By: Gerald L. Maatman, Jr. and Alex S. Oxyer

Seyfarth Synopsis: Incentive awards for class representatives are impermissible, according to a ground-breaking decision last week by the U.S. Court of Appeals for the Eleventh Circuit.  Though not an employment case, the decision is a must-read for class action practitioners handling all varieties of workplace class and collective action litigation, such as wage & hour and employment discrimination lawsuits.  The decision may diminish the ability of plaintiff’s lawyers to recruit class representatives and may change how practitioners settle class and collective actions.

On September 17, 2020, the Eleventh Circuit reversed in part and vacated in part the approval of a class settlement in a Telephone Consumer Protection Act (“TCPA”) case, determining that “in approving the settlement here, the district court repeated several errors that, while clear to us, have become commonplace in everyday class-action practice.” The errors found by the Eleventh Circuit included, among others, the award of an incentive payment to the named plaintiff. In holding that incentive awards compensating class representatives for their time and rewarding them for bringing a lawsuit are unlawful, the Eleventh Circuit has eliminated a significant incentive for plaintiffs to bring claims as class actions instead of individual suits. The case is Johnson v. NPAS Sols., LLC, No. 18-12344, 2020 WL 5553312 (11th Cir. Sept. 17, 2020).

Case Background

This case began when the named plaintiff sued NPAS Solutions, LLC in the U.S. District Court for the Southern District of Florida, alleging violations of the TCPA. In his suit, the plaintiff claimed that NPAS, a company that collects medical debts, had used an automatic dialing system to call his cell phone without his consent. Specifically, the plaintiff alleged that NPAS had a practice of calling phone numbers that had originally belonged to consenting debtors but had been reassigned to non-consenting individuals.

Several months after the complaint was filed, the parties reached a class-wide settlement of the claims and moved to certify the class for settlement purposes and obtain approval of the settlement from the district court. The district court preliminarily approved the settlement and certified the class. The district court also appointed the named plaintiff as the class representative and his lawyers as class counsel, and its order stated that the plaintiff could “petition the Court to receive an amount not to exceed $6,000 as acknowledgment of his role in prosecuting this case on behalf of the class members.” Id. at *2. The district court then set a deadline for class members to opt out of the settlement and to file objections to the settlement. It set a date 18 days after the opt-out/objection deadline as the date by which the parties had to submit their motion for final approval of the settlement and their responses to objections, and by which class counsel had to submit their petition for attorneys’ fees and costs.

The class members were then notified about the settlement and, after the expiration of the objection deadline, no class members opted out and only one objected to the settlement. The objector noted several bases for her objection, including, among others, the district court’s decision to set the objection deadline before the deadline for class counsel to file their attorneys’-fee petition; the amount of the settlement; and the class representative’s incentive award. The district court granted final approval of the settlement over the objections, and the objector appealed the approval to the Eleventh Circuit.

The Eleventh Circuit’s Opinion

On appeal, the Eleventh Circuit considered three separate arguments raised by the objector regarding the approval of the class settlement by the district court, including: (1) that the district court erred when it required class members to file objections to the settlement before the class counsel had filed their fee petition; (2) that the district court’s approval of the $6,000 incentive award was in contravention of U.S. Supreme Court precedent; and (3) that the district court failed to provide sufficient explanation of the settlement approval to allow for meaningful appellate review.

The Eleventh Circuit’s opinion first addressed whether the district court was in error when it required objections to be filed before class counsel was required to file their fee petition. The Eleventh Circuit concluded that Rule 23(h) clearly requires a district court to sequence filings so that class counsel must file and serve their motion for attorneys’ fees before any objection pertaining to fees is due and, accordingly, the district court erred in requiring that objections be filed prior to the fee petition. However, the Eleventh Circuit ultimately found that the error was harmless, as the objector had already lodged a detailed objection to the attorneys’-fee award before class counsel had filed their petition. Accordingly, the potential harm that could have occurred by requiring objections to be filed prior to the fee petition was not present in this case.

The Eleventh Circuit then considered the argument relative to the incentive award granted to the class representative. In the most notable part of the opinion, the Eleventh Circuit overturned the incentive award in light of the Supreme Court holdings in Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885). The Eleventh Circuit interpreted these more than 135 year old holdings to stand for the proposition that “[a] plaintiff suing on behalf of a class can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses.” Johnson, 2020 WL 5553312 at *9 (emphasis added). The Eleventh Circuit then opined that “we think that modern-day incentive awards present even more pronounced risks than the salary and expense reimbursements disapproved [by the Supreme Court]. Incentive awards are intended not only to compensate class representatives for their time (i.e., as a salary), but also to promote litigation by providing a prize to be won (i.e., as a bounty).” Id. The Eleventh Circuit found that the incentive award at issue in the case was a combination of “salary” and “bounty” and, accordingly, was not permissible.

Finally, the Eleventh Circuit examined the district court’s order giving final approval of the settlement. Despite the Rule 23 requirement that when awarding “reasonable attorney’s fees and nontaxable costs,” the court “must find the facts and state its legal conclusions under Rule 52(a),” the Eleventh Circuit determined that the district court had failed to articulate its reasoning for approving the attorneys’ fees, incentive award, or litigation costs accorded in the settlement. Id. at *13. In light of this deficiency, the Eleventh Circuit remanded the case back to the district court for additional analysis of the awards.

Implications

The Eleventh Circuit’s ruling in Johnson has dealt a significant blow to the plaintiffs’ bar in their efforts to recruit individuals to act as class representatives for class claims. By eliminating the availability of incentive awards to compensate plaintiffs for their time and efforts, the appeal to plaintiffs for bringing claims as a class action instead of a single plaintiff case is diminished. The Eleventh Circuit’s ruling currently cuts against the holdings of the other U.S. federal courts of appeals; however, time will tell whether other circuits will begin adopting the Eleventh Circuit’s interpretation of early Supreme Court precedent that modern-day incentive awards are generally impermissible. Another open issue is whether this concept will take hold in collective actions brought under the Equal Pay Act and Fair Labor Standards Act. While the logic of the Eleventh Circuit’s ruling suggests that the result would be the same, such a development would stand the practicalities of settling class and collective actions on their head. However, practitioners might consider settling class and collective action lawsuits by providing the class representative, or collective action lead plaintiff, with a reasonable supplemental payment in exchange for a release that is broader than the one to which the class or collective agrees in an effort to eliminate the issues raised by the Eleventh Circuit.

