Category: Class Action Weekly Wire

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Tyler Zmick with their discussion of significant rulings and developments in the biometric privacy class action sphere.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jennifer Riley: Thank you for being here for the next episode of our weekly podcast, the Class Action Weekly Wire. I’m Jennifer, Riley, partner at Duane Morris, and joining me today is my colleague Tyler Zmick. Thank you for being on the podcast, Tyler.

Tyler Zmick: Thanks, Jen, very happy to be here.

Jennifer: Today on the podcast we are discussing the Illinois Biometric Information Privacy Act, or sometimes called BIPA, as well as notable decisions from courts over the past 18 months, highlighting a recent 2024 ruling. Tyler, could you give our listeners a brief overview of the BIPA?

Tyler: Absolutely, Jen. So the statute was enacted in 2008, and BIPA is a state law that regulates the collection, use, and handling of biometric identifiers and biometric information by private entities. Subject to a couple limited exceptions, BIPA generally prohibits the collection or use of a person’s biometric data without first providing the required notice, obtaining their written consent, and also posting a publicly available retention and destruction schedule.

Jennifer: Thanks very much for that overview. There are two major Illinois Supreme Court rulings from 2023 that govern the BIPA landscape and significantly impacted the way BIPA litigation is playing out. Tyler, you no doubt know which two cases I’m referring to – could you tell our listeners a bit about them?

Tyler: Sure, absolutely. So, these two decisions, which are a little bit old at this point – they were both issued in February of 2023 – had a profound impact on the interpretation of BIPA and the landscape of BIPA litigation. So the first ruling was issued in a case called Tims v. Black Horse Carriers, and in that case the Illinois Supreme Court held that a 5 year statute of Limitations applies to all claims brought under BIPA. So this really adds to the risks that employers and other companies who do business in Illinois face in terms of class action exposure, as the court rejected defendants attempts to argue that a shorter one or two year statute of limitations applies.

The other ruling, issued later in February of 2023, came in a case called Cothron v. White Castle, and in that case the court decided whether each fingerprint or other type of biometric data being scanned is its own discrete violation of the statute. And so, as background, the Seventh Circuit, the federal appellate court, was uncertain how to answer that sort of novel question of state law. And so it kicked it over to the Illinois Supreme Court to ask for clarification, and the court held that BIPA claims accrue not only once upon the initial collection or disclosure of biometric data, but rather each independent time that a company collects or discloses biometric information. And so this ruling, it really exponentially increased the monetary damages in BIPA class actions that a company can face, especially in the employment context – because you generally have a fact pattern where employees are scanning their fingerprints to clock in and out. And so they’re doing that multiple times a day when they start their shifts, when they go on their lunch breaks, and then when they clock in after lunch, and then clock out for the day. And so Cothron basically held that each time they scan their fingerprint is a separate and independent violation. And this could, for just one employee amount to, you know, over 200 work days per year – we’re talking a lot of potential damages.

All of that said, the Illinois Supreme Court acknowledged that it’s ruling on the violation issue and the accrual issue was somewhat Draconian, and so that invited the Illinois legislature to tackle the issue by clarifying that, you know, maybe a violation only occurs upon the first scan of biometric data. The legislature, as it’s you know, customary to do, took its time, drag its feet a little bit, but they did get around to passing a statutory amendment that now clarifies that for purposes of collecting or disclosing biometric data, the violation only occurs the first time that a company scans that type of information. And so both houses of the Illinois legislature have actually approved and passed the amendment. As of today, the governor is waiting to sign the bill, he’s expected to do so. Once Governor Pritzker signs off, that law will take effect, and Cothron will basically be no longer good law on a going forward basis.

Jennifer: Thanks, Tyler, great overview. So the Tims and Cothron rulings really eviscerated two of the key BIPA defenses used by companies over the past several years, however, companies still can use other defenses – such as whether biometric data was actually collected, used, or stored; such as whether and to what extent alleged violations actually occurred in Illinois for purposes of satisfying extra territoriality limitations; as well as the constitutionality of the potentially excessive or crushing damages that could resolve from a finding that each scan was a separate violation; companies can also call upon Rule 23(b)(3) arguments regarding whether a class action really is the appropriate vehicle to litigate a bit of a dispute based on superiority or predominance concerns.

