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

Seyfarth Synopsis: Complex class actions often present a scenario in which some or most of the putative class members are subject to arbitration agreements, but the named plaintiff is not. In Gembarski v. PartsSource, Inc., No. 2018-0125, 2019 Ohio LEXIS 1639 (Ohio Aug. 14, 2019), the Supreme Court of Ohio concluded that because the defendant could not have raised an arbitration defense against the named plaintiff prior to class certification, such a defense did not have to be raised in the Answer. For this reason the defendant was not precluded from raising arbitration as a defense to class certification for putative class members.

Background

In Gembarski v. PartsSource, Inc., No. 2018-0125, 2019 Ohio LEXIS 1639 at 2 (Ohio Aug. 14, 2019), Plaintiff filed a class action complaint against his employer, PartsSource, alleging that the company improperly withheld commissions that he and other putative class members earned while working as account managers. PartsSource filed an answer to the complaint, denying any wrong-doing and denying that the suit could be maintained as a class action. Id. at 4.

Eventually, Plaintiff filed a motion to certify the case as a class action and PartsSource opposed the motion. Specifically, PartsSource argued that Plaintiff could not meet the typicality or adequacy requirements for class certification because, unlike members of the putative class, Plaintiff did not sign an arbitration agreement agreeing to arbitrate claims on an individual basis. PartsSource argued that Plaintiff’s interests were divergent from those putative members who were subject to an arbitration defense.  Id. at 5-6.

Plaintiff, however, argued that PartsSource had waived its arbitration defense because PartsSource had not asserted an “arbitration defense” in its answer prior to raising it at the class certification stage. Id. at *7. PartsSource countered that it never had a right to demand arbitration from Plaintiff and contended that it would have been premature to raise any argument related to arbitration prior to the class certification phase of the litigation. Id.

The Decision

The Ohio Supreme Court ultimately agreed with PartsSource, holding that, when a case originates with a single named plaintiff and that plaintiff is not subject to an arbitration agreement that was agreed to by unnamed putative class members, the defendant need not raise a specific argument relating to arbitration in the defendant’s answer.

The Supreme Court explained that “[a]rbitration as a defense to an action is a concept that is separate from arbitration as an attack on a plaintiff’s” satisfaction of the requirement to certify a class.  Id. at 12. Because PartsSource had no duty to raise with specificity a class certification argument in its Answer, such an argument was not waived by failing to raise it at that time. The appropriate time to raise such an argument was precisely when PartsSource did so: at the certification stage. Id. at 21.

Implication For Employers

The decision in Gembarski gives employers more time to investigate and contemplate unique defenses to class certification. However, the best practice for employers battling class actions is to raise arbitration as a defense in an answer, as that will altogether preclude plaintiffs from asserting a waiver argument. Outside of the potential for waiver, employers must be sure to investigate every potential avenue for defeating the class as early as possible in the case. Arbitration defenses and other similar defenses that can defeat class certification should be developed and flagged early in every class action.

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

Seyfarth Synopsis: In the latest battle of the multi-year showdown between the State of Texas and the EEOC – whereby Texas asserted that the EEOC’s 2012 “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII” (“Guidance”) interfered with its authority to limit the hiring of felons – the U.S. Court of Appeals for the Fifth Circuit affirmed most  parts of an injunction that the U.S. District Court for the Northern District of Texas entered in favor of Texas, which blocked the EEOC and the U.S. Department of Justice (“Defendants”) from enforcing the Guidance.  State of Texas v. EEOC et al., No. 18-10638, 2019 U.S. App. LEXIS 23498 (5th Cir. Aug. 6, 2019).

This ruling serves as a major roadblock for the EEOC in circumstances where the Commission attempts to infringe upon states’ rights by issuing an administrative guidance, and can further be considered a game-changer in the criminal background check litigation landscape.

* * *

Case Background

As we have blogged about extensively in the past (here, here, here, and here), in April 2012 the EEOC issued the Guidance citing data which suggested that blanket bans on hiring individuals with criminal records disproportionately impacted minorities.  Id. at *2.  Texas brought two causes of action against the EEOC after an individual who had been rejected for a State job filed a complaint with EEOC, challenging Texas’s no-felon hiring policy as having a disparate impact in violation of Title VII.  In the first cause of action, brought under the Declaratory Judgment Act (“DJA”), Texas asked for “a declaration of its right to maintain and enforce its laws and policies that absolutely bar convicted felons (or particular categories of convicted felons)” from specified jobs.  Id. at *7.  Texas also asked for an injunction that EEOC and the Attorney General “cannot enforce the interpretation of Title VII that appears in its Felon-Hiring Rule, nor . . . issue right-to-sue letters pursuant to that rule.”  Id.  In the second cause of action, brought under the Administrative Procedures Act (“APA”), Texas sought to set aside the Guidance, arguing that it exceeded the EEOC’s power under Title VII; was promulgated without notice and comment in violation of the APA; and was substantively unreasonable.

After the District Court dismissed the case for want of subject matter jurisdiction, a divided Fifth Circuit panel reversed, holding that Texas had Article III standing to challenge the Guidance, and that the Guidance was a final agency action eligible for judicial review under the APA.  Id. at *7-8.  However, the Fifth Circuit later withdrew its opinion, vacated the judgment, and remanded, noting that the District Court did not have a chance to apply the U.S. Supreme Court’s decision in United States Army Corps of Engineers v. Hawkes Co., 136 S. Ct. 1807 (2016), which held that the issuance of judicial determinations produced “legal consequences.”  Id. at *12.

On remand, the District Court denied the EEOC’s renewed motion to dismiss for lack of jurisdiction, and following cross-motions for summary judgment, the District Court dismissed Texas’s DJA claim, “declin[ing] to declare that Texas has a right to maintain and enforce its laws and policies that absolutely bar convicted felons (or certain categories of convicted felons) from serving in any job the State and its Legislature deems appropriate.”  Id. at *8-9.  The District Court also declined to enjoin the EEOC from issuing right-to-sue letters.  Regarding the APA claim, the District Court granted Texas’s motion for summary judgment in part and denied the EEOC’s motion, holding “that the Guidance . . . is a substantive rule issued without notice and the opportunity for comment.”  Id.  As such, the District Court enjoined both the EEOC and the Attorney General from enforcing the EEOC’s interpretation of the Guidance against the State of Texas until the EEOC complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.  The District Court did not reach the questions of whether the EEOC has the power to promulgate a substantive rule interpreting Title VII, or whether the Guidance was substantively unreasonable.  The EEOC appealed, and Texas cross-appealed.

The Fifth Circuit’s Decision

In its recent ruling, the Fifth Circuit affirmed the District Court’s injunction, and vacated and dismissed Texas’s DJA claim.  Id. at *32.  First, the Fifth Circuit noted that it must decide two jurisdictional issues, including: (1) whether the Guidance was a final agency action subject to review; and (2) and whether Texas had standing to challenge the Guidance.  Id. at *9.  Regarding whether the Guidance was a final agency action, the Fifth Circuit noted that whether an action binds the agency is evident “if it either appears on its face to be binding[] or is applied by the agency in a way that indicates it is binding,” and further, that courts have looked for mandatory language to determine whether an agency’s action binds it and accordingly gives rise to legal consequences. Id. at *11 (citation omitted).

