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

Seyfarth Synopsis: This month the EEOC released its 2018-2022 strategic plan, which focuses on preventing and combating discrimination and improving the EEOC’s organizational functionality. It also released the agency’s 2019 budget request, which mirrors its $363 million dollar request from last year.

Strategic Plan: FY 2018-2022

On February 12, 2018, the EEOC approved its Strategic Plan for fiscal years 2018-2022 (available here). The EEOC is required to publish a strategic plan, which serves as a framework for the EEOC in implementing its mission to combat employment discrimination. The Strategic Plan is not to be confused with the Strategic Enforcement Plan. We like to think of the Strategic Enforcement Plan as the “what,” and the Strategic Plan as the “how.” The Strategic Enforcement plan, discussed more fully here, explains what priorities the EEOC will focus on. More generally, the Strategic Plan lays out the high level overview of how the agency is going to achieve those objectives. The 2018-2022 strategic plan includes three general objectives:

  1. Combat and prevent employment discrimination through the strategic application of the EEOC’s law enforcement authorities.

The EEOC has outlined two outcome goals of this strategic objective. First, the EEOC aims to stop and remedy discriminatory employment practices and provide meaningful relief to victims. Second, the EEOC would like to exercise its enforcement authority fairly, efficiently, and based on the circumstances of each charge or complaint.

  1. Prevent employment discrimination through education and outreach.

This objective reflects the EEOC’s interest in deterring employment discrimination before it occurs. The primary means to this goal includes investigations, conciliations, and litigation. The EEOC’s two goals for this strategic objective include helping members of the public understand the law and their rights, and for employers, unions, and employment agencies to prevent discrimination and address EEO issues when they occur.

  1. Management objective.

This objective is focused on the EEOC “achieving organizational excellence,” which includes improving management functions with a focus on information technology, infrastructure enhancement, and accountable financial stewardship. The EEOC pledged accountability for improving its operations where needed. The two outcome goals for this objective include having staff that exemplify a culture of excellence, respect and accountability, and allocating resources effectively to ensure they line up with their stated priorities.

FY 2019 Budget Request

With its new strategic plan also comes a new budget request (available here). The EEOC is requesting $363,807,086 for fiscal year 2019, which includes $29,443,921 for state and local fair employment practice agencies (FEPAs) and tribal employment rights organizations (TEROs).

The EEOC urges congressional support, citing its commitment to building a digital workplace to increase their efficiency and provide timely service to the public. The agency also states a need for more staff and resources to deliver high quality service. The EEOC says that it intends to maintain its staffing levels in order to further reduce the charge backlog. The funding is also anticipated to cover “rents and mandatory office relocations.”

This request is  $1.783 million over the fiscal year 2018 Continuing Resolution level, but is the exact same budget request it made for fiscal year 2018. This year’s budget goals include: (1) investing in the “agency of the future”; (2) managing the inventory and reducing backlog; (3) improving and leveraging technology; and (4) outreach, education, and strategic law enforcement. Time will tell if the EEOC’s budget request will be approved, and whether it will use that money wisely.

Implications For Employers

As anyone who is paying attention to the news knows, the future direction of the budget for many federal agencies is a bit uncertain. For example, President Trump’s recently released budget proposes huge cuts for a different federal agency — the Consumer Financial Protection Bureau. This makes the relative stability of the EEOC’s budget request somewhat remarkable. Whether it can continue to fly under the radar of federal budget cutting remains to be seen. In the meantime, employers should keep in mind that the EEOC managed to file an impressive number of lawsuits last year while operating under pretty much the same budgetary constraints that are proposed for fiscal year 2019.

 

By Ashley K. Laken and Timothy F. Haley

Seyfarth Synopsis: On February 1, 2018, the U.S. District Court for the Middle District of North Carolina entered an order granting in part, and denying in part, the plaintiff’s motion for class certification in a no-hire antitrust case entitled Seaman v. Duke University, 1:15-CV-462, at 1-2 (M.D.N.C. Feb. 1, 2018) (A copy of the decision can be found here.)  The case was brought against Duke University, Duke University Health System (collectively “Duke”), and various University of North Carolina entities and one of its executives (collectively “UNC”).  The complaint alleged that the defendants had entered into an agreement not to hire each other’s medical faculty employees in violation of federal antitrust laws.  With some notable exceptions it has been difficult for plaintiffs to achieve class certification in wage suppression cases such as Seaman.  The ruling is a “must read” for employers, as the Court’s reasoning and conclusions make it difficult to predict whether this case will be helpful or hurtful to the plaintiffs’ bar in other cases.

