Court Refuses to Certify Class Due to Lack of Adequacy of Class Counsel

Class action litigation is not for amateurs

We’ve commented before in this blog on cases in which courts declined to certify employment actions due to adequacy of class counsel. A recent case reflects that some courts will look not only to the presence or absence of conflicts or litigation misconduct but also to the plaintiffs’ counsel’s experience in other class action cases.

In Goers v. L.A. Entertainment Group, Inc., Case No. 2-15-dv-412-FtM-99CM (M.D. Fla., Jan. 9, 2017), the plaintiffs described themselves as former exotic dancers who worked at an adult night club in Fort Myers, Florida. They claimed that they, the other exotic dancers and possibly other club employees were misclassified as independent contractors and thus failed to receive the minimum wage and overtime. They sought to certify a class under state law under federal Rule 23, and also sought certification of a collective action under section 16(b) of the Fair Labor Standards Act. Continue Reading

Justices to Consider Arbitration Agreements With Class Waivers – The End of the Beginning?

glasses iStock_000048458646_LargeApologies to Winston Churchill,[1] but the conflict over the enforcement of arbitration agreements with class waivers has become an ongoing legal and ideological struggle. Some view individual arbitration as a quicker and less costly means to resolve employment disputes, while others believe it is a means to deprive employees of their legal rights.

Since 2012, the National Labor Relations Board (NLRB) has taken the position that arbitration agreements with class or collective action waivers deprive employees of their rights under Section 7 of the National Labor Relations Act (NLRA). That NLRB position ultimately provoked a federal circuit split that posed serious challenges to national and multistate employers. Continue Reading

Third Circuit Rejects Procedural Runarounds to Appeal Decertification of FLSA Collective Action

Road barrierWhat’s good for the goose …

We’ve written many times in this blog about the two-step procedure used by many courts in Fair Labor Standards Act (FLSA) cases in collective actions. The first step is to provide notice to the proposed class and is typically decided under a lenient standard. If the court “conditionally certifies” the class, there is usually an opt-in period, followed by some measure of additional discovery, followed by a motion to decertify by the defendant. Although section 16(b) of the FLSA was passed to limit collective actions, Hoffman-La Roche v. Sperling, 493 U.S. 165 (1989), the use of this procedure by courts is now working to encourage and facilitate collective actions. Part of this stems from the fact that because Rule 23 does not apply to the FLSA, a defendant facing a successful motion for conditional certification has virtually no appeal rights until the case is over. For this reason, many employers settle not long after a case is conditionally certified and the opt-in period has closed.

But what if the defendant sticks it out and files the motion to decertify, and the motion is granted? Or what if the less common scenario occurs, where conditional certification is denied? The same rule applies, much to the frustration of unsuccessful plaintiffs’ counsel, as a recent case demonstrates.

In Halle v. West Penn Allegheny Health System, Inc., Case No. 15-3089 (3d Cir. Nov. 18, 2016), the plaintiffs sought to bring two separate collective actions against various hospitals for work they claimed they performed during their unpaid meal periods. In 2009, the district courts conditionally certified the two cases, and a total of nearly 3,800 employees opted in to the two cases. Following two years of discovery, the courts in both cases decertified the actions because of multiple differences among the class members relating to individual supervisors, job duties and experiences. In an effort to obtain an appeal, the individual plaintiffs dismissed their own claims under Rule 41(a) to create a final, appealable order, and then appealed. That effort failed because the Third Circuit found that the dismissal of the plaintiffs’ claims extinguished their right to represent the class as well. We blogged this initial decision here.

Was that the end? Not quite.

The same law firms then filed two brand-new cases with two of the former class members, with slightly different proposed class definitions. They again sought conditional certification and, while that motion was pending, submitted 250 opt-in forms in one of the cases, before the court concluded that the matter was essentially the same as the originals and should not proceed as a collective action. It dismissed the attempted opt-ins’ claims without prejudice. Three of the individuals who had tried to opt in to the first case appealed. (In the second action, the lead plaintiff accepted a Rule 68 offer of judgment and his claims were dismissed, so that case was effectively over.)

