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Lillehagen, v. Alorica, Inc.

United States District Court, Central District of California, Southern Division

December 10, 2014

MELISSA LILLEHAGEN, et al., on behalf of themselves and all those similarly situated, Plaintiffs,
ALORICA, INC., Defendant.



Before the Court are Plaintiffs’ Motion for Partial Summary Judgment (“P-MSJ”) (Dkt. 159), Defendant’s Motion for Summary Judgment (“D-MSJ”) (Dkt. 135), and Defendant’s Motion to Decertify Collective Action (“Decert. Mot.”) (Dkt. 138). After reviewing the papers and hearing the oral arguments, the Court DENIES Plaintiffs’ Motion for Partial Summary Judgment, GRANTS IN PART AND DENIES IN PART Defendant’s Motion for Summary Judgment, and DENIES Defendant’s Motion to Decertify.

I. Background A. Procedural History

This lawsuit was filed on January 18, 2013. See Compl. (Dkt. 1). Named Plaintiffs Melissa Lillehagen, Sharon Shaw, Janna Carlile, Shanai Whitmore, Brenda Luper, and Ignacio Pizana (collectively, “Plaintiffs”) are current and former employees of Defendant Alorica, Inc. (“Alorica”). Id. ¶ 3.[1] This action involves a single claim under the Federal Labor Standards Act (FLSA). Plaintiffs allege that Alorica uses a company-wide compensation scheme for its customer service representatives (“CSRs”) which treats breaks of less than 20 minutes during a CSR’s continuous workday as uncompensated time. Specifically, Alorica calculates CSRs’ pay based on when CSRs log in and log out of a timekeeping system and does not pay CSRs for times during the day when they are logged out for brief periods of under 20 minutes. Plaintiffs argue that, under FLSA, all of these brief log-out periods should be compensated as hours worked. D-SUF No. 8; Compl. ¶ 7.

On October 24, 2013, the Court conditionally certified a nationwide FLSA class of all individuals who work or have worked as Alorica CSRs between August 9, 2010 to the time of trial, excluding CSRs who worked only at Alorica’s facility in Terre Haute, Indiana during this time period. Order Granting Pls.’ Mot. for Conditional Class Certification, Oct. 24, 2013 (“Class Cert. Order”) (Dkt. 67); Order Denying in Part Objections to Proposed Notice, Oct. 31, 2013 (Dkt. 72) at 1.[2] Potential class members were notified and over 8, 700 individuals opted in to the collective action. See Notices of Consent to Join (Dkts. 53, 68, 74, 77, 80, 88, 90-103, 105, 108-114).

On September 22, 2014, Plaintiffs and Defendant filed cross-motions for summary judgment (Dkts. 135, 159). Defendant also filed a motion to decertify the collective action and a motion to compel 155 of the Opt-In Plaintiffs to arbitrate (Dkts. 137, 138). Oppositions, replies, and additional briefing were filed (Dkts. 171, 172, 184, 185, 191, 193, 194, 195, 215). Oral argument was heard on the motions on November 17, 2014 (Dkt. 213).

B. Facts

1. Alorica’s Business

Alorica provides telephone-based customer services for its corporate clients, including telephonic technical support and telephonic sales services and support. Between January 18, 2010 and the present, Alorica acquired two other call center companies, Ryla Teleservices, Inc. (“Ryla”) and PRC, LLC (“PRC”), as well as all of their accounts. The over 8, 700 CSRs who have opted into this collective action worked at approximately 37 different call center locations in at least 16 states. CSRs are on the front line of Alorica’s business. They handle inbound and outbound telephone calls with customers of Alorica’s clients and provide them with service and support. See Pls.’ Statement of Uncontroverted Facts (“P-SUF”) (Dkt. 160) No. 3-4; Defs.’ Statement of Uncontroverted Facts (“D-SUF”) (Dkt. 136) No. 1-2.

