Counseling & Compliance Training - Page 79 of 91

Unpaid Internships – Training Programs or a Lesson in Class Actions?

Summer is quickly approaching, and eager students are lining up for internship opportunities, some of which may be unpaid. The whole topic has caused a firestorm of news stories lately – including an NYU students’ petition to remove unpaid internship postings from the campus career center, and an auction by an on-line charity website for a six week unpaid internship at the UN NGO Committee on Human Rights (the current bid is $26,000). Do unpaid internships run afoul of federal and state minimum wage laws? The answer potentially is yes, but given recent successful challenges to class certification, employers now have useful guidance in developing defense strategies against such claims.

Last week, in Wang v. The Hearst Corporation, U.S.D.C. S.D.N.Y. Case No. 12-CV-00793, the court denied class certification in a case brought by interns at various Hearst-owned magazines. The interns challenged Hearst’s practice of classifying them as unpaid interns, allegedly to avoid minimum wage and overtime laws under the Fair Labor Standards Act (“FLSA”) and New York state law. The court found that the plaintiffs could not satisfy the commonality requirement for class certification. While plaintiffs could demonstrate a corporate-wide policy of classifying proposed class members as unpaid interns, the nature of the internships varied greatly from magazine to magazine. The court noted there was no evidence of a uniform policy among the magazines regarding the interns’ specific duties, training, or supervision.

Days later, attorneys for the defendant in Glatt v. Fox Searchlight Pictures Inc., U.S.D.C. S.D.N.Y. Case No. 11-CV-06784, made a similar argument to defeat class certification in a case in which Fox interns challenged their unpaid status under federal and New York state minimum wage and overtime laws. In that case, the interns worked on the sets of different films or were based out of corporate offices, and weren’t governed by a centralized policy or procedure. The defendant in Glatt argued that class certification should be denied because of the lack of a uniform policy. While the court in Glatt has not yet ruled, these two cases suggest that, although claims by unpaid interns may persist, plaintiffs may find it increasingly difficult to sustain them as class actions.

In light of these cases, now is a good time to review the rules for internships. According to the Department of Labor, internships in the for-profit private sector will be viewed as employment relationships for which the FLSA minimum wage and overtime rules will apply, unless the intern is truly receiving training which meets six criteria: (1) the internship is similar to training that would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern is not replacing employees and works under close supervision; (4) the sponsor of the intern does not derive immediate benefit from intern’s activities and at times, its operations may actually be impeded; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the sponsor and the intern understand the intern is not entitled to wages for the time spent in the internship. As of 2010, the California Division of Labor Standards Enforcement (“DLSE”) relaxed the multi-factor test it previously applied and now uses the same criteria as the DOL.

While the Hearst ruling is good news for employers, the case did not address the merits of the interns’ claims and does not mean employers can relax their compliance efforts. If an employer improperly classifies an internship as “unpaid,” the employer could be liable for failure to pay minimum wage and overtime, penalties for failure to provide meal and rest breaks, as well as potential liability for violations of anti-discrimination and anti-harassment laws that apply to employees. The bottom line is that employers should apply the DOL/DLSE six-factor test and if their internships do not meet the criteria, the interns should be paid at least minimum wage.

Editors note: Be sure to check out Kate’s guest blog post for thewrap.com on the use of interns by entertainment and media companies.

Federal Appeals Court Rejects NLRB Union Poster Rule

The U.S. Court of Appeals for the D.C. Circuit recently held that the National Labor Relations Board’s (Board) rule that required employers to post a new notice that promoted the right to unionize (sometimes referred to as the NLRB union poster rule) violated employers’ free speech rights under Section 8 (c) of the National Labor Relations Act.

The Board issued the highly controversial rule in August of 2011 that required employers to post the new notice. Employer groups soon challenged the rule, arguing that the rule exceeded the Board’s authority to enforce the Act.

The Court noted that Section 8(c) of the Act gives employers the right to communicate with employees about union representation as long no threats or promises of benefits are made. The right of free speech, the Court stated, also includes the right to be silent. The Board’s notice posting rule forced employers to communicate with employees about union representation and made it an unfair labor practice if an employer did not comply, which the Board cannot do.

