By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo
Duane Morris Takeaways: On May 15, 2024, in McDaniel, et al. v. Wisconsin Department of Corrections, No. 22-AP-1759, 2024 WL 2168148 (Wis. App. May 15, 2024), the Wisconsin Court of Appeals of held that the Wisconsin Department of Corrections (“WDOC”) employees were not entitled to compensation for time spent waiting in line to get to security checkpoints; passing those security checkpoints; getting their daily assignments and equipment; and walking to their job stations. This decision further illuminates the scope of compensable time under the Fair Labor Standards Act (“FLSA”) and its state law analogs.
Case Background
Plaintiffs Nicole McDaniel and David Smith (“Plaintiffs”), both hourly employees, sued the WDOC for an alleged failure to provide them with compensation for their pre-shift and post-shift activities. These activities included waiting in line for and passing through security checkpoints; getting their daily assignments and equipment; and walking to their job stations. These activities took the employees anywhere between three and 30 minutes per day. Plaintiffs, believing they were entitled to additional paid time as a result of these activities, sued under the Wisconsin state wage and hour laws and the FLSA. After discovery, they moved to certify their purported class.
In response, the WDOC argued that each of these pre-shift and post-shift activities were non-compensable under the Portal-to-Portal Act and its state law equivalents. Their rationale was that “the principal activities for which an employee was hired, such as time spent commuting, time spent walking from the entrance of a workplace to one’s assigned post, and other similar activities” are excluded from the scope of compensable work activities. Id. at *3. The WDOC, therefore, argued that the class should not be certified because the purported class members could not recover as a matter of law.
The trial court disagreed with the WDOC. It held that it was “sufficiently plausible” that the employees time was compensable and it certified a class comprised of “[a]ll current and former non-exempt, hourly-paid [WDOC] employees who worked as security personnel in a correctional institution . . . in the State of Wisconsin.” Id. at *2. The WDOC appealed that ruling.
Court of Appeals Opinion
The Wisconsin Court of Appeals reversed the trial court’s decision. It held that the trial court abused its discretion to certify the class. In so doing, the Court of Appeals relied heavily on the U.S. Supreme Court decision in Integrity Staffing Solutions, Inc. v. Busk, 574 U.S. 27 (2014), which sets forth the legislative intent for the Portal-to-Portal Act and its case law progeny. The Court of Appeals explained that “the Portal-to-Portal Act was created by Congress in direct response to a series of ‘expansive definitions’ of a ‘workweek’ under the FLSA.” Id. at *3. There, the Supreme Court in Busk unanimously concluded that participation in security screenings were not compensable activities that the employer hired their employees to perform.
The Wisconsin Court of Appeals adopted the U.S. Supreme Court’s reasoning and reached the same conclusion. Indeed, none of the activities for which Plaintiffs sued were “integral and indispensable” activities that the employees were hired to perform for the WDOC. Id. Instead, the Court of Appeals reasoned that these activities were merely ancillary to Plaintiffs’ job functions.
In short, the Court of Appeals concluded that Plaintiffs could “point to no questions of law or fact common to the class regarding activities at the start and end of the compensable work day” and the trial court erred by certifying the class because the class could not recover as a matter of law. Id. at *4 (internal citations omitted).
Implications For Employers
The holding in McDaniel, et al. v. Wisconsin Department of Corrections has far broader implications than just the practices within the Wisconsin state correctional system. Employers, particularly those in Wisconsin, will often not be required to compensate employees for similar activities on the basis that those pre-shift and post-shift activities are exempt from the FLSA’s reach.
It is worthy of note, however, that corporate counsel must be confident in its determinations with respect to the FLSA, because a willful violation of the statute may result in increased liability for employers.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin
Duane Morris Takeaways: On May 10, 2024, in Richards v. Eli Lilly & Co., et al., No. 1:23-CV-00242 (S.D. Ind. May 10, 2024), Chief Judge Tanya Walton Pratt of the U.S. District Court For The Southern District Of Indiana grantedEli Lilly’s motion asking the Court to certify for interlocutory appeal the question of whether a plaintiff must show more than a “modest factual showing of similarity” in order to issue notice in a collective action. The Court certified for review by the Seventh Circuit the specific question of “[w]hether notice in a collective action can issue based on a modest factual showing of similarity, rather than upon a showing by a preponderance of the evidence that requires the Court to find that commonality across the collective [action] is more likely than not.”The ruling and the future appellate decision should be required reading for companies involved in wage & hour litigation.
Case Background
Named Plaintiff Monica Richards brought a proposed collective action against Defendants Eli Lilly & Company and Lilly USA, LLC’s (collectively, “Eli Lilly”) under the Age Discrimination in Employment Act (ADEA) alleging that Eli Lilly knowingly and willfully denied promotions to qualified employees who were older than 40, including herself and all other similarly situated employees. Id. at 1.
