Duane Morris Takeaways:On January 19, 2024, the Illinois Supreme Court unanimously held that the Illinois Antitrust Act does not allow staffing agencies to avoid allegations that they suppressed wages and agreed not to hire each other’s workers in The State of Illinois ex rel. Kwame Raoul v. Elite Staffing, Inc., et al., No. 2024 IL 128763 (Ill. Jan. 19, 2024). The Supreme Court rejected defense arguments that the complaint failed to state a cause of action because the Illinois Antitrust Act provides that services otherwise subject to the Act “shall not be deemed to include labor which is performed by natural persons as employees of others.” Id. at 3. The Supreme Court concluded that reading the Illinois Antitrust Act so broadly would contradict the entire purpose of the Act, i.e., promoting and protecting free and fair competition; therefore it found that the Act does not exclude all agreements concerning labor services, including the conduct alleged.
Illinois v. Elite Staffing is an important reminder that businesses must be mindful of state antitrust and competition laws, in addition to the federal antitrust laws, and is required reading for any corporate counsel handling antitrust class action litigation under state antitrust and competition laws involving wage-suppression issues.
Case Background
In July 2020, the Illinois Attorney General sued Elite Staffing Inc., Metro Staff Inc., Midway Staffing Inc. and their common customer, Colony Inc., on grounds that Colony required the staffing agencies not to poach each other’s employees and to agree to below-market wages for temporary workers at Colony. The three staffing firms provided a Colony facility with temporary workers beginning in 2018 where between 200 and 1,000 temporary workers would work at any given time. According to the allegations in the Complaint, Colony required the staffing agencies not to offer better wages or other benefits to any of each other’s workers and precluded the workers from trying to switch between the agencies. The Defendants moved to dismiss the complaint arguing that the alleged conduct was exempted from antitrust liability under the Illinois Antitrust Act. The circuit court denied the motion, and the Illinois Appellate Court concluded that the exemption in the Act did not extend to services provided by staffing agencies. The Illinois Supreme Court thereafter granted Defendants’ petition for leave to appeal.
Illinois Antitrust Act Does Not Exclude All Agreements Concerning Labor
Section 4 of the Illinois Antitrust Act exempts from coverage “labor which is performed by natural persons as employees of others.” See 740 ILCS § 10/4. This section is important because, among other reasons, § 3 of the Illinois Antitrust Act, which is expressly modeled after § 1 of the Sherman Act and federal court interpretations thereof, would otherwise proscribe the conduct alleged in the Complaint. The Supreme Court noted that just as reading §1 of the Sherman Act to prohibit every restraint on competition would be absurd, so too would be reading § 4 of the Illinois Antitrust Act in isolation. Specifically, the Supreme Court found that “service” cannot be read so broadly as to exempt all agreements concerning wages and conditions of employment from antitrust scrutiny regardless of their anticompetitive effects, which would be contrary to the entire purposes of the Illinois Antitrust Act. Id at 19. The Supreme Court concluded that agreements between employers that concern wages or hiring may violate the Illinois Antitrust Act unless it is part of a collective bargaining process.
Implications For Employers
Illinois v. Elite Staffing opens to door for workers in Illinois to use state antitrust law to tilt labor market dynamics in their favor and to increase their bargaining leverage for greater compensation and benefits. It serves as an important reminder for employers to also be mindful of state antitrust and competition laws when making labor market decisions.
Duane Morris Takeaway: In 2023, employers saw claims filed under the California Private Attorneys General Act (PAGA) reach an all-time high. According to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the LWDA has increased exponentially over the past two decades, from 11 in 2006 to 7,780 in 2023. The PAGA created a scheme to “deputize” private citizens to sue their employers for penalties associated with violations of the California Labor Code on behalf of other “aggrieved employees,” as well as the State. A PAGA plaintiff may pursue claims on a representative basis, i.e., on behalf of other allegedly aggrieved employees, but need not satisfy the class action requirements of Rule 23. In other words, the PAGA provides the plaintiffs’ class action bar a mechanism to harness the risk and leverage of a representative proceeding without the threat of removal to federal court under the CAFA and without the burden of meeting the requirements for class certification. If successful in prosecuting such a case, aggrieved employees receive 25% of any civil penalties and pass the other 75% to the California Labor and Workforce Development Agency (LWDA). The plaintiffs’ attorneys who pursue the action may collect their attorneys’ fees and costs.
Watch our Trend #6 video below, where Duane Morris partner Jennifer Riley discusses the PAGA filings explosion, the impact of the PAGA on arbitration, and what to expect with PAGA rulings in 2024.
Trend #6 – PAGA Filings Reached An All-Time High
The Explosion Of PAGA Notices
According to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the LWDA has increased exponentially over the past two decades. The number grew from 11 notices in 2006, to 1,606 in 2013, and then experienced three sizable jumps – to 4,530 in 2014, to 5,732 in 2018, and to 7,780 in 2023, each coinciding with a significant shift in the legal landscape, as discussed below. From 2013 to 2014, employers saw the largest single year increase, from 1,605 notices in 2013 to 4,532 notices in 2014, an increase of 182%.
The most significant drop in the past two decades occurred in 2022, when notices fell from 6,502 in 2021 to 5,817 in 2022, before their resurgence in 2023.
The following chart illustrates this trend.
These numbers closely tie to the shifting landscape of workplace arbitration, as each of the major shifts coincides with the timing of a significant expansion or pull back in the law governing the enforcement of arbitration agreements.
The PAGA As A Work-Around To Arbitration
The proliferation of mandatory arbitration programs started as early as 1991 when the U.S. Supreme Court issued Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The movement did not gain steam, however, until 2011 when the U.S. Supreme Court issued its ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and held that the Federal Arbitration Act (FAA) preempts state rules that stand “as an obstacle to the accomplishment of the FAA’s objectives.”
In the wake of AT&T Mobility, arbitration programs gained a boost in their popularity. Such programs provided companies a mechanism to contract around class and collective actions. Through a form agreement, offered as a condition of an employment relationship or transaction, for instance, a company could require its employees and customers to resolve any disputes on an individual basis through private, binding arbitration.
The growing popularity of such programs led the plaintiffs’ class action bar to identify work-arounds. The California Supreme Court cemented the PAGA as the frontrunner for employment-related claims with its decision in Iskanian v. CLS Transportation Los Angeles, 59 Cal.4th 348 (Cal. 2014). In Iskanian, the California Supreme Court seemingly immunized the PAGA from arbitration programs when it held that representative action waivers in arbitration agreements are “contrary to public policy and unenforceable as a matter of state law.” Id. at 384.
In rendering its decision, the California Supreme Court distinguished AT&T, reasoning that, whereas the FAA aims to ensure an efficient forum for the resolution of private disputes, a PAGA action “is a dispute between an employer and the state Labor and Workforce Development Agency.” Id.
Iskanian cleared the PAGA as a mechanism by which to maintain a representative action unhindered by arbitration agreements or commitments to arbitrate on an individual basis. The decision undoubtedly fueled the filing of PAGA notices in 2014, which catapulted from 1,606 in 2013 to 4,530 in 2014.
The PAGA workaround experienced another boost in October 2018, when the U.S. Supreme Court bolstered the enforceability of class and collective action waivers in arbitration agreements with its decision in Epic Systems Corp. v. Lewis, et al., 138 S.Ct. 1612 (2018), clearing the path to widespread adoption of arbitration programs. In the wake of Epic Systems, PAGA notices reached a new level, jumping from 4,984 in 2017, to 6,431 in 2019, reflecting PAGA’s expanding popularity as a work-around.
The PAGA-workaround movement suffered its first significant set-back in 2022 with the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, et al., 142 S.Ct. 1906 (2022). In Viking River, the U.S. Supreme Court held that, to the extent Iskanian precludes division of PAGA actions into individual and non-individual claims, and thereby “prohibit[s] parties from contracting around this joinder device,” the FAA preempts such rule. Id. Thus, it concluded in the case before it that the lower court should have compelled arbitration of the plaintiff’s individual PAGA claims.
The U.S. Supreme Court then addressed the remaining question – what the lower court should have done with Moriana’s remaining non-individual or representative claims. The Supreme Court opined that the PAGA provides no mechanism to enable a court to adjudicate non-individual claims once an individual claim has been committed to a separate proceeding. As a result, the U.S. Supreme Court opined that Moriana lacked statutory standing to continue to maintain her non-individual claims in court, and the lower court should have dismissed the PAGA representative claims. Id.
