By Gerald L. Maatman, Jr., Alex W. Karasik, and George J. Schaller
Duane Morris Takeaway: Artificial intelligence took the employment world by storm in 2023, quickly becoming one of the most talked about and debated subjects among corporate counsel across the country. Companies will continue to use AI as a resource to enhance decision-making processes for the foreseeable future as these technologies evolve and take shape in a myriad of employment functions. As these processes are fine-tuned, those who seek to harness the power of AI must be aware of the risks associated with its use. This featured article analyzes two novel AI lawsuits and highlights recent governmental guidance related to AI use. As the impact of AI is still developing, companies should recognize the types of claims apt to be brought for use of AI screening tools in the employment context and the implications of possible discriminatory conduct stemming from these tools.
In the Spring 2024 issue of the Journal of Emerging Issues in Litigation, Duane Morris partners Jerry Maatman and Alex Karasik and associate George Schaller analyze key developments in litigation and enforcement shaping the impact of artificial intelligence in the workplace and its subsequent legal risks. Read the full featured article here.
By Gerald L. Maatman, Jr., Alex W, Karasik, and George J. Schaller
Duane Morris Takeaways: On April 11, 2024, the Illinois Senate passed Senate Bill 2979 (the “Bill”) by vote of 46 to 13. The Bill introduces legislation that would amend the Biometric Information Privacy Act (“BIPA”) to limit claims accrued to one violation of the BIPA in stark contrast to the statute’s current “per-collection basis.”The Bill’s proposed revisions are accessible here and the status of the Bill can be tracked here. For any companies involved in privacy class action litigation, the proposed legislations is exceedingly important.
Background On The BIPA
The BIPA currently provides for “a violation for every scan,” based on the Illinois Supreme Court’s decision in Cothron v. White Castle Sys., 2023 IL 128004 (Feb. 17, 2023). In Cothron, the Illinois Supreme Court held that “the plain language of §§ 15(b) and 15(d) shows that a claim accrues under the Act with every scan or transmission of biometric identifiers or biometric information without prior informed consent.” Id. at ¶ 45.
The majority of the Illinois Supreme Court opined that any policy-based concerns “about potentially excessive damage awards under the Act are best addressed by the legislature.” Id. at ¶ 43.
On January 31, 2024, Senator Bill Cunningham introduced SB 2979 to the Illinois Senate.
The Proposed Revisions To The BIPA Under SB 2979
The Bill’s proposed revisions articulate two key amendments regarding: (1) the “every scan” violation under §§ 15(b) and 15(d); and (2) an additional definition for “electronic signature” that augments the BIPA’s current “Written release” definition.
For violations under §§ 15(b) and 15(d), the Bill endeavors to limit alleged violations of the BIPA to a “single violation” for these respective sections.
The Bill narrows an aggrieved person’s entitled recovery to “at most, one recovery under this section,” provided that biometric identifier or biometric information was obtained from the same person using the same method of collection. See SB 2979, 740 ILCS 14/20(b). Similar single violation language is proposed under sub-section (d) of § 15 on the BIPA’s dissemination provision. See SB 2979, 740 ILCS 14/20(c).
Also included in the Bill is a new definition for ‘electronic signature’ as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” See SB 2979, 740 ILCS 14/10. This definition is then incorporated to the BIPA’s already defined “Written release.” See id.
As of April 25, 2024, the Bill advanced to Illinois General Assembly’s House of Representatives and is assigned to the Judiciary – Civil Committee.
Implications For Employers
Employers should monitor SB 2979 closely as it progresses through the Illinois House of Representatives. The unfettered potential damages from BIPA claims may be limited to a single scan if the Bill passes. This would be a major and much-needed legislative coup for businesses with operations in Illinois who utilize biometric technology.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associates AJ Rudowitz and Daniel Selznick with their discussion of 2023 developments and trends in antitrust class action litigation as detailed in the recently published Duane Morris Antitrust Class Action Review – 2024.
Jennifer Riley: Welcome to our listeners. Thank you for being here for our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today are associates AJ Rudowitz and Daniel Selznick from our Philadelphia office. Thank you for being on the podcast today, guys.
AJ Rudowitz: Thanks, Jen. Happy to be part of the podcast.
Daniel Selznick: Thanks, Jen, glad to be here.
