Ninth Circuit Denies Rule 23 Class Certification Based On Actual Duties

Posted by Todd Dawson on March 26, 2012

Is the GOP slipping something into the water supply in San Francisco?  Do they know some dirty secrets about some Ninth Circuit judges?  Has the whole world gone crazy?

The Ninth Circuit’s decision a few days ago in Delodder v. Aerotek, Inc. continues an encouraging—and surprising—trend in Ninth Circuit wage and hour law toward emphasizing actual duties in overtime misclassification cases rather than standardized job descriptions and other such materials.   The plaintiffs in Delodder claimed that they were misclassified as exempt for overtime purposes under California state law.  They sought class certification under Rule 23(b)(3) on the basis that their work responsibilities were subject to the same common employment policies.  The district court, however, denied class certification based on evidence of variations in the plaintiffs’ actual duties, and the Ninth Circuit affirmed.  In particular, the Court of Appeals agreed that it is proper to accord greater weight to variations in actual responsibilities than to standard corporate policies.  The Court also emphasized the individualized nature of the inquiry regarding whether an employee exercises sufficient discretion to be classified as exempt.

The Ninth Circuit’s view of the California administrative exemption expressed in Delodder is also encouraging.   The Delodder plaintiffs claimed that their duties were not “directly related to management policies or general business operations.” Referring to this argument as a “losing theory,” the Court agreed with the district court that the plaintiffs were engaged in “meeting the needs of Aerotek’s customer companies,” which the Court found is within the scope of the administrative exemption’s “general business operations” prong.

The Delodder decision would be an encouraging sign on its own.  But, viewed in line with Ninth Circuit cases such as  Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009), Mevorah v. Wells Fargo Home Mortg., 571 F.3d 953 (9th Cir. 2009), and Marlo v. UPS, Inc., 2011 U.S. App. LEXIS 8664 (9th Cir. Apr. 28, 2011), it seems that it may be part of something bigger.

 Of course, it’s still the Ninth Circuit, so who knows?

The Bottom Line: The Ninth Circuit is issuing opinions that appear to rein in many lower court holdings that made certification of wage and hour cases easier for plaintiffs.

Supreme Court Denies Certiorari Of Second Circuit Opinion Requiring Class-Based Arbitration

Posted by Todd Dawson on March 26, 2012

"Stolt Who . . . .?"

If you've heard a rushing sound in your ears the last few months, it may be the rug being pulled out from under employers who thought they finally had clarity on the legal status of class arbitration.  (Or, it may be a serious medical condition, so you should probably get it checked.)  On the heels of the National Labor Relations Board's decision to dip its toe—or, more aptly, to do a giant-sized cannon ball—into the class arbitration waters (which we wrote about here), the Supreme Court's denial of certiorari in Jock v. Sterling Jewelers, Inc.pdf. has introduced further uncertainty regarding the import of recent Supreme Court authority. 

The Jock case’s procedural history reads like it was dreamt up for a law school exam by the oddball Civil Procedure professor that everyone tries to avoid.  The case had its genesis in the dark days before the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010).  The plaintiffs in Jock (see our post on the decision here) were a group of female sales employees who sought to bring a class arbitration against Sterling Jewelers on claims of gender discrimination.  The arbitrator determined that the arbitration agreement between the defendant and its employees permitted class arbitration because there was no express prohibition on class-based relief.  The arbitrator therefore permitted the arbitration to proceed on a class basis at least to the class certification phase.

The employer filed in federal court to vacate the arbitrator’s decision.  At the time (June 2009), the Second Circuit’s opinion in Stolt-Nielsen had not yet been cleansed from the annals of good law by the Supreme Court’s subsequent wisdom.  Thus, because the arbitrator’s analysis largely comported with the Second Circuit’s Stolt-Nielsen opinion, the district court denied the employer’s motion to vacate, and the employer appealed to the Second Circuit.  One would expect, however, that this appeal felt much like going to tattle on a bully and finding his father on the front porch in boxers and a dirty sleeveless t-shirt opening his fourth beer at 10:00 am.

