On January 25, 2012, U.S. District Judge Paul Crotty issued a preliminary approval of a $99 million settlement agreement between Novartis Pharmaceuticals Corp. and a class of more than 7,000 pharmaceutical sales representatives who allege that the company misclassified them as exempt from overtime pay.

Final approval of the settlement deal awaits the U.S. Supreme Court’s determination of the overtime status of the drug sales representatives involved in another suit.  Final approval of the settlement would resolve the wage-and-hour claims that the sales representatives initially brought in 2006, in addition to later claims pertaining to a more recent period.  The final approval hearing is slated to take place on May 31, 2012.

Pharmaceutical companies have often classified drug sales representatives as being exempt from the overtime protections of the Fair Labor Standards Act (FLSA); however, in recent years many FLSA cases have challenged this policy.

In the present case, In Re: Novartis Wage and Hour Litigation, the U.S. Court of Appeals for the Second Circuit held in July 2010 that the Novartis sales representatives were entitled to receive overtime pay.  The Court relied on an amicus brief filed by the Department of Labor (DOL) that urged the Court to interpret FLSA regulations in a manner that would find sales representatives not exempt from overtime protection.

Last February the Ninth Circuit ruled in a similar class action lawsuit against GlaxoSmithKline that sales representatives are considered ‘outside sales employees’ under FLSA and are therefore exempt from overtime benefits.

The Supreme Court denied Novartis’ petition for certiorari but agreed to review the GlaxoSmithKline decision. The Supreme Court’s decision on whether drug sales representatives are covered by federal overtime protections is expected later this year.

The Employment Law Group® law firm has an extensive nationwide wage and hour practice representing employees whose rights under the Fair Labor Standards Act (FLSA) have been violated.

Last week, health supplement retailer Vitamin Shoppe Industries Inc. (“Vitamin Shoppe”) settled the final portion of a class action lawsuit which had alleged that the company mislabeled many of its store clerks as managers in an attempt to avoid paying them overtime wages.

The settlement involves an agreement between Vitamin Shoppe and the suit’s lead plaintiff, Julio Vasquez, who alleged that the company violated the Fair Labor Standards Act (FLSA) by giving him the title of store manager in order to avoid paying him and others overtime pay.

Vasquez brought suit in the U.S. District Court for the Southern District of New York in November 2010 and claimed that Vitamin Shoppe listed him and over 400 other store clerks as “store managers” so the company could pay the clerks salaries and not be liable for paying overtime wages required by the FLSA.

In July 2011 Judge Laura Taylor Swaine decided not to certify a class of over 400 employees from across the company’s branches in 40 states but instead certified a smaller class consisting of employees from just seven of Vitamin Shoppe’s stores clustered around the New York City area.

In her ruling, Judge Swain wrote that the “plaintiff [did] not meet his burden” of showing that Vitamin Shoppe had misclassified its store clerks across all of the company’s locations sufficient for nationwide class certification.

The current settlement does not reveal the terms of the agreement apart from stipulating that it resolves the lawsuit in its entirety.

Last week the Obama administration unveiled a proposal to extend minimum wage and overtime protections to approximately two million home health aides and other in-home care providers. The Department of Labor released a Notice of Proposed Rulemaking that includes proposed changes to the companionship and live-in worker regulations of the Fair Labor Standards Act (FLSA).

When Congress passed the FLSA in 1938, it established a federal minimum wage and a mandate to pay overtime for hours worked exceeding 40 hours per week. However, some job categories were not initially covered by the FLSA, including domestic service workers employed directly by a household. In 1974 Congress amended the law to extend the FLSA’s wage protections to nearly all domestic service workers but included an exemption for workers who provided companionship for the elderly and for babysitters.

The Department of Labor cited the “dramatic transformation” of the home healthcare industry since 1975, the rapidly increasing demand for in-home care, and the relatively stagnant wage growth of in-home care employees as reasons for the proposed rules. The Department maintains that today’s workers who are employed by home care staffing agencies are not the sort of workers that Congress intended to exempt from FSLA protection when it passed the companionship exemption (i.e. babysitters), but rather are “professional caregivers” who perform medically-related tasks for which training is typically a requirement and should be entitled to FLSA protections.

The issue gained attention in 2007 when the Supreme Court decided in Long Island Care at Home, Ltd. v. Evelyn Coke, that a home care aide who worked up to 70 hours per week did not qualify for overtime compensation under the current FSLA regulations. The court said that any changes to such regulations must come from either Congress or the Department of Labor.

While the proposed changes will broaden FLSA regulations to ensure that home health workers are subject to federal minimum wage and overtime law, the proposed rules still exempt from minimum wage and overtime regulations some workers who are employed as companions by individuals for activities such as engaging in hobbies and talking walks. Under the definition of the proposed rules, companionship services would be limited to activities that directly relate to offering ‘fellowship’ and protection to those who are not capable of caring for themselves. Only workers whose duties include providing personal care (e.g. assistance with dressing and grooming) less than 20% of the time would remain exempt from the FLSA’s minimum wage and overtime protections.

