Employment class actions are perhaps the most disruptive form of class action litigation from a company’s perspective: at their worst, they can be hugely expensive, high stakes public relations nightmares. Recent United States Supreme Court decisions in this area may ultimately reduce the threat of employment class actions — but this hasn’t quite happened yet.
Class/collective action waivers in employment agreements
In AT&T Mobility LLC v. Concepcion, the Supreme Court held that the Federal Arbitration Act (FAA) evidences a “liberal federal policy favoring arbitration” and preempted a California judicial rule prohibiting class actions waivers in consumer contracts of adhesion.
However, employers trying to enforce class action waivers in employment agreements afterConcepcion were dealt an initial blow in early 2012. In D.R. Horton, Inc., the National Labor Relations Board (NLRB) held that requiring employees to sign a class action waiver as a condition of employment interfered with the right of an employee under Section 7 of the National Labor Relations Act (NLRA) to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The NLRB determined that prohibiting class/collective action waivers does not conflict with the FAA because “the waiver interferes with substantive statutory rights under the NLRA, and the intent of the FAA was to leave substantive rights undisturbed.”
Most federal courts to consider the issue thus far have expressed or suggested disagreement with the NLRB, including the 2nd, 8th, and 9th Circuits. In December, a divided panel of the 5th Circuit handed employers a major victory when it reversed the NLRB’s ruling with respect to the enforceability of class action waivers in D.R. Horton itself. In D.R. Horton, Inc. v. NLRB, the 5th Circuit acknowledged “some support [for] the Board’s analysis that collective and class claims, whether in lawsuits or in arbitration, are protected by Section 7” but concluded that the NLRA did not give plaintiffs a substantive right to class action procedures and that the NLRB had failed to give sufficient weight to the countervailing force of the FAA. The majority found nothing to indicate that Congress intended the NLRA to override the FAA.
The 5th Circuit’s decision is probably not the last word on the matter. The NLRB could petition for rehearing, seek Supreme Court review, or bring cases in other circuits in an attempt to increase the chances of a circuit split that might be taken up by the Supreme Court. Additionally, the Supreme Court recently heard argument in NLRB v. Noel Canning, in which the NLRB is seeking review of a decision by the U.S. Court of Appeals for the District of Columbia Circuit that President Obama’s three recess appointments to the NLRB were unconstitutional. If the Supreme Court affirms the D.C. Circuit’s decision in Noel Canning, the ruling could nullify all NLRB decisions involving recess appointees — including D.R. Horton.
In the short term, the NLRB is unlikely to back down: administrative law judges have continued to follow D.R. Horton in the wake of the 5th Circuit’s decision, and some have even expanded its reach. In Leslie’s Pool Mart, Inc., decided on Jan. 17, 2014, an administrative law judge ruled that an employer violated the NLRA by attempting to enforce a waiver that did not explicitly bar class actions but precluded such claims as a practical matter. In CPS Security Solutions, Inc., decided on Feb. 11, 2014, an administrative law judge rejected CPS’s argument that the arbitration provision at issue was valid even under D.R. Horton because CPS only sought to compel individual arbitration as to the employees’ opt-out state law claims and did not challenge the employees’ right to bring a collective action in federal court.
At the state level, employment practitioners are closely watching Iskanian v. CLS Transportation Los Angeles LLC. In Iskanian, the California Supreme Court will have an opportunity to resolve a California Superior Court split as to whether Concepcion overrulesGentry v. Superior Court, which found that class action waivers are unenforceable when applied to otherwise nonwaivable labor law rights, as well as whether Concepcion permits the waiver of representative suits under California’s Private Attorney General Act.
In short, the trend towards enforcement of class action waivers is encouraging for employers, yet uncertainty remains. It may not be long before the Supreme Court is again called upon to consider the FAA’s reach.
The effect of Comcast on wage-and-hour class actions
In Comcast Corp. v. Behrend, the Supreme Court held that Federal Rule of Civil Procedure 23 required plaintiffs in an antitrust action to show at the class certification stage not merely that damages were capable of class-wide proof, but that the damages flowing specifically from the plaintiffs’ theory of liability were capable of such proof.
In November, the 2nd Circuit agreed to hear two cases in tandem that could shed light on whether and to what extent Comcast will have an impact on perhaps the most common type of employment class actions: wage-and-hour class actions, in which employees seek damages for such things as an employer’s alleged failure to calculate overtime properly, the misclassification of employees as exempt from overtime pay, and/or the failure to compensate employees for compensable “off-the-clock” work before or after shifts or during meal breaks.
In Roach v. T.L. Cannon Corp., plaintiffs alleged that an Applebee’s franchisor violated New York’s “spread of hours” law and improperly changed time records to reflect breaks that employees did not take. The U.S. District Court for the Northern District of New York rejected plaintiffs’ bid for class certification on the ground that Comcast prevented the court from certifying a class where the damages for each plaintiff must be calculated on an individual basis. Plaintiffs argue on appeal that the district court’s rule would dramatically reduce the availability of class actions in wage-and-hour cases.
In Jacob v. Duane Reade, Inc., the U.S. District Court for the Southern District of New York took the opposite approach and certified a liability-only class of assistant store managers under FRCP 23(c)(4), notwithstanding the court’s finding that individual damages inquiries would be necessary. The district court held that “[w]hile Comcast surely requires some inquiry into the relationship between injury and damages at the class certification stage, this Court understands Comcast to require a linkage between those two, rather than forbidding bifurcation in the event of individualized proof.”
On appeal, Duane Reade argues that the district court erred in failing to gauge predominance by looking at both liability and damages together, which — according to Duane Reade — would have shown that individual issues predominate when the case is viewed as a whole.
The 2nd Circuit’s decision in these cases will have implications for Comcast’s future impact on wage-and-hour class actions. In the meanwhile, employers should think carefully about including class waivers in employment agreements, cite Comcast in fighting wage-and-hour class actions – and hope that appellate courts and the U.S. Supreme Court continue to rule in their favor.