By Gerald L. Maatman, Jr., Alex W. Karasik, and Christian J. Palacios
Duane Morris Takeaways: On March 11, 2024, the EEOC published its Fiscal Year 2023 Annual Performance Report (FY 2023 APR), highlighting the Commission’s accomplishments for the previous year, including a record-breaking recovery of $665 million in monetary relief for over 22,000 workers, a near 30% increase for workers over Fiscal Year 2022.
Employers should take note of the Commission’s annual report, as it provides invaluable insight into the EEOC’s regulatory priorities, and highlights the significant degree of financial risk that companies face for failing to comply with federal anti-discrimination laws. It is a must read for corporate counsel, HR professional, and business leaders.
FY 2023 Statistical Highlights
The EEOC’s recovery of $665 million in monetary relief over the past fiscal year represents an increase of 29.5% compared to Fiscal Year 2022. Specifically, the Commission secured approximately $440.5 million for 15,143 workers in the private sector and state and local governments and another $204 million for 5,943 federal employees and applicants.
Furthermore, the Commission reported having one of the most litigious years in recent memory, with 142 new lawsuits filed, marking a 50% increase from Fiscal Year 2022. Among these new lawsuits, 86 were filed on behalf of individuals, 32 were non-systemic suits involving multiple victims, and 25 were systemic suits addressing discriminatory policies or affecting multiple victims. These numbers show an agency flexing its litigation muscles.
The EEOC’s drastic increase in filings was accompanied by a corresponding increase in complaint activity, with 81,055 new discrimination charges received, 233,704 inquiries handled in field offices, and over 522,000 calls from the public, thereby demonstrating the efficacy of the Commission’s outreach and public education efforts.
Other performance highlights from the report included obtaining more than $22.6 million for 968 individuals in litigation, while resolving 98 lawsuits and achieving favorable results in 91% of all federal district court resolutions. The Commission further reduced its private and federal sector inventories by record levels.
Strategic Developments / Systemic Litigation
The Commission also reported significant progress in its “priority areas” for 2023, which included combatting systemic discrimination, preventing workplace harassment, advancing racial justice, remedying retaliation, advancing pay equity, promoting diversity, equity, inclusion and accessibility (“DEIA”) in the workplace, and, significantly, embracing the use of technology, including artificial intelligence, machine learning, and other automated systems in employment decisions.
In 2023, the EEOC resolved over 370 systemic investigations on the merits, resulting in over $29 million in monetary benefits for victims of discrimination. The Commission also reported that its litigation program achieved a 100% success rate in its systemic case resolutions, obtaining over $11 million for 806 systemic discrimination victims, as well as substantial equitable relief. Further, the Commission made outreach and education programs a priority in 2023, and specifically sought to reach vulnerable workers and underserved communities, including immigrant and farmworker communities, hosting over 680 events for these groups and partnering with over 1,120 organizations, reaching over 107,000 attendees.
Other Notable Developments
Beyond touting its monetary successes, and litigation accomplishments, the FY 2023 APR also highlights the newly enacted Pregnant Workers Fairness Act (“PWFA”), which provides workers with limitations related to pregnancy, childbirth, or related medical conditions the ability to obtain reasonable accommodations, absent undue hardship to the employer.
The Commission began accepting PWFA charges on June 27, 2023 (the law’s effective date) and has conducted broad public outreach relating to employers’ compliance obligations under the new law.
Takeaways For Employers
The EEOC’s Report is akin to a litigation scorecard. By all accounts, 2023 was a record-breaking year for the EEOC. As demonstrated in the report, the Commission has pursued an increasingly aggressive and ambitious litigation strategy to achieve its regulatory goals, and had a great deal of success in obtaining financially significant monetary awards. Employers should take note of these trends and be proactive in implementing risk-mitigation strategies and EEOC-compliant policies.
We anticipate that the EEOC will continue to aggressively pursue its strategic priority areas in 2024, which could shape out to be another precedent-setting year. We will continue to track EEOC litigation activity, and look forward to providing our blog readers with up-to-date analysis on the latest developments.
Duane Morris Takeaways: Legal compliance to prevent discrimination is a corporate imperative. Companies and business executives operate in the court of public opinion and workplace inequality continues to grab headlines and remains forefront in the public eye. In this environment, employers can expect discrimination class actions to reach even greater heights in 2024. To that end, the class action team at Duane Morris is pleased to present the inaugural edition of the Duane Morris Discrimination Class Action Review – 2024. This publication analyzes the key discrimination-related rulings and developments in 2023 and the significant legal decisions and trends impacting discrimination class action litigation for 2024. We hope that companies and employers will benefit from this resource in their compliance with these evolving laws and standards.
Class action litigation in the discrimination space remains an area of key focus of skilled class action litigators in the plaintiffs’ bar. Class actions challenging employment policies and practices has a robust history since passage of the Civil Rights Act of 1964. For decades, federal courts routinely granted class certification in nationwide employment discrimination class actions, which often spiked settlements that entailed huge pay-outs and across-the-board changes to HR systems. In turn, significant changes in the workplaces of Corporate America resulted from class action precedents, massive settlements, and injunctive relief orders. This changed in large part over a decade ago when the U.S. Supreme Court decided Wal-Mart Inc. v. Dukes, et al., 564 U.S. 338 (2011). That decision reversed a class certification order in a pay and promotions lawsuit involving 1.5 million class members who asserted claims of sex discrimination in pay and promotions. In handing down this ruling, the Supreme Court tightened the legal requirements for securing class certifications. It simultaneously forced the plaintiffs’ bar to adjust their strategies on how to prosecute class actions, while also fueling new defense strategies for opposing class certification motions. Suddenly gone were the days when nationwide class actions challenging hiring, compensation, and promotion policies of large corporations inevitably ended with across the board certification orders and big settlement checks.
