Statistical Proof After Tyson Foods v. Bouaphakeo: What Employers Need to Know
The Supreme Court’s recent decision in Tyson Foods, Inc. v. Bouaphakeo offers important reminders to employers about the use of statistical evidence in wage and hour collective and class actions, and in class actions generally.
Tyson operates a pig-slaughtering facility in Iowa where employees have to wear safety gear. Having taken the position that time the employees spent putting on (donning) and taking off (doffing) their safety gear, Tyson did not keep records of that time. The employees sued under the Fair Labor Standards Act and the Iowa Wage Payment Collection Act for unpaid overtime. The FLSA claim was brought as a collective action, and the state wage-payment claim was brought as a class action under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
Because there were no records showing the amount of time actually spent donning and doffing, the employees produced a study at trial that had calculated average changing times based on 744 videotaped observations. A federal court in Iowa certified the FLSA collective action and the Rule 23 class, and a jury found that Tyson owed the employees $2.9 million in unpaid wages.
Tyson moved to set aside the verdict. Because the entire class consisted of 3,344 employees (including 212 employees who never worked any overtime at all), Tyson argued it was unfair to apply the averages from the study. The study was not truly “representative,” according to Tyson, and therefore it was improper for the trial court to use it to certify the class, and for the jury to use it as the basis for its findings of liability and damages.
The U.S. Court of Appeals for the Eighth Circuit affirmed the lower court, and Tyson obtained review by the Supreme Court. I previously covered the background of the dispute and the oral argument here. In a 6-2 decision rendered after the death of Justice Antonin Scalia, the Supreme Court affirmed, and held that there was nothing inherently unfair under the circumstances about the use of this “representative proof.”
The majority opinion was written by Justice Anthony Kennedy, and joined by Chief Justice John Roberts, and Justices Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotomayor. Chief Justice Roberts also wrote a concurrence, discussed in more detail below. Justices Samuel Alito and Clarence Thomas dissented.
The Supreme Court review
The Court made two primary rulings: (1) that statistical “averages” can be used in certain instances to establish the existence of class or collective claims, and the amount of unpaid wages due, and (2) that it was premature for Tyson to challenge the allocation of the class award to individual class members because no allocation had yet been made or proposed. Regarding this second ruling, the Supreme Court said that the parties could challenge the allocation, if appropriate, after the lower court proposed one.
Section 216(b) – the “collective action” section of the FLSA – provides that an employee may bring a claim “for and in behalf of himself or themselves and other employees similarly situated.” The FLSA does not contain any further definition of “similarly situated.” Rule 23(b)(3) of the Federal Rules of Civil Procedure provides that a class action can be maintained if, among other things, “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members . . ..” This is known as the “predominance” inquiry. The Tyson lawsuit involved both collective and class claims.
First, the Court rejected Tyson’s argument that relying on a representative sample “absolves each employee of the responsibility to prove personal injury.” Instead, the Court relied on basic evidentiary principles to explain,
A representative or statistical sample, like all evidence, is a means to establish or defend against liability. Its permissibility turns not on the form a proceeding takes — be it a class or individual action — but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action.
The Court went on to acknowledge that statistical evidence is used in “various substantive realms” of the law, and may sometimes be the only meaningful way to present the data necessary to prove individual claims.
Put another way, what mattered to the Court was whether the study at issue was a sound way of proving an individual employee’s FLSA claim. If the study could be reliably used to prove an individual claim, the Court said, then it could be used to establish collective or class claims.
In making its ruling, the Court relied on a 70-year-old decision, Anderson v. Mt. Clemens Pottery Co., another case involving an employer who did not have time records. Justice Kennedy asserted in Tyson Foods that employees should not be “punished” for their employer’s failure to keep records. If a recordkeeping violation prevents employees from being able to precisely prove their claims, then employees can establish the amount of unpaid work with “sufficient evidence” to quantify the uncompensated time as a matter of “just and reasonable inference.” In other words, approximations and representative proof are fair game, and the burden then shifts to the employer to present evidence showing either the precise amount of time actually worked (although this is unlikely if the employer didn’t have time records in the first place), or that the employee’s evidence doesn’t let the jury “reasonably” infer the amount of time worked.
Turning to the proof at issue in the Tyson case, the Court held that the statistical proof offered by the plaintiffs at trial met this test. Because the study could have filled the “evidentiary gap” created by the absence of time records had any of the class members filed individual lawsuits, then it followed that the study could be used to prove overtime liability on a class-wide basis as well.
Based on the Mt. Clemens framework, the Supreme Court held that it was Tyson’s responsibility to challenge any “just and reasonable” inferences to be drawn from plaintiffs’ statistical proof at the trial court level. Because Tyson apparently made a tactical decision not to make a Daubert motion challenging the plaintiffs’ expert or to put on a rebuttal expert of its own, there was no legal basis for challenging the admissibility or reliability of the study on appeal.
How to allocate damages?
