California’s “ABC” Test for Independent Contractor Analysis to be Applied Retroactively

California employers were dealt another setback in the responding to claims of misclassification of independent contractor status for violations of the Industrial Welfare Commission Wage Order (“IWC Wage Orders”). Noting California’s “basic legal tradition” that “judicial decisions are given retroactive effect,” the U.S. Court of Appeals for the Ninth Circuit has held that the State’s recently-adopted “ABC” test, used in the employee-versus-independent contractor analysis in cases involving IWC Wage Orders, must be applied retroactively. Vazquez v. Jan-Pro Franchising Int’l, Inc., 2019 U.S. App. LEXIS 13237 (9th Cir. May 2, 2019). In so holding, the Court of Appeals reversed the grant of summary judgment to an international janitorial franchising company in a class action lawsuit brought by several franchisees, claiming that they are in fact employees of the franchising company.

Click here to access our article discussing this recent decision.

Older Applicants Cannot Utilize ADEA to Challenge Neutral Hiring Criteria, Seventh Circuit Rules

The Age Discrimination in Employment Act does not permit non-employees to bring claims under a disparate impact theory, the Seventh Circuit has ruled. Kleber v. CareFusion Corp. (7th Cir. Jan. 23, 2019). Accordingly, in Illinois, Indiana, and Wisconsin, job applicants will not be able to challenge hiring decisions that are neutral, but which disproportionately exclude job applicants over 40.

Divergence of ADEA from Title VII
Title VII was enacted in 1964 and the ADEA was enacted in 1967. For approximately 25 years, courts generally treated standards of proof under the ADEA and Title VII as interchangeable. Thus, the Supreme Court’s 1971 Title VII ruling in Griggs v. Duke Power Co. also applied to ADEA claims. The Court found a cause of action in Title VII for non-intentional disparate impact where neutral “practices that are fair in form, but discriminatory in operation.”

That began to change for ADEA plaintiffs in 1993, when the Supreme Court, in Hazen Paper Co. v. Biggins, cast doubt on whether the ADEA permitted any disparate impact claims. Finally, in 2009, the Supreme Court, in Gross v. FBL Financial Services, Inc., ruled that unlike Title VII, ADEA disparate treatment plaintiffs face a “but-for” standard to establish discrimination.

Facts and Procedural History
After Dale Kleber, then 58, was not hired for a senior in-house position at CareFusion’s law department, he filed an ADEA lawsuit. The job description required applicants to have three to seven years’ legal experience. Kleber had more than seven years’ of relevant experience. One of Kleber’s claims was that CareFusion’s maximum experience requirement had a disparate impact on him, an older attorney. The district court dismissed Kleber’s disparate impact claim. On appeal, a three-judge panel reversed the dismissal. The Seventh Circuit then granted en banc review.

Opinion
The eight-judge majority focused on the plain language of Section 4(a)(2) of the ADEA, which makes it unlawful for an employer “to limit, segregate or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s age.” In light of “any individual” being surrounded by “employees,” the Court said the essential meaning of Section 4(a)(2) was that it protected employees only. The Court also drew distinctions between the text of the ADEA and that of Title VII (which does permit applicants to bring disparate impact claims).

There were two separate dissenting opinions among four dissenting judges.

Petition for Supreme Court Review
Kleber has recently filed a petition for writ of certiorari in which he has asked the U.S. Supreme Court to review the Seventh Circuit’s decision.  In his petition, Kleber relies extensively on the Supreme Court’s 1971 opinion in Griggs, arguing that the Seventh Circuit’s interpretation of the ADEA conflicts with the Griggs Court’s interpretation of “identical” language in Title VII as permitting disparate impact claims by job applicants under that statute.  In addition, Kleber also argues in his petition that the Seventh Circuit’s holding thwarts the ADEA’s fundamental purpose of eliminating age-based discrimination in the workplace.

Implications
The Seventh Circuit joins the Eleventh Circuit in ruling that the ADEA does not provide disparate impact protections for job applicants.  It remains to be seen if the Supreme Court will accept Kleber’s petition for writ of certiorari and resolve this developing circuit split.