The Court also rejected the Board’s rule because the Act’s six-month statute of limitations on unfair labor practices would not apply to an employer’s failure to post the notice. It remains to be seen what the Board will do in response to the Court’s decision.

WARN Act Liability And Private Equity Firms

Last month’s decision out of the Delaware District Court in Woolery, et al. v. Matlin Patterson Global Advisers, LLC, et al. was an eye opener for private equity firms and other entities owning a controlling stake in a faltering business. Breaking from the norm, the Court refused to dismiss private equity firm MatlinPatterson Global Advisers, LLC (“MatlinPatterson”) and affiliated entities from a class action WARN Act suit alleging that the 400-plus employees of Premium Protein Products, LLC (“Premium”), a Nebraska-based meat processer and MatlinPatterson portfolio company, hadn’t received the statutorily-mandated 60 days advance notice of layoffs.

According to the plaintiffs, Premium’s performance began to decline in 2008 and, upon the downturn, the defendants became more and more involved in Premium’s day-to-day operations, including by making business strategy decisions (e.g., to enter the kosher food market), terminating Premium’s existing President, and installing a new company President. Things got bad enough that, in June 2009, the defendants decided to “furlough” all of Premium’s employees with virtually no notice and close the plant. The defendants then, in November 2009, converted the furlough to layoffs, and Premium filed for bankruptcy. According to the plaintiffs, Premium’s head of HR raised WARN Act concerns back in June, when the decision to close the plant and furlough the employees was made, and the defendants ignored the issue.

With Premium in bankruptcy, the plaintiffs, unsurprisingly, turned to MatlinPatterson and the other defendants as the targets of their WARN Act claim, asserting that they and Premium were a “single employer.” The Court then applied the Department of Labor’s five-factor balancing test, namely (1) whether the entities share common ownership, (2) whether the entities share common directors or officers, (3) the existence of de facto exercise of control by the parent over the subsidiary, (4) the existence of a unity of personnel policies emanating from a common source, and (5) the dependency of operations between the two entities. This test often favors private equity firms, and on balance it did so in Woolery too, with the Court finding that the plaintiffs had made no showing as to three of the five factors. The Court nevertheless refused to grant the defendants’ motion to dismiss, holding that the complaint alleged that the defendants had exercised de facto control over Premium and then essentially giving that factor determinative weight.

No one should be surprised by the decision given the plaintiffs’ allegations, which had to be accepted as true at the motion to dismiss stage. They presented an ugly picture of a private equity firm dictating the most critical decisions (to close plant, layoff employees) and then attempting to duck the WARN Act’s dictates. The decision is nevertheless a cautionary tale for private equity firms and at first blush it presents a catch 22: (a) do nothing and watch your investment sink or (b) get involved and risk WARN Act liability.

So what is a private equity firm, lender or majority investor to do? Obviously, the best scenario is to build in the required 60-day notice period or, if applicable, utilize WARN Act exceptions, including the “faltering company” and “unforeseen business circumstances” exceptions. Even where that’s not possible, private equity firms and other controlling investors need not take a completely hands off approach. They would, however, be best-served (at least for WARN Act purposes) to do the following:

Provide only customary board-level oversight and allow the employer’s officers and management team to run the employer’s day-to-day operations
Although Board oversight and input can occur, continue to work through the management team on major decisions, including layoffs and potential facility closures
Avoid placing private equity firm or lender employees or representatives on the employer’s management team
Have the employer’s management team execute employment contracts with the employer, not the private equity firm or lender, and have the contracts, for the most part, create obligations only to the employer
Allow the employer to maintain its own personnel policies and practices, as well as HR oversight and function

What the courts are primarily concerned with in these cases are (a) a high degree of integration between the private equity firm or lender and the actual employer, particularly as to day-to-day operations, and (b) who the decision-maker was with regard to the employment practice giving rise to the litigation (typically the layoff or plant closure decision). Private equity firms and lenders that have refrained from this level of integration have had, and should continue to have, success in avoiding WARN Act liability and returning the focus of the WARN Act discussion to the actual employer.

