Ninth Circuit Affirms Dismissal of Wage-Hour Class Action Where Employees Could Edit Their Own Time Entries

In a case that could be of significant benefit to employers in California and elsewhere around the country, the Ninth Circuit Court of Appeals recently affirmed a ruling that plaintiffs failed to satisfy the “commonality” requirement essential to a collective action on their wage-hour claim where they had the authority to edit the time entries that served as the basis for their claim. Coleman v. Jenny Craig, Inc., 2016 U.S. App. LEXIS 7164 (April 6, 2016).

Plaintiff Hashonna Coleman brought suit against Jenny Craig, Inc. on behalf of herself and other current and former employees for alleged violations of the Fair Labor Standards Act (“FLSA”) and various California Labor Code sections providing for overtime payments and premiums for failure to provide or pay for meal and rest periods. With respect to the proposed Meal and Rest Break Class, Coleman alleged that Jenny Craig had a common practice of forcing hourly employees to miss meal breaks or take short or late meal breaks, and that the payroll system only paid the (California) required premium when employees’ timecards showed an entirely-missed meal break.

The evidence showed that Jenny Craig’s uniform compensation system was not programmed to automatically pay employees the premiums for short or late lunches, because employees were able to submit time edit requests for premiums whenever their meal breaks were short or late. The district court concluded that this feature of the Company’s payroll system did not amount to a policy or practice of non-payment of premiums for short of late lunches, because employees themselves could edit and correct any time entries they believed did not accurately reflect their hours worked. The district court concluded that the plaintiffs did not satisfy the “commonality” requirement for class certification and therefore it denied Plaintiff’s motion to certify a class.

The Ninth Circuit affirmed the lower court’s ruling and held that, for Coleman to show commonality on her claims, she must show a common practice of Jenny Craig to force employees to take short or late meal breaks, but that a common practice of simply not paying wage premiums, standing alone, is insufficient to show commonality under the FLSA and California statutes. Since the lower court found that Jenny Craig did not have a common practice of forcing employees to take short or late meal breaks, the Ninth Circuit held that the court was correct in finding that Coleman had not proven the existence of a common practice necessary to maintain a class claim.

The pivotal fact upon which the class certification question turned for the Ninth Circuit was that employees had the opportunity to edit their own time entries to ensure that they were paid for time worked if they had short or late meal breaks. Any employer with a time keeping system which provides employees the opportunity to review, edit and certify their time entries will arguably be in a position to assert that fact as a defense to any collective action wage claims they may face.

Employers Beware of Phishing Scams

On April 20, 2016, a class action lawsuit was filed in the United States District Court, Southern District of California against Sprouts Farmers Market, Inc. The lawsuit was initiated by a former employee whose W-2 was allegedly disclosed as part of a phishing scam that occurred in late March 2016 amid reports that Sprouts’ employees had their IRS tax refunds stolen. According to the complaint, the W-2s of Sprouts’ employees were disclosed to a third party as a result of the phishing scam.

This sort of internet scam, referred to as “phishing,” occurs when someone attempts to acquire sensitive or confidential information under the guise of a legitimate request. For the average internet user, phishing scams often come in the form of a fake email from a bank or other financial institution asking you to click on a link to confirm your password on a web site that looks like a legitimate web site for the business. The fake web site often uses the actual logos and branding from a legitimate site to trick the user.

In this case, the complaint alleges an email was sent to an employee in the payroll department asking for the W-2s of all Sprouts’ workers by a Sprouts executive. The employee responded to the email sending the W-2s of approximately 21,000 Sprouts employees. Unfortunately, Sprouts later discovered that the original email requesting the information was not legitimate, and notified the authorities.

The class action complaint alleges that Sprouts was negligent in its protection of private employee information, violated California Civil Code sections 1798.80 et seq. (including California’s data breach law), and engaged in unfair business practices in violation of California Business and Professions Code section 17200. The complaint alleges that while Sprouts offered credit monitoring services for 12 months for the impacted employees, the service chosen did not protect against identity theft, and only notifies the consumer after identify theft or other fraudulent activity has occurred. The complaint also alleges that Sprouts had “lax” security procedures for its employee data, and concealed that fact from its employees.