As already noted, Tyson challenged the damage award on the ground that some class members were owed no overtime, even when the “average” time from the study was added in.
Although the plaintiffs’ experts had calculated the employees’ unpaid overtime at $6.9 million, the jury reduced the award to $2.9 million for reasons known only to the jury. Given the combination of donning and doffing scenarios for which Tyson was found liable, the $2.9 million award made it difficult to determine how much the jury thought was owed to each individual class member. The majority held that it would be premature to address the issue of improper disbursements because the award had not yet been disbursed. Rather, the Court said, the trial court should determine how to allocate the award, and then the parties would be free to challenge the proposed allocation at that time. The Court went on to note that “this problem appears to be one of [Tyson’s] own making” because the company rejected the plaintiffs’ proposal to bifurcate (separate) the liability and damages phases of trial.
In his concurrence, Chief Justice Roberts agreed with the majority on this point, but emphasized the necessity of ensuring that uninjured class members (those who were owed no overtime) be excluded from any recovery. He expressed doubt as to whether the lower court would be able to fashion a method for allocating the award only to class members who suffered an actual injury, given the lack of insight into how the jury reduced the amount recommended by the plaintiffs’ experts.
What Tyson means for employers
Although the Supreme Court did not break much new ground, there are a few key takeaways for employers:
- Statistical evidence is here to stay. The Supreme Court emphasized that whether representative proof is proper ultimately depends on the elements of the underlying cause of action — not Rule 23 class action or FLSA collective action principles. Employers should be prepared to engage in a battle of the experts as early as the class certification stage in order to buttress their challenges to certification throughout the life of the litigation.
- Consider proposals for filtering out uninjured class members. The Chief Justice emphasized in his concurrence the trial court’s obligation to ensure that no uninjured class member would stand to recover. Employers are better served by being proactive in this regard — lest they fall victim to a problem of their “own making.” Employers can propose (or at least, not oppose) bifurcating the liability and damages phases of trial, or submitting special interrogatories to the jury to “show their math.”
- As a practical matter, employers bear the burden of proof in wage-and-hour disputes. The Supreme Court’s reliance on Mt. Clemens highlights the inherent challenge that employers face in having to prove time not worked. The proliferation of modern technology in the workplace is a double-edged sword for employers. On the one hand, electronic evidence may be invaluable when challenging employees’ often inflated self-proclamations of hours worked. On the other, gathering the evidence needed to defend a wage-and-hour class action on the merits has become an increasingly difficult — and expensive — proposition for employers. Evaluating the availability and accessibility of useful evidence will be a critical component of the early case assessment process. Employers should periodically review their timekeeping and payroll practices and ensure they are putting their best foot forward, should they need to prove compliance in the future.
Vacancy at the Supreme Court, Merrick Garland, and the Implications for Labor and Employment Cases
“Centrist” is the word most frequently used in the media to describe U.S. Supreme Court nominee Merrick Garland and his judicial ideology. However, a closer look at Judge Garland’s record reveals that his position in labor and employment matters may not be as middle-of-the road as it is portrayed.
The Supreme Court after Justice Scalia
The empty seat left by the death of Justice Antonin Scalia means that the Supreme Court is now roughly divided between “liberal” and “conservative” Justices. This could result in a more employee-friendly Court.
As of the time we went to press, all but one of the employment cases from the most recent Court term had been decided. The results have been mixed for employers, but it isn’t clear that Justice Scalia’s absence changed the outcome of any except one: In Friedrichs v. California, a case involving non-union teachers who did not want to be required to pay union dues, the Court was expected to rule 5-4 in favor of the teachers when Justice Scalia was still alive. The decision, rendered after he died, was 4-4, which left in place a decision from the U.S. Court of Appeals for the Ninth Circuit finding that the teachers could be legally required to pay the dues.
Apart from the Friedrichs decision, the remaining eight justices have been relatively united in employment decisions rendered after Justice Scalia’s death. The Court’s “employee-friendly” decision in Tyson Foods v. Bouaphakeo (discussed in this edition of Class Action Outlook by Naveen Kabir), which affirmed the use of “representative” statistical evidence in certain cases to certify a class or collective action, was reached by a majority of six justices. (Justice Samuel Alito concurred in part and dissented, and Justice Clarence Thomas dissented.) The Court’s “pro-employer” decision in CRST Van Expedited v. EEOC (discussed in this edition by Mallory Schneider Ricci), finding that attorneys’ fees were recoverable by a prevailing defendant even if it did not win based on the merits of the case, was unanimous. The decision in Green v. Brennan, an “employee-friendly” decision written by Justice Sonia Sotomayor and finding that the time for filing a constructive discharge claim ran from the date that the employee tendered his resignation rather than the date of the employer’s last discriminatory act, was 7-1. (Justice Thomas was the only dissenter.)
