IN THIS ISSUE:
What impact will Trump’s election have on class litigation?
It was a surprise to many on that now-distant Wednesday morning, November 9, 2016, when the nation woke up to the news that our 45th President was not going to be Hillary Clinton after all, but Donald Trump.
As a result of the election, the Republican Party held its majority in the House and retained a razor-thin – and non-filibuster-proof – majority in the Senate. Despite the Republican majorities, the “mainstream” Republican Party has not always supported Mr. Trump, although for the most part they seem to be falling in line behind him now.
Mr. Trump will enter office tomorrow in a reasonably strong position to advance his agenda. We’ve written previously about what employers in general can expect from a Trump Administration (here and here). This article will focus on what impact, if any, a Trump Administration will have on class or collective action litigation.
With the vacancy left by the death of Justice Antonin Scalia, Mr. Trump will have an immediate opportunity to shift the balance of the Supreme Court back to a more conservative direction. Mr. Trump said at a press conference on January 11 that he would announce his nominee in approximately two weeks. Mr. Trump has said he would appoint someone “in the mold” of Justice Scalia, and according to news reports, Mr. Trump has a list of 21 prospects, all of whom are conservative (as well as relatively young). In addition to Justice Scalia’s seat, it is likely that “swing” voter Justice Anthony Kennedy (age 80) will retire during Mr. Trump’s term. Justice Ruth Bader Ginsburg (age 83) and Justice Stephen Breyer (age 78) may try to hold on until after the 2020 election in the hope that a Democratic president will be able to appoint their successors, but there is of course no guarantee that they will be able to do so.
The power to appoint justices to the Supreme Court and restore a conservative majority will affect the landscape of labor and employment law for years to come. In recent times, the Supreme Court has issued a series of decisions that have made it difficult for the private plaintiffs’ bar to file class and collective actions. These decisions have included, for example, Wal-Mart v. Dukes (which made it more difficult to certify an employment class action) and AT&T Mobility v. Concepcion (which found that the Federal Arbitration Act preempts state laws that invalidate class action waivers in arbitration).
Although the process will take more time, Mr. Trump will be in a position to appoint judges to the U.S. Courts of Appeal and the federal district courts, as well. He reportedly enters office with more than 100 federal judicial vacancies. The judges in these lower-court positions will be making or reviewing most of the day-to-day, but vitally important, decisions that affect class and collective action litigation, including decisions to certify, to grant or deny motions for summary judgment, and decisions to decertify. Assuming Mr. Trump appoints more conservative judges, over time it is possible that we will see more decisions favoring employers and disfavoring class or collective action litigation. How long it would take for such a result to be noticeable remains to be seen.
Appointments to federal agencies
With the various appointments that Mr. Trump will make to federal agencies such as the U.S. Equal Employment Opportunity Commission and Department of Labor, employers can expect a friendlier climate. As compared with the Obama Administration, federal agencies under a Trump Administration are likely to take a more circumspect approach before filing lawsuits against employers.
Mr. Trump will be able to fill the chairperson role at the EEOC, with Jenny Yang’s term expiring in July, as well as a current vacancy for General Counsel created by the departure in December of David Lopez. As a result, we might see appointments that shift the aggressive enforcement agenda of the EEOC to something friendlier to business. There may also be less funding granted to the EEOC, which, in turn, will cause the EEOC to become more selective in deciding what cases to advance.
The EEOC pushed its “systemic discrimination” initiative during the Obama years – so much so that its efforts often resulted in case dismissals and even sanctions in the form of attorneys’ fees. Under a Trump Administration, this initiative may lose steam. Many employers have complained that the EEOC during the Obama Administration would launch large-scale pattern-or-practice cases, often ignoring the evidence and refusing to negotiate a reasonable settlement in conciliation. This practice will almost certainly stop under a Trump Administration.
Mr. Trump continues to say he will build a wall on the border and make Mexico pay for it. Meanwhile, Mr. Trump is calling for mandatory E-verify practices for employers when hiring new employees. Trump says that mandating nationwide use of the internet-based verification program will benefit unemployed U.S. workers who might otherwise lose out on job opportunities to undocumented workers.
We can also expect the President-Elect to push for a major rewrite of the H1-B visa program, which permits foreign nationals to work in the United States in specialized occupations. Mr. Trump, in the past, has advocated eliminating the H-1B program altogether, as well as the less drastic measure of raising the prevailing wage for workers under the program to make American workers more competitive with their H-1B counterparts.