But the pendulum appears to be swinging back, as courts are becoming increasingly inclined to find for plaintiffs in class certification rulings, and thereby raising the potential for large monetary remedies. This is especially true in the discrimination context, as society continues to grapple with widespread inequality in the wake of large scale social justice campaigns like Black Lives Matter and the #MeToo movement. Businesses are being confronted with increasingly employee-friendly legislative changes and a more aggressive plaintiffs’ bar.
Click here to download a copy of the Duane Morris Discrimination Class Action Review – 2024 eBook. Look forward to an episode on the Review coming soon on the Class Action Weekly Wire!
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown
Duane Morris Takeaways: On February 29, 2024, in Miller II v. SBK Delivery, LLC, No. 2:21-CV-04744 (S.D. Ohio Feb. 29, 2024), Judge Michael H. Watson of the U.S. District Court for the Southern District of Ohio applied the Sixth Circuit’s standard in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023,) to decertify a collective action of delivery drivers seeking unpaid overtime under the FLSA. As one of the first decertification rulings applying the Clark standard, the Court’s opinion is required readingfor businesses litigating FLSA claims before courts in the Sixth Circuit.
Case Background
On September 22, 2021, the plaintiff in Miller II filed a Complaint against the defendant, SBK Delivery, LLC. The defendant contracted with multiple package carriers to provide delivery drivers. The package carriers paid the defendant for each package the drivers delivered. The defendant then paid each driver a percentage of the payment it received from the package carrier. The plaintiff asserted claims of unpaid overtime under the FLSA and Ohio law as well as a breach of contract claim. The plaintiff filed the FLSA claims on behalf of a proposed collective action of drivers who entered into independent contractor agreements with the defendant to provide services as delivery drivers.
On February 9, 2022, the Court approved the parties’ joint stipulation to conditionally certify and issue notice to a collective action consisting of current and former delivery drivers who performed work for the defendant between September 22, 2018 and the present who worked over 40 hours per workweek and were classified as independent contractors.
Nineteen (19) individuals filed consents to join the lawsuit as prospective opt-in plaintiffs.
On March 22, 2023, the defendant filed a motion to decertify the collective action. Prior to the close of briefing on the decertification motion, on May 19, 2023, the Sixth Circuit issued its pivotal decision in Clark.
In Clark, the Sixth Circuit articulated a “strong likelihood” standard for facilitating notice to potential opt-in plaintiffs pursuant to 29 U.S.C. § 216(b) of the FLSA. Under the new standard, only after demonstrating a “strong likelihood” that similarly situated other employees exist may opt-in plaintiffs become parties to the named plaintiff’s lawsuit.
Following the Sixth Circuit’s ruling, the parties filed supplemental briefing to address the similarly-situated status of the collective under Clark.
The Court’s Ruling
Because the parties had stipulated to conditional certification prior to the Sixth Circuit’s ruling in Clark, the Court had not had an earlier opportunity to rule on the plaintiff’s similarly-situated status relative to those in the collective action prior to the issuance of notice to potential opt-in plaintiffs.
Applying the Clark standard to the plaintiff’s claims for the first time, the Court held that the plaintiff failed to show a strong likelihood that he was in fact “similarly situated” to the putative opt-in plaintiffs.
The Court reasoned that it was not enough for the plaintiff to show that he was subject to the same alleged FLSA-violating policy of misclassification as an independent contractor of the defendant. The plaintiff also needed to establish that the question of the amount and extent of alleged unpaid overtime could be determined on a collective-wide basis.
The Court found the plaintiff dissimilar from the opt-ins in multiple key respects, including with respect to the route assignment a driver chose, since each route assignment had different start times, end times and duration. Based on individual differences in whether a driver worked overtime hours, the Court reasoned that evidence of the named plaintiff’s hours worked would not be representative of the claims of the opt-in plaintiffs. Accordingly, the Court concluded that it would need to analyze individually each opt-in plaintiff’s overtime claims to determine liability, which would be completely contrary to the purpose of the collective action mechanism.
As a result of the Court’s application of Clark, it held that the plaintiff’s FLSA claims must proceed on an individual basis only. For these reasons, the Court dismissed each of the opt-in plaintiff’s claims without prejudice.
Implications For Employers
The Court’s ruling in Miller II demonstrates that the Clark standard is a game changer for FLSA litigants in district courts within the Sixth Circuit.
To satisfy the “strong likelihood” iteration of the similarly-situated standard for FLSA certification, plaintiffs must show more than the existence of a common policy or practice that allegedly violates the FLSA. The ruling highlights the opportunity the Clark standard affords to defendants to whittle down the scope of an FLSA lawsuit significantly by marshaling facts of dissimilarity between the named plaintiff and others. To maximize the ability to prevail on a certification ruling under the Clark standard, companies ought to devote significant resources to managing FLSA compliance risks on the front end, before any litigation arises.
