Duane Morris Takeaway: Available now is the recent article in the Journal of Robotics, Artificial Intelligence & Law by Justin Donoho entitled “Three Best Practices to Mitigate High-Stakes AI Litigation Risk.” The article is available here and is a must-read for corporate counsel.
Organizations using AI-based technologies that perform facial recognition or other facial analysis, website advertising, profiling, automated decision making, educational operations, clinical medicine, generative AI, and more increasingly face the risk of being targeted by class action lawsuits and government enforcement actions alleging that they improperly obtained, disclosed, and misused personal data of website visitors, employees, customers, students, patients, and others, or that they infringed copyrights, fixed prices, and more. These disputes often seek millions or billions of dollars against businesses of all sizes. This article identifies recent trends in such varied but similar AI litigation, draws common threads, and discusses three best practices that corporate counsel should consider to mitigate AI litigation risk: (1) add or update arbitration clauses to mitigate the risks of mass arbitration; (2) collaborate with information technology, cybersecurity, and risk/compliance departments and outside advisors to identify and manage AI risks; and (3) update notices to third parties and vendor agreements.
Implications For Corporations
Companies using AI technologies face multimillion- or billion-dollar risks of litigation seeking statutory and common-law damages under a wide variety of laws, including privacy statutes, wiretap statutes, unfair and deceptive practices statutes, antidiscrimination statutes, copyright statutes, antitrust statutes, common-law invasion of privacy, breach of contract, negligence, and more. This article analyzes litigation brought under these laws and offers corporate counsel three best practices to mitigate the risk of similar cases.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Kathryn Brown with their discussion of key rulings issued in WARN Act class action litigation over the past year, and the notable challenges for employers defending WARN Act claims in the wake of the COVID-19 pandemic and the rise of remote work.
Jennifer Riley: Thank you for being here again for the next episode of our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is Kathryn Brown. Thank you so much for being on the podcast, Kathryn.
Kathryn Brown: Great to be here, thanks for having me.
Jennifer: Today we wanted to discuss trends and important developments in class action litigation involving the Worker Adjustment and Retraining Notification Act, or the WARN Act. Class actions brought under the WARN Act remain an area of key focus for skilled class action litigators in the plaintiffs’ bar. Unlike the flood of cases we saw in 2022 examining the WARN Act in the context of the COVID-19 pandemic, the significant decisions in 2023 examined more foundational concepts under WARN in a variety of factual contexts. In sum, despite that shift, the WARN Act remains a high stakes fuel for class action litigation. Kathryn, can you explain to our listeners some of the requirements for employers under the WARN Act?
Kathryn: Sure, so the WARN Act requires employers to give written notice to affected employees at least 60 days before conducting a plant closing or mass layoff at a single site of employment. The WARN Act defines a plant closing as the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, where the shutdown results in a defined employment loss during any 30-day period for at least 50 full-time employees. The WARN Act defines a mass layoff as a reduction in force that is not a plant closing, and that results in an employment loss at a single site of employment during any 30-day period for at least 50 full-time employees who constitute at least 33% of the active full-time employees at that single site of employment, or where 500 or more full-time employees at a single site of employment suffer employment losses during any 30-day period. The WARN Act regulations require aggregation of employment losses at a single site of employment during a rolling 90-day period, thereby in essence extending the statute’s 30-day period to 90 days.
Jennifer: Thanks so much for that overview. Can you speak to how often courts grant a class certification in these types of class Actions?
Kathryn: Yes. So, in 2023 plaintiffs’ lawyers achieved somewhat mixed results in their efforts to secure class certification in WARN Act cases. Overall, plaintiffs won a slight majority of class certification motions filed in WARN Act cases obtaining certification in 54% of the motions and with courts denying certification 46% of the time.
Jennifer: Wow, that sounds high, but that’s actually a big contrast to 2022 when courts granted class certification in 100% of WARN Act class actions. We track those numbers in the Duane Morris Class Action Review. What were some of the most significant rulings in WARN Act class actions over the past 12 months?
Kathryn: Well, one of the significant class certification rulings of the past year was Igarashi v. H.I.S. Guam, Inc., a WARN Act claim brought in the District Court for the Island of Guam. The plaintiff filed a class action alleging that the defendant, a travel service agency, violated the WARN Act when the plaintiff and other employees were terminated without 60 days advance notice. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court granted the motion. The court found that the class met the numerosity requirements under Rule 23(a)(1), as there were approximately 96 employees affected by the mass termination. Likewise, the court found the class met the commonality requirement under Rule 23(a)(2). The court concluded that the plaintiff sufficiently demonstrated the existence of common questions of law and fact, including whether under the WARN Act: (i) the defendant is a covered employer; (ii) the class members were covered employees; (iii) the employees suffered a covered employment loss through a covered mass layoff; and finally (iv) there was a failure to issue the required 60 day written notice. The court also determined that typicality was met under Rule 23(a)(3) because the plaintiff and other class members experienced the same injury and the same course of conduct, i.e. a mass termination without the required WARN Act notice resulting in employment loss. The court also found that the Rule 23(a)(4) requirement for adequacy of representation was also satisfied. For the analysis of the Rule 23(b) factors, the court opined that common questions of fact predominated, because the issues were identical to each employee, because they all received the same separation notice, and any justification offered by the defendant for failing to provide a 60 day notice applied to each proposed class member. The court reasoned that common questions of law also predominated, including whether the WARN Act applied to the defendant’s mass layoff and whether the defendant was exempt from the requirements of the WARN Act. As to the superiority requirement, the court ruled that a class action would be the superior method of adjudication, because each proposed class member would also be analyzed under the same statutorily defined compensation framework under the WARN Act statute. Therefore, the court concluded that judicial economy would be served by certifying the class. So that’s one of the important rulings we saw in the past year.
Jennifer: Thanks so much, Kathryn, for that overview. The question as to what the single site of employment means for employees who work from home has become an increasingly significant issue with the dramatic rise of remote work, a trend that may well become a permanent fixture in the modern workplace. Do you have any examples of rulings addressing that question?
