Employment Class Action Blog

Employment Class Action Blog

Information and Commentary on Class Action Cases Affecting Employers

Employer Loses WARN Affirmative Defenses In Class Action Due To Insufficient Description In Notice

Posted in WARN Act

“The Pen Is Mightier Than The Sword…And Verbal Communications During Company-Wide Employee Meetings.”

Things seem to be going from bad to worse for defunct law firm Dewey & LeBoeuf. As criminal charges continue to loom for some former Dewey partners, the judge overseeing Dewey’s bankruptcy has now ruled that the firm cannot assert the “faltering company” and “unforeseeable circumstances” defenses in a class action brought by former Dewey employees under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101 et seq. (the “WARN Act”).  The court’s decision can be found here.

While the WARN Act typically requires an employer to provide 60 days’ notice to employees who are terminated due to the closing of a business, the Act allows two affirmative defenses in cases where such notice is not provided.  First, the “faltering company” exception allows an employer to give reduced notice if the company is “actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.” 29 U.S.C. § 2102(b)(1).  The Act similarly permits a shorter notice period where the closing is the result of “business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A).  Both exceptions require an employer to give “as much notice as is practicable” and—of particular relevance in regard to the Dewey case—to provide “a brief statement of the basis for reducing the notification period” at the time notice is given.  29 U.S.C. § 2102(b)(3).

When Dewey ceased operations in May 2012, the majority of its employees received less than one week of notice prior to being terminated.  Dewey argued that this reduced notice was sufficient under the WARN Act based on both the “faltering company” and “unforeseeable circumstances” defenses.  In regard to the faltering company defense, Dewey argued that it was actively seeking to avoid collapse by merging with another firm, and that the announcement of layoffs would have eliminated that possibility.  Dewey also argued that, while it was initially confident that such a merger could be completed, the announcement of a criminal investigation of the firm’s chairman brought an abrupt and immediate end to all merger discussions.

But, here’s the catch—in the notices advising employees of the firm’s closing and the resulting termination of their employment, the firm did not provide the required “brief statement of the basis for reducing the notification period.” The notices stated only that the firm had “unexpectedly experienced a period of extraordinary difficulties” and that the “situation [was] deteriorating at a more rapid pace than was initially anticipated.”  (See Opinion at pp. 4-5).  In lieu of providing further detail in the written notice, the firm scheduled company-wide employee meetings where it explained the events leading to the closing and invited employees to ask questions.

After reviewing the language of the statute and the applicable regulations, the court held that the employee meetings did not satisfy the “brief statement” requirement.  According to the court, an employer seeking to assert the WARN faltering company and unforeseeable circumstances defenses must provide the brief statement in writing and include that statement in the notice of the closing.  On that basis the court awarded summary judgment to the plaintiffs on Dewey’s affirmative WARN defenses.

This decision reaffirms the process-driven nature of the WARN Act.  While many of the Act’s requirements may seem hyper-technical, most courts have been unreceptive to policy concerns and “close enough” arguments advanced by employers.  Moreover, the stakes in WARN litigation can be extraordinarily high—up to 60 days’ pay in some cases for all affected employees.  Thus, particularly where an employer is simply closing a location but not going out of business, decisions concerning WARN Act compliance should be undertaken with careful consideration of the risks and potential liability.

The Bottom Line: While somewhat tedious, meticulous attention to WARN Act compliance can be critical in closing facilities and/or laying off employees.





Russell v. Citigroup Inc. – Language in Revised Arbitration Agreement Torpedoes its Application to Pending Class Action

Posted in Arbitration, Off-the-clock, Wage and Hour

A Sixth Circuit panel found the text of an updated arbitration agreement indicated it did not apply to a wage and hour class action already pending when the agreement was signed.  Russell v. Citigroup, Inc., Case No. 13-5994 (6th Cir. April 4, 2014).

