Employment Class Action Blog

Employment Class Action Blog

Information and Commentary on Class Action Cases Affecting Employers

New York District Court Conditionally Certifies Class of Interns

Posted in Class Action, collective action, Conditional Certification, FLSA

A Blog About Bloggers

Have you read any of the following lately?

“Chinese Government Fans the Flams of the Ebola Zombie Rumors”

“Arrested for Marijuana, Jackie Chan’s Son Could Face Execution”

“Who is Dumpling All These Tuxedo Cats at a California Animal Shelter?”

These are all recent headlines from various blogs run by Gawker Media with names like “Gawker,” “Jezebel,” and “io9.”  In Mark v. Gawker Media LLC, Case No. 13-cv-4347(AJN) (S.D. N.Y. Aug. 15, 2014), Gawker became the subject of yet another in a line of cases involving unpaid interns.  Four interns brought suit under the FLSA, contending that they had performed work such as “writing, researching, editing, lodging stories and multimedia content, promoting content on social sites, moderating the comments forum and managing the community of Gawker users.”  Claiming they were largely unpaid replacements for paid employees, the plaintiffs sought to recover at least the minimum wage and moved for conditional certification under section 16(b) of the FLSA. Continue Reading

Court Rejects Pseudo-Expert Reports and Refuses to Certify Off-the-Clock Case

Posted in Class Certification, FLSA, Off-the-clock

Off-the-clock cases involving call centers have been in vogue for a number of years despite lingering issues regarding whether they can truly be resolved on a class-wide basis.  A recent case from the District of Maryland, Faust v. Comcast Cable Communications Management, LLC, Civil Action No. WMN-10-2336 (July 15, 2014), suggests that they cannot.  Further, this case, like other recent cases, suggests that plaintiffs cannot use poor-man’s substitutes for expert testimony when they try to do so.

This Faust case does not involve a pact with the devil but, rather, a garden-variety claim that workers at a call center had to log in early and were not paid for the time it took to boot up their computers or to read emails before the start of their shifts.  They sought to assert claims under the FLSA and under Maryland law.  The court conditionally certified the FLSA class, but only 56 of nearly 1,000 putative class members opted in.  The same plaintiffs’ attorneys had brought similar claims against the same employer with expert testimony.  In this instance, however, they decided to take a different path.

First, they used one of their own attorneys to submit a declaration analyzing the data purportedly not as an expert.  They described this testimony as a mere “summary,” but the court noted that they purported to analyze the data like an expert, including the making of several key assumptions.  It struck the testimony.

Second, plaintiffs used an expert’s report from a different case involving a different call center to try to buttress their arguments about the relevance of log-in and log-out times.  The court rejected this report both as untimely and irrelevant, as there was nothing to suggest that claimed issues or practices at one call center also occurred at another.

Lastly, plaintiffs submitted a declaration from a law clerk purporting to analyze the times of three employees.  The court struck this, too, as not an expert’s report and, for that matter, being a poor summary as it related to such a small sample.

After excluding this testimony, the court noted the differences among the putative class members and denied certification.  In doing so, the court was plainly unimpressed with the plaintiffs’ arguments describing them, in at least one instance, as “somewhat farfetched.”  Reading between the lines, the court was put off by the lackluster submission and arguments and found little choice but to deny certification.

The bottom line:  Plaintiffs cannot obtain certification based on their own counsel’s testimony or expert testimony borrowed from other cases.

Sixth Circuit Refuses to Uphold Collective Action Waiver Absent Arbitration

Posted in Arbitration, collective action

My working title for this blog was “collective action grab bag,” concerning the recent Sixth Circuit case in Killion v. KeHE Distributors, LLC, Case Nos. 12-3357/4340 (6th Cir. July 31, 2014).  I went with the title that seemed to be of interest to most practitioners, but the case actually touched on several issues, one of which is a bit of a sleeper.

The Killion case had a fairly straightforward fact pattern.  The buyers and sellers of organic food products may not want to admit it, but like any product, they need sales and distribution networks.  In Killion, the plaintiffs were part of that network for a distributor of organic and ethnic foods selling to major retailers like Meijer, Giant Eagle, Kroger, and Walmart.    They were paid commission under a complex formula that took into account their stocking of shelves, store maintenance, promotional marketing in some stores, maintaining inventory, ordering, and related functions.  As this listing suggests, much of their time, in fact about two-thirds of it, was spent largely on inventory rather than on the making of sales.  The employer considered them exempt under the outside salesman exemption to the FLSA. [Note to PC police: don’t blame us, that’s still the name of it in the statute, see 29 U.S.C. section 213(a)(1)].