Following Viking River, the number of PAGA notices suffered the largest single-year drop in two decades, dropping from 6,502 in 2021, to 5,817 in 2022.
The PAGA’s Resurgence
Although the PAGA workaround suffered its first significant set-back in 2022 with the U.S. Supreme Court’s decision in Viking River, the set-back was short lived as, in 2023, the California Supreme Court minimized the impact of the Viking River decision.
In Adolph v. Uber Technologies, Inc., 14 Cal. 5th 1104 (Cal. 2023), the California Supreme Court took up the issue of whether, under California law, a PAGA plaintiff whose individual claims are compelled to arbitration retains standing to bring representative claims. The California Supreme Court disagreed with the U.S. Supreme Court’s interpretation of California law and held that, once a PAGA plaintiff’s individual claims are compelled to arbitration, the plaintiff retains standing to maintain non-individual PAGA claims in court so long as he is an “aggrieved employee.” Id. at 1105.
Adolph, an Uber delivery driver, asserted that Uber misclassified him as an independent contractor. Adolph amended his complaint to allege PAGA claims, and Uber moved to compel arbitration. The trial court denied Uber’s motion to compel arbitration, and the California Court of Appeal affirmed, citing the California Supreme Court’s ruling in Iskanian v. CLS Transportation Los Angeles, 59 Cal.4th 348 (2014). Uber filed a petition for review and, while it was pending, the U.S. Supreme Court issued its decision in Viking River.
In a unanimous decision, the California Supreme Court disagreed with the U.S. Supreme Court’s interpretation of the PAGA. The California Supreme Court held that, so long as an employee alleges that he has been aggrieved by a violation of the Labor Code, he maintains standing under the PAGA. As a result, after a court compels an individual PAGA claims to arbitration, the plaintiff retains standing to pursue his representative PAGA claims in court.
As to logistics, the California Supreme Court clarified several items. First, even though individual PAGA claims may be pending in arbitration and representative PAGA claims pending in court, the claims remain one action, and the court may stay the representative action pending completion of arbitration. Second, if the plaintiff loses in arbitration, at that point, the plaintiff loses standing to maintain representative PAGA claims. Third, if the plaintiff prevails in arbitration or settles his individual claims, he retains standing to return to court to pursue his representative PAGA claims on behalf of others.
By deciding that an individual who signs an arbitration agreement can return to court after arbitration to pursue representative proceedings under the PAGA, the California Supreme Court relegated arbitration agreements to a mere hurdle rather than a bar to PAGA representative actions. Given the technical requirements of California wage & hour law, coupled with the potentially crushing statutory penalties available to successful plaintiffs, we anticipate continued growth of PAGA lawsuits in 2024, with no pull back in site.
What’s Next For The PAGA?
The California Supreme Court presently is considering two cases that significantly could impact the future popularity of PAGA lawsuits, including the ease with which plaintiffs can succeed in recovering on a representative basis.
On November 8, 2023, the California Supreme Court heard oral argument in Estrada, et al. v. Royalty Carpet Mills, Inc. The California Supreme Court is considering whether courts have the power to strike or limit PAGA claims based on unmanageability. In a prior decision, Wesson, et al. v. Staples the Office Superstore, LLC, 68 Cal. App. 5th 746 (2021), the California Court of Appeal held that trial courts have inherent authority to strike or limit unmanageable PAGA claims. A few months later, the Court of Appeal in Estrada, et al. v. Royalty Carpet Mills, Inc., 76 Cal. App. 5th 685 (2022), disagreed and concluded that, while a court may limit the presentation of evidence to ensure a manageable trial, a court does not have authority to strike or limit PAGA claims before trial. The California Supreme Court must issue a decision on this issue by February 2024. The California Supreme Court might hold that trial courts possess inherent authority to safeguard an employer’s due process rights, which necessarily encompasses the right to gauge the manageability of and to narrow PAGA claims. Either way, Estrada has the potential to significantly impact the prosecution and defense of PAGA actions.
In Turrieta, et al. v. Lyft, Inc., the California Supreme Court will weigh whether a PAGA plaintiff has a right to intervene, object to, or move to vacate a judgment approving a PAGA settlement in a related action. In that case, between May to July 2018, Olson, Seifu, and Turrieta, all Lyft drivers, filed separate PAGA actions alleging improper classification as independent contractors. Turrieta reached a $15 million settlement with Lyft, which included a $5 million payment to her counsel. As part of the settlement, Turrieta amended her complaint to allege all PAGA claims that could have been brought against Lyft. When Olson and Seifu got wind of the settlement, they moved to intervene and to object. The trial court denied the intervention requests, approved the settlement, and then denied motions by Olson and Seifu to vacate the judgment in the Turrieta PAGA action. The Court of Appeal affirmed, holding that, as non-parties, Olson and Seifu lacked standing to move to vacate the judgment. The Court of Appeal explained that the real party in interest in a PAGA action is the State, and, thus, neither Olson nor Seifu had a direct interest in the case.
Finally, in November 2024, California voters will pass on a proposed measure to repeal the PAGA and to replace it with a new law known as The Fair Pay and Employer Accountability Act. Under the proposed law, employees could not sue for civil penalties in court on behalf of the state and instead would have to file a complaint directly with the Labor Commissioner who would be a party to any lawsuit filed; all civil penalties would go to affected employees; the State would receive increased funding; and civil penalties would be doubled for “willful” violations. The measure is intended to eliminate the windfall profiteering that the plaintiffs’ bar has enjoyed from the PAGA. Although preliminary polling suggests voters support the measure, the plaintiffs’ bar surely will mount vociferous opposition.
Duane Morris Takeaways: On January 18, 2024, Judge Richard F. Boulware II of the U.S. District Court for the District of Nevada denied Defendant’s motion for summary judgment in a wage suppression antitrust class action and declined to exclude two of Plaintiffs’ key experts in Le v. Zuffa, LLC, No. 2:15-CV-01045 (D. Nev. Jan. 18, 2024). The Court rejected defense arguments that summary judgment was appropriate on largely the same grounds that it certified the class on August 9, 2023, including arguments that the statistical model of Plaintiffs’ expert was flawed because it failed to include everyone in the sport and failed to consider the ways promoters help fighters develop into bigger stars. Defendant also argued that there was no dispute that there are more UFC fighters, more fights, and better compensation than at the start of the class period; however, the Court found sufficient evidence that UFC may have used its market power to suppress wages in any event.
Le v. Zuffa is the first labor monopsony case ever, and the ruling in is required reading for any corporate counsel handling antitrust class action litigation involving wage-suppression issues.
Case Background
Plaintiffs are current or former UFC fighters. Defendant, Zuffa, LLC does business as UFC and is the preeminent MMA event promoter in the United States. Plaintiffs allege 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. 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 was certified last August (our prior post on that ruling is here).
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. As a result, the case is scheduled to start trial on April 8, 2024.
Denial Of Summary Judgement
The Court rejected Defendant’s arguments for summary judgment on grounds that they were repetitive and unavailing.
Specifically, Zuffa argued that the total number of bouts, fighter compensation, and fighters all increased during the class period, that there are no barriers to enter the fight promotion market, and that it did not prevent competitors from signing and promoting fighters. The Court found that the fact that the raw numbers of fighters, bouts, and compensation increased is not dispositive and credited Plaintiffs’ evidence that their wages were still suppressed. The Court also noted that it expressly rejected Defendant’s arguments regarding barriers to entry and completion in the class certification decision.
Implications For Employers
Le v. Zuffa has the potential to be a landmark labor antitrust class action.
The Court credited evidence establishing that UFC has anticompetitive power on the buyer-side market of purchasing fighter services and that it used this power to harm all UFC fighters. Like other labor antitrust cases, Le v. Zuffa could be an important test of workers’ ability 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: As the ultimate referee of law, the U.S. Supreme Court traditionally has defined the playing field for class action litigation and, through its rulings, has impacted the class action landscape. The past year did not buck that trend. On June 29, 2023, the U.S. Supreme Court ruled in Students for Fair Admissions, Inc., et al. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), that two colleges and universities that considered race as a factor in the admissions process violated the Equal Protection Clause of the U.S. Constitution and Title VI of the Civil Rights Act of 1964. The ruling is fueling controversy along with a wave of claims that is likely to expand.
