My working title for this blog was "collective action grab bag," concerning the recent Sixth Circuit case in Killion v. KeHE Distributors, LLC, Case Nos. 12-3357/4340 (6th Cir. July 31, 2014). I went with the title that seemed to be of interest to most practitioners, but the case actually touched on several issues, one of which is a bit of a sleeper.
The Killion case had a fairly straightforward fact pattern. The buyers and sellers of organic food products may not want to admit it, but like any product, they need sales and distribution networks. In Killion, the plaintiffs were part of that network for a distributor of organic and ethnic foods selling to major retailers like Meijer, Giant Eagle, Kroger, and Walmart. They were paid commission under a complex formula that took into account their stocking of shelves, store maintenance, promotional marketing in some stores, maintaining inventory, ordering, and related functions. As this listing suggests, much of their time, in fact about two-thirds of it, was spent largely on inventory rather than on the making of sales. The employer considered them exempt under the outside salesman exemption to the FLSA. [Note to PC police: don't blame us, that's still the name of it in the statute, see 29 U.S.C. section 213(a)(1)].
In 2012, the company laid off approximately 70 of these "sales" employees, but offered them retention agreements. Those agreements provided a $2,000 payment in exchange for their agreement to work another month, to waive any claims they might have, and not to sue on a class-wide basis. Four of the agents sued for unpaid overtime under the FLSA and, while the court ultimately permitted a collective action class to proceed, it excluded those that had signed the agreements. The plaintiffs filed an interlocutory appeal, and then filed a second appeal when the district court granted summary judgment against them.
The Sixth Circuit addressed four sets of issues.
1. Outside Sales Exemption. As to the merits, the court found a question of fact as to the application of the outside salesman and other exemptions. There was no real question that the plaintiffs spent much of their time on handling inventory, the plaintiffs were compensated heavily based on inventory related duties, and there were questions about whether the plaintiffs were really making sales to large grocers. This ruling is of interest to those in retail sales where both selling to the store and maintaining the product displays are a regular part of the employee's duties.
2. Interlocutory Appeal. More interesting from the standpoint of this blog, the court found that it lacked jurisdiction over the plaintiffs' initial appeal from the district court's exclusion of some members from the class at the conditional certification stage. This ruling is in accord with the Sixth Circuit's prior decision in Comer v. Wal-Mart Stores, Inc., 454 F.3d 544, 549 (6th Cir. 2006). This decision is not surprising. It is somewhat unusual that a plaintiff would actually try to file such an appeal since plaintiffs win a large majority of conditional certification decisions and a contrary decision would have overwhelmingly favored defendants. The court did, and correctly, find that it had jurisdiction to review that order once the case was actually over, which is what happened when the court granted summary judgment. As a practice tip, if a party wishes to challenge a conditional certification order, it may want to consider doing it explicitly as part of its post-judgment notice of appeal to avoid any question.
3. Class/collective action waiver. This part of the opinion has drawn interest, but it doesn't say much we didn't already know. The court addressed the issue of whether the putative class members who signed the retention agreements waived their right to participate in a collective action. The defendant noted that several courts of appeal had enforced such waivers but, as the Sixth Circuit concluded, all of those cases had involved agreements to arbitrate, and the cases all relied on authority relating to arbitration agreements. It found that while a collective action waiver has been found to be enforceable in the collective action context, it could only be so as part of an arbitration agreement. As the retention agreements had no arbitration provision, the court found, the collective action waivers were unenforceable.
4. Expert. Lastly, the court addressed the district court's decision to exclude the plaintiffs' "liability expert." This expert relied on interviews of the plaintiffs and her own interpretation of the regulations to conclude that the plaintiffs were not exempt. In excluding the evidence, the district court noted that the expert's report "reads like a legal brief." The Sixth Circuit held that the district court properly excluded the report, citing its "recitation of legal principles", reliance on the plaintiffs' hearsay evidence, and its efforts to interpret the regulations' intent. This is a significant decision for employers, who in many cases must address so-called expert testimony on issues such as the exempt status of employees.
The bottom line (sorry, this case has two): The Sixth Circuit will not enforce a collective action waiver unless it is a part of an arbitration agreement. A party cannot bolster its case by essentially having an expert adopt a brief in favor of their position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