Regardless, ADEA disparate impact plaintiffs already face other challenges in such claims. Unlike race and gender, employers are less likely to collect age information from applicants. Without readily available age information about an employer’s applicant pool, ADEA plaintiffs are forced to use alternative sources of information about the availability of workers over 40.

U.S. Supreme Court: Employment Class Arbitration Must Be Expressly Addressed in Contract

Class action arbitration is such a departure from ordinary, bilateral arbitration of individual disputes that courts may compel class action arbitration only where the parties expressly declare their intention to be bound by such actions in their arbitration agreement, the U.S. Supreme Court has ruled in a 5-4 decision. Lamps Plus, Inc. v. Varela, No. 17-988 (Apr. 24, 2019). The Supreme Court said, “Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”

Please click here to access our article discussing this recent decision.

Bill Which Would Expand the CCPA Private Right of Action Moves Forward

As we reported, in late February, California Attorney General Xavier Becerra and Senator Hannah-Beth Jackson introduced Senate Bill 561, legislation intended to strengthen and clarify the California Consumer Privacy Act (CCPA). This week, the Senate Judiciary Committee referred the bill to the Senate Appropriations Committee by a vote of 6-2. This move came despite concerns raised about the scope of the amendment’s expanded private right of action. It is worth noting that a restricted private right of action is believed to have been fundamental to the compromise that led to the CCPA becoming law.

Please click here to access our Workplace Privacy, Data Management & Security Report blog discussing this important issue.

Illinois BIPA Defendants May Soon Be Getting Relief

Many businesses currently are defending a wave of class action lawsuits filed under the Illinois’ Biometric Information Privacy Act, popularly known as “BIPA” ).  The floodgates to litigation were opened earlier this year when the Illinois Supreme Court ruled that individuals need not allege actual injury or adverse effect, beyond a violation of his/her rights under BIPA, in order to qualify as an “aggrieved” person and be entitled to seek liquidated damages, attorneys’ fees and costs, and injunctive relief under the Act.  Potential damages are substantial as the BIPA provides for statutory damages of $1,000 per negligent violation or $5,000 per intentional or reckless violation of the Act. The majority of BIPA suits have been brought as class actions seeking statutory damages on behalf of each individual affected, exposing businesses to potentially crushing damages.

Please click here to access our Workplace Privacy, Data Management & Security Report blog discussing this important issue.

U.S. Supreme Court Allows Zappos Data Breach Litigation to Proceed

Yesterday, the U.S. Supreme Court rejected a petition for a writ of certiorari by Zappos requesting the Court to review a Ninth Circuit Court decision which allowed customers affected by a data breach to proceed with a lawsuit on grounds of vulnerability to fraud and identity theft. The ruling stems from a 2012 breach that affected over 24 million Zappos customers, which including hackers accessing customer’s names, account numbers, passwords, email addresses, billing and shipping addresses, phone numbers, and the last four digits of the credit cards.

Please click here to access our Workplace Privacy, Data Management & Security Report blog discussing this important issue.

U.S. Supreme Court Holds Federal Rule of Civil Procedure 23(f) Is Not Subject to Equitable Tolling

In a decision important to class action practice, the U.S. Supreme Court has held that Federal Rule of Civil Procedure 23(f), which establishes a 14-day deadline to seek permission to appeal an order granting or denying class certification, is not subject to equitable tolling. Nutraceutical Corp. v. Lambert, No. 17-1094 (Feb. 26, 2019).

Please click here to access our article discussing this recent decision.

Jackson Lewis Class Action Trends Report Winter 2019

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. We hope you enjoy!

