Seyfarth Synopsis: Last week, we posted the first video in a series of clips from Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event. Specifically, this set of exclusive videos allows our readers to see and hear Workplace Class Action Litigation Report author Jerry Maatman’s perspective on each major class action trend from 2018. Today’s clip focuses on class certification rulings, and identifies the areas of litigation in which the Plaintiffs’ bar experienced noticeable success in 2018. Watch and hear Jerry’s analysis in the link below!
Seyfarth Synopsis: On February 4, 2019, in Woods-Early v. Corning Corp., Case No. 18-CV-6162, a race discrimination class action, Judge Frank P. Geraci, Jr. of the U.S. District Court for the Western District of New York refused to strike class allegations of discrimination in promotions on the basis of race and color in violation of Title VII and the New York State Human Rights Law. Although Plaintiff’s amended complaint failed to identify a single promotion she was denied on the basis of race and color, the Court found that allegations of discriminatory decision-making by a small group of upper-level management exercising unfettered discretion over an employer’s performance review process was sufficient to survive a motion to dismiss the class claims under Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).
In 2018 an employee of Corning, a multinational technology company specializing in designing and manufacturing materials for industrial and scientific applications, brought a class action alleging that the employer discriminated against her on the basis of her color and race (Black, African-American) in violation of Title VII and the New York State Human Rights Law. Plaintiff asserted that by utilizing a performance evaluation tool and process that disadvantaged Black, African-American employees in obtaining access to promotion opportunities, the employer violated the law. Plaintiff alleged that the Company used an evaluation tool that allowed supervisors, without sufficient training, to exercise unfettered discretion in evaluating employee performance on the basis of ill-defined “Corning Values,” and that these ratings then were advanced to a group of high-level executives called the “brain trust,” who themselves had unfettered discretion to change the ratings.
The discriminatory result alleged by Plaintiff was that African-American employees routinely received lower ratings than their non-minority counterparts, and because of this they were unable to achieve the “Emerging Talent” internal designation and higher salary bands required by Corning to access training and other executive networking opportunities necessary to obtain promotional opportunities. Plaintiff did not, however, identify any single promotional opportunity she was denied.
Defendant filed a motion to dismiss the class allegations as well as any allegations of discrimination against Plaintiff in promotions. Relying on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), the Company argued that discrimination claims based on the exercise of managerial discretion in the performance evaluation process lack sufficient commonality to proceed in litigation. Moreover, Defendant argued that allegations that its executive “brain trust” controlled the performance evaluation process, and had the unfettered discretion to change performance ratings and determine who is designated “Emerging Talent,” were merely “conclusory and implausible.” It further argued that Plaintiff’s claims should fail because she could not link any discriminatory, low performance ratings to an adverse action against her.
The Court’s Ruling
Observing that parties often mistake the import of Wal-Mart as requiring that sustainable class allegations present common questions, the Court opined that the proper inquiry in scrutinizing class allegations is whether the class mechanism is appropriate to find common answers to the allegations. Noting that the Supreme Court in Wal-Mart emphasized that in Title VII claims implicating many employment decisions there must be a “glue” holding the alleged reasons for the decisions together, the Court stated that this “glue” can come in different forms, such as a biased testing procedure or general policy of discrimination manifested in promotions practices.
The Court followed the lead of the Fourth and Seventh Circuits respectively in Scott v. Family Dollar Stores, Inc., 733 F.3d 105 (4th Cir. 2013), and Chicago Teachers Union, Local No. 1 v. Bd. Of Educ. Of Chicago, 797 F.3d 426 (7th Cit. 2015), each of which found that the commonality required to sustain class treatment is satisfied when discretion is exercised uniformly by higher-level management. As a result, the Court ruled that allegations of the unfettered discretion of the Company’s “brain trust” — to determine employee performance ratings, the incentive of this singular and cohesive group to manipulate performance ratings to impact the individuals designated as “Emerging Talent,” and the effect of the exercise of that discretion to bar African-American employees from advancing to higher pay bands and the access to executives and training needed for promotions — were sufficient to survive the motion to dismiss.
