Some observers of California wage-and-hour class actions contended that the Brinker v. Superior Court—a key decision we have discussed in the past—had sounded the death knell for class certification in those cases. of California wage and hour class actions. Not so fast, according to the California Courts of Appeal, which have, in four published opinions, reversed four separate trial court orders that had denied certification in wage and hour class action cases:

This recent wave of decisions favoring certification confirms that the California appellate courts have a strong desire to keep these lawsuits afloat. We recently authored an article (PDF) published in the Los Angeles Daily Journal that discusses three of these decisions and addresses their implications for employers and practitioners alike.

Former interns used to get revenge against their employers by writing tell-all blog posts and memoirs. Now, they’re lending their names to plaintiffs’ lawyers, who then file wage-and-hour class or collective actions alleging that interns must be paid like hourly employees.

The unpaid internship is among the hottest areas in wage-and-hour litigation. Two of the more noteworthy cases—that so far have come out in opposite ways—are currently pending in the Southern District of New York: Glatt v. Fox Searchlight Pictures and Wang v. Hearst Corporation (pdf).

In Fox Searchlight, former interns from the film Black Swan alleged that they had been misclassified and should have been paid as “employees.” Judge William Pauley held that the interns were employees and, therefore, Fox Searchlight was liable for violating minimum wage and overtime laws. The court also granted the interns’ motion for class certification.

By contrast, in Wang v. Hearst Corp., Judge Harold Baer denied the plaintiffs’ motions for summary judgment and class certification. Judge Baer found that a genuine issue of fact existed as to whether the interns were employees and that a determination of liability would require individual analysis of what the interns did and what benefits they received.

Last month, the Second Circuit granted interlocutory review of both decisions. The Second Circuit’s ultimate rulings should provide employers with further clarity concerning the law surrounding internship programs.

In the meantime, one (presumably unintended) effect of such lawsuits is to scare employers into shuttering their internship programs altogether in order to avoid the risks and costs associated with potential litigation. For example, after being targeted by a wage-and-hour class action, Condé Nast—of The Devil Wears Prada fame—recently discontinued its coveted internship program, which was famously a stepping stone into the publishing, fashion, and entertainment worlds.

Companies that do choose to continue their internship programs should confirm that they have properly classified their employees in compliance with the Fair Labor Standards Act and applicable state laws. Some employers may assume that the classification (such as exempt, independent contractor, or unpaid intern) that they give to an employee is determinative. But it turns out that courts generally give little weight to an employer’s classification.

Where should employers look? In the context of determining whether a person may be properly considered to be an unpaid intern, the Department of Labor recommends (pdf) that courts consider:

  • whether the internship is similar to training which would be given in an educational environment; 
  • whether the internship experience is for the benefit of the intern; 
  • whether the intern displaces employees; 
  • whether the employer that provides the training derives any immediate advantage from the activities of the intern; 
  • whether the intern is entitled to a job at the conclusion of the internship; and 
  • whether the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Companies that have been threatened with (or are already facing) a wage-and-hour lawsuit on behalf of interns may try to use the case-by-case, individualized nature of the Department of Labor’s multi-factor balancing test to defeat certification of any putative class or collective action. Interns at the same company often have very different experiences, depending upon their duties and the employees who are supervising them. Those differences could derail class or collective treatment in a particular lawsuit.

Companies may also consider asking Congress to take an interest. It turns out that, under the relevant law and regulations, Congressional interns are excluded from the FLSA’s coverage (and so the government is spared similar class actions.) Many Hill interns have described their unpaid experiences as extraordinarily valuable; perhaps the same logic might apply in the business context.

We’ve been reporting on the constitutional challenge to President Obama’s recess appointments to the National Labor Relations Board, which has serious implications for the recess appointment of Consumer Financial Protection Bureau head Richard Cordray. Yesterday, the Supreme Court granted the government’s unopposed petition for a writ of certiorari from the D.C. Circuit’s decision in Noel Canning v. NLRB.

The Court granted review of three questions:

  • Whether the President’s recess-appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions of the Senate.
  • Whether the President’s recess-appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess.
  • Whether the President’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma sessions.

The government’s certiorari petition had raised the first two questions; the third was suggested by the respondent.

A quick tip to employers facing class actions brought by the Equal Employment Opportunity Commission (EEOC)—don’t forget about the EEOC’s statutory duty to investigate the claim before filing suit.

