250px-US-CourtOfAppeals-8thCircuit-SealBy Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  After thirty-three former employees who signed release agreements requiring individual arbitration of ADEA claims collectively sued their employer for age discrimination, the employer moved to compel individual arbitration. The District Court denied the company’s motion. The U.S. Court of Appeals for the Eighth Circuit reversed because it found that the ADEA did not contain a “contrary congressional command” overriding the FAA’s mandate to enforce arbitration agreements.

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Case Background

In McLeod, et. al. v. General Mills, Inc., No. 15-3540, 2017 WL 1363797 (8th Cir. Apr. 14, 2017), thirty-three former employees of General Mills (the “Company”) were offered severance packages and signed release agreements in which they agreed to individually arbitrate claims relating to their termination—including, specifically,  ADEA claims. Id. at *1. Despite agreeing to individual arbitration, the employees collectively sued the Company in the U.S. District Court for the District of Minnesota, alleging various ADEA violations. The Company moved to compel arbitration, and the District Court denied that motion.  Id.

On appeal, the Eighth Circuit reversed the District Court’s denial of the Company’s motion to compel arbitration. The Eighth Circuit held that Section 626(f) of the ADEA does not contain a contrary congressional command to override the Federal Arbitration Act’s (“FAA”) mandate to enforce arbitration agreements. Id. at *2-3. At the core of this holding was the Eighth Circuit’s decision that the “right” to a jury trial and the “right” to proceed in a collective action, are not substantive ADEA rights. Id

This decision is important because it addresses the fundamental question of whether employment agreements that require individual arbitration run afoul of the ADEA and its provisions authorizing plaintiffs to sue collectively.

Unlike other decisions involving the clash of arbitration agreements and 29 U.S.C. § 216(b), the Eighth Circuit’s decision in McLeod resolves the tension between, on the one hand the FAA’s mandate to enforce arbitration agreements, and on the other hand, the ADEA’s requirement in  § 626(f) that a party must prove in a “court of competent jurisdiction” that the waiver of ADEA rights was “knowing and voluntary.”

Because the Eighth Circuit determined that the “waiver” of rights in Section 626(f) refers only to the waiver of substantive ADEA rights and because the “right” to a jury trial and the “right” to proceed in a collective action are not “rights” under § 626(f), it held that there was no “waiver” for purposes of  § 626(f).

Case Background

In 2012, the Company terminated 850 of its employees. These employees were offered severance packages in exchange for signing release agreements. Id at *1. The release agreements required the employees to release the Company from all claims related to their termination, including claims under the ADEA. Id.

The release agreements also contained a dispute resolution provision that required the employees to submit any claim covered by the release agreement to arbitration on an individual basis. Id.

Thirty-three of the employees who were terminated in 2012 sued the Company in the U.S. District Court for the District of Minnesota. Specifically, the employees sought a declaratory judgment that the releases were not “knowing and voluntary,” as required by 29 U.S.C. § 626(f)(1). The employees also asserted collective and individual claims for alleged ADEA violations. Id.

The Company moved to compel arbitration of the employees’ claims, and the District Court denied that motion. Id. The Company subsequently appealed to the Eighth Circuit.

The Eighth Circuit’s Decision

On appeal, the employees argued that ADEA §  626(f) contains the necessary “contrary congressional command” to render their release agreements invalid. Id. at *2. Specifically, the employees relied on two related sections of the ADEA to argue that compelling arbitration results is an effective waiver of their substantive rights under the ADEA. Id. These two sections are § 626(f)(1) and § 626(f)(3).

Section 626(f)(1) of the ADEA prohibits the waiver of any ADEA right or claim — unless the waiver is “knowing and voluntary.” 29 U.S.C. § 626(f)(1). Whereas, § 626(f)(3) describes how to prove a “waiver,” requiring that the “the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary . . . .”  Id (citing 29 U.S.C. § 626(f)(3)). (emphasis added). 

The employees argued that, by moving to compel arbitration of their claims, the Company was asserting the validity of a waiver — by forcing them to forego their “right” to a jury trial and their “right” to proceed by class action. Id.

The Eighth Circuit rejected this argument. “In § 626(f),” it explained, ‘“waiver’ refers narrowly to waiver of substantive ADEA rights or claims — not, as the former employees argued, the ‘right’ to a jury trial or the ‘right’ to proceed in a class action.” Id. (emphasis in original).

In reaching that decision, the Eighth Circuit cited 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009). In that case, the Supreme Court interpreted § 626(f)(1)’s references to “‘right[s] or claim[s]’ to mean substantive rights to be free from age discrimination, not procedural ‘rights’ to pursue age discrimination claims in court.” Id. Noting that Penn Plaza controls, the Eighth Circuit explained that the “specific ‘rights’ the former employees cite are not ‘rights’ under § 626(f)(1).” Id. The Eighth Circuit therefor decided that no “rights or claims” are “waived” by agreeing to bring claims in arbitration. Id.

The Eighth Circuit also rejected the employees’ argument that § 626(b), by incorporating 29 U.S.C. § 216(b), gives them a “right” to bring a collective action. Id. at 3. Before making short shrift of this argument, the Eighth Circuit noted that the ADEA borrows the procedural collective action mechanism from § 216(b) of the Fair Labor Standards Act (“FLSA”). Section 626(b) incorporates § 216(b), which allows an employee to sue on behalf of himself “and other employees similarly situated.” 29 U.S.C. § 216(b). Thus, the Eighth Circuit explained that § 626(b) expressly allows employees to bring collective actions for age discrimination. McLeod, 2017 WL 1363797 at *3.

Although the Eighth Circuit acknowledged that the ADEA expressly authorizes employees to sue collectively, it held that § 626(b) does not create a non-waivable, substantive right to do so. Citing its decision in Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052 (8th Cir. 2013), the Eighth Circuit first explained that “[s]tanding alone, § 216(b) does not create a non-waivable substantive right; rather, its class-action authorization can be waived by a valid arbitration agreement.” Id.  The Eighth Circuit then found no convincing reason why § 626(b)’s incorporation of § 216(b) would “elevate the procedural class-action authorization to a substantive § 626(f)(1) ‘right.’” Id.

Ultimately, the Eighth Circuit concluded that the ADEA does not provide a “contrary congressional command” overriding the FAA’s mandate to enforce agreements to arbitrate ADEA claims, and that the District Court should have granted the Company’s motion to compel arbitration. Id.

Next, the employees argued that an arbitration panel could not grant them their declaratory relief — i.e., decide the question of whether their waiver of substantive ADEA rights was “knowing and voluntary.” Id. at 4. Specifically, the employees argued that this question can only be resolved in court because of § 626(f)(1)’s mandatory language “shall have the burden of proving in a court of competent jurisdiction.” Id. (emphasis added).

The Eighth Circuit declined to decide this issue, finding, instead, that the question was not justiciable. Id. Because the Company had not yet asserted that any of the employees had in fact waived their ADEA claims, and because the employees were seeking declaratory relief only “if and to the extent” the Company asserted that defense, the Eighth Circuit concluded that the employees’ declaratory relief was hypothetical. Id. “No Article III case or controversy arises,” it explained, “when plaintiffs seek a ‘declaratory judgment as to the validity of a defense’ that a defendant ‘may or may not, raise.’” Id. Accordingly, the Eighth Circuit held that the District Court did not have jurisdiction to decide whether the employees’ waiver was “knowing and voluntary.” Id.

Implication For Employers

This decision is important for employers, but less so for the reasons one might imagine. The reality is that this decision does little to alter the ADEA judicial landscape. More than two decades ago the Supreme Court held in Gilmer v. Interstate/Johnson Lane Corp. that ADEA claims could be subjected to compulsory, individual arbitration, even though collective actions are permitted under the ADEA by the identical statutory language as the FLSA. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991). While Gilmer did not specifically touch on the interplay between § 626(f) and the FAA, it is a bit surprising that a discussion of Gilmer is altogether absent from the Eighth Circuit’s decision.

