By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis: The government’s anti-discrimination watchdog can be extremely aggressive in pursuing discrimination claims, including pursuing those claims after an employer files for bankruptcy. Normally, after a bankruptcy petition is filed, the Bankruptcy Code’s automatic stay enjoins other actions against the debtor. But in EEOC v. Tim Shepard M.D., PA d/b/a Shepherd Healthcare, 17-CV-02569 (N.D. Tex. Oct. 11, 2018), the U.S. District Court for the Northern District of Texas sided with the EEOC and concluded that the EEOC’s Title VII lawsuit fell within an exception to the Bankruptcy Code’s automatic stay. This case is a good reminder that the Bankruptcy Code’s protections do not necessarily stave off an EEOC action. Importantly, the EEOC often will not back down from a fight simply because its target filed a bankruptcy petition, and depending on the nature of the EEOC action, it may fall within an exception to the automatic stay.  

The Decision

In EEOC v. Tim Shepard M.D., PA d/b/a Shepherd Healthcare, 17-CV-02569 (N.D. Tex. Oct. 11, 2018), the EEOC filed suit in the U.S. District Court for the Northern District of Texas for alleged violations of Title VII of the Civil Rights Act of 1964. After a year of litigation, the defendant filed a voluntary petition under Chapter 7 of the Bankruptcy Code. As a result of the bankruptcy proceeding, the court entered an automatic stay under 11 U.S.C. § 362 and administratively closed the EEOC’s action.

The Bankruptcy Code’s automatic stay provides fundamental protection to a debtor in a bankruptcy by automatically enjoining certain actions against the debtor. The purpose of the automatic stay is to preserve the bankruptcy estate so that it can be orderly distributed to creditors.

Although the court stayed and administratively closed the EEOC’s enforcement action, the EEOC filed a motion to reopen the case, arguing that its discrimination lawsuit fell within the governmental unit or police and regulatory exception to the automatic stay found in 11 U.S.C. § 362(b)(4). Section 362(b)(4) provides that the filing of a bankruptcy petition “does not operate as a stay” of:

the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s . . . police or regulatory power.

11 U.S.C. § 362(b)(4).

Because Fifth Circuit has not addressed whether an EEOC enforcement action under Title VII falls within Section 362(b)(4)’s exception to the automatic stay, the court explained that it “must assess whether the EEOC’s primary purpose for bringing this action is to protect public policy and welfare as opposed to adjudicating private rights or represents an attempt to recover property from [the defendant’s] bankruptcy estate.” Id. at 2. The court then analyzed the nature of the lawsuit and the relief sought to make this determination.

Specifically, the court found that the EEOC was primarily seeking a permanent injunction and that there was no indication that it was protecting a pecuniary interest in the bankruptcy estate. In addition, the court highlighted that the EEOC was vindicating the public interest by seeking to prevent discrimination in the workplace. Based on these findings, the court concluded that the EEOC’s primary purpose for bringing the action was to protect public policy and welfare. Thus, the court held that the EEOC’s action was not subject to the Bankruptcy Code’s automatic stay.

Implication For Employers:

This case is a valuable reminder for employers that the EEOC will not be deterred by the threat, or filing of, a bankruptcy petition. Employer’s facing bankruptcy and enforcement actions should assess whether the EEOC’s action will likely be an exception to the automatic stay. As this case makes clear, if the EEOC is primarily seeking injunctive relief, there is a good chance that the Bankruptcy Code’s automatic stay will not enjoin the EEOC’s enforcement action.

 

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

Seyfarth Synopsis: The uncertainty of a new administration’s impact on the EEOC that plagued FY 2017 is fading, but the results are not what some would expect. Not only has the EEOC brought a mountain of filings compared to the last four years, but also the agency has demonstrated a clear focus on sex-based discrimination and sexual harassment in the workplace in light of #MeToo, even surpassing FY 2017 numbers.

With a full fiscal year under its belt, the Trump Administration’s impact on EEOC-initiated litigation is still uncertain. With two Republican Commissioners and the General Counsel position still unconfirmed, it is difficult to discern if things will truly be “business as usual” under Trump or if those appointments, once confirmed, will change agency course. One thing is certain: the EEOC’s litigation program is not slowing down any time soon. Just as the waning months of FY 2017 showed a marked increase in filings, FY 2018 turned up the heat even more. Filings are up more than ever, with sex discrimination filings and #MeToo filings – i.e., complaints of sexual harassment – eclipsing previous years.

The total number of filings in FY 2018 demolished FY 2015 and 2016, and even surpassed FY 2017. (Compare here to here and here). This year, the EEOC filed 217 actions, 197 merits lawsuits and 20 subpoena enforcement actions.

Predictably, the EEOC waited until the last minute to push filings, with this past month showing the most filings compared to any other month this fiscal year. At the time of publication, 84 lawsuits were filed in September, including 45 in the last 3 days alone.  Notable this year, however, was the “ramp up” period in June, July and August, which accounted for 63 of the total filings. Almost half of those cases were brought in August. The total filings for the remaining months remain low, with the number of filings in October through February failing to hit double digits.