Duane Morris Takeaways: In a decisive ruling on February 29, 2024, Judge Eric F. Melgren of the U.S. District Court for the District of Kansas granted the motion by defendants Bombardier, Inc. (“Bombadier”) and its subsidiary Learjet, Inc., (“Learjet”) in Wood, et al. v. Learjet Inc. et al., Case No. 18-CV-02681 (D. Kan. Feb. 29, 2024), to decertify a collective action brought under the Age Discrimination in Employment Act (“ADEA”). This landmark decision underscores the increased scrutiny applied during the decertification stage of collective actions, especially concerning allegations under theADEA, and how defendants can successfully achieve decertification by attacking proffered evidence and establishing the individualized inquiries which preclude proceeding as a collective action.
Case Background
The lawsuit originated from claims by two named plaintiffs, both over the age of 40 and former employees at the Bombardier Flight Test Center (“BFTC”) in Wichita, Kansas, operated by Learjet. The named plaintiffs alleged a pattern or practice of age discrimination in violation of the ADEA, i.e., specifically that defendants targeted non-union employees over the age of 40 for termination. Following the lawsuit’s initiation, and applying the “similarly situated” collective action standard incorporated by the ADEA from the Fair Labor Standards Act, plaintiffs sought conditional certification of a collective action under the traditionally “lenient” standard applied by the courts within the Tenth Circuit and others in evaluating certification of collective actions. Specifically, the plaintiffs sought and obtained conditional certification for a collective action consisting of non-union personnel employed since April 2, 2016 at the BFTC whose employment was terminated when they were over 40 years of age. After the dissemination of notice, additional plaintiffs opted in, with four remaining by the time the defendants moved for decertification.
Procedurally, the defendants moved to decertify the collective action after the conclusion of fact discovery.
The two named plaintiffs and four opt-ins all worked in the BFTC, were over the age of 40 at the time their employment ended, and were terminated for various reasons. One named plaintiff was terminated as a result of performance issues and a safety violation. The other named plaintiff was placed on a performance improvement plan for time management issues that resulted in his termination. While Learjet terminated one opt-in plaintiff for insubordination in connection with his failure to repay a tax payment reimbursement to the company, the three other opt-in plaintiffs were laid off as part of corporate reorganizations, with performance playing a role in some, but not all, layoff-related terminations.
The Court’s Decision
Applying the Tenth Circuit’s two-step approach for collective action certification, the Court moved from the “lenient standard” at the conditional certification stage to the “stricter” standard post-discovery to assess whether the plaintiffs were “similarly situated.” Id. at 9. The analysis to determine whether the members of the collective action were “similarly situated” to the named plaintiffs involved examining disparities in employment circumstances and available individual defenses, as well as procedural fairness and efficiency considerations.
The Court found the evidence of a discriminatory policy, predicated on an alleged statement about the company’s age composition, insufficient to establish a pattern or practice of discrimination. To establish an unlawful policy, plaintiffs relied on a single statement made by a director at a meeting in which he “drew an inverted triangle to represent a large number of older workers (at the top) and a small number of younger workers (at the bottom)” and allegedly stated that “the age balance was upside down” and that they “needed to reduce the age of the Company.” Id. at 3. The Court, however, determined that “no evidence” of a discriminatory policy existed other than the alleged statement. Notably, the Court highlighted the lack of documentation, meetings, or direct involvement by management in any discriminatory policy’s alleged development or implementation. Id. at 13. Furthermore, terminations affecting the named plaintiffs and opt-ins spanned three years and involved various decision-makers, and evidence demonstrated that the average age of BFTC employees and percentage of workers over the age of forty increased between 2015 and 2019. Id. at 8, 13.
The Court also considered the individual circumstances of the named plaintiffs’ and opt-ins’ terminations, noting significant differences in the reasons for termination and the involvement of different managers in these decisions. The Court credited defendants’ argument that individualized defenses required decertification, as some opt-in plaintiffs executed releases barring their ADEA claims, the named plaintiffs’ claims were limited by the scope of their charges of discrimination, and one opt-in failed to disclose claims against defendants in bankruptcy proceedings. Id. at 16. Though noting that the individualized evidence was “not onerous,” the Court opined that the diversity in employment circumstances and the presence of individualized defenses underscored the plaintiffs’ disparate situations, which counseled against the maintenance of a collective action. Id. at 16. Finally, the Court also found that the “lack of common representative evidence” and the “highly individualized” circumstances of each plaintiff threatened to confuse a jury by requiring separate mini trials, which was wholly inefficient. Id. at 17. Accordingly, the Court granted defendants’ motion to decertify.
Implications for Employers
This decision sends a strong message about the potential hurdles faced by plaintiffs in sustaining collective actions after fact discovery, particularly in pattern-or-practice ADEA cases. For employers, the ruling highlights the importance of meticulous record-keeping, clear performance management, and consistent application of termination policies to defend against collective action claims effectively.
