California Court of Appeal Applies Dynamex Retroactively

By Joseph S. Persoff on October 14, 2019 Posted in Independent Contractors

This week, a California Court of Appeal concluded in a class action case that the California Supreme Court’s Dynamex decision applies retroactively. In another case, Vazquez v. Jan-Pro Franchising International, the Ninth Circuit Court of Appeals previously found the Dynamex decision applies retroactively, but subsequently withdrew that opinion and certified the question to the California Supreme Court, where the request is now under consideration. The implication of this decision is that employers who rely upon independent contractors may now be subject to potential exposure for wage and hour claims based on a legal standard that did not exist prior to April 2018.

In Dynamex, the California Supreme Court adopted a new test for determining whether a worker is an employee or an independent contractor. The new test essentially added two new requirements to the test that an employer must meet to establish that the worker is an independent contractor rather than an employee. Based on this significant change in the applicable test, employers have argued that the new standard should only be applied prospectively. Continue Reading

California Enacts Anti-Arbitration Legislation, but Will the FAA Limit Its Potential Impact? Not Entirely.

By John Lewis and Joseph S. Persoff on October 11, 2019 Posted in Arbitration

On Oct. 10, California Governor Gavin Newsom signed into law an attempt by California’s Legislature to limit arbitration of claims under California’s Fair Employment and Housing Act (“FEHA”). FEHA prohibits harassment, discrimination and retaliation on the basis of various protected characteristics, such as gender, age, disability or national origin.

Taking effect Jan. 1, 2020, AB 51 amends the California Labor Code to provide the following:

An employer cannot require that an employee agree to arbitrate any potential claim under FEHA as a condition of employment;
An employer cannot threaten, retaliate or discriminate against an applicant for employment or an employee for refusing to consent to arbitration of a potential claim under FEHA; and
An agreement that requires an employee to opt-out of a waiver or to take action to retain their rights “is deemed a condition of employment.”

Further, violation of the law constitutes an “unlawful employment practice” under FEHA and is a criminal misdemeanor. Continue Reading

Seventh Circuit Holds That Opt-Outs Lack Standing To Challenge Settlement

By Greg Mersol on October 7, 2019 Posted in Discrimination

What were they thinking, anyway?

Eighteen months ago, a group of African American financial advisors brought suit against JPMorgan Chase for alleged race discrimination and retaliation. They sought to assert claims on behalf of a class of 273 individuals.

The parties immediately entered into settlement discussions and reached an agreement to resolve the claims for a total of $24 million. The settlement included changes to company policies relating to recruiting, training, counseling and the posting of promotion opportunities. Of the $24 million amount, $4.5 million was designated to pay for the cost of equitable relief and the establishment of a $1.5 million diversity fund. The remainder, $19.5 million, was to go for attorney fees ($5.5 million), expenses (around $83,000) and payments to the class members under a claim system. The six lead plaintiffs each received $150,000 incentive awards that seem to come (the opinion is not clear) from the $4.5 million fund for equitable relief. We’ll save you the math – the remaining funds available that would actually go to class members works out to an average of around $50,000 per claimant. Continue Reading

The Ninth Circuit Bows to Supreme Court Authority, Affirms Three Principles Supporting Removal of CAFA Removal Cases

By Jeffrey Fields and Nicholas Poper on September 30, 2019 Posted in Class Action Fairness Act

The Class Action Fairness Act of 2005 (“CAFA”) grants federal courts jurisdiction to preside over certain class action cases where, based on the claims alleged, the amount in controversy is more than $5 million, among other factors. While CAFA provides a useful tool for defendants to remove class actions to federal court, CAFA creates an inherent dilemma for defendants mulling removal, as doing so is tantamount to an admission that, based on the allegations in the complaint, a case might actually be worth over $5 million. Also concerning is that some district courts have continued to rely on early interpretations of CAFA by requiring defendants to offer evidentiary support for their calculations to satisfy the amount in controversy requirement, arguably requiring defendants to prove the merits of a plaintiff’s case.

These concerns were, or at least should have been, put to rest in 2014 when the Supreme Court ruled in In Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81 (2014), that removals under CAFA were to be reviewed under ordinary pleading standards and did not require supporting evidence. We blogged that case here. The Owens case overruled prior Ninth Circuit contrary authority, but, as shown below, some district courts remain hostile to CAFA removals.

