Unpaid Intern - The Next Growth of Wage Litigation?

July 2013
By: Walter J. Liszka, Esq.

Recently, there have been three (3) separate and distinct lawsuits filed in New York dealing with unpaid interns and a company's obligation to "pay them for their work" (Eric Glatt, et al. v. Fox Searchlight Pictures, Inc., et al.; Lauren Ballinger, et al. v. Conde Nast; Xuedan Wang, et al. v. Hearst Corp.). In all of these cases, interns are claiming that they are entitled to compensation from their employer because the employer "suffered and/or permitted the intern to work," and perform duties that were performed by "other regular employees" (i.e. doing office work; delivering documents to customers; reconciling purchase orders and invoices; etc.). In essence, the "interns" did not work in a "learning environment" but were merely "manual labor."

In 1947, the United States Supreme Court in the case of Walling v. Portland Terminal Company, 330 U.S. 148, established the fact that "trainees" are not employees under the Fair Labor Standards Act (FLSA) and established certain required standards to meet the trainee definition (i.e. the trainees did not displace any regular employees; the trainee's work did not provide an immediate advantage to the employer; the trainee's work was not primarily "manual labor"; and the work performed was for the benefit of the trainee, not the employer). After the Supreme Court Decision, the United States Department of Labor (DOL) put together a list of six (6) criteria for determining whether a trainee or intern may be unpaid:

• The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment; and
• The internship experience is for the benefit of the intern, not the employer; and
• The intern does not displace regular employees, but may work under the close supervision of existing staff; and
• The employer that provides the training (internship) derives no immediate advantage from the activities of the intern and, on occasion, its (employer's) operations may be impeded; and
• Intern is not necessarily entitled to a job at the conclusion of the internship; and
• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Based on DOL rules and regulations, all six (6) of the above standards must be met.

Any company that is employing an intern should clearly establish the "rules of the road" with regard to the internship and make absolutely certain that the primary purpose of the internship is the fulfillment of an educational opportunity. The closer the intern gets to working like an employee (i.e. doing manual office tasks; delivering employer product to customers; doing photocopying or addressing envelopes to customers; etc.), the more probable is the fact that the individual is no longer acting as an intern but is merely acting as an employee and thereby is entitled under the provisions of the FLSA and in almost every state's Wage Payment Act, at least pay on the basis of the minimum wage for hours worked.

There is little doubt that because of the state of the economy and the rapid growth of "internships," these types of cases will greatly expand. Plaintiffs' attorneys get their fees paid by employers if they can win a portion of their case. "Put your house in order now" based on the DOL standards; do not wait for a court or the DOL to do it! As an aside, maybe providing an internship is not a good idea unless it is sanctioned by a college/university with a well-defined program.

Questions? Call Managing Shareholder Walter J. Liszka of Wessels Sherman's Chicago, IL office at (312) 629-9300 or email him at waliszka@wesselssherman.com.

Avoid Paying Excessive Plaintiff Legal Fees

July 2014
By: Walter J. Liskza, Esq.

Over the last five (5) years, there has been a drastic increase in the number of lawsuits filed alleging violation of the Fair Labor Standards Act (FLSA) in an attempt to procure back wages and liquidated damages for affected employees. A vast number of these lawsuits have turned into large class action litigations. Any employer who has been involved in this type of scenario is well aware that the "actual bottom line cost" of these cases is not just the alleged back wages and liquidated damages due to the affected employees, but by statute, will include substantial payments to Plaintiff's counsel for "reasonable attorneys' fees incurred by the successful Plaintiff in pursing their claim."

It should be noted that the "reasonable attorneys' fees" may have no relationship whatsoever to the recovery of "actual damages to the affected employees." The writer is well aware of a case where the recovery of "actual Plaintiff's damages" totaled $7,000.00 yet the demand for "reasonable attorneys' fees" was in the range of $175,000.00. How should an employer faced with this type of litigation deal with this scenario? There are three (3) steps or courses of action which may help the employer:

• Make a reasonable and fair settlement offer. The Plaintiff's counsel has clearly evaluated their case prior to institution of the lawsuit and they have evaluated the potential recovery both in actual damages and "reasonable attorneys' fees." The employer must make an honest and fair judgment in assessing the extent of its liability. The FLSA provides compensation for all minimum wage and overtime violations. The employer must assess its exposure to "actual damages" and, as well, make a fair assessment of what would be the potential of "reasonable attorneys' fees" to which Plaintiff's counsel may be entitled. Any "reasonable settlement offer" must take cognizance of both the actual damages and the potential of attorneys' fees.
  