And then, the Supreme Court sprinkled its magic pixie dust on the storyline.  It reversed the Second Circuit in Stolt-Nielsen and found that the availability of class relief in arbitration cannot be inferred from the fact that the arbitration agreement is silent on this issue.  The employer’s spirits must have been further buoyed when it was able to stay its appeal and get a decision from the district court finding that the arbitrator’s decision on class relief could not survive the Supreme Court’s reasoning in Stolt-Nielsen.  Indeed, the employer likely felt as though it had stood up to the bully and won.

But, that’s when the bully’s dad decided to put down his beer, come off the front porch, and take matters into his own hands. 

The Second Circuit found that Stolt-Nielsenshould be read only as reaffirming the principle that "arbitration is a matter of consent, not coercion."  The Second Circuit then noted that Sterling Jewelers had executed the same arbitration agreement with all putative class members, and therefore was obligated to arbitrate all of their claims.  From there, the court made the inferential leap that class arbitration must be proper because all of the claims were arbitrable.  (Hey, we just report the cases, we don’t decide ‘em.)  While it has now become too difficult for the author to continue the metaphor of the bully and his beer-drinking father, suffice it to say that the employer filed for certiorari with the Supreme Court and must have at least felt cautiously optimistic regarding its chances. 

But, no!  The Supreme Court denied certiorari, so Jock remains the law at least in the Second Circuit.  Taken in conjunction with the NLRB’s D.R. Horton decision, this is troubling to say the least.  Under Jock, an employer risks class arbitration if it does not expressly disclaim the availability of class-based relief.  But, under D.R. Horton, the employer may commit an unfair labor practice if its arbitration agreement contains an express class waiver. 

Ladies and gentlemen, if you’ll look out the window to your left, you’ll see a rock.  And, over there on your right, you’ll see a hard place.

The Bottom Line:  Though the law on class arbitration appeared for a moment to be moving toward clarity, it may be too soon to get our hopes up.

Massive EEOC Class Action Slashed to Two Claims on Appeal

Posted by Greg Mersol on March 21, 2012

On February 22, 2012, the Eighth Circuit handed the EEOC a major defeat in a putative class-wide sexual harassment case it had brought against a trucking company.  EEOC v. CRST Van Expedited, Inc.pdf, Case Nos. 09-3764/09-3765/10-1682 (8th Cir. Feb. 22, 2012). While the court vacated, at least for the present, a $4.5 million sanction against the Commission, its holding vastly reduced what it claimed to be a case involving hundreds of women trucking employees.

The CRST case grew out of its training program for new truck drivers.  One claimant, Monika Starke, alleged that she was both subject to sexually inappropriate remarks and forced to have sex with a lead trainer to pass the driving tests.  She filed a charge of sex discrimination with the EEOC in 2005.  Following multiple requests for information, the EEOC ultimately issued a letter of determination finding probable cause with respect to a “class of employees.”  The EEOC and the employer exchanged some e-mails and telephone calls, and the EEOC quickly determined that further “conciliation” efforts would be “futile.”  One month later, the EEOC filed suit on Starke’s behalf and on behalf of an alleged class of “similarly situated female employees.”

What followed was two years of discovery in which the EEOC steadfastly resisted identifying or defining the class members.  It eventually identified a class of 270 women who it claimed were victims of hostile environment discrimination at CRST.  Following additional discovery in which the EEOC refused to produce over 100 of the women for deposition, the employer moved for summary judgment.  The district court ultimately:

  • Dismissed the claims of 120 women for failing to appear for depositions;
  • Dismissed the claims of three women, including Starke, for failing to identify their claims on bankruptcy petitions they had filed;
  • Dismissed multiple claims on the grounds that the women were not harassed, did not follow the employer’s reporting procedure, or could not identify severe or pervasive discrimination as to them; and
  • Dismissed the remaining claims (67 women) due to the EEOC’s failure to properly conciliate them.

