Class Action as Defense: Fifth Circuit Rules Pending Class Action Subsumes Class Member’s Duplicative Individual Claim

Employers facing multiple litigations can take solace in the fact that, sometimes, too much of a bad thing can be helpful.  In Ruiz v. Brennan, 16-11061, the Fifth Circuit held that a pending administrative class action subsumed a plaintiff’s attempts to file an arguably duplicative individual claim in a separate action.  As a result, the second litigation was dismissed without prejudice.

Administrative Class Action

The United States Postal Service faced an administrative class action in McConnell v. Potter, which asserted class-wide claims of disability discrimination related to the National Reassessment Program (“NRP”), a program designed to regulate procedures for issuing workplace assignments to postal workers injured on the job.  In McConnell, the EEOC certified an administrative class of “all permanent rehabilitation employees and limited duty employees… who have been subjected to the NRP from May 5, 2006 to the present.”

Ruiz Litigation

While McConnell was pending, Plaintiff Ruiz (who has congenital hearing impairment) filed an individual administrative complaint with the EEOC claiming disability discrimination in connection with the Postal Service’s decision that it could not identify a modified job she could perform due to a work-related disability (carpal tunnel syndrome).

The Postal Service argued Ruiz’s individual claim was subsumed in the pending McConnell case.  The EEOC agreed.  Undeterred, Ruiz filed a federal court complaint.  Ultimately, the district court dismissed her claim, finding that she failed to exhaust her administrative remedies because the EEOC never addressed the merits of her claim, which was subsumed by McConnell.

Fifth Circuit Affirms Dismissal

On appeal, Ruiz argued that she filed two distinct disability claims: (1) she was removed improperly from her modified duty position; and (2) the modified duty position was retracted due to the employer’s failure to accommodate her congenital hearing impairment (as opposed to her on-the-job carpal tunnel injury).

In affirming the district court’s dismissal, the Fifth Circuit reasoned Ruiz’s individual claims were subsumed by McConnell inasmuch as she only received the modified duty position as part of the NRP due to her work-related injury, not because of her congenital hearing disability.  Accordingly, she did not exhaust her administrative remedies, which was grounds for dismissal.

Takeaway

Ruiz is an important reminder for employers to evaluate existing class claims to determine if they provide a basis to seek dismissal of subsequently filed, arguably related individual claims.

How Does the Supreme Court’s Remand of the Transgender Discrimination Case Impact Wage-and-Hour Class Actions?

On March 6, 2017, the Supreme Court, in a one-sentence summary disposition, remanded the case of Gloucester County Sch. Bd. v. G.G. to the U.S. Court of Appeals for the Fourth Circuit “for further consideration in light of the guidance document issued by the Department of Education and Department of Justice on February 22, 2017.”  For those unfamiliar with Gloucester County, the case involves a public school’s obligations to a transgender student under Title IX and, in particular, whether Title IX’s prohibition against sex discrimination requires a school to treat transgender students consistent with their gender identity when providing sex-separated facilities, such as toilets, locker rooms, and showers.

So what does this have to do with wage-and-hour class actions?  As it turns out, in Gloucester County, the Supreme Court was poised to consider the scope, and perhaps the continuing viability, of the Auer doctrine, which frequently comes into play in wage-and-hour litigation.  Under the Auer doctrine, courts generally will enforce an agency’s interpretation of its own regulations unless that interpretation is “plainly erroneous or inconsistent with the regulation.”  In wage-and-hour class actions, this often results in cases being decided based on guidance issued by the Department of Labor through opinion letters, its Field Operations Handbook, and other sources.

This deference to the Department of Labor can be frustrating for employers and attorneys practicing wage-and-hour law because the guidance issued by the Department of Labor often changes with each new Presidential administration.  For example, an entire industry can decide to classify a group of employees as exempt from the FLSA’s overtime requirements based on an opinion letter from the Department of Labor only to learn years later that the Department has withdrawn the opinion letter after the start of a new administration.  If courts are obligated under Auer to defer to these shifting interpretations issued by the Department of Labor, it can create a great deal of uncertainty for employers seeking to comply with the FLSA and for parties litigating wage-and-hour class actions.

