Colorado Federal Court Denies Class Certification Without Uniform Job Conditions In Hybrid Wage & Hour Litigation
By Gerald L. Maatman, Jr., Emilee N. Crowther, and Nicolette J. Zulli
Duane Morris Takeaways: In Levine v. Vitamin Cottage Natural Food Markets, Inc., No. 20-CV-00261, 2023 U.S. Dist. LEXIS 92027 (D. Colo. May 25, 2023), Magistrate Judge Scott T. Varholak of the U.S. District Court for the District of Colorado granted Defendant Vitamin Cottage Natural Food Markets, Inc.’s (“Vitamin Cottage”) Motion to Decertify Plaintiff’s FLSA collective action, and denied Plaintiff’s Motion for Rule 23 Class Certification. The Court’s decision in this case aptly illustrates the standards under which courts should analyze, and defendants should move, for decertification of FLSA collective actions, as well as the standards for certification of a Rule 23 class in wage & hour misclassification lawsuits. This opinion is well-worth a read by corporate counsel, as it underscores the importance of well-planned and strategic discovery in defending class and collective actions in the context of an exemption misclassification case. Furthermore, it also demonstrates the contingent relationship and outcome of concurrently filed motions to for decertification brought by defendants and motions for Rule 23 class certification brought by plaintiffs.
Case Background
Vitamin Cottage owns and operates more than 150 grocery stores in nineteen states, and employs over 3,000 individuals. Plaintiff, a former Assistant Store Manager (“ASM”) in Colorado, filed suit under the Fair Labor Standards Act (“FLSA”) and Colorado Wage Claim Act (“CWCA”) alleging improper classification of ASMs as exempt employees and denying them overtime.
In November 2020, the Court granted Plaintiff’s Motion for Conditional Certification and conditionally certified a collective action for the purposes of Plaintiff’s FLSA claims. In total, one-hundred fifty-eight (158) individuals opted-in to the collective action against Vitamin Cottage. Thereafter, Plaintiff and Vitamin Cottage conducted written discovery and depositions.
After the close of discovery, Vitamin Cottage filed a Motion to Decertify the conditionally certified collective action on the grounds that the opt-ins and Plaintiff were not similarly situated. Two months later, Plaintiff filed a Motion to for Class Certification, seeking to certify a Rule 23(b)(3) class of ASMs for the purpose of Plaintiff’s state law claims.
The Court ultimately granted Vitamin Cottage’s Motion to Decertify, and denied Plaintiff’s Motion for Class Certification.
The Court’s Decision On The Motion For Decertification
In granting Vitamin Cottage’s Motion for decertification, the Court emphasized that its review at the post-discovery decertification stage of whether workers “are similarly situated” under the FLSA is “strict.” Id. at *5. The Court evaluated the following factors in its strict “similarly situated” analysis: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations.” Id. at *5; see also Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102-05 (10th Cir. 2001) (known as the Thiessen factors).
As the basis of the suit was a misclassification claim, for the first factor, the Court conducted “a fact-intensive inquiry into the daily activities of each individual plaintiff in order to adequately identify the actual scope of Plaintiffs’ job duties to determine the extent and consequences of any disparities among them.” Id. at *10 (quoting Green v. Harbor Freight Tools USA, Inc., 888 F.Supp. 2d 1088, 1099 (D. Kan. 2012)). After noting that FLSA claims are permitted to proceed collectively “when disparities among the opt-in plaintiffs are ‘not material’ and are ‘outweighed by the similarities between those Plaintiffs,’” the Court held that the discovery responses and deposition testimony established “material disparities” that weighed against the matter “proceeding collectively.” Id. at *10-11.
While Plaintiffs argued that the disparities between the opt-ins were minor and non-material, and that the ASMs collectively spent the majority of their time on non-exempt tasks, the Court reiterated that “determining the exemption status of any given individual depends on all the facts in a particular case and demands an examination of the character of the employee’s job as a whole.” Id. at *18. Expanding on that general proposition, the Court noted “the amount of time spent performing exempt work . . . is not the sole test of whether an employee is exempt,” and analyzed the disparities that arose during discovery between potential collective members’ involvement in: (1) management (extent and type); (2) scheduling and task assignment; (3) managing and reporting store finances and performance; (4) ensuring store compliance with food safety regulations, including managing safety audits; (5) managing employee complaints and grievances; (6) directing the work of other employees; (7) hiring and firing employees. Id. at *11-16.
Ultimately, despite some uniformity (including a uniform job description, employment policies, and Vitamin Cottage’s uniform policy of classifying ASMs as non-exempt), the Court stressed that “the decertification analysis must turn on whether the [collective action] members were actually performing similar duties,” and where opt-ins “effectively disavow the job descriptions as not reflective of their day-to-day responsibilities,” opt-ins “may not rely on the job description itself as generalized evidence of the scope and similarity of their daily activities.” Id. at *20. As such, the Court held that the disparate factual and employment settings of the individual opt-in ASMs weighed in favor of decertification. Id. at *22.