Filings in Chicago, Philadelphia and Los Angeles continue to top the charts, with 21, 21, and 17 total filings, respectively. These numbers remain relatively consistent to FY 2017, which showed 21 filings in Chicago, 19 in Philadelphia, and 22 in Los Angeles. On the lower end, the St. Louis and Memphis numbers were modest, with only 7 filings in St. Louis and 8 filings in Memphis. Of the remaining districts, the Phoenix and New York district offices rebounded after a slow FY 2017, each filing 6 more lawsuits in FY 2018 as compared to last year.

Sex Discrimination Takes Center Stage

Each fiscal year we analyze what substantive theories the EEOC is targeting. This year, Title VII claims remained the largest category of filings, on par with FY 2017, which boasted 53% of all filings. In FY 2018, Title VII filings accounted for 55% of all filings. Although FY 2016 showed a dip in Title VII filings at 41%, this year’s Title VII filings beat out FY 2015 and FY 2014 as well.

With a new Strategic Enforcement Plan in place to guide litigation activity for FY 2018-2022, many expected some shift in focus based on two notable changes from the old plan. Specifically, the new plan pledged to address discriminatory practices against those who are Muslim or Sikh, or individuals of Arab, Middle Eastern, or South Asian descent. Additionally, the new plan aims to expand the EEOC’s equal pay priority to include compensation discrepancies for race, ethnicity, age, and disability – moving beyond the EEOC’s focus on sex-based pay disparities. In fact, we have actually seen a decrease in Equal Pay Act filings, which could reflect the EEOC’s renewed focus on equal pay issues that affect other protected groups, which would not fall under the jurisdiction of the Equal Pay Act.

One trend has emerged this year – compared to FY 2017, race filings have decreased by 6 filings – with 18 filings in FY 2018 compared to 24 filings in FY 2017.

Perhaps the most striking trend of all is the substantial increase in sex-based discrimination filings, primarily the number of sexual harassment filings. As predicted, #MeToo added fuel to this area of the EEOC’s agenda, with 74% of the EEOC’s Title VII filings this year targeting sex-based discrimination. Compare this to FY 2017, where sex based discrimination accounted for 65% of Title VII filings. Of the FY 2018 sex discrimination filings, 41 filings included claims of sexual harassment. 11 of those filings were brought in the last three days of the fiscal year alone. The total number of sexual harassment filings was notably more than FY 2017, where sexual harassment claims accounted for 33 filings.

EEOC’s #MeToo Harassment Filing Surge

Implications For Employers

The dramatic increase in filings should be an eye-opener for employers in an era when many thought the EEOC might be hitting the brakes. Instead, the EEOC is increasing its enforcement activity, with a particular focus on sex discrimination and sexual harassment. The EEOC still strongly advises employers should update and aggressively enforce their EEO Policies. Now, more than ever, employers need to be on top of their game to avoid becoming the next target of EEOC-initiated litigation.

As most of our loyal readers know, this blog is merely a preview of the more extensive analysis of EEOC trends and developments affecting EEOC litigation that we publish at the end of the calendar year. Stay tuned for our in-depth analysis of FY 2018 filings, and particular danger areas for employers in this shifting political climate.

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

By Gerald L. Maatman, Jr., Michael L. DeMarino and Rebecca S. Bjork

Seyfarth Synopsis: Although back pay has been awarded in Age Discrimination in Employment Act (ADEA) cases for quite some time, few courts have specifically addressed whether these damages are discretionary or mandatory.  In EEOC v. Baltimore County., No. 16-2216, 2018 WL 4472062, at *1 (4th Cir. Sept. 19, 2018), the Fourth Circuit answered this straightforward question and held that retroactive monetary awards, such as back pay, are mandatory legal remedies under the ADEA. Because the ADEA incorporates the provisions of the Fair Labor Standards Act (FLSA) that make back pay mandatory, the Fourth Circuit concluded that district courts lack discretion to deny back pay once ADEA liability is established. The key takeaway from this decision is that now more than ever, employers should take steps to minimize exposure to ADEA violations and, if ADEA liability is established, to explore available set offs to back pay awards.

Background

In EEOC v. Baltimore County, the EEOC brought a lawsuit on behalf of two retired corrections officers and a group of similarly-situated employees at least 40 years of age. The EEOC alleged that the County’s pension plan, known as the Employee Retirement System (“ERS”), required older employees to pay more toward their retirement than younger employees, for the same retirement benefits.

The district court granted summary judgment in favor of the EEOC, finding that because the different contribution rates charged to different employees is explained by age rather than pension status, age is the “but-for” cause of the disparate treatment, and the ERS violated the ADEA. On appeal, the Fourth Circuit affirmed and remanded the case to the district court for consideration of damages. We previously blogged about the district court’s decision here and the Fourth Circuit’s decision here.

On remand, the district court considered the EEOC’s claims for retroactive monetary relief –  which was in the form of back pay. Ultimately, the district court rejected the EEOC’s bid for these damages, concluding that it had the discretion under the enforcement provision of the ADEA, 29 U.S.C. § 626(b), to wholly deny back pay. Thereafter, the EEOC appealed.