Check out the video below to see Duane Morris partner Jennifer Riley discuss the impact of U.S. Supreme Court rulings on the class action landscape in 2023, and what is coming in 2024.
Trend #5 – U.S. Supreme Court Rulings Continue To Impact The Class Action Landscape
The U.S. Supreme Court’s Decision
Students for Fair Admissions, an advocacy group, brought two lawsuits alleging that the use of race as a factor in admissions by Harvard and the University of North Carolina, respectively, violated Title VI and the Equal Protective Clause of the Fourteenth Amendment. The U.S. Supreme Court agreed.
After reviewing the language of the Fourteenth Amendment (no State shall “deny to any person . . . the equal protection of the laws”), the Supreme Court began its analysis by recapping its early jurisprudence, including its decision in Brown v. Board of Education, 347 U. S. 483, 493 (1954), wherein it held that the right to a public education “must be made available to all on equal terms.” Students, 600 U.S. at 201, 204. The Supreme Court noted that these decisions, and others like them, reflect the broad “core purpose” of the Equal Protection Clause: “[D]o[ing] away with all governmentally imposed discrimination based on race.” Id. at 206.
The Supreme Court explained that, accordingly, any exceptions to the Equal Protection Clause’s guarantee must survive a daunting two-step examination known as “strict scrutiny,” which asks, first, whether the racial classification is used to “further compelling governmental interests” and, second, whether the government’s use of race is “narrowly tailored” or “necessary” to achieve that interest. Id. at 206-07. In Grutter v. Bollinger, 539 U.S. 306, 325 (2003), the Supreme Court endorsed the view that “student body diversity is a compelling state interest” but insisted on limits in how universities consider race. In particular, the Supreme Court sought to guard against two dangers: (i) the risk that the use of race will devolve into “illegitimate . . . stereotyp[ing]” and (ii) the risk that race will be used as a negative to discriminate against those racial groups that are not the beneficiaries of the race-based preference. To manage its concerns, Grutter imposed a third limit on race-based admissions programs. “At some point,” the Supreme Court held, “they must end.” Students, 600 U.S. at 212.
In Students for Fair Admissions, the U.S. Supreme Court held that the defendants’ race-conscious admissions systems failed each factor and, therefore, ran afoul of the Equal Protection Clause. As an initial matter, the U.S. Supreme Court found that defendants failed to operate their race-based admissions programs in a manner that is “sufficiently measurable to permit judicial [review].” Id. at 214-17. Second, the U.S. Supreme Court held that the race-based admissions systems failed to comply with the twin commands of the Equal Protection Clause that race may never be used as a “negative” and that it may not operate as a stereotype. Id. at 218-219. The U.S. Supreme Court explained that “college admissions are zero-sum. A benefit provided to some applicants but not to others necessarily advantages the former group at the expense of the latter.” Id. Third, the U.S. Supreme Court held that the admissions programs lack a “logical end point” as Grutter required. Id. at 221. As a result, the U.S. Supreme Court determined that the admissions programs “cannot be reconciled with the guarantees of the Equal Protection Clause.” Id. at 230.
The Ruling’s Early Impact
On July 19, 2023, in Ultima Services Corp., et al. v. U.S. Department of Agriculture, No. 20-CV-00041, 2023 WL 4633481 (E.D. Tenn. July 19, 2023), a district court extended Students for Fair Admissions to the government contracting context and held that the Small Business Association’s use of racial preferences to award government contracts likewise violates the Equal Protection Clause.
Section 8(a) of the Small Business Act instructs the Small Business Administration (the SBA) to contract with other agencies “to furnish articles, equipment, supplies, services, or materials to the Government,” 15 U.S.C. § 637(a)(1)(A), and to “arrange for the performance of such procurement contracts by [subcontracting with] socially and economically disadvantaged small business concerns,” 15 U.S.C. § 637(a)(1)(B). The SBA adopted a regulation creating a “rebuttable presumption” that “Black Americans; Hispanic Americans; Native Americans; Asian Pacific Americans [; and] Subcontinent Asian Americans” are “socially disadvantaged.” 13 C.F.R. § 124.103(b)(1).
The district court held that the § 8(a) program does not satisfy strict scrutiny. First, the Administration did not assert a compelling interest. The district court reasoned that while the government “has a compelling interest in remediating specific, identified instances of past discrimination,” the program lacked any such stated goals. Id. at *11. Second, the district court held that, even if the SBA had a compelling interest in remediating specific past discrimination, the § 8(a) program was not narrowly tailored to serve that alleged compelling interest. Id. at *14. The § 8(a) program had no logical end point or termination date, was both underinclusive and overinclusive relative to its “imprecise” racial categories, and failed to review race-neutral alternatives.
The district court concluded that the defendants’ use of the rebuttable presumption violated Ultima’s Fifth Amendment right to equal protection, and it enjoined defendants from using the rebuttable presumption of social disadvantage in administering the program. Id. at *18.
Although the district court in Ultima limited its holding to the use of a “rebuttable presumption” in administration of § 8(a) programs, in addressing the requirement that racially conscious government programs must have a “logical end point,” it cited Students for Fair Admissions and noted that “its reasoning is not limited to just [college admissions programs].” Id. at *15 n.8. Thus, the first opinion considering the impact of Students for Fair Admissions extended it beyond college admissions, reflecting the decision’s potential to fuel claims asserted under 42 U.S.C. § 1981, Title VII, and other anti-discrimination statutes.
Implications For Class Action Litigation
The Supreme Court’s decision has also caused private sector employers to question whether the ruling impacts their diversity, equity, and inclusion (DEI) initiatives. While politicians moved quickly to stake out positions on the issue, the plaintiffs’ class action bar and advocacy groups moved to take advantage of the uncertainty to line up a deluge of claims.
In the wake of Students for Fair Admissions, the Office for Federal Contractor Compliance Programs (OFCCP), the office responsible for overseeing affirmative action programs for federal contractors, promptly updated its website to state that its affirmative action programs are separate from those that educational institutions implemented to increase racial diversity in their student bodies. The OFCCP stated that “[t]here continue to be lawful and appropriate ways to foster equitable and inclusive work environments and recruit qualified workers of all backgrounds.”
Likewise, in response to the decision, EEOC Chair Charlotte Burrows, a Democratic appointee, promptly issued a statement declaring that the decision “does not address employer efforts to foster diverse and inclusive workforces or to engage the talents of all qualified workers, regardless of their background. It remains lawful for employers to implement diversity, equity, inclusion, and accessibility programs that seek to ensure workers of all backgrounds are afforded equal opportunity in the workplace.”
By contrast, Andrea Lucas, a Republican-appointed EEOC Commissioner, emphasized a different sentiment in a Fox News interview regarding the impact of Students for Fair Admissions: “I think this [decision] is going to be a wake-up call for employers. . . . Even though many lawyers don’t use the word affirmative action, it’s rampant today. . . . Pretty much everywhere there is a ton of pressure . . . across corporate America to take race-conscious . . . actions in employment law. That’s been illegal and it is still illegal.” As to potential challenges, she added: “I have noticed an increasing number of challenges to corporate DEI programs and I would expect that this decision is going to shine even more of a spotlight about how out of alignment some of those programs are. . . I expect that you are going to have a rising amount of challenges.”
Consistent with predictions, in the wake of the U.S. Supreme Court’s ruling, Republican Attorneys General from 13 states and Senator Tom Common of Arkansas sent a letter to the CEOs of Fortune 100 companies stating: “[T]oday’s major companies adopt explicitly . . . discriminatory practices [including], among other things, explicit racial quotas and preferences in hiring, recruiting, retention, promotion, and advancement.” They urged the companies to cease unlawful hiring practices. In response, 21 Democratic Attorneys General sent a letter condemning the Republican Attorneys General’s “attempt at intimidation”: “While we agree with our colleagues that “companies that engage in racial discrimination should and will face serious legal consequences…[w]e write to reassure you that corporate efforts to recruit diverse workforces and create inclusive work environments are legal and reduce corporate risk for claims of discrimination.”
On September 19, 2023, Students for Fair Admissions filed a lawsuit in the U.S. District Court for the Southern District of New York seeking to end race-conscious admissions at the U.S. Military Academy. . See Students for Fair Admissions v. U.S. Military Academy at West Point, et al., No. 7:23 Civ. 08262 (S.D.N.Y.). The group alleged that the admissions program at West Point, which takes race into account in its admissions process for future Army officers, is unconstitutional and unnecessary for a service that relies on soldiers following orders regardless of skin color.