Kathryn: Yes, so under the WARN Act a plant closing is defined as the shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment. The DOL’s regulations implementing the WARN Act define the terms single side of employment and operating unit. But the definitions are far from bright lined. So in a recent Second Circuit opinion, we can see how this question is addressed, and how it will continue to be a hot button issue. In the case of Roberts v. Genting N.Y., LLC, the Second Circuit Court of Appeals allowed a class action lawsuit by former employees of a buffet restaurant within a casino to proceed under the WARN Act and corresponding New York law on the basis that a question of fact existed as to whether the buffet was a covered operating unit under the WARN Act, which would entitle the employees to 60 days advance notice before the closing of the buffet. The plaintiffs, a group of 177 former employees, were provided no notice when the defendant casino closed the buffet located inside the casino where the plaintiffs worked. After both parties moved for summary judgment, the district court granted the defendant’s motion, dismissing the employees claims under the WARN Act, because it found that the buffet was neither a single site of employment nor an operating unit within a single site of employment as required to trigger the notice requirements under the WARN Act. In reaching this conclusion, the district court primarily focused on the fact that the buffet was dependent upon the casino’s centralized services. So in reversing the district court’s grant of summary judgment, the Second Circuit Court of Appeals concluded that whether the buffet could operate independent from the casino was not dispositive in deciding if it was operationally or organizationally distinct particularly in light, of the DOL’s inclusion of entities, such as housekeeping and its illustrative examples of operating units in the WARN Act regulations. The Second Circuit detailed several differences between the buffet employees and other employees of the casino that could evidence the status of the buffet as a distinct operating unit for purposes of WARN, such as employee uniforms that were particular to the buffet and managers that worked only for the buffet. In doing so, the Second Circuit gave no special weight to a collective bargaining agreement which did not identify the buffet as a separate department, division, or unit within the larger casino. Viewing the evidence as a whole, the Second Circuit found that the record before the district court did not clearly establish that the buffet was not an operating unit for WARN Act purposes. Therefore, the Second Circuit concluded that neither party was entitled to summary judgment, sending the case back to the district court for a trier of fact ultimately to decide.
Jennifer: Great insights and analysis, Kathryn, thank you so much for being here today and for sharing this information. I know that these are only some of the cases that had interesting rulings in 2023, in WARN Act class actions – 2024 is sure to give us some additional insights into the ways that class actions are evolving in the WARN Act space. Thanks so much for our audience for tuning in today, and we will see you next week on the Class Action Weekly Wire.
By Gerald L. Maatman, Jr., Justin Donoho, and Ryan T. Garippo
Duane Morris Takeaways: On August, 2024, in T.D. v. Piedmont Healthcare, Inc., No. 23-CV-5416 (N.D. Ga. Aug. 24, 2024), Judge Thomas Thrash of the U.S. District Court for the Northern District of Georgia dismissed in its entirety a class action complaint alleging that a healthcare company’s use of website advertising technology installed in its MyChart patient portal disclosed the plaintiffs’ private information in commission of the common law torts of invasion of privacy, breach of fiduciary duty, negligence, breach of contract, and unjust enrichment, and in violation of the Federal Wiretap Act. The ruling is significant because it shows that such claims cannot surmount Rule 12(b)(6)’s plausibility standard for legal reasons broadly applicable to a wide range of adtech class actions currently on file in many jurisdictions across the nation.
Background
This case is one of the hundreds of class actions that plaintiffs have filed nationwide alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly captured plaintiffs’ web browsing data and sent it to Meta, Google, and other online advertising agencies. As the Court explained, “cases like this have sprouted like weeds in recent years.” Id. at 5.
In Piedmont, Plaintiffs brought suit against Piedmont Healthcare, Inc. (“Piedmont”). According to Plaintiffs, Piedmont installed the Meta Pixel on its public-facing website and its secure patient portal, and thereby transmitted to Meta Plaintiffs’ “personally identifiable information (PII) and protected health information (PHI) without their consent.” Id. at 1-2.
Based on these allegations, Plaintiffs alleged claims for invasion of privacy, breach of fiduciary duty, negligence, breach of contract, unjust enrichment, and violation of the Electronic Communications Privacy Act (“ECPA”). Piedmont moved to dismiss under Rule 12(b)(6) for failure to state sufficient facts that, if accepted as true, would state a claim for relief that is plausible on its face.
The Court’s Opinion
The Court agreed with Piedmont and dismissed all of Plaintiffs’ claims.
To state a claim for invasion of privacy, Plaintiffs were required to allege facts sufficient to show “an unreasonable and highly offensive intrusion upon another’s seclusion.” Id. at 5. Plaintiffs argued that Piedmont intruded upon their privacy by using the Meta Pixel to secretly transmit their PII and PHI to a third party for commercial gain. Id. at 4. Piedmont argued that these allegations failed to plausibly plead an intrusion or actionable intent, or that any intrusion was reasonably offensive or objectionable. Id. The Court concluded that “it seems that the weight of authority in similar pixel tracking cases is now solidly in favor of Piedmont’s argument. There is no intrusion upon privacy when a patient voluntarily provides personally identifiable information and protected health information to his or her healthcare provider.” Id. at 5-6 (collecting cases). The Court further commented that “it is widely understood that when browsing websites, your behavior may be tracked, studied, shared, and monetized. So it may not come as much of a surprise when you see an online advertisement for fertilizer shortly after searching for information about keeping your lawn green.” Id. at 3-4.
To state claims for breach of fiduciary duty, negligence, breach of contract, and unjust enrichment, one of the elements a plaintiff much allege is damages or, relatedly, enrichment. Id. at 7-10. Plaintiffs argued that they alleged seven categories of damages, as follows: “(i) invasion of privacy, including increased spam and targeted advertising they did not ask for; (ii) loss of confidentiality; (iii) embarrassment, emotional distress, humiliation and loss of enjoyment of life; (iv) lost time and opportunity costs associated with attempting to mitigate the consequences of the disclosure of their Private Information; (v) loss of benefit of the bargain; (vi) diminution of value of Private Information and (vii) the continued and ongoing risk to their Private Information.” Id. at 9. Piedmont argued that these damages theories stemming from “the provision of encrypted information only to Facebook” were implausible. Id. at 7. The Court agreed with Piedmont, rejected all of Plaintiffs’ damages theories. Accordingly, it dismissed the remainder of Plaintiffs’ common-law claims. As the Court explained: “No facts are alleged that would explain how receiving targeted advertisements from Facebook and Piedmont would plausibly cause any of the Plaintiffs to suffer these damages. This is not a case where the Plaintiffs’ personal information was stolen by criminal hackers with malicious intent. The Plaintiffs received targeted advertisements because they are Facebook users and have Facebook IDs. The Court finds the Plaintiffs’ damages theories untenable. Indeed, this court has rejected many identical theories arising under similar circumstances.” Id. (collecting cases)
To state a claim for violation of the ECPA, also known as the federal wiretap act, a plaintiff must show an intentional interception of the contents of an electronic communication. Id. at 11. The ECPA is a one-party consent statute, meaning that there is no liability under the statute for any party to the communication “unless such communication is intercepted for the purposes of committing a criminal or tortious act in violation of the Constitution or laws of the United States or any State.” 18 U.S.C. § 2511(2)(d)); 18 U.S.C. § 2511(2)(d). Piedmont argued that it could not have intercepted the same transmission it received on its website, nor could it have acted with a tortious or criminal purpose in seeking to drive marketing and revenue. Id. at 10-11. In response, the Plaintiffs contended that they stated a plausible ECPA claim, arguing that Piedmont intercepted the contents of their PII and PHI when it acquired such information through the Meta Pixel on its website and that the party exception is inapplicable because Piedmont acted with criminal and tortious intent in “wiretapping” their PII and PHI. Id. at 11. The Court concisely concluded: “As was the case in the invasion of privacy context, the weight of persuasive authority in similar pixel tracking cases supports Piedmont’s position.” Id. at 11-12 (collecting cases).