In 2012, the company laid off approximately 70 of these “sales” employees, but offered them retention agreements.  Those agreements provided a $2,000 payment in exchange for their agreement to work another month, to waive any claims they might have, and not to sue on a class-wide basis.   Four of the agents sued for unpaid overtime under the FLSA and, while the court ultimately permitted a collective action class to proceed, it excluded those that had signed the agreements.  The plaintiffs filed an interlocutory appeal, and then filed a second appeal when the district court granted summary judgment against them.

The Sixth Circuit addressed four sets of issues.

1. Outside Sales Exemption.  As to the merits, the court found a question of fact as to the application of the outside salesman and other exemptions.  There was no real question that the plaintiffs spent much of their time on handling inventory, the plaintiffs were compensated heavily based on inventory related duties, and there were questions about whether the plaintiffs were really making sales to large grocers.   This ruling is of interest to those in retail sales where both selling to the store and maintaining the product displays are a regular part of the employee’s duties.

2.  Interlocutory Appeal.  More interesting from the standpoint of this blog, the court found that it lacked jurisdiction over the plaintiffs’ initial appeal from the district court’s exclusion of some members from the class at the conditional certification stage.  This ruling is in accord with the Sixth Circuit’s prior decision in Comer v. Wal-Mart Stores, Inc., 454 F.3d 544, 549 (6th Cir. 2006).  This decision is not surprising.  It is somewhat unusual that a plaintiff would actually try to file such an appeal since plaintiffs win a large majority of conditional certification decisions and a contrary decision would have overwhelmingly favored defendants.  The court did, and correctly, find that it had jurisdiction to review that order once the case was actually over, which is what happened when the court granted summary judgment.  As a practice tip, if a party wishes to challenge a conditional certification order, it may want to consider doing it explicitly as part of its post-judgment notice of appeal to avoid any question.

3.  Class/collective action waiver.  This part of the opinion has drawn interest, but it doesn’t say much we didn’t already know.  The court addressed the issue of whether the putative class members who signed the retention agreements waived their right to participate in a collective action.  The defendant noted that several courts of appeal had enforced such waivers but, as the Sixth Circuit concluded, all of those cases had involved agreements to arbitrate, and the cases all relied on authority relating to arbitration agreements.  It found that while a collective action waiver has been found to be enforceable in the collective action context, it could only be so as part of an arbitration agreement.  As the retention agreements had no arbitration provision, the court found, the collective action waivers were unenforceable.

4.  Expert.  Lastly, the court addressed the district court’s decision to exclude the plaintiffs’ “liability expert.” This expert relied on interviews of the plaintiffs and her own interpretation of the regulations to conclude that the plaintiffs were not exempt.   In excluding the evidence, the district court noted that the expert’s report “reads like a legal brief.” The Sixth Circuit held that the district court properly excluded the report, citing its “recitation of legal principles”, reliance on the plaintiffs’ hearsay evidence, and its efforts to interpret the regulations’ intent.  This is a significant decision for employers, who in many cases must address so-called expert testimony on issues such as the exempt status of employees.

The bottom line (sorry, this case has two):  The Sixth Circuit will not enforce a collective action waiver unless it is a part of an arbitration agreement.  A party cannot bolster its case by essentially having an expert adopt a brief in favor of their position.

Third Circuit: Availability of Classwide Arbitration is an Issue for the Courts – Not Arbitrators – Unless the Parties Agreed Otherwise

Posted in Arbitration, collective action, FLSA

Wednesday, the Third Circuit held that the determination of whether an agreement allows classwide arbitration is a question of arbitrability for the courts “unless the parties unmistakably provide otherwise.”  Opalinski v. Robert Half International Inc., Case No. 12-4444 (3d Cir. July 30, 2014).

In Opalinski, former Robert Half International, Inc. (RHI) employees filed a putative collective action under the Fair Labor Standards Act (FLSA) in which they alleged that they were misclassified as exempt employees.  Prior to doing so, both plaintiffs had signed employment agreements with arbitration provisions – but the agreements did not mention whether classwide arbitration was allowed.  Though the district court granted RHI’s motion to compel arbitration, the district court held that the availability of classwide arbitration was a question for the arbitrator.

