It has been 75 years since the passage of this country’s bedrock wage and hour legislation, the Fair Labor Standards Act. This important statute established the minimum wage, overtime, the 40-hour work week, and restrictions on child labor. Yet today, much of its promise remains unfulfilled as workers struggle to make ends meet on meager wages that have not kept up with inflation, and far too many workers remain exempt from even the Act’s minimal protections. Worse yet, as the economy has sputtered and more workers compete for low-quality jobs in an increasingly non-unionized workforce, vulnerable workers often encounter an epidemic of wage theft that further erodes their economic security.
Wage theft—the failure to pay all earned wages—takes many forms, such as failing to pay overtime or minimum wages, forcing employees to work off the clock, or misclassifying employees as independent contractors to avoid the tax and other obligations (including obligations to pay minimum wage and overtime under the Fair Labor Standards Act and state wage laws) that employers owe to employees. Wage theft is endemic not only to certain industries, but also to certain employment structures. In particular, the use of “labor brokers” has become a popular choice among businesses seeking to avoid the attendant responsibilities and costs of having “employees” on the books. In the construction industry, some businesses that purport to be subcontractors do little more than act as labor suppliers, finding and assigning workers to construction projects where the workers then toil under the control of the general contractor. The general contractor often disclaims any responsibility to the workers, even as these workers perform the very work on which the upper-tier contractor successfully bid. At the same time, independent contractor misclassification runs rampant. In response to this problem, the Public Justice Center advocated to pass Maryland’s Workplace Fraud Act in 2009. However, the statute was relatively unknown and unenforced at the time, and problems persisted. This is the context in which Eugene Bouthner, Paul Isom, Jose Mancia, and their fellow construction workers began their struggle to be paid all their earned wages.
Background Investigation & State Court Complaint
In 2008, Cleveland Construction, Incorporated, was the general contractor for interior work at two construction sites in Maryland: a new clinical building at the Johns Hopkins Hospital in Baltimore, and the National Naval Medical Center building, commonly known as Walter Reed in Bethesda (see Plaintiffs’ First Amended Complaint at ¶¶ 38–39, Bouthner v. Cleveland Construction, No. 24-c-10-007792 (Balt. City Cir. Ct. Dec. 8, 2010)). At the Hopkins site, Cleveland Construction initially hired a subcontractor, Servicemax, Incorporated, to perform some of the drywall work but then greatly expanded the scope of the contract such that the subcontractor assumed all remaining work. By fall 2009, Servicemax was contracted by Cleveland Construction to supply “the labor for all remaining framing on the project. . . .” (Defendant Cleveland Construction Incorporated’s Opposition to Plaintiffs’ Motion to Allow Notice to Similarly Situated Employees, Declaration of Roy Atherton at ¶ 4, Bouthner v. Cleveland Construction, No. 1:11-cv-00244 (D. Md. 2011)). Once Cleveland Construction subcontracted its work to Servicemax, it terminated the employees who were performing the work; at the same time, many of those employees then appeared on the Servicemax payroll (id.). As a result, Servicemax suddenly went from a crew of 10 to 15 workers to well over 100 (id. at ¶¶ 3-5; Defendant Cleveland Construction Incorporated’s Opposition to Plaintiffs’ Motion to Allow Notice at 5).
Bouthner and about 100 of his co-workers were employed by Cleveland Construction to perform the interior framing and drywall at the Hopkins site. Sometime in October 2009, these 100 or so workers were called to a meeting and informed that they were no longer employees of Cleveland Construction. Instead, they were working for Servicemax (Declaration of Eugene Bouthner at ¶ 2, Plaintiffs’ Motion to Allow Notice to Similarly Situated Employees, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). Their jobs remained the same, however, including the fact that the workers were required to attend mandatory meetings and perform certain pre-shift work prior to the start of their paid shifts. They were not compensated for their time doing such work (id. at ¶¶ 4–6). Because this work often pushed the employees above 40 hours in a workweek, they sought to receive overtime. Moreover, Bouthner and others complained that they had been promised a higher wage than what they were actually paid, compounding the overtime issue.
