ALERT: United States Supreme Court Agrees to Review Class Action Waiver Cases

Earlier today, the United States Supreme Court granted certiorari in National Labor Relations Board v. Murphy Oil USA, Case No. 16-307, Epic Systems Corp. v. Lewis, Case No. 16-285 and Ernst & Young LLP v. Morris, Case No. 16-300, consolidating them for argument. The three cases present the question whether class action waivers in employment arbitration agreements violate the National Labor Relations Act (“NLRA”).  The Supreme Court’s action promises the much-anticipated resolution of the circuit split on the issue.

Background

Arbitration agreements that require employees to pursue claims in arbitration rather than in court have long been enforced pursuant to the Federal Arbitration Act (“FAA”). Due to a series of Supreme Court decisions, employers increasingly have included class and collective action waivers in such agreements. However, the National Labor Relations Board (“NLRB”) has taken the position that employers violate the NLRA when they make such waivers in arbitration agreements a condition of employment.

Disagreeing with the NLRB, in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013) and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), the United States Court of Appeals for the Fifth Circuit generally held that class and collective action waivers do not violate the NLRA.  Since then, the Second and Eighth Circuits followed the Fifth Circuit and enforced arbitration agreements requiring employees to submit their employment claims to individual arbitration. (Click for more information on the D.R. Horton case.)

Last May, the Seventh Circuit created a circuit split in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), holding that arbitration agreements that prohibit employees from bringing or participating in class or collective actions violate the NLRA.  Most recently, in Morris v. Ernst & Young, No. 13-16599, 2016 U.S. App. LEXIS 15638 (9th Cir. Aug. 22, 2016), the Ninth Circuit agreed with the Seventh Circuit and the NLRB. (Click for more information on the Epic Systems Corp. case and the Ernst & Young case.)

In September 2016, the employers in Epic Systems Corp. and Ernst & Young and the NLRB in Murphy Oil each petitioned the Supreme Court to decide the issue once and for all. Reflecting the state of uncertainty on the issue, cases presenting this same question are currently before several other Courts of Appeals.

Analysis of Supreme Court’s Action

Given the issue’s importance and the requests by both employers and the NLRB to have the Supreme Court decide the issue, it is unsurprising that the Supreme Court granted certiorari and consolidated these cases. In the past, critical Supreme Court’s decisions regarding class action waivers (albeit outside the employment context) were decided by 5-4 and 5-3 votes and were authored by the late Justice Antonin Scalia. By the time the Court decides the issue, Justice Scalia’s replacement is likely to be on the Court.

Following the Supreme Court’s decision today, the Petitioners’ merits briefs will likely be due within 45 days from today, the Respondents’ briefs will likely be due 30 days after the Petitioners’ briefs are filed, and reply briefs will likely be due 30 days thereafter.  Still, the briefing schedule may be slowed, as many amicus briefs are anticipated.

Until the Supreme Court decides the matter one way or another, employers with such waivers will continue to face an uncertain landscape. We will keep you informed on the issue. In the meantime, please contact Jackson Lewis P.C. if you have any questions about drafting or enforcing arbitration agreements.

Employee Cannot Maintain Collective Action for Employer’s Failure to Post FMLA Notice

We all know that the FMLA is fraught with pitfalls that can lead to costly mistakes. But a collective action for simply failing to post a notice?  On January 6, 2017 a U.S. District Court in Maryland rejected such an attempt.  In Antoine v. Amick Farms, LLC the plaintiffs claim that a class of employees were prejudiced by the company’s failure to post a notice of FMLA protections because they did not know they had the right to request or take protected FMLA leave.  The Court held that there is no private right of action by an individual based on an employer’s failure to post the general FMLA notice required by the regulations.  Only the Department of Labor (“DOL”) has the authority to enforce the posting requirement and seek penalties against the employer.  It is important to note, however, that the decision is limited to the general notice requirements of the FMLA, and not the individual notice requirements.

