Gerald L. Maatman, Jr. – Page 10 – Class Action Defense

June 30, 2023June 30, 2023 by Gerald L. Maatman, Jr.

U.S. Supreme Court Ends Affirmative Action in University Admissions, Likely Leading To Legal Challenges to Diversity Efforts Within Corporations

By Gerald L. Maatman, Jr. and Rebecca S. Bjork

Duane Morris Takeaways: On June 29, 2023, the U.S. Supreme Court ruled that colleges and universities may not consider the race of applicants when making admissions decisions. In Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, No. 20-1199 (U.S. June 29, 2023), Chief Justice Roberts wrote the majority opinion in a 6-3 ruling joined by Justices Thomas, Alito, Gorsuch, Kavanaugh and Barrett. The Supreme Court held that affirmative action programs at Harvard and the University of North Carolina-Chapel Hill violated the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. The decision, which is 237 pages in length, including concurring and dissenting opinions, opens the door for legal challenges to be brought to employers’ diversity, equity and inclusion efforts because the Supreme Court’s reasoning – that race-conscious admissions policies may constitute unconstitutional differential treatment of individuals based on race – arguably applies to hiring and promotion decisions made within business organizations.

Case Background

The lawsuit that led to the Harvard decision was filed in the U.S. District Court for the District of Massachusetts by Students for Fair Admissions, Inc. (SFAA), a legal organization created to bring federal court challenges to affirmative action in college and university admissions. In 2014, SFAA sued both Harvard and UNC in separate lawsuits, arguing that their race-conscious admissions policies violated Title VII of the Civil Rights Act and the Fourteenth Amendment’s Equal Protection Clause. Id. at 6. The First Circuit had affirmed a trial judgment in Harvard’s favor, while the Fourth Circuit was considering an appeal of the UNC case when the Supreme Court granted certiorari in the Harvard case and brought the UNC case into its writ to be decided alongside it.

The Supreme Court’s Decision

After determining that SFAA had standing to bring its lawsuits, the majority turned to analyzing the merits. It focused on the Fourteenth Amendment in light of prior decisions relating to education, beginning with the holding in Brown v. Board of Education that “racial discrimination in public education is unconstitutional.” Id. at 13. After reviewing decades of case law following in the footsteps of Brown, the majority concluded that “[e]liminating racial discrimination means eliminating all of it.” Id. at 15. The majority discussed the application of the strict scrutiny test that courts apply to determine whether an exception can be made to the constitutional requirement of equal protection and analyzed how prior decisions regarding affirmative action considered the facts at hand in applying that test. Citing Regents of the University of California v. Bakke, 438 U.S. 265 (1978), Grutter v. Bollinger, 539 U.S. 306 (2003), and Fisher v. University of Texas at Austin, 570 U.S. 297 (2013) – the latter of which was also brought by the founder of SFAA – the majority examined these prior rulings in detail. The majority asserted that in Fisher, the Supreme Court made it clear that while colleges and universities could consider race in admissions decisions, the process must have “a termination point,” “have reasonable durational limits,” “must have ‘sunset provisions’” and “must have a logical end point.” Id. at 21.

The majority concluded that the end point has now been reached, deciding that both Harvard’s and UNC’s admissions policies that took race into consideration were unconstitutional because the operations of those programs do not create outcomes that are “sufficiently measurable to permit judicial [review].” Id. at 22. For example, Harvard’s stated purposes for using race-conscious admissions processes included “training future leaders in the public and private sectors,” “preparing graduates to adapt to an increasingly pluralistic society,” “better educating its students through diversity,” and “producing new knowledge stemming from diverse outlooks.” Id. at 23. The majority held that those objectives “are not sufficiently coherent for purposes of strict scrutiny.” Id.

Independently, the majority held that the programs violated equal protection principles based on statistics showing that Harvard’s consideration of race in admissions led to an 11/1% decline in the number of Asian-Americans admitted to the prestigious college. Id. at 27. This led the majority to conclude that an individual’s race is, by effect, a negative factor in the admissions process, which violates the rules set forth in the earlier affirmative action cases in higher education discussed in the ruling. Id.

Finally, the majority expressed a caveat to its ruling forbidding the use of race-conscious processes in admissions. It wrote that “nothing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise.” Id. at 39. Time will tell whether this creates a loophole in the majority’s decision, but it clearly will encourage further litigation in the future in this area of the law, as college admissions officials grapple with how to consider and weigh the impact of such admissions essays submitted by prospective students.

As expected, the dissenting Justices Sotomayor and Jackson wrote impassioned dissents, and Justice Sotomayor read hers from the bench, in terms of signaling its importance. They maintained that the Fourteenth Amendment itself is not race-neutral; it was drafted at the end of the Civil War precisely to provide race-based relief to former enslaved persons seeking to enter civic and commercial society. For these reasons, they contended that, to hold that its application requires a form of color-blindness, is in conflict with the amendment itself. And they expressed concern that students who are members of historically disadvantaged racial groups will find it increasingly difficult to get ahead of their non-minority peers as a result of the majority’s ruling.

Implications For Employers

While one would not normally think that a decision relating to university admissions processes would implicate how employers hire and evaluate employees, in this case it does. Media outlets have already reported that attorneys are preparing challenges to employers’ diversity, equity and inclusion programs, applying the same Fourteenth Amendment analysis outlined in the Supreme Court’s decision in Harvard. As such, legal department leaders in corporate America should pay attention and be aware of how this decision poses litigation risks to their businesses.

June 30, 2023December 1, 2023 by Gerald L. Maatman, Jr.

