The Southern District of New York Rules That Internships Must Be Educational (Unlike the Vince Vaughn and Owen Wilson Film of the Same Name)

Posted by Jeffrey Vlasek on June 14, 2013

It has been said that the vast majority of movies coming out of Hollywood these days are “brainless.”  Despite that (often accurate) description, there are always a handful of films that manage to squeak into theaters and earn critical praise for their intelligent, thought-provoking stories, and educate the audience on a particular subject matter or character.  It is ironic, perhaps, then that the critically praised Black Swan, which garnered Natalie Portman a Best Actress Oscar in 2011, was the subject of a lawsuit brought by several interns who claimed that their unpaid internships on set were so brainless and devoid of education that they were more properly classified as employees.  The Southern District of New York agreed with the plaintiff interns and ruled that they (and the class) were, in fact, performing the work of employees and were therefore entitled to the rights and benefits thereof.

Before pecking into the meat of the court’s decision in Glatt, et al. v. Fox Searchlight Pictures, Inc., Case No. 1:11-cv-06784 (S.D.N.Y., June 11, 2013), it is worth noting that the case spans the country from coast to coast.  The action was brought as a putative class (and collective) action under the Fair Labor Standards Act, New York Labor Law, and California Unfair Competition Law.  This alone makes the fact that the plaintiffs won summary judgment and class certification on the question of their employment status potentially devastating for employers nationwide.

In support of its ruling for the plaintiffs, the court turned its lens on to examine what the plaintiffs were doing as “unpaid interns” for Fox Searchlight.  Because the FLSA demands that any employer who “suffers or permits work” must compensate its employees, the statute enumerates six criteria for determining whether an internship may be unpaid:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion, its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship;
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent on the internship. 

Id. at *31.  Put into shorthand, the film studio could not “feather its nest” during the production of Black Swan by “hiring” unpaid interns to perform work that would otherwise have gone to paid assistants or aides.  An internship should be an educational experience that benefits the intern (and less so the studio).  The closer to an educational environment (not necessarily a “classroom” environment), the more likely that a court will find the internship may be unpaid without violating the FLSA.  It was in this regard that Fox Searchlight laid a big, fat egg.

The record displayed that the interns were performing “routine tasks that would otherwise have been performed by regular employees.”  Id. at *37.  For example, one of the plaintiffs spent his time obtaining documents for personnel files, picked up checks for coworkers, tracked and reconciled purchase orders, traveled to the set to get signatures, making photocopies, organized file cabinets, drafted cover letters, assembled office furniture, took out the trash, took lunch orders, made deliveries, and ran errands.  In the court’s eyes, “This is work that otherwise would have been done by a paid employee.” 

The court did point out that while the interns did receive some benefit from the work in the form of resumé listings, job references, and an understanding of how a production office works, those benefits were “incidental” to working in the office like “any other employee” and were not the result of a structured internship that was designed specifically to benefit them. 

Ultimately, the ruling will ruffle more than a few feathers.  Unpaid internships (both in the film industry and for any employer) are a source of potential litigation as employers continue to try to find a golden egg by acquiring low-cost labor in a difficult economy.  In fact, just over a month ago, we noted a case from the same district that denied conditional certification for interns.  Wang v. The Hearst Corporation, Case No. 12-CV-793 (HB) (S.D.N.Y. May 8, 2013).  The court in that case, however, denied the plaintiffs’ motion for class certification without spending a great deal of time analyzing what duties the interns performed. 

It is notably apropos that just last weekend, Hollywood uncaged the derided (and likely brainless) The Internship upon the world.  While it is unlikely that the Southern District of New York timed its decision in Glatt to coincide, the fact remains that employers must be more vigilant than ever to ensure that any unpaid interns are, in fact, meeting the necessary criteria of the FLSA.  Merely finding an individual who is willing to “work for free” is not enough.

The Bottom Line: This a dangerous case for employers, plain and simple.  Fox Searchlight now faces an uphill battle, given that the plaintiffs have a certified class and a summary judgment ruling finding that they are properly classified as employees, rather than unpaid interns. 

*Please note that this author specifically avoided using the obvious comparison to “The Ugly Duckling.”  Until now.

Oxford Health Plans v. Sutter - The Perils of Choosing an Arbitrator to Resolve Potential "Gateway Matters"

Posted by John Lewis on June 11, 2013

Co-Authored by: Dustin Dow

A unanimous Supreme Court held on Monday that when a party agrees that an arbitrator should decide if an agreement authorizes class arbitration, that party cannot later seek judicial intervention if it disagrees with the resulting award.  Because even if the arbitrator makes a “grave error” in interpreting a contract to authorize class arbitration, a court may not correct that error “[s]o long as the arbitrator was ‘arguably construing’ the contract.”  The Court’s ruling disappointed some who expected an expansion of its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. which held that an arbitration panel exceeded its authority when class procedures were imposed based on an agreement that was silent on whether the procedures were authorized. 