Following the referral to arbitration, the arbitrator issued a partial final award and held that classwide arbitration was permitted, a holding the district court refused to vacate.  Accordingly, RHI appealed the denial of the motion to vacate the arbitration award in which it posited the question: should the availability of classwide arbitration have been decided by the arbitrator or by the district court?

The Third Circuit reversed the district court’s initial ruling that the determination of whether an arbitration agreement allows classwide arbitration is a question for the arbitrator, and reversed the district court’s later ruling denying RHI’s motion to vacate the arbitrator’s award allowing classwide arbitration.  In so doing, the Third Circuit explained that “it is presumed that courts must decide questions of arbitrability unless the parties clearly and unmistakably provide otherwise.”  The court determined that the availability of classwide arbitration is a question of arbitrability because it implicates whose claims the arbitrator must resolve.  The court explained that “the Supreme Court has long recognized that a district court must determine whose claims an arbitrator is authorized to decide.”  Citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964).  The court concluded that “[t]he determination whether RHI must include absent individuals in its arbitrations with [plaintiffs] affects whose claims may be arbitrated and is thus a question of arbitrability to be decided by the court.”  Additionally, the court found that availability of classwide arbitration is a question of arbitrability because it implicates the type of controversy submitted to arbitration.  The court found that “individual arbitration and class arbitration are so distinct that a choice between the two goes … to the very type of controversy to be resolved.”  Specifically, quoting Stolt-Nielsen, the court cited significant distinctions between individual and classwide arbitrations: “(1) an arbitrator . . . no longer resolves a single dispute between the parties to a single agreement, but instead resolves many disputes between hundreds or perhaps even thousands of parties . . . ; (2) the presumption of privacy and confidentiality that applies in many bilateral arbitrations [does] not apply in class arbitrations[,] thus potentially frustrating the parties’ assumptions when they agreed to arbitrate; (3) the arbitrator’s award no longer purports to bind just the parties to a single arbitration agreement, but adjudicates the rights of absent parties as well; and (4) the commercial stakes of class-action arbitration are comparable to those of class-action litigation, even though the scope of judicial review is much more limited.”  Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 686-87 (2010).  The court further noted that the Supreme Court has “changes brought about by the shift from bilateral arbitration to class-action arbitration are fundamental” and that classwide arbitration “is not arbitration as envisioned by the FAA.”  AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750, 1751-53 (2011).

Accordingly, the Third Circuit remanded the case to the district court with instructions to determine “whether the [plaintiffs’] employment agreements call for classwide arbitration.”

The Third Circuit’s holding is consistent with that of the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), which we previously discussed on this blog.

Irrespective of (and perhaps as a corollary to) these decisions, the best practice for employers is to divest the arbitrator of the authority to decide any claims on a class, collective, aggregate, or representative basis.  Similarly, employers should include a waiver of the right to pursue the arbitration on a class, collective, aggregate, or representative basis.

The bottom line: While it is increasingly likely to be presumed that the availability of classwide arbitration is a question of arbitrability for the courts in the absence of the parties’ agreement otherwise, employers should affirmatively state their intentions if they wish to avoid classwide arbitration.

Second Circuit Finds Auditors Exempt and Endorses Limits on Class Discovery

Posted in Class Action, collective action

While the number of class or collective action lawsuits has exploded, decisions from Circuit Courts of Appeal, particularly on procedural issues, are still infrequent enough to warrant comment.  In Pippins v. KPMG, Case No. 13-889-cv (July 22, 2014), the Second Circuit issued a decision that is notable not only for its decision on the merits, but also because it approved of common sense limits on discovery imposed by the district court.

The Pippins case itself was a collective action involving the question of whether entry-level accountants qualified under the FLSA’s exemption for professional employees, 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.301.  The regulations are clear that CPAs meet this exemption, but they also provide that employees such as “bookkeepers” and “accounting clerks” do not.  The plaintiffs argued in essence that they were more like accounting clerks because, even though virtually all of them had accounting degrees and were eligible to take the CPA exam, they received their hands-on training through the employer and performed, they asserted, mostly “low-level, routine work.”

