Employment Class Action Blog - Information and Commentary on Employment Class Action Cases Affecting Employers

"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.

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.

An Irritable Pessimist's View of a Welcome Decision

After several years of waiting, the California Supreme Court handed down its long-anticipated decision in Harris v. Superior Court last week. Given the natural-born suspicion held by management-side lawyers toward anything that wanders its way out of the wilderness that is the California courts, it probably comes as no surprise that we’re left a bit underwhelmed. In fact, we’re left feeling much like a patient immediately following successful brain surgery; sure, we’ve obtained the best possible outcome for which we should probably be thankful, but it feels like we just had our collective skull drilled and cut open only to get a result that might eventually develop into normalcy.

The primary issue in Harris was the degree to which the so-called "administrative/production dichotomy" is controlling in applying California's administrative exemption. Under California Wage Order 4-2001, the first element of the administrative exemption restricts its application to employees who perform work "directly related to management policies or general business operations of [an employee's] employer or his/her employer‘s customers." When applied in isolation without reference to other analytical tools, the administrative/production dichotomy interprets this provision to exclude any employee involved in producing or providing the goods and/or services that the employer is in business to provide (i.e., "production employees"). As illustrated by Bell v. Farmers Ins. Exchange, 87 Cal.App.4th 805 (2001), some California courts further restricted the "administrative" side of the dichotomy to include only those individuals who are actually involved in matters affecting the overall direction of the business and/or its policies.

In Harris, the appellate court held that Bell precluded the defendant employer from establishing a genuine issue of fact as to whether the plaintiff insurance adjusters were administratively exempt. While acknowledging that the adjusters' work was not routine or unimportant (as was the case in Bell), the appellate court held that their work nonetheless was "not carried on at the level of policy or general operations, ... [and therefore fell] on the production side of the dichotomy."

The good news is that the California Supreme Court unequivocally rejected this mechanical application of the administrative/production dichotomy, a holding that is undeniably welcome news for California employers. The breadth of its opinion, however, is somewhat difficult to decipher. For example, in addressing the appellate court's assertion that the administrative exemption is limited to employees who impact the overall business and/or its policies, the Court noted that the appellate court had conflated the proper analysis with a separate element of the exemption (i.e., that an employee's work must be of "substantial importance to the management or operations of the business"). However, the Court stopped short of deciding whether such a requirement would be appropriate in the context of the "substantial importance" prong, and disclaimed any intention to do so. Moreover, the Court specifically denied any suggestion that the dichotomy was misapplied in Bell, and emphasized that its decision in Harris was limited to holding that the appellate court erred by treating the administrative/production dichotomy as dispositive based on the factual record of that case.

So, what does that mean for class certification? Well, we’d like to believe that it means a plaintiff’s lawyer can’t create a common legal question worthy of class certification just by claiming that the putative class members fall on the production side of the administrative/production dichotomy, or by claiming that they do not exercise discretion on matters of substantial importance or significance simply because they do not possess policy-making authority. There certainly is language in the Harris opinion to support this hope. The Harris Court, for example, found unpersuasive a prior case (Bratt v. County of Los Angeles, 912 F.2d 1066 (9th Cir. 1990)) in which the Ninth Circuit suggested that policy-making authority was a requirement for an employee to be treated as administratively exempt. The Harris Court further cautioned that application of the administrative exemption is fact-specific and that courts should not ignore the language of the FLSA regulations and California Wage Order in favor of a mechanical application of the administrative/production dichotomy.

But, after all, we’re talking about California here.

The Bottom Line: Harris is, at the very least, a welcome sign for employers, but there is some measure of ambiguity in its holding for the lower courts to explore.

Another court has weighed in in favor of enforcing an arbitration agreement containing a class action waiver in the wake of the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011).

In Brown v. TrueBlue, Inc.pdf., Case No. 1:10-CV-0514 (M.D. Pa. Nov. 22, 2011), the plaintiffs were employees of a staffing agency. The agency paid the workers either by check or, if they preferred cash, through a voucher system. The vouchers, however, required the use of a machine for which a fee was charged. As a result of these fees, the plaintiffs sought to assert both class action wage and hour claims under Pennsylvania law and federal collective action claims under the FLSA. Fifteen months after the suit was filed, and after the plaintiffs had moved for certification of both the class and collective action claims, the defendant moved the court to compel arbitration.

In ruling on the defendant’s motion, the court noted that the plaintiffs had signed employment agreements containing promises to arbitrate all claims. Those agreements also provided in pertinent part that neither party “shall be entitled to join or consolidate claims as a representative or member of a class, representative, or collective action.” The question therefore was not whether the agreement was one requiring arbitration on an individual basis, but, rather, whether it was enforceable at all.

The court found that while the agreement likely would not have been enforceable under prior Pennsylvania law due to the class action waiver (see Thibodeau v. Comcast Corp., 912 A.2d 874-885-86 (Pa. Super. Ct. 2006)), that case was no longer good law in light of Concepcion. Indeed, it found that the statute at issue in Thibodeau was “strikingly similar” to the one considered in the California Supreme Court’s Discover Bank case the Supreme Court had rejected in Concepcion. It therefore found that the agreement was enforceable, and, implicitly, that the claims would need to be arbitrated on an individual basis.

