Class Action Avoidance

By: Noah A. Finkel, David S. Baffa, Daniel C. Whang, and Andrew L. Scroggins

Seyfarth Synopsis:  In one of the most significant employment cases in memory, a sharply divided United States Supreme Court held today that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain waivers of the ability to participate in a class or collective action under various employment statutes.

There is no longer any reason under the law why an employer cannot require its employees to waive the ability to bring a class or collective action under federal, state, and local employment laws.

While there are certain exceptions (explained below), the United States Supreme Court today removed the last potential legal barrier to the enforcement of class waivers in the employment sphere.  In a 5-4 decision authored by Justice Neil Gorsuch, it held in three cases consolidated for review that requiring employees to agree to arbitration agreements with class waivers does not violate the National Labor Relations Act (“NLRA”) and that such agreements are fully enforceable.

The only foreseeable barrier to enforcement of a class waiver would be federal legislation amending the Federal Arbitration Act (“FAA”) or state legislation permitting private attorney general actions such as California’s Private Attorneys General Act (“PAGA”).  Employers who maintain mandatory arbitration programs with class waivers can be assured for the time being that those waivers provide a valid defense to a collective or class action.  Employers who do not have such arbitration programs need to be aware of this significant development in the employment law landscape and at least consider whether an arbitration program with a class waiver is appropriate for them.

Be aware, however, that a class waiver in an arbitration program does not mean the end of all multi-claimant litigation.  As those with operations in California know, employees who have entered into class waivers with their employers nevertheless may bring PAGA actions in that state.  Likewise, agency-initiated actions are not impacted, leaving the Department of Labor and the Equal Employment Opportunity Commission free to pursue relief under the statutes they enforce on behalf of employees regardless of whether those employees have entered into class waivers.  Meanwhile, some plaintiff-side attorneys have become skilled at bringing dozens of single-claimant arbitration matters against an employer at the same time, which might cost an employer more than defending a collective or class action in court.

An arbitration program with a class waiver isn’t necessarily for every employer.  But this ruling certainly will cause more employers to adopt arbitration programs with class waivers, and likely will reduce the number of class and collective actions employers face.

The Path Leading to the Decision

Beginning with its 2011 decision in AT&T Mobility v. Concepcion, the Supreme Court has blessed the validity and enforceability of class waivers in arbitration agreements.  This was followed by decisions in CompuCredit Corp. v. Greenwood and American Express Co. v. Italian Colors Restaurant, where the Supreme Court forged jurisprudence that made class waivers seem unassailable in the commercial context.  But because none of the cases involving class waivers before the Supreme Court were in the employment context, uncertainty existed as to whether class waivers in mandatory employment arbitration agreements were enforceable.

This uncertainty was amplified by the National Labor Relations Board’s 2012 decision in D.R. Horton, which rejected workplace class waivers.  In the Board’s view, class waivers prevent employees from engaging in protected concerted activity in violation of Section 7 of the NLRA.  The Board continued to press its view even after the Second, Fifth, and Eighth Circuits refused to enforce the rule.  Then in 2016, the Seventh Circuit created a circuit split with its decision in Lewis v. Epic Systems Corp., which held that the right to bring a class or collective action is protected concerted activity under the NLRA, and that class waivers violate that right.  The Sixth and Ninth Circuit followed the Seventh Circuit’s reasoning, deepening the split.

The Supreme Court granted cert in three cases to resolve the issue of whether employers who require employees to arbitrate claims on an individual basis are preventing employees from engaging in protected concerted activity in violation of the NLRA.  On October 2, 2017, the Supreme Court heard oral argument, and today it issued its decision in a split that is just as close as the circuit split below.

The Court’s Reasoning

The Supreme Court began with the premise that the Federal Arbitration Act (FAA) is unequivocal in its mandate that courts enforce arbitration agreements.  The Court’s majority decision rejected the argument that the NLRA overrides that command by rendering a class waiver unlawful.  In the majority’s view, Section 7 of the NLRA does not create a right to pursue a collective or class action.  Rather, Section 7 focuses on the right to organize unions and bargain collectively and does not mention  class or collective action procedures, the majority reasoned.

Section 7’s catch-all provision that employees  must be permitted to engage in “other concerted activities for the purpose of . . . other mutual aid or protection” does not protect the right to participate in a class action because it only protects activities similar to those explicitly listed in Section 7 and thus reaches only to “things employees do for themselves in the course of exercising their right to free association in the workplace.”

The majority supported its holding with other observations, including that: class and collective action procedures were “hardly known” in 1935 when the NLRA was passed; the NLRA states no rules on class or collective action, in contrast to the regulatory regime it imposes surrounding other concerted activities; and the collective action procedures under the Fair Labor Standards Act (“FLSA”) — the statute under which the employees’ underlying causes of action arise — is just like the collective action procedures under the Age Discrimination in Employment Act, which the Supreme Court previously has held does not prohibit mandatory individual arbitration.