The group filed a similar action against the U.S. Naval Academy on October 5, 2023, in the U.S. District Court for the District of Maryland. See Students for Fair Admissions v. U.S. Naval Academy, et al., No. 23-CV-2699 (D. Md.). The group seeks to prevent the Naval Academy in Annapolis, Maryland from taking race into account in the selection of an entering class of midshipmen. After filing suit, the group promptly sought a preliminary injunction.
On December 20, 2023, a federal judge denied a request to temporarily bar the Naval Academy from using race in its admissions process while the parties litigate the case. Students for Fair Admissions v. U.S. Naval Academy, No. 23-CV-2699, 2023 WL 8806668, at *1 (D. Md. Dec. 20, 2023) (noting that plaintiff’s requested injunctive relief “would undoubtedly alter the status quo,” and, at this stage, the parties have not developed a factual record from which the court can determine whether the Naval Academy’s admissions practices will survive strict scrutiny).
On October 4, 2023, another advocacy group, the America First Legal Foundation asked the EEOC to launch an investigation into Salesforce’s allegedly “unlawful employment practices” claiming that, through its programs promoting diversity and equality, it engaged in unlawful race-based and sex-based discrimination. The group has lodged similar accusations against than a dozen other companies alleging that they maintain programs that aim to increase workplace representation of women and minorities at the expense of White, heterosexual men. The American Alliance for Equal Rights filed lawsuits against additional companies, including law firms, claiming that their grants and programs excluded individuals based on their race.
Finally, on December 19, 2023, a Wisconsin attorney represented by the Wisconsin Institute for Law & Liberty filed suit alleging that a clerkship program maintained by the Wisconsin State Bar is unconstitutional because its eligibility requirements and selection processes discriminate among students based on various protected traits, primarily race. SeeSuhr v. Dietrich, et al., Case No. 23-CV-01697 (E.D. Wis.). He claims that members of Bar leadership are violating his First Amendment rights because they are using his mandatory dues as a practicing attorney to fund the program.
As these questions continue to percolate, and courts start to weave a patchwork quilt of rulings, such uncertainty is likely to fuel class action filings and settlements in the workplace class action space at an increasing rate. Companies should expect to see more governmental enforcement activity, litigation focused on alleged “reverse” discrimination, and claims challenging DEI initiatives.
By Eden E. Anderson, Gerald L. Maatman, Jr., and Jennifer A. Riley
Duane Morris Takeaways: On January 18, 2024, the California Supreme Court issued its opinion in Estrada v. Royalty Carpet Mills, No. S274340 (Cal. Jan. 18, 2024). It is a game changer for employers operating in California. The Supreme Court held, in a unanimous decision, that trial courts lack inherent authority to dismiss claims under the Private Attorneys General Act of 2004 – the “PAGA”- with prejudice due to lack of manageability. The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim. As such, the decision in Estrada is a required read for employers and their decision-makers.
Case Background
Jorge Estrada filed a putative class and PAGA action against his former employer asserting, as relevant here, meal period violations. After two classes comprised of 157 individuals were certified, the case was tried to the bench. The trial court ultimately decertified the classes, finding there were too many individualized issues to support class-wide treatment. Although the trial court awarded relief to four individual plaintiffs, it dismissed the non-individual PAGA claim on the grounds that it was not manageable.
On appeal, Estrada argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed in Estradav. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022). The Court of Appeal reasoned that class action requirements do not apply in PAGA actions and, therefore, the manageability requirement rooted in class action procedure was inapplicable. Further, the Court of Appeal reasoned that “[a]llowing courts to dismiss PAGA claims based on manageability would interfere with PAGA’s express design as a law enforcement mechanism.” Id. at 712. The Court of Appeal acknowledged the difficulty that employers and trial courts face with PAGA claims involving thousands of allegedly aggrieved employees, each with unique factual circumstances, but concluded that dismissal for lack of manageability was not an available tool for a trial court to utilize.
The Court of Appeal in Estrada recognized its holding was contrary to the holding in Wesson v. Staples the Office Superstore, LLC, 68 Cal.App.5th 746 (2021), and created a split in authority. In Wesson, the trial court struck a PAGA claim as unmanageable, and the Court of Appeal affirmed. The claims at issue in Wesson involved the alleged misclassification of 345 store managers. The employer’s exemption affirmative defense turned on individualized issues as to each manager’s performance of exempt versus non-exempt tasks which varied based on a number of factors including store size, sales volume, staffing levels, labor budgets, store hours, customer traffic, all of which varied across the stores. The split in authority prompted the California Supreme Court to grant review in Estrada.
The California Supreme Court’s Decision
At the outset, the California Supreme Court noted that the issue before it was whether trial courts possess inherent authority to “strike” PAGA claims for lack of manageability, defining the word “strike” to mean a dismissal with prejudice. Jan. 18 Opinion at 7. The Supreme Court then addressed, and rejected, the employer’s argument that trial courts possess inherent authority to, for judicial economy purposes, strike any claim a plaintiff asserts. The Supreme Court explained that the power to dismiss a claim with prejudice is limited to cases involving a failure to prosecute, frivolous claims, or egregious misconduct, and that judicial economy does not warrant the dismissal of any claim.
The Supreme Court rejected the employer’s argument that the manageability requirement for class actions should be imported into PAGA actions. It reasoned that there are three structural differences between class actions and PAGA representative actions that warrant treating these claims differently, as well as differences in jurisprudential history. The three structural differences cited by the Supreme Court were: (1) that plaintiffs in PAGA actions are not required to establish superiority or predominance of common issues; (2) PAGA’s purpose is to maximize enforcement of labor laws; and (3) that the California Labor and Workforce Development Agency (LWDA) can impose civil penalties for Labor Code violations without considering manageability.
As to jurisprudential history differences, the Supreme Court noted that, unlike class actions which were an “invention of equity,” PAGA actions are not “creatures of equity.” Id. at 30. Thus, while class action jurisprudence developed to create various common law requirements for class actions that are not set forth in California’s class action statute, the PAGA statute provides detailed statutory requirements for maintaining a PAGA claim, thereby constraining trial courts from using “extra-statutory inherent authority to strike PAGA claims that the Legislature has authorized.” Id. at 31. Because PAGA’s express wording permits a plaintiff who has suffered one labor code violation to seek civil penalties on behalf of other employees for “violations that vary widely in nature,” imposing a manageability requirement would “defeat the purpose of statute.” Id. at 32.
The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim other than to note that any such authority would be “narrow authority of last resort.” Id. at 41. Although the employer argued its due process rights would be violated if the PAGA claims against it were re-tried, the Supreme Court noted that the employer had only offered the testimony of two employees in the original trial and, thus, the due process issue was “hypothetical.” Id. at 40. The Supreme Court, however, agreed that employers have a due process right to present an affirmative defense, but emphasized that an employer has no due process right to present the testimony of an “unlimited number of individual employees” or “each allegedly aggrieved employee.” Id. at 40.
The Supreme Court concluded by noting that trial courts have “numerous tools” to manage complex cases, and suggested that the “extent of liability” in a PAGA case can be determined by surveys or statistical methods that estimate the number of aggrieved employees. Id. at 41. The Supreme Court emphasized that the burden of proof in a PAGA case remains with plaintiffs who should endeavor to be “prudent in their approach to PAGA claims” and that, if “a plaintiff alleges widespread violations of the Labor Code . . . but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.” Id. at 44.
Implications For Employers
The Estrada opinion strikes a blow to employers facing PAGA claims by removing lack of manageability as a ground for dismissal. While the California Supreme Court encouraged PAGA plaintiffs to be prudent to their approach to their PAGA theories, in practice, such prudence is uncommon. On the bright side, the decision leaves open an employer’s ability to seek dismissal on due process grounds.
Duane Morris Takeaway: The volume of data breach class actions exploded in 2023, and their unique challenges, including issues of standing and uninjured class members, continued to vex the courts, leading to inconsistent outcomes. Data breach has emerged as one of the fastest growing areas of class action litigation. After every major (and not-so-major report) of a data breach, companies now can expect the resulting negative publicity to prompt one or more class action lawsuits, saddling companies with the significant costs of responding to the data breach as well as the significant costs of dealing with high-stakes class action lawsuits on multiple fronts.