The FMLA requires two types of notice by employers. The “general” notice provision requires an employer to post a DOL approved notice summarizing the provisions of the FMLA and the rights provided to employees.  The regulations state that the DOL may issue a civil penalty against an employer who fails to meet the posting requirements.  The FMLA also requires that employers provide an “individual” notice to affected employees regarding their rights and responsibilities and whether an absence qualifies under the FMLA.  Failure to comply with the individual notice requirements may constitute an interference with the exercise of an employee’s FMLA rights and result in liability to the employee.

In addition to the collective action for failure to post the general notice, the plaintiffs in Antoine v. Amick Farms also brought claims for violation of the individual notice requirements which were not dismissed and will proceed through the litigation process.  This is a good reminder to check on your FMLA general notice postings and your process for providing individual notice.  Once an employer is aware that an employee is taking time off that is potentially FMLA-qualifying, the employer must, within five business days, notify the employee of his or her eligibility to take FMLA leave and the employee’s rights and responsibilities under the FMLA.  Individual notice requirements also include the requirement to notify the employee in writing whether the leave will be designated as FMLA leave and the specific amount of leave that will be counted against the employee’s FMLA leave entitlement.

Jackson Lewis Class Action Trends Report Winter 2016 Now Available

Below is a link to the latest issue of the Jackson Lewis Class Action Trends Report.  This report is published on a quarterly basis by our firm’s class action practice group in conjunction with Wolters Kluwer.  We hope you will find this issue to be informative and insightful.  Using our considerable experience in defending hundreds of class actions over the last few years alone, we have generated another comprehensive, informative and timely piece with practice insights and tactical tips to consider concerning employment law class actions.

Jackson Lewis Class Actions Trends Report – Winter 2016

ALERT: Former EEOC General Counsel to Join Outten & Golden LLP’s New Office

David Lopez, who served as General Counsel of the Equal Employment Opportunity Commission for six years and served the EEOC in various capacities for approximately 25 years, is joining Outten & Golden LLP on January 1, 2017, in its new Washington, D.C. office.  He will join the firm as a Partner, and his practice will focus primarily on class action anti-discrimination litigation, as well as cases involving individual plaintiffs.  Outten & Golden is also in the process of hiring additional attorneys to round out the ranks of its new office.

Employers around the country, and those in the Washington D.C. area in particular, should take note of Lopez’s new position and firm, since it will likely result in an increase in employment class actions both in the D.C. area and nationwide. For employers who may be concerned about their potential exposure to liability on a classwide basis, please contact a Jackson Lewis attorney in your area or Stephanie Adler-Paindiris at Stephanie.Adler-Paindiris@jacksonlewis.com.

 

Significant Proposed Amendments to FRCP Rule 23 Likely Pending Conclusion of Public Comment Period

Earlier this year, the Judicial Conference Advisory Committees on Appellate, Bankruptcy, Civil, and Criminal Rules submitted proposed amendments to a number of Rules, including Fed. R. Civ. P. 23 (which governs class actions), and requested that the proposals be circulated to the bench, bar, and public for comments.  The proposed amendments, advisory committee reports, and related information can be found on the Judiciary’s website and a copy is available here.

The Judicial Conference Committee on Rules of Practice and Procedure then approved publication of the proposed amendments to Rule 23 for a comment period from August 12, 2016 through February 15, 2017.  The Advisory Committee will hold public hearings on November 3, 2016, January 4, 2017, and February 16, 2017 regarding the proposed amendments to the Civil Rules, including Rule 23.

As a result, significant changes to Rule 23 of Fed. R. Civ. P. are likely, and employers should understand how these proposed changes may impact the defense of class action lawsuits going forward. A brief summary of some of the more notable changes are as follows:

Form of Notice to Class Members: If implemented, individual notice to any class certified under Rule 23(b) (3) or to a class proposed to be certified for purposes of settlement may be issued not only by U.S. mail, which is generally required, but also through “electronic means, or other appropriate means.”  This change would permit electronic notice to be issued via e-mail or social media.  The Committee Note cautions that, while e-mail may be the most promising method for notice, it is important to keep in mind that a significant portion of class members in certain cases may have limited or no access to e-mail or the Internet.  The amended rule emphasizes that the Court must exercise its discretion to select the appropriate means of disseminating notice.  For employers, this may be an opportunity to highlight the potential disruption that could be caused by notice being issued to a company e-mail address or to an employee’s social media account, which may be accessible at work.

