Class Action Outlook
Class Action Outlook - Spring 2017

May 11, 2017

IN THIS ISSUE:

What will Justice Gorsuch mean for class, collective litigation?

By Alyssa Peters, Macon Office

As Justice Neil Gorsuch hears his first cases on the Supreme Court, employers are asking themselves what impact he will have on class and collective action litigation. Although it is impossible to predict with certainty, the signs appear to be positive.

Before he joined the Supreme Court, Justice Gorsuch had been a judge on the U.S. Court of Appeals for the Tenth Circuit for about 10 years, and was appointed to that position by President George W. Bush. Before his appointment to the Tenth Circuit, he was an attorney with the U.S. Department of Justice. His mother, the late Anne Gorsuch Burford, was head of the Environmental Protection Agency in 1981-83 under President Ronald Reagan.

During his tenure on the Tenth Circuit, Justice Gorsuch was known as a textualist and an originalist. This means that when faced with a question of statutory or constitutional interpretation, he focused on the language of the relevant statute or constitutional provision – as that language would have been understood at the time of enactment – with less emphasis on legislative history or congressional intent.

Judge Gorsuch’s rulings

As a Tenth Circuit judge, Justice Gorsuch heard a number of labor and employment cases, usually finding in favor of the employer. He is the author of 14 published majority opinions in employment discrimination cases. Of those 14, nine decisions were favorable to the employer, three were favorable to the employee, and two were partial affirmances and partial reversals.

Justice Gorsuch ruled on relatively few class or collective action cases while a Tenth Circuit judge, but the decisions he has written or joined are for the most part favorable to defendants. In Castaneda v. JBS USA, LLC (2016), he joined an opinion finding that walk times were not compensable under the Fair Labor Standards Act, applying the FLSA §203(o) provisions concerning collective bargaining agreements. In Sanchez v. Nitro-Lift (2014), he joined an opinion finding that an FLSA collective action was subject to arbitration, reversing a lower court decision to deny the employer’s motion to dismiss and to compel arbitration. He was author of an opinion in Shook v. Bd. of Commissioners of County of El Paso (2008), in which prison inmates with a variety of mental health issues brought claims under 42 U.S.C. §1983 based on alleged violations of their constitutional rights. In that case, the panel affirmed denial of class certification under Rule 23(b)(2) of the Federal Rules of Civil Procedure, finding that it would be too difficult to provide injunctive relief that would be applicable on a class basis.

Justice Gorsuch was also author of the opinions in Heller v. Quovadix (2007) (affirming denial of an alleged shareholder’s objection to a proposed class settlement) and Montez v. Owens (2009) (individual class member appealed special master’s finding that he did not have permanent disability so as to be eligible for payment under settlement of inmate class action brought under §1983 based on Americans with Disabilities Act and Rehabilitation Act of 1973; panel remanded for determination as to whether class had waived members’ rights to appeal individual eligibility determinations).

Chevron deference

An aspect of Justice Gorsuch’s judicial philosophy that may prove significant to employers is his view on governmental agencies’ ability to interpret federal laws that are ambiguous, or that have “gaps” that Congress failed to address. In 1984, in Chevron U.S.A. v. Natural Resources Defense Council, Inc., the Supreme Court said that, where a statute is ambiguous or silent with respect to an issue, the courts must defer to the relevant agency’s interpretation unless that interpretation is unreasonable. This has commonly been known as “Chevron deference,” after the name of the case.

Justice Gorsuch has been vocal about his opposition to Chevron deference, as well as his views on limiting agency authority in general.

The best illustration of Justice Gorsuch’s views on Chevron deference can be found in his concurrence in Gutierrez-Brizuela v. Lynch, an immigration case. (Justice Gorsuch also wrote the majority opinion; the concurrence begins on pdf page 15.) Justice Gorsuch believes that Chevron deference results in too much regulatory “whipsawing” of employers, as agency interpretations shift with each change in Presidential administration, and also violates separation of powers by providing too much authority to executive branch agencies at the expense of the legislative and judicial branches.

Earlier this year, discussions of Justice Gorsuch’s dissents in Gutierrez and the “freezing trucker” case appeared on Constangy’s blog, Employment & Labor Insider.