By: Gerald L. Maatman, Jr., Christopher DeGroff, Matthew J. Gagnon, and Alex S. Oxyer

Seyfarth Synopsis:  On September 8, 2020, the EEOC updated its Technical Assistance Q&A webpage to address 18 new questions regarding the application of the Americans With Disabilities Act (“ADA”), the Rehabilitation Act, and other EEO laws to employers continuing to face the struggles of the COVID-19 pandemic. The latest guidance addresses issues such as COVID-19 testing and screening, confidentiality, and reasonable accommodations. The latest guidance is a critical “must read” for all employers with employees in the workplace or providing alternative work arrangements.  

Latest EEOC COVID-19 Guidance On COVID-19 Screening And Testing

While much of the EEOC’s latest guidance was adapted from the Commission’s March 27, 2020 webinar (a summary of which we provided here in an earlier blog post), the EEOC’s latest guidance provides some additional clarification as to the intersection of the ADA and the CDC’s guidance on COVID-19 screening. Specifically, the ADA requires that any mandatory testing of employees be “job related and consistent with business necessity.” In light of the COVID-19 pandemic, the EEOC has clarified that an employer may administer COVID-19 testing to employees before permitting them to enter the workplace to determine if they pose a direct threat to others in the workplace.

Consistent with the EEOC’s previous guidance in the pandemic, the Commission has reiterated that the ADA does not interfere with employers following recommendations by the CDC or other public health authorities regarding whether, when, and for whom testing or other screening is appropriate, and that testing administered by employers consistent with current CDC guidance will meet the ADA’s “business necessity” standard.

Additionally, the updated guidance states that employers may screen or test a particular employee only if the employer has a reasonable belief based on objective evidence that the individual may have COVID-19. Further, the guidance reminds employers that they cannot ask employees whether they have family members with COVID-19 or who are suffering symptoms of COVID-19, as such questions are prohibited by the Genetic Information Nondiscrimination Act (“GINA”).

Confidentiality Considerations Of COVID-19

The Commission’s newest guidance also addresses questions regarding the confidentiality obligations of employers under the ADA while addressing COVID issues in the workplace. Notably, the guidance provides that while the ADA requires that an employer keep all medical information about employees confidential, including whether an employee has symptoms of, or a diagnosis of, COVID-19, managers are not prevented from reporting to appropriate employer officials so that they can take actions consistent with guidance from the CDC. However, the EEOC’s guidance emphasizes that employers should take as many steps as possible to limit the disclosure of the name of the employee who has been diagnosed or who has symptoms of COVID.

Reasonable Accommodations In Light Of COVID-19

The EEOC’s guidance further addresses issues related to reasonable accommodations, particularly whether an employer providing work from home arrangements to some employees due to state or local shutdown orders must provide similar accommodations for those employees that the employer provides to those still in the workplace. The updated guidance provides that if such a request is made, the employer and employee should discuss the accommodation and whether a different accommodation could be warranted in the home environment. Further, the guidance states that the undue hardship considerations might be different relative to a home environment as opposed to the workplace, as a reasonable accommodation that does not pose an undue hardship in the workplace could pose one when considering circumstances such as teleworking.

Implications For Employers

The EEOC’s new guidance is the latest installment in the EEOC’s ongoing effort to provide clarity for employers on the application of the ADA, the Rehabilitation Act, and other EEO laws to COVID-19-related issues. Employers dealing with these issues should carefully read the newest guidance as well as details on the EEOC’s other recent changes, all of which have been tracked here.

By: Gerald L. Maatman, Jr., Christopher DeGroff, Matthew J. Gagnon, and Alex S. Oxyer

Seyfarth Synopsis:  On September 3, 2020, the EEOC issued an opinion letter (only its second of the year) regarding the Commission’s interpretation and enforcement of § 707(a) of Title VII, which authorizes the EEOC to sue employers engaged in a “pattern or practice” of discrimination. The opinion letter addresses two seemingly technical questions that may have a big impact on future litigation: (1) whether a pattern or practice claim under section 707(a) requires allegations of violations of section 703 or section 704 of Title VII; and (2) whether the EEOC must satisfy pre-suit requirements such as conciliation before it can bring a section 707 case.  In a lengthy discussion, the EEOC ultimately concludes that the answer to both questions is “yes.”  The opinion letter is important for employers because – in essence – the EEOC is actually taking a somewhat surprising position limiting its enforcement powers.

The Commission’s opinion letter is the latest in an ongoing series of efforts to clarify and standardize the EEOC’s processes and procedures, including those applying to conciliation efforts and pre-suit obligations, and offers some insight into a potential shift in philosophy at the Commission.

Section 707(a) Claims Require Allegations Of Sections 703 Or 704 Violations

The Commission’s letter first acknowledged that “[t]he Commission, like all agencies, is a ‘creature of statute’ that only has the authority that Congress has given it….Therefore, in performing its duties, the Commission must follow the statutory language that Congress has provided.” In accordance with these principles, the letter then examined whether section 707(a) of Title VII provides the EEOC a stand-alone claim to raise against employers or whether the EEOC must allege violations of sections 703 or 704, which are the provisions that prohibit discrimination in the workplace and retaliation for assisting or participating in the EEOC charge or enforcement proceedings, in order to bring a pattern or practice suit.

