Texas Federal Court Strikes Down NLRB’s 2023 Joint Employer Rule

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther

Duane Morris Takeaways: In Chamber of Commerce of the U.S.A. et al. v. NLRB et al., No. 6:23-CV-00553, 2024 WL 1045231 (E.D. Tex. Mar. 8, 2024), Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas granted the Plaintiffs motion for summary judgment and denied the Defendants cross-motion for summary judgment. Under the NLRB’s 2023 joint employer rule, even companies who exercise just “indirect control” over the employees of another entity could be considered a joint employer under federal labor laws. The Court held that the NLRB’s 2023 joint employer rule did not provide a meaningful two-part test to determine joint employer status, and that the NLRB’s reason for rescinding the 2020 Rule was arbitrary and capricious.  Accordingly, the Court vacated the 2023 Rule and reinstated the 2020 Rule. 

This ruling is a huge win for businesses, as it reinstates the 2020 Rule’s heightened “substantial direct and immediate control” standard for determining joint-employer status.

Case Background

In 2020, the NLRB issued a joint-employer final rule, providing that an entity “is a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment” (the “2020 Rule”).  Id. at 12 (quoting 29 C.F.R. § 103.40(a) (2020)).  Under the 2020 Rule, a company is a joint employer when it exercises “substantial direct and immediate control” over one or more of the following “essential terms or conditions of employment” – “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”  Id. at 12-13 (quoting 29 C.F.R. § 103.40(a), (c)(1) (2020)).

In 2023, the NLRB rescinded the 2020 Rule and enacted a new joint-employer final rule (the “2023 Rule”).  Id. at 14.  The 2023 Rule defined a joint employer as an entity that exercised “reserved control” or “indirect control” over one of seven terms and conditions of employment, including: “(1) work rules and directions governing the manner, means, and methods of the performance, and (2) working conditions related to the safety and health of employees.”  Id. (29 C.F.R. § 103.40(d)-(e)).

In 2023, Plaintiffs sued the Defendants, challenging the 2023 Rule on two grounds: (i) that it is inconsistent with the common law; and (ii) that it is arbitrary and capricious.  Id. at 14-15.

In response, the Defendants cross-moved for summary judgment on the Plaintiffs claims, alleging that the 2023 Rule was based on, and is governed by, common law principles, that it is not arbitrary and capricious, and that the Board acted lawfully in rescinding the 2020 Rule.  Id. at 20.

The Court’s Decision

The Court granted the Plaintiffs motion for summary judgment, and denied Defendants cross-motion for summary judgment, thereby “vacating the 2023 Rule, both insofar as [the 2023 Rule] rescind[ed] the [2020 Rule] and insofar as it promulgate[d] a new version of [the 2020 Rule].”  Id. at 30.

First, the Court focused on the main dispute between the parties, i.e., whether the 2023 Rule had a meaningful two-step test to determine an entity’s joint employer status, or the 2023 Rule only had one step for all practical purposes.  Id. at 20-21.  The Defendants argued that the 2023 Rule’s joint-employer injury had the following steps: (i) “an entity must qualify as a common-law employer of the disputed employees”; and (ii) “only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment.”  Id.  The Court disagreed, finding that “an entity satisfying step one, along with some other entity doing so, will always satisfy step two,” since “an employer of a worker under the common law of agency must have the power to control ‘the material details of how the work is to be performed,” and the Defendants proposed step two included “work rules and directions governing the manner, means and methods of the performance of duties.”  Id. at 22-23 (internal citations omitted).

The Court then analyzed whether the Board lawfully rescinded the 2020 Rule.  It opined that “to survive arbitrary-and-capricious review, agency action must be ‘reasonable and reasonably explained.”  Id. at 28-29.  The Court held that the Board did not provide a “reasonable or reasonably explained” purpose for rescinding the 2020 Rule, and therefore, its recension was arbitrary and capricious.  Id. at 29.  Since “vacatur of an agency action is the default rule” in the Fifth Circuit when such rule “is found to be discordant with the law or arbitrary and capricious”, the Court vacated the 2023 Rule.  Id. at 30.

Implications For Employers

The Court’s vacatur of the 2023 Rule in Chamber of Commerce of USA et al. v. NLRB et al. is an important victory for employers. The 2023 Rule would have made “virtually every entity that contracts for labor . . . a joint employer.” Id. at 25. Moreover, the 2020 Rule, in addition to imposing the heightened “substantial direct and immediate control standard,” provides integral guidance for what actions are considered joint, and what actions are not.  The Court’s decision to reinstate the 2020 Rule, therefore, is also a significant win for employers.

