By Matt Pavich, J.D.

A revised independent contractor operating agreement (ICOA) that Swift Transportation sent to its contract truck drivers and required them to sign could have a chilling effect on their participation as class members in an ongoing wage suit alleging the drivers were misclassified as independent contractors, a federal district court in Arizona held. The new contract terms suggested a new payment scale not permitted under the FLSA, and they could be construed as shifting fees to the defendants in the event the drivers did not prevail in their suit, which the FLSA does not allow. Exercising its authority to invalidate misleading or coercive communications to potential class members under Rule 23(d), the court directed the defendant to clarify the problematic provisions. In a separate ruling, it granted the defendants’ motion to stay a decision on conditional class certification pending the Ninth Circuit’s review of its earlier ruling denying a motion to compel arbitration (Doe v. Swift Transportation Co., Inc., February 24, 2017, Sedwick, J.).

Contract truck drivers for Swift Transportation (referred to as lease operators by the trucking company and the related truck leasing company, with whom they signed lease agreements) entered into operating agreements that specified the drivers were independent contractors, not employees. The agreement provided that all disputes would be subject to arbitration. In 2009, the drivers sued, alleging various labor law claims, and the defendants sought to compel arbitration. The court found the drivers were effectively treated as employees; thus, pursuant to the FAA’s exemption for employees engaged in interstate commerce, they were not required to arbitrate the dispute. Swift appealed the decision.

Shortly after that ruling, Swift informed the drivers via its online messaging system that they needed to sign a revised ICOA, retroactive to January 1, 2017, or face termination. The drivers were told they can simply approve and sign the new ICOA by replying to the message through the online system. However, the message did not inform the drivers as to what provisions were altered in the new agreement, or what the new ICOA was intended to address. The new ICOA against asserted that the drivers were independent contractors; additional provisions were added, however, related to wage payment and indemnification obligations.

The plaintiffs in the ongoing case filed a motion for a temporary restraining order and preliminary injunction, contending that the new ICOA agreement sent to potential class members could have a chilling effect on their joining the action. Specifically, the ICOA’s new terms could be construed as limiting damages, and as making the drivers liable for Swift’s attorney fees if their suit failed. And counsel for the defendants refused to disavow the applicability of these contract terms to the case at hand, or clarify their scope.

Misleading communication to class members. As an initial matter, the court found it had authority under Rule 23(d) to invalidate misleading communications to putative class members by defendants prior to class certification. Consequently, the court could address the dispute regarding the new ICOA provisions in order to protect the class members in the ongoing litigation. Swift argued that the court had no such authority because there was no class to manage, as the class had not been certified and because the named plaintiffs no longer had standing, since they were no longer employed. The court rejected that argument. The named plaintiffs had an interest in what the current drivers were being forced to sign because it would affect their underlying case. The terms of the ICOA could discourage new members from joining the class, the court reasoned, because they were misleading and coercive.

New ICOA terms. The first challenged provision stated that either party could end the agreement if the drivers were found to be employees and not independent contractors—in which case the drivers would owe Swift for all gross compensation paid to the drivers, while Swift would owe payment of the mean hourly wage. This provision was misleading because it improperly suggested that Swift could impose its own measure of damages if the drivers were reclassified. Swift suggested that in the event of reclassification, it would only recapture mileage payments and substitute hourly wages, but the FLSA does not allow for the averaging of hourly payments over two weeks, as Swift proposed. Furthermore, the FLSA allows prevailing workers to obtain liquidated damages, and workers cannot waive that right. The other challenged ICOA provision required the drivers to indemnify Swift for all attorneys’ fees and litigation expenses incurred during the course of the litigation if the drivers did not prevail. However, the FLSA’s fee-shifting provision only applies to prevailing plaintiffs, not defendants. So this term also was misleading.

When read together, the new ICOA terms could cause potential class members to fear that they would owe money to Swift, regardless of the outcome of the suit. Under the first provision, drivers could believe that they would owe money if the mileage wages averaged more than the minimum hourly wages. The second provision flatly stated that drivers would be liable for fees and expenses if the suit failed. Although the new ICOA stated it would not retroactively affect previous agreements, the court found that the retroactive language could mean that Swift would only remedy part of a money judgment against it. Thus, the challenged provisions potentially interfered with the putative class members’ rights.