In analyzing the issue, the EEOC examined the holdings of the Seventh Circuit Court of Appeals in EEOC v. CVS, 809 F.3d 335 (7th Cir. 2015), and of the U.S. Supreme Court in International Brotherhood of Teamsters v. U.S., 431 U.S. 324 (1977) (in which the EEOC was challenging the employer’s alleged pattern or practice of race discrimination in its hiring and promotion decisions). The Seventh Circuit concluded in CVS that “Section 707(a) does not create a broad enforcement power for the EEOC to pursue non-discriminatory employment practices that it dislikes – it simply allows the EEOC to pursue multiple violations of Title VII (i.e., unlawful employment practices involving discrimination or retaliation defined in Sections 703 and 704) in one consolidated proceeding.” 809 F.3d at 341.

Similarly, the Supreme Court held in Teamsters that “[t]he plaintiff in a pattern-or-practice action is the Government, and its initial burden is to demonstrate that unlawful discrimination has been a regular procedure or policy followed by an employer or group of employers.” 431 U.S. at 336. In light of these holdings, and the statutory language that allows the Commission to act only on “a pattern or practice of discrimination,” 42 U.S.C. § 2000e-6(e) (emphasis added), the EEOC concluded in its opinion letter that any suit that pursuant to section 707(a) must be based on an alleged pattern or practice that violates either section 703 or section 704 of Title VII.

While the EEOC’s determination appears to be technical, the result of this opinion may have a significant impact on the EEOC’s approach to pattern or practice litigation. The Commission has previously alleged claims in pattern or practice suits relative to an employer’s “resistance” to Title VII rights, claims which were not specifically defined in the statute. However, this new approach limits the EEOC’s claims in pattern or practice suits to only concrete allegations of discrimination.

Section 707 Claims Are Subject To The Pre-Suit Requirements Of Section 706

The EEOC’s letter then addressed whether actions under section 707 are subject to the pre-suit requirements of section 706, which mandate that any suit brought by the Commission must first have a filed charge, a reasonable cause finding, and an attempt to conciliate the dispute.

Examining Title VII’s statutory language, the Commission first concluded that a charge must precede any action brought pursuant to section 707. Section 707(e) explicitly states that pattern or practice claims will follow a charge filed either “by or on behalf of a person claiming to be aggrieved or by a member of the Commission.”  Further, the Commission’s own regulations require that the EEOC file a civil action under Title VII only after a charge has been filed. 29 C.F.R. § 1601.27.

The EEOC also concluded in its letter that Title VII and its interpreting regulations also require the Commission to attempt to conciliate claims before filing suit under section 707. See 29 C.F.R. § 1601.24(a) (“Where the [EEOC] determines that there is reasonable cause to believe that an unlawful employment practice has occurred or is occurring, the [EEOC] shall endeavor to eliminate such practice by informal methods of conference, conciliation and persuasion.”). The Commission’s opinion letter conclusively states that there is no exception to this requirement for section 707 claims.

At the end of its opinion letter, the EEOC recognized that “it has previously asserted in a small number of cases that a section 707 claim need not be tied to allegations of violations of sections 703 or 704, nor comply with the procedural prerequisites of section 706,” but stated that it now believes that “the better view of section 707 is that a ‘pattern or practice of resistance’ claim must be tethered to a violation of section 703 or section 704….[and] any claim the Commission pursues under section 707 must follow the procedures of section 706.”

Implications For Employers

The EEOC’s opinion letter has clarified some oft-murky topics relative to the agency’s view on pattern or practice suits and, while the opinion letter only addresses Title VII claims specifically, could also provide guidance as to suits brought under the Americans with Disabilities Act (“ADA”), which tracks the requirements of Title VII, and the Age Discrimination in Employment Act (“ADEA”). In recent years, courts have developed a body of law surrounding pattern or practice suits brought by the EEOC, including those brought under the ADA and ADEA (we blogged about an example of such a case here). The Commission’s interpretation of the requirements relative to Title VII pattern and practice suits in its opinion letter could also help provide some much-needed guidance as to such claims brought under the ADA and ADEA. While requirements for ADA suits follow those for Title VII, courts have also reached similar conclusions to those in the opinion letter regarding ADEA pattern or practice suits.

Additionally, the EEOC’s letter could signal a shift in philosophy at the Commission. The letter begins by acknowledging that the EEOC “must follow the statutory language that Congress has provided.” This constructionist view is a departure from agency activity in the past, as the EEOC has previously liked to explore the boundaries of legal theories.  While too much should not be read into the letter, the opinion could signal a retrenchment by the EEOC on cutting edge litigation.  For example, this new view could impact the EEOC’s position on whether the ADEA allows a disparate impact theory for applicants (which is not expressly provided for by the statute).

In sum, this opinion letter is a must-read for employers, particularly those dealing with pattern or practice litigation with the EEOC, and is the latest in a series of ongoing efforts at the Commission to bring more transparency and consistency to the agency’s procedures.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex S. Oxyer

Seyfarth Synopsis: “Objector blackmail” occurs in the class settlement approval process when a few class members object to a proposed settlement and, after the district court has overruled their objections, pursue appeals with the goal of obtaining “side” settlement payments to dismiss the appeal.  In Pearson v. Target Corp., No. 19-3095, 2020 WL 4519053 (7th Cir. Aug. 6, 2020), the U.S. Court of Appeals for the Seventh Circuit addressed issues caused by these objectors.  Recognizing the difficulties these objectors cause, the Seventh Circuit held that, where district courts find the settlements inequitable, district courts may order the objectors to disgorge the private settlements upon motion of another class member. As it gives district courts more power in handling delays and disruptions caused by such “blackmail,” the Pearson ruling is a must-read for employers facing class claims

Case Background

In Pearson, the named plaintiffs filed a putative class action alleging that the defendants made false claims about dietary supplements they manufactured and distributed. The parties eventually reached a settlement and requested that the district court approve the settlement terms. Following the district court’s preliminary approval of the settlement, three class members objected to the settlement. One of the objecting class members had filed his own putative class action, which had been stayed pending the result of the settlement of the Pearson matter. The class member then attempted to intervene in the Pearson matter and, although his request to intervene was denied, he was invited to object to the Pearson settlement. The two other objectors raised issues relative to the attorneys’ fees accorded in the settlement agreement and the settlement distribution process.