At bottom, the Court’s majority was unwilling to infer a Section 7 right to a class or collective action based on “vague terms or ancillary provisions” that would “dictate the particulars of dispute resolution procedures in Article III courts or arbitration proceedings–matters that are usually left to, e.g., the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA.”

The reasoning of the majority, as articulated by Justice Gorsuch, is broader than some expected.  His majority opinion does not merely hold that between conflicting rights and interests of the FAA and NLRA, the FAA wins.  Rather, the majority suggests that there may not be any Section 7 right to pursue a collective or class action in the first place.  This raises the question of whether a collective or class action waiver that is not contained within an arbitration program may be enforceable.

The Dissent

As expected, Justices Ginsburg, Kagan, Sotomayor, and Breyer dissented in an opinion authored by Justice Ginsburg.  The dissent focused on the circumstances that are unique to the employment context, including what Justice Ginsburg refers to as the “extreme imbalance once prevalent in our Nation’s workplaces,” and the reasons Congress enacted the NLRA in the first place, to “place employers and employees on more equal footing.”  Of paramount importance was the NLRA’s recognition that an individual employee has unequal bargaining power against the employer, and that the right to engage in concerted activities levels the playing field.

In the dissent’s view, class and collective actions qualify as concerted activities because in these actions, employees band together to improve their working conditions by holding employers accountable for violations of employment law.

What Should Employers Do

Employers will undoubtedly be asking:  what does this decision mean for me?  The answer depends on many factors, and like arbitration agreements themselves, there is no one answer that fits all.

For employers that already maintain a mandatory arbitration agreement with a class waiver, the Supreme Court’s decision has minimal impact.  A well-drafted agreement that does not overreach will be enforced.  While there are no longer any barriers to enforcing mandatory class waivers, the Supreme Court’s decision will not save a poorly drafted arbitration agreement.  In many states, an arbitration agreement still can be found unenforceable if it is both procedurally and substantively unconscionable under state law principles.  Some courts in some states may find that an arbitration agreement that is mandatory in nature is procedurally unconscionable, which makes it imperative that there is nothing in the arbitration agreement that can be substantively unconscionable.

Employers that have a voluntary arbitration agreement with a class waiver should consider whether making the arbitration program mandatory could yield additional benefits.  If almost all employees participate in a voluntary arbitration program with a class waiver, the additional risk of a mandatory program – whether due to procedural unconscionability concerns or employee relations issues – may not outweigh the marginal benefit.  But if the number of employees who opt out of or refuse to sign a voluntary arbitration agreement with a class waiver is higher than an employer is comfortable with, a mandatory program should be considered.  This is particularly true for employers in the Ninth Circuit, which gave a hat-tip to the NLRA by permitting class waivers so long as employees could opt out of the arbitration agreement.  An opt-out procedure, however, is no longer required in light of the Supreme Court’s decision.

Employers that maintain arbitration programs without a class waiver should strongly consider revising their agreement to include a class waiver.  An arbitration agreement without a class waiver leaves open the worst possible outcome, which is class arbitration.  The potential exposure in any class action is too high to inject any uncertainty as to whether the parties intended to permit class arbitration or not.  And an employer may want a court, rather than an arbitrator with potential financial incentive, to decide whether the parties intended to permit class arbitration.  An express class waiver likely would avoid these issues.  If an employer has an arbitration agreement already in place, there is now no reason to omit a class waiver.

For everyone else who has been waiting for the Supreme Court’s decision before deciding what to do, there are various factors to consider.  The threshold question is whether to even have an arbitration program.  There are certainly many benefits to arbitration.  These include quicker resolution of claims, more predictable outcomes compared to a jury, arguably lower attorneys’ fees to take a case through completion in arbitration than in court, and greater chance of keeping the proceedings and outcome confidential.

But there also are numerous downsides to arbitration that employers have to consider.  Arbitrator fees can be very significant, and in states like California, the employer must pay all of the arbitrator fees.   Some plaintiffs’ attorneys have resorted to filing a large number of individual arbitrations to make the arbitration process exorbitantly expensive for employers.  Arbitrators also can be less likely to grant dispositive motions because they may feel a claimant has a right to take his or her claim through the evidentiary hearing (the equivalent of a trial in arbitration).

Another question is what the scope of the arbitration program should be.  Given the costs associated with arbitration, some employers may want to limit an arbitration program to just wage and hour claims, which have the greatest likelihood of being brought as class claims.  In addition, current federal and state legislative headwinds are pushing against mandatory arbitration of sexual harassment and other Title VII claims.  Certain Department of Defense contractors have long been banned from imposing such agreements, and the State of New York recently passed legislation that seeks to prohibit private employers from requiring arbitration of sexual harassment claims.  While state laws of this type are susceptible to preemption by the Federal Arbitration Act, federal bans have been proposed, and employers may wish to sidestep the controversy altogether by considering wage-hour only arbitration agreements.  In this way, discrimination claims, which usually are brought on a single-plaintiff basis, could then be excluded from the arbitration program if the additional costs associated with arbitration exceed the confidentiality benefit of arbitration.

