Gerald L. Maatman, Jr. – Page 13 – Class Action Defense

July 20, 2023 by Gerald L. Maatman, Jr.

Illinois Supreme Court Refuses To Reconsider “Per-Scan” BIPA Accrual Ruling In Cothron v. White Castle

By Gerald L. Maatman, Jr. and Tyler Zmick

Duane Morris Takeaways: As we previously blogged, on February 17, 2023 the Illinois Supreme Court held in Cothron v. White Castle, 2023 IL 128004 (2023), that a separate claim for damages accrues under the Biometric Information Privacy Act (“BIPA”) each time a private entity scans or transmits an individual’s biometric data in violation of Sections 15(b) or 15(d) of the statute. On July 18, 2023, the Illinois Supreme Court denied White Castle’s petition for hearing, resulting in the February 17 ruling becoming the final “law of the land” in Illinois. The Court’s decision to deny White Castle’s rehearing petition was not unanimous, however, as reflected by the blistering dissent penned by Justice Overstreet and joined by Chief Justice Theis and Justice Holder White. For companies involved in BIPA class action litigation, the dissent is required reading, as it foreshadows an array of defense-oriented arguments over damages issues in privacy litigation.

Illinois Supreme Court’s Majority Decision In Cothron

In a 4-3 split ruling, the Illinois Supreme Court held on February 17, 2023 that a separate claim accrues under the BIPA each time a private entity scans or transmits an individual’s biometric data in violation of Sections 15(b) or 15(d), respectively.

Relying on the statute’s plain language and the fact that the actions of “collecting” and “disclosing” biometric data can occur more than once, the Supreme Court agreed with Plaintiff’s interpretation – namely, that Section 15(b) “applies to every instance when a private entity collects biometric information without prior consent” and that Section 15(d) “applies to every transmission to a third party.” Cothron, 2023 IL 128004, ¶¶ 19, 23, 28. The Supreme Court acknowledged that this interpretation – coupled with the statute allowing prevailing plaintiffs to recover up to $1,000 or $5,000 for each “violation” – could lead to astronomical damages awards that may be “harsh, unjust, absurd or unwise,’” id. ¶ 40 (citation omitted), but noted that it must apply the statute as written and that policy-based concerns should be addressed by the Illinois legislature.

Dissent To Majority’s Decision To Deny White Castle’s Rehearing Petition

On July 18, 2023 the Illinois Supreme Court denied White Castle’s petition for rehearing in Cothron v. White Castle, effectively leaving White Castle with no further avenues for challenging the ruling.

Three Justices (the same three who dissented to the February 17 majority decision) disagreed with the decision to deny White Castle’s petition for rehearing. In opining that the Supreme Court should have granted rehearing, the Dissent focused on three issues, including: (1) the majority’s “per scan” theory of liability subverting the intent of the Illinois legislature; (2) the majority’s “per scan” theory of liability threatening the survival of Illinois businesses and raising “significant constitutional due process concerns,” id. ¶ 70; and (3) the majority’s decision in failing to provide trial courts with criteria to use in exercising their discretion whether to award statutory damages for BIPA violations.

First, the Dissent stated that the Illinois legislature meant for the BIPA to be a straightforward remedial statute that allows individuals to choose to provide (or not to provide) their biometric data after being informed that the data is being collected, stored, and potentially disclosed. The Dissent rejected the majority’s “flawed construction” of the statute, which mistakenly presumes that the legislature meant for the BIPA to “establish a statutory landmine” and “destroy commerce in its wake when negligently triggered.” Id. ¶ 73; see also id. (“The majority’s construction of the [BIPA] does not give effect to the legislature’s true intent but instead eviscerates the legislature’s remedial purpose of the [BIPA] and impermissibly recasts [it] as one that is penal in nature rather than remedial.”).

Second, the Dissent opined that by construing the statute to allow for awards of statutory damages that bear no relation to any actual monetary injury suffered, the majority’s decision raises due process concerns that “raise doubt as to [the BIPA’s] validity.” Id. ¶ 74; see also id. ¶ 75 (“The legislature’s authority to set a statutory penalty is limited by the requirements of due process. When a statute authorizes an award that is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable, it does not further a legitimate government purpose, runs afoul of the due process clause, and is unconstitutional.”).