The district court granted summary judgment for the employer and the Second Circuit affirmed.  It found that the professional exemption required a lesser showing of discretion and independent judgment than the administrative exemption but that, in any case, the exemption was satisfied when “workers rely on advanced knowledge of their specialty to exercise discretion and judgment that is characteristic of their field of intellectual endeavor.”

The court rejected the plaintiffs’ arguments that they did little more than walk through procedures and bring issues to the attention of more senior auditors.  It also rejected a common tactic relied upon by plaintiffs challenging exemptions, the dissection of job duties into much smaller tasks to make them look unimportant, declaring:  “Breaking down tasks into their component parts so that they can be described in the most banal way possible obscures the judgment that is called for in determining if workers are learned professionals.”  The court found that the plaintiffs’ “fundamental error is to confuse being an entry-level member of a profession with not being a professional at all.”  It similarly rejected arguments that the plaintiffs’ college instruction was not enough to perform their work and that they also needed training from their employer.

Thus, the Pippins decision is a good decision for employers seeking to rely upon the professional exemption for entry-level employees.  But the court went on to address limits placed by the district court on discovery.

In a refreshing display of common sense, the district court had concluded that the central issue in the case was the application of the professional exemption and had limited discovery to that topic.  This holding not only aided in case management, but likely saved all of the parties from having to go through some very expensive discovery and also deprived the plaintiffs of a club to hold over the defendant to pressure settlement.  The court endorsed this approach as “sensible” and went on to note that limiting discovery to the threshold issue of the application of the professional exemption was not an abuse of discretion.

The Pippins decision is also notable in that it comes from a circuit in which many district courts have issued generally favorable decisions for employees.  Further, the court’s own detailed analysis, and that of the district court, reflects the need to look beyond surface allegations of the performance of non-exempt work and to determine what tasks the plaintiffs are actually performing.

Class action discovery gets very expensive very fast, and unlimited discovery frequently takes on a life of its own.  This second holding should provide support for common-sense limits on discovery when, as plaintiffs often assert to obtain certification, a single issue may dispose of an entire case.

The bottom line:  The Second Circuit has issued a decision that is favorable both for the application of the professional exemption to entry-level professionals, and the imposition of common-sense limits on discovery in class action cases.

Arizona District Court Rejects Joint Employer Arguments in Independent Contractor Case Alleging Misclassification of Truck Drivers

Posted in Independent Contractors

A month ago we discussed the Ninth Circuit’s decision in Ruiz v. Affinity Logistics Corp., Case No. 12-56589 (9th Cir. June 16, 2014), in which the employer treated its delivery drivers as employees in everything but name, resulting in the unsurprising finding that they were employees and not independent contractors.  An Arizona district court has now granted summary judgment in favor of at least one of the putative employers on similar claims involving very different evidence.

In Montoya v. 3DP, Inc. Case No. CV-13-8068-PCT-SMM (D. Ariz. July 9, 2014), the plaintiff was a delivery driver for a contractor of the Home Depot home improvement chain.  He sought to bring a collective action under the FLSA and a state law class action against both the contractor and Home Depot, contending that he and others like him were misclassified as independent contractors.  He argued that Home Depot was a joint employer of the contractor and thus liable for any misclassification.  In support of this argument, he pointed to facts such as instruction and training he had received in a Home Depot parking lot, contact with a Home Depot employee responsible for coordinating deliveries, and the presence of Home Depot logos both on the truck he leased and on his uniform.

The court ultimately concluded that these facts were not sufficient to find that Home Depot was a joint employer.  Among other factors, it found that Home Depot did not interview or hire drivers, and that even if it no longer wanted a driver’s services, that individual could still make deliveries for the contractor on behalf of other companies.  It rejected the notion that Home Depot’s coordination of schedules amounted to control over hours of work.  Similarly, it found that the contracts between Home Depot and the contractor did not amount to control over wages.  Home Depot did not keep a personnel file (or its equivalent) for the drivers.

The court distinguished Ruiz as not addressing the joint employment issue, and granted summary judgment for Home Depot.  The court’s opinion does not address the contractor’s own liability.

The plaintiff in Montoya probably saw naming Home Depot as a defendant as a means of broadening the case from a local-based contractor to a nationwide chain with many times more potential class members.  In doing so, however, he put himself in the position of having to challenge both the independent contractor status and to establish the requisite control by the customer.  Even had summary judgment not been granted, it is easy to see the employer prevailing on class certification on the grounds that each contractor managed its workforces differently and the relationship between Home Depot and the various delivery contractors varies by location.

