Fair Labor Standards Act collective action cases have become big
business for plaintiffs' lawyers. A recent decision by the
Sixth Circuit in Killion v. KeHe Distributors not only illustrates
the point, but also limits the usefulness of one tool employers
have begun using to help manage the risks associated with such
claims: collective action waivers.
In Killion, several former sales representatives of a food
distributor sued alleging it failed to pay them overtime wages as
required by the FLSA. The former employees claimed the employer
improperly classified each of them as "outside sales
employees." When applicable, such exemption relieves an
employer of the obligation to pay overtime pay. Of course, if not
applicable, the overtime pay obligation would exist. In this case,
the employees challenging the employer's use of the outside
sales exemption also sought to certify a collective action under
Section 216 of the FLSA.
A collective action, though not quite the same as a class action,
is the FLSA's mechanism for bringing the claims of multiple
employees in one suit. One big difference between a collective
action and a class action is that, of those similarly situated to
the plaintiff, only those who actually consent to joining the
lawsuit will be considered part of the collective. At one time, a
plaintiff wanting to bring a collective action would literally need
to approach each potential similarly situated plaintiff and ask him
to join the suit. In some cases, it was a difficult logistical
task. As such, not many suits with really large collectives were
filed.
Things have changed; now, employers are required to help the
plaintiff determine the identities of those arguably similarly
situated to him so that those persons with potential claims may be
notified of the option to join in the suit. In conditional
certification — the initial stage of a collective action
— only "a modest factual showing" that the
plaintiff is similarly situated to others with a potential claim is
required. If this relatively easy threshold is met, the employer
must provide contact information for each potential plaintiff, and
notices are sent en masse to those who may choose to opt in to the
lawsuit. Although the certification may be challenged later, the
collective process can quickly magnify a relatively small
claim.
Some employers have attempted to combat this risk by requiring
employees to waive the right to participate in a collective action.
Under these waivers, an employee typically agrees that any dispute
with the employer will be brought individually. In Killion, the
employer had taken that step when it included a collective waiver
in separation agreements that some of the discharged employees had
executed. Citing the waivers, the employer argued before the
district court that those employees had waived the right to
participate in a collective action. The employer also asserted
that, in any event, all of the plaintiffs were exempt from the
overtime provisions of the FLSA because they were "outside
sales employees."
The district court upheld the validity of the waivers and certified
a collective action consisting only of employees not covered by
waivers, making for a small collective action. Subsequently, the
court also granted summary judgment to the employer, holding that
all of the plaintiffs were outside sales employees. On appeal, the
Sixth Circuit disagreed on both issues.
On the exemption issue, the Sixth Circuit determined there was
sufficient evidence to dispute whether the employees actually
performed the duties of outside sales people, and specifically,
whether sales was their primary duty. Each employee had been
assigned several stores of large chain retailers. At their assigned
stores, the representatives were responsible for stocking shelves
and reordering merchandise whenever a store was low on any of the
employer's products. However, as the court saw it, the
employees might not be involved in sales at all.
The Sixth Circuit noted that other employees established the
initial relationship with a store, negotiated the parameters of the
overarching distribution contract and determined what products
would be sold in the stores. The sales representatives determined
the quantity of products to be ordered and transmitted the orders
for subsequent delivery to maintain proper inventory levels. While
the representatives made a few cold calls to independent stores, it
was not a routine occurrence. Noting that exemptions are narrowly
construed against an employer, the court concluded that the issue
of whether these employees had outside sales as their primary duty
was for a jury to decide.
On the waiver issue, the Sixth Circuit determined the waivers to be
invalid essentially because rather than allowing for arbitration,
the waivers required each employee to bring a lawsuit for his
claim. Reviewing the cases that had upheld the use of collective
action waivers, the court decided that the primary reason those
agreements had been enforced was in deference to arbitration's
"favored" status, as recognized by the U.S. Supreme Court in Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 29 (1991). Even then, the
Sixth Circuit explained that "an employee can waive his right
to a judicial forum only if the alternative forum allow[s] for the
effective vindication of [the employee's] claim." Without
arbitration in the picture, there was no countervailing federal
policy to outweigh an employee's right to bring a collective
action under the FLSA.
Employers can learn some valuable lessons from this case.
Initially, the case reminds us that an employer accepts a risk when
it decides to treat an employee — or group of employees
— as exempt under the FLSA. The exemption decision may be
subsequently questioned by a disgruntled employee, current or
former, either through the U.S.Department of Labor or in litigation. Secondly,
the relatively easy availability of a collective action compounds
the risk. As such, employers should carefully consider whether
there exists a sound basis for claiming a specific exemption. If
the facts do not weigh heavily in favor of the exemption, perhaps
it should not be used. Exemptions will be narrowly construed
against an employer; so, close will not cut it. Finally, if an
employer is considering the use of collective action waivers, at
least in the Sixth Circuit, those waivers should have an
arbitration provision in them.
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