The Epstein Becker Green attorneys representing the senior living center included Frank C. Morris, Jr., and Brian Steinbach of the Washington, D.C., office.
Epstein Becker Green Wins Dismissal of Service Personnel’s Tip Pool Claims Against Restaurant
Epstein Becker Green obtained summary judgment, on behalf of a restaurant client ("Restaurant"), from Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia. See Arencibia v. 2401 Restaurant Corporation d/b/a Marcel's Restaurant, No 1:09-cv-00165-CKK-DAR (D.D.C. Dec. 21, 2011). The plaintiffs, several service personnel, had brought a multifaceted challenge under both the FLSA and District of Columbia law to the method by which the Restaurant operated a tip pool.
In a 31-page decision, Judge Kollar-Kotelly made several significant findings:
- The maître d' was not a manager and, therefore, properly participated in the tip pool; what controlled was his actual authority, not what the employees may have perceived his authority to be. Accordingly, the Court found that two possible instances where the maître d' allegedly terminated or disciplined an employee were irrelevant.
- The fact that a director of sales received a commission from part of a service charge, the rest of which went to a tip pool, did not make her a participant in the tip pool. Alternatively, the Court found that she had sufficient interaction with customers in arranging and planning private parties to be included in the tip pool, even though she did not serve food or perform hosting duties.
- Allegations of improper notice of, and arbitrary modifications to, the operation of the tip pool were rejected by the Court. By doing so, the Court, in what appears to be a matter of first impression, held that the Department of Labor's tip pool regulations do not require any particular percentage method, or preclude adjustments based on good performance or customer-directed tips. Therefore, it was sufficient that the restaurant simply notified the employees that all their non-cash tips went into the tip pool and did not retain any of the tips for any other purpose. Neither federal nor District of Columbia law required disclosure of the formula underlying the dispersal of tips in the pool.
- A claim that one of the plaintiffs was terminated for making complaints about the operation of the tip pool was rejected by the Court. In so doing, the Court held that a request for a meal break or on premises meal did not raise a compensation issue protected under the FLSA.
The Epstein Becker Green team representing the Restaurant included Frank C. Morris, Jr.; Brian Steinbach; and Kathleen M. Williams of the Washington, D.C., office.
Epstein Becker Green Wins Dismissal of Servers’ Wage and Tip Claims Against Restaurant
On January 14, 2011, Epstein Becker Green helped one of its restaurant clients, the Brasserie Ruhlmann, obtain summary judgment "in its entirety" in a lawsuit brought by former waiters, bussers, and runners ("Plaintiffs"). Similar to many such wage and hour cases currently being litigated in the hospitality industry, Plaintiffs sought to invalidate the restaurant's tip pool with assertions that captains and the banquet coordinator performed managerial functions and, thus, were not "tip eligible." If Plaintiffs had succeeded, they would have also invalidated the restaurant's "tip credit" system of compensating service employees, potentially resulting in significant minimum wage and overtime liability. Plaintiffs made further claims for tips during their initial training period, alleged "spread of hours" violations, and alleged uniform maintenance violations.
In a sweeping 17-page Memorandum Opinion and Order, Judge Swain of the U.S. District Court, Southern District of New York, found, among other things, that "captains and banquet coordinators had regular interactions with customers in connection with core restaurant functions." Accordingly, the Court held that the restaurant had properly treated the plaintiffs as tip eligible. After careful scrutiny, the restaurant's wage and hour practices were completely vindicated by the Court. Garcia v. La Revise Assocs. LLC, 08 cv 9356 (SDNY 2011).
Epstein Becker Green developed a strategy to elicit admissions from the Plaintiffs in discovery that, together with declarations and selected documents, provided the basis for Judge Swain's decision. This case resulted in a total victory for the restaurant and is the first reported decision to hold that the position of banquet coordinator was tip eligible.
This win was achieved by Epstein Becker Green's Labor and Employment Hospitality and Wage and Hour practice groups and, particularly, attorneys Douglas Weiner and Dean L. Silverberg.