Sixth Circuit Is First to Weigh In On Pizza Driver Mileage Reimbursement Battle And Rejects DOL Interpretation

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

Duane Morris Takeaways: On March 12, 2024, in Parker v. Battle Creek Pizza, Inc. No. 22-2119 (6th Cir. Mar. 12, 2024), a three-judge panel of the Sixth Circuit addressed the issue of what standard applies for calculating reimbursements of vehicle expenses owed under the FLSA to delivery drivers who use their own vehicles for their jobs. The consolidated appeal arose from dueling opinions of U.S. District Courts in Michigan and Ohio on the same issue.

The Sixth Circuit concluded that neither the IRS standard mileage rate (the approach of the court in Michigan), nor an employer’s “reasonable approximation” of vehicle costs (the approach of the court in Ohio), satisfies an employer’s minimum wage obligations under the FLSA. The Sixth Circuit vacated the district court opinions and sent the cases back to their respective courts for further proceedings on remand. The Sixth Circuit’s decision is essential reading for all businesses with delivery drivers, particularly those defending minimum wage claims involving drivers’ expenses, a hot-button litigation issue percolating in courts across the country.

Case Background

To set the stage, the FLSA requires payment of the minimum wage (currently $7.25 an hour) to employees “free and clear.” In the U.S. Department of Labor regulations interpreting the statute, 29 C.F.R. § 531.35 states that employers cannot shift business expenses to their employees if doing so causes the employees’ wages to drop below the minimum wage. In another section of the FLSA regulations, the DOL addresses how to calculate an employee’s “regular rate of pay” for overtime calculations when the employer reimburses an employee’s business expenses. In that regulation at 29 C.F.R. § 778.217(c), the DOL says employers may “reasonably approximate” the amount of the expenses to be reimbursed. The DOL regulations say nothing, however, about how to calculate such an approximation, and whether the analysis applies to wages owed other than overtime wages.

The district court in Parker v. Battle Creek Pizza, Inc., 20-CV-00277 (W.D. Mich. Apr. 28, 2022), held that use of the IRS mileage rate satisfied the FLSA. The court deferred to the DOL’s Field Operations Handbook, the internal manual that guides investigators for the Wage and Hour Division. In the Field Operations Handbook. The DOL takes the enforcement position at § 30c15(a) that employers may, in lieu of reimbursing an employee’s actual expenses, use the IRS standard business mileage rate to determine the amount of reimbursement owed to employees for FLSA purposes. By contrast, the district court in Bradford v. Team Pizza, Inc., 20-CV-00060 (S.D. Ohio Oct. 19, 2021), rejected the IRS mileage rate in favor of an employer’s “reasonable approximation” of the drivers’ expenses.

The IRS standard business mileage rate, currently $.67 a mile, is intended to represent gasoline, depreciation, maintenance, repair and other fees pertaining to vehicle upkeep. Employers’ “reasonable approximation” of an employee’s costs in using their personal vehicles to perform work typically is lower than the IRS rate.

The Sixth Circuit’s Ruling

The Sixth Circuit highlighted the basic requirement of the FLSA to pay employees at least the minimum wage for hours worked. As the Sixth Circuit stated, when an employee’s hourly wage is the minimum $7.25 an hour, any underpayment of the employee for costs they expended to benefit the employer necessarily causes them to receive less than the minimum wage.

Although it acknowledged the difficulty of calculating vehicle expenses on an employee-by-employee basis, the Sixth Circuit reasoned that any “approximation” of an employee’s personal vehicle costs — whether it be the employer’s own calculation or the IRS’s standard business mileage rate — is contrary to the FLSA where it results in an employee receiving less than the minimum wage.

The Sixth Circuit declined to defer to the DOL’s interpretation in the FLSA regulations or the agency’s Field Operations Handbook. It emphasized that the FLSA regulation supporting the “reasonable approximation” method — 29 C.F.R. § 778.217(c) — addressed overtime calculations, not minimum wage. The Sixth Circuit also found use of the IRS standard business mileage rate to be fatally flawed. As it explained, the IRS’s rate, though more generous in application than the “reasonable approximation” method, disfavors high-mileage drivers like delivery drivers and fails to account for regional and other differences inherent in maintaining a vehicle. Id. at 6.

The Sixth Circuit did not announce a new standard to replace the two approaches it rejected. However, it offered a three-part framework for the district courts to consider on remand. Similar to the burden-shifting framework in Title VII disparate treatment cases, the Sixth Circuit suggested that an FLSA plaintiff might present prima facie proof that a reimbursement was inadequate. The employer would then bear the burden to show that the amount it reimbursed bore a reasonable relationship to the employee’s actual costs. The plaintiff would have an opportunity to attack the employer’s reasoning while bearing the ultimate burden to prove failure to receive minimum wages.

