Workplace Class Action Blog

Iowa Appellate Court Provides Leverage To Employers In Class Action Settlement Negotiations

Posted in Settlement Issues

By Christopher M. Cascino and Jennifer Riley

On January 14, 2015, in Kragnes v. Schroeder, No. 13-2065 (Iowa App. Ct. Jan. 14, 2015), the Iowa Appellate Court upheld the district court’s decision to cut the fees of plaintiffs’ counsel in a successful class action from a requested $15 million to $7 million. Though not a workplace class action, the decision in Kragnes is a case study for the grounds to challenge fee awards in class actions.

Case Background

In 1960, the City of Des Moines, Iowa, entered into franchise agreements with its electricity and natural gas providers, providing that each provider would pay Des Moines a percentage of its gross receipts for their sales into Des Moines.  Kragnes v. City of Des Moines, 714 N.W.2d 632, 633 (Iowa 2006). These agreements were then made into ordinances. Id.

On May 6, 2004, then-Iowa Governor Tom Vilsack signed a law phasing out sales and use tax for the sale of gas and electricity for residential use. Id. at 634. Facing budget shortfalls, Des Moines responded by entering into updated franchise agreements with its electric and gas providers that increased the franchise fee. Id. at 635. Lisa Kragnes then filed a class action on behalf of herself and those similarly situated, arguing that the increased franchise fees were illegal taxes. Id. at 636.

Ultimately, the Iowa courts determined that the increased fees were illegal taxes, and that Des Moines had to refund approximately $40 million to its taxpayers. Shroeder at 2. The $40 million was placed into a fund so that it could be remitted to the Des Moines taxpayers after class counsels’ fees were removed.

Class counsel requested $15 million in fees, or approximately 37% of the $40 million fund. Id. The district court determined that this amount was “not fair to the class members” and that an award of $7 million in fees, or approximately 18% of the fund, was appropriate. Id. at 3. Class counsel appealed the award, claiming it was “unreasonably low.” Id.

The Appellate Court’s Decision

The Iowa Appellate Court first considered whether the district court erred in considering criteria other than those laid out in the Iowa Rules of Civil Procedure and Rules of Professional Conduct in deciding to reduce class counsel’s fee award. Specifically, the Appellate Court considered whether the district court’s decision to consider the fact that “[t]he money used to pay the attorneys’ fees and expenses will come from the very residents who have already been wronged in the illegal extraction of franchise fees” was an abuse of discretion. Id. at 6 (emphasis omitted). The Appellate Court held that the district court properly considered this a factor, since the applicable rules do not preclude consideration of additional factors in fixing a fee award. Id.

The Appellate Court further rejected class counsel’s argument that it was entitled to the 37% fee because that was the amount stated in its contingency fee agreement with the class representative and published to the class. Id. at 7. The Appellate Court pointed out that judges are not bound by fee agreements between class counsel and the class representative, and upheld the district court’s decision that the award could be reduced in spite of the agreed and published fee arrangement. Id. at 7-8.

Finally, the Appellate Court held that an award of 18% of the $40 million fund was not unreasonable. The Appellate Court reasoned that, given the large size of the recovery, the percentage of the recovery should be reduced to make it reasonable. Id. at 8-9.

Implications For Employers

Employers in Iowa and elsewhere who are subject to class actions should use this case to encourage reasonable settlement demands from class counsel. It can be used to convince class counsel that a large settlement or verdict might not necessarily increase their personal recovery, as courts are more likely to reduce the percentage of damages allocated to class counsel’s fees when there are larger verdicts or settlements.

This case also gives employers a new, potentially powerful argument for why class counsel’s fees should be reduced. The Appellate Court found that class counsel’s fees can be reduced as unreasonable if they represent a significant percentage of the recovery because, in the very act of awarding fees, courts force the class to pay class counsel in the form of a smaller recovery for the wrong class counsel claims they suffered. This argument should concern class counsel since, when it is addressed to them, they will have to argue why the class they have been claiming is so hurt that they need an enormous recovery should have their recovery reduced to pay class counsel’s (often) exorbitant fees. That this is potentially concerning to class counsel is confirmed in the Schroeder case itself, with class counsel trying to dodge the issue by asserting the district court abused its discretion by even considering the issue.

Given the sums at issue, we anticipate a further appeal to the Iowa Supreme Court. Stay tuned.

Eleventh Annual Workplace Class Action Report Webinar: Looking Back At Key Developments Of 2014 And What Lies Ahead In 2015

Posted in Class Action Litigation

By Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Back by popular demand, our Annual Workplace Class Action Litigation Report Webinar is on Thursday, January 22, 2015. Click here to register and attend. It’s free!

Workplace class action litigation continues to accelerate, grow, and pose extraordinary risks for employers. Skilled plaintiffs’ lawyers are continually developing new theories and approaches to complex employment litigation. Hence, the events of the past year in the workplace class action world demonstrate that the array of bet-the-company litigation issues that businesses face are continuing to widen and undergo significant change. At the same time, governmental enforcement litigation pursued by the U.S. Equal Employment Commission and the U.S. Department of Labor manifests the aggressive “push-the-envelope” agenda of two activist agencies, and regulatory oversight of workplace issues continues to be a priority. All of these factors combine to challenge businesses to integrate their litigation and risk mitigation strategies to navigate these exposures.

Our readers have given us wide-ranging feedback since the launch of the 11th Annual Report earlier this month. We are pleased with the positive press we received from commentators, including Forbes, Law 360, BNA Class Action Reporter, Corporate Counsel Magazine, and SHRM (click here, here, here, and here to read more.)

For an interactive analysis of 2014 decisions and emerging trends, please join us for our annual webinar offered in conjunction with the publication of our 11th Annual Workplace Class Action Report. The Report’s author, partner Gerald L. Maatman, Jr., along with partners Lorie Almon and Ian Morrison, chairs of our wage & hour and ERISA class action groups, will cover a changed national landscape in workplace class action litigation.