Before the EEOC may file a lawsuit, an employee must have made a timely charge of discrimination of which the EEOC timely notified the employer and the EEOC must have investigated the charge, determined that there was reasonable cause to sue, and attempted conciliation with the employer. 42 U.S.C. § 2000e-5(b), (e).

Courts generally have rejected attempts by employers to call into question the sufficiency of the EEOC’s pre-suit investigation. See, e.g., EEOC v. Keco Indus., Inc., 748 F.2d 1097 (6th Cir. 1984). But a district court recently authorized a Rule 30(b)(6) deposition of the EEOC to determine whether the EEOC actually investigated the charge of discrimination at all before filing a class action. See EEOC v. Grane Healthcare Co., No. 3:10-cv-250 (W.D. Pa. Mar. 15, 2013). If the EEOC has failed to satisfy its pre-suit obligations, courts have the discretion to dismiss the case—in fact, the Eleventh Circuit has upheld an award of attorneys’ fees and costs to the defendant in one such case. See EEOC v. Asplundh Tree Expert Co., 340 F.3d 1256 (11th Cir. 2003).

The next time you’re facing a dubious EEOC class action, remember that you can ask the EEOC whether it did its homework before filing suit. And if it didn’t, you may be able to get the lawsuit bounced before having to spend the money on a full-blown summary-judgment motion

We’ve blogged about the D.C. Circuit’s ruling in Noel Canning v. NLRB (pdf) that President Obama’s three 2012 recess appointments to the National Labor Relations Board are unconstitutional. The consequence of that decision was to invalidate the NLRB decision against Noel Canning for lack of a quorum of NLRB members. The decision also cast a dark cloud over many other NLRB decisions, as well as the recess appointment of Consumer Financial Protection Bureau head Richard Cordray.

As we mentioned, the Solicitor General already filed a petition for certiorari in Noel Canning. The National Chamber Litigation Center has just filed a brief in response—the first time that Chamber lawyers have ever directly represented a member company before the Supreme Court.

The Chamber’s brief (pdf) agrees that the D.C. Circuit’s decision is worthy of Supreme Court review, and explains why the D.C. Circuit’s decision should be upheld.

Under the current schedule, the Supreme Court will consider the petition during the June 20, 2013 conference and possibly act on it in the orders list on June 24. If the Solicitor General waives the right to file a reply brief, however, the petition could be resolved a week earlier, on June 17.

In related news, in another case, the Third Circuit agreed with the D.C. Circuit’s conclusion that the Constitution permits recess appointments only during “intersession breaks”—that is, during periods between sessions of the Senate. As with the 2012 recess appointments at issue in Noel Canning, the 2010 recess appointment at issue in the Third Circuit case, NLRB v. New Vista Nursing & Rehabilitation (pdf), was made during a break in the middle of a session. Judge Smith wrote the decision, which Judge Van Antwerpen joined. Judge Greenaway dissented. Presumably, the Solicitor General will file a petition for certiorari in New Vista asking that the case be held pending the outcome of Noel Canning.

We’ve previously written about the D.C. Circuit’s decision in Noel Canning v. NLRB, which held that President Obama’s three recess appointments in 2012 to the National Labor Relations Board (NLRB) are unconstitutional. The Solicitor General has just filed a petition for certiorari, asking the Supreme Court to review the D.C. Circuit’s decision.

The Obama administration’s decision to seek Supreme Court in Noel Canning is unsurprising. By invalidating the recess appointments to the NLRB, the D.C. Circuit’s decision undermines every action by the NLRB since those appointments were made on January 4, 2012. The decision also casts a dark shadow over actions since that date by the Consumer Financial Protection Bureau (CFPB), because the CFPB’s director (Richard Cordray) received a recess appointment at the same time as the three NLRB members whose appointments are at issue in Noel Canning. For more details, please see our report on the D.C. Circuit’s decision in Noel Canning.

Barring extensions, the opposition to the certiorari petition is due May 28, 2013. Because of the timing of the filing of the petition, the Supreme Court ordinarily would not consider whether to grant review until after the summer recess, during the Court’s first conference in late September 2013. It is possible that the response to the petition could be filed early, however, in order to enable the Court to make the certiorari decision before its summer break.

UPDATE (4/29/13):  According to an article in Reuters, Noel Canning won’t oppose Supreme Court review:

Gary Lofland, the Seattle attorney representing Noel Canning, said they would encourage the court to take the case.
“We believe that it’s important that the court resolve this issue because it provides a better certainty to the business community,” Lofland said in an interview.