The district court then sanctioned the EEOC $4.5 million based on its conduct before and after the filing of suit, a decision we discussed in this blog last year.

The Eighth Circuit reversed with respect to only two plaintiffs and the sanctions issues only.  The most important part of its ruling related to the dismissal of the 67 women for the EEOC’s failure to conciliate.  Citing the legislative history and the strong public policy in favor of administrative resolution of disputes, the court faulted the EEOC for using the lawsuit, rather than its pre-suit investigation, to obtain information about the potential claimants and for its resulting failure to conciliate the claims.

As to the remaining claims, it found that only two rose to the level of actionable sexual harassment and that Starke’s failure to raise the claim in her bankruptcy did not preclude the EEOC from seeking relief on her behalf.

Thus, from a high of 270 claimants, the EEOC could pursue claims only on behalf of two women.  Because those two claims survived, the court vacated the large sanctions award without prejudice.

One troubling aspect of the EEOC’s conduct in the case was that, if their facts were believed, at least one of the claims (Starke’s) was serious and could and should have been resolved promptly.  By piling on the claims of 268 other women with, at best, far weaker claims, the EEOC delayed any remedy for Ms. Starke by at least seven years.

The Bottom Line:  The EEOC’s desire to pursue class-wide claims in court does not relieve it of its statutory obligation to investigate and conciliate them first if it is contemplating filing suit.

 

 

 

 

Plaintiffs Swallow Bitter Pill With Dismissal of Class Breach of ERISA Fiduciary Duty Claim for Alleged Wage and Hour Violations

Posted by Jeffrey Vlasek on March 19, 2012

The case of DeSilva v. North Shore-Long Island Jewish Health System, Inc., Case No. 10-CV-1341-JFB-ETB (E.D.N.Y. March 7, 2012), began small, like a lone cough one winter’s morning, before escalating into a full-blown cold, complete with hacking and wheezing.  At first there were six plaintiffs working as nurses.  After two amended complaints, however, the purported class rose to nearly 38,000 current and former employees, enough to make any defendant employer break out in a cold sweat.  They alleged that their pensions and 401(k) or 403(b) plans were not credited with their non-reduced weekly wages and correct overtime compensation.  These claims, however, were actually the symptoms of a much deeper, deadlier problem alleged by plaintiffs: that the defendant maintained three illegal pay policies – the meal and break deduction policy, the unpaid pre-and post-schedule work policy, and the unpaid training policy.  The only cure, of course, was a prescription-strength dose of unpaid wages (among other penalties).

In mid-2011, the defendants filed a motion to dismiss while plaintiffs simultaneously sought expedited notice to the affected employees under 216(b) of the FLSA.  After hearing oral arguments (and nearly nine months of pondering), the court ultimately ruled on the plethora of claims, including (somewhat unusual in an employment context) RICO violations, wire fraud, and forced labor allegations.  More common, however, were plaintiffs’ allegations that defendants had breached their fiduciary duty under ERISA.  The court, in what amounted to a quick nip and tuck of only two paragraphs, examined the plan documents themselves and held that, because the benefits at issue were tied only to compensation paid – not to hours worked or compensation earned through hours – the plaintiffs had failed to state an ERISA cause of action.  Accordingly, the breach of fiduciary duty claims under ERISA were dismissed with prejudice.

Before finally suturing up its decision on the plethora of issues, the court also denied the defendants’ request for dismissal on grounds of Labor Management Relations Act preemption.  Adopting a “wait and see” approach, the court held that the proper time to make the preemption determination was after it was clear whether or not interpretation of the collective bargaining agreements was necessary to decide their claims.

The Bottom Line: Contrasting the age-old medical adage of “take two and call me in the morning,” the court’s ruling here affirms that plaintiffs cannot merely plead a breach of fiduciary duty claim under ERISA and expect results.  One must pay close attention to what the plan documents specify; in this case, the benefits were directly linked to the compensation actually paid, and not the hours worked.  As a result, plaintiffs found themselves discharged and holding the bill.

