Massachusetts District Court Denies Class Certification and Grants Summary Judgment Because Franchisees Not Employees

By Gerald L. Maatman, Jr., Brandon Spurlock, and Shaina Wolfe

Duane Morris Takeaways – In Patel, et al. v. 7-Eleven, Inc., et al., 2022 WL 4540981, No. 17-11414 (D. Mass. Sept. 28, 2022), Judge Nathaniel Gorton of the U.S. District Court for the District of Massachusetts granted summary judgment in favor of 7-Eleven, as a franchisor, and denied Plaintiffs’ motion for class certification because franchisees were not employees under Massachusetts state law.  In analyzing the state independent contractor statute, the Court determined that the obligations the franchisees undertook pursuant to the franchise agreement did not amount to “services” for purposes of the statute and Plaintiffs, therefore, were not employees.  This ruling is important because it provides guidance for companies operating under a franchisor/franchisee business model on how to combat arguments that franchisee agreements create an employee/employer relationship and obligate franchisors to cover a myriad of legal costs for their franchisees.

Background Of The Case

Plaintiffs, a group of franchisee store owners and operators, brought a putative class action against 7-Eleven alleging that Defendant misclassified them as independent contractors in violation of the Massachusetts Independent Contractor Law. Id. at 1.  Two of the named Plaintiffs entered into franchise agreements directly with 7-Eleven and three as corporate entities.  Id.  The franchise agreements outlined the obligations of the franchisees and included language that the franchisee agreed to hold itself out to the public as an independent contractor.  Id.  Under the agreement, the franchisee also agreed to pay several types of fees to 7-Eleven, including a franchise fee, gasoline fee, and down payment fee.  Id. at 2.  Plaintiffs filed a class action in Massachusetts state court and Defendant removed it on diversity grounds.  Id.  Both parties filed cross-motions for summary judgment, and Plaintiffs filed a motion for class certification.  Id. The District Court granted summary judgment in favor of 7-Eleven, and Plaintiffs appealed to the First Circuit where the case was remanded to allow the District Court to first weigh on the issue, which the First Circuit certified as “[w]hether the three-prong test for independent contractor status … applies to the relationship between a franchisor and its franchisee…” Id.

On remand, the District Court analyzed the elements for the independent contractor test under Massachusetts law, including: (1) freedom from control and direction; (2) service is performed outside the usual course of business; and (3) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service.  Id. at 3.  Defendant argued that franchisees do not perform services for 7-Eleven, and in fact, 7-Eleven actually provides services to the franchisee in exchange for payment; and that 7-Eleven was not a direct employer where the franchise agreement was entered into by corporate entities.  Id. at 4.

The District Court based its ruling on the threshold inquiry of determining whether the individual performs any service for the alleged employer.  Id.  Plaintiffs argued that because the franchise agreement required them to work full time in the store, operate the store 24 hours a day, record inventory sales, wear approved uniforms and use 7-Eleven payroll system, in addition to submitting cash reports and depositing receipts, they should be deemed employees, not independent contractors.  Id. at 5.  The District Court, however, was not convinced that the contractual obligations outlined in the franchise agreement, alone, constituted services under Massachusetts law regarding independent contractors. Id.  Moreover, the District Court opined that although the parties do have mutual economic interests, even though both profit from the franchise stores’ revenue, that mutual interest was not enough to establish that plaintiffs provide services to support an employee relationship. Id.

In short, the District Court reasoned that where a franchisee is merely fulfilling its contractual obligations under a franchise agreement, that by itself does not refute the independent contractor status.  Id.  The District Court therefore granted 7-Eleven’s motion for summary judgment and denied Plaintiffs’ motion for class certification.  Id. at 6.

Implications For Employers

For those companies with franchisee operations, this ruling supports the position that obligations under a franchise agreement requiring the franchisee to perform certain tasks does not establish an employment relationship.  And the fact that the franchisor provides services to the franchisee for payment actually cuts against the employee designation.  Further, the simple fact of mutual benefit from business revenues does not help establish employee status under these circumstances.  Although an appeal from Plaintiffs is anticipated, the District Court’s analysis offers solid guidance for franchisors who are operating under similar franchise agreements.

Indiana Court Of Appeals Strikes Down Class Action COVID-19 Immunity Statute

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

Duane Morris Takeaways – In Mellowitz v. Ball State University and Board of Trustees of Ball State University, et al, No. 22A-PL-337 (Ind. Ct. App. Oct 5, 2022), the Indiana Court of Appeals struck down a 2021 law that sought to protect in-state universities from class action liability related to the shutdown of university campuses during the COVID-19 pandemic.  While the law stated that individuals “may not” bring class actions against universities resulting from actions taken to defend against the spread of COVID-19, the Indiana Court of Appeals held that the statute was “procedural” and in conflict with Rule 23 of Indiana’s Rules of Trial Procedure, which states that individuals “may” proceed as a class under certain circumstances.  The Court’s ruling is important, as it puts at risk other statutes passed in Indiana and other states restricting class actions against businesses for COVID-19-related claims.