Tyler: Exactly, Jen. You know, those defenses do exist, however, companies really need to be aware of the dangers associated with collecting or storing biometric data without BIPA compliant policies in place. As just one example, very recently the U.S. District Court for the Northern District of Illinois granted class certification to a class action plaintiffs where there are at least 160,000 class members, probably much more. And the case involves Amazon’s “virtual try-on” technology. Basically, it is a virtual technology where a person can upload a photo or video of themselves and then superimpose maybe make up or other fashion products onto their face to see how the product would look, and plaintiffs claim that that technology involves biometric data in the form of scans of face geometry. And in granting class certification in this case, the court dealt Amazon a significant blow in its efforts to block class certification. This decision is really the most recent example of success by the plaintiffs’ bar in a string of victories for class action privacy lawsuits across Illinois, and it illustrates that even the largest and most sophisticated companies can face legal exposure in connection with their biometric collection and retention practices.

Jennifer: We will certainly keep listeners updated on the developments in that case. What about settlement numbers in 2023, in BIPA class actions – what were the monetary totals paid out to plaintiffs?

Tyler: Sure – in BIPA related class actions, 2023 saw robust settlements, but actually a decline when compared to 2022. So if you’re looking at the top 10 BIPA class action settlements in 2023, they totaled $147.86 million, and that is compared to in 2022, $278.9 million.

Jennifer: Well, perhaps a bit of good news then, for employers and companies on the declining settlement value front. Thanks so much for being here again today, Tyler, and thank you so much to our listeners for tuning in.

Tyler: Thanks for having me, Jen, and thanks again to all of our listeners.

Jennifer: See you next week on the Class Action Weekly Wire!

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsels Eden Anderson and Rebecca Bjork with their discussion of significant arbitration rulings in the class action space.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Thank you. Loyal blog readers and listeners for joining our weekly Podcast series. The Class Action Weekly Wire. My name is Jerry Maatman, and I’m a partner at Duane Morris and joining me today are my colleagues, Eden Anderson and Rebecca Bjork. Welcome.

Eden Anderson: Great to be here, Jerry.

Rebecca Bjork: Thanks, Jerry.

Jerry: Today, we wanted to discuss trends and important rulings in the area of arbitration, and specifically where named plaintiffs in class actions are signatories to arbitration agreements that contain class action waivers. What were some of the most significant developments in this space in calendar year 2023?

Eden: Well, while not a class action case, a big development in related PAGA litigation occurred out here in California in 2023. After the U.S. Supreme Court’s decision in Viking River Cruises, there was an open question in California as to whether a PAGA plaintiff whose individual claims are compelled to arbitration retain standing to still pursue their non-individual claims in court, and the California Supreme Court answered that question in the Adolph v. Uber Technologies case. And unfortunately, the answer was not a good outcome for employers.

The California Supreme Court held that PAGA plaintiffs do have standing to pursue non-individual claims in court, even if their individual claims are in arbitration. And as to logistics, the court clarified a few things. First, even though individual PAGA claims may be pending in arbitration and non-individual PAGA claims pending in court, the claims all remain one action, and the court action can be stayed pending the completion of arbitration. And as a practical matter, that’s what we’re seeing happen. And then, second, if the plaintiff loses an arbitration at that juncture, the plaintiff clearly no longer has standing to maintain non-individual PAGA claims. And third, if the plaintiff prevails in arbitration or settles their individual claims, they continue to possess standing to return to court, to pursue non-individual PAGA claims on behalf of others.

Jerry: Thanks, Eden. That sure underscores how vitally important it is for employers given the Adolph ruling to conduct an early assessment as to the value and viability of the named plaintiff’s claim as opposed to running the gauntlet, trying that individual arbitration, losing on at least one claim, and then having the plaintiffs’ lawyer resurrect a representative action and then corral and bring in all the other workers at issue in the case. What are some of the strategies to avoid that result in light of both Viking River and the Adolph decisions?

