Class Action Defense

March 15, 2024 by Class Action Defense

California Federal Court Axes The EEOC’s Complaint Against Italian Restaurants

By Gerald L. Maatman, Jr., Nick Baltaxe, and Brittany Wunderlich

Duane Morris Takeaways: On March 11, 2024, in Equal Employment Opportunity Commission v. Il Fornaio (America) LLC, Case No. 2:22-CV-05992, Judge Sherilyn Peace Garnett of the U.S. District Court for the Central District of California granted in part, and denied in part, the Defendant’s motion to dismiss the EEOC’s complaint. Specifically, the Court held that EEOC failed allege specific facts to support that a group of aggrieved employees were subjected to hostile work environment, retaliation, and constructive discharge. This holding illustrates that defendants may be successful in challenging the basis for EEOC lawsuits when the complaint fails to include specific facts as to unidentified aggrieved employees.

The Complaint

On August 24, 2022, the EEOC filed a lawsuit against Defendant Il Fornaio (America) LLC (“Il Fornaio”), the owner and operator of Italian restaurants. The EEOC alleged that the Charging Party and similarly aggrieved employees (“Aggrieved Employees”) were subjected to sexual harassment while employed by Il Fornaio by male supervisors. Specifically, the EEOC claimed that those supervisors leered at and groped female employees, as well as showed pornography to them while at work. The Complaint further alleged that Il Fornaio failed to take adequate steps to address complaints of harassment and retaliated against the Charging Party and Aggrieved Employees by reducing their hours, forcing employees to “clean the bar” more frequently, rejecting requests for time off, and “threatening” employees. Id. at 1-2.

Il Fornaio’s Motion to Dismiss

Il Fornaio moved to dismiss the EEOC’s complaint pursuant to Rule 12(b)(6) or, in the alternative, moved for a more definite statement under Rule 12(e). Specifically, Il Fornaio argued that the EEOC’s Complaint should be dismissed as to the unnamed and unidentified victims because the allegations lacked sufficient specificity to meet the federal pleading standard.

In support of its motion, Il Fornaio pointed to the fact that the EEOC had not provide information regarding the number of Aggrieved Employees, which of Il Fornaio’s 19 restaurants were involved, basic identifying information about any of the Aggrieved Employees, information regarding the alleged complaints, the identities of the co-workers and supervisors involved, and the timeframe in which the alleged harassment occurred. Accordingly, Il Fornaio argued that it was unable to respond to the Complaint because the EEOC’s allegations were too vague and ambiguous.

The Court’s Order

As to the EEOC’s first cause of action for hostile work environment under Title VII, the Court noted that that all that is required to survive a motion to dismiss is for the plaintiff to satisfy Rule 8 of the Federal Rules of Civil Procedure and allege sufficient facts to state the elements of a hostile work environment claim (i.e., plead that (i) she was subjected to verbal or physical contact of a sexual nature, (ii) the conduct was unwelcome, and (iii) the abusive conduct was sufficiently severe or pervasive so as to alter the conditions of her employment thus creating an abusive work environment). The Court found that the EEOC had adequately alleged a hostile work environment claim on behalf of the Charging Party. For example, the EEOC alleged that the Charging Party was subject to frequent unwelcome comments and conduct that was sexual in nature, not isolated incidents, and that Il Fornaio failed to correct the harassment which, in turn, altered the terms and conditions of the Charging Party’s employment.

However, the Court held that the EEOC’s complaint failed to put Il Fornaio on notice as to how the allegations applied to the Aggrieved Employees. The Court noted that the EEOC’s complaint did not identify which of the alleged behaviors applied to the Charging Party and which applied to the Aggrieved Employees. In addition, the EEOC’s complaint failed to provide several categories of details, such as which of Il Fornaio’s locations were implicated, what roles the Aggrieved Employees held, where and to what extent the male co-workers worked, the approximate timeframes for when the Aggrieved Employees worked for Il Fornaio, and the approximate dates of complaints about the offending conduct. Most strikingly, the EEOC’s Complaint failed to identify one other claimant, other than the Charging Party, even anonymously. The Court held that all of the omissions, taken together, rendered the complaint deficient. As such, the Court granted Il Fornaio’s motion to dismiss as to the EEOC’s claims as to the Aggrieved Employees’ hostile work environment, with leave to amend the deficiency. However, in doing so, the Court also maintained that the lack of any one of the identifying factors was not dispositive and that requiring all of those details would result in a heightened pleading standard, which did not apply to these claims.

Next, the Court examined whether the EEOC’s complaint pled sufficient facts to state a claim for retaliation under § 704 of the Civil Rights Act of 1964. The Court concluded that the EEOC’s Complaint failed to state a claim for retaliation because the Complaint did not allege that the Charging Party and/or Aggrieved Employees engaged in a protected activity. Additionally, the Court held that because the EEOC failed to allege a protected activity, the Complaint also failed to draw a casual connected between the protected activity and the adverse employment action. For that reason, the Court granted Il Fornaio’s motion to dismiss the EEOC’s retaliation claim with leave to amend to cure the deficiencies.

Finally, the Court held that the EEOC’s constructive discharge was adequately plead as to the Charging Party. Specifically, the Court noted that the EEOC alleged that the Charging Party resigned due to being subjected to sexual harassment, which was sufficient to put Il Fornaio on notice of the claim. However, as with the other claims, the Court agreed with Il Fornaio that the allegations as to the Aggrieved Employees failed the Rule 8 standard. With that reasoning, the Court dismissed Plaintiff’s constructive discharge claim as to the allegations regarding the Aggrieved Employees with leave to amend.

Implications For Employers

The holding in U.S. Equal Employment Opportunity Commission v. Il Fornaio (America) LLC confirms that the EEOC must include facts regarding the unidentified Aggrieved Employees in order to state a claim. However, the Court confirmed that there is no “heightened standard” in these cases and that the failure to include any specific fact will not be dispositive. Nonetheless, employers can, and should, move to dismiss a complaint that is completely silent as to unidentified Aggrieved Employees.

