Another Celebrity Chef Runs Afoul of Tip Pooling Rules

Posted by Staci Ketay Rotman on September 20, 2012

chef_grahamelliot.bmpShortly after my co-author, Bill Pokorny, wrote about celebrity and Iron Chef Mario Batali’s multi-million dollar settlement of a class action tip pooling lawsuit, another celebrity chef here in Chicago was sued for violating tip pooling laws.  In March 2012, a lawsuit was filed against Master Chef Graham Elliot by 14 former employees over tip pooling requirements at his self-titled restaurant.

Gregory Curtis, a former waiter at Graham Elliot, claimed that he and others were forced to participate in a tip pool that included bartenders, bussers, food runners and cooks.  Under federal law, employees may be required to participate in a tip pool only if the tips are distributed among employees who “customarily and regularly receive tips,” and this generally is limited to personnel such as servers, bussers and service bartenders.  Curtis alleged that food runners and cooks do not customarily and regularly receive tips and so they may not participate in a tip pool.  Due to the inclusion of such “back of the house” employees in the tip pool, Curtis claimed he was entitled to lost wages.  For a good summary of tip pooling rules, see Bill’s prior blog post. 

After litigating this case for over a year, this week, Graham Elliot reached an undisclosed settlement with Curtis and the other waiters.  If the allegations are true, Graham Elliot’s tip pool did not appear to meet the requirements of federal law. 

While tip pooling is generally limited to the hospitality industry, this is another example of a celebrity experiencing some difficulty navigating wage and hour laws.  Employers can feel better knowing that not even the rich and famous are exempt from compliance with the FLSA and related state laws.  Even the most brilliant chefs must ensure that their businesses comply with wage and hour laws.  More than ever, employees are aware of their rights, particularly as it relates to wages.  While I truly enjoy the brilliance of these celebrity chefs and the meals they create (Bobby Flay is a favorite!), the regulatory side to running a restaurant cannot take a back seat.    

The lesson learned here is this - whether you are a celebrity chef or a more run-of-the mill type of business, all employers must comply with applicable federal and state wage and hour laws.  Given the complexities of wage and hour laws, employers should seek the advice of employment counsel for effective ways to comply with those laws. 

Family Dollar Settles Store Manager Overtime Claim

Posted by Staci Ketay Rotman on September 13, 2012

Dollar.Stacked.XSmall.jpgOn September 12, 2012, Family Dollar announced that it will pay up to $14 million to settle a class action in the Southern District of New York.  Similar to other class actions filed against Family Dollar over the years, New York store managers claimed that the Company failed to pay them overtime.  Although the agreement has not yet been finalized, the proposed settlement would affect more than 1,700 store managers in New York who are covered by the certified class. 

As we mentioned in our prior blog post back in April, court rulings have come down on both sides of the issue as to whether store managers at discount retailers, such as Family Dollar, are exempt from overtime.  Back in 2008, the Eleventh Circuit upheld a $35.6 million judgment in favor of Family Dollar Stores managers on the basis that those managers did not meet the executive exemption.  Since then, court rulings addressing this issue have varied depending upon the facts of each case.  Most recently, in April 2012, a federal district court in South Carolina determined that two Dollar General store managers met the executive exemption from overtime pay under the FLSA.  Gooden v. Dolgencorp and Thomas v. Dolgencorp.  Similarly, in August 2012, a North Carolina district court found that a Family Dollar store manager met the executive exemption.  Ward v. Family Dollar Stores.   

Given some of the more recent rulings finding that the executive exemption applied to store managers, it is not entirely clear why Family Dollar chose to settle this New York class action.  Needless to say, each case must be reviewed based upon its own set of individual circumstances.  Like all employers, Family Dollar likely looked at the facts and risks associated with further litigation and made a determination as to whether the settlement made sense.  In any event, this case does not suggest that Family Dollar and other retailers cannot meet the executive exemption by demonstrating that management is the primary duty for its store managers in the future.  At most, this is a reminder to employers that such a determination will always be based on the specific facts at issue and the individuals involved.

Seventh Circuit Weighs In On Commonality Requirement in Class Actions

Posted by Staci Ketay Rotman on February 09, 2012

BankBuilding.XSmall.jpgThe Seventh Circuit recently applied the Supreme Court’s Wal-Mart Stores, Inc. v. Dukes decision to class certification in a wage and hour action, and affirmed the certification of two classes.  Ross v. RBS Citizens N.A. d/b/a Charter One.  The Seventh Circuit held that the district court did not abuse its discretion in certifying two classes of bank employees and that this certification met the commonality requirement clarified in Dukes.

The district court had certified two classes of bank employees:  (1) nonexempt hourly employees who alleged that the Charter One’s unofficial policy denied them overtime pay; and (2) assistant branch managers who claim that they were misclassified as exempt employees.  On appeal, Charter One’s sole argument was that the certification order did not comply with Rule 23(c)(1)(B), because it did not adequately define the class, claims, issues or defenses  After the Supreme Court issued its Dukes opinion, the Seventh Circuit asked that the parties address the commonality requirement in light of that decision.

