Who Decides the Availability of Class Arbitration? Second Circuit’s Analysis Is a Bit Murky in Wells Fargo Advisors Cases

For years, courts have struggled with who decides the availability of class arbitration and the applicable standards. We most recently addressed the thorny issues in a March 23, 2016, blog post. Unfortunately, a recent Second Circuit opinion in two consolidated appeals does little to establish clear standards or instill confidence in allowing arbitrators to decide the issue. The two cases are Wells Fargo Advisors, LLC v. Sappington, No. 16-3833-cv, (2d Cir. March 7, 2018) (Sappington), and Wells Fargo Advisors, LLC v. Tucker, No. 16-3854-cv, (2d Cir. Mar. 7, 2018) (Tucker).

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Independent Contractor Trucker Class Action that Dodged FAA Arbitration Now Moves to the Supreme Court

As we await the Supreme Court’s decision on the enforceability of class action waivers, the Court has accepted certiorari on another arbitration-related case, this one relating to the application of the Federal Arbitration Act (FAA) to the trucking industry. The U.S. Supreme Court on February 26 granted the certiorari petition of trucking company New Prime, Inc., in a case that raised two important arbitration issues in the context of an independent contractor agreement in the trucking industry. See New Prime, Inc. v. Oliveira, No. 17-340. In its petition, New Prime, Inc., sought review of two questions:

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Supreme Court Overrules Sixth Circuit (Again) In Class Action Dispute Over Retiree Medical Benefits

Is Yard-Man really dead this time?

This issue should never have arisen, the Supreme Court should not have had to address it in 2015, and it shouldn’t have required Supreme Court attention a second time just three years later. But it did.   In 1983, in the case of UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit addressed the claims of a group of unionized workers who argued that they were entitled to lifetime medical benefits upon their retirement. In finding for the retirees, the court simply made up a set of “inferences” in favor of vesting, suggesting that they were just that – inferences – and that they should not be viewed as necessarily controlling. Over time, these “inferences” grew and began to function much like outright presumptions in favor of vesting. The court created new rules along the way largely eviscerating general termination provisions and requiring specific durational language directed at retiree benefits. These holdings resulted in employers losing the vast majority of such disputes in the Sixth Circuit, and cost manufacturing employers considerable expense to pay for benefits they had never promised. In the meantime, other circuits rejected the inferences and continued to apply ordinary rules of contract interpretation, as did the Sixth Circuit itself in such cases brought by non-unionized employees. Continue Reading

Courts Deny Certification for Adequacy of Representation in Second Class Action

One of the tactics in the current plaintiffs’ wage and hour playbook is to bring a second claim after settlement of an initial class or collective action lawsuit. In these cases, the second set of claims is purportedly brought on behalf of those who did not opt in or participate, or it is for alleged violations occurring after the settlement of the initial case. The strategy in some respects is that this is relatively easy money, as much of the discovery has already been done and the employer has already settled the claims once and presumably may do so again to save litigation cost. As two recent cases demonstrate, these tagalong cases may present problems of their own when there are problems with the class representatives.

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Faulty Statistics Lead to Decertification of California Wage and Hour Case

Nearly four years ago, the California Supreme Court issued its decision in the case of Duran v. U.S. Bank National Ass’n, 59 Cal. 4th 1 (2014), in which it virtually catalogued the many problems inherent in the plaintiffs’ statistical case that purported to demonstrate that a class of 260 outside salespeople were misclassified as exempt. We blogged that decision here. In a nutshell, the plaintiffs, with the trial court’s approval, had attempted to prove their case with an alleged statistical study that was plagued with problems involving sample size, questions about the statistical sample (e.g., the plaintiffs skewed the pool with class members having stronger claims), poor controls and faulty statistical methodology. This tactic worked at the trial court level, where the plaintiffs recovered approximately $15 million before a jury. The court of appeals, however, reversed, and the California Supreme Court similarly found that the verdict had to be set aside. The court in particular criticized the trial court’s trial plan and remanded the case to essentially start over from scratch, including an admonition to revisit the issue of class certification and a question as to whether any trial plan could adequately address both class and individual issues. The case was a very strong defense win in a jurisdiction known for being plaintiff friendly.

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Minnesota Court Cuts Proposed Attorney Fee Award From $3.2 Million to $600,000 in Off-the-Clock Case

In 2014, five law firms brought a claim for alleged off-the-clock work. As discovery revealed, the claims all arose out of conduct involving a single shift supervisor at a single restaurant, and the conduct was disputed at that. Although the allegations related to a low-level supervisory employee, the plaintiff firms then spent considerable time and expense trying to parlay that isolated set of occurrences into a nationwide collective action, ultimately without success. Faced with a smaller but still disputed wage claim involving less than $25,000, the parties settled for roughly $60,000 plus incentive awards and attorney fees to be determined by the court. The five plaintiff firms then submitted an attorney fee request for $3.2 million as part of the approval of the settlement. Harris v. Chipotle Mexican Grill, Inc., Case No. 14-cv-4181 (SRN/SER).

