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Fochtman v. Darp, Inc.

United States District Court, W.D. Arkansas, Fayetteville Division

September 27, 2019

MARK FOCHTMAN, et al., Individually, and on Behalf of All Others Similarly Situated PLAINTIFFS


          Timothy L. Brooks, Judge

         Presently before the Court are three ripe motions for summary judgment. All three motions ask the Court to decide as a matter of law the following two legal questions: (1) whether Plaintiffs and the class members they represent are employees under the Arkansas Minimum Wage Act (“AMWA” or “Act”) and (2) whether the Defendants qualify as employers under the Act. For the reasons set forth below, the two questions are answered in the affirmative, and, consequently, Defendant DARP, Inc.’s (“DARP”) Motion for Summary Judgment (Doc. 89) is DENIED, and Defendant Hendren Plastics, Inc.’s (“Hendren”) Motion for Summary Judgment (Doc. 93) is also DENIED. Plaintiffs’ Motion for Summary Judgment (Doc. 87) is GRANTED IN PART with respect to the above legal questions and DEFERRED IN PART as to Plaintiffs’ request that the Court determine the total amount of damages owed by the Defendants.

         I. BACKGROUND

         Plaintiff Mark Fochtman and a second individual, Shane O’Neal, originally filed this matter in the Circuit Court of Benton County, Arkansas, on October 23, 2017. At that time, the defendants in the lawsuit included DARP, a drug and alcohol recovery facility in Decatur, Arkansas; Hendren, a plastics factory in Gravette, Arkansas; CAAIR, Inc. (“CAAIR”), a drug and alcohol recovery facility located near Jay, Oklahoma; and Simmons Foods, Inc. (“Simmons”), a business that, among other things, operates poultry processing plants and chicken farms in Arkansas and Oklahoma. On November 6, 2017, Simmons removed the case to this Court, asserting federal jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d)(2).

         The plaintiffs initially disagreed about whether removal was proper and federal jurisdiction was appropriate, but at some point, they were persuaded that CAFA’s jurisdictional requirements had been satisfied as of the time of removal, and their motion to remand was deemed moot. See Doc. 2, p. 4. All the parties agreed-eventually-that the case should be severed into two separate lawsuits, as there appeared to be two putative classes asserted in the complaint. The first class included individuals who were ordered by state drug courts to reside at CAAIR, which, in turn, required its residents to work at Simmons’s poultry processing plant and/or chicken farm; and the other class included individuals who were ordered to reside at DARP, which, in turn, required its residents to work at Hendren’s plastics factory. Simmons asked the Court to transfer the Simmons/CAAIR claims to the Northern District of Oklahoma, where similar claims were already pending, and Hendren and DARP asked the Court to remand the Hendren/DARP claims to state court pursuant to an exception to CAFA jurisdiction. The plaintiffs opposed both requests.

         In a memorandum opinion and order issued on February 27, 2018, the Court granted Simmons’s motion to transfer the Simmons/CAAIR putative class action claims to the Northern District of Oklahoma and denied Hendren and DARP’s joint request to remand the Hendren/DARP claims to state court. See Id . at 17. The Court directed Mr. Fochtman to submit an amended complaint containing only claims against Hendren and DARP, and he did so on March 9, 2018, under the instant case number, 5:18-CV-5047. (Doc. 1).

         The Plaintiffs identified in the Complaint are individuals who, at one time, faced criminal charges related to substance abuse. Arkansas drug courts offered them the opportunity to participate in DARP’s residential drug and alcohol recovery program in lieu of punishment in the criminal justice system. They knew that if they chose to enter DARP but did not complete DARP’s program requirements, they would be returned to drug court to face the prospect of prison time.

         The Complaint alleges that the Defendants qualify as joint employers under the AMWA and that they violated the law by failing to pay DARP’s residents minimum-wage and overtime compensation for the hours they worked at Hendren’s plastics factory. DARP provided each resident with bed space at one of its two sixty-bed facilities in Decatur, as well as meals, clothing and basic hygiene supplies (if needed), and transportation to and from a job at Hendren’s for-profit plastics factory. DARP and Hendren entered into a Contract Labor Agreement (Doc. 90-21) that provided that DARP would transport its residents to Hendren to work daily shifts at the factory at a flat rate per hour. The two companies also negotiated a rate for overtime compensation for these workers. According to their agreement, the two companies entered into this business relationship to further their twin goals of providing “a reliable work force” for Hendren that would show up to work on time, every day, and of demonstrating to DARP’s residents the value of sobriety through the ethic of hard work. Id.[1] Hendren did not pay the workers directly. Instead, Hendren would keep track of their hours using the same timeclock system that the regular employees used, and then Hendren would forward the total number of hours worked to DARP. DARP would multiply those hours by the hourly rates DARP and Hendren had agreed to ahead of time, and then DARP would provide Hendren with an invoice. With the invoice in hand, Hendren would cut a lump-sum check to DARP for the residents’ labor.[2]

         All residents signed a document entitled “Admission Agreement” upon their entry to DARP that clearly informed them they would not be paid wages for their work at the factory, “as the money earned goes toward operation of the D.A.R.P. Foundation, ” (Doc. 90-6), but that they might receive a gratuity/stipend from DARP if DARP determined they had successfully completed the program.

