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

District Court Refuses Conditional Certification of “Policy to Violate the Policy” Case

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 Eastern District of Michigan Illustrates this point. In Cross v. AMC Detroit, Case No. 18-11968 (E.D. Mich. June 20, 2019), the plaintiffs sought to bring a collective action under the FLSA for bartenders working at various Buffalo Wild Wings franchises. The crux of the claim was that the bartenders were required to perform a significant number of janitorial claims such that the franchisee, they asserted, should not have been allowed to take advantage of the FLSA’s tip credit. 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.”

District Court Decertifies FLSA Collective Action With Independent Contractor Issues

By Greg Mersol on August 9, 2019 Posted in FLSA

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

By Greg Mersol on August 8, 2019 Posted in Off-the-clock

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 (9^th 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.