This case highlights the necessity that employers have protocols in place to protect employee information, and the risks associated with not having such protocols in place.

Facebook Files Motion to Dismiss Birthday Text Messages Class Action

Facebook, Inc. (“Facebook”) recently filed a motion to dismiss class action claims alleging that Facebook sent unsolicited text messages to users containing birthday announcements in violation of the Telephone Consumer Protection Act (“TCPA”). The TCPA generally restricts telephone solicitations (i.e., telemarketing) and the use of automated telephone equipment, and limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines.

Plaintiff Colin Brickman filed a putative class action on February 12, 2016, “to stop Facebook’s practice” of sending unsolicited and unauthorized text messages announcing that it is a Facebook friend’s birthday and stating “[r]eply to post a wish on his timeline or reply with 1 to post ‘Happy Birthday!’” A copy of the Complaint is available here.  Plaintiff alleges that these text messages are in violation of individuals’ statutory and privacy rights and, further, that individuals are paying to receive messages that were sent without their prior express consent (this latter argument would only be applicable to consumers that do not have an unlimited text messaging cell phone plan).  The benefit to Facebook, plaintiff alleges, is significant, as the messages encourage interaction among users on its site, and any time its users interact the company earns revenue.

In its motion to dismiss, Facebook argues that (1) plaintiff fails to plausibly allege that Facebook sent the birthday text message with an “automatic telephone dialing system,” as defined by 47 U.S.C. §227(a)(1), (2) plaintiff provided express consent to receive calls from Facebook, and (3)  the TCPA violates the First Amendment on its face as applied to the birthday text message at issue. Facebook states in its motion that plaintiff brought a putative class action under a statute that protects against mass telemarketing and spam, however plaintiff gave Facebook his cell phone number and received personalized messages regarding his friends, in contrast to the mass communications that the TCPA intends to prohibit. Further, Facebook argues that plaintiff  consented to receiving birthday messages by providing the company with this wireless number. “Unlike cases involving ‘recycled phone numbers’ or other cases involving disputes over whether a plaintiff provided his phone number, plaintiff’s admission makes this a textbook case of prior express consent,” Facebook said. Facebook also argues that, if the Court does find the TCPA applicable to the birthday text messages at issue, the Court should find the statute itself in violation of the First Amendment on the basis that it’s a content-based restriction of speech that cannot survive strict scrutiny.

In its motion Facebook also questions whether plaintiff has sufficient standing under Article III to assert a TCPA claim since plaintiff alleges that “individuals frequently pay their cell phone service providers for the receipt of . . . unwanted texts,” yet fails to allege that he pays for receipt of each of his text messages (as opposed to having an unlimited text messages cell phone plan, in which case he would not have suffered any economic harm). Facebook cites to the pending Spokeo, Inc. v. Robins case, pending before the  Supreme Court, to support  this argument. See more here.  If the Facebook complaint survives dismissal and the suit proceeds, plaintiff can seek $500 per violation, i.e. each text message, or $1,500 per violation if plaintiff can show a willful violation. A copy of Facebook’s pending motion can be found here.

U.S. Supreme Court Finds Representative Statistically-Valid Evidence Supports Wage-Hour Class Certification

In a case for overtime compensation for time spent by workers putting on and taking off protective gear, the U.S. Supreme Court in a 6-2 ruling has upheld the use of representative sampling as evidence for common claims among the class action plaintiffs, workers killing hogs and trimming pork products at processing plants in Iowa. Tyson Foods v. Bouaphakeo, No. 14-1146 (Mar. 22, 2016).

Contending they were due overtime pay, the workers sought certification of their Fair Labor Standards Act claims as a “collective action” and certification of their state claims as a class action under Federal Rule of Civil Procedure 23. (The state claims were brought under Iowa’s wage payment statute, which the parties assumed required the same proof as for the FLSA claim.)