The Court also found that the second factor weighed in favor of decertification, as the application of the defenses denied on each Plaintiff’s specific job duties, and Plaintiffs failed to establish that they were “similarly situated.” Id. at *22-23. Finally, as to the third factor, “[b]ased on the material disparities within and among the opt-in’s discovery responses and deposition testimonies . . . individualized defenses and credibility concerns would result in at least dozens of the type of ‘mini-trials’ that undercut the efficacy and fairness of a collective action.” Id. at *24. Thus, for the same reasons as the Court found in considering the first and second factors, the Court found that the fairness and procedural considerations weighed against proceeding collectively, and granted Vitamin Cottage’s Motion to for decertification. Id.
The Court’s Decision On The Motion For Rule 23 Class Certification
In denying Plaintiff’s Rule 23(b)(3) Motion for class certification, the Court conducted a “rigorous analysis” under both Rule 23(a) and 23(b)(3), relying, in large part, on its findings in granting Vitamin Cottage’s Motion for decertification of Plaintiff’s FLSA claim. For starters, the Court cited the seminal ruling of Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011).
Here, Plaintiff sought to certify a class for his unpaid overtime claim under CWCA. The Court noted that relevant state exemptions are similar, but not identical, to the FLSA exemptions discussed in the context of a Motion for decertification, and therefore required a separate, fact-intensive inquiry into the daily activities of an employee.
In considering the issue of commonality under Rule 23(a) together with the requirement of predominance under Rule 23(b)(3), the Court focused on whether the questions of law or fact common to class members predominated over any questions affecting only individual members, such that a class action would be superior to other available methods for fairly and efficiently resolving the controversy.
The Court held that while Vitamin Cottage’s uniform exemption policy showed that it considered the employees to be similar to at least some degree, a blanket exemption policy does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties in the context of a misclassification claim.
Relying primarily on the briefing and exhibits associated with the Motion for decertification and the executive exemption as an illustration, the Court likewise found there were disparities in putative class members’ “supervisory” duties and hiring and firing authority.
In discussing the final element of the executive exemption, the Court noted an important difference between the Colorado executive exemption and the FLSA executive exemption: Whereas time spent performing exempt duties is not a dispositive element under the FLSA exemption, the Colorado executive exemption expressly requires the employees spend a minimum of 50% of the workweek in duties directly related to the supervision in order to qualify as exempt. Based on the evidence (i.e., deposition testimony and written discovery), the Court held there were plainly material disparities among the class members regarding the degree to which their day-to-day duties as ASMs involved supervisory or management-related objectives.
The Court reasoned that these material disparities went to the heart of liability in this matter – whether the class members were classified properly. And for that reason, the question of exemption was not capable of class-wide resolution. It further opined that due to the centrality of this question in the context of this case, whether other issues in the matter were capable of producing class-wide answers did not matter, as those issues did not predominate over the individualized question of whether each ASM was properly classified under Colorado law.
Ultimately, the Court held that for the same reasons it granted Vitamin Cottage’s Motion for decertification, Plaintiff did not meet his Rule 23 burden by relying on Vitamin Cottage’s common policies and procedures or uniform job description for ASMs.
Implications For Employers
The decision in Levine precisely delineates the standards for decertification of FLSA actions and certification of state law corollary class action claims. It also highlights the symbiotic nature of its analysis of these actions in the misclassification context and the important role that discovery plays in driving the outcome.
The Levine decision provides helpful guidance for employers that general uniform policies and procedures, such as the exemption policy analyzed by the Court in this case, are not enough to show that putative class or collective action members are actually performing similar duties. In order to withstand the Court’s “rigorous analysis,” an employer’s written discovery, such as interrogatory answers, and deposition testimony of putative class or collective action members must reflect that the specific duties and responsibilities of the putative class or collective action members at issue are uniform across-the-board.
Federal Court Bars Job Applicant and Employee Lawsuits For Recreational Marijuana-Based Adverse Action in New Jersey, But Calls For Legislative Action
By Gerald L. Maatman, Jr., Brad A. Molotsky, and Gregory S. Slotnick
Duane Morris Takeaways: In Zanetich v. Walmart, Inc., Case No. 1:22-CV-05387 (D.N.J. May 25, 2023), a case of first impression, the Judge Christine O’Hearn of the U.S. District Court for the District of New Jersey found the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (“CREAMMA”), the 2021 law legalizing recreational marijuana use in the state, does not allow job applicants and employees to file lawsuits alleging adverse actions based on marijuana use. The ruling is a boon for employers across New Jersey, who will not face the possibility of private lawsuits filed by applicants and employees based on adverse employment actions by employers for their workers’ off-duty marijuana use. However, the victory may be short-lived, as the Court invited re-examination of the law by way of legislative amendment, enforcement guidance, or New Jersey state court clarity on application of the state’s common law “failure to hire” theory to claims under the CREAMMA.
Case Background
On January 21, 2022, the plaintiff applied for a job with defendants in the Asset Protection Department in one of defendants’ New Jersey locations. A few days after his January 25, 2022 interview, on January 28, 2022, defendants offered plaintiff the job, beginning on February 7, 2022, “subject to him submitting to and passing a drug test.” Id. at 2. Plaintiff alleged that at the time, the defendants had a Drug & Alcohol Policy that stated “any applicant or associate who tests positive for illegal drug use may be ineligible for employment,” which included marijuana. Id.