The ramifications of Monday’s opinion in Oxford Health Plans, LLC v. Sutter, No. 12-135, 569 U.S. ___ (2013), are unlikely to profoundly impact arbitration or class action law.  But the case does offer a clear lesson in what not to do.  A party hoping to avoid class arbitration should not agree that it is for the arbitrator to decide whether the parties agreed to class arbitration.  Yet, respondent Oxford Health Plans did just that and then attempted to rely on Stolt-Nielsen to argue that the arbitrator “exceeded his powers” under the Federal Arbitration Act when he decided that the parties agreed to it.  Thus, Oxford Health Plans reached the Court under significantly different circumstances than the Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), and the resulting opinion was constrained by them.

In Stolt-Nielsen, the Court held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  559 U.S. at 684.  In that case, the parties stipulated to the absence of an agreement on class arbitration.  And because there was no underlying agreement, the Court held that an arbitrator exceeded his authority in ordering a party to class arbitration without evidence of any agreement to participate in class arbitration. 

In contrast, Oxford Health Plans did not argue that class arbitration was outside the arbitrator’s jurisdiction.  Instead, as the Supreme Court stated in a footnote, Oxford Health did quite the opposite.  It “agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures.”  Once Oxford Health agreed to an arbitral determination (and renewed it a second time in the wake of the Stolt-Nielsen decision), its fate was controlled by the arbitrator who determined that the parties had agreed to class arbitration.  Writing for the Court, Justice Elena Kagan noted that “Oxford chose arbitration, and it must now live with that choice.” 

Oxford Health Plans allowed Justice Kagan to emphasize the limited judicial review of arbitration awards.  As she reaffirmed, “the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”

A concurring opinion by Justice Samuel Alito addressed the viability of class-action arbitration.  The clause from which the Oxford Health Plans arbitrator construed intent to agree to class arbitration was far from explicit, stating generally:

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rule of the American Arbitration Association with one arbitrator.”

Because Oxford had agreed that the arbitrator should decide whether there was an agreement to class arbitration, the Court was limited in its ability to review the arbitrator’s decision.  As Justice Alito commented:  “[i]f we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred “[a]n implicit agreement to authorize class-action arbitration . . . from the fact of the parties’ agreement to arbitrate.’ ” (quoting Stolt-Nielsen, 559 U.S. at 685.)  Justice Alito expressed particular concern about absent class members who obviously did not stipulate for an arbitrator to decide the class arbitration issue and had never agreed to class arbitration.  Accordingly, “it is far from clear that they will be bound by the arbitrator’s ultimate resolution of this dispute,” Justice Alito cautioned,  “[A]n arbitrator’s erroneous interpretation of contracts that do not authorize class arbitration cannot bind someone who has not authorized the arbitrator to make that determination.”

Bottom Line:  The unanimous opinion in Oxford Health Plans does not expand Stolt-Nielsen but in footnote 2 gives a clue that future cases may hinge upon whether class arbitration is a gateway question of arbitrability for the court to decide.  And, that an arbitrator’s determination on such an issue may be subject to de novo review by a court.  Justice Alito’s concurrence also highlights the potentially limited benefits of agreements for class arbitration when they are found to exist.

After Stolt-Nielsen and Oxford Health Plans, employers that want to avoid class arbitration should not stipulate that the issue of whether the parties agreed to class arbitration is for the arbitrator to decide.  Further, most arbitration clauses now have class action waivers and employers should at least consider their potential impact.  Finally, employers should be aware that several key decisions on the validity of those waivers are expected shortly.

Pennsylvania District Court Denies Certification Of Off-The-Clock Case (Again)

Posted by Greg Mersol on June 07, 2013

“If at first you don’t succeed, try, try, again,” or so the adage goes.  A recent case suggests that may not always be the right strategy or, more apropos to this blog, that off-the-clock cases make poor fodder for class action claims. 

In Hernandez v. Ashley Furniture Industries, Inc., Civil Action No. 10-5459 (E.D. Pa. May 22, 2013), the plaintiffs brought suit under the Pennsylvania wage and hour statutes, as well as for unjust enrichment and breach of contract, for alleged unpaid wages, allegedly on behalf of 5,700 employees.  The crux of their claim was that the employer encouraged them to shorten their unpaid lunch periods or to work extra time before or after their shifts without pay. 