Plaintiff moved for conditional certification of a proposed ADEA collective action of “[a]ll Eli Lilly employees who were 40 or older when they were denied promotions for which they were qualified, since February 12, 2022.” Id. at 2. Plaintiff’s motion urged the Court to utilize a “two-step” legal standard to evaluate collective action certification established in 1987 by Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987). Id. at 2. Under the Lusardi framework, plaintiffs need only present what some judges have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step, i.e., certification of a collective action on a conditional basis. Id. In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the court makes a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order. Id. at 3.
Eli Lilly responded that the Court should follow the recent Fifth Circuit decision in Swales v. KLLM Transp. Servs., LLC, 985 F.4th 430 (5th Cir. 2021), and/or Sixth Circuit decision in Clark v. A&L Homecare & Training Ctr., LLC, 68 F.4th 1003 (6th Cir. 2023), which both rejected the longstanding two-step approach developed in Lusardi in favor of more rigorous one-step processes. Id.
On March 25, 2024, the Court granted Plaintiff’s motion for conditional certification of the ADEA collective action using the two-step Lusardi framework that Plaintiff urged the Court to adopt. Thereafter, Eli Lilly filed a motion asking the Court to certify an immediate appeal on the question of which legal standard courts in the Seventh Circuit should use to evaluate conditional certification of a collective action. Plaintiffs sought review pursuant to 28 U.S.C. § 1292(b). Id. at 2.
Certification Of Interlocutory Appeal
On May 10, 2024, the Court granted Eli Lilly’s motion and certified for interlocutory appeal the specific question of: “Whether notice in a collective action can issue based on a modest factual showing of similarity, rather than upon a showing by a preponderance of the evidence that requires the Court to find that commonality across the collective [action] is more likely than not.” Id. at 12.
In doing so, the Court explained that the certified question met the criteria for an interlocutory appeal under 28 U.S.C. § 1292(b) because it “involves a controlling question of law to which there is substantial ground for difference of opinion and an immediate appeal from the order may materially advance the ultimate termination of litigation.” Id. at 12. The Court further reasoned that “Eli Lilly simply seeks clarity on the proper legal standard for collective certification, not whether the Court appropriately applied the facts to a particular standard,” and that “[t]he Seventh Circuit should be given the opportunity to clarify the standard, should it so choose.” Id. at 6.
Along with certifying the this legal question for appellate review, the Court stayed the issuance of notice to members of the proposed collective action pending the outcome of the Seventh Circuit’s ruling. Id. at 12.
Implications For Employers
The Richards decision is consequential because it will prompt the Seventh Circuit to weigh in for the first time on the applicable legal standard governing what a plaintiff must establish for a court to grant conditional certification of a collective action. While the proposed collective action in Richards concerns claims under the ADEA, the ADEA incorporates the FLSA’s collective action procedures, meaning that the certified question will also impact collective action lawsuits under the FLSA.
As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi decision is far more onerous than what the Fifth Circuit established in Swales or the Sixth Circuit established in Clark.
On top of the discovery implications, employers litigating FLSA cases in the Seventh Circuit will want to keep a close eye on how it rules in Richards, since it will significantly impact how heavy of a burden plaintiffs will face in order to show they are similarly situated to the individuals they seek to notify of a collective action.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Christian J. Palacios
Duane Morris Takeaways: On May 15, 2024, U.S. District Judge Sara Ellis of the U.S. District Court for the Northern District of Illinois conditionally certified a collective action of female workers employed by AstraZeneca, and approved notice to be sent to female sales representatives who have worked at the pharmaceutical company since December 30, 2018. The case, captioned Jirek, et al., v. AstraZeneca Pharmaceuticals LP, Case No. 1:21-CV-6929 (N.D. Ill., May 14, 2024), represents another significant win for the plaintiffs’ bar, and serves as a reminder of the low legal threshold that plaintiffs have to satisfy in order to conditionally certify a collective action at the initial stage of a lawsuit. This ruling is particularly noteworthy given the fact that collective action definition that has been approved by the Court will include notice to likely thousands of AstraZeneca’s female sales representatives on a nationwide basis (as AstraZeneca employs over 3,500 sales representatives to market its pharmaceutical products, as noted in the beginning of the Court’s order).
Background
The Named Plaintiffs Natalie Jirek, Judy Teske, and Natalie Ledinsky brought suit against their former employer, global biopharmaceutical company, AstraZeneca, alleging violations of the Equal Pay Act of 1963 (the “EPA”) for failure to pay a purported collective action of female employees less than their male counterparts for the same or substantially similar work in sales positions within the same pay scale levels. Jirek et al., v. AstraZeneca Pharmaceuticals LP, Case No. 1:21-CV-06929, ECF No. 88 at p. 2 (N.D. Ill. Jan. 26, 2024) (the “Conditional Certification Motion”).