After conceding that the Guidance binds the EEOC staff to an analytical method in conducting Title VII investigations and directs their decisions about which employers to refer for enforcement actions, Defendants argued that legal consequences did not flow from the Guidance for three reasons.  First, Defendants argued that because EEOC had no power to bring a Title VII enforcement action against Texas, its Guidance has no legal consequences for the State.  Citing Hawkes, the Fifth Circuit rejected this argument, noting that legal consequences may flow from an “agency action even if “no administrative or criminal proceeding can be brought for failure to conform” to the action.  Id. at *16 (citation omitted).  Second, the EEOC argued that any legal consequences flow from Title VII, not the Guidance, because the Guidance’s interpretation of Title VII disparate impact liability has force of law only if a court presiding over an enforcement action agrees with the Guidance. The Fifth Circuit rejected this argument, holding whether the agency action binds the agency indicates whether legal consequences flow from that action.  d. at *18. Third, Defendants argued that the Guidance does not, and could not, create a safe harbor guaranteeing that the Attorney General will not sue an employee.  The Fifth Circuit also rejected this contention, explaining that whether the Guidance is final agency action does not hinge on whether a private or public employer challenges it, and that such an approach “would flout the Supreme Court’s repeated instruction to approach finality flexibly and pragmatically.”  Id. at *19. The Fifth Circuit thus held that the Guidance was a final agency action that it had jurisdiction to review.

Next, the Fifth Circuit addressed whether Texas had standing to sue the EEOC and the Attorney General to challenge the legality of the Guidance.  As the party invoking federal jurisdiction, the Fifth Circuit opined that Texas must establish Article III standing by showing that it has suffered an injury that is “concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling.”  Id. at *20.   The Fifth Circuit held that because it was the object of the Guidance and had suffered multiple injuries as a result, Texas had constitutional standing.  In reaching this conclusion, the Fifth Circuit held that the Guidance deemed unlawful the hiring practices of multiple Texas agencies by rejecting across-the-board felon hiring screens, and it faced the possibility of investigation by EEOC and referral to the Attorney General for enforcement proceedings if it failed to align its laws and policies with the Guidance.  Id. at *21-22.

After finding that it had jurisdiction, the Fifth Circuit further addressed Defendants’ challenges to the scope and phrasing of the injunction.  Texas contended that the EEOC lacked power to promulgate the Guidance at all, and that instead of barring enforcement until the Guidance goes through notice and comment rulemaking, the District Court should have enjoined Defendants from treating the Guidance as binding.  Id. at *28-29.  The Fifth Circuit agreed that the Guidance was a substantive rule subject to the APA’s notice-and-comment requirement and that EEOC thus overstepped its statutory authority in issuing the Guidance, a conclusion that “follow[ed] naturally from its holding that the Guidance is a final agency action.”  Id. at *29-30.  However, the Fifth Circuit noted that the notice-and-comment aspect implied that the Guidance would stand if it went through that rulemaking process, which is used to promulgate substantive rules.  Accordingly, because the Guidance was a substantive rule, and the text of Title VII and precedent confirm that EEOC lacks authority to promulgate substantive rules implementing Title VII, the Fifth Circuit modified the injunction by striking the clause “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.”  Id. at *30.

Finally, the Fifth Circuit clarified that because an injunction must be framed so that those enjoined will know what conduct the court has prohibited, “to avoid any confusion,” it modified, “the injunction to clarify that EEOC and the Attorney General may not treat the Guidance as binding in any respect.”  Id. at *31.  In addition, the Fifth Circuit declined to consider the merits of Texas’s DJA claim since it affirmed the injunction.

Implications For Employers

This victory is a feather in the cap for state employers relative to the EEOC’s attempt to use an administrative guidance as a means to challenge state law.  Although many of the legal battles in this showdown between the State of Texas and the EEOC have involved heavy doses of procedure, this ruling provides an excellent blueprint for how to attack the EEOC when it promulgates substantive rules implementing Title VII, and those rules condemn state law.

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

 

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

Seyfarth Synopsis:  After a federal magistrate judge in California ordered the EEOC to provide written discovery responses relative to the substance its pre-suit investigation of a sex discrimination charge in EEOC v. Chipotle Mexican Grill, Inc., No. 17-CV-5382, 2019 U.S. Dist. LEXIS 129046 (N.D. Cal. Aug. 1, 2019), the EEOC objected to the order and sought review; thereafter, the district judge granted EEOC’s motion for relief from the magistrate judge’s order. The Court found that the requested evidence was protected by the deliberative process privilege, and therefore, that the EEOC did not have to respond to the discovery request.

For employers who are defending against EEOC-initiated litigation, this ruling serves as yet another roadblock in terms of seeking discovery regarding the Commission’s pre-suit investigation.

* * *

Case Background

A former employee filed a charge against Chipotle alleging he was subjected to sexual harassment, retaliation, and discharge.  Id. at *1-2. Before filing suit, the EEOC issued to Chipotle a determination finding reasonable cause to believe that it violated Title VII.  In the course of discovery, the parties agreed to provide written responses to each other’s 30(b)(6) deposition notices instead of producing witnesses.  The EEOC did not substantively respond to five of these topics (Topics 10-14), invoking in part the governmental deliberative process privilege in response to each.  The EEOC argued that Chipotle was not entitled to the requested information because “[t]he substance of the EEOC pre-suit investigation is not judicially reviewable” and therefore not relevant, and that the information was protected by the deliberative process privilege. Id. at *2-3.

Magistrate Judge van Keulen sided with Chipotle and ordered the EEOC to respond to Topics 10–14. Specifically, the Magistrate Judge found that Chipotle sought only “the determinative facts and evidence that support the specific findings of the EEOC,” and that they did “not seek any privileged information.” Id. at *3. The Magistrate Judge surmised that in making its Determination, the EEOC likely “(1) conducted an investigation; (2) identified relevant facts; (3) evaluated those facts; and (4) reached its conclusions.” Id. The Magistrate Judge held that Topics 10–14 were targeted only at the “identified relevant facts” step and not at the EEOC investigation of or evaluation of those facts. Id. The Magistrate Judge concluded that “[t]he EEOC has not identified a privilege that protects the facts that support findings because there is none.” Id. The Magistrate Judge thus ordered the EEOC to respond to these topics. Thereafter, the EEOC filed its motion for relief from a non-dispositive pretrial order of the Magistrate Judge.

The Court’s Decision

The Court granted the EEOC’s motion for relief from a non-dispositive magistrate judge order, and held that the EEOC was not required to respond to Topics 10-14. First, the Court addressed the EEOC’s argument that the Magistrate Judge’s order was contrary to law because Chipotle requested topics seeking information that was protected by the deliberative process privilege.  The Court explained that the deliberative process privilege shields from disclosure intra-governmental communications relating to matters of law or policy, and that its purpose is to protect the quality of governmental decision-making by “maintaining the confidentiality of advisory opinions, recommendations, and deliberations comprising part of a process by which governmental decisions and policies are formulated.” Id. at *4 (citations and quotations omitted). The Court thus held that the Magistrate Judge failed to apply this law by apparently failing to consider whether the sought “factual material was so interwoven with the deliberative material that it was not severable.” Id. at *5.

Turning to the Magistrate Judge’s holding that no privilege “protects the facts that support findings,” the Court held this was an incorrect statement of law. Id. Citing the relevant case law, the Court noted that the deliberative process privilege protects facts if they are “so interwoven with the deliberative material” that “the unveiling of factual materials would be tantamount to the publication of the evaluation and analysis of the multitudinous facts conducted by the agency.” Id. Because the Magistrate Judge did not consider whether revelation of the “identified relevant facts” would be tantamount to revelation of the deliberative process, the Court held that her holding was contrary to law.

Next, the Court addressed Chipotle’s request that the EEOC explicitly disclose only those facts that underpin the determinations, and implicitly to exclude those facts that were not pertinent to the decision. The Court rejected this approach, holding that by disclosing the facts on which it based its conclusions, EEOC would be required to provide Chipotle unwarranted insight into how those facts played into the EEOC’s decision-making process, and that the deliberative process privilege protects such a disclosure. 