Jen: Today on the podcast we are discussing the recent publication of this year’s edition of the Dwayne Morris, Anti-trust, class Action Review. Listeners can find the e-book publication on our blog, the Duane Morris Class Action Defense Blog. AJ, can you tell our listeners a bit about the publication?
AJ: Absolutely, Jen. Happy to talk a little bit about the publication, and I know all the contributors are very happy with and proud of the final work product. So, in 2023, we saw many key developments in class action litigation involving antitrust claims. And as we know, most antitrust class actions are settled before trial, and one of the most crucial phases of the case, if not the most crucial phase, is class certification. Thus the order granting or denying a motion to certify a class in all these cases is critical to the ultimate outcome, and particularly the settlement of all these cases. This stage is it’s akin to winning or losing the coin toss, and over time in an NFL game for any football fans out there. It’s very determinative of the outcome, which is usually settlement. To assist companies and employers with understanding what these key developments mean in facing antitrust claims, Duane Morris has released the 2024 Duane Morris Antitrust Class Action Review, which analyzes the key rulings and litigation developments from 2023, and the significant trends that are necessarily going to impact these types of cases, these types of class actions in 2024 and beyond. And we hope that companies and employers will benefit from this resource in their compliance with these evolving and highly impactful laws and standards that can oftentimes result in high-stakes litigation.
Jen: Daniel, what were some of the key takeaways from the publication with regard to litigation in this area in 2023?
Dan: Sure. So one of the topics that was actually fairly prevalent this year, and what we discussed in the publication, was courts’ treatment of so called no-poach or no-hire agreements. As a general matter, a recurring issue, and sort of major battleground in antitrust cases is whether the court is going to apply a per se treatment, a quick look, analysis, or a rule of reason test, and that was certainly the case in 2023 with respect to cases involving no poach agreements.
One of the most significant cases came out of the Seventh Circuit in a case captioned Deslandes, et al. v. McDonald’s. In that case, a group of former McDonald’s workers alleged that they had been restricted in their ability to earn higher wages because of a provision in McDonald’s franchising agreements that prohibited a franchise from hiring another franchise’s employee who was within 6 months of leaving that franchise. The district court concluded that the plaintiffs were not entitled to a per se treatment, because in the courts view, the no-poach agreement at issue was ancillary to the franchise agreement. In the court’s view, it expanded the output of McDonald’s food, and it aided in the success of a cooperative venture. On appeal, the Seventh Circuit reversed and remanded the district court’s decision, and what the Seventh Circuit essentially said was that while there was a possibility that these no-poach provisions were ancillary to the franchise agreement – and one of the things that the Seventh Circuit mentioned was it may have been there to protect franchise, franchise investments, and training of employees – the court was not satisfied with the district court’s reasoning, and found that just because it could potentially increase the output of burgers and fries, that determination is immaterial and does not justify any detriment to workers that could have been caused by these no-poach agreements.
Jen: Interesting. AJ, what are some of the setbacks, and what will this really mean for companies in 2024?
AJ: Well, there’s certainly a few takeaways from the Seventh Circuit’s Deslandes decision. First and foremost, it is important in the antitrust class action context, because it supports the Justice Department’s position that no-poach agreements can be adjudicated as per se violations of Section 1 of the Sherman Act, and the U.S. Supreme Court has since denied McDonald’s petition for review. So, as a very general matter, it is, of course, easier for plaintiffs in antitrust class actions to secure class certification, and to win on the merits, if the alleged anti-competitive conducted issue is treated as per se anti-competitive, rather than being required to go through the full rule of reason analysis, or the so-called quick look analysis. And the Deslandes case will certainly impact any future no-poach cases specifically, and we can anticipate more class actions being brought by plaintiffs in this context. Companies and employers will need to develop new strategies both before litigation to try to prevent it, and during any such litigation to try to defeat it.
Jen: Thanks so much for that information – very important for companies navigating compliance with the antitrust statutes. The review also talks about another important no poach anti-trust class action ruling in 2023. Daniel, could you tell us a bit about that decision?