One interesting feature of the case was the technology the company used to enforce the fact that employees were not expected to work during their unpaid 30-minute meal period, for which there was an automatic deduction.  The employer’s manufacturing equipment actually shut down during meal periods to prevent employees from performing work during their meal time.  In practice, however, supervisors could, and apparently at times did, override the shutdown so that employees could work.  The employer’s time-keeping systems also recorded the times that the employees actually punched into work and when they actually began working on a production line.

The plaintiffs moved for class certification, but the district court initially denied their motion for lack of evidence, permitting them, instead, to obtain expert testimony to support their claims.  They did so, and their expert testified as to various damages scenarios that depended upon the specific conclusions of the finder of fact.

That qualification proved, at least in part, to be fatal to the plaintiffs’ second motion for class certification.  The court examined the named plaintiffs’ claims, and found that their off-the-clock allegations varied by supervisor and even by the production line on a particular day.  Further, the employees worked under different schemes, whether purely hourly or on an incentive plan.  The court refused to extrapolate claims from “representative” plaintiffs, consistent with the prohibition on “Trial by Formula” set forth in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ____ (2011).  Thus, the court ultimately refused to certify again based on any of the state law claims the plaintiffs had asserted.

The Hernandez case underscores the need for a uniform practice in off-the-clock cases, a requirement that will often prove elusive.  Off-the-clock cases, by their very nature, generally involve individual departures from the employer’s lawful uniform policies, rather than a uniform policy that violates applicable law.  From the employer’s standpoint, however, it also demonstrates that the human element can create the risk of off-the-clock claims even when it creates systems to prevent work from being performed during unpaid time.

The Bottom Line:  Off-the-clock cases remain tough cases to certify because of the inherent need to examine the situations of each individual plaintiff.

Sixth Circuit Affirms Refusal to Certify Disparate Impact Sex Discrimination Case

Posted by Greg Mersol on May 31, 2013

On May 30, 2013, the Sixth Circuit issued its decision in Davis v. Cintas Corporation, Case No. 10-1662 (6th Cir. May 30, 2013), in which it upheld a district court’s refusal to certify a disparate impact Title VII case, but interestingly found that questions of fact precluding summary judgment on the lead (and now only) plaintiff’s individual claim.   The Davis case provides guidance on a number of issues including the continued application of the decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), efforts by plaintiffs to find clever ways around Duke’s holding, and related challenges to employment practices under a disparate impact theory.

This is the third blog we’ve written on essentially the same two cases brought in the Northern District of California and the Eastern District of Michigan against uniform supplier Cintas.  These cases involve alleged conduct as far back as 2003, ten years ago, but the litigation is ongoing.  Our prior postings, which discuss the EEOC’s involvement, were referenced in September 2010 and November 2012. 

In a nutshell, the plaintiffs and EEOC assert that Cintas discriminated on the basis of sex in hiring for its entry-level sales positions. In the Davis case the plaintiff asserted both disparate treatment and disparate impact claims and purported to bring those claims on behalf of a class of unsuccessful female applicants for those positions.  The district court refused to certify the class, citing differences among hiring managers at different locations, as well as conflicts among the then plaintiff representatives and the proposed classes.  It ultimately granted summary judgment against Davis on her individual claims.

Along the way, several other plaintiffs dismissed their individual claims, so that only Davis herself appealed.  While the appeal was pending, the United States Supreme Court decided the Dukes case.

The plaintiff appeared to have made the right arguments at the time the case was before the district court.  First, it is apparent that during the course of the case she patterned her class claims after the ones successful (at least up until 2011) in Dukes. She challenged the company’s hiring practices on a nationwide basis.  She blamed the company’s “corporate culture” for the alleged discrimination, and presented both statistical and anecdotal evidence to support her claims.  In parallel with that approach, she pointed to the company’s detailed hiring policies as well as the fact that the same system was used on a nationwide basis.  She also retained an expert to assert that the company had a “white-male dominated business culture.”   The problem, of course, with that approach was that once the Ninth Circuit’s decision in Dukes was overruled, it was largely a foregone conclusion that the Cintas case could not be certified either.  In fact, relying heavily on Dukes, the Sixth Circuit found that the plaintiff could not establish commonality under Rule 23(a)(2) due to the involvement of individual managers in hiring decisions. 

The district court had also declined to certify the case due to a lack of predominance and superiority under Rule 23(b)(3), a ruling the plaintiff did not challenge.  Instead, she asserted that the case should have been certified under Rule 23(b)(2), but, of course, the Dukes decision precluded that avenue as well because she had prayed for front and back pay, inherently individual relief.  The plaintiff tried to side-step Dukes by arguing that she was not advocating “trial by formula,” but, rather a “short-fall based model,” but the court found that, if anything, her model made the problems that troubled the Supreme Court in Dukes even worse.  Absent commonality under Rule 23(a), it didn’t matter whether the plaintiff could establish Rule 23(b)(2) because the case could not have been certified anyway.

