Class Action Litigation

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By Christopher M. Cascino and Gerald L. Maatman, Jr.

Seyfarth Synopsis: At the start of this week, the U.S. Supreme Court issued its long-awaited decision in China Agritech, Inc. v. Resh, No. 17-432 (U.S. June 11, 2018), which has important implications for employers because it will limit their exposure to successive class actions.  Specifically, the Supreme Court held that, while the individual claims of putative class members are tolled during pending class actions, their class claims are not. 

Case Background

The China Agritech case was the third putative shareholder class action brought against China Agritech alleging fraud and misleading business practices.  The first such action was brought by Theodore Dean on February 11, 2011. On May 3, 2012, the court in Dean denied class certification, and Theodore Dean then settled his individual claim.

On October 4, 2012, a new set of plaintiffs brought the second putative class action, the Smyth action, against China Agritech. The district court again denied class certification, after which the Smyth plaintiffs settled with China Agritech.

On June 30, 2014, Michael Resh filed a third putative class action against China Agritech. China Agritech argued that Resh’s class claims expired on February 3, 2013 under the applicable two-year statute of limitations.  Resh argued that his class claims were tolled during the Dean and Smyth actions under the principles of American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), in which the Supreme Court held that the filing of a class action tolls the applicable statute of limitations for all putative class members.

The district court found that American Pipe tolling did not apply to class claims, and thus dismissed Resh’s class claims as untimely.  The Ninth Circuit reversed.  To resolve a circuit split, the Supreme Court granted certiorari.

The Supreme Court’s Decision

In an opinion by Justice Ginsburg, the Supreme Court began by considering the rationale behind its decision in American Pipe.  Specifically, the Supreme Court observed that the purpose of American Pipe tolling is to avoid putative class members filing motions to intervene or separate, individual suits to protect their claims in the event class certification was denied.  China Agritech, No. 14-432 at *5-6.  The Supreme Court further noted that the efficiency and economy purposes of Rule 23 would be undermined if putative class members needed to file motions to intervene and individual actions to preserve their individual claims while putative class actions were pending.  Id. at *6-*7.

The Supreme Court observed that Rule 23 favors early resolution of class certification questions, in that it Rule 23 states that class certification should be decided at “‘an early practicable time.’” Id. at *7 (quoting Fed. R. Civ. P. 23(c)).

The Supreme Court also considered the basis for allowing equitable tolling. Specifically, the Supreme Court pointed out that, to receive equitable tolling, plaintiffs must demonstrate that they have “been diligent in the pursuit of their claims.” China Agritech, No. 14-432 at *9. The Supreme Court found that “[a] would-be class representative who commences suit after expiration of the limitation period . . . can hardly qualify as diligent in asserting claims and pursuing relief.” Id.

Finally, the Supreme Court found that the problem with allowing American Pipe tolling to apply to class claims is that “the time for filing successive class suits . . . could be limitless.” Id. at *10. It held that “[e]ndless tolling of a statute of limitations is not a result envisioned by American Pipe.” Id. at *11. Accordingly, the Supreme Court held that “[t]ime to file a class action falls outside the bounds of American Pipe.” Id. at *15.

Implications For Employers

While China Agritech is not an employment case, it nonetheless represents an important win for employers because it limits the ability of employees to bring successive class actions on the same claims. If the Supreme Court had ruled that American Pipe tolling applied to class claims, employers who won on class certification in one case could then face successive putative class actions asserting the same claims for an indefinite period of time. Since the Supreme Court ruled that American Pipe tolling does not apply to class claims, employers can now have the certainty of knowing the date on which particular class claims expire.

By Gerald L. Maatman, Jr.

Seyfarth Synopsis: On April 30, 2018, the U.S. Supreme Court granted a writ of certiorari in Lamps Plus Inc. v. Varela, No. 17-988. This matter, which involves the interpretation of workplace arbitration agreements, has the potential to significantly impact class action litigation. In today’s video, Partner Jerry Maatman of Seyfarth Shaw explains the legal framework of this case, as well as its importance for employers.

Lamps Plus Inc. v. Varela began as a putative class action filed in 2016 after a phishing incident at Lamps Plus. Specifically, Plaintiff Frank Varela’s tax information was compromised when an unknown individual posed as a company executive and gained access to confidential employee data. However, Lamps Plus argued that the company’s arbitration agreement signed by Varela mandated that his claims be handled through arbitration on an individual basis, thereby precluding his class action. Both the U.S. District Court for the Central District of California and the U.S. Court of Appeals for the 9th Circuit agreed with Varela’s argument that the arbitration agreement allowed for class arbitration.

The major question in this case regards the circumstances in which class arbitration can be compelled under the Federal Arbitration Act (“FAA”). Though the Supreme Court agreed to review this question in the near future, it answered nearly the same question in 2010 in a case entitled Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which it held that class arbitration is authorized only when all parties specifically agree to it. Within the next 6-12 months, we can expect the Supreme Court to again a decision on this important class action topic.

