When a company faces a Fair Labor Standards Act (FLSA) collective action there are two main components to address: (1)You Can’t Put the Trial Cart Before the Certification Horse in FLSA Hybrid Wage-and-Hour Case; Circuit Court Rejects Trial Court’s Approach of Holding Trial in Wage Case Before Deciding on Class whether it will be a collective action or class action versus an individual action and (2) a trial of the merits on whether the FLSA was actually violated. One federal district court decided No. 2 before No. 1 – and it did not go well when it had its papers graded by the appellate court. The Third Circuit recently confirmed that the class certification decision needed to be made before any trial on the merits of an FLSA case. Companies should take some comfort in the decision that potential class claimants will not be permitted to see the outcome of a case before they decide whether to join in.

Background

The case has an extensive history that relates to Mortgage Loan Officers (MLOs) at Citizens Bank who alleged that Citizens had an unofficial policy requiring the MLOs to work off the clock in excess of 40 hours per week without paying overtime, in violation of both the FLSA and  Pennsylvania wage-and-hour law. The plaintiffs moved for and were granted a conditional certification of an FLSA “opt in” collective action in May 2016, which is the initial, less-detailed court determination of whether a collective action can proceed. Shortly after that ruling, however, the district court scheduled a trial in September 2017.

FLSA Collective and Class Certification

The plaintiffs’ counsel provided notice to over 1,000 current and former MLOs, and 351 responded with the requisite consent forms to “opt in” and join the collective action case. In an FLSA collective action, only those individuals who affirmatively opt in are considered part of the collective action and are bound by the ultimate decision in the case. Those who do not opt in can file their own claims if they wish but are not bound by what happens in the collective action.  The plaintiffs later added nine additional named plaintiffs to the lawsuit and then filed a motion to also certify the class action under Federal Rule 23 seeking certification for 10 classes, to account for the 10 states involved. The Rule 23 class action certification follows a different procedure than the FLSA statutory collective action certification because it makes all individuals covered by the class notice members of the class action unless they take specific action to “opt out” of the class. All class members are bound by the ultimate determination in the class action. Citizens opposed the Rule 23 “opt-out” class certification and also sought decertification of the FLSA “opt-in” collective action.

The parties then agreed to the appointment of a Special Master, who ultimately recommended to certify a class for the plaintiffs’ state law claims, deny Citizens’ motion for decertification, and grant plaintiffs final FLSA certification. As part of its objections to the Special Master’s recommendation, Citizens said that the scheduled FLSA trial date needed to be postponed because the putative class had not yet been notified of the class certification decision and had not been given the chance to opt out.

Trial Court’s Approach

The district court adopted the Special Master’s Report in full, certified the Rule 23 state law classes and granted final collective action certification. The court also rejected the Citizens’ objection as to the scheduled FLSA trial that would address whether Citizens had a policy that caused the MLOs to not report all of the hours worked.

First Appeal – Third Circuit Reversal

Citizens appealed the ruling to the Third Circuit, which found numerous flaws in the district court’s decision to certify the Rule 23 class and remanded the ruling back to the district court to reconsider its class certification and be much more thorough in its assessment of class questions.  The appellate court stopped short of reversing the FLSA collective action decision based on some procedural considerations.

Back at the District Court

When the case went back to the district court, the court chose not to address the class certification question and instead planned to press forward with the trial on the FLSA collective action without first deciding whether to certify the Rule 23 class. Citizens objected and moved to stay the trial until the court issued a decision on the class certification. The district court declined the request and characterized the objection as a delay tactic.

Second Appeal – Third Circuit Reversal

Out of options at the district court, Citizens again appealed to the Third Circuit on the grounds that it needed extraordinary “mandamus” relief, less than three weeks before the trial date, to direct that the FLSA collective action trial not occur until the court issued a Rule 23 class certification decision and, if certified, until class members were notified of the opportunity to opt out. Citizens also sought to have the case reassigned to a different district judge and have the trial level case stayed until the appellate court ruled. On the day that the stay relief was granted, the assigned district judge agreed that the case should be reassigned.