A second, interesting part of the opinion related to waiver, as the defendant had waited fifteen months after the complaint was filed to file its motion, and only did so on the eve of the hearing on class certification. Although the court was troubled by the passage of time, and noted that such a delay would ordinarily resulted in a waiver, it found that the delay was excusable because Concepcion represented a “significant change” in the law. It also found that the plaintiffs could not articulate any prejudice from the delay as the work they had performed would have been done in arbitration as well as before a court. Accordingly, the court compelled arbitration of the dispute.

The Bottom Line: Courts are enforcing Concepcion to compel the arbitration of class and collective claims on an individual basis. Further, they recognize that Concepcion has changed the law so significantly that waiver arguments may not apply.

If there was a case that might indicate what the Ninth Circuit would do in the wake of the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes.pdf, 131 S. Ct. 2541 (2011), it was that of Ellis v. Costco Wholesale Corp., Case No. CV-04-3341-MHP (N.D. Cal.). The Ellis case was, like Dukes, a putative class action alleging sex discrimination against a major national employer. It was also filed in the same district court as Dukes and, not coincidentally, was only filed days after the Dukes district court had certified that case as the largest employment class action in history. The claim was somewhat narrower than those raised in Dukes in that it focused largely on promotional decisions to several management positions, but it did not include claims for alleged across the board pay disparities. The case was assigned to a different judge, but one that has issued several notable decisions in favor of plaintiffs in the past.

Not surprisingly, the court certified the class. Ellis v. Costco Wholesale Corp., 240 F.R.D. 627 (N.D. Cal. 2007). In fact, the court actually certified a class larger than the one sought by the plaintiffs, forcing the parties to remedy the order by way of a stipulation. Costco sought and received review from the Ninth Circuit, which held the case for over four years until the Dukes case was decided.

On September 16, 2011, the Ninth Circuit largely reversed and remanded the case in light of what it called "new precedent altering existing case law," specifically the new Dukes decision. Ellis v. Costco Wholesale Corp.pdf., Case No. 07-15838 (9th Cir. Sept. 16, 2011). Among its holdings, the Ninth Circuit found:

1. The Dukes case requires a more rigorous analysis to determine commonality that includes consideration of the merits. The plaintiff must show that there is "a common question that will connect many individual promotional decisions to their claim for class relief";

2. The district court should have considered whether the named plaintiffs' claims were "typical" of the class in light of the defenses that might be raised against them;

3. The district court erred in certifying the class under Rule 23(b)(2) because the Supreme Court rejected the previous test focusing on the plaintiffs' subjective intent in bringing the action;

4. The Ninth Circuit appeared to accept the view that the standards of Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), should apply at the class certification stage, but found that the district court improperly confused or diluted that standard when applying it to the plaintiffs' expert. More specifically, while the court had conducted a Daubert hearing, it had ended its inquiry with a finding of admissibility, but had never engaged in the requisite rigorous analysis of whether the results demonstrated a class-wide policy of gender discrimination.

So far, so good, as these holdings are at least driven by or consistent with Dukes. At this point, the Ninth Circuit could very well have simply directed that the case be decertified.  The circuit court, however, gave the plantiffs a second bite at the apple and indicated potential places where it believed the district court could still certify the case, even under Rule 23(b)(2). Specifically, the Ninth Circuit did not reverse the decision outright, but only remanded it for further consideration in light of the Dukes standards. Further, should the district court find commonality and typicality, the court left open the question of whether punitive damages could still be considered "incidental monetary relief," and thus justify certification under Rule 23(b)(2). It also remanded for consideration of whether the case could be certified under Rule 23(b)(3), and whether the case could be divided into two separate classes for current and former employees to avoid problems between Rules 23(b)(2) and (3).

The entire case may end up faltering on the issues of commonality and typicality on remand, but depending on the evidence presented on remand, the net result may be one or two smaller classes than one large one.

The Bottom Line: The Ninth Circuit will follow many of the dictates of the Dukes case, but may leave wiggle room to avoid others.

Plaintiffs frequently include collective action allegations in even run-of-the-mill FLSA cases. What if an employer concludes, however, that no matter how frivolous the underlying claim, the defense costs will be more than even an oversized settlement?

In theory, an offer of judgment under Federal Rule 68 would be one avenue. By offering the plaintiff all they can possibly recover in the case, shouldn't that cut off the case (and the expected great defense costs)? No, according to two recent circuit decisions.

Most recently, in Symczyk v. Genesis Healthcare Corp.pdf., Case No. 10-3178 (3d Cir. Aug. 31, 2011), the plaintiff brought claims under the FLSA challenging the employer's policy of deducting 30 minutes for meal periods and included the typical collective action allegations. Before the plaintiff had moved to certify the class, and before there were any opt-ins, the defendant made a Rule 68 offer of judgment for $7,500, plus attorney fees and costs to be determined by the court. Although the plaintiff did not accept the offer, the district court ultimately dismissed the claims on that basis, although it remanded state law claims. The plaintiff appealed.

