Tag: Class Action

Securities Class Action Filings Reach Record Levels in 2019

Securities fraud class action filings accelerated in 2019, according to a report released today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. The report, Securities Class Action Filings—2019 Year in Review, finds that filing activity remains elevated well above historical levels by several key measures.

For the third year in a row, plaintiffs filed more than 400 securities class actions. In 2019, there were 428 securities class actions across federal and state courts—the highest number on record—with 268 core filings and 160 M&A filings. This marks a historic high for core filings, surpassing even 2008 when class actions peaked in response to financial market volatility. Market capitalization losses in 2019 eclipsed $1 trillion for the second consecutive year.

The combined number of filings with 1933 Act claims in federal and state courts reached unprecedented levels.

The likelihood of core filings targeting companies listed on U.S. exchanges was also at its highest in 2019. This measure reached new levels due to the record number of filings, as well as an extended decline in the number of public companies over the last 15 years.

The impact of the U.S. Supreme Court’s 2018 decision in Cyan Inc. v. Beaver County Employees Retirement Fund continues to reverberate. The report, which includes expanded data on state court filings from 2010 to 2019, found that Securities Act of 1933 claims in state courts rose to 49 in 2019, a 40% increase from the previous year. Almost half of these had parallel actions in federal court.

“The increase in state court Section 11 filings under the 1933 Act has caused a sharp jump in the cost of D&O insurance for companies going public,” said Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “Many IPO issuers have adopted rules that would move this litigation back to federal courts where these claims have traditionally been resolved. The enforceability of these provisions, however, has been challenged, and the IPO market is awaiting a decision by the Delaware Supreme Court that will likely define the contours of federal securities fraud litigation for years to come. That decision will likely be handed down before the end of April.”

Key Trends

  • Both Disclosure Dollar Loss (DDL) and Maximum Dollar Loss (MDL) decreased in 2019. DDL fell by 14% to $285 billion, and MDL by 9% to $1,199 billion as the size of the typical filing decreased.
  • Combined core federal filings in the Technology and Communication sectors grew by almost a third from 2018 and have more than doubled since 2017.
  • Second Circuit core federal filings increased to 103, the highest number on record. The Ninth Circuit’s core federal filings decreased by 25% to 52 filings.
  • Core federal filings against companies headquartered outside the United States increased to 57, the highest total on record. The likelihood of a core federal filing against a non-U.S. company increased from 4.8% to 5.6% from 2018 to 2019.
  • Beginning in the latter part of 2018, companies with connections to the cannabis industry were increasingly the target of federal class action filings. There were six such filings in 2018 and 13 in 2019.

Cyan Inc. v. Beaver County Employees Retirement Fund

In March 2018, the U.S. Supreme Court issued a unanimous opinion allowing plaintiffs to assert claims under the Securities Act of 1933 (1933 Act) in state courts. Under the 1933 Act, Section 11 allows investors to pursue damages for alleged misrepresentations or omissions in securities registration statements. It is generally believed that the ruling will lead to more securities class action filings in state courts based on this claim.

Read an excerpt of the report on 1933 Act Filings.

Read the report, Securities Class Action Filings—2019 Year in Review.

Figure 4 Securities Class Action Cornerstone Research

Copyright ©2020 Cornerstone Research

For more SEC litigation & regulation, see the National Law Review Securities & SEC section.

Food for Thought: Outcomes of Food Labeling Cases Prove Difficult to Predict

The past year has seen a proliferation of lawsuits alleging that food product labels mislead consumers about the product’s ingredients. The trend continued last month, with decisions from the Court of Appeals for the First Circuit and one of its district courts reaching different results on motions to dismiss complaints alleging deceptive food labels.

Last month, the First Circuit reinstated a class action lawsuit against New England Coffee for violation of Massachusetts’ consumer protection laws related to the coffee brand’s label for “Hazelnut Crème” coffee. Dumont v. Reily Foods, 18-2055 (1st Cir. Aug. 8, 2019). Plaintiff alleged that the product name was deceptive because the product did not contain hazelnuts. A Massachusetts federal district court judge dismissed the suit because the complaint lacked sufficient particularized facts to satisfy the heightened pleading standard for fraud allegations.