Eden: Well, but Jerry, as we thought might see happen, some plaintiffs have been alleging that they are aggrieved employees but then disclaiming individual relief trying to avoid arbitration through that pleading tactic. And there’s a recent decision from the California Court of Appeal, Balderas v. Fresh Start Harvesting, that plaintiffs are relying upon in support of that tactic the plaintiff there alleged that she was “not suing in an individual capacity” and, although the trial court felt the plaintiff lacked standing because she wasn’t seeking individual relief, the Court of Appeal disagreed and allowed the case to proceed in court. The Balderas decision was initially unpublished, non-citable, but the plaintiffs’ bar pushed for it to become a published, citable decision. Of course, from the defense perspective this pleading tactic raises some ethical concerns, because you have a plaintiff who is giving up any individual monetary recovery for themselves purely as a forum selection strategy that ends up only benefiting other people including their counsel.

Jerry: Rebecca, are there any other notable decisions in this array of cases from 2023?.

Rebecca: Oh, definitely. The Ninth Circuit also issued an important decision in Chamber Of Commerce Of The United States Of America v. Bonta, et al., which held that California Assembly Bill, also known as AB 51 – which is a statute that attempted to criminalize employers’ use of mandatory arbitration agreements – is preempted by the FAA. In that case, the Ninth Circuit affirmed a preliminary injunction prohibiting California from enforcing AB 51. On January 1, 2024, following a remand in the case, the district court entered a permanent injunction enjoining the State from enforcing the Labor and Government Code sections enacted as a part of AB 51, and the court also awarded the plaintiffs as prevailing parties $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests that banded together to challenge the State’s attempt to criminalize the use of mandatory arbitration agreements.

Jerry: Well, that was a welcome ruling from the Ninth Circuit for employers, especially employers that utilize workplace arbitration agreements with class action waivers on a 50-state basis. Our Duane Morris Class Action Review kept track statistically in our database about all arbitration rulings last year, and it showed that 66% of the time, two-thirds of the time, employers were successful in winning motions to compel arbitration, and in the instances where they were not – about one third of the time – it wasn’t so much that there was something defective about the arbitration agreement, it’s that the employer couldn’t demonstrate that the employee had signed off on it, that the onboarding program was such that it couldn’t be proved, they couldn’t find the signature, couldn’t find the electronic trail, that would demonstrate that the employee actually signed off and agreed to the arbitration program. So it seems like the defense is very viable. The Ninth Circuit cleared one of the impediments to doing so. What do you see, as 2024 has now begun, some of the key arbitration decisions in this calendar year?

Eden: Yeah, Jerry, there have been, several significant rulings from the U.S. Supreme Court just in the last month. Last week the court issued its decision in Coinbase v. Suski, which held that where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – that a judge (and not an arbitrator) must decide which of the two contracts governs. So, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration program should take heed of the Coinbase decision, and make sure that the wording of later issued contracts does not impair previously existing contractual rights to compel disputes to arbitration.

Rebecca: And the U.S. Supreme Court also issued a unanimous decision on May 16 of this year in Forrest v. Spizzirri, holding that when a district court determines that the claims in a lawsuit are arbitrable and a party has requested a stay of litigation, the district court does not have the discretion to dismiss the lawsuit instead. And this this decision resolved a split amongst the federal circuit courts over whether Section 3 of the FAA requires a stay in such circumstances by use of the word “shall” in that provision. The Supreme Court reasoned very clearly that established canons of statutory interpretation, as well as the structure and the purpose of the FAA, compelled the result in that case.

And, very importantly, on April 12, 2024, the U.S. Supreme Court issued a decision in Bissonnette v. LePage Bakeries Park St., LLC. In that case, they held that the application of the transportation worker exemption in the FAA turns upon the work performed by the plaintiff and not the employer’s industry. The Supreme Court made clear that this work-focused test should not bring within the exemption large swaths of workers who, you know, in some manner engage in products that happen to be within the flow of commerce. But instead, the Supreme Court clarified that the worker at issue must play a “direct” and a “necessary” role in the free flow of goods across state borders for the exemption to apply.

Jerry: Certainly seems that the U.S. Supreme Court is a big supporter of arbitration, especially in the class action space, and is trying to clarify things rather than to muddle them. What do you see coming down the track in 2024 in this space?