Having found the deliberative process privilege may apply, the Court then analyzed whether Chipotle nevertheless demonstrated that disclosure of the materials was warranted.  Noting that the deliberative process privilege was a qualified privilege, the Court applied the Ninth Circuit’s four non-exclusive factors that courts may consider in determining whether the litigant has met this requirement: “(1) the relevance of the evidence; (2) the availability of other evidence; (3) the government’s role in the litigation; and (4) the extent to which disclosure would hinder frank and independent discussion regarding contemplated policies and decisions.”  Id. (citation omitted).  The Court held that disclosure was not appropriate under this multi-factor balancing test because, perhaps most importantly, the evidence sought was not relevant to this case.  Further, the Court opined that relevant evidence was available to Chipotle through other avenues, including through produced documents from and investigative file, interview notes for four witnesses, and deposition testimony of the interviewees.

Accordingly, the Court held that although “this litigation is serious and the Government is a litigant in the case, these factors do not tip the balance in favor of disclosure given that the requested evidence is irrelevant with respect to the claims and that forcing EEOC to disclose its deliberative process in cases such as this might chill administrative officers from conducting a fulsome investigation in such circumstances.” Id. at *7.The Court thus granted the EEOC’s motion for relief from a non-dispositive magistrate judge order, and held that the EEOC was not required to respond to Topics 10-14.

Implications For Employers

For employer who are embroiled in EEOC-initiated litigation, the discovery process can be challenging in regards to unearthing evidence from the EEOC’s pre-suit investigation. This ruling will not make that task any easier, and the Commission will almost certainly use it in future discovery-related briefing.

Nonetheless, the Court did provide employers with some alternative avenues to discover facts about the EEOC’s pre-suit investigation, for instance, by requesting interview notes and subsequently deposing the interviewees. Employers should thus be creative when crafting discovery strategies in EEOC-initiated litigation.

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

 

By Gerald L. Maatman, Jr., Thomas E. Ahlering and Andrew R. Cockroft

Seyfarth Synopsis: While most employers are likely familiar with the Illinois Biometric Information Privacy Act (“BIPA”), they should know that Illinois is not the only state with a biometric privacy law and many other states are not far behind from joining that group.  In addition to states with existing biometric privacy laws (Illinois, Texas, and Washington), various state legislatures are considering similar (often-times identical) statutes. As a result, employers should take account of this patchwork quilt of laws in their compliance activities.

Since 2018, employers operating in Illinois have become well accustomed to recent flurry of class actions involving the Illinois Biometric Information Privacy Act (“BIPA”).  Following the Illinois Supreme Court’s decision in Rosenbach v. Six Flags Entertainment Corp., 2019 Ill. Lexis 7 (Ill. Jan. 25, 2019), there has been a sharp rise in cookie-cutter claims alleging violations of the BIPA with often no concrete injury even alleged.  Though there are current legislative efforts that could potentially curtail the prevalence of lawsuits under the BIPA, Illinois employers should be aware that non-compliance could expose employers to potential damages of $1,000 or $5,000 for each employee relating to improper collection of biometric information or biometric identifiers.

 

However, employers in other states also should be aware that the BIPA-craze is not isolated to Illinois.  Indeed, at least two other states have biometric privacy statutes on their books right now (Washington and Texas) and nearly a dozen more have considered implementing statutes like the BIPA.  Though all of these statutes in some way prohibit the collection of biometric information and/or biometric identifiers, only some are like the BIPA in that they contain a private right of action and apply to the collection of biometric information or identifiers in an employment context.

In particular, employers in Alaska, Michigan, and New York (as well as employers based solely in New York City) should be aware that these respective legislative bodies are considering statutes nearly identical to the BIPA.  Similarly, employers should monitor the current efforts to expand the private right of action in the California’s Consumer Privacy Act (“CCPA”).  Should the California legislature allow private individuals to sue for the violations of every one of the CCPA’s various requirements, California could become the “new Illinois hotbed” in biometric privacy litigation.

Set forth below we have grouped each state’s respective biometric privacy law based on whether it is: (1) current law; (2) signed, but not yet effective; (3) pending in the legislature; or (4) introduced in the legislature, but has since died.

Current Biometric Privacy Laws In Other States

Texas – The Texas Biometric Privacy Act prohibits the “capture” of biometric identifiers for a “commercial purpose” without notice and consent.  The Act defines “biometric identifiers” as specifically “a retina or iris scan, fingerprint, voiceprint, or record of hand or face geometry.” “Commercial purpose” is left undefined in the statute.  The law does not define whether notice and consent must be done in writing.  Only the attorney general can bring suit for violations of the Act.  Each violation is subject to a civil penalty of up to $25,000.

Washington – Washington prohibits the collection and use of biometric identifiers for commercial purposes without notice and consent.  Unlike Texas’s law, Washington restricts the “enrollment” of biometric identifiers, which is defined as “capturing” a biometric identifier or “convert[ing] it into a reference template.” The law does not define whether notice and consent must be done in writing.  However, notice and consent provisions do not apply to data collected for “security purposes” (i.e. stored for “the purpose of preventing shoplifting, fraud, or any other misappropriation or theft of a thing of value”).  The law does not have a private right of action to allow for suits by individual plaintiffs.  Instead, only the Washington Attorney General can enforce the requirements.

Signed, But Not Yet Effective, Biometric Privacy Laws in Other States

Arkansas – On April 15, 2019, Governor Asa Hutchinson signed HB1943 and the bill goes into effect on July 23, 2019.  The bill amends Arkansas’ Personal Information Protection Act (“PIPA”) by adding “biometric data” into the definition of “personal information” protected by the PIPA. “Biometric data” is defined as “fingerprints, faceprint, a retinal or iris scan, hand geometry, voiceprint analysis, DNA, or any other unique biological characteristics of an individual if the characteristics are used by the owner or licensee to uniquely authenticate the individual’s identity when the individual accesses a system or account.”

If a breach affects 1,000 or more individuals and the data owner is required to report the breach to individuals under the PIPA, then the data owner must disclose the security breach to the Arkansas Attorney General.  Additionally, businesses that suffer a security breach must retain a copy of the written determination of the breach, as well as any supporting documentation, for five years from the date of determination of the breach.  However, the determination and documentation are to remain confidential and are not subject to public disclosure.  Crucially, the bill does not contain a private right of action.

California – On June 28, 2018, California passed the California Consumer Privacy Act (“CCPA”) which will become effective January 1, 2020.  “Biometric information” is included under the definition of “personal information” protected by the statute.  Under the CCPA, biometric information is “an individual’s physiological, biological or behavioral characteristics, including . . . iris, retina, fingerprint, face, hand, palm, vein patterns, and voice recordings, from which an identifier template, such as a faceprint, a minutiae template, or a voiceprint, can be extracted, and keystroke patterns or rhythms, gait patterns or rhythms, and sleep, health, or exercise data that contain identifying information.”

The CCPA requires companies make certain disclosures to consumers via their privacy policies, or otherwise at the time the personal data is collected. As currently drafted, the CCPA has a limited private right of action which allows individuals to sue for statutory damages of $100 to $750 per violation if one’s personal information is “subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’ violation of the duty to implement and maintain reasonable security procedures and practices appropriate to the nature of the information to protect the personal information.” For all other violations, the CCPA provides that only the Attorney General may sue to recover civil penalties, with the recovery of those penalties to be earmarked for a new consumer privacy fund designed to offset the Attorney General’s and courts’ additional costs in enforcing the CCPA.

However, the state of the finalized CCPA is still in flux — particularly in two respects of utmost importance: (1) the expansiveness of the CCPA’s private right of action; and (2) the CCPA’s application to employers.  Recently, an amendment providing for a sweeping private right of action failed to get out of committee.  Additionally, another bill is pending that is seeking to exclude information relating to employees from the scope of the CCPA and seeks to narrow the definition of “consumer” to exclude employees.

We recommend keeping an eye on these two developments relating to the CCPA moving forward as they are crucial to employers’ compliance efforts.