Background Of The Case

In 2020, Plaintiff Keller J. Mellowitz, a student at Ball State University, filed a putative class action asserting claims for breach of contract and unjust enrichment against Ball State as a result of the university’s decision to cancel in-person classes during the COVID-19 pandemic.  Id. at 3.  After the complaint was filed, the Indiana General Assembly in 2021 enacted Public Law 166-2021, part of which was codified as Indiana Code Section 34-12-5-7 (“Section 7”) and barred class actions against post-secondary educational institutions for claims of breach of contract and unjust enrichment arising from COVID-19.  Ball State subsequently sought relief from Plaintiff’s lawsuit under Section 7, which the trial court granted, and Plaintiff appealed.  Id. at 5.

The Appellate Court’s Ruling Reversing And Remanding the Trial Court’s Decision

Plaintiff argued on appeal that, as a procedural statute, Section 7 impermissibly conflicts with Indiana Trial Rule 23, which governs class-action procedures and sets forth the requirements to proceed as a class action, thus rendering Section 7 a “nullity.”  The Indiana Court of Appeals began its analysis recognizing longstanding precedent establishing that in a conflict between a procedural statute and the Indiana Rules of Trial Procedure, “the trial rules govern,” however trial rules “cannot abrogate or modify substantive law.”  Id. at 6-7.  Whether a law was “substantive,” the Court explained, depended on whether it established “rights and responsibilities” whereas procedural laws merely prescribed “the manner in which such rights and responsibilities may be exercised.”  Id. at 7.

In analyzing the specific statutes at issue, the Court of Appeals examined Indiana’s analog to Federal Rule 23, which sets forth the criteria for bringing a class action.  The Court of Appeals noted that Indiana Trial Rule 23 was indisputably a procedural rule that allows a plaintiff, when the appropriate criteria are met, to assert his or her claims on behalf of others.  Turning to Section 7, the Court of Appeals explained that the statute did not affect any plaintiff’s substantive right to bring a suit for breach of contract or unjust enrichment, but simply “frustrates them by encouraging a multiplicity of lawsuits from similarly situated plaintiffs.”  Id. at 14.  While Ball State argued that the law protected Indiana universities from “widespread legal liability” from actions taken to combat and mitigate the spread of COVID-19, the Court of Appeals found the argument “unpersuasive,” explaining that since Section 7 did not prevent any individual plaintiff from asserting the same claims against universities, it therefore “does not reduce the institutions’ potential legal liability in the slightest.”  Id. at 14-15. Ball State also argued that adopting Plaintiff’s “extreme position” would endanger two similar laws passed by the Indiana Legislature, which sought to protect business owners from class-action tort liability.  Id. at 15 n.6.  The Court rejected Ball State’s argument. It determined that it had “no opinion” on those statutes since they were not before it in the appeal.  Id.

With Indiana Trial Rule 23 stating that a plaintiff “may” bring a class action and Section 7 stating the plaintiff “may not,” the Court of Appeals held that both laws could not apply in a given situation and, as a result, Section 7 was a “nullity.”  Id. at 15. The Court of Appeals therefore reversed the trial court’s ruling and remanded the case for further proceedings.

Implications for Employers

While Ball State will very likely appeal this decision to the Indiana Supreme Court, the rationale adopted by the Indiana Court of Appeals could undermine similar statutes meant to protect Indiana employers from class action liability resulting from actions taken in response to the COVID-19 pandemic.  As many other states throughout the country similarly passed laws meant to protect businesses from liability due to COVID-19, the Mellowitz decision provides a potential avenue for plaintiffs to challenge laws in other states.   Mellowitz demonstrates that employers should continue to be aware of the potential for class action lawsuits stemming from response to the COVID-19 pandemic, despite efforts by Indiana’s legislature and other states’ legislatures to prevent such costly, high-risk litigation.

 

Alabama Federal Court Affirms $13 Million Default Judgement Against Employer In A Wage & Hour Collective Action For Discovery Failures

By: Gerald L. Maatman Jr., Jennifer A. Riley, and Aaron A. Bauer

Duane Morris Takeaways – In Hornady v. Outokumpu Stainless USA, No. 1:18-CV-317 (S.D. Ala. Oct. 4, 2022), the U.S. District Court for the Southern District of Alabama upheld its sanction of a default judgement against the defendant on all of the Fair Labor Standards Act claims brought by a collective action of current and former employees. In affirming a default judgment of approximately $13 million, the Court cited the employer’s repeated failure to produce pay records, time records and incentive plan data during discovery.  Such a catastrophic outcome demonstrates the importance of reliable and honest client communication and responsible and reasonable conduct at all stages of discovery in complex employment-related litigation.

Background Of The Case

In 2018, Plaintiff William Hornady filed a collective action against his former employer Outokumpu Stainless (“OTK”) alleging violations of the Fair Labor Standards Act (“FLSA”) for overtime and timekeeping record violations.  The case proceeded to discovery, and on November 18, 2021, things quickly unraveled for OTK when the Court found that the company had “acted in pervasive bad faith throughout the discovery process of this entire case…”  Id. at 3.  As a result, the Court sanctioned OTK by entering non-final default judgement against the company, thereby holding it liable for all of plaintiffs’ FLSA claims.  Id. at 6-7.  Earlier this year, OTK challenged this ruling by filing a motion to reconsider the order granting default judgement.

The Court’s Ruling Denying Reconsideration Of The Default Judgement

In seeking reconsideration of the decision to grant default judgement, OTK urged the Court to apply the “good cause” standard of review, under Rule 55 of the Federal Rules of Civil Procedure, which allows courts to evaluate many different factors such as willfulness, prejudice, and whether the defaulting party might have a meritorious defense for purposes of determining whether to reconsider an order of a default judgement.  Id. at 7.  However, the Court declined to apply this “good cause” standard. Instead, it to use the stricter standard of Rule 54, which allows courts to reconsider interlocutory decisions if there is “evidence of an intervening change in the controlling law, the availability of new evidence, or the need to correct clear error or manifest injustice.”  Id. at 12.