Before certifying a class under Rule 23, a district court must find that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The parties agreed that the most significant question common to the class was whether donning and doffing protective gear is compensable under the FLSA. The company claimed that individual inquiries into the time each worker spent donning and doffing predominated over this common question. The workers argued that individual inquiries were unnecessary, because it could be assumed for purposes of establishing liability that each employee donned and doffed for the same average time observed in a study done by their industrial-relations expert.

The plaintiffs relied on the study done by an industrial-relations expert to show the amount of time the workers spent donning and doffing because the employer did not keep records of this time. The study drew on a representative sample of 744 observations of workers. The federal district court agreed to allow the study as evidence and certified the class and a jury awarded about $2.9 million in unpaid wages to the class of 3,344 members. The appellate court affirmed the district court decision and the U.S. Supreme Court, in turn, affirmed the lower court decisions.

Justice Anthony Kennedy, writing for the majority, said “a representative or statistical sample, like all evidence, is a means to establish or defend against liability.” If a sample is good statistical analysis, it is admissible to establish a common class. The Court has allowed this kind of evidence into a trial of a class action or other type of case, depending “on the degree to which the evidence is reliable in proving or disproving the elements” of the legal claim at stake, since its decision in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946).

On the facts of this case, the majority found the use of the “representative evidence,” which was not explicit as to each individual worker, is proper to show the group could have had the same legal claim, without having to prove it individually. The decision is notable in its limited holding. The Court’s decision applies only to cases in which the courts have determined that the representative evidence offered by the plaintiffs is a statistically valid sample that can be extrapolated to show the amount of time for the class as a whole. This determination was not contested on appeal in Bouaphakeo. The decision’s impact, therefore, is likely to be limited.

Chief Justice John Roberts filed a concurring opinion in which Justice Samuel Alito joined, in part, while Justice Clarence Thomas filed a dissenting opinion in which Justice Alito joined also. Justice Roberts’ concurrence highlights the narrowness of the decision, noting that this decision does nothing to solve the problem of what to do with class members for whom the average amount of off-the-clock time fails to establish liability.

Court Denies Class Certification in Telephone Consumer Protection Act Case, Citing Plaintiff’s “Unique” Circumstances

For employers who are facing class claims under the Telephone Consumer Protection Act, you may have more support for your defense: The U.S. District Court for the Southern District of California recently granted Wilshire Consumer Capital’s (WCC) motion to deny class certification in a putative class action filed under the TCPA.

Judge Roger T. Benitez found that although the plaintiff was probably annoyed by the robocalls at issue, her case was “unique to herself and perhaps a small subset of the class”: Her father was a frequent user of the phone, and therefore there was a factual issue as to whether he may have consented to the calls. Based upon such facts, the court held that “the majority of the proposed class may suffer as Plaintiff will be engrossed with disputing WCC’s arguments regarding Plaintiff’s individual case.” For employers looking to distinguish the named plaintiff in their own TCPA cases, this case may have your number.

For additional details regarding the decision, please see the post from our colleagues in the Privacy, e-Communication and Data Security Group

 

For Employers in California, New Proposed “PAGA Unit” of State Agency May Complicate PAGA Representative Actions

Governor Jerry Brown of California recently submitted a proposed budget for the 2016-17 fiscal year which contains significant proposed changes to the operation of the Labor & Workforce Development Agency (“LWDA”), the agency responsible for overseeing the Private Attorney Generals Act of 2004 (“PAGA”), including the creation of a “PAGA Unit” with the authority to intervene and object to the adequacy of the settlement funds designated to PAGA claims. At this point, legislation is still required to effectuate the proposed changes, but employers should monitor the issue as developments occur.

For more information, see Jackson Lewis’ California Workplace Law Blog: http://www.californiaworkplacelawblog.com/2016/02/articles/calosha-2/governor-browns-proposed-paga-unit-may-have-power-to-challenge-paga-settlement-in-court/

 

Is Equal Pay the Next Big Thing in Class Actions?