It is not clear what effect Justice Gorsuch’s views on Chevron deference will have on real-world employers. If legislative “gaps” are to be filled by judicial interpretations instead of agency interpretations, that might result in about as much regulatory “whipsawing” as we have now. Moreover, one might expect employers to prefer their odds under a U.S. Department of Labor run by Trump appointee Alexander Acosta than a federal judge appointed by President Obama.

Noteworthy dissents in two employment cases

Justice Gorsuch had interesting dissents that shed light on his philosophy in two relatively recent decisions: NLRB v. Community Health Services, Inc., and TransAm Trucking, Inc. v. Administrative Review Board (the infamous “freezing trucker” case).

In Community Health Services, a hospital and nursing home was found to have committed an unfair labor practice by reducing the work hours of employees in its respiratory unit. The issue before the court was how to calculate back pay for the employees. In unlawful termination cases, the NLRB normally deducts interim earnings from the amount that the employer must pay the employees. In this case, because the employees were not terminated but only had their hours cut back, the NLRB determined that interim earnings should not be deducted, and two judges on the Tenth Circuit panel agreed. Justice Gorsuch dissented. He acknowledged that the NLRB had authority to determine the remedy that would make a worker “whole” as a result of an unfair labor practice but argued that refusing to make deductions for interim earnings when the employee was not terminated was treating “similarly situated classes of persons differently without a rational explanation. And [the Board] may not depart from [its] own existing rules and precedents without a persuasive explanation.” He also attacked one rationale advanced by the NLRB – that refusing to deduct interim earnings when hours were reduced “promot[ed] production and employment,” noting that “this line of argument fundamentally misconceives the Board’s remedial charter. The Board’s statutory charge isn’t to promote full employment. . . . Instead, Congress invested the Board with the more prosaic – if still vital – job of providing ‘backpay’ arising from ‘unfair labor practices.’”

In TransAm Trucking, a provision of the Surface Transportation Assistance Act was at issue. The relevant provision said that it was unlawful for an employer to take action against an employee for refusing to operate a vehicle that the employee believed to be unsafe. The truck driver in the case had pulled over in freezing weather, and when he tried to start back up, found that the brakes on his trailer were frozen. He called for help, and was instructed by his supervisor to wait for help. While he was waiting, the heat in his cab stopped working. Meanwhile, the promised help did not arrive for several hours. The driver was ultimately terminated because, in (arguably justified) contravention of his supervisor’s directive, he disconnected his trailer from his cab and drove to a service station. The Administrative Review Board and the majority of the Tenth Circuit panel found that the company had violated the STAA in terminating the driver’s employment. Justice Gorsuch dissented, noting that the plain language of the STAA provision governed and that the employer did not violate the STAA because the supervisor had specifically instructed the driver to not operate the vehicle. In other words, the driver was not terminated for refusing to operate his vehicle but for operating it. The dissent is a good illustration of Justice Gorsuch’s respect for the plain language of the relevant statute.

Conclusion

It is always difficult to predict how a judge will behave once he or she is appointed to the Supreme Court, as we have seen in the past. With that caveat, it appears that Justice Gorsuch will be generally fair to the concerns of employers. More importantly, it appears that he will be a true “conservative” in the sense that he will respect Congress’s legislative authority, will enforce statutes as drafted by Congress and be unlikely to adopt “creative” interpretations of the law, and will have a healthy desire to avoid “legislation” by the judiciary or by regulatory agencies.

SCOTUS rules that district court decisions on EEOC subpoena enforcement actions are entitled to deference

By Heidi Wilbur, Denver Office

The U.S. Supreme Court has recently clarified the standard that should be applied by courts of appeal when reviewing a district court’s decision on whether to enforce or quash a subpoena issued by the Equal Employment Opportunity Commission. In McLane Co., Inc. v. EEOC, the Court held that appellate courts should use a more deferential “abuse of discretion” standard. The alternative would have been to review the decision de novo, which involves reweighing and reconsidering all the evidence examined by the lower court.

The case began with a charge of sex discrimination filed by a former employee of McLane. Damiana Ochoa, a cigarette selector whose job duties included lifting, packing, and moving large bins, alleged that she was fired upon return from maternity leave because she failed the company’s physical evaluation. McLane has a policy of requiring all employees with physically demanding jobs to pass a physical evaluation upon hire and upon return from medical leave.