Revised Illinois Day and Temporary Labor Services Act: Implications For Staffing Agencies And Their Customers

By Gerald L. Maatman, Jr., Gregory Tsonis, and Shaina Wolfe

Duane Morris Takeaways – Recently, the Illinois General Assembly made substantial modifications to Illinois’ Day and Temporary Labor Services Act (820 ILCS 175/). The legislation drastically alters the legal landscape for staffing agencies and their clients. These amendments, codified in HB2862, were passed on May 19, 2023, and presented to the Governor for signing on June 16, 2023. Absent a veto, the law will automatically come into effect upon the date of the Governor’s approval or no later than August 15, 2023, if no action is taken. The alterations made to the Act are significant and present considerable implications for staffing agencies that employ or utilize day or temporary laborers, as well as their customers. The changes to the Act impose increased obligations and require unprecedented information-sharing between staffing agencies and their customers to ensure compliance with the new requirements. When paired with increased penalties and a third-party enforcement mechanism, staffing agencies and their customers face substantially increased regulatory and compliance burdens and vastly increased exposure to monetary penalties and litigation.

An Overview Of The Changes

The proposed changes can be grouped into various categories, each with its unique impact on staffing agencies and their customers. One element that has not changed, however, is the definition of “day and temporary labor,” which remains defined as “work performed by a day or temporary laborer at a third party client,” but excluding work “of a professional or clerical nature.” 820 ILCS 175/5. The amended Act contains the several significant modifications.

Equivalent Compensation And Benefits

The new legislation requires that day and temporary laborers assigned to a client for more than 90 calendar days must receive equal compensation and benefits (“equal pay for equal work”) as their counterparts directly employed by the client. The requisite equal pay and benefits to qualifying temporary laborers must, at a minimum, match the least paid direct hire at the same seniority level, performing work of a substantially similar nature under substantially similar working conditions. The staffing agency may, in lieu of benefits to a temporary worker, choose to compensate the worker with the cash equivalent of those benefits. In instances where there is no direct hire for comparison, the temporary worker should be paid an equivalent salary and receive the same benefits as the lowest-paid employee at the nearest level of seniority. Furthermore, if a staffing agency requests it, a client company is obligated to supply the staffing agency with all relevant information regarding the job roles, pay, and benefits of directly hired employees.

These changes present significant challenges for staffing agencies and their customers alike. The revised legislation, for example, does not define what “benefits” fall within the Act and which must be provided to qualifying temporary workers and what impact, if any, the staffing agencies’ benefit plans offered to workers have on the requisite compensation. Client companies must provide staffing agencies with the necessary information as to “job duties, pay, and benefits” or risk committing a violation of the Act punishable by a $500 penalty and attorneys’ fees and costs. As a result, the uncertainty injected by the new requirements presents several practical challenges to staffing agencies and client companies alike.

Disclosure Of Labor Disputes

The revised Act requires staffing agencies to inform laborers, before dispatch, if they will be working at a site currently experiencing “a strike, a lockout, or other labor trouble.” 820 ILCS 175/11.

The notice to the temporary worker must be in a language that the worker understands and must inform the worker of the dispute and the worker’s right to refuse the assignment “without prejudice to receiving another assignment.” The phrase “other labor trouble” is undefined in the revised Act, further inserting ambiguity and uncertainty for staffing agencies in compliance with the proposed law.

Safety Inquiries And Training

The amendments also introduce considerable new safety-related responsibilities for both staffing agencies and their client companies.

Prior to assigning a temporary worker, a staffing agency is obligated to inquire into the safety and health practices of the client company, inform the temporary worker about known job hazards, offer general safety training about recognized industry hazards, and document this training. In addition, the agency should give a general overview of its safety training to the client company at the onset of placement, provide temporary workers with the Illinois Department of Labor’s hotline for reporting safety concerns, and instruct the temps on whom to report safety issues to in the workplace.

Simultaneously, client companies are also compelled to adhere to several new safety-related requirements before a temporary worker begins work. Client companies must disclose any anticipated job hazards, review the safety and health awareness training received by the temporary workers from their staffing agencies to ensure its relevance to their specific industry hazards, offer specific worksite hazard training, and maintain records of such training. These records must also be confirmed to the staffing agency within three business days of the training completion. If a temporary worker’s role is altered, the company must provide updated safety training to cover any specific hazards of the new role. In addition, client companies must grant staffing agencies access to the worksite to verify the training and information given to temporary workers.

Increased Fees And Penalties

Under the revised law, fees charged to staffing agencies for registration with the Illinois Department of Labor have increased. Penalties for staffing agencies and client companies in violation of notice requirements have also seen a substantial increase, and now range from $100 to $18,000 per first violation (up from $6,000) and $250 to $7,500 for repeat violations within three years (up from $2,500). Distinct violations may be found on the basis of the type of violation, the day on which the violations occurred, or even each worker impacted by a violation, thereby drastically increasing exposure to staffing agencies and their client companies.

The Illinois Attorney General may even request that a court suspend or revoke the registration of a staffing agency for violating the Act or when warranted by public health concerns.

Third-Party Enforcement

The amendments also provide third-party organizations – defined as any entity “that monitors or is attentive to compliance with public or worker safety laws, wage and hour requirements, or other statutory requirements” – with the power to initiate civil actions to enforce compliance with the Act.

Notably, these “interested parties” can bring suit against staffing agencies and/or their customers if they merely hold a “reasonable belief” that a violation of the Act has occurred in the preceding three years. As a prerequisite to filing suit, these organizations must first file a complaint with the Illinois Department of Labor, which provides notice to the staffing agency or client of the complaint. However, regardless of whether the Department of Labor finds the complaint without merit, or even if the violation is cured, the interested party can still receive a right to sue notice and proceed with litigation. A prevailing party in litigation is entitled to 10% of any assessed penalties, as well as attorneys’ fees and costs.