On February 1st, the EEOC announced it would begin requiring employers to submit information on employee wages and work hours broken down by gender, race and EEO-1 category as part of its annual EEO-1 reporting process.  For the first time, the EEOC (and the OFCCP) will have nationwide data on employee pay to help identify employers who may be unwittingly contributing to the wage gap by paying women less than men for the same type of work without a legitimate business reason for doing so, or by steering women into lower paying positions.  There is no doubt this will lead to an increase in class-based investigations by EEOC under Title VII and the Equal Pay Act.

 

But the EEOC is not the only one looking closely at equal pay issues. Indeed, the EEOC’s announcement comes at a time when the nation is experiencing a heightened awareness of equal pay issues.  National celebrities like Patricia Arquette are speaking out on the issue sparking a public debate across social media – when Twitter is afire with equal pay discussions, it is safe to call it a national conversation.

 

The private plaintiffs’ bar has also been paying attention to compensation issues, as the federal government and some states has implemented new rules making it easier to establish claims of pay discrimination. The strictest of these new laws, California’s Fair Pay Act, took effect on January 1.  Under this Act, employees in California are no longer required to show they were paid less than a member of the opposite sex for “equal” work in the same establishment – they can now make a prima facie case under state law based on colleagues doing “substantially similar” work, regardless of location.

 

New York also amended its equal pay laws in January, making it easier for employees in that state to sue their employers for pay discrimination.   In several other states, changes to equal pay laws have recently been enacted or are currently being considered, including Connecticut, Colorado,  Delaware, Illinois, Massachusetts, North Dakota, Oregon, and Washington.

 

Adding fuel to the fire of employee awareness, many of these new laws include “pay transparency” requirements that make it unlawful to take adverse action against employees for asking about or talking with colleagues about compensation.

 

The increased attention to equal pay has already resulted in an uptick in complaints filed by private class-action plaintiffs’ law firms. In many cases, pay discrimination may be an attractive “tack on” claim for plaintiffs to include in a complaint alleging another type of discrimination, or even in a class or collective wage-and-hour action.

 

One thing that makes pay claims particularly attractive for plaintiffs is the availability of data. All employers are required to keep copious pay records.  To a private plaintiff law firm, for every one person who walks in the door alleging pay discrimination, there may be dozens or even hundreds of other potential clients identifiable in the employer’s data.

 

The EEOC may have just made the task of finding those other potential claims easier. Now that (it appears) employers will be required by EEOC to prepare annual reports on employee pay, they should anticipate private plaintiffs’ lawyers will be seeking to obtain copies of those reports and analyzing them for class-based claims of pay discrimination.

 

So, What Should Employers Do Now?

In the wake of the increased enforcement of equal pay laws on both the federal and state level, all employers should be reviewing their pay policies and practices to ensure they comply with current law and are not creating risk for the company.

 

Employers should also periodically analyze their pay data with the help of qualified statisticians or other experts. Moreover, it is now more important than ever that these analyses be conducted under the attorney-client privilege – the EEOC and private plaintiffs’ lawyers are going to ask for copies of pay analyses, and there is nothing worse than having the results of your own analysis used against you.

More Lessons in Class and Collective Actions From Lyft

There’s been a lot of buzz in the past few weeks surrounding Lyft’s proposed class action settlement in Lyft v. Cotter, NDCA Case No. 13-cv-04064-VC. Under the terms of the proposed settlement, Lyft will, among other things, (1) pay putative class members $12.25 million; (2) replace its current at-will termination provision with one that allows Lyft to deactivate drivers only for specific reasons or after providing a driver notice and an opportunity to cure; and (3) pay the arbitration fees and costs unique to arbitration for claims brought by drivers against Lyft related to their employment with Lyft.

