Labor and Employment Update - Spring 2012

THIRD CIRCUIT HOLDS FLSA “OPT-IN” COLLECTIVE ACTIONS AND STATE LAW “OPT-OUT” CLASS ACTIONS MAY BE FILED IN THE SAME SUIT 

The United States Court of Appeals for the Third Circuit recently held that the opt-in procedure for collective actions under the Fair Labor Standards Act (“FLSA”) is not inherently incompatible with the opt-out procedure for class actions based on state-law claims that parallel the FLSA, and therefore, such claims may be brought in the same lawsuit.

In Knepper v. Rite Aid Corporation, plaintiffs were store managers in Maryland and Ohio who opted-in to a collective action under the FLSA in the Middle District of Pennsylvania, seeking back pay for the alleged misclassification of assistant managers as overtime-exempt. Subsequently, plaintiffs filed separate class actions in the District of Maryland and the District of Northern Ohio, alleging violations of state wage and hour laws. The actions in Maryland and Ohio were then transferred to the Middle District of Pennsylvania pursuant to a forum selection clause in plaintiffs’ employment contracts. The Middle District of Pennsylvania then dismissed the claims, ruling that the opt-out class actions based on state laws paralleling the FLSA were “inherently incompatible” with the opt-in procedure under the FLSA. Upon plaintiffs’ appeal, the Third Circuit reversed the district court’s ruling with regard to inherent compatibility.

In rendering its decision, the Third Circuit stated that its review of the plain text of the opt-in clause of the FLSA provides no support for the concept of inherent incompatibility, as that clause specifically applies only to actions for violations of the FLSA and does not address causes of action under state employment laws. The Third Circuit further stated that nothing in the legislative history established a clear congressional intent to bar opt-out actions based on state law. As such, the Third Circuit joined the Second, Seventh, Ninth and D.C. Circuits in holding that the concept of inherent incompatibility “does not defeat otherwise available federal jurisdiction.”

While the Third Circuit previously ruled against the combination of an FLSA collective action with a state-law based class action in De Asencio v. Tyson Foods, Inc., it distinguished that case from Knepper by pointing out that De Ascencio represents only “a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining a count for violation of the FLSA with a state-law class action.” Specifically, the Third Circuit noted that unlike the claims in De Asencio, there was no suggestion that the state-law claims in Knepper were novel or complex. Finally, we note that while the court in De Asencio was exercising supplemental jurisdiction over the state-law claims, the Class Action Fairness Act (“CAFA”), enacted after the decision in De Asencio was rendered, now provides the district courts with independent diversity jurisdiction over the state law claims.

In light of the Third Circuit’s decision in Knepper, employers within the jurisdiction who are faced with claims under both the FLSA and state laws will no longer be able to limit the number of class plaintiffs to those who actively opt-in under the FLSA action. Furthermore, employees may now more efficiently pursue both FLSA and state law claims in a single federal court action.

COURTS CONTINUE TO ENFORCE ARBITRATION AGREEMENTS SIGNED BY EMPLOYEES IN CONNECTION WITH THEIR EMPLOYMENT

Since the United States Supreme Court’s 2011 decision in AT&T Mobility, LLC v. Concepcion, courts have ruled in favor of enforcing arbitration agreements between employers and employees – even those that preclude pursuit of class actions by the employee. The Court in Quilloin v. Tenet Healthsystem Phila., Inc. required the plaintiff, a registered nurse, to arbitrate her state and federal wage and hour claims pursuant to a document containing an arbitration agreement that she, in connection with her employment, acknowledged receiving. In that case, the plaintiff argued that the agreement was unconscionable on several grounds: (a) it precluded her from recovering her attorneys’ fees and costs to which she would be entitled under the FLSA if successful; (b) it contained a class action waiver; (c) it allowed the employer to delay proceeding through its internal steps before arbitration became available, which would effectively prevent her from pursuing her claims before the statute of limitations expires; and (d) she lacked a meaningful choice when she signed it. 

The Third Circuit Court of Appeals rejected all of these contentions. First, they found that the agreement to arbitrate was not, on its face, unconscionable because it did not clearly deprive the employee of her right to recover attorneys’ fees and costs and did not contain an express class action waiver. Second, where an arbitration agreement is ambiguous, it is for the arbitrator, not the District Court, to interpret those ambiguities. Third, citing to the Court’s decision in Concepcion, the Third Circuit held that the Federal Arbitration Act (the “FAA”) “clearly” preempts Pennsylvania law that has held that class action waivers are unconscionable. Fourth, despite the employee arguing that the agreement was unconscionable because the employer could delay resolution of each internal step before she was permitted to submit her claim to arbitration, the Court still required her to arbitrate. The Court reasoned that there were reasonable time limits for each step and the plaintiff always had the ability to file a motion to compel arbitration before the statute of limitations expired on her claims. Finally, because the plaintiff held a college degree and had acknowledged the arbitration requirement twice – once when she was hired and then again when she was rehired – she was not deprived of a meaningful choice.  

