George Schaller – Class Action Defense

February 26, 2025February 26, 2025 by Gerald L. Maatman, Jr.

EEOC Male Bias Suit Against Sports Bar Restaurant Group Survives Dismissal

By Gerald L. Maatman, Jr., Anna Sheridan, George J. Schaller

Duane Morris Takeaways: In EEOC v. Battleground Restaurants, Inc. et al., 1:24-CV-792, 2025 U.S. Dist. LEXIS 32071 (M.D.N.C. Feb. 24, 2025), the Court denied Defendants’ motion to dismiss an EEOC lawsuit alleging discriminatory hiring practices against men at a chain of sports bars. The EEOC’s complaint asserts sex discrimination in hiring for server, bartender, and host positions, and for failures to preserve employment records in violation of Title VII of the Civil Rights Act of 1964.

This case signals a new wave of anti-discrimination enforcement actions against companies that prioritize hiring practices that may exclude male applicants. The Commission’s litigation efforts are in full swing, and companies must review their hiring practices to ensure all applicants are weighed neutrally during the application process.

Complaint Allegations

The EEOC’s complaint alleges that between December 1, 2019, and February 18, 2022, Kickback Jack’s restaurants located throughout North Carolina, Virginia, and Tennessee discriminated against males by failing to hire men for front of house, non-managerial positions. Id. at *1. Kickback Jack’s is owned and operated by Battleground Restaurants, Inc. and Battleground Restaurant Group, Inc. (“BRGI”) (collectively “Defendants”). Id.

Kickback Jack’s employs “servers, hosts, and bartenders in non-managerial front-of-house positions,” all of which require no “special skills or qualifications.” Id. at *2. Kickback Jack’s advertisements state that applicants need only “[b]ring [their] great attitude to work and [Kickback Jack’s] will train you.” Id. at *2.

The underlying charge was filed on July 31, 2020, when a female server, Melody Roe, filed an EEOC charge of discrimination against Kickback Jack’s. Id. Included in Roe’s charge of discrimination was statements that Kickback Jack’s “has a policy and/or practice of only hiring females for front of house positions and not into management.” Id. at *3. The EEOC’s investigation into Roe’s charge of discrimination found that Battleground Restaurants, Inc. “maintained a policy or practice . . . of failing or refusing to hire males for non-managerial front of house positions because of their sex.” Id.

The Commission’s investigation further revealed that of the 2,100 non-managerial front-of-house employees employed between December 1, 2019, and February 18, 2022, “approximately 3% were male” and some Kickback Jack’s locations “did not employ male servers at all.” Id. at *4.

As a result of these newly uncovered hiring practices, the EEOC filed a complaint asserting that “a predominantly female front-of-house workforce cannot be justified by any legitimate business purposes” and that Defendants’ hiring practices “were and are intentional and willful.” Id. The Complaint also alleged that Defendants failed to make and preserve records relevant to their employment practices, and specifically failed to retain applications for employment. Id. at *5.

Defendants moved to dismiss the EEOC’s complaint, dismiss or strike BRGI, and requested the Court certify the case for interlocutory appeal. Id. at *1.

District Court’s Ruling

The Court denied the Defendants’ motion in all aspects on the basis that the EEOC complied with procedural and administrative requirements, plausibly alleged a pattern or practice of disparate sex discrimination, and that the EEOC could properly include BRGI as a defendant. Id.

Defendants argued the EEOC failed to provide them with adequate notice of its claims on “behalf of male applicants and the Title VII records violations.” Id. at *5. Defendants did not dispute that it received notice of Roe’s charge of discrimination within 10 days (as required by 42 U.S.C. § 2000e-5(b)). Rather, the Defendants argued the charge of discrimination did not “give them notice of an EEOC investigation into discrimination against males in hiring.” Id. at *7.

The EEOC countered that the investigation into discrimination against males was implicit in Roe’s allegations that the restaurant had “a policy and/or practice of only hiring females” for front of house positions. Id.The Court agreed that the “alleged discrimination against males for front of house positions appears on the face of the charge of discrimination,” Defendants did not allege that they were not on notice of the charge of discrimination, and therefore, the EEOC complied with its administrative and procedural requirements under the statute. Id. at *8

The Court also denied Defendants’ motion to dismiss the EEOC’s preservation of records claim because no 10-day notice requirement exists under the statutory provisions. Id. at *8-9. The Court further disagreed with Defendants that the EEOC’s claims should be limited to 180 days before Defendants received notice of the charge of discrimination because “the complaint [did] not contain the facts necessary to assess whether the EEOC’s claims exceed Title VII’s statute of limitations period.” Id. at *10-11.

On Defendants’ argument to dismiss or strike BRGI, the Court opined that the Commission plausibly alleged BRGI is “essentially, Kickback Jack’s operator.” Id. at *12. The Court held the EEOC can sue BRGI “despite not naming [BRGI] directly as a party in the charge of discrimination or communicating with it based on both the joint enterprise test and substantial identity exception.” Id. at *15.

On the EEOC’s allegations of Title VII sex discrimination in hiring, the Court denied the Defendants’ motion to dismiss because the EEOC “plausibly alleged a pattern or practice of discrimination by using statistics” which demonstrated of the 2,100 non-managerial front-of-house employees approximately only 3% were male. Id. at *18. And in some instances, locations “did not employ any male servers at all.” Id. The EEOC also satisfied its pleading requirements under Title VII as it alleged Defendants discriminated “against male applicants –– a protected class — ” and alleged that “male applicants qualified” for the front-of-house roles.” Id. *17-18. Based on these findings, the Court reasoned “this type of ‘gross disparity’ plausibly demonstrates an inference of discrimination against males who applied to work as servers.” Id. at *18. Therefore, the Court found that the EEOC has met its burden of plausibly alleging the elements of its claim sufficiently to survive a motion to dismiss.

The Court also denied Defendants’ request for certification stating it did “not find any esoteric issues meriting an interlocutory appeal.” Id. at *2.

Implications For Employers

Employers’ hiring practices remain a target for EEOC initiated litigation. This case is but one example of the EEOC bringing a lawsuit after identifying a pattern of potentially discriminatory practices first alleged in a charge. While uncommon, the EEOC does regularly bring these “pattern-or-practice” lawsuits under Section 706 or Section 707 of Title VII of the Civil Rights Act of 1964 when it has a case that draws significant public interest or could make an industry-wide impact.