Other significant developments to be addressed include:

  • The increasing focus of the U.S. Equal Employment Opportunity Commission on high-stakes, big-impact litigation
  • A continuing rising tide of Wage & Hour class actions and collective actions
  • Transformative decisions regarding the Class Action Fairness Act
  • The decreasing settlement values in all areas but ERISA litigation and what it means for employers
  • The profound impact of the decisions in Wal-Mart And Comcast Corp. on Rule 23 case law developments

The date and time of the webinar is Thursday, January 22, 2015:

1:00 p.m. to 2:00 p.m. Eastern Time

12:00 p.m. to 1:00 p.m. Central Time

11:00 a.m. to 12:00 p.m. Mountain Time

10:00 a.m. to 11:00 a.m. Pacific Time

Speakers: Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Illinois Court Orders Disclosure Of Defendant’s Communications With Counsel After Allegations Of Improper Contact With Class Members

Posted in Class Action Litigation

By Gerald L. Maatman, Jr., and Alexis P. Robertson

On January 8, 2015, in S37 Management, Inc. v. Advance Refrigeration Co., No. 06 CH 20999 (Ill. Cir Ct. Jan 8, 2015),  an Illinois Circuit Court, located in Cook County’s Chancery Division, denied a Defendant’s motion to certify a question for interlocutory appeal regarding the application of the crime-fraud exception to the attorney-client and work product privilege as it applies to communications between a defendant, its counsel, and putative class members during the opt-out period.

Although not a workplace class action, the decision is significant to the process of defending any type of class action in terms of discovery from putative class members and the notice process following class certification.

Case Background

The Court granted Plaintiff’s motion for certification of a class consisting of  Advance Refrigeration’s  (“Advance”) customers who had paid a particular fee to Advance in association with their purchases. The Class Notice described the nature of the claims, and directed putative class members to contact class counsel in writing regarding any question on the Notice. The Notice did not direct putative class members to contact Advance’s counsel.

Plaintiff subsequently filed a motion requesting a protective order and sanctions, asserting that Advance had impermissibly engaged in a campaign to urge its customers to opt-out of the class during the opt-out period. The Court subsequently issued an order barring Advance from communication with any class members. Plaintiff then filed an amended motion for a protective order and sanctions, providing additional evidence of Advance’s alleged communication to its customers during the opt-out period.  Plaintiff also sought discovery from Advance’s counsel about their role in Advances’ communications.

Specifically, Plaintiff moved to compel all documents “relating to communications between Defendant and Defense Counsel regarding Defendant’s communications to members of the Class regarding opting out of the Class.” Id. at 2. Advance objected to the Plaintiff’s request based on the attorney-client and work product privileges. In response, Plaintiff argued that the crime-fraud exception applied to its request, and therefore, the privilege did not bar the discovery request. Plaintiff attached evidence to the motion illustrating that there was reason to believe that counsel had assisted Advance in unilaterally reaching out to its customers and urging them to opt- out of the case. Plaintiff alleged that this was accomplished using misleading information about the litigation, which constituted illegal or fraudulent activity.

The Court found that this evidence gave it reasonable basis to suspect Advance’s counsel may have assisted or advised in the communication asserted to be an illegal or fraudulent opt-out campaign. On this basis, the Court granted Plaintiff’s motion to compel discovery regarding Advance’s counsel’s communications with the class.

The Decision Of The Circuit Court

Advance then filed a motion under Rule 308(a) of the Illinois Supreme Court Rules to certify a question for interlocutory appeal. The question Advance sought to certify was, “[w]heather the crime-fraud exception to the attorney-client and work product privilege applies to communications between a defendant and its counsel that relate to the defendant’s communications with putative class members during the opt-out period.” Id. at 6-7. The Court denied Advance’s motion.

The Court reasoned that the manner which Advance had worded the question was improper. As worded, the question would require the Illinois Appellate Court to determine whether the crime-fraud exception could ever apply, as a matter of law, to attorney/defendant communications that relate to a defendant’s communications with putative class members during the opt-out period. The Court reasoned that there was no substantial ground to dispute that the crime-fraud exception could apply to such communications, if a sufficient showing was made. Additionally, the Court found that the question did not accurately address the specific issue on which it had ruled.  It had not ruled that any and all communications between a client and its attorney, that involve the client speaking to class member during an opt-out period, were automatically subject to the crime-fraud exception. Rather, the ruling was explicitly premised on evidence which raised the possibility, that defense counsel conferred with Advance about soliciting customers to fill out opt-out forms and affidavits during the opt-out period.

Implications For Employers

The circumstances, and outcome, in this case are somewhat novel and unique. It is rare that we see the crime-fraud exception applied to pierce the protections of the attorney-client and work production productions, especially in the class action context.  Nonetheless, this case is a reminder to employers, and attorneys alike, that the protections offered by these doctrines are not absolute, and can be applied in the class action, and other contexts, to discover communications between attorney and client.

Showdown At The Fifth Circuit Continues: The EEOC Files Its Opposition Brief In Texas’ Challenge To Criminal Background Guidance

Posted in EEOC Litigation

By Gerald L. Maatman Jr. and Howard M. Wexler

Last year, the U.S. District Court for the Northern District of Texas dismissed a high profile lawsuit brought by the State of Texas against the EEOC regarding the its “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Under Title VII.”  The District Court held that Texas lacked standing to maintain its suit because it did not allege that any enforcement action had been taken against it in relation to the EEOC’s guidance.

Texas filed an appeal with the U.S. Court of Appeals for the Fifth Circuit seeking to overturn the dismissal of its novel lawsuit.

On January 8, 2015, the EEOC filed its opposition brief in the Fifth Circuit and it is a “must read” for all employers caught in the crosshairs of the EEOC’s aggressive litigation approach concerning its criminal background guidance.

Case Background

In April 2012, the EEOC issued guidance urging businesses to avoid a blanket rule against hiring individuals with criminal convictions, reasoning that such rules could violate Title VII if they create a disparate impact on particular races or national origins. Like various other states, Texas has enacted statutes prohibiting the hiring of felons in certain job categories. In November 2013, Texas took the unprecedented step of suing the EEOC, seeking to enjoin the enforcement of this guidance, which Texas has nicknamed the “Felon Hiring Rule.”

The District Court dismissed Texas’ lawsuit due to lack of subject matter jurisdiction. Because Texas did not allege that any enforcement action had been taken against it by the Department of Justice (as the EEOC cannot bring enforcement actions against states) in relation to the Guidance, the District Court held that there was not a “substantial likelihood” that Texas would face future Title VII enforcement proceedings from the Department of Justice arising from the Guidance. As standing to bring suit cannot be premised on mere speculation, the District Court held that Texas lacked the necessary standing to maintain its suit against the EEOC.

EEOC’s Opposition Brief

In its Fifth Circuit brief, the EEOC sets forth several reasons why the District Court correctly dismissed Texas’ the suit for a lack of subject matter jurisdiction. Specifically, the EEOC asserts:

  • The guidance document is not judicially reviewable because it “has no legal consequences [as it is not a final agency action], nor does it impose any obligations on Texas, its-state agencies, or other employers.”
  • Texas lacks standing as it has not demonstrated that is has already, or will suffer any injury based on the Guidance.  To this end, the EEOC labels Texas’ concerns as “purely speculative.”
  • Texas’ challenge is not ripe for review because “because the Guidance has not caused Texas any injury, nor is injury imminent, there is no sufficiently ripe case or controversy upon which to base Article III jurisdiction.”

