Tip Strip? Exotic Dancers Prevail in Lawsuit Against Strip Club for Employment Misclassification

In Philadelphia, a federal court judge entered a nearly $4.6 million judgment in favor of a group of exotic dancers and against a strip club, the Penthouse Club. In the class action, the dancers argued they had been mischaracterized as independent contractors instead of as employees and, as a result, the dancers were deprived of minimum wages and tips they earned. The club argued it was not an employer and merely rented space to the exotic dancers, whom the club treated as independent contractors, but the jury rejected that argument and found the club was an employer. In this case, the club was deemed an employer because, among other things, it had the power to ban dancers (or fire them if they were employees) for violating club rules.  The club required dancers to pay “tip outs” to other club employees such as fees to management, the DJ, the “house moms,” the emcee, security workers, and valets.  As a result, the dancers argued their wages and tips, which they were entitled to keep as employees, were diverted.  This fact pattern is increasingly common because dancers from across the country assert similar claims, but it also extends to other businesses that use similar pay models, such as exercise studios.

Savvy employer takeaways: Proceed with the utmost caution when using the independent contractor designation for service providers, ensure tipped employees are paid in accordance with applicable federal and state laws, and impose limits on tip-pooling and other tip-sharing rules.

Questions? Let me know.

Gone Phishing? Employees Sue Worldwide Manufacturer for Invasion of Privacy, Among Other Tort Claims

Talk about adding insult to injury! After Schletter Group, a worldwide manufacturer with headquarters in North Carolina, fell for a phishing scam when it sent its employees’ W-2 information in response to a phony email, it was sued by its employees for invasion of privacy and other tort claims.  The employees claimed the company ignored the risks identified in a 2015 FBI warning and a 2016 news article about the scam and did not take appropriate steps to protect its employees’ private data.  While the company initially offered credit monitoring services, the employees sought additional remedies, including monetary damages.  Although the company sought to dismiss the employees’ claims on the basis that the employer had no intent to make the disclosure, the company’s motion failed.  The court ruled, at least at the early stages, that the company’s arguments that it did not intentionally disclose its employees’ data were not enough to toss the suit out of court.  The court accepted the employees’ argument that this was a disclosure and not a breach and therefore, the element of intent was satisfied at the pleading stage.

Savvy employer takeaways: Encrypt employee data, place strict limits on who has the ability to disclose it, train employees on the risks of cyber scams, and pay attention to FBI and news media warnings.

For more information, including news, updates and links to important information pertaining to legal developments that affect businesses ranging from cyber security liability arising from electronically-stored information to evolving issues with employees, subscribe to my blog, or follow me on Twitter @AdamGersh.

Mass. Court Turns Over A New Leaf: Rules Employer May Be Liable for Failing to Accommodate Employee’s Medical Marijuana Use

Even though 29 states now allow medical marijuana, employee use of medical marijuana is unprotected in many workplaces because marijuana use of any kind remains illegal under federal law.   Favoring employee’s right to be free from discrimination for using medical treatments that are legal under state law over the federal ban, a recent decision from Massachusetts’s highest court means employers may need to reevaluate and revise their policies to keep up with this rapidly evolving area of employment law.

On July 17, 2017, the Massachusetts Supreme Judicial Court ruled a trial court erred when it dismissed an employee’s claim that she was subjected to disability discrimination when her employer terminated after she tested positive for marijuana in pre-hire drug screening.  The case, Barbuto v. Advantage Sales and Marketing LLC, is noteworthy because, in many states, employers have been able to terminate workers for failing drug tests due to medical marijuana use.

Where are we?

By way of background, employers have broad discretion to terminate employees for medical marijuana use in many states on the basis that use of marijuana, even if lawful under state law, remains a federal crime.  This is well illustrated by the case of Coats v. Dish Networks, LLC, decided by the Colorado Supreme Court in 2015.  In that case, an employee was terminated for testing positive for marijuana.  It was undisputed that the employee had a valid prescription to use medical marijuana, which was legal in Colorado, and that he did not use marijuana at work or in a way that impaired his work performance.  When he tested positive for marijuana, he was terminated and brought an action against his former employer for violation of Colorado’s Lawful Off-Duty Activities statute, which generally prohibits employers from discharging an employee based on his/her engagement in “lawful activities” off the premises of the employer during nonworking hours. The Colorado Supreme Court upheld the dismissal of the employee’s claims and found the employer had a right to terminate him for off-duty activities that violated federal law, even if they were lawful under Colorado law.  Similarly, the NFL prohibits players from using medical marijuana even in states where it is legal under state law.