The Court also rejected Defendant’s challenge that although Plaintiff alleged that she suffered discriminatorily low performance ratings, her claim for discrimination in promotions should be dismissed for failing to allege any promotional opportunity for which she applied and was qualified, and that she had been denied. The Court rejected the contention that Plaintiff must allege the adverse action of a specific promotion sought and denied in order to survive a motion to dismiss a claim of discrimination in promotions. Rather, the Court determined that Plaintiff’s allegations of a discriminatory performance evaluation and rating process, and a link between the alleged discriminatory actions of the Company’s “brain trust” and tangible adverse impacts to African-Americans, including herself, was sufficient for her promotions claims to proceed.
Implications For Employers
This decision is one of a growing body of case law authority interpreting and expanding the contours of class actions maintainable in the aftermath of Wal-Mart. Over time, employers may expect the plaintiffs’ class action bar to test and refine theories to obtain class certification in “managerial discretion” cases. To get ahead of this curve, employers should periodically review their performance evaluation processes for disparate impact and other vulnerabilities. Evaluating performance management programs for well-communicated expectations, detailed and sufficiently objective metrics, disciplined scoring, and standardized supervisor training, also is a proactive step for savvy employers to take to enhance the workplace while reducing risk.
Seyfarth Synopsis: On January 22, 2019, in Maderazo v. VHS San Antonio Partners, L.P., C.A. No. 06-CV-535 (available here), a case alleging that hospitals in San Antonio conspired to suppress nurses’ wages that had been pending for nearly 13 years, the U.S. District Court for the Western District of Texas issued a decision denying Plaintiffs’ motion for class certification In doing so, the Court expressly disagreed with a class certification decision issued in a nearly identical case by the U.S. District Court for the Eastern District of Michigan in Cason-Merenda, et al. v. Detroit Medical Center, 2013 U.S. Dist. LEXIS 131006 (E.D. Mich. Sept. 6, 2013).
In 2006, five nearly identical antitrust class actions were filed in different cities around the country alleging that hospitals in each of those cities unlawfully conspired to fix nurse wages below free market levels and agreed to unlawfully exchange nurse wage information in a way that had the effect of suppressing nurse wages. Class certification was defeated in the cases in Memphis and Chicago. In cases in Detroit and Albany, the courts certified or partially certified the classes, and those cases thereafter reportedly settled for millions of dollars.
Now the court in the San Antonio case has denied class certification also.
The Court’s Class Certification Ruling
Like the other cases, the complaint in Maderazo asserted two claims, including: (1) that the defendants agreed to suppress nurse wages, allegedly a per se violation of §1 of the Sherman Act; and (2) that the defendants agreed to, and did, exchange nurse wage information in violation of §1 of the Sherman Act under the rule of reason. The class certification decision turned on the question of the whether Plaintiffs could demonstrate, with proof common to the class, that common issues predominated over individual issues, consistent with the requirements of Rule 23(b)(3).
One of the issues in an antitrust case is whether the harm allegedly suffered was caused by the alleged conspiracy, often referred to as “antitrust impact.” Plaintiffs in Maderazo attempted to satisfy this element through the testimony of their expert, Henry Farber. In analyzing Farber’s expert report and deposition testimony, the Court concluded that Farber provided “no factual explanation of how Plaintiffs could show a causal link between the conspiracy and the wages of staff registered nurses.” In fact, the Court quoted the following testimony from Farber: “I don’t know anything about the precise effect of the – of any conspiracy or information exchange on the wages of different nurses.” As a result, the Court excluded Farber’s testimony under Daubert and denied Plaintiffs’ motion for class certification.
The Court in Maderazo further noted that the court in the Detroit nurse wage fixing/exchange case had found a similar problem with the testimony of the expert in that case. Nonetheless, the judge in the case in Detroit certified the class while stating that the defendant was free to attempt to persuade the trier of fact that the case lacked a sufficient causal connection between the plaintiffs’ theory of liability and the alleged injury. By contrast, the Court in Maderazo disagreed and ruled that this was an issue that had to be resolved at the class certification stage. (We previously blogged about the Detroit class certification decision here.)
Implications For Employers
This is obviously a helpful decision for employers because it requires plaintiffs to demonstrate at the class certification stage that they can show, with evidence common to the class, that there is a causal connection between the alleged conspiracy and the alleged harm suffered by the class. Sending the issue to the jury when plaintiffs are unable to demonstrate that they can make this showing at the class certification stage unnecessarily adds to the parties’ costs and wastes judicial resources. Often, if the stakes are high, employers may be unwilling to risk having a jury decide what is potentially a complicated question based on evidence provided by an economic expert. This in turn puts undue pressure on employers to settle cases that are baseless. The ruling in Maderazo levels the playing field in this respect.