One take away is that employers can remain confident that provisions requiring individual arbitration of ADEA claims will not result in a prohibited waiver of an employees’ rights under the ADEA.

This decision also sheds light on an important strategy consideration. Employers that assert waiver as a defense may find themselves litigating the validity of that waiver (i.e., whether the waiver was knowing and voluntary) in court — even though the employees agreed to arbitrate their claims. Hence, employers will likely need to weigh the advantages and disadvantages of defending an ADEA violation on the merits in arbitration versus adopting a waiver defense in court.

00-money-bagBy Gerald L. Maatman, Jr., Jennifer A. Riley, and Thomas E. Ahlering

Seyfarth Synopsis:  In what is being billed as the “largest and strongest TCPA settlement in history,” Judge Kennelly of the U.S. District Court for the Northern District of Illinois recently granted Plaintiffs’ counsel a minimum of $15.26 million in attorneys’ fees.  However, the Court refused to depart from the “sliding-scale structure,” which has become the standard model in the Seventh Circuit for awarding fees in class actions, and declined to award Plaintiffs’ counsel one-third of the common fund (or $24.5 million) as requested.

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Employers who utilize automated calls and text messages as part and parcel of their business continue to be subject to a considerable risk of class actions under the Telephone Consumer Protection Act (“TCPA”).  This is in no small part a product of the fact that TCPA class actions continue to be extremely lucrative for the plaintiffs’ class action bar.  The Court’s recent award of at least $15.26 million in attorneys’ fees in Aranda et al. v. Caribbean Cruise Line, Inc. et al., No. 12-04069, 2017 U.S. Dist. LEXIS 52645 (N.D. Ill., April 6, 2017), serves as the most recent example of the lucrative success that plaintiffs’ attorneys continue to achieve in TCPA class actions.

Case Background

In Aranda, Plaintiffs alleged that Defendants violated the TCPA by placing millions of automated telephone calls to consumers without their consent.  After roughly four years of “hotly contested litigation,” the parties settled on the eve of trial and the settlement provides that defendants will establish a common fund, in an amount no lower than $56 million and no higher than $75 million, from which class members will be paid.  Id. *3.  Following final approval of the class-wide settlement, Plaintiffs’ counsel petitioned for an award of attorneys’ fees in amount equal to one-third of the final common fund total.

The Court’s Decision

Judge Kennelly of the U.S. District Court for the Northern District of Illinois granted in part the fee request of Plaintiffs’ counsel, noting that while the circumstances of the case warranted a higher fee award than those granted in other TCPA class actions, the Court disagreed that the award should be as high as requested and declined to depart from the “sliding-scale structure” used by courts in the Seventh Circuit to award attorney’s fees in class actions.  Id.

The main question addressed by the Court was whether the fee request should be granted based on Plaintiffs counsel’s proposed “flat-percentage” approach or the “sliding scale” model that district courts in the Seventh Circuit often use to award attorneys’ fees for class action settlements as outlined in In Re Synthroid Marketing Litigation, 264 F.3d 712, 721 (7th Cir. 2001).  Id. *4.  The “sliding scale” model consists of breaking class action settlement funds into tiers or bands and awards class counsel a decreasing percentage of each band.  The rationale behind this approach is that “awarding class counsel a decreasing percentage of the higher tiers of recovery enables them to recover the principal costs of litigation from the first bands of the award, while allowing the clients to reap more of the benefit at the margin yet still preserving some incentive for lawyers to strive for these higher awards.”  Id. at *11 (quoting Silverman v. Motorola Sols., Inc., 739 F.3d 956, 959 (7th Cir. 2013)).  Plaintiffs’ counsel argued that an award amounting to one-third of the net common fund accurately reflected the result of a hypothetical negotiation between the plaintiffs and their attorneys under a “market based approach,” citing their typical contingency fees in TCPA cases, an expert indicating that the request was less than a standard rate for individual TCPA cases, and argued that they generated better-than-average value for the class and should be paid accordingly.  Id. *6-7.

The Court agreed with Plaintiffs that the circumstances of the case warranted a higher fee than those granted in other TCPA class actions that resulted in settlement.  Id. *14.  However, the Court did not agree that the case was not one in which “declining marginal percentages are [not] always best” and therefore, this concern would not provide a reason for class members to deviate from the sliding-scale structure in an ex ante negotiation.  Id. *12.  Specifically, counsel would have had the same or virtually the same incentive to fight for a high award whether they were receiving a flat rate or a sliding-scale rate because up until the very end, class counsel were fighting to get any recovery for the class.  Id. *16  The Court also disagreed with Plaintiffs that class members would accept a flat rate because of its low inherent value or because of the possibility that counsel could generate a high recovery through aggressive litigation because it was “not clear that the hypothetical class members in this case would be faced with the binary choice between a high-percentage fee with a  large recovery, on the one hand, and a sliding-scale fee for a small recovery, on the other.”  Id. *17.

Despite this, the Court was “persuaded that plaintiffs and their counsel faced materially greater risks in this case than those faced in the other recent TCPA class actions” and therefore, added at least a 6% premium to the first “band” of recovery on the sliding scale.  Id. *25. Ultimately, the Court also concluded that counsel’s efforts justified increasing the size of the settlement and therefore, plaintiffs in a hypothetical negotiation might agree to pay a risk premium at each band, but also insist that the size of the premium decrease at each band, as the risk of non-recovery decreased.  Id. *27-28.   Therefore, the Court awarded class counsel 36% of the first $10 million ($3.5 million), 30% of the second $10 million ($3.5 million), 24% of the band from $20 million to $56 million ($8.64 million), and 18% of the remainder.  If the common fund reaches its $76 million ceiling, the Court will adjust the award up, in which case the award would amount to roughly 25.6% of the common fund which is slightly higher than the mean and median recoveries for TCPA cases of similar value.  Id. *30-31.

Implications For Employers

This ruling illustrates that TCPA class actions are alive and well – and most notably – continue to be extremely lucrative for the plaintiffs bar.  Employers should ensure that they are in compliance with the TCPA or else risk becoming a target of TCPA litigation.

gavel on white backgroundBy Gerald L. Maatman, Jr., Christopher J. DeGroff, and Alex W. Karasik

Seyfarth Synopsis:  A federal district court in Illinois recently granted the EEOC’s motion for partial summary judgment in EEOC v. Dolgencorp, LLC, No. 13-CV-4307 (N.D. Ill. Apr. 10, 2017), relative to two defenses advanced by an employer, including: (1) the EEOC’s claims were barred as beyond the scope of the charges of discrimination and investigation; and (2) the EEOC failed to satisfy its Title VII pre-suit duty to conciliate with the employer. The ruling should be required reading for any employer facing or engaged in litigation with the Commission.

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An increasingly common issue in EEOC litigation against employers involves the scope of the Commission’s lawsuits as related to the charges of discrimination, as well as the EEOC’s conciliation efforts, or lack thereof.  In EEOC v. Dolgencorp, LLC, No. 13-CV-4307 (N.D. Ill. Apr. 10, 2017), the EEOC moved for partial summary judgment regarding two defenses enumerated by the defendant, Dolgencorp, LLC (“Dollar General”): (1) the EEOC’s claims were barred as beyond the scope of the charges of discrimination and investigation; and (2) the EEOC failed to satisfy its Title VII pre-suit duty to conciliate with the employer.  On April 10, 2017, Judge Andrea R. Wood of the U.S. District Court for the Northern District of Illinois granted the EEOC’s motion for partial summary judgment as to these defenses asserted by Dollar General.