Dan: Sure, Jen. So that case came out of the United States District for the District of Connecticut, and the case captioned Borozny, et al. v. Raytheon Technologies Corp. In that case the plaintiff filed a class action alleging six corporate defendants violated Section 1 of the Sherman Act by conspiring to restrain wages, essentially by secretly agreeing to restrict competition for the recruitment and hiring of aerospace engineers and similarly skilled workers in in that space. The defendants move to dismiss, arguing that the alleged anti-competitive agreement was vertical in nature rather than horizontal, and therefore it should not be afforded per se treatment. The court disagreed with defendants and denied the motion, holding that even though the defendants were operating at different levels in the supply chain – for example, some of the defendants were manufacturers and some were distributors – the court found that, in fact, the relevant market was the market for aerospace workers, and that, even though defendants were participating in a vertical supply chain, with respect to the market for workers, they competed horizontally. So in this instance, the court found that the labor market restraint at issue was a naked restrain on trade, and not ancillary to any legitimate or competitive purpose such that the complaint adequately pleaded for per se treatment.
Jen: Thanks so much. I anticipate that these issues will remain hotly debated in the courts in 2024. The review also talks about the top antitrust class action settlements in 2023. How do plaintiffs do in securing settlement funds this past year?
AJ: Plaintiffs were hugely successful. In 2023, the top 10 antitrust class action settlements totaled over $11.7 billion, which was nearly a threefold increase over the prior year. By comparison, the top 10 settlements for antitrust class actions in 2022 totaled only $3.7 billion. And that’s something to keep an eye on here in 2024.
Jen: Wow! We will continue to track those settlement numbers in 2024, as record breaking settlement amounts have been a trend that we’ve been tracking over the past two years. Thank you to AJ and Daniel for being here today, and thank you to our listeners for tuning in. Please stop by the blog for a free copy of the Antitrust Class Action Review e-book.
Dan: Thanks for having me, Jen. Thanks, listeners, and I hope you enjoy the publication, and look forward to doing another one of these.
For employers utilizing Artificial Intelligence in their hiring practices, this notable case is worth monitoring. The EEOC’s decision to insert itself in the dispute demonstrates the Commission’s commitment to continued enforcement of anti-discrimination laws bearing on artificial intelligence use in employment.
Case Background
Plaintiff, an African American male over the age of forty alleged that he suffered from anxiety and depression and brought suit against Workday claiming that its applicant screening tools discriminated against applicants on the basis of race, age, and disability. Plaintiff further alleged that he applied for 80 to 100 jobs, but despite holding a bachelor’s degree in finance and an associate’s degree in network systems administration, he did not get a single job offer. Id., 1-2 (ECF No. 45).
Workday moved to dismiss the Complaint in part arguing that Plaintiff did not allege facts to state a plausible claim that Workday was liable as an “employment agency” under the anti-discrimination statutes at issue.
On January 19, 2024, the Court granted the defendant’s motion to dismiss, but with leave for Plaintiff to amend, on the ground that plaintiff failed to plead sufficient facts regarding Workday’s supposed liability as an employer or “employment agency.” Shortly thereafter, Plaintiff filed his Amended Complaint. Id. (N.D. Cal. Feb. 20, 2024) (ECF No. 47.)
On March 12, 2024, Workday filed its Motion to Dismiss Amended Complaint, asserting that Workday is not covered by the statutes at issue – Title VII, the Americans with Disabilities Act (“ADA”), and/or the Age Discrimination in Employment Act (“ADEA”) – because Workday merely screens job seekers rather than procuring them. Id., (ECF No. 50.) On April 2, 2024, Plaintiff filed his opposition (id., ECF No. 59) and, on April 12, 2024, Workday filed its reply. Id., (ECF No. 61.)
The motion is fully briefed and set for hearing on May 7, 2024.
The EEOC’s Motion for Leave to File an Amicus Brief
On April 9, 2024, before Workday filed its Reply, the EEOC filed a Motion for Leave to File an Amicus Brief in Support of Plaintiff and in Opposition to Defendant’s Motion. Id., (ECF Nos. 60 & 60-1.) The EEOC noticed its Motion for hearing on May 7, 2024. Id., (ECF No. 60.)
The EEOC describes Mobley as a case that “implicate[s] whether,” Title VII, the ADA, and the ADEA, “cover[s] entities that purportedly screen and refer applicants and make automated hiring decisions on behalf of employers using algorithmic tools.” Id., at 1 (ECF No. 60-1.) The Commission argues that Plaintiff’s Amended Complaint satisfies federal pleading standards “with respect to all three theories of coverage alleged.” Id., at 4.