Id. at 11-13.

Next up in the case will be Texas’ reply brief, and then the Fifth Circuit will set the case for oral argument.

Implications For Employers

The EEOC continues to hang its hat on the argument that federal courts lack jurisdiction to hear such a case because the guidance is not legally binding and does not constitute a final agency action. This case remains “one to watch” given the stakes involved and the extent to which the EEOC has “gone to the mat” defending its criminal background guidance document. We will be sure to keep our readers informed as this case makes its way through the appeals process. Stay tuned!

Readers can also find this post on our EEOC Countdown blog here.

U.S. Supreme Court Hears Oral Argument In Mach Mining v. EEOC

Posted in EEOC Litigation

By Gerald L. Maatman, Jr.

This morning the U.S. Supreme Court heard oral arguments in Mach Mining v. EEOC.

Mach Mining v. EEOC may be one of the most important cases on EEOC litigation issues in years. The stakes are high for employers and workers alike (see pre-argument media reports here).

The precise issue the case presents is whether federal courts can review and enforce the EEOC’s statutory obligation to try to negotiate an end to an employer’s alleged unlawful employment practices before suing for a judicial remedy; in this context, it concerns the parameters of the Commission’s obligation to engage in good faith conciliation as required by Title VII.

We were there at the SCOTUS today (as Seyfarth filed an amicus brief on behalf of the employer – a copy is here), and witnessed the lively questioning by the Justices. Here is our analysis of the course of the arguments (a copy of the hearing transcript is here).

A Thumbnail Sketch Of The Key Facts Of The Case

Title VII requires that before filing suit, the EEOC to “endeavor to eliminate” alleged unlawful employment practices by “informal methods of conference, conciliation, and persuasion.” It may only file suit if it “has been unable to secure . . . a conciliation agreement acceptable to the Commission.”

In this case, Mach Mining and the Commission spent nearly two years litigating whether the EEOC’s alleged failure to conciliate in good faith was a sufficient ground for dismissing the case. Following discovery and disputes over the scope and significance of the EEOC’s investigation and conciliation efforts, the EEOC moved for summary judgment on the issue of whether the alleged failure to conciliate was an affirmative defense to its suit. The District Court denied the motion, but certified the question for interlocutory review. The U.S. Court of Appeals for the Seventh Circuit reversed. It rejected the company’s defense notwithstanding its recognition that its decision made it the first federal circuit to do so. Other federal circuits have adopted differing approaches to reviewing the sufficiency of conciliation efforts, with some circuits (the Second, Fifth, and Eleventh) undertaking a multi-part inquiry into the sufficiency of the process, and others (the Fourth, Sixth, and Tenth) requiring instead that the Commission’s efforts meet a minimal level of good faith. The SCOTUS accepted the case to determine this circuit split.

The Employer’s Position

Mach Mining’s briefing pointed to Title VII’s statutory language, its legislative history and statutory scheme, as well as public policy, to support its arguments that the EEOC’s obligation to conciliate should be subject to judicial review. In the defense’s view, the statutory language creates a mandatory condition precedent to litigation. Title VII’s legislative history reflects that originally, the EEOC’s only enforcement authority was the ability to engage in conciliation; cooperation and voluntary compliance remained the preferred means for achieving the goal of equal employment opportunity even after the statute was amended in 1972 to authorize the EEOC to bring suit. Mach Mining’s briefing further argued that pre-conditions to suit such as the conciliation requirement are presumptively enforceable absent clear congressional intent to the contrary, and that no such congressional intent is evident here.

Mach Mining also attacked the Seventh Circuit’s opinion below that Title VII’s confidentiality provision – which prohibits anything said or done during conciliation to be made public or used as evidence in a subsequent proceeding absent written consent – precludes review. In Mach Mining’s view, disputes over the sufficiency of the conciliation process can be resolved while preserving confidentiality (for example, by placing the relevant evidence under seal). Mach Mining cited to other contexts in which federal courts and other adjudicative bodies have reviewed conciliation obligations, including the National Labor Relations Act’s requirements that employers bargain in good faith.  Mach Mining also offered out a number of principles that, it suggested, could provide a basis for objective review of the sufficiency of the EEOC’s conciliation efforts.

The Government’s Position

The EEOC’s briefing asserted opposite conclusions from the same statutory language, history, and context cited by the defense. In the government’s view, the statute’s plain language does not specify any particular process for agency conciliation and leaves the adequacy of the conciliation process to the Commission’s sole discretion. Moreover, the EEOC contended that Title VII’s confidentiality provision precludes judicial review of what transpired during the conciliation negotiations. In the EEOC’s view, analogous statutory schemes also preclude review. For example, the EEOC’s informal conciliation process would not be reviewable under principles established under the Administrative Procedure Act. Moreover, it argued that judicial review of the adequacy of conciliation efforts would undermine effective enforcement efforts because, if employers believe that litigation is likely, they would have an incentive to treat every communication during conciliation as a potential exhibit in a dispute over the adequacy of conciliation. Judicial review also would chill full and frank settlement discussions. The EEOC posited that if the SCOTUS were to endorse judicial review of conciliation, employers would have incentives to raise inadequate conciliation argument defenses as a matter of course. Those arguments would burden the federal courts with mini-trials on this collateral issue, and would delay, and sometimes avoid, adjudications on the merits.

Today’s SCOTUS Oral Argument

Both sides encountered lively questioning from the Justices at this morning’s hearing.

If a questioning scorecard is indicative of the issues, it broke out this way by our rough tally:

Questions To Mach Mining – 31 in the opening argument and 7 questions in the rebuttal argument [questions by Justice - Ginsburg (10), Kagan (8), Scalia (6), Sotomayor (6), Kennedy (4), Breyer (3), and Roberts (1)]

Questions To The EEOC – 40 in the opposition argument [questions by Justice - Scalia (13), Roberts (12), Breyer (5), Kennedy (4), Sotomayor (3), Kagan (2), and Ginsburg (1)]

The most pressing questions fell on the Government and its position that the EEOC’s actions are not judicially reviewable. As Chief Justice Roberts asked, “Can the employer get judicial review if the EEOC lies about conducting conciliation”? When counsel for the EEOC assured the SCOTUS that such would never happen, the Chief Justice retorted, “well, that assumes the EEOC is always right…’ and that he “was very troubled by the EEOC’s position” in saying “just trust us….”  Justice Breyer also cast criticism on the Government’s position, remarking that “I thought it was hornbook law that agency conduct was judicially reviewable.” And Justice Scalia was even more direct, insofar as he asserted that the EEOC’s argument – that “you want to be exempt from judicial review” – “is extraordinary.”