This is far from the first case of male gender discrimination in the restaurant industry. The popular restaurant chain Hooters has settled several similar lawsuits, one in 1997 for $3.75 million, and one in 2009 for an undisclosed sum. See Latuga v. Hooters, Inc., 1:93-CV-7709 (N.D. Ill. Nov. 25, 1997); see also Grushevski v. Texas Wings, Inc., No. 09-CV-00002 (S.D. Tex. Apr. 16, 2009). Lawry’s restaurants were also hit with an EEOC pattern or practice lawsuit in 2006 alleging that Lawry’s practice of only hiring females for its server positions constituted gender discrimination. See EEOC v. Lawry’s Restaurants, Inc., No. CV 06-01963 (C.D. Cal. Mar. 31, 2006).

The recent case against Battleground shows that the EEOC continues to closely scrutinize hiring practices which select individuals based on a protected characteristic, including gender. Employers must also monitor and audit their hiring practice outcomes to ensure statistical models don’t demonstrate discrimination otherwise an EEOC action may be on the horizon.

February 24, 2025February 24, 2025 by Gerald L. Maatman, Jr.

Data Privacy Class Action Alleges Insurers Improperly Collected The Data Of 40 Million Users Through Third-Party Applications

By Gerald L. Maatman, Jr., Justin Donoho, George J. Schaller, Ryan T. Garippo

Duane Morris Takeaways: In Mahoney, et al. v. The Allstate Corp, et al., 25-CV-01465 (N.D. Ill. Feb. 11, 2025), Plaintiffs Michael Mahoney and Scott Schultz (collectively, “Plaintiffs”) filed a putative class action lawsuit asserting Allstate, and its subsidiary Arity, illegally obtained personal driving data of 40 million policyholders through third-party mobile application software. The case is pending in the U.S. District Court for the Northern District of Illinois before Judge Steven C. Seeger.This is the third lawsuit in a series of lawsuits alleging class-wide allegations based on Allstate’s alleged data collection practices. See Sims et al. v. The Allstate Corp. et al., 1:25-CV-00407 (N.D. Ill. Jan. 14, 2025) (alleging data collection through third party application Sirius XM); see also Arellano et al. v. The Allstate Corp. et al., 1:25-CV-01256, (N.D. Ill. Feb. 5, 2025) (alleging data collection through third party applications Life360, GasBuddy, and Fuel Rewards).

Mahoney, Sims, and Arellano, represent a triumvirate of data privacy class actions centered on allegations of improper data collection through third-party applications. Companies will be well-served monitor these cases for their novel assertions in trending data privacy litigation.

Complaint Allegations

Michael Mahoney resides in San Francisco, California, and he downloaded the GasBuddy application in 2011 to “find competitive gas prices.” Mahoney, 25-CV-01465, ECF No. 1 § III ¶ 14 (N.D. Ill. Feb. 11, 2025). Scott Schultz resides in Highland Park, Illinois, and he downloaded the GasBuddy application in 2021 and used it “in his own and other people’s vehicles to find competitive gas prices.” Id. § III ¶ 15.

Plaintiffs collectively allege that Allstate and its subsidiary Arity (collectively, “Defendants”) “conspired to collect drivers’ geolocation data and movement data from mobile devices, in-car devices, and vehicles.” Id. § IV ¶ 7. Plaintiffs allege Defendants designed a software development kit that could be integrated into third-party mobile applications such as “Routely, Life360, GasBuddy, and Fuel Rewards.” Id. § IV ¶ 8. Plaintiffs further allege Defendant advertised that they “collect data ‘every 15 seconds or less’ from 40 million ‘active mobile connections’ and ‘derive[] unique insights that help insurers, developers, marketers, and communities understand and predict driving behavior at scale.” Id. § IV ¶ 24.

Plaintiffs contend Defendants’ software development kit was “designed to and does collect data” including “Geolocation data and ‘GPS Points,’” “cellphone accelerometer, magnetometer, and gyroscopic data,” “Trip attributes” data (including start and end locations, trip distances, trip duration), “Derived events” data (including acceleration, speeding, distracted driving, crash detection), and “Metadata.” Id. § IV ¶ 11 (A) – (E). Plaintiffs further assert that when using these third-party applications “Defendants could collect real-time data on their locations and movements and surreptitiously collect highly sensitive and valuable data directly from Plaintiffs’ mobile phones.” Id. § IV ¶ 16.

It is also important to note that Plaintiffs maintain that Defendants used their personal data to “develop, advertise, and sell several products and services to third parties, including insurance companies . . .” and used the purchased consumer data for “[Defendants’] own underwriting purposes.” Id. § IV ¶ 23. Plaintiffs, ultimately, assert that Defendants real purpose in using this data is for their “own financial and commercial benefit” and to obtain “substantial profit.” Id. § V ¶ 49. They ultimately assert via their nine-count Complaint that this technology amounts to a wiretapping of their personal information which entitles them, inter alia, to a sum of “$100 per day per violation or $10,000” per class member whichever is greater. Id. § V ¶ 51.

Implications For Companies

Although such data collection lawsuits are no longer a new phenomenon, their scope has become far more aggressive as the plaintiffs’ bar continues to look for ways to monetize lawsuits against corporations using such technologies.

Take for example the dilemma presented by Mahoney. In that case, it is likely that Defendants will have strong defenses to this action. For example, Plaintiffs admit that Defendants’ purpose in using this technology was to earn “substantial profit.” Id. § V ¶ 49. Based on similar allegations, many courts have found that these purposes are insufficient for a plaintiff to avail itself of such wiretapping statutes. See, e.g., Katz-Lacabe v. Oracle Am., Inc., 668 F. Supp. 3d 928, 945 (N.D. Cal. 2023) (dismissing wiretap claim because defendant’s “purpose has plainly not been to perpetuate torts on millions of Internet users, but to make money.”).

There are, however, enough court rulings that come out in the opposite direction to give a corporate defendant pause. See, e.g., R.S. v. Prime Healthcare Services, Inc., No. 24-CV-00330, 2025 WL 103488, at *6-7 (C.D. Cal. Jan. 13, 2025) (recognizing the split and siding with the plaintiffs). And, if Plaintiffs are correct that there are 40 million individuals in the class, and that each class member is entitled to $10,000 at a minimum, then this lawsuit alleges at least $400 billion dollars in liability. Even if there is a 1% chance of success on these claims, it would suggest that the completely unrealistic figure of $4 billion dollars is on the table.