With respect to class action litigation, it is possible that any measures adopted by a Trump Administration will result in more lawsuits like the (unsuccessful) suit brought by Disney IT workers who claimed that they were unlawfully displaced by H1-B workers. The difference is that the Trump Administration may provide such lawsuits with a stronger legal foundation than they have had under the Obama Administration. More generally, we may see more class litigation brought by American workers who claim that employers failed to comply with their legal obligations to ensure that American workers get “right of first refusal” on vacant jobs. Based on his early success at preventing some manufacturing jobs from going to Mexico – for example, at Carrier Corporation and Ford Motor Company – we would expect a Trump Administration to be generally supportive of class litigation by American workers who were displaced by foreign workers.
Wage and Hour
For many years, wage and hour litigation has been the hottest area for class and collective actions. Mr. Trump’s view on the minimum wage is less than clear – he has said that he favors a $10 minimum wage, but he’s also said that minimum wages should be established by states and municipalities, not the federal government. His nominee for Secretary of Labor, Andrew Puzder, has indicated that he might support a small increase in the federal minimum wage, but he believes that more substantial increases could result in job losses and increased unemployment.
In all likelihood, regardless of whether the minimum wage remains the same or increases, there will continue to be a basis for collective actions under the Fair Labor Standards Act based on minimum wage and overtime violations, such as defining compensable time. Class actions based on violations of state wage and hour laws can be expected to continue at roughly their current pace, or may become even more common as the gap between federal and state minimum wages widens and the plaintiffs’ bar continues to capitalize on stronger remedies or longer statutes of limitation under some state laws.
The white-collar overtime exemption rule, which would have taken effect on December 1 if it had not been preliminarily enjoined in November by federal Judge Amos Mazzant, might have provided a fertile ground for collective action litigation. However, the rule in its current form appears to be headed for the dustbin. The injunction decision is on appeal, but after tomorrow, it is likely that the DOL will drop the appeal before it can be heard, leaving the preliminary injunction in place until Judge Mazzant makes a final decision. If he issues a permanent injunction, that is likely to be the end because the Trump-Puzder DOL will probably not appeal.
If that occurs and the salary test remains at the current $455 per week, employers will continue to be susceptible to challenges to exempt classifications brought by lower-paid salaried employees who claim that they do not meet the duties test of one or more of the white-collar exemptions. For instance, lower-paid employees classified as exempt under the administrative exemption often argue that they do not exercise the requisite discretion and independent judgment to satisfy the exemption, or that management is not their primary duty.
In the unlikely event that Judge Mazzant ultimately finds that the rule was lawful and lifts the injunction, then that will present a rash of interesting issues. The DOL could modify the rule or undo it entirely, but it would have to follow the sometimes-lengthy procedures required before an agency can change an existing rule. This would include providing notice and an opportunity for public comment, publishing a “reasoned analysis” for making the change that addresses the substance of the comments received, and complying with various technical requirements, including the cost-benefit analysis required by the Regulatory Flexibility Act.
Alternatively, Congress could enact legislation prohibiting the DOL from raising the salary threshold or otherwise invalidating the rule.
Meanwhile, as our partners Jim Coleman and Ellen Kearns have noted, if Judge Mazzant lifts his injunction, plaintiffs nationwide may be able to file collective actions for overtime dating back to December 1, 2016, the date that the rule was supposed to have taken effect but for Judge Mazzant’s preliminary injunction.
Apart from the white-collar exemption issue, there should be plenty of opportunity for plaintiffs to bring collective actions based on employee misclassification, failure to pay wages for all hours worked, and failure to pay overtime.
In summary, the political landscape will be very different starting tomorrow, but it is not clear whether a net decrease in class or collective actions will occur. We are cautiously optimistic that the Supreme Court, with a Trump appointee in Justice Scalia’s seat, will declare class and collective action waivers lawful under many circumstances, which should decrease the volume of such litigation. Although we expect government agencies to become generally less adversarial toward employers, the anticipated E-verify requirement and changes to the H-1B program could result in more “immigration litigation” than we have seen under the Obama Administration. It’s also likely that plaintiffs will file more class actions under various state laws that may be more employee-friendly than the federal laws. Finally, whatever happens with the white-collar exemption rule, it does not appear that the Trump Administration will be able to deter plaintiffs from bringing wage and hour class and collective actions, just as they’ve been doing for roughly the past 15 years.
Do class waivers violate the NLRA? The Supreme Court will decide.