The court ordered the defendants to send a notice explaining the payment obligations and the truth regarding indemnification. The notice must identify the subject matter of the challenged provisions, and include the contact information for the plaintiffs’ attorney. The court did not, however, enjoin the defendants from future communications with the drivers.

Class certification stayed. In a separate ruling, the court granted the defendants’ motion to stay conditional class certification pending Ninth Circuit review of the district court’s prior ruling. Although appeals of a district court’s denial of motions to compel arbitration in the Ninth Circuit do not automatically trigger a stay, under the standard test for granting a stay pending appeal, the stay should be granted here. Although the court disagreed that the defendants were likely to prevail on the merits, it did find that serious legal questions regarding the existence of an employment contract were present, noting that the Ninth Circuit had stated that the case was one of first impression.

The court also found that if the Ninth Circuit were to side with the defendants, the defendants would have incurred unnecessary and substantial class action defense costs if class certification were allowed to proceed. Moreover, given the lengthy procedural history of the dispute, which dated back seven years, the plaintiffs would not be unduly harmed by a delay in class certification. Moreover, the public interest would not be served by a possible future decertification of the class, should the appeals court agree with the defendants.

A Brazilian Regional Labor Court has ruled that a driver using the Uber ride-hailing app is an employee and is entitled to workers’ benefits, reports Reuters. The judge ordered Uber to pay the driver USD 10,000 as compensation for overtime, night shifts and other expenses.

The ruling follows a similar case in the UK last year in which a London employment tribunal ruled that Uber drivers in the UK should be classified as workers and not self-employed. Uber said in a statement that it was appealing the decision, citing a contradictory ruling by a different labour court which ruled that drivers are contractors, not employees.If the decision by the labour court is upheld, it could lead to greater problems for Uber’s entire business model in Brazil.

By Pamela Wolf, J.D.

New York will usher in the New Year with changes to the salary threshold at which those who work in an administrative or executive capacity will be considered exempt from state wage and hour provisions. The changes, which were proposedvia notice in the State Register on October 19, were adopted without change in a December 28 State Register filing.

Under the new rules, individuals working in an administrative or executive capacity are exempt from wage and hour provisions when they meet certain criteria and threshold salary requirements. The current threshold, set at $675.00 per week, will increase according to the date, size of employer, and location within the state.

New York City. In New York City, for employers with 11 or more employees, the threshold will increase to $825.00 per week on December 31, 2016; $975.00 per week on December 31, 2017; and $1,125.00 per week on December 31, 2018.

For employers with 10 or fewer employees the salary threshold will increased to $787.50 per week on December 31, 2016; $900.00 per week on December 31, 2017; $1,012.50 per week on December 31, 2018; and $1,125.00 per week on December 31, 2019.

Remainder of downstate. For the remainder of downstate New York, which includes Nassau, Suffolk, and Westchester counties, the salary floor increases to $750.00 per week on December 31, 2016; $825.00 per week on December 31, 2017; $900.00 per week on December 31, 2018; $975.00 per week on December 31, 2019; $1,050.00 per week on December 31, 2020; and $1,125.00 per week on December 31, 2021.

The rest of the state. As to the remainder of the state—outside of New York City, Nassau, Suffolk, and Westchester counties—the salary floor will increase to $727.50 per week on December 31, 2016; $780.00 per week on December 31, 2017; $832.00 per week on December 31, 2018; $885.00 per week on December 31, 2019; and $937.50 per week on December 31, 2020.

The New York Department of Labor has posted a summary of the wage order implementing the changes.

By Kathleen Kapusta, J.D.

Finding that case law interpreting the ADEA did not prevent it from joining other circuits in holding that the FLSA’s broad authorization of “legal and equitable relief” encompasses compensation for emotional injuries suffered by an employee on account of retaliation by her employer, the Fifth Circuit remanded an employee’s retaliation claim for a determination of whether he had proven any such harm. Further, because the FLSA allows only employees to bring suit, the appeals court affirmed the dismissal of a retaliation claim brought by his wife in which she contended she was within the zone of interests protected by the statute. Judge Jones wrote a separate concurring opinion emphasizing the court’s admonition that the case ought to be terminated expeditiously and at minimum cost to the employer (Pineda v. JTCH Apartments, L.L.C., December 19, 2016, Costa, G.).