But what is perhaps more interesting, and certainly more useful for employers, is the proposed settlement’s discussion of the hurdles the putative class members likely face in prevailing on class certification and on the merits. These hurdles are worth highlighting here, as they offer employers basic but still valuable guidance for defending class and collective actions:

  1. Considering Using Class Action Waivers: Following the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the inclusion of a class action waiver in an employer’s arbitration agreement has proven to be invaluable in avoiding class action exposure.
  2. Update Arbitration Agreements: Even if an employer has a class action waiver in its arbitration agreement, the employer must still ensure the arbitration agreement is enforceable. Ordinary contract defenses, particularly the defense of unconscionability, can render an arbitration agreement void. Employers should therefore regularly review their arbitration agreements to ensure that they are in accord with current state contract law.
  3. Don’t Get PAGA Sticker-Price Shock: Unfortunately, employers in California can be exposed to civil penalties under California’s Private Attorney General Act that can reach dizzying levels. But as Cotter reminds us, California employers are not without arguments and defenses. An employer may argue that PAGA claims require individualized inquiries and are therefore too unmanageable to proceed to trial as a class action. See Ortiz v. CVS Caremark Corp., 2013 U.S. Dist. LEXIS 169854 (N.D. Cal. Dec. 2, 2013). An employer may also argue that the court should exercise its discretion to reduce PAGA penalty awards so that they are fair and proportional to the alleged violation. See, e.g., Amaral v. Cintas Corp. No. 2, 163 Cal.App.4th 1157, 1214 (2008).

The legal battles surrounding the on-demand economy rage on. On January 27, 2016, a day after the proposed settlement was filed in Cotter, the Ninth Circuit denied Uber’s request to stay the trial in O’Connor v. Uber Technologies Inc., NDCA Case No. 13-cv-03826. The case is slated to begin trial on June 20, 2016.

 

Supreme Court Weighs in on Class Action “Pick Off”, but Leaves Significant Questions Unanswered

Yesterday, the U.S. Supreme Court eliminated a strategy defendants have used to stem the rising tide of class action lawsuits—offering the named plaintiffs in a class action lawsuit full relief, mooting their individual claim (regardless if they accept it), and along with it, rendering the class action moot.  Campbell-Ewald Co. v. Gomez.

These offers sometimes are made pursuant to Rule 68 of the Federal Rules of Civil Procedure (the official rule relating to an “Offer of Judgment”) or as stand-alone settlement offers. If the offer provides the named plaintiff everything he could seek in the lawsuit (typically limited amounts in consumer class actions or in wage-hour cases), the defendant moves to dismiss the case as moot, even if the plaintiff rejects the offer.  Circuit courts have been split on whether the offer, if  it provided full relief, rendered the case moot regardless of whether the plaintiff accepted it, because there no longer existed a “case or controversy” under Article III of the Constitution.

Resolving a circuit court split, the Supreme Court held (6-3) that an “unaccepted settlement offer has no force,” and cannot result in rendering a case moot. The Court relied on “basic principles of contract law” which, according to the Court, provide that a mere offer, absent an acceptance, has “no continuing efficacy.” Absent an acceptance by the plaintiff, the offers remain only a “proposal” that was not binding, the Court held.  The Court further noted, as support for its holding, that under the express provisions of Rule 68, if an offer is not accepted within 14 days, it is “withdrawn.”

Background
As previously reported, the case arises under the Telephone Consumer Protection Act (TCPA), which prohibits any person from sending text messages using any automatic dialing system without the recipient’s consent, and subjects the offender to actual damages or a maximum penalty of $1,500.  The Defendant, a subcontractor for the Navy, was retained to assist with recruiting, and through its subcontractor, sent 100,000 text messages, some without the recipient’s consent.  The plaintiff, one of the recipients, brought a class action lawsuit seeking over $100M in damages. The defendant made both a stand-alone offer and a Rule 68 offer of judgment for $1,503, but the plaintiff rejected it.  The defendant then moved to dismiss the case as moot, but the district court denied the motion. It held an offer of judgment that has not been accepted does not result in rendering the case moot.  The case ultimately was dismissed  based on sovereign immunity, but the Ninth Circuit reversed that determination,  and agreed with the district court that the case had not been rendered moot based on the unaccepted offer of judgment.

Majority’s Decision
The Supreme Court granted certiorari to resolve the split in the circuit courts as to whether an unaccepted offer providing full relief renders the case moot, an issue left unresolved in Genesis Health Care Corp. v. Symczyk, decided in 2013.  Adopting the reasoning set forth in Justice Kagan’s dissent in Genesis, the majority held an unaccepted offer of judgment, even if it offers full relief, does not moot a case.