Implications For Employers

Employers and human resources personnel who handle employment contracts should keep a close eye on this case. The decision in Lamps Plus Inc. v. Varela may very well impact an employer’s process in drafting arbitration clauses.

Furthermore, the Supreme Court’s decision to review this matter, while also considering Epic Systems Corp. v. Lewis, No. 16-285, indicates a significant interest in class action issues. Both of these matters have the potential to greatly impact employment class action litigation. Make sure to watch the video above for a detailed explanation of the Varela debate, and stay tuned to our blog for the latest updates!

By Gerald L. Maatman, Jr.

Seyfarth Synopsis: In its recent review of Seyfarth’s 2018 Annual Workplace Class Action Litigation Report, EPLiC called it the “bible” for class action legal practitioners, corporate counsel, employment practices liability insurers, and anyone who works in related areas.

We are humbled and honored by the recent review of our 2018 Annual Workplace Class Action Litigation Report by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here.

EPLiC said: “The Report is a must-have resource for legal research and in-depth analysis of employment-related class action litigation. Anyone who practices in this area, whether as a corporate counsel, a private attorney, a business execu­tive, a risk manager, an underwriter, a consul­tant, or a broker, cannot afford to be without it. Importantly, the Report is the only publica­tion of its kind in the United States. It is the sole compendium that analyzes workplace class actions from ‘A to Z.’”

We are often asked – “How does it happen – how do you produce your Annual Workplace Class Action Litigation Report”?

The answer is pretty simple – we live, eat, and breathe workplace class action law 24/7.

Each and every morning we check the previous day’s filings of EEOC lawsuits and workplace class actions relative to employment discrimination, ERISA, and wage & hour claims. We do so on a national basis, both in federal courts and all 50 states. Then we check, log, and analyze every ruling on Rule 23 certification motions and subsidiary issues throughout federal and state trial and appellate courts. This is also done on a national basis.  We put this information in our customized database; we analyze and compare the rulings on class action issues and Rule 23 topics, and then we prepare an analysis of each and every decision.

Our class action practitioners – a group of over 175 Seyfarth lawyers – contribute to the process of building the database and analyzing decisional law on a daily basis.

We have been doing this on a 24/7 basis for over 14 years, and publishing the Annual Workplace Class Action Litigation Report in the first week of January of each calendar year.

The result is a compendium of workplace class action law that is unique in its analysis, scope, and comprehensiveness.

We are particularly proud that EPLiC recognized our Report as the “state-of-the-art report” on workplace class action litigation.

Thanks EPLiC. We sincerely appreciate the kudos.

Now, even less than half way through the year, we have tracked and analyzed more class action decisions to this point in 2018 than at the halfway point in past years. On this pace, our 2019 Report will cover more decisions than ever before.

By: Gerald L. Maatman, Jr. & Michael L. DeMarino

Seyfarth Synopsis:  In September 2017, our blog posted a video highlighting an emerging class action litigation risk for employers – the Illinois Biometric Information Privacy, commonly known as “BIPA.”  Since this time, class action filings under BIPA have exploded, including a potentially-landmark case against social media giant Facebook.  Today, Seyfarth Shaw Associate Mike DeMarino discusses the Facebook case, as well as its potential impact on employers, with Partner Jerry Maatman.

The BIPA statute was enacted by the Illinois legislature in 2008 in an effort to keep up with various industries’ use of employees’ biometric data.  In this context, biometric data refers to a number of measurements of individual biological patterns that can be used to identify individuals.  Examples we have seen cited in BIPA litigation include retina/iris scans, fingerprints, voiceprints, and scans of hand/face geometry.

Though the BIPA statute was enacted in Illinois ten years ago, employers and litigators are still waiting to see how certain aspects of the law will be interpreted.  A recent class action, entitled In Re Facebook Biometric Information Privacy Litigation, Case No. 15-CV-3747 (N.D. Cal.), may provide some important answers.  This matter, filed by three Facebook users in Illinois, involves allegations that Facebook violated users’ rights to privacy under BIPA through its automatic face-tagging feature.  On April 16, 2018, a federal judge in California certified (see order here) the class as all “Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.”  The case is set for trial in June 2018.

As Jerry explains in the video, employers should keep a close eye on the outcome of this class action.  The key debate, centered around the concept of “standing” under Spokeo, Inc. v. Robins 136 S. Ct. 1540 (2016), has the potential to significantly impact future BIPA litigation.  For a full explanation of this case and employer class action litigation risk under BIPA, make sure to watch the video above!

By Gerald L. Maatman, Timothy F. Haley, and Ashley K. Laken

Seyfarth Synopsis: There are currently pending at least four class actions claiming that provisions contained in franchise agreements prohibiting the hiring of employees of other intrabrand franchisees without the consent of their employer violate the antitrust laws.  That being said, in 1993 the Ninth Circuit affirmed summary judgment in favor of a franchisor in a similar “no-hire” case.  It reasoned that due to the control the franchisor exercised over its franchisees, the franchisor and its franchisees were incapable of conspiring in violation of Section 1 of the Sherman Act. While the so-called “single enterprise” defense is potentially available, franchisors should be cognizant that in developing that defense, they may create evidence or admissions that would support a subsequent claim that the franchisors are joint employers of their franchisees’ employees.  In light of the availability of other defenses, franchisor employers should assess whether the joint employer risk is worth accepting in order to pursue the single enterprise defense. 