Watch below as Duane Morris partner Jennifer Riley discusses the impact of data breach class actions in 2023, and what companies can expect to see in 2024.
Trend #4 – Data Breach Class Actions Continued Their Growth, But With Inconsistent Outcomes
Companies unfortunate enough to fall victim to data breaches in 2023 faced class actions, including copy-cat and follow-on class actions across multiple jurisdictions, at an increasing rate. In 2023, we saw a notable increase in data breach class actions as compared to 2022. Plaintiffs filed approximately 246 data breach class actions within the first half of 2023, roughly equivalent to the total number of filings for the entirety of 2022. On average, plaintiffs filed 44.5 data breach class actions per month during 2023 through the end of August, marking a significant increase from the average of 20.6 per month that we saw in 2022. From September 2023 to the end of the year, Plaintiffs filed over 450 additional data breach class actions, for an average of over 125 a month.
Several factors likely contributed to this surge in data breach class actions in 2023, including the MOVEit data breach. The shift to remote work, rise of cloud-based storage, and the escalation of sophisticated cybercriminal activity has threatened data security like never before, giving rise to more large-scale data breaches across industries and thereby prompting more lawsuits. In 2023, the Judicial Panel on Multidistrict Litigation consolidated more than 100 class actions arising from an alleged Russian cybergang’s exploitation of a vulnerability in the file transfer software MOVEit. See In Re MOVEit Customer Data Security Breach Litigation, MDL No. 3083 (J.P.M.L. Oct. 4, 2023). Further, whereas data breach actions pursued a decade ago faced little prospect of success, recent court decisions provided a roadmap for plaintiffs to attempt to show standing and successfully plead duty, causation, and damages, thereby providing additional momentum for the plaintiffs’ class action bar.
The U.S. Supreme Court’s 2021 decision in TransUnion LLC v. Ramirez, et al., 141 S.Ct. 2190 (2021), has presented a fundamental threshold challenge for many data breach class action plaintiffs – i.e., whether the plaintiff suffered a concrete injury such that he or she has standing to assert a claim. In TransUnion, the Supreme Court ruled that certain putative class members, who did not have their credit reports shared with third parties, did not suffer concrete harm and, therefore, lacked standing to sue. Since the TransUnion decision, standing has emerged as a key defense to data breach litigation because the plaintiffs often have difficulty demonstrating that class members suffered concrete harm.
Courts, however, have continued to disagree over the application of TransUnion in the data breach context and have handed down varying decisions. For instance, whereas some courts have found allegations of mere access to personal information insufficient, courts have disagreed as to the amount of harm and level of causation plaintiffs must plead to maintain a claim.
In Ruskiewicz, et al. v. Oklahoma City University, 2023 U.S. Dist. LEXIS 178928 (W.D. Okla. Oct. 4, 2023), for example, the plaintiff alleged that an unauthorized third party accessed and stole her personal information during a data breach, released it into the public domain, and, because of the data breach, she faced a heightened risk of identity theft. The plaintiff claimed that she was required to take mitigation measures, including “placing ‘freezes’ and ‘alerts’ with credit reporting agencies, contacting [her] financial institutions, closing or modifying financial accounts, and closely reviewing [her] credit reports.” Id. at *5. The court granted the defendant’s motion to dismiss on the basis that a plaintiff suing for damages and injunctive relief from a data breach based on a risk that fraud or identity theft may occur in the future, without any facts to show a misuse of the data had occurred, failed to allege a concrete injury and lacked standing. Id. at *6; see, e.g., Holmes v. Elephant Insurance Co., 2023 U.S. Dist. LEXIS 110161 (E.D. Va. June 26, 2023) (holding that allegations regarding an increased risk of harm from future fraud or identity theft and time spent on preventative and mitigation efforts, such as monitoring credit and financial documents, did not demonstrate Article III standing).
In Bohnak, et al. v. Marsh & McLennan Co., 2023 U.S. App. LEXIS 22390 (2d Cir. Aug. 24, 2023), by contrast, the plaintiff alleged that an unauthorized third party accessed her name and Social Security number through a targeted data breach. The district court granted the defendants’ motion to dismiss for lack of standing, finding that the risk of future misuse of her personal information did not give rise to standing. On appeal, the Second Circuit reversed. It held that, under TransUnion, “disclosure of private information” is sufficiently “concrete” for purposes of Article III, and the fact that plaintiff alleged that she incurred “out-of-pocket expenses associated with the prevention, detection, and recovery from identity theft” and “lost time” and other “opportunity costs” associated with attempting to mitigate the consequences of the data breach, was sufficient. Id. at *19; see Florence, et al. v. Order Express, Inc., 2023 U.S. Dist. LEXIS 89410 (N.D. Ill. May 23, 2023) (finding loss of privacy resulting from data breach, including the mitigation costs, constituted a concrete injury).
Courts continue to grapple with the application of TransUnion in the data breach context, where many plaintiffs are unaware or unable to identify any concrete harm traceable to the alleged exposure of their information. Thus, while it is well-settled that individuals who have experienced direct economic injury from a breach (such as fraudulent charges) have legal standing, courts have disagreed as to the standing of persons who have not contended that an unauthorized party misused their data.
Plaintiffs who clear the standing hurdle as to their own claims relative to their ability to demonstrate an injury from the alleged data breach have continued to face a larger and more daunting obstacle at the class certification phase. Indeed, only 16% of the class certification decisions issued in data breach cases in 2023 came out in favor of plaintiffs. Some of this difficulty arises from the problem of uninjured class members.
By definition, individuals who did not suffer injury as the result of the defendant’s conduct cannot maintain claims, and courts do not have the power to award them relief. As the U.S. Supreme Court reiterated in TransUnion, “Article III does not give federal courts the power to order relief to any uninjured plaintiff, class action or not.” TransUnion LLC v. Ramirez, et al., 141 S.Ct. 2190, 2208 (quoting Tyson Foods v. Bouaphakeo, 577 U.S. 442, 466 (2016). “[S]tanding is not dispensed in gross; rather, plaintiffs must demonstrate standing for each claim that they press and for each form of relief that they seek.” Id.
Courts have continued to grapple with the application of these concepts in the class certification context. In particular, they disagree over whether to certify a class, a plaintiff must demonstrate that every putative class member has standing or, stated differently, must demonstrate that the class excludes those individuals who did not suffer harm. In TransUnion, the Supreme Court expressly left open the question of “whether every class member must demonstrate standing before a court certifies a class.” Id. at n.4. Such a requirement has significant consequences in the data breach context.
In Steinmetz, et al. v. Brinker International, Inc., 2023 U.S. App. LEXIS 17539 (11th Cir. July 11, 2023), for instance, the plaintiffs alleged that hackers targeted Chili’s restaurant systems, stole customer data and personally identifiable information, and posted that information on an online market place for stolen payment data. Id. at *2-3. Two named plaintiffs also alleged that, after their visits to Chili’s, they had unauthorized charges on their credit cards. Id. After the district court certified a nationwide class and California state-wide class, the Eleventh Circuit vacated the district court’s ruling. The Eleventh Circuit held that, although the plaintiffs alleged a concrete injury sufficient to demonstrate Article III standing, the phrase “data accessed by cybercriminals” in both class definitions was too broad and the class would have to be limited to “cases of fraudulent charges or posting of credit information on the dark web.” Id. at *15. The Eleventh Circuit determined that the district court needed to refine the class definition to include those two categories only and then conduct a new predominance analysis as to uninjured individuals who simply had their data accessed.
Similarly, in Attias, et al. v. Carefirst, Inc., 344 F.R.D. 38 (D.D.C. Mar. 28, 2023), the plaintiffs filed a class action alleging that unauthorized individuals accessed the names, birth dates, email addresses, and subscriber identification numbers for over a million insureds. The district court denied plaintiffs’ motion for class certification. The court found that the plaintiffs met the requirements for Rule 23(a), but it expressed concerns about predominance. The court found potential individualized issues related to demonstrating class-wide injury-in-fact, particularly if the injuries for some class members were only future speculative injuries. For these reasons, the court ruled that the plaintiffs failed to meet the predominance requirement of Rule 23 and denied the motion for class certification.
Given the potency of the standing defense, we anticipate that it will continue to occupy a center-stage role in data breach litigation, particularly as plaintiffs attempt to maneuver around negative precedent at the outset to state a claim, only to encounter a similar obstacle at the class certification stage on a broader scale.
