Duane Morris Takeaways – In a significant development impacting both staffing agencies and their customers, recent legislative changes in Illinois propose to delay implementation of the equal pay provision of the Illinois Day and Temporary Labor Services Act (IDTLSA) until April 1, 2024. Further, recent guidance from the Illinois Department of Labor clarifies that the 90-day period which triggers the equal pay and benefit provision requires a temporary laborer to actually work 90 days for a client employer. A comprehensive breakdown of the 2023 amendments to the IDTLSA and the law’s significant new requirements can be found here.
Proposed Amendment And Recent Clarification To Equal Pay And Benefit Provision
On November 9, 2023, both houses of the Illinois General Assembly passed legislation that further amends Section 42 of the IDTLSA. The original IDTLSA amendments, passed on August 4, 2023, required staffing firms to provide day and temporary laborers with equal pay and benefits as workers employed directly by the client employer after 90 days of work. The new bill passed by the Illinois legislature, HB 3641, proposes to delay the start of the 90-day calculation period. Specifically, the approved bill adds language to the IDTLSA stating that “[t]he calculation of the 90 calendar days may not begin until April 1, 2024.” This proposed delay would provide employers and staffing agencies with additional time to ensure compliance with the IDTLSA’s equal pay requirements.
It is important to note that this amendment, if signed into law by Governor J. B. Pritzker, extends the timeline for compliance with the IDTLSA’s equal pay and benefits provision only. It does not, however, exempt employers and staffing agencies from adhering to other mandates of the IDTLSA, which took effect on August 4, 2023. These mandates include but are not limited to placement fee restrictions, required safety training, labor issue disclosures, and stringent recordkeeping requirements.
Further clarifying the scope of these requirements, the Illinois Department of Labor published a list of frequently asked questions following the amendments’ passage on August 4, 2023. One frequent question raised by employers and staffing agencies alike is whether the 90 days which entitle a temporary employee to equal pay and benefits is 90 days assigned at a client or 90 days actually worked. The IDOL’s recently published Day and Temporary Labor Service Agency FAQ (which can be found here) clarifies that the 90-day count “includes only days worked by a day or temporary laborer for the third-party client within a 12-month period, not simply the total duration of the contract or assignment.” Notably, even a minimal amount of time worked on any given day will count towards the 90-day total.
Implications for Employers and Staffing Agencies
This legislative update and further guidance from the Illinois Department of Labor underscore the dynamic nature of labor laws and the importance of staying informed. Given the IDTLSA’s extensive requirements and private right of action as an enforcement mechanism, employers and staffing agencies must remain vigilant in understanding and complying with the law’s evolving requirements to avoid potential legal complications.
Duane Morris Takeaway: In the first episode of the Duane Morris Business Development 360 podcast, show host Joe West, partner and Duane Morris Chief Diversity, Equity and Inclusion Officer, sits down with Jerry Maatman, partner and chair of Duane Morris Class Action Defense group, who shares the simple, fundamental approach to his thriving practice that has helped him become the preeminent class action defense attorney in the country.
Duane Morris Takeaways: USA-based companies are embracing use of artificial intelligence. At today’s Employment Practices Liability Insurance Conference in Chicago, Jerry Maatman of the Duane Morris Class Action Defense Group served as one of the co-hosts of the Conference, which addressed a broad range of topics on employment-related litigation and risk transfer strategies. Commissioner Keith Sonderling of the U.S. Equal Employment Opportunity Commission gave the keynote address at the Conference on the Legal Implications of Artificial Intelligence (“AI”) in the Workplace. Commission Sonderling shred his thoughts on the what, how, and why corporations should be “looking around the corner” to ready themselves for new class action theories and possible EEOC litigation over the use of AI.
This blog post summarizes some of the salient points from the keynote address. For corporate counsel and HR professionals, Commissioner Sonderling’s insights are invaluable.
The Context
AI in the workplace is ubiquitous and expanding rapidly. It is not only about replacing workers with robots, but instead is about the broader notion of using AI tools to assist with employment-related decisions. Commissioner Sonderling, more than any other EEOC official, has labored extensively in this area in terms of writing professional papers, giving speeches, and spearheading the Commission’s guidance in this area.