The First Circuit reversed in a 2-1 decision. The majority noted that although the ingredient list on the product package’s back label read “100% Arabica Coffee Naturally and Artificially Flavored,” reasonable consumers might take different approaches in determining whether the coffee actually contained real hazelnuts. One might check the list of ingredients to ensure the coffee contained hazelnut while others may not, instead relying on the name of the product, without searching the ingredient list, “much like one might easily buy a hazelnut cake without studying the ingredients list to confirm that the cake actually contains some hazelnut.” The majority accordingly concluded that whether the product name implied that the product contained hazelnuts was better suited for resolution “from six jurors, rather than three judges.” In dissent, Circuit Judge Lynch argued that “a reasonable consumer plainly could not view the phrase ‘Hazelnut Crème’ as announcing the presence of actual hazelnut in a bag of coffee which also proclaims it is “100% Arabica Coffee.”

Neither opinion is especially persuasive. As for the dissent, hazelnuts are not coffee, and the fact that a coffee product called “Hazelnut Crème” is said to contain 100% Arabica Coffee does not reasonably rule out the possibility that the product contains hazelnuts. By the same token, however, other courts have concluded that reasonable consumers do not ignore a product’s prominently displayed ingredient list when information on the front label may be viewed as ambiguous concerning whether an ingredient is or is not contained in the product. See, e.g., Jessani et al. v. Monini North America, which one of the authors litigated and which this blog covered. To the extent the Dumont majority suggests otherwise, the opinion would be misguided. That said, whereas the olive oil product in Monini was labeled as “truffle flavored,” here, there was no modifier to suggest that the coffee in question simply tasted, or smelled, like hazelnuts. In such cases, perhaps, one could conclude that the front label lacked ambiguity, and thus would not compel prospective purchasers to search the label further.

Less than a week after the First Circuit’s Dumont decision, Judge Alison Burroughs of the District of Massachusetts tossed a putative class action suit alleging that the advertising and packaging of the cereal “Honey Bunches of Oats” falsely suggested it was sweetened only or primarily with honey, when in fact the main sweeteners are sugar, brown sugar, and corn syrup. Lima v. Post Consumer Brands, 18-12100 (D. Mass. Aug. 13, 2019).The plaintiffs pointed to images of a sun, bee, and honey dipper as representing that honey was the principal sweetener in the cereal. They also cited surveys showing that most consumers believe honey is “better for you than sugar” and that approximately half of consumers are willing to pay more for foods that are primarily sweetened with honey.

In concluding that the consumers failed to state a claim, Judge Burroughs found that plaintiffs had offered no reasonable basis for their alleged belief that the honey references on the packaging implied that honey was the primary sweetener in the cereal rather than simply one of its primary flavors. In addition, even assuming the packaging could be viewed as portraying honey to be an ingredient instead of or as well as a flavor, Judge Burroughs found that plaintiffs still failed to state a claim. She noted that, unlike the “Hazelnut Crème” product in Dumont that did not contain any hazelnut, Honey Bunches of Oats did, in fact, contain honey. She also distinguished the case from Mantikas v. Kellogg, in which the Second Circuit found that a “made with whole grain” claim could imply that the product contained more whole wheat flour than white flour. Here, according to Judge Burroughs, the mere references to honey on the package carried no implication that honey was the primary sweetener, and a reasonable consumer concerned about how the cereal was sweetened would have consulted the cereal’s list of ingredients.

If nothing else, these cases underscore the fact-specific nature of the inquiry as to what product labels imply about their ingredients.

 

© 2019 Proskauer Rose LLP.

For more on class action lawsuits, see the National Law Review Litigation & Trial Practice page.