Hat tip: Volokh Conspiracy.

 

The Fair Labor Standards Act of 1938 (“FLSA”) permits an employee to file a “collective action” for damages against an employer individually and on behalf of other “similarly situated” employees who later choose to join the lawsuit. 29 U.S.C. § 216(b). In Genesis Healthcare Corp. v. Symczyk, before any other employee had opted to join the suit, the defendant made an offer of judgment to the named plaintiff for the full relief sought by her individual claims. Today, the Supreme Court held—by a 5-4 vote—that the district court had properly dismissed the FLSA collective action for lack of standing. Writing for the majority, Justice Thomas explained that once the offer of judgment had mooted the named plaintiff’s individual claims: “A straightforward application of well-settled mootness principles compels” the conclusion that the entire action “became moot, because she lacked any personal stake in representing” other employees, and thus there no longer was any “case or controversy” for decision, as required by Article III of the U.S. Constitution.

The court of appeals had reversed the dismissal, reasoning that to allow the defendant to “pick off” the named plaintiff with an offer of judgment before the collective action could be certified would “frustrate” the goals of FLSA collective-action provisions. In the Supreme Court, the majority rejected this argument because it rested on distinguishable cases involving class actions. In those cases, the majority explained, either it would be impossible for any other class member to pursue claims for injunctive relief if the class action were dismissed (because of the claims’ transitory nature) or the putative class already had acquired “independent legal status” before the offer of judgment was made. Neither is true of an FLSA collective action for damages that no other employee had yet joined.

The plaintiff also had relied on a statement in Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980), criticizing the use of offers of judgment to “pick off” the named plaintiff in a class action before class certification. But the majority explained that Roper’s holding turned on the fact that the plaintiff in that case had a continuing interest in trying to reduce his share of attorneys’ fees by splitting them among an entire certified class. By contrast, in this case, the offer of judgment included the named plaintiff’s attorneys’ fees and thus “provided complete relief on [the plaintiff’s] individual claims.” Moreover, the majority suggested that Roper may have been abrogated by a later decision holding that an interest in seeking attorneys’ fees is insufficient to confer standing.

Justice Kagan, joined by Justices Ginsburg, Breyer and Sotomayor, dissented, taking issue with the majority’s reliance on what they saw as the lower courts’ “mistake” that the plaintiff’s claim was mooted by the unaccepted offer of judgment. The dissenters noted that the Court had simply assumed that the named plaintiff’s individual claims were moot because she had conceded that fact in the litigation. But because plaintiffs in future cases will not make the same concession, the dissenters contended that the Court’s holding was a “one-off” result involving a situation “that should never arise again.”

Symczyk is of substantial importance to any business that faces collective or class actions of any stripe. Despite the dissent’s assertion that the Court’s holding is limited to this case only, the logic of the Court’s decision applies to all FLSA collective actions—and potentially to class actions in general. Symczyk thus promises to give businesses a powerful method of settling named plaintiffs’ claims in the context of meritless collective and class actions. If a business is willing to pay the named plaintiff’s demand in full at the very outset of the case, the Supreme Court’s decision suggests that a plaintiff may be barred from pursuing a collective or class action and subjecting the business to the enormous costs of class-wide discovery in an effort to coerce a settlement.

Plaintiffs in future cases can be expected to argue, as did the dissent, that such an offer of judgment does not moot their individual claims.  Defendants may wish to point out that, in a footnote, the majority signaled that although it was not reaching the issue, if it did, it likely would agree with the unanimous conclusion of the courts of appeals that such an offer does have that effect.  See Szymczak, slip op. at 6 n.4 (citing O’Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567, 575 (6th Cir. 2009); McCauley v. Trans Union, L.L.C., 402 F.3d 340, 342 (2d Cir. 2005); Weiss v. Regal Collections, 385 F.3d 337, 340 (3d Cir. 2004); Greisz v. Household Bank (Ill.), N.A., 176 F.3d 1012, 1015 (7th Cir. 1999)).  Defendants also can defend that conclusion by explaining that, as a matter of first principles, there is no Article III case or controversy for the court to resolve if the defendant is willing to agree to the relief the plaintiff seeks.

In any event, defendants should remain aware that making an offer of judgment to a named plaintiff to moot a collective or class action likely would not impede any government enforcement action based on the underlying allegations.