The Third Circuit first tacitly acknowledge the validity of the two-step procedure for certification of claims under the FLSA often ascribed to the district court's decision in Lusardi v. Xerox Corp., 975 F.2d 964 (3d Cir.1992). It then addressed the question of whether the case should have been dismissed due to the Rule 68 offer. It is not difficult to predict the court's holding from the language it used, as it referred dismissively to the "tactic" of defendants of "picking off" lead plaintiffs and to "calculated attempts by some defendants to short-circuit the class action process." Expressing concern that Rule 68 could "morph[] into a tool for the strategic curtailment of representative class actions," the court placed limits on whether the offer of judgment could be effective. It held that the unaccepted offer did not moot the case and it ultimately remanded the case for the court to determine (1) whether a motion for conditional certification would have been timely, (2) whether such a motion should be granted and, (3) if so, whether other employees actually opt in.

The Ninth Circuit reached essentially the same conclusion three weeks earlier in Pitts v. Terrible Herbst, Inc.pdf, Case No. 10-15965 (9th Cir. Aug. 9, 2011). In that case, the defendant made the plaintiff an offer of judgment in an amount over ten times higher than the value of his individual claim before he had even moved for class certification. [OK, we admit we're been a little dramatic - the claim was for $88 and the offer was $900.] Although the plaintiff did not accept the offer, the district court entered it as a judgment and dismissed the case, mooting the class allegations. Like the Third Circuit, the Ninth Circuit held that an unaccepted offer of judgment, even one made before a motion to certify a class had been filed, did not moot the case and it ordered the lower court to consider the certification issue.

One problem with both of these cases is their inherent assumption that class actions should be brought and that a defendant resisting them must have some devious purpose in mind. Both decisions pay little or no regard for the massive cost of defending even the weakest collective action claim and express little sympathy for the plight of employers trying to avoid the many tens of thousands of dollars in litigation expenses they will undoubtedly have to pay regardless of the merits of the case. The net result of these decisions is to negate the value of a Rule 68 offer of judgment to a representative plaintiff in an FLSA collective action, unless the plaintiff actually accepts it.

The Bottom Line: Many courts are hostile towards the use of Rule 68 offers to representative plaintiffs in class or collective cases.

Of all the potential reasons to deny certification under Rule 23(a) (numerosity, commonality, typicality, and adequacy of representation), probably the least commonly used is that of adequacy of representation.  Even in those cases, the focus is more often on problems with the named plaintiff than with the attorney bringing the action.  A recent Seventh Circuit decision reflects that certification can be denied based on conduct by the lawyers bringing the action and that at least some courts are attuned to the waste of time and money that may result from class action litigation.

In Gomez v. St. Vincent Health, Inc.pdf., Case No. 10-2379 (7th Cir., Aug. 15, 2011), the employer was a large Indiana hospital system with thousands of employees.  Although the employer endeavored to comply with COBRA, including hiring  third party administrators and conducting periodic audits,  over a two-year period approximately 250 separated employees did not timely receive their COBRA notices.   Three of the affected employees filed a putative class action in the Southern District of Indiana to assert COBRA violations as a result of the late or failed notice.  Upon investigating the matter, the company realized the mistake, contacted the affected individuals and offered them various arrangements to reinstate their coverage if they desired.  In the meantime, the plaintiffs were suffering their own problems in the lawsuit, including various discovery disputes, and were subject to orders to compel and to pay costs.  The district court ultimately denied certification of the class for numerous reasons, including adequacy of representation, and granted summary judgment against the two named plaintiffs.  Among other issues, the court found that the plaintiff's attorney had not diligently pursued the case, had not properly conducted discovery, and had created an incomplete record for summary judgment. Justice, at this point, prevailed, as the employer took reasonable steps to correct its mistake and the court refused to permit the class to proceed due to the procedural abuses and missteps of plaintiff's counsel.

Undaunted, the same attorney took the listing of names obtained in discovery of the first case, solicited new plaintiffs, and then filed a second putative class action.  The action was filed in the same court, but assigned to a different judge.  That judge, too, denied certification, but limited the grounds for the holding to adequacy of representation, based largely on the conduct that occurred in the first case.  The court went on to award one of the individual plaintiffs less than $400 in damages, and dismissed the remaining claims for statutory damages.

The Seventh Circuit affirmed the district court's decisions with respect to the damages issues, and then addressed the question of certification.  It found that the district court had appropriately denied certification because of the attorney's conduct in the first action as well as filing the second, nearly identical case without additional evidence.  For an attorney to "lose" a class action due to his own conduct, and, worse, to have that conduct spelled out in a federal court of appeals had to be bad enough, but that wasn't all.  Throughout its opinion the court noted gaps (to put it politely) in the plaintiff's counsel's assertions, described him as having "misrepresented fundamental facts," and quoted portions of his brief containing typographical errors and butchered English as additional proof of his inadequacy as class counsel.  Ouch!

The Bottom Line:  Some courts will deny certification when plaintiff's counsel is viewed as having abused the discovery process and of misusing judicial resources.