Employers considering implementing an arbitration program also need to be aware of the various exceptions.  The FAA does not apply to certain employees, most notably transportation workers.  In California, PAGA representative actions are not subject to class waivers and cannot be arbitrated.  Complaints and charges filed with governmental agencies are not subject to arbitration agreements.

While there are many factors to consider, the Supreme Court’s decision today assures employers that arbitration agreements with class waivers remain a valuable option for employers interested in reducing potential class and collective action exposure.

*Seyfarth Shaw LLP is counsel for Epic Systems Corp. in the Lewis case at the district and appellate courts and is co-counsel for Epic at the Supreme Court.

By Gerald L. Maatman, Jr., Pamela Q. Devata, Robert T. Szyba, and Ephraim J. Pierre

supremecourt-150x112Seyfarth Synopsis: In deciding Spokeo v. Robins, the U.S. Supreme Court reaffirmed that plaintiffs seeking to establish that they have standing to sue must show “an invasion of a legally protected interest” that is particularized and concrete — that is, the injury “must actually exist.” Bare procedural violations are not enough.

Today, the U.S. Supreme Court issued its long awaited decision in Spokeo, Inc. v. Robins, No. 13-1339 (U.S. 2016), which we have been watching closely for its possible dramatic implications on the future of workplace class action litigation.

In a 6 to 2 opinion authored by Justice Samuel A. Alito, Jr., the Supreme Court held that the Ninth Circuit’s injury-in-fact analysis under Article III was incomplete. According to the Supreme Court, of the two required elements of injury in fact, the Ninth Circuit addressed only “particularization,” but not “concreteness,” which requires a plaintiff to allege a “real” and not “abstract” injury. Nevertheless, the Supreme Court took no position on the correctness of the Ninth Circuit’s ultimate conclusion: whether Robins adequately alleged an injury in fact.

Based on its conclusion, the Supreme Court vacated the Ninth Circuit’s ruling and remanded for further consideration consistent with the Opinion. Justice Thomas concurred, while Justice Ginsburg (joined by Justice Sotomayor) dissented.

Given the stakes and the subject matter, the ruling is a “must read” for corporate counsel and all employers.

The Case’s Background

This ruling is likely to have substantial impact on class action litigation overall, as we have discussed in our prior posts here, here, and here.

In Spokeo, the issues focused on the Fair Credit Reporting Act (“FCRA”), which requires that consumer reporting agencies (“CRAs”) follow reasonable procedures to assure maximum possible accuracy of its consumer reports (15 U.S.C. § 1681e(b)), issue specific notices to providers and users of information (1681e(d)), and post toll-free phone numbers to allow consumers to request their consumer reports (1681b(e)).

The purported CRA in this case was Spokeo, Inc. (“Spokeo”), which operates a “people search engine” — it aggregates publicly available information about individuals from phone books, social networks, marketing surveys, real estate listings, business websites, and other sources, which it organizes into comprehensive, easy-to-read profiles. Notably, Spokeo specifically states that it “does not verify or evaluate each piece of data, and makes no warranties or guarantees about any of the information offered . . .,” and warns that the information is not to be used for any purpose addressed by the FCRA, such as determining eligibility for credit, insurance, employment, etc.

In July 2010, Plaintiff Thomas Robins filed a putative class action alleging that Spokeo violated the FCRA because it presented inaccurate information about him. He alleged that Spokeo reported that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any). But beyond identifying the inaccuracies, he did not allege any actual damages. Instead, he argued that Spokeo’s alleged FCRA violation was “willful” and therefore he sought statutory damages of between $100 and $1,000 for himself, as well as for each member of the purported nationwide class.

The district court dismissed the case, finding that “where no injury in fact is properly pled” a plaintiff does not have standing to sue. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”

In its petition for certiorari, Spokeo posed the following question to the Supreme Court: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” Spokeo highlighted a circuit split, as the Fifth, Sixth, and Seventh Circuits previously lined up with the Ninth Circuit’s approach, while the Second, Third, and Fourth Circuits generally disagreed and required an actual, concrete injury.

After being granted certiorari, Spokeo argued that the Ninth Circuit’s holding was inconsistent with the Supreme Court’s precedents, the Constitution’s text and history, and principles of separation of powers. More specifically, Spokeo argued that Robin’s bare allegations of FCRA violations, without any accompanying concrete or particularized harm, were insufficient to establish an injury in fact, and thus failed to establish Article III standing.

Robins responded that the Supreme Court’s precedent established that Congress may create private rights of action to vindicate violations of statutory rights that are redressable through statutory damages.

The U.S. Solicitor General also weighed in, appearing as an amicus in support of Robins, and argued that the Supreme Court should focus on the specific alleged injury — the public dissemination of inaccurate personal information — and, specifically, the FCRA. The Government argued that the FCRA confers a legal right to avoid the dissemination of inaccurate personal information, which is sufficient to confer standing under Article III.