Pending Biometric Privacy Laws in Other States

Alaska – Alaska’s biometric privacy bill, H.B. 72 mirrors the BIPA in providing a private right of action and statutory damages of between $1,000 and $5,000 depending on the type of violation.  H.B. 72 also requires employers to provide individuals notice of the collecting entity’s biometric privacy practices and obtain written consent.  Unlike the BIPA, however, H.B. 72 does not explicitly allow employers to make consent to the collection of biometric information a condition of employment.  The bill has been pending since 2017, however, and it still remains in committee.

Arizona  – On January 22, 2019, HB 2478 was introduced in Arizona’s legislature.  HB 2478 does not include a private right of action, however, the bill would prohibit businesses from capturing, converting, or storing an individual’s biometric identifier in a database for a “commercial purpose” unless (1) it provides “a mechanism to prevent the subsequent use of a biometric identifier for a commercial purpose; or (2) advance notice [is] provided and consent [is] obtained from the individual.”

Massachusetts – Massachusetts’ proposed legislation, Bill SD.341, “an Act relative to consumer data privacy,” is still in committee.  However, employers should be aware that this bill as currently written does not apply to “business[es] collecting or disclosing personal information of the business’s employees so long as the business is collecting or disclosing such information within the scope of its role as an employer.”

Michigan – Michigan’s biometric privacy law, House Bill No. 5019, is still in committee after being introduced in September 2017.  The text of the bill is nearly identical to the BIPA, and includes a private right of action.

New Hampshire – Though a BIPA-like law has not been introduced since 2017, there have been more recent attempts at prohibiting the collection of biometric information.  This year, HB 536 was introduced seeking to add two new provisions to New Hampshire’s Consumer Protection Act making it unlawful to “Obtain[], us[e], disclos[e], or retain[] biometric information about an individual with whom the person is engaged in trade or commerce for any purpose other than that which the individual reasonably expects.” If the amendment is successful, such a provision can only be enforced by New Hampshire’s Consumer Protection and Antitrust Bureau.

New York – New York has two different biometric privacy bills pending in their legislature.  On January 11, 2019, NY SB 1203 was introduced for the third time in just as many years.  Like the bill pending in Michigan, the text of the New York bill is nearly identical to the BIPA, and includes a private right of action.

Another bill, S5642, is similar to California’s Consumer Privacy Act, though it’s private right of action allows individuals to bring suit for unlawful disclosure of biometric information as well as the unlawful collection of biometric information.  Unlike California’s law, however, S5642 does not apply to the collection of personal information in the employment context.  “Consumer” as defined in the bill “does not include an employee or contractor of a business acting in their role as an employee or contractor.”

New York City – On October 17, 2018, Bill Int. No. 1170 was introduced seeking to amend Section 1, Chapter 5 of Title 20 of the Administrative Code of the City of New York.  While the bill contains some similar provisions to the BIPA, including a private right of action, and avoids the statutory standing issues by providing that “any person who[se] biometric identifier information was collected, retained, converted, stored or shared in violation of [the law] may commence an action,” the bill as written only applies to the collection of biometric identifier information of “customers” defined as “a purchaser or lessee, or a prospective purchaser or lessee, of goods or services from a commercial establishment.” The bill has yet to be presented before a committee.

Introduced Biometric Privacy Laws In Other States Which Did Not Pass

Delaware – Delaware’s biometric privacy bill, DE HB350, was introduced in March 2018 and remains pending.  Though individuals must be provided notice and give consent prior to the collection of their biometric information, unlike the BIPA, the law does not mandate consent be in writing.  The bill as written may only be enforced by the Delaware Consumer Protection Unit. As of this writing, the bill is dead.

Florida – On March 5, 2019, the “Florida Biometric Information Privacy Act” (SB 1270)  was introduced in the Florida legislature.  The statute generally follows the text of the BIPA regarding notice and consent requirements, a private right of action and the availability of statutory damages.  As of the date of publication, the bill has died in committee.

Montana – Montana has actually had two failed attempts at passing BIPA-like legislation.  On February 17, 2017, the “Montana Biometric Information Privacy Act” (HB 518) was introduced in the Montana legislature.  Like the BIPA, HB 518 requires written notice and consent before biometric data or information may be collected and also provides for a private right of action. However, the bill has died in committee.  On March 1, 2018, an act of the same name was introduced as HB 645 with the private right of action removed and leaving enforcement to the state’s attorney general.  This too died in committee.

New Hampshire – New Hampshire last considered a BIPA-like law in 2017 following the introduction of HB 523.  The bill is similar to the BIPA in its notice and consent requirements. However, the bill made it unlawful to refuse to employ someone who declined to consent to the collection of their biometric information.  Nevertheless, the bill, died in committee.

Best Practices For Compliance

Though many of these statutes have not made it passed committee, much less passed, it is still important to get ahead while it is costs far less than the potential class action lawsuit.  Accordingly, it is critical for employers in these jurisdictions to:

  • Have a written policy relating to the collection, storage, and retention of biometric information stating the business’s retention schedule for the data and the rules governing its destruction;
  • Obtain written consent from employees who are using technologies that collect or capture biometric information;
  • Take steps ensure that neither the company nor any vendor storing biometric data on the company’s behalf sells or discloses the data;
  • Implement security protocols for the protection of biometric data; and
  • Have appropriate provisions in vendor contracts ensuring they comply with existing laws and that the company may retain the right to request information and have the right to be notified in the event of a suspected breach.

Compliance is key, and there no better time to think about your company’s biometric privacy compliance than right now.  Businesses with compliance questions should contact a member of Seyfarth Shaw’s Biometric Privacy Compliance & Litigation Practice Group.

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

Seyfarth Synopsis: Over the last few years, Illinois companies have quickly become aware of the risks associated with the state’s unique biometric privacy law. Originally passed in 2008, the Illinois Biometric Information Privacy Act (“BIPA”) made Illinois the first state to enact a policy governing the collection and storage of biometric data resulting in a surge of class action lawsuits filed by employees and consumers alleging that their biometric data was improperly collected for timekeeping, security, and consumer transactions. While filing activity under the statute remained silent for nearly a decade following its enactment, the recent explosion of class actions in Illinois under the BIPA has since made biometric privacy compliance a top priority for many employers. In today’s blog, we examine this novel class action trend and provide a comprehensive analysis of the class action filing history of claims under the BIPA including the volume of class action filings, a breakdown of jurisdictions in which class actions are filed, who is filing, and the primary industries facing class actions.

Background Of The BIPA

As biometric technology has become more practical and affordable, businesses have gradually begun to utilize these innovative tools for various beneficial purposes, such as implementing biometric time clocks to prevent “buddy punching,” facilitate consumer transactions, and for restricting access to secure areas. Accordingly, the BIPA was enacted by the Illinois state legislature as a reaction to the increased use of biometric technology due to the sensitive nature of biometric identifiers and associated data.

The BIPA regulates the collection, capture, and storage of “biometric identifiers,” such as fingerprints, voiceprints, retina/iris scans, and scans of hand or face geometry. Specifically, the statute prohibits an entity from collecting biometric information unless it first: (1) informs individuals in writing that his or her biometric data is being captured; (2) outlines the purpose and period of time for which the data will be utilized; and (3) receives a written release from individuals consenting to the collection. Outside of these guidelines, the BIPA also includes regulations requiring a compliant, publically-available written policy, prohibits disclosure of biometric data to third-parties absent consent, and mandates a “standard of care” that businesses must adhere to in protecting biometric data.

While other states have also implemented biometric privacy statutes, the BIPA is unique because it provides a private right of action, and therefore allows plaintiffs to recover liquidated damages and attorneys’ fees for violation of the statute. Under the BIPA, “[a]ny person aggrieved by a violation” can recover “liquidated damages of $1,000 or actual damages, whichever is greater” for negligent violations, and “liquidated damages of $5,000 or actual damages, whichever is greater” for intentional or reckless violations.