Finally, the Dissent took issue with the majority’s refusal to clarify its February 17 holding with respect to the discretionary (rather than mandatory) nature of liquidated damages under the statute. Specifically, the Dissent noted that the majority opinion did not provide trial courts with standards or criteria to apply in determining whether to award statutory damages in a particular BIPA case and, if so, in what amount. The Dissent asserted that the Supreme Court should have agreed to clarify “that statutory damages awards must be no larger than necessary to serve the [BIPA’s] remedial purposes” and to “explain how lower courts should make that determination.” Id. ¶ 85. Per the Dissent, “[w]ithout any guidance regarding the standard for setting damages, defendants, in class actions especially, remain unable to assess their realistic potential exposure.” Id.

Implications For Corporations

Assuming White Castle cannot convince the U.S. Supreme Court to grant review of the Cothron decision based on constitutional issues, Cothron is now the final law of the land in Illinois. White Castle and other BIPA defendants may, however, attempt to raise constitutional challenges to the statute in other BIPA cases moving forward based on the same concerns expressed by the three dissenting Justices in Cothron.

The denial of White Castle’s rehearing petition indicates that the well is beginning to dry for businesses in terms of potential BIPA defenses. While employers and other BIPA defendants can still explore novel defenses, such as the exception for information captured from a patient in a health care setting or challenges to personal jurisdiction, many companies caught in the crosshairs of BIPA class actions will face pressure to settle due to the risk of facing monumental potential damages. Moreover, attempts to reform the BIPA statute failed in 2023, and the Illinois legislature likely will not consider any further reform proposals until 2024. Given the bleak outlook of the law as it stands, it is imperative that businesses immediately ensure they are compliant with the BIPA.

July 19, 2023 by Gerald L. Maatman, Jr.

D.C. Circuit Issues A “How-To” Ruling Regarding Issue Certification For Rule 23 Class Actions

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

Duane Morris Takeaways: On July 18, 2023, the U.S. Court of Appeals for the District of Columbia Circuit ruled that district courts must analyze the predominance and superiority requirements for certification of a class action when considering an “issue class” under Rule 23(c). In Harris v. Medical Transportation Management, Inc., No. 22-7033 (D.C. Cir. July 18, 2023), the three-judge panel ruled that the district court erred when it certified an “issue” class under Rule 23(c)(4) without first undertaking an analysis of whether the class certification prerequisites of Rule 23(a) and 23(b) had also been satisfied. The case was remanded for further proceedings. The D.C. Circuit’s decision ought to be required reading for employers with large workforces and those dealing with wage & hour class actions. It bears watching whether the district court’s analysis of the rigorous requirements of Rule 23(b) on remand also results in a pro-certification decision, given the instructions provided on remand.

Case Background

In Harris, the named plaintiffs were non-emergency medical drivers for the defendant, a company that provides transportation to individuals on public assistance who require transit getting to medical appointments. They alleged that they and a class of other drivers who they seek to represent in a class action lawsuit were denied minimum and overtime pay in violation of District of Columbia and federal wage and hour laws. Slip op. at 5-6.

Whether defendant MTM could as a matter of law be held liable as the drivers’ employer is a threshold question in the litigation. Id. at 6. The district court certified issues classes as to (i) whether MTM is the drivers’ joint employer (along with its sub-contractors); and (ii) whether MTM is a general contractor under D.C. law and thus strictly liable. Id. at 8. The district court did so despite finding previously that the predominance requirement of Rule 23(b)(3) was not met under the facts of the case specifically as they relate to the payment system for the drivers. Id. at 7-8.

MTM appealed the issue certification ruling.

The D.C. Circuit’s Decision

In a straightforward ruling, but one that delves into the complexities of Rule 23 with law-professor like precision, the D.C. Circuit panel consisting of Judges Millett, Childs and Rogers determined that the district court could not certify the issue classes under Rule 23(c)(4) without deciding whether those classes also meet the requirements of Rule 23(a) – commonality and typicality – and 23(b) – predominance and superiority. In essence, the D.C. Circuit read the plain language of Rule 23 and observed that sub-sections (a), (b) and (c) all bear on the certification inquiry conducted by the district court and therefore must be considered on an equal basis. Id. at 14-15.