The Fourth Circuit’s  Decision

On appeal, the County argued that the district court properly exercised its discretion under the ADEA, 28 U.S.C. § 626(b), to deny the EEOC an award of back pay. The Fourth Circuit rejected this contention. Instead, the Fourth Circuit agreed with the EEOC that because back pay is a mandatory legal remedy under the FLSA, and because the ADEA incorporates the FLSA’s liability provisions, the district court lacked the discretion to decline to award back pay.

Specifically, the Fourth Circuit reasoned that “[b]ecause Congress adopted the enforcement procedures and remedies of the FLSA into the ADEA, we construe the ADEA consistent with the cited statutory language in and judicial interpretations of the FLSA.” Id. at *3.  “Back pay,” the Fourth Circuit continued, “is, and was at the time Congress passed the ADEA, a mandatory legal remedy under the FLSA.” Id. The Fourth Circuit reinforced this conclusion, noting that the ADEA’s “legislative history further suggests that Congress consciously chose to incorporate the powers, remedies, and procedures of the FLSA into the ADEA.” Id.

Implication For Employers:

This long-running case demonstrates the complexities and potential pitfalls employers face while trying to navigate the ADEA. Employers should take care to review and consider their justifications for retirement plans that have variable contribution rates for employees based on age.  More broadly, this decision demonstrates that damages for ADEA violations can quickly add up if back pay awards are permanently on the table.

By Gerald L. Maatman, Jr.

Seyfarth Synopsis: In its recent article on leading content creators in the legal industry, Attorney at Work cited Seyfarth’s Annual Workplace Class Action Litigation Report, calling it a “best-in-show report that makes the firm synonymous with class action litigation.”

Attorney at Work, a popular legal blog named in the ABA Journal’s “Blawg 100 Hall of Fame,” provides commentary with the “inspiration and information” necessary to support outstanding leading work. In a recent article highlighting industry leaders in legal content creation, Attorney at Work said:

“Seyfarth Shaw’s annual Workplace Class Action Litigation Report, now in its 14th year, is a best-in-show report that makes the firm synonymous with class action litigation. At 800 pages, it is a giant publication and is consistently referred to as the source for countless media stories. Not coincidently, this year Seyfarth Shaw was again named a Law360 top employment ‘Practice Group of the Year.’ It has won the accolade for seven consecutive years.”

We are humbled and honored by Attorney at Work’s commentary on our Annual Workplace Class Action Litigation Report. The full article can be found HERE.

The process to compile our Annual Workplace Class Action Litigation Report is a considerable undertaking, and we are grateful that the Report can be seen as a model in the legal industry.

We are particularly proud of Attorney at Work’s words regarding the Report’s reflection on Seyfarth Shaw. After all, our class action practitioners work relentlessly to track, collect, and analyze each and every ruling on class action issues and Rule 23 topics.

Through publishing the Report for 14 years, we have found that the process results in not only a unique compendium of class action decisions, but also in a distinct analytical ability among our team of attorneys. We are pleased that this knowledge is useful to employers and class action practitioners throughout the country.

Many thanks to Attorney at Work — we sincerely appreciate the kudos.

Now that we are getting closer to year’s end, we have tracked and analyzed over 1,500 rulings. At this pace, we predict that the 2019 Report will be our most comprehensive publication to date. Stay tuned for our full analysis of the year’s workplace class action activity in January of 2019.

By Gerald L. Maatman, Jr.

Seyfarth Synopsis:  As we near the end of the U.S. Equal Employment Opportunity Commission’s (“EEOC”) fiscal year in September 2018, employers and litigators have started to notice an uptick in the Commission’s activity. Specifically, close observers have detected a rise in EEOC filings related to workplace harassment.  In today’s video, Partner Jerry Maatman of Seyfarth Shaw provides an overview of the EEOC’s fiscal year to date, and forecasts what employers can expect to see from the Commission going forward.

Whereas most assumed that the EEOC’s activity would decrease under a more business-friendly Administration, the Commission has actually continued to file lawsuits at a growing rate. For purposes of context, by the end of August 2017, the EEOC had not yet filed 100 merit lawsuits. However, to date this year, the EEOC has already filed 112 merit lawsuits. This number is especially relevant insofar as the Commission has not yet hit its traditional filing peak, i.e., the month of September.  For example, in FY 2017, the Commission filed 88 lawsuits in September alone.

Another key takeaway for employers thus far in FY 2018 concerns the specific allegations of the EEOC’s lawsuits. To date, the EEOC has filed at least 22 lawsuits involving claims of sexual harassment, which is especially significant in light of the #MeToo Movement. Additionally, the EEOC has explicitly stated its priority of “Preventing Systems Discrimination” in at least 10 press releases during FY 2018, including multiple press releases (which can be seen HERE and HERE) touting the Commission’s activity in filing groups of workplace harassment suits in one day. Evidently, these filings suggest that the EEOC’s emphasis on this litigation priority is being escalated in FY 2018.

