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.

Three Months After Class Certification Was Denied, New Mexico Federal Court Allows Sixteen FedEx Delivery Drivers To Intervene In A Class Action

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

Duane Morris Takeaways: In Martinez v. Fedex Ground Package System, Inc., No. 20-CV-1052, 2024 WL 418801 (D.N.M. Feb. 5, 2024), Judge Steven C. Yarbrough of the U.S. District Court for the District of New Mexico granted the intervention motion of 16 putative class members to join the lawsuit,  The Court held that the plaintiff-intervenors met the standard for permissive intervention under Rule 24(b)(2).  The Court’s decision in this case serves as an important reminder that Rule 23 and Rule 24 employ two separate commonality standards, and that class action cases are not automatically over when a court denies class certification.

Case Background

On October 12, 2020, Plaintiffs Fernandez Martinez and Shawnee Barrett (collectively, “Plaintiffs”) filed suit against Defendant Fedex Ground Package System, Inc. (“Fedex”), alleging that Fedex misclassified them as independent contractors and failed to pay them and putative class members overtime wages in violation of the New Mexico Minimum Wage Act (“NMMWA”).

On November 8, 2022, Plaintiffs moved to certify a class of all current or former New Mexico FedEx drivers who were paid a day rate without overtime compensation.  On October 27, 2023, the Court denied Plaintiffs’ motion on the basis that Plaintiffs failed to demonstrate that common questions predominated over individualized issues pursuant to Rule 23(b)(3).  Martinez v. FedEx Ground Package Sys., No. 20-CV-1052, 2023 WL 7114678 (D.N.M. Oct. 27, 2023).

On December 15, 2023, a group of 16 putative class members (the “Intervenors”) filed a motion to intervene as plaintiffs in the Lawsuit under Rule 24.  Martinez, 2024 WL 418801, at 1. In their motion, the Intervenors alleged that they, like Plaintiffs, were “current or former New Mexico FedEx delivery drivers who were paid the same amount of money regardless of how many hours they worked in a day, resulting in no premium payment for overtime hours worked in violation of the [NMMWA].”  Id.

The Court’s Decision

The Court granted the Intervenors’ motion.  Id. at 2.  It held that the Intervenors presented sufficient “questions of law and fact in common with the main action” under Rule 24.  Id.

The Court noted that permissive intervention under Rule 24 is appropriate where (i) a federal statute creates a conditional right, or (ii) where the “intervenor has a claim or defense that shares with the main action a common question of law or fact.”  Id.

In its opposition, FedEx asserted that because the Intervenors were employed by independent service providers (“ISPs”) to deliver packages on behalf of FedEx, and were not employed by FedEx directly, FedEx was not liable under the NMMWA for allegedly unpaid overtime.  Id.  Further, FedEx argued that the commonality requirement of Rule 24 was not met because the Court already found the absence of a common question when it denied class certification.  Id.

While the Court recognized that it denied class certification under Rule 23’s commonality requirement, it was not persuaded by FedEx’s arguments.  The Court underscored that under Rule 24, “rather than asking whether a question is susceptible to resolution ‘in one stroke,’ courts must ask whether intervenors present ‘questions of law and fact in common with’ the main action.”  Id.

The Court concluded that the “existing plaintiffs and every intervenor [would] assert that certain common aspects of [FedEx’s] contracts with ISPs [made FedEx] a joint employer and, consequently, jointly liable for any [NMMWA] violations.”  Id.  Accordingly, the Court ruled that the Intervenors satisfied the Rule 24 commonality standard and were permitted to join the lawsuit as plaintiffs.  Id. at 3.

Implications For Companies

The decision in Martinez v. FedEx serves as an important reminder for defendants that class actions are not necessarily over once class certification is denied – and some members of the putative class may take a run at joining the lawsuit per Rule 24.  Additionally, it underscores the distinct commonality analyses under Rule 23 and Rule 24.

Announcing The Duane Morris EEOC Litigation Review – 2024


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

Duane Morris Takeaways: Given the importance of compliance with workplace anti-discrimination laws for our clients, we are pleased to present the second edition of the Duane Morris EEOC Litigation Review – 2024. The EEOC Litigation Review – 2024 analyzes the EEOC’s enforcement lawsuit filings in 2023 and the significant legal decisions and trends impacting EEOC litigation for 2024. We hope that employers will benefit from this deep dive into how the EEOC’s priorities reveal themselves through litigation. Click here for a copy of the EEOC Litigation Review – 2024 eBook. You can also watch our recent discussion with EEOC Commissioner Keith Sonderling at our Duane Morris Class Action Review Book Launch here.

The Review explains the impact of the EEOC’s six enforcement priorities as outlined in its Strategic Enforcement Plan on employers’ business planning and how the direction of the Commission’s Plan should influence key employer decisions. The Review also contains a compilation of significant rulings decided in 2023 that impacted EEOC-initiated litigation and a list of the most significant settlements in EEOC cases in 2023.

We hope readers will enjoy this new publication. We will continue to update blog readers on any important EEOC developments, and look forward to sharing further thoughts and analysis in 2024!

Federal Illinois Court Rejects Plaintiff’s Renewed Motion For Class Certification Seeking A ‘Second Bite At The Apple’

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin

Duane Morris Takeaways: On January 29, 2024, in Hossfeld v. Allstate Insurance Co., No. 1:20-CV-07091 (N.D. Ill. Jan. 29, 2024), Judge Joan B. Gottschall of the U.S. District Court for the Northern District of Illinois denied a renewed motion for class certification brought by plaintiffs accusing Allstate of violating telemarketing laws by allowing an outside party to solicit ‘do-not-call’ listees on its behalf.   After denying the plaintiff’s initial motion of class certification a year earlier, Judge Gottschall denied the plaintiff’s second motion for class certification because the plaintiff failed to show a material change of circumstances in the time since the first certification motion that warranted a different ruling.  The decision is required reading for corporate defendants seeking to quell efforts by plaintiffs to take a second shot at obtaining class certification after a failed earlier attempt.

Case Background

Plaintiff Robert Hossfeld filed a lawsuit against Allstate Insurance Co. alleging that Allstate violated the Telephone Consumer Protection Act (“TCPA”) by providing a telemarketer that Allstate contracted with a list of consumer leads identifying individuals such as Plaintiff who requested to be placed on Allstate’s internal ‘do-not-call’ list.  Id. at 2.

In May 2022, Plaintiff filed a motion for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure.  In March 2023, the Court denied Plaintiff’s motion on the grounds that Plaintiff failed to show a large enough class to make joinder impractical.  Id. at 2-3.  In the order denying the motion, the Court did not include language stating that its denial of Plaintiff’s certification bid was “with prejudice.”  Id. at 8.