Corporations in these types of class actions are faced with the difficult choice of settling the claims for an astronomical figure based on the use of technologies which are ubiquitous in nature (like software development kits for mobile applications) or defend a $400 billion lawsuit based on defenses in an area of the law which is not fully developed. It will be interesting to see how the Mahoney defendants balance these concerns as the case progresses, because many twists and turns lie ahead.

In the meantime, corporate counsel should take the opportunity to evaluate their companies’ data collection and privacy policies to make sure their companies are not easy targets. If the allegations in Mahoney are any example, the mere threat of one of these lawsuits should be enough to keep corporate counsel up at night. And, if their companies are ultimately sued in one of these lawsuits, they should ensure that an experienced defense team has its hands on the steering wheel.

February 17, 2025February 17, 2025 by Gerald L. Maatman, Jr.

Tennessee Federal Court Rejects Certification Of Breach Of Contract Class Action

By Gerald L. Maatman, Jr., Justin R. Donoho, and George Schaller

Duane Morris Takeaways: On February 10, 2025, Judge Aleta A. Trauger of the U.S. District Court for the Middle District of Tennessee denied class certification in a case involving breach of contract and a disputed element of mutual assent a/k/a meeting of the minds, in Hall v. Warner Music Group Corp., No. 22-CV-0047 (M.D. Tenn. Feb. 10, 2025). The ruling is significant as it shows that plaintiffs who file class action complaints alleging breach of contract cannot satisfy Rule 23’s commonality requirement where the issue of whether the parties agreed to a material term of contract requires individualized inquiry into the parties’ minds and whether they met.

Background

This case involving lack of mutual assent is one of the many since the famous case of Raffles v. Wichelhaus, 159 Eng.Rep 375 (1864), in which the defendant agreed to purchase cotton arriving in a ship named “Peerless” arriving while cotton prices were low, whereas the plaintiff seller had in mind a different ship by the same name arriving while cotton prices were high. (And where the English High Court found no binding contract).

In Hall, the plaintiffs, two musical artists, sued for breach of implied contract against a record label. The parties had entered into a written recording agreement providing for the payment of 8% royalties at a time before the invention of digital streaming and not expressly covering distribution through digital streaming. Hall, slip op. at 2. In 2005, when the label started streaming plaintiffs’ music digitally both domestically and internationally, it began to pay the plaintiffs at the higher rate appearing on their royalty statements of 50%. Id. at 3, 14. For foreign digital streaming, the 50% rate was applied after the deduction of a payment to the foreign distributor. Id. at 12-13. It was common in the industry and a consistent course of dealing of the defendant to apply royalty rates to digital streaming revenues received only after payment to the foreign distributor. Id. The plaintiffs accepted these digital streaming royalty payments for years without viewing the royalty statements or “attempting to identify the revenue base against which a royalty rate for foreign streaming was applied . . . until [one of the plaintiff’s] first discussion with one of his attorneys in this case.” Id. at 15.

The plaintiffs moved for class certification under Rule 23. The plaintiffs maintained that they met the commonality requirement because they and other artists with legacy contracts received royalty payments for foreign streaming sales with statements indicating an unqualified 50% royalty. Id. at 10-11. In contrast, the record label maintained that a claim for breach of implied contract requires the plaintiffs to prove that a valid and enforceable contract was formed between the label and “each class member, which will require an individualized inquiry into the knowledge, understanding, and intent of the artists, including whether the artist even looked at the royalty statements, whether the artists construed them to offer an implied amendment, what exactly the artist believed those implied terms to be, whether the artist had a good-faith belief about a possible rescission claim, whether the artist would have rescinded unless paid at the source, whether the artist intended to forbear, and when (if ever) these events occurred.” Id. at 11 (emphasis in original). In other words, according to the record label, the common question, “was an implied contract formed?” could not be answered by a simple yes or no without such an individualized inquiry. Id.

The Court’s Decision

The Court agreed with defendants and held that plaintiffs did not carry their burden of showing commonality.

Central to Court’s holding was the “problematic question of mutual assent.” Id. at 18. As the Court explained, “even if the court presumes that other putative class members’ royalty statements look like the plaintiffs’ and that there are common questions regarding the defendants’ conduct that may yield common answers (i.e., that the royalty statements do not expressly reflect that the royalties are calculated based [after paying the foreign distributor]), it is clear that the threshold question of whether an implied contract between [the label] and each putative class member was formed does not yield a common answer but, instead, will depend entirely on the particularized circumstances of each artist whose contract, like the plaintiffs’, does not expressly provide for royalties on foreign digital streaming.” Id.

In short, the Court reasoned that “the named plaintiffs’ particularized circumstances show that they simply never thought about whether an implied contract had been formed or its terms until approached by lawyers. Other artists may have paid closer attention to their business arrangements.” Id.

In conclusion, the Court noted that, “to the extent there are questions of fact or law common to the plaintiffs and all putative class members, the relative importance of these common questions pales in comparison to the importance of those that do not yield a common answer — primarily the question of whether implied contracts were formed at all.” Id. at 23.

Implications For Companies

The Hall decison is a win for defendants of breach of contract class actions involving the issue of whether the parties had a meeting of the minds on a material term of contract. In such cases, the Hall decision can be cited as useful precedent for showing that the commonality requirement is not met because individualized inquiries predominate when it comes to analyzing evidence regarding a meeting of the minds.

The Court’s reasoning in Hall applies not only in cases involving: (1) commercial form contracts, like in Hall, but also (2) alleged employment contracts, see Cutler v. Wal-Mart Stores, Inc., 927 A.2d 1 (Md. Ct. App. 2007) (affirming denial of motion for class certification, stating, “Any determination concerning a ‘meeting of the minds’ necessarily requires an individual inquiry into what each class member, as well as the [employer’s] employee who allegedly made the offer, said and did”); In re Wal-Mart Wage & Hour Emp. Pracs. Litig., 2008 WL 3179315, at *19 (D. Nev. June 20, 2008) (denying motion for class certification, stating, “Plaintiffs’ breach of contract claims would involve particularized inquiry into contract formation, including such issues as meeting of the minds”); (3) form real estate contracts, see Haines v. Fid. Nat’l Title of Fla., Inc., 2022 WL 1095961, at *17 (M.D. Fla. Feb. 17, 2022) (denying motion for class certification, stating, “If a buyer and seller interpreted [the agreement] the way [seller] interprets the provision, their meeting of the minds would have a significant impact upon any potential liability for [seller]. In that regard, the buyer’s and seller’s state of mind for each transaction are relevant . . . individualized discovery and factfinding regarding each buyer’s and seller’s intent and understanding would be required”); and (4) alleged contracts regarding the use of AI, see Lokken v. UnitedHealth Group, Inc., 2025 WL 491148, at *8 (D. Minn. Feb. 13, 2025) (finding insureds’ claim against health insurer for breach of contract regarding insurer’s use of AI-based automated decision making technologies not preempted by the Medicare Act and therefore allowed to proceed to discovery, raising the question of whether parties’ minds met via the insurer’s explicit descriptions of its “claim decisions as being made by ‘clinical services staff’ and ‘physicians,’ without mention of any artificial intelligence”).