The Third Circuit was therefore left with the question of whether three attempted opt-ins whose claims were dismissed without prejudice had standing to appeal the denial of conditional certification. The court concluded that they did not. Instead, like unsuccessful defendants, they had to await the conclusion of the litigation and appeal then if they chose.

Cases like Halle stem from a fundamental difference in how some may view a class or collective action, and specifically whether the right to proceed in that fashion is itself a substantive right. These mechanisms, however, are not substantive rights but rather procedural vehicles. And while the inability to appeal conditional certification decisions overwhelmingly disadvantages employers, on occasion it can also work to the detriment of putative class representatives.

The bottom line: The rules limiting appeals of decisions regarding conditional certification or decertification of FLSA collective actions apply to plaintiffs, too.


Sixth Circuit District Courts Dismiss Retiree Benefits Claims

Game over, pixelLess than two years ago, the United States Supreme Court overruled 32 years of Sixth Circuit authority that had the practical effect of shackling unionized employers to retiree health insurance benefits far beyond the time they had intended. UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983). By requiring inferences in favor of retirees, and ultimately turning those inferences into ironclad rules of contract construction that eliminated most employer defenses, the court often dictated the provision of retiree health care for the life of the retirees and their dependents. See, e.g., Noe v. Polyone Corp., 520 F.3d 548 (6th Cir. 2008). That ended on Jan. 26, 2015, with the Supreme Court’s decision in M & G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015). We blogged that opinion here.

The holding of Tackett was clear – that the Sixth Circuit’s prior rules of construction inappropriately favored the retirees and that promises of retiree health care in labor contracts were to be governed by ordinary rules of contract construction. What became less clear was the extent to which the Sixth Circuit, after years of increasingly favoring the retirees, would actually follow that holding. In early 2016, the court of appeals issued a pair of decisions that reflected differing applications of the new Tackett rules. In the Tackett case itself (on remand from the Supreme Court), the court curiously attempted to divert the issue to the concurring opinion in Tackett rather than the majority. In the second, Gallo v. Moen, Inc., 813 F.3d 265 (2016), the court followed Tackett and its dictates much more closely. We blogged those cases here. At present, there are at least three other retiree medical cases pending before the Sixth Circuit. Continue Reading

California Enacts Laws Aimed at Choice of Law Provisions in Arbitration Agreements and the Conduct of Arbitral Proceedings

Business Tied in Red TapeGiven California’s past resistance to mandatory arbitration agreements with class action waivers, it should come as no surprise that the state has now enacted two laws primarily directed at arbitration.

On Sept. 25, Governor Jerry Brown signed a bill (Senate Bill 1241) that amended the state’s Labor Code to prohibit an employer from requiring as a condition of employment, that an employee “who primarily resides and works in California” to “adjudicate” outside of California a claim arising in that state.

And while “adjudicate” covers both litigation and arbitration, the thrust of the provision appears to be the restriction of arbitration agreements.  Moreover, the law prevents an employer from depriving an employee “of the substantive protection of California law” for a matter arising in California.  In other words, a company cannot use what are commonly referred to as choice of law provisions to make the law of other (perhaps less employer-friendly) states applicable to California workers.

The law exempts any agreement made by an employee individually represented by an attorney that designates “either the venue or forum” in which an employment claim will be resolved.

Violations of the law, which applies to contracts entered into, modified or extended after Jan. 1, 2017, will entitle the employee to injunctive relief and other remedies, including reasonable attorneys’ fees.

The other new California law, also signed on Sept. 25 (Senate Bill 1007) applies only to arbitrations and gives a party to an arbitration the right to have a certified court reporter transcribe “any deposition, proceeding or hearing” and provides that the resulting transcript will be the official record of that event. The law also establishes the time frame within which a party must request that the proceeding be transcribed, and provides that the party seeking the transcript (except for indigent consumers) must pay for it.

Finally, should the arbitrator refuse to permit the shorthand reporter to transcribe any of the covered events, the party requesting the transcription may seek a court order to compel the arbitrator to accede to the request. Charitably, the new law does not add to the grounds for vacating or correcting an award under California law.

The author of the legislation, Senator Bob Wieckowski, maintained that while some arbitral sponsors do permit the use of court reporters, the practice was not uniform. And he felt the right to have a record of the proceeding was “a critical factor.”

