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

A Review of Key Cases and New Laws Affecting Employers

Second Circuit Holds That Individualized Damages Alone Do Not Preclude Class Certification

Decision: In Roach v. T.L. Cannon Corp., the US Circuit Court of Appeals for the Second Circuit reversed a lower court's dismissal of a wage-and-hour class action against a New York Applebee's franchise. The trial court denied class certification, holding that the US Supreme Court's decision in Comcast Corp. v. Behrend precluded class treatment solely because the employees' damages could not be measured on a class-wide basis. The Second Circuit noted that the trial court's failure to consider whether the question of the employees' individualized damages predominated over common questions of the employer's liability. The Second Circuit reversed the denial of certification, holding that the trial court's certification denial "was not required by Comcast, was contrary to the law of this circuit—left undisturbed by Comcast—that individualized damages determinations alone cannot preclude certification under Rule 23(b)(3) and cannot support the district court's denial of Plaintiffs' motion for certification."

Impact: This decision clarifies that individualized damages determinations, which are typical in many wage-and-hour cases, by themselves generally will not preclude class certification. The Second Circuit's ruling is consistent with other appellate court interpretations of Comcast as not precluding class certification where individualized damages determinations may be required. Rather, courts will assess whether any individualized issues of damages predominate over common issues of liability, as well as whether the other Rule 23 requirements are satisfied. Employers facing class certification motions—in wage-and-hour cases or otherwise—should remember this important point when developing their class certification defense strategy.

Third Circuit Finds That Demand for Release of Claims For Switch to Independent Contractor Status Was Not Retaliatory

Decision: The US Circuit Court of Appeals for the Third Circuit, in EEOC v. Allstate Ins. Co., rejected the EEOC's attempt to invalidate Allstate's program to terminate its insurance agent employees and reengage them as independent contractors. In 2000, Allstate decided to restructure its relationships with its insurance agents and announced that it was terminating all employee agents. It offered the terminated agents an opportunity to continue selling insurance for Allstate as independent contractors if they signed a release waiving any pending legal claims against the company, including claims regarding their termination. The EEOC filed a civil action seeking a declaratory judgment invalidating the releases on the ground that Allstate illegally retaliated against its employee agents by allowing them to continue their careers with the company only if they waived any discrimination claims. The Third Circuit affirmed the trial court's grant of summary judgment to Allstate, ruling that "Allstate followed the well-established rule that employers can require terminated employees to waive existing legal claims in order to receive unearned post-termination benefits." According to the Third Circuit, "[t]he EEOC here fails to articulate any good reason why an employer cannot require a release of discrimination claims by a terminated employee in exchange for a new business relationship with the employer."

Impact: The Third Circuit's ruling will make it less risky for companies to convert groups of employees to independent contractor status. The ruling is helpful in treating the provision of a new independent contractor relationship as non-retaliatory, just as any other offer of enhanced post-termination benefits may be conditioned on a waiver of discrimination claims. It is important to remember, however, that while courts generally will find a release of claims in exchange for unearned post-termination benefits not retaliatory, releases must meet other requirements in order to validly waive discrimination and other employment-related claims. Employers should consider having their release agreements reviewed by counsel to ensure compliance with those other requirements.

Central District Of California Refuses to Certify Security Bag-Check Class Because Employee's Policy Did Not Subject Significant Number of Employees to the Check

Decision: In Ogiamien v. Nordstrom Inc., the US District Court for the Central District of California denied the plaintiff's motion for class certification in a wage-and-hour action accusing Nordstrom of failing to pay its employees for time spent waiting for and undergoing bag checks. The court refused to certify a class of all non-exempt employees on the basis that the class did not meet the predominance requirement. The court found that the case "undisputedly involves individual inquiries regarding liability"; as the plaintiff conceded during her deposition, under Nordstrom's policy, employees were not subject to the security checks if they did not bring a bag to work. Thus, because a "bag-toting employee" was necessary to trigger the security check, the court found no liability could attach with regard to any employees who did not carry bags to work, and the proposed class inevitably included those employees. The court highlighted evidence provided by defendant's expert that more than one-quarter of employees observed by the expert departed Nordstrom stores without a bag and most employees that departed with a bag did not undergo a security check. The court also focused on the fact that the policy itself provided for non-uniform application, in that it called for random checks. Concluding that this was, therefore, not a case of lapses in enforcement of an invalid policy, the court found that the plaintiff could not establish liability across the proposed class.

Impact: This decision highlights the continuing pattern of courts examining the predominance requirement closely and focusing on whether individualized liability inquiries exist in denying class certification. The court's focus on the non-uniformity of the policy itself is important: an employer that can only show "lapses in enforcement" but that has to contend with a facially invalid policy is likely to face a tougher battle against certification. Also notable is the court's reliance on the observations of Nordstrom's expert, which helped demonstrate that the number of proposed class members not subject to bag checks was significant.

California Appellate Court Holds That FEHA Does Not Require Employers to Eliminate Essential Job Functions to Reasonably Accommodate Disabled Employees

Decision: The California Court of Appeal, in Nealy v. City of Santa Monica, held that an employer did not violate the California Fair Employment and Housing Act (FEHA) by denying an injured employee the right to return to work where the employee was unable to perform essential functions of his job and lacked qualifications for other positions despite efforts to accommodate him. The plaintiff, Nealy, a former solid-waste equipment operator for the City of Santa Monica, became disabled following a work-related injury. Subject to certain work restrictions, Nealy wanted to return to his position. The City, however, found that it could not reasonably accommodate Nealy in his old position due to his significant restrictions. Nealy then applied for another position, but was denied because he lacked the requisite experience. The City ultimately advised Nealy that it was unable to provide him with reasonable accommodation because he was not minimally qualified for the only position available that was not a promotion. Nealy sued the City, alleging, inter alia, that the City failed to provide reasonable accommodation in violation of FEHA.

The trial court granted summary judgment for the City, holding that Nealy could not perform the essential functions of his previous position—with or without accommodation—and rejecting Nealy's argument that the City was required to restructure his old position to accommodate him. The Appellate Court affirmed, holding that "elimination of an essential function is not a reasonable accommodation." Indeed, the inability of an employee "to perform even one essential function" is enough for the employer to move on to other alternatives, such as reassignment. And FEHA does not require reassignment "if there is no vacant position for which the employee is qualified." Nor does FEHA require the employer to "promote the employee or create a new position for the employee to a greater extent than it would create a new position for any employee, regardless of disability." The Court of Appeal also disagreed with Nealy's claim that the City was required to wait for a vacant position to open up, holding that "a finite leave of absence may be a reasonable accommodation to allow an employee time to recover, but FEHA does not require the employer to provide an indefinite leave of absence to await possible future vacancies."

Impact: The decision reaffirms how important it is for employers to engage in a well-documented and meaningful interactive process with employees. While the interactive process is often frustrating and burdensome, it is critical not to rush it. The employer should have documented discussions with the employee regarding his or her restrictions, any accommodations the employee believes would work, and whether and why the employer agrees or disagrees with the employee's accommodation suggestions. If a comparable or lower-grade position exists, the employer should conduct a documented evaluation of whether the employee is qualified for the vacant position and should document the process of interaction.

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