Background To The Case

Seaman, an Assistant Professor of Radiology at Duke, contended that she applied for a position at UNC in 2015.  She alleged that she was denied consideration due to an agreement among the Duke and UNC defendants that they would not hire each another’s medical faculty employees unless the hire involved a promotion.  Seaman alleged that this agreement not only suppressed the compensation of defendants’ medical faculty members, but also their other skilled medical employees.  Thus, Seaman sought to certify a class consisting not only of defendants’ medical faculty members, but also their physicians, nurses, and skilled medical staff.  Id. at 1-2.

Antitrust Impact And Damages – Faculty

The primary certification challenge for the plaintiff  in Seaman was to demonstrate predominance under Rule 23(b)(3), as there was little dispute that the other Rule 23 requirements were satisfied.  As is typical with wage suppression antitrust cases, the battleground centered on whether antitrust impact and damages could be shown with common proof.  The Court defined antitrust impact as injury that reflects the anti-competitive effect, either of the violation or of anti-competitive acts made possible by the violation.  Id. at 8.  Seaman contended that the no-hire agreement had an antitrust impact on faculty compensation in two ways, including: (1) the defendants did not have to provide preemptive compensation increases for faculty that otherwise would have been needed to ensure employee retention; and (2) the defendants’ internal equity structures – policies and practices that are alleged to have insured relatively constant compensation relationships between employees – spread the individual harm of decreased lateral offers and corresponding lack of retention offers to all faculty, thus suppressing compensation faculty-wide.  The Court agreed that the evidence offered by Seaman to prove these facts was common to the class.  Id. at 8-9.

Regarding damages, Seaman’s expert testified that his analysis of the data demonstrated that compensation increases were associated with increases in experience – i.e., individual faculty members were typically paid more as they obtained experience.  Id. at 13.  The expert conducted a regression analysis and applied the results “to the faculty compensation data to develop an aggregate damages estimate for faculty.”  Id. at 14.  Based on this evidence, the Court concluded that Seaman’s proposed method for calculating damages was based upon evidence that would be common to the faculty.

Antitrust Impact And Damages – Non-Faculty

Seaman’s expert also attempted to demonstrate that antitrust impact and damages could be shown with common proof as to non-faculty members based on the same analysis applied to faculty members.  As to impact, the Court noted that unlike the faculty, there was no evidence that non-faculty received retention offers or peremptory compensation increases that would then be spread to other non-faculty through Seaman’s internal equity theory.  Thus, the Court concluded that Seaman’s method of proving impact involved individual rather than common proof for all non-faculty.  Id. at 15-16.

Accordingly, the Court granted the motion for class certification as to faculty members, but not as to non-faculty members.  Id. at 21-25.

Implications For Employers

It is unclear what precedential impact Seaman may have on future class action wage suppression cases.  Plaintiffs have had mixed results achieving class certification in compensation suppression cases.  This is true in wage information exchange cases as well as cases involving no-hire agreements such as Seaman.  For example, in Weisfeld v. Sun Chem. Corp., 84 Fed. Appx. 257, 258 (3rd Cir. 2004), the Third Circuit upheld the district court’s decision denying certification in an antitrust case involving an alleged series of no-hire agreements among employers in the ink printing industry, agreeing with the district court that the plaintiff did not satisfy the requirements of Rule 23(b)(3).  Among other things, the Third Circuit noted that the “decreased salary and deprivation of opportunities inquiries would require considering numerous individual factors” including “whether a covenant not to compete was included in a particular employee’s contract; employee salary history, educational and other qualifications; employer’s place of business; employee’s willingness to relocate to a distant competitor; and [employees’] ability to seek employment in other industries in which their skills could be utilized….” Id. at 264.  There was no mention in Seaman whether factors like this were present, and if so, how they could be addressed with common evidence.  It would certainly be unusual if the only factor affecting compensation was experience.

Furthermore, the expert’s damage model in Seaman was designed to show only an “aggregate class-wide damages estimate for faculty.”  It is not entirely clear what the Court meant by that phrase, but if the Court was referring to an average wage suppression, such reliance has been pointedly rejected as a “fundamental flaw” by at least one other court.  In rejecting the plaintiff’s expert’s analysis in Reed v. Advocate Health Care, 268 F.R.D. 573, 590-92 (N.D. Ill. 2009), the court stated: “Measuring average base wage suppression does not indicate whether each putative class member suffered harm from the alleged conspiracy.  In other words, it is not a methodology common to the class that can determine impact with respect to each class member.”  Id. at 591.