The Justices also pressed both sides to explain the indicia or rudiments of the review a federal judge might conduct of the conciliation process. Justices Kagan, Ginsberg, and Sotomayer were particularly troubled by the confidentiality concerns attendant review of settlement negotiations. Justices Breyer and Kennedy also questioned how searching any review might be given the broad discretion afforded the EEOC under the statute.

Employers have criticized the Commission’s position in systemic litigation of conciliation by “take-it-or-leave-it” demands (i.e., “we are suing on behalf of a group of workers, and give us millions of dollars and we will distribute it as we deem appropriate…”). This issue also came up in the SCOTUS argument. In this context, Justice Roberts asked “how can the EEOC conduct conciliation without providing the names and damages” of allegedly injured workers? The Government argued that the Letter of Determination typically gives that information, and that any review of the conciliation process would prompt mini-trials that detract from the “main event” of the case – i.e., to try the issue of discrimination. With respect to that suggestion, Justice Roberts remarked that the EEOC’s position failed to take account of Title VII”s preference for conciliation before litigation, and settlement as a priority over litigation.

What’s Next

A future SCOTUS ruling should resolve a split in the lower federal courts about whether an employer can secure the dismissal of a suit on the basis that the EEOC failed to engage in good-faith conciliation before filing suit and what the parameters of that duty may look like in terms of the rudiments of the conciliation process.

Reading the tea leaves at the Supreme Court is fraught with hazard. The themes of the Justices’ questioning, however,  left no doubt but that most of the Justices seem to ascribe to the notion that the Commission’s conduct ought to be reviewable. We expect a decision in a month or two, so stay tuned.

Readers can also find this post on our EEOC Countdown blog here.

The State Of Workplace Class Action Litigation

Posted in Class Action Litigation

By Gerald L. Maatman, Jr.

The feedback has been fantastic this week following the publication of our Annual Workplace Class Action Report (here, here, here, and here). Thank you to Forbes, Law 360, BNA Class Action Reporter, Corporate Counsel Magazine, and SHRM for your cover stories on our Report and its discussion of key trends for employers. We even “went global” this year, as foreign-based publications – the New Zealand Law Reporter and Global Legal – covered our Report for views on the U.S. Legal system (here and here).

LXBN TV also telecast a summary of our analysis on key trends, which we thought our loyal blog readers would enjoy. The link is here.

Next up on the docket is the oral argument at the U.S. Supreme Court on January 13th in Mach Mining v. EEOC, one of the most important governmental enforcement cases to reach the SCOTUS in years. We will be there to analyze the argument and report to our readers.

Year-Starting Stumbles: The EEOC’s Aggressive Tactics Shot Down Twice In The First Week Of 2015

Posted in EEOC Litigation

By Christopher J. DeGroff, Matthew J. Gagnon, and Gerald L. Maatman, Jr.

As we reported in our recent Annual EEOC Report (found here), the EEOC prides itself on its aggressive litigation theories and strategies.  But just one week into 2015, the EEOC’s envelope-pushing tactics have already been shot down twice.  In  EEOC v. Performance Food Group, Inc., No. 1:13-CV-01712 (D. Md. Jan. 6, 2015), the U.S. District Court for the District of Maryland denied the EEOC’s efforts to impose harsh sanctions on an employer that the agency believed was late in complying with its discovery obligations.  And in EEOC v. Royal Caribbean Cruises, Ltd., No. 13-13519 (11th Cir. Jan. 6, 2015), the EEOC failed yet again to enforce an overbroad subpoena after having lost on that issue on three separate occasions: first before the Magistrate Judge, then before the District Court Judge, and then again on appeal before an Eleventh Circuit panel.

If these decisions are any indication, it will be another year in which the agency pushes the limits of the legal envelope in terms of tactical advantage, leaving it to the Courts to police the boundaries of what is reasonable.  Here is our take of these two early 2015 cases and what employers can learn from them:

EEOC v. Performance Food Group, Inc., No. 1:13-CV-01712 (D. Md. Jan. 6, 2015)

In EEOC v. Performance Food Group, Inc., the EEOC sought sanctions against a foodservice distribution company in a gender discrimination case for allegedly failing to meet discovery deadlines.  Specifically, the EEOC argued that the company had failed to produce paper applications for some of its facilities and certain employee data that the agency had subpoenaed from the company’s third-party vendors.  The company argued that sanctions were unwarranted because it had provided most of the requested information within the time frame set by the Court and had been acting in good faith to produce the remaining documents and information.  According to the company’s filings, it was working to gather and produce all requested information and had kept the agency informed of its progress.  The company also produced approximately 300,000 pages of additional documents along with and immediately after filing its response brief to the EEOC’s motion.  The EEOC was unimpressed by these efforts and asked the Court to impose severe sanctions.  In addition to asking the Court to require the company to pay the EEOC’s attorneys’ fees for the filing of the motion, it also requested that the Court impose a daily monetary penalty for each day that the company fails to produce the requested documents.  The agency even criticized the company’s delayed production, arguing that the document “dumps” were disorganized and that they made it impossible to ascertain whether the company had complied with its discovery obligations.

The District Court of Maryland flatly rejected the EEOC’s motion.  The Court acknowledged that the company’s document production was late, but concluded from its own review of the record that sanctions were not warranted.  The Court cautioned the employer, however, noting that while it understood that the document production would be voluminous and would cover an extensive period of time and many different facilities, it still expected the company to comply with its discovery obligations in a timely manner.  The Court also appeared to warn the EEOC, noting that in the case of anticipated delays in production, it expected that counsel would engage in an open and cooperative dialogue to resolve the dispute and would only bring it to the attention of the Court if it was necessary to do so.

Employers should read the Performance Food Group case as a cautionary tale:  the EEOC can and will take unreasonable – and at times draconian – positions in discovery disputes, even in the face of reasonable efforts by an employer.  This case highlights the EEOC’s troubling view that business records and evidence are ready-made for litigation; even information and records that were never contemplated to be produced in later government-initiated litigation.