Implications For Employers

While employers should always be cognizant of their workplace policies, today’s litigation landscape requires human resources personnel to be especially careful regarding their written policies, employee training, and HR reporting procedures. For a full overview of this aspect, be sure to watch Jerry’s explanation in the video above.

Furthermore, despite the current status of EEOC litigation, filing trends can always be significantly altered in the month of September. Remember to stay tuned to our blog, as we will be posting our annual end-of-year EEOC analysis as soon as the Commission’s fiscal year comes to a close!

By Gerald L. Maatman, Jr. and Lauren E. Becker

Seyfarth Synopsis: The U.S. District Court for the District of New Jersey recently issued a ruling with respect to Defendants’ “compelling” exhaustion argument that Plaintiffs failed to exhaust administrative remedies with respect to their disparate treatment and disparate impact theories of Title VII claims relied on to support their motion for class certification, as those claims were outside the scope of Plaintiffs’ underlying EEOC charges. In rejecting Defendants’ argument, the Court invited Defendants to raise their argument more appropriately on a motion for summary judgment. The decision is an important one for employers facing employment discrimination class actions.

Case Background

In Smith v. Merck & Co., No. 13-CV-2970, 2018 U.S. Dist. LEXIS 129126 (D.N.J. July 31, 2018), a former Merck & Co. employee filed a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”), individually and on behalf of a class of similarly-situated employees, alleging that Merck violated Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e, and other state and federal laws. Id. at 2. After receiving a Right-To-Sue Notice from the EEOC, Plaintiff filed a Complaint in the U.S. District Court for the District of New Jersey against Merck & Co. raising claims consistent with those alleged in her EEOC charge.

Plaintiff twice amended her Complaint.  First, she added several more named plaintiffs, each of whom had filed administrative charges with the EEOC on behalf of a class. The Second Amended Complaint added named Defendants, Merck Sharp & Dohme, Corp. and Intervet, Inc., and fourteen causes of action.  Id. at 3.

Plaintiffs moved for class certification based on disparate treatment and disparate impact. Defendants filed their own motion for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c), which permits a party to secure a dismissal after the pleadings close without delaying trial. Id. at 6. Defendants argued that Plaintiffs failed to exhaust their administrative remedies with regards to the disparate impact and disparate treatment claims, as required by Title VII, because those claims were not supported by the pleadings or underlying EEOC charges. Id. at 5. Instead, Defendants argued that the disparate impact and treatment claims were “newly asserted challenges,” based on at least four policies that Plaintiffs obtained and learned about during discovery. Id. at 4. At the EEOC charge stage, Plaintiffs had not asserted disparate treatment by evidencing a facially neutral policy that adversely impacted Plaintiffs. Id. Instead, Plaintiffs’ EEOC charges asserted discrimination exclusively based on the actions of individual managers. Id. Plaintiffs’ disparate impact claim failed, Defendants’ argued, because neither the EEOC charges nor the Complaint supported “discrimination based on high-level facially neutral policies that Merck allegedly implemented to discriminate” against Plaintiffs. Id. at 5.

Plaintiffs argued that the EEOC charges supported their motion for class certification, the requirements of which “are separate from, and more stringent than, the administrative exhaustion standard for Title VII cases.” Id. at 5.

The Court’s Decision

On July 31, 2018, the Court denied Defendants’ motion for partial judgment on the pleadings, without ruling on the exhaustion defense. Id. at 9.

First, the Court addressed the standard by which courts in the Third Circuit determine a motion for partial judgment on the pleadings. Id. at 6. Specifically, the Court viewed all facts and inferences garnered from the pleadings in the light most favorable to plaintiffs and would grant Defendants’ motion only where it “clearly establish[ed]” that there were no remaining issues of material fact. Id.

Then the Court articulated Title VII’s exhaustion requirements. Id. at 7-9. Specifically, before filing a Title VII action in federal court, plaintiffs first must exhaust administrative remedies by filing an administrative charge of discrimination with the EEOC, and then either resolving the claim with the EEOC or obtaining a right-to-sue letter. Id. at 7. According to the Court, these “essential” elements of Title VII’s “statutory plan” are designed to promote judicial efficiency and provide employers adequate notice of the claims that may be filed against them. Id. at 7-8.

To rule on Defendants’ exhaustion argument, the Court opined that it would have to assess the appropriate scope of the federal court action, as defined by the EEOC’s investigations into Plaintiffs’ claims. Id. at 8.  Specifically, the Court would have to assess whether Plaintiffs’ disparate treatment and disparate treatment claims “should have been included in a reasonable investigation conducted by the EEOC, based upon the information contained in the Charge.” Id. at 8-9. If found to be outside the scope of Plaintiffs’ EEOC claims, then Plaintiffs had failed to exhaust their administrative remedies with respect to the disparate treatment and disparate impact claims, which rendered those claims insufficiently ripe to be heard by the Court. Id.

The Court declined to conduct the exhaustion analysis as Rule 12(c) prohibits consideration of separate motion papers when determining a motion for partial judgment on the pleadings. Id. at 9. Nonetheless, the Court indicated a willingness to consider Defendants’ “compelling” exhaustion argument, if raised on Defendants’ own motion for summary judgment, which it characterized as the “appropriate procedural vehicle.” Id. at n. 3.