Since the BIPA was the first biometric privacy statute of its kind, there were still a few important questions to be answered regarding the interpretation of the law. Namely, the most pressing threshold issue was whether individuals need to sustain actual damages in order to qualify as a “person aggrieved” in order to asserts claims under the BIPA. As we blogged HERE, this question was answered in the negative by the Illinois Supreme Court in Rosenbach v. Six Flags Entertainment Corp., 2019 IL 123186 (Ill. Jan. 25, 2019). In Rosenbach, the Illinois Supreme Court held that a person does not need to allege any actual injury or adverse effect, beyond technical violations of the statute in order to state a claim.

Analysis Of Class Action Filing Trends Under The BIPA

Despite the BIPA being enacted in 2008, the first class action under this law was not filed until 2015. Though this filing drew some attention to Illinois’ unique statute governing biometric data, filing activity under the statute remained minimal until approximately 2017. As indicated in the graphic below, there were only a total of 15 class actions filed in Illinois under the BIPA from 2008 through 2016. However, filings have since increased at an exponential and rapid pace. Most notably, the approximately 161 class actions filed already in 2019 (as of the date this blog was published) more than doubles the total number from 2017, and filings have increased approximately 27 times from the total filings a mere four years ago.Perhaps the most striking trend of all is the substantial increase in class action filings under the BIPA since the Illinois Supreme Court’s decision in Rosenbach. Since this decision was issued on January 25, 2019, there have been a total of 151 class actions under the BIPA filed in Illinois – approximately a rate of an additional case filed every day. In fact, in just 148 days following the Rosenbach decision, the Illinois plaintiff’s bar filed nearly as many class action lawsuits under the BIPA as it did during a 10-year span prior to the decision. The pie graph below offers a visual account of this prompt spike in litigation activity. It has become clear to all Illinois businesses utilizing biometric technology that the plaintiff’s bar views the Rosenbach decision as a “door-opener” for class action filings under the BIPA.

 

In terms of jurisdiction, the large majority of class actions are filed in the Circuit Court of Cook County – a traditionally plaintiff friendly jurisdiction. In fact, approximately 82% of filings have been initiated in Cook County. The next most popular jurisdiction is the U.S. District Court for the Northern District of Illinois. However, this federal court represents a distant second to the Circuit Court of Cook County, accounting for just 4% of all class action filings under the statute. While the plaintiff’s bar has filed biometric privacy class actions in a total of nine different courts, the BIPA is, by all accounts, being primarily litigated in the Circuit Court of Cook County.

With the rising number of filings in Illinois, the plaintiff’s class action bar have been staying busy and some plaintiff’s class action firms have carved out a niche in this arena. As indicated below, three firms alone account for more than half of all class actions file under the BIPA in Illinois.

Finally, it is important for employers to know which types of businesses are commonly targeted in these types of biometric privacy cases. As the bar graph below demonstrates, there is no clear target of class actions in terms of industry. One of the most targeted industry of class actions under the BIPA is the business services industry, which includes all companies designed to service other businesses, such as those performing staffing, logistics, or janitorial services. The healthcare industry is also a popular BIPA class action target, and the manufacturing and retail industries are not far behind. Furthermore, though the filing numbers are not as large, the software and technology industry is also notable because it includes many businesses who produce, maintain, or sell the types of timekeeping software at issue.

Best Practices For Compliance

Given the rising class action litigation activity, businesses must proactively implement biometric privacy compliance measures. First and foremost, companies utilizing biometric technology must obtain written consent from individuals prior to storing or collecting their biometric data. This action alone resolves some of the core privacy issues at issue in many biometric privacy class actions. Additionally, companies must maintain a publically-available written policy stating the company’s retention and destruction schedule for all biometric data. Companies should also take steps to ensure that biometric data is not sold or disclosed to third parties by implementing security guidelines for the protection of individuals’ biometric data and ensuring that company vendors provide the same level of data protection, if not higher, than that of the business.

Compliance is key, and there no better time to think about your company’s biometric privacy compliance than right now. Businesses with compliance questions should contact a member of Seyfarth Shaw’s Biometric Privacy Compliance & Litigation Practice Group.

By David J. Rowland, Jennifer A. Riley, Uma Chandrasekaran, and Michael D. Jacobsen

Seyfarth Synopsis: Google’s recent travails with simultaneous traditional and “reverse” discrimination claims signal a new era of dynamic employment discrimination risk.  Employers will be wise to consider the push and pull legal effect of diversity and inclusion programs, pay equity reviews, and other well-intended efforts.   

Although employment discrimination claims are a familiar risk to most employers, a growing wave of lawsuits alleging “reverse discrimination” is adding a layer of complexity in this area.  The potential exposure arising from these lawsuits makes them just as much “bet-the-company” endeavors as many traditional discrimination claims.  Moreover, they represent a way that well-intentioned efforts by employers to combat more traditional notions of discrimination can backfire.  Meanwhile, traditional claims of discrimination are not going away.  As a result, many of the most prudent and egalitarian employers may feel trapped in “no-win” situations.

To illustrate, we examine the issues that household-name and tech industry giant Google has faced in recent years. As Google’s story shows, it is crucial that businesses monitor and understand how to manage this swiftly emerging “dynamic discrimination risk,” which has already seen many companies get blindsided with innovative and eyebrow-raising lawsuits.

Understanding The Issue

“Reverse discrimination” refers to discrimination in the terms, conditions, and privileges of employment against members of “historically advantaged” groups on the basis of race, color, national origin, sex, religion, or other status protected under Title VII of the Civil Rights Act of 1964.  Thus, while the commonly-used term “reverse discrimination” may suggest something else, the Equal Employment Opportunity Commission, takes the position, endorsed by most courts, that reverse discrimination is discrimination, plain and simple, and prosecutes claims for reverse discrimination under the same standards it uses to pursue discrimination claims brought on behalf of members of minority or historically disadvantaged groups.  This is not a new phenomenon in the U.S. workplace.  Private litigation alleging reverse discrimination claims has been expanding, however, over the past decade, garnering substantial damages awards against employers.

Google’s Gauntlet

On One Side…
In January 2017, the Office of Federal Contract Compliance Programs (“OFCCP”) filed a lawsuit against Google to compel the company to produce historical employee-compensation data as part of an affirmative action compliance audit.  In justifying its need for the information, OFCCP disclosed that it had identified evidence of systematic pay disparities against Google’s female employees when examining salary information from 2015 and needed to dig further back in time to assess the claims.  During the proceedings, OFCCP officials claimed that the apparent “discrimination against women in Google is quite extreme, even in this industry,” and stretched “pretty much across the entire workforce.”  Google responded by pointing to its annual pay analysis, which it claimed revealed no gender pay gap.

But the knives were out.  As Seyfarth’s Pay Equity Group previously reported, later that year, Google was hit with a class action lawsuit claiming discrimination under the California Equal Pay Act.  Citing to the OFCCP’s analysis, the complaint alleged that Google discriminated against its female employees by systematically paying them less than their male peers for performing substantially similar work under similar working conditions.  The plaintiffs further alleged that Google assigned and kept women in job ladders and levels with lower compensation ceilings and advancement opportunities than those to which men with similar skills, experience, and duties were assigned, and that Google promoted fewer women – and promoted them more slowly – than similarly-qualified men.  Currently, the case is approaching class certification briefing, with a putative class of approximately 8,300 women who have worked for Google in California since 2013.