As part of his compensation for performing maintenance work in and around the apartment complex where he and his wife lived, the employer discounted the employee’s rent. Three days after the employee sued, seeking unpaid overtime under the FLSA, he and his wife were told to vacate their apartment for nonpayment of rent. The amount of rent the employer demanded equaled the rent reductions the employee had received during his employment.

Lower court proceedings. The employee and his wife then filed an amended complaint to include a claim of retaliation. During the jury trial, the court granted the employer’s motion for judgment as a matter of law on the wife’s retaliation claim, finding she was outside the protections of the FLSA. The employee unsuccessfully sought an instruction on emotional distress damages for his retaliation claim. The jury subsequently found for him on both claims, awarding him $1,426 on the overtime claim and $3,775 on the retaliation claim. The district court awarded him liquidated damages and attorneys’ fees of $76,732.

Emotional distress damages. On appeal, the employee argued that the lower court should have instructed the jury on damages for emotional harm. In retaliation claims, the appeals court observed, the FLSA provides that “Any employer who violates the provisions of section 215(a)(3) of this title shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3) of this title, including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.”

Although it had not yet decided whether this language allows a plaintiff to recover for emotional distress damages, the court noted that the Sixth and Seventh Circuits—the two courts of appeals that have analyzed the question—have. Further, a number of other circuits have upheld jury awards for emotional damages in FLSA retaliation cases even though the legal question was not challenged on appeal.

ADEA and FLSA. Pointing out that the district court was not the only court in the circuit to conclude to the contrary, the appeals court explained that this resulted from its decisions stating that the remedies provisions of the FLSA and the ADEA should be interpreted consistently because the ADEA incorporated the FLSA’s remedy provision. Specifically, it noted that some courts have concluded that its ruling in Dean v. American Security Insurance Co., that emotional distress damages were not available under the ADEA, must mean they are also unavailable under the FLSA.

However, observed the court, when Dean considered whether the ADEA afforded a remedy for emotional harm by looking to the FLSA remedy provision, it looked at the pre-1977 FLSA, which limited relief to economic damages and did not even allow private retaliation suits. The remedies provision for retaliation claims was added to the FLSA in 1977. Further, in granting employees the ability to enforce the anti-retaliation provision on their own, Congress allowed them to recover not just wages and liquidated damages, but also “such legal or equitable relief as may be appropriate.”

Noting that after the ADEA incorporates the FLSA damages provision, it goes on to provide that: “In any action brought to enforce this chapter the court shall have jurisdiction to grant such legal or equitable relief as may be appropriate to effectuate the purposes of this chapter . . . .” the court pointed out that it has never said “this freestanding language in the ADEA automatically applies to the FLSA, and that would make little sense. Although the ADEA incorporates portions of the FLSA, the FLSA does not incorporate the ADEA.”

The final “as may be appropriate to effectuate the purposes” phrase on which Dean focused warrants a different result when it comes to the FLSA retaliation provision, the court stated, explaining that the FLSA has no comparable legislative preference for the ADEA’s administrative conciliation and mediation scheme that motivated the ruling in Dean. Instead of requiring exhaustion of remedies before an agency like the EEOC, the FLSA authorizes immediate suits by employees to provide compensation and deterrence.

Jury question. After concluding that an employee may recover under the FLSA for emotional injury resulting from retaliation, the court noted that during the trial, the employee testified to experiencing marital discord, sleepless nights, and anxiety about where his family would live after his employer made what the jury found to be a retaliatory demand for back rent. Because this was sufficient to enable a jury to find that he experienced compensable emotional distress, a question asking whether he had proven any emotional damages should have been submitted to the jury. Thus the court remanded for a determination of whether the employee had proven any harm.

Wife’s retaliation claim. Turning to his wife’s claim that she was within the zone of interest protected by the FLSA, the court noted that she relied on Thompson v. N. Am. Stainless, LP, which applied the zone of interests test for determining who may bring a Title VII retaliation claim. Her attempt, however, to apply Thompson to her situation ignored a critical distinction between the text of Title VII and the FLSA’s retaliation provision. While the remedies provisions of Title VII permit a “person claiming to be aggrieved” to file a civil suit, under the FLSA, it is only unlawful “to discharge or . . . discriminate against any employee because such employee has filed any complaint.” Thus, the district court correctly dismissed the wife’s retaliation claim.