Startup Companies And Unpaid Wages

Massachusetts is a good place to start a business, as it is home to many highly-educated and entrepreneurial people who are able to team up here with similar folks here to start successful businesses.  While many of these businesses succeed, other fail. However, employee wages are not contingent on business success and two important principles back that up.

  1. An employee cannot waive his or her entitlement to wages. Section 148 of the Wage Act prevents an employee from making a deal with a struggling employer to defer or waive payment of wages. This is a so-called “special contract,” and it is not enforceable in a subsequent lawsuit for unpaid wages.  These agreements sometimes happen in startup companies struggling with cash flow problems. However, companies prioritizes other expenses over wages at their peril.  The agreement with the employee to defer or waive wages will not be enforceable, and if that employee decides to sue before being make whole, they will triple the value of their claim (due to mandatory treble damages after the filing of a wage complaint) and the employer will be liable for that employees attorneys’ fees.
  2. Section 148 of the Wage Act also states that, “the president and treasurer of a corporation and any officers or agents having the management of such corporation” shall be personally liable for unpaid wages.  This means that the officers of a startup company cannot walk away from a failing startup without making sure all employees are paid in full.  When this happens–and we see it a lot–the former officers often make strong lawsuit targets, as they often are re-employed or, at the very least, have good earning potential going forward and the ability to pay a a large judgment.

The lessons: Startup companies should learn the law of wages and make sure that they pay employees in full and on time.  Employees with unpaid wage claims from a failed or failing startup should reach out to our office for a free wage consultation to learn their options.

Unpaid Training: CVS Pharmacy Case

Generally, employers cannot require that employees participate in job training without pay. CVS recently learned this lesson in the case of St. Pierre, et al. v. CVS Pharmacy, Inc., et al., Civil Action No. 13-13202-TSH (D. Mass. Sept. 18, 2017) (Hillman, J.). CVS Pharmacy required all pharmacy technicians to regularly complete mandatory training courses through an online “learning management system” called LEARNet without pay. The Federal District Court in Massachusetts held that this unlawful and entered judgment in favor of the employees.

If you have been required to perform unpaid job training, do not sign a release without talking with an attorney, and feel free to reach out to us for a free consultation.

Wage Class Action Certified in Massachusetts Superior Court

On September 13, 2017, the Massachusetts Superior Court for Suffolk County certified a class action against Helping Hands Company, Inc., a provider of home care services in Massachusetts. Escorbor v. Helping Hands Co., Inc, C.A. No. 15-2053-D. (Suffolk Sup. Crt. 2017) (Wilkins, J.). Our firm was appointed class counsel.  The case is for the unpaid wages and expenses of home care aides who travel between clients’ homes without pay during the workday.  The class certification motion was vigorously contested and the decision is notable because the Court affirmed several important concepts for workers in Massachusetts.

  1. The plaintiffs’ theory of liability controls at the class certification stage.
  2. The Massachusetts Wage Act provides an independent statutory basis for class actions. Here, the class satisfied the traditional Rule 23 requirements, but in another case where, for example, traditional numerosity wasn’t satisfied, the statutory basis for class actions, which only requires that employees be “similarly situated,” might be utilized.
  3. The failure of an employer to keep track of work time –required by state statute and regulation–may warrant an injunction in favor of a class that might require, as a remedy, an employer to reconstruct time records.
  4. An employer cannot get a credit for a wage that is due and owing by pointing to another payment that was meant for another purpose.
  5. Variance in damages among class members does not prevent the certification of a class.
  6. The Wage Act favors class actions because, in part, it helps employees get paid wages without antagonizing an employer, i.e. only one employee has to stick her neck out for the the whole group.

The court also wrote that, “During motion practice and in oral arguments, the Court has observed first-hand the adequacy and competence of class counsel,” id. at 10, which was gratifying to read. The case now continues, but now as a class action. I am sure that each side is weighing their options.

Case Report: Mickevich v Fine Finish, Inc.