Given the absence of that language, Plaintiff filed a renewed motion for class certification in May 2023 asking the Court to reconsider its earlier class certification ruling.  Plaintiff asserted that he “reviewed the infirmities relied upon by the Court in its original opinion denying his first motion for class certification, and modified the class definitions and arguments to address them.”  Id. at 5.  Allstate moved to strike Plaintiff’s second motion for class certification, arguing that Plaintiff should not be given a “second bite at the apple.”  Id. at 1.

The Court’s Rejection Of Second Motion For Class Certification

On January 29, 2024, the Court issued a 9-page decision granting Allstate’s motion to strike Plaintiff’s second class certification motion.  Id.  The Court’s decision analyzed Plaintiff’s second class certification motion under two applicable standards, including: (1) principles governing a pre-judgment motion for reconsideration under Rules 54(b) and 59(c); and (2) the Rule 23(c)(1) standard for revising an order granting or denying class certification.  Id. at 4.  The Court rejected Plaintiff’s arguments under both standards.

First, the Court determined that Plaintiff did not satisfy the reconsideration standards under Rules 54(b) and 59(e) because he failed to “present either newly discovered evidence or establish a manifest error of law or fact.”  Id. at 5.  The Court noted as part of this conclusion that, “although [Plaintiff] has submitted evidence not previously presented to the court, he [did] not contend that this evidence was unavailable to him when he filed his first class certification motion or that the court made a manifest error of fact or law when it denied his first class certification motion.  Id. at 5-6.

Second, the Court found that Plaintiff’s did not make a necessary showing to reverse the Court’s earlier denial of class certification under Rule 23.  Citing Seventh Circuit precedent in Chapman v. First Index, Inc., 796 F.3d 783, 785 (7th Cir. 2015), which affirmed the denial of a second class certification motion where there was no showing of “a material change of circumstances to justify revisiting the first class certification ruling,” the Court in Hossfeld rejected Plaintiff’s argument for the same reason.  Id. at 7.  As the Court explained, Plaintiff did not dispute that the newly-included arguments and supporting evidence in his second class certification motion were available at the time of his first motion.  Id. at 9.  Thus, the Court concluded that Plaintiff did not show “a material change in circumstances needed to obtain a second bite at the proverbial apple.”  Id.

Based on rejecting Plaintiff’s arguments under both applicable legal standards, the Court granted Allstate’s motion to strike Plaintiff’s second motion for class certification.  Id.

Implications For Companies

This opinion represents a helpful roadmap for employers to fend off attempts by plaintiffs to revive a failed class certification bid.  The decision is a strong source of persuasive authority supporting that a plaintiff cannot successfully move a second time for class certification absent either “a manifest error of law or fact” in the court’s first class certification ruling, or newly-discovered evidence unavailable at the time of the first class certification bid representing a “material change in circumstances.”  Id. at 5, 9.  For these reasons as well, the ruling underscores the importance of not saving potentially supportive arguments and evidence during an initial class certification battle in case of a “second bite at the apple” that may not come.

DMCAR Trend #9 – ESG Class Action Litigation Hit Its Stride

By Gerald L. Maatman and Jennifer A. Riley

Duane Morris Takeaway: During the past year, the label “ESG” became “mainstream,” and discussion of its impact became a recurring topic of conversation in boardrooms across the country. ESG refers to broadly to “environmental, social, and governance,” which many companies have embraced as part of their business plans and corporate missions.

Watch the video below as Duane Morris partner Jerry Maatman discusses the impact of ESG on class action litigation and how this trend will evolve in 2024.

DMCAR Trend #9 – ESG Class Action Litigation Hit Its Stride

ESG was not immune to lawsuits, and we saw a steady influx of class action litigation in two particular ESI spheres – (i) product advertising and (ii) employment and DEI-related lawsuits.

The former focused on product advertising and, in particular, on allegations that marketing campaigns touting products as “green” or “sustainable” or “carbon neutral,” among other things, are false, misleading, and deceptive. Commonly called “greenwashing,” these claims generally refer to false or misleading statements about the environmental benefits or about the performance of particular products or operations and, in particular, tend to target statements touting the “green” or “sustainable” or “eco-friendly” characteristics of such products or operations.

Most often, plaintiffs’ class action attorneys file greenwashing lawsuits as class actions. These lawsuits largely focus on claims that defendants marketed products as “environmentally responsible,” “sustainably sourced,” or “humanely raised,” arguing that such misleading claims induce purchasers to pay a premium for “greener” products.

In Smith, et al. v. Keurig Green Mountain, Inc., No. 4:18-CV-06690 (N.D. Cal.), for example, the plaintiffs filed a class action lawsuit asserting various claims, including breach of warranty, misrepresentation, and violation of the California Unfair Competition Law, targeting Keurig’s representations regarding its K-cup coffee pods. In particular, Keurig marketed its K-cups as recyclable with labeling that consumers could “[h]ave [their] cup and recycle it, too.” The plaintiffs claimed that, in fact, the K-cups were not recyclable. In 2019, the court denied Keurig’s motion to dismiss, and, in 2020, the court granted the plaintiff’s motion for class certification. In February 2023, the court granted final approval of class action settlement for $10 million.

In Dwyer, et al. v. Allbirds, 598 F. Supp. 3d 137 (S.D.N.Y. 2022), the plaintiff filed a similar greenwashing class action alleging that defendant marketed its shoes, in part, based on their sustainability using statements like “Sustainability Meets Style” and “Environmentally Friendly.” The plaintiff brought claims for breach of express warranty, fraud, and unjust enrichment and asserted violations of §§ 349-350 of the New York General Business Law. Allbirds maintained a website showing the carbon footprint associated with its products based on a life-cycle analysis (LCA), and showing the environmental impact of its materials based on the third-party Higg Material Sustainability Index (Higg MSI). The plaintiff attacked the LCA tool and the Higg MSI standard as incomplete measurements of product sustainability. The court granted Allbirds’ motion to dismiss for failure to state a claim.

In Lizama, et al. v. H&M Hennes & Mauritz LP, No. 4:22-CV-1170 (E.D. Mo. 2023), the plaintiffs filed a class action complaint alleging that the retailer deceptively attempted to “greenwash” its allegedly environmentally damaging practices. H&M’s “Conscious Choice” collection included items made from recycled and organic materials that H&M marketed as “more sustainable.” The plaintiffs alleged that, in fact, H&M’s clothing was not sustainable because the synthetic materials in the collection had a negative environmental impact. The plaintiffs asserted claims for violation of various California and Missouri statutes and sought to certify various sub-classes. On May 12, 2023, the court granted the defendant’s motion to dismiss the California claims for lack of personal jurisdiction and dismissed the Missouri claims because it found the alleged statements not misleading as a matter of law.