Supreme Court Ducks Mootness Question In Genesis

Does an unaccepted offer of judgment for full relief made prior to a motion to certify moot the plaintiff’s claim in an FLSA collective action? That was the question we hoped the Supreme Court would answer in Genesis Healthcare Corp. v. Symczyk. Unfortunately, the majority in the 5-4 opinion issued April 16 refused to decide that question, finding that the issue was not properly before the Court because the plaintiff had conceded her claim was moot in the district court and Third Circuit, and had not contested the issue in her opposition to the petition for certiorari. While we now know from the dissent that Justices Kagan, Breyer, Sotomayor and Ginsburg would find that an unaccepted offer of judgment has no impact on the validity of the underlying claim, the majority opinion leaves unresolved a split among the Circuits. The Seventh Circuit accepts the argument that a claim must be dismissed as moot when an offer of judgment for full relief is made prior to a motion to certify, while the Third, Fifth and Ninth Circuits allow plaintiffs to circumvent mootness by immediately filing a motion to certify (the Second and Sixth Circuits accept mootness but reject the argument that the case should be dismissed, finding instead that judgment should be entered for the plaintiff in the amount offered by the defendant). Because the issue remains in doubt, Defendants in FLSA collective actions may prefer to pursue settlement with the individual plaintiff before a motion to certify has been filed to end the claim, rather than make an offer of judgment, in order to avoid endless litigation over the impact of the offer.

To read our client alert for this case click here.

Employee’s Deactivation Of Facebook Account Leads To Sanctions

The latest Facebook case highlights how courts now intend to hold parties accountable when it comes to preserving their personal social media accounts during litigation. Recently, a federal court ruled that a plaintiff’s deletion of his Facebook account during discovery constituted spoliation of evidence and warranted an “adverse inference” instruction against him at trial. Gatto v. United Airlines and Allied Aviation Servs., et al. , No. 10-CV-1090 (D.N.J. March 25, 2013).

The plaintiff, a ground operations supervisor at JFK Airport, allegedly suffered permanent disabling injuries from an accident at work which he claimed limited his physical and social activities. Defendants sought discovery related to Plaintiff’s damages, including documents related to his social media accounts.

Although Plaintiff provided Defendants with the signed authorization for release of information from certain social networking sites and other online services such as eBay, he failed to provide an authorization for his Facebook account. The magistrate judge ultimately ordered Plaintiff to execute the Facebook authorization, and Plaintiff agreed to change his Facebook password and to disclose the password to defense counsel for the purpose of accessing documents and information from Facebook. Defense counsel briefly accessed the account and printed some portion of the Facebook home page. Facebook then notified Plaintiff that an unfamiliar IP address had accessed his account. Shortly thereafter, Plaintiff “deactivated” his account, causing Facebook to permanently delete the account 14 days later in accordance with its policy.

Defendants moved for spoliation of evidence sanctions, claiming that the lost Facebook postings contradicted Plaintiff’s claims about his restricted social activities. In response, Plaintiff argued that he had acted reasonably in deactivating his account because he did know it was defense counsel accessing his page. Moreover, the permanent deletion was the result of Facebook’s “automatically” deleting it. The court, however, found that the Facebook account was within Plaintiff’s control, and that “[e]ven if Plaintiff did not intend to deprive the defendants of the information associated with his Facebook account, there is no dispute that plaintiff intentionally deactivated the account,” which resulted in the permanent loss of relevant evidence. Thus, the court granted Defendants’ request for an “adverse inference” instruction (but declined to award legal fees as a further sanction).

The Gatto decision not only affirms that social media is discoverable by employers, but also teaches that plaintiffs who fail to preserve relevant social media data will face harsh penalties. Employers are reminded to specifically seek relevant social media (Facebook, Twitter, blogs, LinkedIn accounts) in their discovery requests since such sources may provide employers with sufficient evidence to rebut an employee’s claims. This case also serves as a reminder and a warning to employers that the principles of evidence preservation apply to social media, and employers should take steps very early in the litigation to preserve its own social media content as it pertains to the matter.