The Supreme Court’s Decision

Writing for the majority on the Supreme Court, Justice Alito held that Ninth Circuit failed to consider both aspects of the injury-in-fact requirement under Article III when analyzing Robin’s alleged injury, therefore its Article III standing analysis was incomplete. Slip. Op. at *8. The Supreme Court determined that to establish injury in fact under Article III, a plaintiff must show that he or she suffered “an invasion of a legally protected interest” that is both “concrete and particularized.” Slip. Op. at *7. For an injury to be “particularized,” it “must affect the plaintiff in a personal and individual way.” Id. “Concreteness,” the Supreme Court found “is quite different from particularization.” Id. at *8. A concrete injury must “actually exist” and must be “real” and not “abstract.” Id.

The Supreme Court further stated that concreteness includes both easy to recognize tangible injuries as well as intangible injuries. Id. at 8-9. The Supreme Court instructed that when considering intangible injuries, “both history and the judgment of Congress play important roles.” Id. In particular, Congress may identify intangible harms which meet Article III’s minimum requirements. Id. Nevertheless, the Supreme Court cautioned that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action. Id. Thus “Robins could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Id. The Supreme Court also added that the “risk of real harm” may also satisfy the concreteness requirement, where harms “may be difficult to prove or measure.” Id.

Viewing the FCRA in light of these principles, the Supreme Court recognized that while Congress “plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk . . .[,] Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.” For example, the Supreme Court noted it would be “difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.” Id. at * 11.

Justice Thomas concurred, reviewing the historical development of the law of standing and its application to public and private rights of action, finding the standing requirement a key component to separation of powers.

Justice Ginsberg, joined by Justice Sotomayor, largely agreed with the majority, but nevertheless dissented. She departed from the majority’s reasoning on the issue of concreteness, but based on the injury alleged, not on the fact that concrete harm wasn’t required. Id. at *3 (Ginsberg, J., dissenting). Under her analysis, Justice Ginsberg would have found that the nature of Robin’s injury was sufficiently concrete because of his allegation that the misinformation caused by Spokeo “could affect his fortune in the job market.” Id. at *3-5 (Ginsberg, J., dissenting).

Implications For Employers

Spokeo can be interpreted as a compromise – with some useful language and reasoning for employers to use in future cases. While the Supreme Court avoided a broader question of Congress’s ability to create private rights of action and other weighty separation of powers issues, it announced the proper analytic framework for assessing the injury-in-fact requirement under Article III. The Supreme Court provided some good news for employers, consumer reporting agencies, and other corporate defendants, as well as potential plaintiffs with respect to class action litigation under a variety of federal statutes, including the FCRA. In particular, the Supreme Court was clear that alleged injuries must be both particular and concrete, meaning that injuries must be “real” and not “abstract.” Thus, a mere procedural violation without any connection to concrete harm cannot satisfy the injury-in-fact requirement of Article III.

However, the Supreme Court may not have shut the door on lawsuits alleging intangible injuries based on violations of statutory rights. While the Supreme Court’s opinion today may discourage some consumer, workplace, and other types of class actions seeking millions in statutory damages, potential litigants will likely have to be more creative in how they frame alleged injuries tied to violations of statutory rights.

Spokeo also transcends the employment context, as the constitutional requirement of Article III applies in all civil litigation. Plaintiffs seeking to file lawsuits in other regulated areas, such as under ERISA, the Americans with Disabilities Act, as well as a host of other statutes are likewise affected by today’s decision. Without particularized, concrete injury, federal jurisdiction is beyond the reach of plaintiffs seeking statutory damages for technical violations.

In our third installment of articles looking at the employment law cases being heard by the US Supreme Court this fall term, Tyson Foods Inc. v. Bouaphakeo will have importance in both the wage & hour and class action litigation worlds. “Donning and Doffing “ – who knew!

 Another Watershed Moment for Class Actions?  SCOTUS to
Address Limits on Statistical Proof In Class and Collective Actions

 By Michael Kopp

In a case that is certain to provide an important sequel to the Dukes decision, the Supreme Court will hear argument next week on Tyson Foods Inc. v. Bouaphakeo, to address (1) the use of statistical averaging in class actions to prove liability and damages, and (2) whether courts may certify a class that includes individuals with no injury.

Tyson Foods is important because it will likely set further markers on how far the court’s prohibitions against statistical modelling extend, and more significantly, how these concepts apply to collective actions under the Fair Labor Standards Act. For this reason, employers’ eyes are on Tyson Foods, as the Supreme Court has not previously addressed how Dukes’ analysis applies to collective actions under the FLSA, and whether the FLSA’s “similarly situated” standard differs from Rule 23(b).

The road to the Supremes.  Tyson Foods reached the Supreme Court by way of a divided Eighth Circuit opinion affirming a $5.8 million verdict on an off-the-clock class wage claim. Plaintiffs claimed that Tyson’s Iowa meat processing facility had not paid over 3000 plant workers for the time they spent changing in and out of their work gear and walking to and from the production line.  The district court found there was a common question as to whether the challenged time was compensable, and certified the case as a collective action as to the FLSA claim, and as Rule 23 class action as to the state law wage and hour claims.