After plaintiff took a drug test on January 21, 2022 and tested positive for marijuana, he contacted defendants on February 10, 2022 for an update on his application. Two days later, defendants informed Plaintiff that his job offer would be rescinded. When plaintiff asked for the reason for this decision, he was advised it was because he had tested positive for marijuana.
On June 13, 2022, plaintiff filed a class action lawsuit on behalf of himself and others similarly situated asserting two claims, including: (i) violation of the CREAMMA; and (ii) failure to hire and/or termination in violation of New Jersey public policy.
The defendants filed a motion to dismiss the complaint, arguing that the CREAMMA does not provide a private right of action and that New Jersey common law does not recognize a cause of action based on an employer’s failure to hire. In response, the plaintiff argued that the CREAMMA provides for an implied private cause of action and that his common law cause of action was cognizable as both a wrongful termination and failure to hire.
The Court granted the defendants’ motion in its entirety, dismissing both claims.
The Court’s Ruling
The Court noted the parties agreed there is no explicit private cause of action in the CREAMMA and undertook a three-part analysis to determine whether the CREAMMA included an implied private cause of action.
First, the Court held that the CREAMMA’s focus was on regulating the manufacture, sale, and use of marijuana in NJ – not expanding employment rights for applicants and employees. However, it ultimately read the statute liberally to include plaintiff in the class of persons for whose special benefit the statute was enacted. This factor, the Court concluded, weighed in favor of an implied private cause of action.
Second, the Court looked to legislative intent. It reasoned that other employment statutes adopted by the NJ legislature, such as the Conscientious Employee Protection and the New Jersey Law Against Discrimination, explicitly provide for a private cause of action. The Court found that the other employment statutes also expressly provide for a remedy, and that the CREAMMA did not provide either, which weighed against a private cause of action. The Court opined that unlike the CREAMMA and the New Jersey Cannabis Regulatory Commission (“CRC”), cases from other states finding an implied private cause of action in similar employment-related provisions in other state’s medical marijuana statutes involved statutes that are distinct in that no agency or commission was created and tasked with enforcement of the statute. In other words, creation of the CRC and tasking it to handle all aspects of enforcing the CREAMMA differentiated New Jersey from the other states.
Third, the Court determined that the legislative scheme of the CREAMMA does not support an inference that it provides an implied private cause of action given its delegation of authority to the CRC to create regulations and enforce violations. As such, the Court dismissed plaintiff’s CREAMMA claim.
Finally, the Court held that New Jersey common law does not provide a cause of action for failure to hire, and that plaintiff was only offered a job subject to his passing a drug test; he was never employed by defendants. Since plaintiff was never employed by defendants, the Court concluded that he failed to state a wrongful discharge claim because a failure to hire claim cannot support a common law wrongful discharge claim under New Jersey law.
Implications Of The Decision
For the moment, businesses in New Jersey have a viable defense to individual or class action claims brought by recreational marijuana users for adverse actions taken against them due to their use. This includes the ability to rescind conditional job offers to applicants who fail a drug test for marijuana. However, the Court noted that its decision left the plaintiff without a remedy and rendered the language of the CREAMMA employment provision at issue “meaningless.” The Court called on the New Jersey legislature, the CRC, or the New Jersey Supreme Court to act. The Court even mapped out suggestions to allow workers to sue for remedial relief, including: (i) amending the law; (ii) adopting regulations allowing the CRC to enforce the provision; or (iii) issuance of a New Jersey Supreme Court decision finding it appropriate to depart from prior New Jersey common law rejecting failure to hire claims based on the CREAMMA’s statutory language. In fact, shortly after the Court published its opinion, plaintiff appealed the decision to the Third Circuit Court of Appeals. As a result, New Jersey-based employers should stay tuned to the appeal and proceed with caution before taking adverse action based on applicant or employee recreational marijuana use.
Seventh Circuit Explains How “Unusual” Circumstances May Require Defendants To Pay Class Action Notification Costs
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Jeffrey R. Zohn
Duane Morris Takeaways: While the general rule is that a plaintiff in a class action bears the financial burden of notifying the class, that rule is not absolute. In some unusual circumstances, the district court may shift the burden of paying for class notice to defendants, according to the U.S. Court of Appeals for the Seventh Circuit. That unusual circumstance recently occurred in Bakov, et al. v. Consolidated World Travel, Inc., Case No. 21-2653, 2023 WL 3558175 (7th Cir. May 19, 2023). The Seventh Circuit explained that when a district court revisits class certifications decisions after it has determined liability, it may shift the financial burden of notifying the class to the defendant. In Bakov, the Seventh Circuit determined that the district court properly revisited class certification in light of a new law that effectively expanded the scope of the class and did not abuse its discretion when it required the Defendant to pay for class notification.