It has been a good few weeks for employers in the satellite dish industry.  Just last week, we wrote of the case of Espenscheid v. Directsat USA, LLC.pdf, Case No. 09-cv-625-bbc (W.D. Wis. May 23, 2011), in which the court decertified a class of satellite dish technicians only days before trial.  In that case, the court, despite repeated earlier rulings in favor of the class, concluded that the actual trial of such a case would be unwieldy.  Only a few days later, in Delano v. MasTec Inc.pdf., Case no. 10-cv-00320-JDW-MAP (M.D. Fla. June 2, 2011), a different district court denied even conditional certification of a similar class.

In Delano, the plaintiffs were former installers of satellite dishes who were paid primarily on a piece-rate basis.  They contended that the company encouraged the underreporting of hours by requiring pre-authorization of overtime (which was never granted) and withholding work assignments if it appeared that a technician was nearing 40 hours in a given work week.  These measures, of course, were lawful, but the plaintiffs contended that the company was aware that the technicians were working more hours than they were reporting.  They submitted numerous declarations to the effect that supervisors "must have been aware" that the technicians were working overtime hours due to the company's scheduling and reporting structures.  A handful of declarants asserted that mostly unspecified supervisors directed them not to report over 40 hours no matter how much they worked.  Based on this evidence, the plaintiffs moved for conditional certification and notice to the class.

The Middle District of Florida, like other courts in the Eleventh Circuit, follows the two-step procedure for certifying collective actions under the FLSA.  The court recognized that the plaintiffs' burden at the initial notice stage was light, but also that it was not “invisible.”  It further noted the requirement in that court for the plaintiffs to demonstrate that other, similarly situated employees wanted to opt in.  Ultimately, the court found that the plaintiffs failed to satisfy even the lesser burden because few technicians had expressed a desire to join the case, and many of the employees were subject to arbitration agreements that would have limited or barred their participation.  The court’s opinion also suggests fundamental problems with the plaintiffs’ case in that the company’s formal policies demanded adherence to the FLSA, while the plaintiffs’ proof of an over-arching practice consisted of anecdotal evidence from different facilities that together did not rise to the level of a state-wide employment practice.  It concluded that even conditional certification was inappropriate.

Incidentally, the court also noted during the course of its opinion - quite correctly - that the term “conditional certification” is a misnomer.  It is simply an order directing notice to the proposed class.  The "class" cannot be certified until there are opt-ins because section 16(b) of the FLSA, 29 U.S.C. section 216(b), provides that no one can be made a party without their consent.

The Bottom Line:  An overtime class should not be conditionally certified absent employees who are similarly situated, have claims they can assert, and actually want to join the litigation.

A recent California case demonstrates that a class action that should never have been brought can still bounce around the court system for years. Starbucks Corp. v. Superior Court.pdf (Cal. App. 4^th Dist., Apr. 25, 2011).  For reasons that will become apparent shortly, we are going to call the most recent opinion “Starbucks II.”

During the 1970’s, California enacted legislation requiring the destruction of minor marijuana convictions that were more than two years old.  The same law prohibited employers from asking about such convictions in employment applications, and prescribed monetary penalties if they did so.  In Starbucks Corp. v. Superior Court, 168 Cal. App. 4^th 1436 (2008) (“Starbucks I”), the plaintiffs contended that Starbucks violated this California law over 100,000 times because its pre-printed employment applications allegedly inquired into those convictions.  They sought $26 million in statutory damages for these purported violations. The trial court certified a class of all California Starbucks applicants since 2004. It held that class members without convictions could still recover each.  Those with covered convictions could opt out and potentially recover more.  Starbucks appealed.

In Starbucks I, the court of appeals reversed, finding that those who had no convictions were not entitled to relief under the statute.  Further, as none of the named plaintiffs actually had any marijuana convictions covered by the statute, the court held that none of them had standing to pursue any such claims.  As the court commented, a contrary view would have recreated a “veritable financial bonanza for litigants like plaintiffs who had no fear of stigmatizing marijuana convictions.”

Despite the dismissal of the plaintiffs’ claims, the case did not end.  Instead, the trial court permitted the plaintiffs to amend their complaint and, more importantly, to conduct further discovery to find a “suitable class representative.”   The case was now a so-called “headless” class in that there were no named plaintiffs, but somehow the litigation was permitted to continue.

 The trial court’s order permitting discovery was bad enough, but  the court went even further, and ordered Starbucks to search its own records to find 25 applicants who had covered convictions and, further still, to disclose those names to “class counsel”  with a potential for opt-out.   Following additional procedural wrangling, Starbucks appealed again.

The court of appeals appears from the language of the opinion to have been incredulous.  It expressed surprise that the case was still being litigated and noted that the discovery order itself likely violated both the spirit and language of the statute.  It described the amount sought by the plaintiffs as “excessive.”  It declined to create a per se rule against discovery orders in headless class cases, as some federal courts had done, but found no reason to do so in the case before it.  Unfortunately, while the court questioned whether any viable class could ever be identified, it limited its holding to the discovery order, leaving the door open to the litigation continuing after the second remand.