Despite the objections, the district court approved the Pearson settlement, and all three objectors appealed. However, all three then dismissed their appeals before briefing began at the appellate level. The dismissals of the appeals caught the attention of another class member, who subsequently sought to reopen the case in the district court by filing a motion for disgorgement of any payments made to objectors in exchange for the dismissal of their appeals. The district court denied the motion for lack of jurisdiction, and the moving class member appealed. The Seventh Circuit found on appeal that the district court had jurisdiction to consider the motion for disgorgement and remanded the case.

On remand, it was discovered that all three objectors had received side settlement payments in exchange for dismissing their appeals totaling $130,000, while the class itself received nothing in such settlements. However, the district court held that the record did not substantiate any suspicions of blackmail or any other wrongdoing, so it denied the motion for disgorgement. The moving class member then appealed again.

The Seventh Circuit’s Decision

Reviewing the district court’s decision using an abuse of discretion standard, the Seventh Circuit looked to see whether the district court applied an incorrect legal standard or reached a clearly erroneous conclusion of fact by denying the motion for disgorgement and determining that a statutory violation was a prerequisite for disgorgement. The Seventh Circuit’s opinion focused primarily on principles of equity to assess whether there was sufficient cause to grant the motion for disgorgement.

The Seventh Circuit found that the district court erred in denying the motion for disgorgement.  The Seventh Circuit held that the objecting class members took on a fiduciary duty to the other class members who were similarly situated because the objectors alleged defects that would have injured every member of the class by binding them all to an inadequate settlement. The Seventh Circuit concluded that the objectors were “bound to protect” the interests of the class and that they had a duty to object only in “good faith.”  Id. at *4.  Ultimately, it imposed a limited representative or fiduciary duty on the class-based objector who, by appealing the denial of his objection, “temporarily takes control of the common rights of all the class members and thereby assumes a duty fairly to represent those common rights.” Id. at *5 (internal quotations omitted).

The Seventh Circuit found that the objectors had sacrificed the interests of the class for their own gain by selling their appeals without benefit to the class. In reaching its decision, it reasoned that, if the objections the objectors made had enough merit to stand a genuine chance of improving the entire class’s recovery, the objectors sold the genuine chance, which belonged to the entire class, for their own advantage. However, if the objections were meritless, the objectors’ settlements of such claims traded on the strength of the litigation, which was also the property of the entire class, in order to leverage the parties’ desire for settlement to their own gain. Either way, the Seventh Circuit determined that the payments the objectors received in excess of their interests as class members “w[ere] not paid for anything they owned” and belonged in equity to the class. Id. Thus, it found that disgorgement is appropriate in such a situation.

In reaching its holding, the Seventh Circuit dismissed the arguments made by the objectors on appeal – chiefly, that one also had settled his independent claims raised in a separate case, and so had not traded solely on the property of the class in order to reach a settlement, and that the class member moving for disgorgement lacked standing to do so. It first found that the objector’s independent claims lacked any value in light of the Pearson settlement and so did not provide independent consideration to his private settlement. The Seventh Circuit then determined that the moving class member had standing because class members have standing to defend the class, whose interest they share, against representatives who control the interests of the class as a whole.

The Seventh Circuit then turned to the appropriate process for disgorgement of the funds. It acknowledged that, in theory, the best remedy would be for the objectors to pay the settlement sums into the common fund for direct distribution to all class members. However, the case posed a practical issue because the distribution of the $130,000 in settlement proceeds would be “self-defeating” because the administration costs would consume the benefits. Id. at *8. Accordingly, the Seventh Circuit ordered that the funds be put in a constructive trust.

Finally, the Seventh Circuit addressed the anticipated effect of its ruling on good-faith objections to class settlements. It opined that it did not expect its holding to have a chilling effect on good-faith objections, as objectors should be able to say specifically why the class has been deprived of the fair, reasonable, and adequate settlement and, where objections may be able to improve the class’s position, equitable compensation is available to the objector.

Implications For Employers

The ruling in Pearson gives district courts the ability to deal with a systemic issue in the class action settlement process – “objector blackmail.” The Seventh Circuit’s opinion allows district courts to require disgorgement of private objector settlements where the objector is acting for his own benefit, against the interests of the class.  The availability of such a tool should dissuade opportunistic objectors from holding up a settlement process in order to secure a private resolution. Ultimately, the holding in Pearson will remove a significant nuisance in class settlements and may provide for a more streamlined route for resolving class claims.

By: Gerald L. Maatman, Jr., Christopher DeGroff, Matthew J. Gagnon, and Alex S. Oxyer

Seyfarth Synopsis:  On August 18, 2020, the EEOC held a public meeting to address a notice of proposed rulemaking containing potential substantive amendments to the Commission’s conciliation process. Though a copy of the notice has not yet been publicly released, the EEOC has stated that the proposed changes to the conciliation process aim to “enhance its effectiveness and to create accountability and transparency.” At the conclusion of the meeting, the Commission voted in favor of sending the notice to the Office of Management and Budget (“OMB”) for review.

The EEOC held its August 18 meeting remotely and, per the requirements of the Sunshine Act, was open for the public to call in and listen to the proceedings. EEOC Chair Janet Dhillon, Commissioner Victoria Lipnic, and Commissioner Charlotte Burrows were all present to discuss the content of the notice of proposed rulemaking (“NPRM”) and any proposed amendments to the notice. EEOC legal counsel Andrew Maunz was also present and outlined the mechanics of the NPRM.

While the presentation on the specifics of the NPRM suffered some audio difficulties and the full details of the NPRM have not yet been released, the disclosed elements of the changes indicate that significant modifications to the conciliation process are in the works. With a primary goal of increased transparency, the discussion suggested that the proposed rules could require the EEOC to disclose more substantial portions of its investigation file to respondents engaging in the conciliation process – including the identities of individuals who participated in the investigation, a summary of the known facts, and the factual and legal analyses that support a for-cause finding by the Commission. Additionally, the proposed requirements may give respondents 14 days to respond to a conciliation proposal.