TCPA Background
Passed in 1991, the Telephone Consumer Protection Act (“TCPA”) was Congress’ response to “voluminous consumer complaints about abuses of telephone technology.” Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 370-71 (2012). Specifically, the TCPA aimed to eliminate the onset of automated devices that played pre-recorded sales pitches at a rate well beyond what even the most efficient telemarketers could accomplish. In light of the rapidly evolving technology and clever attempts at bypassing TCPA restrictions, the federal government has amended the TCPA numerous time. For instance, in 2012, TCPA rules changed to require telemarketers to obtain consent before robocalling, to no longer allow telemarketers to use an established business relationship to avoid getting consent from consumers, and to require telemarketers to provide an automated opt-out mechanism during each robocall.
In the over 30 years since Congress enacted the TCPA, consumers continue to regularly file TCPA complaints with the Federal Communications Commission and class actions before federal courts across the country.
Case Background
In Bakov, Plaintiffs asserted that Defendant violated the TCPA by calling class members using pre-recorded voice messages, a practice the law expressly prohibits. Defendants employed a company based in India to call millions of people across the United States to offer them free cruises. The India-based agents would communicate by using a sound board with 47 pre-recorded prompts. Defendant paid that company a commission for each call that it successfully transferred to Defendant.
Judge Harry Leinenweber of the U.S. District Court for the Northern District of Illinois initially certified a class of people who resided in Illinois while denying a nationwide class. He held that the district court did not have personal jurisdiction over non-Illinois resident class members, pursuant to the Supreme Court’s opinion in Bristol-Myers Squibb Co. v. Superior Court of California, 582 U.S. 255 (2017). Shortly after this ruling, however, the Seventh Circuit issued a contrary ruling in Mussat v. IQVIA, Inc., 953 F.3d 441, 443 (7th Cir. 2020). In Mussat, the Seventh Circuit held that “the principles announced in Bristol-Myers do not apply to the case of a nationwide class action filed in federal court under a federal statute.” Bakov, at *1. This undercut the reasoning behind the district court’s decision to limit the class to Illinois residents. As a result, the district court re-opened that question and ultimately certified a nationwide class.
As is the case with any class action, under Rule 23(c)(3)(B), the new class members were entitled to notice and an opportunity to opt out. The district court held that Defendant was required to bear the costs of providing notice to the nationwide class because Defendant’s liability already had been established.
Defendant subsequently filed an interlocutory appeal on this issue to the Seventh Circuit.
Seventh Circuit Ruling
The Seventh Circuit succinctly summarized the issue before it — what authority do district courts have to impose the cost of class notice on a defendant that already has been found liable to the class? In most circumstances, it explained, none. However, under the “unusual” circumstances of this case, the Seventh Circuit held that the district court did not abuse its discretion when it assigned class notice costs to Defendant.
The difference between this unusual case and the more typical class action is that, here, after certifying the class and proceeding to the merits, the law changed in a way that expanded the class. The district court revisited the issue and enlarged the size of the class consistent with the new law. As a result of the atypical order of ruling on the class and the merits, the Seventh Circuit opined that the district court did not abuse its discretion in holding that the Defendant must bear the cost of notice to the class.
Ordinarily, the rule is that a plaintiff must initially bear the cost of notice to the class because “it is he who seeks to maintain the suit as a class action and to represent other members of his class.” Id. at *2. However, this ordinary rule leaves room for district courts to tailor the allocation of costs to the specifics of a case. Each case must be assessed on its own.
The Seventh Circuit reasoned that the facts presented to the court in this case are the precise reasons why the ordinary rule is not an absolute rule. Here, the district court had made its liability determination after it had a certified a class of Illinois residents, but before class certification and the necessary notice had been given to the non-Illinois class members. While rare, a district court may revisit class certification decisions after it has determined liability. In these situations, a district court has the discretion to shift notice costs to defendants, as it did here.
Implications For Corporate Defendants
The Bakov decision is an important reminder that the law is not static. While very few cases will ever have to deal with this precise issue, it is likely that the law will change in a material way during the pendency of an ongoing matter. For that reason, it continues to be important for all companies facing class action litigation.
Georgia Federal Court Green Lights EEOC Lawsuit For Constructive Discharge Dismissal Based On Threat Of Future Sexual Harassment
By Gerald L. Maatman, Jr., Alex W. Karasik, and Shaina Wolfe
Duane Morris Takeaways: In EEOC v. American Security Associates, Inc., No. 1:21-CV-3870 (N.D. Ga. May 23, 2023), a federal district court in Georgia denied an employer’s motion to dismiss a constructive discharge claim, holding that comments made by the company’s owner regarding how Plaintiff can expect future sexual harassment were sufficient to establish a pervasive environment of intolerable working conditions. Employers who are defending against EEOC-initiated constructive discharge claims can learn valuable lessons from this ruling in terms of how courts may assess comments about harassment that is threatened in the future.
Case Background
The EEOC filed suit on behalf of a former female security officer (the “Claimant”) who worked for Defendant American Security Associates, Inc. (“ASA”). In April 2017, one of the Claimant’s male co-workers sexually harassed her by making lewd sexual statements and touching her in an unwelcome and inappropriate manner. After reporting this conduct to her supervisor and one of ASA’s owners, in June 2017, ASA reportedly reduced her hourly pay rate from $12 per hour to $10 per hour. ASA allegedly told the Claimant that she should expect harassment because of her appearance, and refused to remedy the situation. Id. at 1-2. The Claimant ultimately resigned, alleging that she was being required to accept future harassment as a condition of her employment.
