FLSA | False Claims Act | Discrimination

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Baklava Chefs’ Jobs Not “Creative” Under FLSA

Baklava Chefs’ Jobs Not “Creative” Under FLSA

In Eren v. Gulluoglu, the two former Turkish baklava chefs sued their former employers for overtime pay as required under the Fair Labor Standards Act (“FLSA”), and New York Labor Law (“NYLL”). The federal and State laws were created to establish the standard work week, minimum wage, guaranteed “time-and-a-half” for overtime in certain jobs, and to prohibit oppressive child-labor, among other things. The overtime law generally requires employers to pay overtime wages for all hours worked in excess of forty hours per week, so long as the employees are not exempt under one of the various statutory categories. The former employers moved for summary judgment, arguing that the chefs fell within the “creative professional” exemption under the FLSA and NYLL. The federal Court disagreed and denied the motion.

The Court reasoned that exemptions under the FLSA are to be “narrowly construed and the defendant bears the burden of proving that its employees fall within the exemption. The creative professional exemption applies when ‘an employee’s primary duty is the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.’”

Turning to the Department of Labor’s guidance on whether the creative professional exemption applies to chefs, the Court quoted:

To the extent a chef has a primary duty of work requiring invention, imagination, originality or talent, such as that involved in regularly creating or designing unique dishes and menu items, such chef may be considered an exempt creative professional… However, there is a wide variation in duties of chefs, and the creative professional exemption must be applied on a case-by-case basis with particular focus on the creative duties and abilities of the particular chef at issue. The Department intends that the creative professional exemption extend only to truly “original” chefs, such as those who work at five-star or gourmet establishments, whose primary duty requires “invention, imagination, originality, or talent.”

The Court found that the former employers did not sell their baklava and other baked goods in “five-star or gourmet establishments,” and that the chefs “tasked with preparing baklava and other enumerated Turkish baked goods to be sold by third parties, did not have the autonomy to design ‘unique dishes and menu items.’” It also found that the chefs’ talent alone was not enough. An “employee talented at an unimaginative and unoriginal task does not fall within the exemption,” recognizing that this “requirement generally is not met by a person who is employed as a copyist, as an ‘animator’ of motion-picture cartoons, or as a re-toucher of photographs, since such work is not properly described as creative in character.” The Court concluded that “the standard is not talent, but creativity.”

Although the former employers demonstrated that the chefs were “experienced and talented,” they failed to demonstrate how the chef’s “experience and talent were applied to an innovative and imaginative task.” Rather, the Court found that the chefs’ “responsibilities in preparing baklava, breads, and cakes ‘required consistency and precision, not innovation and imagination.’”

Finally, the Court noted that it could not find one reported decision in which a court applied the creative professional exemption to a chef or a baker, and cited several local decisions that have refused to apply the creative professional exemption to chefs.

After U.S. Supreme Court Decision, Second Circuit Revisits Its Opinion Under The False Claims Act

Supreme Court Deci sion

In Bishop v. Wells Fargo & Company, the Second Circuit revisited its previous analysis of the federal False Claims Act (“FCA”) in light of a recent U.S. Supreme Court case on the same analytical issue. The Supreme Court’s decision, Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct.
1989 (2016), created a “materiality” standard for FCA claims that had not been applied in the case previously before the Second Circuit. Thus, the Second Circuit vacated and remanded Bishop to the lower federal court for further proceedings consistent with its revised opinion and the U.S. decision in Escobar.

The FCA is a key government civil enforcement tool that has been employed to target a broad spectrum of alleged frauds against the government, and provides job protection to whistleblowers because of the professional and personal risks they take to expose and stop fraud against the government. The FCA grants to private citizens under its “qui tam” provisions the right to sue on behalf of the government, as a “relator,” and share in any recovery. It provides for up to treble damages and awards of 15% to 30% of recoveries for those bringing cases. The FCA is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud every year. New York has a parallel statute.

The FCA imposes liability on any person or entity who submits a claim or record to the federal government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services she knows she has not provided or that were not medically reasonable or necessary.

Another example is a government contractor who submits records that he knows (or should know) are false and that indicate compliance with certain contractual or regulatory requirements, including a “misleading half-truth ” when services are rendered, but there was a non-disclosure of a failure to comply with material statutory, regulatory, or contractual requirements.