Relative to employment and DEI-related lawsuits, the plaintiffs’ class action bar focused numerous claims based on allegations that companies failed to live up to their representations regarding diversity, equity, and inclusion or breached their DEI commitments.

Plaintiffs anchored many of their class claims on board-related DEI commitments, employment discrimination, and workplace safety issues. In the corporate DEI cases, plaintiffs asserted claims that companies allegedly failed to live up to their DEI commitments or failed to abide by their DEI policies or practices. In many of the ESG-related employment discrimination cases, plaintiffs focused on claims that corporate officers or directors breached their fiduciary duties by failing to address employment discrimination, by adopting policies that discriminate, or by failing to address safety concerns.

In Bucks County Employees Retirement System v. Norfolk Southern Corp., No. 2:23-CV-982 (N.D. Ga. 2023), for instance, the plaintiff filed a securities class action against the defendant and three of its managers alleging that they misrepresented the corporation’s worker safety practices prior to a chemical train derailment, leading investors to purchase company stock at inflated levels. The plaintiff alleged that the defendants committed to safety as a “core value” in their public statements and SEC filings but, in reality prioritized more lucrative practices at the expense of safety, such as longer and heavier trains and lower headcounts. The plaintiff asserted that such culture of “increased risk-taking” made the company more vulnerable to derailments.

As companies continue to add statements regarding their environmental impact or social responsibility to enhance their marketing efforts, communicate their company values, and/or attempt to appeal to consumers and shareholders attuned to ESG considerations, we expect to see ESG class actions continue their growth trajectory.

DMCAR Trend #8 – Generative AI Began Transforming Class Action Litigation


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

Duane Morris Takeaway: Generative AI hit mainstream in 2023 and quickly become one of the most talked-about and debated subjects among corporate legal counsel across the country, as numerous companies jumped to incorporate AI while attempting to manage its risks. In 2023, we saw the tip of the iceberg relative to the ways that generative AI is poised to transform class action litigation.

In the video below, Duane Morris partner Jennifer Riley discusses the latest AI class action rulings, and what companies can expect to see in AI litigation in 2024.

DMCAR Trend #8 – Generative AI Began Transforming Class Action Litigation

  1. Opportunities For Enhanced Efficiency

As the COVID 19 pandemic brought video-conferencing tools into the mainstream, such tools enabled more litigants to conduct and to attend more hearings, more depositions, and more mediations in less time. While the debate continues as to their effectiveness, generative AI is poised to enable lawyers to far surpass those gains in efficiency, potentially enabling the plaintiffs’ class action bar to do “more with less” like never before, leading to more lawsuits that can be handled by fewer lawyers in less time and a potential surge of class actions on the horizon.

Less than a year into the generative AI movement, we have seen the technology influence various aspects of the legal process, including by assisting legal professionals in analyzing vast amounts of data; automating the review of documents, contracts, and communications; increasing the speed and potentially enhancing the accuracy of e-discovery; and automating and enhancing the dissemination of information in the class action settlement administration process.

Legal research, for example, traditionally required a time-consuming undertaking that involved sifting through dozens of decisions and secondary authorities. AI tools are enhancing this process through natural language search capabilities and machine learning algorithms that streamline the process and enhance the results. Document review similarly traditionally required a time-consuming and painstaking process. AI tools are using machine learning and text analytics, for example, to sort and categorize large datasets with increasing accuracy. By quickly analyzing extensive document sets, AI tools can expedite the discovery process, making litigation more efficient and cost-effective.

Likewise, AI has the potential to revolutionize the process of administering class action settlements. The participation in claims-made settlements, for instance, often falls within the range of 15% to 35%, depending upon various factors such as the type and method of notice. AI can be used in a variety of ways, including to find potential class members and thereby raise claim rates, while reducing administrative costs, increasing the amount available for distribution as well as the ultimate settlement payout.

In sum, the legal industry is poised to leverage this transformative technology to make leaps in enhancing the efficiency and effectiveness of the class action litigation process.

  1. Risk Of Class Claims

While improving the efficiency with which the plaintiffs’ class action bar can litigate class actions, generative AI is providing an ocean of raw material for potential claims. Upon hitting the mainstream, AI promptly became the subject of class claims, which span multiple theories and areas of law.

While generative AI might improve the speed of interactions, for instance, users have the ability to exploit AI to generate massive amounts of false information or to simply inadvertently rely upon errors in AI-generated communications, giving rise to claims. Similarly, the SEC has warned businesses against “AI washing,” or making false claims regarding their AI capabilities, likening it to the greenwashing phenomenon that has been the target of an agency crackdown. The plaintiffs’ class action bar is using such representations about AI to fuel class claims for consumer fraud based on allegedly misleading or deceptive representations about the efficacy of AI technology. In Matsko, et al. v. Tesla, Case No. 22-CV-5240 (N.D. Cal. Sept. 14, 2022), for instance, a plaintiff filed a class action alleging that Tesla exaggerated the capabilities of its software and asserting various causes of action for breach of warranty and violation of California consumer protection laws, among others.

Companies that incorporate AI to streamline their decision-making processes likewise face the prospect of class action suits. Plaintiffs have filed suits against insurers that used algorithms to adjudicate claims, for example, as well as against agencies that used programs to deny or reduce government benefits. In Kisting-Leung, et al. v. Cigna Corp., Case No. 23-CV-01477 (E.D. Cal. 2023), for instance, a group of California consumers filed a class action complaint against a national health insurance company alleging that its use of an algorithm to deny certain medical claims constituted breach of the implied covenant of good faith and fair dealing, unjust enrichment, intentionally interfered with contractual relations, and violated California’s Unfair Competition Law.

The developers of generative AI products have not remained immune. Such companies have faced a slew of class action lawsuits alleging privacy violations. In a series of lawsuits beginning in June and July 2023, the plaintiffs’ class action bar has alleged that, by collecting publicly-available data to develop and train their software, developers of generative AI products stole private and personal information from millions of individuals. In P.M., et al. v. OpenAI LP, No. 3:2023-CV-03199 (N.D. Cal. 2023), a group of plaintiffs filed a class action suit against OpenAI LP and Microsoft, Inc. alleging that by collecting publicly-available information from the internet to develop and train its generative AI tools, including ChatGPT, Dall-E, and Vall-E, OpenAI stole private information from millions of people, violating their privacy and property rights, among other claims. In J.L., et al. v. Alphabet Inc., No. 3:23-CV-03440 (N.D. Cal. 2023), the same plaintiffs’ firm filed a class action lawsuit against Google, similarly alleging that, by collecting internet data to train its tools like Bard, Imagen and Gemini, Google infringed privacy rights and violated the Copyright Act.