After the Claimant filed an administrate charge, and the EEOC ultimately a filed lawsuit on her behalf, ASA moved to dismiss. On April 27, 2022, the Magistrate Judge issued a non-final Report and Recommendation (“R&R”), in which he recommended the District Judge grant in part and deny in part ASA’s motion to dismiss. In relevant part, the Magistrate Judge recommended that the EEOC amend the complaint to set forth the factual basis for the constructive discharge allegations.
On October 26, 2022, the Magistrate Judge issued an additional R&R recommending that the District Judge grant ASA’s motion to dismiss the constructive discharge claim because it failed as a matter of law. Id. at 5. The Magistrate Judge determined that the EEOC failed to allege that the Claimant was subjected to an ongoing, active pattern of sexual harassment, and therefore failed to meet a necessary element of that claim. Id. at 5-6. On November 9, 2022, the EEOC filed timely Rule 72 objections to the R&R.
The Court’s Decision
On Rule 72 review, the Court sustained the EEOC’s objections to the R&R and denied ASA’s motion to dismiss. First, the Court explained that to state a claim for constructive discharge, the Commission must allege facts to plausibly show that the conditions of employment were so unbearable that a reasonable person would be compelled to resign. Id. at 10. As to this point, the Court found that the Magistrate Judge improperly drew his conclusions from facts alleged in the original complaint, and not the amended complaint, which was the operative pleading.
The EEOC also contended that the R&R subjected the amended complaint to a heightened pleading standard because it failed to consider allegations in the light most favorable to the EEOC. Id. at 12. The Court held that that Magistrate Judge heavily relied on the unsupported assumption that the Claimant was not being actively subjected to any harassment at the time of her resignation. The Court also disagreed with the R&R’s holding that speculation about future harassment from co-workers was “insufficient” to amount to the “intolerable conditions” standard. Id. at 13. The Court opined that the Magistrate Judge again relied on facts not alleged in the amended complaint.
Finally, the Court held that statements made by ASA’s owner established a severe and pervasive environment of intolerable working conditions. Id. at 14-15. The Court determined that the Claimant’s frequent complaints to various supervisors did not deter the offensive behavior. After the Claimant complained to the owner, his responsive comments implied that the Claimant was almost certain to receive future sexual harassment, and potentially, physical attacks. The Court thus held that the Claimant’s psychological well-being is a term, condition or privilege of employment within the meaning of Title VII. Therefore, the Court sustained the EEOC’s objections to the R&R, and denied ASA’s motion to dismiss.
Implications For Employers
For employers that are confronted with EEOC-initiated litigation, this ruling is instructive from both procedural and substantive perspectives. Procedurally, this ruling makes clear that courts should consider the allegations from an operative complaint when evaluating a motion to dismiss. Substantively, employers should take note that the Court relied heavily on comments that the owner made about potential future harm, which ultimately was part of the Court’s basis for not dismissing the constructive discharge claim.
The Class Action Weekly Wire – Episode Fourteen: ERISA Class Actions
New Jersey Determines That Class Action Waiver Untethered To An Arbitration Agreement Is Unenforceable
By Eden Anderson and Rebecca Bjork
Duane Morris Takeaway: In Pace, et al. v. Hamilton Cove, Case No. A-0674-22 (N.J. Super. Ct. App. Div. May 18, 2023), the New Jersey Superior Court, Appellate Division, found a class action waiver unenforceable without an explicit arbitration clause in a lease agreement. The ruling should be a required read for businesses trying to implement an enforceable class action waiver, as it demonstrates why it is necessary to include such a provision in a contract that includes an arbitration clause.
Case Background
Two tenants of a residential apartment complex filed a putative class action against their landlord alleging claims of common law fraud and for violation of New Jersey’s Consumer Fraud Act (CFA). The tenants alleged that the landlord made false promises concerning the amount of security that would be provided at the complex, which was located in a high crime area. The advertisements for the complex promised that it would have “elevated, 24/7 security.” Id. at 3. Specifically, during a tour of the apartment complex, the plaintiffs were assured that there would be in person security stationed near building entrances day and night.
The plaintiffs contended that despite the promises made by the defendants, the sole security was a front desk greeter who were present only during regular business hours and was often not stationed at the desk at all. The plaintiffs asserted that they relied upon the representations made by the defendant when selecting and moving into the apartment complex, that defendants engaged in an unconscionable business practice in violation of the CFA, and that tenants overpaid for the apartments because they did not receive the full value promised, constituting an ascertainable loss. Id. The tenants’ lease included a class action waiver, but no mandatory arbitration clause.
The defendants filed a motion to dismiss for failure to state a claim, or in the alternative, to strike the class allegations. The defendants stated that the leases were not contracts of adhesion and that the class action waivers included in the lease agreements were valid and enforceable. The plaintiffs argued the leases were contracts of adhesion, the class action waivers were unconscionable, and the case law supporting the enforceability of class action waivers was inapplicable to this case.
The trial court denied the defendants’ motion. On the defendants’ appeal, the New Jersey Appellate Division affirmed the trial court’s ruling.