CSRs are non-exempt employees and Alorica pays them by the hour, on a biweekly basis. Full-time CSRs typically work an eight-hour shift, excluding their unpaid meal period. Alorica typically provides CSRs with one scheduled 30-45 minute meal period per eight-hour shift and two scheduled breaks of 10-15 minutes each per eight-hour shift. See P-SUF Nos. 5-9; D-SUF No. 9. In addition to their two scheduled breaks, CSRs sometimes take unscheduled breaks during their shifts to use the restroom or to get a glass of water or a snack. P-SUF Nos. 41-42.

2. EIS Timekeeping System

Alorica requires CSRs to track their time worked by using an electronic timekeeping system at their workstation. P-SUF No. 10. Most of Alorica’s facilities use a proprietary timekeeping system called Employee Information System (EIS), although Alorica also used Kronos at select sites until 2013. P-SUF No. 13; Declaration of Anne Romagnino ¶ 8 (Dkt. 141). CSRs must use “login” and “logout” buttons on their phones or computers each day to record when they start and stop work. P-SUF No. 11. The phone log-in system is referred to as the “hard phone” system; the computer log-in system is referred to as the “soft phone” system. D-SUF No. 11.

To start recording their work time on EIS, CSRs log into the timekeeping system by pressing the “LOGIN” button on their phone or computer. P-SUF No. 14. When CSRs get logged out of the system, EIS stops recording their work time. P-SUF No. 15. During the day, in addition to using the LOGIN and LOGOUT buttons, a CSR will also use various “AUX” buttons on their phone or computer. When the CSR’s system is in “AUX mode, ” his or her phone temporarily stops receiving calls. P-SUF No. 46. CSRs are not paid for time recorded in EIS under the “Lunch” AUX code. CSRs are paid for time recorded in EIS under other AUX codes, which include “Break” (for scheduled breaks and unscheduled breaks), and other codes. P-SUF Nos. 47-49.

3. Policies and Practices Regarding Timekeeping

It is uncontroverted that Alorica had certain written policies for CSRs and for managers of CSRs regarding timekeeping. In general, the written policy was for CSRs to log in at the beginning of their shift and stay logged into the EIS system until the end of the shift when they would log out. When CSRs took their twice daily scheduled breaks or bathroom breaks as necessary, they were supposed to use the “Break” AUX code rather than log out. When CSRs had lunch, they were supposed to use the “Lunch” AUX code rather than log out, except that CSRs at certain facilities during certain time periods had to log out for lunch and then log back in upon returning from lunch because their timekeeping system did not have a “Lunch” AUX code. D-SUF Nos. 17-20.

Alorica’s written timekeeping policies emphasized that CSRs were responsible for logging in and out and using AUX codes correctly in order for them to be paid correctly. D-SUF Nos. 18-20. Alorica’s written policies also emphasized the importance of “schedule adherence, ” which included good attendance, punctuality, and adherence to the daily schedule that managers established for the CSRs. Alorica’s Employee Handbook warned that employees could be subject to disciplinary action, including termination of employment, for excessive absences, tardiness, or failures to adhere to the schedule. Declaration of David N. Tarlow (Dkt. 148) Ex. C (Beckerley Dep. Ex. 3, Aug. 5, 2014); Ex. D (Campos Dep. Ex. 2, Aug. 1, 2014); Ex. L (Shaw Dep. Ex. 23, Mar. 5, 2014).

Alorica also had written policies for managers. On July 15, 2013, Alorica’s Vice President of Human Resources and Administration sent a memorandum to various Alorica managers with the subject “2013 Mid-Year Log In-Log Off Break Policy Clarification.” The memo admonished, “Management is not to log out employees from the system while on Break Aux Code” and warned managers, “Do not ask employees to log out of the system for rest or restroom breaks.” P-SUF Nos. 56-58. One exception was that managers could log employees out of the system if the employee was gone from his or her workstation for more than 30 minutes and the manager had conducted a diligent search for the employee. Declaration of Allen R. Vaught (“First Vaught Decl.”) (Dkt. 162) Ex. E (Smith Dep. Ex. 315, Aug. 5, 2014).