The Three Buckets Of AI
Commissioner Sonderling suggested that it is helpful to place AI-related questions into three buckets – including (i) the generative AI bucket; (ii) AI decision-making tools; and (iii) AI tools for employee monitoring and privacy.
Generative AI is starting to replace knowledge workers. That said, the decision to replace jobs may impact protected category groups disproportionally. Essentially, think of this as a high-tech RIF process. Plaintiffs’ class action lawyers or government enforcement litigators may assert that such decisions inevitably target older workers or less educated workers who are more diverse, especially if “last in are the first out” in terms of the replacement process. The bottom line is that there is lots of potential for disparate impact discrimination claims.
As to HR Departments using AI as decision-making tools, the challenge is the integrity of decision-making processes. Commissioner Sonderling asserted that the EEOC is focused on and concerned with AI bias and use of such tools to discriminate either intentionally or by disparate impact. This implicates both the design and type of use of the AI tools. He predicted that future lawsuits in this space would be more challenging and broader than ever before in terms of systemic lawsuits attacking an employer’s policies or practices.
Relative to AI tools for employee monitoring and privacy, Commission Sonderling suggested that states are getting into the mix by passing laws that regulate monitoring (e.g., Illinois through the Biometric Information Privacy Act). Federal legislation is likely years in the distance. Commissioner Sonderling opined that federal legislation may evolve in the copyright space as an initial first step.
The Takeaways For Employers
In his Q&A session at today’s Program, Commissioner Sonderling indicated that these evolving areas are likely to spike extensive litigation against employers in the future. He predicted that the plaintiffs’ class action bar will bring the lion’s share of the cases, as the EEOC has a limited budget and bandwidth to sue (e.g., in the 2023 Fiscal Year just ended on September 30, 2023, the Commission brought less than 150 lawsuits). He also opined that the EEOC will be focused on the employment decision at issue, so an employer’s reliance on the testing of an AI tool undertaken by a software vendor will not insulate an employer from potential liability for an allegedly discriminatory employment-related decision.
Beauty’s Biggest Makeover In 85 Years – MoCRA Delivers Regulatory Overhaul and Class Action Concerns For Cosmetics Companies
Duane Morris Takeaway:This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Kelly Bonner analyzing a new horizon on the consumer fraud landscape with their discussion of the Modernization of Cosmetics Regulation Act and its looming impact on class action litigation.
Jerry Maatman: Hello, loyal blog readers and welcome to our weekly installment of our Friday Podcast series called the Class Action Weekly Wire. Today I’m joined by my colleague Kelly Bonner, who is going to talk about some new developments in the cosmetics and fashion world. Welcome, Kelly.
Kelly Bonner: Thanks so much, Jerry. It’s great to be here.
Jerry: One of the areas that you’re a thought leader in is all things cosmetics and fashion. And I understand there’s a new law and regulation that we should be aware of in this space. What’s that all about?
Kelly: Absolutely. Well, thought leader – I’m going to have to tell my mom that one. But yes, the Modernization of Cosmetics Regulation Act, or MoCRA, as it’s colloquially referred to, was passed at the end of last year in December, and it is the most significant expansion of the FDA’s authority to regulate cosmetics since the passage of the Federal Food Drug and Cosmetics Act in 1938. So take a moment to think about it – that’s about 85 years.
MoCRA expands the federal government’s authority over cosmetics and creates significant new obligations for manufacturers, packers, and distributors of cosmetic products intended for sale in the United States. It has been referred to as a sea change, and it is hard to underestimate the impact MoCRA will have on cosmetics sold in the United States.
Until now, cosmetics have been regulated at the federal level under the Food Drug and Cosmetics Act, as well as the Fair Packaging and Labeling Act of 1966. Now with MoCRA, the FDA will be empowered to require facility registration, product listing, reporting of serious adverse events – with an expanded definition of what constitutes a serious adverse event, impose record keeping obligations, enforce mandatory recalls of cosmetic products, and regulations regarding good manufacturing practices.
Jerry: If you’re a corporate counsel, I would imagine that this is going to impact what you do on a day-to-day basis in terms of compliance. Do you have any views for our clients with respect to what they can expect on the compliance front?
