In Cheeks v. Freeport Pancake House, Inc., the Second Circuit held that without the approval of a district court or the U.S. Department of Labor, parties cannot secure a stipulation of dismissal with prejudice of an FLSA claim under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). In practice, this holding will prevent parties to an FLSA litigation – where there is a bona fide dispute as to liability – from reaching a privately negotiated settlement that includes a joint stipulation of dismissal of the case.
“Sometimes surrender is the best option.” That is how Judge Raymond J. Dearie of the Eastern District of New York begins his opinion in Anjum v. J.C. Penney Co., Inc., before denying J.C. Penney’s motion to dismiss a putative Fair Labor Standards Act (FLSA) collective action based on the company’s offer to pay the claims of four named plaintiffs with offers of judgment under Federal Rule of Civil Procedure 68—a strategy often referred to as “picking off.” Even though the court rejected J.C. Penney’s picking off attempt in this case, the judge’s opinion in Anjum recognizes the validity of this tactic and provides some practical lessons for defense counsel looking to successfully pick off an FLSA collective in the Second Circuit.
Late last month, in the Southern District of Florida, adult entertainers at several Rick’s Cabaret locations filed a lawsuit alleging that they were improperly categorized (and thus improperly compensated) as independent contractors rather than employees. See Espinoza, et al. v. Rick’s Cabaret Int’l, Inc., Case No. 1:13-cv-24565-UU. In light of recent decisions, Rick’s—like other employers classifying workers as independent contractors—should proceed with caution.
The past several months have seen a spate of rulings adverse to employers in the adult entertainment context. Early last year, a Southern District of New York judge approved an $8 million settlement for a class of dancers at another adult establishment who alleged that they were misclassified as independent contractors. See In re: Penthouse Executive Club Compensation Litigation, Case No. 1:10-cv-01145. In September 2013, in a different S.D.N.Y. case, the court in Hart, et al. v. Rick’s Cabaret Int’l, Inc. found that dancers at the New York club location were employees, not independent contractors, for purposes of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law. And just last week a Northern District of Georgia judge who previously certified a class of adult entertainers who alleged they were wrongly classified as independent contractors granted the entertainers’ summary judgment motion with respect to their status as employees under the FLSA. See Stevenson, et al. v. The Great American Dream, Inc., No. 1:12-CV-3359-TWT.
In finding no independent contractor relationship in Hart, the court cited the existence of club guidelines that governed dancers’ dress/appearance (e.g., body glitter forbidden, 4-inch stiletto heels required), behavior in the club (e.g., gum chewing or using a cell phone on the dance floor prohibited), when dancers could be scheduled to work, various fees dancers were required to pay, and manner of performance (e.g., prohibition on more than one knee touching the ground when performing on stage). Of virtually no significance was the fact that there were signed agreements between dancers and Rick’s Cabaret expressing that the employment relationship was that of an independent contractor.
Irrespective of industry, companies that utilize independent contractors are well advised to periodically reexamine the economic realities of those relationships.
The New York State Legislature recently passed a bill amending New York Labor Law Section 193 and establishing new categories of permissible wage deductions that employers may take with the consent of employees. In addition to allowing employers (with employee consent) to recoup advances on wages or accidental overpayments, the new amendments also permit employee-approved deductions for things such as discounted mass transit tickets; gym membership dues; cafeteria or pharmacy purchases made at the employer’s place of business; and education and child care expenses. Both employers and employees are expected to benefit from the flexibility permitted by the bill, although implementing regulations from the New York Department of Labor have yet to be enacted.
With respect to deductions related to recovering accidental overpayments of wages or wage advancements, the bill instructs the New York Department of Labor to issue regulations governing the periodic amount of recovery or repayment; the timing, frequency, duration and method of recovery or repayment; a requirement that notice to be provided to employees before commencing the recovery or repayment; and a requirement that employers implement procedures for disputing the amount of overpayment or repayment or seeking to delay commencement of repayment or recovery. Employers are advised to wait until these regulations are enacted before acting on the bill, and should also take care to ensure compliance with the bill’s new record keeping requirements.
The amendment is expected to be signed into law by Governor Andrew Cuomo and will become effective 60 days after enactment. The bill contains a sunset provision, which provides that the law shall expire and be deemed repealed three years after the effective date. The text of the bill is available here.