Eden: Yeah, Jerry, on the PAGA front we’ll likely continue to see plaintiffs disclaiming individual relief in an attempt to avoid arbitration. And in November, Californians will have the opportunity to vote on an initiative that aims to replace PAGA with the new law, the Fair Pay and Employer Accountability Act (“FPEAA”). And the new law, if passed, it will increase penalties for violations. But, on the other hand, it won’t provide for attorneys’ fees recovery, which, as you know, is a driving force behind the flood of PAGA cases that we see. And on the class action front, 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 and to carve out categories of claims from arbitration altogether.

Jerry: Well, thank you both very much for this thought leadership and analysis of what we’re seeing. Harkens back to the presidential election from four years ago where actually the viability of workplace arbitration agreements surfaced in the presidential debates. So be interested to see if that occurs in this go around this particular summer. Well, thank you both, and thank you loyal blog readers and listeners for tuning into this week’s edition of the Class Action Weekly Wire.

Eden: Thanks. Jerry. Thanks, listeners.

Rebecca: Thank you.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Tyler Zmick with their discussion of significant appellate decisions issued by courts throughout 2023 and 2024.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Loyal blog readers, thank you for being here again for our next episode of the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today is my colleague Tyler Zmick. And we’re here to talk about appeals. Thanks so much, Tyler, for being on the podcast.

Tyler Zmick: Thanks very much for having me, Jerry.

Jerry: Today we wanted to discuss trends and important rulings in the area of appeals in class action litigation in general, and class certification orders in particular. Parties obviously have very limited options to seek interlocutory appeal in litigation. But class action litigation is a little different. Tyler, could you share with us some of the ways in which parties can move for interlocutory appeal on class action related issues?

Tyler: Sure. So there are basically two potential avenues that a party has for seeking interlocutory appeal of a class certification ruling. The primary mechanism is Rule 23(f) of the Federal Rules, and that rule states that a party must ask for permission to appeal with the clerk of the appellate court within 14 days of the district court order being entered. And as the backup option, the second one parties can also seek interlocutory appellate review under Federal Statute 28 U.S.C. § 1292(b). And both of these avenues together, Rule 23(f) and Section 1292(b), they’re important in that early appeals help correct early errors on questions of law that, if left until final judgment, could potentially require parties to spend years engaging in needless and expensive litigation.

Jerry: I’ve always thought that the stakes are high in class action litigation, especially if there’s a certification order and the discovery that file follows it, it can be a million dollar kind of issue. When you’re advising your clients, what are the kind of the primary options or differences between those two methods for appeal?

Tyler: Sure that’s a great question. There’s multiple different standards applied by the courts, but I think one of the primary differences is that, unlike an interlocutory appeal under section 1292(b), Rule 23(f) does not require that the district court certify an issue for appeal. So Rule 23(f) is a one step process where only the appellate court needs to allow the appeal to go forward. Under Section 1292(b), on the other hand, a party needs permission from both the district court and the appellate court to move forward with the appeal. So you have basically two gatekeepers instead of one, and hence it’s higher burden that you face if you want to seek an appeal through that route.

Jerry: Since they’re discretionary, what kind of success factors do you see from year to year in the appellate courts?

Tyler: Success rates are generally not great. The data shows that appellate courts deny roughly 75% of Rule 23(f) petitions, and most of those denials are accomplished via summary orders, meaning the order just says the petition for permission to appeal is denied without any explanation or reasoning on part of the court.

Jerry: I know you’ve been involved in many appeals in class action situations and co-authored the chapter in the Duane Morris Class Action Review on appeals. Were there any particular decisions that you think are important to share with our listeners in terms of what occurred in the appellate courts in 2023?