Seyfarth Synopsis: Our latest blog gave readers a detailed breakdown of the second trend of our 15th Annual Workplace Class Action Report (WCAR), which was class certification rulings in 2018. While Plaintiffs attained noticeably high rates of success in the areas of ERISA and wage & hour litigation this year, employers also fared well in the employment discrimination space. In today’s video, author Jerry Maatman explains the reasoning behind these developments, and provides his perspective on potential outcomes in 2019 with regards to class certification. Check out Jerry’s in-depth analysis in the link below!
Seyfarth Synopsis: In a major end-of-the-year ruling, employers scored a significant victory in terms of the denial of class certification in a major gender discrimination case that has been closely watched by the media and the bar alike. It underscores the power of U.S. Supreme Court rulings as a bulwark for defending class action litigation.
On November 30, 2018, Judge Lorna Schofield of the U.S. District Court for the Southern District Of New York denied certification of a proposed nationwide Title VII class action alleging discrimination on the basis of sex by KPMG. In the decision, Kassman v. KMPG LLP, No. 11 Civ. 3743 (S.D.N.Y. Nov. 30, 2018), the Court rejected Plaintiffs’ argument that KPMG established a framework for managers to exercise their discretion in making compensation and promotion decisions that led to discrimination on the basis of sex. This case represents a significant win for employers as the Court rebuffed a novel attempt to create commonality out of discretionary decision-making after the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). It also provides further guidance to employers about how to make pay and promotion decisions in a manner that avoids potential class action lawsuits.
On June 2, 2011, Plaintiffs filed suit against KMPG, alleging that it discriminates against women in making pay and promotion decisions. Id. at 1. Shortly thereafter, the U.S. Supreme Court issued its landmark decision in Wal-Mart, which the Court characterized as “provid[ing] a roadmap to avoid class certification of a nationwide class asserting gender discrimination.” Id.
After the Supreme Court decided Wal-Mart, KPMG utilized a decentralized system for determining pay and promotions. Id. at 2. However, that decentralized system still had a structure. Id. Among other things, compensation decisions were made under the direction of a National Director of Compensation Strategies within a framework designed to pay KPMG employees at the appropriate market rate. Id. at 2, 5-6. Additionally, KPMG also conducted performance reviews within a framework containing standards for, among other things, years of experience necessary for particular promotions. Id. at 7-9.
Plaintiffs argued that the framework within which KPMG made decentralized compensation and promotion decisions led to discrimination against women on both a disparate impact and disparate treatment basis. They moved for certification of a nationwide class, a New York State class, and a collective action.
The Court’s Decision
The Court first analyzed Plaintiffs’ disparate impact claim. Unsurprisingly, it began with an analysis of Wal-Mart. It observed that, under Wal-Mart, discretionary pay and promotion procedures can only satisfy the commonality requirement of Rule 23 if decision-makers operate under “a common mode of exercising discretion that pervades the entire company, such that individual discretionary decisions nonetheless produce a common answer to the question ‘why was I disfavored.’” Id. at 35 (quotation marks omitted). The Court found that the appropriate way to analyze if such a common mode of exercising discretion was present is to analyze four factors, including: “(1) the nature of the purported class; (2) the process through which discretion is exercised; (3) the criteria governing the discretion and (4) the involvement of upper management.” Id. at 36.
Applying the first factor, the Court opined that the large size of the putative class – at least 10,000 women – and the fact it was located across the country weighed against a finding of a common mode of exercising discretion. Id. at 36-37. The Court observed that it is much more difficult for a common mode of exercising discretion to exist when decisions are being made by large numbers of decision-makers across the country. Id. at 37.
Turning to the second factor, the Court considered whether the framework within which pay and promotion decisions were made weighed in favor of finding that a common mode of exercising discretion existed. The Court found that “KPMG’s pay and promotion procedures act more as a framework that dictates who will make discretionary decisions rather than how they will exercise their discretion.” Id. at 38. While finding that pay ranges were set at a company-wide level, the Court reasoned that the fact that compensation decisions were made within that range weighed against a finding that a common mode of exercising discretion existed. Id.