Kelly: Yes, Jerry, so since MoCRA’s passage in December 2022, cosmetics companies and personal care companies have been grappling with how to approach MoCRA. MoCRA introduces significant changes for businesses operating in the cosmetics industry. For example, it requires any facility that manufactures or processes cosmetic products intended for sale in the United States to register with the FDA and to list products that are sold. The FDA anticipates that its portal for registration and product listing will go live sometime this month, and they’ve released certain guidance on it. But again, FDA is looking at an avalanche of information.
MoCRA also requires new labeling requirements in products, including providing contact information for serious adverse event reporting; it expands the definition of serious adverse event; it imposes greater record keeping obligations regarding product safety documenting and following up on serious adverse events. These are significant obligations that companies will need to comply with. And a lot of these obligations fall on what MoCRA identifies as a “responsible person.” It’s important to remember that MoCRA’s definition of a responsible person is not the same as a responsible person under EU regulations which were previously in existence and really kind of came up with this idea of what we’re responsible person. So it’s important to be versed in what the law requires, and how it is different from what the EU requires.
Jerry: Sounds to me like in the class action space this is going to create lots of regulations, lots of obligations, lots of duties when it comes to consumer fraud class actions. Do you see this new statute as impacting the class action world?
Kelly: Jerry, yes, this statute is going to impact the class action world. MoCRA, significantly, does not provide federal preemption for state consumer protection or products liability claims. Nor does it alter the existing regulatory framework with the relationship between the FTC – the Federal Trade Commission – and the FDA over what kinds of claims personal care products can make. So already, Jerry, what you’re seeing are plaintiffs bringing class action lawsuits over companies’ usage of terms like “clean,” “natural,” “non-toxic,” under fraud theories, or price premium theories. There may be additional opportunities for plaintiffs to obtain information through MoCRA’s required product ingredient listings and new disclosures that are required under MoCRA. Additionally, the record keeping and adverse event reporting aspect of MoCRA will provide plaintiffs with additional fodder to scrutinize the sufficiency of companies’ safety substantiation data and risk assessment processes to allege that products are not actually “safe” or “non-toxic” or “all natural” or do not contain synthetic ingredients. And so given the continued regulatory ambiguity of what constitutes sufficient safety substantiation, as well as what constitutes natural or clean beauty, companies should expect that their testing and compliance practices and their claims will be scrutinized, particularly in litigation discovery and by plaintiffs’ experts.
Jerry: I had the privilege last week of attending and presenting at a class action conference in London with European and Asian lawyers and in-house counsel, and the talk of the conference was on the emergence of consumer fraud claims throughout Europe and Asia. Do you see this new legislation is contributing to a resurgence of class actions in the consumer fraud area, and especially when it comes to what is known as “forever chemicals”?
Kelly: It’s so interesting that you should mention this, Jerry. Earlier this year I was interviewed by WWD because they wanted to talk about what they saw as a surge in consumer class actions bringing claims involving the beauty space, and they wondered what was really driving that. And you know, I think yes – you are really going to see MoCRA just providing a new ground for plaintiffs to pursue claims like these, particularly when it comes to PFAS. Now, what you refer to as PFAS – or perfluoroalkyl and polyfluoroalkyl substances – a class of chemicals that are sometimes intentionally added in cosmetics and personal care products to make it more spreadable essentially, or sometimes they’re unintentionally present, due to their presence in water that was used to prepare the cosmetic. So one of the key provisions of MoCRA charges the FDA to issue a report by the end of 2025 on the use of PFAS in cosmetics and potential human health effects. So obviously that report is going to be of great interest to the plaintiffs’ bar. Again, MoCRA also doesn’t provide any guidance for companies seeking to avoid class action claims for allegedly false or misleading claims and labeling. And so it really does provide new ground for an aggressive plaintiffs’ bar which will seek to use MoCRA’s obligations, and any perceived non-compliance, as the basis for state law claims.
Jerry: Kelly, thank you so much for your analysis of MoCRA and this new area. I think this is definitely not the last time we’ll be hearing about this issue, and it’ll be on the radar of corporate counsel. So thank you so much for lending your thought leadership today on our weekly podcast.