Tyson unsuccessfully attempted to decertify the class, and argued neither liability nor damages were “capable of classwide resolution … in one stroke,” as required by Dukes.  Tyson pointed to variations in the type and amount of equipment worn by employees in the hundreds of classifications at issue, and highlighted the disparities in the routines and amount of time employees spent on these tasks. Unpersuaded, the district court permitted a nine-day jury trial on the class claims, where plaintiffs used a statistical model to calculate the “average” time employees spent on the donning, doffing and walking activities at issue.  These average activity times were then extrapolated to the class members.  Although plaintiffs’ expert conceded that the actual times for these activities varied considerably – and over 200 class members suffered no injury at all – the jury nonetheless awarded a lump sum verdict, to be divided among all class members.

Divided approaches to Dukes.  The divided Eighth Circuit panel’s majority opinion and dissent highlight the inconsistent approaches lower courts have taken in interpreting Dukes. The panel majority found that there was a common question concerning whether the activities were compensable under the FLSA and state law, and that plaintiffs had “prove[n] liability for the class as a whole, using employee time records to establish individual damages.”

The dissent took the majority to task for ignoring the considerable differences in donning and doffing times, employee routes to their work stations, the amount of time Tyson allotted for such activities, shortened time shifts, “and a myriad of other relevant factors.” Using statistical models to gloss over those differences violated Dukes’ requirement that the action generate “common answers apt to drive the resolution of the litigation.”  Moreover, the dissent highlighted the critical problem with the majority’s distinction between the classwide liability determination and the individual damages analysis.  Unlike other class claims, establishing a violation in wage and hour actions generally turns upon and “includes the measure of a class member’s individual damages.”  In other words, an employer is only liable to an individual if the employee has actually suffered an injury, such as the compensable loss of overtime.  For that reason, a verdict that “result[s] in a single-sum, class-wide verdict from which each class member, damaged or not, will receive” compensation, is fundamentally inconsistent with Dukes’ prohibition against “trial by formula.”

Why This Case Matters.  First, the Supreme Court will have the opportunity to clarify the extent of Dukes limitations on the use of statistical techniques to establish damages and liability.  Second, the case has particular significance in the wage and hour context, because it provides the opportunity for the Supreme Court to weigh in for the first time as to whether the standards for certifying a Rule 23(b) class action apply to collective FLSA actions, and whether the FLSA’s “similarly situated” standard alters the analysis.  Third, the case provides the opportunity for the court to address Tyson Food’s constitutional argument that an award of monetary damages to uninjured class members is impermissible.  This is particularly critical, as it is a common feature for wage and hour actions to include class members with no identifiable actual wage loss or injury.

Stay Tuned … This case is set for oral argument on Tuesday, November 10, so be on the lookout for a follow up blog post here when a decision is reached.

If you would like more information regarding this article, please contact the author or your Seyfarth attorney.

By: Karla Grossenbacher

In what is quickly becoming the newest trending topic in class action litigation, another class action has been filed alleging the disclosure of employee personally identifiable information due to a cyber attack.

This time, the employer is the federal government, and another target in the lawsuit is the third party vendor allegedly used by the federal government to conduct its background checks during the time of the breach.

On June 29, 2015, the American Federation of Government Employees filed suit against the U.S. Office of Personnel Management, as well as its Director and Chief Information Officer (the “OPM Defendants”) and KeyPoint Government Solutions (“KeyPoint”), on behalf of two named plaintiffs and a putative class of 18 million current and former employees and prospective employees (the “Plaintiffs”) of the federal government whose personally identifiable information was put at risk by a massive data breach suffered by OPM, which was made public early last month (AFGE, et al. v. OPM, et al., Case 1:15-cv-01015, D.D.C., June 29, 2015).

Although the claims asserted in the case are somewhat different than those we have seen in cases filed against private employers, the types of injuries for which the employees are seeking redress are not. In their Complaint, Plaintiffs are seeking to recover damages for the following alleged injuries that they claim to have already suffered or from which they are “at increased risk of suffering”:

– “out-of-pocket costs associated with the prevention, detection, and recover from identity theft or unauthorized use of financial and medical accounts,” such as putting in place credit monitoring and obtaining credit reports;

– “lost opportunity costs” associated with putting preventative measures in place, including time spent “researching how to prevent, detect, contest and recover from identity and health care/medical data misuse.”

– costs associated with the unavailability of frozen or flagged credit or assets and complete denial of credit or use of credit;

– freezing and unfreezing of credit and penalties resulting from the unavailability of frozen credit;

– diminution in the value and/or use of their personally identifiable information; and

– the continued risk to their personally identifiable information and future costs that will be expended to “prevent, detect, contest and repair the impact” of their compromised information.

It is unclear at this time what injuries the Court will deem sufficiently non-speculative to confer standing on Plaintiffs or establish a viable cause of action.