Plaintiffs’ evidence in support of this sex-based wage discrimination claim included 10 online job postings from different locations, a declaration from each of the named-plaintiffs, AstraZeneca’s “Career Ladder Program Guide” (an internal evaluation guide from July 2010, which, according the AstraZeneca’s declarant, hadn’t been used since 2015), and two unequal pay violations issued by the U.S. Department of Labor’s Office of Federal Contract Compliance Program’s (“OFCCP”) following the OFCCP’s evaluation and analysis of AstraZeneca’s payment structure. According to the conditional certification motion, the OFCCP found that, beginning in September 2016, AstraZeneca failed to comply with Executive Order 11246, which prohibits companies that do over $10,000 in U.S. government business from discriminating against employees on the basis of gender. Id. Specifically, the OFCCP found that AstraZeneca discriminated against female employees in “Specialty Care Sales Representative Level 4 positions” in violation of the Executive Order, after comparing random samplings of men and women and finding that there was a difference in $2,182.07 between the sexes in sales representative positions. As a result of the OFCCP Conciliation Agreement, all the women in the OFCCP’s sampling were entitled to back pay plus interest. The Complaint alleges that despite this, Defendant did not change its discriminatory pay practices until at least 2021.
The Court’s Decision
On May 14, 2024, Judge Ellis entered an order conditionally certifying the collective action and allowing Plaintiffs to send notice to “females employed by AstraZeneca in sales positions as of December 30, 2018.”
By all accounts, this is a sweeping collective action definition that likely will result in notice to thousands of current and former AstraZeneca female employees within the collective action period. Of the evidence submitted by Plaintiffs’ counsel, the Court noted that it found the similarity in language amongst job postings to be a compelling reason to support Plaintiffs’ assertion that the sales representatives were similarly situated, regardless of location. See ECF No. 114, at 12. Although the Court noted that Defendant’s proffered declaration from AstraZeneca’s Vice President of Human Resources attempted to “diffuse” some of the similarities, the Court reasoned that these factual questions were inappropriate for resolution at the conditional certification stage. Id. The Court declined to engage in other “credibility determinations” that AstraZeneca presented to respond to the evidence Plaintiffs submitted. The Court also observed that the “OFCCP Agreement [gave] Plaintiffs the hook they need[ed] to tie the nationwide body of sales representatives to alleged widespread gender-based pay discrimination.” Id. at 14.
The Court concluded its analysis of Plaintiffs’ conditional certification motion by noting the weakness of Plaintiffs’ declarations, stating, “Frankly, Plaintiffs’ declarations do not say much, primarily regurgitating allegations contained in their already thin amended complaint. But another word for ‘allegations lifted from a complaint and a repeated verbatim in a declaration’ is ‘evidence’ and arguably weak evidence is still evidence that the Court – again – may not weigh at this stage.” Id. at 16. In the same order, the Court asked the parties to continue engaging in negotiations regarding the proposed form of notice, and tolled the statute of limitations for the time period that elapsed between the Court’s decision and the Court’s approval of the notice form.
Implications
The conditional certification stage of a collective action is a universally recognized lenient standard for plaintiffs to meet. Nevertheless, Judge Ellis’s approval of such a massive collective action at the conditional certification stage is a blow to the defense, and is a reminder of how lenient the evidentiary standard is for the first stage of collective actions. Although it remains to be seen if Plaintiffs will be able to prevail at stage two of the Court’s analysis (after notice has been sent to collective members and discovery has been conducted), for now, Plaintiffs will be able to proceed with their collective action in a significant Equal Pay Act lawsuit.
By Gerald L. Maatman, Jr., Jennifer A. Riley, Emilee Crowther, and Zachary J. McCormack
Duane Morris Takeaways: In Drazen v. Pinto, No. 21-10199,2024 U.S. App. 2024 LEXIS 11590 (11th Cir. May 13, 2024), the Eleventh Circuit vacated a district court’s final approval of a settlement of a class action alleging GoDaddy, Inc. violated the Telephone Consumer Protection Act (“TCPA”)by sending unwanted marketing texts and phone calls through a prohibited automatic telephone dialing system (“ATDS”). The Eleventh Circuit held the district court abused its discretion by approving the class-wide settlement, which would have provided up to $35 million to pay class members’ claims and up to $10.5 million to class counsel in attorneys’ fees. The Eleventh Circuit opined that the district court erred by overlooking evidence of collusion between class counsel and GoDaddy’s attorneys.
The Eleventh Circuit concluded that the district court inappropriately certified the class, and should not have approved the proposed settlement agreement and granted class counsel’s motion for attorneys’ fees. In doing so, the district court overlooked evidence of collusion between class counsel and GoDaddy’s attorneys, treated the settlement as a common fund instead of a claims-made resulution, and improperly calculated attorney fees after erroneously concluding it was not a coupon settlement. The Eleventh Circuit remanded the case back to the district court for further proceedings.
The Eleventh Circuit’s 123-page opinion offers a treasure trove of insights regarding the need for constant vigilance when it comes to TCPA compliance — particularly for employers involved in these types of class actions.