Moreover, this decision showcases the strategic value of aggressively challenging collective action certification on the basis of individualized claims and defenses, thereby preventing the broad-brush grouping of distinct employment cases. Employers should also note the critical role of early, proactive legal strategies in managing and mitigating the risks associated with collective action litigation.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik
Duane Morris Takeaways: The last year saw a virtual explosion in privacy class action litigation. As a result, compliance with privacy laws in the myriad of ways that companies interact with employees, customers, and third parties is a corporate imperative. To that end, the class action team at Duane Morris is pleased to present the Privacy Class Action Review – 2024. This publication analyzes the key privacy-related rulings and developments in 2023 and the significant legal decisions and trends impacting privacy class action litigation for 2024. We hope that companies and employers will benefit from this resource in their compliance with these evolving laws and standards.
Click here to download a copy of the Privacy Class Action Review – 2023 eBook. Look forward to an episode on the Review coming soon on the Class Action Weekly Wire!
By Gerald L. Maatman, Jr., Derek S. Franklin, and George J. Schaller
Duane Morris Takeaways: InCoatney, et al. v. Ancestry.com DNA, LLC, No. 22-2813, 2024 U.S. App. LEXIS 3584 (7th Cir. Feb. 15, 2024), the Seventh Circuit affirmed the district court’s denial of Ancestry’s motion to compel arbitration on the grounds that minors were not parties to arbitration agreements entered by their guardians and the Defendant. Circuit Judge Michael B. Brennan wrote the opinion of the Seventh Circuit panel.
For companies facing class actions under the Illinois Genetic Information Privacy Act (“GIPA”) involving alleged disclosure of confidential genetic information, this ruling is instructive on dispute resolution provisions and how drafting those provisions can dictate who is bound to arbitrate claims.
Case Background
Defendant, Ancestry.com DNA, LLC (“Ancestry”) is a genealogy and consumer genomics company that allows users to create accounts to purchase DNA test kits, which Ancestry collects consumer saliva samples. Id. at 2. Ancestry takes these samples, analyzes the genetic information, and then returns genealogical and health information to the purchaser through its website. Id. In 2020, Blackstone, Inc. acquired Ancestry.
Only adults may purchase or activate a DNA test kit, and purchasers must agree to Ancestry’s terms and conditions before purchasing and activating a test kit. Id. However, minors thirteen to eighteen years old may still use Ancestry’s DNA service as long as a parent or legal guardian purchases and activates the test kit, and sends in the minor’s saliva sample using an account managed by the child’s parent or guardian. Id.
Between 2016 and 2019, guardians purchased and activated test kits on behalf of the Plaintiffs, who were all minors at the time. Id. at 2-3. Each guardian agreed to consent terms (“Terms”) concerning the use of each minor’s DNA test kit. Id. at 3. The terms contained a dispute resolution provision binding the parties to arbitration and waiving any class actions. Id. However,the Terms did notrequire Plaintiffs to read them. Plaintiffs alleged that they did not, and that they also did not create the Ancestry accounts. Id. at 4.
Plaintiffs, on behalf of themselves and a putative class of similar members, filed suitagainst Ancestry in Illinois federal court alleging violations of the Illinois GIPA. Id. Plaintiffs allegedthat, as part of Blackstone’s2020 acquisition of Ancestry, Ancestry disclosed genetic test results and personal identifying information to Blackstone without obtaining written authorization. Id.
Ancestry responded by moving to compel arbitration under the Terms dispute resolution provisions. Id. at 5. The district court denied Ancestry’s motion. First, the district court foundthat Plaintiffs did not assent to Ancestry’s Terms through their guardians’ accounts or their guardians’ execution of consent forms on Plaintiffs’ behalf. Id. Second, the district court determined equitable principles such as the theory of direct benefits estoppel did not bind Plaintiffs, as there were no allegations that Plaintiffs accessed their guardians’ Ancestry accounts or their DNA test results. Id.
As a result, Ancestry filed an interlocutory appeal with the Seventh Circuit for review of the district court’s decision. Id.
The Seventh Circuit’s Decision
The Seventh Circuit affirmed the district court’s decision. On appeal, Ancestry urged the Seventh Circuit to reverse the district court’s denial of its motion to compel on three grounds, including: (1) Plaintiffs’ guardians assented to the Terms on their behalf; (2) Plaintiffs were “closely related” parties to their guardians (or even third-party beneficiaries), foreseeably bound by the Terms; or (3) as direct beneficiaries of the Terms, Plaintiffs were estopped from avoiding them. Id. at 6.
At the outset, the Seventh Circuit reasoned that it is a “bedrock principle” that “an arbitration agreement generally cannot bind a non-signatory.” Id. at 6-7. The Seventh Circuit also explained that “whether an arbitration agreement is enforceable against a non-party is a question governed by ‘traditional principles of state law.’” Id. at 7.
First, on Ancestry’s argument that Plaintiffs’ guardians assented to the Terms on Plaintiffs’ behalf, the Seventh Circuit determined that the Terms’ plain and ordinary meaning was unambiguous and found that the only parties to the agreement are the signatory and Ancestry. Id. Further, theSeventh Circuit noted that Terms stated they “are personal” to the signatory, who “may not … assign or transfer any … rights and obligations,” established by them. Id. The Seventh Circuit also found that the Terms contained no language that the guardians “agreed to them ‘on behalf of their children.” Id. at 9.