Keith Russell had worked at a Citicorp call center in Florence, Kentucky from 2004 to 2009.  In January 2012, he filed a class action against the company alleging that it did not pay its employees for time spent logging on and out of their phone system each workday.  He alleged that he was forced to work “off the clock” twenty to twenty-five minutes per day.  Russell reapplied to work at the Citicorp Florence call center in late 2012 while the lawsuit was still pending.  After Citicorp rehired him, Russell signed a revised arbitration contract that covered both individual and class claims.  In January 2013, he started work at the call center.

Based on the new agreement Citicorp moved to arbitrate the class action, which was then in the discovery stage.  The U.S. District Court for the Eastern District of Kentucky (Case No. 2:12-cv-00016, July 10, 2013) denied the motion to compel and to dismiss the complaint, finding the action was not within the scope of the arbitration policy.

Judge Jeffrey Sutton, writing for Sixth Circuit panel, affirmed.  In so doing, he analyzed the text of the revised arbitration agreement.  The “Scope of Policy” section of the agreement, stated:

This Policy applies to both you and to Citi, and makes arbitration the required and exclusive forum for the resolution of all employment-related disputes . . . which are based on legally protected rights . . . and arise between you and Citi, its predecessors, successors and assigns, its current and former parents, subsidiaries, and affiliates, and its and their current and former officers, directors, employees, and agents . . . (Emphasis added).

Judge Sutton felt the use of present-tense “arise” suggested that the agreement only covers disputes that arise “in the present or future”.  The opinion concluded that the portion of the agreement entitled “Statement of Intent” added force to this analysis.  The agreement stated that the Company “looks forward” to a good relationship with Russell but that disagreements “may arise”, concluding that their resolution “will be best accomplished” through arbitration.  Thus, the opinion reasoned that the text of the agreement and its preamble demonstrate that the agreement was “to head off future lawsuits, not to cut off existing ones.”

The opinion then considered the expectations of the parties.  Russell said he expected the contract to cover only future litigation.  And, the court thought it unlikely Citicorp expected the agreement to cover pending litigation.  Indeed, the Company apparently had entered into a contract with Russell without consulting its attorneys or Russell’s lawyers.  If Citicorp’s in-house counsel prepared the revised agreement thinking that it would govern pending cases, doing so could have created potential ethical issues.  So, Citicorp offered no evidence that it expected the agreement to cover pending litigation and Russell certainly did not.  Yet, Citicorp asserted that under the agreement, the arbitrator was to decide all cases – pending or not.  But, from the context (the use of the word “arise”) and the parties’ “probable expectations”, the panel doubted it.

The contract language extending the agreement to the Company’s “predecessors” and “former officers” didn’t change the Court’s analysis.  Finally, the Court considered Citicorp’s contention that the Federal Arbitration Act (“FAA”) requires a court to resolve “any doubts concerning the scope of arbitrable issues . . . in favor of arbitration,” citing Moses H. Cone Mem’l Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).  Here, the parties’ intentions controlled.  Because, in the end arbitration is a matter of consent and the context of the agreement controlled, not any presumption of arbitrability.

Recently, we considered another decision in this blog, Billingsley v. Citi Trends, Inc., Case No. 13-15261 (11th Cir. March 25, 2014), which involved an arbitration agreement and pending litigation.  Read together, these two decisions reflect the appellate courts’ concerns with the language of the post-suit agreements and the manner in which they were communicated to employees.

The Bottom Line:  The language of a revised arbitration agreement determines whether it will be applicable to class actions pending when signed.  Here, the text of the agreement established that it did not apply to a pending wage and hour class action.






Sixth Circuit Rejects EEOC’s Expert Evidence In Proposed Pattern Or Practice Class Action Litigation

Posted in EEOC

The EEOC learns what it’s like to be the statue and not the pigeon.

The EEOC can’t seem to catch a break these days.