Yesterday, the Massachusetts Superior Court for Middlesex County issued an final approval order in one of our wage and hour class actions. This was a small class action under the Massachusetts Overtime Law involving just 33 individuals. The key allegation in the case was that a group of cabinet makers was improperly classified as exempt from overtime, had worked overtime, but had not been paid time and a half for that overtime work.

We were able to reach a negotiated settlement agreement with the defendant. Class actions often result in a settlement if both defense and plaintiffs’ counsel are well-versed in the substantive law and are able to handicap a range of possible results for their clients. It is important for defense counsel to do this for their clients because their clients are often inexperienced in wage and hour class action litigation and an early compromise agreement allows a defendant to continue doing business without the distraction and stress of ongoing litigation, to reduce their exposure to a sum certain, and to avoid the possible ruinous consequences of paying treble damages, plaintiffs’ attorneys fees, and their own defense costs incurred through trial.  The defendants in this case were well-represented by experienced counsel, allowing the parties to engage in rational negotiations that resulted in a settlement of $215,000 fairly early in the litigation, more that two times the single damages calculated in the case.

Attorney Raven Moeslinger ably handled the plaintiff’s case for our firm.

Retail Sunday Pay and Massachusetts Wage Act

Massachusetts retailers must pay employees who work on Sunday “one and one-half times the employee’s regular rate.” M.G.L. c. 136, § 6(50).  However, traditionally, this law could only be enforced by the Attorney General: Individual employees and groups of employees could not sue under the Wage Act for violations of the retail premium pay laws (sometimes referred to as a “blue law”) and receive treble damages and attorneys’ fees.  Recently, however, the Business Litigation Session of the Suffolk Superior Court issued an interesting opinion that held that the contrary was true.

In Bassett et al. v. Triton Technologies, Inc. et al., C.A. No. 1684CV03475-BLS2, Judge Salinger held that “the Wage Act requires prompt payment of all wages earned by an employee, including higher wages earned under G.L. c. 136, § 6(50), for work on Sundays.”  Judge Salinger further noted that the Wage Act “applies to all wages earned, whether the obligation to pay the wage is solely a function of a private contractual arrangement or arises in whole or in part under a statute.” This reasoning is consistent with two other cases in recent years. Lambirth v. Advanced Auto, Inc., 140 F.Supp.3d 108, 110 (D.Mass.2015) (denying motion to dismiss a Massachusetts Wage Act claim enforcing overtime owed under federal law); Carroca v. All Start Enterprises and Collision Center, Inc., C.A. No. 12–11202–DJ, 2013 WL 3496537 at *3 (D. Mass July 10, 2013) (granting summary judgment for plaintiff on claims under the Massachusetts Wage Act where plaintiff demonstrated entitlement to overtime wages under federal law).

Only employees who work in a store, a shop or a liquor store that employs seven people or more, counting the owners, are entitled to Sunday premium pay.

Judge Salinger’s decision will help experienced wage and hour attorneys bring Wage Act cases for non-payment of wages earned under the provisions of the Massachusetts retail blue laws.

 

Credit Cards as Basis for Individual FSLA Coverage

Not all employees and business are covered by the federal minimum wage and overtime law, the Fair Labor Standards Act. If a business is covered, all of its employees are covered. However, even if a business is not covered, some of its employees may be covered. For Massachusetts employees, this matters because there are some exemptions under Massachusetts overtime law, such as for workers in hospitals and restaurants, that don’t exist under federal law. So, in these circumstances, it’s key to determine if the employee or business is covered by federal law to know whether that employee is entitled to overtime.

“Enterprise” coverage means coverage for the business, and generally exists when there has annual gross revenues of more than $500,000.

“Individual” coverage determines whether or not an employee is covered, irrespective of whether the business is covered. Individual coverage exists when an employee is engaged in interstate commerce or in the production of goods for interstate commerce.

This Department of Labor fact sheet explains the distinction.

Many things are obviously interstate commerce, like the manufacture of goods to be sold throughout the United States, and many things are clearly not interstate commerce, such as painting a house. The question in this post is whether an employee who handles customer credit card transactions is engaged in interstate commerce, thereby invoking “individual” coverage.