Mandamus relief from an appellate court is unusual. But here the Third Circuit granted that relief to Citizens, finding that in the wage-and-hour suit the “District Court refused to meaningfully engage with Citizens’ objections to the Court’s proceeding with trial in the FLSA opt-in collective action without first considering whether to certify the related state-law Rule 23 opt-out class action—even though the planned trial would resolve a fact issue that is central to all the claims.”

The court went on to scrutinize the district court’s approach, stating that even if it was just a Rule 23 opt-out class action without any FLSA collective action “we would view a trial-before-certification approach with the utmost skepticism.” The court found that Rule 23’s history reflects that a “post-trial certification decision is strongly disfavored” because it would allow potential class members to wait for the trial result and then decide if they will join the case (after the winner has already been decided). Rule 23 was specifically amended in 2003 such that members of the class would be identified before any trial and would be bound by the outcome — win or lose.

The court noted that seven other Courts of Appeals have expressly held that Rule 23 requires a class certification decision before a trial on the merits. Although the Third Circuit declined to go that far in its ruling, it said the only situation where a trial would occur before the class certification decision would be where the defendant consented to the approach. In the normal circumstance, failure to rule on class certification would create an “atmosphere of confusion” that would be particularly compounded in a hybrid wage-and-hour case such as this one. If having an FLSA trial before deciding on class certification were to become the practice in wage-and-hour suits, most employees would never opt into the FLSA action and would instead remain on the sidelines to get the FLSA trial result. As the court summed it up:

What we do conclude here is that, by compelling the FLSA opt-in collective action trial before deciding Rule 23 class certification—in contravention of our clear instruction to conduct a rigorous examination of the class certification issue and without assessing any of the procedural complexities we have discussed—the District Court elected to forge ahead, thereby creating a predicament for others to unravel.

The Third Circuit sent the case back to the chief judge of the district for reassignment.

Takeaways

The district court put Citizens Bank in a tough spot for this hybrid FLSA collective and class case, but the appellate court’s ruling was refreshing for defendants.  FLSA hybrid cases are difficult and expensive for employers to litigate, but at least class members must join the case before they find out whether they will win or lose.

Another Type of COVID Long Haul—Future Discrimination Suits?We’ve been talking a lot about COVID-19 lately and, in particular, the various regulations and guidance that have come out regarding an employer’s day-to-day responsibilities: Can you require employees to take the vaccine? What kinds of medical questions can I ask my employees? Should employees still wear masks? How does COVID-19-related leave work? What do I do about accommodation requests?

With all of the technical guidance out there and the adjustments you’ve had to make, it may have been easy to forget about the big picture and what all these regulations may yield in the future: discrimination claims. Recently, the EEOC filed suit in the U.S. District Court in the Northern District of Georgia on behalf of an employee, claiming that her employer violated the Americans with Disabilities Act (ADA) when it denied her request to work from home. While today’s COVID-19 focus still centers around regulatory compliance and the pandemic’s daily effects, this lawsuit is a reminder that the effects of COVID-19 may last longer than we think and that they may start to infect discrimination suits.

The Lawsuit

The EEOC’s allegations in the complaint are as follows: The plaintiff employee, Ronisha Moncrief, worked as a Health, Safety, and Environmental Quality manager for ISS Facility Services, Inc. She has chronic lung disease and hypertension, which inhibit her ability to walk and breathe, limit the functions of her pulmonary and cardiovascular systems, and cause her to cough and have shortness of breath. In March 2020, ISS, like many others, directed its employees to work from home due to the COVID-19 pandemic. Around that same time, Moncrief’s doctor recommended that she work from home and take breaks while working.

