Ninth Circuit Holds Class Waivers Violate the NLRA, Joining Circuit Split

Requiring class and collective action waivers as a condition of hire or continued employment violates the National Labor Relations Act, the U.S. Court of Appeals for the Ninth Circuit, in San Francisco, has ruled. Morris v. Ernst & Young, No. 13-16599 (9th Cir. Aug. 22, 2016).

The Ninth Circuit has joined the Seventh Circuit in reaching this conclusion. (See our article on Lewis v. Epic Systems Corp., No. 15-cv-82-bbc (7th Cir. May 26, 2016), Supreme Court Review Likely After Seventh Circuit Creates Split on Class and Collective Action Waivers under NLRA.) The three other circuits (Fifth, Second, and Eighth Circuits) to have considered specifically the issue have concluded such waivers do not violate the NLRA.

By way of background, ever since the U.S. Supreme Court ruled that class claims can be waived if contained in a valid arbitration agreement under the Federal Arbitration Act (“FAA”), employers have entered into such agreements with their employees. The National Labor Relations Board, however, takes the position that prohibitions against class or collective proceedings violate an employee’s rights to engage in protected concerted activity for mutual aid and protection under Sections 7 and 8 of the NLRA.  Disagreeing with the NLRB, the Fifth, Second, and Eighth Circuit Courts each held that such agreements do not violate the NLRA. Now, at least two other federal appellate courts, the Ninth and the Seventh Circuits, agree with the NLRB.

In Morris, Stephen Morris and Kelly McDaniel, accountants at Ernst & Young, were required to sign an arbitration agreement as a condition of employment. The agreement not only required an arbitral forum for work-related disputes, but also that disputes “pertaining to different [e]mployees” must “be heard in separate proceedings.” Despite this provision, the plaintiffs filed a class and collective action in federal court, alleging they and others similarly situated had been misclassified under the Fair Labor Standards Act and California labor law. Upon Ernst & Young’s motion, the trial court enforced the arbitration agreement and its class waiver and ordered the parties to separate arbitrations.

The Ninth Circuit reversed the lower court’s order and remanded the case for a determination as to whether the “separate proceedings” clause — the class waiver — could be severed from the agreement. Essentially following the Seventh Circuit’s reasoning, the Court first deferred to the NLRB’s interpretation of the NLRA. It then held that employees have a substantive right to pursue work-related legal claims and to do so together. It went on to hold that employers cannot defeat such rights by requiring employees, as a condition of employment, to agree to pursue claims on an individual basis. Therefore, the Court concluded that Sections 7 and 8 of the NLRA make class action waivers that are a condition of employment — and the “separate proceedings” provision in the Ernst & Young arbitration agreement — unlawful. The Court concluded that a prospective waiver of Section 7 rights renders the agreement unlawful, and that such a rule would be applicable equally to all agreements, not just arbitration agreements. Accordingly, the majority held there is no conflict between the FAA and the NLRA.

Following Morris, the future of class, collective, and representative action waivers is uncertain. Within the Ninth Circuit (which has jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) it remains to be seen if the matter will be heard en banc by the full Ninth Circuit Court of Appeals. If the decision stands, the split on this issue is significant, and the matter is ripe for U.S. Supreme Court review. Many of the Supreme Court’s decisions in the area of class action waivers have been based on 5-to-4 rulings, where the late-Justice Antonin Scalia represented one of the five votes favoring class waivers. The Supreme Court’s composition likely will affect the fate of class action waivers and the outcome of the dispute among the circuits.

For more information, see Holding Class Waivers Violate the NLRA, Ninth Circuit Joins Circuit Split.

Please contact Jackson Lewis with any questions about this case or other workplace developments.

No Harm, No Foul (And No Class Action Lawsuit): TCPA Class Action Dismissed For Failure to Allege Harm

dismissed picture for Gavejian blog post

Earlier this month, United States District Court Judge Peter Sheridan dismissed a class action brought against Work Out World (“WOW”) under the Telephone Consumer Protection Act (TCPA).  In doing so, Judge Sheridan relied on the recent decision by the United States Supreme Court in Spokeo, Inc. v. Robins.