Epstein Becker Green Persuades California Court to Deny Certification of Misclassification, Meal Period, and Rest Period Claims Against Restaurant Client
After more than five years of litigation, a Los Angeles Superior Court has denied a motion for certification of a class action against Epstein Becker Green client Joe's Crab Shack Restaurants on claims that its managers were misclassified as exempt and denied meal and rest periods in violation of California law. The Epstein Becker Green team, which was led by Michael S. Kun, argued on behalf of the defendant that the plaintiffs' claims could not be certified for class treatment because, among other things, individualized inquiries would need to be conducted because managers' experiences differ from restaurant to restaurant, position to position, and day to day.
In denying the plaintiffs' class certification motion, Judge Charles Palmer found that the plaintiffs had not established adequacy of class representatives, typicality, commonality, or superiority. In addition, Judge Palmer noted that handling this case as a class action would require every individual member to prove whether or not he or she spent more than half his or her time on exempt managerial tasks, which would be time-consuming and burdensome for the court. This ruling also emphasized a defendant's due process right to provide individualized defenses to class members' claims.
Beating Class Certification in Wage and Hour Case
Wage and hour class actions continue to be filed against employers in great numbers, with the potential exposure in those cases often enormous. A company’s first and often best opportunity to successfully defend a class action is to defeat certification of the proposed class.
Through thoughtful and comprehensive pre-certification discovery and investigation, along with the development of inventive, case-specific strategies, Epstein Becker Green has successfully opposed class certification for many clients. For example, in November 2018, we defeated certification in a wage and hour class action brought in California against an ambulance industry client. Following a 2016 California Supreme Court decision that held that security guards did not receive compliant rest periods where they had to carry communications devices with them during rest periods, two emergency medical technicians (“EMTs”) working for our client’s subsidiary filed a putative class action alleging that they and approximately 3,300 other California EMTs and paramedics have never received compliant rest periods for the same reason.
In response to the plaintiffs’ motion for class certification, Epstein Becker Green developed creative arguments against certification. A California superior court agreed with our arguments and denied class certification. Accordingly, unless the court’s decision is overturned on appeal, rather than a lengthy trial involving thousands of employees and substantial potential exposure, our client will be trying a two-plaintiff case with limited potential recovery.
Shaping the Law Through Litigation and Government Relations
Epstein Becker Green’s capability to shape the law through litigation as well as government relations has proven to be of great benefit to our clients. For instance, we recently achieved a major win for the National Restaurant Association and several state restaurant and hospitality associations in a litigation matter involving U.S. Department of Labor (DOL) sub-regulatory guidance known as the “80/20 rule.”
The 80/20 rule prohibits employers from paying a tipped minimum wage to workers whose untipped side work—such as wiping tables—accounted for more than 20 percent of their time. In recent years, class actions against restaurants have flooded courts across the nation, all contending that the restaurants owe the tipped employees extra money because of the 80/20 rule.
In July 2018, Epstein Becker Green, on behalf of the Restaurant Law Center (the litigation arm of the National Restaurant Association), filed a declaratory judgment action against the DOL in a federal court in Texas challenging the validity of the 80/20 rule under the Fair Labor Standards Act (FLSA), the Administrative Procedure Act, and the U.S. Constitution. In the midst of our federal court challenge, on November 8, 2018, the DOL issued an opinion letter reversing its position, withdrawing the sub-regulatory guidance at issue in the lawsuit, and clarifying that employers may use the tip credit provisions of the FLSA without being subject to the onerous requirements that the DOL had imposed in recent years. This policy reversal undermined or effectively ended many FLSA lawsuits that the National Restaurant Association and other restaurant industry clients collectively faced across the country.
Epstein Becker Green attorney Paul DeCamp played a leading role in the litigation opposing the 80/20 rule and worked behind the scenes with the DOL to obtain the policy reversal.