Among the other changes in the proposed rules is a requirement for the employers of live-in domestic workers to keep track of the specific hours that such employees work, instead of merely reaching a work agreement with employees. The proposed rules also clarify that workers employed by third-party employers – such as staffing agencies – are not exempt from the minimum wage and overtime protections.

Currently state minimum wage and overtime protection laws for in-home care providers vary widely. For example, 16 states ensure that most in-home care workers receive minimum wage and overtime protection and 5 states and the District of Columbia require that such workers receive the minimum wage but do not mandate overtime eligibility. However, according to the Obama administration, 29 states do not give home health care workers either minimum wage or overtime protection.

The public is invited to submit comments on the proposed rules at www.regulations.gov. Further information including Frequently Asked Questions answered by the Department of Labor and a Comparison of Current vs. Proposed Companionship Regulations chart can be found at http://www.dol.gov/whd/flsa/companionNPRM.htm.

The Supreme Court agreed to hear the appeal of a Ninth Circuit ruling that the Fair Labor Standards Act’s outside sales exemption applies to GlaxoSmithKline (GSK) pharmaceutical sales representatives and that they are not entitled to overtime compensation.  The Ninth Circuit’s opinion directly conflicts with a Second Circuit opinion where that court held the exact opposite – that the outside sales exemption did not apply to pharmaceutical sales representatives at Novartis Pharm. Corp. and Schering-Plough Corp.

The GSK sales representatives are also asking the Supreme Court to advise federal courts to give deference to the amicus briefs filed on by the U.S. Department of Labor supporting thier position that the outside sales exemption does not apply to them.

Since the Supreme Court has yet to rule on the outside sales exemption or any other white collar exemptions under the FLSA, the Court’s analysis will likely shed light on the status of those individuals who perform sales but are uncertain if they qualify for mandatory overtime pay under federal law.

On September 26, 2011, the Second Circuit Court of Appeals held that both a Fair Labor Standards Act (FLSA) collective action and a state class action can be part of the same lawsuit. As a result, the Second Circuit has joined the Seventh, Ninth and District of Columbia Circuits in allowing supplemental jurisdiction of federal/state hybrid wage claims.

Shahriar, et al. v. Smith & Wollensky Restaurant Group, Inc. involved a group of waiters working at a restaurant in Manhattan. They filed a complaint against their employer for violating federal FLSA minimum wage and overtime provisions and various state law provisions of the New York Labor Law (NYLL).

The plaintiffs alleged that the restaurant required the waiters to share their tips with employees that did not interact with customers and would otherwise be tip-ineligible. In doing this the restaurant violate the tip-credit provisions of the FLSA.  Similarly, the NYLL prohibits requiring tipped employees from sharing their tips with non-service employees and managers. The waiters also alleged that the restaurant violated the NYLL by “failing to pay waiters for an extra hour’s work when their workdays lasted more than ten hours.”

According to court documents:

FLSA and NYLL claims usually revolve around the same set of facts, plaintiffs frequently bring both types of claims together in a single action using the procedural mechanisms available under 29 U.S.C. § 216(b) to pursue the FLSA claims as a collective action and under Rule 23 to pursue the NYLL claims as a class action under the district court’s supplemental jurisdiction

Under FLSA members must affirmatively opt-into the federal representative action lawsuit. But, under state law members of the state law class action must affirmatively opt-out of the class.  However, the restaurant argued that the number of employees in the state law opt-out class would be inherently larger than the number of employees in the FLSA opt-in representative action and that it would lead to “inherent conflict.”  The court ultimately held that:

1. The fact that there are more class members in the state law class action than those in the FLSA collective action “should not lead a court to the conclusion that a state claim ‘substantially predominates’ over the FLSA action”
2. Noting in the language of the FLSA prevents the exercise of supplemental jurisdiction over Plaintiffs’ state law wage claims
3. FLSA’s “saving clause” makes clear that states may enact laws that are more protective than those that are provided in the act
4. The legislative history surrounding the FLSA’s opt-in provision also provides no support for precluding joint prosecution of FLSA and state law wage claims in the same federal action
5. Finally… the Seventh, Ninth, and District of Columbia Circuits all have determined that supplemental jurisdiction is appropriate over state labor law class claims in an action where the court has federal question jurisdiction over FLSA claims in a collective action

As such the Second Circuit joined the growing list of jurisdictions that have approved of hybrid wages actions as a means of securing unpaid compensation.