Second, the Seventh Circuit rejected Ancestry’s argument thatPlaintiffs may be contractually boundto the Terms “either as closely related parties or third-party beneficiaries.” Id. at11. The Seventh Circuit opinedthat “[t]he company mounts these arguments from shaky legal ground, as Illinois ‘recognize[s] a strong presumption against conferring contractual benefits on non-contracting third parties.’” Id. With respect to Ancestry’s argument that Plaintiffs were bound by the Terms as “closely related” parties to their guardians who signed them, the Seventh Circuit determined that a special relationship in fact and in law between the Plaintiffs and their guardians as that relationship “does not join their identities, as can be the case with parent and subsidiary corporations.” Id. at 12-14. The Seventh Circuit similarly concluded that the Terms did not cover Plaintiffs as third-party beneficiaries since the express provisions of Ancestry’s Terms excluded third-party beneficiaries. Id. at 12. While the Seventh Circuit found that the Terms that contemplated consent to Ancestry’s processing and analysis of a child’s DNA, no aspect of that consent establishedthat the Terms were for “plaintiffs direct benefit.” Id. at 16. In addition, the Terms’ arbitration provision did “not contain language capturing the plaintiffs.” Id. at 17. Instead, the provisions’ language indicated that the “signatories intended to bind themselves, but not others to arbitration.” Id.
Finally, the Seventh Circuit rejected Ancestry’s argument that “[a]s direct beneficiaries of their guardians’ agreement to the Terms, Plaintiffs are estopped from avoid its arbitration provision.” Id. at 18. Noting the absence oflegal authoritysupporting Ancestry’s argument, the Seventh Circuit concluded “that Illinois would not embrace direct benefits estoppel to bind plaintiffs here.” Id. at 19. The Seventh Circuit also based its conclusion on the absence of any record allegation that “plaintiffs have accessed or used the analyses completed by Ancestry as contemplated by the Terms” coupled with Illinois’ law “disfavoring the binding of non-signatories to arbitration.” Id. at 25.
Implications For Companies
Companies that are confronted with GIPA class action litigation involving dispute resolution provisions should note the Seventh Circuit’s emphasis in Coatney on the lack of allegations that Plaintiffs read the contractual terms at issue, along with the absence of contractual language capturing or identifying Plaintiffs.
Further, from a practical standpoint, companies should carefully evaluate the language expressed in terms and conditions agreements, including those drafted in dispute resolution provisions, as courts are not inclined to assume non-signatories are bound to agreements when not expressly included.
By Eden E. Anderson, Rebecca Bjork, and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On February 15, 2024, the Judge Harry Leinenweber of the U.S. District Court for the NorthernDistrict of Illinois granted a motion to compel arbitration in Hoeg et al. v. Samsung Electronics of America, Inc., Case No. 23-CV-1951 (N.D. Ill. Feb. 15, 2024), and sent 806 individual privacy claims to arbitration and ordered Samsung to pay $311,000 to cover its share of arbitration filing fees in those matters. The decision highlights the potential downsides of class action waivers in arbitration agreements, as well as the importance of coupling a class action waiver with a well-crafted mass arbitration provision designed to streamline arbitration proceedings and, hopefully, limit exposure and litigation costs.
Case Background
Samsung required customers to execute agreements to binding arbitration and those agreements waive the right to pursue class claims. The arbitration agreements provided that electronic acceptance, opening product packaging, product usage, or product retention amounted to acceptance of the arbitration agreement.
In 2022, 806 customers, all of whom alleged they had purchased and used Samsung products, filed individual arbitration actions against Samsung alleging violations of the Illinois Biometric Privacy Act (“BIPA”). After Samsung failed to pay $311,000 in arbitration filing fees due in the matters, AAA administratively closed the cases in January 2023. The plaintiffs then moved to compel arbitration.
The Court’s Decision
The Court granted the motion to compel arbitration and, in doing so, was highly critical of Samsung’s tactics in seeking to stall the prosecution of the claims. The Court found that the plaintiffs alleged they purchased and used Samsung products, and thereby assented to arbitration. While Samsung argued those allegations were conclusory and did not show the existence of agreements to arbitrate, the Court noted that Samsung’s approach “flips the evidentiary burden on its head” because, as the party opposing arbitration, it was Samsung’s burden to dispute the existence of an agreement to arbitrate. Id. at 9.
As to its failure to pay the arbitration filing fees, the Court expressed great displeasure with Samsung, noting that its “repeated failure to pay after multiple deadlines, without any showing of hardship, is a classic refusal to pay scheme in violation of Section 4” of the Federal Arbitration Act. Id. at 15. The Court also highlighted that Samsung’s tactics had delayed plaintiffs’ prosecution of their claims for two years. The Court further denied Samsung’s request that the matters be stayed so that it could pursue an appeal and ordered Samsung to pay the outstanding arbitration fees.
Implications Of The Decision
The Hoeg decision highlights the potential downsides of class action waivers, which have spurred the plaintiffs’ bar to pursue hundreds or even thousands of individual arbitrations all at once. The decision also underscores the importance of adding a mass arbitration provision to an arbitration agreement. Such a provision, if well-crafted, may serve to streamline those proceedings, facilitate resolution, and limit exposure. Some jurisdictions have enacted laws aimed at punishing a retailer’s or employer’s failure to pay arbitration fees. For example, in California, if arbitration fees are not timely paid, it results in a material breach of the arbitration agreement and could lead to the imposition of sanctions including “the reasonable expenses, including attorney’s fees and costs, incurred by the employee or consumer as a result of the material breach.” (Cal. Civil Code § 1281.99.)