Since 2012, the National Labor Relations Board has taken the position that arbitration agreements requiring employees to waive the right to bring class or collective actions violate the National Labor Relations Act. This position has been considered by numerous appellate courts. The U.S. Courts of Appeal for the Seventh and Ninth circuits have agreed with the NLRB’s position. Meanwhile, the Second, Fifth, and Eighth circuits disagree, having found that class waivers do not violate the NLRA.
Soon we will have a definitive answer on this issue: last Friday, the U.S. Supreme Court granted certiorari to review three class waiver cases: Two that sided with the NLRB, and one that sided with the employer.
The “class waiver” issue
The Federal Arbitration Act generally supports the enforcement of arbitration agreements unless “such grounds  exist at law or in equity for the revocation of any contract.” The NLRB contends that waivers of class or collective claims in arbitration agreements violate the NLRA, and therefore that such waivers fit within this “otherwise unlawful” exception in the FAA. In other words, according to the Board, the NLRA’s protection of concerted activity is not trumped by the FAA.
Cases to be reviewed
In Morris v. Ernst & Young, LLP,decided last September, the Ninth Circuit found, consistent with the Board’s position, that there was no conflict between the Federal Arbitration Act and the NLRA because the FAA does not require enforcement of contracts that are “otherwise unlawful.” Because Ernst & Young’s arbitration agreement required claims to be brought individually, and not as part of a class or collective action, the court found the agreement violated the NLRA, which protects employees’ rights to engage in protected concerted activity. The Ninth Circuit Morris decision follows closely the Seventh Circuit’s decision in Lewis v. Epic-Systems Corp., which held that an arbitration agreement with a mandatory class action waiver violated the NLRA.
Critically, both courts held that the right to engage in concerted activity is a “substantive” right rather than a “procedural” right. This distinction is important: procedural rights can be waived in an arbitration agreement, but substantive rights cannot.
The Morris and Lewis decisions are troubling for employers because the cases did not involve unfair labor practices or litigation before the NLRB, but rather litigation involving the Fair Labor Standards Act. However, the courts used the NLRA to invalidate waivers signed by the employees to allow the employees to proceed in a class or collective fashion.
The decisions of the Seventh and Ninth circuits stand in stark contrast to the decisions of other appellate courts, including the U.S. Courts of Appeal for the Second, Fifth, and Eighth circuits, which have held that the courts owe no special deference to the Board’s interpretation of the FAA. As the Fifth Circuit stated in D.R. Horton, Inc. v. NLRB, when it rejected the Board’s argument that the NLRA trumped the FAA, the Board cannot effectuate the policies of the NLRA “so single-mindedly that it may wholly ignore other and equally important Congressional objectives,” including, here, the FAA (quoting the 1942 Supreme Court decision of Southern S.S. Co. v. NLRB).
The Supreme Court has now agreed to review the Lewis and Morris decisions, as well as the Fifth Circuit case of Murphy Oil v. NLRB, which found that class waivers did not violate the NLRA. By the time the cases are ready for briefing, the high Court could have a full complement of Justices once again. Given that the late Justice Antonin Scalia wrote several decisions favoring arbitration, and given President-Elect Trump’s announced intent to appoint a like-minded successor to Justice Scalia’s vacant seat, this could mean a favorable decision for employers and a rejection of the position adopted by the Seventh and Ninth circuits in Lewis and Morris, as well as the NLRB.
Meanwhile, cases involving this issue are also pending before the U.S. Courts of Appeal for the First and Eleventh circuits.
What should employers do?
The Ninth Circuit in Morris did leave open for employers the possibility of maintaining arbitration agreements with class or collective action waivers, as long as the arbitration agreement in question is not a requirement of employment – in other words, as long as the arbitration agreement contains an opt-out provision. Employers should be cautious, however, in relying on this because the NLRB takes the position that even an opt-out provision does not cure an unlawful agreement with a class waiver – a position with which the Seventh Circuit seemed to agree. Until the matter is settled by the Supreme Court, an employer should analyze carefully its arbitration agreements and either ensure the language is permissible under the laws of the states in which the company operates or, at a minimum, analyze the risks of an adverse ruling with regard to class waiver provisions. In some instances this could mean different agreements in different states.