Case Background
GoDaddy, Inc., a publicly traded multi-billion-dollar U.S. corporation, provides services – including domain registration, website hosting, payment processing, and marketing support – to entrepreneurs around the globe. Id. at *2. The Drazen litigation consisted of three consolidated TCPA class action lawsuits brought against GoDaddy alleging the company sent unwanted marketing texts and phone calls through ATDS. Id. at *13. The parties eventually negotiated a settlement agreement where GoDaddy would provide up to $35 million to pay class members’ claims and up to $10.5 million to class counsel in attorneys’ fees. Id. at *41. The plaintiffs moved the district court to certify a Rule 23(b)(3) class for settlement purposes, to preliminarily approve the negotiated settlement agreement, and to approve the draft notice of proposed settlement to class members. Id. at *21. The district court granted preliminary approval of the settlement and directed that notice of the proposed settlement be given to the class. Id. at *22.
Shortly after counsel emailed the notice to the class, the Supreme Court granted certiorari in Facebook, Inc. v. Duguid, 592 U.S. 395, 401-02 (2021), which took up the same principal issue in the plaintiffs’ consolidated actions: whether a device must have certain capabilities to constitute an auto dialer under the TCPA. Class counsel, anticipating an impending Supreme Court ruling in Facebook that could impact a settlement, urged the district court to enter a final judgment approving the settlement and grant its attorneys’ fees motion. Id. at *7.
The district court granted class counsel’s motion over the objection of Juan Pinto, an individual class member, who argued (i) the district court prematurely ruled on attorneys’ fees before the deadline for objections, and (ii) the fees awarded were far in excess of what class members would receive, making the settlement unfair, unreasonable, and inadequate. Id. at *8. Over the objections of this individual class member, the district court approved the settlement, and Juan Pinto appealed. Id. at *9.
The Eleventh Circuit’s Decision
The Eleventh Circuit concluded the district court abused its discretion in approving the class-wide settlement agreement. Among other oversight, the district court failed to account for the 2018 amendments to Rule 23(e)(2), it overlooked evidence indicating that the settlement agreement was the product of collusion, and that the notice of the proposed settlement failed to inform the absent class members of the claims, issues, or defenses in plaintiff’s cases as required by Rule 23(c)(2)(B)(iii), fundamental due process, and the district court’s fiduciary obligation to the absent class members. Id. at *9. The Eleventh Circuit highlighted various errors committed by the district court in its 123-page opinion, but focused primarily on three areas.
First, the Eleventh Circuit concluded that it was improper for the district court to determine the settlement as fair, reasonable, and adequate without considering Rule 23(e)(2)(A). Id. at *59. The district court also overlooked evidence indicating that the settlement agreement was the product of collusion, such as the overbroad, sweeping release provision and inadequate relief provided to the class relative to what class counsel and GoDaddy received. Id. at *60. Rule 23 and due process require that, in finalizing a class settlement, the parties and the district court must give absent class members a meaningful opportunity to opt-out or challenge the class settlement. Id. at * 66.
Second, the Eleventh Circuit determined that the notice of the proposed settlement failed to inform the absent class members of the “claims, issues, or defenses” in the plaintiffs’ cases as required by Rule 23(c)(2)(B)(iii), fundamental due process, and the district court’s fiduciary obligation to the absent class members. Id. at *71. The Eleventh Circuit adopted the interpretation of Rule 23(c)(2)(B)(iii) as “conjunctive”, and that class members must be informed not only of the claims asserted, but also of the dispositive issue in Facebook and how its decision would affect the case. Id. at *77. The Eleventh Circuit’s opinion further suggested that additional notice should have been provided regarding this development.
Third, the Eleventh Circuit found that the district court erred in three ways when it calculated attorney’s fees considering it: (1) misapplied Rule 23(h), (2) treated the settlement as a common fund when it was claims-made, and (3) determined that this was not a settlement involving coupons under the Class Action Fairness Act (“CAFA”) and thus declined to examine class counsel’s motion for attorney’s fees with CAFA-mandated scrutiny and procedures. Id. at *9. First, the district court failed to give absent class members advance notice of class counsel’s fee motion, which disregarded the manifest intent of Rule 23(h). Id. at *79. The schedule proposed by the parties and adopted by the district court provided class members with only 7 days to review the attorney’s fees motion before the objection deadline, and the notice did not specify when that motion would be filed, which the Eleventh Circuit strongly criticized. Id. at *80. Second, although labeled a “common fund,” the settlement really involved a “claims made” structure where class counsel may recover the full amount of the attorneys’ fees sought; the class members, however, recover only if they submit claims. Id. at *79. Finally, the district court declined to apply class CAFA-mandated scrutiny and procedures, which was an error as the settlement allowed the class members to choose a cash award instead of a voucher. Id. at *89.
For these reasons, the Eleventh Circuit vacated the judgment, and remanded to the district court for further proceedings.