Two Class Actions Alleging Starbucks Violated FCRA’s Background Report Disclosure Requirements Are Grinding Toward Settlement

Two pending class action lawsuits alleging coffee giant Starbucks violated the Fair Credit Reporting Act (“FCRA”) by relying on flawed background reports to decline employment to over 8,000 job applicants will likely settle in the coming months.  The two suits are being consolidated in the U.S. District Court for the Northern District of Georgia for the purpose of a directing notice to a single nationwide class.

Before taking adverse action against an applicant based on a background report, 15 U.S.C. §1681b(b)(3) requires the employer to provide the applicant with a copy of the report and a written summary of the applicant’s rights under 15 U.S.C. §1681g(c)(1).  The purpose of this requirement is to allow the applicant an opportunity to correct any errors on the report before the adverse action is taken.

In the first suit, pending in the U.S. District Court for the Western District of Washington, the lead plaintiff, Jonathan Santiago Rosario (“Rosario”), alleges that he was denied employment as a Starbucks barista based on an inaccurate background report Starbucks obtained from Accurate Background, Inc. (“Accurate Background”).  Rosario claims he was taken out of consideration for the position based on several criminal charges and convictions that appeared on his report.  Rosario maintains that the report was inaccurate and that Starbucks took the adverse action weeks before he was provided with the report and the written summary of rights.  Rosario argues that he never had a meaningful opportunity to dispute the report and that Starbucks never reconsidered him for the position.

Similarly, the lead plaintiff in the second suit, Kevin Wills (“Wills”) of Georgia, alleges that Starbucks took adverse employment action against him without providing proper notice and a written summary of rights under FCRA.  Starbucks allegedly hired Wills pending the results of his criminal background check.  Starbucks allegedly received a report from Accurate Background stating that “Kevin Willis” of Minnesota had two prior convictions for domestic violence.  As a result of the report, Starbucks informed Wills over the telephone that he could not work for Starbucks.  Days later, Wills received a letter enclosing the background report.

According to an April 17, 2019 order issued by Judge Richard Jones, who presides over the Rosario action, the parties from both cases jointly participated in several sessions with a private mediator and have reached an agreement in principle to settle both cases on a class basis.

On April 24, 2019, Magistrate Judge Catherine M. Salinas issued a report and recommendation in the Wills case recommending that the Clerk in the Northern District of Georgia consolidate the Rosario case into the Wills case.  After fourteen days, if no party objects, the cases will likely be consolidated.

To date, no details about the terms of the settlement have been released.

 

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Nadia Adams of Womble Bond Dickinson (US) LLP.
Read more on FCRA Litigation on the National Law Review’s Litigation Type of Law page.

Split Over Impact of Bristol-Myers Squibb on Class Actions Deepens

Bakov v. Consolidated World Travel, Inc. is the latest salvo in the conflict over whether the Supreme Court’s personal jurisdiction decision in Bristol-Myers Squibb applies in the class action context. As we have blogged in the past, Bristol-Myers concerned claims in California state court made by non-California residents, claims that were not sufficiently connected to California to qualify for specific personal jurisdiction on their own. The Court held that California state courts could not exercise specific jurisdiction over those claims even if they were packaged with claims by California residents in a mass tort action.

Bristol-Myers left two significant questions undecided: (1) whether the Fifth Amendment’s due process clause imposes the same jurisdictional limits on federal courts that the Fourteenth Amendment’s due process clause imposes on state courts; and (2) whether Bristol-Myers’ jurisdictional limit jurisdictional limit on state court mass actions also applies to federal court class actions.

Bakov is a Northern District of Illinois decision that answers yes to both of those questions. The plaintiffs in Bakovalleged that the defendant cruise line directed another company to place calls to the plaintiffs without their consent in violation of the Telephone Consumer Protection Act. They sought certification of a nationwide class action. The court certified a class of Illinois residents but refused to certify a nationwide class, holding that under Bristol-Myersthe court did not have specific jurisdiction over the claims of non-Illinois residents. Courts have reached sharply different conclusions as to whether the jurisdictional limit set forth in Bristol-Myers applies to class actions. Bakovjoins the minority in concluding it does.