Implications For Employers

The modifications to the Day and Temporary Labor Services Act present several potential complications and ambiguities for staffing agencies as well as their customers. Notably, the requirement of equal pay for equal work, after a laborer has been with a client for over 90 days, creates substantial issues in what constitutes “equal work,” “equal pay,” and which benefit programs fall within the compensation requirements. Moreover, the provision permitting staffing agencies to pay the hourly cash equivalent of the actual cost benefits in lieu of the required benefits further muddies the waters and requires unprecedented information-sharing between staffing agencies and their clients. Staffing agencies’ obligation to inform temporary workers of “other labor trouble” at client sites is vague, and the lack of a clear definition may lead to compliance issues. Moreover, the increased fees, penalties, and potential civil actions initiated by third-party organizations may lead to additional regulatory and litigation burdens for staffing agencies and clients alike. Finally, the private right of action created by the enactment is sure to prompt class actions by advocacy groups.

These substantial changes call for staffing agencies and their clients to revisit their current policies and practices to ensure compliance with the revised Act before it comes into effect. As the amendments hold significant implications for staffing agencies and client companies alike, early communication and a cooperative approach is recommended to navigate the new requirements effectively. While further guidance from the Department of Labor is likely to clarify several ambiguities in the Act, in the meantime, staffing agencies and client companies should immediately seek legal counsel to better understand the changes, assess the specific impact of each category of changes on their businesses, and ensure compliance to minimize exposure to penalties or litigation.

June 8, 2023 by Gerald L. Maatman, Jr.

Illinois Federal Court Denies Class Certification In Chicago Water Department Race Discrimination Lawsuit

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaways: In Edmond, et al. v. City of Chicago, No. 17-CV-4858 (N.D. Ill. June 6, 2023), Judge Matthew F. Kennelly of the U.S. District Court for the Northern District of Illinois denied a motion for class certification filed by a group of current and former employees alleging workplace race discrimination in violation of state and federal law. The ruling highlights the viability of defense positions relative to Plaintiffs’ failure to meet the Rule 23 commonality requirement, which was instrumental to defeating their bid for class certification.

Case Background

Nine African-American workers currently or previously employed by the Chicago Department of Water brought a putative class action against the City of Chicago and several individuals employed by it in 2017, alleging race discrimination and a hostile work environment on behalf of a group of employees. Plaintiffs alleged the existence of an ongoing and pervasive “culture of racism” fostered by organizational leadership across five bureaus and various sub-bureaus, treatment plants, and construction sites. Id. at 4. The lawsuit was brought after the City’s Inspector General uncovered emails containing racist exchanges between Department commissioners and deputies, which resulted in resignations of two executives. Id.

Plaintiffs alleged that the hostile work environment included racially offensive language, threatening gestures, and disparate treatment of Black employees in violation of 42 U.S.C. §§ 1981 and 1983 and Illinois law, and filed a motion to certify a class that included all Black workers employed by the Water Department since 2011 and three sub-classes for individuals who had been eligible for overtime, those with disciplinary infractions, and those who had been denied promotions.

In 2018, the Court granted Defendants’ partial motion to dismiss. Plaintiffs then brought a motion to amend the complaint in order to drop the individuals from the suit, which was granted without prejudice. Subsequently, Plaintiffs filed a motion to certify the classes pursuant to Rule 23 of the Federal Rules of Civil Procedure.

The Court’s Decision

The City argued that because Plaintiffs were unable to establish a shared work environment in their hostile work environment claim due to the Department’s dispersed workforce, Plaintiffs failed to identify a common contention whose resolution would resolve class claims, as required under Rule 23(a)(2)’s commonality element. The Court agreed with this position. It opined that there was no “evidence of common areas shared by all Department employees or instances of harassment broadcast across the entire Department.” Id. at 10. The Court found that the experience of putative class members varied across the Department, with individual claims of discrimination ranging from verbal to visual conduct, while others alleged bias in duty assignments or disciplinary actions.

Plaintiffs additionally contended that a pervasive culture of discrimination permeated the Water Department. They cited statements made by members of the city administration and the Inspector General’s investigation, and posited that this was proof of a “de facto policy of racism” across the workplaces. Id. at 11. The Court was not convinced that this had a uniform impact on all the named Plaintiffs and putative class members to satisfy the commonality question, and it denied the motion for class certification based on Plaintiffs’ failure to meet this threshold under Rule 23(a).

Likewise, Judge Kennelly rejected Plaintiffs’ arguments for certification of each sub-class based on a pervasively racist culture. The Court concluded that disciplinary, overtime, and promotion decisions were made by individual supervisors based on their personal discretion and varied across the Department, and that Plaintiffs failed to show evidence that the same decision-makers were responsible for such actions. Id. at 23. The Court was not convinced by Plaintiffs’ expert witness’ use of statistical data to show a disparate impact, noting that similar evidence had not been sufficient to demonstrate commonality for purposes of class certification in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).

Implications For Employers

The Edmond ruling underscores the importance of maintaining and utilizing a well-organized workplace reporting structure and managerial discretion in employment matters in anticipating arguing the absence of Rule 23’s commonality requirement, as seen in the Wal-Mart decision. In dismissing all of Plaintiffs’ arguments after finding an absence of a work environment common to all putative class members and no top-down decision-making policy regarding wages and promotions, the Court signals its steady reliance on the well-established standards for these types of claims, providing a valuable reaffirmation to employers’ reliable defense strategies.