As Judge Wood acknowledged, many courts across the country have embraced defenses asserted by employers relating to the sufficiency of the EEOC’s investigation.  However, this ruling demonstrates that not all courts may be as receptive to those arguments.

Case Background

Two former Dollar General employees filed charges of discrimination with the EEOC regarding Dollar General’s allegedly discriminatory use of criminal background checks in hiring and firing determinations.  Id. at 1.  The EEOC investigated and determined that there was reasonable cause to believe that Dollar General had engaged in employment discrimination on the basis of race. The parties then engaged in written and oral communications regarding the alleged discrimination, which did not result in a conciliation agreement acceptable to the EEOC.  Id. at 2.  Thereafter, the EEOC brought a lawsuit against Dollar General under Title VII.

Amongst its enumerated defenses, Dollar General asserted that the EEOC’s claims were barred as beyond the scope of the charges of discrimination and investigation (its 7th enumerated defense), and that the EEOC failed to satisfy the statutory precondition for bringing suit when it failed to conciliate with Dollar General (its 8th enumerated defense). The EEOC moved for partial summary judgment as to Dollar General’s two enumerated defenses.  Id. at 3. The EEOC contended that, on the undisputed facts, these two defenses failed as a matter of law.

The Court’s Decision

The Court granted the EEOC’s motion for partial summary judgment regarding Dollar General’s two enumerated defenses.  Dollar General’s seventh enumerated defense relied upon two separate propositions: first, the EEOC’s claims were barred because they went beyond the claims delineated in the charges of discrimination that generated the EEOC’s lawsuit; and second, the EEOC’s claims were barred because the EEOC failed to investigate those claims adequately prior to bringing suit.  Id. at 4.  The Court rejected the first proposition, holding that when the EEOC files suit, it is not confined to claims typified by those of the charging party, and further, that any violations that the EEOC ascertains in the course of a reasonable investigation of the charging party’s complaint are actionable.  Id.  As to the second proposition, the Court similarly opined that the Seventh Circuit has held that if courts may not limit a suit by the EEOC to claims made in the administrative charge, they likewise cannot limit the suit to claims that are found to be supported by the evidence obtained in the Commission’s investigation.  Id.  Accordingly, the Court rejected Dollar General’s defenses insofar as it sought to dismiss the EEOC’s claims because they went beyond the charges of discrimination or because they were not subject to an adequate pre-suit investigation.  Id. at 4-5.

In addition, the Court addressed Dollar General’s eighth enumerated defense, which contended that the suit could not go forward because the EEOC did not satisfy its pre-suit statutory obligation to conciliate.  The EEOC sent two Letters of Determination to Dollar General that stated that the EEOC found reasonable cause to believe that Dollar General engaged in discrimination in violation of Title VII because, through application of its background check policy, a class of African-American applicants and employees were not hired, not considered for employment, or discharged.  Dollar General argued that this notice of the charge was not specific enough because it failed to identify the persons allegedly harmed and to identify the allegedly discriminatory practice.

Rejecting Dollar General’s argument regarding the specificity of notice, the Court held that the EEOC’s letters clearly set forth that there were African-American applicants and employees who were harmed by the allegedly discriminatory practice.  Id. at 6.  Further, the Court opined that as the Seventh Circuit has explained, the sufficiency of the EEOC’s investigation was not a matter for the judiciary to second-guess.  Dollar General also argued that the EEOC failed to specifically describe the allegedly discriminatory practice, and that merely pointing to the background check policy was not sufficient.  The Court rejected this argument, holding that the EEOC’s notice was sufficient since it identified the two complainants and further put Dollar General on notice that the EEOC’s allegations related to African-American applicants and employees that were not hired, not considered for employment, or discharged due to failing a background check.  Id. at 8-9.

Finally, Dollar General contended that the EEOC’s conciliation discussions were inadequate because the EEOC did not provide Dollar General with an opportunity to remedy the allegedly discriminatory practice.  Id. at 9.  Citing Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1655-56 (2015) (which we analyzed here), the Court refused to examine the sufficiency of the EEOC’s investigation, noting it was beyond the scope of its review.  Id.  The Court thus rejected Dollar General’s argument that the EEOC did not adequately engage the employer in conciliation discussions.

Accordingly, the Court granted the EEOC motion for partial summary judgment on Dollar General’s seventh and eighth enumerated defenses.

Implications For Employers

While the Court did not find in the employer’s favor, other courts have routinely held the EEOC accountable in instances where it did not fulfill its pre-suit obligations.  With rulings such as this one, it can be expected that the EEOC will continue to test courts’ willingness to force the Commission to abide by its statutory duties under Title VII.  As such, employers should continue to be aggressive in attacking instances where the EEOC improperly expands its lawsuits beyond charges or fails to conciliate.

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

 

fingerprintBy Gerald L. Maatman, Jr., Thomas E. Ahlering, and Alex W. Karasik 

Seyfarth SynopsisIn a class action alleging that the criminal background policy of Washington D.C.’s local transit authority had a disparate impact on African-Americans, a federal district court recently certified three classes of African-American employees and applicants despite the employer’s workforce being 75% African-American. The ruling – in Little v. Washington Metropolitan Area Transit Authority, No. 14-1289, 2017 U.S. Dist. LEXIS 48637 (D.D.C. Mar. 31, 2017), is a “must read” for employers that use hiring screens.

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One of the hottest areas in workplace class actions involves criminal background checks used by employers.  On one end of the spectrum, employers want to be sure they are not subjecting their businesses, employees, and clients to any potential criminal conduct by their own workers.  On the other hand, many prospective employees with criminal backgrounds may have been adequately rehabilitated through the criminal justice system and merely need an opportunity to prove they can be counted on as an employee.  In Little v. Washington Metropolitan Area Transit Authority, No. 14-1289, 2017 U.S. Dist. LEXIS 48637 (D.D.C. Mar. 31, 2017), Plaintiffs alleged that a criminal background check policy used by the Washington Metropolitan Area Transit Authority (“WMATA”) to screen candidates and employees was facially neutral, but had a disparate impact on African-Americans.  After the Plaintiffs moved for class certification , Judge Collyer of the U.S. District Court for the District of Columbia granted Plaintiffs’ motion in part and certified three classes pursuant to Rule 23(b)(2) and 23(c)(4), finding that Plaintiffs had satisfied Rule 23’s requirements with respect to liability and the availability of injunctive or other declaratory relief, but that the proposed classes failed to meet the predominance requirement of Rule 23(b)(3) because the case involved “more than just the individual determination of damages.”  Id. at *65. 

The Little ruling puts employers on notice that even if their workforce is predominately made up by one protected class, their criminal background policies can still be challenged as having a disparate impact on that class for purposes of class certification.

Case Background

WMATA, the primary public transit agency for the Washington D.C. metropolitan region, adopted its Policy 7.2.3 to govern how and when individuals with criminal convictions can obtain or continue employment with WMATA and its contractors and subcontractors.  Id. at *4-5.  Plaintiffs alleged that although the policy was facially neutral, it had a disparate impact on African-Americans.  WMATA argued that the policy was adopted as a business necessity.  Id. at *6.  Further, WMATA  argued that the make-up of its employee and contractor workforce, which included 12,000 individuals, was 75% African-American, thus demonstrating that no discrimination occurred.

Plaintiffs moved for certification of a hybrid Rule 23(b)(2) and Rule 23(b)(3) class, seeking both injunctive and individual monetary damages for the alleged discriminatory policy.  Id. at *16.  Alternatively, if the Court determined monetary damages were not suitable for class-wide determination, Plaintiffs proposed certification under Rule 23(b)(2) for liability and injunctive relief determinations and the application for Rule 23(c)(4) to allow the question of liability to be answered on a class-wide basis (but with individual hearings on damages owed to each specific class member).