The Court next analyzed whether the criteria governing the discretion weighed in favor of finding that a common mode of exercising discretion existed. Id. at 41. It observed that “whether a set of criteria creates a common mode of exercising discretion depends on the rigidity of the criteria. Subjective criteria, prone to different interpretations, generally do not provide common direction.” Id. Finding that the criteria applied by KPMG, such as “‘professionalism,’ ‘integrity,’ ‘reputation’ and potential to be a ‘partner candidate’” were “amorphous” and thus weighed against a finding that a common mode of exercising discretion existed. Id. at 42.
Finally, the Court analyzed the fourth factor of “the involvement of top management in the discretionary decision-making.” Id. The Court determined that Plaintiffs’ argument that all pay and promotion decisions must ultimately be approved by two individuals unpersuasive because there was no evidence that these two individuals were doing anything other than approving aggregate promotion and pay numbers rather than at an individual level. Id. at 43. Accordingly, the Court noted that the fourth factor also weighed against a finding that a common mode of discretion existed. Id.
With all four factors weighing against such a finding, the Court concluded that Plaintiffs had not established commonality and denied class certification of Plaintiffs’ disparate impact claim. Id. at 43-44.
Turning to Plaintiffs’ disparate treatment claim, the Court held that Plaintiffs did not show that their statistical evidence demonstrated disparate treatment because Plaintiffs had not shown that promotion policies and practices were uniform across KPMG as required to make statistical evidence relevant under Wal-Mart. Id. at 46-47. The Court further found that Plaintiffs’ argument that KPMG ignored evidence of gender discrimination did not comport with the record, and that their anecdotal evidence was insufficient to show intentional discrimination. Id. at 48-50. Accordingly, the Court denied certification of Plaintiffs’ disparate treatment claim. Id.
Finally, the Court denied certification of a New York state class because Plaintiffs did not provide any evidence of New York state-specific practices, and it denied certification of an Equal Pay Act collective action because Plaintiffs failed to prove the members of the putative collective action worked in a single establishment and that they were similarly-situated. Id. at 51-60.
This case represents a significant win for employers. After Wal-Mart, plaintiffs’ lawyers have tried to develop new theories to secure certification of classes even where decisions are made in a decentralized manner. In Kassman, the Court not only rebuffed the latest such attempt, but also provided employers with additional ways to structure their pay and promotion policies to avoid potential class actions.
Seyfarth Synopsis: In Sali v. Corona Regional Medical Center, No. 15-5640, 2018 U.S. App. LEXIS 11497 (9th Cir. May 3, 2018), a three judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s decision to deny class certification to a group of nurses. The Ninth Circuit did so based on its holding that the district court should have considered evidence that would be inadmissible at trial under the Federal Rules of Evidence when it decided class certification. This decision, which is at odds with precedent from the Fifth and Seventh Circuits, will make it more difficult for employers in the Ninth Circuit to resist class certification on evidentiary grounds. As a result, employers in the Ninth Circuit will need to emphasize other arguments in resisting class certification. Further, the plaintiffs’ class action bar is apt to press similar arguments in other circuits based on the holding in Sali.
Plaintiffs Marlyn Sali and Deborah Spriggs (“Plaintiffs”) brought suit against their employer, Corona Regional Medical Center (“Corona”), alleging that Corona underpaid them and other nurses employed by Corona in violation of California law. Most significant to the Ninth Circuit’s decision, Plaintiffs claimed that Corona improperly rounded the time of nurses employed by Corona, thereby resulting in lost wages. Plaintiffs sought to certify seven classes, most of them derivative of Plaintiffs’ improper rounding claim.
In support of class certification, Plaintiffs submitted a declaration from a paralegal at the firm of Plaintiffs’ attorneys that attempted to show that Plaintiffs were injured by Corona’s rounding policy. The paralegal “used Excel spreadsheets to compare [Plaintiffs’] rounded times with their actual clock-in and clock-out times using a random sampling of timesheets” and declared that, based on this comparison, Plaintiffs lost an average of between six and eight minutes per shift as a result of the rounding. Id. at *4.