By Eden E. Anderson, Gerald L. Maatman, Jr., and Jennifer A. Riley
Duane Morris Takeaways: On February 12, 2024, the Ninth Circuit issued its opinion in Johnson v. Lowe’s Home Centers, LLC, No. 22-16486 (9th Cir. Feb. 12, 2024).It held that federal courts must follow the statutory standing analysis of the California Supreme Court in Adolph v. Uber Technologies, Inc., and not the U.S. Supreme Court’s different interpretation in Viking River Cruises, Inc. v. Moriana. Additionally, in his concurrence, Judge Kenneth Lee opined that issues decided in individual arbitration of a PAGA claim should not have preclusive effect on the bigger non-individual PAGA claim.
Case Background
The plaintiff in Johnson alleged PAGA claims against her former employer based on the employer’s alleged violations of the California Labor Code. Applying all aspects of the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, the district court compelled Johnson’s individual PAGA claims to arbitration and dismissed her non-individual PAGA claims for lack of statutory standing. While the case was on appeal, the California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc., which held that a PAGA plaintiff retains standing to maintain non-individual PAGA claims even after their individual PAGA claims are compelled to arbitration.
At issue on appeal in Johnson v. Lowe’s Home Centers, LLC was whether the non-individual PAGA claims should have been dismissed.
The Ninth Circuit’s Decision
The Ninth Circuit held that federal courts must follow the statutory standing analysis of the California Supreme Court in Adolph, and not the U.S. Supreme Court’s different interpretation in Viking River. It thus vacated the ruling dismissing the non-individual PAGA claims and remanded the case to the district court to apply Adolph.
The Johnson decision is of further interest because of the concurring opinion of Judge Kenneth Lee. His concurrence addressed the next big question in PAGA cases, i.e., the extent to which issues decided by the arbitrator in resolving individual PAGA claims will be binding in court in the litigation of the non-individual PAGA claims. Judge Lee noted that individual arbitration is often “low-stakes” for companies, who sometimes even send non-lawyers, such as paralegals, to arbitration proceedings because the amount at issue is not worth a lawyer’s higher hourly rates. However, as Judge Lee noted, if legal conclusions or factual findings in individual arbitration are binding, then companies would have little choice but to bring in the “legal cavalry” and devote substantial resources in individual arbitration, which would undermineg the efficiency of those proceedings, which is the whole “point” of enforcing arbitration agreements according to their terms. Judge Lee reasoned that there is thus a “lurking tension” between the FAA and the suggestion in Adolph that issue preclusion can apply to the outcome of arbitration of an individual PAGA action. Judge Lee expressed his view that application of issue preclusion in this context would contravene the FAA.
Implications For Employers
Whether in state or federal court in a PAGA action, the Ninth Circuit made clear that Adolph must be applied. The concurring opinion in Johnson provides employers facing adverse rulings in individual arbitration with good arguments against the application of issue preclusion in the non-individual PAGA claim proceedings.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis
Duane Morris Takeaways: Complex wage & hour litigation has long been a focus of the plaintiffs’ class action bar. The relatively low standard by which plaintiffs can achieve conditional certification under the Fair Labor Standards Act (FLSA), often paired with state law wage & hour class claims, offers a potent combination by which plaintiffs can pursue myriad employment claims. To that end, the class action team at Duane Morris is pleased to present the second edition of the Wage & Hour Class And Collective Action Review – 2024. This new publication analyzes the key wage & hour-related rulings and developments in 2023 and the significant legal decisions and trends impacting wage & hour class and collective action litigation for 2024. We hope that companies and employers will benefit from this resource and assist them with their compliance with these evolving laws and standards.
Click here to download a copy of the Wage & Hour Class And Collective Action Review – 2024 eBook.
Stay tuned for more wage & hour class and collective action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
Duane Morris Takeaway: Of all defenses, a defendant’s ability to enforce an arbitration agreement containing a class or collective action waiver may have had the single greatest impact in terms of shifting the pendulum of class action litigation. With its decision in Epic Systems Corp. v. Lewis, et al., 138 S. Ct. 1612 (2018), the U.S. Supreme Court cleared the last hurdle to widespread adoption of such agreements. In response, more companies of all types and sizes updated their onboarding materials, terms of use, and other types of agreements to require that employees and consumers resolve any disputes in arbitration on an individual basis. To date, companies have enjoyed a high rate of success enforcing those agreements and using them to thwart class actions out of the gate.
Watch below as Duane Morris partner Jerry Maatman discusses the arbitration defense and how it impacted class action litigation in 2023.
Statistically, corporate defendants fared well in asserting the defense. Across various areas of class action litigation, the defense won approximately 66% of motions to compel arbitration (approximately 123 motions across 187 cases) over the past year. Such numbers are similar to the numbers we saw in 2022, where defendants succeeded on 67% of motions to compel arbitration (roughly 64 motions granted in 96 cases).