Introduction

“No-hire” (sometimes referred to as “no-switching”) agreements are contracts between or among employers not to hire each other’s employees.  A “no-poaching” agreement is different but similar.  It prevents the solicitation of another employers’ employees, but does not prevent their hire, so long as there was no solicitation.  The franchise no-hire agreements typically are limited in duration.  For example, in pending litigation against Pizza Hut,  it is alleged that the challenged agreement only prohibits hiring anyone who was in a managerial position at another Pizza Hut restaurant at any time during the previous six months.  Ion v. Pizza Hut, LLC, Case No. 4:17-cv-00788, Complaint at ¶ 4, available at https://www.classaction.org/media/ion-v-pizza-hut-llc.pdf (last visited on 4/10/2018).

In 2017, at least three class action cases were brought against separate franchisors alleging that the organizations’ “no-hire” agreements suppress wages and violate antitrust laws.  And a fourth was filed in January 2018.  There may be more to come.  In a letter to Attorney General Jeff Sessions dated November 21, 2017, Senators Elizabeth Warren and Cory Booker inquired as to whether DOJ was “currently investigating the use of no-poach agreements in the franchise industry.”  In that correspondence, Senators Warren and Booker cited to a study by Princeton economists that found that “fully 58% of the 156 largest franchisors operating around 340,000 franchise units used some form of anti-competitive ‘no-poach’ agreements.”  See https://www.warren.senate.gov./files/documents/2017_11_21_No_Poach.pdf (last visited on 4/10/2018).

To prove a violation of Section 1 of the Sherman Act, the plaintiff must show an agreement between or among two or more persons or entities.  Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984).  In 1993, a Jack-in-the-Box franchisor successfully defended a challenge to its no-switching agreement on the grounds that the franchisor and its franchisees were a single enterprise and incapable of conspiring in violation of Section 1.  Williams v. I.B. Fischer Nevada, 999 F.2d 445, 447-48 (9th Cir. 1993) (per curiam).

That defense is premised upon the control that a franchisor has over the operations of its franchisees.  And the question then is whether developing that defense creates an unacceptable risk of creating evidence or admissions supporting joint employer status.

The Single Enterprise Defense

In the franchise no-hire context, usually there is little dispute that an agreement exists.  It is typically contained in the franchise agreements between the franchisor and each of its franchisees.  But the parties to the alleged unlawful agreement must also be legally capable of conspiring.  In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984), the U.S. Supreme Court held that a parent and its wholly owned subsidiary were incapable of conspiring in violation of Section 1 because their conduct must be viewed as that of a single enterprise.  The Supreme Court reasoned that “[a] parent and its wholly owned subsidiary have a complete unity of interest.  The objectives are common, not disparate; the general corporate actions are guided or determined not by two separate corporate consciousnesses, but one.”  Id.  It therefore reversed the decision of the Seventh Circuit which had affirmed a jury verdict in favor of the plaintiff.

In 1993, without mentioning Copperweld, the Ninth Circuit extended this single enterprise concept to the franchise environment in a no-hire case.  Williams, 999 F.2d at 447-48.  Other courts have also found that franchisors were incapable of conspiring with their franchisees within the meaning of the Sherman Act.  See Danforth & Associates, Inc.,  v. Coldwell Banker Real Estate, LLC, Case No. C10-1621, 2011 U.S. Dist. LEXIS 10882, *6-7 (W.D. Wash. Feb. 2, 2011) (franchisor and franchisee cannot conspire within the meaning of the Sherman Act); Search International, Inc. v. Snelling and Snelling, Inc., 168 F. Supp. 2d 621, 626-27 (N.D. Tex. 2001) (unity of interest between franchisor and its franchisees made them incapable of conspiring in violation of the Sherman Act); Hall v. Burger King Corporation, 912 F. Supp. 1509, 1548 (S.D. Fla. 1995) (franchisor and franchisee were incapable of conspiring under the Sherman Act).

But the authorities cited above do not stand for the broad proposition that franchisors, in general, cannot unlawfully conspire with their franchisees.  The district court in Williams itself acknowledged that the issue required an examination of the particular facts.  Williams v. I.B. Fischer Nevada, 794 F. Supp. 1026, 1030 (D. Nev. 1992).  Likewise, some have opined that the Supreme Court’s subsequent decision in American Needle v. National Football League, 560 U.S. 183 (2010), makes it more difficult for franchisors to argue that the franchise system is a single economic enterprise.  See B. Block & M. Ridings, Antitrust Conspiracies in Franchise Systems After American Needle, Franchise L.J., Vol. 30, No. 4 (Spring 2011).  In American Needle, the Supreme Court held that the National Football League was not a single enterprise for antitrust purposes regarding certain licensing activities.  Id. at 186.