March 14, 2024 by Class Action Defense

Illinois Federal Court Enjoins “Equivalent Benefit” Provision Of Day And Temporary Labor Services Act In Significant Win For Staffing Agencies And Their Company Clients

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis

Duane Morris Takeaways: In a consequential ruling on March 11, 2024, Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois granted in part and denied in part a motion for a preliminary injunction concerning amendments to the Illinois Day and Temporary Labor Services Act (“DTLSA”) in Staffing Services Association of Illinois et al. v. Flanagan, Case No. 23-CV-16208 (N.D. Ill. Mar. 11, 2023). The ruling is significant as it enjoins enforcement of the DTLSA provision requiring staffing agencies to provide equivalent benefits as directly-hired, comparable client company employees. The decision does not, however, affect the DTLSA requirement that staffing agencies provide equal wages after 90 days of work at a client. However, this opinion and order indicates that the DTLSA’s equal benefits requirement – considered by many to be the most onerous portion of the recent DTLSA amendments – appears likely to be preempted by the Employment Retirement Income Security Act (“ERISA”) and may never go into effect at all.

Background

In May 2023, the Illinois General Assembly amended the DTLSA to include several new and significant provisions, which Governor Pritzker signed into law on August 4, 2023. See 820 ILCS 175/et seq. Section 42 of the amended DTLSA, titled “Equal Pay for Equal Work,” included the obligation that staffing companies pay temporary workers that work more than 90 days within a twelve-month period at a client company the same wages and “equivalent benefits” as the lowest paid, comparable, directly-hired employee at the client company. Staffing agencies also could opt to pay the “hourly cash equivalent” of benefits owed under the law. Section 42 also imposed information-sharing requirements on third-party companies utilizing temporary workers, requiring them to provide staffing agencies with “all necessary information related to job duties, pay, and benefits of directly hired employees” to facilitate compliance by staffing agencies.

The amended DTLSA also required staffing agencies to disclose to temporary workers prior to the start of any assignment whether the work site was experiencing any “strike, lockout, or other labor trouble” and gave the worker the right to refuse the assignment without prejudice to receiving another assignment. See 820 ILCS 175/11. Section 67 of the DTLSA includes a private right of action, allowing “interested parties” to bring actions against staffing agencies or their company clients for violations of the DTLSA. An “interested party” is defined in the Act as “an organization that monitors or is attentive to compliance with public or worker safety laws, wage and hour requirements, or other statutory requirements.” See 820 ILCS 175/5, 67. A comprehensive breakdown of the 2023 amendments to the DTLSA and the law’s significant new requirements can be found here.

The Illinois Department of Labor published emergency rules and proposed final rules in August 2023. The emergency rules expired on January 4, 2024, and the proposed final rules remain pending. Further legislation in November 2023 delayed the start of the 90-day calculation period necessary to trigger the equal pay and benefits provision in Section 42 the DTLSA until April 1, 2024.

In December 2023, the Staffing Services Association of Illinois, the American Staffing Association, and three staffing agencies brought suit in federal court against the director of the Illinois Department of Labor (“IDOL”) and sought a preliminary injunction preventing the enforcement of §§ 11, 42, and 67 of the amended DTLSA and related regulations. On February 7, 2024, the Court held a hearing on the motion and heard testimony from the three plaintiff staffing agencies.

The Court’s Decision

The Court’s opinion first summarized the relevant provisions of the DTLSA and relief sought by the plaintiffs. The Court noted that the plaintiffs did not challenge the equal wage requirement in § 42 of the DTLSA. Id. at 2 n.1. As to the DTLSA regulations, the Court denied plaintiffs’ motion for an injunction against the emergency rules in light of their January 2024 expiration, and further declined to enjoin the proposed final DTLSA rules that plaintiffs sought to enjoin given that they were subject to and likely to change.

To grant a preliminary injunction, the Court noted that plaintiffs must establish that they are likely to succeed on the merits, are likely to suffer irreparable harm absent an injunction, and that the balance of equities tip in their favor and that an injunction is in the public interest. Turning to § 42 of the DTLSA, the Court began its analysis by assessing plaintiffs’ likelihood of success on the merits. Noting that the ERISA preempts laws that “require providers to structure benefit plans in particular ways,” id. at 5, the Court ultimately concluded that plaintiffs’ argument that the ERISA preempts the DTLSA provision is likely to succeed. The Court reasoned that the “equivalent benefits” provision forces agencies to “determine the value of many different benefit plans and then determine whether to provide the value in cash or the benefits themselves by modifying their plans or adopting new ones,” which prohibits a staffing agency in its “ability to administer ERISA plans uniformly.” Id. at 7. The Court also rejected the IDOL’s argument that the option to pay the cash value of benefits avoids preemption by the ERISA, noting that for staffing agencies with employee working in different states, § 42 “denies agencies the ability to administer its ERISA plans uniformly” and even the cash option “requires agencies to make judgment calls about employees’ eligibility and level of benefits on an individualized and ongoing basis.” Id. at 8.

Having found that plaintiffs are likely to succeed on the merits as to the “equivalent benefits” provision, the Court turned to the analysis of irreparable harm from § 42. The Court noted the clear “expense and burden of determining the relevant values of benefits and creating, selecting, modifying, or supplementing existing ERISA plans or paying the difference” that staffing agencies would be forced to incur. Id. at 18. Additionally, the Court credited evidence offered by the staffing agencies of reduced revenue, lost clients, and the administrative burdens that would force one staffing agency to cease doing business altogether. Id. As a result, the Court found that staffing agencies had demonstrated far more than the “mere possibility” of irreparable harm to support an injunction. Id. at 20.

Finally, the Court evaluated the balance of the equities and public interest and concluded that plaintiffs’ showing that they are likely to succeed on the merits and the irreparable harm that would result from § 42 outweighed the IDOL’s goal of ending “permatemping,” or the long-term hiring of temporary workers without offering them a permanent position with corresponding wages and benefits of directly-hired employees. Id. at 21.

Notably, the staffing agency plaintiffs also sought to invalidate the portion of § 42 of the DTLSA requiring client companies to disclose pay and benefit data. The Court held that the plaintiffs lacked standing to assert that challenge. However, it observed in a footnote that “[t]he challenge to this part of Section 42 should come from the agencies’ third-party clients.” Id. at 5 n.3.