Implications Of The Decision
The Eleventh Circuit’s opinion depicts the latest legal developments in the constantly changing TCPA landscape, and the need to structure class settlement agreements in a way that obtains peace and withstands judicial scrutiny. In an effort to avoid expensive repercussions, employers and corporate counsel must exercise caution when drafting settlement documents in class-wide resolutions. Corporate counsel should take note of the dangers of the TCPA, as well as the potential pitfalls in faulty class action settlement agreements, and continue to monitor this space for future developments.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther
Duane Morris Takeaways: In a data breach lawsuit entitled In Re Blackbaud, Inc., Customer Data Breach Litigation, MDL No.2972, Case No. 3:20-MN-02972, 2024 WL 2155221 (D.S.C. May 14, 2024), Judge Joseph F. Anderson, Jr. of the U.S. District Court for the District of South Carolina denied Plaintiff’s motion for class certification. The Court found that the Plaintiffs failed to meet their burden of proof as to ascertainability since they could not demonstrate an administratively reasonable method by which to ascertain the estimated 1.5 billion putative class members. This case serves as an important reminder that a plaintiff’s failure to provide a court with an administratively reasonable way to ascertain a class can be an effective tool when combatting class certification motions.
Case Background
Defendant Blackbaud, Inc. provides data collection and storage services to a wide variety of organizations (“customers”). Id. at 2. Defendant collects and stores personally identifiable information and protected health information of individuals on behalf of its clients. Id.
Between February and May 2020, a cybercriminal breached Defendant’s systems, capturing 90,000 backup files containing data belonging to 13,000 of Defendant’s customers, and data belonging to approximately 1.5 billion individuals worldwide. Id. at 3-4.
Various plaintiffs filed suits nationwide, and on December 15, 2020, all of the lawsuits were combined into a multidistrict litigation in the District of South Carolina. Id. at 5. Thereafter, the Plaintiffs moved to certify one main nationwide class, and four other sub-classes, including two in California, one in New York, and one in Florida. Id. at 5-6.
The Court’s Decision
The Court denied Plaintiffs’ motion for class certification. It held that Plaintiffs failed to meet their burden of proof as to Rule 23’s ascertainability requirement. Id. at 1. As a threshold requirement to any class certification, a plaintiff must demonstrate that a class is “ascertainable”, i.e., “that there will be an administratively feasible way for the court to determine whether a particular individual is a class member.” Id. at 16.
Plaintiffs argued four primary points in support of ascertainability, including: (i) the method proposed by their expert; (ii) Defendant’s ability to create a fact sheet about the named Plaintiffs; (iii) Defendant’s ability to give notice to its customers; and (iv) Defendant’s use of a program called Wirewheel. Id. at 17.
As to Plaintiffs’ first point, the Court granted Defendant’s motion to exclude the Plaintiffs’ expert’s testimony on the grounds that the expert failed to sufficiently test his method, was unable to replicate his method, failed to sufficiently document his method, and could not provide the Court with an error rate consistent with generally accepted statistical practices. Id. at 18.
As to Plaintiffs’ second point, the Court found that the Defendant’s ability to create a fact sheet containing information about 34 named Plaintiffs did not weigh in favor of ascertainability, as the Defendant’s process was “not proof that Plaintiffs [could] undertake the larger task of ascertaining the proposed classes and sub-classes” for 1.5 billion individuals. Id. at 45-46. In its decision, the Court placed particular emphasis on the fact that Plaintiffs had not “tested, briefed, or otherwise demonstrated how they would collect information from putative plaintiffs to conduct a process similar to the process Defendant undertook” in creating its fact sheet. Id. at 40-41.
As to Plaintiff’s third point, the Court similarly found that the Defendant’s ability to give notice of the breach did not weigh in favor of ascertainability, because “[t]he steps Defendant took to give notice to its customers [is] not comparable to the steps Plaintiffs would need to take to ascertain a class.” Id. at 48-49. The Court emphasized the distinction between Defendant’s task to provide notice to its 13,000 customers versus Plaintiffs’ task to identify all of the 1.5 billion individual constituents of Defendant’s customers. Id. at 46, 49.
As to Plaintiff’s fourth and final point, the Court again held that it did not weigh in favor of ascertainability, as “the Defendant’s ability to utilize a singular, live database that it maintains for the sole purpose of responding to [certain] requests does not in any way indicate that Defendant is necessarily able to restore and query 90,000 backup files of databases that were customized, maintained, and controlled by 13,000 separate customers.” Id. at 49-50.
In sum, the Court found that the Plaintiffs failed to demonstrate that their “proposed classes and sub-classes” were able to be ascertained “without significant individualized inquiry at a scale that [was] not administratively feasible for Plaintiffs, th[e] Court, Defendant, or any individuals or entities acting at their direction to undertake.” Id.
Implications For Companies
The Court’s ruling in In Re Blackbaud, Inc., Customer Data Breach Litigation underscores the importance of ascertainability in large-scale data breach class actions. The reality is that companies across the world face threats of large scale cyber-attacks to capture their data daily, whether it be through their own servers or through the technologies and tools they utilize. Since a majority of these cyber threats focus on personally identifiable information or personal health information, each data breach could now potentially affect millions (or billions) of individuals.
It is natural for a company to experience trepidation in light of these threats and the likelihood of a class action that could follow. However, it is important to remember that in any class action, Rule 23 requires a plaintiff to demonstrate that putative class members are identifiable without extensive and individualized fact-finding. The broader the swath Plaintiff wants to brush, the harder it will be for that Plaintiff to demonstrate and plausibly claim to the Court that their class is ascertainable.
