Duane Morris Takeaway: Within the vast realm of class action litigation, consumer fraud class actions remain at the forefront. Consumer fraud class actions typically involve a class of consumers who believe they were participating in a legitimate business transaction, but, due to a merchant or company’s alleged deceptive or fraudulent practices, the consumers were actually being defrauded. A wide variety of conduct gives rise to consumer fraud claims. For example, if a business or merchant makes misleading statements about a retail product’s origin, quality, or potential use, over-exaggerates a product’s benefits, imposes classic bait-and-switch tactics on consumers – wherein consumers are forced to make decisions based on inaccurate or incomplete information – or charges fees or surcharges that are unrelated to the subject of the merchant’s transaction with the consumer, a claim for consumer fraud will arise because these actions may harm consumers.
Every state has consumer protection laws, and consumer fraud class actions require courts to analyze these statutes both with respect to plaintiffs’ claims, and also with respect to choice of law analyses when a complaint seeks to impose liability upon multiple states’ consumer protection laws.
To that end, the class action team at Duane Morris is pleased to present a new publication – the 2024 edition of the Consumer Fraud Class Action Review. We hope it will demystify some of the complexities of consumer fraud class action litigation and keep corporate counsel updated on the ever-evolving nuances of these issues. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with consumer fraud class action litigation.
Click here to download a copy of the Duane Morris Consumer Fraud Class Action Review – 2024 eBook.
Stay tuned for more consumer fraud class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
Duane Morris Takeaways: On March 20, 2024, a regulatory filing by UFC parent company, TKO Group Holding Inc., revealed that TKO will pay $335 million to settle a class action brought by MMA fighters who alleged that the UFC engaged in anticompetitive conduct to suppress the fighters’ wages in Le v. Zuffa, LLC, No. 2:15-CV-01045 (D. Nev. 2024). The parties had engaged in mediation last month prior to the start of trial scheduled for April 15, 2024. Earlier this year, Judge Richard F. Boulware II of the U.S. District Court for the District of Nevada denied Defendant’s motion for summary judgment and declined to exclude two of Plaintiffs’ key experts. Id. (D. Nev. Jan. 18, 2024). The Court had also certified the class on August 9, 2023.
Le v. Zuffa has been closely watched in the antitrust space and the trial was much anticipated as it was the first labor monopsony case ever. The prior rulings in the case are required reading for any corporate counsel handling antitrust class action litigation involving wage-suppression issues. The announced settlement underscores the risks and exposures emanating from this type of antitrust claim.
Case Background
Plaintiffs are current or former UFC fighters. Defendant Zuffa, LLC does business as the UFC and is the preeminent MMA event promoter in the United States.
Plaintiffs alleged that UFC used exclusive contracts, market power, and a series of acquisitions to suppress wages paid to UFC fighters during the class period by up to $1.6 billion. Plaintiffs filed suit in December 2014 and defeated UFC’s motions for partial summary judgment in 2017.
In February 2018, plaintiffs moved to certify two classes. The Court granted the motion and certified a class consisting of all persons who competed in one or more live professional UFC-promoted MMA bouts taking place in the United States from December 16, 2010 to June 30, 2017. In light of the class certification, Defendant renewed its motion for summary judgment and moved to exclude expert testimony. The Court struck two of Defendant’s motions to exclude and denied summary judgment. The case was scheduled to start trial on April 15, 2024.
Class Action Settlement Announced
The settlement, which will be paid out over an unspecified amount of time, resolves all of the antitrust wage-suppression claims against the UFC and avoids the risks associated with trial.
The parties will still need to present the settlement to the Court for preliminary and final approval pursuant to Rule 23.
Implications For Employers
Le v. Zuffa was a significant labor antitrust class action.
The settlement underscores the ability of workers to use antitrust law to tilt labor market dynamics in their favor and to increase workers’ bargaining leverage for greater compensation and benefits.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and Shireen Wetmore and associates Nathan Norimoto and Nick Baltaxe with their discussion of 2023 developments and trends in PAGA litigation as detailed in the recently published Duane Morris PAGA Review – 2024.
Jerry Maatman: Welcome 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 three most favorite California colleagues, Shireen, Nick, and Nathan. Thank you so much for being on our podcast.
Shireen Wetmore: Thanks, Jerry. Happy to be part of the podcast.
Nathan Norimoto: Thanks, Jerry, glad to be here.
Nick Baltaxe: Thank you, Jerry. It’s always a pleasure.
Jerry: Today on the podcast we’re discussing this year’s edition of the Duane Morris PAGA Review. This is a unique publication offered in the e-book format from our Duane Morris Class Action Defense Blog. Shireen, can you tell our loyal readers a bit about this year’s book?
Shireen: Absolutely, Jerry. So for many years, actions under the California Private Attorneys General Act, or PAGA, were used by plaintiffs or the plaintiffs’ bar as a workaround to arbitration agreements between employers and employees. In 2022, this strategy had its first big step back following a key decision by the United States Supreme Court in Viking River Cruises. Then, just last year another big decision came down in the California Supreme Court in Adolph v. Uber, adding to the mix and swinging a smidge in the other direction. To assist with understanding what this means for employers facing PAGA claims, Duane Morris has released the Duane Morris Private Attorneys General Act Review, and 2024 is the latest edition of this annual publication. It analyzes key PAGA rulings and litigation developments in 2023, and the significant trends that are apt to impact these types of representative actions in 2024. We hope that companies and employers will benefit from this resource, and that will aid them in their compliance with these evolving laws and standards.
Jerry: After practicing law for four decades, I’ve always thought that PAGA representative actions are some of the most vexing and challenging and difficult cases to defend. Nathan, what are some of the key takeaways for employers in terms of developments over the past 12 months?