Given OTK’s failure to introduce newly available evidence disputing the Court’s previous finding that defense counsel had failed to meet its “discovery obligations,” the Court rejected OTK’s argument that the Court had abused its discretion by improperly imposing “death penalty” sanctions in the form of default judgement.  Id. at 14.  Specifically, the Court noted that it had ordered OTK to produce pay, time, and incentive plan records on “twelve (12) separate occasions spanning almost three years.”  Id. at 17-18.  When OTK finally did produce pay records, they were incomplete, and did not even include rate of pay data.  Id.  The Court also noted that the Magistrate Judge assigned to the case had originally recommended lesser sanctions against OTK.  However, while a ruling on this lesser sanction was pending, the Court opined that OTK “engaged in additional sanction-worthy behavior” during discovery.  Id. at 15.

OTK attempted to shift the blame for these discovery shortcomings to its payroll software provider and former outside counsel for the case.  OTK argued that it could not have produced the formula used to calculate the regular rate of pay (“RROP”) for its employees, as the Court had ordered, because this formula came from the proprietary software of ADP, which OTK would have had to obtain through a subpoena.  Id. at 23-24.  In reality, the Court observed that it had previously ordered OTK to subpoena ADP for this data in 2020, a year before the entry of default judgement.  Id. at 24.  For this reason, OTK could no longer argue that the requirement to subpoena ADP was newly available evidence that might allow the Court to reconsider its sanctions order.  Moreover, the Court noted that OTK’s failure to produce the RROP data had not been its “primary failing” because OTK also failed to produce hourly pay rates.  Id. at 25.

The Court also rejected OTK’s contention that its failures during the discovery process should be attributed to its former outside counsel in the case.  Id. at 27-28.  In support of this position, OTK submitted emails of its former counsel that purported to show that it had been “kept in the dark… as to what was actually occurring” in discovery.  Id.  However, the Court found that these emails could only “provide insight into a fraction of the circumstances” leading to the default judgement.  Id. at 29.  Regardless of whether these emails provided a legitimate excuse for all of OTK’s failures during the discovery process, the Court determined that the emails did not constitute newly available evidence, as OTK had failed to submit them to the Court when it was first facing default judgement sanctions.  Id. at 30.  Given this record, the Court placed the blame squarely on OTK for failing to “produce accurate and complete time and pay records.”

Implications for Employers

The $13 million sanction of a default judgment in the case is an eye-opener for any litigant. The Hornady decision demonstrates that employers who fail to actively engage and communicate with their outside counsel on a regular basis do so at their own peril.  To avoid such a disastrous outcome, clients should always expect and demand regular and truthful case status updates, especially in class and collective actions where the stakes can be so high.

$228 Million Judgment Entered In First Ever BIPA Class Action Trial Before A Chicago Jury

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik

Duane Morris Synopsis:  In Rogers v. BNSF Railway Co., Case No. 19-CV-03083 (N.D. Ill.), the first federal court jury trial in a case brought under the novel Illinois Biometric Information Privacy Act (“BIPA”), the plaintiffs secured a verdict in favor of the class of 45,000 workers against Defendant BNSF. After a week-long trial in the U.S. District Court for the Northern District of Illinois in Chicago, the jury found that BNSF recklessly or intentionally violated the law 45,600 times, based on the defense expert’s estimated number of drivers who had their fingerprints collected.  The Court thereafter entered a judgment against BNSF for $228 million.

This landmark verdict showcases the potentially devastating impact of the BIPA statute on unwary businesses across the state of Illinois that collect, use, or store biometric information.

Case Background

Plaintiff, a truck driver, filed a class action lawsuit alleging that BNSF unlawfully required drivers entering the Company’s facilities to provide their biometric information through a fingerprint scanner.  He claimed that BNSF collected the drivers’ fingerprints without first obtaining informed written consent or providing a written policy that complied with the BIPA and therefore violated sections 15(a) and (b) of the BIPA.  BNSF argued that it did not operate the biometric equipment and instead sought to shift blame to a third-party vendor who operated the biometric equipment that collected drivers’ fingerprints.

The case proceeded before a jury in federal court in Chicago. The proceeding was closely watched, as it represented the very first time any class action had gone to a full trial with claims under the BIPA

The trial lasted five days. However, the jurors deliberated for just over an hour.  The jurors were asked to: (1) indicate on the verdict form whether they sided with Plaintiff, and (2) if so, indicate how many times BNSF violated the BIPA negligently or how many times the company violated the statute recklessly or intentionally.

The BIPA provides for damages of $1,000 for every negligent violation, and up to $5,000 in liquidated damages for every willful or reckless violation. At the conclusion of the trial, the jury found that BNSF recklessly or intentionally violated the law 45,600 times.  Accordingly, the Court entered a judgment against BNSF in the amount of $5,000 per violation, for a total amount of $228 million.