The discussion at the Commission’s meeting suggested that the NPRM comes as a result of several years of commentary and litigation surrounding the conciliation process, as well as a finding that only 40% of cases with a for-cause determination by the Commission have successful conciliations. Earlier this year, the EEOC also implemented a pilot program with changes to the conciliation process, though the changes in the NPRM may be broader than those made by the program. Though Commissioner Burrows proposed several amendments to the NPRM, only a few were passed, and Chair Dhillon and Commissioner Lipnic voted to send the NPRM to the OMB at the conclusion of the meeting. Following the vote, Chair Dhillon remarked that “conciliation is vital to EEOC’s efforts to remedy discrimination, and I am confident that today’s vote will pave the way to increasing participation in the conciliation process and, in turn, to achieving relief for more victims of employment discrimination.”

Implications For Employers

Once the NPRM is released, the EEOC will be seeking input on whether these proposed amendments will result in additional challenges to the Commission’s conciliation efforts, and whether such challenges would delay or adversely impact litigation brought by the Commission. However, if these proposed changes are ultimately adopted, they would result in substantially more transparency in the conciliation process for employers and would create a more consistent process for employers negotiating conciliation terms with the Commission.

These changes are the latest in a series of high priority press releases issued by EEOC over the past few months. The ongoing changes at the Commission are a must-watch for employers as the EEOC begins wrapping up its fiscal year, which ends on September 30, 2020.

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis – Following a familiar fact pattern, after a named Plaintiff filed a putative class action in Bird, et al. v. Barr, No. 19-CV-1581 (D.D.C. July 23, 2020), she complained that the defendant employer retaliated against her for bringing suit by, among other things, threatening to terminate her employment and failing to provide her meaningful assignments.  Plaintiff, however, took the complaint a step further and moved the district court for an order enjoining Defendant from retaliating against any named Plaintiff, or any witnesses, for participating in the action.  The district court entered an order soundly rejecting the motion and holding that it lacked jurisdiction to enter injunctive relief unrelated to the claims pending in the lawsuit.  The ruling is a nice addition to the defense arsenals of employers facing workplace class actions.  As the district court explained, Plaintiffs may not file a claim alleging, for example, sex-based discrimination and then parlay that claim into a request for preliminary injunctive relief that prevents potential retaliatory acts by Defendant, where those acts do not relate to the alleged conduct that gave rise to Plaintiffs’ underlying claims. 

Factual Background

Plaintiffs, current and former female employees of the Federal Bureau of Investigation (“FBI”), filed a putative class action alleging that they suffered sex-based discrimination during their enrollment in the FBI Academy’s Basic Field Training Course.  Four months after filing suit, Plaintiffs filed a motion to enjoin the FBI from retaliating against them, or any other potential witnesses, due to their participation in the action.  Id. at 1.

In support of their motion, Plaintiffs claimed that supervisors in the FBI’s Phoenix, Arizona Division retaliated against Plaintiff Weasley by, among other things, threatening to terminate her, failing to give her meaningful assignments, and denying her requests for reasonable accommodations for her disability.  Id.

Plaintiffs asserted that they needed preliminary injunctive relief to protect them from irreparable harm to their jobs and their health and “to protect the judicial process from the chilling impact of Defendant’s retaliation bordering on constructive discharge against a named plaintiff, which would deter anyone else from coming forward to join this putative class action or from offering truthful testimony.”  Id. at 2.  The Court denied the motion holding that Plaintiffs fundamentally misapprehended the purpose and function of a preliminary injunction.

The Court’s Opinion

At the outset, the Court noted that Plaintiffs premised their motion on a “fundamental misunderstanding of how preliminary injunctions function in a civil action filed in federal court.”  Id. at*2.  The Court explained that a preliminary injunction is appropriate to grant intermediate relief “of the same character as that which may be granted finally.”  Id.  in other words, a proper motion for a preliminary injunction seeks to enjoin “the action that the complaint alleges is unlawful” prior to the completion of the litigation.  Id.

The Court explained that a preliminary injunction is “not a generic means by which a plaintiff can obtain auxiliary forms of relief that may be helpful to them while they litigate unrelated claims.”  Id. at 3.  To the contrary, a district court only possesses the power to afford preliminary injunctive relief that is related to the claims at issue in the litigation and, to get such extraordinary relief, plaintiffs must satisfy well-established criteria, including by showing a likelihood of success on the merits and that they will suffer irreparable harm absent an injunction.

Here, the Court found that the “disconnect” between the underlying claims and the alleged basis for preliminary relief “could not be more evident.”  Id.  In their complaint, Plaintiffs alleged that the FBI authorized, or engaged in, sex-discrimination while Plaintiffs attended the FBI training academy.  Id. at *3-4.  In the motion, however, Plaintiffs sought an injunction “to protect all of the name plaintiffs” from potential reprisals for participating in the legal action.  Id. at 4.

Thus, without a connection between the claim and requested injunction, the Court concluded that “there is simply no jurisdictional basis for the Court to grant preliminary relief.”  Id. at 2-3.  Even if such connection had existed, however, Plaintiffs failed to provide sufficient evidence of the “well-worn” preliminary injunction factors.  In particular, Plaintiffs failed to provide any factual basis for concluding that every named Plaintiff actually was entitled to preliminary injunctive relief.  Id. at 5.

Instead, the Court noted that Plaintiffs appeared to request injunctive relief “by association” – i.e., based on the actions of a handful of supervisors in the Phoenix Division against Plaintiff Wesley and one witness.  The Court found no allegations in the complaint, or the motion for preliminary injunction, that the FBI engaged in a pattern or practice of retaliatory conduct on a nationwide scale.  It seems that Plaintiffs merely wanted to “send a message” that Plaintiffs and witnesses were protected in order to preserve future participants’ willingness to participate in the litigation.  Id.