The Court’s Decision

The Court held that certification was proper under Rule 23(b)(2) and Rule 23(c)(4) and certified three classes for a determination of liability and injunctive relief under Rule 23(b)(2), but withheld any individual damages determinations.  Id. at *46.  Beginning with its Rule 23(a) analysis, the Court first noted that as WMATA did not dispute Plaintiffs assertion that the overall class included over 1,000 individuals, and each subclass included at least 200, the Court found that Plaintiffs satisfied the numerosity requirement.  Further, the Court determined that Plaintiffs satisfied the commonality requirement since the policy at issue was mandated for non-discretionary application to all hiring decisions regard the class members, regardless of whether the candidates applied for positions with different contractors, subcontractors, or directly with the WMATA.  Id. at *50.  Regarding typicality, the Court concluded that the class representatives’ claims were typical of the class as they addressed each part of the policy with the exception of one policy appendix, for which Plaintiffs did not present a class representative.  Finally, regarding adequacy, the Court rejected WMATA’s argument that the proposed named Plaintiffs were inadequate because they lacked standing, noting the merits of their allegations were not to be considered as part of the class certification calculus.  Id. at *56-57.

Next, the Court analyzed Plaintiffs’ motion for certification of a hybrid Rule 23(b)(2) and (b)(3) class.  WMATA argued that Plaintiffs failed to identify which parts of Policy 7.2.3 produced a disparate impact, and their failure to identify the particular challenged employment practice prohibited certification.  Noting that each appendix to the policy constituted a separate employment practice, and that Plaintiffs identified three appendices to the policy that allegedly had a disparate impact on African-Americans, the Court found that Plaintiffs satisfied their burden under Rule 23(b)(2).  Id. at *59-60. 

However, the Court held that Plaintiffs failed to meet the predominance requirement under Rule 23(b)(3) and therefore refused to certify the class for monetary damages.  Id. at *65-66.  Specifically, the Court reasoned that the case involved “more than just the individual determination of damages” – namely, the trier of fact must also determine, for each individual class member, whether that class member was not hired or fired due to the Policy 7.2.3., or for some other reason.  Accordingly, the Court granted in part Plaintiffs’ motion for class certification and certified three classes under Rule 23(b)(2) and Rule 23(c)(4) with respect to liability and the availability of injunctive relief.

Implications For Employers

This ruling illustrates that even if a majority of an employer’s workforce is part of a protected class, an employer’s policies potential can still be considered to have a disparate impact on that class for purposes of Rule 23 class certification.  Plaintiffs will likely use this ruling in subsequent motions for class certification in class actions involving the disparate impact of criminal background policies.  As such, employers should be cognizant of the effect of its policies, and continue to ensure they are neutrally applied.

court-northern-district-of-iowaBy Gerald L. Maatman, Jr., John S. Marrese, and Christopher M. Cascino

Seyfarth Synopsis:  A group of female truck drivers sued their employer for policies allegedly resulting in a hostile work environment for and retaliation against women who complained of sexual harassment on the job.  Under Rules 23(b)(3) and 23(c)(4), the U.S. District Court for the Northern District of Iowa certified both a hostile work environment class and retaliation class on issues relating to the employer’s liability.  Such certification was made possible by the drivers’ bifurcation proposal, which involved a representative trial on aspects of liability and individualized trials on remaining aspects of liability and damages.  Employers should take note that there is a trend among some federal courts to use Rule 23 in novel ways to certify classes of employees to avoid confronting issues that, traditionally, would preclude class certification.

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Class actions are supposed to promote the efficiency and economy of litigation by allowing the claims of a group of individuals with the same claims to be decided in one proceeding.  Many claims brought in the employment context, such as hostile work environment and retaliation claims, are not amenable to class treatment, but some courts have taken an expansive reading of Rule 23 to allow certification of classes even when resolution of the class claims would not resolve the claims of the individual class members.  This is precisely what happened in Sellars v. CRST Expedited, Inc., No. 15-CV-117 (N.D. Iowa Mar. 30, 2017), where Chief Judge Leonard T. Strand of the U.S. District Court for the Northern District of Iowa certified classes alleging hostile work environment and retaliation even though individualized trials would be required to establish remaining issues of liability and damages for each individual class member.

Case Background

Plaintiffs, three female truck drivers, brought claims under Title VII of the Civil Rights Act of 1964 and the California Fair Employment and Housing Act against their employer, CRST Expedited, Inc. (“CRST”).  Id. at 3.  CRST employs thousands of truck drivers on two-person teams, so that one driver can sleep while the other drives.  Id.  Plaintiffs alleged that CRST maintained patterns or practices of discrimination amounting to a hostile work environment and retaliation toward female drivers who reported sexual harassment.  Id.

Specifically, Plaintiffs alleged that three practices of CRST created a hostile work environment, including: (a) failing to find a harassment complaint corroborated without an admission by the accused himself or a third-party’s eyewitness account; (b) failing to discipline male drivers even when a harassment complaint was corroborated; and (c) tolerating the failure of responsible employees to act promptly in the face of a harassment complaint and instead encouraging the accuser to keep driving with the accused.  Id. at 8-15.

Plaintiffs also alleged that three practices of CRST constituted retaliation against female drivers who reported harassment, including: (a) requiring an accuser to exit the truck upon complaining and thereby precluding her from earning wages by continuing to drive; (b) forcing accusers to cover transit and lodging costs after exiting the truck; and (c) extending student-driver training for those student-driver accusers who were forced to exit the truck after complaining of harassment. Id. at 13-18.

Based on evidence which included testimony from CRST employees and eight female drivers supporting the foregoing allegations, Plaintiffs moved for certification of two classes under Rule 23, including: (a) female drivers subjected to a hostile work environment based on sex (“Hostile Work Environment Class”); and (b) female drivers subjected to retaliation in response to complaints of sexual harassment (“Retaliation Class”).  Id. at 23-24.  Plaintiffs also moved to certify a California-only class of female drivers.  Id. at 24.

The Court’s Decision

In a lengthy opinion, Judge Strand certified the Hostile Work Environment and Retaliation Classes only with respect to particular issues under Rule 23(b)(3) and Rule 23(c)(4), but denied certification of the California-only classes.

The Court’s decision to certify the classes depended heavily upon Plaintiffs’ proposal of bifurcating the case into two phases.  Id. at 28, 46.  Under Plaintiffs’ proposal, Phase I – the “liability” phase, as the Court characterized it – would determine whether CRST: (a) created or tolerated a hostile work environment; and (b) retaliated against women based on sex.  If such liability were established, each case would then proceed to Phase II to determine in individual trials whether: (a) each plaintiff subjectively believed the work environment to be hostile (a finding required to prove a hostile work environment claim and, therefore, a part of liability omitted from Phase I’s “liability” trial); and (b) damages.  Id. at 28, 40 n.15.

In finding that liability issues for the Hostile Work Environment Class satisfied Rule 23(a) and 23(b)(3), the Court found that all three of Plaintiffs’ theories of discrimination provided common questions of law and fact which predominated over individual questions affecting the claim.  Id. at 27-39 & 43-48.  The Court emphasized that the fact that Plaintiffs would attempt to prove those theories through one-off accounts of individual employees did not preclude certification.  Id. at 35 (“Plaintiffs’ reliance on anecdotal evidence to establish a pattern or practice does not defeat commonality”) (citations omitted)).

In finding that liability issues for the Retaliation Class also satisfied Rule 23(a) and 23(b)(3), the Court reasoned that Plaintiffs’ theory that CRST retaliated by requiring female drivers to exit the truck after complaining of harassment provided common questions of law and fact that  predominated over individual questions affecting the claim.  Id. at 36-37 & 43-48.  However, the Court determined that Plaintiffs’ two other theories of retaliation – forcing accusers to cover transit and lodging costs and extending student-driver training –  presented too many individualized questions for adjudication by representative evidence, even in a bifurcated trial.  Id. at 37-39.

