/>iA look at the most significant cases and stories in class and collective litigation last year, and the anticipated impact of these developments in 2021:
1. Pandemic-related class actions lie in wait
The COVID-19 pandemic was the most significant challenge employers had to reckon with in 2020, and COVID-19-related litigation continues to evolve alongside the ever-changing workplace. Although companies faced an onslaught of employment claims related to the pandemic and its operational and financial impact, relatively few of these were class filings.
According to the Jackson Lewis COVID-19 Employment LitWatch, there were more than 1,300 COVID-19 related employment complaints filed in federal and state courts in 2020; only 67 of those complaints were class or collective actions. However, multi-plaintiff lawsuits are expected to pick up steam in 2021, as the nation continues to contend with the most recent surge and the pandemic’s ongoing economic fallout.
In particular, expect an uptick in wage and hour class and collective actions arising in part from the dramatic spike in telework in 2020. By year’s end, the number of employees working remotely was nearly double that of onsite workers, and that trend will likely continue unabated, at least for the foreseeable future. As such, we expect an increase in “off-the-clock” claims by nonexempt employees, as well as class action suits seeking expense reimbursements for employees’ home office costs.
♦ Mitigate the risk of such claims by shoring up your timekeeping practices and policies for the virtual workplace. Provide detailed rules for recording time worked, set strict prohibitions against working off the clock without prior approval, and ensure compliance with state-law reimbursement mandates, particularly for employees in California and Illinois
In addition, healthcare, hospitality/restaurants, and retail employers — industries already hard-hit by the pandemic, both financially and operationally — may be particularly vulnerable to wage and hour class actions by onsite employees. Employers face the prospect of class-wide overtime or off-the-clock lawsuits by nonexempt essential workers for the time they are required to wait in line for temperature scans; exempt managers who perform a disproportionate amount of nonexempt work (in an effort to control payroll costs) and now contend they are nonexempt employees; and healthcare staff working extended shifts.
Beyond the wage and hour realm, employers can anticipate other pandemic-related class action suits going forward. Claims may arise over employer-mandated COVID-19 vaccinations, as well as discrimination cases challenging employers’ decisions as to which employees they will bring back after extended furloughs.
See the Summer 2020 issue of the Class Action Trends Report for a detailed look at pandemic-related class action vulnerabilities.
2. Biometric lawsuit settles for $550 million, more on the horizon
In a non-employment case, a social media company agreed to settle a class action brought under the Illinois Biometric Information Privacy Act (BIPA) for a record $550 million, the largest-ever recovery in a privacy case. The plaintiffs in this massive class action alleged that the company’s use of facial-recognition software to help users “tag” people in photographs violated the Illinois law. The company collected, used, and stored biometric identifiers without a written release, and failed to maintain a retention schedule or guidelines for destroying biometric identifiers, according to the plaintiffs.
Currently, Illinois is the only state with a biometric privacy statute that allows individuals to bring claims for damages. The plaintiffs in this case, brought on behalf of millions of Illinois users, initially sought tens of billions of dollars in statutory damages. The case was litigated in California against a California-based defendant. The suit settled after the U.S. Supreme Court rejected a petition for certiorari seeking review of an opinion by the U.S. Court of Appeals for the Ninth Circuit upholding the district court’s decision to allow the class action to proceed. The appeals court had rejected the defendant’s contention that the plaintiffs suffered no concrete injury from the alleged BIPA violations and thus lacked standing to sue. In August 2020, the district court granted a motion for preliminary approval of the settlement; final approval was granted on January 14, 2021.
This case offers important lessons, as BIPA claims against employers continue to rise: (1) the reach of the statute extends well beyond Illinois; (2) class-wide damages can be considerable; and (3) in the employment context, we usually think of fingerprint-scan timekeeping devices, but BIPA claims also arise from the use of facial recognition software and other technologies (for example, facial recognition in the context of COVID-19 employee screenings). And novel claims continue to emerge.
♦ Consult with counsel regarding the use of thermal scanners and other “biometric” measures to control the spread of COVID-19 at the worksite.
With privacy concerns a growing touchstone in an increasingly technological culture, biometric privacy laws may be enacted in other jurisdictions at both the state and local levels. Moreover, the National Biometric Information Privacy Act, federal legislation that closely mirrors the Illinois statute, was introduced in the last Congress, and can be expected to resurface. Finally, several significant BIPA cases currently on appeal could dramatically shape the legal landscape.