The EEOC expanded the investigation to be nationwide in scope and also initiated an investigation into possible age discrimination.  Although McLane provided the EEOC with information about its physical evaluation process and anonymous data about individuals who had been asked to take the evaluation, the company drew the line when the EEOC sought to obtain “pedigree information,” including names, Social Security numbers, and contact information for thousands of employees nationwide.  In response, the EEOC issued subpoenas for the information, which McLane challenged in federal court in Arizona.

The court sided with McLane, holding that the information sought was not relevant because individualized information from the employees “could not shed light on whether the [evaluation] represents a tool of . . . discrimination.” Unfortunately for McLane, the EEOC appealed, and the U.S. Court of Appeals for the Ninth Circuit ruled that the subpoenas should be enforced. In doing so, however, the Ninth Circuit applied a de novo standard of review even while acknowledging that it was following precedent that conflicted with all the other U.S. courts of appeal, which applied the more deferential “abuse of discretion” standard.

The Supreme Court granted certiorari to resolve the dispute between the Ninth Circuit and the other circuits. In a majority opinion written by Justice Sonia Sotomayor and joined by all of the Court except Justice Ruth Bader Ginsburg, who concurred in part and dissented in part, the Court easily concluded that the abuse of discretion standard should apply for several reasons. First, it found that the deferential standard is in line with the “longstanding practice of the courts of appeal” when reviewing decisions to enforce or quash administrative subpoenas. Additionally, the Court emphasized that the district courts are in a better position than the appellate courts to decide the fact-intensive issues at play in a subpoena enforcement action, such as whether the evidence sought is relevant and whether the subpoena is unduly burdensome in light of the circumstances. District courts also have more experience deciding issues of relevance and whether subpoenas are reasonable. Finally, the Court reasoned that a deferential standard frees appellate courts “from the duty of reweighing evidence and reconsidering facts already weighed and considered by the district court.”

This particular ruling was a victory for McLane, who, at the district court level, had successfully challenged the EEOC’s attempt to seek pedigree information for thousands of employees across the country. In light of the Court’s opinion rebuking the standard applied by the Ninth Circuit, and the deferential standard that will be applied on remand, McLane is now in a stronger position to prevail before the Ninth Circuit. In some cases, however, the decision may cut against employers – for example, when a district court enforces the EEOC subpoena and a more “conservative” appellate panel might have reversed before McLane.

The McLane decision means that employers need not submit to overbroad EEOC subpoenas but can fight those subpoenas in federal court. It will be essential for employers to carefully marshal their evidence and legal arguments. The stronger their challenge at the district court level, the more likely they will be to succeed in quashing the subpoena, and – in light of the McLane decision – to prevail on appeal.

HOW SWEET IT IS: See’s Candy “rounding” decision is a treat for

California employers

By Sean Kramer, Los Angeles-Century City Office

An appeals court has recently reaffirmed that employers may “round” employees’ time under certain circumstances and still be in compliance with California wage and hour law. But, more importantly, it affirmed summary judgment for an employer and provided helpful guidance to employers who seek to have similar claims dismissed before trial.

In Silva v. See’s Candy Shops, Inc. (See’s Candy II), the California Court of Appeal for the Fourth Appellate District confirmed that employers may generally round employee time punch entries to the nearest tenth of an hour (i.e., six-minute increments) under California law.  See’s Candy II is a follow-up to another significant decision from the Court of Appeal from 2012 arising out of the same case and concerning similar rounding issues. (See’s Candy I).

In our last edition of Class Action Outlook, we wrote about Corbin v. Time Warner Entertainment, a decision from the U.S. Court of Appeals for the Ninth Circuit on rounding under California law and the federal Fair Labor Standards Act.

See’s Candy II did not alter the existing rule in California that an employer is entitled to use a rounding policy as long as it is neutral and does not, over a period of time, fail to properly compensate employees for all time actually worked. This rule was first adopted by the Court of Appeal in See’s Candy I. Instead, See’s Candy II is noteworthy because the Court of Appeal, for the first time in a published decision, found that an employer was entitled to dismissal of a rounding claim at the summary judgment stage based upon the employer’s undisputed expert reports. By doing so, the Court of Appeal provided employers with further guidance on how to apply California law on rounding and successfully seek dismissal of such rounding claims before trial.