First, with respect to Workday as an employment agency, the EEOC notes that Title VII, the ADA, and the ADEA, all prohibit discrimination by employment agencies. Under each statute, the term “employment agency” includes “any person regularly undertaking with or without compensation to procure employees for an employer.” Id. The EEOC maintains courts generally construe “employment agency” based on “‘those engaged to a significant degree’ in such procurement activities ‘as their profession or business,’” and the focus on the degree to which an entity engages in “activities of an employment agency.” Id.
The EEOC argues, among these activities, screening and referral activities are classically associated with employment agencies. Id., at 5. The Commission asserts that “[Plaintiff] has plausibly alleged that Workday’s algorithmic tools perform precisely the same screening and referral functions as traditional employment agencies—albeit by more sophisticated means.” Id., at 6. In contrasting Workday’s position, the EEOC urged the Court to find Workday’s arguments that “screening employees is not equivalent to procuring employees,” and that Workday does not “actively recruit or solicit applications” as unpersuasive. Id., at 7.
Second, the EEOC argues leading precedent weighs in favor of Plaintiff’s allegations that Workday is an indirect employer. Taking Plaintiff’s allegations as true, the EEOC contends that “Workday exercised sufficient control over [Plaintiff’s] and others applicants’ access to employment opportunities to qualify as an indirect employer,” and “Workday purportedly acts as a gatekeeper between applicants and prospective employers.” Id., at 11.
The EEOC argues Workday’s position on sufficient control misses the point. Workday’s assertion that it “does not exert ‘control over its customers,’ who ‘are not required to use Workday tools and are free to stop using them at any time,” is not the inquiry. Id., at 12. Rather, the relevant inquiry is “whether the defendant can control or interfere with the plaintiff’s access to that employer,” and the EEOC notes that the nature of that control or interference “will always be a product of each specific factual situation.” Id.
Finally, the EEOC maintains that Plaintiff plausibly alleged Workday is an agent of employers. The EEOC also maintains that under the relevant statutes the term “employer” includes “any agent of” an employer and several circuits have reasoned that an employer’s agent may be held independently liable for discrimination under some circumstances. Id.
In analyzing Plaintiff’s allegations, the EEOC argues that Plaintiff satisfies this requirement, where Plaintiff “alleges facts suggesting that employers delegate control of significant aspects of the hiring process to Workday.” Id., at 13. Accordingly, the EEOC concludes that Plaintiff’s allegations are sufficient and demonstrate “Workday’s employer-clients rely on the results of its algorithmic screening tools to make at least some initial decisions to reject candidates.” Id., at 14.
On April 15, 2024, the Court ordered any opposition or statement of non-opposition to the EEOC’s motion for leave shall be filed by April 23, 2024. Id. (ECF No. 62.)
Implications For Employers
With the EEOC’s filing and sudden involvement, Employers should put great weight on EEOC enforcement efforts in emerging technologies, such as AI. The EEOC’s stance in Mobley shows that this case is one of first impression and may create precedent for pleading in AI-screening tool discrimination cases regarding the reach of “employment decisions,” by an entity – whether directly, indirectly, or by delegation through an agent.
The Mobley decision is still pending, but all Employers harnessing artificial intelligence for “employment decisions” must follow this case closely. As algorithm-based applicant screening tools become more common place –the anticipated flood of employment discrimination lawsuits is apt to follow.
By: Gerald L. Maatman, Jr., Sarah Gilbert, and Nick Baltaxe
Duane Morris Takeaways: In a consolidated appeal – entitled Casola v. Dexcom, Inc., Bottiglier v. Dexcom, Inc., and Pfeifer v. Dexcom, Inc., Nos. 23-55403, 23-55435 & 23-55437 (9th Cir. Apr. 10, 2024) – the Ninth Circuit held that it lacked jurisdiction to review the District Court’s remand orders in three cases, Defendant-Appellant Dexcom, Inc (“Dexcom”) challenged the District Court’s decision to remand each of the cases under the forum defendant rule, which prohibits removal based on diversity jurisdiction if any of the parties in interest “properly joined and served as defendants is a citizen of the state in which such action is bought.” 28 U.S.C. § 1441(b)(2). Dexcom argued that the forum defendant rule did not apply as it had filed the removal notice before it had been “joined and served,” a gambit known as a “snap removal.” The Ninth Circuit held that Dexcom’s attempt to avoid the forum defendant rule by removing before it had been served was ineffectual and it dismissed the appeals for lack of jurisdiction.