Nathan: Well, according to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the California Labor and Workforce Development Agency, or the LWDA, has increased exponentially over the past two decades. At the same time, the plaintiffs’ bar in California has used PAGA actions to circumvent workplace arbitration agreements that include class action waivers on the grounds that PAGA claims were somehow different than class actions, and therefore not covered by arbitration defenses. But this PAGA workaround has suffered significant setbacks in 2022 and 2023.
Jerry: If one keeps a litigation scorecard, it kind of changes by the inning – it’s an area that’s very much in flux. Nick, what are some of the setbacks that employers experienced over the past year in terms of defense of PAGA representative actions?
Nick: Well, Jerry, in July of 2023, the California Supreme Court issued its ruling in Adolph v. Uber. The court held that the PAGA plaintiff’s individual claims could be compelled to arbitration, but that the class claims or the representative claims could not be. The court also ruled that the plaintiff retains standing to maintain that representative PAGA claim so long as they’re an aggrieved employee. The court said that if the plaintiff loses an arbitration, they are not an aggrieved employee, and therefore lack standing. However, if the plaintiff prevails or settles their individual claims in arbitration, they could then return to court to prosecute their non-individual representative PAGA claims.
Jerry: Our Duane Morris Class Action Review in 2024 examined 1,300 rulings. By my way of thinking, I think that this particular ruling by the California Supreme Court may be the most important of all of those rulings. Shireen and Nick, I’d be interested in your takeaways of what this means for employers going forward.
Shireen: That’s a great question, Jerry, I think, in the wake of Adolph, the stakes for employers in individual PAGA arbitrations are really high. Employers facing PAGA claims should conduct an early assessment of the plaintiff’s individual claims, and if they are not meritorious, aggressively defend the matter, because a win in arbitration will completely extinguish the court case as well. We’re already seeing PAGA plaintiffs attempt to avoid arbitration through increasingly tenuous theories, or attempt to circumvent these agreements altogether through really creative pleading. It remains to be seen if these pleading strategies will be condoned by the California courts, but it’s a big, big issue for employers.
Nick: Another significant issue for employers is the recentEstrada decision, which struck a blow to employers facing PAGA claims by removing a defense that we were seeing become a little bit more common – the lack of manageability. The California Supreme Court encouraged PAGA plaintiffs to be prudent on their approach to their PAGA theories. However, usually that prudence is not seen in practice. While the decision did effectively remove the lack of manageability as a ground for dismissal, the decision did leave open an employer’s ability to seek dismissal on other due process grounds.
Jerry: I think the watch words are that in 2024, it’s probably even more difficult for employers to defend PAGA actions than it was last year. Nathan, do you have any inside baseball tips for employers in terms of this most recent California Supreme Court ruling, and what it may mean?
Nathan: Definitely, I agree. I think this is a game changer for employers operating in California. The Estrada court held in a unanimous decision that trial courts lack inherent authority to dismiss plans under PAGA with prejudice, to do the lack of manageability. The court, however, declined to address whether and under what circumstances, a defendant’s right to due process might ever support striking a pocket claim. As such. This decision in Estrada is really important for employers and their decision makers in California to read as we move forward in 2024.
Shireen: I would definitely agree with that. I think we’re seeing more and more pile-on PAGA matters where employers are facing either copycat or serial PAGA claims, and without any real adjudication of the claims that are identified in the PAGA letter, especially in the case of these kitchen sink or boilerplate letters. So query whether employers are actually getting a meaningful opportunity to cure these violations as contemplated by the statute. In no other agency context that I can think of would a government agency separately investigate a single employer for the exact same alleged violation in multiple, competing investigations or audits. These issues raise important due process concerns that the Estrada decision teed up very nicely for employers. And this could have a huge impact on the evolving landscape of PAGA, and it might actually mean that the Estrada decision is, in a funny way, a win for employers. So, very excited to see where the litigation goes from here, and especially in 2024.
Jerry: Well, this is truly an area that on our blog will be tracking on a day by day and week by week basis in terms of new developments under California law and PAGA litigation. Thank you so much. Nick, Nathan, and Shireen for sharing your thought leadership today on our podcast.
Nathan: Thank you, Jerry, love being on the podcast.
Nick: Thanks for having me, Jerry, and thank you listeners as well.
By Gerald L. Maatman, Jr., Brandon Spurlock, and Nicolette J. Zulli
Duane Morris Takeaways: As the threat of wage & hour collective actions continue to pose litigation risks for businesses, especially given the typically low threshold to obtain FLSA condition certification, a recent Georgia federal court opinion offers a positive lesson for companies facing such actions where plaintiffs are unable to show that other similarly situated workers want to join the lawsuit. In Parker v. Perdue Foods, LLC, No. 5:22-CV-268, 2024 U.S. Dist. LEXIS 45542 (M.D. Ga. Mar. 14, 2024), Judge Tilman E. Self of the U.S. District Court for Middle District of Georgia denied Plaintiff’s motion for conditional certification in an FLSA 216(b) collective action on the grounds that Plaintiffs failed to demonstrate that other similarly situated workers desired to opt-in to the lawsuit.
Case Background
Perdue, “the third largest boiler chicken company in the country,” contracts with approximately 1,300 so-called “growers” — farmers who raise chickens for Perdue — throughout the nation. Id. at *2. Parker, a former grower for Perdue, filed a lawsuit seeking relief under the Fair Labor Standards Act (“FLSA”). He claimed that growers were entitled to at least the federal minimum wage and overtime pay, which Perdue did not pay them. Id. at *3. Specifically, Parker alleged that he often worked over 60 hours per week, was expected to be on call 24 hours a day, and, after paying for expenses, he was making a fraction of the federal minimum wage. Id. at *2 (internal quotations and citations omitted). Parker claimed that he and other growers nationwide were misclassified as independent contractors, when they were in fact employees. Id. at *3.