First, the idea of “interstate commerce” has vast implications in constitutional and federal law generally. The federal courts have interpreted the phrase expansively to permit Congress to regulate local activities. However, in the context of employees’ entitlement to overtime and the minimum wage, federal courts have interpreted the phrase quite narrowly and in favor of business defendants. Generally, the test is:

  • whether an employee engages in interstate commerce by performing work involving or related to the movement of persons or things (whether tangibles or intangibles, and including information and intelligence) between one state and another.
  • The employee must engage in these interstate activities as a “substantial part” of their work.
  • It is not enough that the employee’s activities affect or indirectly relate to interstate commerce, but they must be in or so closely related to the movement of the commerce as to be a part of it.

An employee who regularly uses the instrumentalities of interstate commerce in his work, e.g., regular and recurrent use of interstate telephone, telegraph, mails, or travel, is engaged in interstate commerce. See Thorne v. All Restoration Servs., Inc., 448 F.3d 1264, 1266 (11th Cir. 2006).

So, what about credit cards? A waiter or retail employee who is processing credit cards throughout the day, every day, seems to be using an instrumentality of interstate commerce. The electronic signal transmitting the credit card transaction information travels through the phone lines or the internet, and the actual transaction is approved and processed in a different state (a plaintiff’s lawyer must gather admissible evidence showing all of this). Isn’t this enough like using the phone lines or mails to render an employee’s activities to be in interstate commerce?  Well, opinions differ.

First, the Dept. of Labor believes that an employee who regularly handles credit card transactions is engaged in interstate commerce:  “[e]mployees … are individually covered under the FLSA if, in the performance of their duties, they are engaged in interstate commerce …. Such employees include those who regularly handle interstate mail and telephone calls, engage in banking or credit card transactions, or receive or handle goods or materials from or destined for out-of-state sources.” Dept. of Labor Opinion Letter, FLSA, 1999 WL 1002373 (March 5, 1999).

However, federal courts routinely ignore the DOL’s guidance and provide it very little deference. In the 2006 case cited above, Thorne v. All Restoration Servs, the court didn’t give the DOL’s position any weight and largely sidestepped the legal issue by stating, “Even assuming, without deciding, that credit card transactions alone could constitute an instrumentality of interstate commerce, Thorne did not produce sufficient evidence of interstate activity […] Thorne did not produce evidence that he corresponded with merchants outside the state of Florida using the mail, phone, or fax, and nor did he produce evidence that he made purchases of goods from out-of-state vendors.” Id at 1267.

In short, the plaintiff in Thorne didn’t produce enough evidence about the regularity of the employee’s credit card processing and the interstate nature of those transactions. Yet, throughout Florida in the coming years, at least four district courts after Thorne have held that, as a matter of law, credit card transactions for the purchase of local goods could not form the basis for individual FLSA coverage. Marckenson v. LAL Peker, LLC, 2011 WL 5023422, *4 (S.D.Fla. Oct. 19, 2011);Kitchings v. Fla. United Methodist Children’s Home, Inc., 393 F.Supp.2d 1282, 1293 n. 26 (M.D.Fla.2005); Dent v. Giaimo, 606 F.Supp.2d 1357, 1361 (S.D.Fla.2009); Joseph v. Nichell’s Caribbean Cuisine, Inc., 862 F. Supp. 2d 1309, 1313 (S.D. Fla. 2012), as amended (July 17, 2012).

This conversation has been dominated by federal courts in the 11th Circuit (headquartered in Atlanta but governing Florida). However, a few voices have emerged from elsewhere, such as in Owusu v. Corona Tire Shop, Inc., No. 09-CV-3744 NGG JO, 2013 WL 1680861, at *4 (E.D.N.Y. Apr. 17, 2013), where the court credited the DOL’s opinion that credit card transactions could form the basis of individual FLSA coverage.  The federal courts in Massachusetts have not addressed this issue, and I cannot predict much about the outcome. However, I believe that, for a plaintiff wanting to put himself in the best possible position, a key is laying a strong foundation regarding the interstate nature of the credit card transaction itself, and arguing that the nature of these transactions makes the employee engaged in interstate commerce, despite any local nature of the goods sold.