         After the Complaint was filed, Hendren and DARP each filed motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court denied both motions in an order entered on June 27, 2018. (Doc. 35). Several months later, the Court considered Plaintiffs’ motion for class certification, filed on September 17, 2018. The motion was vigorously opposed by both Defendants. In a memorandum opinion and order issued on January 31, 2019 (Doc. 53), the Court certified a class composed of:

         All individuals who were DARP participants at any time from October 23, 2014, until the present, and who worked for Hendren Plastics, Inc. in the State of Arkansas during their time at DARP.

         Following the Court’s order on class certification, Hendren and DARP filed petitions at the Eighth Circuit on February 13 and 14, respectively, seeking to appeal the Court’s class certification decision. However, by March 14, both petitions had been denied. See Doc. 64-1. Discovery in the case continued, and on June 21, 2019, Plaintiffs, DARP, and Hendren each filed separate motions for summary judgment. Plaintiffs’ Motion (Doc. 87) asks the Court to find that DARP is an employer, that Hendren is a joint employer along with DARP, and that the Plaintiffs and class members were, during the relevant class period, employees as defined by the AMWA. Plaintiffs also argue there is no genuine dispute of fact that Defendants failed to pay appropriate minimum-wage and overtime compensation and that the precise amount owed is not in dispute.

         DARP and Hendren take the opposite position in their Motions for Summary Judgment (Docs. 89, 93). They argue the Court should find as a matter of law that DARP and Hendren are not employers under the AMWA and that the class members were not employees. Hendren also offers a couple of affirmative defenses, namely, that even if an employment relationship existed here, the class members validly assigned their wages to DARP or, in the alternative, DARP validly withheld their wages pursuant to court orders issued by Arkansas drug courts.


         A. Summary Judgment

         A party moving for summary judgment must establish both the absence of a genuine dispute of material fact and its entitlement to judgment as a matter of law. See Fed.R.Civ.P. 56; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586– 87 (1986); Nat’l Bank of Commerce of El Dorado, Ark. v. Dow Chem. Co., 165 F.3d 602, 607 (8th Cir. 1999). The same standard applies where, as here, the parties have filed cross-motions for summary judgment. When no material facts are in dispute, “summary judgment is a useful tool whereby needless trials may be avoided, and it should not be withheld in an appropriate case.” United States v. Porter, 581 F.2d 698, 703 (8th Cir. 1978). Each motion should be reviewed in its own right, however, with each side “entitled to the benefit of all inferences favorable to them which might reasonably be drawn from the record.” Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983); see Canada v. Union Elec. Co., 135 F.3d 1211, 1212–13 (8th Cir. 1998). In order for there to be a genuine issue of material fact, the non-moving party must produce evidence “such that a reasonable jury could return a verdict for the nonmoving party.” Allison v. Flexway Trucking, Inc., 28 F.3d 64, 66 (8th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         B. Classifying a Worker as an Employee

          Both the Fair Labor Standards Act (“FLSA”) and the AMWA define an “employee” as “any individual employed by an employer” and an “employer” as anyone “acting directly or indirectly in the interest of an employer in relation to an employee.” Compare Ark. Code Ann. § 11-4-203, with 29 U.S.C. § 203. In addition, Arkansas Administrative Code Title 010.14.1-112 provides that the Arkansas Department of Labor may rely upon federal precedent established by the FLSA in interpreting the AMWA. Courts regularly use FLSA precedent to interpret the AMWA. See Karlson v. Action Process Serv. & Private Investigation, LLC, 860 F.3d 1089, 1092 n.3 (8th Cir. 2017); Harris v. Express Courier Int’l, 2017 WL 5606751, at *4 (W.D. Ark. Nov. 21, 2017).

         The Supreme Court has instructed lower courts to broadly interpret the meaning of “employee” under the FLSA. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992); see also Ark. Code Ann. § 11-4-204 (stating that the AMWA should be “liberally construed in favor of its purpose”). Furthermore, the test for employment under the FLSA hinges on the economic reality of the worker’s situation. Ash v. Anderson Merchandisers, LLC, 799 F.3d 957, 961 (8th Cir. 2015) (citing Tony and Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 301 (1985)). Under the economic-reality test, courts look at the total circumstances of the economic relationship between the parties, including such factors as the “alleged employers’ right to control the nature and quality of their work, the employers’ right to hire, or fire, or the source of compensation for their work.” Id. at 961.