Plaintiffs do not dispute that Alorica had such written policies, but do dispute whether Alorica actually communicated and enforced them. Some managers instructed CSRs to log out when they took breaks instead of using the AUX code. Carlile Dep. 21:21-22:4, Apr. 29, 2014; Reynolds Dep. 23:17-24:21, Mar. 6, 2014; Shaw Dep. 103:2-11; Amend Dep. 48:6-10, 49:16-50:13, Mar. 27, 2014. Some managers would log CSRs out of EIS while the CSRs were away from their workstations to either perform work-related activities and when taking breaks. Some of the CSRs who testified that they themselves had been logged out or that they had seen other CSRs logged out generally could not recall exactly how long they or their co-workers were away from their workstations. Bass Dep. 70:15-73:25, 76:3-77:15, Aug. 12, 2014; Beckerley Dep. 51:23-54:4, Aug. 5, 2014; Campos Dep. 79:24-83:24; Carlile Dep. 57:5-22; Lillehagen Dep. 13:17-20, 89:6-90:21, Mar. 14, 2014; Luper Dep. 60:5-63:23, July 11, 2014; Moore Dep. 62:25-65:21, Aug. 11, 2014; Tellez Dep. 60:21-61:25, Aug. 1, 2014. Sometimes other issues got in the way of accurate timekeeping, such as computer failures that caused CSRs to be involuntarily logged out. P-SUF No. 37. Or, sometimes CSRs had to log out to switch computer workstations. P-SUF No. 38. Managers did not always automatically correct CSRs’ timesheets so that CSRs would be compensated for those times. Whitmore Dep. 156:9-158:19, Mar. 4, 2014.

4. Policies and Practices Regarding Calculating Pay and Resolving Pay Discrepancies

Alorica calculates a CSR’s wages based on the total hours logged in EIS and on the manager’s adjustments or corrections. P-SUF No. 18, 21; Romagnino Decl. ¶¶ 6-8 (Dkt. 141). Managers can make manual adjustments or corrections to a CSR’s timesheet in EIS before the timesheets are locked at the beginning of the payroll week and submitted to payroll. P-SUF No. 25. After a timesheet is locked, a CSR can still report a pay discrepancy and the CSR’s manager can still work with human resources and payroll personnel to resolve them, but the data is not directly reflected in the EIS time records. P-SUF Nos. 32, 34, 35; D-SUF No. 48. If there are no manual adjustments by managers or other changes made further downstream, then the CSR’s wages are calculated just on the raw log-in and log-out data in EIS. See P-SUF No. 24.

Alorica’s policy requires CSRs to review their time records within EIS before EIS timesheets are locked and submitted to payroll. P-SUF No. 27; D-SUF No. 47. Alorica also requires managers to review CSRs’ timesheets for accuracy during each two-week pay period. P-SUF No. 29. Managers must review hours worked and the start and stop times in EIS timesheets daily. P-SUF No. 30. Every two weeks, the Payroll Department is required to review timesheets, “hours” files, and “preview reports” for accuracy. P-SUF No. 60. The preview reports received by the Payroll Department contain CSRs’ hours and payroll before each pay period, which must be screened before payroll closes. P-SUF No. 61.

Some of the CSRs who were deposed reviewed their timesheets regularly. Carlile Dep. 60:3-7; Campos Dep. 88:21-89:22; Whitmore Dep. 139:8-17. Others did not, for various reasons including not having access to the timesheets, not knowing how to read them, or not having time during their busy shifts because they were expected to be on the phone as much as possible. Carlile Dep. 40:20-41:6; Lillehagen Dep. 100:19-101:10; Luper Dep. 50:4-11; Moore Dep. 51:10-14; Shaw Dep. 130:13-132:19; Whitmore Dep. 138:23-139:13. Some had reported pay discrepancies to their managers. Sometimes the discrepancies were then fixed; sometimes not. Carlile Dep. 40:8-41:10; Luper Dep. 68:16-69:17; Pizana Dep. 82:15-83:6, 84:13-19, Aug. 2, 2014; Whitmore Dep. 161:4-162:18.