Given these issues, it remains to be seen what effect Seaman will have on future cases.

Seyfarth Synopsis:  This year we were lucky enough to have Perry Cooper, Senior Legal Editor of Bloomberg BNA, as our special guest at Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” event.  Perry provided our over 1,000 in-person and webcast attendees with an overview of major Supreme Court class action decisions, as well as led the discussion on other important topics for employers including arbitration, ascertainability, and the Fairness in Class Action Litigation Act.  Today’s post allows our blog readers to watch Perry’s entire presentation.  Check it out in the link below!

Seyfarth Synopsis:  Earlier this week, we hosted a webcast with over 1,000 participants on “Top Trends In Workplace Class Action Litigation Panel Discussion”.  The event was a tremendous success, and gave every employer in attendance the tips they need to approach the increasingly complicated class action landscape.  In today’s blog, readers are given the footage from the presentation of Seyfarth Shaw Partner Jerry Maatman at this event.  Watch in the link below! 

By Gerald L. Maatman, Jr. and Peter J. Wozniak

Seyfarth Synopsis:  In a TCPA class action where final settlement (including attorneys’ fees) had already received final approval, a federal district court in California denied class counsel’s request to enjoin a pending state court action brought by their former colleague to recoup a portion of the attorneys’ fees awarded as part of the settlement.

For employers negotiating class action settlements including attorneys’ fees, this ruling provides insight into the potential complications in dealing with fractured class counsel constituencies, and a reminder about the limits of federal courts’ willingness to enjoin parallel state court proceedings.

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In Dakota Medical, Inc. v. RehabCare Group, Inc. et al., No. 14-CV-2081, 2018 U.S. Dist. LEXIS 15972 (E.D. Cal. Jan. 30, 2018), the parties reached a settlement of a TCPA class action. The settlement included an award of $8,333.33 in attorneys’ fees to class counsel.  Id. at *3. Weeks after the settlement received final approval, class counsel moved the District Court to enjoin a state court lawsuit against them by their former colleague, attorney Scott Zimmerman.  Zimmerman’s state court suit sought payment from class counsel for his work on the Dakota Medical action, as well as for his work on a prior putative class action (against the same defendants) on which he also worked with class counsel.  Id. at *4-5.  In the District Court, class counsel sought to enjoin Zimmerman’s state court action under the All Writs Act (28 U.S.C. § 1651(a)) and the Anti-Injunction Act (28 U.S.C. § 2283).  Class counsel argued that an injunction from the district court was necessary “in aid of” the District Court’s jurisdiction in the now-settled class Dakota Medical action, and to avoid relitigation of issues already decided by the district court.  Id. at *5.  Judge Dale A. Drozd of the U.S. District Court for the Eastern District of California denied the motion to enjoin the pending state court action.

Employers can use this decision in to guide their settlement negotiations with class counsel constituencies and inform the sort of assurances that might be sought even when relatively small amounts of attorneys’ fees are at stake, and to bear in mind the occasional reticence of federal courts to interfere with parallel state court actions.

Case Background

The underlying litigation involved the alleged sending of a “huge number of junk faxes to various nursing homes and healthcare facilities.”  Id. at *3.  After “substantial litigation,” the parties settled their dispute.  The settlement agreement provided for class counsel to receive one-third of the $25,000 common fund.  Id.

Zimmerman acted as class counsel in the Dakota Medical action until he was dismissed by the named plaintiffs in March 2016.  Id. at *5 n.1.  He also previously worked with class counsel on another class action against the Dakota Medical defendants, where class certification was ultimately denied.  Id.  Shortly after judgment was entered in the Dakota Medical action, Zimmerman brought a state court action against the Dakota Medical class counsel under a quantum meruit theory, seeking to be paid for his work on both class actions.  Id.