Regardless of motivation, these new laws clearly aim to limit arbitration agreements in California and, in the case of the provision pertaining to court reporters, to potentially add an overlay of formality to the arbitral proceeding which by its very nature is intended to be relatively informal, and cost-effective. While it is not unusual to have a court reporter at arbitral hearings and at depositions, it is not clear how broadly this statute will be construed.

It is also unclear how courts in California might apply these provisions to arbitration agreements or proceedings in interstate commerce covered by the Federal Arbitration Act (“FAA”). For example, in Rodriquez v. American Technologies Inc., 136 Cal. App. 4th 1110, 1122 (Cal. 4th Dist. 2006), the appellate court found that the parties’ selection of the FAA trumped California procedural law on staying judicial proceedings when arbitration is compelled.  At this point it is difficult to predict what challenges might be brought to these new provisions based on federal and state law or what actual impact they may have on most arbitration agreements.


California has erected another potential roadblock to the development and enforcement of arbitration agreements.  Only time will tell whether court challenges will be brought under the FAA or on other grounds.

Following Precedent: Second Circuit Reaffirms Position Upholding Arbitration Agreements With Class Action Waivers

chairsAmid contrary decisions by the Seventh and Ninth Circuits, the Second Circuit followed its earlier precedent in Patterson v. Raymours Furniture Co., No. 15-2820 (Sept. 2, 2016), enforcing an Employment Arbitration Program (EAP) that requires employees to submit their employment and compensation claims to individual arbitration.

The EAP, however, permits employees to file charges and participate in investigations before the Equal Employment Opportunity Commission and state or local anti-discrimination agencies, and did not compel employees to waive any rights they had under the National Labor Relations Act (NLRA) or prevent employees from filing unfair labor practice charges with the National Labor Relations Board (NLRB).

The Case History

A Raymours Furniture Company Inc. (Raymours) employee, Connie Patterson, filed a putative collective and class action raising claims under the Fair Labor Standards Act (FLSA) and New York labor law. In response, Raymours moved to compel arbitration under the EAP. The district court granted the motion, holding that the class action waiver in the agreement was enforceable. Patterson v. Raymours Furniture Co., 96 F.Supp. 3d 71 (S.D.N.Y. 2015).

Patterson maintained that the EAP’s prohibition of class or collective actions violated the employees’ right to engage in “concerted activities” under the NLRA. See Section 7 of the NLRA, 29 U.S.C. § 157. But the lower court rejected the assertion, holding that the Federal Arbitration Act (FAA) required arbitration of Patterson’s claims because the plaintiffs had agreed to arbitrate their claims based on the EAP’s terms. Continue Reading

Reining In Individual Arbitration – Ninth Circuit Rules Class Waivers Unenforceable

Different GroupsIn a 2-1 ruling, the Ninth Circuit became the second federal court of appeals to agree with the National Labor Relations Board’s (NLRB) position that the National Labor Relations Act (NLRA) prohibits class action waivers in employees’ arbitration agreements.

Writing for the majority in Morris v. Ernst & Young, Chief Judge Sidney Thomas held that Ernst & Young’s arbitration agreement violated Sections 7 and 8 of the NLRA by requiring its employees to arbitrate work-related claims in “separate proceedings.”

Plaintiffs Stephen Morris and Kelly McDaniel formerly worked at Ernst & Young. As a condition of employment, they signed arbitration agreements that included a “concerted action waiver.” The waiver required employees to pursue claims exclusively through arbitration and only as individuals in “separate proceedings.” Despite signing the agreement, Morris and McDaniel subsequently brought a class and collective action in federal court, alleging that the company misclassified its employees in violation of the Fair Labor Standards Act. Pursuant to the arbitration agreement, Ernst & Young moved to compel individual arbitration. The federal district court agreed and dismissed the case. The plaintiffs appealed to the Ninth Circuit.