The second area of liability is those instances in which a person or entity obtains money from the federal government to which they may not be entitled, and then uses false statements or records in order to retain the money. An example of this so-called “reverse false claim” may include a hospital who obtains interim payments from Medicare throughout the year, and then knowingly files a false cost report at the end of the year in order to avoid making a refund to the Medicare program.

In Bishop, the case began in 2011, when Robert Kraus and Paul Bishop, as relators, brought a qui tam action under the FCA on behalf of the United States against Wells Fargo & Company and Wells Fargo Bank, N.A. The relators claimed that Wells Fargo, along with Wachovia Bank and World Savings Bank, which later merged into Wells Fargo, falsely certified their compliance with banking laws in order to borrow money at favorable rates from the Federal Reserve System. The government declined to intervene, and the district court dismissed the relators’ complaint in its entirety. The Second Circuit had originally affirmed that  dismissal.

In recounting its earlier decision, the Second Circuit said that in evaluating the relators’ claims, its decision and that of the district court relied on the Second Circuits’ decision in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001), for two points in particular. “First, we relied on Mikes’ holding that ‘implied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.’ We refer to this as Mikes’ express-designation requirement. Second, we relied on Mikes’ holding that ‘an expressly false claim is… a claim that falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment.’ We refer to this as Mikes’ particularity requirement.”

However, as the Court noted, these two Mikes requirements—the express-designation requirement for implied false certification claims and the particularity requirement for express false certification claims—“did not survive Escobar.” First, the Escobar decision “directly abrogated Mikes’ express-designation requirement, holding that ‘a statement that misleadingly omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.’”

The Court further noted that, second, “although Escobar was an implied false certification case, it also abrogated Mikes’ particularity requirement for express false certification claims.” The Escobar decision “indicated that limitations on liability under the FCA must be grounded in the text of the FCA, including the ‘well-settled meanings of common-law terms the FCA uses’ but does not expressly define. We detect no textual support in the FCA for Mikes’ particularity requirement. In addition, the common law does not limit fraud claims in a way that would support Mikes’ particularity requirement,” because under common law tort law a “misrepresentation” is defined to include “not only words spoken or written but also any other conduct that amounts to an assertion not in accordance with the truth,” without any particularity requirement. The Court also recognized that the Escobar decision “explained that the FCA addresses the concerns animating Mikes’ particularity requirement in other ways: ‘Instead of adopting a circumscribed view of what it means
for a claim to be false or fraudulent, concerns about fair notice and open-ended liability can be effectively addressed through strictenforcement of the [FCA]’s materiality and scienter requirements.’”

In place of Mikes’ requirements, the Second Circuit held that the Escobar decision “set out a ‘familiar and rigorous’ materiality standard. ‘A misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the FCA.’ In general, ‘materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,’” including “evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despiteits actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”

Finally, in remanding the case back to the lower Court, the Second Circuit wrote that the Supreme Court in Escobar “admonished that ‘materiality…cannot be found where noncompliance is minor or insubstantial.’”

Ministerial Exception Applies to Catholic School Principal’s Discrimination Claim

Ministerial Exception Applies to Catholic School Principal’s Discrimination Claim

In Fratello v. Archdiocese of N.Y., the plaintiff, a former principal of a Roman Catholic school, claimed she was terminated on the basis of unlawful gender discrimination and retaliation. The sole question on appeal to the Second Circuit Court of Appeals was whether the lower courterred in awarding the defendants summary judgment on the ground that the plaintiff’s employment-discrimination claims were barred by the “ministerial exception,” a doctrine based on the First Amendment that precludes such claims by “ministers” against the religious groups that employ them. The Second Circuit concluded that the plaintiff’s claims were barred because she is a “minister” within the meaning of the exception.

Fratello was employed by St. Anthony’s School, a Roman Catholic elementary school located in Nanuet, New York. She served as the School’s principal from 2007 until 2011, when the School declined to renew her contract. She claimed employment discrimination by the School, St.Anthony’s Shrine Church, and the Archdiocese of New York, alleging that her employment was terminated on the basis of gender discrimination and in retaliation for her reporting the alleged discrimination.