Implications For Employers

The Court, if it chose to do so, could have converted the motion on the pleadings to a motion for summary judgment sua sponte.  Alternatively, it could have decided the motion under Rule 12(c) because the matters outside of the pleadings are public record.  Nonetheless, the Court’s recognition of Defendants’ “compelling” exhaustion argument is significant because it indicates the Court’s likely ruling, if and when Defendants pursue the argument in a motion for summary judgment.

Employers and class action attorneys should pay close attention to the scope of discrimination litigation at the class certification stage, particularly where Plaintiffs’ raise claims in federal litigation that fall outside the scope of those raised in support of an administrative charge of discrimination before the EEOC.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: A federal district court in Kansas recently granted the EEOC’s motion for judgment on the pleadings in an ADA lawsuit brought against UPS and an employee union, holding that a policy in Defendants’ collective bargaining agreement where drivers who are disqualified for medical reasons can only be compensated at 90% of their rates of pay for temporary non-driving jobs, while drivers disqualified for non-medical reasons such as DWI’s are compensated at a 100% rate, was facially discriminatory.

This ruling should serve as a wake-up call to employers in regards to ensuring their policies relative to medical disqualifications and compensation are ADA-compliant.

***

Case Background

In EEOC v. UPS Ground Freight, Inc., No. 2:17-CV-2453, 2018 U.S. Dist. LEXIS 125625 (D. Kan. July 27, 2018), the EEOC brought suit under the ADA regarding UPS’s collective bargaining agreement (“CBA”) with its employees’ union, which provided that for employees with CDL’s (commercial drivers’ license) whose CDLs are suspended or revoked for non-medical reasons, including convictions for driving while intoxicated, those employees would be reassigned to non-CDL required (non-driving) work at their full rate (100%) of pay. However, for drivers who become unable to drive due to medical disqualifications, including drivers who are individuals with disabilities within the meaning of the ADA, UPS provided full-time or casual inside work at only 90% of the rate of pay.

The EEOC argued that the language of the CBA established a prima facie case of a discriminatory policy because it paid drivers disqualified for non-medical reasons 100% of their pay rate, while paying drivers disqualified for medical reasons 90% of the appropriate rate of pay for the work being performed. Id. at 5. UPS responded by arguing that judgment on the pleadings was inappropriate because: (1) the EEOC relied upon a selective and erroneous interpretation of the CBA; (2) the CBA contained ambiguities that precluded judgment; (3) “whether the CBA works to the benefit or detriment of a medically disqualified driver depends entirely on the particular factual scenario in each case,” which required the Court to engage in a case-by-case analysis to determine if an employee has been discriminated; and (4) the CBA did not limit the opportunities available to individuals with disabilities, but provided additional opportunities beyond what the ADA required. Id.

The Court’s Decision

The Court granted the EEOC’s motion for judgment on the pleadings.

First, the Court held that the CBA’s language was plain and unambiguous, and further, that it was “immaterial whether medically disqualified drivers have other options; paying employees less because of their disability is discriminatory under any circumstance.” Id. at 5-6. Further, the Court held that the alleged ambiguities that precluded judgment in the EEOC’s favor were attempts to create confusion where none existed. Specifically, the Court opined that UPS’s arguments were “red-herrings because they fail[ed] to address the pertinent issue — pay at less than 100% based on disability.” Id. at 6.

Turning to UPS’s argument that a case-by-case impact analysis was required to show that the policy was facially discriminatory, the Court rejected this argument, explaining that “[a]t the liability stage in a pattern-and-practice claim, the plaintiff must show that unlawful discrimination is part of the employer’s ‘standard operating procedure.’” Id. The Court further explained that under this standard, the government must establish a prima facie case of a discriminatory policy, but it was not required to offer evidence that each individual who may seek relief was a victim of the policy. As such, the Court held that the EEOC met its burden in establishing that the CBA was facially discriminatory.

Finally, the Court rejected UPS’s argument that he CBA did not limit the opportunities available to individuals with disabilities. The Court instead held that UPS did not provide a legitimate reason for paying medically disqualified drivers performing “inside work” less than those disqualified for other reasons under the CBA, and therefore failed to overcome the EEOC’s prima facie case of discrimination. Id. at 7.

In regards to injunctive relief, the Court held that the EEOC demonstrated that its claim warranted a permanent injunction. Id. at 7-8. Noting that monetary damages cannot prevent future harm, the Court opined that “[t]he only ‘hardship’ UPS Freight will suffer is paying medically disqualified drivers more (100% pay rate), which is the same rate it already pays its other, non-disabled employees.” Id. at 8. After further holding that the public interest will not be harmed by a permanent injunction prohibiting UPS from discriminating on the basis of disability, the Court ordered the next collective bargaining agreement is to prohibit the same discriminatory practice. Accordingly, the Court granted the EEOC’s motion for judgment on the pleadings and thereby granted its motion for injunctive relief.