The Bottom Line:  In most cases a “headless” class should be dismissed, but some courts will permit such cases to continue for years while the would-be class counsel tries to find a suitable representative plaintiff.

In the wake of the oral argument in the mega class action, Wal-Mart v. Dukes, The New York Times ran an interesting April 3, 2011 article by Adam Liptak entitled “When a Lawsuit Is Too Big.”  The subtitle, “Class-action suits can be large and impersonal.  Critics say this is why they are often unfair to everyone involved,” actually presents the theme.  And while we might not normally look to The New York Times for legal commentary, this article identified several legitimate issues applicable to many employment-related class actions, including Dukes.  These issues negatively impact claimants and companies alike and include deprivation of due process, decision making by formula and settlements that only benefit plaintiffs’ counsel. 

The article summarized the concerns Justice Antonin Scalias raised during oral argument in Dukes, that reliance “on statistical formulas rather than testimony and personnel records to decide how much money the company would have to pay” is not due process.  (Transcript.pdf of the March 29, 2011 argument. Justice Scalias’ comments can be found on page 48.)

The New York Times’ article also quoted Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit writing in Randall v. Rolls-Royce Corporation.pdf (case No. 10-3446, decided March 30, 2011).  In Randall Judge Posner expressed reservations about the Plaintiffs’ use of Rule 23(b)(2) of the Federal Rules of Civil Procedure which is to be applied only when any monetary payment is incidental to a grant of injunctive or declaratory relief.  But as Judge Posner recognized, Rule 23(b)(2) deprives class members of notice and opt-out protections found in a Rule 23(b)(3) actions.  Rule 23(b)(2) is the same section relied upon by the Plaintiffs in Dukes.  Indeed, since Rule 23(b)(2) actions can secure back pay in addition to injunctive relief, calculating the monetary relief can be an overwhelming obstacle.  (See Employment Class Action Blog's related post on the Randall decision from 4/14/2011). 

Judge Posner noted in Randall that “calculating the amount of back pay to which members of the class would be entitled . . . would require 500 separate hearings.  The monetary tail would be wagging the injunctive dog.”

The underpinnings of the Dukes case illustrate the concerns expressed in The New York Times article regarding overreliance on statistical evidence in the name of expediency and some purported “higher calling.”  In Dukes, the "higher calling" that purportedly justified exclusive reliance on statistical data was some subjective notion of “social justice” for low-wage employees.  In essence, the Dukes plaintiffs insist that Wal-Mart uniformly and systemically undervalues and discriminates against its female employees on the basis of their gender.  These claims will be litigated, if Plaintiffs’ counsel have their way, on behalf of more than one million women, none of whom will have the option of declining to participate in the case.

What form of discrimination have these class members claim to have experienced?  Well … that varies from person to person.  For some individuals, it’s promotions.  For some, it’s wages.  For others, it’s discipline.  Which policy or policies do they claim are discriminatory?  That’s another hard question.  It’s not really a policy per se that they claim to be discriminatory.  It’s the fact that Wal-Mart doesn’t have enough policies, and, if they did, they supposedly may have kept discrimination out of the workplace.  Who, according to the Plaintiffs’ lawyers, carries out all of these discriminatory decisions?  That depends, too.  Typically, it’s the thousands of individuals Wal-Mart employs in local store management positions.  But, that’s a problem itself, because more than 500 of those individuals are also female class members, having been promoted during the relevant timeframe.  And, that raises a potential conflict of interest that Judge Posner cautioned against in Randall.   

We should at least know what kinds of unlawful considerations Wal-Mart managers took into account and how often they did so, right?  Not really.  What we know is that the sociologist hired by Plaintiffs’ counsel really and truly believes that Wal-Mart, at least theoretically, might possibly have discriminated against someone at some point somewhere on the basis of her gender.  And, how does he know this?  Is it based on actual evidence pertaining to current or former Wal-Mart employees?  Not at all.  It’s based on what the sociologist claims to be “a large body of social science research on the impact of organizational policy and practice on workplace bias.” What it really comes down to is this particular sociologist’s firmly held belief that all managers, not just those employed by Wal-Mart will invariably discriminate in violation of the law if they have discretion in personnel matters.

All meager attempts at humor aside, this theory and the appurtenant lack of supporting evidence raise very serious questions regarding the use of the class action device in the Dukes case and others of its kind.  There appears to be precious little evidence in Dukes of intentional discrimination on Wal-Mart’s part.  Rather, Wal-Mart is presumed by the Plaintiffs to have discriminated by virtue of the simple fact that it is an employer.  On the other hand, the courts thus far have rejected Wal-Mart’s evidence demonstrating that it does not discriminate, finding that such evidence will only be relevant at the “merits stage” of the class action.  The logic behind this dichotomy seems curious to say the least.

As noted above, the section of the Federal Rules under which the Dukes case was certified (Rule 23(b)(2)) does not entitle absent class members to notice or an opportunity to opt out of the case.  Even worse, Plaintiffs’ counsel have defended this surprising anomaly on the basis that most women may be too intimidated to file suit on their own or to remain in the suit if given a chance to opt out.