According to the decision, the Archdiocese is a constituent entity of the Roman Catholic Church covering 10 counties in southern New York and is led by an Archbishop, currently Timothy Cardinal Dolan. According to the Administrative Manual for its schools the principles on which the School and others within the Archdiocese are to operate are the “formation in the faith, for the lived experience of Gospel values and for the preservation of Catholic culture.” They seek to train students “to be disciples of Jesus Christ who will live by their faith and provide intelligent, creative, and generous service to the human community.” The schools are told to advance their mission through, among other things, the “explicit study of the Catholic faith,” and the Catholic religion is taught in Archdiocese schools at every grade level, through eighth grade, as a distinct class treated administratively in the same manner as those on other academic subjects.

As for its principals, the Manual begins with a cover letter from Edward Cardinal Egan (the late former Archbishop) to principals of Archdiocese schools and describes “principals in the Archdiocese schools” as “having accepted the vocation and challenge of leadership in Catholic education,” and “to carry out the vital work of Catholic education…infused with the Catholic Faith and values that are so needed by the young people who come to Archdiocese schools.”

The Manual also states, among other things, that the principal provides “Catholic leadership” by cooperating with the pastor in recruiting and maintaining a staff committed to the goals of a Catholic school; cooperating with the pastor in his religious ministry to the students; committing to the mission of evangelization; involving the staff in formulating plans to meet religious goals; providing opportunities for student, faculty, and parent participation in liturgical and paraliturgical services; initiating programs that foster the practice of service to others; motivating the students to take an active part in the life of the parish. It also states that principalis to provide “essential” instruction to new teachers on the “Catholic identity of the school,” and ensure that all teachers understand that the “Church puts its trust in them” to provide “faith education” and help students integrate the Gospel into daily life.

The Manual further instructs that the principal should implement the “Catholic Values Infusion Program…under which the principal serves as a “spiritual leader” who “bears the responsibility of integrating Gospel values into the vision, goals, policies and practices, life, and curriculum of the school,” a “tradition bearer” who “models the Catholic values that are central to the spirit of the Catholic school, and the “prime communicator of the message” who “promotes the values of the Catholic school.”

According to the Second Circuit the “ministerial exception bars employment-discrimination claims brought by ministers against the religious groups that employ or formerly employed them. This doctrine addresses a tension between two core values underlying much of our constitutional doctrine and federal law: equal protection and religious liberty. Laws that prohibit various kinds of employment discrimination are intended to give effect to the equality principle.” The First Amendment’s religion clauses “are also of fundamental importance. Amongst other things, they have since their inception been understood to ensure the separation of church and state.”

In the context of employment disputes, the Court recognized that “these two core values sometimes conflict, and a balance must be struck.” Where “a defendant is able to establish that the ministerial exception applies, the ‘First Amendment has struck the balance for us.’ in favor of religious liberty.”

As for the tension between anti-discrimination laws and a church’s ability to select its own ministers, the Second Circuit looked to a Supreme Court decision which explained that because “the members of a religious group put their faith in the hands of their ministers,” it would “intrude upon more than a mere employment decision” to “require a church to accept or retain an unwanted minister, or to punish a church for failing to do so.” Either action would “interfere with the internal governance of the church, depriving it of control over selection of those who will personify its beliefs,” in violation of both religion clauses: “By imposing an unwanted minister, the state would infringe the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments,” and by “determining which individuals will minister to the faithful, the state would “also violate the Establishment Clause, which prohibits government involvement in such ecclesiastical decisions.”

With this background, and a detailed analysis of the history of the events leading up to the adoption of the First Amendment, the Second circuit recognized that the question whether an employee is a “minister” within the meaning of the exception turns “principally on the employee’s job functions.” And that “those properly characterized as ‘ministers’ are flatly barred from bringing employment-discrimination claims against the religious groups that employ or formerly employed them.”

Applying the principles outlined by the Court, it concluded that the ministerial exception bars the employment-discrimination claims against the Archdiocese, the Church, and the School, “all of which are religious groups within the meaning of the ministerial exception. Although her formal title — ‘lay principal’ — does not connote a religious role, the record makes clear that she served many religious functions to advance the School’s Roman Catholic mission.”

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