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

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

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

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 (9th 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

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

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.”

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District Court Decertifies FLSA Collective Action With Independent Contractor Issues

We’ve commented many times before that relatively few collective actions survive the “second stage” motion to decertify or, relatedly, an unofficial “third stage” when the trial court actually considers how the matter will be managed at trial. Here is another variation on that theme – an unusual case involving a lender’s claimed involvement in the failure to pay wages.

The case of Garcia v. Peterson, Civil Action H-17-1601 (S.D. Tex., August 5, 2019), arose out of the wind-down of Graebel Van Lines, which once billed itself as the largest privately owned moving company in the United States. The company operated through its own employees, through affiliates and by independent contractor arrangements. According to the 31 plaintiffs, all of whom worked as independent contractors for Graebel affiliates, they received limited payment or no payment at all for the services they performed during the last three to four months of the company’s operation. They settled their claims against both Graebel and its affiliates, but continued the litigation against one of its secured lenders, contending that controlled Graebel’s operations during its final months and should be liable to them. Continue Reading

Ninth Circuit Undermines Use of Time Studies in Disposing of Wage and Hour Claims in California

Two years ago, we blogged a pair of cases with similar fact patterns and outcomes involving the successful use of time studies (See our October 13, 2017 and October 16, 2017 blog posts). In both cases, shoe retailers required employees to undergo brief security checks before leaving the store. The employees in both cases brought Rule 23 class claims under California law to recover wages and the usual list of California damages arising from the time spent in those checks. In both cases, the district court relied on time studies that the time spent was minimal, and thus granted summary judgment for the employer under the de minimis doctrine.

One of those two cases, Rodriguez v. Nike Retail Services, Inc., Case No. 17-16866 (9th Cir., June 28, 2019), has now been reversed. Relying on the intervening California Supreme Court authority in Troester v. Starbucks Corp., 421 P.3d 1114 (Cal. 2018), the court found that the district court had improperly applied the federal de minimis doctrine to the plaintiffs’ claims. Although the state Supreme Court in Troester had rejected the federal 10-minute standard, it had left open the door to the question of whether California would apply the doctrine to a shorter span of time. The Ninth Circuit concluded, however, that the application of a shorter period was unlikely, and found that there probably was no de minimis defense available under California law.

So does that mean time studies are worthless? Nope. First, the Rodriguez case was decided under California law. Nothing in the opinion suggests that a time study could not be used effectively under existing FLSA case law. Such a study can still be used to demonstrate that the time spent in uncompensated activities was, indeed, de minimis and would not give rise to a claim under federal law. Hence, proper time studies can still be dispositive under the FLSA and the laws of most states.

Second, the studies did show that the time spent in the security checks was minimal, and thus would have lessened the amount of time (and pay) the plaintiffs were claiming. Such a reduction would also be valuable in a claim under the FLSA and its state law counterparts in several respects. It would, of course, reduce the available recovery. In many cases, it might also reduce the claim to zero, particularly in “gap time” situations in which the employees continue to earn above the minimum wage but have not worked in excess of 40 hours per week.

The bottom line: Despite recent unfavorable Ninth Circuit authority under California law, time studies can be a useful tool to limit or dispose of wage and hour claims.

The Fifth Circuit Agrees With Its Sister Circuits That Class Arbitrability Is a Gateway Issue for Courts, Not Arbitrators

In a predictable decision, the Fifth Circuit has held that the availability of class arbitration is a gateway issue for the courts to decide, absent “clear and unmistakable” language in the arbitration agreement to the contrary. The appellate court didn’t find such language in 20/20 Commc’ns v. Crawford, Case No. 18-10260 (5th Cir. July 22, 2019).

Instead, the Court followed the lead of several of its sister circuits – the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits. We previously blogged a number of those decisions dealing with “gateway issues” and arbitration (See our October 25, 2018 blog that also referenced our prior articles on the subject).

One might question why this issue deserves a blog, but it is indeed one of note because of the view of the arbitrator, one that unfortunately is not alone. In this case, the arbitration agreement used straightforward language allowing the arbitrator to “hear only individual claims” and generally forbidding class or collective arbitration. Undeterred, the arbitrator permitted class arbitration on the theory that the class action prohibition was invalid under federal law. Continue Reading

Employer’s Profit-Sharing Plan Is Not Covered by ERISA, Pennsylvania Federal Court Finds

One of the most fundamental, but often overlooked, defenses in ERISA litigation is that the plaintiff did not allege a violation of an actual ERISA plan. An at-issue document/provision cannot be an ERISA pension plan unless it provides retirement income or “deferral of income beyond covered employment.” Designated employee retirement plans and 401(k) plans will easily meet this definition. However, as the recent decision in Scanlan v. American Airlines Group, Inc., 18-4040 (6/18/2019) demonstrates, employers’ bonus and incentive plans do not automatically fall within this definition merely by allowing participating employees to apply the provided compensation toward their retirement. Continue Reading

NY Law Doesn’t Prevent Arbitration of Sexual Harassment Claims

Recent New York legislation in reaction to the #MeToo movement has sought to limit or foreclose arbitration of employment-related disputes. See N.Y. C.P.L.R. § 7515 (“§ 7515”) and its June 19, 2019, amendment, bill S6577/A842. The bill, initially signed into law in April 2018, was to “deal[] with the scourge of sexual harassment.” See N.Y. State Senate, Stenographic Rec., 241st Leg., Reg. Sess., at 1855 (Mar. 20, 2018). But some believed that the Federal Arbitration Act (FAA) would likely preempt the legislation, especially when § 7515(b) expressly provided “[e]xcept where inconsistent with federal law.”

Now, one district court has found the legislation is preempted by the FAA. See Mahmoud Latif v. Morgan Stanley & Co., LLC, et al., Case No. 1:18-cv-11528 (S.D. New York 6-26-19). On June 26, 2019, District Judge Denise Cote found provisions of New York law impacting arbitration preempted by the FAA. In reaching that conclusion, Judge Cote applied an analytical approach consistent with recent U.S. Supreme Court decisions. Continue Reading

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