How To Decertify an FLSA Collective Action

The recent decision in Mathis et al. v. Darden Restaurants et al. provides a good illustration of how to decertify a collective action under the Fair Labor Standards Act (FLSA). 2014 WL 4428171 (S.D.N.Y. Sep. 1, 2014).

In Mathis, servers and bartenders at various restaurants operated by Darden (including Olive Garden, Red Lobster, Bahama Breeze, Longhorn Steakhouse, and Seasons 52) alleged that: (i) they were required to perform off-the-clock work without pay; and (ii) that the Defendants impermissibly imposed a “tip credit” for certain work hours. In July of 2013, the court conditionally certified the collective action. Out of a potential 218,000 class members, more than 20,000 plaintiffs opted-in to the litigation.

On September 1, 2014, the court granted the Defendants’ motion to decertify the collective action on the grounds that the 20,000+ plaintiffs were not similarly situated. In analyzing the motion, the court focused on the following three factors: (1) disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendants that appear to be individual to each plaintiff; and (3) fairness and procedural considerations. Here’s what the court had to say about the three factors:

Disparate Factual and Employment Settings of Individual Plaintiffs: The court held that the plaintiffs’ disparate factual and employment settings supported decertification. The putative class consisted of both servers and bartenders who worked at 1,995 restaurants across 50 states. The court found that “[t]he relevant policies and practices as to off-the-clock work and wages differ by job title, state, [restaurant brand], specific restaurant, and manager.”

Defenses Available That Are Individual To Each Plaintiff: The court held that individualized defenses supported decertification. The court explained that the Defendants had defenses including that specific class members: (i) did not work off-the-clock; (ii) received managerial instructions that were outside the scope of authority and directly contrary to well-established policy and practice; (iii) voluntarily engaged in off-the-clock work in defiance of Defendants’ official policies; and/or (iv) unreasonably failed to avail themselves of curative steps provided by the employer to recover unpaid compensation. Each of these defenses required individualized consideration with respect to the plaintiff class members.

Fairness and Procedural Considerations: The court held that fairness and procedural considerations also supported decertification, concluding that “collective adjudication would not be fair or manageable.” The court explained that “[t]he circumstances at the thousands of different restaurants and the experiences of the tens of thousands of Opt–In Plaintiffs are too dissimilar to justify a collective action” and presented substantial manageability concerns.

Because all three factors supported decertification, the Mathis court granted the defendants’ motion and decertified the collective action. As a result, the 20,000+ opt-in plaintiffs cannot proceed as a collective action under the FLSA.

Takeaway: When an FLSA collective action gets too big or tries to focus on too many different circumstances, an employer may have a strong argument that decertification is appropriate.

When Are Non-Compete Agreements Enforceable In Minnesota?

Non-compete agreements are enforceable in Minnesota when the restrictions are reasonably necessary to protect the employer’s legitimate interests, such as the company’s goodwill, trade secrets, or confidential information.

Whether the restrictions in a non-compete agreement are reasonable depends on the nature and extent of the business, the nature and extent of the service of the employee, and other pertinent conditions. Two factors that courts often focus on when determining reasonableness are: (1) geographic scope; and (2) duration.

Geographic Scope: Whether the geographic scope of a non-compete is reasonable depends on what is necessary to protect the employer from unfair competition. For example, if an employee makes sales statewide, a statewide non-compete may be reasonable. Alternatively, a worldwide non-compete may be reasonable if the employer operates globally and the employee has access to confidential information that could be used to compete anywhere. See, e.g., Medtronic, Inc. v. Hughes, 2011 WL 134973 (Minn. Ct. App. 2011) (enforcing worldwide, product-specific non-compete).

Duration: Whether the duration of a non-compete is reasonable also depends on what is necessary to protect the employer from unfair competition. Factors that courts may consider in making this determination include: (1) the length of time necessary to obliterate the identification between the employer and employee in the minds of the employer’s customers; or (2) the length of time necessary for an employee’s replacement to obtain licenses and learn the fundamentals of the business. For employees, one-year non-competes are often enforced, but two-year non-competes may also be reasonable, depending on the circumstances. See, e.g., Medtronic, Inc. v. Advanced Bionics Corp., 630 N.W.2d 438 (Minn. Ct. App. 2001) (upholding enforcement of two-year non-compete).  Longer non-competes may be enforceable in the context of the sale of a business.

Takeaway: Non-competes will generally be easier to enforce when tailored to protect the employer’s legitimate interests with respect to both geography and duration.

Does Telling Fat Jokes and Farting At Co-Workers Constitute Sexual Harassment?