5. Log-Out Episodes

CSRs’ raw log-in and log-out data from EIS shows many instances where CSRs were logged out for short periods of less than 20 minutes during their shift. See Second Vaught Decl. Exs. U-FF; Declaration of Dwight D. Steward, Ph.D. ¶ 30 (Dkt. 161).[3] The Court will refer to these brief periods as “log out episodes.” The data reflects adjustments made by managers before the timesheets were locked, but not corrections to a CSR’s pay made after the timesheets were locked. Those corrections would be reflected in pay discrepancy forms. There do not appear to be very many pay discrepancy forms related to short periods of less than 20 minutes. Declaration of Allen R. Vaught ¶ 73 (“Second Vaught Decl.”) (Dkt. 187) (noting that only 13 out of 755 pay discrepancy forms produced by Alorica are related to short breaks of less than 20 minutes).[4]

The Named and Opt-in Plaintiffs who were deposed generally do not recall specific episodes when they were logged out. They do not recall the circumstances surrounding each episode, such as whether their computer or phone system was down or whether they were on a scheduled break or unscheduled bathroom break, late coming back for break, or attending team meetings away from their workstations. Nor do they recall whether they were ultimately paid for the time spent logged out. Nevertheless, their log-in and log-out data shows that each experienced log-out episodes. Second Vaught Decl. Exs. U-FF.

II. Compensability of Short Breaks Under the FLSA

One of the central legal questions in this case is whether all short breaks of under 20 minutes are compensable under FLSA as “hours worked, ” or if the employer need not pay employees for certain types of short breaks. Because this question is important to the resolution of both the Motion for Decertification and the cross Motions for Summary Judgment, the Court addresses this question first.

A. Statutory and Regulatory Language

FLSA requires employers to compensate employees for all “hours worked.” Alvarez v. IBP, Inc., 339 F.3d 894, 902 (9th Cir. 2003) (citing 29 U.S.C. §§ 206, 207; additional citation omitted). 29 C.F.R. § 785.18, promulgated in 1961, states:

Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked. Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time. Mitchell v. Greinetz, 235 F.2d 621, 13 W.H. Cases 3 (C.A. 10, 1956); Ballard v. Consolidated Steel Corp., Ltd., 61 F.Supp. 996 (S.D. Cal. 1945))

29 C.F.R. § 785.18.

B. Sub-Regulatory Interpretations

In support of their argument that all short breaks must be compensated, Plaintiffs cite to a 1996 Opinion Letter issued by the U.S. Department of Labor (“DOL”) interpreting Section 785.18 as a “bright line time test.” U.S. Dep’t of Labor, Wage and Hour Division, Opinion Letter Fair Labor Standards Act (FLSA) (Dec. 2, 1996), 1996 WL 1005233, at *1 (“1996 DOL Opinion Letter”). The DOL wrote the Opinion Letter in response to an inquiry regarding whether an employer had to compensate employees for their 3- to 4-minute smoke breaks (totaling no more than 15 minutes per day). In support of the DOL’s position that the employees must be compensated for their smoke breaks, the 1996 Opinion Letter stated in relevant part:

Employees have always taken short work breaks, with pay, for a myriad of non-work purposes -- a visit to the bathroom, a drink of coffee, a call to check the children, attending to a medical necessity, a cigarette break, etc. The Department has consistently held for over 46 years that such breaks are hours worked under the FLSA, without evaluating the relative merits of an employee’s activities. . . .
Any modification of the Department’s long held position to accommodate your request would require a series of tests to evaluate the relative benefit provided to employee and employer and the impact on employee efficiency of each and every small work break ever taken by any employee.
We believe that such tests would be an undesirable regulatory intrusion in the workplace with the potential to seriously disrupt many employer-employee relationships. Further, it would be difficult, if not impossible, to design practical tests applicable to all workplace circumstances.
While we fully appreciate the extraordinary difficulties presented to employers by smoking in the workplace, we believe that the government should not be in the business of determining what employees do on short work breaks, much less attempting to evaluate which short breaks merit or do not merit compensation. We strongly believe that employers and employees are best served by the bright line time test currently provided in Section 785.18.
We are unwilling, for these reasons cited above, to modify the existing position. The FLSA does not require an employer to provide its employees with rest periods or breaks. If the employer decides to permit short breaks, however, the time is compensable hours worked. Even if the employees agree to forego compensation for the break time, the time is still compensable, because employees may not waive their statutory rights through an agreement with the employer. If the employer permits its employees to take a series of short smoke breaks, the employees must be compensated for their time.