Implications For Employers

This verdict undoubtedly will embolden the plaintiffs’ class action bar and equally serve as an eye opener for businesses in Illinois.  In the short term, companies can expect an uptick in the number of BIPA class actions filed by the plaintiffs’ bar. While it is almost certain that the verdict will be challenged in post-trial motions and in an appeal, companies can expect that plaintiffs’ lawyers will increase their settlement demands in other BIPA class actions.

The BIPA vastly increases the importance of adopting a strategic compliance plan for businesses that operate in Illinois.  It is more important than ever for companies to implement proper mechanisms and consent forms to comply with the BIPA.

Montana Federal Court Denies Class Certification In Gender Discrimination Litigation

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

Duane Morris Takeaways – In Cole, et al. v. Montana University System, at al., 21-CV-88 (D. Mont. Oct. 3, 2022), the U.S. District Court for the District of Montana recently denied certification of a Title IX class action alleging discrimination and harassment on the basis of sex.  The decision in Cole is an important one for employers, as it is a reminder that Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), is still a major obstacle to class certification of broad discrimination claims.  Companies and their corporate counsel are well-served to heed the lessons of Cole and center their class certification defense strategy around the commonality requirement articulated in Wal-Mart Stores, Inc.

Background Of The Case

Plaintiffs were a group of women suing Defendants for alleged violations of Title IX and sought to certify a class of approximately 76 women who allegedly experienced harassment, retaliation, and/or discrimination on the basis of their sex.  Plaintiffs alleged that Defendants either forced them to resign, terminated their positions, or limited their options for professional growth. Id. at 3-5.

Specifically, Plaintiffs alleged that Defendants fostered a “good ol’ boys club” culture, favoring male athletes and employees, while excluding Plaintiffs from participating in activities and benefits regularly afforded to their male counterparts. Id. at 3-9.

Against this backdrop, Plaintiffs alleged that a “retaliatory culture blossomed” and that all Plaintiffs experienced direct retaliation or the fear of retaliation for speaking out against Defendants’ alleged discriminatory conduct. Id. at 8-9.

The Court’s Class Certification Ruling

After the parties filed competing motion papers in support of class certification, and to deny class certification, the Court issued a lengthy and thorough order, which ruled that Plaintiffs failed to satisfy the requirements for class certification. At the heart of the Court’s analysis was Rule 23(a)’s commonality requirement, which ultimately drove the Court’s decision to deny class certification.

Analyzing the evidence and the parties’ submissions, the Court noted that Plaintiffs’ claims appeared to be too disparate to be resolved in one stroke, which is key to satisfying Rule 23(a)’s commonality requirement. In reaching that conclusion, the Court relied extensively on the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). Specifically, the Court found that Plaintiffs failed to identify an employment practice that ties together the putative class members to satisfy the U.S. Supreme Court’s reasoning in Wal-Mart Stores, Inc.

Plaintiffs, for their part, argued that the Ninth Circuit had adopted a “permissive view of commonality” in employment discrimination claims and that the existence of shared legal issues with divergent factual predicates was sufficient to satisfy commonality. The Court, however, rejected this argument. It opined that its analysis was “constrained” by Wal-Mart Store, Inc. Id. at 17.

The Court reasoned that, according to Wal-Mart Stores, Inc., commonality requires both a shared legal theory and shared facts such that determination of one claim can answer all others. Citing Wal-Mart Stores, Inc., the Court noted that there are only two mechanisms to bring a class claim alleging broad discrimination, including: (1) show that the employer used a biased testing procedure to evaluate potential employees; or (2) provide significant proof that the employer operated under a general policy of discrimination.

Based on its analysis, the Court held that Plaintiffs failed to demonstrate that Defendants acted under a general policy of discrimination and the injuries alleged required distinct inquiries into each Plaintiff’s circumstances, qualifications, and the alleged discrimination.

For similar reasons, the Court also concluded that Plaintiffs could not satisfy Rule 23(b)’s predominance requirement because individualized issues were more prevalent than common ones and Defendants’ liability was not subject to common proof.

As a result, the Court denied Plaintiffs’ motion for class certification without prejudice.

Implications For Employers

The ruling in Cole underscores the importance that Wal-Mart Stores, Inc. v. Dukes plays in employment discrimination cases. At times, the Court was sympathetic to Plaintiffs, and recognized the inherent evidentiary problems in broad employment discrimination cases. The Court even lamented the “harsh nature of the standard as imposed on a discrimination case.” Id.  Nevertheless, Wal-Mart Stores, Inc. proved to be too much of an obstacle to Plaintiffs’ class certification theories.

The lesson from this decision is that employers should center their class certification defense strategy on the key holdings in Wal-Mart Stores, Inc., particularly the fact that commonality requires both a shared legal theory and shared facts.  Cole teaches that because it is somewhat easier for plaintiffs to assert shared legal theories, employers should focus on divergent facts.

 

Illinois District Court Rejects “Trio” Of BIPA Defenses in Denying Motion to Dismiss

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Tyler Z. Zmick

Duane Morris Takeaways: In Trio v. Turing Video, Inc., No. 21-CV-4409, 2022 WL 4466050 (N.D. Ill. Sept. 26, 2022), the Court issued yet another plaintiff-friendly decision under the Illinois Biometric Information Privacy Act (“BIPA”), putting businesses on notice that the statute can apply to technology used to screen individuals for purposes of preventing the spread of COVID-19.  The Court denied the three arguments raised in the Defendant’s motion to dismiss, and held that: (1) personal jurisdiction existed because the Defendant sent “biometric” devices to multiple Illinois-based customers; (2) the Plaintiff’s claims were not preempted by the Labor Management Relations Act; and (3) Plaintiff adequately alleged claims under BIPA. The ruling in Trio ought to be required reading for corporate counsel dealing with privacy class action litigation.

