Independent Contractor Trucker Dodges FAA Arbitration and Keeps His Class Action Alive

Traffic jamIn Oliveira v. New Prime, Inc., No. 15-2364 (May 12, 2017), the U.S. Court of Appeals for the First Circuit confronted two arbitration-related questions of first impression in that Circuit.  In the case, Dominic Oliveira had signed an Independent Contractor Operating Agreement with New Prime, Inc., which contained an arbitration provision governed by the Commercial Arbitration Rules of the American Arbitration Association.  Believing he was underpaid as an independent contractor, Oliveira stopped driving but later was rehired by the same entity as a company driver.  Oliveira contends that his job duties as a company driver and an independent contractor were “substantially identical.”

Oliveira eventually filed a class action against the Company based upon the Fair Labor Standards Act (FLSA) and the Missouri minimum-wage statute for failing to pay drivers the minimum wage.  He also brought a class claim for breach of contract or unjust enrichment and an individual claim under Maine’s labor statutes.  The Company moved, in part, to compel arbitration under the Federal Arbitration Act (FAA).  The district court denied the motion to compel, concluding that the application of Section 1 of the FAA, exempting contracts of employment of transportation workers from the operation of the statute, was for the court not an arbitrator.  But, the court found that discovery was needed to determine if Oliveira was an employee or an independent contractor before the court could determine whether the contract was covered by Section 1.  Hence, the district court denied the motion to compel without prejudice and the Company appealed. Continue Reading

Supreme Court Rejects State Rule That Subjects Arbitration Agreements to Higher Standards

Some wondered why the U.S. Supreme Court granted certiorari in Kindred Nursing Centers L.P. v. Clark, No. 16-32, and after oral argument on February 22, 2017, many felt they knew the outcome. Indeed, Justice Stephen Breyer commented during that argument:

“. . . Of course I’m highly suspicious as you can tell from my tone of voice. What I really think has happened is that Kentucky just doesn’t like the Federal law. That’s what I suspect.”

And Justice Ruth Bader Ginsburg asked:

But what about the principle that making an arbitration agreement harder to form than other agreements violates the Federal Arbitration Act. . . . [T]he main rule is equal footing. Arbitration we thought to be on the same footing as all other contracts. If you make the arbitration agreement harder to form because you have to have this explicit reference than other contracts, doesn’t that discriminate against arbitration agreements?

While everyone knows you can’t read too much into oral argument, there did seem to be some genuine skepticism among the justices.  Continue Reading

California Supreme Court Clarifies “Day of Rest” Requirements

Managing life's timetableCalifornia’s employment laws have consistently caused headaches for employers because even minor technical violations of these laws can fuel class action litigation and prove costly.

However, a recent decision by the California Supreme Court, Mendoza v. Nordstrom, Inc. (SC S224611), provides some clarity by tackling three burning questions regarding California’s day of rest statutes – Labor Code sections 552 and 556. Section 552 prohibits an employer from “caus[ing] his employees to work more than six days in seven.” Section 556 provides an exception to this rule “when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.”

In Mendoza, former employees of Nordstrom filed a class action against the retail chain in California state court for, among other things, failing to provide statutorily guaranteed days of rest. Nordstrom removed the action to federal court, which granted summary judgment on all claims other than the day of rest claims. The district court ruled in favor of Nordstrom after a trial on the merits. The case was then appealed to the Ninth Circuit, which filed an order requesting that the California Supreme Court resolve three unsettled questions of California law. Continue Reading

Arguments for Class Arbitration with an Agreement That Doesn’t Mention It, Again Fail

The predicted demise of litigation over the availability of class arbitration has not taken place. And the new cases occur in many areas of the law. (See our November 11, 2013, March 12, 2015, September 9, 2015, and March 23, 2016, blog articles dealing with “gateway issues” and the availability of class arbitration). The most recent decision actually involves oil and gas leases rather than employment claims, but addresses the sometimes vexing issue of whether an agreement that does not even mention class arbitration can still be found to implicitly authorize it.

This was the ultimate issue addressed by district court Judge Matthew W. Brann in Chesapeake Appalachia L.L.C. v. Scout Petroleum LLC et al., Case No. 4:14-CV-0620 (M.D. Pa. April 28, 2017).  In Chesapeake Appalachia, Scout Petroleum first attempted to bring a class arbitration for itself and a putative class of thousands of landowners to resolve a dispute about the calculation of royalties under the terms of the natural gas leases.  Those leases contained an arbitration provision which provided:

ARBITRATION.  In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association.  All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee. Continue Reading