After a string of recent cases in which the agency has been forced to pay employer attorneys’ fees for bringing frivolous claims, the most recent zinger came from the Sixth Circuit last week in EEOC v. Kaplan Higher Education Association, Case No. 13-3408 (April 9, 2014).  The EEOC sued Kaplan on a pattern or practice theory claiming that its use of preemployment credit checks disparately impacted minorities.  The agency attempted to support its claim by relying on the purported expert testimony of Superstar Kevin “I Know It When I See It” Murphy.

The illustrious Mr. Murphy claims to have invented an “expert” method of identifying a person’s race without actually speaking to them or reviewing any of their personal information, which is impressively titled “Multicultural, Multiracial, Treatment Outcome Research.”  Of course, that label loses some luster with the revelation that it consists of a five-member team of so-called “race raters” who try to guess a person’s race by looking at his or her driver’s license photo.  Moreover, lending credence to the observation that an expert is simply someone who has made multiple mistakes in the same field, Superstar Kevin Murphy’s “race raters” were frequently unable to agree upon a person’s race, and were frequently wrong when they did agree.  In addition, as he acknowledged in his expert report, the Superstar does not trouble himself with silly little things like valid statistical samples.  Based on these flaws (and others), the district court excluded the Superstar’s report (which we wrote about here).

The EEOC appealed the district court’s decision to the Sixth Circuit, arguing that the court had erred by “making the perfect the enemy of the good.”  (That’s an actual quote, not just another snide remark.)  The Sixth Circuit was not impressed.  The court began its unanimous opinion—issued only 3 weeks after oral argument—by noting that the EEOC was suing Kaplan for using the same background check process that the EEOC uses in its own hiring process.  Seriously, you can’t make this stuff up.  (A copy of the Sixth Circuit’s opinion can be found here.)

As if that wasn’t bad enough, it went downhill for the EEOC from there.  In fact, while tersely explaining why The Superstar Kevin Murphy Method fails every step of the legal test for determining the validity of expert opinions (which we lawyers refer to as the “Daubert test” so that we sound smart), the court didn’t stop there.  It also pointed out that “the record contain[ed] no indication that Murphy has any particular expertise in constructing methodologies to identify race by visual means.”  The court concluded its opinion with a devastating sum-up of the EEOC’s position:

We need not belabor the issue further. The EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself. The district court did not abuse its discretion in excluding Murphy’s testimony.


While there’s a certain guilty pleasure in seeing the government taking it on the chin every now and then, employers should be encouraged by the Sixth Circuit’s Kaplan opinion for at least two additional reasons.  First, it provides solid authority for the proposition that expert testimony should be subjected to the same scrutiny regardless of whether a case is in a pre-class certification posture.  Second, it will be a valuable precedent for employers in establishing that self-declared experts applying pseudo-scientific principles cannot withstand such scrutiny simply by claiming to have serve some vague objective of “social justice.”

The Bottom Line: The Sixth Circuit’s Kaplan opinion continues the trend toward more careful consideration of class-based litigation.

Fourth Circuit Affirms Sanctions Against the EEOC In Action Fraught with Delays

Posted in Discrimination, EEOC

Many employers who have dealt with the EEOC in large cases suffer frustration over inexplicable delays combined with at times unreasonable requests for information and/or relief.  In a recent case from the Fourth Circuit, that kind of conduct led not only to a dismissal of the underlying claim by laches, but to an attorney fee award against it of nearly $200,000.  EEOC v. Propak Logistics, Inc., Case No. 13-1687 (4th Cir. Mar. 25, 2014).

The facts don’t make the Commission look especially good.  In January, 2003, a white employee filed a charge against the employer claiming that he was terminated based on his “American” national origin and because he had complained that the company would only hire Hispanic employees for some supervisory jobs at a facility in North Carolina.  The company responded to the charge by March 2003.  It took the EEOC a year to interview the charging party or the company’s hiring manager about the response.  Several months later (September of 2004), the EEOC internally designated the matter as a “class case”, a designation it did not share with the employer for another four years.  During those four years, the Commission engaged in feeble efforts to contact some witnesses.  The company, unaware of the “double secret” class designation, destroyed personnel files at the plant under its pre-existing document retention policy.