The Court’s Ruling
The Appellate Division acknowledged state and federal precedent upholding the enforceability of class action waivers in arbitration agreements, including the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). The Appellate Division stated that an arbitration agreement necessarily involves a waiver of a party’s right to have claims litigated in court, and here, in contrast, there was no agreement to arbitrate contractual disputes. The Appellate Division held, however, that the policies favoring arbitration and encouraging enforcement of arbitration agreements, as expressed in the Federal Arbitration Act and the New Jersey Arbitration Act, are irrelevant when an arbitration agreement is not at issue.
Instead, the Appellate Division determined that New Jersey’s policy favoring class actions applied, and that “there is no societal interest in enforcing a class action waiver in a contract that does not contain a mandatory arbitration provision.” Id. at 15. Accordingly, the Appellate Division determined that the plaintiffs were not bound to arbitration and were free to litigate their claims in court.
Implications Of The Decision
Any business trying to implement an enforceable class action waiver should include such a provision in a contract that includes an arbitration clause. Had the landlord here included an arbitration clause in its lease, the outcome of the case may have been very different and class litigation avoided.
A Stellar Review For The Duane Morris Class Action Review – 2023
By Gerald L. Maatman, Jr. and Jennifer A. Riley
Duane Morris Takeaway: In its review of the Duane Morris Class Action Review – 2023, EPLiC Magazine called it the “the Bible” on class action litigation and an essential desk reference for business executives, corporate counsel, and human resources professionals.
We are humbled and honored by the recent review of the first edition of the Duane Morris Class Action Review – 2023 by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here.
EPLiC said that “The Review must-have resource for in-depth analysis of class actions in general and workplace litigation in particular.”
EPLiC continued that “The Duane Morris Class Action Review analyzes class action trends, decisions, and settlements in all areas impacting Corporate America. The Review also highlights key rulings on attorneys’ fee awards in class actions, motions granting and denying sanctions in class actions, and the top class action settlement in a myriad of substantive areas. Finally, the Review provides insight as to what companies and corporate counsel can expect to see in 2023 in terms of filings by the plaintiffs’ class action bar.”
So how was it done?
The answer is pretty simple – we live, eat, and breathe class action law 24/7/365.
Every day, morning and evening, we check the previous day’s filings of class action rulings relative to antitrust class actions, appeals in class actions, arbitration issues in class actions, Class Action Fairness Act issues in class actions, civil rights class actions, consumer fraud class actions, data breach class actions, EEOC-initiated litigation, employment discrimination class actions, Employee Retirement Income Security Act class actions, Fair Credit Reporting Act class actions, wage & hour class actions, labor class actions, privacy class actions, procedural issues in class actions, product liability & mass tort class actions, Racketeer Influenced and Corrupt Organization Act class actions, securities fraud class actions, settlement issues in class actions, state court class actions, Telephone Consumer Protection Act class actions, and Worker Adjustment and Retraining Act class actions. We conduct searches on a national basis, in federal courts and all 50 states. Then we read and analyze every ruling on Rule 23 certification motions and subsidiary issues throughout federal and state trial and appellate courts. The information is organized in our customized database, which is used to provide the Review’s one-of-a-kind analysis and commentary.
The result is a compendium of class action law unlike any other. Thanks for the kudos EPLiC – we sincerely appreciate it!
We look forward to providing the 2024 Review to all of our loyal readers in early January. In the meantime, look for our first-ever Mid-Year Update coming at the beginning of July!
Sixth Circuit Adopts Heightened Standard For Certification Of FLSA Collective Actions
By Gerald L. Maatman, Jr., Jennifer A. Riley and Kathryn R. Brown
Duane Morris Takeaways: In Clark v. A&L Homecare and Training Center, LLC, Nos. 22-3101, 3102 & 2023 WL 3559657 (6th Cir. May 19, 2023) a split three judge-panel for the U.S. Court of Appeals for the Sixth Circuit held that in actions brought under the Fair Labor Standards Act (FLSA), plaintiffs must show a “strong likelihood” of being “similarly situated” to other individuals allegedly subject to the same violations of the statute in order to secure certification of a collective action. The ruling should be a required read for companies involved in wage & hour litigation.
The new approach announced by the Sixth Circuit disrupts the plaintiff-friendly framework courts have applied for years to conditionally certify FLSA collective actions based on minimal evidence. As the majority of the panel recognized, a court’s decision to issue notice in an FLSA collective action has the potential to expand the scope and cost of discovery to such a degree that defendants are compelled to settle, regardless of the merits of the claims at issue. The “strong likelihood” standard gives district courts greater authority to test a plaintiff’s assertions of similarity before approving notice in an FLSA collective action. As such, the ruling has major consequences for litigants in the Sixth Circuit, which covers Ohio, Kentucky, Tennessee and Michigan.