Settlement Approval: The proposed amendments outline factors that courts must consider when approving settlement and determining whether a proposal is “fair, reasonable, and adequate.” Namely, courts will now need to consider whether the “class representatives and class counsel have adequately represented the class”; whether the settlement was “negotiated at arm’s length”; whether the relief provided for the class is adequate (taking into account several factors such as costs, risks, effectiveness of the proposed method of distributing relief to the class, among others); and whether “class members are treated equitably relative to each other.”  These factors will direct the approval process and are helpful points to consider when drafting settlement agreements prior to the amendments actually taking effect.

Class-Member Objections: Another notable proposed change is to Rule 23(e)(5), which governs objections by class members to proposed settlements.  This section would be revised to require that an objector state “with specificity” the grounds for the objection, in hopes of preventing baseless objections from being filed.  The objection must also state whether it applies to the entire class, a subset of the class, or to the objector alone.  Amended Rule 23(e)(5) deletes language requiring court approval for the withdrawal of an objection, instead adding section (b), which requires court approval for payment to an objector or objector’s counsel in connection with “forgoing or withdrawing an objection” or “forgoing, dismissing, or abandoning an appeal of a judgment approving the proposal.”  The proposed amendments also include provision (e)(5)(c), which states that if approval under Rule 23(e)(5)(B) has not been obtained prior to an appeal being docketed, the procedure outlined in Rule 62.1 applies, which permits a district court to issue an indicative ruling.

Appeals: Amended Rule 23(f) states that interlocutory appeals can be pursued from an order granting or denying class-action certification, but not from an order to give notice under Rule 23(e)(1). The time within which a party must file a petition for permission to appeal remains 14 days after the order is entered, unless any party is the United States, a United States agency, or a United States officer, in which case it is 45 days after the order is entered.

After the public comment period concludes, the Advisory Committee will decide whether to submit the proposed amendments to the Committee on Rules of Practice and Procedure.  If approved, the proposed amendments would become effective on December 1, 2018.

 

Straightening Out the Fluctuating Hour Workweek: Evaluating the Risks and Benefits of One Method of Overtime Payment

With the Department of Labor’s recent changes to the salary threshold for white-collar exemptions set to take effect on December 1, 2016, many employers are struggling to find the best option for how to comply with the new regulations without breaking the bank. One lesser-known alternative that is receiving increased attention from many companies is the fluctuating workweek method of payment for non-exempt employees.

As the name suggests, under this method, a non-exempt employee receives a fixed weekly salary regardless of hours worked. In weeks in which work exceeds 40 hours, the employee will receive an extra .5 times (rather than 1.5 times) their regular rate for overtime hours (and note that this hourly rate therefore fluctuates depending on the hours worked in any given week). The fluctuating workweek method may be a terrific solution for employers in certain situations (and only in states where it is legal) but it is also full of risk and challenges in its application.

In general, an employer may pay a non-exempt employee according to the fluctuating workweek method if: (1) the employee’s hours fluctuate for week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked (with the exception of overtime premiums); (3) the fixed weekly amount must always be equal to, or exceed, the applicable minimum wage; and (4) a clear mutual understanding between the employer and employee must exist regarding this method of payment. See 29 C.F.R. § 778.114. Those criteria may sound straightforward, but in practice, they are far from it. If an employer chooses to pay bonuses to employees, some bonuses may negate the finding that the employee truly receives a fixed weekly salary. RadioShack recently agreed to pay up to $41 million to class members in order to settle an overtime claim with its managers dating back to 2012, wherein the claimants alleged that the fluctuating workweek method of pay should not have been used because the performance-based bonuses invalidated this method.