In short, stripped to their essence, Dukes and cases similar to it stand on three assumptions:

1) That all employers, particularly large employers, are guilty of discrimination;

2) That the victims of employment discrimination do not understand or complain about the discrimination they’ve suffered.

3) That, because employers discriminate and because their victims will not defend themselves, social justice can only be achieved by allowing broad license to the plaintiffs’ bar to use Rule 23 to correct those conditions they perceive as unjust.

This paternalistic co-opting of the class action device will allow neither facts nor law to stand in the way of punishing those who were in a position to do something wrong, regardless of whether they actually did so.  To state that such proceedings trample the due process rights of absent plaintiffs and defendants alike is to state the obvious.

Finally, as the Times noted: “Class actions can also distort the usual incentives in the adversary system, offering more rewards for lawyers than for plaintiffs.”  And, no one can seriously doubt that because of cost, class actions coerce settlement even when valid defenses may exist.

The Bottom Line: In this instance, The New York Times essentially got it right – “In a class-action suit, a lawyer can represent your rights without your consent.  Such suits test the limits of the Court’s role in society.”

Authorship credit: John B. Lewis and Todd A. Dawson

It's easy to forget that cases to the Supreme Court are in many ways like any other case and their own histories following Supreme Court review.  Almost no-one, for example, could readily identify the individual appointed to the position sought by William Marbury after the Supreme Court's Marbury v. Madison.pdf decision.  While almost anyone can describe, and even recite, the text of a "Miranda" warning, few know that Ernesto Miranda was still convicted after the Supreme Court's suppressed the use of his confession in the case that bears his name. 

While not in the same league as either of those two cases, the case of Hertz v. Friend.pdf continues to limp along following the Supreme Court's 2010 decision.  The Friend case is a relatively typical California wage and hour action in which a group of Hertz location managers contend that they were misclassified as exempt and seek lost overtime, penalties for missed meal and break periods, and other relief under California law.  They filed their claims in California state court, but Hertz removed the case to the United States District Court for the Northern District of California, claiming diversity jurisdiction under the Class Action Fairness Act ("CAFA"), 28  U.S.C. section 1332(d).  The plaintiffs were all citizens of California, and Hertz contended that its principal place of business was New Jersey  because that was the state where its headquarters and primary operations were centered. The district court, however, found that there was no diversity because it concluded that a plurality of Hertz's business (about 18%, depending on how you measure it) was located in California and thus its California business "substantially predominated."  The Ninth Circuit affirmed, but the Supreme Court held unanimously that removal was proper. Hertz Corp. v. Friend, Case No. 08-1107, 559 U.S. ___(Feb. 23, 2010).  In an opinion authored by Justice Breyer, the Court rejected the "substantially predominates" test applied by the district court and used a "nerve center" test to determine a corporation's principal place of business.  Under that measure, the Supreme Court found, Hertz's principal place of business was New Jersey and removal was proper.

On remand, the plaintiffs moved to certify the class under California law, but in an opinion one year and one day from the date of the Supreme Court's decision the district court rejected their arguments.  First, it found that it could not certify the class under Rule 23(b)(2), because it provided only for equitable relief.  All of the named plaintiffs were no longer Hertz employees, and thus had no standing to seek any such relief or to represent a class seeking such relief.  Second, it found that the case could not be certified under Rule 23(b)(3), because class issues did not predominate.  After reviewing evidentiary submissions by the parties, the court concluded that the level of responsibility and the time spent performing various managerial and nonmanagerial tasks varied within the class and even from day-to-day. These duties reflected a host of responsibilities, including hiring and firing, moving cars, interviewing candidates, training, cleaning vehicles, and many other aspects of the operation of a rental car operation.  Given the required "fact-intensive inquiry into each potential plaintiff's employment situation," and the variation in the plaintiffs' duties and the employer's expectation as to those duties, the case would devolve into a series of minitrials.  Thus, the district court denied class certification.

The Bottom Line:  A trip to the Supreme Court doesn't guarantee a big case.  Cases challenging the exempt status of managers often fail due to variations among duties by location and other business factors.

Discrimination litigation against unions can present unusual issues.  Unions exist for employees to present a unified front in bargaining with their employer.  Indeed, the very name "union" suggests that they are intended to behave as a single unit, the exclusive bargaining representative with the employer on the employees' behalf.  The idea of such unity leaves unions ill equipped to handle claims, particularly class action claims, that pit employees against each other within the bargaining unit.

In Gomez v Service Employees International Union Local 87.pdf, Case No. C10-01888 (N.D. Cal. Nov. 10, 2010), the United States District Court for the Northern District of California issued a decision that addresses numerous issues in this context. It could be argued that the decision arises out of an overbroad complaint and overbroad motion practice by the employer.

The plaintiffs in Gomez contended that the union systematically discriminated against Hispanic union members in favor of employees of other ethnicities or national origins.  They cited statements from union leadership reflecting indifference or worse towards Hispanics, as well as anecdotal evidence regarding specific discriminatory acts. They also alleged that the union discriminated against men in favor of women.  They asserted in claims before the district court based upon Title VII and California law, and the defendant filed a motion to dismiss.

