Third Circuit Upholds Class Certification for Franchisees on Employee Misclassification Claim

Decision: A split panel of the Third Circuit Court of Appeals affirmed the grant of class certification in a lawsuit brought by commercial cleaning company franchisees alleging that they were misclassified as independent contractors, rather than employees, under Pennsylvania’s Wage Payment and Collection Law. (Williams v. Jani-King of Philadelphia Inc., No. 15-2049 (3d Cir. Sept. 21, 2016).) Although the majority did not reach the question whether the franchisees were employees, it held that a class-wide determination was appropriate because the same policies and procedures (e.g., franchise agreement, policies manual, training manual and other testimony) applied to the entire class. The franchisor had argued that system controls inherent in a franchisor/franchisee model should not be considered in determining whether the franchisor controlled the manner in which franchisees performed their work. However, the court ruled that “[a] franchisee may be an employee or an independent contractor depending on the nature of the franchise system controls.” In a strongly worded dissent, Judge Robert Cowen emphasized that “[f]ranchising constitutes a bedrock of the American economy” and “the majority’s opinion threatens the viability of this basic economic bedrock.” He also declared that “Pennsylvania’s highest court would not allow the very thing that defines [franchising] – the uniformity of product and control of its quality and distribution to be used to put at risk this critical and generally beneficial sector of our economy.”

Impact: The impact of this decision could be far reaching because it may encourage class action lawsuits against franchisors on the ground that franchise system controls, by themselves, give rise to an employer-employee relationship.

US Department of Labor Issues Final Rule on Mandatory Paid Sick Leave for Federal Contractors

Rule: The US Department of Labor (DOL) recently issued a new rule requiring all federal contractors to provide their employees with seven days of paid sick leave per year. (29 C.F.R. § 13.) The rule, which applies to companies with certain federal contracts issued or renewed on or after January 1, 2017, requires that employees receive at least one hour of paid sick leave for every 30 hours of work. Employees must be allowed to accrue at least 56 hours (seven days) of sick leave per calendar year. Accrued leave can be carried over from year to year, although employers will not be required to pay out unused leave when an employee leaves the company. The rule clarifies that it does not supersede any local, state or federal law or any collective bargaining agreement that offers greater leave rights.

Impact: The DOL’s rule follows the trend of many states and cities across the nation implementing laws requiring employers to provide workers with paid sick leave, including California, Chicago, Connecticut, Massachusetts, New York City, Oregon, San Francisco and Washington DC. Employers should closely monitor developments in this area to ensure that their sick leave policies comply with federal sick leave law and the state and local sick leave laws of the jurisdictions in which they have employees.

California Labor Code Does Not Require Employers to Include Vacation or Paid Time Off in Wage Statements

Decision: On October 20, the California Court of Appeal held in a published opinion that employers do not need to include the value of accrued vacation time or paid time off (PTO) in an employee’s wage statement until the termination of the employment relationship. In Soto v. Motel 6 Operating L.P.,Case No. D069403 (Cal. Ct. App. Oct. 20, 2016), plaintiff Soto alleged that her employer violated Section 226(a) of the California Labor Code by failing to include accrued vacation time and PTO as an itemized entry in its wage statements. Section 226(a) requires employers to supply their non-exempt employees with wage statements and specifies nine separate categories of information that must be included in that statement, among them wages earned. Soto, suing in a representative capacity under the California Private Attorney General Act (PAGA), argued that accrued vacation is an earned “wage,” as California courts have recognized in other contexts, and must be itemized. The appellate court held that vacation and PTO are actually “deferred wages” under Labor Code Section 227.3, which the employer does not have to pay until termination of the employment relationship. It further held that the legislature did not intend to require employers to account for such time until the employment relationship ends.

Impact: The court’s opinion largely confirms a practice that most employers in California already follow. Nevertheless, California employers should monitor new developments regarding wage statement itemization requirements. For example, California’s Paid Sick Leave Law expressly requires employers to itemize the amount of sick leave accrued on wage statements.

Third Circuit Holds That Paid Meal Breaks Cannot Offset Unpaid Donning and Doffing Time

Decision: In Smiley v. El DuPont de Nemours & Co., No. 14-4583 (3d Cir. Oct. 7, 2016), a unanimous panel of the Third Circuit Court of Appeals held that an employer’s policy of paying for meal breaks does not excuse the employer’s obligation to pay overtime wages for off-the-clock donning and doffing time. Three employees of one of DuPont’s manufacturing plants filed a putative class action seeking overtime compensation for time spent donning and doffing their uniforms and gear before and after their shifts. The district court dismissed the lawsuit, holding that the amount of paid non-work time (i.e., paid meal breaks) exceeded the amount of unpaid donning and doffing time and that the employees were therefore not owed any additional compensation. The Third Circuit held that nothing in the FLSA authorized such an offset and that “the statute only provides for an offset of an employer’s overtime liability using other compensation excluded from the regular rate ... and paid to an employee at a premium rate.”

Impact: The reach of this case of first impression remains to be seen. The Third Circuit’s rationale was that if an employer chooses to compensate its employees for meal breaks and to treat those meal breaks as hours worked, that compensation cannot be allocated to other hours worked for which overtime compensation is required, but not all courts will necessarily agree.

Eighth Circuit Upholds Sleep Tests for Overweight Truckers as Not Discriminatory

Decision: In Parker v. Crete Carrier Corporation, No. 16-1371 (8th Cir. Oct. 12, 2016), the plaintiff truck driver was suspended when he refused to participate in a sleep study required by Crete to determine whether he had obstructive sleep apnea. Parker alleged that Crete had violated the Americans with Disabilities Act (ADA) by requiring truck drivers with a Body Mass Index (BMI) of 35 or greater to submit to medical examinations to determine whether they had obstructive sleep apnea. The US District Court for the District of Nebraska granted summary judgment in Crete’s favor.

The Eighth Circuit Court of Appeals affirmed, holding that Crete’s suspension of Parker did not violate the ADA because Crete’s medical examination program was job-related, consistent with business necessities and not more intrusive than necessary. The court determined that Crete had established, consistent with two of the recommendations of the Federal Motor Carrier Safety Administration’s advisory committees, that (a) obesity is the primary anatomic risk factor for obstructive sleep apnea; (b) obstructive sleep apnea tends to impair driving skills and increase the risk of motor vehicle accidents; and (c) a sleep study is the only way to confirm or rule out an obstructive sleep apnea diagnosis. The court rejected Parker’s assertions that a lack of documented sleep issues at work, a doctor’s note indicating that a sleep study was not necessary, his DOT certification and an award for five years of accident-free driving excluded him from the class of employees who should have been subject to the medical examination requirement. It observed that “[n]one of these characteristics establish that [Parker] does not suffer from sleep apnea” and that “the ADA permits employers to require a class of employees to get medical exams” without considering “each employee’s unique characteristics,” provided that the employer “has reasons consistent with business necessity for defining the class in the way that it has.”

Impact: The Eight Circuit’s decision provides employers with a roadmap for establishing employee medical testing programs that comply with the ADA’s requirements. Employers that implement mandatory medical testing programs for employees should review their policies to ensure that they have objectively defined the class of employees subject to the policy consistent with the employer’s business needs.