Administration of the fluctuating workweek can be challenging in other ways. With very few exceptions, employers must pay employees their full salary even in workweeks in which the employee does not work 40 hours. In addition, employers must have safeguards in place to ensure that the employee’s hourly rate never falls below applicable minimum wage, including in a week where considerable overtime is worked. For example, if an employer agrees to pay an employee a $360 salary per week under the fluctuating workweek, but the employee works 60 hours in a week, the employer owes them an extra $60 for the extra 20 hours of work. However, the employee’s total compensation of $420 for 60 hours is below the federal minimum wage (and well below applicable wage laws in some states and cities).

Despite these challenges, the fluctuating workweek method of overtime pay can be beneficial to both employees and employers: (1) it provides employees a greater degree of consistency by guaranteeing them a minimum salary; (2) it can reduce some of the financial woes experienced by employers that come with hefty overtime payouts.

Whether the fluctuating workweek is appropriate depends on several factors, including: the nature of the positions; the hours of work; the employee population; and the employer’s ability to administer the practice. .While it is certainly not the best solution in all cases (especially for employers with operations in many different states or cities with different wage laws), it does provide employers an alternative method for complying with overtime requirements that may help reduce the related increase in labor costs. A final word of warning: the cost of litigation if this method is misused will far exceed any potential benefits, so we encourage you to consult the with wage-law experts at Jackson Lewis to discuss whether this solution might work for your company, and how it can be implemented in a way that minimizes risk.

11th Circuit Holds Rule 23 Class Actions Can Proceed In Same Suit As FLSA Collective Actions

In a case for minimum wage and overtime claims, the Eleventh Circuit joined the D.C., Second, Third, Seventh, and Ninth Circuits in holding that a state-law Rule 23 class action may be maintained in the same proceeding as a Fair Labor Standards Act (“FLSA”) collective action.  Calderone, et. al. v. Scott, No. 2:14-cv-00519-JES-CM (11th Cir. Sept. 28, 2016).

Plaintiffs sued the Sheriff of Lee County, Florida in his official capacity alleging claims under the FLSA as well as the Florida Minimum Wage Act (“FMWA”) for minimum wage and overtime violations.  Plaintiffs claimed that they, and other similarly situated employees, performed off-the-clock work for which they were not paid. The Middle District of Florida granted conditional certification under the FLSA, but denied conditional Rule 23(b)(3) certification on plaintiffs’ FMWA claims.  Plaintiffs appealed to the Eleventh Circuit.

The Eleventh Circuit found that the purpose behind both collective and Rule 23 class actions is to resolve common claims efficiently.  It recognized that the District Court was concerned about the procedural differences between the two claims.  The Eleventh Circuit, however, found that the actions are not “irreconcilable.”  The plain text of the FLSA does not indicate that a collective and class action cannot be maintained simultaneously.  The FLSA explicitly provides that a collective action cannot coexist with an action brought by the Secretary of Labor.  This text demonstrates that Congress knew how to carve out actions that should not be maintained with a collective action.  As a result, the Eleventh Circuit concluded that Congress did not intend the FLSA to preempt a Rule 23 class action.

Moreover, Rule 23’s opt-out requirements were developed so they did not affect the FLSA’s existing opt-in scheme.  The Court found nothing confusing about sending two separate notices or the other procedural components involved in class or collective actions.  As a result, the Eleventh Circuit concluded that there is no tension in maintaining both a Rule 23 class and FLSA collective action.

We anticipate that we will see a higher volume of Rule 23 class actions filed concurrently with FLSA collective actions within the Eleventh Circuit based on this opinion.  Nevertheless, the circuits remain split on the issue and the Supreme Court has yet to review a decision resolving the conflict.

Jackson Lewis Class Action Trends Report Fall 2016 Now Available

Below is a link to the latest issue of the Jackson Lewis Class Action Trends Report.  This report is published on a quarterly basis by our firm’s class action practice group in conjunction with Wolters Kluwer.  We hope you will find this issue to be informative and insightful.  Using our considerable experience in defending hundreds of class actions over the last few years alone, we have generated another comprehensive, informative and timely piece with practice insights and tactical tips to consider concerning employment law class actions.