Implications For Companies
The holding of Piedmont is a win for adtech class action defendants and should be instructive for courts around the country. While many adtech cases around the country have made it past a motion to dismiss, many have not, and, for many which continue to be filed regularly, it remains to be seen, Piedmont provides powerful precedent for any company defending against adtech class action claims for invasion of privacy, common-law claims for damages or unjust enrichment, and alleged violation of the federal wiretap act.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin
Duane Morris Takeaways: On August 21, 2024, Judge William C. Griesbach of the U.S. District Court for the Eastern District of Wisconsin joined in the fray over whether the long-used two-step process for issuing notice of a Fair Labor Standards Act (“FLSA”) collective action is consistent with the text of the statute. In Laverenz v. Pioneer Metal Finishing, LLC, No. 1:22-CV-00692 (E.D. Wis. Aug. 21, 2024), Judge Griesbach held that it is not. He ruled that in actions brought under the FLSA, plaintiffs must show by a preponderance of evidence that they are “similarly situated” to other individuals allegedly subject to the same violations of the statute in order to secure certification of a collective action. The decision in Laverenz reflects potential growing momentum among district courts toward rejecting a two-step “conditional certification” approach in favor of “one-step” standard placing the “similarly situated” burden in Plaintiff’s court at all relevant times. The ruling should be required reading for all businesses defending wage & hour litigation in the states comprising the Seventh Circuit.
Case Background
Plaintiff Amanda Laverenz filed a class and collective action lawsuit under the FLSA and Wisconsin state law alleging that Defendant Pioneer Metal Finishing, LLC (“Pioneer”) deprived her and other similarly situated hourly employees of wages through its practice of rounding employees’ time clock entries to the nearest quarter hour and paying employees based on that rounded time. Id. at 2. In connection with her proposed FLSA collective action, Plaintiff filed a motion with the Court seeking conditional certification of a collective of employees whom she claimed Pioneer subjected to the same rounding practice. Id. at 3.
As is typical, Plaintiff argued that her lawsuit should proceed immediately as a collective action by issuance of an order sending notice to include hourly-paid employees at seven of Pioneer’s divisions around the country who she claimed were similarly situated. Id. She maintained that the Court should employ a lenient two-step certification process established in 1987 by a Third Circuit district court in Lusardi v. Xerox Corp. Id.
Under the Lusardi framework, named plaintiffs need only present what courts have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step, i.e., certification of a collective action on a conditional basis. In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the court would then make a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order. Plaintiff claimed that she offered sufficient evidence of similarity and a violation of law to satisfy that standard at the conditional certification stage. Id.
Pioneer responded that the Court should follow the Fifth Circuit’s 2021 decision in Swales v. KLLM Transp. Servs., LLC, which rejected the longstanding approach developed in Lusardi. 985 F.4th 430 (5th Cir. 2021). Pioneer argued that the two-step approach “is inconsistent with the FLSA’s purpose and Seventh Circuit case law stressing the similarities of FLSA certification to Rule 23 class certification, which requires ‘rigorous’ scrutiny.” Id. at 3.
The Court’s Decision
Judge Griesbach sided with Pioneer. He adopted the Fifth Circuit’s FLSA collective certification approach in Swales and denied Plaintiff’s motion for conditional certification on August 21, 2024.
Citing a 2022 Annual Class Action Report that Gerald L. Maatman, Jr., for which this post’s co-author served as General Editor, Judge Griesbach noted that federal courts in 2021 granted FLSA conditional certification motions in 81% of rulings on such motions during the first stage of the two-step process despite – in that same year – granting 53% of FLSA decertification motions at the next stage. The Court gleaned from that data that “over half of those conditionally certified putative classes failed to survive upon a more rigorous review” and concluded, as a result, that the two-step certification process “defeats the very goal it set out to accomplish — efficiency.” Id.
The Court’s adoption of the Swales framework in Laverenz required it to assess following factors to determine whether Plaintiff sufficiently proved similarly between she and proposed opt-in plaintiffs: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to the defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations.” Id. at 15-16.
As to the first factor, the Court noted that “significant factual differences exist regarding how the [time rounding] policy affected each employee” given that “[t]he rounding benefitted some and negatively affected others.” Id. at 1. As to the second factor, the Court found that too many individualized claims remained in the matter that would necessarily involve fact-specific inquiries. Id. at 20. As to the final factor, the Court explained that “it would seem particularly inefficient and unfair to notify a broad class of employees,” given its conclusion that Plaintiff’s proposed collective action claims “involve highly individualized inquiries and defenses.” Id. Toward that end, the Court determined that “[a]uthorizing notice in a case such as this would turn a tool into a sword,” and that “[m]any a plaintiff would likely join the line, requiring Pioneer to defend dozens — possibly hundreds — more claims despite the fact that Laverenz has not even showed a violation of law.” Id. at 20.
Ultimately, the Court concluded that Plaintiff “failed to provide a sufficient basis for the court to facilitate notice to potential plaintiffs,” and denied Plaintiff’s motion for conditional certification. Id. at 20.
Implications For Employers
Our annual class action review analyzed FLSA conditional certification rates, and, in 2023, plaintiffs won 75% of first stage conditional certification motions. However, only 56% of those conditionally certified collective actions survived motions for decertification involving a more rigorous scrutiny. Our previous post on these statistics is here. Hence, the stakes are quite meaningful in terms of the approach outlined in the Laverenz ruling.
As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi standard is far more onerous than what Judge Griesbach established in this case. Full merits discovery lasting more than a year is common, as opposed to a narrowly-targeted investigation of the work performed by the plaintiffs along with facts relating to the relevant independent contractor factors. For that reason alone, employers with operations within the Seventh Circuit will be happy to know they can cite Judge Griesbach’s ruling in the future.
While no one can predict the future with any degree of certainty, it seems likely that this new legal trend regarding the collective action notice process may eventually need to be resolved by the U.S. Supreme Court.
By Meriel Kim, Gerald L. Maatman, Jr., and Jennifer A. Riley
Duane Morris Takeaways: In Raines, et al. v. U.S. Healthworks Medical Group, Case No. 19-CV-1539 (S.D. Cal. Aug. 16, 2024), Judge Dana M. Sabraw of the U.S. District Court for Southern District of California recently certified a class consisting of every applicant for a paid position who underwent a post-offer, pre-placement examination and allegedly received the employer’s health history questionnaire pursuant to Rule 23(a) and (b)(3). This case gives a warning to businesses acting as agents for employers in the on-boarding process.
Case Background
Under California’s Fair Employment and Housing Act (“FEHA”), Cal. Gov’t. Code § 12900, et seq, an employer can condition an employment offer upon the job application passing a pre-placement examination (“PPE”) only if the examinations are related to the job and consistent with business necessity. Gov’t Code 12940(e). In this case, Plaintiffs Kristina Raines and Darrick Figg, two applicants for jobs, filed a class action lawsuit alleging that the PPE involved “intrusive, highly offensive, overbroad, and unrelated” medical questions on a standardized health history questionnaire (“HHQ”), used by Defendant U.S. Healthwors Medical Group (“USHW”), an occupational health provider that acted on behalf of employers. Id. at 1.