Duane Morris Takeaway: Duane Morris partners Jerry Maatman, Jennifer Riley, and Alex Karasik host a panel discussion on the Equal Employment Opportunity Commission’s role in workplace discrimination law and recent developments in its enforcement and litigation strategies. The panelists identify key trends emerging from EEOC-initiated litigation and analyze the agency’s newly released strategic plan for fiscal years 2022-2026. This virtual program will empower corporate counsel, human resource professionals and business leaders with insights into the EEOC’s latest enforcement initiatives and provide strategies to minimize the risk of drawing the EEOC’s scrutiny.
Duane Morris Takeaways: USA-based companies are experiencing a deluge of class action litigation. At the Thought Leaders Global Class Action Conference in London, Jerry Maatman of the Duane Morris Class Action Defense Group gave a keynote address on the state of U.S. class action litigation and how Asian, European, Australian, and African-based corporations should be “looking around the corner” to ready themselves for new class action theories spreading to their respective jurisdictions. Class and collective-based litigation is likewise growing at a precipitous rate in non-U.S. jurisdictions, and corporations operating in the global economy are subject to a patchwork quilt of procedural and substantive differences in how the plaintiffs’ class action bar is suing defendants and seeking large-scale recoveries.
The London Thought Leaders Global Class Action Conference – with a robust two day agenda and roster of speakers from Europe and Asia – examined diverse issues on cutting-edge class actions on a global basis. Subjects included the phenomenon of the “continuous evolution” of class action theories; the surge of crypto class actions claims; collective, opt-in and opt-out representative actions in England; the dawn of ESG class actions filed by NGO’s, consumers, workers, and advocacy groups; data privacy litigation on a class and collective action basis; and cross-border consumer fraud class action theories.
I had the privilege of speaking on how U.S. class action litigation impacts the global economy and litigation in non-U.S. jurisdictions. For a comparative law panel discussion, I presented along with Professor Miguel Sousa Ferro of the University of Lisbon Law School, and the Managing Partner of Milberg Sousa Ferro, a leading class action firm based in Portugal. We discussed – and debated – a comparison of the procedural differences between USA-style opt-out class action mechanisms and European Union-style opt-in / opt-out procedures. We used the recent opioid class action products liability class actions and European mass tort lawsuits as a case study to compare and contrasts the pros and cons of each judicial system and the array of mechanisms to protect consumers, injured parties, and corporate defendants.
Against that backdrop, Professor Ferro and I analyzed the future of global class actions, especially in light of the record-breaking class action settlement numbers in the USA in 2022 and 2023, which is fueling the explosive growth of class and collective litigation. We agreed that as to various substantive areas, privacy litigation is posed to remain “white hot” and grow over the next few years, as the pace of technology continues to underlie all aspects of the economy.
Duane Morris Takeaway: On October 10-11, 2023, Jerry Maatman will blog live from London as he travels across the pond to present on global class action issues at the Thought Leaders 4 Dispute’s event called Group Litigation and Class Actions 2023 – The 3rd Annual Forum. This global event will feature thought leaders from a variety of legal backgrounds in Europe, Asia, Africa, and the Americas to discuss hot topics in the global class action world.
Jerry will present key trends from the Duane Morris Class Action Review – 2023, and discuss the current state of class action litigation in the United States.
Check in to the blog next week to learn more and get information directly from the London event about what employers and corporations need to know.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Shaina Wolfe
Duane Morris Takeaways: On September 26, 2023, inTexas v. Biden, No. 6:22-CV-00004 (S.D. Tex. Sept. 26, 2023), Judge Drew B. Tipton of the U.S. District Court for the Southern District of Texas granted in part and denied in part the States’ Motion for Summary Judgment and enjoined the federal government from enforcing Executive Order 14,026 and the Final Rule against the States of Texas, Louisiana, and Mississippi and their agencies. Judge Tipton found that the President acted exceeded his authority by issuing Executive Order 14,026 and unilaterally requiring federal contractors to increase their employees’ minimum wage from $10.10 to $15 per hour. Other district courts have considered the President’s authority in issuing Executive Order 14,026, but Judge Tipton is the first federal judge to find that the President exceeded his authority. This ruling hits only the surface of what is yet to come. The parties in other cases have already filed appeals in the Ninth and Tenth Circuits challenging district court opinions that have issued contrary rulings, and the government in this case is bound to appeal this decision to the Fifth Circuit.
Procedural Background
The Federal Property and Administrative Services Act (“Procurement Act” or the “Act”) applies to federal and contractor employees. Congress implemented the Act to centralize the process by which various good and services are purchased by agencies on behalf of the government.
