United States District Court, W.D. Arkansas, Fayetteville Division
MARK FOCHTMAN, et al., Individually, and on Behalf of All Others Similarly Situated PLAINTIFFS
v.
DARP, INC. and HENDREN PLASTICS, INC. DEFENDANTS
MEMORANDUM OPINION AND ORDER
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.
II.
LEGAL STANDARD
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)).
III.
DISCUSSION
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 ...