January 31, 2025January 31, 2025 by Gerald L. Maatman, Jr.

Illinois Supreme Court Affirms Dismissal Of Data Breach Class Action For Lack Of Standing

By Gerald L. Maatman, Jr., Justin Donoho, and George J. Schaller

Duane Morris Takeaways: On January 24, 2025, in Petta v. Christie Bus. Holdings Co., P.C., 2025 IL 130337, the Illinois Supreme Court ruled that a plaintiff lacked standing under Illinois law to bring her class action complaint alleging that her social security number and insurance information may have been accessed in connection with a data incident where a medical provider discovered unauthorized access to one of its business email accounts. The ruling is significant because it shows that data breach claims cannot be brought in Illinois court without specifying actual injury that is fairly traceable to the breach.

Case Background

This case is one of the thousands of data breach class actions filed in the last three years. In Petta, Plaintiff brought suit against a medical provider. According to Plaintiff, she received a letter from the provider titled “Notice of Data Incident” explaining that an unknown third party gained unauthorized access to one of its business email accounts for about a month, in an attempt to intercept a business transaction between the provider and a third-party vendor. Id. ¶¶ 1, 6. The letter also stated that “the impacted account MAY have contained certain information related” to Plaintiff’s social security number and medical insurance information but “[t]he unauthorized actor did not have access to [the provider’s] electronic medical record” and there was no “evidence of identity theft or misuse of [Plaintiff’s] personal information.” Id. ¶ 6 (emphasis in letter).The letter concluded by offering Plaintiff 12 months of credit monitoring and identity protection services at no cost if she wished to enroll. Id., ¶ 7.

Plaintiff also alleged her “phone number, city, and state [were] used in connection with a loan application … in someone else’s name” and she received multiple calls regarding “loan applications she did not initiate.” Id., ¶ 9.

Based on these allegations, Plaintiff alleged claims for negligence and violation of Illinois’ Personal Information Protection Act.

The trial court dismissed the complaint for lack of a viable legal theory and a bar by the economic loss doctrine. The Illinois Appellate Court affirmed, but on the basis that the Plaintiff lacked standing to bring the action on behalf of herself and the putative class.

Plaintiff thereafter appealed to the Illinois Supreme Court.

The Illinois Supreme Court’s Opinion

The Illinois Supreme Court affirmed and ruled Plaintiff lacked standing and affirmed the dismissal of her complaint on that basis. Id., ¶ 25.

In Illinois, standing requires an injury in-fact. As a result, the Illinois Supreme Court reasoned that a plaintiff alleging only “a ‘purely speculative’ future injury” and “no ‘immediate danger of sustaining a direct injury’ lacks sufficient interest to have standing.” Id. ¶ 18 (quoting Chi. Teachers Union, Local 1 v. Bd. of Ed. of Chi., 189 Ill. 2d 200, 206-07 (2000)).

The Illinois Supreme Court affirmed Plaintiffs’ lack of standing, reasoning that she, and the putative class, faced “only an increased risk that their private personal data was accessed by an unauthorized third party” and that “an increased risk of harm is insufficient to confer standing” in a complaint seeking money damages. Id., ¶ 21. The Illinois Supreme Court opined nothing “in the letter suggest[ed] that it is likely the third party did, in fact, take the [private personal] data” and the provider’s investigation revealed that the unauthorized third party was “attempting to intercept a financial transaction, not steal patients’ private personal information.” Id, ¶ 20.

The Illinois Supreme Court also noted that Plaintiff’s unauthorized loan application related solely to Plaintiff and her complaint did not present any allegations that putative class members had a similar experience regarding a loan application. Id., ¶ 23. However, the Illinois Supreme Court declined to answer the question of whether standing must be shown at the outset for the entire putative class and instead focused “solely on [Plaintiff] individually,” finding that “Plaintiff’s allegation regarding the loan application is insufficient to confer standing.” Id.

In short, the Illinois Supreme Court concluded that the unsuccessful loan application allegations were not “fairly traceable” to any of the provider’s alleged misconduct and instead were “purely speculative” given there was “no apparent connection between the purported fraudulent loan attempt and the data breach at issue” as the phone number and city information used in the loan application was “readily available” to the public. Id., ¶ 25(citing 2023 IL App (5th) 220742, ¶ 23). Therefore, Plaintiff lacked standing to bring her claims.

Implications For Companies

The Illinois Supreme Court’s decision in Petta is a win for companies that suffered a data breach only possibly affecting customers, informed the customers of the breach, and offered to pay for their credit monitoring. Petta shows that to confer standing under Illinois law, more is required. Specifically, data breach plaintiffs need to identify actual injury fairly traceable to the breach.

July 12, 2024 by Gerald L. Maatman, Jr.

Minnesota Federal Court Imposes $100 Per Day Civil Contempt Sanctions For Company’s Continued Failure To Comply With An EEOC Subpoena

By Gerald L. Maatman, Jr., Jennifer A. Riley, and George J. Schaller

Duane Morris Takeaways: In EEOC v. Cambridge Transportation., Inc., No. 0:23-MC-00101, 2024 U.S. Dist. LEXIS 118857 (D. Minn. July 8, 2024), Judge Nancy E. Brasel of the U.S. District Court for the District of Minnesota accepted U.S. Magistrate Judge Dulce J. Foster’s Report and Recommendation (see EEOC v. Cambridge Transportation, Inc., No. 0:23-MC-00101, 2024 U.S. Dist. LEXIS 121147 (D. Minn. June 10, 2024)) to impose civil contempt sanctions against Cambridge Transportation Inc. for its failure to comply with an EEOC subpoena. The EEOC sought documents in its administrative charge investigation into Title VII discrimination allegations on behalf of a former Cambridge Transportation, Inc. worker.