Bakov v. Consolidated World Travel, Inc., No. 15 C 2980, 2019 WL 1294659 .

 Carlton Fields Jorden Burt, P.A.

This post was written by Nathaniel G. Foell and D. Matthew Allen of Carlton Fields Jorden Burt, P.A.

Read more Class Action analysis  on the litigation type of law page.

Getting Political: Florida Gubernatorial Candidate Democrat Jeff Greene Personally Hit with TCPA Class Action

As I have written numerous times, where the TCPA intersects politics things can get spicy.

Imagine it–using a draconian statute to assault your political rivals and bludgeon old foes with ligation designed to extract millions of dollars from their pocket based upon campaign phone calls.

Suing political candidates under the TCPA has become a bit of a ritual in America over the last few years. Obama faced a TCPA suit. As did Trump. More recently Beto O’Rourke faced such a suit. As did an organization supporting the Kavanugh confirmation.  Heck, even the Human Society’s text campaign supporting California’s Prop 12 was *ahem* neutered by a TCPA class action.

In furtherance of that great tradition,  a Florida resident named Lynda Maceda filed suit yesterday against bested Florida gubernatorial candidate Jeff Greene. According to his wiki page Jeff is a successful business guy and real estate investment type. According to Ms. Maceda’s Complaint, however, he’s a robocaller that sent the following message without consent:

“Hi, this is Democrat Jeff Greene running for governor. I’ll stand up to Donald Trump and for Florida’s families. Joseph, if you want world-class schools, commonsense gun reform and to protect women’s choice, please vote for me with your absentee ballot! Can we count on your support?”

The Complaint alleges that thousands of similar complaints were sent all of them without express consent. Ms. Maceda hopes to represent a failsafe clas of all individuals that received the texts without express consent. If these allegations are proven Ms. Maceda hopes to hold Mr. Greene accountable for “amounts [] greater than $15,000,000.” Gees.

Notably, Mr. Greene is sued personally for these violations–usually these TCPA claims are asserted against a candidate’s campaign rather than against the candidate individually.

The Complaint can be found here: Class Action Complaint against Florida Democratic Gubernatorial Candidate Jeff Greene

 

© Copyright 2019 Squire Patton Boggs (US) LLP
This post was written by Eric J. Troutman of Squire Patton Boggs (US) LLP.
Read more Litigation news on the National Law Review’s Litigation Type of Law page.

Ninth Circuit Affirms Jury Verdict In Favor of Homeopathic Remedy for Flu-Like Symptoms

On November 8, 2018, the Ninth Circuit affirmed a jury verdict in a consumer class action deceptive advertising case in favor of Defendants Boiron Inc. and Boiron USA, Inc. (together, “Boiron”), the sellers of a homeopathic treatment for flu-like symptoms called Oscillococcinum (“Oscillo”).  Although the Ninth Circuit’s memorandum decision is marked “Not for Publication” and therefore is non-precedential under Ninth Circuit rules, the decision is still worth noting, as jury verdicts in class action false advertising cases are rare.

According to the appellate briefs, Oscillo’s active ingredient is a compound (extracted from the heart and liver of the Muscovy duck for those foodies in our readership) that is subjected to a homeopathic dilution process.  The diluted compound is then sprayed onto specially-manufactured granules.  Plaintiff argued that, due to the homeopathic dilution process, Oscillo was essentially “water sprayed on sugar,” which could not provide the relief from flu-like symptoms that Boiron advertised.  Plaintiff claimed that Boiron had therefore violated two California deceptive advertising statutes, the Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”).