Developers of generative AI tools similarly have faced claims. Plaintiffs have filed class action lawsuits claiming that, by collecting and using internet data to train generative AI models, developers violated copyright laws. In Andersen, et al. v. Stability AI, Ltd., Case No. 23-CV-00201 (N.D. Cal. Oct. 20, 2023), for example, plaintiffs filed a class action on behalf of artists alleging that Stability AI, Ltd. and Stability AI, Inc. “scraped” billions of copyrighted images from online sources, without permission, to train their models to generate new images without ascribing credit to the original artists. In Doe v. GitHub, Inc., 22-CV-06823 (N.D. Cal. May 11, 2023), the plaintiffs, a group of developers who allegedly published licensed code on GitHub’s website, filed a class action lawsuit against GitHub, the online code repository, as well as Microsoft and OpenAI claiming that GitHub improperly used that code to train its AI-powered coding assistant, Copilot, without appropriate attribution in violation of copyright management laws.

As technology continues to grow and change, and the plaintiffs’ class action bar continues to flex its creativity, the number and types of claims are likely to expand and evolve during the upcoming year.

Virginia Federal Court Authorizes $2.4 Million Award For ERISA Severance Plan Benefits In WARN Act Class Action

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

Duane Morris Takeaways: On January 16 and 17, 2024, in Messer v. Bristol Compressors International, LLC, No. 1:18-CV-00040 (W.D. Va.), on remand from a Fourth Circuit decision, Judge James P. Jones of the U.S. District Court for the Western District of Virginia issued an opinion and order entering judgment in the amount of $2,407,471.90 for severance pay benefits owed under an ERISA employee benefits plan based on violations of the 60-day notice requirement of the Worker Adjustment and Retraining Notification Act (WARN Act), 29 U.S.C. § 2102(a)(1). The multi-million dollar ruling stems from a 2018 WARN-covered “plant closing” and follows an earlier award on November 23, 2021 of $1.39 million to certain class members for damages including back pay and interest owed pursuant to the WARN Act for the same notice violation underlying the recent ruling.

The decision highlights the extremely technical nature and high stakes of WARN Act litigation in the class action context.

Case Background

On July 31, 2018, Bristol Compressors International (BCI) notified employees that it would close its manufacturing facility in Bristol, Virginia, and their employment would terminate on or before September 30, 2018. BCI implemented several rounds of terminations over the next three and a half months, beyond the originally anticipated date of September 30, 2018 for the final terminations. However, BCI did not issue additional notice under the WARN to those whose employment ended after September 30, 2018.  The manufacturing facility ultimately closed on November 16, 2018.

On October 19, 2018, a group of former employees sued BCI- under the WARN Act.  The plaintiffs alleged that the company failed to provide 60 days’ notice of their terminations in accordance with the specific requirements of the WARN Act.

On June 20, 2019, the Court granted the plaintiffs’ motion for certification of three sub-classes of former employees terminated due to the plant closing under Rules 23(a) and 23(b)(3). Sub-class One included employees involuntarily terminated between July 31, 2018 and August 31, 2018. Sub-class Two included employees involuntarily terminated after August 31, 2018 who signed a stay bonus agreement that included an express waiver of claims under the WARN Act. Sub-class Three included employees involuntarily terminated after August 31, 2018 who had not signed a stay bonus agreement.

Following a bench trial, the Court in 2020 granted summary judgment to BCI on the plaintiffs’ claim for benefits owed under a company severance pay plan. The Court found that BCI validly terminated its severance pay plan before the employment terminations.  In a separate 2020 opinion, the Court dismissed upon summary judgment the WARN Act claims of four class members whose employment ended on October 19, 2018. The Court reasoned that BCI’s July 31, 2018 notification was adequate to prepare them for their later job losses. The plaintiffs appealed those prior rulings to the Fourth Circuit.

The Fourth Circuit’s Ruling

On April 3, 2023, the Fourth Circuit, in an unpublished opinion, reversed and remanded parts of the 2020 rulings.  Messer v. Bristol Compressors International, LLC, 2023 U.S. App. LEXIS 7826 (4th Cir. Apr. 3, 2023) (per curiam).

The Fourth Circuit reversed the denial of severance pay benefits to the class, concluding the company did not terminate the severance pay plan in accordance with the ERISA’s requirements for modifying or terminating an ERISA-governed benefits plan.  As a result, the severance pay plan was in effect when the employment terminations occurred.

The Fourth Circuit affirmed the decision upholding the release of claims under the WARN Act to members of Sub-class Two. However, because the release of claims in the stay bonus agreements those class members signed explicitly carved out claims for vested benefits under the company’s “written benefit plans,” members of Sub-class Two did not waive their claims for severance pay benefits owed to them under the ERISA-governed employee benefit plan.

The Fourth Circuit also vacated the grant of summary judgment to BCI on the WARN Act claims of the four plaintiffs whose employment ended on October 19, 2018.  The Fourth Circuit pointed to the regulation under the WARN Act providing that, if an employer postpones a covered plant closure for 60 days or more, additional 60 days’ notice under the WARN Act is owed to affected employees.  See 20 C.F.R. § 639.10. Because the company issued no additional notice to those four individuals after July 31, 2018, but terminated their employment after September 30, 2018, the Fourth Circuit opined that a WARN Act violation was established.

The District Court’s Decision

On remand, the Court granted the plaintiffs’ unopposed motion for summary judgment on the two issues on which the Fourth Circuit reversed and remanded. Consistent with the Fourth Circuit’s ruling, the Court held that all class members were entitled to severance pay benefits under the severance pay plan, plus interest, and the four plaintiffs whose employment ended on October 19, 2018 were in addition owed back pay and prejudgment interest for a 60-day period.

On January 17, 2014, the Court ordered the case closed, with leave granted to class counsel to file a supplemental motion for attorneys’ fees and costs within 30 days.

Implications For Employers

The Messer case is illustrative of the many decisions in recent years in which plaintiffs have recovered multi-million dollar judgments following class certification of WARN Act claims. Employers should remain vigilant to the WARN Act, and the potential exposure to 60 days’ worth of back pay, lost benefits and prejudgment interest in the event of violations, well before implementing any mass layoff or plant closure that may trigger its strict notification requirements.

DMCAR Trend #7 – Government Enforcement Lawsuit Filings Reflected A Resurgence


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

Duane Morris Takeaway: In 2023, the EEOC’s litigation enforcement activity showed that its previous slowdown in filing activity is well in the rearview mirror, as the total number of lawsuits filed by the EEOC increased from 97 in 2022 to 144 in FY 2023.