The only employment case still pending before the Supreme Court as we went to press -- Encino Motorcars, LLC v. Navarro, up from the Ninth Circuit – was argued on April 20, after Justice Scalia’s death. (The Court is being asked to review a Ninth Circuit decision that found “service advisors” at car dealerships to be non-exempt under the Fair Labor Standards Act’s overtime exemption that applies to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles ... if he is employed by” a car or truck dealership. The U.S. Courts of Appeal for the Fourth and Fifth Circuits had ruled that service advisors are exempt. If the Supreme Court splits 4-4, then – as in Friedrichs – that would leave the Ninth Circuit decision in place, but it would not invalidate the contrary decisions from the Fourth and Fifth circuits within those jurisdictions.
All of which brings us to Judge Merrick Garland. After Justice Scalia’s death, Senate Republicans said they would not consider an Obama nominee, arguing that the President should let his successor select the new justice. In an apparent attempt to call the Senate GOP’s bluff, the President nominated Judge Garland, a respected “centrist” who has been spoken highly of by high-profile Republicans such as Orrin Hatch (R-Utah). (More recently, Sen. Hatch came under fire for publishing an op-ed saying that a meeting with Judge Garland – which had not yet occurred – did not change his view that President Obama should let his successor choose the next justice.)
Which raises the question: Is Merrick Garland a “centrist” from a labor and employment law standpoint?
Merrick Brian Garland
Merrick Garland, originally from Chicago, is a graduate of Harvard Law School and former law clerk to Supreme Court Justice William Brennan, an Eisenhower appointee who became one of the Court’s most liberal members. Judge Garland was first nominated to the U.S. Court of Appeals for the D.C. Circuit in 1995 by then-President Bill Clinton. Senate Republicans stalled his confirmation even then, arguing that the 12th judicial seat on the D.C. Circuit did not need to be filled. President Clinton re-nominated Garland for the position in 1997, and he was eventually confirmed by a Senate vote of 76-23. In 2013, Garland became Chief Justice of the D.C. Circuit.
The D.C. Circuit is the primary forum for challenges to administrative actions, including those by the National Labor Relations Board. For this reason, Judge Garland has a well-established record of labor decisions. Throughout his tenure on the bench, Judge Garland has shown a strong preference for judicial deference to federal agencies, which may be worrisome for employers. This is most clearly illustrated by his explicit grant of deference to the NLRB’s findings in 18 of his 22 NLRB-related opinions. In one opinion, Judge Garland wrote that the decisions of administrative law judges should be upheld unless they are “hopelessly incredible, self-contradictory, or patently unsupportable.” In the few cases where he has departed from even a small portion of the NLRB’s initial ruling, it has been to the benefit of unions. He has rendered only one decision in favor of an employer and against the NLRB – in his 1999 opinion in Pioneer Hotel, Inc. v. NLRB, where he overturned two out of three NLRB findings of unfair labor practices.
In stark contrast to his well-established labor record, Judge Garland has weighed in on few employment decisions. An overall look at his record reveals both negative and positive decisions for employers. In perhaps the most well-known of Judge Garland’s employment decisions, Kolstad v. American Dental Association, he joined three other judges in dissent from the majority’s en banc panel decision that limited the availability of punitive damages that could be awarded to a plaintiff in a discrimination case brought under Title VII. The dissent was subsequently validated when the Supreme Court ultimately reversed this ruling, in a decision written by Justice Sandra Day O’Connor.
Frequently cited as one of Judge Garland’s employer-favorable decisions is the 2000 case Duncan v. Washington Metropolitan Transit Authority. In Duncan, the plaintiff won a jury verdict of $500,000 plus reinstatement in a case brought under the Americans with Disabilities Act. The Transit Authority appealed the trial court’s decisions denying the Transit Authority’s motion for summary judgment as well as the verdict. The majority on the D.C. Circuit – including Judge Garland – granted the relief requested by the Transit Authority.
Although Duncan was decided in favor of the employer, the opinion does not have a significant lasting impact for employers. The plaintiff-employee failed to offer evidence demonstrating that his ability to work was substantially limited. The Court noted that the evidentiary burden on employees is not onerous, but in this case, the plaintiff failed to provide any evidence regarding the types of jobs in the local employment market and the ways in which he was disqualified from a broad range of such jobs. The opinion cites to a long line of cases holding this was a well-established evidentiary requirement under the pre-2009 version of the ADA. Thus, Judge Garland’s joining of the majority decision in Duncan does not illustrate his purported “centrist” ideology so much as it shows his willingness to side with employers when there is a clear rule of law to support such a decision.
On the whole, Judge Garland’s record in employment law cases is mixed, but with definite leanings toward the employee’s side. For example, he voted to reverse summary judgment for employers on Title VII claims in Ayissi-Etoh v. Fannie Mae (2013), Steele v. Schafer(2008) and Czekalski v. Peters (2007). He voted to affirm summary judgment for employers on Title VII claims in McGrath v. Clinton (2012) and Waterhouse v. District of Columbia (2002). Nonetheless, when he participates in a divided ruling, he generally decides in favor of employees.