Under the All Writs Act, class counsel moved the district court in Dakota Medical to enjoin Zimmerman’s state court suit against them, arguing that “two of the exceptions to the Anti-Injunction Act — the necessary in aid of jurisdiction exception and the relitigation exception — appl[ied] here, permitting [the district court] to enjoin the state court action.”  Id. at *7.  Class counsel argued that the “necessary in aid of jurisdiction” exception applied for four reasons: “(1) the state court action ‘threatens to frustrate proceedings and disrupt the orderly resolution’ of [the Dakota Medical action]; (2) the state court action ‘undermines the due process rights of [Dakota Medical] class members to receive notice of and object to attorneys’ fees’; (3) allowing the state court action to proceed undermines the procedures set forth in Rule 23 for the awarding of attorneys’ fees; and (4) the state court action unfairly penalizes named plaintiff and class representative Dakota Medical.”  Id. at *10. Class counsel argued that the “relitigation exception” applied because Zimmerman had a “full and fair” opportunity to litigate his entitlement to fees before the district court in Dakota Medical and that Zimmerman’s state court action was “an effort to relitigate [the Dakota Medical] court’s decision with respect to the award of attorneys’ fees.”  Id. at *18.

The Court’s Decision

The Court denied class counsel’s motion to enjoin Zimmerman’s state court lawsuit action on both grounds.

First, the Court addressed class counsel’s arguments regarding the “necessary in aid of jurisdiction” exception.  The Court explained that class counsel’s first argument fell short, because frustration “and even some disruption” of a federal action are insufficient.  Id. at *8-10..  The Court explained that Zimmerman’s state court action would not “damage the settlement of [the Dakota Medical] action in any way.”  Id. at *10.  The state court “would presumably award a money judgment in [Zimmerman’s] favor” against class counsel, but would not “invade the funds set aside for the class” or otherwise affect the Dakota Medical settlement.  Id.  The Court explained that class counsel’s second argument was insufficient because due process does not require class members to be informed as to how attorneys’ fees are divided among class counsel.  Id. at *13-14.  The court rejected class counsel’s third argument because Zimmerman’s state court action did not seek an award of attorneys’ fees under Rule 23, it sought quantum meruit damages against class counsel for “the value of the work performed.”  Id. at 14.  The Court summarily rejected class counsel’s fourth argument as being unsupported by any authority, and noted that class counsel’s concerns were “separate and apart” from the Dakota Medical suit itself.

Second, with regard to the “relitigation exception,” the Court noted that “class counsel fall far short of establishing the applicability of that exception . . . .”  Id. at *18.  First, the Court explained that class counsel failed to demonstrate that Zimmerman –a non-party in the Dakota Medical suit – was in privity with the parties.  Id. at *19.  According to the Court, some of “the parties to the settlement in this action” were actually adversarial to “Zimmerman’s interest in the outcome of the attorneys’ fees dispute.”  Id. at *20.  The Court also explained that there was no identity of claims between the suits.  As the Court noted, the Dakota Medical suit involved purported TCPA violations involving “junk faxes advertising seminars and workshops on Medicare and Medicaid billing and other issues to healthcare facilities.”  Id. at *22.  Zimmerman’s suit, however, “concerns what compensation, if any, should be paid to a former attorney of the named plaintiff for his work allegedly performed in connection with both [the Dakota Medical suit] and another lawsuit.”  Id.

Accordingly, the Court denied class counsel’s motion to enjoin Zimmerman’s state court lawsuit.

Implications For Employers

It is not uncommon for the makeup of class counsel constituencies to change over the course of a protracted litigation, or for disputes to arise among plaintiffs’ counsel regarding the appropriate payment of attorneys’ fees.

In Dakota Medical, final settlement was approved by the Court on September 21, 2017, but the ensuing motion practice regarding the injunction was not resolved for more than four additional months.  Thus, when negotiating class actions settlements, to help ensure expedient resolution of agreed-upon settlements, employers should consider whether and to what extent assurances regarding former class counsel can and should be secured.

Further, particularly in the Ninth Circuit, employers can use this decision to remind themselves of the reluctance of federal courts to interfere with state court actions, even those which from a pragmatic perspective may frustrate or disrupt a federal action.

Seyfarth Synopsis: On February 6, 2018, Seyfarth Shaw Partner Jerry Maatman and Bloomberg Law Senior Legal Editor Perry Cooper presented a timely event on “Top Trends In Workplace Class Action Litigation Panel Discussion.” The discussions focused on views of cutting edge issues relative to the workplace class action litigation landscape.  With over 1,000 people attending either in person at our Chicago office or via our live Webcast, Maatman and Cooper’s discussion was a “must see” for representatives of businesses across the country.