May 26, 2023December 1, 2023 by Gerald L. Maatman, Jr.

Georgia Federal Court Green Lights EEOC Lawsuit For Constructive Discharge Dismissal Based On Threat Of Future Sexual Harassment

By Gerald L. Maatman, Jr., Alex W. Karasik, and Shaina Wolfe

Duane Morris Takeaways: In EEOC v. American Security Associates, Inc., No. 1:21-CV-3870 (N.D. Ga. May 23, 2023), a federal district court in Georgia denied an employer’s motion to dismiss a constructive discharge claim, holding that comments made by the company’s owner regarding how Plaintiff can expect future sexual harassment were sufficient to establish a pervasive environment of intolerable working conditions. Employers who are defending against EEOC-initiated constructive discharge claims can learn valuable lessons from this ruling in terms of how courts may assess comments about harassment that is threatened in the future.

Case Background

The EEOC filed suit on behalf of a former female security officer (the “Claimant”) who worked for Defendant American Security Associates, Inc. (“ASA”). In April 2017, one of the Claimant’s male co-workers sexually harassed her by making lewd sexual statements and touching her in an unwelcome and inappropriate manner. After reporting this conduct to her supervisor and one of ASA’s owners, in June 2017, ASA reportedly reduced her hourly pay rate from $12 per hour to $10 per hour. ASA allegedly told the Claimant that she should expect harassment because of her appearance, and refused to remedy the situation. Id. at 1-2. The Claimant ultimately resigned, alleging that she was being required to accept future harassment as a condition of her employment.

After the Claimant filed an administrate charge, and the EEOC ultimately a filed lawsuit on her behalf, ASA moved to dismiss. On April 27, 2022, the Magistrate Judge issued a non-final Report and Recommendation (“R&R”), in which he recommended the District Judge grant in part and deny in part ASA’s motion to dismiss. In relevant part, the Magistrate Judge recommended that the EEOC amend the complaint to set forth the factual basis for the constructive discharge allegations.

On October 26, 2022, the Magistrate Judge issued an additional R&R recommending that the District Judge grant ASA’s motion to dismiss the constructive discharge claim because it failed as a matter of law. Id. at 5. The Magistrate Judge determined that the EEOC failed to allege that the Claimant was subjected to an ongoing, active pattern of sexual harassment, and therefore failed to meet a necessary element of that claim. Id. at 5-6. On November 9, 2022, the EEOC filed timely Rule 72 objections to the R&R.

The Court’s Decision

On Rule 72 review, the Court sustained the EEOC’s objections to the R&R and denied ASA’s motion to dismiss. First, the Court explained that to state a claim for constructive discharge, the Commission must allege facts to plausibly show that the conditions of employment were so unbearable that a reasonable person would be compelled to resign. Id. at 10. As to this point, the Court found that the Magistrate Judge improperly drew his conclusions from facts alleged in the original complaint, and not the amended complaint, which was the operative pleading.

The EEOC also contended that the R&R subjected the amended complaint to a heightened pleading standard because it failed to consider allegations in the light most favorable to the EEOC. Id. at 12. The Court held that that Magistrate Judge heavily relied on the unsupported assumption that the Claimant was not being actively subjected to any harassment at the time of her resignation. The Court also disagreed with the R&R’s holding that speculation about future harassment from co-workers was “insufficient” to amount to the “intolerable conditions” standard. Id. at 13. The Court opined that the Magistrate Judge again relied on facts not alleged in the amended complaint.

Finally, the Court held that statements made by ASA’s owner established a severe and pervasive environment of intolerable working conditions. Id. at 14-15. The Court determined that the Claimant’s frequent complaints to various supervisors did not deter the offensive behavior. After the Claimant complained to the owner, his responsive comments implied that the Claimant was almost certain to receive future sexual harassment, and potentially, physical attacks. The Court thus held that the Claimant’s psychological well-being is a term, condition or privilege of employment within the meaning of Title VII. Therefore, the Court sustained the EEOC’s objections to the R&R, and denied ASA’s motion to dismiss.

Implications For Employers

For employers that are confronted with EEOC-initiated litigation, this ruling is instructive from both procedural and substantive perspectives. Procedurally, this ruling makes clear that courts should consider the allegations from an operative complaint when evaluating a motion to dismiss. Substantively, employers should take note that the Court relied heavily on comments that the owner made about potential future harm, which ultimately was part of the Court’s basis for not dismissing the constructive discharge claim.

May 24, 2023 by Gerald L. Maatman, Jr.

A Stellar Review For The Duane Morris Class Action Review – 2023

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaway: In its review of the Duane Morris Class Action Review – 2023, EPLiC Magazine called it the “the Bible” on class action litigation and an essential desk reference for business executives, corporate counsel, and human resources professionals.

We are humbled and honored by the recent review of the first edition of the Duane Morris Class Action Review – 2023 by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here.

EPLiC said that “The Review must-have resource for in-depth analysis of class actions in general and workplace litigation in particular.”

EPLiC continued that “The Duane Morris Class Action Review analyzes class action trends, decisions, and settlements in all areas impacting Corporate America. The Review also highlights key rulings on attorneys’ fee awards in class actions, motions granting and denying sanctions in class actions, and the top class action settlement in a myriad of substantive areas. Finally, the Review provides insight as to what companies and corporate counsel can expect to see in 2023 in terms of filings by the plaintiffs’ class action bar.”

So how was it done?

The answer is pretty simple – we live, eat, and breathe class action law 24/7/365.