In the penultimate statement of the holding, Judge Childs opined that “Rule 23’s text and structure offer no quarter to the view that Rule 23(c)(4) creates an independent type of class action that is freed from all of Rule 23’s other class action prerequisites. So the district court should have ensured that the issue class that it certified met all, and not just some, of Rule 23(a) and (b)’s preconditions to class status.” Id. at 15-16.

The D.C. Circuit instructed the district court that it must analyze on remand each of the potential class actions available under Rule 23(b)(3)’s predominance analysis. Id. at 19-20. It discussed various ways in which Rule 23(c)(4) can be applied in the context of the joint employer analysis that is at issue in Harris, such as bifurcating the liability issue from remedial claims, or where affirmative defenses may muddy the waters of class-wide evidence in a certified issues class. Id. at 21-22.

In a similar vein, Judge Childs instructed that summary judgment motions on discrete issues represent another way in which district courts could management issue certified class actions where the predominance of individualized issues threaten to overrun the common proof. Id. at 24-25.

Implications For Employers

The D.C. Circuit opinion in Harris v. MTM provides corporate counsel and executives a clear and easily understandable explanation of how Rule 23(b) and (c) intersect with one another when an issue class or classes are certified in class action litigation. District courts cannot certify issue classes under Rule 23(c)(4) without undertaking the rigorous analysis required to conclude that a class action is superior and manageable, that common issues will predominate over individualized issues, and that there are common and typical issues to be resolved in the first place. And by suggesting specific mechanisms that a district court has at its disposal for case management purposes such as targeted summary judgment motions, the decision provides reasonable strategies to consider when facing class action litigation.

July 10, 2023July 20, 2023 by Gerald L. Maatman, Jr.

Ninth Circuit Finds Article III Standing Under The TCPA For Owner Of Registered Phone With Third-Party User

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

Duane Morris Takeaways: On June 30, 2023, in Kristen Hall v. Smosh Dot Com, Inc., DBA Smosh, et al., No. 22-16216 (9th Cir. June 30, 2023), the Ninth Circuit reversed the district court’s dismissal for lack of Article III standing of a class action under the Telephone Consumer Protection Act (the “TCPA”) and remanded the claim for further proceedings. In doing so, the Ninth Circuit held that the owner and subscriber of a phone with a number listed on the Do-Not-Call Registry suffers an injury in fact when unsolicited telemarking calls or texts are sent to the number even if the communications are intended for or solicited by another individual or someone else is using the phone at the time the messages are transmitted. In so holding, the Ninth Circuit established that the receipt of unsolicited phone calls or text messages in violation of the TCPA is a “concrete injury in fact sufficient to confer Article III standing” even if the individual bringing the claim was not the phone’s primary user. As a result, the ruling is required reading for any corporate counsel dealing with TCPA class action litigation.

Case Background

Plaintiff Kristen Hall, a resident of Willis, Texas, was in possession of a cellular phone that was used primarily for residential purposes and, at times, provided to her 13-year old son to use in his free time. Hall, No. 22-16216, at 5-6. Plaintiff placed this number on the National Do-Not-Call Registry in order to avoid invasive and irritating solicitation calls and to protect her son from any potential threats. Id. Plaintiff alleged that she was the owner and subscriber of the cell phone at issue and that she listed its number on the Do-Not-Call Registry. Id. at 9.

On or around November 3, 2019, Defendants – who are digital content creators producing “sketch comedy” for an adolescent audience and selling merchandise that relates to their digital content – obtained the personal information for Plaintiff’s son and sent him at least five text messages between December 25, 2019, and June 29, 2020. Id. These texts specifically solicited business and offered discounts on products offered by Defendant Smosh Dot Com, Inc., which Plaintiff alleged was “irritating, exploitative, and invasive” and “precisely the type of communications she sought to avoid when she registered her number on the Do Not Call [R]egistry.” Id. Plaintiff’s First Amended Complaint alleged that Defendants violated § 227(c) of the Telephone Consumer Protection Act (“TCPA”) by sending text messages to numbers listed on the National Do-Not-Call Registry. Id.