In accordance with tradition, the EEOC filed more lawsuits in September 2023, the last month of its fiscal year, than in any other month from October 2022 forward. This past year, the EEOC filed 67 lawsuits in September, up from 39 filed in September 2022.

Watch below as Duane Morris partner Jerry Maatman addresses the top Trends in Government Enforcement Litigation in 2023, and what to expect in this area in 2024.

DMCAR Trend #7 – Government Enforcement Lawsuit Filings Reflected A Resurgence

The EEOC exhibited a renewed focus on systemic discrimination lawsuits. “Systemic” discrimination, according to the EEOC, involves an alleged “pattern or practice, policy and/or class … where the discrimination has broad impact on an industry, profession, company, or geographic location.” The EEOC filed 25 systemic lawsuits in FY 2023, nearly double the number it filed in each of the past three years. Overall, the 2023 lawsuit filing data and strategic priorities confirm that aggressive EEOC enforcement activity is back on the menu, and the litigation filing machine is back in full throttle, with no signs of slowing down.

  1. Litigation And Settlement Trends

In FY 2023, the EEOC filed 144 lawsuits, including 25 systemic lawsuits. This represents a resurgence from what we observed in FY 2022, during which the EEOC filed 97 lawsuits, including 13 systemic suits. These enforcement numbers reflect a boost over filing numbers from FY 2021, as well, during which the EEOC filed 114 lawsuits including 13 systemic lawsuits. They likewise reflect an increase over FY 2020, during which the COVID-19 pandemic pushed case filings down to 33.


The graphic shows this year-over-year filing trend:

As illustrated, FY 2023 represents the highest number of filings since FY 2019, during which the EEOC filed 157 lawsuits. These numbers remain off the high water marks we observed in prior years, including 217 lawsuits in FY 2018 and 201 lawsuits in FY 2017.

Notably, FY 2023 also reflected a resurgence in the filings from historically active district offices. In FY 2023, Philadelphia District Office had by far the most lawsuit filings with 19, followed by Indianapolis and Chicago with 13 filings, and New York and Los Angeles each with 10 filings. Charlotte, Atlanta, Dallas, Phoenix, and Memphis had 9 each, Houston had 8, Miami, Birmingham, and St. Louis had 7 each, and San Francisco had 5 filings.

The following shows the filing numbers in FY 2023 by district office:

The 19 filings by the Philadelphia District Office reflects a significant increase compared to FY 2022 during which Philadelphia filed 7 lawsuits. Similarly, Indianapolis nearly doubled its filings compared to FY 2022. The number of lawsuit filings by the Chicago District Office remained steady at 13. The filings by the Miami District Office fell slightly to 7, compared to its 8 filings in FY 2022.

The balance across various District Offices throughout the country confirms that the EEOC’s aggressiveness is in peak form, both at the national and regional level.

As to systemic filings, the EEOC filed 25 systemic lawsuits in FY 2023, almost double the number it filed in each of the past three fiscal years and the largest number of systemic filings in the past five years. As to its current docket, in FY 2023, the EEOC reported that it had a total of 32 systemic cases on its docket at the end of fiscal year 2022, accounting for 18% of its active merits suits. During FY 2022, the EEOC reported 29 pending systemic cases, which accounted for 16% of the EEOC’s docket.

While these numbers continue to climb, they do not yet reflect the activity that employers observed prior to FY 2018. By the end of FY 2018, the EEOC had 71 systemic cases on its active docket, two of which included over 1,000 victims, and systemic cases accounted for 23.5% of its active docket in that year.

Comparing its monetary recovery to previous years, the EEOC reported that it recovered $513.7 million in all types of cases in FY 2022, an increase over its reported recovery in FY 2021, during which it recovered, $485 million. Comparing the numbers to prior years, the EEOC recovered $535.5 million in all types of cases in FY 2020, $486 million in FY 2019, and $505 million in FY 2018.

The below chart shows the year-over-year change in total recoveries.


In terms of the types of filings, FY 2023 remained generally consistent with prior years in that the EEOC filed the bulk of its lawsuits under Title VII, the Americans with Disabilities Act (“ADA”), and the Age Discrimination in Employment Act (“ADEA”).

Title VII cases once again made up the majority of cases filed. The EEOC filed 97 cases under Title VII, making up 68% of all filings (down from 69% of filings in FY 2022 and above 61% of filings in FY 2021).

The EEOC filed more cases under the ADA this past year with 49 lawsuits, nearly twice the number of ADA lawsuits it filed in FY 2022, and, as a percentage of all filings, ADA lawsuits increased from 29.7% in FY 2022, to 34% of lawsuit filings in FY 2023.

The EEOC filed 12 ADEA lawsuits in FY 2023, an increase from the 7 ADEA lawsuits it filed in 2022.

The following graphs show the number of lawsuits filed according to the statute under which they were filed (Title VII, Americans with Disabilities Act, Pregnancy Discrimination Act, Equal Pay Act, and Age Discrimination in Employment Act) and, for Title VII cases, the theory of discrimination alleged.

Amplifying its renewed activism, the EEOC issued a press release at the end of the fiscal year touting its increased enforcement litigation activity. Such a media statement is unprecedented in that 2023 is the first year the EEOC issued a media statement touting its numbers, a signal that its renewed activity reflects a strategic priority.

In July 2023, the Senate confirmed Kalpana Kotagal, President Biden’s nominee to fill the fifth Commissioner slot, for a term expiring in July 2027. Upon her confirmation, Democrats gained a 3 to 2 majority among Commissioners. Employers are apt to see increased litigation enforcement activity in 2024 as the EEOC continues to gain momentum with its full component of Biden appointees and can utilize its majority power to advance its agenda.

  1. What’s Next For The EEOC?

Now that the EEOC has a majority of Democratic-appointed Commissioners firmly in place, along with a significantly increased proposed budget, we expect that Corporate America will see a continued expansion of enforcement activity in 2024.

Every few years the EEOC prepares a Strategic Enforcement Plan to focus and coordinate the agency’s work and identify subject matter priorities. This year, the EEOC released its Strategic Enforcement Plan for Fiscal Years 2024-2028.

In the 2024-2028 Strategic Enforcement Plan, the EEOC identified three guiding principles. First, the Commission states that to maximize the EEOC’s effectiveness, it will focus on those activities that have the greatest strategic impact, including systemic investigations, resolutions, and lawsuits. The EEOC thus “reaffirms its commitment to a nationwide, strategic, and coordinated systemic program as one of the EEOC’s top priorities.”

Second, the EEOC states that it will take an integrated approach at the agency that promotes collaboration, coordination, and information sharing throughout the agency. It explains that “[e]ffective systemic enforcement requires communication and collaboration between the EEOC’s legal and enforcement units, between headquarters and the field, and across EEOC districts.”