Sixth Circuit Narrowly Construes CAFA’s Local Controversy Exception

Congress passed the Class Action Fairness Act (CAFA) in 2005 to address a series of well-documented abuses of the class action process. Among the protections of the act were provisions enabling class action defendants to remove class action cases more readily than had been allowed before. 28 U.S.C. § 1332(d). The new CAFA removal provisions very generally permitted removal of class actions filed in state court when the amount in controversy exceeds $5 million, there are at least 100 class members and any class member is a citizen of a different state from any defendant. 28 U.S.C. § 1332(d)(2), (10). Desiring to keep such claims in state court, plaintiffs have devised ways to thwart removal by, for example, artificially deflating the amount in controversy or deliberately withholding demands for higher amounts until the time for removal has arguably passed. We’ve blogged some of these efforts here. While many of these cases have been decided in contexts outside employment, they apply with equal force in cases arising from workplace disputes. Continue Reading

Court Dismisses California Class Action Due to Limited California Nexus

evening traffic at airportIt is no secret that California is a desired and favorable forum for class action litigation. It is therefore not surprising that plaintiffs might try to take advantage of that forum even when the connection between employment and California could be questioned. But how far do California’s tentacles reach?

In Vidrio v. United Airlines, Case No. 2:15-CV-0985-PSG-MRW (C.D. Cal. Mar. 15, 2017), the plaintiffs were United flight attendants who from time to time worked on flights that took off from or landed in one of eight airports in California. They asserted California state law claims based on the airline’s alleged failure to provide California-compliant wage statements. The U.S. District Court for the Central District of California certified a class consisting of United employees for whom United had applied California tax laws.  Continue Reading

Chipotle Wins One, Loses One, in Wage and Hour Class Litigation

indecisive and lost man chooses the right pathA Tale of Two Cases . . .

We’ve commented on numerous occasions about the peculiar paths taken by wage and hour class litigation, particularly with respect to collective actions under the FLSA. Two cases involving the same employer decided only days apart continue to highlight the challenges and sometimes surprising outcomes in those cases.

Both cases were brought against the Chipotle food chain, but they involved different classes of employees and were filed in different jurisdictions. In the first, Scott v. Chipotle Mexican Grill, Inc., Case No. 12-CV-8333 (ALC)(SN) (S.D.N.Y. March 29, 2017), the plaintiffs alleged that the company misclassified its “apprentices,” essentially management trainees, as exempt. They brought a collective action under the FLSA and parallel state law wage and hour claims under the laws of several states against Chipotle in federal court in New York. Applying a low standard for conditional certification under the FLSA, the court conditionally certified a class. It based its decision largely on the company’s use of a single job description and its albeit limited study about the similarity of the work performed by apprentices nationwide. A total of 516 apprentices opted in to the case. After years of additional litigation, Chipotle moved to decertify the collective class and the plaintiffs moved to certify several smaller state law class actions.

The court addressed the state law claims first. While it found that the class did satisfy Rule 23(a), it concluded that in fact the class did not meet the requirements of Rule 23(b)(3). In doing so, the court looked at the standard for the executive exemption under 29 C.F.R. § 541.100(a), and specifically the need to examine “the employees’ actual job characteristics and duties” to determine their primary duties. In doing so, the court found, not surprisingly, substantial variation in the experiences of the apprentices based on geographic location, local management, store size, the ability to influence hiring and firing, and scheduling. Thus, the court found, class issues did not predominate. Further, for the same reasons, and based on differences among the state laws applicable in the various jurisdictions, the court concluded that superiority was lacking as well.

The court then turned to the motion to decertify the collective action under the FLSA. It rightly found that the standard was different under the FLSA, and focused instead on the similar, but not identical, factors such as the existence of disparate employment settings, defenses and procedural fairness. These, too, suggested that the class members’ claims were not similarly situated and should be decertified. The court therefore refused to certify the state law claims, decertified the FLSA class and dismissed the opt-ins’ claims without prejudice.

Meanwhile, halfway across the country, the company had tried to avoid the decertification process altogether in a case involving FLSA claims only. In the case of In re Chipotle Mexican Grill, Inc., Case No. 17-1028 (10th Cir. March 27, 2017), the plaintiffs asserted claims that they were required to work off the clock at the end of some shifts. Although this seems to be an inherently individual case that would turn on the practices of individual managers and stores, the district court conditionally certified the case under a low standard. Turner v. Chipotle Mexican Grill, Inc., Case No. 1:14-cv-02612-JLK (D. Colo. Sept. 22, 2014). This was particularly surprising because a different court had refused to certify a similar case in which the same plaintiff had opted in, because it viewed the practices as involving a single store. Following conditional certification, thousands of plaintiffs opted in.