Every day, morning and evening, we check the previous day’s filings of class action rulings relative to antitrust class actions, appeals in class actions, arbitration issues in class actions, Class Action Fairness Act issues in class actions, civil rights class actions, consumer fraud class actions, data breach class actions, EEOC-initiated litigation, employment discrimination class actions, Employee Retirement Income Security Act class actions, Fair Credit Reporting Act class actions, wage & hour class actions, labor class actions, privacy class actions, procedural issues in class actions, product liability & mass tort class actions, Racketeer Influenced and Corrupt Organization Act class actions, securities fraud class actions, settlement issues in class actions, state court class actions, Telephone Consumer Protection Act class actions, and Worker Adjustment and Retraining Act class actions. We conduct searches on a national basis, in federal courts and all 50 states. Then we read and analyze every ruling on Rule 23 certification motions and subsidiary issues throughout federal and state trial and appellate courts. The information is organized in our customized database, which is used to provide the Review’s one-of-a-kind analysis and commentary.

The result is a compendium of class action law unlike any other. Thanks for the kudos EPLiC – we sincerely appreciate it!

We look forward to providing the 2024 Review to all of our loyal readers in early January. In the meantime, look for our first-ever Mid-Year Update coming at the beginning of July!

May 19, 2023 by Alex W. Karasik

EEOC Issues New Resource On Artificial Intelligence Use In Employment Decisions

By Alex W. Karasik and Gerald L. Maatman, Jr.

Duane Morris Takeaways: On May 18, 2023, the EEOC released a technical assistance document, “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964,” (hereinafter, the “Resource”) to provide employers guidance on preventing discrimination when utilizing artificial intelligence. For employers who are contemplating whether to use artificial intelligence in employment matters such as selecting new employees, monitoring performance, and determining pay or promotions, this report is a “must-read” in terms of implementing safeguards to comply with civil rights laws.

Background

As the EEOC is well-aware, employers now have a wide variety of algorithmic decision-making tools available to assist them in making employment decisions, including recruitment, hiring, retention, promotion, transfer, performance monitoring, demotion, dismissal, and referral. Employers increasingly utilize these tools in an attempt to save time and effort, increase objectivity, optimize employee performance, or decrease bias. The EEOC’s Resource seeks to inform employers how to monitor the newer algorithmic decision-making tools and ensure compliance with Title VII.

To set the parameters for the Resource, the EEOC first defines a few key terms:

Software: Broadly, “software” refers to information technology programs or procedures that provide instructions to a computer on how to perform a given task or function.
Algorithm: Generally, an “algorithm” is a set of instructions that can be followed by a computer to accomplish some end.
Artificial Intelligence: In the employment context, using AI has typically meant that the developer relies partly on the computer’s own analysis of data to determine which criteria to use when making decisions. AI may include machine learning, computer vision, natural language processing and understanding, intelligent decision support systems, and autonomous systems.

Taken together, employers sometimes utilize different types of software that incorporate algorithmic decision-making at a number of stages of the employment process. Some of the examples provided by the EEOC in terms of how employers can utilize artificial intelligence include: resume scanners that prioritize applications using certain keywords; employee monitoring software that rates employees on the basis of their keystrokes; “virtual assistants” or “chatbots” that ask job candidates about their qualifications and reject candidates who do not meet pre-defined requirements; video interviewing software that evaluates candidates based on their speech patterns and facial expressions; and testing software that provides “job fit” scores for applicants or employees regarding their personalities, aptitudes, cognitive skills, or perceived “cultural fit,” which is typically based on their performance on a game or on a more traditional test.

“Questions And Answers” About AI

After summarizing the pertinent provisions of Title VII, the heart of the EEOC’s Resource is presented in a question and answer format. First, the EEOC defines a “selection procedure” to be any “measure, combination of measures, or procedure” if it is used as a basis for an employment decision. Employers can assess whether a selection procedure has an adverse impact on a particular protected group by checking whether use of the procedure causes a selection rate for individuals in the group that is “substantially” less than the selection rate for individuals in another group. If there is an adverse impact, then use of the tool will run afoul of Title VII unless the employer can demonstrate that, pursuant to Title VII, such use is “job related and consistent with business necessity.”

The EEOC then posits the critical question of whether an employer is responsible under Title VII for its use of algorithmic decision-making tools even if the tools are designed or administered by another entity, such as a software vendor. This is an important issue since many companies seek the assistance of third-party technologies to facilitate some of their employment-decision processes. The EEOC indicates that “in many cases, yes,” employers are responsible for the actions of their agents, such as third-party vendors. Ultimately, if the employer is making the final employment decision, the buck would likely stop with the employer in terms of Title VII liability .

The EEOC also defines the term, “selection rate,” which refers to the proportion of applicants or candidates who are hired, promoted, or otherwise selected. The selection rate for a group of applicants or candidates is calculated by dividing the number of persons hired, promoted, or otherwise selected from the group by the total number of candidates in that group. By virtue of including this definition in the Resource, a reading of the tea leaves suggests that the EEOC will be monitoring selection rates to determine whether there is an adverse impact in employment decisions that were catalyze from the use of artificial intelligence.

In terms of what is an acceptable selection rate, the EEOC relies on the “four-fifths rule,” which is a general rule of thumb for determining whether the selection rate for one group is “substantially” different than the selection rate of another group. The rule states that one rate is substantially different than another if their ratio is less than four-fifths (or 80%). For example, if the selection rate for Black applicants was 30% and the selection rate for White applicants was 60%, the ratio of the two rates is thus 30/60 (or 50%). Because 30/60 (or 50%) is lower than 4/5 (or 80%), the four-fifths rule dictates that the selection rate for Black applicants is substantially different than the selection rate for White applicants, which may be evidence of discrimination against Black applicants.