The parties engaged in six months of targeted discovery on conditional certification issues, including extensive written discovery, a Rule 30(b)(6) deposition, and the depositions of Parker and the sole opt-in plaintiff to the action. Id.
Plaintiffs sought to conditionally certify a proposed collective action that included at least 1,300 growers who raised chickens for Perdue under a Perdue Poultry Producer Agreement in the past three years. Id. at *5. Plaintiffs also sought the Court’s approval for a proposed notice to be sent to potential collective action members who met this definition, as well as Perdue’s disclosure of a list of individuals in the potential collective action so that notice could be sent. Id. at *6.
Perdue objected to conditional certification because, among other things, Plaintiffs failed to provide sufficient evidence to show that other growers in the nationwide collective action wished to opt-in. Id. Plaintiffs argued that the opt-in consent filed by the only opt-in plaintiff indicated that other growers desired to join the suit and would join if given notice, and that one or two opt-in plaintiffs are sufficient to permit conditional certification in the Eleventh Circuit. Id.
The Court’s Decision
Judge Self agreed with Perdue. He held that Plaintiffs failed to meet their burden of showing that there were a substantial number of growers who desired to opt-in to the collective action. Id. at *14. Accordingly, the Court denied Plaintiffs’ motion for conditional certification and dismissed the opt-in plaintiff from the suit without prejudice. Id.
The Court addressed the merits of Perdue’s objection under the first prong of theanalysis of Dybach v. Florida Dep’t of Corrections, 942 F.2d 1562, 1567 (11th Cir. 1991). Dybach held that Plaintiffs bear the burden of showing that the individuals in the proposed collective action (1) “desire to opt-in” to the collective action and (2) are “similarly situated.” Because the Court found Plaintiffs failed to meet their burden on the first prong, it did not reach the issue of whether members of the proposed collective action were similarly situated. Id. at *6-7.
Importantly, the Court applied a somewhat heightened standard of scrutiny in this case because the Parties had already engaged in six (6) months of discovery focused on conditional certification. Id. at *7. The Court explained that although it typically applies a fairly lenient standard for conditional certification, the rationale for that standard disappears once a plaintiff has had an opportunity to conduct discovery. Id. In other words, the standard may become less lenient as the litigation progresses. Id.
The Court also highlighted that despite Plaintiffs having six months to conduct discovery and gather evidence for conditional certification, the only evidence they presented suggesting that other growers desired to opt-in to the case was (i) a single opt-in and (ii) statements from Parker and the opt-in that they believe other growers would be interested in joining the lawsuit. Id. at *10. Specifically, the Court noted that “one opt-in is insufficient to show substantial interest” in a proposed collective action “of over 1,300 individuals in 11 locations in nine (9) states across the country, even under the most lenient of standards.” Id. (emphasis added).
In addition to being unpersuaded by Plaintiffs’ position, which aimed to establish a bright line rule regarding the number of opt-in consents sufficient to satisfy its burden, the Court found that the declarations filed by Parker and the opt-in (stating that they believe other growers would be interested in joining the collective action) were speculative and thus insufficient. Id. at *11-12. Furthermore, the Court noted that in their depositions, both Parker and the opt-in conceded that they were not aware of any growers who wish to join the action. Id. at *12.
In the end, the Court opined that “[b]ottom line: two out of 1300+ just isn’t enough” for conditional certification. Id. at *13.
Implications For Employers
Perdue Foods provides specific and valuable insight for employers on how best to defend against conditional certification in cases where (1) the parties have engaged in discovery on conditional certification issues; and (2) the number of opt-ins who have consented to the action are nominal in comparison to the size of the proposed collective action. The decision provides a roadmap for employers as to FLSA conditional certification following the parties’ engagement in extensive pre-certification discovery targeted toward conditional certification. Namely, that the court may apply a heightened standard of scrutiny in such circumstances, thereby requiring Plaintiffs to show that more than just “one or two” opt-ins are interested in joining the action.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther
Duane Morris Takeaways: In Chamber of Commerce of the U.S.A. et al. v. NLRB et al., No. 6:23-CV-00553, 2024 WL 1045231 (E.D. Tex. Mar. 8, 2024), Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas granted the Plaintiffs motion for summary judgment and denied the Defendants cross-motion for summary judgment. Under the NLRB’s 2023 joint employer rule, even companies who exercise just “indirect control” over the employees of another entity could be considered a joint employer under federal labor laws. The Court held that the NLRB’s 2023 joint employer rule did not provide a meaningful two-part test to determine joint employer status, and that the NLRB’s reason for rescinding the 2020 Rule was arbitrary and capricious. Accordingly, the Court vacated the 2023 Rule and reinstated the 2020 Rule.
This ruling is a huge win for businesses, as it reinstates the 2020 Rule’s heightened “substantial direct and immediate control” standard for determining joint-employer status.
Case Background
In 2020, the NLRB issued a joint-employer final rule, providing that an entity “is a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment” (the “2020 Rule”). Id. at 12 (quoting 29 C.F.R. § 103.40(a) (2020)). Under the 2020 Rule, a company is a joint employer when it exercises “substantial direct and immediate control” over one or more of the following “essential terms or conditions of employment” – “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.” Id. at 12-13 (quoting 29 C.F.R. § 103.40(a), (c)(1) (2020)).
In 2023, the NLRB rescinded the 2020 Rule and enacted a new joint-employer final rule (the “2023 Rule”). Id. at 14. The 2023 Rule defined a joint employer as an entity that exercised “reserved control” or “indirect control” over one of seven terms and conditions of employment, including: “(1) work rules and directions governing the manner, means, and methods of the performance, and (2) working conditions related to the safety and health of employees.” Id. (29 C.F.R. § 103.40(d)-(e)).