His patience exhausted, the charging party sought and received a Notice of Right to Sue and filed his own individual case in early 2008.  That case quickly settled.

Undaunted by its own delays or the settlement of the charging party’s claims, the EEOC in September of 2008 issued a determination that the company had engaged in class-wide discrimination against non-Hispanic job applicants.  The company attempted to conciliate, but a significant part of the relief the EEOC sought was remedial relief as to the company’s locations in the states of North and South Carolina.  The problem with that proposal, however, was that by this time the company had closed those facilities.

In 2009 (or more than six years after the charge had been filed) the EEOC brought suit requesting, among other things, similar remedial relief.  The employer moved to dismiss the claims on laches grounds and, following limited discovery, the court granted that motion.  The district court then awarded the employer virtually all of its attorney fees, finding that the Commission had acted unreasonably in pursuing the litigation.

Laches is a tough defense and it’s rare to find it applied in a discrimination case, let alone one seeking class-wide relief.  But the Fourth Circuit had little difficulty in affirming based on the EEOC’s many delays and the prejudice caused to the employer due to the passage of time, including the loss of records and dissipation of witnesses who had worked at now-closed facilities.

On that note, the EEOC tried to argue that the employer was responsible for the loss of records.  In other contexts, this might have been a serious problem for the employer, but in this instance the Commission had failed to advise it of its internal decision to pursue class claims, and so the employer was basically blameless.

The Fourth Circuit also found without trouble that sanctions were appropriate.  Indeed, the opinion suggests incredulity over the delays and decision to bring the case when the Commission was already aware that the facilities at issue had closed.  The concurrence in particular expressed astonishment at the EEOC’s actions during the investigation and in connection with the decision to pursue claims after so much time and after so much evidence had become lost or difficult to locate.

The Bottom Line:  Unreasonable delays by the EEOC can give rise both to a laches defense and potential sanctions against it.


Eleventh Circuit Refuses to Enforce Post-Suit Arbitration Agreements Based upon Employer Misconduct

Posted in Arbitration, FLSA

The British have a phrase “too clever by half” to describe complex schemes that ultimately won’t work.

We all know from cases such as Concepcion, Stolt-Nielsen, Italian Colors, and their progeny that arbitration agreements are far more likely to be enforced today than only a year or two ago, particularly in the class action context.  So, what if you haven’t revised your arbitration agreements or don’t even have one and a class action suit is filed?  Can you have your current employees sign them and then compel arbitration on an individual basis?  Maybe so, but not the way the employer attempted in a recent Eleventh Circuit case.

In Billingsley v. Citi Trends, Inc., Case No. 13-15261 (11th Cir. Mar. 25, 2014) (unpublished), the employer, a retail clothing chain, faced a putative collective action under the FLSA brought by a store manager who claimed that she was misclassified as exempt from overtime.  After the filing of suit, and after the initial scheduling conference with the district court, the employer rolled out an ADR program requiring arbitration of claims on an individual basis.  It then began a series of individual meetings with its current managers.   These managers were called into meetings with a human resources representative at the back of their store ostensibly to discuss a new employee handbook.  When the manager arrived, there was both the human resources representative and a witness.  The store managers were each presented with the arbitration policy, a fill-in-the-blank declaration describing his or her duties, and a disclosure form.  The managers were asked to sign the forms, but were not told what happened if they refused to sign.

After the plaintiff moved for conditional certification, the employer opposed certification for those who had signed the agreements on the grounds that they had to arbitrate their claims on an individual basis.  The district court refused to enforce them on the grounds that under these circumstances they had been procured by misleading and coercive means.

Interestingly, the Eleventh Circuit did not find that it would refuse to enforce post-suit arbitration agreements nor, for that matter, did the district court.  Both courts were troubled by the manner in which the employer procured the agreements, and limited the remedy simply to preventing the enforcement of these particular agreements, procured in the fashion the employer had used, in the case that was pending.  Both courts appear to have adopted a measured approach.