EEOC v. Royal Caribbean Cruises, Ltd., No. 13-13519 (11th Cir. Jan. 6, 2015)

In EEOC v. Royal Caribbean Cruises, Ltd., the Eleventh Circuit denied for the second time the EEOC’s attempt to enforce a subpoena against Royal Caribbean that could only charitably be called “overbroad.”  This termination case arose out of a single charge of disability discrimination.  The EEOC’s subpoena sought, among other things, a list of all employees who were discharged and applicants who were not hired, including relevant identifying information as well as employment applications and other related documents.  At the District Court level, the Magistrate Judge recommended that the subpoena be denied because the information sought was not relevant to the charge and that compliance with the disputed portions of the subpoena would be unduly burdensome.  The District Court affirmed and adopted that recommendation.  The EEOC appealed in August, 2013.  On November 6, 2014, a panel of the Eleventh Circuit upheld the District Court’s decision.  The EEOC petitioned for rehearing en banc on December 19, 2014.  That petition was denied on January 6, 2015.

The Eleventh Circuit acknowledged that certain courts have construed the EEOC’s administrative subpoena power quite broadly.  But the Court reasoned that it could not be construed so broadly as to make the requirement that the subpoena be relevant to the underlying charge a mere “nullity.”  The court faulted the EEOC for not making it clear how the requested information bore on the subject matter of the individual complaint.  This was especially true here, where the employer actually stipulated that it had terminated the charging party due to his medical condition.  The Eleventh Circuit reasoned that it would not be necessary to introduce statistical data to determine whether a facially neutral explanation for an adverse employment action was merely a pretext for discrimination.  Nor did the court credit the EEOC’s argument that it should be entitled to expand its investigation to uncover other potential violations and victims of discrimination.  Although the Court allowed that such information would be “related” to the charge, it would not countenance expanding the investigation to include information that is “related” but not necessarily “relevant” to the charge.  This case joins several other instances (that can be reviewed here, here, and here) where the EEOC has doggedly pursued subpoenas.  As reported here, the EEOC stepped up its enforcement actions in FY 2014, and we expect this trend to continue in 2015.

Implications For Employers

These decisions demonstrate that the EEOC is far from giving up on the aggressive litigation tactics that have defined EEOC litigation over the past few years.  Although these are two favorable decisions for employers, the agency will undoubtedly win some of these disputes.  Employers would be well served to keep abreast of these developments so that they do not fall victim to these types of strategies in the future.

Readers can also find this post on our EEOC Countdown blog here.

It’s Here – The 2015 Workplace Class Action Litigation Report

Posted in Class Action Litigation

By Gerald L. Maatman Jr.

Our 2015 Report is now ready. At 844 pages, it analyzes 1,219 rulings and is our biggest and best Report ever.

Click here to order your copy in eBook format. Click here to download Chapters 1 and 2 on the 2015 Executive Summary/Key Trends and the Top Class Action Settlements.

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were humbled and honored by the review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here. EPLiC said: “The Report is the singular, definitive source of information, research, and in-depth analysis on employment-related class action litigation. Practitioners and corporate counsel should not be without it on their desk, since the Report is the sole compendium of its kind in the United States.”

The 2015 Report analyzes rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions -  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 2014 for employment discrimination, wage & hour, and ERISA class actions, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

Executive Summary & Key Trends

Workplace class action litigation continues to accelerate, grow, and pose extraordinary risks for employers. Skilled plaintiffs’ lawyers are continually developing new theories and approaches to complex employment litigation. Hence, the events of the past year in the workplace class action world demonstrate that the array of bet-the-company litigation issues that businesses face are continuing to widen and undergo significant change. At the same time, governmental enforcement litigation pursued by the U.S. Equal Employment Commission and the U.S. Department of Labor manifests the aggressive “push-the-envelope” agenda of two activist agencies, and regulatory oversight of workplace issues continues to be a priority. All of these factors combine to challenge businesses to integrate their litigation and risk mitigation strategies to navigate these exposures.

The Supreme Court’s Class Action Rulings In 2014

By almost any measure, 2014 was a year of evolving changes for workplace class action litigation. The U.S. Supreme Court issued several class action rulings in 2013 – in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), American Express Co. v. Italian Restaurant, 133 S. Ct. 2304 (2013), and Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013) – that impacted all varieties of complex litigation in a profound manner over the past year, as lower federal courts and state courts interpreted and applied these new precedents. The Supreme Court added to this growing body of class action case law with rulings in 2014 in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), Integrity Staffing Solutions, Inc. v. Busk, 2014 U.S. LEXIS 8293 (U.S. Dec. 9, 2014), and Dart Cherokee Basin Operating Co., LLC v. Owens, 2014 U.S. LEXIS 8435 (U.S. Dec. 15, 2014). These Supreme Court rulings had an immediate impact on workplace class action issues, and are sure to shape litigation issues and strategies in 2015 and beyond.

The Impact Of Wal-Mart Stores v. Dukes

More than any other development in 2014, however, the decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), continued to have a wide-ranging impact on virtually all types of class actions pending in both federal and state courts throughout the country. In many respects, Wal-Mart continued to be the “seminal precedent” in courtrooms in 2014 as litigants argued and judges analyzed class certification issues. Rule 23 decisions in 2014 in large part pivoted off of Wal-Mart, and leverage points in class action litigation increased or decreased depending on the manner in which judges interpreted and applied Wal-Mart. At the same time, the ruling in Comcast Corp. fueled defense arguments by undermining attacks on class certification in a wide range of contexts, which were met with mixed success for employers.

As is well-known by now, the Supreme Court’s decision in Wal-Mart elucidated whether Rule 23(b)(2) can be used to recover individualized monetary relief for a class (and held it may not), established a heightened standard for the Rule 23(a)(2) commonality requirement (and determined that common questions for a class must have common answers), and rejected previous lower court interpretations of Supreme Court precedent on Rule 23 burdens of proof (and found that to the extent factual determinations that go to the merits also overlap with the Rule 23 requirements, those factual issues must be analyzed to determine the propriety of class certification). As a result, Wal-Mart continued to foster a tidal wave of Rule 23 decisions in 2014, as litigants and courts grappled with the ruling’s implications in a wide variety of workplace class action litigation contexts. As of the close of 2014, Wal-Mart had been cited a total of 571 times in lower federal and state court rulings.