Plaintiffs are asserting claims against the OPM defendants for violations of the Privacy Act and the Administrative Procedure Act. However, Plaintiffs are also suing KeyPoint, which according to the Complaint, is the OPM contractor that handled the majority of the background checks for OPM at the time of the cyber attack. As is commonplace in suits of this nature, Plaintiffs assert a garden variety negligence claim against KeyPoint. The thrust of the negligence claim, as stated in the Complaint, is that KeyPoint owed Plaintiffs a duty of care and did not take reasonable steps to maintain and protect their personally identifiable information, especially in light of the fact that the “OPM employee data was an attractive target for cyber attackers” and KeyPoint’s cyber security systems had sustained a prior breach in late 2014.

Although the Plaintiffs in the OPM litigation do not advance a separate claim based on delayed notification of the data breach — despite the fact that Plaintiffs claim OPM delayed months in disclosing the data breach to those affected — many states have laws that require certain notifications to take place within a specific timeframe in the event of a data breach. Accordingly, employers need to make sure they are aware of such laws in the states in which their employees work and are prepared to comply with them in the event of a breach. Moreover, every company should have an information security policy in place that states what actions the employer will take in the event of a data breach. A number of the state data breach notification laws provide a safe-harbor for employers who comply with the notification procedure in their own information security policies in response to a breach.

It remains to be seen if the defendants in the OPM litigation will move to dismiss all or some of Plaintiffs’ claims and whether or not they will be successful if they do. However, the filing of this complaint serves as yet another cautionary tale about the many ways in which employees and applicants can seek to impose liability on employers in the event of a data breach. Moreover, the inclusion of KeyPoint in the lawsuit is a reminder to employers that they need to vet carefully any third party vendors to whom they entrust employee or applicant personally identifiable information. Employers should review their data security measures — as well as those of their vendors — in light of the ever-evolving threat posed by hackers. Employers need to ensure that the measures they have in place will be viewed as reasonable in light of the type of personally identifiable information that they obtain from employees (e.g., medical, financial, personal, etc.) and their history of vulnerability in this area. Companies should be expending the same level of effort to protect employee information as well as consumer information. Indeed, some might argue that a company’s duty of care to its employees is greater than the duty owed to consumers. A consumer has a choice in the free market about to whom he or she gives personally identifiable information; the same cannot necessarily be said of an employee whose employer requires that certain financial information be provided by the employee in order to have a paycheck deposited or that certain medical information be provided in order or process benefits.

For more information regarding this topic, please contact the author or your Seyfarth attorney.

By Sam Schwartz-Fenwick and Amanda Sonneborn

In last week’s oral argument on the constitutionality of same-sex marriage bans, Chief Justice Roberts asked the following question:

Counsel, I’m not sure it’s necessary to get into sexual orientation to resolve the case. I mean, if Sue loves Joe and Tom loves Joe, Sue can marry him and Tom can’t. And the difference is based upon their different sex. Why isn’t that a straightforward question of sexual discrimination?

Whether the Court addresses this rationale in its decision is an open question that will not be known until the Court issues its decision. Nevertheless, it is worth considering the impact that a sex-discrimination rationale would have on employers and plan-sponsors.

Under Federal law, claims of sex discrimination against employers and plan sponsors arise under Title VII, not the Fourteenth Amendment of the Constitution. Title VII was passed pursuant to the Commerce Clause of Article 1, Section 8, Clause 3 of the U.S. Constitution.

Nonetheless, a ruling by the Court that in certain instances sexual orientation discrimination constitutes sex discrimination under the Constitution would likely lead many courts to employ this reasoning in analyzing claims under Title VII. Indeed, this rationale is already the official position of the EEOC and the Obama administration. The EEOC believes that LGBT employment discrimination is sex discrimination, because it sees both sexual orientation and transgender discrimination as impermissible forms of sex-stereotyping. Similarly, the EEOC argues that ERISA governed health plans that only provide spousal coverage to opposite sex spouses to be engaging in sex-discrimination.

A ruling that same-sex marriage bans constitute sex-discrimination could buoy these arguments. Courts might be more willing to view claims of Title VII discrimination by LGBT individuals, not as a new type of discrimination (i.e. sexual orientation or gender identity discrimination), but rather as sex discrimination.

While a sex-discrimination rationale could encourage certain courts to extend Title VII to LGBT individuals, a dispute would surely remain between jurists as to whether such a broad reading of Title VII is appropriate. After all, courts are much less willing to interpret the terms of a statute in the same broad manner in which they interpret the Constitution. Indeed, Title VII on its face does not reference LGBT discrimination, and it is clear that when this Act was passed in 1964, Congress did not intend to extend its protection to LGBT individuals. In addition, since the early 1990s every Congress has considered passing an LGBT non-discrimination law (ENDA). Each and every Congress has failed to pass ENDA. For Courts to extend protections to LGBT individuals when Congress has refused to do so would for many jurists constitute a grave overstep in the limited role of courts to interpret (not make) the law.

As is clear, the Supreme Court’s ruling in the upcoming gay-marriage decision may have a significant impact on employers and plan sponsors. Stay tuned for our update on this analysis once the opinion is issued, which will likely come near the end of June.