Third, the EEOC states that it will ensure that it achieves results “in accordance with the priorities set forth in the [Strategic Enforcement Plan].” This signals that the Commission will continue to emphasize and prioritize the use of systemic, pattern or practice lawsuits to accomplish its agenda.

As in years past, the Strategic Enforcement Plan also sets out the EEOC’s six substantive priorities.

#1 – Eliminating Barriers In Recruitment and Hiring – The EEOC will focus on recruiting and hiring practices that discriminate, including, among other things the use of technology, including artificial intelligence and machine learning, to target job advertisements or assist in hiring decisions; job advertisements that exclude or discourage certain protected groups from applying; and the use of screening tools or requirements that disproportionately impact workers on a protected basis, including those facilitated by artificial intelligence or other automated systems.

#2 – Protecting Vulnerable Workers – The EEOC will focus on harassment, retaliation, job segregation, discriminatory pay, disparate working conditions, among other things, that impact “particularly vulnerable workers,” which include immigrant and migrant workers; people with developmental or intellectual disabilities; individuals with arrest or conviction records; LGBTQI+ individuals; temporary workers; older workers; individuals employed in low wage jobs, including teenage workers; among others.

#3 – Addressing Selected Emerging And Developing Issues – The EEOC will continue to prioritize issues that may be emerging or developing, which includes qualification standards and inflexible policies or practices that discriminate against individuals with disabilities; protecting workers affected by pregnancy, childbirth, or related medical conditions; and addressing discrimination influenced by or arising as backlash in response to local, national, or global events.

#4 – Advancing Equal Pay Protections for All Workers – The EEOC will continue to focus on combatting pay discrimination in all forms. It notes that, because many workers do not know how their pay compares to their co-workers’ pay and, therefore, are less likely to discover and report pay discrimination, the EEOC will continue to use directed investigations and Commissioner Charges to facilitate enforcement.

#5 – Preserving Access to the Legal System – The EEOC will focus on policies and practices that discourage or prohibit individuals from exercising their rights or impede the EEOC’s enforcement efforts, including, among other things, overly broad waivers, releases, or non-disclosure agreements; and unlawful, unenforceable, or otherwise improper mandatory arbitration provisions.

#6 – Preventing and Remedying Systemic Harassment — The EEOC will continue to focus on combatting systemic harassment in all forms. It notes that, with respect to charges and litigation, a claim by an individual or small group may fall within this priority if it is related to a widespread pattern or practice of harassment.

Some – but certainly not all – of the EEOCs lawsuits initiated over the past year fall into one or more of these six categories. The EEOC’s focus on systemic litigation underlies many of these enforcement priorities. Because the EEOC views systemic cases as having a particular strategic impact, insofar as they affect how the law influences a particular community, entity, or industry, companies should brace for the expansion of these cases.

  1. Department Of Labor Enforcement Year-End Recoveries

The US Department of Labor’s Wage and Hour Division recovered approximately $212.3 million in back wages in FY 2023 and concluded 20,215 compliance actions. These numbers align with the numbers we saw in FY 2022, in which the WHD recovered $213.2 million in back wages and concluded 20,422 compliance actions. The number of compliance actions, and the subsequent back wages recoveries in FY 2022-23 was measurably lower than in FY 2021 and FY 2020. In FY 2021, the WHD concluded 24,746 compliance actions and recovered $232.4 million in back wages and in 2020 it concluded 26,096 compliance actions and recovered $257.8 million in back wages.

Although the WHD back wages recoveries were down, the agency imposed civil money penalties to employers at a 10-year-high of $25.8 million for violations of federal labor laws in FY 2023. This was the highest number in a decade, and was significantly higher than the penalties assessed in 2022 ($21.6 million), 2021 ($20.4 million), and 2020 ($17.9 million).

Illinois Federal Court Dismisses Five Of Six Causes of Action In Data Breach Class Action Against Chicagoland Nonprofit

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

Duane Morris Takeaways: In Wittmeyer v. Heartland Alliance for Human Needs & Rights, No. 23-CV-1108, 2024 WL 182211 (N.D. Ill. Jan. 17, 2024), U.S. District Judge Jeremy C. Daniel granted in part and denied in part Defendant Heartland’s motion to dismiss under Rule 12(b)(6). The Court found that the Plaintiffs only pled facts sufficient to support their negligence claim, and dismissed their negligence per se, breach of express and implied contract, breach of the Illinois Consumer Fraud Act and Deceptive Business Practices Act claims, and declaratory judgment and injunction claims.  The ruling is exceedingly favorable for companies. Data breach class action defendants should utilize this decision as a roadmap when preparing motions to dismiss.

Case Background

Heartland Alliance for Human Needs & Rights (“Heartland”) is a non-profit, anti-poverty organization that provides healthcare and other services to individuals.  Id. at *1.  To receive services, individuals provide Heartland with personally identifiable information (“PII”) such as names and social security numbers.  Id.  For those individuals who receive medical services, Heartland also collects and stores personal health information (“PHI”) including medical diagnoses and medication records.  Id.

In January 2022, unauthorized individuals obtained access to the PII and PHI of Heartland’s clients, employees, and independent contractors.  Id.  In December 2022, Plaintiffs Tracy Wittmeyer and Audrey Appiakorang received notice that their PII and PHI were compromised in the data breach.  Id.  Plaintiffs alleged that they experienced various damages such as increased risk of fraud and identity theft, expenditure of time and effort in mitigating harms associated with the data breach, and, in particular as to Plaintiff Appiakorang, that someone fraudulently obtained car insurance in her name.  Id.

Plaintiffs filed a class action against Heartland for various claims, including: (i) negligence, (ii) negligence per se, (iii) breach of express contract, (iv) breach of implied contract, (v) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), and (vi) a declaratory judgment and injunction.  Id.  Subsequently, Heartland moved to dismiss the lawsuit under Rule 12(b)(6).  Id.

The Court’s Decision

U.S. District Judge Jeremy C. Daniel granted Heartland’s motion to dismiss as to Plaintiffs’ negligence per se, express and implied breach of contract, violation of the ICFA, and declaratory judgment and injunction claims.  Id.  at * 7.

The Court, however, denied Heartland’s motion to dismiss Plaintiffs’ negligence claim.  Id. at *3.  Heartland asserted that it did not owe Plaintiffs a duty to safeguard their personal information.  Id.  The Court disagreed. It “decline[d] to find, as a matter of law, that Heartland owed no duty to the plaintiff to safeguard their personal information.”  Id.  (citing an amendment to the Illinois Personal Information Protection Act and the Illinois Appellate Court’s holding in Flores v. Aon Corp., 2023 IL App (1st) 230140,  at ¶ 23.).