Next, the Court analyzed plaintiffs’ challenge to § 11 of the DTLSA, which requires staffing agencies to disclose to temporary workers prior to beginning an assignment of any “strike, lockout, or other labor trouble” at a client site. Id. at 11. The staffing entity plaintiffs argued that the provision is preempted by the National Labor Relations Act (“NLRA”) and applicable U.S. Supreme Court precedent interpreting the NLRA. Ultimately, the Court disagreed, holding that § 11 of the DTLSA regulates disclosure and work assignments, given the employee’s right to refuse the assignment, while the relevant section of the NLRA protects an employee’s right to “join, or assist labor organizations; collectively bargain through a representative of the employee’s choosing; engage in concerted activity, e.g., striking or picketing; or refrain from engaging in such activities.” Id. at 12-13. That § 11 of the DTLSA and the rights protected by the NLRA “might arise in the same setting,” the Court concluded, does not mean that § 11 is precluded outright. Id. at 14. The Court similarly rejected plaintiffs’ argument that the right to hire replacement workers is an “economic weapon” afforded by the NLRA, which the DTLSA curtails through the right of refusal, reasoning that the DTLSA “merely requires agencies to give their employees information about a potential work site and the right to an alternative assignment.” Id. at 15.

Finally, the Court analyzed plaintiffs’ contention that § 67 of the DTLSA, which gives a private right of action to any “interested party,” violates constitutional due process guarantees because the “interested party” may not be injured by any violation. The Court noted the existence of other statutes giving private rights of action to interested parties, ultimately concluding that plaintiffs’ argument is one of standing, which the Court declined to address in a hypothetical scenario. Id. at 17.

Implications For Employers

This decision is hugely consequential for both staffing agencies and the companies that use them.

The ongoing coordination and information-sharing regime envisioned by the DTLSA concerning employee benefits is unprecedented, and was the source of significant concern for staffing agencies and third-party company clients alike. This Court’s ruling not only prevents enforcement of the “equivalent benefits” requirement of the DTLSA indefinitely, but also indicates that the benefits provision in § 42 of the DTLSA is unlikely to survive at all. Though technically unaffected by this decision, the § 42 requirement requiring companies to disclose benefit-related data may await a similar fate if and when a challenge by a staffing company client is brought. While undoubtedly litigation over the DTLSA will continue, including possibly an appeal of the Court’s opinion and order, this decision prevents the application of the most onerous provision in the DTLSA and the imposition of a burdensome administrative regime on staffing agencies and their clients for at least the foreseeable future.

March 14, 2024 by Gerald L. Maatman, Jr.

The Duane Morris Private Attorneys General Act Review – 2024

By Gerald L. Maatman, Jr., Jennifer A. Riley, Brandon Spurlock, and Shireen Wetmore

Duane Morris Takeaways: One law making California so different – and so challenging – for employers is the Private Attorneys General Act (“PAGA”), which authorizes employees to assert claims for alleged labor violations. Such a worker acts as “a private attorney general” to pursue civil penalties against an employer as if they were an arm of the State of its agencies. PAGA claims are not class actions per se – instead, they are known as “representative actions – but they pose analogous risks and exposures like class actions brought under the California Labor Code. Plaintiffs bring thousands of PAGA cases every year, and, because PAGA plaintiffs can bring suit on behalf themselves and other employees, the stakes are often significant, with companies exposed to risks similar to those arising from class action litigation. The PAGA, however, has its own specific rules of the road, which differ from the rules elucidated in familiar Rule 23 jurisprudence. The explosion of PAGA litigation has resulted in a complex body of case law that is often difficult to navigate, particularly in terms of the application of arbitration agreements and representative action waivers. Given the wide adoption of such arbitration agreements, companies are struggling to grasp how recent decisions regarding the PAGA and arbitration impact their businesses.

To that end, the class action team at Duane Morris is pleased to present this year’s edition of the Private Attorneys General Act Review – 2024. We hope it will demystify some of the complexities of PAGA litigation and keep corporate counsel updated on the ever-evolving nuances of these issues. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with PAGA litigation.

Click here to download a copy Duane Morris Private Attorneys General Act Review – 2024 eBook.

Stay tuned for more PAGA class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.

March 13, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 47: 2024 Preview: Discrimination Class Action Litigation

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associates Zev Grumet-Morris and Derek Franklin with their discussion of 2023 developments and trends in discrimination class action litigation as detailed in the recently published Duane Morris Discrimination Action Review – 2024.

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

Episode Transcript

Jerry Maatman: Welcome to our listeners – thank you for being here for our weekly podcast, the Class Action Weekly Wire. My name is Jerry Maatman, I’m a partner at Duane Morris, and joining me today are my colleagues, Derek Franklin and Zev Grumet-Morris. Thanks for being here guys.

Derek Franklin: Thank you, Jerry, happy to be part of the podcast.

Zev Grumet-Morris: Thanks, Jerry. Glad to be here.

Jerry: Today on the podcast we’re discussing the recent publication of our Practice Group, the 2024 edition of the Duane Morris Discrimination Class Action Review. Listeners can find the e-book publication on our blog, the Duane Morris Class Action Defense Blog. Derek, could you provide our listeners with a summary of what that publication is all about?

Derek: Absolutely, Jerry. Class action litigation in the discrimination space remains an area of key focus of skilled class action litigators in the plaintiffs’ bar. As a result, compliance with discrimination laws in the myriad of ways that companies interact with employees, customers, and third-parties is a corporate imperative. To that end, the class action team at Duane Morris is pleased to present the Discrimination Class Action Review – 2024. This publication analyzes the key discrimination-related rulings and developments in 2023, as well as the significant legal decisions and trends impacting discrimination class action for 2024. We hope that companies and employers will benefit from this resource in their compliance with these evolving laws and standards.

Jerry: Thanks, Derek. In 2023, courts around the country issued a mixed bag. I’ve always thought that discrimination class actions strike at the very brand and reputation of corporations. Zev, what are some of the takeaways from the publication with regard to major developments in 2023?