Implications

The Court chastised Plaintiffs for attempting to use the preliminary injunction device to “send a message” in order to preserve future participants’ willingness to participate in the litigation and provided a roadmap for future litigants to address any actual widespread retaliation.  The Court explained that, if the Plaintiffs had allegations and evidence that Defendant engaged in a wide-spread practice of retaliating against them (or their potential witnesses) for filing or participating in the action, it could grant Plaintiffs leave to amend their complaint and make those legal claims part of the action and, if Plaintiffs then could demonstrate a likelihood of success on the merits of such retaliation claims and that they would face irreparable injury without an injunction, the Court would have “both subject-matter jurisdiction and ample justification” to issue a preliminary injunction.  The ruling is a nice addition to the toolkits of employers facing workplace class actions.  The ruling clearly delineates the limits of when and how Plaintiffs can seek injunctive relief and provides an apt illustration of the shortcomings of an unsupported maneuver to extend isolated allegations into nationwide relief.

By Gerald L. Maatman, Jr., Alex S. Oxyer, andPaul M. Waldera

Seyfarth Synopsis: In New York v. Department of Labor, the U.S. District Court for The Southern District of New York recently invalidated large sections of the U.S. Department of Labor’s rule regarding paid sick time and paid family medical leave under the Families First Coronavirus Response Act, thereby expanding employees’ ability to take paid leave and potentially subjecting employers to more requests for paid leave.

As we discussed in April, the State of New York filed a lawsuit earlier this year against the U.S. Department of Labor (the “DOL”) challenging the DOL’s recent rule interpreting the paid sick time and paid family medical leave provisions of the Families First Coronavirus Response Act.  The rule restricted the circumstances in which employees could take paid leave due to issues caused by the COVID-19 epidemic.  New York challenged four provisions of the rule, which it argued would exclude millions of workers from paid leave who would otherwise be eligible.

Background

On March 18, 2020, the U.S. Congress enacted the Families First Coronavirus Response Act (“FFCRA”).  The FFCRA has two main provisions. First, the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) requires that employers with fewer than 500 employees provide up to twelve weeks of leave for employees unable to work or telework because they have to care for a dependent child due to COVID-19.  Second, the Emergency Paid Sick Leave Act (“EPSLA”) requires employers with fewer than 500 employees to provide employees two weeks of paid sick time, which employees can use for any of six qualifying COVID-19-related conditions.  Both provisions allow the Secretary of Labor to exclude healthcare providers and emergency responders from the requirement.

On April 1, 2020, the DOL released a final rule with regulations relative to both provisions of the FFCRA (“Final Rule”).  On April 14, 2020, the State of New York filed a lawsuit and simultaneously moved for summary judgment, arguing the rule conflicts with the plain language and purpose of the statute.  Specifically, New York challenged four provisions of the Final Rule: (i) the DOL’s new “work-availability” requirement, (ii) the DOL’s definition of “health care provider,” (iii) the provisions limiting intermittent leave, and (iv) the Final Rule’s documentation requirements.  On April 28, 2020, the DOL filed a cross-motion for summary judgment.

The Court’s Ruling

The Court’s ruling first examined the DOL’s argument that New York lacked standing to bring its lawsuit and so its claims should be dismissed.  In the case, New York alleged two constitutional injuries relative to the DOL’s Final Rule: a proprietary injury to its tax revenue, and a “quasi-sovereign interests” injury for the health and well-being of its residents.  New York v. U.S. Dept. of Labor, Case No. 20 Civ. 3020, at 6(S.D.N.Y. Aug. 3, 2020).  The DOL’s primary argument relative to New York’s standing was that the State failed to provide an exact cost the Final Rule might impose on New York.  The Court rejected this argument and held that New York had standing because “all New York must show is that it will be injured, not the magnitude of its injury,” which the Court found it did.  Id. at 7.

Work Availability Requirement

The Court then turned to New York’s arguments relative to the “work-availability requirement” imposed by the Final Rule. In short, the Final Rule added an additional requirement that prevented employees from taking EFMLEA or EPSLA provided leave if their employers did not have work for them.  The Final Rule imposed the “work availability requirement” relative to only three of the six qualifying reasons for leave, but during the briefing of the case, the DOL more expansively argued it should apply to all six.  The Court dismissed this argument, as the plain language of the DOL’s own Rule only applied to three enumerated reasons.

Next, the Court examined the DOL’s authority to enact the Final Rule. Concluding that the language of the FFCRA was ambiguous, the Court sought to determine whether the Final Rule was “based on a permissible construction” of the FFCRA.  Id. at 16.  The Court found the Final Rule failed this factor for two reasons.  First, the DOL provided no explanation for why the Final Rule imposed a “work availability requirement” on three reasons for leave and not all six.  More importantly, the Court held the DOL’s “barebones explanation” for the work-availability requirement was “patently deficient.” Id. at 17.  Accordingly, the Court declared the work-availability requirement invalid.

Health Care Provider Definition

The Court also addressed New York’s challenge to the Final Rule’s definition of “health care provider,” as employers could elect to exclude “health care providers” from leave benefits.  While the statute defines health care provider as those individuals who are capable of providing health care services, the Final Rule’s definition looked at whether the employer itself provided health care services.  Notably, the DOL conceded, “that an English professor, librarian, or cafeteria manager at a university with a medical school would all be ‘health care providers’ under the Rule.”  Id.  Based on the discrepancy between the statutory definition and the definition in the Final Rule, the Court held that the Final Rule was overbroad and could not stand, as the statute itself unambiguously foreclosed the DOL’s definition.

Limitations On Intermittent Leave

While the FFCRA is silent on whether employees can take intermittent leave, the Final Rule only permits intermittent leave if the employer and employee agree on the leave and, even then, only under a subset of conditions.  The Court invalidated the provisions of the Rule requiring employer consent, as “[t]he conditions for which intermittent leave is entirely barred are those which logically correlate with a higher risk of viral infection.” Id. at 22.  However, the Court upheld provisions of the Final Rule, which banned intermittent leave based on qualifying conditions that implicate an employee’s risk of viral transmission.