The Court granted Heartland’s motion to dismiss Plaintiffs’ negligence per se claim.  Id.  Plaintiffs alleged that because Heartland failed to comply “with the FTCA and its corresponding obligations under HIPAA,” Plaintiffs were injured.  Id. at *4.  However, the Court reasoned that a violation of a statute only constitutes negligence per se “when it is clear that the legislature intended for the act to impose strict liability.”  Id. at *3.  Since Plaintiffs did not allege that either the FTCA or HIPAA imposed strict liability, the Court granted Heartland’s motion to dismiss.  Id. at *4.

The Court also granted Heartland’s motion to dismiss Plaintiffs’ breach of express and implied contract claims.  Id. at *4-6.  The Court dismissed Plaintiffs’ breach of express contract claim because they failed to allege facts in the complaint to demonstrate that the parties entered into an express contract regarding security measures for Plaintiffs’ PII and PHI.  Id. at *4.  While the Court observed that an implied contract could exist between the parties, because Plaintiffs’ complaint did not contain any allegations that the Plaintiffs suffered monetary damages as a result of the data breach, the Court dismissed its breach of implied contract claim.  Id. at *5-6.

Finally, the Court dismissed Plaintiffs’ ICFA and declaratory judgment and injunction claims. Id. at *6-7.  Under the ICFA, the Court opined that Plaintiffs were required to plead facts sufficient to demonstrate the existence of a “real and measurable” loss.  Id. at *6.  The Court dismissed Plaintiffs’ ICFA claim because it found that Plaintiffs failed to plausibly plead that they suffered an economic loss.  Id.  In addition, the Court dismissed Plaintiffs’ declaratory judgment and injunction causes of action, noting that while they are forms of relief, they are not cognizable, independent causes of action.  Id. at *7.

Implications For Data Breach Defendants

The decision in Wittmeyer v. Heartland Alliance for Human Needs & Rights serves as a roadmap for data breach class action defendants to utilize when preparing motions to dismiss.

Early in the litigation, data breach class action defendants typically move to dismiss a plaintiff’s complaint under Rule 12(b)(1) for lack of subject matter jurisdiction and/or, as Heartland did here, under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Importantly, various jurisdictions across the United States have different approaches to the issue of whether various claimed damages (i.e., increased risk of fraud and identity theft, expenditure of time and effort in mitigating harms associated with a data breach, loss of value in PII and PHI, and emotional harms like anxiety and stress) can confer standing upon a plaintiff. Class action defendants should conduct a thorough review of their relevant jurisdiction’s holdings concerning the plaintiff’s claimed damages in support of any motion to dismiss.

 

Trend #6 – PAGA Filings Reached An All-Time High


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

Duane Morris Takeaway: In 2023, employers saw claims filed under the California Private Attorneys General Act (PAGA) reach an all-time high. According to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the LWDA has increased exponentially over the past two decades, from 11 in 2006 to 7,780 in 2023. The PAGA created a scheme to “deputize” private citizens to sue their employers for penalties associated with violations of the California Labor Code on behalf of other “aggrieved employees,” as well as the State. A PAGA plaintiff may pursue claims on a representative basis, i.e., on behalf of other allegedly aggrieved employees, but need not satisfy the class action requirements of Rule 23. In other words, the PAGA provides the plaintiffs’ class action bar a mechanism to harness the risk and leverage of a representative proceeding without the threat of removal to federal court under the CAFA and without the burden of meeting the requirements for class certification. If successful in prosecuting such a case, aggrieved employees receive 25% of any civil penalties and pass the other 75% to the California Labor and Workforce Development Agency (LWDA). The plaintiffs’ attorneys who pursue the action may collect their attorneys’ fees and costs.

Watch our Trend #6 video below, where Duane Morris partner Jennifer Riley discusses the PAGA filings explosion, the impact of the PAGA on arbitration, and what to expect with PAGA rulings in 2024.

Trend #6 – PAGA Filings Reached An All-Time High

  1. The Explosion Of PAGA Notices

According to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the LWDA has increased exponentially over the past two decades. The number grew from 11 notices in 2006, to 1,606 in 2013, and then experienced three sizable jumps – to 4,530 in 2014, to 5,732 in 2018, and to 7,780 in 2023, each coinciding with a significant shift in the legal landscape, as discussed below. From 2013 to 2014, employers saw the largest single year increase, from 1,605 notices in 2013 to 4,532 notices in 2014, an increase of 182%.

The most significant drop in the past two decades occurred in 2022, when notices fell from 6,502 in 2021 to 5,817 in 2022, before their resurgence in 2023.

The following chart illustrates this trend.

These numbers closely tie to the shifting landscape of workplace arbitration, as each of the major shifts coincides with the timing of a significant expansion or pull back in the law governing the enforcement of arbitration agreements.

  1. The PAGA As A Work-Around To Arbitration

The proliferation of mandatory arbitration programs started as early as 1991 when the U.S. Supreme Court issued Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The movement did not gain steam, however, until 2011 when the U.S. Supreme Court issued its ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and held that the Federal Arbitration Act (FAA) preempts state rules that stand “as an obstacle to the accomplishment of the FAA’s objectives.”

In the wake of AT&T Mobility, arbitration programs gained a boost in their popularity. Such programs provided companies a mechanism to contract around class and collective actions. Through a form agreement, offered as a condition of an employment relationship or transaction, for instance, a company could require its employees and customers to resolve any disputes on an individual basis through private, binding arbitration.

The growing popularity of such programs led the plaintiffs’ class action bar to identify work-arounds. The California Supreme Court cemented the PAGA as the frontrunner for employment-related claims with its decision in Iskanian v. CLS Transportation Los Angeles, 59 Cal.4th 348 (Cal. 2014). In Iskanian, the California Supreme Court seemingly immunized the PAGA from arbitration programs when it held that representative action waivers in arbitration agreements are “contrary to public policy and unenforceable as a matter of state law.” Id. at 384.

In rendering its decision, the California Supreme Court distinguished AT&T, reasoning that, whereas the FAA aims to ensure an efficient forum for the resolution of private disputes, a PAGA action “is a dispute between an employer and the state Labor and Workforce Development Agency.” Id.

Iskanian cleared the PAGA as a mechanism by which to maintain a representative action unhindered by arbitration agreements or commitments to arbitrate on an individual basis. The decision undoubtedly fueled the filing of PAGA notices in 2014, which catapulted from 1,606 in 2013 to 4,530 in 2014.

The PAGA workaround experienced another boost in October 2018, when the U.S. Supreme Court bolstered the enforceability of class and collective action waivers in arbitration agreements with its decision in Epic Systems Corp. v. Lewis, et al., 138 S.Ct. 1612 (2018), clearing the path to widespread adoption of arbitration programs. In the wake of Epic Systems, PAGA notices reached a new level, jumping from 4,984 in 2017, to 6,431 in 2019, reflecting PAGA’s expanding popularity as a work-around.

