Employer Self-inflicts Wounds by 'Shaving Time'

We all know that collective actions under the Fair Labor Standards Act (FLSA) can be costly to employers. These “class action” wage claims provide a means of redress by employees when their own individual claims may not be worth pursuing. 

The case we are examining here involves allegations of a company-wide policy that systematically required employees to under report their overtime hours. The case was brought by 293 technicians of FTS USA, LLC, a cable television company, against it and UniTek USA, LLC, its parent company.  

It would be impossible to summarize all of the points in this nearly 50-page opinion by the United States Court of Appeals for the Sixth Circuit, so we will focus on aspects that are reasons for concern about the growing use of “representative evidence.”

This case has been kicking around since 2008 when it was filed in the United States District Court for the Western District of Tennessee. Following the trial, the jury returned verdicts in favor of the employees, which were upheld by the district court when challenged by defendants. The district court then calculated the damages at nearly $3.9 million, including liquidated damages.

The case was challenged in the Sixth Circuit, which upheld the class certification and the jury’s verdict, but reversed the district court’s calculations of the damages. The defendants then sought certiorari (permission for review) by the United States Supreme Court which granted the defendants’ request for review, vacated the appellate court’s opinion and remanded the case back to it to reconsider the ruling in light of Tyson Foods, Inc v Bouaphakeo, 136 S Ct 1036 (2016), which had been decided after the Sixth Circuit had issued its opinion. 

On remand,  the Sixth Circuit t decided on June 21, 2017, that its rulings the first time were correct and again sent the case back to the district court to recalculate the damages. So, let’s look at what happened and how the plaintiffs used “representative evidence” in this case, so we can see just how dangerous these collective actions have become.

In the underlying case, we learn that FTS contracted with cable companies (such as Comcast and Time Warner) to install cables and provide support. The parent company, UniTek, is primarily involved in wireless communications, satellite services, etc., but it provides the human resources and payroll functions to FTS. 

The technicians in Tennessee, Alabama, Mississippi, Florida and Arkansas have similar job duties and are subject to the same compensation and timekeeping system. At the beginning of their day, technicians report to their local office where they receive assignments to be performed during specific two-hour blocks of time. The technicians primarily do the same work over and over, every day -- they install cable. “FTS Technicians are paid according to a piece-rate compensation plan, meaning each assigned job is worth a set amount of pay, regardless of the amount of time it takes to complete the job. Technicians are paid by applying a .5 multiplier to their regular rate for overtime hours. Time is recorded by hand and their weekly timesheets are sent to payroll. 

Evidence showed that a company-wide “time-shaving” policy was in place, whereby managers told or “encouraged” techs to under report time or falsified the timesheets themselves.  Technicians routinely started work earlier than they reported, worked during lunch hours or kept working after the recorded time. There was also evidence that this policy was started at the FTS corporate offices, which encouraged managers to find a way to reduce overtime and fuel costs. Management at the corporate offices scrutinized the overtime and questioned local management why overtime was worked. The human resources director testified that she had received complaints from technicians about being required to under report their overtime.

The appellate court spent considerable time reviewing the standard for certification for collective actions and an employee’s burden of proof in establishing damages. The court referred to the employee’s burden as “relaxed” since employees rarely keep time records because that is the employer’s duty. Once an employee presents “some” credible evidence that he performed work for which he was not properly compensated, the burden shifts to the employer to produce evidence showing it did not violate the FLSA. Where that proof is lacking, the court may award damages to the employee, even if the calculation is only approximate, provided it is based on a just and reasonable inference from the plaintiff’s evidence.

The defendants challenged the verdict form which allowed the jury to determine whether the employer applied a single, company-wide time-shaving policy to all technicians, including those who did not testify. The defendants also challenged the plaintiffs’ reliance on the testimony of only 17 technicians, without any statistical expert, as insufficient under the Tyson case for use as “representative evidence.”