In the long term, eliminating or narrowing the Auer doctrine could provide more consistency for employers and litigants.  With the remand of Gloucester County, that is unlikely to happen in the near future.  In the short term, however, the continuing viability of the Auer doctrine may benefit employers who are hopeful that the Department of Labor, under the Trump administration, will take a more employer-friendly view of certain regulations.  For now, the Department of Labor remains free to shape FLSA through opinion letters and other guidance documents and without having to resort to the time-consuming process of issuing revised regulations.

House Approves Fairness in Class Action Litigation Act

Last night, the House approved the Fairness in Class Action Litigation Act by a vote of 220-201.  To review our post last month detailing exactly how this bill would affect class action litigation, click here.  To review the full statement of House Judiciary Committee Chairman Bob Goodlatte (R-Va.), the author of the bill regarding its recent approval, click here.  Next, the Act will move to the Senate and be referred to the Committee on the Judiciary.  We will continue to monitor how this bill progresses. For more information or to discuss the potential implications of this bill in more detail, please contact the authors listed above or the Jackson Lewis attorney with whom you regularly work.

 

ANOTHER ERISA CHURCH PLAN CLASS ACTION SETTLES

Citing to the “significant uncertainties in predicting the outcome” of their litigation “where the critical issue is pending before the Supreme Court” (oral argument on the scope of ERISA’s church plan exemption is set in three consolidated cases for March 27), Plaintiffs in Butler et al. vs. Holy Cross Hospital, another church plan class action, have filed an unopposed motion for preliminary approval of settlement.

In Butler, former employees of Holy Cross Hospital filed suit in June of 2016 on behalf of themselves and other participants of the Pension Plan for Employees of Holy Cross Hospital, alleging that Defendants breached duties under ERISA by incorrectly treating the Plan as an ERISA-exempt “church plan.”  Among Plaintiffs’ allegations are that Defendants underfunded the Plan by $31 million and improperly attempted to terminate the Plan while it was underfunded.

The Plan was originally sponsored by Holy Cross Hospital, which transferred plan sponsorship and liabilities to the Sisters of Saint Casimir shortly before the hospital’s merger with Sinai Health System.  Plaintiffs allege that this transfer was an unlawful attempt to avoid liability for the Plan’s underfunding. They claim that upon the Plan’s purported termination, Defendants offered participants a discounted distribution based on incorrect classification of the Plan as a church plan.

The parties’ settlement provides for a settlement amount of approximately $9 million, which would consist of $4 million paid by Defendants into an escrow account (less attorney’s fees not to exceed 15% of the amount in escrow), as well as approximately $5 million in Plan assets held in trust that have not yet been distributed. According to the motion, after notice and administrative costs, Defendants anticipate that approximately $8.4 million will be available for distribution to Plan participants.  After final distribution of the settlement amount the Plan will be fully liquidated and formally terminated.

Paying Bonuses to Non-Exempt Employees: Avoiding Class-Wide Overtime Violations

Employers generally recognize that their non-exempt employees must receive overtime premiums on their base pay – in most cases, their hourly wage – when they work overtime. However, not all employers are as well attuned to the requirement that overtime premiums may also be required on other, “supplemental” components of compensation to nonexempt employees. Bonuses are a common example.

By law, employers are required to pay overtime premiums on non-discretionary bonuses to non-exempt employees when those employees have worked overtime during the timeframe for which the bonus is paid (i.e., whether it is paid on a monthly, quarterly, annual, or other basis). The legal risks involved in violating overtime laws when it comes to non-discretionary bonuses is exacerbated by the fact that this violation is typically repeated as to other non-exempt employees who receive bonuses from the employer. As such, this is a type of violation that plaintiffs’ attorneys often look to bring on a class, collective, and/or representative basis.

However, as suggested by the reference above to “non-discretionary” bonuses, employers are not required to pay an overtime premium on all bonuses. Certain types of bonuses (and other “supplemental” forms of compensation) are excluded from the overtime premium requirement. Federal regulations, which California and other states follow in making these determinations, provide that discretionary bonuses may be excluded. However, this exclusion is very limited. Moreover, like many things in the law, the line between a “discretionary” and a “non-discretionary” bonus is not always clear. Accordingly, employers face risks when they do not pay overtime premiums on bonuses on the premise that the bonus falls under the definition of a “discretionary” bonus. Amongst the guidance provided by federal regulations is that “the employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement . . . If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it.” Conversely, “[a]ttendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time payment is to be made and the like” fall in the “non-discretionary” category.