In summary, based on the decisions available, it appears that Judge Garland, although not a left-wing activist, does align with more “liberal” judges, particularly on labor issues. Employers may be hoping that the Senate Republicans stick to their guns and refuse to consider the nomination. On the other hand, it’s far from clear that the 2016 election will result in the nomination of anyone more to their liking.
CRST v. EEOC: Title VII defendant does not have to win on the merits to be considered the “prevailing party” for attorneys’ fee recovery
Last month, the Supreme Court in CRST Van Expedited, Inc. v. EEOC unanimously held that a favorable ruling on the merits is not necessary to a finding that a defendant is a “prevailing party,” which means that defendant-employers can recover attorneys’ fees even if they win on procedural or timeliness grounds. The decision is obviously good news for employers.
Monica Starke filed a charge of discrimination against CRST, one of the largest interstate trucking companies in the United States, alleging she was subjected to unwanted sexual comments and contact while she was being trained to be a truck driver. The receipt of the charge triggered the detailed, multi-step procedure through which the Equal Employment Opportunity Commission enforces Title VII. During the EEOC’s investigation, it discovered that four other women had filed charges against CRST making similar allegations.
After completing its investigation, the EEOC found “reasonable cause” to believe CRST subjected Starke and “a class of employees and prospective employees” to sexual harassment. The agency then offered to conciliate. After determining conciliation efforts had failed, the EEOC, in its own name, filed suit against CRST under Title VII.
During discovery, the EEOC identified 270 women who were allegedly sexually harassed, but throughout the litigation, the court dismissed groups of class members at various stages. First, the court dismissed 120 class members due to the EEOC’s failure to make them available for deposition. Then, in a series of orders, the court dismissed the EEOC’s claims relating to more than half of the 150 remaining class members. Finally, the court barred the EEOC from seeking relief for the remaining 67 class members after concluding that the EEOC had failed to conduct a reasonable investigation and bona fide conciliation of these claims. After the court dismissed the remaining claims, it held that CRST was the “prevailing party,” and invited CRST to apply for attorneys’ fees under Title VII’s fee-shifting provisions.
Although Title VII provides for attorneys’ fees to prevailing parties (which technically includes defendants), a Supreme Court decision from 1978 – Christianburg Garment Co. v. EEOC – says that a prevailing defendant is to be awarded fees only if the court finds that the plaintiff’s action was “frivolous, unreasonable, or without foundation.”
Nonetheless, the court awarded CRST more than $4 million in attorneys’ fees – the largest award levied ever against the EEOC. On appeal to the U.S. Court of Appeals for the Eighth Circuit, the court reversed the dismissal of two of the claims, which led the appeals court to vacate the award of attorneys’ fees “without prejudice,” meaning that CRST was free to renew its request for attorneys’ fees. Afterward, one of the claims was settled and the other was withdrawn. CRST again sought and was awarded attorneys’ fees in excess of $4 million as the prevailing party. The case went up to the Eighth Circuit yet again.
In a decision issued in December 2014, the Eighth Circuit disagreed, holding that a Title VII defendant can prevail only by obtaining an actual ruling “on the merits” (in other words, a finding that it did not engage in unlawful activity). The Eighth Circuit found there was no ruling “on the merits” because there was no judicial determination as to whether the plaintiffs had been sexually harassed.
CRST sought and was granted review by the Supreme Court, which held in May that “a dismissal is a dismissal,” reversing the Eighth Circuit and giving a victory to CRST.
The precise issue before the Court was whether dismissal of a Title VII lawsuit based on the EEOC’s failure to reasonably investigate and conciliate in good faith its claims against CRST — statutory conditions that must exist before suit can be filed by the EEOC — can form the basis of an attorneys’ fee award to the defendant under Section 706(k) of Title VII. At the time certiorari was granted, the Eighth Circuit’s decision was in conflict with at least three other circuits.
The Supreme Court answered a resounding “yes” to CRST in a unanimous opinion written by Justice Anthony Kennedy. In doing so, the Court drew a distinction between what it means to “prevail” to a defendant and what it means to a plaintiff. The Court pointed out that when bringing a lawsuit, a plaintiff seeks a material alteration in the legal relationship between the parties. The defendant, however, seeks to prevent any alteration from occurring.
According to the Court, the defendant’s goal is met – and it has “prevailed” – when the plaintiff’s claim goes away, regardless of the court’s reason for dismissing it.
Although the Court did not overrule Christiansburg Garment, Justice Clarence Thomas, in a concurring opinion, said that the case is “dubious precedent” that should not be extended further.
CRST’s victory is not complete. The company has cleared a significant first hurdle by being the “prevailing party,” but the Supreme Court refused to determine whether the EEOC’s claims were “frivolous, unreasonable, or without foundation.” The Eighth Circuit did not address this question when the case was on appeal, but it will be doing so on remand, and we expect the EEOC to defend its actions (or inactions) vigorously.