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Second Circuit Affirms Summary Judgment in Putative Internship Class

Four years ago, a wave of cases involving unpaid internships looked to be the next “big thing.” As those cases sputtered, however, and employers reduced or eliminated internships, the flood of anticipated litigation never fully materialized. Many targets of these claims simply settled, but a small number of these cases continued to be litigated.

In 2012, a group of unpaid student interns for magazines including Esquire and Cosmopolitan brought suit for unpaid wages, claiming that they were actually “employees” as contemplated by the Fair Labor Standards Act. Wang v. The Hearst Corporation, Case No. 12 CV 793 (S.D.N.Y). The case was not insignificant, as it involved a high-profile industry and purported to involve 3,000 interns. As explained below, the facts in this particular case made it a questionable subject for litigation and the employer made the decision to fight the claims rather than settle.  Indeed,  Hearst’s own Deputy General Counsel, Jonathan Donnellan, himself acted as lead counsel. Continue Reading

New Bill Would Outlaw Mandatory Arbitration Agreements For Sex Discrimination Disputes – Is A Poorly Constructed Bill The Right Cure For The Disease?

Prior bills have attempted, unsuccessfully, to eliminate individual arbitration as a means to resolve employment disputes.  Senator Al Franken introduced several bills, starting in 2009, to forbid pre-dispute mandatory arbitration agreements in the employment sector.  Now, a new bill has emerged from the current wave of sexual harassment allegations that purportedly would invalidate the use of mandatory arbitration agreements to resolve disputes involving sexual harassment and sex discrimination claims, but the bill itself is fraught with problems.  Continue Reading

The Ninth Circuit Rules That both an Arbitrator and a Trial Court May Have a Role in a Case with Individual and PAGA Claims

Employers, plaintiffs, and courts continue to grapple with the difficult issue of the interplay between the California Private Attorneys General Act (“PAGA”) and arbitration agreements. We’ve addressed these issues several times on this blog, including a March 30, 2017 blog in which we discussed the case of Hernandez v. Ross Stores, Inc., No. E064026, 2016 WL7131651 (Cal. Ct. App. 4th Dist., Dec. 7, 2016). In that case, a California state court of appeals held that an employee “cannot be compelled to submit any portion of his representative PAGA claim to arbitration including whether he was an ‘aggrieved employee’.”

In Hernandez, the plaintiff had brought a single representative PAGA claim.  As demonstrated below, the result is different when PAGA is just one of several claims brought. Continue Reading

Court Grants Summary Judgment For Employer In Tip Credit Collective Action

What? I Need a Valid Claim to Represent a Class?!

With scores of collective actions being filed every month and many courts willing to issue conditional certification on even very weak claims, it’s easy to forget that, yes, it’s important for there to be a claim in the first place. That’s one of the lessons in last week’s decision in Calabrese v. TGI Fridays Inc., Civil Action No. 16-CV-0868 (E.D. Pa., Nov. 2, 2017). The Calabrese case started out like countless other wage-and-hour cases in the restaurant industry. In February 2016, the plaintiff, a restaurant server, brought suit against the TGI Friday’s chain for unpaid wages. The crux of his claim was that he was not advised that the restaurant would be taking advantage of the tip credit provisions section of the FLSA (29 U.S.C. § 203(m)) and the comparable versions of state law. Those long-standing provisions permit a restaurant to pay the employee only half of the applicable minimum wage and to take a credit for the tips an employee receives to make up the difference between the minimum wage and any overtime. The applicable regulations include the commonsense requirement that the employee be advised that the tip credit provisions would apply. 29 C.F.R. § 531.59.

The plaintiff contended that he did not recall hearing the term “tip credit” during his orientation, and thus the employer should not have been able to take advantage of the tip credit provisions when computing his pay. He not only brought suit in his own right, but also sought conditional certification across the entire TGI Friday’s chain.

The problem, however, was that, as you might expect, Friday’s did have procedures to tell employees that the tip credit would apply. Its policy was to alert new hires about the issue both verbally and by showing them forms explaining how the tip credit would work. Significantly, the tip credit was also explained in the handbooks given to all employees and which they acknowledged receiving.

Faced with this evidence, the court found that the employee’s claim that he did not recall hearing about the tip credit did not create a question of fact. It also rejected arguments that the plaintiff had to participate in an improper tip pool, concluding that while the employer encouraged tip sharing and the employee may have felt awkward not sharing his tips with certain other workers, that awkwardness was not attributable to the employer. The court thus granted summary judgment for the employer and denied the plaintiff’s motion for conditional certification.

The decision in Calabrese is important in several respects. First, it is typical of many of the kinds of wage-and-hour claims currently being brought, where the underlying basis is thin at best and the employee banks on obtaining conditional certification to coerce a settlement from the employer. Second, that tactic might very well have worked in some courts, but in this instance the court was prepared to examine difficulties with the merits before leaping to a certification decision. This court also neatly resolved the issue by holding that the employee’s own testimony that he did not recall hearing about the credit created no fact question when the employer had reasonable policies in place to ensure that he would have.

The bottom line: Some courts will consider the weaknesses of the plaintiff’s own claim before deciding whether to grant conditional certification.