The following graph shows this trend:
Despite a tumultuous year in 2022, the arbitration defense in 2023 remained one of the most powerful weapons in the defense toolkit in terms of avoid class and collective actions.
In 2022, the U.S. Supreme Court limited application of the FAA to workers who participate in interstate transportation and, perhaps more significantly, on the legislative front, Congress significantly limited the availability of arbitration for cases alleging sexual harassment or sexual assault. Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (the Ending Forced Arbitration Act or EFAA), and President Biden signed the Act into law on March 3, 2022.
The EFAA amended the FAA and provided plaintiffs the discretion to enforce pre-dispute arbitration provisions in cases where they allege conduct constituting “a sexual harassment dispute or a sexual assault dispute” or are the named representatives in “a class or in a collective action alleging such conduct.” In other words, the Act did not render such agreements invalid, but allowed the party bringing the sexual assault or sexual harassment claims to elect to enforce them or to avoid them.
It is likely that defendants have not yet felt the impact of either development.
The Impact Of The EFAA
Despite this setback for the arbitration defense in 2022, companies continued to enjoy a high rate of success enforcing these agreements and using them to thwart class actions in 2023. Since the EFAA became effective on March 3, 2022, courts have issued only 34 published decisions on plaintiffs’ attempts to use the EFAA to avoid arbitration. Plaintiffs succeeded in enforcing the EFAA and keeping claims in court, in whole or in part, in only about 9 of those rulings.
Many of the decisions denying enforcement of the EFAA turned on the fact that the EFAA is not retroactive. Congress provided that the provisions of the Ending Forced Arbitration Act would “apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act [March 3, 2022].” Thus, although courts have disagreed as to when disputes or claims “arise or accrue” for purposes of the EFAA, in many cases, all potential dates pre-dated March 3, 2022, and, therefore, courts concluded that the Act did not apply.
Many courts recognized an exception in cases where plaintiffs were able to allege a “continuing violation” that extended past March 3, 2022, generally finding that the EFAA allowed such claims to remain in court. In Betancourt, et al. v. Rivian Automotive, No. 22-CV-1299, 2023 WL 5352892, at *1 (C.D. Ill. Aug. 21, 2023), for example, plaintiff filed a class action lawsuit alleging that she was regularly subjected to unwanted sexual advances during her employment from December 6, 2021, through “about June 1, 2022,” and, despite making reports to several supervisory level employees, defendant failed to remedy the conduct. The defendant invoked its arbitration agreement with the plaintiff, which included a class and collective action waiver, and the plaintiff claimed that the agreement was unenforceable due to the EFAA. Id. at *2. Acknowledging that the EFFA does not apply retroactively, the court considered whether the action accrued before March 3, 2022, and held that it did not. The court reasoned that the plaintiff alleged a continuing violation, which was ongoing on the date the EFAA was enacted, and, therefore, the arbitration agreement and class action waiver were unenforceable. Id. at *5.
Approximately 12 of the decisions turned on court interpretations regarding the scope of the EFAA, and we observed the beginnings of a patchwork quilt of interpretations as to the scope of the claims subject to the EFFA. In Johnson, et al. v. Everyrealm, Inc., 657 F. Supp. 3d 535 (S.D.N.Y. 2023), for instance, the plaintiff brought claims for race discrimination, pay discrimination, sexual harassment, retaliation, and intentional infliction of emotional distress, among other things, and the defendant moved to dismiss the sexual harassment claim and to compel arbitration of the remainder. The court denied the motion. It noted that, in its operative language, the EFAA makes a pre-dispute arbitration agreement invalid and unenforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to the . . . sexual harassment dispute.” Id. at 558 (quoting 9 U.S.C. § 402(a) (emphasis added)). It found such text “clear, unambiguous, and decisive as to the issue.” Id. As a result, the district court concluded that plaintiff pled a plausible claim of sexual harassment in violation of New York law and “construe[d] the EFAA to render an arbitration clause unenforceable as to the entire case involving a viably pled sexual harassment dispute, as opposed to merely the claims in the case that pertain to the alleged sexual harassment.” Id. at 541.
In Mera, et al. v. SA Hospitality Group, LLC, No. 1:23 Civ. 03492 (S.D.N.Y. June 3, 2023), by contrast, plaintiff brought claims for unpaid wages under the FLSA and the New York Labor Law (NYLL), as well as claims for sexual orientation discrimination and hostile work environment. The employer moved to compel arbitration, and the court found the agreement unenforceable as to his hostile work environment claims but enforceable as to his FLSA and NYLL claims. The plaintiff argued that, under the EFAA, the arbitration agreement was unenforceable as to his entire “case,” including his unrelated wage and hour claims under the FLSA and the NYLL, which he brought on behalf of a broad group of individuals. Id. at *3. The court disagreed. It held that, under the EFAA, an arbitration agreement executed by an individual alleging sexual harassment is unenforceable only with respect to the claims in the case that relate to the sexual harassment dispute, since “[t]o hold otherwise would permit a plaintiff to elude a binding arbitration agreement with respect to wholly unrelated claims affecting a broad group of individuals having nothing to do with the particular sexual harassment affecting the plaintiff alone.” Id.
The Impact Of The Transportation Worker Exemption
Despite the U.S. Supreme Court’s clarification of the transportation worker exemption to the FAA in 2022, lower courts continue to grapple and disagree about its scope, effectively holding a potential wave of workplace litigation against transportation, logistics, and delivery companies in check.