The bottom line:  Joint employer arguments can be hard to make in cases challenging independent contractor status and present serious strategic issues for the plaintiff.

California District Court Rejects Shotgun Attacks on Arbitration Agreements

Posted in Arbitration, Wage and Hour

Alright, we all know in the wake of Italian Colors, Concepcion, and now many other cases that the presumption of arbitrability isn’t just a doctrine to recite in the manner of saying grace before invalidating an agreement, but is actually meant to be followed, even when it might ultimately thwart a class action.  But can a would-be class action plaintiff evade an arbitration provision through scattershot attacks on the arbitration agreement’s individual provisions?

That seemed to be the approach in Herrera v. CarMax Auto Superstores, Inc., Case No. CV-14-776-MWF (VBKx) (C.D. Cal., July 2, 2014), but it didn’t really work.  In Herrera, the three plaintiffs brought a garden-variety wage and hour suit against the employer asserting that they were not paid for all hours worked.  Each of the plaintiffs signed arbitration agreements that incorporated arbitration rules and procedures set forth in a separate booklet that was periodically updated.  They raised no fewer than eleven arguments why the provisions of those agreements could not be enforced.

The District Court, in an opinion notable for its conciseness, rejected each of those arguments including finding that:

  • The defendant could enforce the agreements, even though technically they were entered into by a corporate predecessor.
  • The defendant’s right to change the rules on 30 days’ notice under a set procedure did not render the agreements illusory.
  • While the arbitration agreements were contracts of adhesion, they were only slightly procedurally unconscionable, and not enough to invalidate them solely on that basis.
  • It was not unconscionable for the agreements to use the same statute of limitations as state law.
  • The arbitration agreements required both parties to arbitrate their claims, and thus were mutual.
  • In perhaps the most interesting part of the decision, the district court rejected the view of the Ninth Circuit in Ingle v. Circuit Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003), on a state law issue as being superseded by a subsequent California Appellate court on the issue of whether the employer’s right to modify the rules rendered the arbitration provisions unconscionable.
  • Contrary to the plaintiffs’ arguments, the agreements bound both parties.
  • Limitations on discovery did not invalidate the agreement.
  • The fact that arbitration has claim-preclusive effect does not render the agreement unenforceable.
  • Confidentiality is not unreasonable and the alleged jeopardy to the right to select counsel was too remote to find otherwise.
  • Giving the arbitrator the power to assess sanctions absent bad faith did not invalidate the agreement.

Rejecting each of these arguments, the court granted the defendant’s motion to compel arbitration and dismissed the case.

The bottom line:  In the wake of Italian Colors and Concepcion, even lots of little claimed problems with arbitration provisions will not thwart the obligation to arbitrate.

The Ninth Circuit Puts Up Road Block to Motor Carrier Arguing that California Break Laws are Preempted by the FAAA Act, But Leaves Some Wiggle Room

Posted in Meal and Rest Periods

On Wednesday, the United States Ninth Circuit Court of Appeals rendered a decision that, on its face, involved a technical preemption issue, but one that will have serious repercussions for those in the transportation industry operating in California.  In plain terms, the question was whether California’s detailed meal and rest break requirements conflict with a federal statute barring states from regulating the prices, routes and services of motor carriers and airlines.

Over the past few years, California district courts have varied as to whether motor carriers must follow California meal and rest break laws, or whether the Federal Aviation Administration Authorization Act of 1994 (“FAAA Act” or the “Act”) preempts California law in this regard.  On July 9, 2014, in Dilts v. Penske Logistics, LLC, the Ninth Circuit decided, for the first time, that such preemption generally does not apply.  Nevertheless, the possibility remains open that, in a future case, a motor carrier (particularly a long haul carrier) or airline may offer stronger evidence of and arguments for preemption.

Under the FAAA Act, in most instances a state “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.”  49 U.S.C. § 14501(c)(1).  The Act was passed “‘to prevent States from undermining federal deregulation of interstate trucking’ through a ‘patchwork’ of state regulations.”

In Dilts, the plaintiffs sought to represent a class of hourly appliance delivery drivers and installers, working exclusively within California and on short-haul routes.  They argued that they were unable to take the California-mandated meal and rest periods, and sought to assert the usual array of California wage and hour claims as a result.  The lower court found that because California’s rest and meal period requirements so severely affected trucking prices, routes, and services, they were preempted by the FAAA Act, and it granted summary judgment in the employer’s favor.