On the positive side, CRST has scored a big win for itself and for all employers who are defendants in Title VII lawsuits. And although the CRST decision deals specifically with Title VII, it is possible that attorneys’ fees provisions in other statutes may be given similar treatment by courts in light of this decision. The Court noted, “Congress has included the term ‘prevailing party’ in various fee-shifting statutes, and it has been the Court’s approach to interpret them in a consistent manner.”
Employers can be satisfied for now that, according to the Supreme Court, the statutory language of Title VII at least allows for the possibility that defendants can recover their attorneys’ fees when a case is resolved in the defendant’s favor, regardless of whether it was resolved with a judgment “on the merits.” A defense win is a defense win.
E-discovery and the Duty to Preserve
Part 1 of this series is available here.
If you’re involved in a class action suit in federal court, then the Federal Rules of Civil Procedure apply to you. Rule 26(b) provides, among other things, that parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, according to certain stated factors. What does that mean? It means that in a class action, a vast amount of electronic data could be relevant and thus a vast amount of electronic data may need to be preserved in order to comply with your company’s legal responsibilities.
What triggers these preservation obligations?
The duty to preserve generally arises when litigation is reasonably anticipated, which certainly occurs when a lawsuit is served or a governmental investigation initiated. However, it may occur even before that. The Sedona Conference (an influential research institute active in the area of e-discovery) has emphasized that, although determining when the duty to preserve is triggered is a fact-specific question, the touchstone is reasonable anticipation. Thus, if, for example, an employee’s attorney contacts you alleging the employee was forced to work off the clock and says he plans to file suit unless you settle, you should take appropriate preservation steps right then. If an employee threatens suit during a heated termination conversation, you may want to consider taking preservation steps then, as well. The duty to preserve continues until the action is completely concluded, either by settlement, voluntary dismissal with prejudice, or final judgment after all appeal periods have expired.
What if you don’t preserve all relevant evidence?
Federal Rule of Civil Procedure 37 answers that question. The failure to preserve potentially relevant information is called spoliation, and a court can order sanctions for this conduct. Effective in December 2015, the amended Rule 37(e) states that when electronically stored information that should have been preserved in anticipation of or during litigation is lost because a party failed to take reasonable steps to prevent the loss and when it cannot be restored, the court will determine whether or not the party intended to destroy evidence. If the court finds intent, it can order severe sanctions including dismissal of the case or an “adverse inference” jury instruction (when the jury can infer that the destroyed evidence would have been unfavorable to the destroying party). If the loss is not intentional, the court may order measures no greater than necessary to cure the prejudice. The amended rule should allow the courts to more closely tailor the discovery (and any sanctions) to the specific facts of the case. However, it is always best to avoid situations where sanctions may be imposed.
Where do you start?
There is no substitute for having a complete “information governance” scheme in place before litigation arises. An information governance and retention plan is a set of policies and procedures designed to manage and protect information. As we’ll discuss in a later article, creating and implementing an information governance and retention plan should be a team effort. But once litigation does arise, you need to identify both the relevant records custodians and any potentially relevant records that are in the company’s possession, custody, or control. This duty can be remarkably broad, as it can encompass everything from text messages to digital time punches, on company and personal equipment.
More employees than ever are using personal devices to work. The bring-your-own-device movement can lead to increased productivity and flexibility, but when litigation arises it can also lead to the need for extensive litigation hold schemes. Potentially relevant information could include text messages between employees, booting-up times stored on a personal laptop, or information stored in an employee’s personal cloud. Employers need to understand who the relevant custodians are and where the data may be stored before they can take appropriate steps to ensure its preservation.
What about data preservation for putative or unnamed class members?
Before the amendments to Rule 37, the lack of guidance about ESI led many employers to preserve every single piece of data in an effort to avoid sanctions. While safe, that route is expensive. The amended rules require only that a party take “reasonable” steps to preserve ESI. What is reasonable and proportional will be a fact-specific determination depending on factors like the type of case, the size and sophistication of the company, the cost of preservation, and the importance of the ESI to the litigation. Unfortunately, the new rule still doesn’t answer all questions about the extent of an employer’s duty to preserve records related to putative class members. However, the rule does encourage the parties to confer and seek the court’s guidance at an early stage, which may be a helpful tool to reduce your company’s financial burden and the risk of sanctions.
There is no one-size-fits-all solution to e-discovery in a class action, but following these tips will assist in ensuring your organization complies with its responsibilities.
Class Actions Against Walt Disney World for Alleged Misuse of H-1B Visa Program Are Unlikely to Fly
In January, two putative class action lawsuits (here and here) were brought in federal court in Florida, alleging that Walt Disney Parks and Resorts U.S., Inc., and two leading international IT consulting companies, HCL America, Inc., and Cognizant Technology Solutions, conspired to misuse the H-1B visa program to displace American IT workers at Disney in Orlando.