The court also addressed the grant of summary judgment and, here, gave the plaintiff some relief although it also gave a very positive ruling for employers generally on disparate impact claims.  Davis sought to challenge the company’s hiring policies as a whole on a disparate impact basis, but the Sixth Circuit held, consistent with Supreme Court authority, that she could not attack the hiring process itself but had to challenge some discrete employment practice.  Davis advanced the argument that she was singling out the subjective aspects of the company’s hiring process, but the Sixth Circuit held she could not do so unless she could show that they were “so intertwined that they were not capable of separation for analysis.”  The fact that different managers conducted different interviews under different guidelines precluded such a claim.

While affirming the dismissal of Davis’s disparate impact claims, the court did find a question of fact as to one of her disparate treatment claims, arising in 2003, based upon a comparison of Davis and the facially equal or weaker qualifications of the male candidates who advanced in the hiring process.  The court remanded the case for further consideration of that claim.  The case as a whole had to be a disappointment for the plaintiffs, however, as they had hoped for a broad nationwide disparate impact case and ended up with a decade-old single-plaintiff disparate treatment case.

The bottom line:  The Dukes case remains a considerable bar to challenges to nationwide hiring and employment practices.  Plaintiffs cannot skirt the need in disparate impact cases to identify a specific employment practice simply by pointing to subjective decisions generally.

Court Partially Dismisses and Denies Conditional Certification In Tip-Credit Case

Posted by Greg Mersol on May 23, 2013

Anyone who has dined at a restaurant is aware of the importance of tipping, even if the exact rules, like the percentage and how it should be calculated, may be a bit fuzzy at times.  From the standpoint of the restaurant, too, the standards of what may or may not be tipped work for taking advantage of the FLSA’s tip credit may be less than clear.   A recent case from the Northern District of Indiana demonstrates not only some of the issues to be considered, but also that it may be difficult for a plaintiff to pursue claims challenging the amount of tipped work on a class-wide basis. 

In Roberts v. Apple Sauce, Inc., Cause No. 3:12-CV-830-TLS (N.D. Ind. May 13, 2013), the plaintiff, a former Applebee’s waitress, brought suit against the franchisee for whom she had worked, contending that it had not properly taken advantage of the tip credit exception contained in section 6(a)(1)(C) of the FLSA.  The significance of such a claim, by the way, is that if the tip credit does not apply the employer cannot take advantage of tips to make up the difference between $2.13 per hour and the minimum wage (or a difference of $5.13 per hour at present).  The crux of the plaintiff’s claim was that she was required, in addition to waiting tables, to perform various non-tipped duties such as dishwashing, food preparation, cleaning the kitchen and bathrooms (hopefully at very different times), and trash removal.  She also contended, somewhat incredibly, that she had not been advised that the employer would be taking advantage of the tip credit, a specific requirement of the applicable regulation.  As if often the case, she sought to pursue her claims on a collective basis on behalf of the wait staff at 24 Applebee’s restaurants.

The defendant moved to dismiss the claims under Rule 12(b)(6), and the plaintiff, in essence, sought conditional certification of the proposed class as well as to toll the statute of limitations.  In a relatively compact but thoughtful opinion, the court granted the motion to dismiss, at least in part, but also denied the plaintiff’s motions.  As to the motion to dismiss, the court noted that the Department of Labor guidance specifically recognized that incidental duties such as “general preparation work or maintenance” like cleaning, table-setting, making coffee, and dishwashing, did not destroy the exemption so long as they do not exceed 20% of the tipped employee’s time.  The court noted that despite the general allegation that such work was done, the precise allegations were somewhat “sparse.”  Citing the pleading standard of Ashcroft v. Iqbal, 556 U.S. 662 (2009), the court dismissed that aspect of the plaintiff’s claims.

The court did find that the complaint stated a claim that the employer had failed to inform her that it would be taking advantage of the tip credit. Of course, the court was obligated under the applicable standard to accept the allegations of the complaint as true, but one could legitimately question in this day and age how a waitress would not realize that she was receiving a sub-minimum wage and that the employer was taking a credit for tips to make up the difference.  While the court held that the complaint stated such a claim, however, it also found that it relied upon what the plaintiff was told in orientation, not a uniform policy, and that the case could therefore not be handled as a collective action.  It therefore denied conditional certification and it also rejected tolling because there were no extraordinary circumstances that would justify tolling the statute of limitations.