Not unless it’s based on gender – a court recently rejected a plaintiff’s sexual harassment claim because there was no evidence that the alleged harasser’s fat jokes and other inappropriate behaviors were based on gender.

In Carboni v. Fort Wayne Community School Corp., the plaintiff was a teacher who alleged that her mentor, a middle school principal, subjected her to unlawful sexual harassment under Title VII of the Civil Rights Act by acting like a middle school student, not a principal. Civ. No. 1:12-CV-167 (N.D. Ind., Sep. 15, 2014). The plaintiff alleged that the principal made jokes about people, particularly women, being fat. She alleged that he would “would approach a coworker, yell ‘spider,’ raise his leg, and pass gas directly at the coworker.” She also alleged that he frequently used the F-word in the presence of co-workers. Despite this objectionable behavior, the principal gave the plaintiff a positive review.

In rejecting the plaintiff’s claim, the court explained that “many of the complaints about [the principal’s] behavior lack any sexual or gender component, character, or overtones, and the Plaintiff makes no attempt to explain how these actions were directed at her because of her gender.” Much of the conduct was directed at both male and female employees, and frequently was not directed at the plaintiff at all.

The only potential gender component of the plaintiff’s claim was the principle’s telling of fat jokes, which the plaintiff characterized as “fat woman jokes.” But the court found that “[i]f anything, his misconduct was focused on weight, not gender.” Because the plaintiff did not produce sufficient evidence that the principal’s misconduct was based on gender, the court granted the employer’s motion for summary judgment and dismissed the plaintiff’s sexual harassment claim.

Takeaway: Anti-discrimination laws do not totally prohibit people from acting in an immature or crass manner. It is generally lawful for co-workers and supervisors to act like jerks – or middle school students, for that matter – provided that the conduct is not based on a protected category, like gender, race, or religion. Even then, the conduct must be sufficiently severe so that “that discriminatory intimidation, ridicule, and insult permeated the workplace” in order to be actionable.

Are Your Employees Mentally Ill?

Statistically speaking, at least some of your employees are likely affected by mental health problems. According to the National Alliance on Mental Illness (NAMI), one in four U.S. adults (approximately 61.5 million Americans) experiences a mental illness in a given year, and one in seventeen U.S. adults (approximately 13.6 million Americans) live with a “serious mental illness,” such as schizophrenia, major depression, or bipolar disorder.

NAMI estimates that the rates for the most common mental illnesses in the U.S. are:

  • 42 million adult Americans (18.1% of the population) live with anxiety disorders, such as panic disorder, obsessive-compulsive disorder (OCD), posttraumatic stress disorder (PTSD), or generalized anxiety disorders or phobias.
  • 8 million adult Americans (6.7% of the population) live with major depression.
  • 1 million adult Americans (2.6% of the population) live with bipolar disorder.
  • 4 million adult Americans (1.1% of the population) live with schizophrenia.

See NAMI Mental Illness Facts and Numbers (March 2013).

The high prevalence of mental health problems makes it imperative that employers understand what legal rules may apply to employees with mental health issues. Many mental illnesses may qualify as a disability and potentially require reasonable accommodation under the Americans with Disabilities Act, provided that certain conditions are satisfied. Alternatively, employees with mental illnesses may be entitled to leave under the Family and Medical Leave Act – however, that is not always the case.

Takeaway: Given the statistics, employers should expect that mental health issues will affect at least some portion of their workforce and make sure to understand any legal requirements that may be implicated. For large employers, in particular, Employee Assistance Programs (EAPs) can be an effective way of providing employees with an option to seek help if they need it.

How To Protect An Employer’s Intellectual Property

There are a variety of options that employers can use to protect against employee misuse of their intellectual property.  Some of them automatically apply to employees as a matter of law, but others need to be negotiated as a matter of contract.  In addition to the protections available under patent and trademark law, here are some of the options available to employers to prevent employee misuse of intellectual property:

  • Trade Secret Law: Trade secret law protects information that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.  Although employees do not need to be expressly informed that information is a trade secret for the law to apply, it is best to identify information as confidential either by marking documents as confidential, using a confidentiality policy or agreement or otherwise.
  • Duty of Loyalty: The duty of loyalty is a common law rule that prohibits employees from gaining a personal benefit at their employer’s expense.  Duty of loyalty claims typically arise when an employee solicits an employer’s customers for him or herself or for a competitor or otherwise competes against the employer while still employed – for example, by misusing an employer’s confidential intellectual property.
  • Non-Compete Agreements: Non-compete agreements prohibit an employee from competing against an employer for a period of time after termination of employment.  If the employee gains access to the employer’s confidential data, this can help prevent disclosure of the data to a competitor while the information is still fresh in his or her mind.  Non-compete laws vary from state-to-state, so it is important to make sure non-compete agreements comply with all applicable requirements.
  • Confidentiality Policies and Agreements: Confidentiality provisions in employment policies or handbooks help inform employees about what kinds of information needs to kept confidential.  They are most effective when they are tailored to the particular nature of the employer’s business.  In the event of a violation, the provision can be used to either support a trade secret misappropriation claim or a breach of contract claim.  However, employers need to be careful not to make confidentiality policies too broad – for example, by trying to prohibit employees from disclosing their wages.
  • Assignment of Invention Policies or Agreements: Assignment of invention provisions in employment policies or agreements require employees to assign ownership in any inventions they develop while working for the employer to the employer.  This will prevent an employee from later claiming ownership in work product prepared for the employer.
  • Work-For-Hire Policies or Agreements: Under federal copyright law, “works made for hire” are presumptively owned by the person or company for whom the work was prepared.  17 U.S.C. § 201.  This means that an employer presumptively owns any work prepared by an employee that is subject to U.S. copyright laws.  Although this is a legal presumption, it can be helpful to have explicit policies or agreements on this subject for employees who focus their efforts on creating copyrightable materials.

Takeaway:  There a variety of methods that employers can use to protect their intellectual property.  What methods work best for an employer will vary depending on the nature of the employer’s business and workforce.

Are Entry-Level Accountants Exempt Under the FLSA?

The Second Circuit Court of Appeals recently held that entry-level accountants were exempt learned professionals under the Fair Labor Standards Act (FLSA).

In Pippins v. KPMG, LLP, the plaintiffs were entry-level “audit associates” who alleged that they should have been paid overtime under the FLSA. Case No. 13-889-cv (2d Cir., July 22, 2014). The plaintiffs were: (i) the most junior members of the accounting firm’s client engagement teams; (ii) performed the lowest-level audit tasks; (iii) received instruction and supervision from more senior members of the teams; and (iv) their contributions to audit reports were reviewed and processed by more senior members of the audit team before being assimilated into final audit reports. The plaintiffs argued that the work they performed was similar to work performed by accounting clerks or bookkeepers who are generally not exempt learned professionals under the FLSA. See 29 C.F.R. § 541.301(e)(5).

The court held that although the work performed by the plaintiffs was relatively low-level for the accountants at the firm, it was “predominantly intellectual” in character and required the “consistent exercise of discretion and judgment” necessary for the learned professional exemption. The court explained that “what matters is whether they exercise intellectual judgment within the domain of their particular expertise” and that “workers may be found to exercise professional judgment even when their discretion in performing their core duties is constrained by formal guidelines, or when ultimate judgment is deferred to higher authorities.”

In light of these standards, the court explained that the central issue in the case was “whether the undisputed facts demonstrate that Audit Associates practice professional skepticism, in the sense of the judgment characteristic of accountants.” The court answered this question affirmatively, explaining that the plaintiffs’ work duties met this standard because the plaintiffs’ audit duties involved regularly “testing controls, performing inventory reviews, and ultimately replicating the audit process in each work paper.”

The court also found that the plaintiffs were required to employ advanced knowledge “customarily acquired by a prolonged course of specialized intellectual instruction” because they were required to hold accounting degrees and be eligible or nearly eligible for the Certified Public Accountant examination. As a result, the plaintiffs were exempt learned professionals under the FLSA and were not entitled to overtime.

Takeaway: Entry-level accountants who perform the lowest level audit work in an accounting firm may qualify for the learned professional exemption under the FLSA.

How To Fire An Employee

Here are ten quick tips for how to fire an employee:

  1. Pay the employee his or her final wages within the time period required by Minnesota law.
  2. Determine whether the employee needs to be paid for unused vacation or PTO under Minnesota law.
  3. Be prepared to provide notice of the reason for the termination or a copy of the employee’s personnel file if timely requested by the employee.
  4. If the employee is a member of a union, make sure there is just cause for the termination.
  5. If the employee is terminated for misconduct, follow these four tips for explaining the decision to the employee and documenting the termination.
  6. Avoid making inconsistent statements when explaining the reason for the termination.
  7. Follow these six tips if you need to ask the employee to leave the workplace immediately.
  8. If you’re terminating an employee for testing positive on a drug test, make sure to follow the requirements of the Minnesota Drug and Alcohol Testing statute.
  9. Understand whether the employee will be ineligible for unemployment benefits due to employment misconduct and, if not, how that will impact your unemployment taxes.
  10. If you ask the employee to sign a release in exchange for a severance payment, include the 15-day rescission period required by the Minnesota Human Rights Act.