Thus, while certainly authority exists to support the argument that franchisors cannot conspire with their franchisees in violation of Section 1, the defense may not be successful in every case.  And as noted, developing that defense may create evidence or admissions that could be used to support a joint employer argument that could create legal risks for franchisors in other contexts.

Potential Joint Employer Liability

There are numerous laws that recognize that an employee can be simultaneously employed by more than one employer.  This is referred to as joint or co-employment.  If a franchisor is found to be the joint employer of the employees of its franchisee, it could be exposed to liability for, among other things: benefits under the franchisor’s benefit plans; Occupational Safety and Health Act (“OSHA”) violations; violations of the National Labor Relations Act (“NLRA”); violations of the Fair Labor Standards Act (“FLSA”); violations of state and federal employment practices statutes; and violations of numerous state laws, depending upon the state.

Franchisors have had notable success in defeating claims that they are a joint employer of their franchisees’ employees.  For example, in Pope v. Espeseth, Inc., 228 F. Supp. 3d 884, 889‑91 (W.D. Wis. 2017), the court held that the franchisor was not a joint employer of the franchisees’ employees under the FLSA.  The court found, among other things, that the franchisor did not exercise control over the franchisees’ employees’ working conditions.  See also Ochoa v. McDonald’s Corp., 133 F. Supp. 3d 1228, 1235-38 (N.D. Cal. 2015) (franchisor was not joint employer of franchisees’ employees because, among other things, it did not exercise requisite control of their wages, hours or working conditions).

But it is difficult to predict whether a joint employer relationship exists.  First, the tests vary depending upon the law or statute at issue.  Compare Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156, slip op. at 6 (Dec. 14, 2017), vacated on other grounds by Hy-Brand Industrial Contractors, Ltd., 366 NLRB No. 26 (Feb. 26, 2018) (applying common law agency principles) with Barfield v. New York City Health and Hospitals, 537 F.3d 132, 141‑43 (2d Cir. 2008) (applying an economic realities test under the FLSA).  And even under the same law, the courts sometimes apply different tests depending upon the jurisdiction.  See Hall v. DirecTV, LLC, 846 F.3d 757, 766 (4th Cir. 2017) (noting that “courts in various jurisdictions within this Circuit and throughout the country [apply] numerous, distinct, multifactor joint employment tests” under the FLSA).  Likewise, even under the NLRA, the law has fluctuated between a direct and indirect control test.  See Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156, slip op. at 1-8 (Feb. 26, 2018).

The joint employer tests are also ambiguous.  Most of the tests require consideration of multiple factors, no one of which is controlling, and require the decision-maker to consider the “totality of circumstances.”  See, e.g., Barfield, 537 F.3d at 141-42 (noting that the FLSA multifactor test considers the totality of the circumstances).  The courts recognize that this is an inherently ambiguous test that at times leads to arbitrary results.  See Salinas v. Commercial Interiors, Inc., 848 F.3d at 137 ( “[L]ike other open-ended balancing tests,” this universe of nebulous factors test has “yield[ed] unpredictable and at times arbitrary results”) (internal citations and quotations omitted).

But in all of these multifactor tests, one of the factors considered is whether the potential joint employer has the right to, or exercises, “control.”  See, e.g., Hy-Brand Industrial Contractors, Ltd., 365 NLRB 156, slip op. at 35  (“requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms”) (emphasis in original); Zheng v Liberty Apparel Co., 355 F.3d 61, 72 (2d Cir. 2003) (listing factors to consider to ascertain whether alleged joint employer has “functional control over workers” for purposes of the FLSA).

Certainly, the case can be made that the control necessary to establish the single enterprise defense is not the type of control necessary to support a joint employer finding.  For example, a parent-subsidiary relationship is sufficient to establish the single enterprise defense, see, e.g., Copperweld, 467 U.S. at 777, but insufficient to show a joint employer relationship, see Anwar v. Dow Chemical Co., 876 F.3d 841, 852-53 (6th Cir. 2017) (parent company not joint employer of subsidiary’s employees).  To establish the single enterprise defense in the franchise context, the franchisor will have to show that it has substantial control over the franchisees’ operations.  For example, in Williams, the court found that the franchisor exercised “almost complete control” over all decisions affecting the operation of the restaurants.  794 F. Supp. at 1032.  Whether a franchisor can make a similar showing without creating evidence of joint employment is not risk free.

Other Defenses To The Antitrust No-Hire Claims May Be Strong

Normally, an agreement will violate Section 1 of the Sherman Act only if it has an unreasonably adverse effect on competition.  The so-called “rule of reason” standard requires courts, in most cases, to analyze the effect of the agreement on competition in a relevant market and determine whether its anticompetitive effects outweigh its procompetitive benefits in that market.  See generally Atlantic Richfield Co. v. U.S.A. Petroleum Co., 495 U.S. 328, 342 (1990).  Judicial experience with certain types of agreements, however, has demonstrated that such agreements are so plainly or manifestly anticompetitive that no elaborate study is necessary.  Such agreements are conclusively presumed to be unreasonable and are deemed unlawful per se.  See, e.g., Business Electronics Corp. v. Sharp Electronics, Corp., 485 U.S. 717, 723-24 (1988).