The PAGA-workaround movement suffered its first significant set-back in 2022 with the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, et al., 142 S.Ct. 1906 (2022). In Viking River, the U.S. Supreme Court held that, to the extent Iskanian precludes division of PAGA actions into individual and non-individual claims, and thereby “prohibit[s] parties from contracting around this joinder device,” the FAA preempts such rule. Id. Thus, it concluded in the case before it that the lower court should have compelled arbitration of the plaintiff’s individual PAGA claims.

The U.S. Supreme Court then addressed the remaining question – what the lower court should have done with Moriana’s remaining non-individual or representative claims. The Supreme Court opined that the PAGA provides no mechanism to enable a court to adjudicate non-individual claims once an individual claim has been committed to a separate proceeding. As a result, the U.S. Supreme Court opined that Moriana lacked statutory standing to continue to maintain her non-individual claims in court, and the lower court should have dismissed the PAGA representative claims. Id.

Following Viking River, the number of PAGA notices suffered the largest single-year drop in two decades, dropping from 6,502 in 2021, to 5,817 in 2022.

  1. The PAGA’s Resurgence

Although the PAGA workaround suffered its first significant set-back in 2022 with the U.S. Supreme Court’s decision in Viking River, the set-back was short lived as, in 2023, the California Supreme Court minimized the impact of the Viking River decision.

In Adolph v. Uber Technologies, Inc., 14 Cal. 5th 1104 (Cal. 2023), the California Supreme Court took up the issue of whether, under California law, a PAGA plaintiff whose individual claims are compelled to arbitration retains standing to bring representative claims. The California Supreme Court disagreed with the U.S. Supreme Court’s interpretation of California law and held that, once a PAGA plaintiff’s individual claims are compelled to arbitration, the plaintiff retains standing to maintain non-individual PAGA claims in court so long as he is an “aggrieved employee.” Id. at 1105.

Adolph, an Uber delivery driver, asserted that Uber misclassified him as an independent contractor. Adolph amended his complaint to allege PAGA claims, and Uber moved to compel arbitration. The trial court denied Uber’s motion to compel arbitration, and the California Court of Appeal affirmed, citing the California Supreme Court’s ruling in Iskanian v. CLS Transportation Los Angeles, 59 Cal.4th 348 (2014). Uber filed a petition for review and, while it was pending, the U.S. Supreme Court issued its decision in Viking River.

In a unanimous decision, the California Supreme Court disagreed with the U.S. Supreme Court’s interpretation of the PAGA. The California Supreme Court held that, so long as an employee alleges that he has been aggrieved by a violation of the Labor Code, he maintains standing under the PAGA. As a result, after a court compels an individual PAGA claims to arbitration, the plaintiff retains standing to pursue his representative PAGA claims in court.

As to logistics, the California Supreme Court clarified several items. First, even though individual PAGA claims may be pending in arbitration and representative PAGA claims pending in court, the claims remain one action, and the court may stay the representative action pending completion of arbitration. Second, if the plaintiff loses in arbitration, at that point, the plaintiff loses standing to maintain representative PAGA claims. Third, if the plaintiff prevails in arbitration or settles his individual claims, he retains standing to return to court to pursue his representative PAGA claims on behalf of others.

By deciding that an individual who signs an arbitration agreement can return to court after arbitration to pursue representative proceedings under the PAGA, the California Supreme Court relegated arbitration agreements to a mere hurdle rather than a bar to PAGA representative actions. Given the technical requirements of California wage & hour law, coupled with the potentially crushing statutory penalties available to successful plaintiffs, we anticipate continued growth of PAGA lawsuits in 2024, with no pull back in site.

  1. What’s Next For The PAGA?

The California Supreme Court presently is considering two cases that significantly could impact the future popularity of PAGA lawsuits, including the ease with which plaintiffs can succeed in recovering on a representative basis.

On November 8, 2023, the California Supreme Court heard oral argument in Estrada, et al. v. Royalty Carpet Mills, Inc. The California Supreme Court is considering whether courts have the power to strike or limit PAGA claims based on unmanageability. In a prior decision, Wesson, et al. v. Staples the Office Superstore, LLC, 68 Cal. App. 5th 746 (2021), the California Court of Appeal held that trial courts have inherent authority to strike or limit unmanageable PAGA claims. A few months later, the Court of Appeal in Estrada, et al. v. Royalty Carpet Mills, Inc., 76 Cal. App. 5th 685 (2022), disagreed and concluded that, while a court may limit the presentation of evidence to ensure a manageable trial, a court does not have authority to strike or limit PAGA claims before trial. The California Supreme Court must issue a decision on this issue by February 2024. The California Supreme Court might hold that trial courts possess inherent authority to safeguard an employer’s due process rights, which necessarily encompasses the right to gauge the manageability of and to narrow PAGA claims. Either way, Estrada has the potential to significantly impact the prosecution and defense of PAGA actions.

In Turrieta, et al. v. Lyft, Inc., the California Supreme Court will weigh whether a PAGA plaintiff has a right to intervene, object to, or move to vacate a judgment approving a PAGA settlement in a related action. In that case, between May to July 2018, Olson, Seifu, and Turrieta, all Lyft drivers, filed separate PAGA actions alleging improper classification as independent contractors. Turrieta reached a $15 million settlement with Lyft, which included a $5 million payment to her counsel. As part of the settlement, Turrieta amended her complaint to allege all PAGA claims that could have been brought against Lyft. When Olson and Seifu got wind of the settlement, they moved to intervene and to object. The trial court denied the intervention requests, approved the settlement, and then denied motions by Olson and Seifu to vacate the judgment in the Turrieta PAGA action. The Court of Appeal affirmed, holding that, as non-parties, Olson and Seifu lacked standing to move to vacate the judgment. The Court of Appeal explained that the real party in interest in a PAGA action is the State, and, thus, neither Olson nor Seifu had a direct interest in the case.

Finally, in November 2024, California voters will pass on a proposed measure to repeal the PAGA and to replace it with a new law known as The Fair Pay and Employer Accountability Act. Under the proposed law, employees could not sue for civil penalties in court on behalf of the state and instead would have to file a complaint directly with the Labor Commissioner who would be a party to any lawsuit filed; all civil penalties would go to affected employees; the State would receive increased funding; and civil penalties would be doubled for “willful” violations. The measure is intended to eliminate the windfall profiteering that the plaintiffs’ bar has enjoyed from the PAGA. Although preliminary polling suggests voters support the measure, the plaintiffs’ bar surely will mount vociferous opposition.

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

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