Implications For Employers

For employers who provide alternative work assignments to employees with medical disqualifications, this ruling should serve as an eye-opener. It is crucial that businesses examine the compensation for such employees to confirm they are not being compensated at a disproportionally lower rate than other non-medically disqualified employees who are reassigned. Accordingly, a best practice for employers is to routinely examine their policies regarding medical disqualification and compensation to ensure they are complying with the ADA, in order to prevent EEOC-initiated litigation.

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

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  In an opinion laced with frustration over a third appeal in a class action involving attorneys’ fees, the Seventh Circuit ruled that an objector was entitled to recover attorneys’ fees from class counsel’s fee award. “Unless the parties expressly agree otherwise,” the Seventh Circuit explained, “settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” The Seventh Circuit’s recent ruling in In Re Southwest Airlines Voucher Litigation is a good reminder for companies negotiating class settlements to account for objector fees in settlement agreements up front, or run the risk that an objector will sandbag the settlement by requesting fees later.

The Background Of The Decision

In In Re Southwest Airlines Voucher Litigation, No. 17-3541, 2018 WL 3651028, at *1 (7th Cir. Aug. 2, 2018), the Seventh Circuit addressed the third appeal relating to attorneys’ fees in the settlement of a class action involving Southwest Airline’s cancelled drink vouchers.  In the first appeal, the Seventh Circuit modified class counsel’s fee award because class counsel had failed to disclose a potential conflict of interest. After the appeal, however, class counsel sought a supplemental fee award, along with a 1/5 multiplier, for his time spent appealing – a maneuver the Seventh Circuit called “astonishing.” Id. The district court declined to award the multiplier, but nonetheless awarded class counsel one-third of the requested amount, or roughly $455,294.

Subsequently, an objector, Gregory Markow, sought to vacate the settlement agreement and the supplemental fee award. Markow eventually appealed but then dismissed his appeal in exchange for class counsel’s agreement to take half of the supplemental fee award. The district court approved the new settlement, and Southwest distributed the vouchers and paid class counsel.

Then, in what must have come as a complete surprise to class counsel (and the corporate defendant), Markow sought to recover $80,000 in attorneys’ fees, which were to come out of class counsel’s fee award. The district court denied Markow’s fee request, and Markow appealed that denial.

The Seventh Circuit’s Ruling

In this third appeal, the Seventh Circuit reversed and remanded. The Seventh Circuit noted that the underlying settlement agreements were silent on issue of objector’s fees. In the absence of a settlement agreement that addresses objector fees, the Seventh Circuit explained that it looks to the law. “Objectors who add value to a class settlement may be compensated for their efforts,” explained Circuit Judge David Hamilton, writing for the unanimous panel. Id. at 2. “Unless the parties expressly agree otherwise, settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” Id.

Relying on the common fund doctrine to fill in the gap left by the parties’ agreements, the Seventh Circuit ultimately concluded that it would be inequitable for Markow’s lawyer to receive nothing despite negotiating, in exchange for dropping the second appeal, a tripling of relief to the class and a significant cut to class counsel’s fees.

Despite its remand, the Seventh Circuit expressed frustration over resolving yet another appeal involving attorneys’ fees. “[W]e expect this case to end, ‘so that the tail can stop wagging the dog,’” it warned. Id. at *4. (citation omitted). The Seventh Circuit determined that it was “difficult to reconcile [class counsel’s] rapacious requests for fees in the district court with our decision in the prior appeal that reduced its already generous fee award as a modest penalty for failing to disclose a potential conflict of interest.” Id.

Implication For Employers

Although objectors are often labeled extortionists by virtue of opportunistic obstacles  they create to securing approval of class-wide settlements, the ruling in In Re Southwest Airlines Voucher Litigation is clear that objectors are entitled to attorneys’ fees when they add value to the class settlement.  Employers navigating class settlements, therefore, should account for objector fees in the settlement agreement. Failure to do so could result in an objector sandbagging the settlement by requesting fees later.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In a lawsuit brought by a plaintiff class action firm alleging that objectors to class action settlements violated both RICO and Illinois state law by filing frivolous objections in order to seek payouts, an Illinois federal court denied in part the Defendant objectors’ motion to dismiss, holding it had subject-matter jurisdiction to hear the dispute and that a claim seeking injunctive relief for the objectors’ unauthorized practice of law could proceed.

In the class action landscape, where serial objectors frequently frustrate the settlement process by requesting payouts in order to withdraw objections, this case is a must-read for employers and class action defense attorneys.

***

Case Background

In Edelson PC v. The Bandas Law Firm PC, No. 16-CV-11057, 2018 U.S. Dist. LEXIS 119305 (N.D. Ill. July 20, 2018), Plaintiff – a well-known class action plaintiffs’ law firm – alleged that Defendants regularly filed frivolous objections to class action settlements in order to leverage lucrative payoffs, and that as class action attorneys, they were forced to agree to the payoffs or else encounter significant delays in securing relief for class members. Plaintiff sued Defendants (who also included non-attorneys that allegedly aided the objector law firms by serving as class objectors) for violations of RICO and Illinois state law claims for abuse of process and the unauthorized practice of law, and further sought a permanent injunction under the All Writs Act. Id. at 2.