On April 21, 2021, President Biden, relying solely on the Act, issued Executive Order 14,026 (“EO 14,026”) to require federal contractors and subcontractors to pay certain employees $15 per hour. EO 14,026 was scheduled to begin on January 30, 2023, with annual increases thereafter. Specifically, in issuing EO 14,026, President Biden invoked his authority to “promote economy and efficiency in procurement by contracting with sources that adequately compensate their workers.” Id. at 5. After engaging in notice-and-comment rulemaking, the U.S. Department of Labor published its Final Rule, Increasing the Minimum Wage for Federal Contractors, on November 24, 2021, implementing EO 14,026 (the Final Rule and EO 14,026 are the “Wage Mandate”). Id.
Three months later, three states – Texas, Louisiana, and Mississippi (the “States”) – sued President Biden, the U.S. Department of Labor (“DOL”), and certain DOL executives (collectively the “federal government”) challenging the validity of the Wage Mandate. Id. at 2-3.
The parties cross-filed cross-motions to dismiss and motions for summary judgment. The federal government argued generally that two of the Act’s provisions, read together, provide the President with a broad grant of authority to implement policies “that the President considers necessary to foster an economical and efficient system for procuring and supplying goods and services for using property,” including the Wage Mandate. Id. at 13. The States argued that the Act is far more narrow and that it is primarily meant as a means to “centralize and introduce flexibility into government contracting to remedy duplicative contracts and inefficiencies,” which does not include setting the minimum wage for federal contractors. Id.
The District Court’s Decision
The District Court granted in part and denied in part the States’ cross-motion for summary judgment. It found that the States proved that that the President acted “ultra vires,” or beyond his authority in issuing EO 14,026. Judge Tipton enjoined the federal government from enforcing EO 14,026 and the Final Rule against Texas, Louisiana, and Mississippi and their agencies.
The District Court agreed with the States and held that Sections 101 and 102 of the Act “read together, unambiguously limit the President’s power to the supervisory role of buying and selling goods.” Id. The District Court found that the Act’s historical context further supported its holding that the President’s authority “does not include a unilateral policy-making power to increase the minimum wage of employees of federal contractors.” Id. at 15.
Judge Tipton further found that the purpose of the Act purpose conflicts with the Wage Mandate. He explained that the Act’s purpose is to provide “a relatively hands-off framework that enables agencies to determine for themselves the quantity and quality of items to procure on behalf of the federal government. It does not confer authority for the President to decree broad employment rules.” Id. at 20. As an example, the District Court compared the Act to two other permissible federal wage statutes – the Davis Bacon Act and the Walsh-Healey Public Contracts Act. Id. at 20-21. Judge Tipton opined that unlike those two permissible federal wage-statutes, in which Congress expressly gave the Secretary of Labor limited power to tailor the minimum wage of certain classes of federal contractors, the Procurement Act did not permit the President unlimited wage-setting authority. Id. at 21. The District Court concluded that the “Procurement Act’s text, history, purpose and structure limit the President to a supervisory role in policy implementation rather than a unilateral, broad policy-making power to set a minimum wage.” Id. at 22.
The federal government will likely appeal the decision, and the Fifth Circuit will join the Ninth and Tenth Circuits in deciding whether the President exceeded his authority in issuing EO 14,026.
Implications for Employers
The District Court’s decision is a huge win for employers in Texas, Louisiana, and Mississippi as the federal government is prohibited from enforcing EO 14,026. Companies should stay tuned for the imminent showdown in the Fifth, Ninth, and Tenth Circuit’s on the President’s Authority over increasing the minimum wage for federal contractors and subcontractors.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther
Duane Morris Takeaways: In Wilson v. Timec, No. 2:23-CV-00172, 2023 WL 5753617 (E.D. Cal. Sept. 6, 2023), Judge William B. Shubb of the U.S. District Court for the Eastern District of California granted Defendants’ Motion for Partial Judgment on the Pleadings in a race discrimination class action. The Court held that Plaintiffs Marvonte Wilson and Domonique Daniels (“Plaintiffs”) failed plausibly to allege in their complaint that Defendants’ hair drug testing employment practice had a disparate impact or disparate treatment on individuals with melanin-rich hair under Title VII of the Civil Rights Act of 1964 (“Title VII”) or under the California Fair Employment and Housing Act (“FEHA”). This case serves as an important reminder to companies that utilize employment-related drug testing to stay vigilant as to the potential impact of their chosen drug testing protocols on certain populations and communities.