Employers who pay “holiday” or “end of the year” bonuses should also be cognizant of the potential requirement to pay overtime premiums on these payments. Federal regulations provide that “gifts made at Christmas time or on other special occasions, as a reward for service, the amount of which are not measured by or dependent on hours worked, production or efficiency” are excluded from overtime premium requirements. However, in a similar vein, if the amount of the gift, holiday or special occasion award is determined by hours worked, production, or efficiency, this exclusion is lost.

Ultimately, employers who pay bonuses and other forms of “supplemental” compensation to non-exempt employees should be cognizant of the potential requirement to pay overtime premiums on these payments and should consider seeking legal guidance in connection with their bonus programs. The need for proper guidance is especially important due to the class, collective, and/or representative action risks presented by violating this aspect of the law.

Class Action Fairness Act Author Introduces New Bill That Would Drastically Reform Class Action Litigation

House Judiciary Committee Chairman Bob Goodlatte (R-Va.), the author of the Class Action Fairness Act, introduced the “Fairness in Class Action Litigation Act of 2017” last week that would substantially change class action litigation to “assure fairer, more efficient outcomes for claimants and defendants.” The House Judiciary Committee approved the bill on February 15th by a vote of 19-12.

The bill (H.R. 985 available here), seeks to “maximize recoveries by deserving victims, and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.” What does this mean and, if passed, how will it affect class actions moving forward? Here are some of the highlights:

Class certification based on type and scope of injury. The bill would require class members to demonstrate that each proposed class member “suffered the same type and scope of injury as the named class representative or representatives.” The practical effect of this requirement would be a decrease in class actions where the plaintiffs have a wide variety of damages (or none at all).

Additionally, an order issued under Rule 23(c)(1) that certifies a class seeking monetary relief for personal injury or economic loss must include a determination, “based upon a rigorous analysis of the evidence presented,” that the requirement described above was met.

Explicit ascertainability requirement. While many Circuits have held there is an implied requirement of ascertainability, the bill would require plaintiffs to affirmatively demonstrate that there is “a reliable and administratively feasible mechanism” for the court to determine whether putative class members fall within the class definition and for distributing funds to them directly.

Attorneys’ Fees. In a class action seeking monetary relief, “no attorneys’ fees may be determined or paid . . . until the distribution of any monetary recovery to class members has been completed.” Further, the bill mandates that unless otherwise specified under federal statute, if a judgment or proposed settlement provides for a monetary recovery, the portion of attorneys’ fees to class counsel are “limited to a reasonable percentage of any payments directly distributed to and received by class members.” Under no circumstances can the fee award “exceed the total amount of money directly distributed to and received by all class members.”

For class actions that provide equitable relief, the bill requires that any portion of attorneys’ fees be limited to “a reasonable percentage of the value of the equitable relief, including any injunctive relief.”

Mandated reporting regarding funds paid.   Attorneys’ fees may not be paid to class counsel until an accounting of the disbursement of all funds paid by the defendant pursuant to the settlement agreement is submitted to the Director of the Federal Judicial Center and the Director of the Administrative Office of the United States Courts. This accounting must include, among other things, the total amount paid to all class members, the actual or estimated total number of class members, the average amount paid, the largest amount paid to any class member, each amount paid to any other person (including class counsel) and the purpose of the payments.

Class action attorneys cannot represent relatives and other conflicts of interest rules. The bill would prohibit federal courts from granting certification of any class action in which “any proposed class representative or named plaintiff is a relative of, is a present or former client of (other than with respect to the class action), or has any contractual relationship with (other than with respect to the class action) class counsel.

Discovery stay. All discovery would be stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

Appeals of certification orders. Currently, appeals of certification grants or denials are available now only upon discretion of the appeals court. The bill would require that the appeals court “shall permit an appeal from an order granting or denying class-action certification under Rule 23 of the Federal Rules of Civil Procedure.”