Since Concepcion, the plaintiffs’ bar has been exhorting courts to recognize exceptions to its holding that courts may not refuse to enforce an arbitration agreement on the ground that it precludes class actions.  In the employment context, the plaintiffs’ bar thought that it had a winner with Chen-Oster v. Goldman Sachs,  in which a magistrate judge concluded (and a district court agreed) that Title VII bars enforcement of such agreements when the named plaintiff seeks to rely on “pattern-or-practice” evidence of discrimination.  Last week, however, the Second Circuit reversed Chen-Oster and closed the loophole in Parisi v. Goldman, Sachs & Co. (pdf).

The Second Circuit explained that the lower court had erroneously assumed that Title VII authorizes private plaintiffs to bring “pattern-or-practice” claims.  In fact, the Second Circuit held, a “right to bring a substantive ‘pattern-or-practice’ claim” “does not exist.”  That is because the term “‘pattern-or-practice’ simply refers to a method of proof and does not constitute a ‘freestanding cause of action.’”  In other words, “[a] pattern or practice case . . . is really merely another method by which disparate treatment” in violation of Title VII “can be shown.”

The Second Circuit recognized that a number of decisions appear to preclude private plaintiffs (though not the government) from seeking to hold companies liable for a “regular procedure or policy” of discrimination (in other words, a “pattern or practice” of discrimination) except in the context of a class action.  But the Second Circuit rejected the notion that the class device could be used to create a new substantive right.  Significantly, the court pointed to the Rules Enabling Act, which provides that the Federal Rules of Civil Procedure—including Rule 23—cannot be used to abridge, modify, or enlarge substantive rights.  Stated another way, “[t]he availability of the class action Rule 23 mechanism presupposes the existence of a claim; Rule 23 cannot create a non-waivable, substantive right to bring such a claim.”   (For a more detailed analysis of this issue, see Karp v. Cigna Healthcare (D. Mass.))

In short, because there is no right to bring a pattern-or-practice claim, the Second Circuit held that the arbitration agreement’s waiver of class procedures did not eliminate any of the plaintiff’s substantive rights.   Moreover, the court recognized that nothing in the arbitration agreement precluded a plaintiff in an individual arbitration from “offer[ing] to the arbitrators evidence of discriminatory patterns, practices, or policies . . . that she contends affects her.”

The decision in Parisi should be very beneficial to employers who may be subject to suit within the Second Circuit; it should close the door on efforts by plaintiffs’ lawyers to avoid their clients’ arbitration agreements by arguing that pattern-or-practice evidence may be presented only in class actions in court.  The decision also is helpful to class-action defendants more broadly.  By recognizing that the Rules Enabling Act—which is rooted in considerations of due process—forbids interpreting Rule 23 to expand or alter individual substantive rights, the decision provides further ammunition to companies resisting arguments by plaintiffs that the standards of proof or elements of a cause of action should be relaxed or ignored in the context of a class action.

 

The California Supreme Court granted review last week in Franco v. Arakelian Enterprises Inc., No. S207660, in which the California Court of Appeal had refused to enforce an agreement to arbitrate on an individual basis in the context of a wage-and-hour class action. For more on Franco, please see our prior post. The California Supreme Court explained that it will hold its disposition of Franco pending its decision in Iskanian v. CLS Transportation of Los Angeles, another case involving arbitration and wage-and-hour class actions. We have discussed Iskanian in more detail in a prior post.  (We’ve also reported (pdf) on the Court of Appeal’s decision in Iskanian.)

The grant of review in Franco is good news for employers. Many plaintiffs’ lawyers have pointed to Franco in their efforts to avoid arbitration and instead proceed with wage-and-hour class actions in California state courts. And—although we think that Franco is misguided—at least some state courts have been listening. The grant of review in Franco renders the decision non-citable in California courts.

Employers frequently face “donning and doffing” collective actions under the Fair Labor Standards Act (FLSA).  In these lawsuits, plaintiffs accuse employers of failing to pay employees for off-the-clock time spent doffing and donning uniforms or safety gear at the beginning and end of every shift.  Today, the Supreme Court granted review in Sandifer v. United States Steel Corp., No. 12-417, to decide a recurring issue in these cases—the extent to which collective-bargaining agreements can waive employees’ right to compensation for time spent putting on and removing safety gear.  For more information about this case, which will be argued and decided next term, please see our report on the Supreme Court’s grant of certiorari.