The Impact Of Comcast Corp. v. Behrend

Last year’s ruling in Comcast Corp. also added a new weapon to employers’ arsenals in challenging class certification.  In Comcast Corp., the Supreme Court interpreted Rule 23(b)(3) – which requires “questions of law or fact common to class members predominate over any questions affecting only individual members” – to mandate that a class’ proposed damages model show damages on a class-wide basis. In so determining, the Supreme Court reaffirmed that lower courts must undertake a “rigorous analysis” of whether a putative class satisfies the predominance criterion set forth in Rule 23(b)(3), even if that analysis overlaps with the merits of the underlying claims, and held that individual issues of damages may preclude class certification. This decision provides companies with a significant and rational defense to class certification in class actions. Much like Wal-Mart, the decision in Comcast Corp. reverberated throughout the lower federal and state courts in 2014, and was cited a total of 261 times by the close of the year, a rather remarkable figure for a decision rendered in March of 2013.

Against this backdrop, the plaintiffs’ class action employment bar filed and prosecuted significant class action and collective action lawsuits against employers in 2014. In turn, employers litigated an increasing number of novel defenses to these class action theories, which were fueled, in part, by the new requirements enunciated in Wal-Mart and Comcast Corp.  As this Report reflects, federal and state courts addressed a myriad of new theories and defenses in ruling on workplace class action litigation issues. The impact and meaning of “Wal-Mart issues” and “Comcast Corp. issues” were at the forefront of these case law developments in the debate over the role and meaning of Rule 23 in workplace class action litigation.

The Six Key Trends Of 2014 In Workplace Class Action Developments

An overview of workplace class action developments in 2014 reveals six key trends.

Trend # 1 – Settlements Values/Totals Were Down Except For ERISA Class Actions

First, the Supreme Court’s opinions in Wal-Mart and Comcast Corp. have had a profound influence in shaping settlement strategies. Employers are settling fewer employment discrimination class actions than at any time over the past decade, and at a fraction of the levels as in 2006 to 2013. On the wage & hour front, settlements in the aggregate were relatively flat, and in terms of governmental enforcement litigation, settlement numbers and aggregate totals were significantly lower than in any year since 2006. In contrast, ERISA class actions experienced a renaissance of sorts, and settlement numbers were nearly ten times greater than the aggregate amount in 2013.

Trend # 2 – Wage & Hour Litigation Filings Continued To Increase

Second, more than any other litigation risk, wage & hour class actions dwarfed all other types of filings (as compared to employment discrimination and ERISA class actions, as well as governmental enforcement litigation). Wage & hour litigation now represents the prime litigation risk in the workplace. The “crest” of the wage & hour litigation wave is not yet in sight. Employers can expect more of the same in terms of increased filings 2015.

Trend # 3 – Wage & Hour Collective Action/Class Action Rulings Were More Dominant Than Other Types Of Complex Employment Rulings

Third, FLSA collective actions and state law wage & hour class actions produced more decisions from federal and state courts than any other area of complex employment litigation. The magnet federal jurisdictions were the Second and Ninth Circuits, and state law claims were congregated in plaintiff-friendly venues such as California, Florida, Massachusetts, New Jersey, New York, and Pennsylvania. Statistically, plaintiffs won 70% of conditional certification motions, and won (by defeating) 52% of decertification motions in 2014 in federal courts.

Trend # 4 – The Government’s Enforcement Litigation Manifested Very Aggressive Agency Positions, But Recoveries Were Down

Fourth, the U.S. Department of Labor (“DOL”) and the U.S. Equal Employment Opportunity Commission (“EEOC”) continued their aggressive litigation approaches, albeit with mixed success. The agencies suffered losses on a myriad of litigation issues in the federal courts in 2014, and their aggregate settlement recoveries were significantly lower in 2014 than at any time since 2006. At the same time, the EEOC’s systemic investigation program – in which the Commission emphasizes the identification, investigation, and litigation of discrimination claims affecting large groups of “alleged victims” – expanded yet again over prior years. The EEOC’s docket of systemic suits comprised nearly 20% of all merits filings of 2014, and by the end of the year, represented nearly 25% of the Commission’s active litigation docket. This development is of critical importance to employers, for it evidences an agency with a laser-focus on high-impact, big stakes litigation.

Trend # 5 – Decisions Regarding The Class Action Fairness Act Were Transformative

Fifth, 2014 was a transformative year in case law developments under the Class Action Fairness Act of 2005 (“CAFA”). Jurisprudence under the CAFA continued to mature after the U.S. Supreme Court decided its first case on the law in 2013 in Standard Fire Insurance Co. v. Knowles. In 2014, the Supreme Court held in Dart Cherokee Basin Operating Co., LLC v. Owens that defendants are not required to submit evidence in support of a removal petition under the CAFA, and that a short and plain statement of fact is enough. The Supreme Court also reaffirmed that there is no presumption against removals under the CAFA.  Case law under the CAFA has certainly turned the corner in this regard for employers, thereby solidifying defense strategies to secure removal of class actions to federal court.

Trend # 6 – The Decisions In Wal-Mart And Comcast Corp. Had A Profound Impact On Rule 23 Case Law Developments In 2014

Sixth, the Supreme Court’s opinions in Wal-Mart and Comcast Corp. had a profound influence in shaping the course of class action litigation rulings throughout 2014. Wal-Mart and Comcast Corp. prompted defendants to mount challenges to class certification based on all sorts of theories (and not just those modeled after the nationwide class claims rejected in Wal-Mart and the antitrust damages issues discussed in Comcast Corp.). This resulted in new types of case law rulings on a myriad of Rule 23-related issues. The result was a year of decisions on class action issues the likes of which have never been seen before. This wave of new case law is still in its infancy. As many class action issues are in a state of flux post-Wal-Mart and post-Comcast Corp., these evolving precedents are expected to continue to develop in the coming year.

Implications For Employers

The past year was a big one for workplace class actions. The coming year is likely to be equally as challenging for employers.

2014’s Top 5 Most Intriguing Decisions In EEOC-Initiated Litigation (And A Preview Of Our Annual EEOC Litigation Report)

Posted in EEOC Litigation

By Christopher DeGroff, Matthew Gagnon, and Gerald L. Maatman, Jr.

Every year at this time we like to offer our loyal readers a pre-publication preview of our annual report on developments and trends in EEOC-initiated litigation. That book, entitled EEOC-Initiated Litigation: Case Law Developments In 2014 And Trends To Watch For In 2015 is set for distribution in early January 2015. This publication focuses on EEOC-related litigation and explores the key drivers of the EEOC’s enforcement and litigation activity in FY 2014, as well as our examination of what to expect in terms of enforcement litigation in 2015 and beyond. This publication will be offered for download as an eBook. To order a copy, please click here. 

As we look back at the last year, certain EEOC-initiated cases catch our eye as intriguing; intriguing either for their impact on the legal landscape, or for the fact that they offer a glimpse at the often puzzling and, at times, downright frustrating agency agenda.