Tyler: Sure, absolutely, I think one notable case was issued in July of 2023. The case was In National ATM Council, Inc., et al. v. Visa Inc., and in that case the D.C. Circuit actually offered a rare explanation of its decision. And the decision was to grant a petition to appeal a class certification order under Rule 23(f). And so by way of background, in that case the district court certified a class of ATM operators and ATM customers who alleged that defendants Visa and Mastercard’s rules regarding ATM fees violated federal antitrust laws. And the D.C. Circuit granted Visa and Mastercard’s Rule 23(f) petition to appeal. In doing so, the D.C. Circuit noted sort of strangely that the trial court’s class certification order did not pose an important legal question that needed to be resolved, which is unusual because usually that is the case when an appellate court will accept a Rule 23(f) petition to appeal. Instead, the D.C. Circuit noted that the trial courts order contained statements of law that were unclear, the court citations were not current, and it’s “record analysis” was notably terse. So, in other words, the district court’s explanation was inadequate. If you’re a trial court judge, this is not the kind of order you want to see from the appellate court that is directly above you, and the D.C. Circuit also commented that the district court’s order failed to cite the Supreme Court’s most recent case law analyzing whether common issues predominate over individualized ones in the class action context. So taken together, the appellate court concluded that questionable accuracy of the district court’s unclear language, combined with the settlement pressure that would result from a class certification ruling in favor of plaintiffs, warranted a Rule 23(f) appeal.

Jerry: That seems to be a really interesting decision, and one that practitioners can learn from. Now that we’re almost midway through 2024, have there been any similar rulings or interesting appellate decisions on these sorts of petitions so far this year?

Tyler: Yes, absolutely. I think there’s been at least one notable ruling in 2024 thus far, and the case is Dale, et al. v. Deutsche Telekom AG, where the plaintiffs filed a class action on behalf of AT&T and Verizon customers, and the plaintiffs alleged that a merger between T-Mobile and Sprint resulted in the reduction of competition, causing these customers to have to pay billions of dollars more for their wireless services than they would have otherwise had to pay. And so, in response to the complaint, T-Mobile filed a motion to dismiss, arguing that antitrust standing was lacking, and the district court denied that motion, after which T-Mobile moved to certify the issue for appeal under Section 1292(b). And specifically T-Mobile sought to certify the question whether the plaintiffs, who were customers of AT&T and Verizon, plausibly alleged antitrust standing to challenge the merger of T-Mobile and Sprint. And so the issue is, do these plaintiffs have standing given that they are not customers of either of the parties to the merger, but rather non-parties AT&T and Verizon, who whose cell phone rates basically are going to be impacted by this merger. In deciding to certify the question for appeal, the district court held that this standing question is a contestable question of pure law, not a mixed question of fact and law. And so when it’s a pure legal issue, it’s more likely to meet the interlocutory appeal test. And specifically the court reasoned that there were substantial grounds for a difference of opinion on whether the plaintiffs plausibly alleged antitrust standing. And the court stated that the complaint set forth a plausible theory that AT&T and Verizon customers were injured at the first step as direct consumers in the market, where the merger allegedly restrained competition and raised prices. And so, as a result, the court certified the question for interlocutory appeal to the Seventh Circuit, and it remains to be seen if the Seventh Circuit will also let the appeal go forward.

Jerry: That’ll be a good one to mark to see when the future ruling comes out. I’ve always thought Rule 23, in terms of allowing that appeal was kind of an exception to the general rule, that interlocutory appeals are just so difficult – a big uphill climb. Conversely, in terms of your study in this area and your practice, have there been any relevant court rulings involving appeals under the interlocutory appeal route, which is 28 U.S.C. § 1292(b), in 2023 or in 2024?