Closer to home, under New Jersey law currently, employers have no strict obligation to accommodate medical marijuana users and employers may terminate an employee who fails a drug test, even if the employee can lawfully use medical marijuana under state law and was not impaired at work.  Pennsylvania’s recently adopted medical marijuana law broadly prohibits discrimination against an employee or job candidate because he or she has a medical marijuana prescription (i.e., is a cardholder), but it is silent on whether an employer can rely upon a positive drug test as a reason for an adverse employment action in itself.  Both Pennsylvania and New Jersey permit an employer to terminate an employee who is impaired in the workplace.

What Happened in Massachusetts?

That brings us back to Barbuto.  In Barbuto, before she was hired, the employee disclosed that she used medical marijuana to treat an underlying condition, but did not use it during working hours.  When the results of her drug screening were positive for marijuana, she was terminated after completing her first day.  Barbuto alleged the termination was discriminatory and the employer violated her rights by failing to make a reasonable accommodation.  In many states, Barbuto’s claim would have been dismissed, but in Massachusetts the Court took a novel approach.  The Court found the employer had a duty to make a reasonable accommodation for medical marijuana usage outside of working hours, despite the employer’s drug policy, explaining, “the fact that the employee’s possession of medical marijuana is in violation of federal law does not make it per se unreasonable as an accommodation.”  This outcome is surprising because it limits an employer’s discretion to discipline employees who use medical marijuana, in violation of federal law, by relying on the state’s anti-discrimination laws.  Most states have similar anti-discrimination protections.

Where we are going?

Although the Barbuto decision only applies in one of the 29 states where medical marijuana is currently legal, it is worth noting because of the potential for its reasoning to be applied in other states where medical marijuana is lawful.  If it is followed in other states, it creates a new risk when an employer has a zero-tolerance drug testing policy that leads to discipline for employees who lawfully use medical marijuana and are not impaired at the workplace.  In states where this issue has not been resolved, employers should expect to face claims similar to those raised in Barbuto.  For example, in Barrett v. Robert Half Corporation, a New Jersey employee tried to make a similar argument, but his case was dismissed on the basis that he never requested an accommodation, meaning the court never reached the issue of whether allowing off-duty use of medical marijuana is a reasonable accommodation.

Even if state courts do not follow Barbuto, legislatures are also revisiting the issue.  For instance, in New Jersey two bills offering express workplace protections for medical marijuana users are working their way through the legislature.

What should employers do?

In light of this ever-changing landscape, employers should carefully evaluate whether they need to screen for marijuana when conducting tests that are not related to suspicion of drug use in the workplace.  Today, in states where there is no clear precedent, disciplining an employee for a positive test when the employee has disclosed a need for medical marijuana usage and there is no evidence of workplace use is an increasingly risky decision and may soon give rise to a legislatively-sanctioned claim.  Of course, employers need not tolerate employees who are impaired in the workplace.  Additionally, some employers, especially those with safety-related positions and certain government contractors, may be required to screen for any marijuana use and enforce a zero-tolerance policy.  For everyone else, it is a good idea to think carefully before imposing discipline for medical marijuana use outside of the workplace.

Questions? Let me know.

Recall Alert: The Service Advisor Exemption The Courts Just Can’t Fix

In what Yogi Berra might describe as a case of “déjà vu all over again,” the U.S. Court of Appeals for the Ninth Circuit issued a January 9th decision holding that dealership service advisors are not exempt from overtime requirements under the Federal Fair Labor Standards Act (“FLSA”).  In short, the Court ruled service advisors, who were historically exempt under a dealership-specific exemption, must now be paid overtime for hours over 40, unless another exemption applies.

What was the ruling? 

As you may recall, this same Court made a similar ruling in 2015, but the U.S. Supreme Court reversed the earlier ruling in a June 20, 2016 decision that sent the case back to the Ninth Circuit.  This protracted legal back-and-forth revolves around an interpretation of whether the U.S. Congress intended service advisors to be included within the FLSA’s exemption for certain automobile dealership positions and the weight that courts should give to the U.S. Department of Labor’s historical interpretation that service advisors were exempt.