Similarly, on April 16, 2012, the Court in Brown v. TrueBlue, Inc., denied on both procedural and substantive grounds the plaintiffs’ motion to reconsider the Court’s November 22, 2011 decision to enforce an arbitration agreement between an employer and its employees. In that case, the plaintiffs were employees of a staffing agency who sued their employer under the FLSA. After fifteen months of litigation in the District Court and on the eve of the day on which the motion for class certification was to be filed, the Court granted defendant’s motion to compel arbitration pursuant to an arbitration and a class action waiver provision to which the plaintiffs had agreed in connection with their employment. Its decision was based on the “significant change” in the law enunciated in Concepcion. In support of its motion for reconsideration and before the Quilloin decision was rendered, the plaintiffs argued that Concepcionwas distinguishable from the facts in TrueBlue because the agreement at issue in Concepcionwas in a consumer contract, not in an employment contract like in TrueBlue. The Middle District Court rejected this argument, describing Quilloin as a case in which the Third Circuit “explicitly agreed with this Court’s order compelling arbitration” pursuant to an employment agreement.

Implications for employers: Employers should be able to save litigation costs by requiring employees who have filed suit in court to resolve their claims in arbitration – and they may be able to prohibit or limit the employee’s ability to file a class action.   

Lee D. Moylan
lmoylan@klehr.com

CAT’S PAW LIABILITY

In March 2011, the United States Supreme Court decided that employers may be liable under “cat’s paw” liability when an unbiased supervisor fires an employee based on the actions of a biased lower-level manager. In his opinion for the Court, Justice Scalia noted that the term “cat’s paw” is based on one of Aesop’s fables, in which a monkey induces a cat by flattery to pull roasting chestnuts from the fire. After the cat has done so, burning its paws in the process, the monkey makes off with the chestnuts and leaves the cat with nothing. The fable has been applied to employment law cases since 1991, and the final decision-maker is considered the cat and the biased supervisor is the monkey. However, not all courts have been willing to apply the theory—which is one of the reasons the Supreme Court took up the case of Staub v. Proctor Hospital in April 2010. In addition, the Supreme Court had granted review of the issue in 2007, but the case was resolved before the Court could hear it.

In the Staub case, the federal anti-discrimination law at issue is the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”).   USERRA forbids employers from denying “employment, reemployment, retention in employment, promotion in employment, or any other benefit of employment” based on an employee’s service in the military—either in the reserves while continuing to work or on active-duty and then seeking to return to work. 

In the case considered by the Supreme Court, Vincent Staub worked for fourteen years as a radiology technician at Proctor Hospital. Since 1984, he had been in the Army Reserves and had to leave work one weekend per month and two to three weeks a year for reserve training. On one occasion, Staub was required to go on active duty to train Army troops bound for Iraq on how to set up a radiology unit in a combat zone field hospital. 

One of Staub’s supervisors was openly hostile to Staub’s military obligations, apparently because it complicated work schedules and because, she felt, it imposed on other employees’ job rights. The head of Staub’s department also was critical.   A co-worker of Staub’s complained to the head of Staub’s department and the hospital’s vice president for human relations that Staub had mistreated her and had been lax in his duties in the department. The vice president of human relations was told by hospital officials to work out a plan to deal with Staub’s situation. She did not do that; rather, she soon made up her mind to fire Staub.

In April 2004, Staub and a colleague went to the hospital cafeteria, despite having been instructed a few months earlier not to leave the department without permission. Although they left a voice-mail message where they would be, Staub’s colleagues could not find him. When he returned to the department, he was summoned to vice president for human relations’ office, and was told on the spot that he was fired for failing to keep his colleagues aware of his whereabouts. 

Staub sued for violations of USERRA, and a jury awarded him $57,000 in damages. On appeal, the Seventh Circuit Court of Appeals in Chicago reversed because Staub’s supervisors did not exercise singular influence over the ultimate decision maker. In other words, the court found that “cat’s paw” theory did not apply because the hospital’s vice president of human relations’ decision to fire Staub was not the product of her “blind reliance” on the other supervisors’ dislike of Staub’s military obligations. Applied to the fable, the Seventh Circuit concluded that the cat didn’t need the monkey’s bias to motivate her to grab the chestnut. The Supreme Court disagreed.

As developed in Justice Scalia’s opinion, the “cat’s paw” theory of liability applies to an employer only if these steps play out in a sequence: first, a supervisor of the worker takes a step (submitting a negative report) that is done for a biased reason; second, that supervisor intends to get the worker fired, demoted or otherwise penalized; and, third, the supervisor’s step is found to be the “proximate” cause of the ultimate decision — even if the executive or supervisor who actually carries out the firing or other penalty is someone else, and that person was not at all biased. 

In accepting the “cat’s paw” theory, the Supreme Court rejected the hospital’s argument that since the supervisor who made the final decision actually did her own investigation before acting, that should neutralize the effect of the other supervisors’ bias and get the hospital off the hook. Instead, the court held that, if the biased supervisors’ intent fit into the three-step scenario laid out by Justice Scalia, an investigation by the final decision-maker would not remove liability. However, the opinion did note that the opinion in Staub only covered situations where a biased intent was harbored by a supervisor. Finally, although the Staub case involved violations of USERRA, the broad language of the statue strongly suggests that “cat’s paw” liability also applies to other federal employment discrimination statues.

Arguably, the “cat’s paw” theory allows employees to more easily prove that a discriminatory intent impacted their adverse employment decision. As we have recommended in the past, employers must closely scrutinize such decisions (e.g, transfers, layoffs, promotions/demotions and/or terminations) to ensure that they are made for legitimate, non-discriminatory, business reasons.