After applying for a food service position, Plaintiff Raines allegedly answered all of the 150 questions on the HHQ and save for one she thought completely unrelated to her job duties. Id. The employer then allegedly revoked its employment offer to Raines because she refused to complete the medical examination. Id. at 3. Plaintiff Figg alleged that, like Raines, USHW directed him to complete the same HHQ for a volunteer position. Id. Figg answered all of the questions, and his employer ultimately hired him as an unpaid volunteer. Id.
In their complaint, Plaintiffs Raines and Figg claimed, individually and on behalf of putative class members, that USHW’s medical examinations: (1) violated the FEHA; (2) violated the Unruh Civil Rights Act, Cal. Civ. Code § 51, et seq.; (3) intruded on Plaintiffs’ right to seclusion; and (4) violated California’s Unfair Competition Law, Cal. Business & Professions Code § 17200, et seq. Id. Plaintiffs sought to certify a class under the FEHA against USHW consisting of 370,000 job applicants for both paid and unpaid positions who underwent a PPE and were subjected to USHW’s standardized HHQ at one of its approximately 78 facilities in California between October 23, 2017, and December 31, 2018. Id. at *4.
The Court’s Class Certification Ruling
The Court examined all prerequisites under Rule 23(a), including numerosity, commonality, typicality, and adequacy of representation. Id. at 6. The Court held that Plaintiff Raines met all of the prerequisites under Rule 23(a) but that Plaintiff Figg failed to satisfy the typicality requirement because he was not an applicant for a paid position and therefore did not attain employee status under the FEHA. Id. at 8.
The Court then examined the requirements under Rule 23(b)(3), which calls for two separate inquiries, including: (1) whether the issues of fact or law common to the class “predominate” over issues unique to individual class members; and (2) whether the proposed class action is “superior” to other methods available for adjudicating the controversy. Id. at 9. The Court found that Plaintiffs’ proposed class met both requirements and certified the class. Id. at 18.
In reaching its conclusion, the Court determined that: (1) USHW “administered the PPEs on behalf of and at the direction of employers;” (2) all class members received the same HHQ from USHW regardless of the duties or functions of the job conditionality offered; and (3) at least one question on the HHQ was not relevant to any job. Id. at 14-15. The Court held that, given such evidence, whether USHW acted on behalf of referring employers and engaged FEHA-related activities by administering a medical questionnaire could be adjudicated on a class-wide basis. Id. at *15.
The Court further ruled that Plaintiffs’ common evidence also addressed injury, causation, and damages because the alleged injury to class members was caused by their being subjected to overbroad and offensive medical inquiries from a standing HHQ in violation of § 12940(e). Id. Because Plaintiffs were pursuing only nominal and punitive damages, the Court disagreed that it would need to engage in thousands of individualized inquiries among class members to properly assess damages. Id.
Key Takeaways
This class certification ruling shows how a court can use the workers’ common evidence to resolve class-wide agency issue. Additionally, the massive number of potential class members pursuing only nominal and punitive damages convinced the Court to certify the class. The decision further implicates the potential hurdles faced by businesses acting as “agents” of referring employers in challenging putative class actions under the FEHA. Businesses acting as agents should carefully evaluate whether their practices are in compliance with FEHA as this ruling confirms that the FEHA’s definition of “employer” may include employer’s agents.
Duane Morris Takeaways: Data breach litigation is a billion-dollar industry worldwide. At the ASIAL Security Exhibition + Conference in Sydney, Australia, on August 22, 2024, Partner Alex W. Karasik of the Duane Morris Class Action Defense Group gave a highly anticipated 40-minute address, “A Deep Dive Into Data Breach Class Action Litigation.” The Conference, which had over 10,000 attendees, produced excellent dialogues on cybersecurity threats, mitigation strategies, data breach litigation, and the implications of artificial intelligence on data security.
The Conference’s robust agenda featured over 35 speakers from a wide array of backgrounds, including Australian government officials, data security industry experts, executives from blue-chip companies such as Amazon and Microsoft, and a lawyer from Chicago. In a masterful way, the agenda provided valuable insight for attendees from a broad range of backgrounds, including business owners, c-suite executives, risk officers, privacy professionals, technology start-ups, vendors, attorneys, journalists, and other individuals with interests in the tech, legal, and security industries.
I had the privilege of speaking about global data breach litigation risk, with a focus on the Unites States’ data breach class action landscape. A few of the highlights from my presentation include the following:
Data breach class action lawsuit filings doubled from over 300 in 2021 to over 600 in 2022, and then doubled again to over 1,300 in 2023. I do not expect this trend to slow down any time soon.
The last two years procured massive settlement totals, with over $515 million in 2023. Google and T-Mobile each settled data breach class actions for $350 million in the last two years. The financial exposure is enormous in data breach class action litigation.
Major U.S. Supreme Court decisions (TransUnion LLC v. Ramirez, et al., 141 S.Ct. 2190 (2021)); pending class action litigation (In Re MOVEit Customer Data Security Breach Litigation, MDL No. 3083 (J.P.M.L. Oct. 4, 2023); and the next wave of data security class action claims (stemming from the recent CrowdStrike outage) will all continue to collectively and profoundly impact the data breach class action landscape.
Low class certification rates, generally trending below 50%, provide some room for optimism for data breach class action defendants. Plus, with the large number of breaches that have now impacted a plurality of major corporations across all sectors, causation of damages is more difficult to prove than ever.
Some of the “toolkit takeaways” for businesses include: (i) implement a multi-faceted approach to data security mechanisms; (ii) develop a data security task force within the organization; (iii) provide extensive training to employees, which will need to evolve as the types of threats change; and (iv) utilize arbitration agreements with class action waivers.
Finally, one of the greatest joys of attending an international conference is the opportunity to draw on the wisdom of my fellow presenters from across the globe. Below are a few of the highlights:
“Employers cannot contract out risk.” I loved this quote from Australian government official, Justine Jones. This sentiment echoes many of my conversations with and publications prepared by U.S. EEOC Commissioner, Keith Sonderling, who has consistently noted in the artificial intelligence context that employers cannot simply point their fingers at vendors if hiring or recruiting software procures discriminatory outputs. Jones opined that even if businesses use third-parties for data security purposes, they still remain responsible.
Brett McGrath, President of the Law Society of New South Wales, provided excellent insight on what I interpreted to be “cautious optimism” from the Australian legal system in terms of embracing artificial intelligence. He discussed the creation of a task force involving judges, lawyers, academics, and technology experts. Jurisdictions in the United States – at the local, state, and federal levels – would be wise to follow suit.