Class Action Trends Report Winter 2019

Fifth Circuit Rules District Court Erred in Ordering Notice of Collective Action to Employees who Signed Arbitration Agreements

In a significant case of first impression, the U.S. Court of Appeals for the Fifth Circuit just held it to be in error for a district court to order notice be sent to employees as part of a certification who, by a preponderance of the evidence, entered into a valid arbitration agreement.  If the employer fails to establish the existence of a valid arbitration agreement as to a particular employee, that employee would receive the same notice as others.  In re: JPMorgan Chase & Company, No. 18-20825.  This decision is of great importance to employers with mandatory arbitration programs and those located in Texas, Louisiana, or Mississippi.

Background & Procedural History

In December 2017, Plaintiff Shannon Rivenbark, a call-center employee, sued Chase alleging that it had violated the FLSA by failing to compensate her and other employees at Chase’s call centers for working “off-the-clock.” Subsequently, plaintiffs moved to conditionally certify a collective action consisting of approximately 42,000 current and former call-center employees.  Plaintiffs asked the district court to send notice to all putative collective members.  In response, Chase argued that approximately 35,000 (or 85%) of the putative collective members had waived their right to proceed collectively by signing binding arbitration agreements.  Specifically, “Chase averred that including those Arbitration Employees in the collective action and giving them notice of it ‘would be inconsistent’ with the agreements and the Federal Arbitration Act (‘FAA’).”

On December 10, 2018, despite Chase’s objections, the court conditionally certified the collective action, which included the 35,000 Arbitration Employees.  In doing so, the court reasoned that even assuming Chase’s position was correct, “the Court cannot determine that there is no possibility that putative class members will be able to join the suit until [d]efendant files a motion to compel arbitration against specific individuals.”  Chase had not moved to compel arbitration. The court conditionally certified the collective and directed that notice “be sent to all putative class members via First Class Mail and e-mail,” as well as ordered Chase to produce contact information for all 42,000 putative collective members.

In response, Chase moved for the district court to certify its order for interlocutory appeal under 28 U.S.C. § 1292(b) and to enter an emergency stay to allow for orderly appellate review, both of which were denied by the district court.  On December 20, 2018, Chase filed a petition for a writ of mandamus, asking the appeals court to direct the district court to exclude from notice of the collective action “any employees who signed arbitration agreements waiving their rights to participate in [the] collective action.”

Fifth Circuit Decision

The Court of Appeals for the Fifth Circuit began their analysis by stating “[a] writ of mandamus is ‘a drastic and extraordinary remedy reserved for really extraordinary cases,’” and addressed the three conditions that needed to be met in order to issue a writ of mandamus.  First, the petitioner must have “no other adequate means to attain the relief he desires.”  Here, the Court determined that Chase met the first condition, as it determined that the error presented is “truly irremediable on ordinary appeal.”  Chase would have no remedy after a final judgment, as the notice issue would be moot once the contact information was provided and the notice was sent out to putative collective members.  Second, the court “must be satisfied that the writ is appropriate under the circumstances.”  Here, the Court found that mandamus relief would be “especially appropriate” given the subject matter of the issue at stake (i.e. whether notice of a collective action may be sent to Arbitration Employees). The Court further recognized that this is an increasingly recurring issue, as well as one that no court of appeals has weighed in on.  Lastly, in order to issue a writ of mandamus, the petitioner must demonstrate a “clear and indisputable right to the writ.”

In analyzing this last requirement and of particular note, the Fifth Circuit discussed and provided new important guidance regarding the discretion afforded to district courts as stated in Hoffmann-La Roche Inc. v. Sperling, U.S. 165, 169 (1989).  The Court noted that while courts have discretion to send notice of pending FLSA actions to potential opt-in plaintiffs, “[Hoffmann-La Roche] did not explain whether Arbitration Employees waiving their right to proceed collectively count as ‘potential plaintiffs.’”  This has resulted in conflicting outcomes from district courts, particularly when courts follow the two-stage Lusardi method to certify a collective action.  See Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987). Many district courts, the Fifth Circuit recognized, wait until the second stage, when discovery is complete, to determine the applicability of arbitration agreements.