The use of representative evidence was approved last year by the Supreme Court in Tyson. In that case, 400 or so employees relied on testimony, video recordings and an expert’s study on how long, on average, an employee would take to don and doff their gear (time varied from 30 seconds to 10 minutes). The Supreme Court found that using such a “representative sample” as evidence was proper for collective actions under the FLSA.

The appellate court disagreed, stating that Tyson does not require expert statistical analysis; it just reviewed it in Tyson because that is what had been introduced in that case. The only issue is whether the evidence introduced here is legally sufficient, and it is. There were 17 technicians who testified, six managers and supervisors and time sheets and payroll records.

In rejecting the defendants’ challenge to certification as a collective action, the appellate court identified two guiding principles for its analysis: “plaintiffs do not have to be ‘identically situated’ to be similarly situated, and the FLSA is a remedial statute that should be broadly construed.”

In this case,  the technicians performed the same work, regardless of location, and were all subject to the same timekeeping system (by hand), compensation plan (piece rate) and company wide policy requiring them to under report hours. And, if the technicians failed to follow the under-report directive, the managers would change their time sheets. The appellate court majority rejected the dissent’s reasoning that would have required separate collective actions for those who worked off-the-clock before hours, those who worked without compensation during lunches and those that continued to work after they had signed out, citing the Supreme Court’s warning that “such a ‘narrow, grudging’ interpretation of the FLSA”… would weaken “its ‘remedial and humanitarian’ purpose.”

The appellate court disagreed with defendants’ claim that the use of representative evidence in this case deprived them of the ability to use defenses, finding that “defenses successfully asserted against representative testifying technicians were properly distributed across the claims of non-testifying technicians.” The jury’s partial acceptance of the defenses actually resulted in a lower average of hours worked for the non-testifying technicians. The court noted that “sister circuits” overwhelmingly allowed “representative testimony to establish a pattern of violations that include similarly situated employees who did not testify.” 

The appellate court also rejected the defendants’ objection to the use of an “estimated average of overtime worked” because it would result in some technicians receiving more than they are owed and some less. The appellate court noted that “[d]isapproving of an estimated-average approach simply due to lack of complete accuracy would ignore the central tenant of the [Supreme Court’s holding in Anderson v Mt Clemens Pottery Co, 328 US 680 (1946)]—and inaccuracy in damages should not bar recovery for violations of the FLSA or penalize employees for an employer’s failure to keep adequate records.” In fact, the estimated-average approach actually worked as it should; the jury was able to reasonably infer the average weekly unpaid hours by each technician who testified and apply the average of these averages to the non-testifying technicians.  

Finally, the defendants argued that the district court erred by calculating damages (rather than the jury), because that violated the Seventh Amendment, and erred by failing to recalculate each technician’s hourly rate and by applying a 1.5 multiplier (i.e., time and a half the regular rate of pay) for overtime hours. The appellate court noted, however, that defense counsel had actually previously argued against the jury calculating the damages. 

The appellate court agreed with defendants on one point -- the 1.5 multiplier should not have been used by the district court. When an employee is paid by a piece rate system, the employee is entitled to “a sum equivalent to one-half this regular rate of pay [all earnings for the workweek, divided by the number of hours worked] multiplied by the number of hours worked in excess of 40 in the week. …Only additional half-time pay is required in such cases where the employee has already received straight-time compensation at piece rates or supplementary payments for all hours worked.” (Emphasis added) Thus, the district court was again reversed on its use of the 1.5 multiplier, and the case was remanded back to the district court where it began.

While the nearly $3.9 million judgment will be reduced when recalculated, the legal fees incurred during nine years of litigating the collective action could actually exceed the eventual judgment. And, the defendants are responsible not only for their own defense costs but will be paying the legal fees of the team of attorneys for the plaintiffs. Keep in mind that Employment Practices Liability Insurance policies only pay the cost of defense in FLSA claims, not a judgment or opposing party’s attorneys’ fees. This will be a very costly case to the defendants.

If you have not reviewed your wage policies and practices lately, you should involve experienced employment counsel to assist you in doing so. These are not easy legal issues and mistakes can be very costly.

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