The named plaintiff, Norreen Susinno, filed a class action complaint on July 30, 2015, against WOW. The complaint alleged that WOW negligently, knowingly and/or willfully contacted the plaintiffs on their cellular telephones in violation of the TCPA and thereby invaded their privacy.  Specifically, Ms. Susinno alleged that on July 28, 2015, WOW left a pre-recorded message on her cellular telephone’s voicemail regarding membership.  The complaint went on to allege that the plaintiff and class members incurred various types of harm, including incurring certain cellular telephone charges or reduced cellular telephone time for which they had previously paid, having to retrieve or administer messages left by WOW during the telephone calls, and invading the privacy of the plaintiff and class members.  Ms. Susinno sought to certify a nationwide class of all persons who, in the preceding four years, had received telephone calls from WOW which were made with the use of an automatic telephone dialing system and/or used an artificial or prerecorded voice.

On June 10, 2016, WOW filed a motion to dismiss the complaint. WOW argued that Ms. Susinno had failed to allege any concrete harm and that, pursuant to the Supreme Court’s decision in Spokeo, the complaint should be dismissed.  In opposition to WOW’s motion, Ms. Susinno alleged she suffered actual damages, including that WOW’s calls (1) were a nuisance and invasion of privacy, (2) trespassed upon and interfered with her rights and interest in her cellular telephone, (3) intruded upon her seclusion, (4) caused her aggravation and annoyance, (5) wasted her time, (6) caused the loss of use of her phone during the time that her phone was occupied by incoming calls, and (7) depleted the battery life on her cellular telephone. WOW countered that the entirety of Ms. Susinno’s claim under the TCPA rested on her receipt of a single, unanswered phone call and Ms. Susinno could offer nothing more than procedural harm in support of her claim.

Interestingly, WOW also sent Ms. Susinno an offer of judgment, including injunctive relief and payment to her in full and final satisfaction of her claims. WOW’s offer included the deposit of $1,501.00 on Ms. Sussino’s credit card. Ms. Susinno did not accept WOW’s offer. Nevertheless, as part of its motion to dismiss, WOW argued that dismissal was also warranted and consistent with the Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, as Ms. Susinno no longer had a “live claim” following the offer of judgment. In doing so, WOW pointed to the fact the Supreme Court’s Campbell-Ewald decision left open the question “whether [the determination that an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case] would be different if a defendant deposits the full amount of plaintiff’s individual claim in an account payable to the plaintiff, and the court entered judgment for the plaintiff in that amount.”

Following a hearing on the motion to dismiss, Judge Sheridan granted WOW’s motion and dismissed the matter with prejudice. Judge Sheridan’s order did not address WOW’s arguments for dismissal based on the offer of judgment.

Although Ms. Susinno filed an appeal of the district court’s decision, the decision may be very helpful to companies that are looking for various arguments to dispose of and otherwise defend against class claims, particularly where the alleged harm at issue is negligible, to the extent there is any harm at all.

 

 

 

 

Uber-Frustrating: Tips to Facilitate Approval of Settlements of Class Actions

On April 21, 2016, Uber tried to buy its peace from two class actions in a $100 million settlement with 385,000 putative class members. See O’Connor v. Uber Technologies Inc., 3:13-cv-03826 (N.D. Cal.); Yucesoy v. Uber Technologies Inc., 3:15-cv-00262 (N.D. Cal.).  However, as of July 14, 2016, the class actions still remain open pending court approval of the settlement.

In the long meantime, dozens of class members have filed objections and motions to intervene. Plaintiffs’ counsel cut her fee request by $10 million, and she is opposing a motion to disqualify her as class counsel.

Also in the meantime, the Ninth Circuit Court of Appeals intimated that it may reverse the district court’s prior decision to invalidate the plaintiffs’ arbitration agreements – which could undermine the class certification by ejecting some Uber drivers from district court to arbitration.

It is clearly critical to get a hard-won settlement agreement approved quickly. Here are some takeaways from Uber’s experience:

Many of the Uber drivers’ objections are based on complaints that the ultimate legal issue in the case – whether Uber drivers are employees or independent contractors – remains unresolved in the settlement. However, that is an insufficient basis to object because there is no requirement that a settlement resolve the ultimate legal issue (in fact, most settlements do not), only that the settlement be “fair, reasonable, and adequate.” See Fed. R. Civ. P. 23(e)(2).  In one Uber case in state court in California, the judge requested that any objections be filtered through the claims administrator before being forwarded to the court, because some concerns do not, “rise to the level of an objection.” See Kramer v. Uber Technologies Inc., No. BC589891 (Cal. Super. Ct., L.A., July 6, 2016). Parties to class settlements may want to consider requesting a similar pre-objection gatekeeper to avoid the bandwagon, pile-on effect that appears to have occurred in this closely watched, high profile class action settlement.