Zev: So for decades, federal courts routinely granted class certification in nationwide employment discrimination class actions. But this changed in large part over a decade ago, when the U.S. Supreme Court decided Wal-Mart Inc. v. Dukes, et al., where the court tightened the legal requirements for securing class certifications. But the pendulum appears to be swinging back, as courts are becoming increasingly inclined to find for plaintiffs in class certification rulings within the discrimination context. In 2023 alone, courts granted class certification 50% of the time, while of course denying certification in the other 50% of cases.

Jerry: The discrimination class action space is certainly evolving and reflecting societal trends. Derek, what do you foresee corporate counsel can expect for the coming year in 2024?

Derek: Ultimately, as the class action landscape continues to evolve, so, too, are the playbook theories of the plaintiff and defense bars. Counsel on both sides are becoming more sophisticated and creative in their approaches to prosecuting and defending class actions. Courts are facing increasing pressure to quickly and efficiently discern between properly pled actions and meritless litigation, not only to promote court expediency, but also to spare businesses the incredible expense that accompanies class action defense. So while workplace and quality continues to grab headlines and remain the forefront in the public eye, employers can expect discrimination class actions to reach even greater heights in 2024.

Jerry: Well, thanks for that information – key and important for corporate counsel trying to get ahead of these litigation risks. Of course, conversion of the filing of a discrimination class action into a certified class and then into a settlement, is the Holy Grail for the plaintiffs’ bar. Zev, how did the plaintiffs do in terms of that conversion rate in 2023 with respect to settlement amounts?

Zev: Plaintiffs did very well in securing high settlement dollars. In 2023, the top 10 discrimination settlements totaled $762.2 million, which was a significant increase over 2022, when the top 10 discrimination class action settlements totaled only $597 million.

Jerry: It will be interesting to see in 2024 if we cross the $1 billion line in this area – it seems like these settlements are on an upward trend in aiming for that $1 billion dollar mark. Certainly an important statistic that we track here at Duane Morris in terms of our analysis of class action rulings and class action settlements. Well, thank you, Derek, and thank you, Zev, for being here today, and thank you to our loyal listeners for tuning in. You can get your free copy of the Discrimination Class Action Review e-book on our website – free of charge.

Zev: Thanks for having me, Jerry, and thank you to all the listeners.

Derek: Yeah, thanks so much, everyone!

March 12, 2024 by Jennifer A. Riley

Class Action Law Forum – Recent Developments Regarding The Impact Of Artificial Intelligence

By Jennifer A. Riley

I was honored to speak today at the 6th Annual Class Action Law Forum at the University of San Diego School of Law.

With hundreds of attendees, the conference focused on the current state of class action litigation and “white hot” litigation topics for 2024. The discussion points provide an excellent roadmap for practitioners and corporate counsel alike on the types of cases and legal issues that Corporate America is likely to encounter over the remainder of 2024.

The Impact of Artificial Intelligence

The theme of my address involved the extraordinary impact of AI on the class action space over the past year. Aside from improving the efficiency with which the plaintiffs’ class action bar may be able to file and litigate claims, generative AI is providing an ocean of raw material for potential class claims.

Over the past year, we saw AI promptly become a popular subject of class actions in multiple areas. I touched on three in particular.

AI-Assisted Decision-Making

The first area targets companies that use AI to enhance or streamline their decision-making processes. Plaintiffs have filed suits against insurers, for instance, that use algorithms to adjudicate claims as well as against agencies that use programs to evaluate governmental benefits.

This type of claim frequently arises in the employment context as companies use algorithms to streamline and enhance their candidate screening and selection procedures and to inform their promotion, transfer, and evaluation decisions.

In May 2023, the EEOC issued a technical assistance document entitled “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII,” which purports to provide employers guidance on preventing discrimination when using AI. The EEOC provided various examples in terms of how employers are using AI, including resume scanners that prioritize resumes that use certain key words, employee monitoring software that rates employees on the basis of key strokes, virtual assistants or chatbots that ask job applicants about their qualifications, and video interviewing software that evaluates candidates based on their speech patterns and facial expressions.

Unsurprisingly, we have started to see lawsuits attacking use of these types of tools. In Mobley v. Workday, filed in the Northern District of California, for instance, a plaintiff, an African American male over the age of 40 who claimed that he suffered from anxiety and depression brought suit against Workday claiming that its applicant screening tools discriminated against applicants on the basis of race, age, and disability. The plaintiff claimed that he applied for 80 to 100 jobs, and despite holding a bachelor’s degree in finance, among other qualifications, did not get a single job offer.

Workday, of course, is a software vendor. The district court granted the defendant’s motion to dismiss on the ground that plaintiff failed to plead sufficient facts regarding Workday’s supposed liability as an employer or “employment agency.” In other words, the plaintiff failed to allege that Workday was “procuring” employees for its customers and merely claimed that he applied for jobs with a number of companies that all happened to use Workday. On February 20, 2024, the plaintiff filed an amended complaint alleging that Workday was an agent of the employers that delegated authority to Workday to make hiring process decisions or, alternatively, that Workday was an indirect employer.

This is a prime example of a case to watch as we head through 2024 where plaintiffs are seeking to hold a software vendor liable for the use of its product by others.

Privacy Class Actions Targeting AI

The second area I touched on relates to privacy class actions. Companies that develop AI products have faced a slew of class action lawsuits alleging privacy violations. The allegation essentially has been that, by collecting publicly-available data to develop and train their software, developers of AI products stole private and personal information from millions of individuals.

In cases like PM v. OpenAI, as an example, groups of plaintiffs filed class action lawsuits against OpenAI and Microsoft alleging that, by collecting information from the internet to develop and train AI tools like ChatGPT, they stole private information from millions of people. Other lawsuits have been filed against companies like Open AI as well as Google alleging similar claims, including a recent example, AS v. Open AI, filed in the Northern District of California on February 27, 2024.

Copyright Class Actions Targeting AI

Third, in addition to privacy class actions, technology companies have been hit with a surge of recent lawsuits over the alleged “scraping” of copyrighted materials and personal data from across the internet to train their generative AI systems.

On February 28, 2024, for instance, Intercept Media filed suit in the Southern District of New York against Open AI and Microsoft. It alleged that, at least some of the time, ChatGPT provides responses to its users that regurgitate verbatim – or nearly verbatim – copyright protected works of journalism without providing (and even allegedly intentionally excluding) the author, title, copyright, or terms of use information contained in those works.