Background

Plaintiff alleged that Defendant Turing Video, Inc. sold “products integrated with artificial intelligence,” including the Turing Shield, a “kiosk that allows Turing’s customers to screen their employees for COVID-19.”  See Mem. Op. & Order at 2.  According to Plaintiff, the Turing Shield works by screening a user’s temperature through the device’s camera, thereby using its “artificial intelligence algorithm” to recognize the user based on his or her facial geometry, and detecting whether the user is wearing a protective mask.  Plaintiff also alleged that data collected through the Turing Shield was transmitted to third parties who host that data.

Plaintiff previously worked in Illinois for New Albertson’s, Inc. d/b/a Jewel-Osco, where she used the Turing Shield at the start of each workday as part of the store’s COVID-19 screening process.  Based on her use of the device, Plaintiff claimed that Turing violated the BIPA by: (i) failing to inform her that the Turing Shield would collect her biometric data, and (ii) disseminating her biometric data to third parties without her consent.

Turing moved to dismiss on three grounds, including: (1) that the Court lacked personal jurisdiction; (2) Plaintiff’s claims were preempted by the Labor Management Relations Act; and (3) Plaintiff failed to state a claim upon which relief could be granted.

The Court’s Decision

The Court denied Turing’s motion to dismiss on all three grounds.

Personal Jurisdiction

Turing argued that the Court lacked specific personal jurisdiction because Turing was a non-forum (i.e., California) resident that sold the devices used by Plaintiff to a non-party, Jewel-Osco (also a non-forum resident), and Jewel-Osco brought the devices into Illinois without Turing’s involvement.

The Court held that the evidence – which showed Turing had over 30 Illinois-based customers and had shipped Turing Shields into Illinois – established that Turing had the requisite minimum contacts with Illinois to establish personal jurisdiction.

Labor Management Relations Act Preemption

The Court next addressed Turing’s argument that Plaintiff’s claims were preempted by Section 301 of the Labor Management Relations Act (the “LMRA”), which establishes federal jurisdiction over “suits for violations of contracts between an employer and a labor organization representing employees in an industry affecting commerce.”  Courts typically interpret Section 301 as preempting state law claims that are “substantially dependent on analysis of a collective-bargaining agreement.”  Id. at 18.

Here, Plaintiff was represented by a union and subject to a collective bargaining agreement (“CBA”) while employed at Jewel-Osco.  Based on those facts, Turing claimed that resolving Plaintiff’s BIPA claims for alleged privacy invasions sustained through her work required the Court to interpret the CBA.  The Court disagreed. It held that Plaintiff’s claims were not preempted because the Court could resolve the claims without interpreting the CBA.

The Court recognized that the Seventh Circuit has held that federal law preempts BIPA claims brought by certain union-represented employees against their employers.  See Miller v. Southwest Airlines Co., 926 F.3d 898, 903 (7th Cir. 2019); Fernandez v. Kerry, Inc., 14 F.4th 644, 646-47 (7th Cir. 2021).  The Court distinguished those cases because Turing was not a party to the CBA, and “Turing’s obligations under BIPA stand wholly independent of whether Plaintiff’s union may have consented to Jewel-Osco . . . collecting and disseminating her biometric data.  In other words, resolution of the state law BIPA claims would not require this Court to interpret any [CBA], and instead depend upon the entirely unrelated question of whether Turing provided Plaintiff with the necessary disclosures and obtained from her the required written release before it collected and disseminated her biometric information.”  Mem. Op. & Order at 20-21.

Extraterritoriality & PREP Act Immunity

Finally, the Court rejected Turing’s arguments that: (i) Plaintiff failed to allege that Turing’s relevant conduct occurred in Illinois, and (ii) the Public Readiness and Emergency Preparedness Act (the “PREP Act”) immunized Turing from BIPA liability.  Regarding extraterritoriality, the Court held that Plaintiff sufficiently alleged that Turing’s conduct occurred “primarily and substantially” in Illinois, thereby satisfying the “extraterritoriality doctrine.”  Id. at 25. Regarding PREP Act immunity, the Court noted that the PREP Act provides immunity from liability relating to the “use of a covered countermeasure” upon the declaration of a public health emergency by the Secretary of the Department of Health and Human Services.  The Court held that PREP Act immunity did not apply because the Food and Drug Administration had not approved the Turing Shield, meaning the device did not satisfy the definition of a “covered countermeasure.” Id. at 28.

Conclusion

Trio can be added to the list of recent plaintiff-friendly BIPA decisions, as it reinforces the growing consensus that multiple private entities can be subject to liability under the statute for what may seem like a single “violation.”

The case also raises a potential hurdle to asserting jurisdictional defenses to BIPA claims based on its holding that personal jurisdiction can exist even where the defendant does not send into Illinois the specific device used to collect a plaintiff’s “biometric” data.  Other courts, however, appear more willing to dismiss BIPA claims on personal jurisdiction grounds.  See, e.g., Gutierrez v. Wemagine.AI LLP, Case No. 21-CV-5702, ECF No. 32, Mem. Op. & Order at 1 (N.D. Ill. Oct. 7, 2022) (available here) (dismissing BIPA case for lack of personal jurisdiction despite plaintiffs’ allegation that defendant’s app “derives substantial revenue from nearly 5,000 Illinois-based users”).