Case Background
The named plaintiffs brought a putative collective action under the FLSA against their former employer and its owners, challenging pay practices they alleged ran afoul of the FLSA’s overtime and minimum wage requirements. The named plaintiffs filed a motion with the district court seeking conditional certification of three collective actions of employees alleged to have been subject to the same pay practices. In an August 4, 2021 opinion, the district court granted plaintiffs’ motion as to two of the three proposed collective actions. Holder v. A&L Home Care & Training Ctr., LLC, 552 F. Supp. 3d 731, 740 (S.D. Ohio 2021). In conditionally certifying two collective actions, the district court applied the oft-used two-step framework set forth in Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987).
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 district court makes a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order.
The district court acknowledged that the Fifth Circuit in Swales v. KLLM Transport Services, L.L.C., 985 F.3d 430, 443 (5th Cir. 2021), had rejected the Lusardi approach in favor of “rigorous” enforcement of the similarity requirement in a single step, after a period of preliminary discovery. The Sixth Circuit declined to follow suit. Recognizing district courts’ need for guidance on the standard for sanctioning notice to putative opt-in plaintiffs in FLSA cases, however, the district court certified its decision for immediate interlocutory review by the Sixth Circuit under 28 U.S.C. § 1292(b). The Sixth Circuit accepted the appeal in order to address, for the first time, the legal issue of what a plaintiff needs to show in order to convince a court to allow notice to others of their ability to join the plaintiff’s FLSA lawsuit.
The Sixth Circuit’s Decision
The two-judge majority of the Sixth Circuit panel rejected both the Lusardi approach and the Swales approach. Judges Kethledge and Bush endorsed a “strong likelihood” standard as the new framework to guide courts in the Sixth Circuit. In an opinion concurring in part and dissenting in part, Judge White denounced the single-step approach in Swales and criticized the Lusardi approach as flawed, but found it unnecessary to adopt a new standard.
The majority opinion suggests that the new standard involves two steps. Writing for the two-judge majority, Judge Kethledge analogized the showing of similarity required under the new standard to what a movant must show to secure a preliminary injunction, i.e., that, to a certain degree of probability, the movant will prevail on the underlying issue when the court makes its final decision whether to enjoin or not. Judge Kethledge’s opinion focuses on the first step, which requires a named plaintiff to show it is strongly likely that members of the putative collective action are “in fact similarly situated” to the named plaintiff, without stating the contours of the second step. The opinion cautions district courts to “expedite” ruling on motions for such notice in FLSA cases in light of the general two-year statute of limitations period for FLSA claims. See 29 U.S.C. § 255(a).
Importantly, as to what district courts should consider in applying the new standard, the three judges on the Sixth Circuit panel found common ground. The panel agreed that district courts should consider the impact of the different defenses to which potential members of the collective action may be subject in making the notice determination. For example, whether some potential plaintiffs signed arbitration agreements and whether the statute of limitations would bar some potential plaintiffs’ claims are fair game in a district court’s decision whether to allow notice.
The two-judge majority of the panel vacated the district court’s August 2021 order and remanded for the district court to apply the new standard of “strong likelihood” of similarity to the named plaintiffs’ motion to notify members of the putative collectives.
Implications For Employers
The A&L Homecare decision is consequential because it ushers in a new, more defense-friendly threshold for sanctioning notice of a putative FLSA collective action lawsuit. Plaintiffs litigating FLSA cases in the Sixth Circuit face a heavier burden to show they are similarly situated to the individuals they seek to notify of the lawsuit. The ruling is also significant because it confirms that district courts should account for defenses that potentially differentiate the named plaintiffs from the putative opt-in plaintiffs in deciding whether the named plaintiffs have satisfied their burden to issue notice.
In A&L Homecare, the Sixth Circuit becomes the latest federal appellate court to abandon the long-used two-step approach set forth in Lusardi. Just a month ago, in Matthews v. USA Today Sports Media Group, LLC, et al., No. 1:22-CV-1307 (E.D. Va.), a district court in the Fourth Circuit followed the Fifth Circuit’s approach in Swales, as we previously reported.
The absence of a unified approach among federal courts to the question of notice in collective actions derives in part from the FLSA statute itself. The statute contemplates that “similarly situated” others may join a lawsuit asserting claims under the FLSA, but says nothing about the process by which they may do so. See 29 U.S.C. § 216(b).
It remains to be seen whether other federal courts will abandon the plaintiff-friendly approach of Lusardi in favor of the one-step standard in Swales, the “strong likelihood” standard in A&L Homecare, or yet another standard. Given the disparate approaches of federal district and appellate courts, the legal question of a plaintiff’s showing of similarity to members of a putative collective action may well land on the Supreme Court’s docket.
EEOC Issues New Resource On Artificial Intelligence Use In Employment Decisions
By Alex W. Karasik and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On May 18, 2023, the EEOC released a technical assistance document, “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964,” (hereinafter, the “Resource”) to provide employers guidance on preventing discrimination when utilizing artificial intelligence. For employers who are contemplating whether to use artificial intelligence in employment matters such as selecting new employees, monitoring performance, and determining pay or promotions, this report is a “must-read” in terms of implementing safeguards to comply with civil rights laws.
Background
As the EEOC is well-aware, employers now have a wide variety of algorithmic decision-making tools available to assist them in making employment decisions, including recruitment, hiring, retention, promotion, transfer, performance monitoring, demotion, dismissal, and referral. Employers increasingly utilize these tools in an attempt to save time and effort, increase objectivity, optimize employee performance, or decrease bias. The EEOC’s Resource seeks to inform employers how to monitor the newer algorithmic decision-making tools and ensure compliance with Title VII.