Keep the Wraps on Social Security Numbers

Employers, particularly larger ones, may have difficulty keeping its records straight for employees with more common names.  Even middle initials may not help sufficiently.  When considering a unique identifier, a company might consider using the employee’s Social Security number.

Minnesota employers considering that option should first consider the limitations on their use or disclosure of social security numbers.  Minnesota law provides that an employer may not:  (i) intentionally post or display publicly in any manner an individual’s Social Security number; (ii) print an individual’s Social Security number on any card required for access to products or services; (iii) require an individual to transmit a Social Security number over the Internet (unless the number is securely encrypted); (iv) generally require a person to use their Social Security number to access an Internet website; (v) print a number that the employer knows to be an individual’s Social Security number on any materials that are mailed to the person (unless required by state or federal law); (vi) assign or use a number as the primary account identifier that is identical to or incorporates an individual’s complete Social Security number (except in conjunction with an employee retirement or benefit plan or human resource or payroll administration); or (vii) sell Social Security numbers.  Minn. Stat. § 325E.59, subd. 1.

While Social Security numbers may be included in certain applications and forms sent by mail, including the Social Security number on the outside of a mailing is prohibited.  In addition, an employer must restrict access to Social Security numbers so that only its employees, agents or contractors who require access to records containing the numbers in order to perform their jobs will have access to the numbers.  Minn. Stat. § 325E.59, subd. 1.  On the other hand, use of Social Security numbers for internal verification or administrative purposes is permissible, as well as use required by state or federal law.  Minn. Stat. § 325E.59, subd. 2.

Takeaway:  Minnesota employers should carefully guard the confidentiality of employees’ Social Security numbers and be mindful of the specific restrictions imposed by Minnesota law.

Accommodating Employee Religious Practices: A Nuanced Matter

With Hobby Lobby and other prominent cases making religion and the workplace part of the current public discourse, many employment lawyers expect a heightened interested on employees’ and applicants’ parts in claims of religious discrimination in the workplace.  As that occurs, employers need to bear in mind some essential legal facts and an important nuance.

Both the federal Civil Rights Act Title VII and the Minnesota Human Rights Act (MHRA) prohibit employment discrimination based on an employee’s religious beliefs and practices.   An employer cannot compel religious practices and under certain circumstances cannot prohibit them.  The protections are not limited to the doctrines of organized religions but can include personal spiritual beliefs and atheistic convictions.  In essence, the statutes and interpretive case law require employers to permit employees to practice their religious faith during the work day if such practices do not interfere with job requirements or the rights and job performance of co-workers.  Designated prayer areas, permitted workspace decorations and dress code variances can all come under the rubric of such accommodations.  There can often be some touchy situations requiring careful legal review and guidance.

However, unlike the reasonable accommodation requirements of the Americans with Disabilities Act, the accommodation of employee religious practices are required only so long as the accommodation does not cause more than a “minimal burden” on the operations of the employer’s business.  That is, the EEOC’s general standard for determining undue hardship is whether accommodation of the employee’s religious practices causes the employer to incur greater than minimal costs – which has been defined by the EEOC as “more than ordinary administrative costs.”  For example, an employee’s desire to observe religious days may not require disrupting the employer’s standard shifts and workplace operations when accommodation of a disability may so require.  The courts and the EEOC also recognize particular latitude in the employer’s response by way of offered accommodation and require that the employee clearly articulate his or her religious beliefs and requested accommodation since religious affliction is not necessarily self-evident, such as membership in other protected categories.

Takeaway:  For religious accommodation requests and discrimination claims, employers have certain protections and the law has certain nuances that can differentiate the situation from other types of discrimination problems.  With a societal focus on religious rights and the workplace, employers and counsel need to carefully bear this difference in mind.

Employee Assistance Records – Don’t Peek

Occasionally employees will experience difficult times in their personal or work life.  Many employers have available an employee assistance program to which struggling employees may be referred.  While the employer may be curious as to the details of any such counseling meetings, Minnesota law protects the confidentiality of those records.

In general, no portion of employee assistance records, or participation in employee assistance services, may be disclosed to a third person, including the employer or its representative, without the prior written consent of the person receiving services or the person’s legal representative.  Certain disclosures may be made without the employee’s consent.  The law does not prohibit disclosure: (i) pursuant to state or federal law or judicial order; (ii) required in the normal course of providing the requested services; or (iii) if necessary to prevent physical harm or the commission of a crime.  Minn. Stat. § 181.980, subd. 5.