Case Background
Plaintiffs Casola, Bottiglier, and Pfeifer brought similar product liability suits against Defendant Dexcom in late 2022 in the Superior Court of California, County of San Diego. Id. at 6. Plaintiff Casola submitted her complaint electronically on November 23, 2022, and Dexcom received notice of that submission via the Courthouse News Service, an organization that publishes daily reports about civil litigation. Id. at 7. On Monday, November 28, 2022, before the Court had officially “filed” the Complaint or issued a summons, Dexcom filed a Notice of Removal, invoking diversity jurisdiction. Id. Dexcom followed a similar strategy for the complaints filed by Plaintiffs Bottiglier and Pfeife by filing “snap removals” before the case was officially filed. Id. at n. 4.
On December 29, 2022, 31 days after the original Notice of Removals were filed, Plaintiffs filed motions for remand, framing the remand on the basis of “subject matter jurisdiction” in an attempt to avoid the 30-day deadline for remand. Id. at 9. Plaintiffs argued that the District Court lacked subject-matter jurisdiction because Dexcom’s notices were “legally void” since they were filed before the complaint had been processed, while also asserting that remand was proper due to the forum defendant rule. Id. In March of 2023, after additional briefing from both parties, the District Court granted the remand motions, holding that the remand was proper due to the forum defendant rule. Id. Importantly, the District Court rejected Dexcom’s argument that Plaintiffs had waived their forum-defendant objections by filing their remand motions 31 days after the removal was filed because the notices of removal were “defective,” which did not start the 30-day window. Id.
Dexcom appealed these remand orders. Id.
The Ninth Circuit’s Decision
The Ninth Circuit addressed whether the District Court had the power to remand each of the cases on the basis of a non-jurisdictional defect, i.e., the forum-defendant rule, that was asserted more than 30 days after the notice of removal was filed. To do so, the Ninth Circuit addressed three subsidiary issues.
First, the Ninth Circuit agreed that Dexcom’s Notice of Removals were premature. Id. at 14. Specifically, the Ninth Circuit held that, for purposes of removability, the complaint was filed in California state court when it was processed and acknowledged as officially filed by the clerk. Id. at 15. The Ninth Circuit noted that the Complaint is not filed when it is electronically submitted because the clerk must then review the submission for compliance with local court rules, ensure that filing fees are paid, and can even reject the submission if defective. Id. at 19. On that basis, the Ninth Circuit disagreed with Dexcom’s position that the complaints were deemed filed upon electronic submission. Id. at 24.
The Ninth Circuit also addressed Dexcom’s policy argument that the it should avoid adopting different rules for the timing of filing of a complaint for removal purposes on the one hand, and statute of limitations and similar timeliness purposes on the other. Specifically, Dexcom argued that rejection of its position that the Complaint is filed on delivery will lead to situations where a complaint could be treated as filed for the purposes of the statute of limitations but not filed for purposes of removal. Id. at 28. The Ninth Circuit found this argument unpersuasive. The Ninth Circuit noted that the stakes here are minimal, as the 30-day deadline for removal only starts upon service of the Complaint. Id. Additionally, the Ninth Circuit opined that “snap removals” are still viable in some district courts in California, so adopting Dexcom’s position would give in-forum defendants with access to services like Courthouse News Services a safe harbor in which to remove while not concerning themselves with service of the Complaint. Id. at 30.
Finally, the Ninth Circuit addressed whether or not the premature notices of removal nonetheless started the 30-day clock for non-jurisdictional objections to removal. The Ninth Circuit determined that, if the notices of removal were defective for merely procedural or technical reasons, they may have held that the defectiveness did not block the 30-day window from starting. Id. at 32. However, the Ninth Circuit instead held that these notices of removal had a foundational defect, which rendered them legally null and void. Id. at 33. The Ninth Circuit maintained that because there was no pending civil action to be removed, the notices of removal did not confer jurisdiction on the District Court. Id. While that defect was cured by Dexcom’s subsequent filing of supplemental notices of removal, the Ninth Circuit found that the 30-day clock would have started on the date of supplemental filing, not the original date of filing. Id.
In sum, the Ninth Circuit made it clear that it did not decide whether or not Dexcom violated the forum-defendant rule. Id. at 34. Additionally, the Ninth Circuit refused to address whether or not pre-service “snap removals” are proper, even though the District Court had impliedly held that pre-service “snap removals” are improper. Id.