Defendants moved to dismiss the First Amended Complaint for failure to state a claim and for lack of standing. They argued that Plaintiff lacked Article III standing because she failed to plead that she was the user of the phone or actually received any of the soliciting text messages from Defendants. Id. at 6-7. Specifically, Defendants argued that because she provided the phone to her son, Plaintiff was not the actual user of the phone or the actual recipient of the messages and, therefore, did not suffer an injury and was instead attempting to assert the legal right of a third party. Id. at 9-10. The district court granted the motion to dismiss on the basis that Plaintiff did not have Article III standing merely because she was the subscriber/owner of the phone while not addressing any of the merits issues. Id. at 7. Plaintiff appealed this ruling. Id.

The Ninth Circuit’s Ruling

The Ninth Circuit reversed the district court’s ruling.

It held that Plaintiff had Article III standing to bring the claims under the TCPA. The Ninth Circuit noted that it was well established that unsolicited telemarketing phone calls or text messages in violation of the TCPA is a concrete injury in fact that, itself, is enough to confer Article III standing. It cited to Van Patten v. Vertical Fitness Grp., LLC, 847 F.3d 1037, 1043 (holding that “[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients). Id. at 8. Importantly, the Ninth Circuit made clear that the relevant question for Article III standing is whether Plaintiff suffered a cognizable injury. Id. at 12. The Ninth Circuit reasoned that because a violation of the TCPA is a “concrete injury,” and the Do-Not-Call provisions of the TCPA proscribe unsolicited calls and text messages to phone numbers on the Do-Not-Call Registry, Plaintiff’s allegations that she received unsolicited text messages on a number on the registry were sufficient to confer standing. Id.

To reach this holding, the Ninth Circuit found no precedent that the owner of a cell phone also must be the primary or customary user to be injured by unsolicited phone calls or text messages. Id. at 13. The Ninth Circuit reasoned that requiring a certain level of phone usage to be a prerequisite for standing would go against Congress’ intention of preventing individuals on the Do-Not-Call Registry from receiving unsolicited text messages. Id. The Ninth Circuit also opined that this holding would not prevent other users of the phone from bringing claims, as they may also suffer a concrete injury from an unwanted call or text message. Id.

Importantly, the Ninth Circuit did not address the merits of Plaintiff’s claim, and refused to discuss Defendants’ contention that Plaintiff’s son solicited the text messages by signing up for telecommunications through an online form. Id. Instead, the Ninth Circuit held that, even if Plaintiff’s son solicited the messages, therefore affecting the merits of her claim, Plaintiff still had standing to bring her own claim by the virtue of her status as the subscriber and owner of the phone. Id. at 14. The Ninth Circuit additionally did not address the question of whether a subscriber would have Article III standing to litigate a TCPA claim if he or she authorized a third-party user to provide consent to a telemarketer, leaving that question open for the district court to discuss on remand. Id. at 9.

Key Takeaways

The Ninth Circuit has now established that all that is required for Article III standing under the TCPA is the receipt of unsolicited text messages or phone calls to a number owned or subscribed to by an individual and found on the Do-Not-Call Registry, even if that individual is not the primary user of the phone.

This ruling curtails attacks on the pleadings by TCPA defendants, especially with the language included by the Ninth Circuit that standing is “not exclusive” and numerous subscribers/users can bring TCPA claims. However, with the Ninth Circuit leaving open the question of whether a subscriber would have standing if he or she authorized a third-party user to provide consent to receive telemarketing, companies defending TCPA claims still may have a path forward to attacking standing for subscribers of phones on the Do-Not-Call Registry with third-party users. Until then, companies should be cognizant that even if a phone user solicited communications by signing up for those communications, the phone subscriber will still have standing to bring a claim under the TCPA.

July 7, 2023December 1, 2023 by Gerald L. Maatman, Jr.