By Gerald L. Maatman, Jr. and Kathryn “Chris” Palamountain

Employing reasoning adopted by a number of other courts, the U.S. District Court for the Southern District of Alabama recently dismissed the EEOC’s claim that an employer’s policy prohibiting employees from wearing dreadlocks violated Title VII – the case of EEOC v. Catastrophe Management Solutions, No. 13-00476-CB-M, 2014 WL 47758 (S. D. Ala. Mar. 27, 2014). In its ruling, the Court confirmed that “employers’ grooming policies are outside the purview of Title VII,” and it further rejected the EEOC’s argument that the definition of race under Title VII should be read expansively to encompass more than immutable physical characteristics unique to a particular group. Continue Reading Alabama District Court Dismisses EEOC Claims Challenging Employer’s No Dreadlocks Policy

By Christopher DeGroff, Gerald L. Maatman, Jr., and Lily M. Strumwasser

“Here we go again.” It is the collective groan heard from employers across the country as they braced for the annual EEOC’s fiscal-year-end filing campaign. With 48 EEOC-initiated lawsuits filed in just the last 30 days, employers were understandably concerned. But when the EEOC’s 2013 fiscal year closed yesterday with a total of 134 lawsuits filed, and the dust settled, we saw a picture emerge about how the EEOC targeted employers in its enforcement efforts this year, and gain insight into what’s to come.

A Last Minute Rush – Again

The EEOC traditionally launches large salvos of federal court complaints across the country in the waning weeks of its fiscal year (ending September 30th). In FY 2011, the EEOC filed an astonishing 175 lawsuits in the last eight weeks of its 2011 fiscal year alone. As we reported here last year, the EEOC again revved its engine in August and September of 2012 and filed 67 of its 122 lawsuits. FY 2013 was no different, with 48 of its 134 filed in the last two months of the year – 11 today alone. Consider the graph below, capturing the month-to-month filing statistics for FY 2013.

EEOC Cases Filed By Month – FY 2013

Continue Reading Time’s Up, Pencils Down: EEOC Final Fiscal Year End Filing Totals Provide Surprises and Insight

By Courtney Bohl, Chris DeGroff, and Reema Kapur

The employment and employment rights of our Veterans and Military servicemembers has always been an important topic and one already protected by such laws as the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), the Family and Medical Leave Act (which allows for “qualifying exigency leave” for families of military personnel) and the Americans with Disabilities Act (“ADA”), which protects servicemembers against discrimination on the basis of any disability whether arising from military service or not.  On July 11, 2013, U.S. Senator Richard Blumenthal (D-Conn.) and U.S. Representative Derek Kilmer (D-Wash.) introduced the Veterans and Servicemembers Employment Rights and Housing Act of 2013.  The bill seeks to prohibit discrimination against veterans and servicemembers seeking employment or housing opportunities.  If adopted, the bill would amend the Fair Housing Act to include military service as a protected category and allow veterans and servicemembers facing discrimination to file their complaints with the Equal Employment Opportunity Commission.  Representative Kilmer previously sponsored a similar law.  Seyfarth’s Workplace Class Action blog has provided an overview of this proposed legislation, it’s key provisions, and the impact it might have on the workplace if enacted.  Please click here to see that complete post. 

 

By: Dave Baffa and Ashley Kircher

Let’s face it:  for employers, class and collective actions are a serious bummer.  While compliance is key for avoiding mass claims, pursuing class and collective actions is a “business,” and even the most compliance-oriented employers are frequent targets.  But while becoming a defendant may seems inevitable, the opportunity to have a reliable, defensible employee waiver of class and collective actions may be upon us, at least if the Supreme Court continues to issue its dramatically pro-arbitration rulings of late.  

If you are an employer prone to ending up on the wrong end of a class or collective action, shouldn’t you at least be considering a mandatory arbitration process that includes a class and collective action waiver?

Is it Legal and Effective?

Well, not quite legal or guaranteed effective in all cases yet, but don’t stop reading.  While the law today, at least according to some courts and agencies, remains a barrier,  the Supreme Court has published a series of decisions — most recently American Express Co. v. Italian Colors Restaurant — strongly supporting the notion that the Federal Arbitration Act trumps state and even federal rights to participate in a class or collective action.   The Supreme Court’s declared support for mandatory arbitration as a means of dispute resolution, especially as clarified and refined in the last two years, has been remarkably strong.  In fact, in American Express, the Court held that a class action waiver in an arbitration agreement is enforceable even if it would have the effect of making it foolish for a plaintiff  to even pursue the individual claim from a financial perspective.    As summarized by Justice Kagan in her dissent, even though an arbitration agreement containing a class action waiver may effectively deprive the plaintiff of legal recourse because the costs outweigh the value of the claim, that is “too darn bad,” based on the Court’s majority decision.