Now, the Ninth Circuit moved away from its early interpretations of CAFA as disfavoring federal jurisdiction, recognizing that “some remnants of our former antiremoval presumption seem to persist.” In Arias v. Residence Inn by Marriott, No. 19-55803, 2019 WL 4148784 (9th Cir. Sept. 3, 2019), the Ninth Circuit vacated a district court’s order sua sponte remanding a wage and hour putative class action and reaffirmed that defendants may rely on reasonable assumptions in estimating the amount in controversy for removal purposes. Continue Reading

Third Circuit Affirms $4.5 Million Verdict in Favor of Exotic Dancers

By Greg Mersol on September 18, 2019 Posted in Independent Contractors

A significant amount of wage and hour class/collective jurisprudence has developed around the issue of whether exotic dancers are employees or independent contractors. We’ve blogged many of these issues in the past [June 6, 2019, August 27, 2018, January 27, 2017, December 3, 2014, November 21, 2012, April 8, 2011]. There are many other cases we have not blogged, and a significant number have now been decided by federal courts of appeal. In some respects, the cases reflect the novelty of the issue itself and the defenses raised by the defendants. In others, it reflects the fact that in this industry, most of the venues have used largely the same economic arrangements. In any case, those challenging such arrangements are now reaping significant verdicts, and courts are developing rules that may apply to significantly less controversial subjects.

Most recently, the United States Court of Appeals considered the case of Verma v. 3001 Castor, Inc., d/b/a The Penthouse Club and/or The Penthouse Club@Philly, Case No. 18-2462 (3d Cir. Apr. 17, 2019). The arrangements at issue in the Verma case were fairly typical in theis exotic dance industry. The defendant ran a club and classified its dancers as independent contractors, requiring them to sign contracts acknowledging that status. The dancers were not paid at all by the club, but were compensated solely by tips and by “dance fees” from customers arising from giving “private room dances” in private rooms provided by the club. The dancers were required, however, to pay a set of fees to the club and to various club staff members totaling $30 per shift. While dancers could choose shifts, they could also be fined for tardiness and were subject to the club’s rules as to appearance and music, subject to fines ranging up to $100. Continue Reading

Third Circuit Opinion Involving Uber Only Adds More Questions to the Dispute Over the Scope of the FAA Section 1 Residual Clause

By John Lewis on September 13, 2019 Posted in Arbitration

Recent decisions have cast doubt on the enforcement of arbitration clauses in the context of the interstate transportation of goods, but will those limitations extend to the transportation of passengers? And what if the movement does not cross state lines?

In a Sept. 11, 2019, opinion, the Third Circuit found that the residual clause of the Federal Arbitration Act’s (FAA) Section 1 “may extend” to a class of Uber drivers “who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.” Singh v. Uber Technologies, Inc., Case No. 17-1397 (3d Cir. Sept. 11, 2019).

Judge Joseph A. Greenaway, Jr., wrote for a three-judge panel of the court in vacating the District Court’s order, which had sent the dispute to arbitration. And because no filings could resolve the interstate-commerce issue, the case was remanded for further proceedings – including discovery before additional briefing.

We have previously written about the impact of New Prime v. Oliveira, No. 17-340, 139 S. Ct. 532 (Jan. 15, 2019), and the uncertainty it created. See our Jan. 17, 2019, March 12, 2019, and April 29, 2019, blog posts on the issues raised by New Prime and its progeny in the transportation industry. Continue Reading

CA Supreme Court Rules That Employees Cannot Recover Unpaid Wages Through PAGA

By Joseph S. Persoff on September 12, 2019 Posted in PAGA

California’s Supreme Court has cut off an area of significant potential exposure for California employers by ruling that employees cannot recover unpaid wages on behalf of themselves and other aggrieved employees through California’s Private Attorneys General Act (PAGA).

Serving as a quasi-class action, California’s PAGA allows employees to recover civil penalties for California Labor Code violations on behalf of themselves and other aggrieved employees. Of the employee’s recovery, 75% goes to the state and the other 25% goes to the aggrieved employees. Prior to PAGA, these civil penalties could be recovered only by California’s Labor Commissioner.

One such Labor Code section affected by PAGA is Labor Code § 558, which provides for the recovery of civil penalties in the amount of $50 for an initial violation and $100 for a subsequent violation per employee in the event of overtime violations. Section 558 further provides that these penalties may be recovered “in addition to an amount sufficient to recover underpaid wages.” As PAGA allows employees to recover penalties on behalf of themselves and other employees, the amount of underpaid wages can add up to significant potential exposure for an employer. Continue Reading

Ninth Circuit Reverses Itself And Finds That At Least Some ERISA Claims Can Be Compelled To Arbitration

By Greg Mersol on August 23, 2019 Posted in ERISA

But Do You Really Want To In All Cases?

The Employee Retirement Income Security Act of 1974 (“ERISA”) was the largest statute ever passed by Congress at the time it was enacted and has only grown further since then. In the 44 years that have followed its effective date, so too have grown the number of opinions, and changes in direction, among the courts.