Class Action Trends Fall_2016

Think A Class Is Certified? Not So Fast…. Second Circuit Affirms Decertification of Class Even After Jury Verdict, Overturning Jury Award

The U.S. Court of Appeals for the Second Circuit recently held that district courts can decertify a class after a jury verdict but before entry of final judgment.  In Mazzei v. Money Store, 2016 U.S. App. LEXIS 12994 (2d Cir. July 15, 2016), the appellate court affirmed the United States District Court for the Southern District of New York’s post-jury-verdict decertification of a class of home loan borrowers, thereby overturning a $55 million jury award.

The class was comprised of borrowers whose loans with either owned or serviced by the defendant during the relevant time period.  After trial, the defendants moved for decertification of the class on the grounds that the named plaintiff had failed to prove class-wide privity of contract between the defendant and borrowers whose loans defendant had only serviced but did not own.  After post-trial briefing by both parties, the district court held that plaintiff’s failure to prove privity with respect to absent class members necessitated decertification under the “typicality” and “predominance” requirements of Fed. R. Civ. P. 23(a) and 23(b)(3).

On appeal, the Second Circuit rejected the plaintiff’s arguments that decertification is unavailable after a jury verdict in favor of a class; that the findings made to support decertification ran afoul of the Seventh Amendment; and that Rule 23 class certification requirements were satisfied.  The court noted that the statutory text of Civil Rule 23(c)(1)(c) specifically provides that an “order that grants or denies class certification may be altered or amended before final judgment.”  The court rejected plaintiff’s argument that courts may only overturn a jury verdict under Civil Rule 50(b)’s judgment as a matter of law mechanism.  The court cited to case law and statutory commentary in finding that district courts have an “affirmative duty” to monitor and reexamine class decisions as evidence develops in a case.  The court held that “[t]he power to decertify a class after trial when appropriate is therefore not only authorized by Federal Rule 23 but is a corollary.”

The court also rejected the plaintiff’s Seventh Amendment arguments, finding that neither the named plaintiff nor the decertified class members suffered a violation of their constitutional rights.  The court noted that the named plaintiff was awarded damages on his individual claims and has no constitutional right to represent a class.  Further, the decertified class members retained the right to refile individual actions if they chose to do so, and the statute of limitations on their claims was tolled during the case under the American Pipe tolling rule.  As a result, neither the individual plaintiff nor the class members were denied the right to a jury trial.

The most significant ruling to emerge from the decision stems from the discussion on the court’s power to make factual findings in support of post-verdict decertification. The court held that, although decertification necessitates making factual determinations which overlap with the merits of the case (which is generally left for the jury to decide), the court may consider merits questions to the extent that they are relevant in determining whether Rule 23 prerequisites for class certification have been met.  Such determinations do not bind the jury, and are considered only in deciding whether class certification is appropriate.

However, the court did not hold that district courts have carte blanche authority to make factual determinations where the jury has already made factual findings at trial.  Instead, the court held that when considering class decertification after a jury verdict, the district court must defer to the jury’s factual findings “unless those findings were ‘seriously erroneous,’ a ‘miscarriage of justice,’ or ‘egregious,’” the same standard used when considering a Rule 59 motion for a new trial.  The court further held that, where questions of fact arise that were necessarily not decided by the jury, the district court is empowered to make its own factual findings based on the preponderance of the evidence.

Employing this standard, the Second Circuit found no abuse of discretion in the district court’s ruling that the jury’s determination on typicality and predominance were “legally insufficient.” The court held that by describing the evidence as “legally insufficient,” the district court satisfied the requirement of finding the jury’s verdict to be at least “seriously erroneous.”

While the Second Circuit acknowledged that, ordinarily, the proper solution in such cases is to create a subclass instead of decertifying the class entirely, the court agreed that, under the facts established at trial, there was no basis on which the parties could have determined which members of the class had loans that were owned by defendant, and which had loans that were only serviced by defendant. As a result, decertification was appropriate.

The Mazzei decision gives employers and other defendants in a class action another opportunity to refute class treatment of a claim, not only before trial but now afterwards as well.

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