The Roberts case is significant because the court took at least a cursory review of the plaintiff’s claims and denied conditional certification even though it found that she had stated, at least in part, a claim.  A contrary holding would have resulted in a class being conditionally certified that likely would have been decertified only after the parties had spent considerable sums advancing or defending their claims.

The bottom line:  A court has denied conditional certification of a tip credit case because of the need for individual inquiries.

California Courts Issue Multiple Decisions for Employers in Class Cases

Posted by Greg Mersol on May 17, 2013

Just two years ago, a California case declining certification of an action would have been cause for comment.  But since then, in 2011 the United States Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011); in 2012 the California Supreme Court decided Brinker Rest. Corp. v. Superior Court, 53 Cal. 4th 1004 (2012); and only weeks ago the United States Supreme Court decided Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).  We’ll save for another blog the effect of the Supreme Court’s decisions on arbitration in California.  Since the beginning of this year, several California courts have refused to certify cases or have even decertified cases that had previously been certified.  Just some of these cases include:

Forrand v. Federal Express Corp., Case No. 2:08-cv-01360-DSF-PJW (C.D. Cal., Apr. 25, 2013).  Citing Comcast, the Central District of California declined to certify a class of hourly workers in an off-the-clock case claiming violations of California law.  The case had previously been remanded by the Ninth Circuit on the certification issue to consider the question of employer control.  The district court concluded that the plaintiffs could not meet Comcast’s requirement that they both develop a method to measure damages AND tie each class member’s recovery to that theory in a reliable manner that could be managed on a class-wide basis.

Zulewski v. The Hershey Company, Case No. 4:11-cv-05117-KAW (N.D. Cal., Apr. 23, 2013). In Zulewski, the plaintiffs brought suit on behalf of a proposed class of retail service representatives who claimed that they were misclassified as exempt under state and federal law.  The court granted the defendant’s motion to deny certification brought under the rubric of Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009).  Interestingly (in light of the issue of commonality addressed in Dukes), although the court found that their claims met the commonality and typicality requirements, they could not maintain their claims as a class because they could not meet the predominance standard of Rule 23(b)(3).

Alberts v. Aurora Behavioral Health Care, Case No. BC419340 (Los Angeles Sup. Ct., Apr. 10, 2013).  The Los Angeles Superior Court denied certification of a class of health care workers at two area psychiatric hospitals claiming violation of California’s rest and meal period requirements due to factual variations among their claims.

Dailey v. Sears, Roebuck & Co., Case No. D061055 (Cal. Ct. App., 4th Dist., Mar. 21, 2013). The California 4th District Court of Appeals upheld the denial of certification in a class action challenging the exempt status of Sears Auto Center managers and assistant managers, finding that individual issues predominated.

Heffelfinger v. Electronic Data Services, Case No. 2-07-cv-00101-MMM-E (C.D. Cal Feb. 26, 2013).  In a case with important ramifications in the technology industry, the Central District of California decertified a case it had previously certified following the remand of the action from the Ninth Circuit on its grant of summary judgment.  The district court concluded that the reverse of summary judgment necessitated individual inquiries, negating the element of predominance.

Pedroza v. PetSmart Inc., Case No. 5:11-CV-00298 (C.D. Cal. Jan. 28, 2013).  Pedroza was a garden-variety California wage and hour case in which the plaintiffs claimed that the PetSmart retail chain misclassified its store managers as exempt under California law.  Such claims were once routinely brought and almost as routinely certified.  The district court, relying on Dukes, found that commonality did not exist due to differences among the different managers’ situations and also found Rule 23(b)(3) predominance to be lacking.

Can California employers break out the champagne?  Hardly.  First, while the latest spate of cases has largely favored employers, courts are still ruling for employees under the right circumstances. Just a few days ago, in Faulkinbury v. Boyd & Associates, Inc., Case No. G041712 (Cal. 4th App., May 10, 2013), a California court of appeals largely reconsidered its own order affirming the trial court’s decision not to certify a meal period class and held that, under the circumstances, certification should have been granted. Second, some plaintiffs’ attorneys are exploring the use of conditional certification under the FLSA to take advantage of the easier “conditional certification standard.”  Most ominously, as reflected in the PetSmart case, there exists a conflict among California district courts as to whether a plaintiff must satisfy Rule 23 for claims under the Private Attorneys General Act (PAGA).  Certification is no longer a largely foregone conclusion, but cannot be dismissed out of hand either. Due to the large sums of money involved, we can expect to continue to see developments in this arena in the years to come.

The bottom line:  The tide may have turned on the easy certification of employment class action cases under California law, but don’t count them out yet.