To set the parameters for the Resource, the EEOC first defines a few key terms:
- Software: Broadly, “software” refers to information technology programs or procedures that provide instructions to a computer on how to perform a given task or function.
- Algorithm: Generally, an “algorithm” is a set of instructions that can be followed by a computer to accomplish some end.
- Artificial Intelligence: In the employment context, using AI has typically meant that the developer relies partly on the computer’s own analysis of data to determine which criteria to use when making decisions. AI may include machine learning, computer vision, natural language processing and understanding, intelligent decision support systems, and autonomous systems.
Taken together, employers sometimes utilize different types of software that incorporate algorithmic decision-making at a number of stages of the employment process. Some of the examples provided by the EEOC in terms of how employers can utilize artificial intelligence include: resume scanners that prioritize applications using certain keywords; employee monitoring software that rates employees on the basis of their keystrokes; “virtual assistants” or “chatbots” that ask job candidates about their qualifications and reject candidates who do not meet pre-defined requirements; video interviewing software that evaluates candidates based on their speech patterns and facial expressions; and testing software that provides “job fit” scores for applicants or employees regarding their personalities, aptitudes, cognitive skills, or perceived “cultural fit,” which is typically based on their performance on a game or on a more traditional test.
“Questions And Answers” About AI
After summarizing the pertinent provisions of Title VII, the heart of the EEOC’s Resource is presented in a question and answer format. First, the EEOC defines a “selection procedure” to be any “measure, combination of measures, or procedure” if it is used as a basis for an employment decision. Employers can assess whether a selection procedure has an adverse impact on a particular protected group by checking whether use of the procedure causes a selection rate for individuals in the group that is “substantially” less than the selection rate for individuals in another group. If there is an adverse impact, then use of the tool will run afoul of Title VII unless the employer can demonstrate that, pursuant to Title VII, such use is “job related and consistent with business necessity.”
The EEOC then posits the critical question of whether an employer is responsible under Title VII for its use of algorithmic decision-making tools even if the tools are designed or administered by another entity, such as a software vendor. This is an important issue since many companies seek the assistance of third-party technologies to facilitate some of their employment-decision processes. The EEOC indicates that “in many cases, yes,” employers are responsible for the actions of their agents, such as third-party vendors. Ultimately, if the employer is making the final employment decision, the buck would likely stop with the employer in terms of Title VII liability .
The EEOC also defines the term, “selection rate,” which refers to the proportion of applicants or candidates who are hired, promoted, or otherwise selected. The selection rate for a group of applicants or candidates is calculated by dividing the number of persons hired, promoted, or otherwise selected from the group by the total number of candidates in that group. By virtue of including this definition in the Resource, a reading of the tea leaves suggests that the EEOC will be monitoring selection rates to determine whether there is an adverse impact in employment decisions that were catalyze from the use of artificial intelligence.
In terms of what is an acceptable selection rate, the EEOC relies on the “four-fifths rule,” which is a general rule of thumb for determining whether the selection rate for one group is “substantially” different than the selection rate of another group. The rule states that one rate is substantially different than another if their ratio is less than four-fifths (or 80%). For example, if the selection rate for Black applicants was 30% and the selection rate for White applicants was 60%, the ratio of the two rates is thus 30/60 (or 50%). Because 30/60 (or 50%) is lower than 4/5 (or 80%), the four-fifths rule dictates that the selection rate for Black applicants is substantially different than the selection rate for White applicants, which may be evidence of discrimination against Black applicants.
The EEOC does note that the, “four-fifths rule” is a general suggestion, and may not be appropriate in every circumstance. Some courts have also found this rule to be inapplicable. Nonetheless, employers would be prudent to ask whether artificial intelligence vendors deployed the “four-fifths rule” in their algorithms. Statistics matter here.
Finally, the EEOC posits the issue of what an employers should do when they discover that the use of an algorithmic decision-making tool would result in an adverse impact. The EEOC explains that one advantage of algorithmic decision-making tools is that the process of developing the tool may itself produce a variety of comparably effective alternative algorithms. Accordingly, employers’ failure to adopt a less discriminatory algorithm that may have been considered during the development process could give rise to liability. Employers should thus take heed to document the steps they take to utilize non-discriminatory algorithms.
Implications For Employers
The use of artificial intelligence in employment decisions may be the new frontier for future EEOC investigations. While these technologies can have tremendous cost-benefits, the risk is undeniable. Inevitably, some employer using AI will be the subject of a test case in the future.
Employers should monitor the results of their own use of artificial intelligence. This can be accomplished by conducting self-analyses on an ongoing basis, to determine whether employment practices are disproportionately having a negative impact on certain protected classes.
As the EEOC notes, employers can proactively change the practices going forward. Given the agility of the artificial intelligence software, employers who do find the technologies’ “employment decisions” to be problematic can and should work with vendors to remedy such defects.
We encourage our loyal blog readers to stay tuned as we continue to report on this exciting and rapidly evolving area of law.