Amazon’s Lindsay Maloney, Lead of Security & Loss Prevention, Australia & Singapore, highlighted hiring risks associated with different geographical markets. From my perspective, the rapid emergence of artificial intelligence laws involving employment decisions are often similar but not the same. This means American businesses likewise should take heed of where they are hiring and what technology they are using in each locale.
Philip Meyer, a Technology Strategist at Microsoft, delivered an impactful address that examined the history of ChatGPT and the future of artificial intelligence. Philip’s commentary regarding Microsoft’s commitment to providing training meshed well with my message about how companies must embrace the training process, so that artificial intelligence and data security measures are deployed ethically and in the best interests of the organization.
Brian de Caires, CEO of the ASIAL, opined on the need for consistent security standards across Australia. For those of you who follow my publications on artificial intelligence, privacy, and data security, a motif of my writings is that there is a patchwork of laws among a myriad of jurisdictions, creating a compliance minefield for employers.
Thank you to ASIAL and its incredible team, my fellow speakers, the engaging attendees, the media personnel, and all others who helped make this week in Sydney, Australia an informative and unforgettable experience “Down Under.”
For more information on the Duane Morris Class Action Group, including its Data Breach Class Action Review e-book, please click the link here.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and special counsel Rebecca Bjork with their discussion of key sanctions rulings in the past 12 months of class action litigation.
Jennifer Riley: Thank you for being here again for the next episode of our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is special counsel Rebecca Bjork. Thank you so much for being on the podcast today, Rebecca.
Rebecca Bjork: Great to be here, Jen. Thank you for having me.
Jennifer: Today we have a little different topic – we are discussing significant decisions granting or denying sanctions in class action cases. Rebecca, what are some of the reasons that a court could grant sanctions in a class action?
Rebecca: Sanctions are usually issued in response to a party violating court procedures, or abusing the judicial process in some way. They are more simply thought of as penalties. In civil cases, sanctions are typically in the form of a monetary fine. But the most extreme sanction imposed in civil cases, including class actions, can be dismissal with prejudice of the filing party’s complaint or dismissal of the answer of the responding party. In either of those cases the sanctioned party would have no further recourse available, and the case would be over with judgment entered against them.
Jennifer: Given the cost of defending a class action, corporate defendants also sometimes move for sanctions if the claims are frivolous. For instance, the Sixth Circuit issued a ruling on sanctions in Garcia, et al. v. Title Check, LLC. In that case, the plaintiff filed a class action against the defendant alleging that its buyers fee violated the Michigan General Property Tax Act. In that one, the district court had dismissed the plaintiffs’ claims, finding that the fee was not prohibited by the statute, and then the defendant moved for sanctions against the plaintiffs’ attorneys on the ground that the case was frivolous and had forced the defendant to incur unnecessary legal fees. There the district court granted the motion for sanctions, and ordered the plaintiffs’ counsel to pay attorneys’ fees and costs north of $73,000. On appeal, the Sixth Circuit then affirmed the district court’s ruling in that when the plaintiffs argued that the district court erred in imposing the sanctions because the legal issues in the case were debatable, and because the district court misunderstood Michigan law.
The Sixth Circuit, however, agreed with the district court’s conclusion that the plaintiffs’ counsel had unreasonably pursued a frivolous claim based on an implausible interpretation of the statute. The Sixth Circuit found the plaintiffs should have known that their claims lacked merit. It also rejected the plaintiffs’ argument that sanctions should have been limited to the specific filings relating to the unnecessary claims. Instead, the Sixth Circuit held that the entire action was frivolous and vexatious. For these reasons it affirmed the district court’s ruling, and imposed the sanction on the plaintiffs’ counsel.
Rebecca: A really interesting case involving sanctions. Last year in a class action was AFL-CIO v. LSRI,LLC, where the court entered more serious sanctions. The plaintiffs were two AFL-CIO locals, Local 846 and Local 847, and their employee benefit plans, and the plaintiffs filed a class action alleging that the defendant failed to pay contributions for workers covered under a labor contract for a project involving SpaceX in Cape Canaveral, Florida, in violation of ERISA. Plaintiffs further asserted, and this is important for the sanctions piece of this case, that the actual amounts that plans were owed could not be determined without an audit of the defendant’s records. So the sanctions issue arose in the case after the defendant failed to appear after being served with a complaint, and the court subsequently entered a default order against it. But then the court also ordered the defendant to submit its books, ledgers, payroll records, bank statements, other financial documents reflecting the hours worked by the defendant’s employees. The defendant did not comply with this order, so the plaintiffs moved for an order holding the defendant in contempt of court. After the defendant failed to appear at the hearing on the motion for contempt, the court granted the motion finding the defendant in contempt, and further imposed a compliance fine of $200 per day, and in addition awarded the plaintiffs’ attorneys’ fees and costs. Subsequently, the plaintiffs had to file another motion – and this is surprising – they sought the arrest of the defendant’s principal as a last resort, to obtain compliance with the court’s orders. The court concluded that the monetary sanctions had not been effective in inducing the defendant to comply, and therefore determined that the arrest of the defendant’s principal was appropriate, and so, for these reasons, the court ordered the arrest of the defendant’s principal for civil contempt.
Jennifer: That’s a great example. Rebecca. Sanctions are also deemed warranted in some cases where a party is not forthright with its discovery responses. A great example of that is in In Re Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, where death knell sanctions were imposed. The plaintiffs filed a class action alleging that the defendants violated antitrust laws by operating a monopoly, by using exclusive dealings and exclusionary product design. The plaintiffs filed a motion for sanctions asserting that the defendant Winn Dixie failed to respond to discovery. The court granted the motion, and ordered Winn Dixie to pay attorneys’ fees and costs. The court found that Winn Dixie repeatedly and consciously failed to comply with three court orders indicating that lesser sanctions would not be effective.
Rebecca: Right. Federal courts have wide discretion in calibrating sanctions orders. In 2023, a ruling in Lopez, et al. v. Fun Eats & Drinks, LLC demonstrated how sanctions can include civil contempt orders. Plaintiffs moved for contempt and an award of attorneys’ fees after the defendants violated multiple court orders. The court granted that motion, and had previously entered a final judgment against the defendants, and awarded the plaintiffs more than $538,000, plus attorneys’ fees. So the plaintiffs moved for additional attorneys’ fees, and the defendants failed to respond to the motion. The plaintiffs thereafter served post judgment discovery on the defendants, and they again failed to respond. Plaintiffs moved to compel discovery, and the defendants counsel responded by moving to withdraw as counsel of record due to the defendant’s failure to communicate with them regarding the post judgment, discovery. The court ended up denying the defendant’s motion, and granted the plaintiff’s motion to compel, and the defendants once again failed to respond, and the plaintiffs then resorted to filing their contempt motion. The court granted the motion, holding the defendants in contempt for the refusal to comply with the court’s orders and respond to the post judgment discovery, and also held the defendant’s attorney in civil contempt for his failure to appear at the show cause, hearing, as ordered by the court. So that in the end the court granted the plaintiff’s motion, and ordered the defendants and defendants counsel to pay for the plaintiff’s additional attorneys, fees in the amount of over $5,000.