By Eden E. Anderson, Rebecca Bjork, and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On May 16, 2024, the U.S. Supreme Court issued a unanimous decision 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 discretion to dismiss the lawsuit. The decision resolves a split amongst the federal circuit courts over whether Section 3 of the Federal Arbitration Act (“FAA”) mandates a stay in such circumstances by use of the word “shall” in that provision. The Supreme Court reasoned from established canons of statutory interpretation as well as the structure and purpose of the FAA compelled the result in the case. The decision will likely result in a situation where disputes between parties in an arbitral proceeding will more often be brought to the attention of the district court to resolve.
Case Background
The case arrived at the Supreme Court via the Ninth Circuit which considered in Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023), whether, under the FAA, a lawsuit should be dismissed or stayed after all the plaintiff’s claims are compelled to arbitration.
The plaintiffs were delivery drivers who sought to maintain wage-and-hour claims against their former employer for allegedly misclassifying them as independent contractors. Although the plaintiffs agreed their claims were subject to arbitration, they disagreed that their lawsuit should be dismissed and asked the district court to instead stay the case pending arbitration. According to the plaintiffs, the FAA mandates a stay to protect rights in the existing lawsuit and preserve judicial supervision while an arbitration is ongoing. The district court disagreed. It dismissed the lawsuit without prejudice, and the Ninth Circuit affirmed. Although Section 3 of FAA states that the court “shall” stay the trial of an action pending arbitration, the Ninth Circuit held that district courts have discretion to instead dismiss a lawsuit after all claims have been ordered to arbitration.
The U.S. Supreme Court’s Decision
The Supreme Court unanimously reversed the Ninth Circuit and embraced the position the plaintiff delivery drivers took in the district court – that their lawsuit should be stayed and not dismissed pending arbitration. Justice Sotomayor wrote the opinion for the Supreme Court.
The Opinion is concise, tightly reasoned, and less than six pages long. The Supreme Court begins its analysis – after describing the parties and how the case arrived on their docket – with a straightforward statement of the conclusion that “[i]n this statutory interpretation case, text, structure, and propose all point to the same conclusion,” which is that “a district court does not have discretion to dismiss a suit on the basis that all the claims are subject to arbitration.” (Slip Op. at 3.) Then, the Opinion explores each of those sources of interpretation and explains why they lead to the outcome reached.
The text of the FAA on this issue appears in Section 3, and it states that when any issue in a lawsuit is subject to arbitration, the district court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” (Slip Op. at 4.) The Supreme Court concluded that “shall” is “plain statutory text [that] requires a court to stay the proceeding.” (Id.) The Supreme Court noted that the word “shall” also appears “in neighboring sections of the FAA” and it previously found those sections “created a mandatory obligation that left no place for the exercise of discretion by a district court.” (Id.) The Supreme Court concluded that “The same is true here.” (Id.)
Moreover, “just as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay,” according to the Court. (Id.) Therefore, it rejected the argument of the employer that stopping the parallel in-court proceedings during the arbitration is what matters, and it is equally achieved by an order of dismissal without prejudice. The Supreme Court noted that in 1910, when Congress passed the FAA, Black’s Law Dictionary defined a “stay” as a temporary suspension of legal proceedings, which is at odds with an outright dismissal. (Id. at 4-5.)
As for the structure and purpose of the FAA, the Supreme Court found that they also supported interpreting Section 3 as mandating stays in this situation. The fact that Congress chose to provide an automatic interlocutory appeal of a denial of a motion to compel arbitration in Section 16, but did not do so for grants of motions to compel arbitration supports the conclusion that Congress intended to move arbitrable disputes out of courts and into arbitration as quickly and easily as possible. (Id. at 5-6.) But a dismissal triggers the right to an immediate appeal, which Congress clearly sought to avoid in drafting Section 16 of the FAA.
Finally, the Supreme Court explained that stays are preferable to dismissal orders in arbitration cases because they will allow federal courts to maintain jurisdiction to resolve disputes between the parties that may arise more smoothly. (Id.)
Implications Of The Decision
This decision by the U.S. Supreme Court precluding district courts from dismissing suits without prejudice after granting motions to compel arbitration will have the benefit of providing a uniform national standard in this ever important area of the law. It also may well have the effect the Court seems to desire, e.g., ensuring that arbitrations are able to proceed quickly and smoothly by ensuring the district judge remains in the background to resolve disputes as they arise. But that same virtue could amount to a vice, in that it may create an incentive for participants in arbitration to attempt to avoid the arbitrator by going to the court. The following months should provide a hint of whether the Court’s predictions come true.