The plaintiffs allege, not only that they were replaced by H-1B workers, but – adding insult to injury – were required to train their replacements or face the loss of severance pay.
The plaintiffs contend that the defendants violated the federal Racketeer Influenced and Corrupt Organizations Act by conspiring to violate immigration laws. They also assert conspiracy claims under Florida common law.
The lawsuits have generated media buzz, and negative publicity for Walt Disney World. But did these companies actually violate the law?
It doesn’t appear so.
On May 13, the three defendants filed motions to dismiss the lawsuits for failure to state claims for which relief may be granted. (Here are links to the dismissal pleadings for HCLA, Cognizant, and Disney (Perrero lawsuit only)). Based on their pleadings, it does not appear that the lawsuits will make it past the starting gate.
The alleged conspiracy
According to Disney, in 2014 it announced the decision to change its IT operation from “maintenance of existing systems” to one that was “focused on developing new technologies.” As part of this change in focus, it outsourced many of its IT functions to its co-defendants, HCLA and Cognizant. Current employees at Disney World were eligible to apply for other positions in the organization. (According to Disney World, roughly 100 of the roughly 200 employees whose jobs were eliminated did find other positions at Disney World.)
Both HCLA and Cognizant are “H-1B dependent” employers, meaning that at least 15 percent of their workforces hold H-1B visas.
According to the plaintiffs’ lawsuits, HCLA and Cognizant conspired with Disney to displace American workers and replace them with H-1B foreign workers. They say that HCLA and Cognizant made material misrepresentations in their H-1B petitions by
*Falsely stating that H-1B workers would not “adversely affect the working conditions of workers similarly employed,” and
*Falsely stating that the H-1B workers would not displace U.S. workers.
As part of the H-1B application process, employers are required to file a Labor Condition Application with the U.S. Department of Labor certifying that the hiring of H-1B workers “will not adversely affect the working conditions of U.S. workers similarly employed.” “Working conditions” are typically considered to include hours worked, vacation pay, and the like.
The plaintiffs contend, plausibly, that loss of employment is also a “working condition” even though it is not specifically mentioned in the applicable regulation. Because the Disney workers were displaced by H-1B workers from HCLA and Cognizant, the defendants lied when they represented on their LCAs that “working conditions” of U.S. workers would not be adversely affected, according to the plaintiffs.
However, the problem with their claim is defining the “employer” of these workers. Disney never completed an LCA because Disney didn’t directly hire the workers. According to the defendants, the employers are HCLA or Cognizant, not Disney. According to HCLA and Cognizant, none of their employees were adversely affected by the employment of the H-1B workers assigned to Disney – only Disney workers were adversely affected. The certification requirement applied only to the entity applying for H-1B workers. Therefore, the representations made to the DOL by HCLA and Cognizant were truthful.
(The plaintiffs did not allege that Disney was a “joint employer” with HCLA or Cognizant, but, rather, that the three defendants were separate entities that “conspired” to violate immigration laws.)
As a “conspiracy” claim, this one seems destined to fail.
The other claims arise from the allegedly false attestation that U.S. workers would not be displaced by H-1B workers.
The LCA form does require H-1B dependent employers to attest that the H-1B workers will not displace U.S. workers, but only if the H-1B workers will be paid less than $60,000 per year or lack advanced degrees. Even the plaintiff conceded that the H-1B workers placed by HCLA and Cognizant at Disney World met the requirements for the exemption. Thus, HCLA and Cognizant did not and were not required to make any “displacement” attestation.
Finally, the plaintiffs contended “on information and belief” that HCLA and Cognizant would have made a similar false attestation on ETA Form 750, but that form has not been in use (except in circumstances that do not apply in these cases) since 2005.
Failure to exhaust
The defendants have asserted other defenses, such as the plaintiffs’ failure to adequately plead a violation of RICO and the fact that no violation of Florida law has been alleged that would support a common-law conspiracy claim under that state’s law. But perhaps the most decisive nail in the coffin is the plaintiffs’ failure to exhaust their administrative remedies under the Immigration and Naturalization Act.
An individual aggrieved by an employer’s alleged misrepresentations in an H-1B application must file a complaint with the DOL’s Wage and Hour Division, which investigates and makes a determination as to whether a violation occurred. The unsuccessful party can petition for review by a federal Administrative Law Judge, and the ALJ’s decision can be appealed to the federal Administrative Review Board. After the ARB issues its decision, a party may seek review in the federal court system. As noted by HCLA in its brief, “courts routinely hold that they do not have authority to review in the first instance claims that an employer made misrepresentations in its LCAs.” (Emphasis added.) Thus, because the plaintiffs did not exhaust their administrative remedies before filing their lawsuits, the defendants argue that their claims should be dismissed.
Is the H-1B program bad for American workers?
Perhaps the more compelling question is whetherthe H-1B visa program is bad for American workers. The Disney cases have received a great deal of attention because the idea of firing American workers and replacing them with foreign workers seems repugnant and unfair. However, important aspects of the H-1B program that protect American workers often get lost in the debate.