Jennifer: Thanks, Rebecca, that is a great example as well. Were there any notable rulings that you can think of where sanctions were denied over the past year?
Rebecca: Well, actually, most times sanctions motions are denied, and that is simply because the moving party has not been able to demonstrate bad faith or willfulness by the other party. One example is Colucci, et al. v. Health First, Inc., where the plaintiffs allege anticompetitive practices in the acute healthcare market against the defendant. The court denied the motion for class certification due to lack of standing to represent the class, and the parties later stipulated to dismiss the case. So after that the defendant sought sanctions under Rule 11, arguing that the plaintiff’s counsel had no factual or legal support for asserting standing in the first place. This court denied the motion for sanctions, stating that the arguments in support of class certification were not lacking in evidentiary or legal support sufficient to justify an order granting sanctions, and the defendant also failed to demonstrate any improper purpose in prosecuting the case by the plaintiff’s attorneys.
Jennifer: Thanks, Rebecca, great insights and analysis. I know that these are only some of the cases that had interesting rulings on motions for sanctions over the past 12 months, and that we are apt to see some notable rulings over the remainder of 2024 as well. Rebecca, thanks for being here and to our audience listeners – thank you so much for tuning in.
By Gerald L. Maatman, Jr., Gregory Tsonis, and Ryan T. Garippo
Duane Morris Takeaways: On August 16, 2024, in Luna Vanegas, et al. v. Signet Builders, Inc., No. 23-2964, 2024 WL 3841024 (7th Cir. Aug. 16, 2024), the U.S. Court of Appeals for the Seventh Circuit found that, in a Fair Labor Standards Act (“FLSA”) collective action, a district court must have personal jurisdiction over a defendant for every single one of the would-be plaintiffs’ claims. Those plaintiffs for whom personal jurisdiction does not exist must proceed in a forum where the corporate defendant is essentially at home. This decision is a substantial win for employers and helps prevent them from being dragged into nationwide lawsuits far away from where they do most of their business.
Case Background
Signet Builders, Inc. (“Signet”) is both incorporated and headquartered in Texas, but its business spans across the nation. As part of its business, Signet employs a small subsect of its employees in Wisconsin who are primarily tasked with building livestock houses. Plaintiff Jose Ageo Luna Vanegas (“Luna Vanegas”) was one of those workers. In 2021, he sued Signet in the U.S. District Court for the Western District of Wisconsin claiming that he was not paid overtime, in violation of the FLSA. Luna Vanegas, however, did not bring his claims on an individual-plaintiff basis, but rather sought to litigate his FLSA claims on a nationwide collective action basis in an effort to magnify the scope of the litigation.
After Luna Vanegas filed his lawsuit, a complicated legal battle unfolded. Signet filed a motion to dismiss and argued that “Luna Vanegas’s work fell within a provision of the FLSA that exempts agricultural workers from its overtime requirements.” Luna Vanegas v. Signet Builders, Inc., 554 F. Supp. 3d 987, 989-90 (W.D. Wis. 2021) (citing 29 U.S.C. § 213(b)(12)). The district court held that Luna Vanegas “performed his work on farms, and the work he performed — constructing livestock containment structures — was incidental to farming,” and therefore dismissed his case. Id. at 993.
Luna Vanegas appealed that dismissal to the Seventh Circuit. It reversed the district court — holding that dismissal was premature. Luna Vanegas v. Signet Builders, Inc., 46 F. 4th 636, 645 (7th Cir. 2022). The Seventh Circuit ruled that § 213(b)(12) is an affirmative defense, and Luna Vanegas’ complaint did not contain enough facts about the agricultural nature of the work to warrant dismissal. Signet then filed a petition for writ of certiorari and asked the U.S. Supreme Court to decide the issue, which the Supreme Court declined to do. Signet Builders, Inc. v. Luna Vanegas, 144 S. Ct. 71 (2023).
With the case back at the district court, Luna Vanegas filed a motion for conditional certification, a common strategic tactic in FLSA collective actions, and sought to send notice of the lawsuit to a nationwide group of Signet’s employees. Luna Vanegas v. Signet Builders, Inc., No. 21-CV-00054, 2023 WL 5663259, at *1 (W.D. Wis. Sept. 1, 2023). Even though Signet was incorporated and headquartered in Texas, the district court held that it was fair for this notice to go out to employees across the nation, because otherwise the ruling would have “the practical effect of forcing plaintiffs to file any multi-state FLSA collective action in the defendant employer’s home forum.” Id. at *3. Signet then filed a motion for interlocutory appeal, bringing the case back to the Seventh Circuit for a second time. Id. at *4. The district court granted that request.
The Seventh Circuit’s Opinion
On appeal, the Seventh Circuit reversed the district court for the second time, but this time on personal jurisdiction grounds.
The Seventh Circuit explained that generally a plaintiff can only sue a corporate defendant in three places. First, a corporation can be sued in its state of incorporation. Second, a corporation can be sued in the state where its headquarters is located. And third, a corporation can be sued in any state where the issues connected with that particular case occurred. In this case, it was undisputed that Signet was incorporated and headquartered in Texas. It was also undisputed that only Luna Vanegas’ claims (and not the claims of other employees) arose out of Signet’s conduct in Wisconsin. Therefore, the question was whether Signet’s conduct in Wisconsin was sufficient to justify a nationwide case. The Seventh Circuit held that it was not.
Relying heavily on a recent U.S. Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Ct. of California, San Francisco Cnty., 582 U.S. 255 (2017), the Seventh Circuit held that Signet must be subject to personal jurisdiction in Wisconsin — for each and every one of the would-be opt-in plaintiffs’ claims — for the case to go forward on a nationwide basis. This rule differs from the standard in Rule 23 class actions because there, a representative plaintiff can maintain a lawsuit in a foreign jurisdiction as long as the court has jurisdiction over the named plaintiff.
The Seventh Circuit, however, reasoned that because a collective action plaintiff is not a party until they “opt in” to the litigation, FLSA collective actions are truly just “agglomerations of individual claims,” as opposed to one singular lawsuit. Luna Vanegas, 2024 WL 3841024, at *4. Further, unlike Rule 23 class actions, each party is entitled to proceed individually and “the statute of limitations on opt-in plaintiffs’ claims enjoys tolling only after the plaintiff files her consent, which goes to show the focus on a plaintiff’s own management of her claim.” Id. Consequently, the Seventh Circuit set a different standard to find personal jurisdiction in FLSA collective actions than the standard for Rule 23 class actions.
Additionally, the Seventh Circuit dispensed with a highly technical argument regarding Federal Rules of Civil Procedure 4 and 5 — holding that it did not save Luna Vanegas’ nationwide lawsuit. Luna Vanegas argued that once personal jurisdiction was established over his claims against Signet in Wisconsin, and service was validly executed pursuant to Rule 4, then he was free to add parties via service under Rule 5. However, the Seventh Circuitsuccinctly and unequivocally rejected that argument and held: “That is not how it works.” Id. at *7 (emphasis added). The Seventh Circuit explained that the Rule 5 workaround only applies if the court already has personal jurisdiction over the defendant as to the opt-in plaintiffs’ claims. Otherwise, a new summons needs to be brought in a venue where the opt-in plaintiff can establish personal jurisdiction over the company.