With that, let’s take a look at the 5 most intriguing cases from 2014:

1.    EEOC v. BMW Manufacturing Co., LLC, Case No. 13-CV-1583, 2014 U.S. Dist. LEXIS 169849 (D.S.C. Dec. 2, 2014).   

BMW scored yet another win for employers in the EEOC’s long-running challenge to employers’ use of criminal and credit background checks in hiring and other employment decisions. As with other cases pursued by the agency under similar theories, the EEOC filed suit against BMW claiming the company’s criminal conviction background check policy had a disparate impact on black employees and applicants and was not job-related or consistent with business necessity. The EEOC has suffered some significant defeats pursuing this theory, including a stinging loss in the Sixth Circuit in the case, EEOC v. Kaplan Higher Education Corp., in which the Sixth Circuit harshly criticized the EEOC for using a “homemade” methodology for determining race to compile its statistical evidence. As we previously noted, the Sixth Circuit threw out the EEOC’s case after concluding that the agency’s methodology for determining race was “crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.” It was a stunning rebuke of the EEOC’s method for proving disparate impact in these types of cases.

Aside from the expert evidence, another concern for the Court in the Kaplan case and other similar cases has been the fact that the EEOC also uses criminal and credit history background checks in its own hiring practices. Naturally, it is difficult for the EEOC to argue that the use of those checks is not job-related and consistent with business necessity when it engages in the same practices itself. That was the issue that was decided against the agency yet again in EEOC v. BMW Manufacturing Co. BMW sought discovery into the EEOC’s personnel policies relating to the use of background checks. The Magistrate Judge originally ruled in favor of the agency, holding that BMW failed to explain how that information would prove that its own criminal conviction policy was job-related or consistent with business necessity. But District Court Judge Herlong disagreed, finding that the EEOC had failed to establish why its discovery objections were proper. Unless and until the EEOC changes its own personnel policies, the fact that the agency also uses credit and criminal history checks in its hiring decisions will continue to be a stumbling block as it tries to pursue other employers under this theory.

2.    State of Texas v. EEOC, Case No. 5:13-CV-255 (N.D. Tex. Aug. 20, 2014).

The EEOC’s focus on the use of credit and criminal history has also come under political scrutiny and criticism, including a case brought by the State of Texas to enjoin the enforcement of the EEOC’s guidance on this issue. As we previously blogged about here, on April 25, 2012, the EEOC issued its Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964. Texas brought suit in the U.S. District Court for the Northern District of Texas in November 2013 seeking to enjoin the enforcement of that guidance, arguing that it interfered with Texas statutes that prohibit the hiring of felons in certain job categories.

As we recently discussed here, the Court dismissed the suit, holding that Texas lacked standing to challenge the guidance because the state had not alleged that there had been any enforcement action taken against it by the Department of Justice in relation to the EEOC’s guidance. This rendered the state’s attempts to establish standing mere speculation because it could not show that there was a “substantial likelihood” that Texas would face Title VII enforcement proceedings. Texas has appealed that decision to the Fifth Circuit and the briefing in that case is underway. The core of the state’s argument is that because the EEOC’s guidance is in direct conflict with state regulations and statutes, and because the EEOC’s guidance was expressly intended to preempt state law hiring policies, that should confer Article III standing on the state to defend its laws. This will be an interesting case to watch as the EEOC continues to struggle to gain traction in its push to restrict the use of criminal and credit history in employment decisions. Regardless, it certainly earns a spot on our list of the top 5 intriguing cases of 2014.

3.     EEOC v. Honeywell International, Inc., Case No. 14-CV-4517, 2014 U.S. Dist. LEXIS 157945 (D. Minn. Nov. 6, 2014).

On November 6, 2014, the EEOC lost its bid for a preliminary injunction against Honeywell International, Inc. that would enjoin the company from imposing penalties against employees who refuse to participate in the biometric screening component of the company’s corporate wellness program. The U.S. District Court for the District of Minnesota denied the EEOC’s request for a preliminary injunction because, among other things, the agency had failed to establish that irreparable harm would result if the injunction were not issued.

This case is “intriguing” because it reveals what may become a new focus for the EEOC on these types of wellness programs. Honeywell’s program allowed employees and their families the option of participating in a wellness program that was designed to inform participants about their health status and encourage improvements in some specific health goals. Employees who chose to participate would be subjected to biometric testing, and would receive certain financial incentives, including contributions to their Health Savings Accounts. Those who chose not to participate were subject to financial surcharges. The EEOC alleged that this program violated the Americans with Disabilities Act and the Genetic Information Non-discrimination Act because it discriminated on the basis of disability and the manifestation of disease or disorder in family members. This case will be one to watch as it develops because, as the District Court noted in its decision denying the injunction, there is considerable uncertainty about how the EEOC’s theory will interact with the ADA’s safe harbor provisions and the Affordable Care Act, which encourages employers to adopt these types of programs. You can read more about this interesting new development here.

4.    EEOC v. Sterling Jewelers Inc., 3 F. Supp. 3d 57 (W.D.N.Y. 2014).

On March 10, 2014, Judge Richard J. Arcara of the U.S. District Court for the Western District Of New York adopted Magistrate Judge McCarthy’s January 2, 2014 Report, Recommendation, And Order in EEOC v. Sterling Jewelers Inc.to dismiss the largest pattern or practice case in the country with prejudice. As we previously discussed here, the Court’s decision was based on the EEOC’s failure to investigate the expansive, nationwide pattern or practice case that it eventually brought. In that case, 19 female employees had filed charges with the EEOC. Those charges were assigned to a single investigator in New York. The EEOC brought suit in September 2008 alleging that Sterling “engaged in unlawful employment practices throughout its stores nationwide.” Sterling challenged, among other things, that the EEOC never investigated the expansive allegations that it put in its complaint.

The Court agreed with Sterling, rejecting the EEOC’s argument that it could not scrutinize the scope of the EEOC’s pre-lawsuit investigation. According to the Court, while courts should not review the sufficiency of the investigation, they could and should make a determination concerning whether an actual investigation occurred, and the scope of that investigation. Because the Court found no evidence that the EEOC investigated its claims on a nationwide basis, it held that the agency had not satisfied its pre-suit obligations. This case is now up for appeal before the Second Circuit.

5.    Tie: EEOC v. CVS Pharmacy, Inc., Case No. 14-CV-863, 2014 U.S. Dist. LEXIS 142937 (N.D. Ill. Oct. 7, 2014) and EEOC v. CollegeAmerica Denver, Inc., Case No. 14-CV-1232, 2014 U.S. Dist. LEXIS 167333 (D. Colo. Dec. 2, 2014).