Tyler: Yup. So defendants succeeded in obtaining interlocutory appellate review under Section 1292(b) in multiple decisions in 2023, including on one critical issue relative to the class and collective action context. And that issue is how to apply the U.S. Supreme Court’s decision in Bristol-Myers Squibb regarding personal jurisdiction and how that sort of intersects with the claims of potential out-of-state opt-ins in FLSA collective actions as opposed to Rule 23 class actions. So in the case at issue, Vanegas, et al. v. Signet Builders, Inc., it was filed in federal court in Wisconsin, and the plaintiff filed an FLSA collective action, claiming that the defendant failed to pay him, owed overtime, and the plaintiff sought to represent a collective action of mostly non-U.S. citizens, including only 30 who worked in Wisconsin, which is where the case was pending, and almost 600 who performed work in other states. The defendant argued that personal jurisdiction was lacking with respect to those out-of-state potential opt-ins. But the court rejected that argument and proceeded to conditionally certify the proposed collective action and basically pushed to the future the issue of whether the court could exercise personal jurisdiction over those out-of-state potential opt-ins. And so, as a result of that order, defendant sought to certify an appeal under Section 1292(b), and specifically defendant sought to certify this question – whether in an FLSA collective action, if it is proper to defer the personal jurisdiction inquiry until after notice has been sent to potential opt-ins. The court granted defendant’s petition, basically because that question is important enough to warrant interlocutory review. While the court concluded that the jurisdictional principles in Bristol-Myers Squibb did not apply in the FLSA collective action context, the court ruled that the decision was still certifiable for review, because other courts have held that Bristol-Myers Squibb does apply to FLSA collective actions. In addition, it’s a pure question of law that would not require the appellate court to sift through the factual record and obviously the decision here would have a dramatic impact on the future scope of the litigation.

Jerry: Well, that’s a great result for the defendant in that case, somewhat of a unicorn to get an appeal like that up there. So two big appellate rulings to watch for then in the next quarter to several months away in the Seventh Circuit. Well, it seems like novel approaches are the ones that seem to get the courts’ attention as appellate issues begin to percolate through the court.

Well, thanks so much for this great analysis of a very complex area, Tyler, and thank you for being with us today. Listeners, thank you for tuning in.

Tyler: Thanks for having me, Jerry.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Shireen Wetmore and special counsel Eden Anderson with their discussion of landmark ruling issued last week by the California Supreme Court and its developing impact on wage & hour class and collective action litigation in the Golden State.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

 

Episode Transcript

Jerry Maatman: Thank you loyal blog readers, welcome to our weekly podcast, the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today from sunny California are my colleagues, Shireen Wetmore and Eden Anderson. Thanks so much for being on today’s podcast.

Eden Anderson: Thanks Jerry. I’m very happy to be here.

Shireen Wetmore: Jerry, thanks for having me.

Jerry: Today, we’re focusing on a recent California Supreme Court ruling in a case called Naranjo v. Spectrum Security Services. It is a gift to employers, because typically news from the California Supreme Court is not always a thumbs up for employers. But in this case we’re going to discuss and explore what it means for employers, and why this decision is so important for employers facing California Labor Code claims. Eden, you briefed this case and you won it before the California Supreme Court – could you give us a little background on what was before the Court in this case?

Eden: Of course Jerry. The procedural history here is a bit convoluted, and involves a couple trips to the California Supreme Court. Mr. Naranjo worked as a security officer for Spectrum. But he was not guarding property. Spectrum contracts with federal agencies, including the U.S. Marshals Service, FBI, Federal Bureau of Prisons, ICE, and DEA, to provide guarded transport for federal prisoners and detainees. The federal contracts required continuous custody of the prisoner. So, because of the nature of the work, Spectrum just paid its officers continuously through their shifts and did not provide an unpaid 30-minute meal period.

And so way back in 2004, Mr. Naranjo filed a class action alleging claims under California law for meal period violations, and he also asserted derivative claims for statutory penalties for failure to pay all wages due at termination, which is a claim asserted under Section 203 of the Labor Code; and a claim for statutory penalties for wage statement inaccuracies or violations, which is a claim asserted under Section 226(e) of the Labor Code. These claims were all certified as a class and proceeded to trial.

At trial, Spectrum asserted a number of defenses premised on the fact that its officers worked alongside federal employees on federal lands, arguing that California meal period requirements just didn’t apply, and ultimately, those defenses were rejected by the trial court.

But, the judge found that the defenses had been asserted in good faith and were objectively reasonable, and the judge held that Spectrum’s good faith served as a defense to the Section 203 waiting time penalties claim, but not the Section 226(e) wage statement claim, and the difference in outcome was tied to different statutory language in those sections. As a result, Spectrum was found liable not just for the underlying meal period infractions, but for an additional $1.1 million in statutory penalties and attorneys’ fees.