Following Seyfarth Shaw’s recent launch of its 2018 Workplace Class Action Litigation Report, Jerry Maatman distilled the 900-page publication into key trends and takeaways on the most important developments impacting employers from the past year in class action litigation, as well as future trends that businesses should keep on their radar.  Perry Cooper added further in-depth analysis relative to many of the key U.S. Supreme Court cases affecting employment law and class actions, which she has been tracking and writing about extensively on Bloomberg’s behalf.

The engaging discussion focused on four key trends that were identified in the 2018 Workplace Class Action Litigation Report, including: (1) the monetary value of the top workplace class action settlements rose dramatically in 2017; (2) while federal and state courts issued many favorable class certification rulings for the plaintiffs’ bar in 2017, evolving case law precedents and new defense approaches resulted in better outcomes for employers in opposing class certification requests; (3) filings and settlements of government enforcement litigation in 2017 did not reflect a head-snapping pivot from the ideological pro-worker (or anti-big business) outlook of the Obama Administration to a pro-business, less regulation/less litigation viewpoint of the Trump Administration; and (4) class action litigation increasingly has been shaped and influenced by recent rulings of the U.S. Supreme Court.

Maatman provided several noteworthy takeaways, including three highlights:

  • 2017 was “by far the largest cash-take for plaintiffs’ lawyers” ever in terms of workplace class actions settlements, as the top ten settlements in various employment-related class action categories totaled $2.72 billion in 2017, a “breathtaking and remarkable” increase of over $970 million from $1.75 billion in 2016.  Check out how Jerry explained the importance of this increase in settlements by clicking the video below!

  • In 2018, “as the government’s administration is getting settled in,” employers should anticipated seeing, “smaller governmental enforcement lawsuits brought on behalf of a smaller number of employees.”
  • Regarding the recent onslaught of workplace sexual harassment accusations and investigations in the context of the #MeToo campaign, “although headlines in the paper may be very difficult to stomach for some employers, and the piper must be paid in a certain respect, I’m not convinced it will be through successful prosecution of class action litigation insofar as sex harassment is concerned. That theory will run smack into the Rule 23 barriers created by Wal-Mart Stores, Inc. v. Dukes.”

Overall, Maatman and Cooper’s discussion left little doubt that 2018 will be an eventful year in terms of the workplace class action arena.  Employers should anticipate that the private plaintiffs’ bar and government enforcement attorneys at the state level are apt to be equally, if not more, aggressive in 2018 in bringing class action and collective action litigation against employers.  As such, businesses absolutely should stay tuned in regarding developments in this space.

Thank you to everyone who joined us either here in Chicago or via our live webcast.  For those interested in viewing a video of the presentation, stay tuned. We will be posting a complete video of the event this week.

By Gerald L. Maatman, Jr., Julie G. Yap, and Alex W. Karasik

Seyfarth Synopsis: In a class action lawsuit alleging that Tinder discriminated on the basis of age in violation of California state laws by charging consumers age 30 and over a higher price for Tinder Plus subscriptions, the California Court of Appeal recently reversed the trial court’s judgment in favor of Tinder, holding there was no strong public policy that justified the allegedly discriminatory pricing model. 

Businesses, especially those in the social media and technology sectors, should keep this ruling in mind when implementing marketing and pricing policies to avoid claims they are discriminating against potential classes of users based on protected demographics.

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Background

In Candelore v. Tinder, Inc., No. B270172, 2018 Cal. App. LEXIS 71 (Cal. App. Jan. 29, 2018), Plaintiff brought an action on behalf of himself and a putative class of California consumers who were over 30 years old when they subscribed to Tinder Plus, asserting age discrimination in violation of two state laws, including the Unruh Civil Rights Act and the Unfair Competition Law (“UCL”).  Specifically, Plaintiff alleged that Tinder charged consumers over the age of 30 $19.99 per month for Tinder Plus, while it charged consumers under the age of 30 only $9.99 or $14.99 per month for the Tinder Plus features. 

The Trial Court’s Decision

Tinder moved to dismiss the action in the trial court on the basis that Plaintiff failed to state a claim because: (1) age-based pricing does not “implicate the irrational, invidious stereotypes” that the Unruh Act was intended to proscribe; (2) a public statement by Tinder’s executive, as quoted in the complaint, “refute[d] any notion that the alleged discrimination in pricing [was] arbitrary”; and (3) age-based pricing was neither “unlawful” nor “unfair” under the UCL.  Id. at *4.