 

California Dreaming For Employers:  U.S. Supreme Court Orders California State Court of Appeal To Reconsider Denial Of Arbitration In PAGA Case

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork 

Duane Morris Takeaways: On October 3, 2022, the Supreme Court of the United States granted certiorari, reversed, and remanded a case seeking review of a motion to compel arbitration in a California Private Attorney General Act (“PAGA”) labor law case entitled Dolgen California, LLC v. Galarsa, No. 21-1444 (U.S. Order List, Oct. 3, 2022).  Granting Dollar General’s specific request, the Supreme Court ordered the California Court of Appeal to reconsider its decision affirming a trial court’s denial of the company’s motion to compel arbitration.  That court held that the waiver of representative actions in the plaintiff’s arbitration agreement was unenforceable under California law.  This is only one of several cases pending in California courts involving arbitration agreements that waive an employee’s right to bring a representative action under the PAGA that are being revisited in light of the U.S. Supreme Court’s ruling in Viking River Cruises, Inc. v Moriana (No. 20-1573, June 15, 2022).  As a result, employers will soon have a better understanding of how PAGA representative action waivers will be interpreted in California within the now-controlling framework of the Federal Arbitration Act.

The Holding In Viking River Cruises, Inc. v. Moriana

Earlier this year, on June 15, 2022, the U.S. Supreme Court issued its long-awaited ruling in Viking River Cruises, Inc. v. Moriana. Companies with California-based workforces watched the case closely because it represented an opportunity to clarify the extent to which a court-made rule established by the California Supreme Court back in 2014 could co-exist with the Federal Arbitration Act (“FAA”).  The FAA has long been found to favor the enforcement of arbitration agreements, including waivers of class and other representative claims.  But the California Supreme Court’s decision made it impossible for class waivers to be enforceable under state law as a result of its decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 387-88 (2014) (holding that a “PAGA claim lies outside the [FAA]’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship,” but is instead “a dispute between an employer and the state”).

In a complex and lengthy opinion, the Supreme Court held in Viking River that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.”  (Slip Op. at 20.)  “This prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’ and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent[.]’”  (Id. at 18 (citations omitted).)  In short, representative PAGA claims can now be subject to waiver in an arbitration agreement because “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”  (Id.)

Dollar General’s Petition For Certiorari

Dollar General filed a petition for certiorari while Viking River was pending, expressly asking the Supreme Court to hold the petition pending a decision in that case.  It requested that once Viking River was decided, the Supreme Court should at that time grant Dollar General’s petition, vacate the California Court of Appeal decision below, and remand the case to that court for reconsideration in light of Viking River (known to Supreme Court practitioners as a “GVR” order). The facts in the Dollar General case are strikingly similar to those at issue in Viking River, and the company’s petition described the question presented as “Does the FAA require enforcement of a bilateral arbitration agreement providing that an employee cannot assert representative claims, including under PAGA?”

The U.S. Supreme Court’s GVR Order

On October 3, 2022, the Supreme Court did what Dollar General expressly asked it to do.  (See Order List, Oct. 3, 2022.)

As is typical with GVR orders, there is no explanation of the reasoning behind the order, except that the California Court of Appeal is instructed to apply the reasoning of Viking River on remand.  The California Court of Appeal now will soon reconsider its affirmation of the trial court’s denial of Dollar General’s motion to compel the plaintiff’s claim to an individual, non-representative arbitration proceeding.

Implications For Employers

Employers have long known that if they have operations in California, special attention must be paid to state law provisions that impose restrictions on employment practices unlike those in any other state.  Now that the U.S. Supreme Court has ruled that the FAA preempts the court-made rule of Iskanian that precluded splitting representative PAGA claims from individual claims, it is likely that California courts will modify their enforcement of representative action waivers in arbitration agreements.  But because this is California, wary employers would be wise to stay tuned for further developments in this rapidly changing area of the law.

 

Don’t Mess With Texas: Federal Judge Rules That The EEOC’s Guidance On LGBTQ Employees And Bostock Is Invalid

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork 

Duane Morris Takeaways: On October 1, 2022, in Texas v. EEOC, No. 21-CV-194 (N.D. Tex. Oct. 1, 2022), Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas ruled that the EEOC’s guidance on Bostock v. Clayton County, Georgia, 140 S.Ct. 1731 (2021), was invalid and unlawful. The EEOC’s guidance sought to delineate workplace protections for LGBTQ employees relative to general workplace policies, including obligations related to dress codes, use of bathrooms, and preferred pronouns. The Court agreed with the legal challenge mounted by the State of Texas over the Commission’s guidance. While the final chapter on these issues is far from written, employers should consider the ruling in Texas v. EEOC as part of a broader analysis of EEOC workplace regulations and the ever expanding array of issues involving appropriate workplace personnel policies.

The EEOC’s Guidance

On June 15, 2021, the Commission issued guidance on its interpretation of Bostock on the one-year anniversary of the U.S. Supreme Court’s ruling. Bostock, in a 6 to 3 decision, held that Title VII of the Civil Rights Act of 1964 prohibits discrimination against employees based on their sexual orientation or gender identity.