Texas Federal Court Finds That The Final DOL 80/20 Rule Is Still In Play…At Least For Now

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

Duane Morris Takeaways: On July 6, 2023, in Restaurant Law Center, et al. v. U.S. Department of Labor, No. 1:21-CV-1106 (W.D. Tex. July 5, 2023) (ECF No. 67), federal district judge Robert Pitman of the U.S. District Court for the Western District of Texas denied the Restaurant Groups’ motion for preliminary injunction as to the new “80/20 Rule” – after being reversed by the Fifth Circuit several months prior – and denied the Restaurant Groups’ motion for summary judgment and granted the Department of Labor’s (“DOL”) motion for summary judgment. Judge Pitman determined that the DOL’s decision to construct and enforce the Final Rule was a permissible construction of the Fair Labor Standards Act (“FLSA”) and is not arbitrary and capricious. ECF 67 at 28. The ruling is nowhere close to the end of this litigation and the service and hospitality industry should pay close attention to what comes next as the Restaurant Law Center will inevitably appeal the district court’s decisions to the Fifth Circuit and as the U.S. Supreme Court has decided to reconsider the authority of agencies during the next term. The next set of decisions will be part of a broader analysis of the rules regarding tip credit, and more generally, the DOL’s authority.

The Final Rule

In late 2021, the DOL revived and revised the 80/20 Rule by providing that employers can utilize the tip credit only so long as 80 percent or more of the work is tip-producing, and not more than 20 percent is “directly supporting work.” See 29 C.F.R. § 531.56. Under the Final Rule, no tip credit can be taken for any non-tipped work. “Tip-producing work” is defined as work the employee performs directly providing services to customers for which the employee receives tips (i.e., taking orders and serving food). “Directly supporting work” is defined as work that is performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work (i.e., rolling silverware and setting tables). Non-tipped work includes preparing food or cleaning the kitchen, dining room, or bathrooms.

The Final Rule also includes a new requirement that an employer cannot utilize the tip credit when an employee performs more than 30 consecutive minutes of “directly supporting work.” Directly supporting work done in intervals of less than 30 minutes scattered throughout the workday would not invalidate the tip credit, subject to the 80/20 Rule. However, employers must pay minimum wages for “directly supporting work” performed after the lapse of the first 30 continuous minutes.

Procedural Background

In December 2021, the Restaurant Law Center challenged the Final Rule in the U.S. District Court in the Western District of Texas, on the grounds that, among other things, it violated the Fair Labor Standards Act. Restaurant Law Center, No. 1:21-CV-1106 at 4. The Texas federal district court denied the preliminary injunction after finding that the Plaintiffs failed to show that they would suffer irreparable harm absent the preliminary injunction. Id.

On April 28, 2023, the Fifth Circuit reversed the Texas federal district court, finding that the Restaurant Groups “sufficiently showed irreparable harm in unrecoverable compliance costs . . . .” Rest. L. Ctr. v. U.S. DOL, 66 F.4th 593, 595 (5th Cir. 2023). Significantly, the Fifth Circuit noted that that compliance costs would likely be necessary to track the number of minutes worked on nontipped labor and that the new 30-minute rule would impose additional monitoring costs. Id. The Fifth Circuit remanded the case for further proceedings. Id. [Our previous blog post on that ruling is here.]

The Texas Federal District Court’s Decision on Summary Judgment

At the second go-around, the district court had two fully-briefed motions, including: (1) the Restaurant Groups’ motion for preliminary injunction; and (2) the parties’ cross-motions for summary judgment. The district court denied the Restaurant Groups’ motion for summary judgment and granted the DOL’s cross-motion for summary judgment after finding that, contrary to the Restaurant Groups’ assertions, the DOL’s decision to construct and implement the Final Rule was a permissible construction of the FLSA and is not arbitrary and capricious. Id. at 28. In addition, the Texas federal district court denied the Restaurant Groups’ motion for preliminary injunction after finding that the Restaurant Groups did not succeed, and were likely not to succeed, on the merits of the case, that the balance of equities did not tip in the Restaurant Groups’ favor, and that an injunction was not in the public interest. Id.

In determining the Final Rule’s validity, the district court used a two-step framework articulated in Chevron, USA, Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837 (1984). Id. at 8. Under Chevron, if a statute has a gap that needs to be filled, Congress gave the agency administering the rule, rather than courts, authority to resolve it. Id. The district court found that Chevron deference applied to the case because Congress “delegated authority to the agency generally to make rules carrying the force of law,” and that the Final Rule “was promulgated in the exercise of that authority.” Id. at 10.