The EEOC claims that working from home improved Moncrief’s condition and symptoms. However, in June 2020, ISS directed employees to return to work. The EEOC alleges that Moncrief requested to continue working from home for two days each week and to take frequent breaks while working on site. The documentation that Moncrief submitted with her request “noted that Moncrief needed the accommodation because her past and recent bouts with severe pulmonary disease made her a high-risk for contracting COVID-19. In the performance of her job duties, Moncrief had close contact with many employees and often shared a desk with co-workers.” The EEOC then claims that her request was denied and that she was terminated a few weeks later for performance issues. Notably, the EEOC claims that other employees’ requests to work from home were granted.

The Law

The EEOC requires that employers provide employees who have disabilities with a reasonable accommodation. This does not mean that you must provide an employee with the exact accommodation he or she requests. Instead, it is a very fact-specific inquiry that depends on the employee’s condition, your workplace environment, the job position requirements, and business need. Thus, under the ADA, leave or remote work is not a required accommodation. In fact, a few high courts have held that on-site attendance was an essential function of the job. One noted that in-person attendance at work is a “rather common-sense idea,” and another noted that “most jobs require the kind of teamwork, personal interaction, and supervision that simply cannot be had in a home office situation.”

However, the EEOC has been pushing in the other direction for some time, arguing that remote work and leave can be reasonable accommodations in certain circumstances. With many employers having offered remote working options for some time during COVID-19, plaintiffs have somewhat of an easier argument that working from home could be reasonable.

Takeaways

We are beginning to see discrimination suits that, like the one here, allege discrimination (whether it be racial, sexual, disability-related, or otherwise) due to an employer’s failure to grant a COVID-19-related request. A popular allegation is that the employee’s request was denied but that other employees, outside of the employee’s protected class, made similar requests that were granted. Be sure that you apply your policies, protocols, and practices equally to all employees who make COVID-19-related requests. Otherwise, you could be opening yourself up to discrimination claims.

When an employee brings an accommodation request to you, whether it’s due to a disability or sincerely held religious belief, remember to always engage in the interactive process. Discuss the employee’s requested accommodation and why it will or will not work. Work together to come up with an accommodation that will work for everyone, and remember that you are only required to give reasonable accommodations, not any accommodation an employee requests. It remains to be seen whether courts will begin to agree with the EEOC’s argument here – that allowing employees to work from home may be a reasonable accommodation.

New Way to Pay Day Rate: 5th Circuit Rules on FLSA Day Rate Overtime ExemptionAre you paying employees using a day rate under the FLSA? If so, you may want to read the Fifth Circuit’s recent ruling in the latest string of Helix Energy cases. According to the Fifth Circuit, companies who do business in Texas, Louisiana, and Mississippi that pay employees based on a day rate must now pay those employees overtime even if their annual compensation far exceeds the FLSA’s highly compensated employee (HCE) exemption threshold.

What Happened in the Helix Energy Cases?

Helix Energy employed Michael J. Hewitt to work as a toolpusher on an offshore oil rig. In that position, Hewitt managed other employees while on monthly hitches. Helix Energy paid Hewitt at a daily rate of $1,341.00 on a bi-weekly basis. Hewitt typically worked more than forty hours per week. In total, Hewitt was paid over $200,000.00 per year.

Hewitt sued Helix alleging that it misclassified him as exempt and improperly paid him a day rate with no overtime in violation of the FLSA. Helix responded that it was entitled to the overtime exemption under the FLSA because Hewitt was either an “exempt executive” or a “highly compensated employee.” The district court agreed with Helix Energy and Hewitt appealed.

On appeal, Hewitt argued that Helix did not pay him on a “salary basis” because the company calculated his pay using a daily rate. This dispute led to a string of Helix Energy cases that sought to determine whether an employee who is paid a daily rate can properly be classified as exempt.

How We Got Here—Faludi, Helix Energy I, and Helix Energy II

The Fifth Circuit has been wrestling with the issue of whether an employee who is paid a daily rate can properly be classified as exempt since August of 2019.