Jerry: That’s a very interesting outcome in the practical, real world in which companies and employers are endeavoring to comply with requirements of the California Labor Code. What’s the distinction between the waiting time penalties and the wage statement violations?

Eden: Section 203 of the Labor Code imposes liability for a “willful” failure to pay all wages due at termination, and Section 226(e) imposes liability for a “knowing and intentional failure” to provide an accurate wage statement.  So, the trial court felt that “willful” and “knowing and intentional” meant different things.

Jerry: Well, the $1.1 million dollar statutory penalty was a whopper. I take it the decision was appealed – what happened at the California Court of Appeal?

Eden: Well, the Court of Appeal did not actually address the statutory language issue. Instead, it held that meal period premiums were not “wages,” and because they weren’t wages, Labor Code Sections 203 and 226 didn’t apply at all.

But the California Supreme Court then granted review and disagreed. It held in 2022 that meal period premiums and also rest period premiums are wages that must be fully paid at termination, and which also have to appear on a wage statement. So then, the California Supreme Court remanded the case to the Court of Appeal to revisit the Labor Code Sections 203 and 226 claims.

On remand, the Court of Appeal found that Spectrum’s defenses had been asserted in good faith and that a good faith dispute as to liability furnished a defense both to claims. The Court of Appeal also held that Spectrum could not have known that a meal period premium had to appear on a wage statement because the law as to whether a meal period premium was a wage or penalty was not clear until the 2022 decision.

Naranjo then sought review, and the California Supreme Court again took up the case, this time to determine whether a good faith defense applies to wage statement claims under Labor Code Section 226(e).

And that brings us to last week’s ruling that we are discussing today.

Jerry: Well, thanks so much, Eden, that’s a great overview, and in essence a scorecard for employers closely watching this case in terms of how it got up to the California Supreme Court and how the ruling emanated. Shireen, how did the California Supreme Court answer that essential question, and what does the decision mean for employers who are facing these sorts of claims?

Shireen: Thanks, Jerry. Great question. So this ruling has huge ramifications for pending wage statement claims, and we see them routinely asserted in wage and hour class actions, but they also serve as a basis for claims and civil penalties in PAGA actions. And it’s an exceptionally rare pro employer decision, which is why we’re all so jazzed about it. But the court held that an employer’s objectively reasonable good faith belief that it complied with the law serves as a defense to liability for penalties in an inaccurate wage statement under Labor Code 226(e).

So what does that mean? It means that if an employer has objectively reasonable defense to liability as to the underlying claim for unpaid wages, it will not also be liable for additional wage statement penalties, even if the defense is ultimately rejected. Which is what happened here. So if an employer is found to be liable for the underlying claim, still going to get out of those penalties – that is a huge benefit for employers. So, an employer tried to comply with the law. Their conduct and defenses were objectively reasonable. They shouldn’t be facing liability on the wage statement penalties – or if the law as to whether wages were even due was in some way unclear at the time, that too serves as a potential defense to a wage statement penalty claim. Just a reminder, our audience definitely already knows this, but a good faith defense does not include ignorance of the law. But it’s still a really significant win for California employers, because, as you were saying earlier, employers work really hard to try to comply with the very complex world that is California Labor Code wage & hour requirements. And these wage statement claims they can, as was the case here, add hundreds of thousands of dollars in exposure in a class action. It’s often the tail wagging the dog on an otherwise limited claim for damages in these cases. And so the Naranjo decision means that employers who act in good faith have a really important defense, and should not be facing liability for wage statement penalties going forward.

Jerry: Seems to me this is a huge win. I’ve always thought employers don’t wake up every morning and think about how am I going to steal wages from my employees. Rather they’re thinking about, how am I going to comply with the law? And this gives them a huge incentive and a huge defense in class actions involving California labor code violations.

Conversely, how will this impact PAGA claims were those sorts of penalties are being sought by plaintiffs’ counsel?

Shireen: Well, that’s a great question, and it kind of remains to be seen. The impact of the decision is something we anticipate parties are going to be arguing about, continuing to argue about, maybe expediting some of the arguments they are making. From our perspective, it would make no sense to award civil penalties under PAGA if the employer is not liable for statutory penalties under the wage statement statute that forms the basis for the PAGA claim. But plaintiffs are likely going to try to limit the decision. They’re going to argue that the good faith defense only applies to Section 226(e) and not to their PAGA claim. So this is something we’re going to be closely watching and duking out – possibly with Eden briefing up to the California Supreme Court again.