Not long after, in early 2018, Google was hit with another gender discrimination suit in California Superior Court.  This time, the plaintiff alleged that Google delayed in hiring her so that it could hire a white male for the position instead.  Google was able to dispose of the lawsuit quickly, with the court granting a joint stipulation to dismiss the case just a couple of months after it was filed so that the parties could proceed to arbitration.  However, the Company did not have any time to catch its breath, as it already was facing a new obstacle.

…And On The Other
In January 2018, while Google was dealing with these conventional legal woes, a pair of reverse discrimination lawsuits struck.

As Seyfarth reported in the first case, two former employees alleged that Google engaged in discrimination, except this time, the claim was that white, conservative males were impacted.  Specifically, the plaintiffs alleged that employees who deviated from the “majority view” at Google regarding issues such as “‘diversity’ hiring policies, ‘bias sensitivity,’ or ‘social justice,’” were singled out, mistreated, and systematically punished and terminated from the Company.  The plaintiffs further alleged that “open hostility” to conservative viewpoints  resulted in race and gender-based discrimination in hiring, promotion, and termination decisions because of the “extreme” lengths to which Google went in considering race and/or gender as determinative hiring factors, all to the detriment of white males.  The case was brought on behalf of proposed classes of all employees of Google who had been discriminated against due to their “male gender” and/or “Caucasian race,” as well as their “perceived conservative political views” in California at any time going as far back as 2014.

Perhaps most striking about the lawsuit was that the plaintiffs highlighted several of Google’s efforts to promote diversity within its workforce as evidence of alleged bias.  For instance, the complaint recounted a “Diversity and Inclusion Summit” during  which Google allegedly presented on some of its diversity policies and practices that included affording female and minority job applicants “extra interviews” and a “more welcoming environment based on their race or gender” followed by placing these job candidates into “high priority queues” to increase the likelihood and speed with which they would be hired.  Additionally, the plaintiffs supported their allegations by pointing to an online and in-person “diversity training class” that addressed biases against women and “white male privilege” in the workplace.

In the second reverse discrimination action, filed just a few weeks after the first, the plaintiff had worked as a recruiter for Google’s YouTube “tech staffing” management team.  The plaintiff alleged that for several years Google had “implemented clear and irrefutable policies . . . of systematically discriminating in favor of job applicants who are Hispanic, African American, or female, and against Caucasian and Asian men.”  Notably, the plaintiff also claimed that these policies were designed “to manage public relations problems arising from the underrepresentation of women and certain minority groups in the Google workforce.”  The plaintiff further alleged that Google’s policy documents declared that “only individuals who were ‘diverse’” would be hired for certain positions, and that Google not only “carefully track[ed] the race and gender of each applicant” and based its hiring decisions on those criteria but even went so far as to instruct its employees “to purge entirely any applications by non-diverse employees from the hiring pipeline.”

Currently, both of these lawsuits are stayed in whole or in part pending arbitration.  However, on June 7, 2019,  the court denied Google’s demurrer seeking to dismiss supplemental claims (that were not stayed) alleging that Google systematically discriminates against conservatives in its hiring practices.  These back-to-back reverse discrimination actions – hitting at a time when Google was reporting that almost 70% of its workforce was male and 91% was Caucasian or Asian and already had two lawsuits and a OFCCP investigation alleging discrimination against women on its hands  – are attention-grabbing to say the least.

Odd Numbers/New Problem

Google’s 2018 annual pay review also demonstrates the issues that can arise when evaluating complex pay practices.  In January 2019, Google disclosed to its employees the findings of its pay study for 2018.  In part, the analysis showed that Google had underpaid men for doing similar work as women in certain positions.  The Company noted in its explanation that managers apparently had used discretionary funds to increase employee incomes more often for certain women employees, resulting in a pay differential for men in the same lower-level software engineering job category.  To address these and other identified pay differences,  Google publically announced that it had implemented a $9.7 million payout across 10,677 employees.

So far, there does not appear to have been any legal blowback against Google related to this revelation.  However, $9.7 million is an expensive fix and, coming off of the recent reverse discrimination lawsuits, the timing is uncanny.  Meanwhile, Google remains committed to  evaluating its pay impacting practices , as Google also announced that it was undertaking a comprehensive review of its leveling, performance rating and promotion processes.  To the extent Google continues its practice of publishing the results of its reviews, any announcements will undoubtedly will generate headlines, and may spur complaints, including reverse discrimination class actions, depending upon which group(s) appears disfavored.

Implications For Employers

In sum, these very real workplace challenges do not appear to be going away anytime soon. This account of a high-profile company fighting discrimination claims on both fronts and, most recently, its unexpected discovery of a potential pay disparity impacting its male workforce, plus the costly course-correction that followed, serves as a warning shot to employers of any size that now is the time to evaluate hiring and compensation policies and procedures.  As the example of Google shows, an era of rising reverse discrimination claims poses a growing risk and area of uncertainty for employers, underscoring the balancing act that employers face in implementing initiatives to promote fairness and opportunity among their existing employees and potential applicants.

Seyfarth Shaw attorneys in the Firm’s Complex Discrimination Litigation, Organizational Strategy & Analytics, and Workplace Counseling Solutions practice groups are at the forefront of successfully helping employers navigate, block, and tackle these complex, emerging risks. As the preeminent source of thought leadership in this space, over the next several months, our esteemed attorneys will publish blog posts on a number of critical related topics, including:

  • The balancing act of resourcing talent domestically and internationally;
  • Avoiding preferential recruiting and hiring traps;
  • Recognizing and investigating harassment and discrimination in the 21st Century workforce;
  • The dollars and sense of creating competitive and equitable compensation and promotions programs; and
  • Navigating identity issues in corporate social media.

The era of dynamic discrimination risk is upon us.  Stay tuned to our blog for the latest updates.

Seyfarth Synopsis: As we approach the latter portion of the fiscal year, employers are beginning to see a significant spike in EEOC case filings over the last month or so, bringing the EEOC more in line with its relative aggressiveness during the previous couple of fiscal years. This increase in case filings comes on the heels of the May 8th Senate confirmation of the new EEOC Chair, Janet Dhillon. In today’s video, Partner Jerry Maatman gives an update on the EEOC’s recent activity, as well as what employers can expect from the Agency going forward through the end of the Fiscal Year in September.

While the first half of the 2019 Fiscal Year may have signaled a scaling back with respect to EEOC case filings, the months of May and June have brought with them a significant increase in EEOC-initiated litigation. During the 7 months leading up to the Senate confirmation of EEOC Chair Janet Dhillon on May 8, the EEOC filed just 27 lawsuits. Between May 8 and June 8, the month following Dhillon’s confirmation, the EEOC filed a staggering 17 lawsuits within the span of a single month. As we noted in our blog post from May 8, Dhillon suggested in her hearing with the Senate Committee on Health, Education, Labor and Pensions that litigation should be a matter of “last resort”. While it is a small sample size, Dhillon’s business-friendly sentiment seems to be disconnected from the way in which the agency has conducted itself in the month following her confirmation at the helm of the Commission.

The rise in litigation from the EEOC brings its total number of lawsuits filed for the year to 44 through June 8. This number brings the agency more in line with its aggressive trends during recent years. Of the 17 lawsuits the Agency filed in the month following the confirmation of its new Commissioner, 5 of them arise from sexual harassment allegations, and 3 from disability discrimination allegations. Based on years past, we can expect the EEOC to continue to focus on these two areas of interest as it has begun to file more lawsuits in these two domains than ever before. The EEOC still has its typically busy September month ahead, thus we can anticipate the Commission’s overall case filing numbers to continue to steadily rise through the end of the 2019 Fiscal Year.

 

By Gerald L. Maatman, Jr. and Matthew Gagnon

Seyfarth Synopsis: On June 11, 2019, in an age discrimination lawsuit, the U.S. District Court for the Eastern District of Tennessee once again demonstrated how the lenient standard that is so often applied at the conditional certification stage of a collective action brought under the procedural rules of the Fair Labor Standards Act. In Manlove v. Volkswagen Aktiengesellschaft, No. 18-CV-145 (E.D. Tenn. June 11, 2019), the Court granted conditional certification on the basis of just four declarations, even though those declarations identified four different methods of alleged age discrimination that were perpetrated by different decision-makers.