Background

See’s Candy I and See’s Candy II arose out of a lawsuit filed by Pamela Silva against her former employer, See’s Candy Shops, Inc., the popular chocolate and candy-making company. Ms. Silva brought individual, class and Private Attorneys General Act claims against See’s challenging, among other things, See’s policies regarding calculation of hours worked. Specifically, See’s maintained (1) a rounding policy, by which hourly employee time punches were rounded to the nearest tenth of an hour, and (2) a grace-period policy, which permitted employees to clock in ten minutes before, or clock out ten minutes after, their scheduled shift but used scheduled start and stop times to calculate hours worked. See’s calculated employees’ pay based on their punch in/punch out times subject to modification under these rounding and grace-period policies. Ms. Silva claimed that application of these policies deprived her and other employees of compensation under the California Labor Code.

In See’s Candy I, the Court of Appeal held that an employer could use a nearest-tenth rounding policy if the rounding policy was “fair and neutral on its face” and was “used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” Because of the procedural posture of the case, the Court of Appeal did not consider whether the company’s rounding policy actually undercompensated employees, and it also did not directly address whether the grace-period policy was legal under California law. Further, the Court did not specify what “period of time” is appropriate in measuring the impact of a rounding policy, or whether and how an employer could successfully obtain summary judgment on a rounding claim.

After the See’s Candy I decision was issued, the Court of Appeal remanded the case to the trial court. See’s then moved for summary judgment on Ms. Silva’s class rounding and grace-period claims. See’s argued that Ms. Silva could not prove that employees lost compensation due to the rounding or grace-period policies. In support of its motion, See’s presented the reports and declaration of its expert, a labor economist and statistician, showing that the company’s rounding policy actually resulted in a net surplus of 2,749 hours in the employees’ favor and thus resulted in an economic benefit to the group of employees. The report was based on two studies conducted by the expert, examining time records from employees over the five-year class period.

As to the grace-period policy, See’s presented evidence that (1) the policy was voluntary; (2) the policy prohibited employees from working during the grace period; (3) if an employee worked during the grace period, the employee’s time records would be adjusted to compensate the employee for the time worked; and (4) the employees could (and did) engage in “exclusively personal” activities during the grace period, which included leaving the premises to run errands, applying makeup, drinking coffee, and playing cell phone games. This evidence, See’s argued, demonstrated that employees did not work during the grace periods and thus were not entitled to compensation.

Ms. Silva presented evidence from her own expert, who said that the rounding policy did not appear to be fair because there was a net loss of time and overtime hours for employees.  Silva also argued that the report and declaration of See’s Candy’s expert assumed, without any evidence, that employees were not performing work during the grace period, and relied on her own deposition testimony that she saw employees clock in early and start working. 

See’s objected to virtually all of the plaintiff’s expert report regarding the application of the rounding policy to employees. The trial court sustained all of these objections, which meant that the trial court did not consider the evidence. In other words, Ms. Silva had no admissible evidence to rebut the employer’s expert evidence on the rounding claim.

Ultimately, the trial court granted summary judgment in favor of See’s and dismissed the class claims challenging the rounding and grace-period policies. The trial court found that the employer’s evidence established that “the timekeeping policies were proper under California law and did not result in undercompensation” and that Silva failed to present any contrary evidence to counter See’s evidence. Ms. Silva appealed.

The Court of Appeal’s decision

The appeals court upheld the dismissal of the claims challenging See’s rounding and grace-period policies. Because Ms. Silva failed to challenge the lower court’s ruling invalidating the findings of her expert, the Court of Appeal could not review that ruling. Thus, with only the reports from the See’s expert, the appeals court found that See’s had presented undisputed evidence that the rounding policy was “both mathematically and empirically unbiased,” and, in application, did not deprive employees of compensation. In other words, the Court found that the rounding policy was implemented lawfully and that Ms. Silva was unable to show otherwise.

Regarding the grace-period policy, the Court of Appeal credited the employer’s evidence that employees did not work during the grace periods and used the grace periods for personal activities. For these reasons, the time was found to be non-compensable under California law.  The Court, however, suggested that Ms. Silva’s grace-period claims might have survived summary judgment if the evidence had shown that employees actually performed work during grace periods or were otherwise under the control of See’s during this time.