3. The ground shifts on who is “similarly situated” for FLSA collective actions
In 2020, the U.S. Supreme Court was asked to weigh in on a critical issue related to collective actions under the Fair Labor Standards Act (FLSA): What does it mean for a putative class of workers to be “similarly situated” for purposes of proceeding as a collective under the FLSA? According to the petition for certiorari seeking review of an April 1, 2020, decision by the U.S. Court of Appeals for the Second Circuit in Chipotle Mexican Grill v. Scott, there is an “intractable conflict” among the federal courts on the issue. However, on December 31, the parties asked the Court to stay the petition, signaling their intent to settle their dispute. Consequently, the Justices will not take up a case that could have fundamentally reshaped how FLSA cases are litigated. Nonetheless, 2020 saw the continuation of a steady shift in the courts on the issue.
The Chipotle case involved the decertification of a collective action that already had been conditionally certified; as such, it did not raise the more compelling issue of whether a collective action should be conditionally certified in the first instance. What should plaintiffs be required to show in order to pursue a costly FLSA collective action, and how long should employers have to litigate the certification issue before having the opportunity to defend the claims on the merits?
Some courts apply a fairly low bar when granting conditional certification under FLSA, Section 216(b), compared to the more rigorous showing required to proceed as a class under Rule 23 of the Federal Rules of Civil Procedure. The problem, in part, can be traced to the two-step “Lusardi” approach used by courts across the country in collective actions. Under this framework, courts grant “conditional certification” without inquiring into the merits of the allegations — rather, they focus solely (and leniently) on whether the plaintiffs are “similarly situated” to the employees they seek to represent in a collective action; after discovery, the employer can then move for “decertification.” The problem, of course, is that the employer is already drawn into costly class-wide litigation and extensive discovery, and thus is pressured into settling the matter — meritorious or not — just to end the dispute.
On January 12, 2021, the U.S. Court of Appeals for the Fifth Circuit issued a decision in Swales v. KLLM Transport Services, LLC, a case that addresses head-on the extent to which a district court may examine the factual circumstances of whether potential opt-in plaintiffs are similarly situated before conditionally certifying a class. The appeals court expressly disavowed the twostep framework (emphasizing that the circuit had never formally adopted Lusardi anyhow). Instead, the Fifth Circuit endorsed a “gatekeeping” approach to deciding whether to certify collective actions.
And while a Supreme Court decision in Chipotle would have offered important clarity, it is the widely used Lusardi framework for FLSA certification that is in more dire need of high court scrutiny. In the meantime, at least within the Fifth Circuit, courts will apply a fairer, more workable framework for evaluating whether potential opt-in plaintiffs are similarly situated — before conditional certification is granted.
♦ An organization defending a putative collective action may find it worthwhile, in certain jurisdictions, to urge the court to consider merits evidence at the conditional certification stage to defeat such claims at the outset.
(For a detailed discussion of the issue, see “Certifying a FLSA collective — or stirring up litigation?” in the Fall 2020 issue of the Class Action Trends Report.)
4. FAA’s transportation worker exemption splits the circuits
Another hotly contested procedural matter in wage and hour law in 2020 was whether “gig” drivers can be forced to arbitrate independent contractor misclassification claims. Although the Federal Arbitration Act (FAA) has sent many would-be class litigations into individual arbitration in recent years, the statute’s “transportation worker exemption” — which applies to workers engaged in interstate commerce — has become a potential obstacle for some companies seeking to enforce their arbitration agreements. The critical question is whether the exemption (which covers both statutory employees and independent contractors, the U.S. Supreme Court has held) applies to “last mile” delivery drivers who do not cross state lines in the course of making deliveries of out-of-state goods.
In July 2020, the U.S. Court of Appeals for the First Circuit held that the exemption applied to an online retailer’s drivers who performed the last leg in the intrastate transport of goods purchased online by customers; therefore, the drivers were not covered by the FAA, and they could not be compelled to arbitrate their independent contractor misclassification claims. One month later, the Ninth Circuit adopted the same view. However, in a divided panel opinion authored by now-Supreme Court Justice Amy Coney Barrett, the U.S. Court of Appeals for the Seventh Circuit rejected the notion that local drivers for a restaurant delivery app fell under the FAA exemption. The Seventh Circuit hewed to a narrower interpretation of the exemption, saying it applied solely to individuals who are themselves directly “engaged in the channels of foreign or interstate commerce.”