The trial court agreed with Tinder and entered judgment in its favor, holding that Tinder’s age-based pricing practice did not constitute arbitrary or invidious discrimination because it was reasonably based on market testing showing “younger users” are “more budget constrained” than older users “and need a lower price to pull the trigger.”  Id. at *2-3.  The trial court reasoned that there was “no basis in the published decisions for applying the Unruh Act to age-based pricing differentials” and that Tinder’s pricing structure furthered the public policies of increasing access to services for the general public and maximizing profit by the vendor, a legitimate goal in our capitalistic economy.”  Id. at *4-5.  Based on these rulings, the trial court concluded that Plaintiff could note state a claim for discrimination under the Unruh Act.  Because the discrimination claim formed the basis for the Plaintiff’s UCL claims, the trial court similarly dismissed those claims.  Id

Plaintiff appealed to the California Court of Appeal..

The Court of Appeal’s Decision

The Court of Appeal reversed the trial court’s ruling in favor of Tinder, holding that “[a] blanket, class-based pricing model like this, when based upon a personal characteristic such as age, constitutes prohibited arbitrary discrimination under the Unruh Act.”  Id. at *12.  In doing so, the Court of Appeal departed from guidance in (and other authority embracing) the California Supreme Court’s opinion in Koire v. Metro Car Wash, 40 Cal. 3d 24, 29 (1985), which held that age can serve as a reasonable proxy for income.  Id. at *12-13.  The Court of Appeal characterized the Supreme Court’s statements in Koire as dicta and declined to adopt the reasoning, holding that that “discrimination based on generalized assumptions about an individual’s personal characteristics are ‘arbitrary’ under the Act.”

The Court of Appeal also rejected the trial court’s conclusion that Tinder’s alleged age-based pricing model was justified by public policies.  Id. at *19-20.  Also relying on Koire, the Court of Appeal held that “a merchant’s interest in profit maximization” cannot justify discriminatory pricing “based on an individual’s personal characteristics.”  Id. at *22-23 (emphasis in original).  Nevertheless, the Court of Appeal opined that a business like Tinder could employ “rational economic distinctions to broaden its user base and increase profitability,” so long as those distinctions are “drawn in such a way that they could conceivably be met by any customer, regardless of the customer’s age or other personal characteristics.”  Id. at *23 (emphasis in original; citations omitted).  Offering its own solution, the Court of Appeal suggested that Tinder “could establish different membership levels for its Tinder Plus service that would allow more budget constrained customers, regardless of age, to access certain premium features at a lower price, while offering additional features to those less budget conscious users who are willing to pay more.”  Id. 

Accordingly, the Court of Appeal concluded that the Complaint’s allegations were sufficient to state a claim for age discrimination in violation of the Unruh Act.  Id. at *24.  Based on this finding and because the standard for finding an “unfair” practice in a consumer action is intentionally broad, the Court of Appeal also held that Plaintiff sufficiently alleged a claim for violation of the UCL.  Id. at *24-25.

Implications For Employers

While most businesses contemplate age discrimination claims in the hiring context, this ruling illustrates that companies can be vulnerable to class action litigation if their products or services can be perceived as giving preferential or detrimental treatment to certain consumers based on an individual’s personal, protected characteristics.  Companies should be cautious if their business decisions — whether it be in the context of hiring, pricing, or any other strategic considerations — could potentially have (or be perceived to have) an adverse impact on a class of people based on their demographics.

 

Seyfarth Synopsis:  Earlier this week, our blog posting analyzed pivotal rulings by the U.S. Supreme Court in 2017, which was the penultimate trend of this year’s Workplace Class Action Report (WCAR).  In today’s finale of the WCAR video series, author Jerry Maatman provides his analysis on the Supreme Court jurisprudence for our readers.  In addition to outlining the highlights of 2017, Jerry discusses the importance of the Supreme Court itself, as well as what hot topics employers should monitor in 2018.  Watch our video in the link below!

By Timothy F. Haley and Ashley K. Laken

Seyfarth Synopsis: Criminal prosecution of “no-poaching/no-hire” agreements appears imminent.  Employers should investigate their hiring and compensation practices to ensure compliance with recent antitrust pronouncements.

Background

In October 2016, the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) under the Obama Administration issued a joint Antitrust Guidance for Human Resource Professionals (“HR Guidance,” available here).  Among other things, the HR Guidance announced that so-called “naked” agreements among employers not to recruit employees or not to compete on employee compensation would be considered per se violations of the antitrust laws and prosecuted criminally.