After being transferred from Cleveland Construction to Servicemax, Bouthner and his fellow co-workers were required to fill out W-9 tax forms applicable to independent contractors (id. at ¶ 3). They also began to receive their pay without applicable withholdings and tax deductions. Further complicating the situation, at some point Servicemax then subcontracted its work at the Hopkins site to yet another entity, Chesapeake Firestop Products, Incorporated. Bouthner later received a Form 1099, a tax form applicable to independent contractors, from Chesapeake for his work at the Hopkins site, despite never having been hired by Chesapeake and never receiving a paycheck from that entity (id. at ¶ 7).
To make matters worse, other workers, like Isom, were paid at a piece rate instead of the promised hourly rate (Declaration of Paul Isom at ¶¶ 3, 5, Plaintiffs’ Motion to Allow Notice to Similarly Situated Employees, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). After being informed that he would earn about $17.00 per hour when he was hired, Isom was subsequently told that he would instead be paid by the piece. When he was paid on a piece rate basis, however, the complexity of the piecework he performed required him to work so slowly that wages fell below minimum wage (id. ¶¶ 2–5). Meanwhile, he also received checks indicating he was misclassified; the checks contained the notation “Contract Labor & 1099’s” (id. at ¶ 8). Additionally, Isom and his co-workers began to have problems getting paid for their work. In December 2009, just before the holidays, at least two of Isom’s paychecks from Chesapeake Firestop were rejected for insufficient funds (Plaintiffs’ Second Amended Complaint at ¶ 111, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). Workers became increasingly frustrated, especially on payday when they had to race to cash their checks, hoping their checks would not bounce. At some point, the situation became so dire that the contractors hired security guards to keep the situation under control while paychecks were distributed.
At the Walter Reed site, the situation was similar. From March 2009 through December 2009 or January 2010, Cleveland Construction subcontracted its work to FAS Consultants, LLC. As of early 2010, Cleveland Construction then subcontracted the work to Chesapeake (see Defendant Cleveland Construction Incorporated’s Opposition to Plaintiffs’ Motion to Allow Notice at 6, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). An email from this time period entitled “New FAS Reed employees” listed employee names and suggested that Cleveland Construction’s administrative assistant instructed FAS to add workers to its payroll (Plaintiffs’ Reply in Support of Motion to Allow Notice at 10, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). Likewise, a Cleveland Construction email to Chesapeake from April 2010 entitled “Round 1 of employees” lists, inter alia, employees “to be moved from CCI REED to CHE REED” and workers whose “hours will be split this week between CCI and CHE” (id. at 8). Mancia was one of the workers hired to do drywall construction at Walter Reed. He reported regularly working more than 40 hours a week without being compensated the legally required overtime premium. Moreover, he was also misclassified as an independent contractor, with paystubs from Chesapeake that failed to reflect required withholdings and containing the notation “Contract Labor & 1099s” (Mancia Declaration at ¶ ¶ 2–3, Plaintiffs’ Motion to Allow Notice, Bouthner v. Cleveland Construction, No. 1:11-cv-00244).
In 2010, the Public Justice Center began to receive complaints about the situations at the Hopkins and Walter Reed worksites. Workers complained about several issues: they were forced to show up early to wait in long lines and perform certain pre- and post-shift work or attend mandatory meetings for which they were not paid; they were bounced from one employer to another without notice and often misclassified as independent contractors; and paychecks were being rejected for insufficient funds frequently enough that workers had to race to cash or deposit their checks. At this point, our Workplace Justice Project partnered with Nicholas Woodfield, an attorney at a private law firm, The Employment Law Group, and began investigating.