♦ Businesses that utilize the services of delivery workers and other drivers, either as employees or independent contractors, should confer with counsel to determine whether the transportation worker exemption presents an obstacle to enforcing their arbitration agreements under the FAA. Even if an arbitration agreement is not covered by the protective umbrella of the FAA, which favors arbitration as a matter of federal policy, the agreement may nonetheless be enforceable under state law.
In November 2020, the Supreme Court was asked to weigh in to resolve the circuit split on this increasingly contentious issue in 2021. The Court has not decided whether to review the case yet. For now, the uncertainty persists.
5. Jurisdictional challenges used to prevent nationwide class certification
Since the U.S. Supreme Court’s 2017 decision in BristolMyers Squibb Co. v. Superior Court of California, a consumer mass tort action, the federal judiciary has grappled with whether to exercise personal jurisdiction when a resident of the forum state seeks to represent a nationwide class that includes nonresidents. The same question arises with respect to collective actions. As to both, the federal courts have been sharply split. The issue of whether it applies in Rule 23 class actions may be coming to a head, as the Supreme Court in 2020 was asked to decide the question.
In Bristol-Myers, the high court held that California courts could not exercise personal jurisdiction over the claims of out-of-state class members who did not suffer their alleged injuries in the state. Some federal courts have extended Bristol-Meyers to the class or collective action context, while others have limited its reach. Several of these cases reached the appellate level in 2020, also with mixed results.
In one wage and hour dispute, a divided panel of the U.S. Court of Appeals for the D.C. Circuit declined to resolve the issue outright, instead ruling that a federal court could not dismiss nonresident putative class members before a class action was certified (reasoning that absent class certification, those individuals are not parties before the court). The Fifth Circuit reached a similar conclusion. On the other hand, the Seventh Circuit held that Bristol-Myers does not apply to putative nationwide class actions. The defendant in that case, Mussat v. IQVIA Inc., has filed a petition for certiorari, which is currently pending.
♦ Consider raising a challenge to certification on jurisdictional grounds when faced with a putative nationwide class or collective action. There are numerous factors to consider in determining whether this is the optimal defense strategy. Counsel can assist in identifying the benefits and drawbacks of this approach.
6. Only in California: Faulty pay stubs cost more than $100 million
In November 2020, the Ninth Circuit heard oral arguments in an employer’s appeal of a $102 million damages award in a class action suit for violations of the California Labor Code — more than $48 million of which was for violations of the Labor Code’s itemized wage statement requirement, and an additional $48 million in penalties under the Private Attorneys General Act (PAGA). The employer was assessed another $5.8 million in PAGA penalties for violating the Labor Code’s final wage statement provisions, and an additional $70,000 in PAGA penalties for meal period violations.
While Proposition 22 is limited to app-based rideshare and delivery companies, its passage may spur other industries to take their arguments for independent contractor classification to the voters.
The argument focused primarily on whether the plaintiff had suffered an actual injury sufficient to confer standing to sue for PAGA purposes. He had no monetary loss from the technical pay stub violation; the alleged harm was his inability to ensure that he was paid what he was owed. According to the plaintiff, though, his injury was not the issue: under the PAGA, he was entitled to enforce the state law and pursue relief on behalf of a class of aggrieved workers (50,000 of them in this case) even if he was not himself injured, he claimed.
An additional issue at oral argument was whether the pay stub violation was “knowing or intentional,” as the statute requires before damages can be imposed. Notably, this was a case of “no good deed goes unpunished”: the wage statement violation resulted from the company’s failure to clearly identify on workers’ pay stubs how the bonuses that it gave employees were calculated into their hourly rate for overtime purposes.
The Ninth Circuit’s ruling in the case may narrow a trial court’s ability to impose PAGA penalties on California employers when the plaintiff has not suffered financial harm.
♦ Seemingly harmless, inadvertent breaches can lead to exorbitant penalties. To avoid such damages, California employers must ensure their wage statements are fully compliant with applicable Labor Code provisions.
7. California vote favors rideshare companies; other states in flux
In the November 3, 2020, election, California voters passed Proposition 22, an initiative that creates a carveout from California’s independent contractor law (A.B. 5) for app-based drivers. Under the new law, app-based rideshare and delivery companies may hire drivers as independent contractors if certain conditions are met, including minimum compensation levels; health insurance subsidies to qualifying drivers; medical costs for on-the-job injuries; and restrictions on working more than 12 hours in a 24-hour period for a single company. The companies also must develop sexual harassment policies, conduct criminal background checks, and require safety training for drivers.