In terms of other examples, at the end of last year, the New York Times filed a similar lawsuit alleging copyright infringement in both the input and output of Open AI models. The Authors Guild of America filed a class action suit in September 2023 against MicroSoft and Open AI on behalf of tens of thousands of authors alleging willful violations of copyright laws. In the suit, they allege that the two companies reproduced and appropriated the copyrighted work of tens of thousands of authors to train their AI models. In Andersen v. Stability AI, a group of artists claimed that Stability AI created a software program that downloaded billions of copyrighted images to train and to act as a software library for a variety of visual generative AI platforms. They claimed that, having been trained on their works, the software could generate output in their own artistic styles.

Many of these class actions are just getting off the ground. As the results at the motion to dismiss stage continue to be mixed, it suggests that a model for successfully pleading and prosecuting these types of class actions is still a work in progress.

As courts start to weave their patchwork quilt of rulings, I expect we are seeing the tip of the iceberg in the types and numbers of filings we are likely to see on the generative AI class action front.

Other Hot Topics

The conference speakers covered myriad other timely and hot issues in the class action space, including the state of the current law on concepts such as ascertainability, standing, class-wide injury, and manageability at the class certification stage. A recurrent issue was standing and class-wide injury. Even if a court can “generally” determine class-wide injury at the certification and trial phases, how can it manageably resolve individualized questions at the damages phase?

The panelists likewise covered practical aspects of class-wide trials and mass arbitration, including best practices in preparing for and presenting cases for trial including use of video evidence such as video-taped depositions, use of demonstrative evidence at trial, and use of pre-trial focus groups to test and develop key themes and tell a story that resonates with the jury.

In sum, 2024, is shaping up to be a transformative year on the class action litigation front.

March 12, 2024 by Gerald L. Maatman, Jr.

The EEOC’s 2023 Annual Performance Report Touts A Record $665 Million In Worker Recoveries

By Gerald L. Maatman, Jr., Alex W. Karasik, and Christian J. Palacios

Duane Morris Takeaways: On March 11, 2024, the EEOC published its Fiscal Year 2023 Annual Performance Report (FY 2023 APR), highlighting the Commission’s accomplishments for the previous year, including a record-breaking recovery of $665 million in monetary relief for over 22,000 workers, a near 30% increase for workers over Fiscal Year 2022.

Employers should take note of the Commission’s annual report, as it provides invaluable insight into the EEOC’s regulatory priorities, and highlights the significant degree of financial risk that companies face for failing to comply with federal anti-discrimination laws. It is a must read for corporate counsel, HR professional, and business leaders.

FY 2023 Statistical Highlights

The EEOC’s recovery of $665 million in monetary relief over the past fiscal year represents an increase of 29.5% compared to Fiscal Year 2022. Specifically, the Commission secured approximately $440.5 million for 15,143 workers in the private sector and state and local governments and another $204 million for 5,943 federal employees and applicants.

Furthermore, the Commission reported having one of the most litigious years in recent memory, with 142 new lawsuits filed, marking a 50% increase from Fiscal Year 2022. Among these new lawsuits, 86 were filed on behalf of individuals, 32 were non-systemic suits involving multiple victims, and 25 were systemic suits addressing discriminatory policies or affecting multiple victims. These numbers show an agency flexing its litigation muscles.

The EEOC’s drastic increase in filings was accompanied by a corresponding increase in complaint activity, with 81,055 new discrimination charges received, 233,704 inquiries handled in field offices, and over 522,000 calls from the public, thereby demonstrating the efficacy of the Commission’s outreach and public education efforts.

Other performance highlights from the report included obtaining more than $22.6 million for 968 individuals in litigation, while resolving 98 lawsuits and achieving favorable results in 91% of all federal district court resolutions. The Commission further reduced its private and federal sector inventories by record levels.

Strategic Developments / Systemic Litigation

The Commission also reported significant progress in its “priority areas” for 2023, which included combatting systemic discrimination, preventing workplace harassment, advancing racial justice, remedying retaliation, advancing pay equity, promoting diversity, equity, inclusion and accessibility (“DEIA”) in the workplace, and, significantly, embracing the use of technology, including artificial intelligence, machine learning, and other automated systems in employment decisions.

In 2023, the EEOC resolved over 370 systemic investigations on the merits, resulting in over $29 million in monetary benefits for victims of discrimination. The Commission also reported that its litigation program achieved a 100% success rate in its systemic case resolutions, obtaining over $11 million for 806 systemic discrimination victims, as well as substantial equitable relief. Further, the Commission made outreach and education programs a priority in 2023, and specifically sought to reach vulnerable workers and underserved communities, including immigrant and farmworker communities, hosting over 680 events for these groups and partnering with over 1,120 organizations, reaching over 107,000 attendees.

Other Notable Developments

Beyond touting its monetary successes, and litigation accomplishments, the FY 2023 APR also highlights the newly enacted Pregnant Workers Fairness Act (“PWFA”), which provides workers with limitations related to pregnancy, childbirth, or related medical conditions the ability to obtain reasonable accommodations, absent undue hardship to the employer.

The Commission began accepting PWFA charges on June 27, 2023 (the law’s effective date) and has conducted broad public outreach relating to employers’ compliance obligations under the new law.

Takeaways For Employers

The EEOC’s Report is akin to a litigation scorecard. By all accounts, 2023 was a record-breaking year for the EEOC. As demonstrated in the report, the Commission has pursued an increasingly aggressive and ambitious litigation strategy to achieve its regulatory goals, and had a great deal of success in obtaining financially significant monetary awards. Employers should take note of these trends and be proactive in implementing risk-mitigation strategies and EEOC-compliant policies.

We anticipate that the EEOC will continue to aggressively pursue its strategic priority areas in 2024, which could shape out to be another precedent-setting year. We will continue to track EEOC litigation activity, and look forward to providing our blog readers with up-to-date analysis on the latest developments.