Documentation Requirements For Employees

Finally, New York challenged the Final Rule’s broad documentation requirements for employees seeking to take leave.  The Final Rule required that employees provide a multitude of documents before taking FFCRA leave, such as documents regarding their reason for leave, the duration of the requested leave, and, when relevant, the authority for the isolation or quarantine order qualifying them for leave.  However, the plain language of the EFMLEA only requires employees to provide notice of leave “as practicable” and where the need is foreseeable, and the EPSLA only requires employees “to follow reasonable notice procedures.”  Therefore, the Court ruled that to the extent the Final Rule conflicted with the language of the FFCRA, it could not stand.

Implications For Employers

This opinion, and its invalidation of many limiting regulations contained in the DOL’s Final Rule, vastly expands employees’ ability to take paid leave under the FFCRA and leaves employers holding the bag.  The Final Rule from the DOL greatly limited when an employee could take paid leave by increasing the restrictions on how they could qualify for the leave.  With the removal of these provisions, we anticipate more claims from employees for paid leave as schools re-open and new cases of COVID-19 are discovered.  Employers should consider working with counsel to update their policies and procedures relative to the FFCRA and would be well-served to read up on the tax implications for employees taking paid leave under the FFCRA

By: Gerald L. Maatman, Jr., Christopher DeGroff, Matthew J. Gagnon, and Alex S. Oxyer

Seyfarth Synopsis:  On August 3, 2020, the EEOC announced in a press release that it will resume issuing charge closure documents, or “Notices of Right to Sue.” The Commission had previously suspended issuing closure documents as a result of the COVID-19 pandemic in an effort to help preserve the rights of charging parties and employers. The EEOC’s latest announcement indicates that they are pushing to get back to “business as usual.”

On March 21, 2020, the EEOC announced that it would cease issuing charge closure documents, also known as Notices of Right to Sue (“Notices”), in response to the difficulties facing parties in light of the COVID-19 pandemic. Since March, Notices have only been issued upon request of the charging party. As charging parties generally have 90 days from the issuance of a Notice to pursue their claims in court, the suspension of the Notices has meant a downturn in the filing of discrimination and harassment lawsuits against employers over the past several months.

The EEOC’s August 3 announcement now indicates that EEOC managers and supervisors are reviewing charge resolution recommendations and that the EEOC will begin issuing Notices for charges held in suspense and for charge resolutions that occur on and after August 3, 2020.  The Notices that have been held in suspense will be issued over the course of the next six to eight weeks, beginning with those that have been in suspense the longest.  The EEOC has also noted that all Notices will be issued by mail.

Implications For Employers

Now that the EEOC is resuming its issuance of Notices, employers with pending EEOC charges should be on the lookout for Notices closing the charge process to arrive by mail. Once a Notice is issued, a charging party has 90 days from receipt to file their claims in court. Accordingly, employers will also likely see an uptick in discrimination and harassment claims filed in court over the next several months.

This announcement is the latest in a series of high priority press releases issued by the EEOC over the past few months. The ongoing changes at the Commission are a must-watch for employers, as they have considerably impacted the charge investigation and resolution processes at the EEOC.

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis: In the first ruling in response to the slew of room and board refund class actions filed in the wake of COVID-19, on July 29, 2020, in Rosenkrantz v. Arizona Board of Regents, No. 2:20-CV-01203 (D. Ariz.), Judge John Tuchi of the U.S. District Court for the District of Arizona granted the Universities’ Rule 12(b)(6) motion to dismiss for failure to state a claim.  Judge Tuchi held that Plaintiffs failed to comply with an Arizona statute that required them to file a notice of claim with a public entity prior to filing suit.  The Court’s ruling may prove useful for other colleges and universities sued in states with similar prerequisites.  Because the ruling depends on a state-specific technicality, however, it is unlikely to quell the tide of similar class actions filed across the country. 

Factual Background

Plaintiffs, parents of students enrolled at one of three public universities – the University of Arizona, Arizona State University, and Northern Arizona (the “Universities”) – during Spring 2020, filed a putative class action on behalf of all persons who paid the cost of room and board or fees for the Spring 2020 semester at the Universities.  Id. at 2.

Plaintiffs claimed that, in response to the COVID-19 pandemic, the Universities forced students to move out of on-campus housing, moved all classes online, cancelled campus events, and ceased providing various services.  Plaintiffs asserted that, despite these actions, the Universities failed to return or refund the cost of room and board or the fees for services.  Id. at 1-2.

Plaintiffs alleged claims for breach of contract, unjust enrichment, and conversion seeking the return of pro-rated, unused funds, a declaration that the Universities wrongfully kept the monies paid for room and board and fees, and injunctive relief enjoining the Universities from retaining the pro-rated, unused portion of monies paid.  Id. at 2.

The Universities moved to dismiss on the grounds that Plaintiffs failed to file a pre-suit notice of claim as required by A.R.S. 12-821.01(A).  The Court granted the motion.

The Court’s Opinion

At the outset, the Court recognized that Arizona law requires a plaintiff to file a notice of claim with a public entity before suing it for damages.  In the notice of claim, the claimant must set forth “facts sufficient to permit the public entity . . . to understand the basis on which liability is claimed” and “a specific amount for which the claim can be settled and the facts supporting that amount.”  Id. at 3.

The Court noted that, because the statute functions to allow public entities to investigate and assess liability and to “assist in financial planning and budgeting,” which are fiscal considerations, the statute applies only to claims for money damages and does not apply when declaratory or injunctive relief is the “primary purpose of the litigation.”  Id.  A plaintiff, however, cannot circumvent the notice requirement by maintaining claims for monetary damages “under the guise of seeking declaratory relief.”  Id.

Here, although Plaintiffs sought “disgorgement” of the pro-rated unused monies already paid, a “declaration” that the Universities are unlawfully withholding the funds, and an “injunction” enjoining the Universities from retaining them, the Court held that an equitable remedy is inappropriate where, as here, “an adequate legal remedy exists in the form of money damages.”  Id. at 4.  The Court concluded that all six of Plaintiffs’ claims, regardless of the label that Plaintiffs used, directly involved government funds and, therefore, were subject to the notice of claim requirement.  Id. at 5.