Citing the NLRB’s position regarding the unenforceability of class action waivers and the Seventh Circuit’s recent decision in Lewis v. Epic Systems Corp. striking down a class waiver (discussed previously here), the Ninth Circuit concluded that Ernst & Young’s concerted action waiver violated the NLRA and could not be enforced. Continue Reading

Subway Adopts Novel Approach to Stem Wage and Hour Claims

Subway is one of the largest franchisors in the world, with over 26,000 restaurants in the United States alone. It is also in one of the industries most prone to wage and hour claims, a fact reflected in both Department of Labor (DOL) investigations and litigation involving individual outlets. And, predictably, some claimants pursuing wage and hour litigation against a franchisee have also tried to bring the corporate franchisor in as well. The potential threat against the company has increased with aggressive efforts by the National Labor Relations Board and other enforcement agencies to broaden concepts such as joint employer relationships.

While wage and hour claims are technically not a class action issue, Subway had taken the novel approach of entering into an agreement with the DOL to step up joint efforts to encourage FLSA compliance by Subway franchisees. These include:

  • Development by the Wage and Hour Division of the DOL of “easy to use” compliance materials for use in the restaurant franchise industry
  • Assistance by Subway and its franchisees in the development and dissemination of those materials
  • Provision of compliance support to franchises
  • Ongoing meetings with the DOL to improve franchise compliance
  • Compliance training by Subway

Continue Reading

Ninth Circuit Grants 23(f) Review of Denial of Class Certification for Inadequate Representation

We’re all familiar with the basic requirements of Rule 23(a), with the focus most frequently on the issues of commonality and typicality under Rules 23(a)(2) and (3). Numerosity under Rule 23(a)(1) can on occasion be an issue with smaller groups of claimants, but adequacy of representation under Rule 23(a)(4) is not often litigated.

In Kaur v. Things Remembered, Inc., D.C. Case No. 3:14-cv-o5544-VC (N.D. Cal.), 9th Cir. Case. No. 16-80060 (July 20, 2016), the plaintiffs brought claims for California wage and hour violations against a retail chain. They apparently waited until the last day of the discovery cutoff to file a motion for class certification and had not, by that time, taken a single deposition. To make matters worse, even after the court extended discovery, they lost track of a key plaintiff witness and failed to communicate their difficulties adequately with defense counsel. The district court concluded that the plaintiff’s lawyers “should not be trusted to represent a class of unnamed plaintiffs,” had delayed seeking certification, had failed to timely prosecute the case and had engaged in “unprofessional conduct during discovery.” The court denied certification on the basis of inadequacy of counsel, stating flatly:

“[Plaintiff’s] motion for class certification is denied, because the lawyers for the plaintiff cannot be trusted to “prosecute the action vigorously” on the unnamed plaintiffs’ behalf, Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998), and therefore can’t be trusted to adequately represent the interests of the proposed class.” Continue Reading

Seventh Circuit Clarifies Rules for Compensating Tipped Employees Performing Non-tipped Work

The Fair Labor Standards Act (FLSA) and most states permit restaurants to pay tipped employees a tip-credit rate, an amount less than the minimum wage with the expectation that tips will make up the difference. It goes without saying, however, that the system raises questions, such as how to pay a tipped employee when he or she performs non-tipped functions at work. Earlier this month, the United States Court of Appeals for the Seventh Circuit provided some clarity.

The case, Schaefer v. Walker Bros. Enterprises, — F.3d —, 2016 WL 3874171 (7th Cir. July 15, 2016), was brought by two classes of Original Pancake House servers. The first class claimed that the restaurants were required to pay them the minimum wage rate for the time they spent performing non-tipped duties. The second class argued that the disclosures provided by the restaurants regarding compensation of tipped employees failed to meet federal requirements.

In addition to performing normal server tasks like taking orders and delivering food, the servers in this case were also obligated to spend about 10 to 45 minutes each shift performing tasks they argued were completely unrelated to traditional server functions. For example, they were required to wash and cut fruits and vegetables; prepare applesauce, jellies and salsas; restock bread bins and replenish condiment dispensers; fill ice buckets; brew hot drinks; clean toasters, burners and woodwork; and dust picture frames. The servers argued that the restaurants should not be allowed to use the tip-credit rate for the time they spent performing these functions because they are unrelated to tipped tasks. The Seventh Circuit disagreed. Continue Reading