The Court cited Rule 23(c)(4) in certifying the above classes, which allows a court to certify a class “with respect to particular issues,” as opposed to an entire claim.  Id. at 48. Nonetheless, the Court went on to consider Plaintiffs’ “alternative” request for certification under Rule 23(c)(4) in a separate portion of the opinion.  Id. at 50-52.

In addressing Rule 23(c)(4), the Court noted a circuit split as to whether a plaintiff must show that his entire claim satisfies the predominance requirement of Rule 23(b)(3) before certifying particular issues under Rule 23(c)(4), or whether a plaintiff need only show predominance with respect to the particular issue for certification under 23(c)(4).  Id. at 51-52.  The Court opined that while the Eighth Circuit has not yet decided the issue, the Court would follow the Second, Fourth and Ninth Circuits in certifying the sufficiently common issues presented by Plaintiffs despite the fact that Plaintiffs’ claims in their entirety did not merit certification.  Id. at 52.

Accordingly, as to the Hostile Work Environment Class, the Court certified the issues of whether CRST had any of the following policies, patterns or practices that create or contribute to a hostile work environment: (1) failing to find their complaints were corroborated without an eyewitness or admission; (2) failing to discipline drivers after complaints were corroborated; and (3) failing to discipline responsible employees for not promptly responding to sexual harassment complaints.  Id. at 55.  As to the Retaliation Class, the Court certified the issue of whether CRST has a policy, pattern, or practice of retaliating against women complaining of sexual harassment by requiring them to exit the truck after complaining.  Id.

In other parts of the opinion, the Court denied Plaintiff’s request for hybrid certification of injunctive relief classes under Rule 23(b)(2). Id. at 49-50.  The Court also rejected CRST’s arguments against certification based on the Rules Enabling Act and Article III standing.  Id. at 52-54.

Implication For Employers

This case is part of a trend, post-Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), whereby courts have used Rule 23(c)(4) issue certification or an expansive view of Rule 23(b)(3) to sidestep individualized issues that would otherwise preclude certification.  In this case, the Court certified a class claim despite the fact that individual issues of liability as well as damages would remain in individual trials in Phase II under the bifurcation plan at issue.  The Court did not address in great detail whether such a hyper-segmented plan is likely to achieve the efficiency and fairness objectives the class action device was designed to achieve.  In circumstances like this, employers should emphasize the absence of such efficiency and fairness in defending against certification.

supreme court sealSeyfarth Synopsis: Yesterday the U.S. Supreme Court handed down its long-awaited decision in McLane Co. v. EEOC, No. 15-1248, 2017 U.S. LEXIS 2327 (U.S. 2017), a decision that clarifies the scope of review for employers facing EEOC administrative subpoenas. The Supreme Court held that such decisions are reviewable under the abuse-of-discretion standard, which is a relatively high bar of review. At the same time, the Supreme Court’s ruling clarifies that EEOC subpoenas are subject to a searching, fact-intensive review that does not lend itself to a “one size fits all” approach.

Background

This case arose out of a Title VII charge brought by a woman who worked as a “cigarette selector,” a physically demanding job, requiring employees to lift, pack, and move large bins of products. After the charging party returned from three months of maternity leave, she was required to undergo a physical capabilities evaluation that was required for all new employees and employees returning from leave or otherwise away from the physically demanding aspects of their job for more than 30 days, regardless of reason. The charging party was allowed three times to meet the level required for her position, but failed each time.  McLane then terminated her employment.

The charging party claimed that her termination was because of her gender, and further alleged disability discrimination. During the investigation of her EEOC charge, the Commission requested, among other things, a list of employees who were requested to take the physical evaluation. Although McLane provided a list that included each employee’s gender, role at the company, evaluation score, and the reason each employee had been asked to take the evaluation, the company refused to provide “pedigree information,” relative to names, social security numbers, last known addresses, and telephone numbers of employees on that list. In the process of negotiating the scope of information that would be provided, the EEOC learned that McLane used its physical evaluation on a nationwide basis. The EEOC therefore expanded the scope of its investigation to be nationwide in scope, and also filed its own charge alleging age discrimination.

The District Court refused to order the production of pedigree information, holding that it was not “relevant” to the charge at issue because that information (or even interviews of the employees on the list provided by McLane) could not shed light on whether an evaluation represented a tool of discrimination. EEOC v. McLane Company, Inc., No. 12-CV-02469 (D. Ariz. Nov. 19, 2012) (See our blog post of the District Court’s decision here.)

On October 27, 2015, the U.S. Court of Appeal for the Ninth Circuit reviewed the District Court’s decision de novo and held that the District Court had erred in finding the pedigree information irrelevant to the EEOC’s investigation. EEOC v. McLane Company, Inc., Case No. 13-15126, 2015 U.S. App. LEXIS 187702 (9th Cir. Oct. 27, 2015). (See our blog post of the Ninth Circuit’s decision here.)

The Supreme Court granted certiorari to resolve the disagreement among the courts of appeals regarding the appropriate scope of review on appeal. The posture of the appeal was somewhat unusual because, after the grant of certiorari, the EEOC and McLane both agreed that the District Court’s decision should be reviewed for abuse of discretion, although the EEOC argued that the Ninth Circuit’s decision should stand as a matter of law. The Supreme Court therefore appointed an amicus curiae to defend the Ninth Circuit’s use of de novo review.

The Supreme Court’s Decision

The Supreme Court began its analysis by noting that in the absence of explicit statutory command, the proper scope of appellate review is based on two factors: (1) the history of appellate practice; and (2) whether one judicial actor is better positioned than another to decide the issue in question.

Regarding the first factor, the Supreme Court noted that abuse-of-discretion review was the longstanding practice of the courts of appeals when reviewing a decision to enforce or quash an administrative subpoena. In particular, the Supreme Court noted that Title VII had conferred on the EEOC the same subpoena authority that the National Labor Relations Act had conferred on the National Labor Relations Board (“NLRB”), and decisions of district court to enforce or quash an NLRB subpoena were reviewed for abuse of discretion.

Regarding the second factor, the Supreme Court held that the decision to enforce or quash an EEOC subpoena is case-specific, and one that does not depend on a neat set of legal rules. Rather, a district court addressing such issues must apply broad standards to “multifarious, fleeting, special, narrow facts that utterly resist generalization.” McLane Co. v. EEOC, 2017 U.S. LEXIS 2327, at *14 (U.S. 2017) (quoting Pierce v. Underwood, 487 U. S. 552, 561-62 (1988)). In particular, in order to determine whether evidence is relevant, the district court has to evaluate the relationship between the particular materials sought and the particular matter under investigation. These types of fact-intensive considerations are more appropriately done by the district courts rather than the courts of appeals.

The Amicus argued that the district court’s primary role is to test the legal sufficiency of the subpoena, which does not require the exercise of discretion. The Supreme Court held that this view of the abuse-of-discretion standard was too narrow. The abuse-of-discretion standard is not only applicable where a decision-maker has a broad range of choices as to what to decide, but also extends to situations where it is appropriate to give a district court’s decision an unusual amount of insulation from appellate revision for functional reasons. Those functional considerations weighed in favor of the abuse-of-discretion standard rather than a de novo standard of review. Because the Ninth Circuit did not apply that standard on appeal, the Supreme Court remanded the case to the Ninth Circuit for further proceedings.

Implications For Employers

The McLane case is important for employers because it clarifies the standard of review that is applied to the review of district court decisions enforcing or quashing EEOC subpoenas. Although the Supreme Court adopted the more “hands off” abuse-of-discretion standard, thus giving even more weight to the district court’s judgment, it did so because it identified the fact-intensive nature of these judgment calls, including important decisions about how difficult it would be for the employer to produce the requested information weighed against the need for that information, and the relationship between the particular materials sought and the particular matter under investigation.