March 10, 2024 by Class Action Defense

Texas Federal Court Allows ERISA Class Action To Proceed Based On ESG Initiatives

By Gerald L. Maatman, Jr., Brad A. Molotsky, and Jesse S. Stavis

Duane Morris Takeaways: On February 21, 2024, in Spence v. American Airlines, Inc., No. 4:23-CV-00552-O (N.D. Tex. Feb. 21, 2024), Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas denied defendants’ motion to dismiss in a class action filed under the Employee Retirement Income Security Act of 1974 (ERISA). The ruling strikes the latest blow in the war between advocates and opponents of so-called environmental, social, and governance (ESG) investment. If the decision stands and if other courts adopt the rationale of the ruling, ERISA fiduciaries that invest in funds based on ESG factors are apt to face heightened risks and exposures.

Case Background

The primary purpose of the ERISA is to protect the beneficiaries of employee retirement plans. To achieve this goal, the law imposes demanding fiduciary duties on plan administrators, who are required to act with prudence and loyalty in selecting investment vehicles. In general, ERISA fiduciaries are expected to choose funds that will maximize profits for plan beneficiaries. However, in recent years, many investment funds have made concerted efforts to consider the social and environmental impacts of their decisions. This practice has proven controversial, as some plan beneficiaries have claimed that the focus on socially conscious investment has harmed their bottom line.

In Spence, the named plaintiff, an American Airlines pilot, is seeking to represent a class of approximately 100,000 participants in the company’s 401(k) plans. Spence argues that plan fiduciaries violated their duties of loyalty and prudence by investing in underperforming ESG funds, and by choosing funds that are managed by investment firms that pursue ESG goals through proxy voting and shareholder activism. According to plaintiff, firms like BlackRock had cast proxy votes that caused ExxonMobil and Chevron to adopt environmentally and socially conscious policies. Because these policies allegedly resulted in declining stock prices, the plaintiff asserts claims for breach of fiduciary duty to invest in funds managed by these individuals.

The airline and its employee benefits committee moved to dismiss. They contended that plaintiff lacked standing because he had not shown that he was personally impacted by any investment decisions. Defendants further argued that the plaintiff’s failure to provide meaningful comparisons between the airline’s plans and supposedly better-performing plans was fatal to his case. Finally, they urged the Court to reject plaintiff’s “Challenged Manager theory,” which suggests that investment in funds managed by individuals who have signaled their commitment to ESG is itself a breach of fiduciary duty. This theory, they argued, “is as wrong as it sounds.” Id. at 2.

The Court’s Ruling

In its ruling, the Court rejected all of the defendants’ arguments and denied the motion to dismiss. The Court held that the plaintiff had presented a plausible theory by arguing that ESG funds systematically underperform and that plan fiduciaries breached their duties by selecting these underperforming funds. According to the Court, “[f]ailure to consider [the alleged underperformance of ESG funds] gives rise to a plausible inference that defendants’ conduct was imprudent.” Id. at 12. The Court further held that plaintiff was not required to provide detailed benchmarks at the motion to dismiss stage.

Most significantly, the Court endorsed plaintiff’s Challenged Manager Theory. According to Judge O’Connor:

Plaintiff articulates a plausible story: Defendants’ public commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers who pursue non-economic ESG objectives through select investments that underperform relative to non-ESG investments, all while failing to faithfully investigate the availability of other investment managers whose exclusive focus would maximize financial benefits for Plan participants.

Id. at 12-13. This focus on the identity of fund managers, rather than on specific actions taken by those managers, was an innovative theory, and one that the Court adopted in full.

Implications Of The Ruling

The implications of the Court’s ruling are striking. According to the Court, ERISA plans can breach their fiduciary duties not only by choosing the wrong funds, but also by doing business with fund managers who have signaled their commitment to ESG investment.

The decision in Spence is unlikely to be the last word in this space.

March 8, 2024 by Class Action Defense

New York Federal Court Grants Motion To Compel Arbitration Of Putative Class Action Unpaid Overtime Claims Based On Employee Handbook

By Gerald L. Maatman, Jr., Maria Caceres-Boneau, and Gregory S. Slotnick

Duane Morris Takeaways: On March 6, 2024, Judge Joanna Seybert of the U.S. District Court for the Eastern District of New York in Hernandez v. RNC Industries, LLC, et al., Case No. 2:21-CV-04518 (E.D.N.Y. March 6, 2024), issued an order granting a motion to compel arbitration and held that a plaintiff’s putative class action claims for unpaid overtime wages and other wage-related violations were subject to an enforceable arbitration agreement compelling arbitration of such claims on an individual basis. The decision comprehensively summarizes the current state of the law concerning motions to compel arbitration in the Second Circuit. It also provides a timely example of the importance for employers to maintain well-drafted arbitration provisions and related language in employee handbooks and other company policy acknowledgment forms (in both English and workers’ native languages) to effectively limit filed putative class actions down to individual claims.

Case Background

As summarized in Judge Seybert’s opinion, the Plaintiff brought a putative class action in federal court in New York against his former employer, seeking allegedly unpaid overtime wages under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”), as well as related NYLL claims for failure to provide required wage notices and wage statements. Id. at 1-2. On February 4, 2022, Defendants moved to compel arbitration and stay or dismiss the complaint. Id. at 2.

As to the relevant background facts, the Court stated that the parties dispute when Plaintiff began working for Defendant – Plaintiff claims the time period was approximately March 2018 through September 2020, while Defendants contend that Plaintiff began working for them in May 2019 based on Plaintiff’s signature on I-9 and pay rate notice forms on May 22, 2019. Id. at 2. Plaintiff also executed a “Receipt of Employee Handbook Form” on May 22, 2019, which stated (in both English and Spanish), in relevant part: “I also understand that this handbook contains a mandatory arbitration provision with a class action waiver and that by accepting and/or continuing my at-will employment I agree to the binding arbitration provisions set forth in this handbook.” Id. at 2-3. Plaintiff signed and dated his assent to the contract’s terms. Id. at 3.

