United States: US Employment Litigation Round-Up for April 2014: A Review of Key Cases and New Laws Affecting Employers

Keywords: PAGA actions, EEOC, FTC, background checks, Pre-Suit Investigation,

Defendants Face New Hurdles in Removing PAGA Actions to Federal Court

Decision: A recent decision by the US Court of Appeals for the Ninth Circuit has made it harder for employers targeted by lawsuits under the California Labor Code's Private Attorneys General Act of 2004, Cal. Labor Code § 2698, et seq. (PAGA), to remove the cases to federal court. In Baumann v. Chase Investment Services Corporation, a financial adviser filed a representative action under PAGA in California state court on behalf of himself and other "aggrieved" financial advisers, alleging various wage and hour violations. The complaint sought statutory penalties for each alleged violation but did not invoke the California class action statute.

In response to the defendant-bank's removal of the action to federal district court, the plaintiff sought to remand the case back to state court for lack of federal jurisdiction. The district court denied the plaintiff's motion, holding that the court had federal jurisdiction, inter alia, under the Class Action Fairness Act of 2005 (CAFA).

The Ninth Circuit disagreed, holding that representative actions under PAGA are "not sufficiently similar to [class actions under] Rule 23 to establish the original jurisdiction of a federal court under CAFA." The court noted that, unlike Rule 23, PAGA does not require unnamed aggrieved employees to receive notice of the lawsuit or permit such employees to opt out of the PAGA action. In addition, PAGA actions need not satisfy the "critical requirements" of Rule 23: numerosity, commonality, typicality or the existence of an adequate class representative. The court further focused on the fact that PAGA judgments do not have the same binding and preclusive effects as Rule 23 class action judgments; the aggrieved employees retain all rights to "pursue or recover other remedies available under state or federal law, either separately or concurrently with" the PAGA action.

Impact: As a result of this decision—and the Ninth Circuit's earlier decision in Urbano v. Orkin Services of California, Inc., in which it concluded that the $75,000 amount-in-controversy requirement for diversity jurisdiction could not be satisfied by aggregating the requested civil penalties under PAGA—employers are likely to encounter more difficulties when seeking to remove PAGA actions to federal court, unless those actions are also pled as class actions.

EEOC and FTC Issue Joint Guidance on Employer Use of Background Checks

Decision: The Equal Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) have jointly issued guidance explaining how anti-employment discrimination laws and the Fair Credit Reporting Act (FCRA) interact with respect to background checks performed for employment purposes.

The guidance reminds companies that, in addition to complying with the FCRA requirements related to background checks, employers that perform background checks should seek the same information and apply the same standards to all individuals, taking care when basing decisions on background information that may be more common among people with a particular protected characteristic. Also, if a background check policy disproportionately affects members of a protected group, the policy must be job-related and consistent with business necessity. The agencies also warned that employers should be prepared to make exceptions for problems revealed during a background check that were caused by a disability, at least allowing the individual to demonstrate his or her ability to do the job unless doing so would cause significant financial or operational difficulties.

Impact: This guidance marks the first time that the EEOC and the FTC have jointly addressed the issue of employer use of background checks. It serves as an important signal that both enforcement agencies are stepping up their scrutiny of employer practices in this area. Employers should periodically review their background check policies and practices to ensure that they comply with the FCRA, anti-discrimination laws and this new guidance.

EEOC's Failure to Adequately Fulfill Pre-Suit Investigation Obligations Leads to Dismissal

Decision: A federal judge in New York recently dismissed the EEOC's claims that Sterling Jewelers Inc., the parent company of Kay Jewelers, Jared and other retail jewelry stores, engaged in a nationwidepattern or practice of discriminating against female employees. In EEOC v. Sterling Jewelers Inc., the court adopted a magistrate judge's recommendation that partial summary judgment be awarded to Sterling because the EEOC's pre-suit investigation of the alleged policy was not national in scope. The magistrate's report and recommendation rejected the EEOC's contention that its investigation was not judicially reviewable, finding that, while courts may not be entitled to review the adequacy of the agency's investigation, they can determine whether an investigation actually occurred and whether the scope of that investigation encompassed the conduct forming the lawsuit's basis. In this case, the evidence indicated that the EEOC's lead investigator looked into stores in only two states.

Impact: This case is another in a series of cases dismissing EEOC claims because of the agency's failure to fulfill its pre-suit obligations. (For example, the Eighth Circuit Court of Appeals affirmed dismissal of the agency's sexual harassment claims in EEOC v. CRST Van Expedited Inc. because the agency had not properly investigated or conciliated the claims before filing suit.) The court's ruling in the Sterling Jewelers case demonstrates yet again that the EEOC's pre-suit investigation must match the scope of the allegations it raises when it actually files a lawsuit. Therefore, employers facing such lawsuits should attempt to get as much information as possible about the EEOC's investigation in order to determine if the agency fulfilled its pre-filing obligations.

Seventh Circuit Affirms Dismissal of Donning and Doffing Suit

Decision: In Mitchell v. JCG Industries and Koch Foods,the US Court of Appeals for the Seventh Circuit affirmed a district court's dismissal of a class action lawsuit brought by workers in a poultry processing plant alleging they were not compensated for time spent donning and doffing protective and sanitary clothing at the start and end of their meal periods, in violation of the Fair Labor Standards Act (FLSA) and Illinois minimum wage law.The FLSA has an important exception to its donning and doffing requirements. Section 203(o) of the statute excludes from compensable time "any time spent in changing clothes at the beginning or end of each workday which was excluded from measured working time ... under a bona fide collective bargaining agreement." Despite the existence of just such a collective bargaining agreement in Mitchell, the plaintiffs argued that Section 203(o) was inapplicable because the time spent donning and doffing before and after meal periods does not take place "at the beginning or end of each workday." The Court of Appeals disagreed, reasoning that "workers given a half-hour lunch or other meal break from work are in effect working two four-hour workdays in an eight-and-a-half-hour period."

The court also provided two alternative grounds for its holding: (i) time spent donning and doffing is part of the employees' uncompensated bona fide meal period, and the plaintiffs did not assert that the workers had not received a bona fide meal period and (ii) time spent donning and doffing was de minimis and undeserving of a remedy. In concluding that the time was de minimis, the Seventh Circuit conducted an in-chambers videotaped and timed experiment: three members of the court's staff changed in and out of the gear that the plaintiff employees were required to wear. The court concluded that the average time spent donning and doffing during the meal break was significantly less than the 10-15 minutes plaintiff contended. While acknowledging that the experiment was not "evidence," the court concluded that the findings nevertheless supported itsconclusion.

Impact: While this case was a victory for employers, it may not be one on which employers can rely in defending donning and doffing cases. The dissent charged the majority with "ignoring" the Department of Labor's "continuous workday" rule, and other courts may not be willing to interpret "workday" to be divisible into two four-hour workdays as the Seven Circuit did. The DOL defines "workday" as including all time within the period between commencement and completion on the same workday of an employee's principal activities, whether or not the employee engages in work throughout all of that period. Accordingly, Mitchell's impact may not be what employers would hope for.

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