In 2023, Plaintiffs sued the Defendants, challenging the 2023 Rule on two grounds: (i) that it is inconsistent with the common law; and (ii) that it is arbitrary and capricious. Id. at 14-15.
In response, the Defendants cross-moved for summary judgment on the Plaintiffs claims, alleging that the 2023 Rule was based on, and is governed by, common law principles, that it is not arbitrary and capricious, and that the Board acted lawfully in rescinding the 2020 Rule. Id. at 20.
The Court’s Decision
The Court granted the Plaintiffs motion for summary judgment, and denied Defendants cross-motion for summary judgment, thereby “vacating the 2023 Rule, both insofar as [the 2023 Rule] rescind[ed] the [2020 Rule] and insofar as it promulgate[d] a new version of [the 2020 Rule].” Id. at 30.
First, the Court focused on the main dispute between the parties, i.e., whether the 2023 Rule had a meaningful two-step test to determine an entity’s joint employer status, or the 2023 Rule only had one step for all practical purposes. Id. at 20-21. The Defendants argued that the 2023 Rule’s joint-employer injury had the following steps: (i) “an entity must qualify as a common-law employer of the disputed employees”; and (ii) “only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment.” Id. The Court disagreed, finding that “an entity satisfying step one, along with some other entity doing so, will always satisfy step two,” since “an employer of a worker under the common law of agency must have the power to control ‘the material details of how the work is to be performed,” and the Defendants proposed step two included “work rules and directions governing the manner, means and methods of the performance of duties.” Id. at 22-23 (internal citations omitted).
The Court then analyzed whether the Board lawfully rescinded the 2020 Rule. It opined that “to survive arbitrary-and-capricious review, agency action must be ‘reasonable and reasonably explained.” Id. at 28-29. The Court held that the Board did not provide a “reasonable or reasonably explained” purpose for rescinding the 2020 Rule, and therefore, its recension was arbitrary and capricious. Id. at 29. Since “vacatur of an agency action is the default rule” in the Fifth Circuit when such rule “is found to be discordant with the law or arbitrary and capricious”, the Court vacated the 2023 Rule. Id. at 30.
Implications For Employers
The Court’s vacatur of the 2023 Rule in Chamber of Commerce of USA et al. v. NLRB et al. is an important victory for employers. The 2023 Rule would have made “virtually every entity that contracts for labor . . . a joint employer.” Id. at 25. Moreover, the 2020 Rule, in addition to imposing the heightened “substantial direct and immediate control standard,” provides integral guidance for what actions are considered joint, and what actions are not. The Court’s decision to reinstate the 2020 Rule, therefore, is also a significant win for employers.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown
Duane Morris Takeaways: On March 12, 2024, in Parker v. Battle Creek Pizza, Inc.No. 22-2119 (6th Cir. Mar. 12, 2024), a three-judge panel of the Sixth Circuit addressed the issue of what standard applies for calculating reimbursements of vehicle expenses owed under the FLSA to delivery drivers who use their own vehicles for their jobs. The consolidated appeal arose from dueling opinions of U.S. District Courts in Michigan and Ohio on the same issue.
The Sixth Circuit concluded that neither the IRS standard mileage rate (the approach of the court in Michigan), nor an employer’s “reasonable approximation” of vehicle costs (the approach of the court in Ohio), satisfies an employer’s minimum wage obligations under the FLSA. The Sixth Circuit vacated the district court opinions and sent the cases back to their respective courts for further proceedings on remand. The Sixth Circuit’s decision is essential readingfor all businesses with delivery drivers, particularly those defending minimum wage claims involving drivers’ expenses, a hot-button litigation issue percolating in courts across the country.
Case Background
To set the stage, the FLSA requires payment of the minimum wage (currently $7.25 an hour) to employees “free and clear.” In the U.S. Department of Labor regulations interpreting the statute, 29 C.F.R. § 531.35 states that employers cannot shift business expenses to their employees if doing so causes the employees’ wages to drop below the minimum wage. In another section of the FLSA regulations, the DOL addresses how to calculate an employee’s “regular rate of pay” for overtime calculations when the employer reimburses an employee’s business expenses. In that regulation at 29 C.F.R. § 778.217(c), the DOL says employers may “reasonably approximate” the amount of the expenses to be reimbursed. The DOL regulations say nothing, however, about how to calculate such an approximation, and whether the analysis applies to wages owed other than overtime wages.
The district court in Parker v. Battle Creek Pizza, Inc., 20-CV-00277 (W.D. Mich. Apr. 28, 2022), held that use of the IRS mileage rate satisfied the FLSA. The court deferred to the DOL’s Field Operations Handbook, the internal manual that guides investigators for the Wage and Hour Division. In the Field Operations Handbook. The DOL takes the enforcement position at § 30c15(a) that employers may, in lieu of reimbursing an employee’s actual expenses, use the IRS standard business mileage rate to determine the amount of reimbursement owed to employees for FLSA purposes. By contrast, the district court in Bradford v. Team Pizza, Inc., 20-CV-00060 (S.D. Ohio Oct. 19, 2021), rejected the IRS mileage rate in favor of an employer’s “reasonable approximation” of the drivers’ expenses.
The IRS standard business mileage rate, currently $.67 a mile, is intended to represent gasoline, depreciation, maintenance, repair and other fees pertaining to vehicle upkeep. Employers’ “reasonable approximation” of an employee’s costs in using their personal vehicles to perform work typically is lower than the IRS rate.
The Sixth Circuit’s Ruling
The Sixth Circuit highlighted the basic requirement of the FLSA to pay employees at least the minimum wage for hours worked. As the Sixth Circuit stated, when an employee’s hourly wage is the minimum $7.25 an hour, any underpayment of the employee for costs they expended to benefit the employer necessarily causes them to receive less than the minimum wage.