At the very least, this language shows that the EEOC does not get to automatically presume relevance of its administrative subpoenas at the outset, as the EEOC sometimes likes to argue. Rather, employers should be able to cite to language in the Supreme Court’s opinion to reinforce the fact that the district court must give serious consideration to issues of relevancy and burden (also whether the subpoena is “too indefinite” or for an “illegitimate purpose”) when deciding whether to enforce an EEOC subpoena.

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

 

downloadBy Gerald L. Maatman, Jr., Thomas E. Ahlering, and Alex W. Karasik

Seyfarth Synopsis:  In a first-of-its kind ruling, an employer recently secured the dismissal with prejudice of what is believed to be one of the first Telephone Consumer Protection Act class actions ever brought against a company while acting as an employer – specifically in this instance, the use of robo-calls to contact applicants about employment opportunities. The ruling ought to be required reading for corporate counsel in order to understand this emerging risk and to craft strategies to protect companies against such claims.

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When most people think of class actions brought under the Telephone Consumer Protection Act (“TCPA”), they envision lawsuits against companies using automated voices to tell them they won a free cruise or are eligible to receive a discount on a product.  But in Dolemba v. Kelly Services, Inc., No. 16-CV-4971, 2017 U.S. Dist. LEXIS 13508 (N.D. Ill. Feb. 1, 2017), the Plaintiff, who had previously given her contact information to temporary staffing company Kelly Services, Inc. (“Kelly”) to be contacted regarding employment opportunities, brought a class action against Kelly under the TCPA and Illinois Consumer Fraud Act (“ICFA”) alleging that Kelly made an unauthorized robo-call to her cell phone.  Kelly resisted the claim, filed a motion to dismiss, and Judge Sara Ellis of the U.S. District Court for the Northern District of Illinois granted Kelly’s motion to dismiss both claims with prejudice, finding that the Plaintiff never revoked her consent to be contacted about employment opportunities.

The ruling in Dolemba is believed to be one of the first TCPA class actions ever brought against a company while acting as an employer, thus making this ruling a landmark victory for employers nationwide.  The potential for employers to face similar novel TCPA class actions in the near future is now imminent – and employers can and should add this decision to their arsenal as a powerful tool to help defeat such actions.

Case Background

In March 2007, Plaintiff applied for employment with Kelly, indicating interest in positions using office skills such as accounts payable and accounts receivable.  Id. at *1.  Plaintiff’s employment application included her cellular phone number.  In signing the application, Plaintiff “authorize[d] Kelly to collect, use, store, transfer, and purge the personal information that [she] provided for employment-related purposes.”  Id.  Kelly never offered Plaintiff a job, nor did Plaintiff ever accept employment through Kelly.  She also did not receive any communications from Kelly between the end of 2007 and February 2016.  Id. at *1-2.

On February 27, 2016, Plaintiff received an automated call on her cellular phone from Kelly.  Id. at *1.  Kelly contacted Plaintiff about potential job opportunities.  Because Plaintiff did not answer the call, Kelly left a voicemail message regarding opportunities for employment as a machine operator in the Chicagoland area.  Plaintiff alleged that she had no reason to believe that Kelly still treated her application as active in 2016.  Responding inconsistent with the notion that no good deed goes unrewarded,  Plaintiff brought a class action lawsuit alleging that Kelly violated the TCPA and ICFA by calling her cellular telephone using an automatic telephone dialing system.  As part of its defense strategy, Kelly moved to dismiss Plaintiff’s claims and strike her class allegations.

The Court’s Decision

The Court dismissed Plaintiff’s TCPA and ICFA claims with prejudice.  First, the Court accepted Kelly’s argument that Plaintiff had essentially “pleaded herself out of court” and further found that Kelly met its burden of consent as an affirmative defense.  Id. at *3-4.  Specifically, the Court held that although Plaintiff need not have anticipated or pleaded revocation of consent, she only maintained that she had no reason to believe her employment application was active and she had no further communications with Kelly after consenting to receive employment-related communications.  Id. at *5-6.  Therefore, the Court found that Plaintiff’s consent remained valid at the time Plaintiff filed the case.  Id. at *6.

The Court also rejected Plaintiff’s attempt to “recast her consent” as only agreeing to accept calls relating to specific employment opportunities, holding that “the call [Plaintiff] received clearly related to an employment opportunity.  Although not specifically tailored to the exact job interests [Plaintiff] indicated in her application, it still fell within the broad consent she gave to use her cellular phone number to contact her generally for employment-related purposes regardless of whether that job matched her job interests.”  Id. at *7.  Accordingly, the Court found that because Plaintiff pleaded herself out of court by attaching her employment application, which indicated she consented to receiving calls from Kelly for employment-related purposes, her TCPA claim must be dismissed.

Plaintiff also brought a claim under the ICFA alleging that Kelly engaged in unfair acts and practices by making the allegedly unauthorized robo-call to her cellular phone in violation of §§ 2 and 2Z of ICFA, 815 Ill. Comp. Stat. 505/2, 2Z.  Id. at *8.  The Court explained that to state an ICFA claim, Plaintiff must allege: (1) a deceptive or unfair act or practice by Kelly, (2) Kelly’s intent that Plaintiff rely on the deceptive or unfair practice, (3) the unfair or deceptive practice occurred in the course of conduct involving trade or commerce, and (4) Kelly’s unfair or deceptive practice caused Plaintiff actual damage.  Id. at *8-9.  In dismissing Plaintiff’s ICFA claim, the Court found  that “receiving one pre-recorded message does not rise to the level of an oppressive practice” and that damages such as “loss of time and loss of battery life” are “so negligible from an economic standpoint as to render any damages unquantifiable.”  Id. at *10.  The Court further rejected Plaintiff’s argument that Kelly violated the Illinois Telephone Act because the message did not solicit the sale of goods and or services and therefore, did not fall under the definition of “recorded message” in the Illinois Telephone Act.  Id. at *10-11.  Accordingly, the Court dismissed Plaintiff’s ICFA claims with prejudice.

Implications For Employers

This is a landmark victory for employers, especially companies who utilize automated calls and text messages to contact prospective and/or current employees about job-related opportunities or employment matters.  Employers can almost certainly expect similar lawsuits brought against them under the TCPA.  Fortunately for employers, Kelly’s victory provides a roadmap for how to defeat such cutting edge class actions.

gavel on white backgroundBy Gerald L. Maatman, Jr., Mark W. Wallin, and Alex W. Karasik

Seyfarth Synopsis: A federal court in Tennessee denied the EEOC’s application for an Order to Show Cause why its administrative subpoena should not be enforced.  This ruling highlights the importance and benefits of employers understanding the contours of the charges being investigated by the EEOC, so that the employer can guard against improper fishing expeditions.

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Although courts typically grant the EEOC wide latitude to obtain information regarding its investigations of workplace discrimination, this access is not limitless.  One such limit was recently highlighted in EEOC. v. Southeast Food Services Company, LLC d/b/a Wendy’s, Case No. 3:16-MC-46 (E.D. Tenn. Mar. 27, 2017 ), where Magistrate Judge H. Bruce Guyton of the U.S. District Court for the Eastern District of Tennessee denied the EEOC’s Application for an Order to Show Cause Why an Administrative Subpoena Should Not Be Enforced (“Application”).  The Court refused to enforce the EEOC’s subpoena, finding that the request for contact information of all of Southeast Food Services Company, LLC, d/b/a Wendy’s (“Wendy’s”) current and former employees, among other things, was not relevant to the individual charge of discrimination being investigated by the EEOC.

This ruling illustrates the importance to employers of understanding the scope of the EEOC charge being investigated, and provides a roadmap for pushing back against agency overreach when the Commission seeks information that is not pertinent to the investigation at issue.