Court Decertifies FLSA Collective Action Against IBM

Posted by Greg Mersol on March 13, 2012

We've commented before that employers defending collective actions under the FLSA generally fare far better on a motion to decertify than one for conditional certification, and a recent case reflects that fact.  In Seward v. International Business Machine Corp.pdf., Case No. 08-CV-3976 (S.D. N.Y.,  March 9, 2012), the plaintiffs sought to represent a class of IBM call center workers.  The crux of their claim was their contention that they were not paid for the time it took for them to “boot up” their computers when they started their days because of a requirement that they be “call ready” as soon as their shift began.  They alleged that as a result of this “call ready” policy, they were not paid for all of the overtime they had worked under the Fair Labor Standards Act.

In 2009, the court granted the plaintiffs’ motion for conditional certification, and 39 additional plaintiffs opted in.  This was a relatively small group by today’s standards, but following two years of discovery, IBM moved to decertify the class.  Its chief argument was that only a few supervisors were claimed to have required the workers to be ready to start at the beginning of their shifts and that therefore the class members were not similarly situated.  At oral argument, the plaintiffs contended that the entire class was appropriate, and rebuffed the suggestion that a smaller class might be viable.   The Magistrate Judge ultimately granted the motion to decertify, and the plaintiffs appealed to the district court judge.

The mistake the plaintiffs made was a common one.  Hoping to keep the entire class, they did not assert before the Magistrate Judge that a smaller class was proper.  While they made this argument before the district court judge, they had failed to do so beforehand and the court found that it was waived.  Accordingly, it upheld the Magistrate Judge’s decision and decertified the class. 

The Seward case, although brief, is instructive on several issues.  First, it reflects the reality that many cases that have been conditionally certified will not stay certified to or even through trial.  Second, it shows that individual differences will continue to undermine the cohesiveness of a class, particularly in off-the-clock cases.  Finally, it underscores that plaintiffs cannot prevail simply by trying to cobble together the largest possible class.  While such a strategy may put pressure on the defendant early on, it may easily result in there being no class at all.

The Bottom Line:  Individual differences among supervisors may prevent even a class that has been conditionally certified from staying certified through trial.

Adrift With Uncertainty, Seventh Circuit Certifies Race Discrimination Class

Posted by Jeffrey Vlasek on March 06, 2012

The Supreme Court hurled a large stone into the pond of employment class action lawsuits when it handed down its decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  Despite being on the books now for almost an entire year, many of the Dukes ripples have still yet to reach shore, forcing courts to weather the waves as they stay afloat.  The Seventh Circuit’s recent decision in McReynolds v. Merrill Lynch, No. 11-3639 (7th Cir. Feb. 24, 2012), is one such example of a court being caught up in the ripples and issuing an unusual opinion regarding a decision not to certify a class.

Keeping with the (apparently) intentional nautical theme to this post, the captain of the McReynolds decision, Judge Richard Posner was presented with all hands on deck in the form of 700 African-American brokers, both current and former employees.   The plaintiffs alleged that the company’s “teaming” and “account distribution” processes had a disparate impact on African-American brokers, as the policies permitted the brokers to form their own sales teams on allegedly biased criteria.

The plaintiffs encountered their first shoal when the district court denied class certification in 2010.  Following the waves generated by the Dukes decision, however, the plaintiffs moved for certification again, which was once again denied.  Like Neptune himself rising from the sea to meddle in the lives of men, however, the district court explicitly advised the plaintiffs to raise an interlocutory appeal under Fed. R. Civ. P. 27(f) to determine how (and if) the Dukes decision should affect the certification issue.  Plaintiffs did so.