There is little question that ERISA functions unlike many other statutes. It has one of the broadest preemption clauses of any federal statute. 29 U. S. C. § 1144(a). It has its own unique enforcement provisions in section 502 (29 U.S.C. § 1132) that are deceptively short but have spawned four decades of disputes over what may or may not be a topic of litigation and the available damages. As the Supreme Court has long recognized, the statute’s enforcement provisions are a unique marriage of the common law of trusts and Section 301 of the Labor Management Relations Act, 29 U.S.C. § 185. See, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Particularly as to benefit claims, ERISA not only encourages but requires claims procedures that include mechanism for review. 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1.

So, given all that, can the employer or plan require arbitration of ERISA claims? Which ones? When? And might they really want to?

Only seven years after ERISA’s passage, the Ninth Circuit addressed at least some of these questions in Amaro v. Continental Can Co., 724 F.2d 747 (9^th Cir. 1984). The Amaro case involved an interesting fact pattern. There, a unionized employer laid off a number of employees in the years following ERISA’s passage. The union grieved the terminations under the collective bargaining agreement (CBA) which, as most do, culminated in binding arbitration. The arbitrator concluded that the layoffs were precipitated by market conditions and denied the grievance under the CBA. Unhappy with this result, the employees filed suit under section 510 of ERISA (29 U.S.C. § 1140 – ERISA’s anti-retaliation provision), contending that the discharges (and those following the period covered by the arbitration decision) were motivated by a desire to prevent them from accumulating years of service under the plan. Continue Reading

Tennessee District Court Refuses Conditional Certification of Class of Assistant Managers

By Greg Mersol on August 21, 2019 Posted in FLSA

In collective actions under the FLSA, courts typically apply a lower standard to the first “conditional certification” stage. In some cases, that might be warranted, but in many instances courts will undertake an unduly lenient review and conditionally certify cases that have no business proceeding as a class and have no realistic prospect of surviving as a class at the higher second stage. These rulings likely run afoul of the admonition of the Federal Rules of Civil Procedure that district court proceedings should be employed “to secure the just, speedy, and inexpensive determination of every action . . . .” F.R. Civ. P 1. Instead, such rulings rely upon the time, expense and burden of post-notice litigation to pressure the defendant into settlement. Indeed, one line of cases notes that a court ruling on a motion for conditional certification should be mindful of its obligation “to refrain from ‘stirring up unwarranted litigation.’” Rowe v. Hospital Housekeeping Systems, LLC., Case No. 17-9376 (E.D. La. Feb. 6, 2018) (and cases cited therein).

Increasingly, when courts do undertake to examine the merits, even at the initial stage, it becomes obvious that the matter will never survive as a collective action. This is particularly true in cases in which the employer’s policies are facially lawful but the plaintiff tries to allege some class-wide policy to “violate the policy.”

A recent case from the Middle District of Tennessee illustrates this point. In Ratcliffe v. Food Lion, LLC, Case No. 3:18-cv-01177 (M.D. Tenn. Aug. 16, 2019), the plaintiffs brought a fairly typical FLSA collective action – one contending that assistant managers at a grocery chain did not exercise the appropriate amount of management responsibility or independent judgment and were therefore misclassified as exempt. When the plaintiff moved for conditional certification of a proposed class of assistant managers company-wide, the court noted and applied the traditional lower standard, but also noted that the plaintiff is still required to produce factual support “for the existence of a class-wide policy or practice that violates the FLSA.” Continue Reading

Ohio Supreme Court Addresses Waiver of the Right to Arbitrate in the Putative Class Action Context

By John Lewis on August 19, 2019 Posted in Arbitration

In Gembarski v. PartsSource, Inc. (Slip Opinion No. 2019-Ohio-3231, decided Aug. 14, 2019), the Supreme Court of Ohio clarified the standards for waiver of the right to arbitrate in the class action context where only unnamed putative class members but not the single named plaintiff had agreed to arbitration. The court ultimately concluded that the employer did not waive the right to raise the “arbitration defense,” and that not raising arbitration in the answer had no impact on the company’s ability to challenge Civil Rule 23 issues at class certification.

The Background

In October 2012, Edward Gembarski brought a class action against his prior employer, PartsSource, claiming breach of contract, unjust enrichment, conversion, equitable restitution, constructive trust and “money had and received.” PartsSource filed an answer denying the class action allegations and that the action could proceed as a class action. Nearly three years later, in September 2015, Gembarski, for the first time, sought class certification.

The trial court referred the case handling to a magistrate. PartsSource opposed the motion to certify, arguing, among other things, that Gembarski could not meet the typicality or adequacy requirements for certification because those putative class members who signed arbitration agreements could not be part of the class. In response, Gembarski maintained that PartsSource knew of its claimed right to arbitrate at the beginning of the action yet failed to assert any “arbitration defense.”