Ultimately, the Fifth Circuit held that district courts may not send notice to an employee with a valid arbitration agreement unless the record shows that nothing in the agreement would prohibit that employee from participating in the collective action.  The Fifth Circuit further reasoned that Hoffmann-La Roche confines district courts’ notice-sending authority to notifying potential plaintiffs, but it nowhere suggests that employees have a right to receive notice of potential FLSA claims. Therefore, the district court’s December 10 order was incompatible with Hoffmann-La Roche and with the Fifth Circuit’s holding in its opinion regarding notice.

The Fifth Circuit also stated that district courts “do not ‘have unbridled discretion’ to send notice to potential opt-in plaintiffs” and that the purpose of giving discretion to facilitate notice is because of the need for “efficient resolution in one proceeding of common issues.”  Additionally, the Court stated that notifying Arbitration Employees would reach into disputes beyond the “one proceeding,” and alerting individuals who cannot ultimately participate in the collective “merely stirs up litigation,” which is proscribed in Hoffmann-La Roche.

Finally, the Fifth Circuit noted that determining whether there is a valid arbitration agreement is a “question of state contract law and is for the court.”  Where a preponderance of the evidence shows that the employee has entered into a valid arbitration agreement, “it is error for a district court to order notice to be sent to that employee as part of any sort of certification.”  The Court ultimately determined that while the district court in this instance did err in ordering notice to Arbitration Employees, the court did not “clearly and indisputably” err, as is required for a writ of mandamus, and thus the Fifth Circuit denied the petition.

Takeaway

This decision is not only significant to employers with mandatory arbitration programs.  This holding has the potential to reduce the ability of the plaintiffs’ bar to use the FLSA notice process and subsequent information obtained as leverage in class litigation.  While this was the first court of appeals to address this specific issue, we will be carefully monitoring this development to see if other circuits follow suit.  Please contact Jackson Lewis with any questions about this case.

Insurance Agents Properly Classified as Independent Contractors, Circuit Court Rules

The Sixth Circuit ruled that agents were properly classified as independent contractors in an Employee Retirement Income Security Act (ERISA) class action brought on behalf of thousands of current and former insurance agents in Jammal v. American Family Insurance Co., No. 17-4125 (6th Cir. Jan. 29, 2019).

The Court reviewed the lower court’s analysis of the factors for determining employee or independent contractor status set forth in Nationwide Mut. Ins. Co. v. Darden as conclusions of law rather than fact.

On an interlocutory appeal, the Sixth Circuit, looking solely at whether or not the plaintiffs were employees or independent contractors, reversed the District Court’s finding that the approximately 7,200 agents were employees and were owed health and retirement benefits. The District Court found that American Family acted consistently with the industry by classifying its agents as independent contractors, rather than employees, and took many steps to structure the relationship as such. Agents signed a written agreement stating they were independent contractors and filed their taxes consistent with this, deducting business expenses as self-employed business owners. American Family paid by commission and did not provide vacation, holiday, sick, or other paid time off. The agents worked out of their own offices, set their own hours, and hired and paid their own staff. However, as noted by the lower court, the plaintiffs were referred to as employees in company training manuals and received extensive company training.

The Sixth Circuit pointed out that in applying Darden, a court takes into account factors such as control exercised, skill, tools required, duration of the relationship, location of the work, discretion over hours, method of payment, establishment as a business, tax treatment, as well as whether or not there is an express agreement between the parties. The Sixth Circuit in its review held that each Darden factor is in itself a “legal standard” that the District Court applies to the facts, disagreeing with its sister circuits that had treated these as factual matters subject to review for clear error only. As a result, the Sixth Circuit found it could review the District Court’s conclusions about the individual factors de novo.

The Court further noted that, depending on the legal context, more or less weight of a Darden factor might be warranted in the analysis. In this case, the Court found that the District Court incorrectly applied the legal standards to determine the skill required of an agent and the hiring and paying of assistants. The Court also noted that control and supervision are less important in an ERISA context and that the lower court should have given greater weight to the parties’ express agreement. When these factors were properly applied to the facts, the Court held that the entire mix of Darden factors favored independent contractor status, thus warranting reversal of the District Court’s finding of employee status.

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