In the first and arguably the largest door-opener to the courthouse for the plaintiffs’ class action bar during 2022, the Supreme Court narrowed the application of the Federal Arbitration Act by expanding its so-called “transportation worker exemption” in Southwest Airlines Co. v. Saxon, 142 S.Ct. 1783 (2022). The plaintiff, a ramp supervisor, brought a collective action lawsuit against Southwest for alleged failure to pay overtime. Id. at 1787. Southwest moved to enforce its workplace arbitration agreement under the FAA. In response, the plaintiff claimed that she belonged to a class of workers engaged in foreign or interstate commerce and, therefore, fell within §1 of the FAA, which exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. The Supreme Court granted review and went on to hold that “any class of workers” directly involved in transporting goods across state or international borders falls within the exemption. Id. at 1789. It had no problem finding the plaintiff part of such a class: “We have said that it is ‘too plain to require discussion that the loading or unloading of an interstate shipment by the employees of a carrier is so closely related to interstate transportation as to be practically a part of it.’ . . . We think it equally plan that airline employees who physically load and unload cargo on and off planes traveling in interstate commerce are, as a practical matter, part of the interstate transportation of goods.” Id. (citation omitted).
Despite this decision clarifying the exemption, lower courts remained steeped in disputes, often generating irreconcilable differences of opinion over which workers signed arbitration agreements enforceable under the FAA and which did not. In Fraga v. Premium Retail Services, Inc., No. 1:21-CV-10751, 2023 WL 8435180 (D. Mass. Dec. 5, 2023), for example, after the parties litigated the enforceability of the arbitration agreement for more than two years, and the dispute resulted in three full scale judicial opinions, a two-day evidentiary hearing with 6 witnesses, and hundreds of pages of exhibits, the court determined that the plaintiff’s work, which involved sorting, loading, and transporting materials to retailers located within or outside Massachusetts “was not performed frequently and was not closely related to interstate transportation” so as to bring him within the exemption. Id. at *6.
Similarly, in Nunes, et al. v. LaserShip, Inc., No. 1:22-CV-2953, 2023 WL 6326615 (N.D. Ga. Sept. 28, 2023), the plaintiffs opposed a motion to compel arbitration contending that last-mile delivery drivers are engaged in interstate commerce because the goods they transport have traveled interstate and remain in the stream of commerce until delivered. The court disagreed. Whereas it found “no doubt” that the plaintiffs belong to a “class of workers employed in the transportation industry” because they locally transported packages from a warehouse to commercial and residential buildings, it concluded that plaintiffs “do not actually engage in interstate commerce.” Rather, their job entailed sorting and loading packages from the local warehouse and delivering the goods locally. Thus, the court determined that the plaintiffs were “too far removed from interstate activity,” and did not fall within § 1’s exemption.
By contrast, in Webb, et al. v. Rejoice Delivers, 2023 WL 8438577 (N.D. Cal. Dec. 5, 2023), the court found the opposite. The plaintiff picked up packages from local Amazon facilities and delivered the packages locally. The court, however, noted that, before reaching the local Amazon facilities, the goods had been ordered from Amazon’s website and taken to the local facilities by shipping trucks. As a result, the court held that, because plaintiff “pick[ed] up packages that ha[d] been distributed to Amazon warehouses, certainly across state lines, and transport[ed] them for the last leg of the shipment to their destination,” his work was “a part of a continuous interstate transportation” of goods, so that he was engaged in interstate commerce for the purposes of the FAA § 1 exemption. Id. at *7.
The U.S. Supreme Court is poised to offer more clarity as to this issue in Bissonnette, et al. v. LePage Bakeries Park St., LLC, No. 23-51 (U.S. Sept. 29, 2023). On September 29, 2023, the U.S. Supreme Court granted certiorari in to address the exemption. In Bissonnette, two workers who delivered breads and cakes sued a bakery claiming that it misclassified them as independent contractors and, therefore, denied them minimum wage and overtime. The workers asserted that the transportation worker exemption applied because they handled goods traveling in interstate commerce, but the Second Circuit affirmed the district court’s ruling granting defendant’s motion to compel arbitration.
The question presented to the U.S. Supreme Court involves whether, to be exempt from the FAA, a class of workers actively engaged in interstate transportation also must be employed by a company in the transportation industry. Thus, the Supreme Court’s ruling could provide additional clarity in narrowing or expanding the scope of the exemption, potentially opening the doors to additional class claims.
Given the impact of the arbitration defense, in 2024, companies are apt face additional hurdles, on the judicial or the legislative front, as the plaintiffs’ bar continues to look for workarounds. In particular, as more plaintiffs can assert claims that post-date the EFAA, we expect to see additional litigation and more decisions over the interpretation of the EFAA, including whether the Act’s use of the word “case” renders the statute applicable to all claims in the case, including claims other than sexual harassment and sexual assault, and whether the statute, therefore, will allow for a broader shield to the arbitration defense.
That said, the future viability of the arbitration defense remains an open question, as advocacy groups, government regulators, and political figures push for a ban on class action waivers in arbitration.
By Gerald L. Maatman, Jr., Alex W. Karasik, and Christian J. Palacios