Case Background
Plaintiffs, who both have melanin-rich hair, filed a complaint alleging that Defendants failed to provide them work assignments or opportunities on the basis of allegedly false positive hair drug tests. Id. at 1. Plaintiffs asserted that hair drug testing is less effective on melanin-rich hair, and persons of color who have melanin-rich hair are consequently at a higher risk of false positive test results than individuals with lighter-colored hair. Id. at 2. Plaintiffs filed a class action and sued on behalf of themselves and other similarly-situated workers alleging that the drug testing had a disparate impact on individuals with melanin-rich hair under Title VII and under the FEHA and that Defendants subjected them to disparate treatment. Id. at 1. In response, Defendant DISA (later joined by all other Defendants) filed a Motion for Judgment on the Pleadings (“Defendants’ Motion”). Id.
The Court’s Decision
The Court initially noted that Title VII prohibits employers from “discriminat[ing] against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race . . . or national origin.” Id. at 2 (quoting 42 U.S.C. § 2000e-2(a)(1)). Similarly, the FEHA prohibits employers from discriminating against an individual “‘in compensation or in terms, conditions, or privileges of employment’ on, inter alia, race, color, or national origin.” Id. (quoting Cal. Gov’t Code § 12940(a)). Due to the similar language between Title VII and FEHA, the Court opined that that “Title VII framework is applied to claims brought under the FEHA.” Id. (quoting Pinder v. Emp. Dev. Dep’t., 227 F. Supp. 3d 1123, 1136 (E.D. Cal. 2017)).
The Court reasoned that a disparate impact claim is proper when plaintiffs “plausibly allege that an employment disparity exists with respect to the protected group.” Id. (citing Liu v. Uber Techs. Inc., 551 F. Supp. 3d 988, 990 (N.D. Cal. 2021)). The Court dismissed Plaintiffs’ Title VII and FEHA disparate impact claims because it found that their complaint lacked substantive allegations sufficient to “establish a connection between race and the challenged” hair drug testing. Id. at 3. Namely, the Court held that, even though Plaintiffs raised allegations in their response to Defendants’ Motion “concerning the difference in the melanin content of dark hair in people of different races, the disparity in drug test outcomes between black and white employees, the difference in how drugs interact with the hair of black and white individuals, and the increased risk of false positive test results due to hair products used by black individuals,” “[n]one of th[o]se allegations appear[ed] in the [Plaintiffs’] complaint.” Id. at 2.
The Court also opined that a claim of disparate treatment is proper “where an employer has treated a particular person less favorably than others because of a protected trait.” Id. at 3. That said, the Court dismissed Plaintiffs’ Title VII and FEHA disparate treatment claims because Plaintiffs failed plausibly to allege that, in adopting their facially neutral drug-testing policies, Defendants “had discriminatory intent.” Id.
For these reasons, the Court concluded that Defendants’ Motion should be granted. Id. at 3. It provided Plaintiffs 20 days, or until September 26, 2023, to file an amended complaint. Id.
Implications for Employers
The Court’s ruling is an important win for companies facing disparate impact class actions in that it illustrates the high bar plaintiffs must meet to clear the pleading phase. In particular, the Court’s decision shows that plaintiffs must allege facts showing an actual connection between the challenged practice and the protected category at issue. That said, companies that utilize employment-related drug testing should be proactive and stay apprised of research surrounding their chosen drug tests and their potentially disparate impact on various communities. Additionally, companies should evaluate their drug testing policies and practices to ensure they remain free of discriminatory intent and potential bias as to any particular community.