The EEOC’s guidance on Bostock – which can be accessed here – asserted that employers were obligated to accommodate LGBTQ employees regarding dress codes, use of identifying pronouns, and bathrooms and locker rooms. Critics of the Commission claimed that the guidance went far beyond the holding in Bostock and constituted impermissible rulemaking.

The Legal Challenge Of Texas

In what only can be deemed an extraordinary legal challenge, the Texas Attorney General sued the EEOC and sought declaratory and injunctive relief to invalidate the EEOC’s guidance and enjoin its enforcement and implementation. The lawsuit also challenged an analogous set of regulations issued by the U.S. Department of Health and Human Services (“HHS”). After rulings on procedural issues, Texas brought a motion for summary judgment on the grounds that: (i) the guidance of both agencies was inconsistent with the law; (ii) was arbitrary and capricious; and (iii) constituted improper rulemaking without following applicable notice-and-comment rulemaking procedures under the Administrative Procedure Act (“APA”).

The Court’s Decision

Judge Kacsmarky agreed with Texas, rejected the positions of the EEOC and the HHS, and granted summary judgment against the agencies.

The key aspect of the decision focused on the reach of Bostock. Judge Kacsmarky opined that the U.S. Supreme Court confined its ruling to a holding that Title VII banned workplace bias due to an employee’s “homosexual or transgender status.” Id. at 6. In analyzing Bostock, Judge Kacsmarky determined that the EEOC and the HHS misread the Supreme Court’s opinion.  Id. at 7-14. He held that Bostock did not extend to “correlated conduct,” such as dress, bathrooms, use of pronouns, or healthcare practices. Id. at 4.

Based on this reasoning, Judge Kacsmarky ruled that the EEOC and HHS violated Title VII and the APA by issuing what he deemed the equivalent of substantive, legislative rules through improper procedures. As a remedy, he declared the guidance unlawful, set it aside, and awarded attorneys’ fees and costs to Texas.

Implications For Employers

The ruling in Texas v. EEOC reflects a judicial finding that the Commission acted inappropriately in attempting to push the legal envelope in terms of how Bostock should be read to obligate employers to accommodate LGBTQ employees in the workplace. That said, the ruling is unlikely to shut down the Commission’s efforts to push for expansive interpretations of the boundaries of Title VII. Employers can expect the Commission to pursue other test cases and litigate over the interpretation of Bostock for the foreseeable future. Furthermore, the Commission is apt to appeal the ruling in Texas v. EEOC to the U.S. Court of Appeal for the Fifth Circuit. Stay tuned!

 

Pennsylvania Federal Court Denies Motion For Conditional Certification Of Wage & Hour Collective Action

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik

Duane Morris Takeaways:  In Lincoln v. Apex Human Services LLC, Case No. 22-CV-341, 2022 U.S. Dist. LEXIS 175714 (E.D. Pa. Sept. 28, 2022), Judge Harvey Bartle III of the U.S. District Court for the Eastern District of Pennsylvania denied Plaintiff’s motion for conditional certification a proposed collective action of over 100 registered nurses who alleged they were misclassified as independent contractors and owed unpaid overtime. Since conditional certification is typically granted at a rate of nearly 80% in wage & hour collective actions, the employer-friendly ruling in Lincoln is well-worth a read by corporate counsel. The decision can be used by businesses to defend against FLSA misclassification claims where the named plaintiff fails to establish that they are similarly-situated to other proposed collective members.

Case Background

Plaintiff sued Defendants under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., the Pennsylvania Minimum Wage Act, 43 P.S. § 333.104 et seq., and the Pennsylvania Wage Payment and Collection Law, 43 P.S. §260.1, et seq.  She alleged that Defendants misclassified registered nurses (“RNs”), licensed practical nurses (“LPNs”), and other providers as independent contractors, thereby denying them required overtime pay and other employee benefits.  Id. at *1.  Plaintiff moved for conditional certification and judicial notice under Section 216(b) of the FLSA.

The Court’s Decision

The Court denied Plaintiff’s motion for conditional certification.

The Court explained that Third Circuit case law has developed a two-tiered test to determine whether employees are similarly-situated for purposes of allowing an FLSA representative action to proceed.  Id. at *2 (citations omitted). Relevant here, the court first conducts a preliminary inquiry into whether employees are similarly-situated.  Id. at *2-4.

Plaintiff argued that conditional certification was appropriate for three reasons, including: (1) all current workers were subject to Defendants’ uniform policy of failing to pay overtime; (2) all former workers were subject to Defendants’ uniform policy of failing to pay overtime; and (3) Plaintiff met the lenient standard of showing that workers were similarly, if not identically, situated.  Id. at *4-5.  To support her arguments, Plaintiff offered three types of evidence, such as her signed independent contractor agreement; texts messages between the plaintiff and one individual Defendant; and one pay stub from 2019 and four pay stubs from 2020 showing that taxes were not withheld from her pay. She claimed that this evidence was sufficient to meet the standard for conditional certification, which only requires a plaintiff to show “modest evidence, beyond pure speculation,” that the class members are similarly-situated.  Id. at *5 (citation omitted).