Duane Morris Takeaway: In 2023, the number of class certification rulings issued by courts eclipsed the numbers issued in recent years, and the overall rate of class certification remained high, as plaintiffs continued to succeed in certifying class actions at high rates. In 2023, the plaintiffs’ class action bar succeeded in certifying class actions at a high rate. Across all major types of class actions, courts issued rulings on 451 motions to grant or to deny class certification in 2023. Of these, plaintiffs succeeded in obtaining or maintaining certification in 324 rulings, an overall success rate of 72%.
Watch Duane Morris partner Jerry Maatman discuss the high certification rates in 2023 and what it means for 2024 in the video below:
Trend #3 – The Likelihood Of Class Certification In 2023 Remained Strong
The numbers show that, when compared to 2022, plaintiffs filed more motions for class certification in 2023, resulting in more certified class actions in 2023. Across all major types of class actions, courts issued rulings on 451 motions to grant or deny class certification, and plaintiffs succeeded in obtaining or maintaining certification in 324 rulings, with an overall success rate of 72%. In 2022, by comparison, courts issued rulings on 335 motions to grant or to deny class certification, and plaintiffs succeeded in obtaining or maintaining certification in 247 rulings, an overall success rate of nearly 74%.
In 2023, the number of motions that courts considered varied significantly by subject matter area, and the number of rulings varied across substantive areas. The following summarizes the results in each of ten key areas of class action litigation:
Securities Fraud – 97% granted / 3% denied (35 of 36 granted / 1 of 36 denied)
Data Breach – 14% granted / 86% denied (1 of 7 granted / 6 of 7 denied)
Discrimination – 50% granted / 40% denied (4 of 8 granted / 4 of 8 denied)
ERISA – 82% granted / 18% denied (41 of 50 granted / 9 of 50 denied)
FCRA / FDCPA – 75% granted / 25% denied (3 of 4 granted / 1 of 4 denied)
RICO – 70% granted / 30% denied (7 of 10 granted / 3 of 10 denied)
TCPA – 70% granted / 30% denied (7 of 10 granted / 3 of 10 denied)
WARN – 54% granted / 46% denied (7 of 13 granted / 6 of 13 denied)
FLSA (Conditional Certification) – 75% granted / 25% denied (125 of 167 granted / 42 of 167 denied)
FLSA (Decertification) – 44% granted / 56% denied (8 of 18 granted / 10 of 18 denied)
Antitrust – 75% granted / 25% denied (15 of 20 granted / 5 of 20 denied)
Products Liability / Mass Torts – 69% granted / 31% denied (9 of 13 granted / 4 of 13 denied)
Civil Rights – 62% granted / 38% denied (30 of 48 granted / 18 of 48 denied)
Consumer Fraud – 66% granted / 34% denied (38 of 58 granted / 20 of 58 denied).
The plaintiffs’ class action bar obtained the highest rates of success in securities fraud, antitrust, FLSA, and ERISA actions. In cases alleging securities fraud, plaintiffs succeeded in obtaining orders certifying classes in 35 of the 36 rulings issued during 2023, a success rate of 97%. In antitrust litigation, plaintiffs succeeded in obtaining orders certifying classes in 15 of 20 rulings issued during 2023, a success rate of 75%. In cases alleging ERISA violations, plaintiffs succeeded in obtaining orders certifying classes in 41 of 50 rulings, for a success rate of 82%. And in cases alleging FLSA violations, plaintiffs managed to obtain first-stage certification rulings in 125 of 167 rulings issued during 2023, a success rate of nearly 75%.
As additional judicial nominations emanate from the White House to fill open slots in federal courts, we can expect the makeup of the judiciary to continue to evolve toward the left during the upcoming year, thereby reducing the likelihood we will see any significant shift in this trend.
Courts Issued More Rulings In FLSA Collective Actions Than In Any Other Areas Of Law
In 2023, courts again issued more certification rulings in FLSA collective actions than in other types of cases. Plaintiffs historically have been able to obtain conditional certification of FLSA collective actions at a high rate, which surely has contributed to the number of filings in this area.
In 2023, courts considered more motions for certification in FLSA matters than in any other substantive area. Overall, courts issued 183 rulings. Of these, 165 addressed first-stage motions for conditional certification of collective actions under 29 U.S.C. § 216(b), and 18 addressed second-stage motions for decertification of collective actions. Of the 167 rulings that courts issued on motions for conditional certification, 125 rulings favored plaintiffs, for a success rate of nearly 75%.
These numbers are lower than the numbers observed in 2022, during which courts issued 236 rulings. Of these, 219 addressed first-stage motions for conditional certification of collective actions under 29 U.S.C. § 216(b), and 18 addressed second-stage motions for decertification of collective actions. Of the 219 rulings that courts issued on motions for conditional certification, 180 rulings favored plaintiffs, for a success rate of 82%. Such rate was in line with and slightly higher than the historic rate of success that plaintiffs have achieved with respect to such motions.
The decline in success rates in 2023 likely reflects the impact of courts in certain federal circuits more closely scrutinizing motions for conditional certification. Until recently, courts almost universally applied a two-step process to certification of FLSA collective actions.
At the first stage, courts applied a lenient burden such that they required a plaintiff to make only a “modest factual showing” that he or she was similarly situated to others, and plaintiffs often met such burden by submitting declarations from a limited number of potential collective action members.
At the second stage, courts conducted a more thorough examination of the evidence to determine whether in fact the plaintiff was similarly situated to those he or she sought to represent such that the matter should proceed to trial on a representative basis.
Recently, however, federal appellate courts in two circuits – the Fifth Circuit and Sixth Circuit — took a closer look at the so-called two-step process. In 2021, the Fifth Circuit in Swales v. KLLM Transport Services, LLC, 985 F.3d 430, 436 (5th Cir. 2021), rejected the two-step approach to evaluating collective action certification, holding instead that district courts must “rigorously scrutinize the realm of ‘similarly situated’ workers … at the outset of the case.”
This past year, in 2023, the Sixth Circuit joined the Fifth Circuit in jettisoning the traditional two-step approach.
In Clark, et al. v. A&L Homecare & Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023), the Sixth Circuit rejected the traditional two-step approach, but expressly declined to adopt the standard approved by the Fifth Circuit. Instead, the Sixth Circuit introduced a new standard that focuses on whether the plaintiff has demonstrated a “strong likelihood” that other employees he or she seeks to represent are “similarly situated” to the plaintiff.
As these new, stricter standards in the Fifth and Sixth Circuits take hold, we are likely to see success rates normalize as plaintiffs shift their case filings away from these two circuits toward jurisdictions with more lenient, more plaintiff-friendly standards for conditional certification.
Indeed, the success rate for plaintiffs in the Fifth Circuit declined by a noticeable amount in 2023, likely as a trickle-down effect of Swales.
In 2022, courts in the Fifth Circuit issued 7 rulings on motions for conditional certification, and plaintiffs prevailed in 5, or 71%. In 2023, courts in the Fifth Circuit issued 6 rulings on motion for conditional certification, and plaintiffs prevailed in 3, or 50%.
At the decertification stage, courts generally have conducted a closer examination of the evidence and, as a result, defendants historically have enjoyed an equal if not higher rate of success on these second-stage motions as compared to plaintiffs.
The results in 2023 were no exception.
Of the 18 rulings that courts issued on motions for decertification of collective actions, 8 rulings favored defendants, for a success rate of 44%. Such rate aligns with the success rate defendants enjoyed in 2022, and aligns with the historic rate of success that defendants have achieved at the decertification stage.
An analysis of these rulings demonstrates that a disproportionate number emanated from traditionally pro-plaintiff jurisdictions, including the judicial districts within the Second Circuit (27 decisions) and Ninth Circuit (44 decisions), which include New York and California, respectively.
Similar to recent years, however, the number of rulings emanating from the Sixth Circuit (22 decisions) proved nearly as high if not higher than the number of rulings in the traditional pro-plaintiff forums, a trend that, as mentioned above, is likely to reverse as we start to see the impact of Clark and plaintiffs begin shifting their filings toward other jurisdictions.