The Court ordered payment to the EEOC of $100 per day for each day Cambridge Transportation, Inc. remains out of compliance beginning on June 7, 2024. Over one month later, Cambridge remains out of compliance based on the docket. This ruling is a warning admonisiton for employers facing EEOC subpoenas and the seriousness for any alleged non-compliance with the Commission’s investigation process.

Case Background

On October 19, 2023, the EEOC petitioned for an Application for and Order to Show Cause Why Administrative Subpoena Should Not Be Enforced (the “Application”) against Respondent Cambridge Transportation, Inc. (“Cambridge”). (See United States EEOC v. Cambridge Transp., Inc., No. 0:23-MC-00101, ECF No. 1.) The EEOC’s subpoena duces tecum sought information from Cambridge regarding a charge of discrimination under Title VII of the Civil Rights Act of 1964. (See id.) In the underlying charge, Charging Party Becky Blechinger alleged that Cambridge “discriminated against her on the bases of her sex (female), race (white), national origin (United States) and disability by paying a higher rate of compensation to men of Somalian national origin,” who worked at Cambridge. (See id., ECF No. 2, at 2.)

On November 1, 2023, the Court issued an order to show cause for the EEOC’s Application. (See id., ECF No. 7.) On November 21, 2023, the EEOC provided a status report that reflected it had not effectuated service on Cambridge. (See id., ECF No. 9)

On December 19, 2023, the EEOC filed a Motion to Stay Proceedings. (See id., ECF No. 12.) Therein, the EEOC stated Cambridge responded and acknowledged receipt of the Court’s order to show cause and further indicated that Cambridge intended to produce the documents identified in the EEOC’s Application by December 26, 2023. (See id.) The following day the Court stayed the case. (See id., ECF No. 13.)

On January 25, 2024, the EEOC filed another status report with a request due to Cambridge’s failure to comply with the subpoena. Thereafter, the Court entered an order for hearing on the EEOC’s Application. (See id., ECF Nos. 14 & 15.) On February 22, 2024, Cambridge attended the hearing via telephone through its non-attorney registered agent. (See id., ECF No. 18.)

On February 27, 2024, the Court granted the EEOC’s Application and determined that Cambridge must comply with the subpoena or otherwise the Court may find Cambridge in civil contempt and impose a daily fine for each day Cambridge remains out of compliance. (See id., ECF No. 20.)

On May 14, 2024, the EEOC provided a status report to the Court and reiterated that Cambridge failed to comply with the subpoena and requested the Court impose a civil fine of $800 per day, for each day past May 14, 2024, that Cambridge remains non-compliant. (See id., ECF No. 23.)

On May 20, 2024, the Court ordered a hearing on the EEOC’s Application and required Cambridge to retain counsel to enter an appearance on its behalf to show cause why sanctions should not be imposed for failure to comply with the Court’s February 27 order. (See id., ECF No. 25.) On June 7, 2024, the hearing occurred and Cambridge did not appear. (See id., ECF No. 27.)

The Magistrate’s Report and Recommendation and the District Court Judge’s Finding

On June 10, 2024, Magistrate Judge Dulce J. Foster issued his Report and Recommendation. (See United States EEOC v. Cambridge Transp., Inc., No. 0:23-MC-00101, 2024 U.S. Dist. LEXIS 121147 (D. Minn. June 10, 2024). The report detailed the continued failures of Cambridge to respond to the Agency’s subpoena and efforts to enforce its subpoena. (See id., at *1-6.)

The Court opined Cambridge had “ample time to retain counsel, for its alleged counsel to enter an appearance and to ensure its counsel either would be available to attend the show cause hearing or move to reschedule it” and “despite having months,” it had “faile[d] to do so and made no efforts to explain that failure or seek more time to comply.” (See id., at *5.) As a result, the Court found Cambridge waived all of its defenses to the EEOC’s motion and request for sanctions. (See id., at *5-6.)

The Court reiterated its authority that it “may hold a person who, having been served, fails without adequate excuse to obey the subpoena or an order related to it.” (See id, at *6) (quoting Fed. R. Civ. P. 45(g).) The Court found Cambridge’s continued non-compliance with the subpoena warranted contempt and imposition of monetary sanctions. (See id.) The Court’s recommendation was not made “lightly, but Cambridge’s intransigent refusal to cooperate” left the Court with few other options. (See id.)

On the requested $800 per day fine from the EEOC, the Court reasoned at this stage that it was not justified at this stage. (See id.) The Court instead recommended an initial daily fine of “$100 per day for each day Cambridge remains noncompliant with the subpoena beginning June 7, 2024, the date of the show cause hearing, and continuing until Cambridge satisfactorily complies.” (See id., at *7.) The Court further held “additional sanctions and penalties may be warranted in the future” if Cambridge’s failure to comply continues. (See id.)

The District Court Judge found no clear error in the Magistrate Judge Foster’s recommendation and report. (United States EEOC v. Cambridge Transp., Inc., No. 0:23-MC-00101, 2024 U.S. Dist. LEXIS 118857, at * 1 (D. Minn. July 8, 2024).) In so holding, the Court adopted the report in full, and found Cambridge in civil contempt and ordered payment of $100 per day for each day Cambridge remains out of compliance with the EEOC’s subpoena, beginning on June 7, 2024. (Id.) The Court left open whether any additional sanctions and penalties may apply.

Implications For Employers

This recommendation and report, and resulting Court order, illustrates the length to which the EEOC will go to enforce its investigation of allegations of discrimination under Title VII of the Civil Rights Act of 1964. Companies should recognize the EEOC’s enforcement efforts have teeth, and heed the Court’s response that imposed a daily fine based on total non-compliance.

Companies should take measures to ensure compliance with any EEOC request for information and respond accordingly, and promptly, to any investigation including subpoena requests. Otherwise, Companies may find themselves footing a $100 bill for every day of non-compliance and possibly expose themselves to further civil contempt sanctions.

April 22, 2024 by Gerald L. Maatman, Jr.