Background

In Manlove, an assistant manager in the Chattanooga, Tennessee Volkswagen assembly plant sought conditional certification of his claim under the Age Discrimination in Employment Act of 1967 (“ADEA”) on behalf of a putative collective action of all Volkswagen employees in the United States aged fifty and over – which, if certified in full, would have included thirty-five different locations in more than fourteen states.

Plaintiff alleged that employees over the age of 50 were unfairly targeted and discriminated against as part of a corporate initiative that was allegedly designed to make the company “slimmer, leaner and younger.” That initiative – called the “Pact” – was announced on November 18, 2016 and involved the elimination of 30,000 jobs in Germany and around the world. On June 26, 2017, the Company issued a press release stating, among other things, that the Pact would provide “new motivation” and a new selection procedure for junior managers. Two senior executives with authority over human-resources decisions were transferred to Chattanooga, Tennessee.

Plaintiff alleged that the Company began to take discriminatory action against older employees shortly after the Pact was announced. Plaintiff alleged that he was passed over for promotion by younger managers, and that he and another older employee were demoted after the Company restructured his department to eliminate two out of five manager positions.

Plaintiff also submitted declarations from three other over-50 employees at the Chattanooga plant. One alleged that she was abruptly terminated for violating a company policy and was immediately replaced by a much younger employee. Another alleged that he was selected for promotion to a manager position, but then told that he was too old to be included in the Company’s management training program and that he was subsequently terminated. A third declarant alleged that he was continually passed over for promotion in favor of younger employees with less relevant experience. He was then terminated after he failed a random drug test.

The Court’s Decision

The employer argued that these four declarations were not enough to support conditional certification because they failed to establish that the members of the putative collective action were similarly situated. According to the employer, the declarations involved four discrete employment circumstances, which demonstrated no common unifying nexus of alleged discrimination.

The Court disagreed, holding that conditional certification is appropriate upon a modest factual showing of a unified employment policy that ties together the claims of all putative members of the collective action. The Court held that plaintiff had adequately alleged such a policy by identifying and describing the basic parameters of the Pact, as well as some related statements by the company’s CEO that “arguably indicate a preference for younger employees.” Id. at 13. The Court also pointed to the fact that the Company had transferred two high-level executives to Chattanooga and had given them authority over human resources decisions, including termination decisions.

With respect to the declarations, the Court held that they constituted sufficient evidence to show that adverse employment actions were taken on the basis of age against employees in Chattanooga, even though “the exact methods of discrimination, as well as the decision-makers involved, may well vary among the putative collective action members.” Id. at 14. The Court held that the employer would have an opportunity to demonstrate differences among members of the collective action and argue for decertification at the more rigorous second stage of the certification process.

In one positive note for the defense, the Court refused to expand the conditionally certified collective action beyond the Chattanooga location, holding that plaintiff had presented no evidence of any adverse actions taken at other locations.

Implications For Employers

This ruling demonstrates once again – as if more proof were needed – how easy it can be for employees to obtain conditional certification of a collective action under the two-stage certification scheme commonly applied to claims that arise under the procedures of the Fair Labor Standards Act (including ADEA and Equal Pay Act claims). Even more telling, the Court certified the collective action while candidly acknowledging the impact the decision would have on the defense. The employer had requested oral argument, pointing to the impact that conditional certification could have on the scope of discovery and the resources required to defend the lawsuit. The Court dismissed those concerns, stating that it was “no different than any other decision the Court will ever make about whether to conditionally certify a collective action.”

By  Gerald L. Maatman, Jr., Esther Slater McDonald, and Michael L. DeMarino

Seyfarth Synopsis: Satisfying Rule 23(b)(3)’s predominance requirement is undoubtedly a challenge when it comes to a nationwide class. Among the many issues that arise is the extent to which varying state laws can impact whether questions of law or fact common to class members predominate over any questions affecting only individual members.  In In Re Hyundai & Kia Fuel Econ. Litig., No. 15-56014, 2019 WL 2376831 (9th Cir. June 6, 2019), after an en banc rehearing, the Ninth Circuit ruled that a district court did not abuse its discretion by failing to address varying state laws when granting class certification for settlement purposes. Drawing a distinction between class certification for litigation purposes and class certification for settlement purposes, the Ninth Circuit held that the variations in state law across the nationwide class did not defeat predominance.

In many respects, this decision – which rescinds the panel’s previous and controversial ruling that courts must address varying state consumer laws when certifying a settlement class – restores the standard for approval of class action settlements to what it has historically been in federal courts. Employers facing nationwide class claims in the Ninth Circuit now have an easier path to settlement, as it is less likely that varying state law will be an obstacle to satisfying predominance.

Background

In Re Hyundai arises out of an EPA investigation into Hyundai and Kia’s representations regarding the fuel efficiency of certain car models. After the EPA began its investigation, a number of plaintiffs filed a class action in California state court, seeking to represent a nationwide class of car purchasers who were allegedly misled by defendants’ fuel efficiency marketing.

Follow-on class action lawsuits were filed across the country and the MDL panel consolidated the cases in the Central District of California. Eventually, the parties informed the district court that they had reached a class settlement on a nationwide basis.

After winding through the approval process, the district court granted final approval of the nationwide class settlement, but did so over objections to the settlement. The objectors appealed, and a divided Ninth Circuit panel reversed, holding that by failing to analyze the variations in state law, the district court abused its discretion in certifying the settlement class. The Ninth Circuit voted to rehear the case en banc.

The Decision

The key issue on appeal was the extent to which a district court must address varying state laws when certifying a nationwide class for settlement purposes and, to what extent those varying laws impact the predominance analysis under Rule 23(b)(3). The predominance inquiry tests whether proposed classes are sufficiently cohesive and focuses on whether common questions present a significant aspect of the case that can be resolved for all members of the class in a single adjudication.

Quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997), the Ninth Circuit noted that the predominance inquiry is different depending on whether certification is for litigation or settlement purposes. “[I]n deciding whether to certify a settlement-only class,” the Ninth Circuit explained, ‘“a district court need not inquire whether the case, if tried, would present intractable management problems.’” Id. (citation omitted).

Against this backdrop, the Ninth Circuit rejected the objectors’ argument that the district court was required to address variations in state law. The Ninth Circuit began by explaining that “[s]ubject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” Id. at *9. Because no party argued that California’s’ choice-of-law rule should not apply or that differences in consumer protection laws precluded certification, the Ninth Circuit concluded that the district court was not required to address these issues.

In further support of this conclusion, the Ninth Circuit cited its decision Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998). There, in rejecting the objectors’ argument that “the idiosyncratic differences between state consumer protection laws” defeated predominance, the Ninth Circuit reasoned that the claims revolved around a “common nucleus of facts” and applied the longstanding rule that “differing remedies” do not preclude class certification. Id. at 1022–23.

Based on this reasoning, the Ninth Circuit ultimately concluded that the district court did not abuse its discretion in finding that common issues predominated, notwithstanding varying state consumer protection laws.

Implications for Employers

In Re Hyundai highlights the potential challenges posed by nationwide classes given the Rule 23(b)(3) predominance requirement for certification, even in the context of a settlement class. By ruling that the district court is not required to analyze varying state laws when certifying a settlement class, the Ninth Circuit created an easier path to settlements involving nationwide classes. But employers should keep in mind this result was driven by, in part, the objectors’ failure to demonstrate that California law should not apply.  In other words, the issue of varying state laws is not wholly irrelevant to the predominance inquiry and employers should nevertheless be prepared to address such arguments if objectors adequately raise them.