The following map illustrates these variations:
The numbers no doubt flow from the different standards and approaches that courts in different federal circuits take in evaluating motions for conditional certification and decertification and, in turn, the likelihood of plaintiffs’ success on such motions. If more courts join the Fifth and Sixth Circuits in abandoning the traditional two-step certification process, and thereby increase the time and expense of gaining a conditional certification order, it may lead to a reshuffling of the deck in terms of where plaintiffs file their cases and the types of claims they pursue.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown
Duane Morris Takeaways: In Stewart v. Epitec, Inc., No. 2:22-CV-12857 (E.D. Mich. Jan. 9, 2024), Judge Stephen J. Murphy of the U.S. District Court for the Eastern District of Michigan ordered the parties in an FLSA misclassification lawsuit to commence discovery under the Sixth Circuit’s standard for determining notice to potential plaintiffs announced in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023). As one of the first FLSA discovery rulings under the new Clark standard, the decision is required reading for companies defending wage & hour claims in courts within the Sixth Circuit.
Case Background
On November 23, 2022, the plaintiff in Stewart filed a Complaint against his former employer, Epitec, Inc., alleging willful violations of the FLSA on behalf of over 100 similarly situated individuals who worked as recruiters for the company. The plaintiff sought unpaid overtime wages for a three-year lookback period based on his key contentions that the company misclassified his position as a recruiter as exempt and that he regularly worked 45 to 50 hours per workweek, but was not paid for work beyond 40 hours in a workweek.
On April 18, 2023, the plaintiff filed a motion seeking conditional certification, expedited opt-in discovery, and notice to potential opt-in plaintiffs. Before the company had the opportunity to oppose the motion, the Court stayed the case on April 25, 2023 in anticipation of the Sixth Circuit’s ruling in Clark.
On May 19, 2023, the Sixth Circuit published its decision in Clark, announcing a new test for facilitating notice under 29 U.S.C. § 216(b) of the FLSA. In a watershed ruling, Clark instructs district courts to authorize notice to potential plaintiffs only after the named plaintiff demonstrates a “strong likelihood” that other similarly situated employees exist. Under the prior test used in the Sixth Circuit, a plaintiff could obtain court-sanctioned notice to others by making only a “modest” factual showing that other employees are “similarly situated.” Because notice to others who may join the lawsuit has the practical effect of increasing sharply the settlement pressure on the defendant, the new test shifts the leverage significantly in defendants’ favor in FLSA litigation.
In light of the Clark standard, the Judge in Stewart ordered the parties to submit a joint discovery plan. In supplemental briefing filed in August 2023, the parties articulated their opposing views of the type and scope of discovery that should proceed under the Clark standard.
The Court’s Decision
The Judge in Stewart ordered discovery both on the issue of similarly-situated status and on the defendant’s need for information to test the merits of the named plaintiff’s claims. In so ordering, the Court emphasized that “balance is key” when it comes to the parties’ respective, and contemporaneous, needs for discovery in a post-Clark landscape.
On the issue of whether a “strong likelihood” exists that other similarly-situated employees exist, the Court ordered the plaintiff and the existing opt-in plaintiffs to produce communications among themselves regarding any of the matters at issue in the litigation, excluding any communications shielded by the attorney-client privilege or attorney work product doctrines. As the Sixth Circuit instructed in Clark, whether the potential other plaintiffs are subject to individualized defenses is one of the factors district courts ought to consider in evaluating whether to sanction notice of the FLSA lawsuit. The Court agreed that the defendant was entitled to discovery of such communications because may be probative of individualized defenses that disfavor notification under Clark.
The Court rejected the plaintiff’s request for discovery of the list of putative collective action members The Court reasoned that the names and contact information of all recruiters within a three-year lookback period is precisely the type of information disclosure of which Clark cautioned is tantamount to “solicitation of claims” before the Court authorizes notice.
The Court ordered discovery for a three-year lookback period, consistent with the three-year statute of limitations for “willful” violations of the FLSA, over the defendant’s objection that the standard statute of limitations period of two years for FLSA claims should dictate the time frame of discovery. The Court explained that the parties’ dispute over the existence of willful violations “exemplifies the need for broader discovery.”
The Court permitted the company to proceed with depositions of the named plaintiff and all existing opt-in plaintiffs but rejected the company’s request to depose potential opt-in plaintiffs. The Court reasoned that depositions of individuals who had not yet filed consents to join the lawsuit were not necessary to determine similarly-situated status under Clark. The Court left for another day the defendant’s request for leave to exceed the ten depositions permitted under the Federal Rules of Civil Procedure.
The Court resolved the parties’ dispute over the equitable tolling period in favor of the plaintiff’s request for a broad interpretation of tolling to preserve the ability of would-be plaintiffs to recover on their FLSA claims. Noting that two of the three Sixth Circuit panel judges in Clark endorsed broad equitable tolling in FLSA collective actions, Judge Murphy tolled the limitations period from April 25, 2023 through the resolution of the plaintiff’s forthcoming motion for notice under Clark.
The Court ordered the parties to conduct discovery on the permitted topics within 90 days of the issuance of its January 9, 2024 order. The Court set a date 120 days from the issuance of its order for the plaintiff to file a motion for notice to potential plaintiffs.
Implications For Employers
The Court’s ruling in Stewart is significant in that it is one of the first rulings to define the scope of pre-notification discovery under Clark. The Court interpreted the Sixth Circuit’s ruling to give both sides in the litigation the right to discovery relevant to their respective positions on notice, and the right to do so simultaneously. Likewise, the ruling is important in identifying topics, including contact information of putative class members, unnecessary to the notice determination under Clark and therefore, premature for discovery before notice is issued. The opinion in Stewart has persuasive value to other district courts in Michigan, Ohio, Tennessee and Kentucky and may well influence the discovery landscape for litigants in the post-Clark world.
By Gerald L. Maatman, Jr., Brittany M. Wunderlich, and Christian J. Palacios
Duane Morris Takeaways: In EEOC v. Drivers Management, LLC et al., Case No. 8:18-CV-462 (D. Neb. Jan. 10, 2024), U.S. District Judge John M. Gerrard rejected the EEOC’s proposed injunctive relief — ordering the company to comply with the Americans with Disabilities Act (the “ADA”) — and instead ordered defendants to report to the EEOC all job applications it receives from deaf truck drivers and whether the applicants are hired, among other information, on a semi-annual basis over a three-year period. This case illustrates how federal judges may use their discretion to fashion case-specific injunctive relief designed to prevent similar discrimination in the future.
Background
Victor Robinson, a deaf commercial truck driver, applied to work for Drivers Management, LLC and Werner Enterprises, Inc. (collectively, “Werner”) in January of 2016. He was denied employment, despite having a commercial driver’s license and an exemption for his hearing disability from the Federal Motor Carrier Safety Administration (the “FMCSA”), the federal agency responsible for regulating and providing safety oversight to commercial motor vehicles. The EEOC subsequently brought an enforcement lawsuit on the grounds that Werner discriminated against Robinson on the basis of his deafness.
The Jury Trial
Werner claimed that it rejected Robinson’s application for employment because it could not train inexperienced deaf drivers, like Robinson. Despite the federal government’s approval and despite evidence that other trucking companies were able to train deaf drivers, Werner argued that Robinson, and other FMCSA hearing exemption holders, could not complete Werner’s training program, which required drivers with less than 6 months of experience to drive alongside a trainer on a real over-the-road trucking route, due to safety concerns. Id. at 2.
In September 2023, the jury returned a verdict in favor of the EEOC after a trial. The jury rejected Werner’s position finding that Robison was qualified and could have performed the essential functions of the job, if provided with a reasonable accommodation. Id. at 3. The jury also determined that Werner acted with malice or reckless indifference towards Robinson’s right not to be discriminated against on the basis of his deafness, and awarded substantial damages intended to punish Werner for its misconduct. Id.
The Court’s Order
In the Court’s Order, Judge Gerrard considered whether the EEOC’s requested injunctive relief was sufficient. In doing so, the Court concluded that the EEOC’s request for an order that the defendants to end their discriminatory practices, provide reasonable accommodations to workers, and train employees on the ADA, did little more than “order Werner to obey the law.” Id. at 11. Rather, the Court observed, “the scope of injunctive relief against continued discrimination should be designed to prevent similar misconduct, and must be related to the violation with which the defendants were originally charged.” Id. Accordingly, the Court imposed semi-annual recording and reporting requirements on Werner (and its subsidiaries), requiring that they keep records of every hearing-impaired applicant that applied for an over-the-road truck driving position, the date of the application, whether the applicant was hired, when the employment decision was communicated to the applicant, the basis for declining to hire the applicant, and whether the applicant remained employed with Werner for six months and, if not, the reason for the separation. The reporting obligation was imposed for a term of three years, after which the Court would convene a hearing to determine whether Werner complied with the order, and whether the injunction should be modified, extended, or terminated.