Although it acknowledged the difficulty of calculating vehicle expenses on an employee-by-employee basis, the Sixth Circuit reasoned that any “approximation” of an employee’s personal vehicle costs — whether it be the employer’s own calculation or the IRS’s standard business mileage rate — is contrary to the FLSA where it results in an employee receiving less than the minimum wage.
The Sixth Circuit declined to defer to the DOL’s interpretation in the FLSA regulations or the agency’s Field Operations Handbook. It emphasized that the FLSA regulation supporting the “reasonable approximation” method — 29 C.F.R. § 778.217(c) — addressed overtime calculations, not minimum wage. The Sixth Circuit also found use of the IRS standard business mileage rate to be fatally flawed. As it explained, the IRS’s rate, though more generous in application than the “reasonable approximation” method, disfavors high-mileage drivers like delivery drivers and fails to account for regional and other differences inherent in maintaining a vehicle. Id. at 6.
The Sixth Circuit did not announce a new standard to replace the two approaches it rejected. However, it offered a three-part framework for the district courts to consider on remand. Similar to the burden-shifting framework in Title VII disparate treatment cases, the Sixth Circuit suggested that an FLSA plaintiff might present prima facie proof that a reimbursement was inadequate. The employer would then bear the burden to show that the amount it reimbursed bore a reasonable relationship to the employee’s actual costs. The plaintiff would have an opportunity to attack the employer’s reasoning while bearing the ultimate burden to prove failure to receive minimum wages.
Implications For Employers
Although the Sixth Circuit’s ruling in Parker is binding only on federal courts in Ohio, Michigan, Tennessee and Kentucky, the opinion may prompt courts around the country to reconsider reliance on the DOL’s “reasonable approximation” standard and the IRS’s standard business mileage rate when evaluating minimum wage claims of delivery drivers. Considering that FLSA claims asserting underpayment for vehicle expenses already is a favorite topic of the plaintiffs’ class action bar, we expect the opinion to unleash a flood of new lawsuits in this area. All businesses with delivery drivers ought to keep a close watch on how the Michigan and Ohio district courts apply the Sixth Circuit’s ruling on remand.
A silver lining in the decision may well be the notion that as calculating the appropriateness of reimbursement is required on a driver-by-driver basis, such claims seem difficult to ever certify.
The opinion in Parker is also significant in light of the Supreme Court’s forthcoming ruling on the viability of the Chevron doctrine, the framework in which courts generally defer to agencies’ interpretation of federal statutes. In rejecting the DOL’s interpretation of the FLSA, the reasoning in Parker may be a harbinger of future rulings under the FLSA and a panoply of other statutory schemes if the Supreme Court abandons Chevron deference.
By Gerald L. Maatman, Jr., Nick Baltaxe, and Brittany Wunderlich
Duane Morris Takeaways: On March 11, 2024, in Equal Employment Opportunity Commission v. Il Fornaio (America) LLC, Case No. 2:22-CV-05992, Judge Sherilyn Peace Garnett of the U.S. District Court for the Central District of California granted in part, and denied in part, the Defendant’s motion to dismiss the EEOC’s complaint. Specifically, the Court held that EEOC failed allege specific facts to support that a group of aggrieved employees were subjected to hostile work environment, retaliation, and constructive discharge. This holding illustrates that defendants may be successful in challenging the basis for EEOC lawsuits when the complaint fails to include specific facts as to unidentified aggrieved employees.
The Complaint
On August 24, 2022, the EEOC filed a lawsuit against Defendant Il Fornaio (America) LLC (“Il Fornaio”), the owner and operator of Italian restaurants. The EEOC alleged that the Charging Party and similarly aggrieved employees (“Aggrieved Employees”) were subjected to sexual harassment while employed by Il Fornaio by male supervisors. Specifically, the EEOC claimed that those supervisors leered at and groped female employees, as well as showed pornography to them while at work. The Complaint further alleged that Il Fornaio failed to take adequate steps to address complaints of harassment and retaliated against the Charging Party and Aggrieved Employees by reducing their hours, forcing employees to “clean the bar” more frequently, rejecting requests for time off, and “threatening” employees. Id. at 1-2.
Il Fornaio’s Motion to Dismiss
Il Fornaio moved to dismiss the EEOC’s complaint pursuant to Rule 12(b)(6) or, in the alternative, moved for a more definite statement under Rule 12(e). Specifically, Il Fornaio argued that the EEOC’s Complaint should be dismissed as to the unnamed and unidentified victims because the allegations lacked sufficient specificity to meet the federal pleading standard.
In support of its motion, Il Fornaio pointed to the fact that the EEOC had not provide information regarding the number of Aggrieved Employees, which of Il Fornaio’s 19 restaurants were involved, basic identifying information about any of the Aggrieved Employees, information regarding the alleged complaints, the identities of the co-workers and supervisors involved, and the timeframe in which the alleged harassment occurred. Accordingly, Il Fornaio argued that it was unable to respond to the Complaint because the EEOC’s allegations were too vague and ambiguous.
The Court’s Order
As to the EEOC’s first cause of action for hostile work environment under Title VII, the Court noted that that all that is required to survive a motion to dismiss is for the plaintiff to satisfy Rule 8 of the Federal Rules of Civil Procedure and allege sufficient facts to state the elements of a hostile work environment claim (i.e., plead that (i) she was subjected to verbal or physical contact of a sexual nature, (ii) the conduct was unwelcome, and (iii) the abusive conduct was sufficiently severe or pervasive so as to alter the conditions of her employment thus creating an abusive work environment). The Court found that the EEOC had adequately alleged a hostile work environment claim on behalf of the Charging Party. For example, the EEOC alleged that the Charging Party was subject to frequent unwelcome comments and conduct that was sexual in nature, not isolated incidents, and that Il Fornaio failed to correct the harassment which, in turn, altered the terms and conditions of the Charging Party’s employment.