Rule Of Reason Analysis Should Apply

The rule of reason should apply in determining the antitrust legality of no-hire agreements in the franchise setting.  First, the restraint is not naked but rather ancillary to the franchise agreement.  In Williams. the agreement’s purpose was to prevent raiding after time and expense had been invested in training.  794 F. Supp. at 1092.  Ancillary restraints are judged under the rule of reason.  See generally Eichorn v. AT&T Corp., 248 F.3d 131, 142-46 (3d Cir. 2001) (ancillary agreements are judged under the rule of reason).

Second, since the agreements are limited to a single brand, they should be viewed as an intrabrand restraint imposed vertically by the franchisor to encourage training by franchisees to assist in competing against other franchise brands.  Interbrand, as opposed to intrabrand, competition is “the primary concern of antitrust law.”  Continental T.V. v. GTE Sylvania Inc., 433 U.S. 36, 52 n.19 (1977).  And nonprice vertical restraints that impose limitations on intrabrand competition are normally judged under the rule of reason.  See generally ABA Section of Antitrust Law, Antitrust Law Developments, 152-57 (8th ed. 2017) (“Developments”); see also Bogan v. Hodgkins, 166 F.3d 509, 515 (2d Cir. 1999) (refusing to apply per se rule to antitrust challenge to no-switching agreement).

Individual Franchisors Do Not Have the Power To Suppress
Wages In The Market For Restaurant Manager Jobs

Under the rule of reason, courts usually require “proof of a defendant’s market power as a prerequisite for a plaintiff seeking to satisfy its burden of proving likely anticompetitive effect.”  Developments at 71.  Market power is defined as the ability to raise prices above those that would be charged in a competitive market.  Id. at 70-71.  In the wage suppression context, that translates into the capability of a defendant to lower wages below those that would be paid in a competitive market.  Courts rarely find that market power exists if a defendant’s market share is under 30 percent.  Id. at 71.

To prove that a defendant has market power, the plaintiff must normally establish a relevant market, both in terms of the product involved and the geographic scope.  The product market must include all products that are reasonably interchangeable.  See generally id. at 583‑88.  Significantly, “relevant markets generally cannot be limited to a single manufacturer’s products.”  Id. at 591.  In the franchise no-hire cases, that means that the product market must include jobs provided by all employers who offer positions that are reasonable substitutes for one another.

The plaintiffs in the pending franchise no-hire cases claim that specialized training renders jobs at other franchises unreasonable substitutes.  E.g., Ion v. Pizza Hut, LLC, Case No. 4:17‑cv‑00788, Complaint at ¶¶ 80-81, available at https://www.classaction.org/media/ion-v-pizza-hut-llc.pdf (last visited on 4/10/2018).  Thus, the plaintiffs are necessarily contending that the relevant product market is limited only to jobs at the defendant franchisor’s franchisees.  But to accept this argument the court would have to adopt the disfavored single brand market, and plaintiffs have failed to prevail on similar arguments in at least three other no-hire cases.  See Eichorn, 248 F.3d at 148 (rejecting argument that relevant market was limited to jobs at AT&T and its affiliates); Bogan, 166 F.3d at 516 (affirming summary judgment in a no-switching agreement case because plaintiffs were unable to show that the “specialized training and expertise” was sufficient to create an antitrust submarket consisting of agent positions provided by a single insurance company); CMT, 2008 U.S. Dist. LEXIS 63633 at *29‑31 (granting summary judgment to defendants because plaintiffs had not shown that the relevant market was limited to jobs in the oil and petrochemical industry).

It is also highly unlikely that a plaintiff can show that any single franchisor possesses market power (i.e., the ability to suppress wages) in the market for supervisor jobs, or even for manager or supervisor positions limited to such establishments..  Certainly, no franchisor possesses 30 percent or more of either of those markets.

Plaintiffs may try to avoid this outcome by arguing that they can demonstrate actual anticompetitive effects resulting from the no-hire agreements with direct evidence, making a showing of market power unnecessary.  See generally Developments at 68-70 (noting that some cases have acknowledged that proof of actual competitive harm can obviate the need to show market power even when restraints are not naked restrictions on price or output).  But such a showing is difficult to make and has been rejected in at least one wage suppression case involving the exchange of wage information because the plaintiffs were unable to show that the relevant market was limited to jobs in the oil and petrochemical industry.  See CMT, 2008 U.S. Dist. LEXIS 63633 at *23‑26; see also Developments at 68‑70 (“attempts to prove substantial, actual anticompetitive effects have often been unsuccessful,” citing cases).

For these reasons, franchisors have very strong arguments that no-hire agreements limited to their own franchisees that are limited in duration and designed to create incentives for franchisees to provide training do not violate the antitrust laws.  Thus, franchisor defendants in these cases should carefully consider whether it is necessary to pursue the single enterprise defense and risk creating evidence that could support a joint employer argument in other contexts.