         C. Classifying a Business as an Employer or Joint Employer

          The term “employer” includes any individual, partnership, association, corporation, or person “acting directly or indirectly in the interest of an employer in relation to an employee, ” provided that the employer has at least four employees. Ark. Code Ann. § 11-4-203(4)(A)–(B). When determining whether an entity is liable as an employer, courts consider the following three factors: (1) control in hiring and firing employees, (2) control in the manner in which work is performed, and (3) the fixing of employee wages. Dole v. Cont’l Cuisine, Inc., 751 F.Supp. 799, 802–03 (E.D. Ark. 1990) (citing Wirtz v. Pure Ice Co., 322 F.2d 259 (8th Cir. 1963)).

         In joint-employer cases, the relevant inquiry is whether the two employers “are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee . . . .” 010 Ark. Code R. § 14.1-110(A) (mirroring FLSA regulations at 29 C.F.R. § 791.2(a)). The AMWA regulations further provide that if an employee performs work that simultaneously benefits two or more employers, a joint-employment relationship exists, such as:

1. Where there is an arrangement between the employers to share the employee’s services, as, for example, to interchange employees; or 2. Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or 3. Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

010 Ark. Code R. § 14.1-110(B) (mirroring FLSA regulations at 29 C.F.R. § 791.2(b)).


         A. Employee and Employer/Joint-Employer Status Under the AMWA

          The Court has previously had an opportunity to consider-although not on a dispositive basis-whether the former residents of DARP qualify as employees and whether DARP and Hendren qualify as employers under the AMWA. See Doc. 35, pp. 4–7, Memorandum Opinion and Order (denying dismissal of Plaintiffs’ minimum-wage and overtime compensation claims under Rule 12(b)(6)); Doc. 53, Memorandum Opinion and Order at 9–10 (granting Plaintiffs’ motion for class certification). Now that discovery is complete and these issues have been presented to the Court on summary judgment, the Court observes that the facts material to the analysis have not changed since the issues were first presented at the Rule 12 dismissal stage. The applicable law is also the same.

         Determining whether a worker qualifies as an employee under the AMWA depends on the economic reality of the worker’s situation. Ordinarily, the issue of classification presents itself when an employee contends he was inappropriately labeled an independent contractor, but the economic reality of his work situation reveals that he was really an employee, entitled to minimum-wage and overtime compensation under the law. The issue in the instant case is different than the usual situation because the workers here were not directly paid any cash wages for their labors, and the Defendants contend they were not entitled to receive wages at all. Defendants believe that since the class members were informed at the time they entered the DARP program that they were not entitled to cash wages and would not receive them, and since they all signed the same paperwork acknowledging they were not employees, they voluntarily gave up any entitlement they might have otherwise had to employee status.

         The Supreme Court has decided the question of whether the minimum-wage and overtime requirements of the FLSA apply to workers who do not consider themselves to be employees or have affirmatively disclaimed any right to receive cash wages. The case of Tony and Susan Alamo Foundation v. Secretary of Labor involved a nonprofit religious organization that “derive[d] its income largely from the operation of a number of commercial businesses, which include[d] service stations, retail clothing and grocery outlets, hog farms, roofing and electrical construction companies, a recordkeeping company, a motel, and companies engaged in the production and distribution of candy.” 471 U.S. 290, 292 (1985). The Foundation’s businesses were staffed by workers known as “associates.” These associates were former “drug addicts, derelicts, or criminals” who claimed they had turned their lives around as a result of the Alamos’ ministry. Id. Many associates testified that they considered themselves to be volunteers when they worked for the Foundation’s businesses, rather than employees, because they “expected no compensation for their labors.” Id. at 300. Indeed, one associate testified “that she did not work for material rewards” and that none of the other workers expected monetary compensation either. Id. This same associate also stated that she considered the work she did to be personally beneficial and “part of her ministry.” Id. at 300–01.

         The Court observed that “[a]n individual who, ‘without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit, ’ is outside the sweep of the Act.” Id. at 295 (quoting Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947)). From this, the Court identified a test for determining whether a self-avowed volunteer-like an Alamo Foundation associate-should nonetheless be considered an employee under the FLSA. If the worker expected to receive compensation in the form of in-kind benefits in exchange for their work, then the worker was an employee under the law, regardless of the worker’s subjective expectation of cash wages. Id. at 301. The Court concluded that in-kind benefits were nothing more than “wages in another form, ” id., and the testimony in the case revealed that the Alamo associates “did expect the Foundation to provide them with food, shelter, clothing, transportation and medical benefits” and were utterly dependent for periods of time on those benefits, id. at 293 (internal quotation and citation omitted).

         But what of the fact that the associates expected no monetary compensation for their work and “vehemently protested coverage under the Act?” Id. at 302. The Court explained that the associates’ opinions on their classification status were immaterial to the classification inquiry, since “the purposes of the Act require that it be ...

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