To further protect the confidentiality of the employee assistance records, to the extent an employer does possess any such records, they must be maintained separate from personnel records and must not become part of the personnel file.  Minn. Stat. § 181.980, subd. 3.

An employee may similarly be curious about their own records.  Upon a written request, an employee receiving services may review and obtain a copy of their employee assistance records.  Employee assistance records do not include:  (i) written or recorded comments or data of a personal nature about a person other than the employee, if disclosure of the information would constitute an intrusion upon that person’s privacy; (ii) written or recorded comments or data kept by the employee’s supervisor or an executive, administrative, or professional employee, provided the written comments or data are kept in the sole possession of the author of the record; (iii) information that is not discoverable in a worker’s compensation, grievance arbitration, administrative, judicial, or quasi-judicial proceeding; or (iv) any portion of a written, recorded, or transcribed statement by a third party about the employee that discloses the identity of the third party by name, inference, or otherwise.  Minn. Stat. § 181.980, subd. 1.  The employee assistance provider must comply within seven working days (14 days if the records are located outside the State of Minnesota).  Minn. Stat. § 181.980, subd. 2.

Takeaway:  Employers should be careful to not interfere with the confidentiality of the employee assistance program.  If an employer is invited by the employee to have access to the records of those sessions, the company should confirm that consent in writing.

Is Continued Employment Sufficient Consideration For An Arbitration Agreement?

Yes – in Minnesota, continued employment is sufficient consideration to support a mandatory arbitration agreement between an employer and employee.

The general rule in Minnesota is that when a change in the employment relationship is proposed to an employee, the employee’s retention of employment constitutes acceptance of the offer.  By continuing to stay on the job, although free to leave, the employee supplies the necessary consideration for the offer.  Courts in Minnesota have held that this rule applies to agreements to arbitrate.  See Lang v. Burlington Northern Railroad Co., 835 F. Supp. 1104 (D. Minn. 1993); see also Chiafos v. Restaurant Depot, LLC, 2009 WL 2778077 (D. Minn. 2009).

The one exception to this rule is for restrictive covenants, like non-compete agreements.  Under Minnesota law, continued employment alone is not sufficient consideration for a non-compete agreement.  Instead, a non-compete agreement must either be signed at the beginning of the employment relationship, as a condition of employment, or it must be supported by independent, bargained-for consideration.  See Nott Company v. Eberhardt, Nos. A13-1061, A13-1390 (Minn. Ct. App., June 4, 2014).  But this rule does not apply to arbitration agreements.

Takeaway:  Under Minnesota law, continued employment is sufficient consideration for an arbitration agreement.  It’s important to note, however, that courts in some other states disagree on this point.  Multi-state employers need to check the law of each state in which they do business to ensure their arbitration agreements are enforceable.

TGFR: Thank Goodness For Removal

The Minnesota Supreme Court’s recent rejection of federal pleading standards reaffirms the value that federal removal has for employers.  Here’s what employers need to know about federal removal:

When Is Removal Allowed?  Under federal law, any civil action filed in a state court may be removed to federal district court provided that the federal court has “original jurisdiction” over the matter.  28 U.S.C. § 1441(a).  The federal court’s original jurisdiction may be based either on diversity jurisdiction or federal question jurisdiction.

What Is Diversity Jurisdiction?  Diversity jurisdiction exists when the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and the matter is between citizens of different states.  28 U.S.C. § 1332.  For removal, however, there must be “complete diversity” – this means that removal cannot be based on diversity jurisdiction if any one of the properly joined defendants is a citizen in the state in which the action was brought.  28 U.S.C. 1441(b)(2).  Sometimes plaintiffs try to defeat diversity jurisdiction by improperly naming a defendant who is a citizen of the state – this is known as fraudulent joinder and can be challenged by motion.

What Is Federal Question Jurisdiction?  Federal question jurisdiction exists for “all civil actions arising under the Constitution, laws, or treaties of the United States.”  28 U.S.C. § 1331.  In other words, if the claim alleges a violation of a federal law or constitutional provision, the action can be brought in or removed to federal court.

What Is The Process for Removal?  In general, a state court civil action must be removed to federal court within 30 days after the defendant is served with the lawsuit.  All defendants must consent to the removal.  To accomplish the removal, the defendants must file a “notice of removal” in the federal court as well as a “notice of filing of notice of removal” in the state court.  28 U.S.C. § 1446.  If the plaintiff believes that removal is improper, he or she may challenge the removal with a motion for remand to the state court.

Takeaway:  Federal removal is an important tool for employers because many employment law claims involve either diversity jurisdiction or federal jurisdiction.

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