Class Clout

Just say the words "class action" and "overtime" in the same sentence, and you strike fear in the hearts - and pocketbooks - of many employers. One need look no further than the verdict in the landmark $90 million Farmers Insurance Exchange claims-adjuster case to know the power of overtime litigation in California. Bell v. Farmers Ins. Exch., 87 Cal.App.4th 805 (2001).

But while many suits are filed under California law, federal wage-and-hour provisions should not be overlooked. Employers are required to comply with both state and federal wage-and-hour laws. When a conflict exists, the law establishing the higher standard applies. Aguilar v. Association for Retarded Citizens, 234 Cal.App.3d 21 (1991).

For example, many employers are under the misapprehension that commissioned employees engaged in inside sales are exempt employees. This is wrong. While there is an exemption under state law for employees who receive more than half of their compensation in commissions and whose regular rates of pay exceed 11/2 times the minimum wage, federal law requires more.

Under Section 7(i) of the Fair Labor Standards Act, 29 U.S.C. Section 207(i), the exemption is only available to employees of "retail or service establishments." Finance companies, banks, insurance companies, loan associations and credit companies do not qualify. Mitchell v. Kentucky Fin. Co., 359 U.S. 209 (1959). The act actually provides a laundry list of companies that are excluded from this exemption. See 29 C.F.R. Section 779.717.

Additionally, class actions instituted under the federal law are considered to be collective or representative actions in which the individual employees must "opt in" to garner the benefit of any settlement or verdict. 29 U.S.C. Section 216 (b).

The adjunct to this precept is that no member is bound by an earlier settlement, and, therefore, class members are free to file a subsequent collective action. Frequently, secondary companion actions are filed by employees who get wind of settlements in an initial class action, which originally was touted by the employer to have little to no merit.

The named class members also are afforded the opportunity of filing a motion to certify the collective action and facilitate notice to all remaining class members. Hoffman-LaRoche Inc. v. Sperling, 493 U.S. 165 (1989). Sometimes, practitioners do not file this motion for strategic reasons. But often, they are unaware of the relaxed standards and benefits of this powerful motion.

The standard for a collective certification is much less stringent than a Federal Rule of Civil Procedure 23 or California Code of Civil Procedure Section 382 class action. See Grayson v. K-Mart Corp., 79 F.3d 1086 (11th Cir. 1996). A court may facilitate notice and conditionally certify the class simply if it finds that there are other employees who may desire to "opt in" and who are "similarly situated" with respect to job and pay. Hoffman-LaRoche Inc. v. Sperling, 493 U.S. 165 (1989).

Early participation by the courts also protects against misleading communications by the parties and expedites resolution of the dispute. Perhaps the best reason to file this motion is to prevent the running of the statute of limitations for absent class members.

While the statute is tolled for named plaintiffs in a Fair Labor Standards Act action on the date that the complaint is filed, those members "opting in" in a collective action will only preserve their claims by filing written consent-to-join forms with the court. 29 C.F.R. Section 790.21(b)(2). The federal law operates under a two-year rolling statute of limitations for nonwillfull violations. 29 U.S.C. Section 255(a). Many overtime cases are filed after substantial time has elapsed between violations. Thus, for each day that passes while notice has not been provided to absent class members, substantive rights may be slipping away.

Filing this motion also helps to limit discovery by the employer. Sometimes defense counsel serve individualized discovery to wear down the class members and their counsel. However, the courts have ruled that evidence concerning each individual plaintiff's job duties and responsibilities is not always essential. Adkins v. Mid-American Growers Inc., 143 F.R.D. 171 (N.D. Ill. 1992).

Where the court has limited discovery, the decisions have, in large part, been rooted upon the prior determination in certification motions that the class members are "similarly situated." In fact, courts frequently allow discovery to proceed only on a representative basis by job category. McLaughlin v. Ho Fat Seto, 850 F.2d 586 (9th Cir. 1988), cert. denied, 488 U.S. 1040 (1989).

The Fair Labor Standards Act defines "employer" as "any person acting directly or indirectly in the interest of an employer in relation to an employee." 29 U.S.C. Section 203(d). Analysis of employer status under the federal act requires a broad factual inquiry of whether the "economic reality" shows dependency of the putative employee upon the alleged employer. Aimable v. Long & Scott Farms, 20 F.3d 434 (11th Cir. 1994).

Employer status is liberally construed and not confined by common-law concepts of employment and agency. United States v. Rosenwasser, 323 U.S. 360 (1945). Thus, multiple parties may be deemed "joint employers," including owners, managers and other supervisors who control the work environment. Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983).

Courts have found an employment relationship even where the defendant had no control over certain aspects of employment. Castillo v. Givens, 704 F.2d 181 (5th Cir. 1983). Courts are to interpret the term "employ" in the federal act expansively. Hale v. State of Arizona, 993 F.2d 1387 (9th Cir), cert. denied, 114 S.Ct. 386 (1993).

Courts have done just that, with one court opining that "[t]he definition has 'striking breadth' and stretches the meaning of 'employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles." Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992).

Practitioners should be aware of these broad principles in Fair Labor Standards Act actions - both to name proper parties in their pleadings and to cogently evaluate conflicts under certain scenarios.

Finally, we come to the heart of the matter: attorney fees. The federal act provides that the court "shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow reasonable attorney's fees to be paid by the defendant, and the costs of the action." 29 U.S.C. Section 216(b). An award of fees incurred by a prevailing plaintiff is mandatory under the federal act. Alyska Pipeline Serv. Co. v. Wilderness Sos'y, 421 U.S. 240 (1975).

Defendants are not entitled to their fees and costs under the federal act. Fegley v. Higgins, 19 F.3d. 1126 (6th Cir.), cert. denied, 513 U.S. 875 (1994). An express purpose of the act is to rectify and eliminate working conditions that are detrimental to the maintenance of the minimum standards of living for workers.

Congress' mandate to the courts to award attorney fees only to plaintiffs specifically was designed to encourage private litigants to act as "private attorneys general" to vindicate their rights under the federal act. Laffey v. Northwest Airlines, 746 F.2d. 4 (D.C. Cir. 1984).

Wage-and-hour cases once were thought of as minimal fee-generating cases, which were better suited for prosecution by regulatory agencies like the Department of Labor Standards Enforcement and Department of Labor. But no more. The blistering rate of overtime filings has made that quite apparent.