Goodlatte stated in his remarks during the House Judiciary Committee’s markup of H.R. 985 that “[f]ederal judges are crying out for Congress to reform the class action system, which currently allows trial lawyers to fill classes with hundreds and thousands of unmeritorious claims and use those artificially inflated classes to force defendants to settle the case.” A copy of Goodlatte’s full remarks can be found here.

We will continue to monitor how this proposed bill progresses in the current Congress. For more information or to discuss the potential implications of this bill in more detail, please contact the attorney(s) listed or the Jackson Lewis attorney with whom you regularly work.

ALERT: United States Supreme Court Delays Oral Argument in Class Action Waiver Cases

Yesterday, the United States Supreme Court notified the parties 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 that the cases will be heard in October 2017. Jackson Lewis has represented Murphy Oil USA throughout these proceedings. As reported in Jackson Lewis’ earlier post, on January 13, 2017, the Supreme Court consolidated the three cases and granted certiorari. The cases generally present the question of whether class action waivers in employment arbitration agreements violate the National Labor Relations Act. We anticipate that by October, the vacancy on the Court will be filled.

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.

Are You Ready for Some Football? A Pocket Playbook for HR Managers Navigating Competitive Recruiting

The Patriots, Falcons, and . . . class actions?

Just five days before Super Bowl LI, the intersecting crosshairs of antitrust and employment law class actions zeroed in on its latest target: the National Football League. On January 31, 2017, a former cheerleader for the San Francisco 49ers filed a putative class action in the Northern District of California, alleging that the NFL and its member teams conspired to suppress cheerleader wages. Doe v. NFL Enterprises LLC, et al. (N.D. Cal. Case No. 3:17-cv-00496-MEJ).  Specifically, the NFL and its member teams allegedly conspired to:

  1. Refrain from recruiting cheerleaders from fellow teams;
  2. Pay cheerleaders a low, flat wage for each game performed;
  3. Not pay cheerleaders for time spent rehearsing;
  4. Not pay cheerleaders for time spent on various community outreach events;
  5. Prohibit cheerleaders from being employed by other professional cheerleading teams, not just within the NFL;
  6. Prohibit cheerleaders from discussing their earnings with each other in an effort to suppress earnings by ensuring that they would not become aware of the nature of their employment and compensation, thus further depressing and suppressing the market; and
  7. File with the NFL all cheerleader contracts to ensure participation with and enforcement of the conspiracy.

This, of course, falls on the heels of the now-resolved litigation that roiled Silicon Valley regarding allegations of similar anti-poaching and wage suppression conspiracies.

So what is an HR Manager to do? The competition for talented and skilled employees is fierce, and it can often feel like your competitors are constantly picking-off your best and brightest.  Is there a way to stop the bleeding, both in terms of employees and the company’s pocketbook?

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have issued some guidance to HR professionals on the issue.[1]  The bad news: naked agreements between competitors to fix employee wages or refrain from soliciting or hiring a competitor’s employees are per se illegal and may subject the company, you, or both to criminal prosecution.  The somewhat better news: there is a way for competing employers to share employee wage and recruiting information.  The DOJ and FTC have established an “antitrust safety zone,” wherein wage and recruiting information sharing is permissible if (1) a neutral third party manages the exchange; (2) the exchange involves information that is relatively old; (3) the information is aggregated to protect the identity of the underlying sources; and (4) enough sources are aggregated to prevent competitors from linking particular data to an individual source.  It’s a small island of sanctuary, and the sharing of old information may not be entirely useful, but you’ll avoid a class action or, worse, prosecution.

So, enjoy your Super Bowl Sunday, no matter who you’re rooting for. And remember, sometimes the safety zone is a good thing.

[1] https://www.ftc.gov/system/files/documents/public_statements/992623/ftc-doj_hr_guidance_final_10-20-16.pdf

The Impermissible “Fail-Safe” Class under Federal Rule of Civil Procedure 23

The Supreme Court, in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), set a high standard for class certification under Federal Rule of Civil Procedure 23 (“Rule 23”).  Under Rule 23(a), the party seeking certification must demonstrate that: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.  Fed. R. Civ. P. Rule 23.  Additionally, the proposed class must satisfy at least one of the three requirements in Rule 23(b).  Id.  In determining whether these requirements are met, the Supreme Court has instructed district courts to conduct a “rigorous analysis,” which frequently “will entail some overlap with the merits of the plaintiff’s underlying claim.”  Dukes, 131 S. Ct. at 2551.