Only a week before, in a completely unrelated case that has been designated for publication, the Eleventh Circuit did enforce a pre-suit arbitration agreement with respect to FLSA claims.  See Walthour v. Chipio Windshield Repair, LLC, Case No. 13-11309 (11th Cir. Mar. 21, 2014).  Between that case and the moderate remedy in Billingsley, it seems clear that the Eleventh Circuit will uphold arbitration agreements barring extraordinary circumstances.

The Bottom Line:  Employers seeking to adopt arbitration agreements after a class or collective action has been filed must, at a minimum, do so with tact.



Sixth Circuit Holds That Duty To Arbitrate Survives Expiration of Employment Contract, Requires Individual Arbitration

Posted in Arbitration, FLSA

With the Supreme Court having issued a series of decisions overruling many of the roadblocks to the enforcement of arbitration agreements in the class context, we are now seeing more courts fill in the gaps as to whether and when employers may rely on such agreements.

The latest of these is the case of Huffman v. The Hilltop Companies, LLC, Case No. 13-3938 (6th Cir. Mar. 27, 2014), which concerned the question of whether the duty to arbitrate and limits to class arbitration extend beyond termination.  In one respect, the decision was obvious, but in another, it represents the growing, if at time reluctant, acceptance by courts of the enforceability of arbitration agreements.

In Huffman, the plaintiffs were mortgage loan officers who were classified as independent contractors and thus not paid overtime.  They brought suit under both the FLSA and the Ohio Minimum Fair Wage Standards Act and sought to proceed on a class or collective basis.  The employer sought to compel arbitration of their claims on an individual basis under their independent contractor agreements, but, the district court refused to enforce them because it concluded that the arbitration clause did not survive termination of the underlying contracts.  The defendant appealed, and the case explicitly or implicitly involved a number  of issues.

The first was whether, as a general rule, arbitration would survive the expiration of the underlying contract.  In the collective bargaining context, this issue has long since been settled that disputes arising under the contract must be arbitrated even if the underlying contract has expired.  See, e.g.,  Litton Financial Printing Division, Litton Business Systems, Inc. v. NLRB, 501 U.S. 190 (1991).  Citing the strong federal policy favoring arbitration, the Sixth Circuit held that the same considerations would apply to other types of agreements, including the independent contractor agreements at issue.

Second, the court addressed an argument raised by plaintiffs’ counsel regarding the construction of the specific contract at issue.  The contract identified several specific obligations that would survive the contract and contained an integration clause, but the arbitration agreement was not among them.  They argued that the omission of the arbitration provision meant that the duty to arbitrate did not survive.  The Sixth Circuit, however, in keeping with the with the strong presumption of arbitrability, found that the arbitration clause did survive post expiration.

Finally, the court concluded that the claims would need to be pursued on an individual basis.  The contract was silent both on the issue of who decided the availability of class-wide arbitration and on the issue of class arbitration.  Following its prior decision in Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), the court held that that silence meant that the court was to decide the issue and that no class-wide arbitration was available.

Only a few years ago, one could easily have seen (and would likely have predicted) the court going the other way both on the issue of the post-expiration enforcement of arbitration provisions and on the availability of class-wide arbitration.  Although the Sixth Circuit did not cite decisions such as Stolt-Nielsen, Concepcion, and Italian Colors, it is difficult to imagine the same result without those cases having been decided.

The Bottom Line:  Amid growing acceptance of arbitration agreements in the employment class action context, the Sixth Circuit has held that the duty to arbitrate survives termination and that no class action arbitration is available if the contract is silent on the issue.

Supreme Court Accepts Certiorari In Security Screening Case

Posted in Class Action

We’ve written at least twice now on class actions arising out of time spent by employees going through security lines, primarily at the end of their shifts.   The question is whether and when such time might be compensable under the Portal-to-Portal Act.  One of the critical issues is whether the security is being undertaken primarily for the benefit of the employer.