The arbitration provision in the Employee Handbook explicitly stated that “[a]ll claims from potential, current or former employees of [Defendant] accruing at any time pursuant to…any claims for monies that may have been owed for back wages, vacation, overtime, prevailing wage or minimum wage claims, including claims under the Fair Labor Standards Act, the New York State Labor Law or similar law… (collectively “Covered Claims”) must be submitted to binding arbitration before the American Arbitration Association”. Id. at 3-4. The arbitration provision continued: “No party shall have the right to bring or participate in a class, collective or other representative proceeding concerning any Covered Claim in any forum including any court of law or arbitration. To be clear all Covered Claims submitted to arbitration must be handled on a singular individual basis.” Id. at 4.

Plaintiff claimed he was never provided with Defendant’s Employee Handbook and did not know it existed – instead he only recalled signing three documents in May 2019 that Defendant told him were “registration-related OSHA documents.” Id. Plaintiff further alleged that no one told him that by signing any of the documents, he would not be able to bring a future lawsuit against Defendant, and that he was unable to understand the documents he signed because he could not speak, read, or write in English. Id.

The Court’s Decision

The Court began by citing to the Federal Arbitration Act’s standards and mandate that courts “direct the parties to proceed to arbitration on issues to which an arbitration agreement has been signed.” Id. at 5 (citing Daly v. Citigroup, Inc., 939 F.3d 415, 421 (2d Cir. 2019)). The Court noted that in order to determine whether to compel arbitration upon the filing of a motion to compel, it must determine: (i) whether the parties agreed to arbitrate; (ii) the scope of the agreement; and (iii) if federal statutory claims are asserted, whether Congress intended those claims to be non-arbitrable. Id. at 5-6. The Court further reasoned that as part of its determination, it must draw all inferences in favor of the non-moving party and if there is a disputed issue of material fact, such as the making of an arbitration agreement, the Court shall proceed summarily to the trial thereof. Id. at 6 (internal citations omitted). Where a party “categorically and specifically” denies signing an arbitration agreement, that evidence creates an issue of triable fact whether the agreement is enforceable; however, where a party merely states they cannot recall signing the agreement or makes assertions based on speculation or that are conclusory, no genuine issue of material fact exists. Id. at 6-7 (internal citations omitted).

The Court’s analysis first concluded that the arbitration agreement at-issue in the case was valid. In response to Plaintiff’s arguments, Defendants asserted that Plaintiff’s signed acknowledgement that he received the Employee Handbook containing a binding arbitration provision was conclusive evidence that he knew the handbook’s contents and assented to them; the arbitration agreement was explicit and contained no temporal limits; and Plaintiff’s claims he was not aware of the agreement’s contents or was misled regarding same had no merit since he received the Receipt of Employee Handbook Form in his native language (Spanish). Id. at 7-8.

The Court found that Plaintiff did not create a question of material fact as to whether the arbitration agreement was enforceable. Id. at 8. In support of its conclusion, the Court cited to the fact that Plaintiff did not deny signing the Receipt of Employee Handbook, which stated (in Spanish): “I also understand that this handbook contains a mandatory arbitration provision with a class action waiver and that by accepting and/or continuing my at-will employment, I agree to the binding arbitration provisions set forth in this handbook”. Id. Moreover, the Court noted that none of the “registration documents” Plaintiff signed, and claims he was misled into signing, fit the description of the Receipt of Employee Handbook Form. Id.

The opinion cited Second Circuit case law holding that where a Plaintiff merely states he cannot recall signing an agreement as opposed to denying he has done so, such declaration generally fails to create a triable issue of fact regarding the enforceability of an arbitration agreement. Id. at 9 (internal citations omitted). Here, Plaintiff’s statement that “to his knowledge” he did not sign documents concerning not being able to bring a future lawsuit against Defendants was not an “unequivocal denial” that such a contract was made. Id. Moreover, under New York contract law, Plaintiff was deemed to have accepted the arbitration policy by continuing to work after being advised it was his responsibility to read and understand all company policies, including the arbitration policy. Id. at 10. According to the opinion, Plaintiff agreed by signing (and not disputing his signature of) the Receipt of Employee Handbook Form that he received and read a copy of the Employee Handbook and also that it is his responsibility to keep himself appraised of any changes to the policy. Id. As such, the Court rejected Plaintiff’s argument that his non-receipt of the Employee Handbook somehow invalidates his agreement to arbitrate.

The Court also ruled that under New York law, a party is not excused from failure to read and understand the contents of a document signed by the party, and that the Second Circuit rejects the notion that a language barrier could prevent the enforcement of contractual obligations. Id. at 11-12 (internal citation omitted). Moreover, after finding that the parties agreed to arbitrate, the Court confirmed that the arbitration provision covered Plaintiff’s claims under the FLSA and NYLL, all of which are arbitrable. Id. at 12-13. The Court granted Defendants’ motion to compel arbitration and stayed the litigation pending the outcome of arbitration. Id. at 15.

Implications For Businesses

Hernandez serves as timely reminder of just how important a sound arbitration agreement and related company policies and acknowledgement forms can be in the event of a filed class action litigation in court. Here, the Court pointed to Defendants’ clear and articulable policies in granting a motion to compel arbitration of Plaintiff’s claims on an individual basis and cut down the potential class exposure in its entirety at the outset. Not only did Defendants maintain an enforceable arbitration agreement, but also it further locked Plaintiff into the agreement by citing to the agreement to arbitrate with language in its Receipt of Employee Handbook Form. Critically, the Receipt of Employee Handbook Form was provided to the Plaintiff in both English and his native language (Spanish), and he signed and dated it. In light of these additional defenses, Plaintiff’s failure to recall signing the documents and other claims that no one informed him he would be barred from suing Defendants in the future by signing failed to defeat Defendants’ motion to compel. Employers in the Second Circuit should use this decision as a roadmap for arbitration agreement and policy best practices.

March 7, 2024 by Gerald L. Maatman, Jr.

Announcing The Launch Of The Duane Morris Discrimination Class Action Review – 2024!

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaways: Legal compliance to prevent discrimination is a corporate imperative. Companies and business executives operate in the court of public opinion and workplace inequality continues to grab headlines and remains forefront in the public eye. In this environment, employers can expect discrimination class actions to reach even greater heights in 2024. To that end, the class action team at Duane Morris is pleased to present the inaugural edition of the Duane Morris Discrimination Class Action Review – 2024. This publication analyzes the key discrimination-related rulings and developments in 2023 and the significant legal decisions and trends impacting discrimination class action litigation for 2024. We hope that companies and employers will benefit from this resource in their compliance with these evolving laws and standards.