Implications For Employers
Although a positive development for employers, this opinion is not a “nail in the coffin” for nationwide FLSA collective actions. Indeed, the Seventh Circuit explicitly noted that “[a] nationwide collective of Signet’s workers could proceed in Texas, which enjoys general jurisdiction over Signet, with no loss of efficiency.” Id. at *9. Rather, this opinion simply states that if an employee is going to sue their employer for millions of dollars of potential liability and while asserting a nationwide collective action, they must do so in their employers’ home forum.
Corporate counsel, however, should not expect the fight to stop here. The Seventh Circuit’s opinion is consistent with recent holdings by the Courts of Appeal in the Third, Sixth, and Eight Circuits, each imposing the same personal jurisdiction requirement. Canaday v. Anthem Cos., 9 F.4th 392 (6th Cir. 2021); Fischer v. Fed. Express Corp., 42 F.4th 366 (3d Cir. 2022); Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861 (8th Cir. 2021). The issue is not entirely settled, however, as the First Circuit reached the opposite conclusion. Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84, 94 (1st Cir. 2022). Accordingly, the pending circuit split signals that this issue is ripe for consideration by the U.S. Supreme Court.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Sarah Gilbert with their discussion of key developments in litigation and legislation related to the California Private Attorneys General Act.
Jerry Maatman: Thanks, loyal blog listeners and readers for joining us on this week’s installment of the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and I’m joined by my colleague, Sarah Gilbert, of our San Diego office. Welcome, Sarah.
Sarah Gilbert: Great to be here, Jerry. Thank you.
Jerry: Today we wanted to discuss trends and important developments in state court class action, litigation. Since the decision of where to file a class action is always a strategic imperative for the plaintiff’s bar, and then, whether or not to remove it from state court to federal court. For defense counsel, class action litigation is very much like buying real estate – location, location is everything, Sarah, what are some of the considerations that you’re often speaking to your clients about in terms of state court versus federal court class action litigation.
Sarah: So, although almost all state law procedural requirements for class certification mirror Rule 23 of the federal rules. The plaintiffs’ bar often perceives state courts as having more positive predisposition towards their clients’ interests, particularly where putative class members have connections to the state and the events at issue occurred in the state where the action is filed. Beyond forum shopping between state and federal court, the plaintiffs’ bar also seeks out individual states that are believed to be more plaintiff-friendly, such as California, Georgia, Florida, Illinois, Louisiana, Massachusetts – among others – and these are actually among the leading states where plaintiffs’ lawyers file a volume of class actions. These courts are thought to have more relaxed procedural rules related to discovery, consolidation, and class certification; a lower bar for evidentiary standards; and higher than average jury awards – among other considerations – all of which incentivize forum shopping related to state class actions.
Jerry: I’ve been a lawyer 42 years, and I think at last, count, I’ve been in 48 different states defending class action litigation. And I’d have to say that although state statutory rules and regimes are based loosely on Federal Rule 23, every state approaches class action litigation a little differently, and there are nuances to the law. What do you think is important, for example, for companies operating in California to know about the nuances of California class action litigation?
Sarah: Absolutely. So, it is very important for companies in California to pay attention to California’s controversial Private Attorneys General Act – we call it the PAGA. The PAGA authorizes workers to file lawsuits, to recover civil penalties on behalf of themselves, other employees and the State of California, for state labor code violations. As of now, California is the only state to have enacted this type of law so far. However, several other states are considering their own similar private attorneys general laws, including New York, Washington, Oregon, New Jersey, and Connecticut. So it will be crucial to monitor state legislation on this topic given the impact such laws will have on class litigation strategy moving forward.
Jerry: Well, I know this has been an especially interesting year for PAGA related developments, especially following the reform legislation signed by Governor Newsom in June. And, as I understand it, after June of 2024, there’ll be a new regime in terms of how PAGA damages, PAGA procedures will take place. And although not to be applied retroactively and only into the future, it’s going to be a brand-new playing field in California. I know you’ve been working very hard on strategies for clients to deal with these changes, what would be some of the high-level points or takeaways that you think are important for clients?
Sarah: Sure. So I mean, as is clear and as you referenced, the PAGA reforms and activity are hotly contested, hotly debated in California. California is the epicenter of class actions filed in state court. It has more class action litigation than any other state. While all varieties of class-wide cases are filed in California, a high majority of those are consumer fraud and employment-related. And something I know, with all of our clients in California facing such claims, is that even where an employer’s written formal policies appear facially neutral and compliant – which is very often the case – employees may successfully seek class certification for demonstrating common issues where an employer’s practices and protocols allegedly violate the law, even if those policies, as written, appear to be compliant.
Jerry: Thanks, Sarah. You know, I think it’s very interesting – most companies think that the California Supreme Court exists to find in favor of plaintiffs. Yet in the last month it issued the Lyft decision, which has a direct ‘apples and oranges’ practical effect on PAGA litigation. As I read the opinion, it says, where an employer is facing multiple PAGA actions and settles one of them, the litigants in the other pending PAGA actions cannot parachute in, intervene and challenge the other settlement. So it makes it easier for a company to deal with PAGA litigation and to settle litigation. What are some of your thoughts on the takeaways from the California Supreme Court decision in Lyft?
Sarah: Yeah, absolutely. This was a seminal ruling came out on August 1st of this year. To give some background, in rapid succession between May to July 2018, three plaintiffs, all Lyft drivers, Olson, Seifu, and Turrieta filed separate PAGA actions alleging improper classification as independent contractors. So in 2019, Turrieta reached a $15 million settlement with Lyft, which included a payment of $5 million in attorneys’ fees. As part of the settlement, Turrieta amended her complaint to allege all PAGA claims that could have been brought against Lyft. She then filed a motion for court approval of the settlement consistent with practice. And although the LWDA did not object to the settlement, when Olson and Seifu, the other two plaintiffs, and their counsel, got wind of the settlement, they moved to intervene, and objected. The trial court denied the intervention requests, approved the settlement, and then denied motions by Olson and Seifu to vacate the judgment in the Turrieta PAGA action. The court of appeal affirmed, finding that as nonparties, Olson and Seifu lacked standing to move to vacate the judgment, as only an aggrieved party can appeal from a judgment. On the intervention issue, the Court of appeal explained that the real party interest in a PAGA action is the State of California, and thus neither Olson nor Seifu had a direct interest in the case.