Specifically, the FLSA expressly exempts certain dealership employees from the requirement to pay overtime (1.5 times the hourly rate for hours worked over 40).  This exemption applies to, “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.”  29 U.S.C. § 213(b)(10) (2016).  From 1978 to 2011, the U.S. Department of Labor interpreted this exemption to apply to dealership service advisors (as salesman of services), however, in 2011, the Department reversed course and issued a new rule that applied the exemption only to “salesman”, meaning service advisors would have to be paid overtime.

Since the Department of Labor issued this rule, dealerships have been challenging it, arguing the Department of Labor overstepped its bounds by changing course so dramatically and misinterpreted the FLSA.  When the U.S. Supreme Court weighed in in 2016, it ruled only that the Ninth Circuit improperly gave too much weight to the Department of Labor’s interpretation, without deciding whether the Court’s interpretation was correct.  The U.S. Supreme Court sent the case back to the Ninth Circuit with guidance on the level of deference it should give to the Department of Labor.  Now, the Ninth Circuit weighed in again and decided, without giving any weight to the Department of Labor, the FLSA is clear enough on its own that its exemption does not extend to service advisors.  According to the Ninth Circuit, the FLSA is meant to exempt workers who sell cars, not services.

Where does it apply? 

This decision applies to Courts in the Ninth Circuit (Alaska, Arizona, California, and Hawaii) and is binding on those courts.  While it contradicts earlier decisions by courts in the Fourth (Maryland, South Carolina, North Carolina, Virginia, and West Virginia) and Fifth (Louisiana, Mississippi, and Texas) Circuits and the Supreme Court of Montana, those decisions are now in question.  As far as the U.S. Department of Labor is concerned, dealerships should be prepared for the Department to enforce the FLSA in a consistent manner on a nation-wide basis by requiring service advisors to be paid overtime.

What is next? 

Unfortunately, this new decision is not likely to end the debate.  For now, the Ninth Circuits ruling allows the U.S. Department of Labor to interpret the FLSA consistent with its 2011 rule and for it to require service advisors to be paid overtime for hours worked over 40.  However, there will likely be another appeal to the U.S. Supreme Court and there may even be new legislation to extend the exemption to the service advisors.  Moreover, with the new administration and new Secretary of Labor, the Department of Labor may, once again, change course.

What should dealerships do? 

First, dealerships need to assess whether, in fact, their service advisors are working in excess of 40 hours per weekly pay period.  Second, if the service advisors are exceeding 40 hours, dealerships should evaluate their pay plans and staffing structure to determine the scope of their potential overtime obligations and options for mitigating them.  For instance, even if the dealership-specific exemption does not apply to service advisors, certain service advisors on compliant commissioned pay plans may fall within other FLSA exemptions.

Ultimately, dealerships should buckle up for a bumpy ride.  In spite of multiple attempts, courts, legislators, and the Department of Labor have not been able to fix the ambiguity with any certainty (if this were a new car, it would be a lemon), but Flaster Greenberg can help and, to learn how, we invite you to contact Ken Gilberg, Adam Gersh, or any member of Flaster Greenberg’s Labor and Employment Practice Group.

Crash Course: The Intersection of Race Relations, Employee Relations, and Social Media

Race relations have taken center stage in our 2016 presidential election and in our headlines, so naturally topics of race relations have permeated the workplace.  This raises important issues for employers, especially when faced with employees who openly protest racial discrimination in society at large because such protests may be controversial and increasingly public due to the proliferation of social media.  Most important, employers need to know federal anti-discrimination and anti-retaliation protections may be interpreted by courts to extend to certain types of employee informal protests of discriminatory employment practices, including making complaints to management, writing critical letters to customers, protesting against discrimination by industry or society in general, and expressing support for co-workers who have filed formal charges.

Specifically, 42 U.S.C. § 1981 (“Section 1981”) was enacted to deter racial discrimination in the formation and enforcement of contracts, and also prohibits retaliation, both in and out of employment.  In interpreting Section 1981, the courts of Pennsylvania, New Jersey, and Delaware, among others, held that its protections extend to prohibit retaliation that punishes an individual for opposing conduct that violates Section 1981, whether that individual or some third party was the victim of the § 1981 violation.  In other words, an employee who protests discrimination may have anti-retaliation protections even when the forms of protest may be controversial and even if the employee was not individually a victim of the discrimination that is the subject of the protest.