The district court denied certification on multiple grounds. The district court held that the typicality requirement of Rule 23(a) was not satisfied for any of the proposed classes because Plaintiffs failed to submit admissible evidence of their alleged injuries. Specifically, the district court held that the declaration from the paralegal was inadmissible because: (i) the paralegal could not authenticate the documents he used to perform this analysis; (ii) the declaration was an inadmissible lay opinion; and (iii) the manipulation of the data done by the paralegal required an expert.
The district court also held that Spriggs was not an adequate class representative because she was not a member of any of the proposed classes. It also held that Plaintiffs’ attorneys had not demonstrated that they could adequately serve as class counsel. Finally, it concluded that Plaintiffs failed to meet the predominance requirement of Rule 26(b)(3) for four of their proposed classes.
Plaintiffs appealed the denial of class certification.
Ninth Circuit’s Decision
The Ninth Circuit reversed the district court’s denial of class certification. The Ninth Circuit began its analysis by pointing out that, while class certification requires a “rigorous analysis,” it does not require “a mini-trial.” Id. at *13-14. It observed that “applying the formal strictures of trial to such an early stage of litigation makes little common sense” because “a class certification decision is far from a conclusive judgment on the merits of the case.” Id. at *14.
The Ninth Circuit proceeded to hold that the district court abused its discretion when it concluded it could not consider inadmissible evidence at the class certification stage. It came to this conclusion on two grounds. First, the Ninth Circuit found that not allowing inadmissible evidence at the class certification stage would put plaintiffs at an unfair disadvantage because “the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery” and so “[l]imiting class-certification-stage proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.” Id. at *14-15. Second, the Ninth Circuit concluded that “a court’s inquiry on a motion for class certification is tentative, preliminary, and limited” and thus that “there is bound to be some evidentiary uncertainty.” Id. at *17.
The Ninth Circuit admitted that its decision conflicted with the Fifth Circuit’s decision in Unger v. Amedisys Inc., 401 F.3d 316, 319 (5th Cir. 2005), in which the Fifth Circuit held that a court’s “findings must be made based on adequate admissible evidence to justify class certification.” Sali, 2018 U.S. App. LEXIS 11497, at *16. The Ninth Circuit observed that its decision also may conflict with the Seventh Circuit’s decision in Messner v. Northshore Univ. Health Sys., 669 F.3d 802, 812 (7th Cir. 2012), and of the Third Circuit’s ruling of In Re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015), both of which suggest that class certification evidence must be admissible. Sali, 2018 U.S. App. LEXIS 11497, at *16. The Ninth Circuit pointed out that the Eighth Circuit, in contrast, agreed that district courts should consider inadmissible evidence in deciding class certification in In Re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 613 (8th Cir. 2011).
While holding that district courts should not automatically exclude inadmissible evidence in deciding class certification, the Ninth Circuit stated that it was not “dispens[ing] with the standards of admissibility entirely” at the certification stage. Id. at *19. Rather, the Ninth Circuit stated that courts “may consider whether the plaintiff’s proof is, or will likely lead to, admissible evidence” in deciding “the weight that evidence is given at the class certification stage.” Id. at *20.
The Ninth Circuit also reversed the district court’s other justifications for declining certification. The Ninth Circuit agreed with the district court that Plaintiff Spriggs was not a part of the class and thus not an adequate class representative, but held that Plaintiff Sali was part of the class and was an adequate class representative. Id. at *20-21. It held that the district court erred in finding class counsel inadequate because Plaintiffs’ counsel had “incurred thousands of dollars in costs and invested significant time in th[e] matter.” Id. at *23. Finally, the Ninth Circuit determined that Plaintiffs had met the predominance requirement because they raised common questions capable of class-wide resolution.
Implications For Employers
This decision is important for employers in the Ninth Circuit, not only because it will make it easier for plaintiffs to achieve class certification, but also because employers faced with class certification will need to adjust their defenses to account for the decision. While employers should still raise admissibility concerns in opposing class certification to attack the weight of a plaintiff’s evidence, they must not hang their entire opposition on the inadmissibility of evidence because, in light of this decision, courts cannot simply ignore inadmissible evidence at the class certification stage.
Seyfarth Synopsis: In an Equal Pay Act collective action lawsuit brought by female school crossing guards against the City of New York, who alleged they were paid less than male traffic enforcement agents, a federal district court in New York recently granted the City of New York’s motion for summary judgment, finding that significant differences between the two positions warranted the pay differential.