Our case #5 is actually a duet of related cases filed a country apart. This year, the EEOC asserted a new theory of liability based on language in employers’ separation agreements that the agency believes stands as an impediment to an employee’s right to file charges with the EEOC and participate in its investigations. In EEOC v. CVS Pharmacy, Inc. and EEOC v. CollegeAmerica Denver, Inc., the EEOC brought claims alleging similar theories of discrimination arising out of terminated employees’ separation agreements. You can read more about those decisions here and here. In essence, the EEOC claims that, among other things, the confidentiality and non-disparagement provisions found in those agreements deters the filing of charges and interferes with employees’ ability to communicate voluntarily with the EEOC and other federal and state agencies. This is an entirely new attack on employers’ use of those agreements.

Both of these cases were ultimately decided on issues relating to the EEOC’s failure to conciliate the claims prior to bringing suit, rather than the merits of the allegations regarding separation agreements. So that issue remains a live concern for the EEOC about which there has yet to be a judicial determination. That makes these decisions two of the most interesting of the year. Not so much for what they held, but for what they may portend concerning the future of the EEOC’s focus in 2015 and beyond.

Interesting cases one and all. Once again, it was an exciting year of developments for EEOC-initiated litigation. We expect that 2015 will bring its own share of surprises and intriguing decisions. For additional reading, see our picks for the last few years in our previous blog postings here and here. We look forward to keeping our readers on top of all of these twists and turns in government-initiated litigation. Happy New Year to all of our followers!

Readers can also find this post on our EEOC Countdown blog here.

Are Usernames And Passwords Enough To Prove Electronic Signatures On Employment Arbitration Agreements Are Valid? According To A Recent California Appellate Court Decision, The Answer Is “No.”

Posted in Class Action Litigation

By Christopher Cascino

On December 23, 2014, in Ruiz v. Moss Brothers Auto Group, Inc., 2014 Cal. App. LEXIS 1176 (Cal. App. Ct. 4th Dist. Dec. 23, 2014), the California Appellate Court joined a number of other state and federal courts in holding that employers need to provide strict proof that electronically signed employment arbitration agreements were, in fact, signed by the complaining employee.

Workplace arbitration agreements are becoming increasingly important as risk management tools in defending against class actions. This case is a reminder for employers that, though electronically signed employment arbitration agreements are generally held to be valid, employers need to make sure that they can prove with certainty under the laws of their respective states that their employees are the ones who electronically signed these agreements.

Background Of The Case

The plaintiff, Ernesto Ruiz, filed a putative class action against his employer, Moss Brothers Auto Group, alleging that Moss Brothers failed to pay himself and other employees overtime and to provide required meal and rest breaks. Ruiz sought civil penalties for these violations on behalf of himself, his fellow employees, and the State of California.

Moss Brothers moved to compel arbitration because, according to Moss Brothers, Ruiz had electronically signed an arbitration agreement. That arbitration agreement provided that Ruiz would have to bring any employment dispute before an arbitrator, and further provided that the arbitrator could “hear only . . . individual claims” and had no authority to “consolidate[] the claims of others into one proceeding.”

Ruiz opposed arbitration and submitted a declaration in which he said that he did not recall signing the arbitration agreement and that, moreover, he would not have signed any agreement that would have limited his ability to sue Moss Brothers.

Moss Brothers countered Ruiz’s declaration with a declaration of its own, stating that “Each employee is required to log into the Company’s HR system — each with his or her unique login ID and password — to review and electronically execute the Employee Acknowledgement form, which includes the arbitration agreement. While all employees are required to sign the form, they are free to review it at their leisure while logged into the HR system.” It also produced a copy of the arbitration agreement at issue in the case with the phrases “Ernesto Zamora Ruiz (Electronic Signature)” and “9/21/2011 11:47:27 AM” under the signature and date lines of the agreement.

The Court’s Ruling

The Court of Appeal upheld the trial court’s finding that Moss Brothers had not proven by a preponderance of the evidence that Ruiz was the one who electronically signed the arbitration agreement. Specifically, the Court of Appeal found that it could not infer that Ruiz signed the arbitration agreement simply because the arbitration agreement was “presented to all Moss Bros. employees . . . and each employee is required to log into the company’s HR system, using his or her unique login ID and password, to review and sign the Employee Acknowledgment form.” It said that, without some additional explanation of how this would prove that it was Ruiz who signed the agreement, there was a “critical gap” that prevented the Court from concluding that Ruiz signed the agreement.

Other courts have made similar rulings. For example, in Kerr v. Dillard Store Servs., 2009 U.S. Dist. LEXIS 11792 (D. Kan. Feb. 17, 2009), an employee who brought a racial discrimination claim against her employer claimed that the arbitration agreement she allegedly signed electronically must have been signed on accident by a secretary who was logged into her computer because she would have refused to sign the agreement. The court refused to enforce the employment arbitration agreement because the employer “did not have adequate procedures to maintain the security of intranet passwords, to restrict authorized access to the screen which permitted electronic execution of the arbitration agreement, to determine whether electronic signatures were genuine or to determine who opened individual emails.” The court went on to find that, as a result, “it is not inconceivable [the secretary] or a supervisor logged on to plaintiff’s account and executed the agreement,” and thus that the employer had not proven by a preponderance of the evidence that the employee had signed the arbitration agreement.

Similarly, in Neuson v. Macy’s Department Stores Inc., 249 P.2d 1054 (Wash. App. 2011), an employer tried to enforce an electronically signed employment arbitration agreement, arguing that the fact that the employee’s social security number, birth date, and zip code were entered on the electronic signature showed that the agreement was signed by the employee. The Washington Appellate Court disagreed because the employer could not show “how or why the information on th[e] electronic signature would be unavailable to anyone other than” the plaintiff.

Implications for Employers

While courts generally find that complaining employees did, in fact, electronically sign employment arbitration agreements, employers should, in light of cases such as Ruiz, Kerr, and Neuson, take steps to make sure that they can prove that electronically signed employment arbitration agreements were signed by each of their employees. The question of whether an arbitration agreement exists is generally a question of state law. See Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987). Because of this, employers should look to cases in their own state finding that employers proved that their employees had electronically signed employment arbitration agreements and implement the procedures used by the employers in those cases. By doing so, employers can not only greatly reduce the risk of an adverse ruling on whether an arbitration agreement was electronically signed but also the unnecessary expense of litigating that issue.