“SHAVING TIME” INFLICTED FINANCIAL WOUNDS FOR AN EMPLOYER

By: Claudia D. Orr

We all know that collective actions under the Fair Labor Standards Act 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.  This case involves allegations of a company-wide policy of requiring employees to systematically underreport their overtime hours that was brought by 293 technicians of FTS USA, LLC, a cable television company, 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 Sixth Circuit Court of Appeals, 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 federal District Court for the Western District of Tennessee.  Following a trial, a jury returned verdicts in favor of the employees, which was upheld by the district court when challenged by defendants.  The district court then calculated the damages at nearly $3.9 million dollars including liquidated damages. The case was challenged at 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 US Supreme Court which granted the defendants’ request for review, vacated the Sixth Circuit’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.

Now back at the Sixth Circuit, the appellate court decided on June 21, 2017, that its rulings the first time were correct, and again remanded the case back to the district court to recalculate the damages.  So, let’s look at what happened and the plaintiffs’ use of “representative evidence” in this case so you can see just how dangerous these collective actions have become.

FTS contracts 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 their assignments which are 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 pursuant 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 time sheets are sent to payroll.

Evidence showed that a company-wide “time-shaving” policy was in place, whereby managers told or “encouraged” techs to underreport time or falsified the timesheets themselves.  Technicians routinely started work earlier than they reported, worked during lunch hours or stayed 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 underreport their overtime.

The Sixth Circuit 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”. [1]

The Sixth Circuit 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 Sixth Circuit 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.”  Here 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 underreport hours.  And, if the technicians failed to follow the under-report directive, the managers would change their time sheets.  The Sixth Circuit 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 Sixth Circuit 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 nontestifying technicians.”  The jury’s partial acceptance of the defenses actually resulted in a lower average of hours worked for the nontestifying 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 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 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 nontestifying 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 court noted, however, that defense counsel had actually previously argued against the jury calculating the damages.

The Sixth Circuit agreed with defendants on one point – the 1.5 multiplier should not have been utilized 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, such as the author, to assist you in doing so. These are not easy legal issues and mistakes can be very costly.

This article was written by Claudia D. Orr, who is Chair of the Legal Affairs Committee of Detroit SHRM, and an experienced labor/employment attorney at the Detroit office of Plunkett Cooney (a full service law firm and resource partner of Detroit SHRM).  She can be reached at corr@plunkettcooney.com or at (313) 983-4863. For further information go to: http://www.plunkettcooney.com/people-105.html.

Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article. July 2017.