On September 12, 2017, at the Global Antitrust Enforcement Symposium, then Acting Assistant Attorney General Andrew Finch reiterated that such “naked” agreements may be prosecuted criminally.  Thus, although the Trump Administration has withdrawn other Obama-era employment law policy statements (see, e.g., News Release: US Secretary Of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance, available here), it has adopted the Obama Administration’s position as stated in the HR Guidance.

Most Recent Developments

According to reported statements by current Assistant Attorney General Makan Delrahim, Finch’s comments were not empty words.  On January 19, 2018, at a conference sponsored by the Antitrust Research Foundation at George Mason University, Delrahim announced that DOJ had been “very active” in reviewing potential violations of the antitrust laws resulting from agreements among employers not to compete for workers (reports from that conference are available here and here).

Reportedly, Delrahim went on to say that “[i]n the coming couple of months you will see some announcements, and to be honest with you, I’ve been shocked about how many of these there are, but they’re real.”  According to Delrahim, if the conduct occurred or continued after issuance of the HR Guidance, the DOJ will treat those agreements as criminal.

Antitrust Legality Of “No-Poaching” Agreements

“No-poaching” agreements are agreements between or among two or more employers not to solicit each other’s employees.  They are similar to, but slightly different from, “no-hire” agreements (sometimes referred to as “no-switching” agreements).  A “no-poaching” agreement merely prohibits the solicitation of employees; if an employee applies without solicitation, there is no prohibition on hiring that worker.  A “no-hire” agreement prohibits the hiring of the worker even if he or she was not solicited.  It appears that the DOJ considers both such agreements – if they are “naked” – to be per se unlawful and subject to criminal prosecution.

What is a “naked” agreement?  It is an agreement that stands alone.  It is not ancillary to a larger, legitimate collaboration.  Ancillary “no-hire” or “no-poaching” agreements do not violate the antitrust laws if they are reasonable in scope and duration and are reasonably necessary to further the interests of the legitimate collaboration.  For example, in Eichorn v. AT&T Corp., 248 F.3d 131, 146 (3d. Cir. 2001), the Third Circuit held that an agreement on behalf of all AT&T affiliates not to hire or solicit any employees from a company (Paradyne) that it sold to Texas Pacific Group, for a period of eight months after the sale, was lawful under Section 1 of the Sherman Act.  The Third Circuit found that the agreement was a legitimate ancillary restraint and that its primary purpose was to ensure that the purchaser could retain the skilled services of the Paradyne employees.  It concluded that any restraint on the plaintiffs’ ability to seek employment at AT&T or its affiliates was incidental to the sale of Paradyne.

Employer Concerns

In spite of the publicity given to the issuance of the HR Guidance in 2016 and high-profile class action cases such as In Re High-Tech Employee Antitrust Litigation, No. 11-CV-02509 (“High-Tech”) (selected case documents available here), human resources personnel and other executives often do not realize that the antitrust laws apply to the employment marketplace.  Thus, many simply are not aware that an agreement among employers not to hire employees or to exchange wage information could result in a violation of the antitrust laws.  As noted, Delrahim reportedly expressed shock at the number of potential violations DOJ is investigating even after the issuance of the HR Guidance, but this “number” may simply be the result of a lack of awareness and understanding by employers.

In addition to the impending criminal cases, employers subject to an enforcement action should anticipate that civil lawsuits will follow.  These will likely be class actions, and if a class is certified, it could expose the employers to substantial monetary liability.  This is the pattern that occurred in the High-Tech consolidated cases which resulted in a settlement of $435 million  (settlement website available here).

Recommendations

Employers should consider conducting an internal investigation to ascertain whether they are currently engaging in conduct outlined by the DOJ and the FTC in the HR Guidance as potentially unlawful.  The investigation should include investigation of potential wage fixing and wage information sharing in addition to “no-poaching/no-hiring” agreements.  Employers should also make sure that they have an antitrust compliance policy in place that includes instructions on these practices.

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

Seyfarth Synopsis: In a nationwide consumer fraud class action involving false labeling claims under various state laws, a federal district court in Illinois granted the company’s motion to dismiss claims relative to a putative national class of plaintiffs, holding it did not have jurisdiction over the claims of the non-resident class of plaintiffs based on the recent U.S. Supreme Court opinion in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S.Ct. 1773 (2017). For businesses and employers facing nationwide class action lawsuits, this ruling is instructive in regards to strategies to fracture and minimize the class size, and limit potential liability.