In this case, one objection came from named plaintiff Douglas O’Connor, who claims that he was not adequately informed about the deal before it was made public. Whether or not his claims have merit, parties should ensure that a named plaintiff is actively involved in negotiations and on board with the settlement to avoid an appearance of unfairness, because an objection from a named plaintiff may carry more weight.

Finally, parties should assign at least some value to all of the claims that are being resolved in a settlement, even if the value is low, and explain why. Judge Chen’s June 30, 2016 Order delaying approval to obtain additional information about the proposed settlement criticizes some claims’ zero value for settlement distribution, especially absent any justification. See O’Connor v. Uber Technologies Inc., 3:13-cv-03826 (N.D. Cal.); Yucesoy v. Uber Technologies Inc., 3:15-cv-00262 (N.D. Cal.).

Much can be learned from the experiences of skilled class action attorneys’ navigating the twists and turns of a complicated and massive class settlement.

Manhattan Supreme Court Judge Refuses to Certify Class of Interns; Adopts Balancing Test Similar to Second Circuit’s Primary Beneficiary Test

A recent New York State Supreme Court decision raises the bar for certifying an “opt out” class of unpaid interns seeking minimum or other wages, and provides valuable guidance for employers facing challenges to their unpaid internship programs. Rodriguez v. 5W Public Relations, Index No. 156571/14 (July 26, 2016). In Rodriguez, Justice Cynthia Kern denied class certification to named plaintiff Kristina Rodriguez and a putative class of individuals who interned with a New York City public relations firm. Rodriguez alleged that, since 2008, she and others were misclassified as unpaid interns when they were actually employees entitled to minimum wage pursuant to the New York Labor Law (“NYLL”) §§ 663 and 198.

In the denying the former intern’s motion for class certification pursuant to CPLR § 901(a)(2), Judge Kern stated that the plaintiff failed to establish that “questions of law and fact common to the class predominate over questions affecting only individual members.” The Court held that for each allegedly misclassified intern to prove a claim would require “individualized proof as opposed to generalized proof” revolving around the employer’s uniform policies.

Justice Kern adopted the employer’s argument that differentiating between interns and their respective experiences would require examination of individualized evidence such as each intern’s specific department, the intern’s supervisor and his or her conduct, whether the intern received academic credit, and the amount of credit received. In so holding, Justice Kern also addressed the legal standard applicable to determining whether an individual is considered an intern or an employee under the New York Labor Law in the wake of the Second Circuit’s 2015 decision in Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015) (adopting a “primary beneficiary” test for determining intern status under the FLSA, and rejecting the U.S. Department of Labor’s six-factor test). Significantly, Justice Kern opined that, while the question of which test to adopt was not before the Court on the certification motion in Rodriguez, New York state courts will apply a balancing test “similar to the [primary beneficiary] test adopted by the Second Circuit in Glatt,” and she expressly rejected the Department of Labor’s “six-factor test which focuses solely on whether the employer receives an immediate advantage from the interns’ work.” The Court specifically identified factors from Glatt that New York courts likely would consider when determining an internship’s “primary beneficiary”: whether an intern expected compensation, received academic credit, the skills learned by the intern, and the extent to which those skills were tailored to the intern’s academic course of study.

Rodriguez is a welcome decision to employers defending intern claims or seeking guidance regarding the factors impacting intern classification under the New York Labor Law. However, an appeal is likely, and employers must continue to monitor litigation developments and agency guidance in crafting internship policies.

Seventh Circuit Issues Employer-Friendly Ruling on FLSA Tip Credit

The Fair Labor Standards Act has long provided that an employer may satisfy its federal minimum wage obligations for a tipped employee by applying the employee’s tips as a credit toward the minimum wage and, in doing so, directly pay such employee less than the general minimum wage. If the employer’s wages plus the employee’s tips do not equal or exceed the minimum wage, the employer must make up the difference.  Moreover, in order to take advantage of the tip credit, the employer is required to notify its tipped employees that it is taking the tip credit and to provide certain information pertaining to the credit.