1996 DOL Opinion Letter, 1996 WL 1005233, at *1.

Alorica argues that FLSA and Section 785.18 actually do not require that all short breaks be counted as “hours worked, ” especially in light of more recent developments in federal wage-and-hour law and regulation, Alorica points to 29 U.S.C. § 207(r), which requires the employer to provide a reasonable break time for a female employee to express breast milk for her nursing infant up to one year after the child’s birth, but does not require the employer to compensate her for that time.[5] Alorica also points to Chapter 31a01(c) of the DOL’s Field Operations Handbook, dated December 15, 2000. Chapter 31a01 states in relevant part:

(a) Rest periods of short duration, running from 5 minutes to about 20 minutes are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked.
(c) Unauthorized extensions of authorized employer breaks are not counted as hours worked for an employee when the employer has expressly and unambiguously communicated to the employee that:
(1) The authorized break may only last for a specific length of time;
(2) Any extension of such break is contrary to the employer’s rules; and
(3) Any extension of such a break will be punished.

U.S. Department of Labor, Field Operations Handbook, ch. 31a01(c) (Dec. 15, 2000).

In 2001, DOL issued an opinion letter interpreting Chapter 31a01(c). It stated in relevant part:

You are requesting an opinion as to whether the unauthorized extension of an authorized break by an employee who has been previously advised of the three conditions of 31a01(c) results in the loss of the entire period of the break from compensable time rather than just the amount of time by which the break has been extended without authorization.
Only the length of the unauthorized extension of an authorized break will not be considered hours worked when the three conditions are met, not the entire break.

U.S. Dep’t of Labor, Wage and Hour Division, Opinion Letter Fair Labor Standards Act (FLSA) (May 19, 2001), 2001 WL 1869965 (“2001 DOL Opinion Letter”).

C. Deference

Each side urges the Court to defer to the DOL’s interpretation of “hours worked.” Plaintiffs wish the Court to defer to Section 785.18, or in the alternative to the 1996 Opinion Letter, while Alorica wishes the Court to defer to Chapter 31a01(c) of the Field Operations Handbook and the 2001 Opinion Letter.

It is well established that courts will afford substantial deference to an administrative agency’s interpretation of an ambiguous statute

when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority. Delegation of such authority may be shown in a variety of ways, as by an agency’s power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent.

United States v. Mead Corp., 533 U.S. 218, 226-27 (2001) (denying Chevron deference to agency interpretations made outside of the notice-and-comment process); see also Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984). An agency’s interpretation made outside of a formal notice-and-comment or adjudicatory process nonetheless may be entitled to a lesser degree of deference. Under Skidmore v. Swift & Co., the weight given to such interpretations “depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” 323 U.S. 134, 140 (1944).

“Where an agency interprets its own regulation, ” on the other hand, “even if through an informal process, its interpretation of an ambiguous regulation is controlling under Auer unless ‘plainly erroneous or inconsistent with the regulation.’” Bassiri v. Xerox Corp., 463 F.3d 927, 930 (9th Cir. 2006) (citing Auer v. Robbins, 519 U.S. 452, 461 (1997)). Auer deference has fallen into relative disfavor over the years, with the Supreme Court repeatedly narrowing its scope. For example, the Supreme Court clarified that Auer deference is not due if the agency’s regulation is unambiguous or if the agency’s regulation merely repeats the language of the statute. Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000); Gonzales v. Oregon, 546 U.S. 243, 256-57 (2006). Auer deference

is likewise unwarranted when there is reason to suspect that the agency’s interpretation does not reflect the agency’s fair and considered judgment on the matter in question. This might occur when the agency’s interpretation conflicts with a prior interpretation, or when it appears that the interpretation is nothing more than a convenient litigating position, or a post hoc rationalizatio[n] advanced by an agency seeking to defend past agency action against attack.