First, by law the number of H-1B workers is strictly limited. The annual nationwide quota is 85,000 new H-1B visas each U.S. fiscal year, and 20,000 of those are reserved for foreign workers who have completed an advanced degree at a U.S. university. For the fiscal year that begins on October 1, employers may begin to apply for H-1B visas on April 1. For the past several years, the quota for the entire year has been exhausted by early April. This past April (2016), there were approximately 236,000 petitions filed for the 85,000 slots, meaning that an employer had no better than a one in three chance of even being processed – much less approved – for a new H-1B application. The disparity between petitions and slots is so great that the government has resorted to use of a lottery to randomly select the 85,000 applications to be processed. (And, as we went to press, suit was just filed against the U.S. Citizenship and Immigration Services, alleging that the H-1B lottery is arbitrary and capricious.)
Second, and most importantly, H-1B workers must be treated the same as similarly situated U.S. workers. Thus, there is no financial incentive for an employer to terminate its American employees and replace them with H-1B workers. The only reason to use H-1B workers is to the extent that they have skills, expertise, and education that U.S. workers do not have.
Supreme Court’s Middle-Ground Decision in Spokeo Is a Win for Employers, But Still Poses Uncertainty
The Supreme Court recently issued its long-awaited opinion in Spokeo v. Robins, a case with high stakes for employers facing expensive class action lawsuits based on technical violations of the Fair Credit Reporting Act. The good news for employers is that the Court ruled that a bare procedural violation is not enough of a concrete injury to give a plaintiff standing to sue. The bad news, however, is that the Court punted the “concrete injury” question back to the lower court, and in the process provided very little guidance about the types of procedural violations or errors that might pose sufficient risk of harm to confer standing in federal court.
Plaintiff Thomas Robins alleged that Spokeo, the operator of a “people search engine” that compiles publicly-available information into a searchable internet database, violated the FCRA by publishing inaccurate information about his age, education, professional experience, and marital and financial status. Mr. Robins, who was unemployed and looking for a job at the time he discovered the errors, claimed that Spokeo’s inaccurate representations about him violated his statutory rights and could have harmed his employment prospects.
Spokeo convinced the District Court to dismiss the lawsuit, arguing that parties alleging mere statutory, or “technical,” violations of the law do not have standing to sue under Article III of the U.S. Constitution unless they have actually been harmed. However, the dismissal was reversed by the U.S. Court of Appeals for the Ninth Circuit, which found that Mr. Robins did have standing to sue.
The Supreme Court agreed to review the Ninth Circuit decision. I wrote about the case, and the arguments at the Supreme Court, in the last edition of Class Action Outlook.
The Supreme Court issued its 6-2 decision in May, with a majority opinion written by Justice Samuel Alito, joined by Chief Justice John Roberts, and Justices Stephen Breyer, Elena Kagan, Anthony Kennedy, and Clarence Thomas, who also wrote a concurrence. Justice Ruth Bader Ginsburg dissented, joined by Justice Sonia Sotomayor.
The Court directed the Ninth Circuit to reconsider its finding that Mr. Robins had standing. According to the Supreme Court majority, a plaintiff cannot have standing unless he or she has suffered an “injury in fact” that is both concrete and particularized. The Ninth Circuit had concluded that Mr. Robins’ alleged injuries were concrete because (1) he alleged that Spokeo violated his rights under the FCRA, and (2) he had a “personal interest in the handling of his credit information.” But according to the Supreme Court majority, the Ninth Circuit’s analysis focused on whether the injury was particularized – that is, whether the alleged injury affected the plaintiff in a personal and individual way – and did not address whether the injury was concrete.
Concreteness, according to the Court, concerns whether a real injury actually existed. Although “intangible injuries can nevertheless be concrete,” a “bare procedural violation,” without more, would not satisfy the injury-in-fact requirement. In the case of an intangible injury, the Court said, a plaintiff would have to show that the statutory violation posed at least a risk of real harm.
The Court declined to decide whether the particular FCRA violations at issue in the Spokeo case involved a degree of risk sufficient to meet the concreteness requirement. The case was remanded to the Ninth Circuit to make that determination. But the Supreme Court offered two examples of conduct that probably would not constitute a concrete injury: (1) a violation of one of FCRA’s procedural requirements that does not cause any harm, such as the failure to provide a required notice to a user of the agency’s consumer information, and (2) a listing of an “incorrect zip code.”
For the moment, employers (and anyone who has published an incorrect zip code) can take comfort in the fact that this opinion will make it more difficult for plaintiffs’ attorneys to file class action lawsuits based on mere technical violations of the FCRA, such as minor defects in disclosure forms and statements. Nonetheless, plaintiffs’ attorneys may find creative ways to allege that plaintiffs have suffered a risk of real harm, and employers will have to wait and see how individual courts determine what it means to suffer a concrete injury.