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In DeBernardis v. NBTY, Inc., Case No. 17-CV-6125, 2018 U.S. Dist. LEXIS 7947 (N.D. Ill. Jan. 18, 2018), Plaintiff alleged that Defendants made false and misleading claims concerning the beneficial effects of a dietary supplement.  The four-count complaint alleged violations of state consumer fraud acts on behalf of a multi-state class, as well as a class of Illinois-based purchasers.  Defendants moved to dismiss on a variety of grounds, including their assertion that the Court did not have jurisdiction to hear the case involving the non-resident class of plaintiffs based on the recent U.S. Supreme Court opinion in Bristol-Myers Squibb.  Judge Harry D. Leinenweber of the U.S. District Court for the Northern District of Illinois granted Defendants’ motion to dismiss Counts I, III, and IV as to the putative national class of Plaintiffs.

Businesses and employers can use this ruling to attack and limit nationwide class actions involving the state law claims of non-resident plaintiffs, following the Bristol-Myers Squibb decision.

Case Background

Plaintiff brought a nationwide class action seeking monetary damages and injunctive relief against the distributor of a dietary supplements.  The four-count complaint alleged that Defendants made false and misleading claims concerning the beneficial effects of the product.  Id. at *1.  Count I alleged violations of state consumer fraud acts on behalf of a multi-state class; Count II alleged violation of the Illinois Consumer Fraud Act on behalf of Illinois purchasers; Count III alleged violations of express warranty on behalf of the nationwide class, and Count IV alleged unjust enrichment on behalf of the nationwide class.

Defendants moved to dismiss, arguing: (i) that as to Counts I, III, and IV, the Court did not have jurisdiction to hear the case involving non-resident classes of plaintiffs based on Bristol-Myers Squibb; (ii) that as to Count III, Plaintiff lacked Article III standing to claim injunctive relief; (iii) Plaintiff failed to allege that he gave pre-suit notice to Defendants of his breach of warranty claim; and (iv) Plaintiff’s claim for unjust enrichment failed for the national class for the same reason as his nationwide consumer fraud claim as alleged in Count I failed.  Id. at *2.

The District Court’s Decision

The Court granted the Defendants’ motion to dismiss Counts I, III, and IV relative to the allegations concerning the putative national class of Plaintiffs.  The Court explained that the main issue to be decided was the applicability of Bristol-Myers Squibb to the putative nationwide class action.  In analyzing Bristol-Myers Squibb, the Court explained how the U.S. Supreme Court pointed out that a variety of interests must be considered in determining whether personal jurisdiction is present, including those of the forum state, the defendant, and the plaintiff.  Id. at *3-4.  However, the primary concern is the burden on the defendant.  Id. at *4.  Further, the Court opined that in addition to the practical problems of litigating in the out-of-state forum, it must consider “the more abstract matter of submitting to the coercive power of a State that may have little legitimate interest in the claims in question.”  Id. (internal quotation marks and citation omitted).

In response to Defendants’ citation of Bristol-Myers Squibb, Plaintiff argued that his case was distinguishable since Bristol-Myers Squibb involved mass tort actions and not putative class actions, a point that was raised by U.S. Supreme Court Justice Sonia Sotomayor in her dissenting opinion in Bristol-Myers SquibbId.  Acknowledging that the applicability of Bristol-Myers Squibb to this case was a “close question,” the Court rejected Plaintiff’s argument and held that “it is more likely than not based on the Supreme Court’s comments about federalism that the courts will apply Bristol-Myers Squibb to outlaw nationwide class actions in a form, such as in this case, where there is no general jurisdiction over the Defendants.”  Id. at *5.  Further, the Court cautioned that the issue of forum shopping is just as present in multi-state class actions as it is in mass torts actions.  Id.  Accordingly, to the extent that Counts I, III and IV sought to recover on behalf of out-of-state Plaintiff classes, the Court granted Defendants’ motion to dismiss.

Implications For Employers

Although this case is outside of the workplace class action arena, its implications are highly relevant for employers facing nationwide workplace class action lawsuits that include state law claims.  As one of the early cases to interpret the U.S. Supreme Court’s Bristol-Myers Squibb decision from June 2017, the opinion in DeBernardis is instructive for businesses in terms of how they can argue that courts do not have jurisdiction to hear class actions involving state law claims of non-resident classes of plaintiffs.  The fracturing of nationwide class actions minimizes the impact of these bet-the-company cases for employers, and allows them to attack and defend against such claims in a more manageable fashion.