The court quickly disposed of the gender discrimination allegations, finding that they were not properly raised in the employees' charges of discrimination. It also dismissed the plaintiffs' claims of disparate impact discrimination, finding that the plaintiffs had identified no facially neutral practice they contended applied more harshly against them.  Both of these rulings suggest that those claims should never been asserted in the first place.

The court next addressed the defendants' motion to dismiss the claims of nationality discrimination. It found that the plaintiffs had properly stated claims of discrimination based upon their Hispanic origins, a finding that was unsurprising given the specific allegations of particular comments reflecting hostility to Hispanics or favoring of persons of other ethnic groups, as well as a "probable cause" entry by the EEOC. This ruling suggests that the defendants should probably not have moved to dismiss that claim. 

The court also noted that the defendants had suggested throughout their motion that the case was not suitable for class treatment, but the court stated that such arguments should be raised in connection with a motion to grant or deny certification.  Again, this suggests that the defendants should have raised the proper motion at the proper time.

The Bottom Line:  Class actions against unions are less common than those against employers, but raise many of the same types of issues.  Counsel in such cases should take care not to clutter their claims or defenses with pointless allegations or motions.

On October 27, 2010, the Second Circuit affirmed a federal court’s refusal to certify a proposed class of Hertz Station Managers allegedly denied overtime under New York law.  (Myers v. Hertz Corp., No. 08-1037 (2d Cir. Oct. 27, 2010)).  In doing so, the court addressed the potential difficulties of certifying Rule 23 overtime exemption cases and expounded on the appropriate certification standard for FLSA exemption cases.  

In a case the court described as “procedurally convoluted,” the plaintiffs originally sought to proceeded as a collective action under the FLSA.  After the district court denied this motion, the plaintiffs then moved for certification under Rule 23 based on alleged violations of unpaid overtime under New York Labor Law § 191.  While the court found the plaintiffs’ state law claim to be nothing more than an alternative method of seeking redress for an underlying FLSA violation, it addressed the plaintiffs’ appeal by using the traditional requirements of Rule 23. 

Finding that it only needed to address Rule 23’s predominance requirement, the court determined the relevant “question of law and fact” to be whether the plaintiffs established they were entitled to overtime under the FLSA.  The court found this to be a “complex, disputed” issue whose resolution required answering a number of subsidiary questions involving whether the plaintiffs fell under the FLSA’s executive exemption.  The court noted that while the exemption issue may not be an inherently individualized inquiry, the exemption inquiry does require examination of actual duties performed and involve evidence that the plaintiffs’ jobs “were similar in ways material to the establishment of the exemption criteria.”

The plaintiffs relied on two categories of evidence to show the required common proof:  (1) Hertz decided to classify all station managers as exempt without an examination of each individual manager’s duties; and (2) testimony of Hertz representatives which, plaintiffs claimed, established that station managers’ duties did not vary materially across Hertz locations.  With respect to the first category, the court found that the existence of such a blanket exemption policy, standing alone, “is not determinative of the main concern in the predominance inquiry:  the balance between individual and common issues.”  The court further explained that such a policy does not establish whether all plaintiffs were actually entitled to overtime pay, and that the question of entitlement to overtime pay is still answered by examining the employee’s actual duties.  As to the second category, the court found that the proffered testimony was general, largely inconclusive, and only provided mixed support for the plaintiffs.  Thus, the court found that the district court did not abuse its discretion in declining to certify a class.

While the court declined to review the district court’s refusal to conditionally certify the plaintiffs’ FLSA claims, it elected to provide guidance on the standard district courts should apply to motions seeking certification of a collective action under § 216(b) of the FLSA.  The court noted that district courts of the Second Circuit have largely adopted a two-step method.  While not required, the court found this approach to be “sensible.”  The court stated that in FLSA exemption cases, plaintiffs make the showing necessary to send notice to potential opt-ins (the first stage) by “making some showing that ‘there are other employees . . . who are similarly situated with respect to their job requirements and with regard to their pay provisions,’ on which the criteria for many FLSA exemptions are based, who are classified as exempt pursuant to a common policy or scheme.”  The court cautioned that while this is a low standard of proof, it cannot be satisfied simply by “unsupported assertions.”  In the second stage, the district court must determine whether the collective action may go forward by determining whether the plaintiffs who have opted in are in fact similarly situated to the named plaintiffs.   

The bottom line:  As this case demonstrates, Plaintiffs seeking a Rule 23 overtime class do not show predominance simply because the employer used a blanket exemption policy.  Rather, the determinative issue should be whether the plaintiffs' job duties are similar enough so that the applicability of the overtime exemption(s) can be determined on a class-wide basis.

Many courts today use the two-step procedure described in Lusardi v. Xerox Corp., 99 F.R.D. 89 (D.N.J.1983), to decide whether to certify potential classes under section 16(b) of the Fair Labor Standards Act.  Under that procedure, the court the court looks at certification twice, first before much discovery is done, and again at the close of discovery.  In both cases, the question is whether the class members are "similarly situated," but the standard is different.