Following several months of intensive investigation, Bouthner, Isom, and Mancia filed a class action lawsuit in Maryland state court (Complaint, Bouthner v. Cleveland Construction, No. 24-c-10-007792 (Balt. City Cir. Ct. Nov. 18, 2010)). The lawsuit named four corporate defendants, Cleveland Construction, Servicemax, FAS, and Chesapeake, along with several individuals in those companies alleged to be joint employers; it sought damages and equitable relief for defendants’ knowing misclassification and related failures to pay all wages due and owing, in violation of the Maryland Workplace Fraud Act, the Maryland Wage and Hour Law, the Maryland Wage Payment and Collection Law, and Maryland common law on the basis of quantum meruit. The lawsuit was filed on November 18, 2010, coinciding with the National Day of Action Against Wage Theft.
The Barrage of Defense Motions and Maneuvers
Prior to any litigation in state court, one of the corporate defendants, FAS Consultants, removed the lawsuit to federal court under the Class Action Fairness Act of 2005, alleging that the amount in controversy exceeded five million dollars. The case was assigned to the Hon. Richard D. Bennett on January 28, 2011. Shortly thereafter, plaintiffs amended their complaint to add collective action claims under the Fair Labor Standards Act.
A series of motions to partially dismiss by each of the various defendants ensued over the next several months. Defendant Cleveland Construction filed its motion on February 28, 2011; the Servicemax defendants followed suit on March 1, 2011; and the FAS and Chesapeake defendants rounded out the lineup on March 4, 2011. Defendants’ motions all raised an identical, if fairly novel, argument regarding the work performed at Walter Reed. Defendants argued that all state law wage claims were barred for work performed on that site because it is a “federal enclave.” The “federal enclave doctrine” generally holds that under the U.S. Constitution, the United States acquires exclusive jurisdiction over a federal enclave unless the state explicitly reserves concurrent jurisdiction or Congress provides clear and unambiguous authorization for such regulation (U.S. Const. Art. I, sec. 8, cl. 17; Goodyear Atomic Corporation v. Miller, 486 U.S. 174 (1988); see also Atlantic Marine Corps Communities, LLC v. Onslow County, 497 F. Supp. 2d 743, 751 (E.D. N.C. 2007) (“Reservations, conditions, or qualifications in state statutes, or state constitutional provisions, may limit a state’s cession of jurisdiction.”)). In our case, a Maryland Attorney General Opinion had already concluded that at the time the United States acquired the land on which Walter Reed sits, the Maryland statute in effect ceded exclusive jurisdiction over the property, so this exception was off the table (Defendant Cleveland Construction’s Motion to Dismiss, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). The only remaining question was whether the federal Davis-Bacon Act, which established the requirement to pay prevailing wages, clearly authorized state wage laws to apply. Defendants further claimed that our common law claims were preempted by the Fair Labor Standards Act and that the individual defendants were not “employers” under Maryland’s Workplace Fraud Act or Wage Payment and Collection Law.
On June 30, 2011, while those motions were pending, plaintiffs also moved for conditional certification and court-facilitated notice of their Fair Labor Standards Act claims (Plaintiffs’ Motion to Allow Notice to Similarly Situated Employees, Bouthner v. Cleveland Construction, No. 1:11-cv-00244). Plaintiffs argued that they were similarly situated to others who were systematically misclassified as independent contractors and denied their rights to the Act’s mandated overtime on both projects, in a similar fashion. The common overtime violation occurred because defendants routinely classified workers as “Contract Labor & 1099s” and refused to compensate for pre- and post-shift work and mandatory meetings. Plaintiffs submitted affidavits and sample paystubs with the “Contract Labor & 1099s” notation in support. Plaintiffs further requested that the court approve an interrogatory seeking the identity of similarly-situated employees, such that those workers could receive notice of the lawsuit and have the opportunity to opt in.