Case Background

In September 2014, Wendy’s hired Christine Cordero as a crew member at one of its restaurant locations.  Id. at 2.  Shortly thereafter, Wendy’s promoted Cordero to crew leader.  Id.  As part of her promotion, Wendy’s requested that Cordero sign a general release of all claims she may have against Wendy’s up to that point, but not including future claims.  Id.  For the past 20 years, Wendy’s had conditioned promotions on signing this release. Id.  Despite not having any claims against Wendy’s, Cordero refused to sign the release.  Id.  As a result of her refusal, Cordero did not receive the promotion, but still received training for the position and a small raise that accompanied the promotion.   Id.

Ms. Cordero continued to work for Wendy’s, but filed a charge of discrimination with the EEOC in December 2014.  Id.  In the charge, Cordero alleged that Wendy’s retaliated against her by not promoting her due to her refusal to sign the release. Id.  In the course of its investigation of Cordero’s charge of discrimination, the EEOC learned of Wendy’s longtime practice of requiring employees to sign a release of claims as a condition of promotion, and thereafter sent Wendy’s a letter indicating it intended to expand the investigation.  Id.  In this letter, the EEOC also requested information from Wendy’s regarding current and former employees who had worked for Wendy’s since December 2012.  Id.  Wendy’s, however, refused to provide this additional information, and the EEOC then issued a subpoena seeking the same information.  Id. at 2-3.

The EEOC’s subpoena sought the identity and contact information of all current and former employees since December 2012, including employees who signed the release of claims and who had been promoted.  Id. at 3.  In addition, the subpoena sought the employees’ dates of hire, promotion and termination, reasons for termination, and titles, as well as copies of all releases that Wendy’s had employees sign during that period, among other things.  Id.  Wendy’s continued to object, and refused to provide the information subpoenaed.  Id.  Thereafter, on November 18, 2016, the EEOC filed the Application with the Court, to which Wendy’s responded on February 22, 2017.

The Court’s Decision

The Court denied the EEOC’s Application and declined to enforce the subpoena.  The EEOC argued that it “require[d] the contact information for [Wendy’s] employees to mail questionnaires in order to determine if those employees gave up any claim in order to receive promotions.”  Id. at 4.  In response, Wendy’s asserted that the sole issue with regard to the instant charge was whether its uniform policy regarding a signed release as a condition of promotion was sufficient to sustain Cordero’s Title VII retaliation claim, and that the information sought for the questionnaires was neither relevant nor necessary to the EEOC’s investigation.  Id. at 4-5.  Siding with Wendy’s, the Court rejected the EEOC’s argument, finding that “whether other ‘employees gave up any claim in order to receive promotions’ [was] irrelevant to resolving Ms. Cordero’s charge.”  Id. at 5.

The EEOC further argued that sending the questionnaires to other employees was the only way to verify Wendy’s contention that no other employees aside from Cordero refused to sign the release.  The Court again rejected the EEOC’s argument, noting it was “unclear how another employee’s refusal to sign a release ‘might cast light’ on the instant charge, particularly where there is no dispute that for the past 20 years, all employees have been required to sign a general release of all claims as a condition of promotion.”  Id. at 6.  The Court further reasoned that the potential unlawfulness of Wendy’s employment practice was not dependent on how many other employees signed a release.  Id. at 7.  Accordingly, the Court held that the EEOC did not meet its burden in demonstrating that the information subpoenaed is relevant to Cordero’s charge, and declined to enforce the subpoena.

Implication for Employers

In what has become “go-to” play in the EEOC’s investigation playbook, the Commission has been aggressive in taking individual charges of discrimination as means to seek company-wide personnel information from employers through subpoenas.  Employers that encounter requests for expansive personnel data in the course of single employee investigations can add this ruling to their own playbooks in defending against overzealous EEOC investigations.  While the Commission likely will continue to be aggressive in seeking massive amounts of information from employers in investigations, this ruling provides optimism for employers who are willing to firmly oppose such tactics.

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

200px-NDAla_sealSeyfarth Synopsis: An Alabama district court granted a temporary staffing company’s motion to dismiss all claims in one of the EEOC’s most high-profile lawsuits asserting hiring discrimination and abuse of vulnerable workers. The ruling illustrates the procedural defenses that employers possess to ensure that pre-lawsuit investigations undertaken by the EEOC accord with its obligations under the law.

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A recent mission of the EEOC has been to aggressively pursue lawsuits on behalf of “vulnerable workers” who may not always be aware of their rights. A result of the EEOC’s recent aggressiveness is that the Commission often neglects to fulfill its pre-suit obligations under Title VII and overlooks jurisdictional requirements when racing to the courthouse. These tactics came under scrutiny in EEOC v. Labor Solutions of Alabama, Inc. f/k/a East Coast Labor Solutions, No. 16-CV-1848 (N.D. Ala. Mar. 17, 2017), where Judge Virginia Emerson Hopkins of the U.S. District Court for the Northern District of Alabama granted Labor Solutions of Alabama, Inc.’s (“LSA”) motion to dismiss the EEOC’s complaint. The Court found that the EEOC lacked subject-matter jurisdiction and failed to exhaust its administrative remedies after suing LSA for alleged conduct that occurred by its supposed predecessor before LSA was ever formed.

This ruling is a signal victory for employers involved in EEOC litigation regarding potential successor liability, as well as any employer involved in EEOC litigation where the Commission fails to exhaust its pre-suit duties under Title VII.

Case Background

The EEOC investigated charges of discrimination against a company called East Coast Labor Solutions, LLC (“East Coast”), alleging that East Coast discriminated against the charging parties on the basis of their national origin and failed to accommodate their disabilities. Following its investigation, the EEOC issued East Coast a letter of determination finding reasonable cause to believe that Title VII and the ADA were violated with respect to the charging parties and a class of current and former employees. Id. at 8.  The EEOC thereafter unsuccessfully attempted to conciliate with East Coast.  In November 2013, East Coast ceased operations.  LSA was formed in October 2014.

Despite the fact that LSA was not in existence when the alleged misconduct occurred, the EEOC filed a Complaint alleging that LSA subjected the Claimants to discriminatory treatment based on their national origin and failed to accommodate their disabilities. While East Coast partnered with its owner Labor Solutions (a different entity than LSA), the only Defendant named in the lawsuit was LSA.  Thereafter, LSA moved to dismiss the Complaint because it failed to allege that LSA employed the Claimants, thereby meaning the Complaint should be dismissed for lack of subject matter jurisdiction and failure to state a claim under Title VII and the ADA. Id. at 9.  LSA also argued that the EEOC failed to exhaust administrative prerequisites, noting that LSA was not named in the original EEOC charge or in any amendment thereto.

The Courts Decision

The Court granted LSA’s motion to dismiss. First, the Court addressed the EEOC’s argument that it alleged plausible facts to infer so-called “successor liability.” Id. at 11.  After thoroughly examining various Eleventh Circuit precedents regarding successor liability, the Court explained that “[a]lthough the Court agrees with the EEOC that successorship does not have to be conclusively determined at this stage of the litigation, that does not absolve the agency from pleading facts which make its existence plausible.” Id. at 26.

Applied here, the Court determined there were “no facts suggesting substantial (or even any) continuity in business operations from East Coast to LSA. The Complaint contains no allegations that there was any sale of East Coast, or any of its assets, to LSA.”  Id. at 27.  Finding there was no successor liability, the Court further reasoned that East Coast had been defunct nearly an entire year before LSA was formed; there was no allegation that LSA employed substantially the same work force and/or supervisors as East Coast; the Complaint did not allege that LSA operated at the same location as East Coast; there was no allegation as to whether East Coast could have provided relief before or after any alleged sale or transfer; and there was no allegation as to whether LSA could provide any relief now.