Conclusion

While each case will turn on its own facts, franchisors may have strong defenses available to them to resist antitrust challenges to their no-hire agreements.  One of those defenses is the single enterprise defense, but pursuing that defense may create evidence that could be used against the franchisor in a subsequent joint employer claim.  And, it is difficult to predict the potential adverse effects of creating that evidence given the current ambiguity and evolving nature of the joint employer doctrine.  Thus, before raising the single enterprise defense, franchisors should carefully analyze the strength of that and other available defenses to the no-hire claim and weigh that against the risk of a joint employer claim.

 

By Gerald L. Maatman, Jr.

Seyfarth Synopsis: On Monday, March 26, the U.S. Supreme Court focused on two notable class action issues, each with the potential to significantly impact workplace litigation.  In today’s video vlog, Partner Jerry Maatman of Seyfarth Shaw breaks down the importance of class action tolling issues and the concept of “cy pres” settlements for employers.

The first Supreme Court case discussed in the video is China Agritech v. Resh, et al. No. 17-432.  This case involves allegations of securities fraud by a class of shareholders against a Chinese fertilizer company.  Plaintiffs failed to gain class certification in two successive class actions, and while these lawsuits were pending, the two-year statute of limitations for securities fraud claims expired.  Nevertheless, the 9th Circuit allowed a third class action to move forward on the basis of American Pipe tolling, and Defendant China Agritech appealed to the Supreme Court. The Supreme Court’s consideration of the boundaries of American Pipe tolling in the China Agritech case may well have profound implications for workplace class action litigation.

Next, we analyze the legal concept of “cy pres” distributions in class action settlement.  “Cy pres” is a French doctrine translated to mean “as close as possible.”  This notion was originally intended to apply to trust-law and the division of excess charitable funds.  However, it has been adapted by the Plaintiffs’ bar to apply in situations involving class action settlements without a clear beneficiary.  On March 26, the Supreme Court denied certiorari in two matters addressing this topic, including Tavares et al. v. Gene Whitehouse et al., No. 17-429, and the combined cases Tingle v. Perdue, No. 17-807 and Mandan v. Perdue, No. 17-897.  The Perdue cases considered the distribution from a $380 million settlement of a landmark 2010 Native American discrimination case known as the Keepseagle.

As Jerry discusses in the video, the outcomes of both debates have the potential to shift important facets of class action litigation.  Notably, for the China Agritech case, the Supreme Court might re-shape the landmark 1974 decision in American Pipe & Construction v. Utah, 414 U.S. 538 (1974).  Regarding “cy pres” settlement distributions, though the Supreme Court denied review in this instance, the debate is too pressing in respect to class action litigation to be avoided for long.  Make sure to watch the video above for Jerry’s complete analysis on both topics!

 

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

Synopsis: In an ADEA collective action alleging that a community college discriminated on the basis of age when it announced it would no longer employ any person receiving an annuity from the State Universities Retirement System (SURS), a federal district court in Illinois granted the college’s motion for summary judgment, holding that the decision to discontinue the employment of all SURS annuitants regardless of age did not amount to discrimination.

For employers considering mass employment actions that may impact a large number of older employees, this ruling provides insight into the factors that courts will examine in potential ADEA collective actions.

***

Case Background

In November 2014, Oakton Community College (“Oakton”) announced that as of July 1, 2015, it would no longer employ any person receiving an annuity from the State Universities Retirement System (“SURS”).  Affected SURS annuitants — all of whom worked at Oakton as part-time, or adjunct, faculty members prior to July 2015 — filed three separate lawsuits against Oakton.  Following the Court’s consolidation of the lawsuits, in Filipek  v. Oakton Community College, No. 16-CV-2902, 2018 U.S. Dist. LEXIS 31727 (N.D. Ill. Feb. 28, 2018), Plaintiffs alleged that Oakton’s decision not to employ SURS annuitants violated the Age Discrimination in Employment Act of 1967 (“ADEA”) and Illinois Human Rights Act (“IHRA”), among other claims.  Id. at *2-3.

The Court granted Plaintiffs’ motion for certification of an ADEA collective action and Rule 23 class certification on the IHRA claims that consisted of “all part-time and adjunct faculty who were denied employment at Oakton Community College as the result of its policy not to employ or re-employ [SURS] and who are not ‘affected annuitants’ pursuant to 40 …”  Id. at *3.  Thereafter, Oakton (and the individual Defendants) moved for summary judgment.

The Court’s Decision

The Court granted Oakton’s motion for summary judgment as to all claims.  First, regarding Plaintiffs’ disparate treatment claims, Oakton argued that summary judgment was warranted because no reasonable factfinder could conclude that age was a “but-for” cause of Oakton’s decision not to employ any SURS annuitants after July 1, 2015.  Id. at *9-10.  Plaintiffs contended that they presented evidence sufficient to make out a prima facie case of disparate treatment under the McDonnell Douglas framework, and that a grant of summary judgment was unwarranted because there were disputed factual issues regarding whether Oakton’s given reason for the decision not to employ any SURS annuitants was pretextual.  Id. at *10.  Noting that all SURS annuitants were fired, and that all employees — regardless of age — who remained employed by the college were not SURS annuitants, the Court held that Plaintiffs did not make out a prima facie case of discrimination under the McDonnell Douglas framework.  Id. at *11.