EEOC Weighs In On Novel Artificial Intelligence Suit Alleging Discriminatory Hiring Practices

By Gerald L. Maatman, Jr., Alex W, Karasik, and George J. Schaller

Duane Morris Takeaways: In Mobley v. Workday, Inc., Case No. 23-CV-770 (N.D. Cal. April 9, 2024) (ECF No. 60), the Equal Employment Opportunity Commission (“EEOC”) filed a Motion for Leave to File an Amicus Brief in Support of Plaintiff and in Opposition to Defendant’s Motion to Dismiss. This development follows Workday’s first successful Motion to Dismiss, about which we previously blogged here, after which the Court allowed Plaintiff a chance to amend his complaint.

For employers utilizing Artificial Intelligence in their hiring practices, this notable case is worth monitoring. The EEOC’s decision to insert itself in the dispute demonstrates the Commission’s commitment to continued enforcement of anti-discrimination laws bearing on artificial intelligence use in employment.

Case Background

Plaintiff, an African American male over the age of forty alleged that he suffered from anxiety and depression and brought suit against Workday claiming that its applicant screening tools discriminated against applicants on the basis of race, age, and disability. Plaintiff further alleged that he applied for 80 to 100 jobs, but despite holding a bachelor’s degree in finance and an associate’s degree in network systems administration, he did not get a single job offer. Id., 1-2 (ECF No. 45).

Workday moved to dismiss the Complaint in part arguing that Plaintiff did not allege facts to state a plausible claim that Workday was liable as an “employment agency” under the anti-discrimination statutes at issue.

On January 19, 2024, the Court granted the defendant’s motion to dismiss, but with leave for Plaintiff to amend, on the ground that plaintiff failed to plead sufficient facts regarding Workday’s supposed liability as an employer or “employment agency.” Shortly thereafter, Plaintiff filed his Amended Complaint. Id. (N.D. Cal. Feb. 20, 2024) (ECF No. 47.)

On March 12, 2024, Workday filed its Motion to Dismiss Amended Complaint, asserting that Workday is not covered by the statutes at issue – Title VII, the Americans with Disabilities Act (“ADA”), and/or the Age Discrimination in Employment Act (“ADEA”) – because Workday merely screens job seekers rather than procuring them. Id., (ECF No. 50.) On April 2, 2024, Plaintiff filed his opposition (id., ECF No. 59) and, on April 12, 2024, Workday filed its reply. Id., (ECF No. 61.)

The motion is fully briefed and set for hearing on May 7, 2024.

The EEOC’s Motion for Leave to File an Amicus Brief

On April 9, 2024, before Workday filed its Reply, the EEOC filed a Motion for Leave to File an Amicus Brief in Support of Plaintiff and in Opposition to Defendant’s Motion. Id., (ECF Nos. 60 & 60-1.) The EEOC noticed its Motion for hearing on May 7, 2024. Id., (ECF No. 60.)

The EEOC describes Mobley as a case that “implicate[s] whether,” Title VII, the ADA, and the ADEA, “cover[s] entities that purportedly screen and refer applicants and make automated hiring decisions on behalf of employers using algorithmic tools.” Id., at 1 (ECF No. 60-1.) The Commission argues that Plaintiff’s Amended Complaint satisfies federal pleading standards “with respect to all three theories of coverage alleged.” Id., at 4.

First, with respect to Workday as an employment agency, the EEOC notes that Title VII, the ADA, and the ADEA, all prohibit discrimination by employment agencies. Under each statute, the term “employment agency” includes “any person regularly undertaking with or without compensation to procure employees for an employer.” Id. The EEOC maintains courts generally construe “employment agency” based on “‘those engaged to a significant degree’ in such procurement activities ‘as their profession or business,’” and the focus on the degree to which an entity engages in “activities of an employment agency.” Id.

The EEOC argues, among these activities, screening and referral activities are classically associated with employment agencies. Id., at 5. The Commission asserts that “[Plaintiff] has plausibly alleged that Workday’s algorithmic tools perform precisely the same screening and referral functions as traditional employment agencies—albeit by more sophisticated means.” Id., at 6. In contrasting Workday’s position, the EEOC urged the Court to find Workday’s arguments that “screening employees is not equivalent to procuring employees,” and that Workday does not “actively recruit or solicit applications” as unpersuasive. Id., at 7.

Second, the EEOC argues leading precedent weighs in favor of Plaintiff’s allegations that Workday is an indirect employer. Taking Plaintiff’s allegations as true, the EEOC contends that “Workday exercised sufficient control over [Plaintiff’s] and others applicants’ access to employment opportunities to qualify as an indirect employer,” and “Workday purportedly acts as a gatekeeper between applicants and prospective employers.” Id., at 11.

The EEOC argues Workday’s position on sufficient control misses the point. Workday’s assertion that it “does not exert ‘control over its customers,’ who ‘are not required to use Workday tools and are free to stop using them at any time,” is not the inquiry. Id., at 12. Rather, the relevant inquiry is “whether the defendant can control or interfere with the plaintiff’s access to that employer,” and the EEOC notes that the nature of that control or interference “will always be a product of each specific factual situation.” Id.

Finally, the EEOC maintains that Plaintiff plausibly alleged Workday is an agent of employers. The EEOC also maintains that under the relevant statutes the term “employer” includes “any agent of” an employer and several circuits have reasoned that an employer’s agent may be held independently liable for discrimination under some circumstances. Id.

In analyzing Plaintiff’s allegations, the EEOC argues that Plaintiff satisfies this requirement, where Plaintiff “alleges facts suggesting that employers delegate control of significant aspects of the hiring process to Workday.” Id., at 13. Accordingly, the EEOC concludes that Plaintiff’s allegations are sufficient and demonstrate “Workday’s employer-clients rely on the results of its algorithmic screening tools to make at least some initial decisions to reject candidates.” Id., at 14.

On April 15, 2024, the Court ordered any opposition or statement of non-opposition to the EEOC’s motion for leave shall be filed by April 23, 2024. Id. (ECF No. 62.)

Implications For Employers

With the EEOC’s filing and sudden involvement, Employers should put great weight on EEOC enforcement efforts in emerging technologies, such as AI. The EEOC’s stance in Mobley shows that this case is one of first impression and may create precedent for pleading in AI-screening tool discrimination cases regarding the reach of “employment decisions,” by an entity – whether directly, indirectly, or by delegation through an agent.

The Mobley decision is still pending, but all Employers harnessing artificial intelligence for “employment decisions” must follow this case closely. As algorithm-based applicant screening tools become more common place –the anticipated flood of employment discrimination lawsuits is apt to follow.