The federal district court also analyzed the FLSA’s text, structure and purpose, and legislative history, and found that, contrary to the Restaurant Group’s assertions, the statute was ambiguous. Id. at 17. The district court explained that “Congress has crafted an ambiguous statute and tasked DOL with implementing the ambiguous provisions,” and the Court “must defer to the agency’s regulation so long as it is not arbitrary, capricious, or manifestly contrary to the statute.” Id. at 17. The district judge further found that the Final Rule “accomplishes” the purposes of the FLSA “by adopting a ‘functional test’ to determine when an employee may be considered engaged in a tipped occupation.” Id. at 19.

Significantly, the district court also considered whether the Major Questions Doctrine was triggered, as discussed in West Virginia v. EPA, 142 S. Ct. 2587 (2022). Id. at 24. The district court found that the Major Questions Doctrine was not triggered because an agency action was only considered to be of “vast economic significance” if it requires “billions of dollars in spending.’” Id. at 25. The district court found that the DOL “pointed out that the average annual cost of the Rule in this case is $183.6 million” and explained that this amount was “far less than the billions considered in the cited cases. Id. The district court further opined that the “DOL has been interpreting the tip credit provision of the FLSA, as well as its other provisions, for decades.” Id.

The Texas Federal District Court’s Decision on the Preliminary Injunction

In addition, as instructed by the Fifth Circuit, the district court reconsidered the Restaurant Groups’ Motion for Preliminary Injunction. At the outset, the district court noted that “[a]lthough a failure to show likelihood of success on the merits is grounds alone for denial of a preliminary injunction, the Court will address the two remaining Rule 65 factors pursuant to the Fifth Circuit’s mandate to ‘proceed expeditiously to consider the remaining prongs of the preliminary injunction analysis.’” Id. at 26 (citing Rest. L. Ctr., 66 F.4th at 600). Despite the Fifth Circuit’s finding that Restaurant Groups will suffer irreparable harm because their compliance costs are non-recoverable, Rest. L. Ctr, 66 F.4th at 595, in balancing the equities, the district court essentially found the opposite – – that the Restaurant Groups, again, failed to show irreparable harm from complying with the Final Rule. See id. at 26-27.

Significantly, the Fifth Circuit previously disagreed with the DOL’s assertion that “employers need not engage in ‘minute to minute’ tracking of an employee’s time in order to ensure that they qualify for the tip credit.” Rest. Law Ctr., 66 F.4th at 599 (“No explanation is given (nor can we imagine one) why an employer would not have to track employee minutes to comply with a rule premised on the exact number of consecutive minutes an employee works.”). Contrary to the Fifth Circuit, the district court agreed with the DOL and found that “restaurants must already monitor the amount of time employees spend on non-tipped labor under the 80/20 rule, and the new 30-minute rule does not impose a new form of monitoring.” ECF 67 at 26. In addition, the district court noted that it is not clear that the Rule imposes significantly greater costs than restaurants incurred under the preexisting guidance because the Restaurant Groups failed to “provide an estimate of this additional monitoring.” Id. In essence, contrary to the Fifth Circuit’s Order, the district court, again, “emphasized the weakness of [the Restaurant Groups’] evidence.” Rest. Law Ctr., 66 F.4th at 598 (“For instance, the court found [the Restaurant Groups] claimed ongoing costs “to be overstate[d]” because the rule does not require “the level of detailed monitoring of which [the Restaurant Groups] warn. . . [this point is] meritless”).

Further, the district court explained that eighteen months had passed since the parties filed their briefs on the preliminary injunction, and that the Rule took effect on December 28, 2021 and has remained in place. Id. Without citing to any evidentiary support, the district court noted that “[r]estaurants and DOL have complied with the Rule since that time.” Id. at 27.