Earlier this month, the Supreme Court granted certiorari on the first of these cases, in Integrity Staffing Solutions, Inc. v. Busk, Case No. 13-433 (U.S. S. Ct., Mar. 3, 2014).  This case will likely not only shed light on the precise issue of time spent in security lines, but also on a host of issues regarding compensable time.  The Court’s ultimate ruling may clarify the substantive law, but will also impact class litigation in this context depending on the test it employs and the degree to which it ultimately dictates the need for an individualized inquiry.

The Bottom Line:  The Supreme Court continues to express interest in cases relating to the definition of time worked under the FLSA and has accepted certiorari in a case that may shed further light on the issue.

Massachusetts Court Refuses to Certify Case Involving Alleged Independent Contractor Misclassification

Posted in Rule 23

The United States District Court for the District of Massachusetts recently issued a case involving the straight-forward application of the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), to a class-wide independent contractor dispute.

In Magalhaes v. Lowe’s Home Centers, Inc., Civil Action No. 13-10666-DJC (Mar. 10, 2014), the Lowe’s home improvement chain hired independent contractors to install products sold at its stores, including countertops, roofing, flooring, and window treatments.  Each of the contractors worked under essentially the same form independent contractor agreements.

The plaintiff worked for Lowe’s installing window treatments such as blinds.  He had his own business, called “Shades in Place”, hired his own employees, and had two vehicles to assist in performing the installations.  He could turn down Lowe’s work, and could also perform work for other customers.  He brought suit under Massachusetts law, contending that he and the other contractors were misclassified, and were actually employees entitled to benefits.  He moved for class certification under Rule 23(b)(3).

The court first found that under Massachusetts law an independent contractor needed to be free from control both under contract and, more importantly, as a matter of fact.  With that, it quickly concluded that under Dukes the case lacked sufficient commonality and commonality.  The evidence showed that although the contracts were the same, the factual circumstances for each of the contractors was different.  Thus, while the terms of the contract were a common fact, and the legal theory was the same, each contractor had a different set of circumstances regarding their interaction with Lowe’s and the manner in which they ran their businesses.  In the terms used by the Dukes Court, the resolution of the issue could not be resolved “in one stroke.”

The court also found that the plaintiff was not an adequate class representative.  The same independent contractor agreement the plaintiff signed also obligated him to indemnify Lowe’s for claims by his employees.  Those employees, however, were also putative class members, creating a conflict of interest.

Finding three of the four requirements of Rule 23(a) lacking, the court went on to find that predominance and superiority were also absent.  Accordingly, it refused to certify the class.

The Magalhaes decision is interesting in two respects.  First, it involved the application of Dukes to an independent contractor misclassification dispute.  Second, the court avoided the temptation of certifying the case based on facial similarities among the putative class members’ claims, and decided certification based on the fact that those similarities could not resolve the case on a class-wide basis.

The Bottom Line:   The Dukes requirement of common proof can be a difficult obstacle to certification in independent contractor misclassification cases.


Eleventh Circuit Affirms Dismissal of RICO Claims

Posted in Class Action, Wage and Hour

Is there a statute with a better acronym than RICO?

The Racketeer Influenced and Corrupt Organizations Act, apart from its great acronym, has been both a great success and a tool for misuse.  We don’t often see RICO claims in the employment context, let alone employment class actions, and we can’t resist commenting on a recent Eleventh Circuit case addressing a claim that an employer violated RICO by depressing wages though the hiring of illegal aliens.

First, a history lesson.  RICO was passed to combat organized crime and, more particularly, the intersection of organized criminal activity and legitimate businesses.  The key to understanding RICO is that intersection, and the use of what it describes as “a pattern of racketeering activity” to acquire or run a legitimate business or to launder money.