In Schaefer v. Walker Brothers Enterprises, Inc., 2016 U.S. App. Lexis 12985 (7th Circuit July 15, 2016), the Seventh Circuit Court of Appeals addressed the duties an employer may require employees in tipped occupations to perform while still paying such employees using the tip credit.  The plaintiff, who worked as a server at several restaurants operated by the defendants, brought suit under the FLSA and Illinois state law on behalf of a class of servers, alleging that the extra duties servers were assigned converted their jobs into “dual jobs” requiring full cash wages for all non-tipped work performed.  Specifically, the plaintiffs alleged that, in addition to serving guests, they were required to wash and cut fruit and vegetables; prepare applesauce and jams; restock bread bins; refill a variety of dispensers; brew tea and coffee; wipe toasters, tables, burners, woodwork and picture frames, all of which took between 10 and 45 minutes per day.

Affirming the district court’s dismissal of the plaintiff’s claims, the Seventh Circuit distinguished between “dual jobs” and a tipped employee’s “related duties.”  The Seventh Circuit cited the Department of Labor’s relevant regulations, which provides as an example of a “dual job” a hotel employee who works both as a maintenance man and a waiter, only the latter of which produces tips.  Under these circumstances, the employer may take the tip credit only for the time the employee works as a waiter.  The regulation goes on to state, “Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. . . .  Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.”  The Seventh Circuit did not address the validity of the DOL’s 20% limitation on related tipped duties, set forth in its Field Operations Handbook, an issue which has divided courts.  Instead, the Court, assuming the 20% limitation was applicable, held the alleged duties performed were in fact “related” to regular server duties and less than 20% of their duties, and thus permitted the Defendant to utilize the tip credit.   As to some arguably unrelated duties, the court held that “the possibility that a few minutes a day were devoted to keeping the restaurant tidy does not require the restaurants to pay the normal minimum wage rather than the tip-credit rate for those minutes.”

The plaintiff further alleged that the employer failed to provide him and other class members with all of the statutory information about the tip credit, thereby precluding the employer from utilizing the tip credit.  In particular, the plaintiff argued that employers are required to inform employees of (1) the cash wage the employee will receive; (2) the difference between this amount and the minimum wage; (3) that the employer must make up the difference if the cash wage plus tips do not equal or exceed the minimum wage; (4) that the employee is entitled to keep all tips received, unless a valid tip pool exists; and (5) that the tip credit cannot be taken unless the employer provides notice of the previous four items.  The Seventh Circuit ruled that the combination of a leaflet provided to the plaintiff at the time of hire, combined with language regarding the tip credit set forth in the employee handbook and tip credit information included on federal employment posters that were on display in the restaurants, satisfied the employer’s notice obligations.  While the court noted that it would have been preferable for all of the information to have been assembled in one place, neither the statute nor the DOL’s regulations required that all of the information had to be in a single document and, further, the plaintiff did not contend that the class members were unable to “put two and two together” to understand the basics of the tip credit.

While the validity of the 20% limitation on related tipped duties is unresolved, Schaefer provides guidance to restaurant and hospitality industry employers in applying the limitation and identifying “related duties,” as well as applying the notice requirements under the FLSA for taking the tip credit.

It’s Summer! Is Your Local Amusement Park or Recreational Establishment Exempt From The FLSA’s Minimum Wage and Overtime Requirements?

Summer is here, which presents the perfect opportunity to discuss one the Fair Labor Standards Act’s lesser-known exemptions, the seasonal amusement or recreational establishment exemption.

Conceptually, the exemption is straightforward: an amusement or recreational establishment does not have to comply with minimum wage and overtime regulations if it satisfies one of two tests: 1) it does not operate for more than seven months in a calendar year; or 2) during the preceding calendar year, its average receipts for any six months of that year were not more than 33 1/3 per cent of its average receipts for the other six months of the year.

Recent cases have shed light on this exemption. Last August, the Second Circuit decided Chen v. Major League Baseball Props., 798 F.3d 72 (2d Cir. 2015), which we discussed at http://www.wageandhourlawupdate.com/2015/08/articles/wage-and-hour/exemptions/second-circuit-mlb-fanfest-properly-treated-as-exempt-recreational-establishment/.  Although MLB itself fails both tests for this exemption, the Court concluded that an employer’s “distinct physical place of business” may satisfy the exemption tests even if the parent entity does not.  Thus, MLB’s FanFest—a five-day festival held during All-Star weekend—was not required to pay its volunteers minimum wage or overtime pay.