Implications For Employers

Although the Sixth Circuit’s ruling in Parker is binding only on federal courts in Ohio, Michigan, Tennessee and Kentucky, the opinion may prompt courts around the country to reconsider reliance on the DOL’s “reasonable approximation” standard and the IRS’s standard business mileage rate when evaluating minimum wage claims of delivery drivers. Considering that FLSA claims asserting underpayment for vehicle expenses already is a favorite topic of the plaintiffs’ class action bar, we expect the opinion to unleash a flood of new lawsuits in this area. All businesses with delivery drivers ought to keep a close watch on how the Michigan and Ohio district courts apply the Sixth Circuit’s ruling on remand.

A silver lining in the decision may well be the notion that as calculating the appropriateness of reimbursement is required on a driver-by-driver basis, such claims seem difficult to ever certify.

The opinion in Parker is also significant in light of the Supreme Court’s forthcoming ruling on the viability of the Chevron doctrine, the framework in which courts generally defer to agencies’ interpretation of federal statutes. In rejecting the DOL’s interpretation of the FLSA, the reasoning in Parker may be a harbinger of future rulings under the FLSA and a panoply of other statutory schemes if the Supreme Court abandons Chevron deference.

The Duane Morris Private Attorneys General Act Review – 2024


By Gerald L. Maatman, Jr., Jennifer A. Riley, Brandon Spurlock, and Shireen Wetmore

Duane Morris Takeaways: One law making California so different – and so challenging – for employers is the Private Attorneys General Act (“PAGA”), which authorizes employees to assert claims for alleged labor violations. Such a worker acts as “a private attorney general” to pursue civil penalties against an employer as if they were an arm of the State of its agencies. PAGA claims are not class actions per se – instead, they are known as “representative actions – but they pose analogous risks and exposures like class actions brought under the California Labor Code. Plaintiffs bring thousands of PAGA cases every year, and, because PAGA plaintiffs can bring suit on behalf themselves and other employees, the stakes are often significant, with companies exposed to risks similar to those arising from class action litigation. The PAGA, however, has its own specific rules of the road, which differ from the rules elucidated in familiar Rule 23 jurisprudence.  The explosion of PAGA litigation has resulted in a complex body of case law that is often difficult to navigate, particularly in terms of the application of arbitration agreements and representative action waivers.  Given the wide adoption of such arbitration agreements, companies are struggling to grasp how recent decisions regarding the PAGA and arbitration impact their businesses.

To that end, the class action team at Duane Morris is pleased to present this year’s edition of the Private Attorneys General Act Review – 2024. We hope it will demystify some of the complexities of PAGA litigation and keep corporate counsel updated on the ever-evolving nuances of these issues.  We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with PAGA litigation.

Click here to download a copy Duane Morris Private Attorneys General Act Review – 2024 eBook.

Stay tuned for more PAGA class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.

Class Action Law Forum – Recent Developments Regarding The Impact Of Artificial Intelligence

By Jennifer A. Riley

I was honored to speak today at the 6th Annual Class Action Law Forum at the University of San Diego School of Law.

With hundreds of attendees, the conference focused on the current state of class action litigation and “white hot” litigation topics for 2024. The discussion points provide an excellent roadmap for practitioners and corporate counsel alike on the types of cases and legal issues that Corporate America is likely to encounter over the remainder of 2024.

The Impact of Artificial Intelligence

The theme of my address involved the extraordinary impact of AI on the class action space over the past year.  Aside from improving the efficiency with which the plaintiffs’ class action bar may be able to file and litigate claims, generative AI is providing an ocean of raw material for potential class claims.

Over the past year, we saw AI promptly become a popular subject of class actions in multiple areas.  I touched on three in particular.

AI-Assisted Decision-Making

The first area targets companies that use AI to enhance or streamline their decision-making processes.  Plaintiffs have filed suits against insurers, for instance, that use algorithms to adjudicate claims as well as against agencies that use programs to evaluate governmental benefits.

This type of claim frequently arises in the employment context as companies use algorithms to streamline and enhance their candidate screening and selection procedures and to inform their promotion, transfer, and evaluation decisions.

In May 2023, the EEOC issued a technical assistance document entitled “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII,” which purports to provide employers guidance on preventing discrimination when using AI.  The EEOC provided various examples in terms of how employers are using AI, including resume scanners that prioritize resumes that use certain key words, employee monitoring software that rates employees on the basis of key strokes, virtual assistants or chatbots that ask job applicants about their qualifications, and video interviewing software that evaluates candidates based on their speech patterns and facial expressions.