Several Circuits also recognize an “implied requirement of ascertainability” in Rule 23. See, e.g., Brecher v. Republic of Argentina, 802 F.3d 303, 304 (2d Cir. 2015); Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 538 (6th Cir. 2012).  In essence, among other things, a class must be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member.”  Brecher, 802 F.3d at 24.  A so-called “fail-safe” class is “one that is defined so that whether a person qualifies as a member depends on whether the person has a valid claim,” and thus the existence of the claim “cannot be ascertained until the conclusion of the case, when liability is determined.”  Zarichny v. Complete Payment Recovery Servs., 80 F. Supp. 3d 610, 623 (E.D. Pa. 2015); see also Erin L. Geller, The Fail-Safe Class as an Independent Bar to Class Certification, 81 Fordham L. Rev. 2769, 2775 (2013) (noting that “[c]ourts have recognized that class definitions are inadequate when the definition does not allow for an ascertainable class, finding it “axiomatic” that for a class action to be certified a class must exist”).  For example, in Zarichny, plaintiffs’ putative TCPA class was comprised of individuals who received telephone calls initiated using an automatic telephone dialing system without the recipient’s “prior express consent,” which the court determined to be a “fail-safe” class.  Zarichny, 80 F. Supp. 3d at 625.

Further, “[t]he class must…be defined in such a way that anyone within it would have standing.” Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006). Federal courts have recognized that, if a class definition is “so broad that it sweeps within it persons who could not have been injured by the defendant’s conduct, it is too broad.” Kohen v. Pac. Inv. Mgmt. Co. LLC & PIMCO Funds, 571 F.3d 672, 677 (7th Cir. 2009).

While not all courts agree on the treatment of these fail-safe classes, the Seventh Circuit recently issued a decision affirming the district court’s order denying class certification, in part because plaintiffs failed to define an ascertainable class.  In McCaster v. Darden Rests., Inc., No. 15-3258, 2017 U.S. App. LEXIS 213 (7th Cir. Jan. 5, 2017), Plaintiffs Demiko McCaster and Jennifer Clark, employees at two different restaurants owned by Darden Restaurants, Inc., alleged that Darden failed to pay accrued vacation pay allegedly owed to them upon separation in violation of the Illinois Wage Payment and Collection Act (“IWPCA”).  Plaintiffs’ proposed class definition consisted of all individuals subject to the vacation policy at issue “who did not receive all earned vacation pay benefits.”  Id. at *5.  The district judge rejected this definition because it described an improper fail-safe class.  Upholding this decision, the Seventh Circuit agreed, holding that this definition “plainly turns on whether the former employee has a valid claim.  That is a classic fail-safe class, and the district judge properly rejected it.”  Id. at *10.  Alternatively, plaintiffs’ fallback argument suggested removing the defective, fail-safe language from the class definition, which the district court also rejected, for failure to satisfy the requirements of Rule 23.  The Seventh Circuit agreed that the alternative class definition failed to satisfy the commonality requirement under Rule 23.  Plaintiffs failed to identify any unlawful conduct on defendant’s part that spanned the entire class and caused all class members to suffer the same injury.  Rather, plaintiffs simply argued that some separated employees did not receive all the vacation pay that they were due under the applicable policy.  The Seventh Circuit recognized that while that “may be true . . . establishing those violations (if there were any) would not involve any classwide proof.”  Id. at *13.  A copy of the McCaster opinion can be accessed here.

Decisions like McCaster highlight the critical importance of scrutinizing proposed class definitions, not only to ensure that they meet the explicit requirements of Rules 23(a) and 23(b), but also to ensure that they are not impermissible fail-safe classes.  By failing to identify and reject such circular class definitions, courts and parties are placed in the unmanageable position of litigating class actions where the putative class members cannot be ascertained until the case has been fully litigated on the merits—a result that turns the Rule 23 process completely on its head.

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