For employers facing Equal Pay Act claims relative to compensation differences for two similar but unique positions, this ruling provides a blueprint for attacking such claims.
In Miller v. City of New York, No. 15 Civ. 7563, 2018 U.S. Dist. LEXIS 73238 (S.D.N.Y. May 1, 2018), female New York City school crossing guards alleged violations of the Equal Pay Act (“EPA”), New York State Human Rights Law (“NYSHRL”), and New York City Human Rights Law (“NYCHRL”), arguing they were paid less than traffic enforcement agents, even though they claimed to do substantially the same work. Id. at *1-3. Approximately 96% of the school crossing guards are female, while 56% of the traffic enforcement agents are male.
At the time that the case was filed, school crossing guards were paid at an hourly rate ranging between $11.79 and $14.40 per hour, while traffic enforcement agents received an annual salary ranging from $33,751 to $40,930 per year, or approximately $16.16 to $19.60 per hour. Id. at *4. School crossing guards do not sit for a civil service examination or undergo psychological testing, do not have an educational requirement or need to possess a driver’s license, do not enforce traffic regulations, do not issue tickets or carry radios, and undergo one week of training. Traffic enforcement agents direct traffic, prepare and issue paper and electronic summonses, testify at administrative hearings and in court, and operate radios and other electronic equipment.
In October 2016, the Court conditionally certified a collective action on Plaintiffs’ EPA claim and also certified class claims under Rule 23 on Plaintiffs’ NYSHRL and NYCHRL claims. Id. at *1. Both classes were defined as female employees who are or were employed as school crossing guards from September 2012 through December 2016. Approximately 1,600 school crossing guards opted-in to the EPA collective action, and the NYSHRL and NYCHRL classes consisted of over 2,000 individuals. Thereafter, the City for New York moved for summary judgment on all claims.
The Court’s Decision
The Court granted the City of New York’s motion for summary judgment on all of the claims. First, regarding the EPA claim, the Court held that the stark differences in training, job requirements, and job responsibilities between traffic enforcement agents school crossing guards warranted summary judgment. Id. at *8. In support of its finding, the Court noted that traffic enforcement agents receive nearly ten times more training than school crossing guards, strongly suggesting the two positions require divergent skill levels. Further, traffic enforcement agents are full-time employees that can be required to work nights, weekends, and overtime, while school crossing guards are part-time employees who work no more than five hours per day, primarily during school hours. Plaintiffs argued that that both school crossing guards and traffic enforcement agents direct the flow of pedestrians and traffic, but the Court rejected this assertion as overly broad and not indicative of the actual job content. Accordingly, the Court granted the City of New York’s motion for summary judgment on the EPA claim.
Turning to the New York State Law Human Rights claim, the Court explained that discrimination claims under the NYSHRL are analyzed identically to claims brought under Title VII. Id. at *12. To establish a case of disparate pay under Title VII, a plaintiff must show: (1) she was a member of a protected class; (2) she was paid less than similarly situated non-members of her protected class; and (3) evidence of discriminatory animus. Id. (citation omitted). The Court found that Plaintiffs failed to meet the second element since female school crossing guards and male traffic enforcement agents were not similarly situated due to a myriad of factors, such as education, training, job requirements, job responsibilities, hours worked, and working conditions. Id. at *13. Accordingly, since no reasonable jury could find that Plaintiffs established a prima facie case under the NYSHRL, the Court granted summary judgment for the employer.
Finally, the Court analyzed Plaintiffs’ New York City Human Rights claim, noting that under New York City law, an employer may not discriminate in terms of compensation based on an employee’s gender. The Court explained that in order to succeed on their claim, Plaintiffs must identify appropriate comparators and present a sufficiently developed record from which a jury could conclude that the comparators received preferential treatment. Id. at *15 (internal quotation marks and citations omitted). The Court held that Plaintiffs failed to offer any proof of discriminatory animus, and there was no evidence in the record of a discriminatory motive underlying the disparate pay rates. Plaintiffs also argued there was a discriminatory impact, but the Court noted that Plaintiffs failed to allege this theory in their First Amended Complaint. Accordingly, the Court granted the City of New York’s motion for summary judgment.