In Faludi v. U.S. Shale Sols, Mr. Faludi was an attorney with a suspended law license who worked in a consulting position at U.S. Shale Sols. Mr. Faludi was paid $1,000.00 for each day he worked in Houston and $1,350.00 for each day he worked outside of Houston. Mr. Faludi annualized $260,000.00 in compensation during his engagement with U.S. Shale Sols. After Mr. Faludi’s relationship with the company ended, Mr. Faludi sued U.S. Shale Sols under the FLSA claiming he was compensated based on a daily rate and should have been paid overtime. The Fifth Circuit held that Mr. Faludi fell within the HCE exemption of the FLSA and, therefore, was not entitled to overtime compensation. The dissenting judges in Faludi disagreed, concluding that, based on the FLSA’s definition of “salary basis,” an employee is not paid on a salary basis—and, therefore, is entitled to overtime—if the employee is paid a daily, rather than a weekly rate.

Picking up on the Faludi dissent’s reasoning, the Fifth Circuit in Helix Energy I concluded that because Hewitt was paid a day rate rather than a salary, Helix Energy owed him overtime wages. The decision in Helix Energy I overturned the decision in Faludi, which companies had relied on to pay HCEs a day rate. However, the Fifth Circuit later withdrew the opinion in Helix Energy I and instituted a revised decision in Helix Energy II.  In Helix Energy II, the Fifth Circuit clarified that day rate employees can qualify for the HCE exemption if they meet the requirements of Section 541.604(b) of the FLSA, which provides that a day rate employee’s compensation arrangement:

  • must guarantee at least a minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts worked (the “minimum guarantee condition”); and
  • must contain a reasonable relationship between the guaranteed pay amount and the amount actually earned (the “reasonable relationship condition”).

The Fifth Circuit in Helix Energy II ultimately determined that Helix Energy did not satisfy these conditions and that Hewitt was entitled to overtime compensation.

The Most Recent Helix Energy Decision

Dissatisfied with the ruling in Helix Energy II, Helix Energy requested that the Fifth Circuit conduct a rehearing of the decision en banc (i.e., a request to have all of the Fifth Circuit judges to hear the case) due to the importance of the matter. The Fifth Circuit agreed to conduct the rehearing and issued a final decision in the Helix Energy III case on September 9, 2021.

In Helix Energy III, the Fifth Circuit held that because the FLSA defines “salary” as compensation paid “on a weekly, or less frequent basis” and “without regard to the number of days or hours worked,” a daily rate can be classified as a “salary.” However, the court held that the employer must satisfy both the minimum guarantee and reasonable relationship conditions of Section 541.604(b) of the FLSA before a daily rate can be a “salary” that satisfies the HCE exemption. The court further explained that Helix Energy could have satisfied this requirement by offering a minimum weekly guarantee of $4,000.00 based on Hewitt’s daily rate of $963.00 but failed to do so. Hewitt, therefore, was entitled to overtime compensation.

Helix Energy III now guides Texas, Louisiana, and Mississippi companies in the compensation of day rate employees.

The Effect of Helix Energy III on Pay Practices

In light of Helix Energy III, companies are now faced with two options when compensating day rate employees: (1) pay overtime wages even if compensation exceeds the FLSA’s HCE overtime exemption; or (2) provide a minimum weekly guaranteed amount paid on a salary basis—regardless of the number of hours, days, or shifts worked—according to actual earnings. If companies continue compensating their day rate employees without factoring in overtime hours or the requirements of Section 541.604(b) of the FLSA, they will likely have to defend lawsuits.

The Fifth Circuit’s application of Section 541.604(b) to day rate employees departs from the First and Second Circuits (although based on slightly differing facts). This creates a split among the circuits that could potentially lead to a future decision by the United States Supreme Court or a change in the law by Congress. However, companies in the Fifth Circuit are stuck with Helix Energy III for now and should consider adjusting their pay practices accordingly.