Jerry:  Well, congratulations to the defense team here, kudos to you in terms of pushing the edges of the law and coming up with defenses that work for our clients and for employers in general in California. And thanks so much to both of you for joining this week’s podcast.

Shireen: Jerry, thanks for having us.

Eden: Thank you, everyone. Glad to be part of the podcast and this big win for California employers.

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman, Jennifer Riley, and Alex Karasik with their discussion of our upcoming webinar, the Duane Morris Mid-Year Review of EEOC Litigation and Strategy. Reserve your virtual seat for the program here, and check out the 2024 edition of the Duane Morris EEOC Litigation Review here.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Welcome to all of our listeners. Thank you for being here for our weekly podcast, the Class Action Weekly Wire. I’m Jerry Maatman, partner at Duane Morris, and joining me today are my colleagues and fellow partners, Jen Riley and Alex Karasik. Thanks so much for being on the podcast today.

Jennifer Riley: Thank you, Jerry, happy to be part of the podcast.

Alex Karasik: Thanks, Jerry. Glad to be here.

Jerry: Today we’re very excited, we have a great message about an upcoming webinar, the Duane Morris Mid-Year Review of the EEOC Litigation and Strategy. This is a must-see and must-attend webinar, that in essence gives a mid-year report card on what the EEOC is doing in the courthouse. And the hosts will be myself, Jen, and Alex, and we wanted to personally invite each of you, our listeners and our readers, to sign up and attend the event, which, of course, is for free. Jen, could you talk a little bit for our listeners about the contents of this year’s webinar?

Jen: Sure, Jerry. Essentially, this is a quick 30 min panel discussion, where the three of us will do two primary things. First, we’ll analyze the EEOC’s latest strategic priorities. And second, we will analyze and review the lawsuit filings that we’ve seen so far during the first half of the Commission’s fiscal year 2024. We will bring that analysis to you in a half hour segment.

Jerry: Thanks. This is a great virtual program that’s perfect for human resource professionals, business leaders, and corporate counsel, and is designed to provide insights, in essence, inside baseball news, regarding the EEOC’s latest enforcement initiatives and strategies. And it’s designed to keep businesses off the radar of the EEOC. Alex, what are some of the details of the webinar that our listener should know?

Alex: The webinar is scheduled for Monday, May 13 at 2 pm, and it runs from 2 pm to 2:30 pm Central Time. We will provide a sign up link in the episode transcript on the class action defense blog. This webinar is a great information-packed 30 minutes – we understand a lot of our corporate counsel, HR professionals, and business leaders, that you just mentioned, Jerry, have busy schedules. So we’re going to do our best to pack this into a 30 minute webinar, and then we’ll go from there and to give insights into the EEOC’s activities throughout the first half of the fiscal year.

Jerry: Well, the past is prologue. Last year we had over a thousand attendees, from the United States, Europe, and Asia, so we hope all the listeners can tune in this year.

Jen: We also want to remind listeners that we recently published a primer on EEOC litigation, called the EEOC Litigation Review – 2024. Complying with workplace anti-discrimination laws is important for companies looking to stay out of the EEOC’s crosshairs. The review is a great resource for corporate counsel and human resources professionals alike. It is available on the class action defense blog in e-book format.

Alex: We were also fortunate enough to discuss the EEOC strategic priorities with EEOC Commissioner Keith Sonderling at our Duane Morris Class Action Review book launch in February 2024 – for anyone interested in watching that discussion, it is also available on our blog.

Jerry: Thanks, Alex, and thanks, Jen. Certainly looking forward to the upcoming webinar on the EEOC in a few weeks, and, as always, we will keep our blog readers and listeners fully updated on these important announcements.

Alex: Thanks, Jerry. We look forward to seeing everyone soon.

Jen: Thanks for having me, Jerry, and, thanks to all of our listeners.

Jerry: Have a great day.