At the conclusion of a one-week trial in the Central District of California, the jury found in Boiron’s favor that its representations that Oscillo relieves flu-like symptoms were not false.  On appeal, the Ninth Circuit affirmed, finding that the jury verdict did not constitute plain error because Boiron presented sufficient evidence from which the jury could have concluded that Oscillo actually works against flu-like symptoms.  This was a “battle of the experts” for the jury, the court wrote, that could not be relitigated on appeal.  And the jury appeared to have believed Boiron’s expert, clinical studies, and anecdotal evidence more than it believed the plaintiff’s expert, according to the court.

The Ninth Circuit further noted that in explicitly finding that Boiron’s claim that Oscillo treated flu-like symptoms was not false, the jury must have implicitly rejected Plaintiff’s argument that Oscillo was merely a sugar pill or water sprayed on sugar.  Nor did Plaintiff offer a theory of how Boiron’s representations could be false if the product did indeed treat flu symptoms.

The case is Christopher Lewert v. Boiron Inc., et al., No. 17-56607 in the Ninth Circuit.© 2018 Proskauer Rose LLP. To read all news published by the National Law Review click here.

Authored by: Lawrence I Weinstein and Tiffany Woo originally published at Proskauer Rose LLP Proskauer on Advertising Law Blog


Boof!: Pro-Kavanaugh “Robo-Texts” Trigger Potentially Massive TCPA Class Action against Faith and Freedom Coalition, Inc. in Florida

Apparently the Faith and Freedom Coalition (“FFC”)–allegedly some sort of Conservative-leaning PAC– blasted Florida residents with texts urging Senator Bill Nelson to support the Kavanaugh confirmation. The text (allegedly) read as follows:

This is Ralph Reed. A good man is under attack & needs your help. Call Sen Bill Nelson TODAY & tell him to confirm Brett Kavanaugh.

Subtle.

Similar texts were allegedly blasted to a bunch of folks in the area, none of whom–according to the lawsuit–consented to receive those texts.

The complaint–filed Monday in the Southern District of Florida by an agitated citizen named Shehan Wijesinha and found here Wijensinha v FFC—  alleges a class of all persons within the United States that were sent a text message by the Defendant without prior express consent. It is brought by noted TCPA class action attorney Manuel Hiraldo of Hiraldo, P.A.

The TCPA prevents text messages–including political texts–to cellular phones without consent. If the Defendant is found liable for sending the texts under the TCPA it may face exposure as high as $1,500.00 per text. Given the number of texts allegedly at issue in the suit this may cost the FFC many millions of dollars to resolve, a fact that may prompt the FFC to need a Devil’s Triangle this afternoon to unwind. (What? Its a drinking game!)

A recent Wyoming lawsuit found a state corollary law similar to the TCPA unconstitutional as applied to political messages–and you can bet your bottom dollar that the folks at FFC will assert a First Amendment challenge here.

We’ll keep a close eye on this one for you.

 

Copyright © 2018 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Eric Troutman of Womble Bond Dickinson (US) LLP.

BIPA Claims Against United Airlines Must be Arbitrated Due to Collective Bargaining Agreement

Last month a federal district court dismissed a putative class action lawsuit against United Airlines challenging its use of fingerprint scanning timeclocks. The lawsuit brought by United employee David Johnson alleged that the company’s collection and use of employees’ fingerprints violated the Illinois Biometric Information Privacy Act (BIPA) because the company failed to get the requisite consent from its employees for fingerprint collection and use.

In dismissing the lawsuit, the court found it lacked federal jurisdiction to resolve the dispute on two grounds. In the first instance, the court observed that the federal Railway Labor Act (RLA) creates a mandatory and exclusive arbitration process for resolving labor disputes that require interpretation of a collective bargaining agreement (CBA). The CBA between United and its employees gave United the “sole and exclusive right to manage, operate, and maintain the efficiency” of the workplace. Therefore, any resolution of Plaintiff’s challenge under BIPA of United’s collection and use of fingerprints as part of its timekeeping technology necessarily requires interpretation of the scope of the CBA. And, thus, “[b]ecause there is no way for the Plaintiff to pursue a BIPA claim without interpreting the existing CBA,” the court concluded that its resolution of Plaintiff’s BIPA claim was preempted by the RLA’s mandatory arbitration requirement, and that the court lacked jurisdiction to decide the claim.