Turning to Plaintiffs’ disparate impact claims, Oakton argued that Plaintiffs could not make out a prima facie case because they could not establish that Oakton’s decision to no longer employ SURS annuitants caused a significantly disproportionate adverse impact based on age, and that even if Plaintiffs could make out a prima facie case, summary judgment was warranted because its decision to discontinue the employment of all SURS annuitants was based on a reasonable factor other than age — namely, the desire to eliminate the risk of having to pay a penalty to SURS for employing an affected annuitant.  Id. at *14-15.  Plaintiffs identified a specific, facially neutral employment practice that they alleged adversely impacted them because of their age: i.e., Oakton’s decision not to employ any SURS annuitant after July 1, 2015.  Id. at *15.  The Court held this was likely sufficient to establish a prima facie case under a disparate impact theory.  Id.  However, the Court noted that none of the evidence cited by Plaintiffs undermined Oakton’s explanation that the only sure way to prevent mistaken employment of an affected annuitant and the resulting payment to SURS was to discontinue the employment of all SURS annuitants.  Id. at *16.  Acknowledging that there may have been other reasonable and more narrowly tailored ways for Oakton to address this problem, the Court nonetheless held that no reasonable jury could find that Oakton’s decision to no longer employ any SURS annuitants was unreasonable.  Id. 

Accordingly, the Court granted summary judgment for Oakton (and all other Defendants) on Plaintiffs’ disparate impact age discrimination claims under the ADEA and the IHRA.  The Court also granted summary judgment for Defendants as to the remaining state law and other claims.

Implications For Employers

Employers who are considering whether to discontinue the employment of a large number of older employees must be cognizant that such personnel decisions could make them prime targets for ADEA collective actions and/or class actions under state workplace laws.  In Filipek, the employer emerged victorious at the summary judgment stage because it discontinued the employment of all annuitants, and therefore, its employment decision did not amount to age discrimination.  Nonetheless, employers should exercise extreme caution when considering mass lay-offs or employment discontinuances given how closely courts (and the plaintiffs’ class action bar) scrutinize such decisions.

 

By Scott Rabe, Gerald L. Maatman, Jr., and Marlin Duro

Seyfarth Synopsis: In its recent decision in EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., No. 16-2424, 2018 U.S. App. LEXIS 5720 (6th Cir. Mar. 7, 2018), the U.S. Court of Appeal for the Sixth Circuit has sent the strong message that the Religious Freedom Restoration Act (“RFRA”) has minimal impact on the Equal Employment Opportunity Commission’s (“EEOC”) authority to enforce the anti-discrimination laws under Title VII of the Civil Rights Act of 1964 (“Title VII”).  The ruling is a big win for the EEOC.

In EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., a Sixth Circuit panel held in a unanimous decision that: (i) Title VII’s proscription of discrimination on the basis of sex encompasses a prohibition on discrimination based on transgender status, and that (ii) in this case the RFRA would not limit the EEOC’s authority to enforce anti-discrimination laws under Title VII.  With this decision, the Sixth Circuit became the first federal Court of Appeals to address the extent to which the RFRA may limit the EEOC’s power to enforce Title VII.[1]

Case Background

By way of background, the EEOC brought suit against a funeral home on behalf of a transgender employee, Aimee Stephens, who was terminated from her employment shortly after informing her employer that she intended to transition from male to female.  The EEOC alleged the funeral home violated Title VII by terminating Stephens’ employment on the basis of her transgender or transitioning status and her refusal to conform to sex-based stereotypes.  The funeral home argued that Title VII did not prohibit discrimination on the basis of transgender status and that the funeral home was protected from enforcement of Title VII by the  RFRA as the government action would constitute an unjustified substantial burden upon the funeral home owner’s exercise of his sincerely held religious beliefs.

Both parties moved for summary judgment and the district court found in favor of the funeral home on both motions  The district court found that Title VII did not protect against discrimination based on transgender status and that, while Stephens had suffered discrimination based on sex stereotyping, the RFRA prevented the EEOC from suing on her behalf.

The Sixth Circuit Appeal

On the EEOC’s appeal, the Sixth Circuit reversed the district court with respect to both motions and  granted summary judgment in favor of the EEOC. First, the Sixth Circuit held that the funeral home’s conduct violated Title VII, reinforcing its prior holdings that discrimination against employees because of their gender identity and transgender status are illegal under Title VII’s prohibition of sex discrimination based on sex stereotyping.  The Sixth Circuit explained that “discrimination on the basis of transgender and transitioning status is necessarily discrimination on the basis of sex” and found that firing a person because he or she will no longer represent him or herself as the gender that he or she was born with “falls squarely within the ambit of sex-based discrimination” forbidden under Title VII.  Id. at *18.