Unsurprisingly, we have started to see lawsuits attacking use of these types of tools.  In Mobley v. Workday, filed in the Northern District of California, for instance, a plaintiff, an African American male over the age of 40 who claimed that he suffered from anxiety and depression brought suit against Workday claiming that its applicant screening tools discriminated against applicants on the basis of race, age, and disability.  The plaintiff claimed that he applied for 80 to 100 jobs, and despite holding a bachelor’s degree in finance, among other qualifications, did not get a single job offer.

Workday, of course, is a software vendor.  The district court granted the defendant’s motion to dismiss on the ground that plaintiff failed to plead sufficient facts regarding Workday’s supposed liability as an employer or “employment agency.”  In other words, the plaintiff failed to allege that Workday was “procuring” employees for its customers and merely claimed that he applied for jobs with a number of companies that all happened to use Workday.  On February 20, 2024, the plaintiff filed an amended complaint alleging that Workday was an agent of the employers that delegated authority to Workday to make hiring process decisions or, alternatively, that Workday was an indirect employer.

This is a prime example of a case to watch as we head through 2024 where plaintiffs are seeking to hold a software vendor liable for the use of its product by others.

Privacy Class Actions Targeting AI

The second area I touched on relates to privacy class actions.  Companies that develop AI products have faced a slew of class action lawsuits alleging privacy violations.  The allegation essentially has been that, by collecting publicly-available data to develop and train their software, developers of AI products stole private and personal information from millions of individuals.

In cases like PM v. OpenAI, as an example, groups of plaintiffs filed class action lawsuits against OpenAI and Microsoft alleging that, by collecting information from the internet to develop and train AI tools like ChatGPT, they stole private information from millions of people.  Other lawsuits have been filed against companies like Open AI as well as Google alleging similar claims, including a recent example, AS v. Open AI, filed in the Northern District of California on February 27, 2024.

Copyright Class Actions Targeting AI

Third, in addition to privacy class actions, technology companies have been hit with a surge of recent lawsuits over the alleged “scraping” of copyrighted materials and personal data from across the internet to train their generative AI systems.

On February 28, 2024, for instance, Intercept Media filed suit in the Southern District of New York against Open AI and Microsoft.  It alleged that, at least some of the time, ChatGPT provides responses to its users that regurgitate verbatim – or nearly verbatim – copyright protected works of journalism without providing (and even allegedly intentionally excluding) the author, title, copyright, or terms of use information contained in those works.

In terms of other examples, at the end of last year, the New York Times filed a similar lawsuit alleging copyright infringement in both the input and output of Open AI models.  The Authors Guild of America filed a class action suit in September 2023 against MicroSoft and Open AI on behalf of tens of thousands of authors alleging willful violations of copyright laws.  In the suit, they allege that the two companies reproduced and appropriated the copyrighted work of tens of thousands of authors to train their AI models.  In Andersen v. Stability AI, a group of artists claimed that Stability AI created a software program that downloaded billions of copyrighted images to train and to act as a software library for a variety of visual generative AI platforms.  They claimed that, having been trained on their works, the software could generate output in their own artistic styles.

Many of these class actions are just getting off the ground.  As the results at the motion to dismiss stage continue to be mixed, it suggests that a model for successfully pleading and prosecuting these types of class actions is still a work in progress.

As courts start to weave their patchwork quilt of rulings, I expect we are seeing the tip of the iceberg in the types and numbers of filings we are likely to see on the generative AI class action front.

Other Hot Topics

The conference speakers covered myriad other timely and hot issues in the class action space, including the state of the current law on concepts such as ascertainability, standing, class-wide injury, and manageability at the class certification stage.   A recurrent issue was standing and class-wide injury.  Even if a court can “generally” determine class-wide injury at the certification and trial phases, how can it manageably resolve individualized questions at the damages phase?

The panelists likewise covered practical aspects of class-wide trials and mass arbitration, including best practices in preparing for and presenting cases for trial including use of video evidence such as video-taped depositions, use of demonstrative evidence at trial, and use of pre-trial focus groups to test and develop key themes and tell a story that resonates with the jury.

In sum, 2024, is shaping up to be a transformative year on the class action litigation front.

Announcing The Launch Of The Duane Morris Discrimination Class Action Review – 2024!


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

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!

Ohio Federal Court Decertifies FLSA Collective Action In Latest Application Of Sixth Circuit’s “Strong Likelihood” Standard

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 reading for 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.

It’s Here! The Duane Morris Privacy Class Action Review – 2024


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!

Ninth Circuit Holds That Federal Courts Must Apply Adolph In PAGA Cases, With A Concurring Opinion Addressing Whether Individual Arbitration Will Have Preclusive Effect

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.

Just Released! The Duane Morris Wage & Hour Class And Collective Action Review – 2024


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.

DMCAR Trend #10 – Arbitration Agreements Remained An Effective Tool To Cut Off Class Actions


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

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.

  1. 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.

  1. 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.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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