In the second instance, echoing two other recent federal BIPA cases, the court concluded that violation of BIPA’s notice and consent requirement alone is not adequate injury to establish standing to sue in federal court under Article III of the U.S. Constitution. The court found that a lack of consent, while a technical violation of the statute, does not itself alone increase the risk of disclosure that could result in injury or harm to the individual. Absent any actual compromise of the biometric information, or an increased risk of such compromise, there was no injury-in-fact, and thus no federal jurisdiction. While the court’s ruling in this regard continues the trend of other federal courts, it’s worth noting that standing to sue in Illinois state court is unaffected by these decisions. Whether a plaintiff or class action may succeed in state court based upon a mere technical violation of BIPA’s requirements—without more—remains an open question the Illinois Supreme Court is expected to answer in its next session.

Putting it Into Practice: Companies negotiating collective bargaining agreements should be aware that the right language may allow for resolution of many labor disputes, including disputes arising under BIPA, through mandatory arbitration rather than through the courts. When collecting and using biometric information, companies should continue to pay attention to BIPA’s requirements regarding consent, notice, and disclosure because although federal courts have dismissed suits predicated only on mere technical violations of the statute, other avenues of recourse may still be available to plaintiffs in state court and via arbitration.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

Employment Litigation Impacted By U.S. Supreme Court Decision Reining In Successive Attempts at Class Litigation

In 1974, the U.S. Supreme Court decided in American Pipe & Construction Co. v. Utah, 414 U.S. 538, that the timely filing of a class action complaint tolls the applicable statute of limitations for all persons encompassed by that complaint. The impact of that ruling was that potential class members did not have to intervene as individual plaintiffs in the class representatives’ case unless and until the class ultimately was not certified (assuming the case remained pending at the time intervention was sought). Alternatively, as determined in later cases interpreting American Pipe, former class members can pursue their own individual claims rather than intervening in a former class action, even if their individual claim would otherwise be untimely.

American Pipe left unresolved whether a former putative class member can still pursue relief on a class basis after the statute of limitations has run on the underlying claim, or if the former putative class member is limited to bringing only his or her own individual claim. The Supreme Court answered that question on June 11, 2018 when it issued its unanimous opinion in China Agritech, Inc. v. Resh, 584 U.S. ___ (2018), in which the Court concluded that a putative class member cannot commence an otherwise untimely class action upon denial of class certification in the earlier-filed suit. His remedies are limited to promptly joining an existing suit or filing an individual action, but serial attempts at class certification after the statute of limitations has run are impermissible.

Resh was not an employment case, but instead involved three successive putative class actions brought on behalf of purchasers of China Agritech’s common stock, each alleging essentially the same violations of the Securities Exchange Act of 1934. Class certification was denied in the first of the three actions and it settled. Shortly thereafter, the lawyer in the first action filed a new complaint alleging nearly the same facts, but with new putative class representatives. Once again, the court denied class certification and the case settled. Plaintiffs’ counsel filed yet a third putative class lawsuit naming as putative class representative an individual, Michael Resh, who had not sought lead-plaintiff status in either of the two previous cases, but who would have been within the scope of the class had it been certified in either earlier case. There was no dispute Mr. Resh’s claim was untimely unless it had been tolled under American Pipe. The trial court dismissed his class claims as untimely but the Ninth Circuit Court of Appeals reversed, holding that the reasoning of American Pipe extends to successive class claims.