Moreover, similar to the district’s court’s first order, which was reversed by the Fifth Circuit, the district court explained “that even if there are ongoing management costs, the most significant compliance costs associated with the Rule were familiarization and adjustment costs, which have now already been incurred, and that granting an emergency motion to rescind the Rule now cannot undo these costs, and may very well force restaurants to incur additional costs adjusting to the policy that takes its place.” Id. Ultimately, the district court found that the Restaurant Groups’ “compliance costs do not outweigh the substantial harm that DOL may endure from essentially starting from scratch on a rule that serves to codify long-standing guidance.” Id.

Thus, the district court found that even if Restaurant Groups showed a likelihood of success on the merits, “neither the balance of equities nor the public interest would support a nationwide preliminary injunction.” Id. at 28.

Implications For The Service & Hospitality Industry

The fight to end and/or limit the Department of Labor’s authority and promulgation of the tip credit rule is far from over. Although the Texas federal district court sent a clear indication that it did not agree with the Fifth Circuit’s decision, and that it would not disturb the Department of Labor’s authority, the service and hospitality industry should be watchful for what has yet to come. The Restaurant Law Center will undoubtedly appeal both of the Texas federal district court’s rulings, and the Fifth Circuit has already indicated that preventing enforcement of the Final Rule may be on the horizon. Moreover, the Supreme Court’s decision to reconsider the Chevron doctrine in Loper Bright Enterprises v. Gina Raimondo, Case No. 22-451 – which will be heard in the next term – to the extent that it narrows or eliminates federal courts’ deference to agencies’ decisions, could substantially impact the agenda the Department of Labor can pursue. The service and hospitality industry should stay tuned for the Fifth Circuit’s rulings in Restaurant Law Center and Supreme Court’s forthcoming ruling Loper Bright Enterprises.

July 1, 2023 by Gerald L. Maatman, Jr.

California District Court Gives Green Light To BIPA Claims Brought Against YouTube

By Gerald L. Maatman, Jr. and Tyler Z. Zmick

Duane Morris Takeaways: In Colombo v. YouTube, LLC, et al., No. 22-CV-6987, 2023 WL 4240226 (N.D. Cal. June 28, 2023), the U.S. District Court for the Northern District of California issued a decision embracing a broad interpretation of the data types that are within the scope of the Illinois Biometric Information Privacy Act (“BIPA”). The decision puts businesses on notice that the statute may apply to the collection or possession of any “scan of face geometry,” regardless of whether the scan can be used to identify a specific individual – – in other words, a “biometric identifier” under the BIPA need not be capable of “identifying” a person. Colombo v. YouTube, LLC is required reading for corporate counsel facing privacy class action litigation.

Background

Plaintiff’s BIPA claims were premised on two YouTube video editing tools that allegedly resulted in the collection of his “biometric identifiers” and “biometric information” (collectively, “biometric data”) – YouTube’s (1) “Face Blur” tool and (2) “Thumbnail Generator” tool. Id. at 2-3. According to Plaintiff, the “Face Blur” tool enables a user to select faces appearing in videos uploaded by the user that he or she may wish to “blur,” resulting in those faces appearing blurry and unrecognizable to any viewer of the videos. Plaintiff claimed that when someone uses the tool, YouTube scans the uploaded video “to detect all unique faces” and, in doing so, “captures and stores scans of face geometry from all detected faces, creating a unique ‘faceId’ for each.” Id. at 2 (citation omitted).

Regarding YouTube’s “Thumbnail Generator” feature, Plaintiff described the tool as auto-generating photographic thumbnails (i.e., screenshots from an uploaded video) by scanning videos for faces at the time they are uploaded and using the “face data to auto-generate thumbnails that contain faces.” Id. (citation omitted).

Based on his alleged use of these two YouTube tools, Plaintiff alleged that YouTube violated Sections 15(a) and 15(b) of the BIPA by (i) failing to develop and comply with a written policy made available to the public establishing a retention policy and guidelines for destroying biometric data, and (ii) collecting his biometric data without providing him with the requisite notice and obtaining his written consent.

YouTube moved to dismiss on three grounds, arguing that: (1) Plaintiff failed to allege that data collected by YouTube qualifies as “biometric data” under the BIPA because YouTube did not (and could not) use the data to identify Plaintiff or others appearing in uploaded videos; (2) Plaintiff’s claims violated Illinois’s extraterritoriality doctrine and the dormant Commerce Clause; and (3) Plaintiff failed to allege that he was “aggrieved” for purposes of his Section 15(a) claim.