To say the least, Plaintiffs’ lawsuit is novel and a broadside attack on objectors.

Previously, on February 6, 2018, the Court granted Defendants’ motion to dismiss in part, and dismissed Plaintiff’s federal RICO claims for failing to allege predicate acts of racketeering. Id. The Court reserved judgment on Plaintiff’s state law claims, however, pending further briefing on whether it had subject-matter jurisdiction to hear them. In response to the Court’s order to show cause, Plaintiff argued that its state law claims were properly before the Court under either supplemental jurisdiction, 28 U.S.C. § 1367, or traditional diversity jurisdiction, 28 U.S.C. § 1332(a). In response, Defendant argued that supplemental jurisdiction was improper because Illinois courts remained open to Plaintiff and the putative class, and, further, that Plaintiff could not meet the $75,000 amount in controversy threshold required to bring the suit in diversity.

The Court’s Decision

The Court held that it had subject-matter jurisdiction to hear Plaintiff’s state-law claims, and granted in part and denied in part Plaintiff’s state law claims. First, the Court addressed Plaintiff’s argument that Illinois state courts were closed to many putative class members, and the Court therefore should retain supplemental jurisdiction to avoid unfair prejudice to the putative class as a whole. Id. at 10. The Court rejected this argument, noting that the Illinois Code of Civil Procedure provides that any plaintiff whose case is dismissed by a federal district court for lack of jurisdiction may refile his case in state court within one year, “whether or not the time limitation for bringing such action expires during the pendency of [the federal case].” Id. at 11. Accordingly, the Court held that the supplemental jurisdiction statute did not support continuing jurisdiction over Plaintiff’s remaining state-law claims.

Next, the Court addressed Plaintiff’s argument that the Court could hear its state-law claims under traditional rules of diversity jurisdiction, which require complete diversity of citizenship and an amount in controversy of more than $75,000. After dismissing several individual Defendants as dispensable parties, Defendants argued that in order for the Court to establish complete diversity, it must dismiss also dismiss any putative class members who are citizens of California or Texas — the states in which remaining the Defendants reside. The Court rejected this argument, noting it was “poorly founded” and that it “is black-letter law that the citizenship of putative class members is irrelevant for diversity purposes.” Id. at 13. After further finding that “there is no serious case to be made that Plaintiff has not put more than $75,000 in dispute,” the Court held that it had subject-matter jurisdiction to hear the merits of Plaintiff’s state law claims.

Turning to the merits of the state law claims, Plaintiff alleged that Defendants committed the common law tort of abuse of process by manipulating the class-action objection process to serve their own ends. Id. Noting that the tort abuse of process is narrow and disfavored by Illinois law, the Court explained that Plaintiff’s alleged injury — having to pay off Defendants to avoid litigating their objection — was insufficient to establish such a claim. As such, the Court dismissed Plaintiff’s abuse of process claim.

Plaintiff’s final claim sought an injunction against two of the Defendant attorneys for the unauthorized practice of law pursuant to the Illinois Attorney Act, alleging that the attorneys were ghostwriting the objections and coordinating sham mediation sessions despite not moving for pro hac vice admission or filing appearances in the case involving Plaintiff’s counsel where Defendants had objected. The Court explained that under the Illinois Attorney Act, other attorneys and law firms have standing to sue for such an injunction “[b]ecause the practice of law by an entity not licensed constitutes an infringement upon the rights of those who are properly licensed.” Id. at 18 (citation omitted). Defendants argued that this claim should have been brought in state court, and additionally argued that Plaintiff’s complaint technically did not argue that one Defendant was an unlicensed attorney. Id. at 18-20. The Court rejected these arguments, holding that federal courts could hear such claims, and that Defendants’ “clumsy attempt at linguistic gymnastics ignores the text of the . . . Illinois Attorney Act.” Id. at 21. Accordingly, the Court held that Plaintiff sufficiently stated a plausible claim for the unauthorized practice of law, and denied Defendants’ motion to dismiss this claim.

The Court concluded its opinion by opining it was “troubled by the fact that until now its decisions appear to leave Plaintiff and those similarly affected without an adequate remedy — and may fail to deter the Defendants from further rent-seeking [, and] that class counsel facing similar demands may be best served by calling the professional objector’s bluff and seeing the objector’s appeal through to its conclusion.” Id. at 22. But leaving a ray of optimism, the Court noted that the U.S. Supreme Court has recently transmitted an amendment of Rule 23 to Congress that, if effectuated, would require district court approval before any objector can withdraw an objection or appeal in exchange for money or other consideration.

Implications For Employers

Serial objectors to class action settlements have long frustrated employers and class action litigators by delaying the settlement certification process, and have especially enraged plaintiff-side class action attorneys who must decide whether to pay off the objectors or incur additional time and costs in fighting the objection. While Plaintiff’s RICO and abuse of process claims have now been dismissed in this case, the survival of the unauthorized practice of law clam is significant in that it could result in the Defendant serial objectors from being enjoined to engage in this practice in Illinois. It may also serve as a deterrent to other “professional objectors.”