February 21, 2024November 7, 2024 by Gerald L. Maatman, Jr.

Seventh Circuit Affirms Minors Are Not Parties Bound To Arbitrate Claims In GIPA Class Action

By Gerald L. Maatman, Jr., Derek S. Franklin, and George J. Schaller

Duane Morris Takeaways: In Coatney, 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 not require 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 suit against Ancestry in Illinois federal court alleging violations of the Illinois GIPA. Id. Plaintiffs alleged that, as part of Blackstone’s 2020 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 found that 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, the Seventh 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 that Plaintiffs may be contractually bound to the Terms “either as closely related parties or third-party beneficiaries.” Id. at 11. The Seventh Circuit opined that “[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 established that 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 of legal authority supporting 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.

February 9, 2024 by Gerald L. Maatman, Jr.

Colorado Federal Court Rules That The EEOC May Seek Back Pay Claims In ADA Lawsuit Against Trucking Company

By Gerald L. Maatman, Jr., Jennifer A. Riley, and George J. Schaller

Duane Morris Takeaways: In Equal Employment Opportunity Commission v. Western Distributing Co., No. 1:16-CV-01727, 2024 U.S. Dist. LEXIS 17225 (D. Colo. Jan. 31, 2024), Judge William J. Martinez of the U.S. District Court for the District of Colorado denied Defendant’s motion to dismiss for lack of standing and granted in part and denied in part Defendant’s motion to reconsider. Both post-trial motions involved disparate impact claims for qualified disabled employees concerning Defendant’s return-to-work policies. For employers facing EEOC-initiated lawsuits under the Americans with Disabilities Act of 1990 (the “ADA”) concerning employment policies, this decision is instructive in terms of the record evidence and filings courts will consider when deciding post-trial motions.

Case Background

On July 7, 2016, the EEOC filed suit on behalf of individuals with disabilities who worked for Defendant Western Distributing Co. (“Western”), a trucking company. The EEOC alleged Western’s employment policies disparately impacted these individuals under the ADA.

Western’s policies required employees to return to work on a “full-duty” basis after medical leave; required certain drivers to static push and pull 130 pounds of weight; and required certain drivers to be able to static push and pull 130 pounds of weight at 58 inches above the ground. Id. at 2.

In January 2023, a jury decided that Western’s “full-duty” policy had a disparate impact on disabled drivers. The post-trial motions resulted from the jury’s decision and Western moved to dismiss for lack of standing (“Standing Motion”) and moved to reconsider the Court’s denial of its yet-to-be-filed Rule 50(b) motion (“Motion to Reconsider”).

Standing Motion

The Court denied Western’s Standing Motion. In reviewing Western’s arguments, the Court determined Western put “great weight … on: (1) Senior U.S. District Judge Lewis T. Babcock’s Bifurcation Order; and (2) several statements by the EEOC’s counsel and the Court during the trial.” Id. at 2.

The Court found the obvious purpose of the bifurcation order was “(1) to give the parties a clear procedure for trying this action; and (2) to give the jury issues it can legally decide and reserve for the Court issues upon which it must rule.” Id. at 3. The Court reasoned that Judge Babcock’s bifurcation order “clearly contemplate[d] separate fact finding on ‘all individual claims and resultant damages’” and construing the order otherwise would be “unjust and border on absurd.” Id. at 4.

As to the statements during trial, the Court concluded that “back pay is viewed as equitable relief . . . to be decided by the judge.” Id. at 3. Therefore, the Court opined that it “will not ascribe to it the power to foreclose retrospective relief to which the EEOC and aggrieved individuals might be entitled. Nor will the Court rule such relief is improper simply because the EEOC did not present any damages evidence to a jury that could not award equitable back pay.” Id. at 4.

Motion to Reconsider

The Court granted Western’s request to reconsider arguments raised in its initial Rule 50(a) motion. The Court addressed Western’s arguments and denied each in full.

First, Western argued “the EEOC waived its Disparate Impact Claim to the extent it was based on the “full-duty policy” by failing to include this claim in its proposed “Challenge Standards” instruction. Id. at 5.

The Court determined its order one month before trial on the EEOC’s motion for partial summary judgment included both the “full-duty and maximum leave policies ‘[as] two of the thirteen discriminatory standards, criteria, or methods of administration that form the basis of the Disparate Impact Claim.’” Id. at 6. The Court also reasoned that Western was aware of the need to defend against the full-duty policy given the “significant body of evidence Western in fact prepared and marshaled to do just that.” Id.

Second, Western sought reconsideration concerning the adequacy of the evidence the EEOC presented at trial with respect to the existence of the full-duty policy and its disparate impact on qualified individuals with disabilities. Id. at 7. The Court denied Western’s request to re-weigh the evidence as the jury during trial “was attentive, engaged, and clearly thoughtful in issuing a narrow verdict.” Id. at 8. As to the disparate impact portion, the Court highlighted that this portion was “a retread of one of Western’s rejected summary judgment arguments.” Id. at 7. Therefore, the Court decided it would “not functionally reverse its own legal conclusions reached during the summary judgment phase.” Id. at 8.

For the same reasons, the Court denied Western’s third argument regarding statistical evidence of the 130-pound push/pull tests as a “re-tread” of an issue already decided on summary judgment. Id. Finally, the Court denied Western’s argument because it “[was] merely a short summary of the arguments raised in the Standing Motion.” Id.

Implications For Employers

Employers that are confronted with EEOC-initiated litigation involving employment policies should note that the Court relied heavily on the established record including prior issued orders, previous motions raising the same or similar arguments, and statements made by counsel at trial.

Further, from a practical standpoint, employers should carefully evaluate employment policies that may impact individuals with disabilities, as courts and juries are apt to scrutinize these materials.

January 29, 2024 by Alex W. Karasik

California Court Dismisses Artificial Intelligence Employment Discrimination Lawsuit

By Alex W. Karasik, Gerald L. Maatman, Jr. and George J. Schaller

Duane Morris Takeaways: In Mobley v. Workday, Inc., Case No. 23-CV-770 (N.D. Cal. Jan 19, 2024) (ECF No. 45), Judge Rita F. Lin of the U.S. District Court for the Northern District of California dismissed a lawsuit against Workday involving allegations that algorithm-based applicant screening tools discriminated applicants on the basis of race, age, and disability. With businesses more frequently relying on artificial intelligence to perform recruiting and hiring functions, this ruling is helpful for companies facing algorithm-based discrimination lawsuits in terms of potential strategies to attack such claims at the pleading stage.