The EEOC does note that the, “four-fifths rule” is a general suggestion, and may not be appropriate in every circumstance. Some courts have also found this rule to be inapplicable. Nonetheless, employers would be prudent to ask whether artificial intelligence vendors deployed the “four-fifths rule” in their algorithms. Statistics matter here.

Finally, the EEOC posits the issue of what an employers should do when they discover that the use of an algorithmic decision-making tool would result in an adverse impact. The EEOC explains that one advantage of algorithmic decision-making tools is that the process of developing the tool may itself produce a variety of comparably effective alternative algorithms. Accordingly, employers’ failure to adopt a less discriminatory algorithm that may have been considered during the development process could give rise to liability. Employers should thus take heed to document the steps they take to utilize non-discriminatory algorithms.

Implications For Employers

The use of artificial intelligence in employment decisions may be the new frontier for future EEOC investigations. While these technologies can have tremendous cost-benefits, the risk is undeniable. Inevitably, some employer using AI will be the subject of a test case in the future.

Employers should monitor the results of their own use of artificial intelligence. This can be accomplished by conducting self-analyses on an ongoing basis, to determine whether employment practices are disproportionately having a negative impact on certain protected classes.

As the EEOC notes, employers can proactively change the practices going forward. Given the agility of the artificial intelligence software, employers who do find the technologies’ “employment decisions” to be problematic can and should work with vendors to remedy such defects.

We encourage our loyal blog readers to stay tuned as we continue to report on this exciting and rapidly evolving area of law.

May 15, 2023May 16, 2023 by Gerald L. Maatman, Jr.

Tennessee Becomes Eighth State To Enact Comprehensive Privacy Legislation

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Tyler Zmick

Duane Morris Takeaways: As efforts to enact comprehensive privacy protection continue to stall on the federal level, states have stepped up to create a patchwork quilt of protections for those doing business with consumers within their borders. Tennessee recently became the eighth state – following Indiana, California, Colorado, Connecticut, Iowa, Utah, and Virginia – to enact comprehensive privacy legislation. At least 15 other states have introduced similar bills during the current legislative session, and Montana’s comprehensive consumer privacy statute awaits the signature of its Governor. Companies doing business in Tennessee or with Tennessee consumers should take heed of the new law and review their policies and processes for compliance.

Tennessee Legislation

After receiving overwhelming support from both houses of the General Assembly, on May 11, 2023, Governor Bill Lee signed the Tennessee Information Protection Act into law. With this law, Tennessee became the eighth state to institute comprehensive consumer privacy legislation. The law is set to take effect on July 1, 2024.

The act applies to businesses that conduct business in Tennessee or produce products or services that are targeted to Tennessee residents and that: (1) control or possess the personal information of at least 175,000 consumers; or (2) control or process personal information of at least 25,000 consumers and derive more than 50% of their gross revenue from the sale of personal information. The law contains exemptions for certain types of entities, such as governmental entities, certain financial institutions, non-profit organizations, and higher education institutions. The law also exempts certain types of data, such as personal information regulated by the Family Educational Rights and Privacy Act, and protected health information under HIPAA.

Similar to other comprehensive state privacy laws, the Tennessee law grants Tennessee residents certain rights in their personal information. It allows for consumers to confirm whether a company is processing their personal information, to access their personal information, to correct inaccuracies in their personal information, to delete their personal information, to obtain copies of their personal information, and to opt out of future sales or targeted advertising.

The law allows a consumer to invoke his or her rights (and the rights of his or her children) at any time by submitting a request to a controller of the personal information specifying the rights that the consumer wishes to invoke, and it requires the respondent to comply with an authenticated request without undue delay but, in all cases, within 45 days.

The law imposes various requirements on persons and entities who “determine[] the purpose and means” of processing personal information. For example, it requires such persons and entities to limit the collection of personal information to what is adequate, relevant, and reasonably necessary in relation to the purposes for which the data is processed; to establish, implement, and maintain reasonable data security practices; and, if the controller processes or sells personal information for targeted advertising, to clearly and conspicuously disclose the processing, as well as the manner in which a consumer may exercise the right to opt out of the processing.

The Tennessee law does not provide for a private right of action and vests exclusive enforcement authority in the Tennessee attorney general. It allows a court to impose civil penalties of up to $7,500 per violation, and allows treble damages for willful or knowing violations. The law requires that, prior to initiating an action, the attorney general must provide a 60-day notice period during which the recipient may cure the noticed violation to avoid an enforcement action. The law also creates an affirmative defense under certain circumstances for a company that creates, maintains, and complies with a written privacy policy that reasonably conforms to documented policies, standards, and procedures designed to safeguard consumer privacy.

Implications for Businesses

Covered persons and entities who do business in Tennessee or who target Tennessee consumers should start reviewing their policies and developing processes to comply with the Tennessee law. Although the law is not set to take effect until July 1, 2024, the law adds another challenge to the already complex compliance landscape for companies seeking to operate on a nationwide basis.

May 10, 2023 by Gerald L. Maatman, Jr.

Introducing The Duane Morris Consumer Fraud Class Action Review – 2023

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Sharon L. Caffrey

Duane Morris Takeaways: Class action litigation in the consumer fraud area has exponentially increased over the past several years, leaving corporations extremely vulnerable. Additionally, most consumer fraud class actions come with the possibility of excessive payouts for corporations. To that end, the class action team at Duane Morris is pleased to present the inaugural edition of the Consumer Fraud Class Action Review – 2023. We hope it will demystify some of the complexities of consumer fraud litigation and keep corporate counsel updated on the ever-evolving nuances in this area of law. We hope this book, which manifests the experience and expertise of the Duane Morris class action defense group, will assist clients by identifying trends in the case law and offering practical approaches in handing consumer fraud class action litigation.