A class-action lawsuit was filed last week against Groupon, well known for daily online deals. A former employee, Ranita Dailey will be the lead plaintiff in this lawsuit, claiming that she and nearly 1,000 other employees failed to receive overtime pay for nearly three years. Moreover, the employees assert that even after they started to receive overtime pay, Groupon failed to meet federal requirements under the Fair Labor Standards Act (FLSA).

Dailey submitted a bimonthly pay stub that revealed that out of 106 hours worked, Groupon only paid her for 19.75 hours of overtime pay. However, as non-exempt employee the law requires that she be paid at a rate of no less than time and one-half of regular pay rates for any work over 40 hours in one work week.

The former employees are demanding three years in back wages and liquidated damages.

In Pitts v. Terrible Herbst, Inc., the Ninth Circuit Court of Appeals ruled that a putative class action cannot be rendered moot by a defendant’s Rule 68 offer of judgment to the class representative.  In April 2009, Gareth Pitts filed a class action complaint in Nevada state court against his employer, Terrible Herbst, Inc.  The complaint alleged that Terrible failed to pay Pitts and other similarly-situated employees overtime and minimum wages.  The employer responded by filing a motion to dismiss the case on the grounds that Pitt’s rejection of the Rule 68 offer of judgment mooted the entire class action.

The court was presented the following issue: does a rejected offer of judgment for the full amount of a putative class representative’s individual claim moot a class action complaint where the offer precedes the filing of a motion for class certification?  The Ninth Circuit held that it does not.

Article III of the Constitution limits the jurisdiction of the federal courts to “Cases” or “Controversies.”  Accordingly, the doctrine of mootness requires that an actual ongoing controversy exist at all stages of federal court proceedings.  The Ninth Circuit distinguished between issues that have become moot and situations like the instant case where a party’s interest in the issue has become moot.  A plaintiff who brings a class action presents two separate issues for judicial resolution.  One is the claim on its merits; the other is the claim that he is entitled to represent a class.

The Ninth Circuit concluded that an unaccepted Rule 68 offer of judgment – for the full amount of the named plaintiff’s individual claim and made before the named plaintiff files a motion for class certification – does not moot a plaintiff’s claim that he is entitled to represent a class.

A Japanese Restaurant chain, Bishamon Group Restaurants-based in Los Angeles, has agreed to pay $144,721 in unpaid overtime to 66 employees, all of whom were non-English speaking employees.

After the company refused to pay a former employee his final paycheck he called the Employment Education and Outreach partnership (EMPLEO), “an alliance of organizations and government agencies that assist Spanish-speaking workers and employers with work-related concerns.” This lead to an investigation conducted by DOL, which uncovered that the dishwasher, prep cooks and cooks would get paid “straight time,” even though, they worked an average of 45 to 50 hours per week.

The Wage and Hours Division of the DOL found that the company systemically violated the Fair Labor Standards Act (FLSA) overtime, minimum wage and record-keeping provision. The FLSA requires that all employees must receive time and one-half for all hours exceeding 40 hours in a workweek. To avoid any future violations of the FLSA, the company must implement a time-keeping system that will better track overtime wages for all employees.

Bankrupt Tribune Co. paid $325,000 to settle an unpaid wages class action lawsuit brought by workers who promoted the amNewYork newspaper for Tribune from 2004 to 2008.  Those workers allege Tribune misclassified them as independent contractors when they were actually employees entitled to minimum wages and overtime payments, among other benefits.  The case is In re: Tribune Co. in the U.S. Bankruptcy Court in the District of Delaware.

The Employment Law Group® law recently lectured on the topic of employer misclassification for the D.C. Bar. Some employers attempt to avoid paying overtime at a rate of time-and-a-half and other costs by misclassifying employees as independent contractors. As a result employees do not receive overtime pay at a rate of time and a half, and they can be precluded from receiving health insurance, workers’ compensation benefits, unemployment benefits, and a host of other benefits deriving from direct employment. Federal and state governments also do not receive payroll taxes and other income deriving from direct employment relationships. As such, courts look upon employers misclassifying employees as independent contractors with disfavor, and the costs of an adverse judicial action can dramatically outweigh the short term benefits of misclassification.

Former Royal Bank of Canada (RBC) securities brokers will receive over $5 million to settle an unpaid overtime and minimum wages lawsuit against RBC.  The class action lawsuit included financial consultants, senior financial associates, and salespeople who worked at the bank’s California, Florida, and New York offices and was filed in the United States District Court for the District of Minnesota.

Under the Fair Labor Standards Act (FLSA), employees who are not exempt are entitled to overtime pay and minimum wages.  Those employees who bring a lawsuit under the FLSA against their employer may be awarded liquidated damages in addition to their unpaid wages, which effectively doubles their award.  In addition, employers are explicitly prohibited from retaliating in any way against employees who sue for the wages they are rightfully owed.