Ninth Circuit approves of employer’s neutral rounding of time
In Corbin v. Time Warner Entertainment—Advance/Newhouse Partnership, the U.S. Court of Appeals for the Ninth Circuit held that both federal and California law allow an employer to round employees’ time punch entries to the nearest 15 minutes or smaller increments. In doing so, the Ninth Circuit confirmed, for the first time, that the practice of rounding time entries is permissible even where a particular employee did not break even or come out ahead during every pay period. As the court explained, a rounding policy is generally legal as long as it is fair and neutral, and will properly compensate employees for all time worked over a period of time.
The decision is good news for employers that have, probably for decades, relied on rounding practices to calculate employee wages to facilitate timekeeping and payroll processing. It also serves as additional support for the legality of time clock rounding beyond the regulation of the U.S. Department of Labor, which has been applied to uphold the practice for claims brought under the Fair Labor Standards Act.
The Corbin decision
Defendant Time Warner Entertainment—Advance/Newhouse Partnership (referred to as “TWEAN” in the court’s decision) operated a call center in San Diego, where hourly employees took telephone calls from customers. TWEAN rounded its hourly employees’ time stamps to the nearest quarter hour. For example, an entry of 8:07 a.m. was rounded to 8:00 a.m., compensating an employee for an additional seven minutes of work time during which the employee was actually not on the clock. On the other hand, an entry of 8:10 a.m. was rounded to 8:15 a.m., resulting in a subtraction of five minutes from the employee’s actual on-clock time. Employees were paid in accordance with these rounded figures at the end of each pay period.
Plaintiff Andre Corbin filed a class action lawsuit, arguing that the company’s rounding policy was unlawful because it denied him compensation for time he spent working. An analysis of Mr. Corbin’s time records revealed that the company’s policy resulted in his getting paid for time not worked, or breaking even, 58 percent of the time. However, it was undisputed that overall Mr. Corbin was paid $15.02 less than he would have been paid if TWEAN had not rounded his time. Mr. Corbin alleged that this underpayment violated both the FLSA and California law, and he sought to certify a class action on the claim. He also alleged that the company failed to properly compensate him for one minute of off-the-clock work time. A federal district court granted summary judgment to TWEAN and rejected the plaintiff’s effort to certify a class.
On appeal, the Ninth Circuit agreed that Mr. Corbin did not have a valid claim for being underpaid, and it upheld the employer’s rounding of time punches to the nearest quarter hour under federal and California law. The decision relied on a well-known FLSA regulation, 29 C.F.R. § 785.48(b), which specifically permits rounding practices as long as they are applied in a neutral manner and that do not, over time, result in a failure to compensate employees for all time that they have worked. The decision also relied on a 2012 opinion by a California Court of Appeal, See’s Candy Shops, Inc. v. Superior Court, which expressly adopted the federal standard of rounding to California state labor claims.
In finding that TWEAN’s policy was neutral, the Ninth Circuit noted that it rounded all employees’ time entries to the nearest quarter-hour, favoring neither the employer nor the employee, and did not depend on oversight by supervisors.
The court also rejected Mr. Corbin’s argument that the rounding practice was unlawful simply because it underpaid him $15.02 during the relevant period: "Mandating that every employee must gain or break even over every pay period misreads the text of the federal rounding regulation and vitiates the purpose and effectiveness of using rounding as a timekeeping method." (Emphasis in original.)
The Ninth Circuit went on to explain that Mr. Corbin’s interpretation would render the practice of rounding useless because “employers would have to ‘un-round’ every employee’s time stamps for every pay period to verify that the rounding policy had benefitted every employee.” Instead, the court said, in reviewing rounding policies the focus should be on how the policies affect employees in the aggregate, not how they affect one individual employee during one particular pay period.
As noted, the court also affirmed dismissal of Mr. Corbin’s claim that TWEAN failed to properly compensate him for one minute of off-clock work time. The court found that this minute was de minimis time that did not have to be paid under the FLSA or California law, noting that most “‘courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable.’” (NOTE: Employers should be aware that most courts consider several factors in addition to the mere length of time in determining whether the time is de minimis under the FLSA.)
Implications for Employers
Although Corbin confirms the legality of rounding generally, and is an important victory for employers, it is important to note that the decision does not mean that rounding policies are automatically lawful. Instead, the decision confirms that the analysis of a rounding claim should focus on whether the rounding evens out over time and not whether it actually worked for or against a particular plaintiff in a particular pay period. Employers should, with the assistance of counsel, continue to carefully review their rounding policies to ensure that the policies are unbiased and that they do not, on average, lead to the underpayment of wages.