Class action litigation in the discrimination space remains an area of key focus of skilled class action litigators in the plaintiffs’ bar. Class actions challenging employment policies and practices has a robust history since passage of the Civil Rights Act of 1964. For decades, federal courts routinely granted class certification in nationwide employment discrimination class actions, which often spiked settlements that entailed huge pay-outs and across-the-board changes to HR systems. In turn, significant changes in the workplaces of Corporate America resulted from class action precedents, massive settlements, and injunctive relief orders. This changed in large part over a decade ago when the U.S. Supreme Court decided Wal-Mart Inc. v. Dukes, et al., 564 U.S. 338 (2011). That decision reversed a class certification order in a pay and promotions lawsuit involving 1.5 million class members who asserted claims of sex discrimination in pay and promotions. In handing down this ruling, the Supreme Court tightened the legal requirements for securing class certifications. It simultaneously forced the plaintiffs’ bar to adjust their strategies on how to prosecute class actions, while also fueling new defense strategies for opposing class certification motions. Suddenly gone were the days when nationwide class actions challenging hiring, compensation, and promotion policies of large corporations inevitably ended with across the board certification orders and big settlement checks.

But the pendulum appears to be swinging back, as courts are becoming increasingly inclined to find for plaintiffs in class certification rulings, and thereby raising the potential for large monetary remedies. This is especially true in the discrimination context, as society continues to grapple with widespread inequality in the wake of large scale social justice campaigns like Black Lives Matter and the #MeToo movement. Businesses are being confronted with increasingly employee-friendly legislative changes and a more aggressive plaintiffs’ bar.

Click here to download a copy of the Duane Morris Discrimination Class Action Review – 2024 eBook. Look forward to an episode on the Review coming soon on the Class Action Weekly Wire!

March 6, 2024March 6, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 46: 2024 Preview: Privacy Class Action Litigation

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley, special counsel Brandon Spurlock, and associate Jeff Zohn with their discussion of 2023 developments and trends in privacy class action litigation as detailed in the recently published Duane Morris Privacy Class Action Review – 2024.

Episode Transcript

Jennifer Riley: Welcome to our listeners, thank you for being here for our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is special counsel Brandon Spurlock and associate Jeffrey Zohn. Thank you for being on the podcast, guys.

Brandon Spurlock: Thank you, Jen, happy to be part of the podcast.

Jeff Zohn: Thanks, Jen, I am glad to be here.

Jennifer: Today on the podcast we are discussing the recent publication of this year’s edition of the Duane Morris Privacy Class Action Review. Listeners can find the eBook publication on our blog, the Duane Morris Class Action Defense Blog. Brandon, can you tell our listeners a little bit about our new publication?

Brandon: Yeah, sure, Jen, the last year saw a virtual explosion of privacy class action litigation. As a result, compliance with privacy laws in the myriad ways that companies interact with employees, customers, and third parties is a corporate imperative. To that end, the class action team at Duane Morris is pleased to present the Privacy Class Action Review – 2024. This publication analyzes the key privacy-related rulings and developments in 2023, and the significant legal decisions and trends impacting privacy class action litigation for 2024. We hope the companies and employers will benefit from this resource. Their compliance with these evolving laws and standards

Jennifer: In the rapidly evolving privacy litigation landscape, it is crucial for businesses to understand how courts are interpreting these often ambiguous privacy statutes. In 2023, courts across the country issued a mixed bag of results leading to major victories for both plaintiffs and defendants. Jeff, what were some of the takeaways from the publication with regard to litigation in this area in 2023?

Jeff: Yeah, you’re absolutely right that there was a mixed bag of results – both defendants and plaintiffs can point to major BIPA victories in 2023. This past year will definitely be remembered for some of the landmark pro-plaintiff rulings that will provide the plaintiffs’ bar with more than enough ammunition to keep BIPA litigation in the headlines for the foreseeable future. Specifically in 2023, the Illinois Supreme Court issued two seminal decisions that increase the opportunity for recovery of damages under BIPA, including Tims, et al. v. Black Horse Carriers, which held a five-year statute of limitations applies to claims under BIPA, and Cothron, et al. v. White Castle System, Inc., which held that a claim accrues under the BIPA each time a company collects or discloses biometric information.

Jennifer: Two major rulings indeed. Brandon, what do you anticipate these rulings will mean for privacy class actions in 2024?

Brandon: Sure, Jen. 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 employment context, where employees may scan in and out of work multiple times per day across more than 200 workdays per year. In 2023, in the wake of these rulings, class action filings more than doubled. We anticipate that the high volume of case filings will continue at 2024.

Jeff: I think it’s important to add that even though BIPA is an Illinois state statue, various other states are continuing to consider proposed copycat statutes that follow the lead of Illinois. The federal government likewise continues to consider proposals for a national statute. These factors have transformed biometric privacy compliance into a top priority for businesses nationwide and have promoted privacy class actions to the top of the list of litigation risks facing business today. If other states succeed in enacting similar statutes, businesses can expect similar surges in those States as the filing numbers of Illinois continue their upward trend.

Jennifer: Thanks so much for that information – all very important for companies navigating the privacy class action regulations and statutes. The Review also talks about the top privacy settlements in 2023. How did plaintiffs do in securing settlement funds last year?

Brandon: Plaintiffs did very well in securing high dollar settlements. In 2023, the top 10 privacy settlements totaled $1.32 billion. This was a significant increase over 2022, when the top 10 privacy class action settlements totaled still a high number, but just almost $900 million. Specific to BIPA litigation settlements, the top 10 BIPA class action settlements totaled almost $150 million dollars in 2023.

Jennifer: Thank you. We will continue to track those settlement numbers in 2024 as record breaking settlement amounts have been a huge trend that we have tracked over the past two years. Thank you to Brandon and Jeff for being here today, and thank you to the loyal listeners for tuning in. Listeners, please stop by the blog for a free copy of the Privacy Class Action Review eBook.

Jeff: Thank you for having me, Jen, and thank you to all of our listeners.

Brandon: Thanks so much, everyone.