Under the Lusardi approach, the court typically uses a lighter standard to certify at the early "preliminary certification" stage, and requires only a modest showing that the class members are similarly situated.  If the court finds that the case meets that standard, it "conditionally" certifies the class and orders notice to the potential class members and the appropriate opt-in procedures.  Once more discovery is completed, the defendant can move to decertify the class. The plaintiff has a much higher burden to keep the class at this second stage.

This two-step procedure tends to create a false sense of victory on behalf of the plaintiffs when the case is conditionally certified.  Certainly, conditional certification aids in getting notice to the class and securing opt-ins, and obviously a defeat at this stage is a serious set-back to a "class" strategy.  But unlike a Rule 23 class, decertification still remains a significant likelihood and even a probability.

Fifteen years ago (after 16(b) had been the law for many decades), the Fifth Circuit found that "Based on our review of the case law, no representative class has ever survived the second stage of review."  Mooney v. Aramco Services Co., 54 F.3d 1207 (5th Cir. 1995). Two recent decisions reflect that decertification still remains  a serious possibility in any case that has been conditionally certified.

Most recently, in Lugo v. Farmers Pride Inc.pdf, the United States District Court for the Eastern District of Pennsylvania considered the claims of a group of chicken processors who brought a "donning and doffing" claim under the FLSA for the time they spend putting on and taking off their protective clothing and equipment.  The court conditionally certified the class in the spring of 2008, permitting it to proceed as a collective action.  Following two years of additional discovery, however, the court decertified the class, finding that the employees situations varied based upon their positions, departments, and shifts.  While the court left open the possibility that a smaller class might be viable, the decision cannot be termed anything but a victory for the employer.

In a completely different court and industry, earlier this year the United States District Court for the Northern District of California considered a claim that low-level supervisors for an automobile finance company had been misclassified as exempt for overtime purposes.  Hernandez v. United Auto Credit Corp.pdf., but it too, later found that the class should be decertified. In Hernandez, the court, like the court in Lugo, conditionally certified the class, but it, too, later found that the class should be decertified.  In the Hernandez case, the difficulty was that, as discovery revealed, the duties and responsibilities of the putative class members varied, making them something other than "similarly situated," and making class action treatment inappropriate.

The bottom line:  While defendants want to avoid conditional certification, decertification under section 16(b) remains a very real likelihood at the end of the case.

In the weeks following April 26, 2010, en banc decision of a deeply divided Ninth Circuit in Dukes v Wal-Mart Stores.pdf, 603 F.3d 571 (9th Cir. 2010), plaintiffs have predictably argued that the opinion justifies the certification of classes of virtually any size, including those in the overtime/misclassification arena. The case, however, does not apply to such claims by its own terms.

The Dukes case involved a pattern and practice claim under Title VII of the 1964 Civil Rights Act (“Title VII”), 42 U.S.C. §§ 2000e et seq., for gender discrimination in pay and promotions. The plaintiffs’ claims were bolstered by statistical evidence allegedly showing that while two thirds of the hourly Wal-Mart associates were women, only one third of managers were female, and by similar evidence that pay disparities existed in some stores as well as expert and anecdotal evidence regarding discriminatory conduct. The plaintiffs also made a showing, the court found, that Wal-Mart had a uniform personnel and management structure throughout its stores (a factor frequently absent in overtime cases), extensive centralized corporate control over its stores (ditto), and gender disparities in every domestic region of the company. Id. at 600. Relying heavily on the “abuse of discretion” standard of review, a bare majority of the court upheld the district court’s decision to certify the class.

The Dukes decision, however, contains nothing suggesting that large overtime classes should be certified. First, of course, the Ninth Circuit was reviewing the certification decision under an abuse of discretion standard, and even under that lenient benchmark fully five of the eleven judges believed it to be erroneous. The opinion thus is far from a ringing endorsement of the decision to certify, and nothing in the majority or dissents suggests that certification would have survived a less lenient review.

Second, the claim at issue in Dukes bore no relationship to overtime claims. Indeed, the majority took care to emphasize that the plaintiffs’ claims were those for an alleged pattern and practice of gender discrimination under Title VII, claims that by definition required no individual inquiry. Id. at 619, n. 41. It chided the dissent for what it described as a “misguided” concern for individual inquiries in that context. Id.

There is, of course, no such thing as a “pattern and practice” claim under the Fair Labor Standards Act or under any state overtime law that we are aware of, and particularly in misclassification cases both state and federal courts have emphasized the need for an individual inquiry regarding the duties of the putative class members. Thus, the text of the Dukes opinion reflects that the case was decided under a statute under which the individualized inquiry mandated in the overtime context was irrelevant. Further, nothing in Dukes suggests any misgivings about its prior holdings in the Wells Fargo.pdf and Vinole.pdf cases, in which the court rejected the certification of overtime classes far smaller than the class alleged in Dukes.

The Bottom Line: The Dukes case does stand for the proposition that a district court in the Ninth Circuit may not abuse its discretion by certifying a large uniform class in a Title VII pattern and practice case in the face of strong statistical evidence of gender discrimination . However, it sheds no light on whether a court should certify an overtime class of individuals working in a range of functions across different facilities when, by law, an individualized inquiry is required.