At this point, Chipotle faced the difficulty that makes many defendants settle at this stage. Unlike Rule 23(f), there is no right to appeal (even on a discretionary basis) a decision granting conditional certification. An employer at this juncture must therefore make the decision whether to litigate the case through decertification or beyond, or to attempt settlement. Chipotle tried to create a third option by petitioning for mandamus relief to the Tenth Circuit. The difficulty with this third approach, however, is that mandamus review is extremely limited and requires something beyond even an abuse of discretion by the district court. Ultimately, the count concluded that although the district court’s order “may be debatable,” it was not a sufficient abuse of discretion to meet this standard.

The takeaway from these two decisions is that a statutory provision, section 16(b) of the FLSA, which was enacted in an effort to curb wage and hour class actions, is being interpreted by the courts in a manner that not only encourages these but makes them lengthy and expensive cases for even an entirely innocent employer to defend. Courts apply varying, but generally low, standards on conditional certification. At that point, the employer has a Hobson’s choice of settling or continuing the case at least through conditional certification. Even then, should the case be decertified, the employer faces the specter of individual cases that would never have been brought but for the prior conditional certification. In the New York case above, it took the company nearly four years to get out from under the conditional certification order, and even now it will likely face individual claims from the former opt-ins. In the Tenth Circuit case, the litigation will now continue further even though it seems obvious that the case should not proceed as a class. Employers defending these actions must continue to consider the increased risk caused not by any wrongdoing on their part, but by the mechanisms courts have created that expand rather than manage wage and hour litigation.

The Bottom Line:

Appellate courts are reluctant even to review conditional certification decisions, but decertification remains a viable if expensive means to defend collective actions under the FLSA.

Arbitration of PAGA Claims: Another California Divide Emerges

In a March 8, 2017, article, we talked about how the Ninth Circuit Court of Appeals compelled the arbitration of a California Private Attorney General Act (PAGA) representative claim in Valdez v. Terminix International Co., L.P., No. 15-56736 (9th Cir. Mar. 3, 2017). And, while we mentioned potential difficulties in arbitrating such cases, we didn’t address the differing interpretations of Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014) by California courts. But a recent California Court of Appeals opinion has highlighted the issue.

In Betancourt v. Prudential Overall Supply, No. EO64326 (Cal. Ct. App. 4th Dist., Mar. 7, 2017), the California Court of Appeals took the position that arbitration was not available. The Betancourt plaintiff sued Prudential Overall Supply, raising only a PAGA claim. The trial court denied Prudential’s motion to compel arbitration, concluding that a PAGA claim was not subject to arbitration under an existing agreement. The Court of Appeals affirmed. Continue Reading

Proposed Legislation That Could Impact Class Action Litigation and Arbitration – The Fairness in Class Action Litigation Act of 2017 and the Arbitration Fairness Act of 2017

3d Office chair in spotlightTwo new pieces of proposed legislation could, if passed, change the architecture and requirements of class actions and outlaw mandatory arbitration clauses in employment and consumer contracts. But neither is a sure thing. Vocal critics as well as supporters are already lined up on both sides of each bill.

The Fairness in Class Action Litigation Act of 2017

On March 9, 2017, the U.S. House of Representatives passed the Fairness in Class Action Litigation Act of 2017 (H.R. 985) (the Act).

The Act – introduced by Chairman of the House Judiciary Committee Bob Goodlatte, who also introduced the Class Action Fairness Act of 2005 (CAFA) – makes several significant changes to class action practice. In passing this Act, the House asserted these changes were intended to “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system” and “ensure Federal court consideration of interstate controversies of national importance consistent with diversity jurisdiction principles.” Continue Reading

Arbitrating PAGA Claims: The Ninth Circuit Compels It in the Valdez Case

California State CapitalSo much case law has come down in the past several years regarding California’s Private Attorneys General Act (PAGA) – and its ability to withstand class and representative action waivers – that observers might have overestimated PAGA’s arbitration-avoidance powers. The Ninth Circuit Court of Appeals offered a reminder on Tuesday that even though an arbitration agreement cannot validly waive the right to assert PAGA claims, a plaintiff may nevertheless be compelled to arbitrate PAGA representative claims.

Although the opinion in Valdez v. Terminix International Co., L.P., 9th Cir. No. 15-56236 was unreported and nonprecedential, it illustrates in the post-Iskanian landscape that PAGA claims can be arbitrated. In Iskanian v. CLS Transp. Los Angeles, LLC, 327 P.3d 129 (Cal. 2014), the California Supreme Court held that even though class-action waivers in arbitration agreements were enforceable, where “an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.” PAGA claims, the Iskanian court noted, could not be waived because PAGA effectively deputizes employees to act on behalf of the state in vindicating the state’s “interest in enforcing the Labor Code,” which “does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.” In Iskanian, though, the California Supreme Court reserved for lower-court consideration on remand the question of whether the PAGA claims would proceed in litigation or “the parties would prefer to resolve a representative PAGA claim through arbitration.” Continue Reading