As such, employers and class action attorneys should pay close attention to developments in this context, as this case and the U.S. Supreme Court’s potential amendment of Rule 23 will undoubtedly have an impact on the class action settlement objection practice that routinely impacts the cost of litigation.  

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  In the midst of a legal landscape that is seemingly pro-arbitration, employers should recognize that employees still have a few strategies to oppose arbitration or invalidate an arbitration agreement. The recent ruling of the U.S. District Court for the Northern District of California in Buchanan, et. al. v. Tata Consultancy Services, Ltd., 15-CV-01696 (N.D. Cal. Jul. 23, 2018), is a good reminder for employers that arbitration agreements are still susceptible to challenges like waiver and unconscionability. Employers faced with class actions involving a mix of class members who signed and did not sign arbitration agreements should be careful to preserve their right to enforce the agreements. 

At the same time, this decision in Buchanan is important because it held that a private, individual plaintiff is not entitled to rely on the pattern and practice burden shifting framework articulated in Teams Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977) – an issue that the Ninth Circuit has not yet addressed.

Background:

In Buchanan, et. al. v. Tata Consultancy Services, Ltd., No. 15-CV-01696 (N.D. Cal. Jul. 23, 2018), four plaintiffs sued Tata Consultancy Services, Ltd. (“TCS”), alleging disparate treatment under Title VII of the Civil Rights Act of 1964. Specifically, plaintiffs claimed that TCS, which is headquartered in India, maintained a pattern and practice of intentional discrimination in its United States workforce by favoring persons who are South Asian or of Indian National Origin. TCS provides consulting and outsourcing services, and plaintiffs claimed that TCS favored individuals who are predominately South Asian when assigning individuals to open client projects. After class certification briefing, the district court certified a class consisting of all individuals “who are not of South Asian race or Indian  nation origin who were employed by [CTS]  . . . and were terminated . . . .” Id. at 6.

After the class was certified, TCS brought a motion to bifurcate the claims of Plaintiff Buchanan from those of other plaintiffs and a motion to compel arbitration. The district court granted both motions.

The Decision

As a threshold matter, the district court held that Plaintiff Buchanan was not entitled to rely on the pattern and practice framework for proving employment discrimination under Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977). Buchanan was not a member of the class because, unlike the class, he was never employed by TCS. Under the Teamsters framework, the burden shifts to the employer to defeat a prima facie showing of a pattern or practice by demonstrating that the plaintiffs’ proof is either inaccurate or insignificant.

Although the Ninth Circuit has not addressed whether an individual private plaintiff may use the Teamsters framework, the district court held that pattern and practice method of proof is not available to private plaintiffs. “To allow this expansion of Teamsters,” the district court reasoned, “would ‘conflict with the Supreme Court’s oft-repeated holding . . . that ultimate burden of persuading the trier of fact that the defendant intentionally discriminated against plaintiffs remains at all times with the plaintiff.” Buchanan, et. al. v. Tata Consultancy Services, Ltd., at 8. Because Plaintiff Buchanan, as an individual private plaintiff, was subject to a different burden shifting framework than will govern the claims of the class, the district court concluded that bifurcating his claims from those of the class would avoid confusion at trial and support judicial economy.

As to TCS’s motion to compel arbitration, plaintiffs argued that TCS waived its right to demand arbitration and that the arbitration agreement contained impermissible waiver and unconscionable provisions. Addressing plaintiffs’ waiver argument, the district court concluded that although TCS waited until the fourth amended complaint to assert its right to arbitrate, TCS had notified plaintiffs of its intent enforce the agreement as soon as plaintiffs implicated a potential plaintiff to whom the agreement applied. Hence, the district court concluded that plaintiffs were on notice and granting TCS’s motion would not prejudice plaintiffs.

The district court similarly rejected plaintiffs’ contention that the arbitration agreement contained an impermissible prospective waiver of an employee’s federal anti-discrimination rights. The district court ultimately disagreed that Teamsters pattern and practice burden-shifting framework is a substantive right. The district court likewise rejected plaintiffs’ argument that the arbitration agreement was unconscionable because of a “selective[] overlay [of] a pro-Defendant subset of the Federal Rules of Civil Procedure. ” Id. at 14. Plaintiffs challenged the arbitration agreement because it did not provide employees the opportunity to file motions to strike or motions for judgment on the pleadings. The district court, however, concluded that these limitations did not rise to the level of unconscionability. It reasoned that “[m]otions to strike are disfavored . . . . and Motions for judgment on the pleadings are easily recast” into motions for summary judgment. Id.

Implication For Employers:

This case is a valuable reminder for employers with arbitration agreements that it is still best practice to avoid acting inconsistent with the right to arbitration, lest you supply plaintiffs with a waiver argument. Employers facing a class mixed with employees who signed and did not sign arbitration agreements should be careful preserve their right to enforce arbitration agreements. This may include notifying plaintiffs of the existence of the arbitrations agreement and your intent to enforce the agreement as soon as a plaintiff enters the case to whom the agreement is applicable.