The Court further rejected the EEOC’s argument that East Coast and LSA were both temporary staffing agencies and that both entities shared the same managing officers, principal office address, and company email accounts, holding this was not enough to demonstrate continuity when one considered the break in time between when East Coast ceased operations and LSA began. Finally, the Court opined that even if the Complaint had plausibly alleged that LSA was the successor to East Coast, it would still be dismissed since it was undisputed that LSA was not named in the original EEOC charge, or in any subsequent amendment.  Accordingly, the Court granted LSA’s motion to dismiss, but noted the EEOC may file an amended complaint to attempt to cure its deficiencies.

Implications For Employers

For employers with intricate corporate structures and ties to defunct entities, this ruling is a major victory. Employers with corporate officers who previously worked at a similar but defunct entity can use this ruling to as a roadmap to navigate EEOC lawsuits concerning allegations from before their business was ever formed. In sum, this is yet another example of a court pumping the brakes on procedurally improper EEOC litigation.

Readers can also find this on our EEOC Countdown Blog here.

supreme court sealBy Christopher M. Cascino and Gerald L. Maatman, Jr.

Seyfarth Synopsis:  A bankruptcy court overseeing an employer’s Chapter 11 bankruptcy proceeding allowed the employer to pay certain unsecured creditors before paying Worker Adjustment And Retraining Notification Act (“WARN”) creditors – workers who had sued the company – monies owed pursuant to a judgment, even though the bulk of the WARN monies owed were for back wages that hold priority over other unsecured claims under the Bankruptcy Code.  The bankruptcy court allowed the employer to pay the other unsecured creditors pursuant to a settlement agreement between the other unsecured creditors, the secured creditors, and the employer because, according to the bankruptcy court, the other unsecured creditors would not receive any monies absent the settlement, while the WARN creditors would not recover any compensation under or absent the settlement.  Both the district court and U.S. Court Of Appeals For The Third Circuit agreed with the bankruptcy court. In Czyzewski v. Jevic Holding Corp., No. 15-649, 2017 U.S. LEXIS 2024 (U.S. Mar. 22, 2017), the U.S. Supreme Court reversed, finding that the bankruptcy court’s conclusion that the WARN plaintiffs could not recover was questionable and, more significantly, that the bankruptcy court could not alter the Bankruptcy Code’s distribution scheme at the expense of the WARN creditors absent their consent.

Employers undergoing Chapter 11 bankruptcy and WARN litigation should take note that unpaid wage claims will take priority over the claims of other unsecured creditors absent the consent of WARN creditors.

Case Background

Sun Capital Partners (“Sun”), a private equity firm, purchased Jevic Transportation Corp. (“Jevic”), an employer, in a leveraged buyout using monies borrowed from third-party CIT Group (“CIT”).  In the buyout, both Sun and CIT used Jevic’s stock as collateral to finance the purchase.

Two years after the buyout, Jevic declared bankruptcy under Chapter 11.  Immediately prior to filing for bankruptcy, Jevic, without the notice required under WARN, told its employees that it was terminating their employment.  During the bankruptcy, these employees sued, and the bankruptcy court entered a $12.4 million judgment in their favor, making them creditors of Jevic.  The bankruptcy court determined that $8.3 million of this $12.4 million was owed for priority wage claims.  While the WARN creditors argued that Sun was also liable for this judgment as a joint employer with Jevic, the bankruptcy court ultimately ruled against them, finding that Sun was not their employer.

Also during the bankruptcy, other unsecured creditors sued Sun and CIT, arguing that they were the beneficiaries of preferential transfers of Jevic’s assets.  While this lawsuit was pending, Jevic’s assets were depleted to $1.7 million in cash, subject to a lien by Sun, and the preferential transfer lawsuit.

Sun, CIT, Jevic, and the other unsecured creditors decided to settle the fraudulent transfer lawsuit.  At the time the case was settled, the WARN creditors’ joint employer case was still pending, so Sun insisted that any settlement could not include a payment to the WARN creditors or their counsel, as Sun feared the WARN creditors’ counsel would use such payments to fund litigation against Sun.  Under the settlement agreement, CIT agreed to pay $2 million to cover the legal fees and administrative expenses of the other unsecured creditors, while giving Jevic’s remaining $1.7 million to pay taxes, administrative expenses, and pro rata distributions to the other unsecured creditors.  Also pursuant to the settlement, Jevic agreed to dismiss its Chapter 11 bankruptcy case.

Sun, CIT, Jevic, and the unsecured creditors petitioned the bankruptcy court to approve the settlement and dismiss the Chapter 11 case.  The WARN creditors opposed, arguing that the settlement violated the normal priority rules by giving other unsecured creditors priority over the WARN creditors.

While the bankruptcy court agreed that the settlement violated standard priority rules, it found that, because it was dismissing the Chapter 11 case rather than approving a Chapter 11 plan, it did not have to follow the priority rules contained in Chapter 11.  It found authority to do so in Chapter 11’s dismissal provision, § 349(b)(1), which provides that, with dismissal, parties are restored to the status quo ante unless a bankruptcy judge, “for cause, orders otherwise.”  Further, it found that, regardless of the settlement, the WARN creditors would not receive any distributions, while the settlement left the other unsecured creditors in a better position than they would be absent the settlement.  Both the district court and Third Circuit agreed.  The WARN creditors sought certiorari, which the Supreme Court granted.

The Court’s Decision

In a March 22, 2017 opinion authored by Justice Breyer, the Supreme Court reversed.  The Supreme Court began its analysis by considering Jevic’s argument that the WARN creditors lacked standing because they would not have recovered anything if the settlement was not approved.  The Supreme Court found this argument unpersuasive because it relied on two questionable propositions: first, that without violation of the ordinary priority rules, there would be no settlement and, second, that the fraudulent conveyance lawsuit had no value.  2017 U.S. LEXIS 2024, at *19.  With respect to the  first argument, the Supreme Court found it unpersuasive given that Sun ultimately won on the joint employer issue.  Id. at *19-20.  With respect to the second, the Supreme Court found the assumption that the fraudulent conveyance lawsuit had no value questionable in light of the fact it settled for $3.7 million.  Id. at *20.  The Supreme Court thus concluded that the WARN creditors had something to lose if the settlement was approved, and therefore had standing to challenge it.  Id. at *21.

The Supreme Court then turned to the question of whether a bankruptcy court can dismiss a Chapter 11 plan in a way that does not follow the ordinary priority rules without the affected creditors’ consent.  Id.  It decided that it cannot for several reasons.

First, the Supreme Court observed that the distribution scheme contained in the Bankruptcy Code is “fundamental to the Bankruptcy Code’s operation,” and that one would expect more than “statutory silence” to authorize departures from the scheme.  Id. at *22-23.  Second, the Supreme Court concluded that Chapter 11 § 349(b)(1), in providing that the parties are restored to the status quo ante in a dismissal unless a bankruptcy judge, “for cause, orders otherwise,” only allows a bankruptcy judge to “make appropriate orders to protect rights acquired in reliance on the bankruptcy case,” which approval of the settlement did not do.  Id. at *24-25.  Finally, the court concluded that the consequences of allowing a departure from the normal distribution scheme were “potentially serious,” including “changing the bargaining power of different classes of creditors” and “risks of collusion.”  Id. at *30-31.

For these reasons, the Supreme Court reversed the bankruptcy court’s approval of a settlement that, as part of the dismissal of a Chapter 11 case, allowed payment to general unsecured creditors while skipping the higher priority claims of the WARN creditors.

Implications For Employers

Financially distressed employers who are the subject of potential WARN litigation should be aware that, as a result of this decision, they will not be able to pay the claims of general unsecured creditors during bankruptcy absent the consent of WARN creditors.  The case has special implications for employers who own distressed employers, as was the case with Sun in Czyzewski, who want to avoid funding litigation against themselves under a joint employer theory.