While Proposition 22 is limited to app-based rideshare and delivery companies, its passage may spur other industries to take their arguments for independent contractor classification to the voters. The measure’s passage also may impact similar battles going on with rideshare and delivery companies in other states as well as states that had planned to follow California’s lead and adopt similar legislation regulating the classification of app-based drivers.
Meanwhile, there is no clear guidance for businesses outside of California. In one closely watched case, the U.S. Court of Appeals for the Third Circuit revived a class action lawsuit brought by drivers claiming they were misclassified as independent contractors within the meaning of the FLSA and similar Pennsylvania laws. The case was remanded to district court and, in November 2020, the appeals court denied the employer’s petition for en banc review. Though the Department of Labor’s recently finalized independent contractor rule was expected to provide much-needed guidance, its future is uncertain under the Biden administration. (See “The Biden administration: What employers can expect” on pg. 14).
♦ Independent contractor classification remains a moving target, with continual legislative and regulatory developments on the federal, state, and local levels creating a confusing compliance minefield for businesses wishing to utilize the services of independent workers.
8. Sexual harassment securities fraud class action settles for $240 million
A national jewelry retailer settled a sexual harassmentrelated securities fraud class action for $240 million — among the top 75 securities class action settlements of all time, according to the lead plaintiff. A federal district court signed off on the parties’ agreed settlement in 2020.
Previously, the court had certified a class of investors who claimed the retailer had artificially inflated its stock price by making materially misleading statements and omissions about its culture of sexual harassment and the strength of its in-house customer financing credit portfolio.
The court rejected the retailer’s claim that the dual nature of the case — the two distinct theories of securities fraud and sexual harassment — precluded certification. The court also denied the retailers’ motion to dismiss and, after extensive litigation, the parties entered mediation and ultimately reached a settlement agreement.
♦ It is not clear how much of the $240 million settlement related specifically to the underlying sexual harassment allegations. However, the case is an important reminder of an employer’s potential liability — not just to a class of employees, but to investors — if a culture of harassment is allowed to permeate a workplace.
9. Eleventh Circuit bars incentive awards for class plaintiffs
In a suit brought under the Telephone Consumer Protection Act (TCPA), a divided U.S. Court of Appeals for the Eleventh Circuit ruled that “incentive” or “service” awards to lead plaintiffs in Rule 23 class actions are unlawful. As of now, the decision is an anomaly, but it is a noteworthy development.
The panel majority reasoned that the U.S. Supreme Court prohibited the award of incentive payments to plaintiffs more than a century ago, although it acknowledged the high court’s directive has since gone unheeded, as incentive awards are routine features of class settlements today. As a result of the opinion, future class settlements in the Eleventh Circuit may no longer provide named plaintiffs with incentive awards.
Significantly, this is the first time a federal court of appeals has expressly invalidated incentive awards as a matter of law, and it remains to be seen whether other circuit courts will follow its lead. Additionally, whether the majority’s rationale will be applied in the context of collective actions brought under Section 216(b) of the FLSA, or to the settlement of hybrid claims under both Rule 23 and Section 216(b) is an open question.
♦ The prospect of incentive awards often is dangled by plaintiffs’ attorneys in their efforts to recruit named plaintiffs for a class litigation. The circuit court’s ruling may reduce the number of class cases initiated by plaintiffs’ lawyers in search of a claimant. On the other hand, incentive awards can be an important settlement term when attempting to resolve a putative class claim without extensive litigation.
10. COVID-19 slams higher education
Colleges and universities have been inundated with class action suits directly related to the COVID-19 crisis. Last spring, as the pandemic surged, many institutions of higher education were forced to abruptly shutter their residence halls and transition to online instruction for the safety of students, faculty and staff. In the aftermath, students filed suit alleging they were entitled to partial reimbursement of tuition and fees and room and board.
New class action cases are being filed almost daily, with novel theories of liability continuing to emerge, and some of the initial suits have avoided early dismissal. As the state of the pandemic and on-campus instruction are likely to remain in flux, at least through the remainder of this academic year, new pandemic-related tuition claims may be filed well into 2021.