After reviewing the parties’ position statements, the Seventh Circuit determined that the classes met Rule 23(a)(2)’s commonality requirement under Dukes.  The court reasoned that the classes present a common claim based on a broadly enforced policy denying overtime pay to nonexempt employees and requiring assistant branch managers to perform nonexempt work without overtime, and that this policy potentially drives the resolution of this case.  While there might have been slight variations in how Charter One enforced its overtime policy, the Court found that both classes maintained a common claim, and this “common claim” was the “glue” necessary to satisfy the commonality requirement.  Unlike in Dukes, an individualized assessment of each assistant manager’s job duties was not necessary and did not destroy commonality.  The Court found such an assessment to be irrelevant as to whether a company-wide policy existed to deny them overtime pay.  Moreover, the Court focused on the fact that the class members at issue were substantially fewer than in Dukes and all were located in Illinois.

Finally, in an issue of first impression, the Seventh Circuit upheld the district court’s class certification order under Rule 23(c)(1)(B).  The Court felt there was no doubt as to which current and former employees would be included in the hourly and assistant manager classes because the order and memorandum indicate that this includes “all current and former employees who worked at an Illinois Charter One location within the last three years.”  The order also identified the claims and types of evidence that could be presented.  The Court declined to require a district court to list any and all possible methods of proof, suggesting this would border on the absurd.

While Dukes’ clarification of the commonality requirement is helpful to employers in defeating class certification, Charter One demonstrates that there are limits.  Just because a class can number in the thousands does not mean a court will find commonality lacking, particularly where there is a broadly enforced policy.  While the commonality argument will continue to develop, we will likely see more appellate courts weighing in as to how to apply Dukes.

Are Pharmaceutical Companies Losing the Exemption Battle?

Posted by Staci Ketay Rotman on August 18, 2011

pillbottle.XSmall.jpgRecently, another group of pharmaceutical sales representatives successfully demonstrated that they are not exempt from overtime under the FLSA.  Kuzinski, et al., v. Schering Corp  Focusing on the administrative exemption, the District Court of Connecticut held that the sales representatives’ work was not directly related to Schering’s management or general business operations and they lacked the necessary exercise of discretion and independent judgment to meet the requirements of the exemption.  The sales representatives did not directly sell pharmaceutical products, instead individualizing Schering’s canned sales pitch to promote certain products to identified customers.  At the end of the day, the sales representatives simply used the core messages and promotional strategies developed by Schering, rather than developing those messages and strategies themselves.

 Litigation Background

Pharmaceutical companies have traditionally classified sales representatives as exempt under the outside sales exemption, but have recently faced difficulty convincing courts that pharmaceutical representatives meet this exemption since they do not make “sales” in the traditional sense.  While the results have been mixed at the district court level, the most noteworthy case, the Novartis wage and hour litigation, put a hole in the companies’ defense.  Affirming the district court, the Second Circuit concluded that the Novartis sales representatives do not make sales and, therefore, do not qualify for the outside sales exemption.  The U.S. Supreme Court recently declined to review that decision and the holding remains. 

Notwithstanding the impact of the Novartis decision, there was a glimmer of hope that pharmaceutical sales representatives could still be classified as exempt, but under the administrative exemption.  In Smith v. Johnson & Johnson, the Third Circuit concluded that the administrative exemption was satisfied because Smith’s work related to the company’s core business operations and her primary duties involved the use of her discretion in making significant decisions.  Specifically, Smith had to form a high-level strategic plan to maximize sales in her territory, and exercised significant discretion and independent judgment while performing her duties without direct oversight.  But not all sales representatives are alike and so the administrative exemption will not apply across the board.  The Schering court focused on this issue, contrasting the “management-scripted,” “core messages” used by the Schering sales representatives with that of Smith, a senior professional sales representative who ran her territory as she saw fit.  Finding the Schering sales representatives duties were more like those of Novartis, the Court concluded they did not fit the narrow facts supporting the holding in Smith.

 Insights for Employers

The decisions in Schering and Smith further underscore the fact intensive nature of the administrative exemption.  This exemption is not a “one size fits all” category based on job title, but depends on whether the employee actually fulfills the requirements.  To truly meet the administrative exemption, companies must prove that the employee’s work is directly related to its management or general business operations and that the employee exercises discretion and independent judgment in matters of significance. 

For sales representatives, this may be achieved by giving the representatives actual control and management of their sales territory and allowing them to exercise the necessary level of discretion and independent judgment.  Companies should consider holding the representatives accountable for specific sales goals or targets, while leaving the means of achieving those ends primarily up to them.  This means that while the representatives may receive general guidance about how to approach a customer, the crafting of the precise message, the number of times conveyed and to whom, should be left up to the representative.  While there is no guarantee that a court will find the exemption met, such a proactive approach will definitely put the company in a better position if sued or subjected to a DOL audit.

What Wal-Mart v. Dukes Means for Wage & Hour Law, Employers

Posted by Bill Pokorny on June 23, 2011

Supreme Court building.JPGBy now most of you who follow developments in employment law have likely heard about and possibly read the U.S. Supreme Court's decision in Wal-Mart v. Dukes, overturning certification of a class action sex discrimination case brought on behalf of 1.5 million current and former female Wal-Mart employees. (If not, our recent FR Alert on this case will get you up to speed.) While Dukes is a sex discrimination case, it is likely to have a major impact upon class actions in other areas of the law, including wage and hour lawsuits. 

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