However, the Court held that the EEOC’s complaint failed to put Il Fornaio on notice as to how the allegations applied to the Aggrieved Employees. The Court noted that the EEOC’s complaint did not identify which of the alleged behaviors applied to the Charging Party and which applied to the Aggrieved Employees. In addition, the EEOC’s complaint failed to provide several categories of details, such as which of Il Fornaio’s locations were implicated, what roles the Aggrieved Employees held, where and to what extent the male co-workers worked, the approximate timeframes for when the Aggrieved Employees worked for Il Fornaio, and the approximate dates of complaints about the offending conduct. Most strikingly, the EEOC’s Complaint failed to identify one other claimant, other than the Charging Party, even anonymously. The Court held that all of the omissions, taken together, rendered the complaint deficient. As such, the Court granted Il Fornaio’s motion to dismiss as to the EEOC’s claims as to the Aggrieved Employees’ hostile work environment, with leave to amend the deficiency. However, in doing so, the Court also maintained that the lack of any one of the identifying factors was not dispositive and that requiring all of those details would result in a heightened pleading standard, which did not apply to these claims.
Next, the Court examined whether the EEOC’s complaint pled sufficient facts to state a claim for retaliation under § 704 of the Civil Rights Act of 1964. The Court concluded that the EEOC’s Complaint failed to state a claim for retaliation because the Complaint did not allege that the Charging Party and/or Aggrieved Employees engaged in a protected activity. Additionally, the Court held that because the EEOC failed to allege a protected activity, the Complaint also failed to draw a casual connected between the protected activity and the adverse employment action. For that reason, the Court granted Il Fornaio’s motion to dismiss the EEOC’s retaliation claim with leave to amend to cure the deficiencies.
Finally, the Court held that the EEOC’s constructive discharge was adequately plead as to the Charging Party. Specifically, the Court noted that the EEOC alleged that the Charging Party resigned due to being subjected to sexual harassment, which was sufficient to put Il Fornaio on notice of the claim. However, as with the other claims, the Court agreed with Il Fornaio that the allegations as to the Aggrieved Employees failed the Rule 8 standard. With that reasoning, the Court dismissed Plaintiff’s constructive discharge claim as to the allegations regarding the Aggrieved Employees with leave to amend.
Implications For Employers
The holding in U.S. Equal Employment Opportunity Commission v. Il Fornaio (America) LLC confirms that the EEOC must include facts regarding the unidentified Aggrieved Employees in order to state a claim. However, the Court confirmed that there is no “heightened standard” in these cases and that the failure to include any specific fact will not be dispositive. Nonetheless, employers can, and should, move to dismiss a complaint that is completely silent as to unidentified Aggrieved Employees.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis
Duane Morris Takeaways: In a consequential ruling on March 11, 2024, Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois granted in part and denied in part a motion for a preliminary injunction concerning amendments to the Illinois Day and Temporary Labor Services Act (“DTLSA”) in Staffing Services Association of Illinois et al. v. Flanagan, Case No. 23-CV-16208 (N.D. Ill. Mar. 11, 2023). The ruling is significant as it enjoins enforcement of the DTLSA provision requiring staffing agencies to provide equivalent benefits as directly-hired, comparable client company employees. The decision does not, however, affect the DTLSA requirement that staffing agencies provide equal wages after 90 days of work at a client. However, this opinion and order indicates that the DTLSA’s equal benefits requirement – considered by many to be the most onerous portion of the recent DTLSA amendments – appears likely to be preempted by the Employment Retirement Income Security Act (“ERISA”) and may never go into effect at all.
Background
In May 2023, the Illinois General Assembly amended the DTLSA to include several new and significant provisions, which Governor Pritzker signed into law on August 4, 2023. See 820 ILCS 175/et seq. Section 42 of the amended DTLSA, titled “Equal Pay for Equal Work,” included the obligation that staffing companies pay temporary workers that work more than 90 days within a twelve-month period at a client company the same wages and “equivalent benefits” as the lowest paid, comparable, directly-hired employee at the client company. Staffing agencies also could opt to pay the “hourly cash equivalent” of benefits owed under the law. Section 42 also imposed information-sharing requirements on third-party companies utilizing temporary workers, requiring them to provide staffing agencies with “all necessary information related to job duties, pay, and benefits of directly hired employees” to facilitate compliance by staffing agencies.
The amended DTLSA also required staffing agencies to disclose to temporary workers prior to the start of any assignment whether the work site was experiencing any “strike, lockout, or other labor trouble” and gave the worker the right to refuse the assignment without prejudice to receiving another assignment. See 820 ILCS 175/11. Section 67 of the DTLSA includes a private right of action, allowing “interested parties” to bring actions against staffing agencies or their company clients for violations of the DTLSA. An “interested party” is defined in the Act as “an organization that monitors or is attentive to compliance with public or worker safety laws, wage and hour requirements, or other statutory requirements.” See 820 ILCS 175/5, 67. A comprehensive breakdown of the 2023 amendments to the DTLSA and the law’s significant new requirements can be found here.
The Illinois Department of Labor published emergency rules and proposed final rules in August 2023. The emergency rules expired on January 4, 2024, and the proposed final rules remain pending. Further legislation in November 2023 delayed the start of the 90-day calculation period necessary to trigger the equal pay and benefits provision in Section 42 the DTLSA until April 1, 2024.