Court Refuses To Certify Class of Unpaid Student Interns

Posted by Greg Mersol on May 13, 2013

Student internships can provide worthwhile benefits to the students involved, who gain experience, contacts, and accomplishments to place on their resumes.  Employers, too, can benefit from the work and insight of the intern, but may also want to take advantage of the benefits of free intern time.   Recognizing the benefit to the interns, the Department of Labor permits an intern’s time to be unpaid if, in general terms, the parties understand that it is unpaid and the arrangement is primarily for the student’s educational benefit 

In the wake of the recent recession, there has been a spate of lawsuits challenging whether various unpaid internships should be compensable because, it is generally argued, they are primarily for the benefit of the employer.  A recent case from the Southern District of New York, while suggesting that such claims might be viable, also exposes the problem for the plaintiffs that they are probably not suitable for class action treatment.

In Wang v. The Hearst Corporation, Case No. 12 CV 793 (HB) (S.D.N.Y. May 8, 2013), the plaintiff brought a putative class and collective action arguing that the employer, a magazine publisher, improperly refused to pay its interns because, she argued, the internships were primarily for its own benefit.  Several other interns opted into the litigation.  The plaintiff claimed that the class had 3,000 potential members.  The defendant moved for summary judgment and the plaintiffs moved for class certification.

The court first addressed, in a straightforward fashion, the allegations of the plaintiffs and opt-ins and whether the employer was entitled to summary judgment.  The court looked to the Department of Labor’s Fact Sheet No. 71 at least for a framework to review the employer’s actions.  Incidentally, as noted by the court, there is a substantial split of authority as to whether the fact sheet is binding, whether it is simply a guide, and the extent to which all six factors must be satisfied. The factors set forth in that fact sheet are:

(1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

(2) The internship experience is for the benefit of the intern;

(3) The intern does not displace regular employees, but works under close supervision of existing staff;

(4) The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

(5) The intern is not necessarily entitled to a job at the conclusion of the internship; and

(6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The court found that while the defendant had clearly established some of the elements necessary for an unpaid internship, other elements differed by degree, such as the amount of training, the level of supervision, and the benefit to the employer.  It thus denied summary judgment.

But for the same reasons, the court also denied the plaintiffs’ motion for class certification.  Although the employer had a uniform policy of not paying interns, it found that the fact that such an analysis was required and the variations among different departments meant that Rule 23(a) commonality did not exist.  Further, it found no superiority or predominance under Rule 23(b)(3) due to the need for individualized proof.  Thus, the court found no basis to certify the proposed class.

The Wang case is significant for at least two reasons.  First, it is one of the first cases in what could have been a wave of litigation involving unpaid internships generally.  While employers should obviously not take advantage of student interns, a contrary holding would have discouraged employers from having such programs and had a negative effect on hands-on educational opportunities for students.

Second, the Wang case reveals one of the fundamental issues in these types of actions.  Plaintiffs will often seek certification based on uniform policies, but then argue inconsistently that individual differences or issues create fact issues when the employer moves for summary judgment.  The Wang court, by ruling on both motions at the same time, shows that these cases are best handled on an individual basis.

The bottom line:  Cases challenging unpaid internships are generally not suitable for class action treatment.

 

Pennsylvania Court Denies Certification Of Disability Discrimination Claims

Posted by Greg Mersol on April 26, 2013

In the vast majority of discrimination cases, there is little dispute over whether the plaintiff is actually in a protected group.  For example, in sex discrimination cases, for the most part, they are either male or female; in age cases either over or under 40.  Despite the demographic changes in the country, there are few disputes over whether even a plaintiff of mixed ancestry belongs in a particular group for purposes of race discrimination claims.

But disability claims are different.  While with the ADAAA the definition of a disability has been expanded under federal law, there remain threshold questions of whether the plaintiff is even in a protected group.  If so, there remain questions as to the extent of the disability and whether the plaintiff can perform the essential functions of the job.  While there is a generally limited number of genders, races, and ages, there are likely hundreds of conditions that may be considered disabilities.  Further, the admonition under most disability discrimination statutes includes the requirement of reasonable accommodation, one that virtually by definition requires an individual consideration of the plaintiff’s condition and job circumstances.

Because of these highly individualized inquiries, disability discrimination claims generally make poor candidates for class action claims, as a recent case from the Western District of Pennsylvania demonstrates.  In Semenko v. Wendy’s International, Inc., Case No. 2:12-cv-0836 (W.D. Pa. Apr. 12, 2013), the plaintiff brought a putative class action against the Wendy’s fast food chain for alleged disability discrimination under federal and Pennsylvania law.  With respect to her own claim, she contended that Wendy’s failed to accommodate her degenerative arthritis after her return for a leave of absence. 