Christopher v. SmithKline Beecham Corp., 132 S.Ct. 2156, 2166-67 (2012) (internal citations and quotation marks omitted).

The parties do not dispute that Section 785.18 is due substantial deference under Chevron and Mead. The dispute is over what the Court should make of Chapter 31a01(c) of the Field Operation Handbook and the 2001 Opinion Letter in interpreting Section 785.18.

A threshold question is whether Chapter 31a01(c) is the DOL’s interpretation of FLSA or of Section 785.18. Plaintiffs argue that neither Chapter 31a01(c) nor the 2001 Opinion Letter are due Auer deference because neither document explicitly cites to Section 785.18. This argument is unavailing, as Chapter 31a01(a), only two paragraphs above Chapter 31a01(c), repeats Section 785.18 almost verbatim. Likewise, the header for Chapter 31a01 is “Rest periods, ” a term that does not appear in the FLSA, but is the heading of Section 785.18. It is highly unlikely that the DOL was not thinking about Section 785.18 in drafting Chapter 31a01(c).

The Court next considers whether Section 785.18 is ambiguous. See Christensen, 529 U.S. at 588 (“Auer deference is warranted only when the language of the regulation is ambiguous.”). Plaintiffs argue that the imperative that rest periods of short duration “must be counted as hours worked” makes it clear that all short breaks must be compensated. Plaintiffs cite to numerous cases which interpreted Section 785.18 as requiring short breaks to be compensated without detailed inquiry into the factual circumstances surrounding the short breaks at issue. See, e.g., Ballaris v. Wacker Siltronic Corp., 370 F.3d 901, 913 n.18 (9th Cir. 2004); Hawkins v. Alorica, Inc., 287 F.R.D. 431, 442 (S.D. Ind. 2012); Atkinson v. House of Raeford Farms, Inc., No. 6:09-CV-01901-JMC, 2012 WL 2871747, at *3 (D.S.C. July 12, 2012); Kasten v. Saint-Gobain Performance Plastics Corp., 556 F.Supp.2d 941, 953 (W.D. Wis. 2008).

Alorica argues that the sentence in Section 785.18 stating that rest periods are “customarily paid as working time” demonstrates that DOL’s position that FLSA usually requires compensation for rest periods but not always. Also, one of the cases cited in the regulation, Mitchell v. Greinetz, held that short breaks should be compensable “when time out is of such a nature that it bears a relationship to the employment time and is beneficial to the employer.” 235 F.2d 621, 624 (10th Cir. 1956). Mitchell involved short breaks which were permitted by the employer; the court found that, under the facts and circumstances of the case, those breaks benefitted the employer as well as the employees and thus were compensable.

In the Court’s view, the more reasonable reading of Section 785.18 is that rest periods “must be counted as hours worked.” The use of the word “customarily” and the citation to Mitchell appear to be the reasoning supporting the DOL’s interpretation of “hours worked, ” not the DOL’s ultimate conclusion as to its interpretation of the statute. A simple imperative that all rest periods must be compensated is also far easier for the DOL, the Court, and litigants to administer. However, given Section 785.18’s description of the “rest periods” as “common in industry” and “customarily paid” and the citation to Mitchell, which dealt with authorized breaks and held that the compensability of breaks depended on the factual circumstances surrounding them, 235 F.2d at 623, Section 785.18 could reasonably be read different ways. For instance, it could be read as only creating a presumption that rest periods are beneficial to the employer and thus compensable. It could also be read as allowing employers some input in determining which rest periods are beneficial to them, e.g., by allowing employers to control, to some degree, which short rest periods will be paid. Thus, Section 785.18 is ambiguous.

Because Section 785.18 is ambiguous, then the Court must determine which of the DOL’s interpretations of Section 785.18, if any, merit Auer deference. It is uncontested that Auer deference is due to the 1996 Opinion Letter. What is disputed is whether the Court should afford Auer deference to Chapter 31a01(c) and the 2001 ...

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