After finding a strong presumption against preemption, the Ninth Circuit stated that while the FAAA Act’s “related to” language is deliberately expansive and broad, it does not preempt state laws that affect prices, routes, or services in only a tenuous way.  It concluded that where a law does not refer directly to rates, routes, or services, “the proper inquiry is whether the provision, directly or indirectly, binds the carrier to a particular price, route or service and thereby interferes with the competitive market forces within the industry.”

The Ninth Circuit held that California break laws do not, in either a direct or indirect way, set prices, mandate or prohibit certain routes, or force motor carriers to provide or not provide certain services.  While motor carriers may have to account for meal and rest break requirements when scheduling routes, including potentially reallocating resources, the court held that the break laws do not bind motor carrier to specific prices, routes, or services to a significant degree.

This holding was likely wrong as carriers must deal with a myriad of logistics and timing issues, including pricing based on delivery time and speed, and having to schedule and staff to account for rest and meal periods.  This is further complicated by both legal and practical issues that carriers often cannot control, such as traffic delays and other limitations that vary based on the type of truck being used.  All of these tasks must be performed in a highly rate-competitive marketplace, and thus, California break laws do, indeed, have the “force and effect” of relating to the prices, routes, and services a carrier provides.

However, the court left open the issue of whether a federal law can ever preempt a state law on an “as applied” basis, or in other words, whether federal law can sometimes preempt a state law, but not at other times.  In that regard, the court was somewhat dismissive of the employer’s arguments regarding the difficulties of scheduling breaks, the impact on staffing, and the inevitable influence on rates.  Both the majority and concurring decisions were unconvinced by Penske’s evidence, or lack thereof, that finding routes which would allow drivers to comply with California’s break laws would limit motor carriers to a smaller set of possible routes.

The Bottom Line:  The Ninth Circuit has rejected, at least on one set of facts, the application of FAAA Act preemption to California’s meal and rest period requirements in the transportation industry, but a better developed factual record might lead to a different conclusion.

U.S. Supreme Court Refuses to Hear Petition that Proceeding as a Collective Action Under the FLSA is a Non-Waivable Substantive Right

Posted in collective action, FLSA

In the last week, we have seen several significant decisions from the U.S. Supreme Court.  On Monday, however, the Court made a noteworthy “non-decision” by declining a petition for certiorari that raised the question of whether a collective action under the Fair Labor Standards Act is a non-waivable, substantive right.

In Walthour v. Chipio Windshield Repair LLC, No. 13-1354 (June 30, 2014), former auto body employees filed a putative collective action against Chipio Windshield Repair LLC and an affiliate under the Fair Labor Standards Act (FLSA), alleging that the defendants had failed to pay them minimum and overtime wages.  Upon being hired, the employees had signed arbitration agreements with class action waivers and stipulations that all employment disputes would be resolved though individual arbitration.  The district court granted the defendant’s motion to compel arbitration.

In affirming, the Eleventh Circuit relied upon the U.S. Supreme Court’s decisions in Gilmer v. Interstate/Johnson Lane Corp. and American Express Co. v. Italian Colors. In Gilmer, the Court held that the Age Discrimination in Employment Act (ADEA), which expressly adopts the collective action language set forth in FLSA, doesn’t bar individual arbitration. In Italian Colors, an anti-trust case, the U.S. Supreme Court reiterated the rejection of the argument that a class action waiver was invalid under the “effective vindication” exception to enforcement because the class action waiver did not eliminate an individual plaintiff’s right to pursue its own statutory remedies.  In so holding, the Court cited its decision in Gilmer and explained that it “had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue, the [ADEA] expressly permitted collective actions.” We blogged about the Italian Colors case last year.  The Eleventh Circuit concluded that “based on these Supreme Court decisions read together, we conclude that the text of FLSA § 16(b) does not set forth a non-waivable substantive right to a collective action.”  The Eleventh Circuit also found that “the legislative history of [FLSA  § 16(b)] does not contain the requisite contrary congressional command sufficient to override the [Federal Arbitration Act].”

In their petition for certiorari, the employees argued that the question of whether the FLSA contains a “contrary congressional command” remains unresolved because none of the cases the Eleventh Circuit relied on were brought under the FLSA.