• Make an Offer of Judgment. If settlement talks are not successful, the Defendant employer should consider making an "Offer of Judgment." The Federal Rules of Civil Procedure establish the fact that a Defendant may make a Rule 68 Offer of Judgment at least fourteen (14) days before the date set for trial. The Offer of Judgment must allow the judgment on specific terms with payment of costs that are then accrued. If the Offer of Judgment is rejected and the judgment obtained by the Plaintiff through litigation is not more than the Offer of Judgment, the Plaintiff must then pay to the Defendant all costs incurred after that offer was made. In essence, the Offer of Judgment defines the benchmark that the Plaintiff must meet at trial to avoid payment of costs. It is the hope that the Offer of Judgment may discourage the Plaintiff from unnecessarily prolonging the case and thereby freeing up the court's calendar.
  
• Question the reasonableness of fees. It is extremely important for the Defendant employers to communicate to Plaintiff's counsel that they will not pay a "hostage fee" to Plaintiff's counsel to resolve a case. While the Defendant employer must fairly assess what are "reasonable attorneys' fees," the Defendant employer is not required to roll over and play dead. If the employer has honestly assessed the case, it can point to potentially unsuccessful portions of the claim or claims filed by the Plaintiff that will be defeated through litigation and may impact the attorneys' fees. It should clearly be understood that the success of Plaintiff's counsel in litigation is a direct correlation to attorneys' fees - there are no rights to recover attorneys' fees for unsuccessful portions of a claim.

Through the use of the above three (3) steps of assessment of a case, the Defendant employer may be in a much better position to avoid costly and prolonged litigation and, as well, paying not only its own fees for legal counsel, but the Plaintiff's fees as well.

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman's Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com .

DOL-Technology Witch Hunt?

July 2012
By: Walter J. Liszka, Esq.

As technology improves and more of the workforce becomes conversant with Smart Phones, iPhones, and Touch Pads, the chance of the ever-expanding litigation dealing with Wage and Hour claims becomes greater. In an article that appeared in our June 2011 entitled "A Bridge to Justice - A Bridge Too Far?" the author discussed the unprecedented collaboration between a Federal Government Agency [Department of Labor (DOL) - Wage and Hour Division] and the American Bar Association (ABA) Standing Committee on Lawyer Referrals and Information Systems. That article detailed the fact that the DOL and the ABA had entered into an approved attorney referral system that would allow the DOL to refer cases that they could not handle to "qualified counsel." It is now becoming quite clear that the DOL - Wage and Hour Division is expanding its ability to interface with both employees and the consuming public.

The DOL recently created a Smart Phone app "Eat, Shop and Sleep" which allegedly allows users to search for places to eat, shop, and sleep, and also to review customer reviews of the entities providing those services. However, this Smart Phone app goes a little bit further in that it provides to its users (consumers) information with regard to DOL enforcement issues (i.e. health issues, safety issues, and labor law violations). It permits the user to report a company name, any health or labor law violations, and furthermore, permits the user to find out if a "company name" indicates previous Fair Labor Standards Act (FLSA) violations.

By hitting the "take action" button that permits a user to report violations to the DOL, the user is also directed to DOL contact information such as the phone numbers and office locations; a link to an online complaint form; a link to online workers' rights; and the Occupational Safety and Health Administration (OSHA) data. Obviously, the DOL thinks its Smart Phone app of "Eat, Shop and Sleep" can lead to the discovery of Wage and Hour issues.

As well, the DOL has also developed a free time sheet app that allows employees a simple way to track their hours worked and wages owed. According to DOL Secretary Hilda Solis, this application will not only "empower workers" to protect their interests but also will be "an invaluable source of information that the Wage and Hour Division can use in investigating employers who have failed to maintain accurate records." This app is compatible with iPhone, iPad, iPod Touch, and is available as a free download at the DOL site. As any employer who has become embroiled in an FLSA litigation matter clearly knows, it is the responsibility of the employer to maintain, keep, track, and provide accurate and complete information with regard to an employee's hours of work and compensation. A failure to keep and provide this type of information is, in and of itself, a violation of the FLSA.

In any FLSA litigation, it is the employee's initial burden to prove that the employer had committed a violation. An employee may satisfy this burden by proving that he/she has performed work for which he/she was not compensated by producing sufficient evidence to show the amount and extent of that work as a matter of reasonable inference. Once the employee has established their initial burden, which, based on case review, is not very difficult, the burden of persuasion shifts to the employer to dispel or disprove the employee's position. Assuming, solely for purposes of discussion, that the employer's records are inaccurate or inadequate, the reasonable inferences of the employee will be accepted. One must wonder if this new DOL time sheet app may bolster an FLSA claim by an employee for a wage claim. Will a court find this type of evidence "more compelling" than records kept in a notebook? As Director Solis stated at the American Society of Safety Engineers Conference in 2009, "make no mistake, the DOL is back in the enforcement business." Certainly, the enhanced use of technology by the DOL is proof of that fact.

Obviously, the technological age provides great advances for dissemination of business information. As suggested in this article, it may also provide the DOL with a chance to further intensify their "enforcement" for FLSA violations.

 

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman's Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com