By Gerald L. Maatman, Jr. and Christian J. Palacios
Duane Morris Takeaways: On April 25, 2024, a group of seventeen (17) state attorneys’ general sued the EEOC for its April 19, 2024 Final Rule (the “Final Rule”) outlining the Commission’s regulations regarding the newly enacted Pregnant Workers Fairness Act of 2022 (“PWFA”). The case – captioned States of Tennessee et al. v. Equal Employment Opportunity Commission, Case No. 2:24-CV-00084 (E.D. Ark. Apr. 25, 2024) – is filed in the U.S. District Court for the Eastern District of Arkansas and alleges the EEOC’s Final Rule violates the Administrative Procedure Act (the “APA”) and the U.S. Constitution based on the fact that it defines a “related medical condition” to include an abortion. This new lawsuit may shape up to be a significant challenge to the EEOC’s authority to enforce its newest federal anti-discrimination statute in its enforcement toolkit.
Background
The PWFA requires employers to provide a reasonable accommodation to qualified employees or applicants that have known limitations related to, affected by, or arising out of pregnancy, childbirth, or “related medical conditions,” unless the accommodations will cause the employer undue hardship. See 42 U.SC. § 2000gg(4). Modeled after the Americans with Disabilities Act (the “ADA”), the PWFA contains the familiar language of requiring “reasonable accommodations” absent a showing of “undue hardship” and the law officially went into effect on June 27, 2023. On April 19, 2024, the EEOC issued its four hundred and eight (408) page Final Rule and guidance implementing the PWFA. The Commission voted 3-2, along party lines, to pass the Final Rule and the regulation officially goes into effect on June 18, 2024.
Under the Final Rule, the Commission describes “related medical conditions” to include “lactation, miscarriage, stillbirth, having or choosing not to have an abortion, preeclampsia, gestational diabetes, and HELLP (hemolysis, elevated liver enzymes and low platelets syndrome).” 29 C.F.R. 1636 at 17. The Final Rule expressly states that “it does not regulate the provision of abortion services or affect whether and under what circumstances an abortion should be permitted. The PWFA does not require any employee to have—or not to have—an abortion, does not require taxpayers to pay for any abortions, and does not compel health care providers to provide any abortions.” Id. at 29.
The Complaint
On April 25, 2024, ten (10) days after the EEOC issued its final regulations, a coalition of states with Republican-led attorneys general, including the AG’s of Tennessee, Arkansas, Alabama, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Missouri, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Utah and West Virginia commenced a lawsuit in the Eastern District of Arkansas against the EEOC on the basis that its Final Rule included abortion to be a related medical condition. The complaint begins with declaring that although the PWFA passed with bipartisan support, “in a new rule, a bare 3-2 majority of unelected commissioners at the Equal Employment Opportunity Commission (EEOC) seeks to hijack these new protections for pregnancies by requiring employers to accommodate workers’ abortions-something Congress did not authorize.” Compl. at 1. The Complaint further claims that if the Rule stands, plaintiff states, and others, would be compelled to “facilitate workers’ abortions or face federal suit-even those elective abortions of healthy pregnancies that are illegal under state law.” Id.
The fifty-one (51) page Complaint alleges a variety of violations of the APA and the U.S. Constitution. With respect to the APA violations, the attorneys general assert, amongst other things, that the EEOC’s final rule contravenes the text of the PWFA, conflicts with federal statutory prohibitions on abortion funding, and is arbitrary and capricious. The Complaint’s constitutional objections to the EEOC’s final rule include allegations that that the Final Rule violates principles of federalism, state sovereignty, the First Amendment, Article II and the separation of powers doctrine. The Complaint concludes by asking the Court, amongst other requested relief, to enter a preliminary injunction against the Commission, or any other agency or federal employee, from enforcing or implementing the Final Rule’s abortion-accommodation, pending the Court’s final judgement on the plaintiffs’ claims, and vacating and setting aside the Final rule as unlawful. Id. at 46.
Implications
In the last several years, the APA has been a popular vehicle for states to challenge rules promulgated by administrative agencies. The EEOC in particular is no stranger to having its enforcement authority challenged by both private and public entities. Nevertheless, it remains to be seen whether the state AGs will ultimately be successful in requiring the Commission to roll back its own guidance with respect to the abortion-related accommodations currently present within its Final Rule. If the plaintiffs are successful, it could serve as a basis for challenging the Commission’s ability to enforce and promulgate future rules relating to the other federal antidiscrimination statutes the EEOC enforces.
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.
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.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo
Duane Morris Takeaways: On May 9, 2024, a Seventh Circuit panel held that the Equal Employment Opportunity Commission (“EEOC”) failed to prove the existence of a hostile work environment based on racial discrimination in EEOC v. Village At Hamilton Pointe LLC, No. 22-2806, 2024 WL 2074326 (7th Cir. May 9, 2024). While the EEOC is likely to continue to bring such claims, especially since such cases constitute one of its prime areas of focus, the decision in EEOC v. Village At Hamilton Pointe LLC further illuminates the high burden to prevailing on a hostile work environment claim.
