Mark Fochtman v. Hendren Plastics, Inc.

Citation: Not availableDocket: 20-2061

Court: Court of Appeals for the Eighth Circuit; August 25, 2022; Federal Appellate Court

Original Court Document: View Document

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Mark Fochtman and five other plaintiffs initiated class action lawsuits against DARP, Inc. and Hendren Plastics, Inc., claiming violations of the Arkansas Minimum Wage Act due to non-payment of minimum wage for work performed as part of a court-ordered recovery program. The key issue on appeal was whether the plaintiffs qualified as "employees" under the law while working for Hendren. The district court ruled in favor of the plaintiffs, classifying them as employees, but the Eighth Circuit reversed this judgment. 

DARP is a non-profit recovery program providing participants with room, board, and essentials, without charging fees. It emphasizes work ethic, requiring participants to work for local businesses without direct compensation. Instead, these businesses pay DARP a fixed amount for each hour worked by participants. Hendren Plastics, a local business, did not pay participants directly but compensated DARP $9.00 per regular hour and $13.50 per overtime hour, exceeding Arkansas's minimum wage rates of $6.25 and $9.38, respectively.

In 2015, Hendren raised hourly wages for workers to $9.20 and $13.80, surpassing the highest minimum wage rates relevant to the case. Fochtman and other plaintiffs represent a class of individuals who worked for Hendren at the Drug and Alcohol Recovery Program (DARP), mainly referred through drug court programs in Arkansas and Oklahoma, allowing them to avoid imprisonment by participating in a recovery program. The typical duration at DARP was six months, extending up to a year.

In October 2017, Fochtman filed a lawsuit in Arkansas state court against DARP, Hendren, CAAIR, Inc., and Simmons Foods, Inc., alleging inadequate wages and overtime violations as per the Arkansas Minimum Wage Act. The case was subsequently removed to federal court under the Class Action Fairness Act (CAFA). The district court severed claims against DARP and Hendren from those against CAAIR and Simmons but denied motions to dismiss or remand the case. An amended complaint was ordered, focusing on claims against DARP and Hendren. 

After dismissing some claims, the court certified a class of DARP participants who worked for Hendren from October 23, 2014, onward. Cross-motions for summary judgment were filed regarding the employment status of DARP participants under the Arkansas Minimum Wage Act. The court ruled that plaintiffs were employees and that DARP and Hendren were joint employers, entitling the plaintiffs to liquidated damages. 

Hendren and DARP’s attempts to vacate the judgment based on the Rooker-Feldman doctrine were unsuccessful, and they appealed the summary judgment and liquidated damages award. On appeal, the court examined whether the district court had subject matter jurisdiction. Hendren challenged jurisdiction, arguing it was lost post-severance due to the amount-in-controversy requirement under CAFA. This argument was rejected, affirming that jurisdiction is determined at the time of removal and subsequent severance does not necessitate reestablishing jurisdiction for separate actions. The court noted that similar to other post-removal events, severance does not eliminate jurisdiction.

The Fifth Circuit clarified that the Honeywell analysis pertains specifically to state claims lacking original jurisdiction, which were associated with federal claims. In this case, original jurisdiction under the Class Action Fairness Act (CAFA) existed over claims against DARP and Hendren at removal, making Honeywell's rationale inapplicable. Hendren's argument invoking the Rooker-Feldman doctrine, which prevents federal district courts from reviewing state court judgments, was found to be inappropriate. Fochtman’s claims do not seek to contest state court judgments but rather address the obligation of DARP and Hendren to pay wages under state law. The state court judgments did not resolve issues related to the Arkansas Minimum Wage Act, thus the Rooker-Feldman doctrine is not relevant. The district court had subject matter jurisdiction under CAFA, and the jurisdiction to review the judgment is affirmed under 28 U.S.C. 1291.

On the merits, DARP and Hendren contended that the district court incorrectly ruled that the Fochtman class members were employees for Arkansas Minimum Wage Act purposes. The Act imposes penalties on employers who fail to pay minimum wage and defines "employer" and "employee" similarly to the Fair Labor Standards Act (FLSA). The determination of employment status under both the FLSA and the Arkansas statute is a legal issue based on the economic relationship between the parties involved.

The evaluation of whether an individual is considered an employee under the Fair Labor Standards Act (FLSA) involves a comprehensive assessment of economic reality, taking into account the totality of circumstances. The Supreme Court has defined "employ" broadly but with limits, as seen in Walling v. Portland Terminal Co., where the Court ruled that trainees did not qualify as employees since they were not compensated and their work primarily benefited themselves. In contrast, in Tony v. Susan Alamo Foundation, the Court determined that individuals who considered themselves volunteers were nonetheless employees because of an implied expectation of compensation and dependency on the Foundation for support over extended periods.

The Court warned against allowing exceptions to minimum wage laws for voluntary work, as it could lead to exploitation and wage suppression. In subsequent cases, courts have applied a "primary beneficiary" test to discern the actual beneficiary of the working arrangement, as seen in various rulings including Glatt v. Fox Searchlight Pictures and Solis v. Laurelbrook Sanitarium. Other courts have similarly adopted this test to assess employment relationships.

In a specific case, Williams v. Strickland, a homeless man working at a Salvation Army rehabilitation center was determined not to be an employee, despite receiving room and board, because his work primarily served his own rehabilitative needs and he was required to contribute financially by applying for public benefits.

The court found no implied agreement for compensation regarding the resident's stay, which was deemed solely for rehabilitation. In Vaughn v. Phoenix House N.Y. Inc., the Second Circuit ruled that a resident at a treatment facility, despite being required to work full-time, was not an employee since the relationship primarily benefited the resident through significant provisions such as food, housing, therapy, and vocational training, rather than stemming from an implied compensation agreement. In the case of the Fochtman class members, who were mandated by state court to participate in a recovery program instead of serving prison time, they worked for Hendren, a for-profit company that funded the recovery facility, DARP. Unlike Vaughn, where residents worked directly for the treatment facility, the Fochtman participants did not work for DARP but rather for Hendren, complicating the assessment of who benefited. Nevertheless, the court concluded that the participants were the primary beneficiaries of the arrangement since they sought rehabilitation to avoid incarceration and did not expect compensation from Hendren. The work performed was not an implied compensation agreement, as DARP provided room and board solely because of the court order for recovery. The court noted that while Hendren gained immediate advantages from the work, it did not alter the nature of the participants' purpose in the program. Thus, the participants were not considered employees of either DARP or Hendren, as their work was part of a court-ordered recovery program aimed at avoiding criminal adjudication.

The DARP arrangement aligns with the objectives of the minimum wage statute, as it does not endanger participants' minimum living standards necessary for health and well-being. The program entails a six-month residential placement, providing participants with room, board, and essential needs. Additionally, the Arkansas arrangement does not risk unfair competition by lowering wages below the minimum wage, as DARP is a non-profit organization, and Hendren, a for-profit, compensates DARP participants at rates exceeding the minimum wage. While Hendren's payment for DARP participants may be lower than that for other entry-level employees, it reflects the unique circumstances of the participants, including their histories. Even if this created a competitive advantage, it did not violate minimum wage laws. Consequently, the court concluded that the evidence does not support that the Fochtman class members were employees of either DARP or Hendren. The district court's judgment is reversed, and the case is sent back for further proceedings.