The Supreme Court disagreed and reversed, thereby resolving the Circuit split over the implication of American Pipe and its progeny on successive class litigation. The Court held that the “efficiency and economy of litigation” that supports tolling of individual claims until after class certification has been ruled on is not present where one seeks to litigate untimely successive class actions. Class certification is intended to determine early whether claims are better resolved individually or as a class, and whether certain putative representatives and their counsel are suited to represent the class’ interests. Class representatives who commence suit after expiration of the limitation period are not diligent in asserting claims and pursuing relief, for themselves or the putative class members. Therefore, the Court limited American Pipe to permitting only individual intervention or individual claim prosecution after the denial of certification of a class to which the individual otherwise would have belonged. In other words, although parties who were part of a proposed-but-ultimately-rejected class can bring claims after denial of class certification, they can only do so on their own individual basis, and not as a proposed class action.

Although a securities case, the Resh decision has (welcome) implications for employers. Should one or a group of employees seek certification of a class with respect to a particular employment practice, such as for employment discrimination affecting a broad class of workers or for alleged wage and hour violations, and should the motion for class certification be denied, the would-be class members must promptly move to intervene in the representatives’ non-class lawsuits or promptly file lawsuits on their own individual behalves, or else their right to proceed will be time-barred. The decision eliminates the uncertainty – the “endless tolling of a statute of limitations” – that employers would face if plaintiffs’ lawyers could continually refile putative class actions related to the same policy or incident notwithstanding the statute of limitations having run, until they define the class sufficiently well or find adequate representatives such that the trial court grants class certification. After Resh, once the statute of limitations on a claim has run, so too has the threat of further class action litigation.

 

© Copyright 2018 Squire Patton Boggs (US) LLP.

A Ruling of Epic Proportions: Supreme Court Upholds Employment Class Action Waivers

On May 21, 2018, the Supreme Court ruled in Epic Systems Corp. v. Lewis that employees can agree to: (1) arbitrate employment disputes; and (2) waive their right to resolve those disputes through class and collective actions. This decision represents an epic victory for employers and may limit an employer’s financial exposure in employment disputes.

In Epic Systems Corp., Epic Systems required its employees to sign an arbitration agreement that included a class and collective action waiver. Employees who signed the agreement thus agreed to resolve their employment disputes through individual arbitration and also waived their right to participate in or receive benefit from any class, collective or representative proceedings.

An Epic employee, Jacob Lewis, signed such an agreement with Epic. After his employment ended and despite the agreement, Lewis filed a class/collective action against Epic, claiming he and other Epic employees had been denied overtime wages in violation of the Fair Labor Standards Act (FLSA) and Wisconsin wage and hour laws.

Epic moved to dismiss the claim and to compel arbitration, citing the arbitration/class waiver agreement. The district court denied Epic’s motions, stating that the waiver was unenforceable because it interfered with employees’ right to engage in “concerted activities” for “mutual aid or protection” under the National Labor Relations Act (NLRA).

On appeal, the Seventh Circuit Court of Appeals agreed with the district court, becoming the first appellate court to agree with the National Labor Relations Board’s (NLRB) 2012 position in D.R. Horton (previously discussed here and here) that such waivers were unenforceable. As a result, employers in Wisconsin, Indiana and Illinois have been bound by this ruling since 2016.

In a 5-4 opinion authored by Justice Neil Gorsuch, the Supreme Court overturned the Seventh Circuit and ruled that the NLRA did not grant employees a right to class or collective actions, nor did the waiver of class rights violate any provision of the NLRA. According to the Court, the NLRA does not address class/collective action issues. Instead, the NLRA focuses on collective bargaining issues. In short, the Court gave its approval to arbitration agreements that require resolution of employment disputes on an individual basis.

Employers who currently use arbitration agreements with their employees should consult with legal counsel to ensure those agreements meet their needs and preferred outcomes. For employers who do not currently use such agreements, the Epic decision provides a perfect opportunity to implement such agreements. Before making changes to existing agreements, relying on such agreements going forward or implementing new agreements, employers should consult with legal counsel to discuss the potential benefits and drawbacks of arbitrating employment disputes. With the Epic decision, however, employers now know for certain that they have class action waivers at their disposal.

 

Copyright © 2018 Godfrey & Kahn S.C.
This post was written by Rufino Gaytán of Godfrey & Kahn S.C.