The Chen decision made sense in part because of the nature of the volunteers’ duties (greeting customers, answering questions, distributing gifts, etc.) and the number of hours worked (Chen worked only 14 total hours). A recent case, however, better tested the scope of the exemption. Morales v. 22nd District Agricultural Assn., 2016 Cal. App. LEXIS 573 (Cal. App. 4th Dist. July 13, 2016).

In Morales, the defendant operated the Del Mar Fairgrounds and Del Mar Horsepark, two distinct facilities.  The plaintiffs were seasonal employees who were permitted to work unlimited hours for up to 119 days per year.  Despite this scope of work, the California Appellate Court nonetheless concluded—consistent with federal precedent—that it was not the nature of the employees’ work that determined whether the exemption was satisfied, but rather the nature of the employer’s revenue-producing activities.

The Morales case highlights how misunderstood the exemption often is. The court applied a three-part, conjunctive test to determine whether the Fairgrounds and Horsepark constituted a single establishment—the same test rejected by the Second Circuit in Chen.  The appellants had not challenged the lower court’s application of that test, which yielded a decision that seemingly contradicts Chen: the Morales court deemed the Del Mar Fairgrounds and Del Mar Horsepark, which are located on separate parcels of land, were a single establishment.

The Chen decision provides employers with a powerful tool to protect seasonal amusement or recreational establishments. This decision remains the best guidance available to employers, although the Morales case reminds us that in addition to physical separation, substantive separation—different executive leadership, boards of directors, accounting staffs, human resources departments, and so forth—will help preserve employers’ ability to create separate amusement or recreational establishments that are exempt from the FLSA’s minimum wage and overtime rules.

And The Wait Continues: Website Accessibility Regulations Delayed.

Title III of the Americans with Disabilities Act (ADA) requires a “place of public accommodation” to ensure its goods and services are equally accessible to individuals with disabilities; Title II imposes similar requirements on public entities.  DOJ has taken the position that a website is within the scope of Title III so long as it provides goods and services within one of categories of public accommodations listed in the ADA.  That, in turn, would mean that entities maintaining such websites are required to ensure they are accessible.

Ensuring accessibility, however, is not a straightforward task.  The ADA was implemented prior to the advent of the internet as we know it today, and its regulations do not address how a place of public accommodation might ensure its website is accessible to individuals with disabilities.  Although guidelines such as the Web Content Accessibility Guidelines (WCAG) have been developed, these privately developed standards are not binding law and an entity relying on such guidelines may not necessarily rest easy.  While the DOJ believes that the WCAG should be the standard for Web content, due to the lack of clear guidance courts have assessed websites’ accessibility on a case-by-case basis, causing businesses inherent uncertainty as it relates to potential legal exposure.

That uncertainty seemed likely to dissipate when on July 26, 2010, the DOJ published an Advance Notice of Proposed Rulemaking (ANPRM) titled “Nondiscrimination on the Basis of Disability; Accessibility of Web Information and Services of State and Local Government Entities and Public Accommodations.”  In its ANPRM, the DOJ announced it was considering revising Title II and III regulations to include specific requirements for making websites accessible to individuals with disabilities.

In the fall of 2015, after reviewing the approximately 400 comments received in response to its ANPRM, the DOJ announced its plan to develop separate rules regarding website accessibility under Title II and Title III.  The DOJ intended to publish the Title II Notice of Proposed Rulemaking (NPRM) “early in fiscal year 2016”; the Title III NPRM was expected to be published during fiscal year 2018.

It seems the much-anticipated clarity will have to wait.  On April 29, 2016, the DOJ published a Supplemental Advance Notice of Proposed Rulemaking (SANPRM), in which it announced its decision to refine its proposal and seek further public comment.  The SANPRM’s title mirrors that of its earlier ANPRM publication, and specifically seeks further comment in regard to the proposed changes to the Title II regulations.  The comment period closes August 8, 2016.

With the publication of this SANPRM, the light at the end of the tunnel seems to have faded – at least for now.  Places of public accommodation maintaining websites subject to Title III will have to continue to wait on the guidance they have been so desperately seeking.

Jackson Lewis Class Action Trends Report Summer 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 Action Trends Report (Summer 2016)

 

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