Implications for employers

The See’s Candy II decision affirms the legality of nearest-tenth rounding policies where those policies are actually neutral and do not, over a period of time, fail to properly compensate employees for the time they have actually worked. However, the decision should not necessarily be read as a blanket approval of all such rounding policies (or of all grace-period policies). The appellate court addressed only a one-tenth rounding policy, and it approved of the policy only after See’s presented considerable expert and other evidence demonstrating that employees were in fact properly compensated for all time worked in the aggregate.

The value of experts should not be underestimated in handling California wage and hour class and PAGA actions, particularly in rounding or other timekeeping cases where employee timecards are typically key pieces of evidence. As was the case here, experts can examine the effect of a rounding policy over time and determine whether there is potential liability.

The Court of Appeal provided some additional clarity as to what “period of time” might be the appropriate one over which to measure the impact of a rounding policy. The employer’s expert performed two statistical studies based on employee timekeeping from the five-year class period, suggesting that in subsequent cases employer experts may want to use similar statutory periods.

Employers should consider filing motions to strike a plaintiff’s expert opinions because, if granted, the plaintiff might not be able to establish that the rounding policy disadvantaged employees over time, and dismissal could occur as a result. See’s filed evidentiary objections to essentially all of Ms. Silva’s expert’s findings in the trial court. Because the trial court sustained these objections and Ms. Silva failed to properly challenge these rulings on appeal, she was unable to contradict the findings of the employer expert and create a triable issue that the rounding policy undercompensated employees over time.

It should now be clear that rounding and grace-period policies continue to be the subject of ever-growing class and PAGA lawsuits in California. Although See’s Candy II provides positive guidance on how to apply California law on rounding claims before trial, employers should periodically review all of their timekeeping policies to ensure that they do not undercompensate employees and to confirm that maintaining such policies are well worth the risk of potential litigation.

Will the Fairness in Class Action Litigation Act go anywhere? (Let’s hope so!)

By Alyssa Peters, Macon Office

In February, Rep. Bob Goodlatte (R-VA) introduced the Fairness in Class Action Litigation Act of 2017. It was passed by the House on March 9 by a party-line vote. The bill is pending in the Senate.

The bill would amend Title 28 of the U.S. Code, which contains procedural provisions, and among its stated purposes are “diminish[ing] abuses in class action and mass tort litigation” and ensuring that federal courts consider interstate controversies when they have jurisdiction to do so.

Here are some highlights of the legislation:

*Federal courts “shall not” grant class certification in cases involving personal injury or economic loss unless the plaintiff demonstrates “that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” This could be very helpful to employers who are defending class actions alleging generalized discrimination against “women” or particular racial or ethnic groups that is not the result of a single employment practice. In such cases, the injuries and circumstances are very different for each class member.

*Class counsel would be required to identify named plaintiffs who are (1) related to counsel, (2) present or former clients of counsel (apart from their involvement in the class action), (3) or who have “any contractual relationship” with class counsel (apart from their involvement in the class action). The complaint would be required to “describe the circumstances under which each class representative or named plaintiff agreed to be included in the complaint and shall identify any other class action in which any proposed class representative or named plaintiff has a similar role.”

*If a named plaintiff is related to or an employee of class counsel, then the court “shall not” certify the class.

*Attorneys’ fees cannot be “determined or paid” until the class members have been paid.

*Attorneys’ fees must be “a reasonable percentage” of the award for the class members. The attorneys’ fee may never exceed the amount paid to the class. If equitable relief is awarded (for example, an injunction), the attorneys’ fee award must be “a reasonable percentage” of the value of the equitable relief.

*The court “shall” stay all discovery in a class case while a motion to dispose of the class allegations is pending unless necessary to preserve evidence or prevent undue prejudice.

*A decision to grant or deny class certification is immediately appealable.

*In wrongful death and personal injury actions involving more than one plaintiff that have been removed to federal court, it will be more difficult in some circumstances for an entire case to be remanded to state court based on lack of diversity of citizenship.

As readers might imagine, this legislation is strongly supported by the U.S. Chamber of Commerce and generally by the defense bar and business groups. It is just as strongly opposed by plaintiffs’ lawyers and the American Civil Liberties Union. Although the bill has passed the House, it is less likely to pass the Senate, where 60 votes would be needed to overcome a filibuster. However, if the bill passes the Senate, President Trump is likely to sign it into law.

For a printer-friendly copy, click here.

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