Blowing The Wrong Whistle – Close Scrutiny Of Code Of Ethics Dooms Nurse’s Lawsuit Under New Jersey’s Whistleblower Statute

New Jersey’s Conscientious Employee Protection Act (CEPA) is remedial legislation designed to protect employees who “blow the whistle” on illegal or unethical activity committed by their employers or co-workers. To be sure, CEPA is a powerful anti-retaliation statute, providing an array of significant remedies to an aggrieved party. However, as the saying goes, with great power comes great responsibility. A recent decision by the Appellate Division, Hitesman v. Bridgeway, Inc. (decided March 22, 2013), highlights the important gatekeeping functions of trial courts in CEPA cases. Click here for a copy of Hitesman. http://www.judiciary.state.nj.us/opinions/a0140-11.pdf.

Not every employee who “blows a whistle” is a “whistleblower” subject to the protections of CEPA. An employee who lacks an objectively reasonable belief that his or her employer’s conduct violated a law or public policy or constituted improper quality of patient care cannot, as a matter of law, sustain a viable claim under CEPA. The Supreme Court in Dzwonar v. McDevitt, 177 N.J. 451 (2003) provided the legal framework for trial courts to use to separate the proverbial wheat from the chaff in most CEPA cases. First, the trial court must identify a law, rule, or regulation promulgated pursuant to a law or a clear mandate of public policy, that the plaintiff believed was violated by the employer’s conduct. Next, the court must determine whether there is a “substantial nexus between the complained-of conduct and [the] law or public policy identified by the court or the plaintiff.” If the trial court so finds, the jury then must determine whether the plaintiff “actually held a belief and, if so, whether that belief was objectively reasonable.”

In Hitesman, the plaintiff, a nurse who worked at a long-term nursing home facility, disclosed to government regulators “practices of Defendant that he reasonably believed constituted improper quality of patient care and violations of his professional code of ethics.” He sued under CEPA after he was fired for admittedly violating the defendant’s confidentiality policy (improper disclosure of patient information). The trial court allowed the plaintiff’s CEPA claim to proceed to a jury trial, and the jury found in the plaintiff’s favor on liability. However, on appeal the Appellate Division reversed the jury’s verdict.

Applying the analytical framework in Dzwonar for determining whether the plaintiff has established a prima facie case under CEPA, the court in Hitesman found that the plaintiff had failed to proffer facts that would support an objectively reasonable belief that a violation of law or clear mandate of public policy by his employer had occurred. The Appellate Division concluded that the plaintiff’s reliance on the American Nursing Association’s Code of Ethics (“Code”), his employer’s Employee Handbook and a Statement of Residents’ Rights, was misplaced because none of these documents constituted a source of law or public policy closely related to the conduct about which the plaintiff claimed he had blown the whistle. While the section of the Code relied upon by the plaintiff provided guidance as to whether he had acted in compliance with the Code in expressing his concerns, nothing in the Code established any standards regarding patient care. As a result, the court held that the plaintiff’s belief that his employer had acted in violation of the Code was not objectively reasonable as a matter of law.

The court in Hitesman also concluded that “generalized statements” in the employer’s Employee Handbook about a commitment to “the best quality of health care” and requirements that its employees comply with all applicable statutes, regulations and ethical standards were “far too vague” to provide a “high degree of public certitude in respect of acceptable versus unacceptable conduct.” Thus, an employee’s reliance on generalized statements that the employer and its employees will comply with the law will not support a CEPA claim.

All too often, plaintiffs in CEPA cases cite a litany of broad and generalized legislative, ethical rule or code of conduct statements to challenge management decisions. Do not let a plaintiff get away with the “throw everything at the wall to see what sticks” approach in CEPA cases. Hitesman and Dzwonar require trial courts to engage in a rigorous analysis to determine whether the plaintiff had, as a matter of law, an objectively reasonable belief that the complained-of conduct violated a law or public policy. Because CEPA does not shield a complainer who simply disagrees with an employer’s course of lawful conduct, close scrutiny of the complained-of conduct by the trial court is essential. As the court in Hitesman explained, it is “not enough for an employee to rest upon a sincerely held – and perhaps even correct – belief that the employer has failed to follow the most appropriate course of action, even when patient safety is involved.” Instead, the employee must have an objectively reasonable belief that a violation of relevant legal authority occurred.