In December 2023, the Staffing Services Association of Illinois, the American Staffing Association, and three staffing agencies brought suit in federal court against the director of the Illinois Department of Labor (“IDOL”) and sought a preliminary injunction preventing the enforcement of §§ 11, 42, and 67 of the amended DTLSA and related regulations. On February 7, 2024, the Court held a hearing on the motion and heard testimony from the three plaintiff staffing agencies.
The Court’s Decision
The Court’s opinion first summarized the relevant provisions of the DTLSA and relief sought by the plaintiffs. The Court noted that the plaintiffs did not challenge the equal wage requirement in § 42 of the DTLSA. Id. at 2 n.1. As to the DTLSA regulations, the Court denied plaintiffs’ motion for an injunction against the emergency rules in light of their January 2024 expiration, and further declined to enjoin the proposed final DTLSA rules that plaintiffs sought to enjoin given that they were subject to and likely to change.
To grant a preliminary injunction, the Court noted that plaintiffs must establish that they are likely to succeed on the merits, are likely to suffer irreparable harm absent an injunction, and that the balance of equities tip in their favor and that an injunction is in the public interest. Turning to § 42 of the DTLSA, the Court began its analysis by assessing plaintiffs’ likelihood of success on the merits. Noting that the ERISA preempts laws that “require providers to structure benefit plans in particular ways,” id. at 5, the Court ultimately concluded that plaintiffs’ argument that the ERISA preempts the DTLSA provision is likely to succeed. The Court reasoned that the “equivalent benefits” provision forces agencies to “determine the value of many different benefit plans and then determine whether to provide the value in cash or the benefits themselves by modifying their plans or adopting new ones,” which prohibits a staffing agency in its “ability to administer ERISA plans uniformly.” Id. at 7. The Court also rejected the IDOL’s argument that the option to pay the cash value of benefits avoids preemption by the ERISA, noting that for staffing agencies with employee working in different states, § 42 “denies agencies the ability to administer its ERISA plans uniformly” and even the cash option “requires agencies to make judgment calls about employees’ eligibility and level of benefits on an individualized and ongoing basis.” Id. at 8.
Having found that plaintiffs are likely to succeed on the merits as to the “equivalent benefits” provision, the Court turned to the analysis of irreparable harm from § 42. The Court noted the clear “expense and burden of determining the relevant values of benefits and creating, selecting, modifying, or supplementing existing ERISA plans or paying the difference” that staffing agencies would be forced to incur. Id. at 18. Additionally, the Court credited evidence offered by the staffing agencies of reduced revenue, lost clients, and the administrative burdens that would force one staffing agency to cease doing business altogether. Id. As a result, the Court found that staffing agencies had demonstrated far more than the “mere possibility” of irreparable harm to support an injunction. Id. at 20.
Finally, the Court evaluated the balance of the equities and public interest and concluded that plaintiffs’ showing that they are likely to succeed on the merits and the irreparable harm that would result from § 42 outweighed the IDOL’s goal of ending “permatemping,” or the long-term hiring of temporary workers without offering them a permanent position with corresponding wages and benefits of directly-hired employees. Id. at 21.
Notably, the staffing agency plaintiffs also sought to invalidate the portion of § 42 of the DTLSA requiring client companies to disclose pay and benefit data. The Court held that the plaintiffs lacked standing to assert that challenge. However, it observed in a footnote that “[t]he challenge to this part of Section 42 should come from the agencies’ third-party clients.” Id. at 5 n.3.
Next, the Court analyzed plaintiffs’ challenge to § 11 of the DTLSA, which requires staffing agencies to disclose to temporary workers prior to beginning an assignment of any “strike, lockout, or other labor trouble” at a client site. Id. at 11. The staffing entity plaintiffs argued that the provision is preempted by the National Labor Relations Act (“NLRA”) and applicable U.S. Supreme Court precedent interpreting the NLRA. Ultimately, the Court disagreed, holding that § 11 of the DTLSA regulates disclosure and work assignments, given the employee’s right to refuse the assignment, while the relevant section of the NLRA protects an employee’s right to “join, or assist labor organizations; collectively bargain through a representative of the employee’s choosing; engage in concerted activity, e.g., striking or picketing; or refrain from engaging in such activities.” Id. at 12-13. That § 11 of the DTLSA and the rights protected by the NLRA “might arise in the same setting,” the Court concluded, does not mean that § 11 is precluded outright. Id. at 14. The Court similarly rejected plaintiffs’ argument that the right to hire replacement workers is an “economic weapon” afforded by the NLRA, which the DTLSA curtails through the right of refusal, reasoning that the DTLSA “merely requires agencies to give their employees information about a potential work site and the right to an alternative assignment.” Id. at 15.
Finally, the Court analyzed plaintiffs’ contention that § 67 of the DTLSA, which gives a private right of action to any “interested party,” violates constitutional due process guarantees because the “interested party” may not be injured by any violation. The Court noted the existence of other statutes giving private rights of action to interested parties, ultimately concluding that plaintiffs’ argument is one of standing, which the Court declined to address in a hypothetical scenario. Id. at 17.
Implications For Employers
This decision is hugely consequential for both staffing agencies and the companies that use them.
The ongoing coordination and information-sharing regime envisioned by the DTLSA concerning employee benefits is unprecedented, and was the source of significant concern for staffing agencies and third-party company clients alike. This Court’s ruling not only prevents enforcement of the “equivalent benefits” requirement of the DTLSA indefinitely, but also indicates that the benefits provision in § 42 of the DTLSA is unlikely to survive at all. Though technically unaffected by this decision, the § 42 requirement requiring companies to disclose benefit-related data may await a similar fate if and when a challenge by a staffing company client is brought. While undoubtedly litigation over the DTLSA will continue, including possibly an appeal of the Court’s opinion and order, this decision prevents the application of the most onerous provision in the DTLSA and the imposition of a burdensome administrative regime on staffing agencies and their clients for at least the foreseeable future.