While the American Express case is not an employment case, many believe the Court wrote its opinion in a way that sets a clear course for the Fifth and Second Circuits, and even the California Supreme Court.  Each of those courts is considering various challenges to employment arbitration agreements with class action waivers.  Specifically,

  • The Second Circuit is considering whether FLSA collective actions can be waived, in Rainere v. Citigroup, Inc.   
  • The Fifth Circuit is considering the National Labor Relations Board’s decision in D.R. Horton that a class and collective action waiver violates employees’ Section 7 rights to engage in concerted activity.  That means that as of today, class and collective actions violate the National Labor Relations Act.   But many federal courts have refused to invalidate agreements on this basis, and  the Horton decision remains vulnerable to attack not only on the merits, but also because it was issued at a time when the Board — according to the D.C. Circuit’s decision in Noel Canning — did not have a valid quorum of members due to alleged faulty recess appointments.)
  • The California Supreme Court, in Iskanian v. CLS Transport, will rule on whether state public policy and statutory schemes that contemplate collective actions — like the Private Attorney General Act — are trumped by the Federal Arbitration Act.  Most California federal courts have said so, but state courts have been reluctant to make such a finding.  As many as 14 amici briefs have been filed.

A more detailed description of the state of the law, can be found in this Strategy & Insights piece, HERE

What You Can Do: 

While watching these important developments, employers should consider other pros and cons associated with implementing a mandatory arbitration program with class and collective action waivers.  These include:

Pros

  • Potentially eliminates class actions for wage and hour and employment discrimination claims.  Even in California.  Killer waive, dude. 
  • Lower risk of runaway jury verdicts.
  • Generally less publicity with arbitration.

Cons

  • Motion practice: (Employees may proceed with litigation regardless of the waiver, requiring a motion to compel arbitration or potential challenges to the enforceability of the arbitration agreement.)
  • Agencies: (An arbitration policy can’t prevent the EEOC or the DOL from bringing suit.)
  • Expense: (Private arbitrators can be expensive and the process can be time-consuming.)
  • “Split the baby”: (Some arbitrators try to make things “even” versus following the law as closely, resulting in both sides walking away unhappy.)
  • Evidence: (Arbitrators are more likely to allow hearsay and irrelevant witnesses.)
  • Appeal: (Judicial review is very limited.)

For a full discussion of these pros and cons, see the Strategy & Insights piece noted above.

In deciding whether to ride the “waive” of arbitration-friendly decisions, employers may want to think about some of the following:

  • Have you been sued in a class or collective action before?  If so, the possible avoidance of future class or collective actions may outweigh the risks that come along with arbitration.
  • Is your workforce unionized, or is your business particularly vulnerable to organizing activity?  With D.R. Horton – still in effect, waiting out that appeal may be an attractive option at this time.   
  • How many employment-related lawsuits do you typically get in a year?  Arbitration could reduce your overall employment litigation costs.
  • Is your company’s philosophy to settle lawsuits or to fight them to the bitter end?  If the latter, arbitration is generally better.
  • In which jurisdiction is your company typically sued?  If it’s a jurisdiction that isn’t employer-friendly, then arbitration is usually the better option.

If you ultimately decide that you want to implement an arbitration program, here are some things to keep in mind:

  • Consideration.  The arbitration agreement needs to have consideration (basically, an exchange of promises) to support it.  Some states don’t recognize continued employment as sufficient consideration, so if you’ll be asking current employees to sign an arbitration agreement, you might need additional consideration.  A good way to prove adequate consideration is to make the obligation to arbitrate mutual, meaning that the employer agrees to arbitrate any claims it might have against the employee.  It’s also important to be cautious about including language that reserves the right to modify or revoke the policy at any time; that can make the agreement susceptible to a challenge that the agreement to arbitrate is illusory.
  • Fairness.  The agreement should clearly specify what claims are covered, the time allowed to bring a claim, and the process to be followed.  We also recommend that the agreement allow for meaningful discovery and the recovery of all types of relief that would be available in court.  
  • Class Action Waivers.  If you choose to include one, make sure it’s clear and conspicuous and that it explicitly prohibits arbitrators from presiding over class, collective, or other representative claims.  It’s also a good idea to include severability language that makes clear that in the event the class waiver is found unlawful or unenforceable, then the only forum for such an action would be court, not arbitration.    
  • Carve-Outs.  To maximize the likelihood that the arbitration agreement will survive challenge, it is a good idea to include language carving out the right of employees to file workers’ compensation claims, unemployment compensation claims, and charges with administrative agencies (EEOC, NLRB, DOL).  If your company has contracts with the Department of Defense in excess of $1 million, you will likely be required to exclude any claims under Title VII or any tort related to sexual harassment. 

If you’re not sure about implementing an arbitration program, don’t despair.  Other creative options can exist independent of – or in conjunction with – an arbitration program:

  • Establish a formal internal dispute resolution procedure that allows for multiple steps of review and final appeal to a high-ranking member of management.
  • Establish a binding peer review board that would provide a forum for employees to resolve disputes and issues.
  • Develop an Ombudsman program for receipt, investigation, and review of employee complaints.
  • Provide an appeal process as part of employee evaluations and/or discipline.
  • Develop a pre-termination review process that includes multiple sign-offs and an opportunity for internal appeal before final decisions are made.  

Yes, there is a lot to think about here, and Seyfarth’s Workplace Arbitration Team is here to help.  If you want to read more about this topic, check out our firm’s Strategy & Insights memo, available HERE.