The Bottom Line: The U.S. Supreme Court’s denial of the employees’ petition leaves unchanged the position espoused by the 2nd, 4th, 5th, 8th, and 11th Circuits – that the FLSA does not provide for a non-waivable, substantive right to bring a collective action. Accordingly, employers can take a deep breath (for now) and continue including class and collective action waivers in their arbitration agreements.

This blog post is a joint submission with BakerHostetler’s Employment Law Spotlight blog.

Federal Courts Continue To Find Claims Adjusters Exempt

Posted in FLSA

We have previously discussed how, over the past 10+ years, courts have increasingly recognized that insurance claims adjusters are exempt under the Fair Labor Standards Act (FLSA).  The recent cases of Estrada v. Maguire Ins. Agency, Inc., 12-cv-604 (E.D. Penn. Feb. 28, 2014) and Locke v. Am. Bankers Ins. Co. of Florida, 12-cv-1430 (E.D. Cal. May 19, 2014), further reflect this trend and that insurance adjusters are properly exempt even if they are assigned “relatively simple” claims and/or use detailed job aids and computer software as part of their claims adjusting work.

In Estrada, the plaintiff worked as an insurance claims examiner and handled “relatively simple, low-cost automobile claims,” which consisted largely of auto accidents involving only one vehicle and small amounts of damage.  The plaintiff alleged that he was misclassified as exempt under the FLSA and moved for conditional certification.  The employer moved for summary judgment.

The court made short work of the plaintiff’s argument that he was a non-exempt “production” worker, noting that claims adjusters perform an essential task of an insurance company – processing claims – and that every Circuit court that has considered the argument has reached the same conclusion.

The court also rejected the plaintiff’s argument that his primary duties did not involve the exercise of discretion and independent judgment, but rather he performed “clerical work” and was made to follow a strict step-by-step process that removed any meaningful discretion.  The court found that even if insurance adjusters are required to follow such a rigid process, they are still exempt if they engaged in discretionary tasks occasionally.  The court found that the plaintiff’s own testimony and claims notes proved that he exercised such discretion in performing tasks such as interviewing insureds and witnesses, inspecting property damage through pictures, evaluating coverage, providing coverage recommendations to supervisors, determining liability through application of comparative negligence, and settling low-value claims.

The court therefore found that the plaintiff was “plainly and unmistakably” an exempt administrative employee and, therefore, denied the plaintiff’s conditional certification motion and granted the employer’s motion for summary judgment.

In Locke, the plaintiffs were property insurance adjusters who investigated insurance claims.  For small value claims, the plaintiffs made coverage decisions.  On higher level claims, they were forwarded along to someone else.  The plaintiffs alleged that they were essentially “claims robots” who had virtually no discretion.  Instead, they alleged that they had to follow the employer’s strict claims procedures and use employer’s claims adjusting software, which reduced their role to low-level fact finders who merely confirmed that the software information was consistent with the claimed damages.  The plaintiffs sought a collective action under the FLSA and employer moved for summary judgment.

The court granted summary judgment for the employer in a fairly lengthy, detailed opinion in which it provided a thorough review of relevant claims adjuster case law and regulations.  However, perhaps most interesting for employers is the fact that while the court found it “clear” that the employer published a substantial amount of “material instructing its adjusters what to do and how to do it,” it rejected the argument that this made them non-exempt.  Instead, the court reasoned that it would be the “rare company” that did not implement such detailed materials, especially in an industry so highly regulated as insurance.  The same thing was true for employer’s use of automated claims adjusting software.  Instead, the court found it determinative that none of these job aides “remove[d] plaintiffs’ independent judgment in the initial investigative stages” and that the plaintiffs still had “the ultimate responsibility to gather the facts and put them together and either determine or make a recommendation as to most every aspect of the claims process.”  On June 19, 2014, the plaintiff appealed the decision to the Ninth Circuit.  We will follow this appeal and pass along any meaningful updates.

Insurance claims adjusters have been the target of numerous FLSA collective actions and state law class actions over the past dozen years, but as these cases demonstrate, courts are increasingly rejecting the most common arguments raised by the employees and holding that they are performing administrative exempt work.

Bottom Line:  Courts continue to find that, regardless of whether they handle “low-level” claims, follow detailed guidelines or use automated claims adjusting software, insurance claims adjusters are administratively exempt when they conduct coverage investigations and make recommendations regarding coverage and/or liability.