The Court rejected Plaintiff’s position. It held that Plaintiff failed to present any evidence showing that she was similarly-situated to other proposed collective action members.  Citing three other cases from the Eastern District of Pennsylvania, the Court noted that the plaintiffs in those cases presented some evidence, typically through affidavits or declarations, of how their individual situation was like that of other proposed collective members.  Id. at *6.  Here, Plaintiff merely alleged that there are over 100 Apex workers who were misclassified as independent contractors and denied overtime pay.  The Court opined that the evidence Plaintiff provided was specific only to her situation, such as her own contract, text messages and pay stubs.  As a result, the Court determined that Plaintiff failed to provide even minimal evidence that she and the proposed collective members were similarly-situated.  Id. at *6.

For these reasons, the Court denied Plaintiff’s motion for conditional certification.

Key Takeaways For Employers

In FLSA misclassification cases, it is not uncommon for plaintiffs to seek the Court‘s approval to pursue these matters as collective actions.  In situations where a named plaintiff fails to provide limited (or any) evidence regarding how they are similarly-situated to other proposed collective members, employers can use the decision in Lincoln to defend against motions for conditional certification.  This strategy can result in a court prohibiting the named plaintiff from disseminating notice, or in other words, reduce a case from having potentially hundreds of plaintiffs down to a single plaintiff.

The EEOC Is At It Again: FY 2022 Finishes Off With September Surge Of Filings

By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik

Duane Morris Takeaways: In FY 2022, September was a busy month for EEOC-Initiated litigation. In FY 2021, the EEOC’s litigation enforcement activity showed signs of recovering from the lingering COVID-19 pandemic and the total number of case filings increased from the low of 33 in 2020, giving rise to what was anticipated to be a very busy FY 2022. True to its pre-COVID history, the EEOC ended its year with a surge of last-minute lawsuits.

This year, there were 39 lawsuits filed during September as of the publishing of this blog post (down from the 59 filed in September of FY 2021, however, it constituted a significant increase from 2020).

Cases Filed By EEOC District Offices

In addition to tracking the total number of filings, we closely monitor which of the EEOC’s 15 district offices are most actively filing new cases this September. Some districts tend to be more aggressive than others, and some focus on different case filing priorities. The following chart shows the number of lawsuit filings by EEOC district office.

The most noticeable trend of FY 2022 is the filing dip in some key regions compared to past years. The New York district office had 6 filings in FY 2021 and only 2 in 2022. The California district offices in San Francisco and Los Angeles, which combined for 13 new filings last year, declined in FY 2022, falling to only 4 total filings, including San Francisco’s fall from 6 to 1. The Indianapolis district office was in the middle of the pack with 4 filings this year. Philadelphia led the way in FY 2022 with a total of 7 filings. Miami and Phoenix also had 4 each, Memphis had 3, and Dallas, Houston, and St. Louis all had 2 total filings.

Analysis Of The Types Of Lawsuits Filed In FY 2022

We also analyzed the types of lawsuits the EEOC filed throughout the month, in terms of the statutes and theories of discrimination alleged, in order to determine how the EEOC is shifting its strategic priorities.

When considered on a percentage basis, the distribution of cases filed by statute in September remained roughly consistent compared to FY 2021 and FY 2020. Title VII cases once again made up the majority of cases filed, making up 69% of all filings (a bit higher than the 62% in FY 2021 and 60% in FY 2020). ADA cases also made up a significant percentage of the EEOC’s September filings, totaling 18%, although down from the 36% in FY 2021. There were also 3 ADEA cases filed in September, after only one age discrimination case filed in the entire FY 2021.

The graphs below show the number of lawsuits filed according to the statute under which they were filed (Title VII, Americans With Disabilities Act, Pregnancy Discrimination Act, Equal Pay Act, and Age Discrimination in Employment Act) and, for Title VII cases, the theory of discrimination alleged.

March 2022 Release Of Enforcement Statistics

On March 28, 2022, the EEOC released its fiscal year 2023 budget justification and fiscal year 2021 performance report (“APR”). The APR is a review of the results of the EEOC’s litigation goals and performance from FY 2021 and the FY 2023 budget describes how funds will be allocated. The EEOC put out a proposed 2023 budget of $464,650,000.

FY 2021 APR

The APR described a successful year in the EEOC’s eyes in terms of delivering on its strategic initiatives, including securing $485 million in monetary relief for over 15,000 alleged victims of employment discrimination, resolving a total of 138 merit lawsuits, reducing the inventory of appellate cases by 9.1%, and have a significant percentage of its resolutions in district courts achieve a “favorable result.” Comparing the monetary recovery to previous years, the EEOC recovered $535.5 million in FY 2020, $486 million in FY 2019, and $505 million in FY 2018.

The EEOC also continued working towards its goals in community outreach, education, and technical assistance, and hired predominate front-line positions.

FY 2023 Budget Justification

Moving into 2023, the EEOC’s budget constitutes a $60.160 million increase from 2021, and focuses on three key areas including providing racial justice and eliminating systemic discrimination of all protected bases, pay equity, and the civil rights impact of the COVID-19 pandemic. The EEOC also announced three new programs, including the Hiring Initiative to Reimagine Equity (HIRE), which aims to expand employment opportunities as the nation recovers from the pandemic; a joint anti-retaliation initiative with the U.S. Department of Labor and the National Labor Relations Board; and an initiative to ensure that employment-related artificial intelligence and algorithmic decision-making tools comply with federal civil rights laws.

Key Employer Takeaways

FY 2022 was a year of new leadership and structural changes at the EEOC. With a vastly increased proposed budget, it is more crucial than ever for employers to take heed in regards to the EEOC’s strategic priorities and enforcement agendas.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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