By Gerald L. Maatman, Jr., Jennifer A. Riley, Brandon Spurlock, and Shireen Wetmore
Duane Morris Takeaways: One law making California so different – and so challenging – for employers is the Private Attorneys General Act (“PAGA”), which authorizes employees to assert claims for alleged labor violations. Such a worker acts as “a private attorney general” to pursue civil penalties against an employer as if they were an arm of the State of its agencies. PAGA claims are not class actions per se – instead, they are known as “representative actions – but they pose analogous risks and exposures like class actions brought under the California Labor Code. Plaintiffs bring thousands of PAGA cases every year, and, because PAGA plaintiffs can bring suit on behalf themselves and other employees, the stakes are often significant, with companies exposed to risks similar to those arising from class action litigation. The PAGA, however, has its own specific rules of the road, which differ from the rules elucidated in familiar Rule 23 jurisprudence. The explosion of PAGA litigation has resulted in a complex body of case law that is often difficult to navigate, particularly in terms of the application of arbitration agreements and representative action waivers. Given the wide adoption of such arbitration agreements, companies are struggling to grasp how recent decisions regarding the PAGA and arbitration impact their businesses.
To that end, the class action team at Duane Morris is pleased to present this year’s edition of the Private Attorneys General Act Review – 2024. We hope it will demystify some of the complexities of PAGA litigation and keep corporate counsel updated on the ever-evolving nuances of these issues. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with PAGA litigation.
Click here to download a copy Duane Morris Private Attorneys General Act Review – 2024 eBook.
Stay tuned for more PAGA class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associates Zev Grumet-Morris and Derek Franklin with their discussion of 2023 developments and trends in discrimination class action litigation as detailed in the recently published Duane Morris Discrimination Action Review – 2024.
Jerry Maatman: Welcome to our listeners – thank you for being here for our weekly podcast, the Class Action Weekly Wire. My name is Jerry Maatman, I’m a partner at Duane Morris, and joining me today are my colleagues, Derek Franklin and Zev Grumet-Morris. Thanks for being here guys.
Derek Franklin: Thank you, Jerry, happy to be part of the podcast.
Zev Grumet-Morris: Thanks, Jerry. Glad to be here.
Jerry: Today on the podcast we’re discussing the recent publication of our Practice Group, the 2024 edition of the Duane Morris Discrimination Class Action Review. Listeners can find the e-book publication on our blog, the Duane Morris Class Action Defense Blog. Derek, could you provide our listeners with a summary of what that publication is all about?
Derek: Absolutely, Jerry. Class action litigation in the discrimination space remains an area of key focus of skilled class action litigators in the plaintiffs’ bar. As a result, compliance with discrimination laws in the myriad of ways that companies interact with employees, customers, and third-parties is a corporate imperative. To that end, the class action team at Duane Morris is pleased to present the Discrimination Class Action Review – 2024. This publication analyzes the key discrimination-related rulings and developments in 2023, as well as the significant legal decisions and trends impacting discrimination class action for 2024. We hope that companies and employers will benefit from this resource in their compliance with these evolving laws and standards.
Jerry: Thanks, Derek. In 2023, courts around the country issued a mixed bag. I’ve always thought that discrimination class actions strike at the very brand and reputation of corporations. Zev, what are some of the takeaways from the publication with regard to major developments in 2023?
Zev: So for decades, federal courts routinely granted class certification in nationwide employment discrimination class actions. But this changed in large part over a decade ago, when the U.S. Supreme Court decided Wal-Mart Inc. v. Dukes, et al., where the court tightened the legal requirements for securing class certifications. But the pendulum appears to be swinging back, as courts are becoming increasingly inclined to find for plaintiffs in class certification rulings within the discrimination context. In 2023 alone, courts granted class certification 50% of the time, while of course denying certification in the other 50% of cases.
Jerry: The discrimination class action space is certainly evolving and reflecting societal trends. Derek, what do you foresee corporate counsel can expect for the coming year in 2024?
Derek: Ultimately, as the class action landscape continues to evolve, so, too, are the playbook theories of the plaintiff and defense bars. Counsel on both sides are becoming more sophisticated and creative in their approaches to prosecuting and defending class actions. Courts are facing increasing pressure to quickly and efficiently discern between properly pled actions and meritless litigation, not only to promote court expediency, but also to spare businesses the incredible expense that accompanies class action defense. So while workplace and quality continues to grab headlines and remain the forefront in the public eye, employers can expect discrimination class actions to reach even greater heights in 2024.
Jerry: Well, thanks for that information – key and important for corporate counsel trying to get ahead of these litigation risks. Of course, conversion of the filing of a discrimination class action into a certified class and then into a settlement, is the Holy Grail for the plaintiffs’ bar. Zev, how did the plaintiffs do in terms of that conversion rate in 2023 with respect to settlement amounts?
Zev: Plaintiffs did very well in securing high settlement dollars. In 2023, the top 10 discrimination settlements totaled $762.2 million, which was a significant increase over 2022, when the top 10 discrimination class action settlements totaled only $597 million.
Jerry: It will be interesting to see in 2024 if we cross the $1 billion line in this area – it seems like these settlements are on an upward trend in aiming for that $1 billion dollar mark. Certainly an important statistic that we track here at Duane Morris in terms of our analysis of class action rulings and class action settlements. Well, thank you, Derek, and thank you, Zev, for being here today, and thank you to our loyal listeners for tuning in. You can get your free copy of the Discrimination Class Action Review e-book on our website – free of charge.
Zev: Thanks for having me, Jerry, and thank you to all the listeners.
By Gerald L. Maatman, Jr. and Jennifer A. Riley 