In a recent employment case, L Brands/Victoria’s Secret Stores, LLC (“Victoria’s Secret”) terminated a district manager for what it perceived to be racist Facebook posts.  As an example, the employee used her Facebook feed to repost a picture depicting a person wearing a Ku Klux Klan-reminiscent white, hooded robe with the Los Angeles Clippers logo and the number 42, and was captioned “Game 5 in LA is Free Sheet Night…Donald Sterling Bobble head doll night too!,” a reference to the headlines about racist actions of Sterling, the Clippers’ owner at the time. When Victoria’s Secret was notified about the posts, it investigated and terminated the employment of the district manager.  The district manager brought suit under Section 1981 alleging she was the victim of retaliation for protesting discrimination by Sterling and others on Facebook.  Victoria’s Secret won the case (at least at the trial level) by showing that, irrespective of the district manager’s subjective intent, the message of the post was so unclear that no reasonable jury could find that this image objectively complained about or protested incidents of race discrimination prohibited by Section 1981.  In this case, the court’s decision rested on its finding that there was no clear connection between the alleged protected conduct and a contractual right and, in any event, the court found no reasonable person could have believed that the underlying incident complained about constituted unlawful discrimination.  As the court further explained, an “oblique reference” to or “mere mention of race” or race-based discrimination does not constitute protected opposition to violations of Section 1981, rather it must be an objectively identifiable protest of discriminatory practices in the formation and/or enforcement of contracts.

Employers can take little comfort in Victoria’s Secret’s win, however, because it was essentially based on the Court’s determination that the content of the district manager’s post was not clear enough to trigger anti-retaliation protections.  Arguably, the result would have been much different if the employee were clearer about her own feelings and tied them to a contract, even if her form of protest was offensive to Victoria’s Secret and its customers.

The takeaway:  Employers must be cautious and should consult with counsel before disciplining employees for conduct that could be construed as protesting discrimination, even when the employee’s conduct appears offensive on its face.

Questions? Let me know.

Delaware District Court Refuses to 86 Employees’ Wage & Hour Suit

Restaurant owners need to be on high alert about how they pay servers for “side work” after a recent federal court decision in Delaware that put a fork in a motion to dismiss a waitress’s overtime pay lawsuit against her restaurant employer.  The server is seeking to recover for alleged violations of wage and hour laws due to the way she was compensated for work other than directly serving patrons. Given the facts and the widespread use of the challenged practice, this may be a fertile ground for class action lawsuits by servers against restaurants subject to the Fair Labor Standards Act (“FLSA”),waitress wage and hour which generally includes restaurants with $500,000 in gross revenue.

The case, McLamb v High 5 Hospitality, arises because a server at a Buffalo Wild Wings alleges the restaurant violated her rights under the FLSA by, among other things, failing to pay her minimum wage, even though, based on the number of hours she worked, her pay exceeded the applicable minimum wage.  In this case, Buffalo Wild Wings, like most others, paid the server less than minimum wage ($2.25/hour in this case) under the FLSA’s “tip credit” provision.  According to the server, her shifts included both tip-eligible work (e.g., serving) and work that was not eligible for tips (e.g., side work  including cleaning, re-stocking, opening, closing and rolling silverware).  The server claims she regularly spent in excess of 20% of her working time performing work that was not eligible for tips.  The server claims she essentially had dual jobs and was not paid minimum wage for her side work.  Her employer argued her claim should be dismissed because, under a “work week analysis”, tips received by a tipped employee count towards their minimum wage regardless of the nature of their duties.

At the motion to dismiss stage, the Court rejected the restaurant’s argument relying, in part, on a U.S. Department of Labor Field Operations Handbook, which states “[W]here the facts indicate that specific … tipped employees spend a substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.”  While this is only a trial level case in the preliminary motion to dismiss stage (where the plaintiff has a low burden to survive dismissal), it is significant that the Court is leaving open the possibility that failing to pay minimum wage to servers for side work that exceeds 20% of working time may be an FLSA violation even when the employee earned minimum wage under a “work week analysis.”  This is consistent with the holdings of other courts as well.  The case could have implications in Pennsylvania and New Jersey, as they are part of the federal Third Circuit, which includes Delaware.