Still too abstract?  There are four flavors.  Think about the stereotypical mob and we’ll use the waste removal business as an example.  If they go around and acquire all the local small trash hauling companies through subtle or less subtle threats that bad things might happen if they don’t sell, that might very well fit within RICO’s definition of “acquiring” an enterprise through a pattern of racketeering activity.  Once they acquire it, if they go around telling others that unless they use their garbage business, as opposed to someone else’s, something bad might happen, then they fit within RICO’s definition of conducting the affairs of an enterprise through a pattern of racketeering activity.  If they launder money through the business, then they are “investing the proceeds of a pattern of racketeering activity.”  Lastly, like many statutes, they can also “conspire” to do any of the above.

RICO was an early success when applied to genuine organized crime and has been credited with many successes.  In the 1980s, however, plaintiffs’ attorneys began to try to use RICO in routine business disputes.  This effort was aided by RICO’s deliberately broad definition of the so-called “predicate acts,” the criminal actions used to exploit or dominate legitimate business.  These included mail fraud (basically a fraud where the U.S. mails are used) or wire fraud (once the telephone and faxes, and now the internet).

Courts quickly became fed up with the misuse of the statute in garden variety business disputes and particularly in the late ‘80s and early ‘90s is was not uncommon to see courts with standing “RICO” orders that required explicit details regarding the “predicate acts”, the “pattern of racketeering activity,” and similar definitional phrases.   These claims also gave new life to Federal Civil Rule 9, relating to the need to plead fraud with specificity, and many RICO/fraud complaints were dismissed on that basis. When it became apparent that adding a RICO claim to a run-of-the-mill dispute, including an employment dispute, accomplished nothing other than irritating the judge and facilitating removal, such claims fell out of vogue.

So it is interesting to see, decades after RICO claims fell out of favor apart from genuine criminal activity, and after the subsequent Iqbal and Twombly opinions, a case from the Eleventh Circuit addressing a RICO claim that the employer acted to depress wages for its employees.  In Simpson v. Sanderson Farms, Inc., Case No. 13-10624 (11th Cir. Mar. 7, 2014), the plaintiffs worked at a large poultry processing plan in Georgia. They asserted state and federal RICO claims that the employer improperly depressed wages through, they claimed, hiring illegal immigrants at lower rates of pay and falsely representing that they were authorized to work in this country.  The primary “fraud” was the alleged knowing use of false immigration documents.

The Eleventh Circuit has recognized, at least in theory, that a claim of depressed wages though a pattern of racketeering activity could be recognized under RICO.  See Williams v. Mohawk Industries, Inc., 465 F.3d 1277 (11th Cir. 2006). The employer moved to dismiss those claims on the grounds that the complaint failed to allege either an injury or proximate cause with the requisite specificity under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009).

The district court dismissed the initial complaint without prejudice and also dismissed an amended complaint that narrowed the issues as much as anything else.

The Eleventh Circuit was even less impressed with the specificity of the allegations than the district court.  It noted that the plaintiffs conceded that they had, in fact, received wage increases, but had argued that the increases would have been higher but for the claimed illegal conduct.  It found no support in the complaint or amended complaint, however, apart from repetitive, conclusory allegations, to support that allegation.  It also rejected the plaintiffs’ market theory on the numerous grounds resting on the vague market definition and sparse facts.  Similarly, it found insufficient allegations to support proximate cause, either by comparison with actual wages or by a market theory analysis.  It therefore affirmed the dismissal of the complaint and amended complaint.

The Bottom Line: RICO claims can exist in the employment context, even on a class action basis, but must be pleaded with a high degree of specificity.

Ninth Circuit “Chases” Away Another Option for Removing PAGA Actions to Federal Court

Posted in Class Action Fairness Act, PAGA, Wage and Hour

Authored By: Jeffrey Bils

In yet another setback for employers seeking to remove California wage and hour cases to federal court, the Ninth Circuit held that the federal Class Action Fairness Act (“CAFA”) provides federal courts with no basis to assert jurisdiction over suits filed under the California Labor Code Private Attorneys General Act (“PAGA”) that are not pled as class actions.