The California Supreme Court then granted review to consider whether a PAGA plaintiff has the right to intervene, object to, or move to vacate a judgment in a related pocket action that purports to settle the PAGA claims that a plaintiff has brought on behalf of the State. The California Supreme Court ended up agreeing with the court of appeal and the trial court, and they made a few notable findings. The California Supreme Court noted there was nothing in the PAGA statute expressly permitting intervention, and that PAGA’s purpose to penalize employers who violate California wage & hour laws and deter such violations was well served by the settling PAGA plaintiff, thus having other PAGA plaintiffs involved in a settled PAGA claim is not necessary to effectuate PAGA’s purpose. Relatedly, the Supreme Court also found significant the fact that the PAGA statute only requires that notice of settlement be sent to the LWDA and approved by the trial court, necessarily implying that other litigants need not be informed of the settlement or otherwise involved.
The Supreme Court also noted that permitting intervention would result in a PAGA claim involving multiple sets of lawyers, all purporting to advocate for the same client, fighting over who could control the litigation and settlement process, and who could recover the attorneys, fees. The Supreme Court highlighted that PAGA plaintiffs nonetheless have a variety of options to pursue other than intervention, such as consolidation or coordination of PAGA cases, to facilitate resolution of the claims in a single proceeding; or PAGA plaintiff can offer arguments and evidence to a trial court related to the PAGA settlement; or raise his or her concerns with the LWDA, so as to spur LWDA action.
Finally, the Supreme Court then held that the same reasoning for its conclusion against a right to intervention also meant that a PAGA plaintiff has no right to move to vacate the judgment obtained by another PAGA plaintiff in a separate PAGA action, or to require that any objections he or she files to another plaintiff settlement be ruled upon.
Jerry: Thanks for that excellent overview, Sarah. I think 2024 and 2025 are going to be bellwether years in California, not only for PAGA related rulings, especially as the reform legislation is implemented, but just class action litigation in general. As our loyal blog readers and listeners know, we do an annual study called the Duane Morris Class Action Review. We download every filing, every ruling in state and federal courts throughout the United States. This morning there were 118 class actions recorded as being filed yesterday, and 40% of them were in the state of California. So California is truly the epicenter of class action litigation. Well, thanks so much for joining us on this weekly episode, Sarah, and thanks so much for your thought leadership in this space.
By Tiffany E. Alberty, Alex W. Karasik, Gerald L. Maatman, Jr., and Brandon Spurlock
Duane Morris Takeaways: On August 9, 2024, Illinois Governor J.B. Pritzker signed House Bill 3773, which amends the Illinois Human Rights Act to address an employer’s use of artificial intelligence in employment-related decisions such as recruitment, hiring, promotion, retention, and discipline if it subjects an employee to discrimination. The new law gives the Illinois Department of Human Rights (IDHR) the power to adopt any rules necessary for the implementation and enforcement of the statute, including determining rules on whether notice will be required and the timing and methods of such notice. The amendment will take effect January 1, 2026.
For employers with operations in Illinois who embrace the use of this cutting-edge technology, this new law is the latest compliance piece on a constantly evolving employment law checklist.
Background Of Amendment
The Illinois House introduced H.B. 3773 in February 2023 by legislative members looking to implement safeguards where artificial intelligence systems are used in employment-related decisions. The bill received nearly unanimous support, passing the House 106-0, and the Senate 57-0. The bill reached the governor’s desk in June 2024 and was signed before summer’s end. The bill comes on the heels of Colorado’s sweeping AI legislation enacted in May 2024 covering not only employment related decisions, but also education, financial lending, government services, healthcare services, housing and insurance. Illinois is now one of the 34 states that has either enacted or proposed legislation related to artificial intelligence. Illinois lawmakers assert that the new law is a proactive step toward preventing the unintended consequences of using AI-technology in hiring.
Legislative Revisions
In essence, the new law prohibits an employer from using artificial intelligence if it has a discriminatory effect on employees based on a protected class or uses zip codes as a proxy for a protected class, and requires employers to give notice if the employer is using artificial intelligence for the following employment related purposes:
Recruitment
Hiring
Promotion
Renewal of employment
Selection for training or apprenticeship
Discharge
Discipline
Tenure (or the terms, privileges, or conditions of employment)
See 775 ILCS 5/2-102(L)(1).
In enacting the new law, Illinois legislatures braved the murky waters of attempting to define artificial intelligence, which has proven difficult for other state legislatures that tackled this challenge, resulting in a patchwork of definitions. (See, e.g., Connecticut S.B. 1103, Louisiana S.C.R. 49, Rhode Island H 6423, Texas H.B. 2060.)
Here, the amendment defines Artificial Intelligence as:
a machine-based system that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments. . . [and] includes generative artificial intelligence.
See 775 ILCS 5/2-101(M).
It remains to be seen whether the Illinois definition will prove adequate or cause uncertainty and confusion. Importantly, the new law empowers the IDHR to “adopt any rules necessary for the implementation and enforcement of this subdivision, including, but not limited to, rules on the circumstances and conditions that require notice, the time period for providing notice, and the means for providing notice.” When the law goes into effect at the start of 2026, it will be important to monitor what rules and guidance the IDHR offers regarding implementation and enforcement.
Impact Of H.B. 3733 And Other Current And Proposed AI-Laws
As more employers incorporate artificial intelligence into their employment-related activities, it will be important to balance the benefits of using AI with the risk of running afoul of the ever evolving legal landscape, because not only is H.B. 3773 sweeping in scope, in that it impacts recruitment, hiring, promotion, retention, discipline, termination, benefits, etc., but it is also nebulous because it is not clear what it means to “ha[ve] the effect of subjecting employees to discrimination.”
Like other states across the country, Illinois lawmakers are leaning into implementing proactive measures to regulate artificial intelligence related to employment decisions despite the fact that the technology is still so new and adoption is in its early stages. The challenge for Illinois employers will be staying abreast of how these new laws and how they are interpreted and enforced.
H.B. 3773 is not the first artificial intelligence law applicable to Illinois employers. In January 2020, the Illinois Artificial Intelligence Video Interview Act went into effect, which applies to all employers that use an AI tool to analyze video interviews of applicants for positions based in Illinois. The law requires employers to notify applicants before the interview that AI may be used to analyze their video interview and obtain the applicant’s consent.
In addition to these two relatively recent AI-based laws, in February 2024, the Illinois House sent H.B. 5116 to the State Senate, which is a proposed law that would require any “deployer” of an automated decision tool to perform an impact assessment and provide that assessment to the IDHR. The deployer also will have to notify a person who is subject to a “consequential decision” that an automated decision tool is being used to make, which could be in the context of employment, education, housing, healthcare, financial services, among other decision making categories.
Implication For Employers
As AI adoption continues to expand within workplace operations, although H.B. 3773 does not take effect until January 2026, Illinois businesses would be wise to begin assessing whether their AI-systems are at risk of running afoul of the statute. Illinois employers currently using AI technology that may fall under the statute will want to work with counsel and experienced vendors to assess their systems for evidence of bias and/or discrimination. As mentioned, it also will be important for Illinois employers to monitor any directives issued by the IDHR regarding the new law, in particular with respect to any rules around notice and/or consent.
By Justin Donoho