Second, the Sixth Circuit held that the EEOC’s enforcement of Title VII against the funeral home did not violate the funeral home’s rights under the RFRA.  A viable defense based on the RFRA requires a demonstration that the government action at issue would substantially burden a sincerely held religious exercise.  Although the Sixth Circuit treated the running of the funeral home as a sincere religious exercise by the owner, it held that the alleged burden caused by the enforcement of Title VII was not “substantial” within the meaning of RFRA.  The Sixth Circuit reasoned that tolerating an employee’s understanding of his or her sex and gender identity was not “tantamount to supporting it” and that mere compliance with Title VII, “without actually assisting or facilitating transition efforts,” did not amount to an endorsement by the employer of the employee’s views.  Id. at *59, *61.  Nor, the Sixth Circuit explained, could the funeral home rely on customers’ “presumed biases” against transgender individuals to meet the substantial burden test. Accordingly, the Sixth Circuit held that the funeral home had not demonstrated a substantial burden on the its religious exercise.

While the Sixth Circuit could have ended its analysis there, it went on to hold that even if tolerating Stephens’ gender identity and transitioning status were a “substantial burden” on the funeral home’s religious exercise, the EEOC did not violate the RFRA because the agency had a compelling interest in eradicating all forms of invidious employment discrimination, and enforcement of Title VII through its enforcement function was the least restrictive means for eradicating discrimination in the workforce.  This analysis, if found not to apply only to the facts of this case, could ostensibly doom any defense to a Title VII action within the Sixth Circuit where an employer raises a defense based on the RFRA.

Implications For Employers

The Sixth Circuit’s opinion is an important one, as it addresses two of the more hot button topics in employment jurisprudence:  the scope of the definition of “sex discrimination” under Title VII and the impact of laws protecting the free exercise of religion in the workplace.  On the former, this opinion joins the recent trend in decisions finding that gender identity is inextricably linked with sex and therefore is protected under Title VII.  And on the latter, the Sixth Circuit has laid down a gauntlet as the first federal circuit addressing the RFRA’s impact on the EEOC’s Title VII enforcement power.  The decision is clearly intended to send a strong message that the RFRA has limited application, if any, in defense of a Title VII action brought by the Commission.  While time will tell whether other federal circuits will adopt a similar interpretation, if the Sixth Circuit’s legal rationale is followed, employers will be hard-pressed to defend Title VII claims brought by the EEOC based on the alleged exercise of religious freedom.

In light of the current uncertainty regarding the ultimate interpretation of Title VII as it applies to gender identity, employers should regularly review their policies to ensure that adequate protections are provided to employees on the basis of their gender identity, and transgender and transitioning status.  As always, we also invite employers to reach out to their Seyfarth contact for solutions and recommendations regarding anti-harassment and EEO policies and addressing compliance with LGBTQ+ issues in the law.

[1]              The RFRA, enacted in 1993, prohibits the government from enforcing a law that is religiously neutral against an individual, if the natural law “substantially burdens” the individual’s religious exercise and is not the least restrictive way to further a compelling government interest.  Importantly, the RFRA applies only in the context of government action, and therefore would not provide a defense for an employer in a civil suit brought by a private plaintiff.

By Gerald L. Maatman, Jr., Timothy F. Haley, and Ashley K. Laken

Seyfarth Synopsis: Over the past few weeks, we have been covering the release of our 14th Annual Workplace Class Action Litigation Report. Today’s post focuses on an emerging trend in the workplace class action space — regarding workplace antitrust class actions. In this video blog, Associate Ashley Laken of Seyfarth Shaw, joined by Partner Jerry Maatman and Senior Counsel Tim Haley, provides an overview on the expected rise in class action filings alleging no-hire or no-poaching agreements.

At the core of our topic today are anticipated filings of workplace class actions alleging wage suppression in violation of Section 1 of the Sherman Act.  The Department of Justice (“DOJ”) has recently stated that it is currently investigating a number of no-hire or no-poaching agreements among employers, and it anticipates announcing what may be criminal enforcement actions in the next couple of months.  We previously blogged about this announcement here.

DOJ enforcement actions such as this frequently lead to follow-on private class actions.  For example, this is what occurred in the highly publicized consolidated class action entitled In Re High-Tech Employee Antitrust Litigation.  High-Tech involved and alleged series of agreements among large Silicon Valley companies not to cold call each other’s employees.  After the Court granted plaintiffs’ motion for class certification, the case settled for a total of $435 million.

As our team explains in this video, we believe the key issue in these cases is class certification.  Employers have had little success prevailing on motions to dismiss or motions for summary judgment.  The potential damages, which are trebled under the antitrust laws, are staggering putting enormous pressure on employers to settle the case if class certification is achieved.  When defendants win at the class certification stage, they are able to resolve these cases on very favorable terms.  However, when they lose class certification, they have settled for tens or hundreds of millions of dollars.  Speaking from decades of experience, Jerry and Tim elaborate on this strategy and more in the video, making the clip an absolute must-watch for employers!

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!