In his decision, Judge Posner mulled over the timing of the interlocutory appeal, but ultimately dropped anchor and held that it was timely due to the new developments in the law (specifically, the Dukes decision).  Judge Posner went on to explain that using the Dukes case as means for a renewed motion for class certification may seem “perverse” in light of the fact that the Supreme Court effectively held that where employment discrimination is alleged to have been practiced by local managers, the discrimination does not present a “common issue that could be resolved efficiently in a single proceeding.”

Judge Posner brought the boat around, however, when he explained that unlike Dukes, where there was no company-wide policy at issue, Merrill Lynch’s policies were alleged to be used company-wide.  As a result, the court determined that even if there would have been racial discrimination on the local level (like Dukes), the incremental effect of such discrimination would be efficiently determined on a class-wide basis.

With land in sight, Judge Posner continued and acknowledged that even if plaintiffs were to succeed in their challenge, they would still need to prove their compensation was adversely affected by the corporate policies in individual actions.  Steering dangerously close to the rock, the court reasoned that if the disparate impact claim prevailed, hundreds of smaller trials might result—but, the court salvaged some of the cargo by concluding that “it wouldn’t be necessary in each of those trials to determine whether the challenged practices were unlawful.” 

The Bottom Line: The impact of Dukes is still unsettled, but one respected court has found that, in some circumstances, it supports certification when a single employer policy is being challenged.

Inadvertent ESI Disclosure Of Attorney-Client Communication Waives Privilege In FLSA Collective Action

Posted by Todd Dawson on March 01, 2012

"Hey, Where'd You Get That Document?"

ESI has become one of the most despised three-letter combinations in corporate America (and the lawyers who dutifully serve it). The costs and risks associated with a company's duty to preserve ESI are a headache of their own, but the dangers in production turn that headache into a full-fledged nightmare.

Ladies and gentlemen, Exhibit A: a decision issued against drug store chain Duane Reade in the Southern District of New York on February 28. The case is an FLSA collective action involving claims by assistant store managers that that they were improperly treated as exempt from overtime. During discovery, the employer identified relevant documents from its preserved ESI by using a list of search terms. And, it made sure to identify potentially privileged communications by searching for and flagging documents with the first and last names of its outside and in-house attorneys.

Sounds reasonable enough, doesn't it? There were two million documents--that's documents, not pages--included in their ESI production. Obviously, they couldn't have outside counsel review everything. Search terms are a nice, reliable way to cull down a large volume of documents, right?

Well, despite these safeguards, the employer inadvertently produced an email from one Human Resources representative to another recounting her conversation with an in-house attorney (identified by name) regarding FLSA compliance. As it turned out, the email repeated an admonition from the attorney that assistant store managers--the particular group at issue in the case--generally were not performing a sufficient volume of exempt duties to justify their treatment as exempt employees.

Ouch. In legalese, that's what we sometimes call a "bad fact."

So, you might ask, how did this smoking Howitzer slip through the cracks? Because.....(drum roll)......only the attorney's first name appeared in the document. ESI documents were searched for first and last names, so the memo wasn't flagged. Oops. Even worse, the court ultimately did not require plaintiffs' counsel to return the document or otherwise limit their use of it.

While that's a pretty big load of bad news, there are at least a few encouraging points in the opinion. First, the court held that the memo was, in fact, privileged to the extent that the author of the email was repeating advice from in-house counsel. That's no small victory.

Second, the court agreed that the employer acted reasonably in using search terms as a means of protecting its privileged documents. The only reason the court found that the privilege was waived was because the employer's outside counsel was present at a deposition where plaintiffs' counsel used the document as an exhibit for cross-examination, and conducted redirect on the document without asking the witness for the identities and roles of the people who were mentioned. While the employer's counsel professed that they were not aware that the individual mentioned in the email was an in-house lawyer, the court noted that defense counsel was present for a deposition three weeks earlier where the in-house attorney was specifically identified.

The Bottom Line:There are very few--if any--airtight shortcuts to reviewing ESI, so pay close attention and get an iron-clad clawback agreement. And, make sure the names of your in-house legal staff are etched onto the brains of every outside attorney who touches the case.