Implications For Companies
While the Ninth Circuit did not address the applicability of pre-service “snap removals,” it has effectively closed the door on pre-filing “snap removals.”
While companies may prefer to have cases heard in the federal courts, this decision makes it clear that the removal must be lodged after the Complaint is filed and acknowledged by the clerk. A failure to follow this guideline will lead to remand of the claims.
Duane Morris Takeaways: On April 15, 2024, in Visa Inc., et al., v. National ATM Council, Inc., et al.,No. 23-814 (Apr. 15, 2024), the U.S. Supreme Court declined a petition for review submitted by Visa Inc. (“Visa”) and Mastercard Inc. (“Mastercard”) urging the Supreme Court to resolve a circuit split over the correct standard of review courts should use when evaluating motions for class certification. Mastercard and Visa argued that the U.S. Court of Appeals for the D.C. Circuit erred by only requiring plaintiffs to show that questions common to the class predominate and allowing the fact finder to later address issues related to uninjured class members. The Supreme Court denied the petition for review.
The D.C. Circuit’s ruling inVisa v. National ATM Council is required reading for any corporate counsel handling antitrust class actions involving price-fixing allegations and underscores the importance of the standard of review used by courts when considering class certification.
Case Background
Plaintiffs are ATM operators. Defendants are global payment technology companies. Plaintiffs alleged that Defendants instituted ATM fee non-discrimination rules that violated federal antitrust laws by prohibited ATM operators from charging customers different access fees for transactions on different ATM networks. Specifically, Plaintiffs alleged that the rules allowed Defendants to charge supracompetitive transaction fees and foreclose competition from other networks.
The D.C. Circuit’s Ruling
The Supreme Court declined Defendants’ petition for review of the D.C. Circuit’s affirmation of the certification of three different classes. Two consumer classes were certified on grounds that they were forced to pay supracompetitive ATM surcharges and a class of ATM operators was certified on grounds that that they could not use competing ATM networks. According to Defendants, the D.C. Circuit used a lower standard for class certification similar to one utilized by the Eighth and Ninth Circuits, whereas the Second, Third, Fifth, and Eleventh Circuits employ a more rigorous “careful consideration” standard regarding Plaintiffs’ burden to establish predominance.
By denying review, this issue remain unresolved in terms of Rule 23 class certification standards.
Implications For Defendants
Visa v. National ATM Council is an important example of the importance of Plaintiffs’ ability to show that questions common to the class predominate to earn class certification.
To the extent that the conflict between the two standards implemented across the circuit courts becomes more distinct, the U.S. Supreme Court may eventually weigh in to resolve it.
By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On April 10, 2024, the Ninth Circuit held in Fli-Lo Falcon, LLC v. Amazon.com, Case No. 22-35818 (9th Cir. Apr. 10, 2024), that business entities are not covered by the Federal Arbitration Act’s (“FAA”) transportation worker exemption. The Ninth Circuit stated, “[w]hile a natural person such as an independent contractor may be a transportation worker, a non-natural person such as a business entity that employs or contracts with transportation workers, is not.” Id. at 12. The Ninth Circuit’s opinion is a must read for companies seeking to solidify their arbitration programs and manage their litigation risks.
Case Background
The plaintiffs in Fli-Lo Falcon were delivery service partners (“DSPs”) that contracted with Amazon to deliver packages. To join the DSP program, an individual needed to first create a business entity. When plaintiffs filed a putative class action against Amazon, it sought to compel arbitration pursuant to an arbitration clause in the DSP agreements. The district court compelled arbitration and dismissed the case, and the Ninth Circuit affirmed.
The Basis Of The Ninth Circuit’s Decision
A critical issue in the case was whether the FAA’s transportation worker exemption applied to the plaintiffs. The Ninth Circuit held it did not because the transportation worker exemption “does not extend to business entities.” Id. at 12. The Ninth Circuit reasoned that the language of the exemption compelled this conclusion. Section 1 of the FAA provides that it “shall not apply to contracts of employment of seamen, railroad employees, or any other class of worker engaged in interstate commerce.” 9 U.S.C. § 1. Applying the statutory canon of construction ejusdem generis, which instructs that general words be construed to embrace only objects similar in nature to those objects specifically enumerated, the Ninth Circuit reasoned that the word “workers” in § 1 could not be construed to include a business entity, given the § 1’s earlier reference to “seamen” and “railroad employees.” Id. at 12. Thus, the Ninth Circuit opined that “[w]hile a natural person such as an independent contractor may be a transportation worker, a non-natural person such as a business entity that employs or contracts with transportation workers, is not.” Id.