Overall, however, the Spokeo decision may provide employers with a powerful defense against class action lawsuits based on violations of the FCRA and other statutes that authorize damages for technical violations.
California’s Private Attorneys General Act and the Manageability Defense
When confronted with a putative class action, an employer’s primary defense is to thwart any attempt by the plaintiff to certify the putative class. But what about a representative action, such as an action brought under California’s Private Attorneys General Act of 2004, in which there is no requirement to seek class certification?
In Arias v. Superior Court, the state Supreme Court held that PAGA claims do not need to be certified as a class action in order to be tried because they are brought on behalf of the state labor law enforcement agencies to collect penalties. Thus, in a representative action under the PAGA, the lead plaintiff is not required to establish class action factors of numerosity, typicality, commonality, or adequate representation. Rather, the plaintiff need only demonstrate the predicate violation, that he or she is an “aggrieved employee” as a result of the violation, that others are aggrieved, and the amount of the penalty for each current and former employee.
Does this leave every defendant-employer having to defend PAGA claims by either settling or going to trial, a trial that involves proof of hundreds or thousands of violations? For the most part, the answer is yes – unless the employer can convince the court that a trial of such claims would be unmanageable.
Overview of the PAGA
When the PAGA was enacted in 2004, it essentially deputized “aggrieved” current and former employees with the right to bring lawsuits to enforce the state’s employment laws and to recover penalties for the violations. Previously, these penalties could be recovered only by the California Labor Commissioner or a similar state official, such as penalties for late payment of wages (Section 204), failure to comply with the place and manner of wage payments (Section 208), or failure to provide employees with “suitable seats” (Section 14 of California Wage Orders). Through the law of unintended consequences (or, some would argue, intended consequences), the PAGA has also been used to recover penalties that employees were already authorized to recover on their own, such as penalties for late-paid final wages (Section 203), wage statement violations (Section 226), and overtime violations (Section 558). Although most penalties under the PAGA are relatively small on a per-employee basis, they can quickly add up to millions of dollars, depending on the size of the work force.
The role of manageability
Manageability, therefore, becomes an essential tool for employers to consider when seeking to defeat large, expensive PAGA claims. Specifically, manageability requires the court to assess the length and scope of the claims, and whether the case may proceed to trial in a manageable way. Many federal courts have already employed manageability to defeat large PAGA representative actions. In Ortiz v. CVS Caremark Corp., the court determined that the plaintiff’s claims for overtime based on off-clock work and for unreimbursed mileage were not manageable because they required detailed inquiries into each employee’s claim and whether, for example, the employee worked off the clock, whether the employer was aware of the off-clock work, whether the mileage expenses were necessary, whether the expenses were incurred as a direct consequence of the employee’s duties, and whether the employer had reimbursed the employee for the expenses. Accordingly, the claims were dismissed.
Other federal courts in California have reached similar results; for example, Litty v. Merrill Lynch & Co., Inc.(striking PAGA claims for overtime and wage statement violations due to unmanageability); Bowers v. First Student, Inc. (striking PAGA claims that were unmanageable because they required a “multitude of individualized assessments”); and Raphael v. Tesoro Refining and Marketing Co. LLC (same).
Even at the state court level, at least one court has applied a manageability determination to strike PAGA claims. In Zhang v. Amgen, Inc., the court rejected a PAGA claim brought on behalf of 350 senior associate scientists claiming that they were misclassified as exempt from overtime and other requirements. The court found that the plaintiff’s claim was not sufficiently representative or a valid measure of what others did. Other California courts, however, may be persuaded to dismiss PAGA claims for unmanageability by comparing the PAGA representative action with other representative actions that have allowed or employed manageability as a defense. This includes claims brought under California’s unfair competition law, Cal. Business & Professions Code §17200, et seq. In South Bay Chevrolet v. General Motors Acceptance Corporation, the plaintiff challenged the defendant’s method of calculating interest on behalf of various dealerships. The court rejected the plaintiff’s representative action because the method of interest calculation was “not sufficiently uniform to allow representative treatment and thus any factual findings about statewide dealership knowledge would require presentation of evidence about each dealership's individual understanding.” Similarly, in Marshall v. Standard Insurance Company, the court held that disgorgement could not be pursued as a representative action because “the subjective judgments inherent in ascertaining whether [defendant] has applied an improper definition of ‘other occupation’ in a given insured's case, the complexity of the possible restitution calculations, and the magnitude of the potential awards make this case one in which substantial due process concerns would arise if a representative action seeking disgorgement and the reopening of files were allowed.”
Thus, when an employer is confronted with a PAGA claim that is not subject to the class action requirements for certification, a defense of manageability should be evaluated and (if appropriate) pursued. Indeed, many of the methods that employers use to defeat class certification will be equally useful in making a showing of unmanageability -- by demonstrating that individual inquiries are necessary, that each employee’s circumstances are different, and that statistical sampling or models will not cure the defects and would deny the employer due process.