By Seth Fortin, Esther Slater McDonald, and Jennifer A. Riley

Seyfarth Synopsis: On May 30, 2019, the Fourth Circuit issued an opinion in Krakauer v. Dish Network, L.L.C., No. 18-1518 (4th Cir. May 30, 2019), that paved the way for TCPA plaintiffs to collect historic awards from unsuspecting defendants. The Fourth Circuit held that TCPA plaintiffs need not show any threshold level of injury to have standing, so long as they prove the statutory elements of a TCPA claim; the TCPA creates a simple cause of action that is “conducive to class-wide disposition” without reference to individualized inquiries; and Dish Network could be held responsible for the actions of its third-party marketer even if it repeatedly admonished the third party against violating the law and its contracts disclaimed any agency relationship.  As a result, companies should be wary of using third parties to conduct telemarketing without appropriate oversight.

Case Background

Plaintiff Thomas Krakauer placed his number on the national Do-Not-Call registry. Nonetheless, he received multiple calls from a company called Satellite Systems Network (“SSN”) trying to sell him the services of defendant Dish Network, L.L.C. Krakauer sued Dish under the Telephone Consumer Protection Act (“TCPA”) on behalf of a class of persons whose numbers had been listed on the registry for at least 30 days and who had received two or more calls on behalf of Dish in the course of a year.

The district court certified the class in 2015. A year later, Dish moved to dismiss for lack of Article III standing, arguing that many or most class members did not experience an injury that would have risen to the level of a cause of action at common law. The district court denied the motion, and the case proceeded to trial.

The district court charged the jury with determining: (1) whether SSN was acting as Dish’s agent when it called consumers; (2) whether SSN made multiple calls to the class members’ numbers within the relevant period; and (3) the appropriate damages award for such calls. The jury returned a verdict for plaintiff on the first two points and assigned damages of $400 per call. The district court then determined, as a matter of law, that Dish acted willfully and knowingly, allowing an award of treble damages “to deter Dish from future violations and . . . give appropriate weight to the scope of the violations.”  Krakauer, No. 18-1518 at *29.

Dish appealed the judgment.

The Fourth Circuit’s Opinion

In an opinion by Judge Wilkinson, the Fourth Circuit considered three issues: (1) whether the class as certified had Article III standing to bring claims; (2) whether the district court correctly applied the factors for class certification, especially commonality and predominance, and whether the class was overbroad; and (3) whether Dish was responsible for SSN’s calls, including whether it had acted willfully and knowingly in not remedying SSN’s alleged misconduct. Id. at *10.

Dish argued that many, if not most, class members lacked standing because their injury did not rise to “a level that would support a common law cause of action.” Id. at *13. The Fourth Circuit rejected this argument, relying on the Supreme Court’s guidance in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016). Spokeo held that traditional standing requirements, including a concrete and particular injury, applied to statutory causes of action, and that Congress could not create a cause of action without an underlying injury that would have been cognizable under the common law. The Fourth Circuit found that receipt of repeated, unwanted telephone marketing by someone who had taken steps to avoid such marketing was a type of injury cognizable at common law – an intrusion on privacy. Id. at *13-14 (citing Spokeo, 136 S.Ct. at 1549).

Next the Fourth Circuit addressed the district court’s certification of a class under Rule 23(b)(3), finding that the simple scheme created by Congress avoided the kinds of individualized determinations that “so often plague class actions.” Id. at *16-18. Dish argued that many class members did not have a claim because they were not “subscribers” to telephone service, and only a “subscriber” could place a number on the Do-Not-Call registry. But the Fourth Circuit rejected this argument, noting that the plain text of the statute allowed a private right of action by any “person” who received unwanted calls, not just subscribers, and a non-subscriber living in the house where the call was received could suffer the same privacy intrusion as the subscriber. Id. at *19.

The Fourth Circuit also determined that the class was properly ascertainable because the data on potential class members was found in the call data of the defendant companies and the Do-Not-Call registries. Id. at 22-23.

Left unspoken in the Fourth Circuit’s analysis, however, was how to determine who received the phone call at a given number and thus who experienced the injury. Although the SSN/Dish call data revealed numbers called, it did not necessarily reveal the identity of the persons who received unwanted calls. The Fourth Circuit gave the example of a subscriber wife whose husband received a call and noted that the husband could experience an injury to his right to privacy. Id. at 21. But the Fourth Circuit did not explain how it possibly could identify the husband from the company records and, as a result, how it could provide compensation to the real injured party (the recipient) without an individualized investigation.

This slippage between subscribers and call recipients also muddies the standing inquiry. The Fourth Circuit justifies reading a phone call as an intrusion on privacy because the recipient “took steps to avoid” such calls by placing his number on the Do-Not-Call registry. Id. at 12. But if the recipient is not the subscriber, did he actually take such steps?

Finally, the Fourth Circuit addressed whether Dish could be held liable for SSN’s unwanted calls, a question that turned on whether SSN was acting as Dish’s agent when it made the calls. Dish argued that it was not, pointing to contracts that characterized the relationship as independent and not an agency relationship. Id. at * 27-28. But the Fourth Circuit held that a party’s contractual characterization of the relationship is irrelevant; it is the nature of the relationship that matters. The Fourth Circuit held that it was it was reasonable for the jury to conclude that SSN was Dish’s agent because their contract “afford[ed] Dish broad authority over SSN’s business, including what technology it used and what records it retained” and because Dish claimed to have the right to monitor SSN to ensure compliance with the TCPA. Id. at *27. The Fourth Circuit also held that Dish had knowledge of SSN’s violations of the TCPA, and its failure to act to stop such violations was evidence that SSN was acting within the scope of its authority. Id.

Although Dish argued that it had repeatedly instructed SSN to follow the law in acting on Dish’s behalf, the Fourth Circuit held that these verbal instructions were outweighed by Dish’s “failure to respond to” statutory violations “in any serious way” while it was “profiting handsomely from SSN’s sales tactics. Id. at *28-29.

The Fourth Circuit also approved the district court’s finding that Dish had acted willfully and knowingly. The Fourth Circuit relied heavily on the fact that Dish had notice of alleged violations via “lawsuits and enforcement actions” as well as “consumer complaints” but “did nothing to monitor, much less enforce, SSN’s compliance with the telemarketing laws.” Id. at *31.

Implications

The Fourth Circuit provided ample reason for companies to be cautious in drafting contracts with third-party marketers and overseeing their activities. The Fourth Circuit confirmed that a company can be held liable for the behavior of a contractor making calls on its behalf, even if it “includes certain language in a contract or issues the occasional perfunctory warning.” Id. at *32. A court will “look past the formalities and examine the actual control exercised.” Id. Indeed, contractual language requiring one party to comply with the law and giving the other party the right to monitor compliance may even be viewed as a sign of “control” and agency. Id. at 27. And, if a company has the right to control and to monitor compliance, the failure to do so may be viewed as a willful decision to ignore potential violations of the law. Thus, companies should carefully consider the structure of their contractual relationships.

The Fourth Circuit also relaxed the standard for certification of such claims by suggesting that Congress has a great deal of latitude to intentionally structure consumer protection statutes to be class-friendly and to avoid individualized inquiries. Id. at *18. In the Fourth Circuit’s view, so long as the statutory violation causes some concrete and particular injury, even if it would be viewed as minor or de minimis under the common law, Congress may impose statutory damages for it, and those damages need not be tightly targeted to the magnitude of the injury. As the Fourth Circuit’s seeming conflation of subscribers and call recipients shows, in the case of privacy interests, a strong nexus between the claim and a class member’s own efforts to protect his privacy also may not be necessary. Thus, companies subject to consumer protection statutes like the TCPA should take less comfort in arguments regarding standing or the need for individualized consideration of class members’ injuries.