Implications For Employers
Equal Pay Act collective actions and state law class claims relative to gender pay are on the rise, and employers absolutely need to take notice. For employers who are confronted with gender pay class actions involving wage comparisons for similar but unique positions, this ruling provides an excellent framework on how to defeat such claims by highlighting differences in areas such as job duties, education and training requirements. Nonetheless, the best way to avoid gender pay claims is to implement non-discriminatory pay practices, and make efforts to ensure that women and other members of protected classes are fairly and equally compensated.
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: 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.
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: In Ellis v. Google, Inc., No. CGC-17-561299 (Cal Sup. Ct. Dec. 4, 2017), Judge Mary Wiss of the Superior Court of California granted a motion to dismiss a class action lawsuit brought by Google employees who claimed that all female Google employees are paid less than their counterparts. Specifically, Judge Wiss found that the plaintiffs failed to plead sufficient facts to conclude that Google paid all female employees less than their male counterparts, even though the complaint alleged that a statistical analysis “found systematic compensation disparities against women pretty much across the entire workforce.” Id. at 4. This case represents a win for employers, who too often are forced to defend large class actions based on conclusory allegations.
Three former female Google employees filed a putative class action in the Superior Court of California, alleging that Google “maintained throughout California a ‘centrally determined and uniformly applied policy and/or practice of paying its female employees less than male employees for substantially similar work.’” Id. at 2. To support this allegation, the plaintiffs also alleged that the U.S. Department of Labor found that, with respect to Google’s Mountain View office in 2015, “‘systematic compensation disparities against women pretty much across the entire workforce.’” Id. The plaintiffs asserted four causes of action against Google based on the alleged disparity, including a California Equal Pay Act claim, a California Labor Code claim, a Business and Professions Code claim, and a claim for declaratory judgment. The plaintiffs purported to bring these claims on behalf of all female Google employees in California.
The Court observed that a class action complaint should be dismissed where, “assuming the truth of the factual allegations in the complaint, there is no reasonable possibility that the requirements for class certification will be satisfied.” Id. at 3. The Court then discussed the requirements for class certification under California law, including: “(a) an ascertainable and sufficiently numerous class; (b) a well-defined community of interest; and (c) substantial benefits from certification that render proceeding as a class superior to the alternatives.” Id. at 4. With respect to the second factor, the Court observed that it has three factors, including “(a) predominant common questions of law or fact; (b) class representatives with claims or defenses typical of the class; and (c) class representatives who can adequately represent the class.” Id.
The Court found that the plaintiffs did not allege sufficient facts to conclude that there was an ascertainable class. Even though the plaintiffs defined the class as “all women employed by Google in California,” which on its face was ascertainable, the Court found the definition overbroad because the plaintiffs offered “no means by which only those class members who have claims can be identified from those who should not be included in the class.” Id. Significantly, the Court found that the plaintiffs’ allegation that the U.S. Department of Labor “‘found systemic compensation disparities against women pretty much across the entire workforce’” at a Google office in 2015 was insufficient to support the conclusion that “Google implemented a uniform policy of paying all female employees less than male employees for substantially equal or similar work.” Id. The Court observed that the complaint did not “specify, for example, the specific job classifications it pertains to, or whether the comparison was made against men who perform substantially similar work under similar working conditions.” Id.
The Court also concluded that the plaintiffs failed to allege that there were common questions of law and fact that predominated over individual issues because the plaintiffs’ class was “overbroad,” so liability could not be decided for all putative class members in one proceeding. Id. at 5. The Court further opined that the plaintiffs’ conclusory allegation that they “performed ‘equal work’ as their male counterparts” was insufficient to allege that they, in fact, performed equal work, and dismissed their individual claims. Id. at 6.
Implications For Employers
The Ellis case has been closely watched as it is a significant workplace class action in a worker-friendly jurisdiction. The ruling of December 4 is a win for employers insofar as companies, especially in California, can use the decision to try to stop class actions at the pleadings stage. When moving to dismiss such complaints, employers should lay out what conclusions can be drawn from assuming specific factual allegations are true, as they may have far less significance than may appear at first glance. Employers should also continue reminding courts that class actions are only appropriate when they can create common answers to common questions, which is often not the case in large, overbroad class actions, and that conclusory allegations are insufficient to state claims.