The Court concluded that, although Plaintiffs alleged that they demanded the return of money through multiple channels, they did not allege that they had filed a notice of claim.  The Court, therefore, found their action barred.  Id. at 6-7.

Implications

Members of the plaintiffs’ class action bar have filed nearly 200 lawsuits seeking corona-virus related refunds to date, many against colleges and universities for failing to refund tuition, room and board, or other fees.  Although Defendants scored the first win, in the form of a dismissal of one of the largest reimbursement class actions filed to date, the ruling’s usefulness may be limited for defense purposes.  The Court relied upon a state-specific prerequisite to suit and did not reject the claims on their merits.  Thus, it remains to be seen whether the Universities’ strategy of invoking the notice requirement at the motion to dismiss stage will impact the ultimate outcome of similar claims asserted on behalf of these or other putative class members.  As a result, it is unlikely that this bellwether ruling will slow the fervor with which the plaintiffs’ class action bar continues to pursue similar cases.

 

By Jennifer A. Riley, Christina M. Janice, and Alex Oxyer

Seyfarth Synopsis: On July 14, 2020, Judge James Donato of the U.S. District Court for the Northern District of California became the latest to deny appointment of class counsel in a class action based on lack of diversity, including lack of diversity in gender (all male) and experience (too much). He issued that order in the case entitled In Re Robinhood Outage Litigation, No. 20-CV-01626 (N.D. Cal. July 14, 2020).  Although the latter reason may seem counter-intuitive, particularly because Judge Donato noted that such experience was likely to benefit the putative class, the ruling is part of a growing trend by federal judges to demand diversity in the lead counsel ranks and is, perhaps, the genesis of a new angle of attack for defendants.   

Background

Robinhood provides an internet/cloud-based platform for users to trade in stocks, funds, and options through a mobile phone application.  On March 2, 2020, the Dow Jones Industrial Average rose by over 1,294 points, the S&P 500 rose by over 136 points, and the Nasdaq rose by 384 points.  On the same day, however, Robinhood experienced downtime across its platform that affected functionality, including users’ ability to trade.  See Taaffe v. Robinhood Markets, No. 8:20-CV-513, 2020 U.S. Dist. LEXIS 55980, at *1-2 (S.D. Fla. March 31, 2020).  Robinhood thereafter became the target of numerous putative class action lawsuits.

On July 14, 2020, District Judge James Donato of the U.S. District Court for the Northern District of California entered an order consolidating 13 separate actions filed against Robinhood and considering the appointment of interim class counsel.  Although the request for appointment of lead counsel was unopposed, Judge Donato denied the request without prejudice in In Re Robinhood Outage Litigation, No. 20-CV-01626 (N.D. Cal. July 14, 2020).

The Court’s Ruling

Although it had “no doubt” that plaintiffs’ firms Kaplan Fox and Cotchett Pitre, and the individual lawyers identified as lead counsel would provide “highly professional and sophisticated representation to plaintiffs,” the Court ruled that it was “not prepared to appoint them at this time.”  Id. at 3.  The Court explained that it was concerned about “a lack of diversity in the proposed lead counsel.”  It noted, for example, that “all four of the proposed lead counsel are men, which is also true for the proposed seven lawyers for the ‘executive committee’ and liaison counsel.”  Id.

The Court also noted that, in addition, the proposed counsel “appear to be lawyers and law firms that have enjoyed a number of leadership appointments in other cases.”  Although the Court opined that such experience was “likely to benefit the putative class,” it found that the proposal “highlights the ‘repeat player’ problem in class counsel appointments that has burdened class action litigation and MDL proceedings.”  Id.

Thus, while counsel with “significant prior appointments” are “by no means disqualified from consideration,” the Court held that “leadership roles should be made available to newer and less experienced lawyers, and the attorneys running this litigation should reflect the diversity of the proposal national class.”  Id.  The following day, the two firms went back to Judge Donato with a revised roster that identified a female partner as a co-leader and included six women on the executive leadership committee.

A Growing Trend?

Other federal judges have exercised similar discretion.  More than a decade ago in 2007, Judge Harold Baer noted in In Re JP Morgan Chase Cash Balance Litigation, 242 F.R.D. 265, 277 (S.D.N.Y. 2007), that a proposed class included “thousands of Plan participants, both male and female, arguably from diverse racial and ethnic backgrounds” and that, therefore, “it is important to all concerned that there is evidence of diversity, in terms of race and gender, of any class counsel I appoint.”

Three years later, the same judge ruled in In Re Gildan Activewear Inc. Securities Litigation, No. 1:08 Civ. 05048 (S.D.N.Y. Sept. 20, 2010), that, because a proposed class included “thousands of participants, both male and female, arguably from diverse backgrounds,” it was therefore “important to all concerned that there is evidence of diversity, in terms of race and gender, in the class counsel I appoint.”  Judge Baer directed the firms to “make every effort” to assign at least one minority lawyer and one woman lawyer with requisite experience” to the matter.

The Rules seemingly allow courts to exercise such discretion.  Rule 23(g), for instance, requires that, in appointing class counsel, a court must consider factors such as “counsel’s experience in handling class actions” and “knowledge of applicable law,” and may consider “any other matter pertinent to counsel’s ability to fairly and adequately represent the interests of the class.”  Fed. R. Civ. P. 23(g)(1).  If more than one adequate applicant seeks appointment, “the court must appoint the applicant best able to represent the interests of the class.”  Fed. R. Civ. P. 23(g)(2).

Implications

As diversity is a key goal in all aspects of the business world, the ruling in In Re Robinhood Outage Litigation is a positive step in the right direction. The factors that a court deems pertinent to a lawyer’s ability to fairly and adequately represent the interests of the class are subject to discretion.  Whereas the rulings are currently few, we expect that more courts will begin to consider the makeup of proposed legal teams at increasing rates.  This opens the door for defense counsel to point out the same shortcomings, including where for example proposed class counsel are repeat players, lack diverse membership, or fail to reflect the putative class, as potential grounds to challenge the adequacy of class counsel to effectively represent the interests of class members.