Justice Thomas concurred in the decision, but not its reasoning.  Justice Thomas believed the resolution of the issue was not dependent on modern contract principles, as relied upon by the majority, but instead on “common-law history of tenders,” which provides that a mere offer to pay, without an actual tender of the amount owed, is insufficient to render a case moot.  But Justice Thomas would appear willing to conclude that once a tender is made, the case does become moot, the question left open in Gomez.

The Dissents
Chief Justice Roberts filed a dissenting opinion, in which Justices Scalia and Alito joined.  Relying on the requirement under Article III that there must exist a “case or controversy” (not contract principles), the dissent argued the case was “straightforward” since the plaintiff alleged a violation of the TCPA, he was provided all the relief to which he was entitled under the law, and thus the case was moot because there was no “case or controversy.”  Justice Roberts, expressing frustration, explained that “federal courts exist to resolve real disputes, not to rule on a plaintiff’s entitlement to relief already there for the taking,” and that “although [the plaintiff] nonetheless wants to continue litigating, the issue is not what the plaintiff wants, but what the federal courts may do.”  While the dissent agreed that majority was correct that under contract principles the settlement was a nullity because it was not accepted, contract principles were not applicable in determining whether jurisdiction existed under Article III, according to Justice Roberts.  “If the defendant is willing to give the plaintiff everything he asks for, there is no case or controversy to adjudicate, and the lawsuit is moot,” Justice Roberts emphasized.

Justice Alito, who joined Justice Roberts’ dissent, filed a separate dissenting opinion.  Agreeing that an unaccepted offer providing complete relief moots a claim, Justice Alito noted “there is nothing talismanic about the plaintiff’s acceptance.”  He wrote separately to emphasize that where there was a dispute as to whether the defendant would make good on the promise (an issue not present in Gomez), the case might not be moot, despite the offer.  Justice Alito explained further that a defendant can make clear it will make good on the offer to pay (and thus moot the case) by simply paying the money or depositing it with the Court.

Open Questions
Significantly, the Court left open an important question—would the result have been different if the defendant had tendered the full amount to the plaintiff either by sending the check directly to the plaintiff or depositing it with the district court, instead of merely making an offer or offer judgment to the plaintiff for the full relief available ($1,500)?  The majority stated “that question is appropriately reserved for a case in which it is not hypothetical.”

It should come as no surprise that defendants seeking to moot a putative class action may now simply deposit the funds with the Court.  Indeed, Justice Alito, in his dissenting opinion, stated he was “heartened that the Court appears to endorse the proposition that a plaintiff’s claim is moot once he has received full redress” and stated that today’s decision “does not prevent a defendant who actually pays complete relief . . .  from seeking dismissal on mootness grounds.” And Chief Justice Roberts also noted that the “good news” is that the case is “limited to its facts,” because the Court merely holds that an offer of complete relief is insufficient to moot a case, but does not hold that the payment of complete relief would not be sufficient to moot the case—a position he clearly would support.

The Next Battleground
Thus, while the Supreme Court’s decision resolves one issue—the effect of an unaccepted offer of judgment—the next round in the battle between class action lawyers and the companies they are targeting will be whether a case becomes moot when a defendant, instead of merely offering full relief, actually pays it. Such a case may be just around the corner. For now, lower courts will now have to wrestle with these questions until the Supreme Court opines again.

U.S. Supreme Court Issues Decision In ‘Pick-Off’ Case

This morning the U.S. Supreme Court issued its decision in Campbell-Ewald Company v. GomezHere is the decision.  The Court decided (6-3) that an unaccepted offer of judgment does not moot a case, resolving the circuit split, and answering the question left unanswered in Genesis Healthcare Corp. v. Symczyk (more on Genesis and the lead-up to Campbell-Ewald discussed here).  The majority adopted Justice Kagan’s dissent in Genesis.  The Court did not decide what would happen if the defendant deposits the full amount due (as opposed to just making the offer) and the court enters judgment in that amount, leaving that issue for another day. More analysis of the decision to follow.

 

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