As an aside, while any disability may be difficult to treat on a class basis, degenerative arthritis is an especially hard condition as it differs greatly even among those who have it and, as the name reflects, changes over time even for one individual.  The plaintiff further was not helped by a relatively vague class definition that simultaneously referenced accommodations after returns from leaves of absence and accommodations generally.  Even during the course of briefing, she shifted her class definition to include reference to “permanent medical restrictions” and those who “applied for long-term disability benefits.”  As suggested below, the plaintiff may not have aided her own cause by failing to have a clearer class definition.

In any event, the employer filed a Rule 12(f) motion to strike the class allegations without awaiting discovery.  The court noted that such a motion could only be granted in “rare” cases, but in a welcome burst of common sense, found that it was facing just such a case.  Citing the decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), it found no commonality due to the need to determine whether each potential class member was disabled and “otherwise qualified.”  The need for the additional personalized inquiries under the ADA made such cases even less appropriate for class action treatment than those under Title VII.  It similarly found that the claims would require consideration of whether the class member requested accommodations, the reasonableness of the proposed accommodations, undue hardship, and the ultimate question of whether the employer had discriminated against the individual.  These inquiries undercut both the elements of commonality and typicality.  Further, the court found that the need for individualized inquiries made Rules 23(b)(2) and 23(b)(3) inapplicable due to the prayers for money damages and the lack of sufficiently predominant class issues.  The court therefore struck the class allegations.

The Semenko case underscores the problems with plaintiffs trying to seek certification of ADA classes.  While some courts have certified such cases, they are particularly hard in the absence of a uniform policy or a tight definition of the types of disabilities to which it applies.

The bottom line:  Plaintiffs seeking to assert class-wide disability claims face an uphill battle.

Ninth Circuit Finds Rule 23 Class Actions and FLSA Collective Actions Compatible

Posted by Greg Mersol on April 18, 2013

As we’ve noted before, circuit court authority on collective action issues is relatively sparse.  Although we like to comment on such cases, the most recent such opinion is in many respects a nonevent.

Several lower courts have refused to combine state law Rule 23 class actions and federal FLSA collective actions in the same case, citing troublesome case management issues and likely confusion among class members due to the Rule 23 opt-out rights and FLSA opt-in requirements.  Courts of appeal, however, have generally found no inherent conflict.  See Knepper v. Rite-Aid Corp., 675 F.3d 249 (3d Cir. 2012); Ervin v. OS Res. Servs., Inc., 632 F.3d 971 (7th Cir. 2011).

On April 12, 2013, the Ninth Circuit joined the Third and Seventh Circuits in holding that there is no theoretical bar to maintaining both a class and collective action in the same case.  Busk v. Integrity Staffing Solutions, Inc., Case No. 11-16882 (9th Cir. Apr. 12, 2013).  In that case, Integrity Staffing operated warehouses in Nevada that filled orders for web retailer Amazon.com.  It required hourly warehouse employees to undergo security checks at the end of the day and upon leaving their work areas for lunch.  They contended that they were not paid for the time waiting for the security checks, which could take upwards of 25 minutes. They sought a Rule 23 class action under Rule 23 and a collective action under section 16(b) of the FLSA.  The district court dismissed the state law class action as incompatible with section 16(b) and dismissed the remaining claims on the merits.

On appeal, the Ninth Circuit found without much difficulty that the time waiting for security checks was at least arguably compensatory time, distinguishing the case from situations in which security was being undertaken for reasons other than the employer’s purposes.  See, e.g,. Bonilla v. Baker Concrete Construction Co., 487 F.3d 1340 (11th Cir. 2007) (time spent in airport security not compensable).  It did, however, find no claim for alleged disruptions in the employees’ lunch periods.  Most importantly for purposes of this discussion, also found no inherent incompatibility between a Rule 23 state law class action and an FLSA collective action, and remanded the case.

So, is Busk a significant case?  Not so much.  While some plaintiffs have attempted to combine class and collective action claims, they frequently do not and for good reasons.  Over a dozen states, for example, including Texas, have no FLSA equivalent.  In California, generous state law penalties and, at least until recently, ready certification render FLSA claims far more complicated and less attractive.  Even in other states, a plaintiff may prefer FLSA collective actions due to the lower standards for conditional certification and increasing difficulties in obtaining Rule 23 certification in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), and other authority.  Further, while orders granting conditional certification are not appealable, Rule 23 grants of certification may be under Rule 23(f).  There are many other reasons not to include both types of claims, including the different standards under different state laws and the likelihood that trying to graft a Rule 23 class action onto an FLSA collective action may make the task of decertification of the FLSA claim that much easier for the employer.