Relatedly, the Ninth Circuit also held that “‘contracts of employment’ in the transportation worker exemption do not extend to commercial contracts.” Id. at 14. In reaching this conclusion, the Ninth Circuit cited the language of the transportation worker exemption, which exempts “contracts of employment of . . . any other class of workers.” The Ninth Circuit emphasized that, “for a contract to be a contract of employment covered by § 1, it must have a qualifying worker as one of the parties.” Id.
In a concurring opinion, Circuit Judge Holly Thomas disagreed that business entities can never be subject to the transportation worker exemption. Plaintiffs’ expressed concern that “companies could then contract around the FAA’s exemption by forcing their transportation workers to create sham corporations, then contracting with those corporations rather than employing the workers directly” resonated with Judge Thomas. Id. at 25. However, Judge Thomas concurred in the result as to the plaintiffs because “Plaintiffs are not sham corporations, but bona fide business entities and their relationship is not an employment relationship, but a commercial one.” Id.
Implications Of The Ruling
In spite of the concurring opinion of Circuit Judge Thomas, it is now the law in the Ninth Circuit that the transportation worker exemption does not apply to a business entity. The opinion sets up a split of authority in the federal circuits, and it remains to be seen if a petition for writ of certiorari will be pursued with the U.S. Supreme Court.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Sean P. McConnell
Duane Morris Takeaway: Class action litigation involving antitrust claims had several key developments in 2023, despite a relative lack of actual verdicts. Because antitrust remedies often allow recovery of treble damages, the incentive to settle these cases is often paramount. Additionally, plaintiffs are entitled to reasonable attorneys’ fees that may be substantial because of the complexity of this kind of litigation. As a result, most antitrust class actions are settled before trial, and one of the most crucial phase in these cases is class certification. Thus, the order granting or denying a motion to certify a class in these cases is critical.
The class action team at Duane Morris is pleased to present a new publication – the 2024 edition of the Antitrust Class Action Review. We hope it will demystify some of the complexities of antitrust class action litigation and keep corporate counsel updated on the ever-evolving nuances of these issues. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with antitrust class action litigation.
Click here to download a copy of the Duane Morris Antitrust Class Action Review – 2024 eBook.
Stay tuned for more Antitrust class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Derek Franklin with their discussion of 2023 developments and trends in TCPA class action litigation as detailed in the recently published Duane Morris TCPA Class Action Review – 2024.
Jennifer Riley: Welcome to our listeners! Thank you for being here for our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is associate Derek Franklin. Thank you for being on the podcast.
Derek: Thank you Jen! Happy to be part of the podcast.
Jen: Today on the podcast we are discussing the recent publication of the inaugural edition of the Duane Morris Telephone Consumer Protection Act (or TCPA) Class Action Review. Listeners can find the eBook publication on our blog, the Duane Morris Class Action Defense blog. Derek, can you tell listeners a bit about the publication?
Derek: Absolutely Jen. The TCPA has long been a focus of litigation, particularly for class actions. To that end, the class action team at Duane Morris is pleased to present the TCPA Class Action Review – 2024. This publication analyzes the key TCPA-related rulings and developments in 2023 and the significant legal decisions and trends impacting this type of class action litigation for 2024. We hope that companies will benefit from this resource in their compliance with these evolving laws and standards.
Jen: In 2023, courts across the country issued a mixed bag of results leading to major victories for both plaintiffs and defendants. Derek, how often were classes certified in TCPA actions in 2023?
Derek: There were wins on both sides, but the plaintiffs’ bar came away ahead in terms of getting classes certified. Courts granted motions for class certification nearly 70% of the time, and denied class certification motions only 30% of the time in 2023.
Jen: Interesting and a fairly high certification rate for these cases. Another notable legal issue that courts grappled with in the context of the TCPA during 2023 is the threshold for what can constitute a concrete injury for purpose of having Article III standing to bring a viable claim. Were there any notable rulings in 2023 that discussed Article III standing?