By Gerald L. Maatman, Jr., Natalie Bare, and Emilee N. Crowther
Duane Morris Takeaways: In Bone v. XTO Energy, Inc., No. 21-CV-1460, 2023 WL 5431139 (D. Del. Aug. 23, 2023), the Judge Joel H. Slomsky of the U.S. District Court for the District of Delaware granted RUSCO Operating, LLC and Ally Consulting, LLC’s (collectively, “RUSCO”) Motion to Intervene in a case filed by workers that used its app to connect with a company seeking their safety consulting services. The Court allowed RUSCO to intervene as a matter of right based on RUSCO’s interest in its classification of workers that use its app as independent contractors and its interest in enforcing RUSCO’s arbitration agreement.This case serves as a reminder to companies that provide staffing services of the benefits of monitoring litigation filed against partner companies (and the potential pitfalls of not doing so).
Case Background
Plaintiffs Cory Bone and Luis Carillo were safety consultants engaged by Defendant XTO Energy, Inc. (XTO) as independent contractors through an online app operated by RUSCO Operating, LLC and Ally Consulting. Id. at 1. They sued on behalf of themselves and other similarly- situated workers engaged through the app, alleging misclassification and subsequent failure to pay overtime in violation of the Fair Labor Standards Act (“FLSA”). Id. RUSCO asserted that they paid Plaintiffs directly for the work they provided to XTO, and by using the app, Plaintiffs and putative collective action members had agreed to arbitrate any employment-related disputes. Id. at 2. RUSCO filed a Motion to Intervene to enforce the arbitration agreement. Id.
The Court’s Decision
The Court concluded that RUSCO could intervene as a matter of right. Id.
Under Rule 24, a non-party may intervene (1) as a matter of right, if the disposition of the case would impair its interest; or (2) as a matter of permission, if common questions of law and fact exist between the non-party’s claims or defenses and those at issue in the case. The Court explained that a party must timely demonstrate the following to intervene as a matter of right: “(1) a sufficient interest in the litigation; (2) a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action; and (3) that its interest is not adequately represented by the existing parties and the litigation.” Id. (quoting Commonwealth v. President of the United States of America, 888 F.3d 52, 57 (3d Cir. 2018).
The first prong required RUSCO to demonstrate a “significantly protectable” interest, i.e., one that is specific to the intervener, capable of definition, “and will be directly affected in a substantially concrete fashion by the relief sought.” Id. at 4 (quoting Kleissler v. U.S. Forest Serv., 157 F.3d 964, 972 (3d Cir. 1998)).
The Court held that RUSCO met this prong because it classified any workers using its app as independent contractors and Plaintiffs’ claims against XTO turned “on whether Plaintiffs [were] employees or independent contractors.” Id. In addition, the Court opined that RUSCO had a significant protectable interest in the litigation due to its interest in enforcing the arbitration agreement Plaintiffs had executed in order to use the app. Id. (discussing RUSCO’s successful intervention in Field v. Anadarko Petro. Corp., 35 F.4th 1013, 1016 (5th Cir. 2022) based on its “interest in enforcing [its] arbitration agreements, particularly given the interrelatedness of the parties’ contractual relationships and the plaintiff’s claims, is ‘a stake in the matter that goes beyond a generalized preference that the case come out a certain way’”).
The second prong required RUSCO to establish “a tangible threat to [its] legal interest.” Id. at 5. The Court held that RUSCO met this prong because the Court’s determinations regarding independent contractor misclassification and arbitration agreement enforcement “could negatively impact RUSCO’s legal interests.” Id.
Finally, the third prong required RUSCO to establish that its interest “diverge[d] sufficiently from the interests of [XTO], such that [XTO might not be able to] devote proper attention to the [RUSCO’s] interests.” Id. (citing Commonwealth, 888 F.3d at 59). on this issue, the Court concluded that XTO could not adequately represent RUSCO’s interest in the litigation because Plaintiffs brought claims based on improper payment, and RUSCO — not XTO — had paid the workers asserting those claims. Id. Moreover, at the time of RUSCO’s intervention, XTO had not yet sought to compel Plaintiffs to arbitration so it had not devoted proper attention to RUSCO’s interests in that regard. Id.
Implications for Employers
Companies providing staffing services should review litigation filed against the entities to which they provide staff to evaluate whether the disposition of claims or issues in the litigation will implicate their interest. Staffing companies that refer workers to other companies should ensure the contract contains adequate notice provisions concerning litigation pertaining to the employment relationship. Companies that do not discover litigation that may affect their interests may have to live with results of unfavorable outcomes.
By Gerald L. Maatman, Jr. and Gregory Tsonis