At the same time, nothing in Busk or the other circuit court decisions requires the use of both a Rule 23 class and a section 16(b) collective action.  When such situations are presented, employers are likely to raise a host of arguments related to commonality, typicality, predominance, superiority, and adequacy of representation that will tarnish the 16(b) collective claims as well.  The Busk decision simply leaves these arguments to a different stage of the case.

The Bottom Line:  The Ninth Circuit joins other courts of appeals in holding that a Rule 23 state law class action can theoretically be combined with an FLSA collective action, but the decision will have little practical impact in most cases.

Supreme Court Upholds Use of Rule 68 Offers of Judgment in FLSA Collective Actions

Posted by Greg Mersol on April 16, 2013

Today the United States Supreme Court delivered an unexpected present to employers facing FLSA collective actions and held that a defendant may moot such a case by making a Rule 68 offer of judgment to the named plaintiff.  Genesis Healthcare Corp. v. Symczyk, Case No. 11-1059 (Apr. 16, 2013).  We wrote about the lower court’s decision in Symczyk on September 8, 2011 [link], as well as a similar case decided by the Ninth Circuit at roughly the same time, Pitts v. Terrible Herbst, Inc.  In the Symczyk case, the  plaintiff brought FLSA claims challenging the employer's use of an “auto-deduct” policy for meal periods.  Along with its answer, the defendant made a Rule 68 offer to the plaintiff of judgment for $7,500, plus attorney fees and costs to be determined by the court.  The offer, by its terms, was open for 10 days. When the plaintiff did not respond to the offer, the defendant moved to dismiss the case. The district court dismissed the FLSA claims on the basis of Rule 68 and remanded the remaining state law claims. The Third Circuit, however, citing its concern that a defendant could simply “pick off” named plaintiffs in FLSA collective cases by using Rule 68, reversed.

The Supreme Court reversed the Third Circuit and found that the district court had correctly dismissed the case.  Because the plaintiff did not contest that her own personal claim would have been satisfied by the offer, the majority assumed that it did, indeed, moot her individual claim.  This is a significant assumption because, as noted by the dissent, not all circuits agree that an unaccepted offer, as opposed to one the plaintiff does accept, will moot a plaintiff's claim.  Finding the claim moot, the Court concluded that the had no personal stake in the outcome of the remainder of the case.  It further found that there was no basis to have claims of other future opt-ins “relate back” because at the time the employer filed its Rule 68 offer, no motion to certify a class was pending.  The Court specifically rejected the argument that a district court could disregard an offer of judgment to prevent a defendant from “picking off” plaintiffs. It found that such concerns could only arise in cases under Rule 23, such as certain Constitutional claims, in which the relief sought was “transitory” or “fleeting.”  Claims under the FLSA are not “fleeting” because they involve monetary damages. 

The Court concluded that an offer of judgment under Rule 68 that satisfies the representative plaintiff’s claims moots a putative collective action under the FLSA.

As we noted before, courts have been less than receptive to offers of judgment.  Decisions like that of the Third and Ninth Circuits, which presume an improper motive on the part of the defendant,  ignore the fact that FLSA collective action litigation is unduly expensive and time-consuming even for employers that have complied with the statute.  As with the issue of arbitration and the Supreme Court’s decision in AT&T Mobility v. Concepcion, 563 U.S. ____(2011), it may be that this decision will start a thaw in the courts’ reluctance to enforce Rule 68’s provisions.  With this opinion, offers of judgment may become a more viable means for employers to cut off FLSA collective actions brought by individual disgruntled employees before undertaking the substantial cost of their defense.

Offers of judgment, however, are still not a panacea for collective action woes.  First, to make such an offer, one must agree to pay the amount of the claim and attorney fees.  The amount of the claim may not be ascertainable, and with a potential three-year statute of limitations and liquidated damages, the amount in many cases may be substantial.   If, for example, a well-compensated employee complains of having been misclassified and of working 10 hours per week of overtime, the number may fall into the tens of thousands of dollars and lose the right to demonstrate that the number of hours worked was far lower or, for that matter, its defense on the merits. The defense is also taking on an unknown quantity of attorney fees and will likely have to incur the cost of litigating what a reasonable fee might be.  If there are state law Rule 23 claims, the offer may be of lesser utility, although this issue is unsettled.   Moreover, there remains a split in the circuits as to the effect of such an offer if the plaintiff rejects it, as well as the serious skepticism with which courts have greeted Rule 68 offers in the past.  Even with this new Supreme Court decision, offers of compromise will not be of benefit in every case, but might be considered as part of an overall strategy.

The bottom line:  The Supreme Court has held that a Rule 68 offer of judgment to the named plaintiff may moot the case, but such offers should still be explored carefully before making them.