Thursday’s decision in Baumann v. Chase Investment Services Corp., Case No. 12-55644, comes on the heels of Urbino v. Orkin Services, 726 F.3d 1118 (9th Cir. 2013), in which the Ninth Circuit held that potential PAGA penalties cannot be aggregated to meet the minimum amount in controversy requirement for federal diversity jurisdiction.  The net result of these two decisions is that employers now have fewer legal tools available to remove California PAGA claims to federal court.

PAGA, also referred to as the “Sue Your Employer Act,” allows California employees to step into the shoes of the state’s Labor and Workforce Development Agency if the agency declines to investigate alleged Labor Code violations.  PAGA empowers an employee to sue on his or her own behalf and in a representative basis on behalf of other current and former employees.  The stakes can be high: Statutory penalties under PAGA can be $100 for each aggrieved employee per pay period for the initial violation, and $200 for each subsequent violation.  For large employers, this can mean potential liability in the millions of dollars.

In Baumann, the employee brought PAGA claims in Los Angeles Superior Court alleging that Chase failed to pay overtime, provide meal breaks, allow rest periods, and reimburse expenses on time for its financial advisors.

Chase did what many employers have done in such circumstances:  It removed the action to federal District Court.  Chase asserted two bases to invoke federal jurisdiction: 1) diversity jurisdiction, in part because the amount in controversy exceeded $75,000 if all potential PAGA penalties and attorneys’ fees were aggregated; and 2) jurisdiction under CAFA.

CAFA creates federal jurisdiction for class actions in which the amount in controversy exceeds $5 million, the class has at least 100 members, and any member of the class is a citizen of a state different from any defendant.  CAFA defines a class action as any civil action filed under Federal Rule of Civil Procedure 23 (which governs class actions) or under a “similar State statute or rule of judicial procedure.”

Baumann asked the District Court to remand the case back to state court.  The District Court declined to remand, aggregating the potential PAGA penalties to invoke diversity jurisdiction.  Baumann appealed the District Court’s order denying Baumann’s motion to remand.

In its decision, the Ninth Circuit rejected diversity jurisdiction in a footnote, in which it cited to its decision in Urbino holding that aggregating PAGA penalties will not satisfy the amount in controversy requirement for federal diversity jurisdiction.  The bulk of the Baumann decision focuses instead on whether CAFA provides a basis for federal jurisdiction.

The Ninth Circuit resolved this question as a matter of statutory interpretation.  The Court examined whether a PAGA action, when compared with a Rule 23 class action, could be regarded as a “similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action,” as required by CAFA.  The panel’s resounding answer: No.

Why not?  Because, according to the court, PAGA does not include many of the requirements that are built into the federal Rule 23 requirements for class actions.  For example, the Ninth Circuit panel noted, unlike Rule 23, PAGA does not require unnamed aggrieved employees to be provided notice of the lawsuit, and PAGA does not permit those employees to opt out.  Nor does the trial court look into the ability of the named plaintiff and class counsel to represent the unnamed employees fairly and adequately, as Rule 23 would require.  In addition, the panel noted, “PAGA contains no requirements of numerosity, commonality, or typicality.”  And PAGA judgments do not have the same binding and preclusive effects as a Rule 23 class action judgment.

The panel also noted that “[b]ecause an identical suit brought by the state agency itself would plainly not qualify as a CAFA class action, no different result should obtain when a private attorney general is a nominal plaintiff.”

The panel reversed the District Court and remanded with instructions to grant Baumann’s motion to send the case back to state court.

The Bottom Line:  For employers, the Baumann decision is the second shoe dropping after the Urbino decision last year took away the possibility of aggregating PAGA penalties to meet the minimum amount in controversy requirement for federal diversity jurisdiction.  With these two decisions, the law is more clear and removing a PAGA action to federal court is even more difficult than before.