Derek: Yes Jen, there were several rulings that discussed these very issues in the TCPA Class Action Review. In Drazen, et al. v. Pinto, for example, the Eleventh Circuit ultimately concluded that a single unwanted text message may not “be highly offensive to the ordinary reasonable man,” but it was nonetheless offensive to some degree to a reasonable person. The Eleventh Circuit ruled that the harm of receiving one text message shared a close relationship with the harm underlying the tort of intrusion upon seclusion, and thus, receipt of an unwanted text message causes a concrete injury sufficient to confer Article III standing.
Jen: Thanks so much Derek, I anticipate that these standing questions will remain hotly debated in the courts in 2024. The Review also talks about the top TCPA settlements in 2023. How did plaintiffs do in securing settlement funds last year?
Derek: Plaintiffs did very well in securing high dollar settlements in 2023. The top 10 TCPA class action settlements totaled $103.45 million.
Jen: We will continue to track those settlement numbers in 2024, as record-breaking settlement amounts have been a huge trend we have tracked the last two years. Thanks Derek for being here today, and thank you to the loyal listeners for tuning in! Listeners please stop by the blog for a free copy of the TCPA Class Action Review e-book!
Derek: Thanks for having me Jen and thanks to all the listeners!
By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On April 12, 2024, the U.S. Supreme Court issued its decision in Bissonnette v. LePage Bakeries Park St., LLC, Case No. 23-51 (U.S. Apr. 12, 2024), holding that application of the transportation worker exemption in the Federal Arbitration Act (“FAA”) turns upon the work performed by the plaintiff and not the employer’s industry. The Supreme Court made clear, however, that this work-focused test should not bring within the exemption large swaths of workers who in some manner engage with products in the flow of commerce. The Supreme Court opined that the worker at issue must play a “direct” and “necessary” role in the free flow of goods across borders. Id. at 9. For employers with workplace arbitration agreements, the Supreme Court’s ruling is a required read.
Case Background
The defendant in Bissonnette produced and marketed baked goods, with its products made in 19 states and distributed across the country. The plaintiffs were franchisees who contracted with the defendant to distribute the products in local markets. The plaintiffs also advertised the products, identified retail buyers, and performed services for those retailers, including stocking and inventory. When the plaintiffs filed a putative wage and hour class action, the defendant sought to compel arbitration and to dismiss the class claims, citing a contractual arbitration provision with a class action waiver.
The district court granted the motion and the Second Circuit affirmed. The Second Circuit reasoned that, because the plaintiffs’ work was performed in the baking industry and not the transportation industry, the FAA’s transportation worker exemption did not apply. The transportation worker exemption provides that the FAA “shall not apply to contracts of employment of seamen, railroad employees, or any other class of worker engaged in interstate commerce.” 9 U.S.C. § 1.
Immediately after that decision, the U.S. Supreme Court issued its decision in Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), wherein it held that the test to be employed in assessing application of the transportation worker exemption is based on the work performed by the plaintiff and not the employer’s industry. Nonetheless, on panel re-hearing, the Second Circuit adhered to its prior decision on the grounds that the transportation worker exemption still did not apply because the defendant’s business was to distribute baked goods into commerce and not transportation services.
The U.S. Supreme Court then granted review.
The Supreme Court’s Decision
As it did in Saxon, the Supreme Court emphasized in Bissonnette that the test for application of the transportation worker exemption focuses on the work performed by the plaintiff and not the employer’s industry. Addressing the employer’s argument that such a test would make virtually all workers who load or unload goods, such as pet shop employees and grocery store clerks, exempt transportation workers, the Supreme Court disagreed. It determined that the exemption has never been interpreted to apply in such a limitless basis. The Supreme Court emphasized that, for the exemption to apply, the worker “must at least play a direct and necessary role in the free flow of goods across borders.” Bissonnette, at 9. The Supreme Court thus vacated the order compelling arbitration and remanded for further proceedings.
Implications Of The Decision
Seemingly feeling its decision in Saxon was being misapplied, the Supreme Court’s ruling in Bissonnette confirms that the FAA’s transportation worker exemption turns upon the work the plaintiff performs and not on the employer’s industry. Thus, an employer cannot seek to compel arbitration and avoid application of the transportation worker exemption by arguing that it is not in the transportation industry. Rather, an employer’s arguments against application of the exemption must focus on the work the plaintiff performs.