To be on the safe side, restaurant employers who are subject to FLSA and use the tip credit provision should consider either keeping the time servers spend on side work below 20% of working time — and documenting that fact as well as they can — or paying servers separately for side work at a minimum wage. 

Questions? Let me know.

Where There’s Smoke It’s Still OK To Fire: Three Things Employers Need To Know About Pennsylvania’s New Medical Marijuana Law

medical marijuana blog post

Employers in Pennsylvania will soon begin feeling the effects of Pennsylvania’s new Medical Marijuana Act (MMA), which rolls out on May 17th and provides new rights for employees who become certified medical marijuana patients.  As Pennsylvania joins more than 20 states that already allow medicinal marijuana, including neighbors New York, New Jersey and Delaware, employers should be reviewing their policies and procedures to make sure they are hip to the new law.

First, employers will be relieved to know the MMA, which does not extend to smokable forms of the drug, contains no requirement that employers accommodate the use of medical marijuana during working hours or in the workplace.  Specifically, the MMA provides, “the Act shall in no way limit an employer’s ability to discipline an employee for being under the influence of medical marijuana in the workplace or for working while under the influence of medical marijuana when the employee’s conduct falls below the standard of care normally accepted for that position.”  The MMA also recognizes the concerns employers may face if their workers are performing safety-related tasks and expressly prohibits certified users from performing certain sensitive jobs while “under the influence” of medicinal marijuana (defined as 10 nanograms of active tetrahydrocannabis per milliliter of blood in serum for the purposes of certain safety-related activities), including: (1) operating or being in physical control of chemicals which require a permit issued by the federal government, state government, federal agency or state agency; (2) operating or being in control of high-voltage electricity or any other public utility; (3) performing any employment duties at heights or in confined spaces, including, but not limited to, mining; (4) performing tasks that the employer deems life-threatening to either the employee or any employees of the employer; and (5) performing any duty that could result in a public health or safety risk.

The more complicated issue the MMA presents but does not directly address is how the 10 nanograms of active tetrahydrocannabis per milliliter of blood standard for certain safety-related tasks applies to other working conditions, especially when employees test for lower concentrations but still appear impaired.  This should not present a novel problem for employers who have long been disciplining employees who are impaired from taking prescription medicines at work.  As in those instances, employers will have to resort to more traditional methods of identifying whether an employee reasonably appears to be under the influence of marijuana while working and make disciplinary decisions accordingly.

Second, employers should know the MMA prohibits employers from discriminating against employees or candidates on the basis that they are certified to use medical marijuana.  This means Pennsylvania employers may be liable if they take adverse employment actions against employees who are certified to use medical marijuana, essentially requiring employers to treat medical marijuana in a manner consistent with the way employers treat more traditional medical interventions.  Where, however, the use of medical marijuana conflicts with federal law, the MMA does not require employers to “commit an act that would put the employer or any person acting on its behalf in violation of Federal law.” MMA §2103(b)(3). For example, an employer would not be required to accommodate medicinal marijuana use if such accommodation violates federal Department of Transportation regulations.

Third, the MMA does not require employers to alter their current drug screening policies.  A positive test for the presence of marijuana can still justify discipline if the employee does not have a valid prescription and/or if the employee’s use conflicts with an applicable federal law.  With that said, employers should reassess whether they want to continue to screen job candidates for marijuana in light of the MMA, as, among other things, (1) the law bars blanket rejections of certified medical marijuana users and (2) an employee’s positive medical marijuana test will often lead an employer to discover a disability about which it was otherwise unaware, creating a potential avenue of liability.  Of course, drug testing for marijuana relating to accidents and impairment on duty will continue to be important.

Finally, employers should understand that it will take months and years to fully determine how the MMA will impact the workplace, including whether the “under the influence” standard will be more narrowly applied and the extent to which certifications from other states will give rise to employee rights in Pennsylvania.  The Pennsylvania Department of Health (“DOH”) is required to promulgate full regulations within 18 months, and, in the more immediate term, the DOH will publish temporary regulations no later than November 17, 2016.  So employers should expect the hits to keep coming as further guidance, rules and interpretations help clear the smoke surrounding the MMA.

To learn more about the information presented in this alert, we invite you to contact Adam Gersh, or any member of Flaster Greenberg’s Labor and Employment Practice Group.

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