Case Background

Plaintiff, an African-American male over the age of forty with anxiety and depression, alleged that he applied to 80 to 100 jobs with companies that use Workday’s screening tools. Despite holding a bachelor’s degree in finance and an associate’s degree in network systems administration, Plaintiff claimed he did not receive not a single job offer. Id. at 1-2.

On July 19, 2021, Plaintiff filed an amended charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). On November 22, 2022, the EEOC issued a dismissal and notice of right to sue. On February 21, 2023, Plaintiff filed a lawsuit against Workday, alleging that Workday’s tools discriminated against job applicants who are African-American, over the age of 40, and/or disabled in violation of Title VII, the ADEA, and the ADA, respectively.

Workday moved to dismiss the complaint, arguing that Plaintiff failed to exhaust administrative remedies with the EEOC as to his intentional discrimination claims; and that Plaintiff did not allege facts to state a plausible claim that Workday was liable as an “employment agency” under the anti-discrimination statutes at issue.

The Court’s Decision

The Court granted Workday’s motion to dismiss. First, the Court noted the parties did not dispute that Plaintiff’s EEOC charge sufficiently exhausted the disparate impact claims. However, Workday moved to dismiss Plaintiff’s claims for intentional discrimination under Title VII and the ADEA on the basis of his failure to exhaust administrative remedies. Workday argued that the EEOC charge alleged only claims for disparate impact, not intentional discrimination.

Rejecting Workday’s argument, the Court held that it must construe the language of the EEOC charge with “utmost liberality since they are made by those unschooled in the technicalities of formal pleading.” Id. at 5 (internal quotation marks and citations omitted). The Court acknowledged that the thrust of Plaintiff’s factual allegations in the EEOC charge concerned how Workday’s screening tools discriminated against Plaintiff based on his race and age. However, the Court held that those claims were reasonably related to his intentional discrimination claims, and that the EEOC investigation into whether the tools had a disparate impact or were intentionally biased would be intertwined. Accordingly, the Court denied Workday’s motion to dismiss on the basis of failure to exhaust administrative remedies.

Next, the Court addressed Workday argument that Mobley did not allege facts to state a plausible claim that it was liable as an “employment agency” under the anti-discrimination statutes at issue. The Court opined that Plaintiff did not allege facts sufficient to state a claim that Workday was “procuring” employees for these companies, as required for Workday to qualify as an “employment agency.” Id. at 1. For example, Plaintiff did not allege details about his application process other than that he applied to jobs with companies using Workday, and did not land any job offers. The complaint also did not allege that Workday helped recruit and select applicants.

In an attempt to salvage these defects at the motion hearing and in his opposition brief, Plaintiff identified two other potential legal bases for Workday’s liability — as an “indirect employer” and as an “agent.” Id. To give Plaintiff an opportunity to attempt to correct these deficiencies, the Court granted Workday’s motion to dismiss on this basis, but with leave for Plaintiff to amend. Accordingly, the Court granted in part and denied in part Workday’s motion to dismiss.

Implications For Businesses

Artificial intelligence and algorithm-based applicant screening tools are game-changers for companies in terms of streamlining their recruiting and hiring processes. As this lawsuit highlights, these technologies also invite risk in the employment discrimination context.

For technology vendors, this ruling illustrates that novel arguments about the formation of the “employment” relationship could potentially be fruitful at the pleading stage. However, the Court’s decision to let Plaintiff amend the complaint and have one more bite at the apple means Workday is not off the hook just yet. Employers and vendors of recruiting software would be wise to pay attention to this case –and the anticipated wave of employment discrimination lawsuits that are apt to be filed – as algorithm-based applicant screening tools become more commonplace.

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

The Brave New World: President Biden Signs Executive Order On Use Of Artificial Intelligence

By Gerald L. Maatman, Jr., Alex W. Karasik, and George J. Schaller

Duane Morris Takeaways: On October 30, 2023, President Biden signed an Executive Order (the “EO”) providing guidance for employers on the emerging utilization of Artificial Intelligence in the workplace. The EO establishes industry standards for AI security, innovation, and safety across significant employment sectors. Spanning over 100 pages, the robust EO endeavors to set parameters for responsible AI use, seeking to harness AI for good while mitigating risks associated with AI usage.

For businesses who utilize AI software in their employment decisions processes, the EO signifies a shift in beneficial versus harmful AI use and promotes a principled plan on advancing beneficial AI use.

Security, Innovation, And Safety With AI

AI’s significant developments in such a short period has required policymakers to keep up with the ever-changing AI landscape. President Biden’s EO manifests the White House’s commitment to AI use in a safe and secure manner. The EO also signals a commitment to promoting responsible innovation, competition, and collaboration to propel the United States to lead in AI and unlock the technology’s potential. At the same time, the EO focuses on AI implications for workplaces and problematic AI usage.

AI And Employment Issues

In the White House’s continued dedication to advance equity and civil rights, the EO purports to commit to supporting American workers. As AI creates new jobs and industries, the EO maintains that all workers should be included in benefiting from AI opportunities. As to the workplace, the EO asserts that responsible AI use will improve workers’ lives, positively impact human work, and help all to gain from technological innovation. Nonetheless, the EO opines that irresponsible AI use could undermine workers’ rights.

Further, protections to Americans who increasingly interact with AI are contemplated in the EO and signals that organizations will not be excused from legal obligations. Chief among these protections are continued enforcement of existing safeguards against fraud, unintended bias, discrimination, infringements on privacy, and other harms from AI. The White House seeks parity with the Federal Government in enforcement efforts and creating new appropriate safeguards against harmful AI use.

Significantly, within 180 days of issuing the EO, the Secretary of Labor is tasked with consulting with agencies and outside entities (including labor unions and workers) to develop and publish principles and best practices for employers to maximize AI’s potential benefits. In so doing, the key principles and best practices are to address job-displacement, labor standards and job quality, and employer’s AI-related collection and use of worker data. These principles and best practices further aim to prevent any harms to employees’ well-being.

Implications For Employers

This lengthy order should alert employers that AI is here to stay and the perils of AI use will change as the technology further augments the modern workforce.

As AI becomes more engrained in employment, employers should be mindful of the guidance developed in the EO and should stay up to date on any legislation that stems from AI usage. If businesses have not been paying attention to AI developments, now is the time to start.