The Court’s Decision

The Court denied YouTube’s motion to dismiss on all three grounds.

“Biometric Identifiers” And “Biometric Information”

YouTube first argued that Plaintiff failed to allege that data collected through the Face Blur and Thumbnail Generator tools qualify as “biometric data” under the BIPA because Plaintiff did not plausibly allege that YouTube could use the data to affirmatively identify Plaintiff or other individuals. See id. at 4 (“In YouTube’s view, biometric identifiers must identify a person and biometric information must actually be used to identify a person.”).

The Court rejected YouTube’s argument, stating that “[t]he “point is not well taken.” Id. The Court noted the statute’s definition of “biometric identifier” as “a retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry,” see 740 ILCS 14/10 – a definition that does not explicitly require that the listed data points be capable of identifying a particular person. While the Court acknowledged that the term “identifier” may suggest that the data must be used to identify a person, the Court also opined that “‘[w]hen a statute includes an explicit definition, we must follow that definition,’ even if it varies from a term’s ordinary meaning.” Id. at 4 (citation omitted); see also id. at 5 (“[T]he Illinois legislature was perfectly free to define ‘biometric identifier’ in a specific manner that is not tethered to the plain meaning of the word ‘identifier’ alone.”).

Extraterritoriality & Dormant Commerce Clause

The Court also rejected YouTube’s arguments that Plaintiff failed to allege that YouTube’s relevant conduct occurred “primarily and substantially” in Illinois, and Plaintiff’s interpretation of the BIPA would run afoul of the dormant Commerce Clause.

The Court held that Plaintiff sufficiently alleged that YouTube’s conduct occurred “primarily and substantially” in Illinois, thereby satisfying the extraterritoriality doctrine. Id. at 5. Responding to YouTube’s argument that the company’s headquarters and data servers are located outside of Illinois, the Court stated that those facts are “not dispositive” and that “[m]aking the geographic coordinates of a server the most important circumstance in fixing the location of an Internet company’s conduct would . . . effectively gut the ability of states without server sites to apply their consumer protection laws to residents for online activity that occurred substantially within their borders.” Id. at 6 (citation omitted).

Using the same reasoning, the Court concluded that “YouTube’s dormant Commerce Clause theory fares no better” because YouTube’s allegedly BIPA-violating conduct “cannot be understood to have occurred wholly outside Illinois,” id. at 7 (citation omitted) – i.e., Plaintiff’s claims were based on the application of an Illinois law to Illinois-based YouTube users.

Whether Plaintiff Is “Aggrieved” Under Section 15(a)

Finally, the Court rejected YouTube’s argument that Plaintiff failed to allege that he was “aggrieved” under Section 15(a), which sets forth two requirements for entities in possession of biometric data: (i) to develop a publicly available BIPA-compliant retention policy; and (ii) to comply with that policy. YouTube argued that Plaintiff failed to allege that he was aggrieved under Section 15(a) because he did not claim that YouTube failed to comply with an existing retention policy as to his biometric data (e.g., that three years had passed since his last interaction with YouTube, yet YouTube had failed to destroy his biometric data).

The Court observed, however, that Plaintiff alleged that YouTube failed to develop and “therefore failed to comply with any BIPA-compliant policy,” which “is enough to move forward . . . [a]t the pleadings stage.” Id. at 8 (emphasis added) (citation omitted).

Implications For Corporate Counsel

Colombo can be added to the list of recent plaintiff-friendly BIPA decisions, as it endorses an expansive view of the types of data that constitute “biometric data” under the statute. Indeed, the Colombo ruling suggests that any data that can be characterized as a “scan of face geometry” – regardless of whether the scan can be linked to a specific person to identify him or her – qualifies as a “biometric identifier” within the BIPA’s scope. Put another way, technology capable of only detecting a category of objects or characteristics in a photo or video (e.g., software that identifies the location of a human face in a photo – as opposed to an arm or leg – without being able to link that face to a specific person) may involve data subject to regulation under the BIPA.

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!