Implications For Employers
As this decision illustrates, federal judges have a wide degree of discretion to modify the relief sought by the EEOC, specifically with respect to injunctive relief. If a judge does not believe that the requested injunctive relief effectively prevents future discriminatory conduct, that judge is free to require the defendant employer comply with additional requirements, up-to and including mandatory reporting obligations to the EEOC.
Duane Morris Takeaway: Continuing with the top trends in class action litigation over the past year as we recognized in the Duane Morris Class Action Review – 2024, today we are discussing Trend #2. Trend # 2 focuses on class action litigation in the privacy space, which has generated a multitude of filings as it continues its reign as the hottest area of growth in terms of activity by the plaintiffs’ class action bar.
In today’s video blog, Duane Morris partner Jennifer Riley discusses the rise in privacy class actions under the Illinois Biometric Information Privacy Act (BIPA) in 2023, the impact of two seminal Illinois Supreme Court rulings on the application of the BIPA, and other privacy areas heating up in the class action arena.
Trend #2 – Privacy Class Actions Gained Momentum, Increasing In Number And Sophistication
1. Illinois Biometric Information Privacy Act Claims
In 2023, the Illinois Biometric Privacy Act (BIPA) continued to fuel a swell of class action litigation. Its technical requirements, coupled with stiff statutory penalties and fee-shifting, provided a recipe for increased filings and hefty settlement demands from the plaintiffs’ class action bar.
Enacted in 2008, the BIPA regulates the collection, use, and handling of biometric identifiers and information by private entities. Subject to limited exceptions, the BIPA generally prohibits the collection or use of an individual’s biometric identifiers and biometric information without notice, written consent, and a publicly-available retention and destruction schedule.
In terms of lawsuit filings, for nearly a decade following enactment of the BIPA, activity under the statute was largely dormant.
Plaintiffs filed an average of approximately two total lawsuits filed per year from 2008 through 2016. Those numbers grew exponentially in 2017 and 2018 and then spiked as the plaintiffs’ class action bar filed a surge of class action lawsuits.
In 2022, companies saw more than five times as many class action lawsuit filings for alleged violations of the BIPA than they saw in 2018, and more than the number of class action lawsuit filings that they saw from 2008 through 2018 combined.
Filings continued to accelerate in 2023, prompted by two rulings from the Illinois Supreme Court that increased the opportunity for recovery of damages under the BIPA.
In 2023, the Illinois Supreme Court issued two seminal decisions that increased the opportunity for recovery of damages under the BIPA. On February 2, 2023, the Illinois Supreme Court issued its ruling in Tims v. Black Horse Carriers, 2023 IL 127801 (Feb. 2, 2023), and held that a five-year statute of limitations applies to claims under the BIPA. Perhaps even more significantly, on February 17, 2023, the Illinois Supreme Court issued its ruling in Cothron, et al. v. White Castle System, Inc., 2023 IL 1280004 (Feb. 17, 2023), and held that a claim accrues under the BIPA each time a company collects or discloses biometric information.
These rulings have far-reaching implications. Together, they have the potential to increase monetary damages in BIPA class actions in an exponential manner, especially in the employment context, where employees might scan in and out of work multiple times per day across more than 200 workdays days per year.
In the wake of these rulings, class action filings more than doubled. From January 1, 2023, to the ruling in Cothron, plaintiffs filed approximately 61 lawsuits in Illinois state and federal courts alleging violations of the BIPA.
By contrast, in the same period of time following the ruling, plaintiffs filed 150 lawsuits in Illinois state and federal courts, representing an increase of 71%.
Below is a chart outlining this litigation spike:
Throughout the remainder of 2023, lawsuit filings continued to grow in number and sophistication as they targeted more advanced and innovative technologies. Given the five-year statute of limitations, and the potential for enhanced monetary penalties, we anticipate that filings and settlement numbers in BIPA litigation will continue to expand.
2. Other Sources Of Privacy Class Actions
Various provisions of state privacy, anti-surveillance, and wiretap statutes have had a similar impact, fueling creativity by the plaintiffs’ class action bar as it looks to apply many pre-existing laws to challenge the use of innovative and novel technologies that companies use to collect information about consumers and their online activities.
Over the past year, plaintiffs have filed a barrage of class action lawsuits under the federal Video Privacy Protection Act (VPPA). Congress originally passed the VPPA in 1988 to prevent the wrongful disclosure of video tape sale and rental records. Plaintiffs have filed lawsuits under the VPPA against companies that offer video content on their websites.
The VPPA prohibits a “video tape service provider” from knowingly disclosing personally identifiable information concerning any consumer of such provider.” 18 U.S.C. § 2710(b)(1). The statute defines a “video tape service provider” to include any person “engaged in business, or affecting interstate or foreign commerce, of rental, sale, or delivery of prerecorded video cassette tapes or similar audio-visual materials.” 18 U.S.C. § 2710(a)(4).
Some courts have construed “similar audio-visual materials” broadly, generally concluding that its definition encompasses streaming video delivered electronically. Plaintiffs allege that companies that maintain videos on their websites and deploy pixel tracking tools violate the VPPA because their websites track the videos that visitors watch and share the viewing data with third parties.
The VPPA provides for damages up to $2,500 per violation in addition to costs and attorneys’ fees for successful litigants, making it an attractive source of filings for the plaintiffs’ class action bar. Indeed, plaintiffs have initiated more than 137 class actions under the VPPA over the past year.
Similarly, state wiretapping and anti-surveillance laws are continuing to generate filings by enterprising plaintiffs’ lawyers. Plaintiffs have initiated class actions against companies that use third-party software to track user activity on their webpages, or to create and record transcripts of conversations conducted via chat features, based on the theory that such practices potentially violate electronic interception provisions of various state laws.
The plaintiffs’ bar grounded these claims in the electronic interception provisions of wiretap statutes like the California Invasion of Privacy Act, the Pennsylvania Wiretapping and Electronic Surveillance Act, and the Florida Security of Communications Act, among other laws, which generally prohibit the unauthorized interception of communications transmitted electronically.
The plaintiffs’ bar has targeted technologies that track a user’s interactions with the website (e.g., clicking, scrolling, swiping, hovering and typing) and create a recording of those interactions and inputs through session replay software.
It also has attacked coding tools that create and store transcripts of conversations with users in a website’s chat feature. Plaintiffs generally allege that recording users’ interactions with a website and sending that recording to a third party for analysis without their consent is an illegal invasion of their privacy. Over the past year, these lawsuits met mixed results.
During 2023, federal district courts in California ruled on the initial round of “chatbot” cases filed under the California Invasion of Privacy Act (CIPA) and several responded with skepticism. Courts granted motions to dismiss on various grounds finding, among other things, that the statutory provisions at issue do not apply to communications over the internet, see, e.g.,Licea, et al. v. American Eagle Outfitters, Inc., 2023 WL 2469630, at *5-6 (C.D. Cal. Mar. 7, 2023); a party cannot “eavesdrop” on its own conversation, see id. at *7-8; Licea, et al. v. Cinmar, LLC, 2023 WL 2415592, at *7-8 (C.D. Cal. Mar. 7, 2023); or that allegations that a defendant used the code embedded in a chat program to “harvest valuable data” were too vague and conclusory to state a claim. See, e.g., Cody, et al. v. Boscov’s, Inc., 2023 WL 2338302, at *2 (C.D. Cal. Mar. 2, 2023).
Other courts denied motions to dismiss similar claims. See, e.g., Valenzuela, et al. v. Nationwide Mutual Insurance Co., 2023 WL 5266033, at *4-10 (C.D. Cal. Aug. 14, 2023); D’Angelo, et al. v. Penny OpCo, LLC, 2023 WL 7006793, at *2-4, *8-9 (S.D. Cal. Oct. 24, 2023).
These rulings contribute to a patchwork quilt of decisions in this space. Given the stakes, we do not anticipate that this initial round of decisions will spell the death knell for suits attacking session replay or chatbot suits, many of which remain in the pipeline before various courts. Instead, we anticipate that plaintiffs will respond with additional creativity as they attempt to plead around these potential issues and identify new technologies at which to target their claims.
By Gerald L. Maatman, Jr. and Sean P. McConnell