Click here to download a copy of the Duane Morris Consumer Fraud Class Action Review – 2023 ebook.

Tune in on Fridays to our weekly podcast The Class Action Weekly Wire for more class action analysis and discussion of important trends!

May 8, 2023 by Gerald L. Maatman, Jr.

Class Action Money & Ethics Conference – The State Of Class Action Litigation

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaways: We were honored to present the keynote address today to open the 7th Annual Class Action Money & Ethics Conference in New York City sponsored by Beard Group, Citi Financial, Simpluris, and Pacer Monitor. With over 100 attendees, the program focused on the current state of class action litigation and “white hot” litigation topics for 2023. The discussion points provide an excellent roadmap on what is likely coming down the road for Corporate America for the remainder of 2023.

Class Action Dynamics

The themes of our keystone address focused on the extraordinary developments in class action litigation over the past 12 months.

The plaintiffs’ bar certified class actions at unprecedented levels throughout the country and monetized their cases with the highest settlement values seen in over 25 years. Many of these settlements arose from opioid litigation against manufactures, distributors, and retailers in the pharmaceutical industry. On an aggregate basis, class actions and government enforcement lawsuits garnered more than $71 billion in settlements, with 15 class action cases settling for more than $1 billion. Suffice to say, 2022 was unlike any other year on the class action settlement front. As success often begets copy-cats, corporations can expect the plaintiffs’ class action bar will be equally if not more aggressive in their case filings and settlement positions in 2023.

In 2022, the plaintiffs’ class action bar succeeded in certifying class actions at an exceedingly high rate. Across all major types of class actions, courts issued rulings on over 360 motions to grant or to deny class certification in 2022. Of these, plaintiffs succeed in obtaining or maintaining certification in 268 rulings, with an overall success rate of nearly 75%. The plaintiffs’ class action bar obtained the highest rates of success in securities fraud, ERISA, WARN, and FLSA actions. In cases alleging securities fraud, plaintiffs succeeded in obtaining orders certifying classes in 23 of the 24 rulings issues during 2022, a success rate of 96%. In ERISA litigation, plaintiffs succeeded in obtaining orders certifying class in 18 of 23 rulings issued during 2022, a success rate of 78%. In cases alleging WARN violations, plaintiffs managed to certify classes in 100% of the suits that resulted in decisions this year.

In terms of predictions, we opined that as the volume of class action filings has increased each year for the past decade, and 2023 is likely to follow that trend. As a result, a company’s programs designed to ensure compliance with existing laws and strategies to mitigate class action litigation risks are corporate imperatives. The plaintiffs’ bar is nothing if not innovative and resourceful. Given the massive class action settlement figures in 2022, coupled with the ever-developing case law under Rule 23, corporations can expect more lawsuits, expansive class theories, and an aggressive plaintiffs’ bar in 2023. These conditions necessitate planning, preparation, and decision-making to position corporations to withstand and defend class action exposures. These crucial issues are inevitably posed by any class action litigation. By their very nature, class actions involve decisions on strategy at every turn. The positions of the parties are constantly changing and corporate defendants must always be looking ahead and anticipating issues during every phase of the litigation.

Hot Class Action Topics

Among the topics addressed at the Conference were ESG class actions, PFAS “forever chemicals” litigation, Camp LeJeune mass tort litigation, Talc liability class actions, crypto class actions, and gender discrimination and pay equity class action litigation.

Litigating ESG Consumer Class Actions

Baldassare Vinti, Jeff Warshafsky, and Jennifer Yang of Proskauer Rose LLP led a discussion of class action litigation focusing on ESG environmental marketing claims, which they noted have been an increasing in number in the consumer class action space. These putative class actions challenge “green” claims that products or services are “carbon neutral,” “recyclable,” “non-toxic,” or otherwise beneficial for the environment.

PFAS “Forever Chemical” Class Actions

Michael J. Bisceglia, Brian M. Ledger, Paul T. Nyffeler, and Thomas R. Waskom of Hunton Andrews Kurth LLP presented on PFAS “forever chemical” litigation. Despite stringent regulation, PFAS has been linked to harmful health effects, including cancer. They predicted that after opioid litigation, many in the plaintiffs’ class action bar view this area as the next “big thing” for widespread mass tort and class actions.

Camp LeJeune Litigation & New Theories Of Liability

Mark A. DiCello of DiCello Levitt discussed the state of mass tort litigation with water contamination lawsuits filed against the U.S. Government alleging adverse health effects for affecting nearly 175,000 marines, sailors, their families and civilians at the camp between 1950 and 1985. Those cases were consolidated into MDL No. 2218 and the government successfully obtained dismissal of all of those cases in 2016. Plaintiffs’ lawyers have continued to litigate based on new theories of liability. The amount of advertising about the litigation is also continuing to mount (estimated at a cost of $500,000 to date), as more than 2,000 lawsuits are pending.

Talc Liability Class Actions

Gina Passarella, the editor in chief of American Lawyer, moderated a roundtable discussion with Melanie L. Cyganowski of Otterbourg P.C., Mohsin Meghji of M3 Partners, Robert J. Stark or Brown Rudnick, and Joshua A. Sussberg of Kirkland & Ellis regarding resolution of talc liability. The census of the roundtable was that this remains a hot topic in the class action and corporate restructuring communities, and that 2023 is expected to see various bankruptcy rulings in this sector.