On July 21, 2011, the Court granted the various partial motions to dismiss, agreeing with each of the defendants on each and every argument (Bouthner v. Cleveland Construction, No. RDB-11-244, 2011 U.S. Dist. LEXIS 79316 (D. Md. July 21, 2011)). Another judge in our district had recently found that identical language in the Service Contract Act revealed that Congress intended for state laws to apply to federal enclaves, and a U.S. District Court in Puerto Rico had reasoned that the only rational inference to be drawn from the language was that Congress clearly intended to set the floor and assumed unambiguously that state and local laws would apply (Ealy v. Pinkerton Government Services, Incorporated, Civ. No. 10–775 (D. Md. Jan. 10, 2011)). However, our court agreed with a New Jersey decision that Congress did not explicitly authorize the application of state wage laws. As a result, the court held that only the Fair Labor Standards Act applied to the claims at Walter Reed. Additionally, the court concluded that our common law quantum meruit claims were precluded by “obstacle preemption” because the Act prescribed plaintiffs’ exclusive remedies. Finally, the court dismissed the individual defendants from the surviving state law claims under Maryland’s Workplace Fraud Act and Wage Payment and Collection Law. When all was said and done, plaintiffs were left with only state law claims for their work at the Hopkins site, the Fair Labor Standards Act claims as to all defendants, and their Workplace Fraud and Wage Payment claims against the corporate defendants.
Defendants then uniformly opposed conditional certification of plaintiffs’ claims under the Fair Labor Standards Act. Additionally, Defendant Cleveland Construction also requested that the court modify the Act’s well established conditional certification analysis and apply the Rule 23 class action analysis that the Supreme Court had just announced in Wal-Mart Stores, Inc. v. Dukes. Defendants argued,inter alia, that conditional certification was not appropriate because the case required individualized factual and legal determinations, including the relationship of a general contractor and three subcontractors at two work sites and individualized determinations regarding plaintiffs’ off-the-clock claims. Nearly all defendants denied ever having employed any of the named plaintiffs, each suggesting that at most, the problems were caused by another entity. Further, they argued that the joint employment analysis would require individual application of the several-factor economic realities test. Recalling the specter of Dukes, defendant Cleveland Construction further argued that a class of similarly-situated employees subject to common policy was no longer sufficient; rather, courts need to inquire into whether a manageable class exists even for the Act’s collective action cases (Defendant Cleveland Construction Incorporated’s Opposition to Plaintiffs’ Motion to Allow Notice to Similarly Situated Employees, at 12–15, Bouthner v. Cleveland Construction, No. 1:11-cv-00244).
Plaintiffs’ June 30 motion for notice sat undecided for many months. On October 4, 2011, plaintiffs filed a motion to toll statute of limitations, pointing out that the statute of limitations was running for putative plaintiffs. In the meantime, although the parties had been considering settlement, those attempts were put on hold during this time as both sides awaited a decision regarding conditional certification.
Seven months after plaintiffs’ motion to allow notice and five months after plaintiffs’ tolling request, on March 5, 2012, the court again agreed with defendants and denied both conditional certification and the requested tolling (Bouthner v. Cleveland Construction, Incorporated, No. RDB–11–0244, 2012 U.S. Dist. LEXIS 28497 (D. Md. Mar. 5, 2012)). The court concluded that plaintiffs did not sufficiently identify a common policy violative of the Act, that they failed to supply sufficient factual support, and that certification was inappropriate “as a result of the myriad of individualized factual and legal issues that would predominate” (id. at 13). Adopting defendants’ arguments, the court concluded that it would need to apply a series of economic reality factors for each plaintiff in order to determine joint employment and for that reason individual questions predominated (id. at 14). The court also adopted defendants’ manageability arguments, finding that adjudication of the case as a collective would be inefficient: “This case involves two separate construction sites, a general contractor, three subcontractors, and individual plaintiffs that worked at different locations and for different combinations of employers” (id.). Finding no basis for conditional certification, the court denied as moot plaintiffs’ motion to toll.