It remains to be seen how other courts will apply Corbin. Indeed, one recent decision from a California district court from July 2016, Tapia v. Zale Delaware Inc., confirms that courts are unlikely to decertify a class action lawsuit under Corbin’s reasoning, even where the employer shows that its own rounding policy satisfies its obligation to pay employees for all time worked in a day or week. In other words, Corbin will probably not provide a basis on which to defeat a motion for class certification or decertify a previously certified class. Further, courts will certainly not hesitate to invalidate rounding policies that, in the aggregate, benefit employers, such as rounding policies that round in only one direction, or seemingly neutral rounding policies that, in practice, disproportionately disfavor the employees for whatever reason.
Finally, next year, the California Supreme Court will decide whether the de minimis time rule, which the Ninth Circuit relied on in Corbin to dismiss the plaintiff’s off-clock work claim, applies under California law. That case, Troester v. Starbucks Corporation, may provide welcome relief and important guidance to employers facing frivolous lawsuits seeking compensation for a few seconds or minutes of off-clock work.
E-discovery and information governance: A team effort
Your company creates a vast amount of data every day. Information about profit margins, business plans, and employees – you name it, it’s probably on your system. But if you are faced with a class action lawsuit, do you have a system in place to identify, locate and preserve relevant data?
Information governance? What’s that?
In ye olden days, decisions about what data to create or where to store it were often made at an individual level. However, during the advent of the digital age, most companies realized they needed more centralized methods to manage the ever-increasing volume of data. Organizations did that by creating plans to standardize everything from where data is stored to how long it is kept, and from what security protections are necessary to who is responsible for it. And that’s how the concept of information governance was born.
“Information governance” is a challenging concept to define. Gartner IT Glossary defines it as the “specification of decision rights and an accountability framework to encourage desirable behavior in the valuation, creation, storage, use, archival and deletion of information. It includes the processes, roles, standards and metrics that ensure the effective and efficient use of information in enabling an organization to achieve its goals.”
The Information Governance Initiative defines it as “the activities and technologies that organizations employ to maximize the value of their information while minimizing associated risks and costs.”
For our purposes, let’s define information governance as the policies and procedures designed to manage and protect information. A good information governance plan is a melding of business needs, privacy and security interests, efficiency, and, yes, legal requirements, which is our primary focus.
The Legal Requirements
Every company has regulatory and recordkeeping obligations that will be implicated in creating a comprehensive information governance plan and which should not be ignored. But in the context of a federal class or collective action, Rule 26 of the Federal Rules of Civil Procedure is supreme. As we discussed in a prior article, this rule provides 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. In a class action, a vast amount of electronic data could be relevant and therefore may need to be preserved in order to comply with your company’s legal responsibilities and avoid the potentially devastating consequences that can be imposed by the court.
Thus, even before the threat of litigation arises, your company should consider whether it has a comprehensive information governance plan.
Developing policies for the digital workplace
A useful information governance program should be consistent with your company’s overall business strategies, address relevant compliance and record retention needs, create accountability, and be workable. Because every company is different, no two information governance schemes will be identical. But one thing every good program should have is a comprehensive litigation hold scheme.
A litigation hold scheme should guide you in identifying 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. It can encompass everything from text messages to digital time punches, as well as both company and personal equipment since more employees than ever are using personal devices to work. Thus, a complete scheme needs to reflect the tools used by your workforce and all the places where data may be stored. Only then can you take appropriate steps to ensure its preservation. Even more specifically, a good litigation hold scheme should provide a way to track who may have relevant data and on what devices, inform all those employees of the need to retain and produce information and materials related to the case, and ensure that they don’t delete anything going forward. It should also take into account any auto-delete program and confirm it is suspended during litigation. Further, your litigation hold plan should ensure you revisit the issue on a regular basis throughout the litigation to remind everyone of the continuing obligation to preserve and produce information, which is particularly important in long-lasting class action cases.
Make it a team effort
Like almost any other digital quandary, implementing proactive policies and responding to active litigation should combine the professional expertise of your legal, technical and leadership teams. Whether to a greater or lesser extent, chances are there are silos of information within your company. A piece of datum will have importance and meaning of one kind to the person who created it, another kind to a member of your IT department, and possibly a completely different kind to your legal counsel. If you don’t break down those silos, then your lawyer can’t make an informed decision, your leadership can’t ensure the most effective policies are implemented, and you may not get the full benefit of the skills of your IT department.
Creating an information governance program that contains a comprehensive and proactive litigation scheme may be a daunting task, but when you’re facing a class or collective action, you’ll be glad that you made the investment.