After FTX, Crypto Lawyers And Class Actions

Michael P. Canty of Labaton Sucharow LLP and Graham Newman Chappell, Chappell & Newman provided their insights on crypto class action issues. They agreed that with the collapse of FTX, the crypto industry has endured more scrutiny. In this respect, decades-old laws are apt to provide fertile ground for assertion of class action theories.

Gender Based Discrimination & Pay Inequality

Matthew L. Berman of Valli Kane & Vagnini LLP and Rachel Geman of Lieff Cabraser Heimann & Bernstein LLP led a discussion on gender discrimination and pay equity class-based litigation.

With recent large equal pay cases, such as last year’s Google gender discrimination class action settlement of $118 million, and recent laws regarding pay equity and requiring pay transparency, a spotlight is shining on compensation in the workplace.

Mass Torts & Cases To Watch In 2023

Christopher Ege of Gordon Rees Scully Mansukhani, LLP, Mark Eveland of Verus LLC, Bridie Farrell of Milestone, Neil Kornswiet of Optium Captial LLC, and Edward E. Neiger of Ask LLP closed the Conference with a roundtable discussion of the state of mass tort litigation. They discussed several cases with some of the biggest brands making their way through court MDL proceedings, including Roundup, Tylenol Autism, and Elmiron. Based on key settlements from 2022, they predicted a robust litigation landscape for 2023.

Implications For Corporate America

If 2022 is any indication, 2023 is shaping up to be a signal year of developments in class action litigation.

May 4, 2023December 1, 2023 by Gerald L. Maatman, Jr.

Indiana Joins The Bandwagon In Passing A Comprehensive Privacy Law

By Gerald L. Maatman, Jr., Jennifer A. Riley, Alex W. Karasik, and Shaina Wolfe

Duane Morris Takeaways: The United States currently has no comprehensive data privacy law. Rather, a patchwork quilt of various privacy laws cover different types of data, such as information in credit reports (the Fair Credit Reporting Act), student records (Family Educational Rights and Privacy Act), and consumer financial products (Gramm-Leach-Bliley Act). In an attempt to fill the void of federal legislation, Indiana recently joined six other states – California, Colorado, Connecticut, Iowa, Utah, and Virginia – in enacting a comprehensive privacy statute, the Indiana Consumer Data Protection Act (“ICDPA”). At least nineteen states have introduced similar privacy bills this legislative session. Montana and Tennessee have comprehensive consumer privacy statutes pending signature by their governors. Businesses in Indiana should start immediately reviewing their policies and implementing processes for complying with ICDPA to avoid enforcement litigation by the Indiana Attorney General.

Indiana Legislation

On May 1, 2023, Indiana Governor Holcomb signed Senate Bill 5, known as the ICDPA. This new law will take effect on January 1, 2026.

The ICDPA applies to companies that conduct business in Indiana or produce products or services that are targeted to residents of Indiana and during a calendar year: (1) control or process the personal data of 100,000 consumers (who are Indiana residents) or (2) control or process personal data of at least 25,000 consumers (who are Indiana residents) and more than 50% of gross revenue from the sale of personal data. Significantly, the ICDPA does not apply to data processed or maintained in the course of applying to or being employed by a business. Moreover, the ICDPA does not apply to government entities, non-profit organizations or higher education institutions.

The ICDPA provides consumers with rights to their personal data, including:

– opt-out rights related to the sale of personal data, targeted marketing and profiling (automated decision making that could have significant legal effects, such as those related to employment and benefits);
– access rights, including a right to confirm whether a company is processing any data at all;
– deletion rights;
– correction rights, limited to data the consumer previously provided;
– appeal rights; and
– data portability rights (summary of the personal data sent to the consumer must be in a portable and readily usable format).

“Personal data” is broadly defined as information that is “linked or reasonably linkable to an identified or identifiable individual.” Personal data does not include de-identified data, publicly available information, or data related to a group or category of customers that is not linked or reasonably linked to an individual customer. The ICDPA also provides consumers the right to opt-out of the collection and processing of their sensitive personal data. “Sensitive personal data” includes: (1) personal data revealing racial or ethnic origin, religious beliefs, a mental or physical health diagnosis made by a healthcare provider, sexual orientation, or citizenship or immigration status; (2) genetic or biometric data that is processed for the purpose of uniquely identifying a specific individual; (3) personal data collected from a known child; and (4) precise geolocation data. Certain personal data that is covered by other statutes like the Fair Credit Reporting Act or Family Educational Rights and Privacy Act is exempt.

Once the ICDPA takes effect, companies must respond to a consumer personal data request within 45 days of receipt of the request. Companies may also seek a 45-day extension to respond. If a consumer appeals a company’s decision to deny the consumer’s request, the appeal response must be delivered within 60 days. If the appeal is denied, the company must provide the consumer with a method for contacting the state attorney general.

Importantly, the ICDPA does not provide individuals with a private right of action against businesses that violate the Indiana Law. Rather, the Indiana Attorney General will have exclusive enforcement authority. Prior to any enforcement action, the business will be allowed 30 days to cure the alleged violation. Only after the thirty days pass will the Indiana Attorney General be permitted to bring an enforcement action for the alleged violation. If the Indiana Attorney General decides to bring an enforcement action, the business may be fined up to $7,500 per violation.

Implications for Businesses

The ICDPA does not take effect until January 1, 2026. Covered businesses should start reviewing their policies and implementing processes for complying with the ICDPA to avoid enforcement by the Indiana Attorney General.