A Second Suit, More Motions, Settlement Negotiations
By the time plaintiffs’ motion for notice was denied on March 5, nearly 70 workers had filed consents to opt-in to the litigation. The court’s order effectively denied the opt-ins party status in that suit, and their statutes of limitations continued to run. Plaintiffs immediately sought agreement with defendants to toll the statue of limitations and stay discovery as the parties explored settlement. By March 27, 2012, plaintiffs negotiated and filed an agreement that tolled the statute of limitations from the date of the court’s order with nearly every defendant. Only the FAS defendants, who worked with defendants Cleveland Construction and Chesapeake at the Walter Reed site, refused to participate in that agreement.
The FAS defendants’ refusal to allow tolling during the exploration of settlement meant that individuals who had worked for FAS at Walter Reed and sought to opt-in to the litigation were at risk of having their claims expire. Recognizing that risk and heeding the court’s admonition regarding the two different worksites, plaintiffs filed a second collective action suit under the Fair Labor Standards Act in March 2012. The new lawsuit differed from the Bouthner suit in two critical respects: it named only the FAS defendants, and plaintiffs sought to represent only workers who suffered Fair Labor Standards Act violations during their work at Walter Reed (Complaint, Salvador Luna v. FAS Consultants, LLC., No. 8:12-cv-908 (D. Md. March 23, 2012).
Thereafter, the parties to both cases again agreed to explore settlement and met for a day-long conference before a magistrate judge on July 18, 2012. Negotiations failed that day. The parties proceeded with litigation. In Bouthner, the parties filed a new joint case management plan. In Luna, the FAS defendants filed a motion to dismiss, arguing that plaintiffs’ complaint failed to allege facts demonstrating that the claims were plausible and that their collection [collective?] action claims should be stricken on collateral estoppel grounds. The FAS defendants also sought to transfer and consolidate the case with the Bouthner suit before Judge Bennett, a request to which plaintiffs consented. After plaintiffs’ opposition to the motion to dismiss in Luna was filed, that case was consolidated with theBouthner suit, and the parties began to engage in settlement negotiations again.
Several months of telephone exchanges ensued without much progress. The parties agreed to go before the magistrate judge again and spent another day in chambers in early January, 2013. Although progress was made, the parties still were not able to reach a deal. Instead, more negotiations ensued over the next several months. By this time, there were 75 workers who had sought to opt-in to the two lawsuits, and five named plaintiffs. The court had not ruled on the FAS defendants’ motion to dismiss the Luna suit.
Ultimately, after several more rounds of back and forth, the parties achieved a settlement that served a number of plaintiffs’ major goals. The settlement called for the establishment of a payment pool of $130,000 to be paid to the workers. The payment pool sum was arrived at by estimating a loss of 2.4 hours of uncompensated overtime per week, for 12 weeks, using a regular hourly rate of $19/hour ($28.5 at overtime rate) for the 80 workers involved. This amount was then doubled, to reflect a payment of liquidated damages. Because many of the workers’ complaints were concentrated around a four-month period in the fall of 2009 and early 2010, and plaintiffs initially alleged working up to 4.75 hours of uncompensated overtime, this compromise, reflecting 2.4 hours of lost overtime wages and an equal amount of liquidated damages, reflected considerable success. Moreover, the settlement required each defendant to bear a share of responsibility for the payments despite continuing to deny that they were employers or joint employers of the plaintiffs. Since the defendants had pointed fingers at each other and disclaimed that they were plaintiffs’ “employer” throughout the litigation, it was important to the clients that each shoulder part of the financial commitment to resolving the case. Finally, the defendants hired and paid a third-party administrator a fee to issue the clients’ checks and paid the administrator additional sums to cover the applicable unemployment and other tax withholdings. Each individual defendant also gave a confessed judgment to plaintiffs in the event that their corporate defendants failed to make timely payments.
At this point in time, we have worked with defendants and the third-party administrator to issue and distribute nearly all the checks to the workers. Moreover, workers report that they are aware of the consequences of being misclassified as independent contractors, and they understand the problems that can ensue on large construction sites where workers are interchanged among entities like puzzle pieces. While we would have liked to hold the FAS defendants accountable for their bogus claim that the case was worth five million dollars, we were nonetheless pleased with the results we were able to achieve.