Case Background
The EEOC brought claims on behalf of fifty-two African-American employees who were employed by the Village at Hamilton Pointe, LLC (“Hamilton Pointe”) and an affiliated entity. Both entities operate a “long-term care facility” that provides “nursing, rehabilitation, and assisted living services.” Id. at *1. Although specific allegations differed as to each claimant, the EEOC generally alleged the existence of a pervasive or severe hostile work environment at Hamilton Pointe.
In support of its claims, the EEOC argued that Hamilton Pointe had instituted a racial preference policy. The EEOC introduced evidence that African-American employees were called “racial slurs on multiple occasions” by residents. The EEOC alleged that rather than discouraging such conduct, Hamilton Pointe took steps to facilitate the discrimination. For example, the EEOC introduced evidence into the record that certain shifts would contain instructions, such as “no blacks allowed,” when scheduling employees.
On September 20, 2020, the district court entered a partial grant of summary judgment in favor of Hamilton Pointe on fifteen employees’ claims, and held as a matter of law that there was no “severe or pervasive harassment because of [the employees’] race.” Id.. The EEOC then took another class of plaintiffs’ claims to trial, did not prevail as to the majority of this group of claimants, and only one was awarded damages by the jury. Id. at *1. The EEOC’s appeal of the partial summary judgment grant ensued and led to this decision by the Seventh Circuit.
Seventh Circuit Ruling
In an opinion of 82 pages, Judge Kenneth Ripple, writing for the Seventh Circuit panel, summarized the state of hostile work environment law and concluded that the EEOC “must show that the alleged harassment was so severe or pervasive that it altered the conditions of his employment.” Id. at *3. And, under the circumstances presented by the case, the Seventh Circuit concluded that “the evidence of record does not support, under established principles of law, a case of racial harassment that was so severe or pervasive as to alter the conditions of employment for any of these claimants.” Id. at *28.
To reach its conclusion, the Seventh Circuit needed to distinguish its previous decision in Chaney v. Plainfield from claimant’s allegations. 612 F. 3d 908,915 (7th Cir. 2010). In Chaney, it held that an employer’s policy of honoring residents’ racial preferences in assigning caregivers was grounds for a hostile work environment claim. Notably, however, the employer in Chaney “did not deny that it maintained a policy of fulfilling patients’ racial preferences.” Id. at *7. The Seventh Circuit then concluded that this case “therefore must be distinguished from Chaney,” for a variety of fact-specific reasons each unique to each claimant.
Although the Seventh Circuit did not explicitly overrule Chaney, it took stock of three decisions from another federal circuit reaching the opposite conclusion. 246 F. 3d 758, 759 (5th Cir. 2001). Specifically, it noted the Fifth Circuit’s decision in Cain v. Blackwell that affirmed a grant of summary judgment on a hostile work environment claims based on sexual harassment directed at a home caregiver by a patient. Similar rulings were reached in EEOC v. Nexion Health at Broadway, Inc., 199 F. App’x 351, 352 (5th Cir. 2006), and Gardner v. CLC of Pascagoula, LLC, 915 F. 3d 320, 326 (5th Cir. 2019).
The Seventh Circuit explained that the Fifth Circuit case law does not create a categorical bar on hostile work environment claims arising from harassment by patients, but rather, “whether a reasonable health care worker in such an environment would consider the patient’s behavior to have made the work hostile or abrasive, taking into consideration the special circumstances necessarily involved with caring for patients with these afflictions.” Village At Hamilton Pointe LLC, 2024 WL 2074326, at *7-8. Although not explicitly stated, the Seventh Circuit seemed to favorably endorse the Fifth Circuit’s reasoning going forward. In light of these background principles, the Seventh Circuit did not find that the claims here (such as the use of racial epithets and racial preferences by patients) rose to the level of severe or pervasive conduct to warrant hostile work environment liability. Accordingly, it affirmed the district court’s grant of summary judgment.
Implications For Employers
All charges of racial discrimination are matters that employers should take seriously.
Moreover, the EEOC can be a relentless opponent and we do not expect this opinion to deter the agency from pursuing similar claims in the future. Indeed, this case is only one example of the EEOC pushing for favorable results in federal circuit courts across the country. In this case, for example, the agency litigated its claims for seven years prior to the Seventh Circuit’s affirmance.
For today, however, the EEOC’s efforts in the Seventh Circuit were stalled. Corporate counsel should take note of these developments and continue to monitor EEOC activity in this space for future updates.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik
Duane Morris Takeaway: Thank you to all the loyal blog readers and followers who attended yesterday’s Mid-Year Review Of EEOC Litigation And Strategy webinar! We had more attendees than ever before join partners Alex Karasik,Jerry Maatman and Jennifer Riley for the live panel discussion to analyze the EEOC’s latest strategic priorities and review the first six months of lawsuit filings in the Commission’s fiscal year 2024. The virtual program was a must see for corporate counsel, human resource professionals and business leaders, and provided valuable insights into the EEOC’s latest enforcement initiatives and strategies designed to minimize the risk of drawing the Commission’s scrutiny.
If you were unable to attend the webinar, it is now available on our podcast channel! Click to watch below and we will be sure to keep readers updated on important EEOC trends and developments throughout the year!
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo
