Lamps Plus Dims the Future of Class Arbitration.

The Supreme Court dealt another blow to employees seeking to assert their workplace rights with its decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), all but killing the possibility of concerted arbitration in most cases. Lamps Plus is centered around mandatory, pre-dispute arbitration agreements. Employees often sign mandatory arbitration agreements as a condition of their employment. When faced with unlawful conduct in the workplace, these agreements prevent employees from suing their employers in court. Instead, employees must adjudicate disputes in arbitration, which is often a process skewed toward employers. Bryan Schwartz Law has blogged about problems with arbitration several times, including here, here and here. Though the Supreme Court pretends that arbitration is a more efficient and cost-effective means of resolving a conflict, arbitration is really only more efficient and cost-effective to the extent that it kills statutorily-protected claims all together – nothing more than a windfall for law-breakers, harming workers and consumers and preventing law-abiding businesses from competing on a level playing field.

In Lamps Plus, the Court examined when arbitration claims could be brought on behalf of multiple employees in a single action. Often, employees with valid grievances cannot and would not sue their employers individually because the cost of hiring an attorney outweighs the value of their claims and litigation and arbitration are time-consuming, draining, and always raise fears of retaliation. Fortunately, employees can band together against an employer as a class or collective, allowing them to bring claims together that would be too costly and difficult to pursue as individuals.

Over the past decade, the Supreme Court has chipped away at the availability of both class actions in court and class arbitration through its interpretation of the Federal Arbitration Act (“FAA”). In 2010, the Court held that individuals cannot pursue class arbitration if it is not permitted by their arbitration agreement. Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). In April of this year, the Supreme Court extended Stolt-Nielsen’s holding to include contracts that are ambiguous on the issue of class arbitration in its Lamps Plus decision. Like silent arbitration agreements, the Court held, ambiguous arbitration agreements do not provide employees the option of pursuing class arbitration.

In Lamps Plus, the company was alleged to have disclosed sensitive personal information belonging to 1,300 employees, including that of the plaintiff, Frank Varela.  As a result, Mr. Varela was the victim of identity theft. Mr. Varela sued Lamps Plus on behalf of himself and the other employees affected by the security breach.

Lamps Plus moved to kick the case out of court and into arbitration based on Mr. Varela’s arbitration agreement. The District Court granted Lamps Plus’s motion. However, it rejected Lamp Plus’s request for individual arbitration and instead authorized Mr. Varela to proceed with class arbitration.

The Ninth Circuit affirmed. The court determined that the language in Mr. Varela’s arbitration agreement was ambiguous on the issue of class arbitration. In resolving the ambiguity, the court applied the California legal principle requiring ambiguous contract terms be construed against the drafter, a doctrine known as contra proferentem. All fifty states apply contra proferentem because it encourages clear contract drafting. Lamps Plus 139 S. Ct. 1407 (Kagan, J., dissenting). Here, Lamps Plus submitted that the contract only conveyed consent to individual arbitration, while Mr. Varela argued that the contract implied consent to class arbitration. The court construed the meaning of the contract against the drafter, Lamps Plus. Thus, the court disagreed with Lamps Plus’s interpretation and ruled Mr. Varela could bring a class arbitration claim.

The Supreme Court rejected the Ninth Circuit’s application of contra proferentem and held that contracts ambiguous on the issue of class arbitration do not authorize class arbitration. In its reasoning, the Court relied heavily on a false distinction between individual and class arbitration. The majority opined that class arbitration does not achieve the FAA’s goals of making litigation faster, simpler and less expensive. Lamps Plus, 139 S. Ct. at 1416. According to the current Supreme Court majority, class arbitration “makes the process slower, more costly, and more likely to generate procedural morass than final judgement.” Id. (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011)).  Therefore, the Court concluded that the term “arbitration” does not intrinsically include class arbitration. The Court’s reasoning is based on the mistaken belief that individual arbitrations are indeed faster, simpler, and less expensive. Id. This leap of reasoning is unsupported, in fact, and contrary to the experience of this firm. Hundreds of individual arbitrations are not actually faster, simpler, or less expensive than a single class case.

The Court then decided how to interpret the ambiguity in Mr. Varela’s contract. The Court conceded that, normally, courts apply state law when interpreting contracts. Id. at 1415. Here, however, the Court held that the federal FAA conflicts with the state doctrine of contra proferentem, thereby displacing it. Id. at 1417-18.

According to the Court, the two laws conflict because, under the FAA, “[a]rbitration is strictly a matter of consent.” Id. at 1415 (quoting Granite Rock Co. v. Teamsters, 561 U.S. 287, 299 (2010)).  Contra proferentem, on the other hand, provides a method of contract interpretation that disregards consent between the parties in favor of a practical solution. Id. at 1418. Considering this manufactured conflict between supposed “consent” between parties under the FAA (which, as Justice Ginsburg explained in her dissent, is a fallacy) and standard principles of contract law, the Court decided that the FAA applies instead of contra proferentem. Id. Thus, the Court held employees cannot pursue class arbitration if their contracts are ambiguous on the issue. Id. Rather, arbitration agreements only authorize class arbitration when there is clear language that shows both parties intended to provide for class arbitration. Id.

This opinion inspired a flurry of dissents. In the main dissent, Justice Kagan argued that Mr. Varela’s contract was not ambiguous in the first place – it clearly allowed for class arbitration. Id. at 1428-29. Even if the contract were ambiguous, she argued, contra proferentem should apply because it does not conflict with the FAA. Id. at 1430-35. Justice Sotomayor’s dissent rejected the notion that class arbitration is fundamentally different from individual arbitration. Id. at 1427. She argued that consent to arbitration necessarily includes the ability for complainants to proceed as a class. Id. Justice Breyer argued that the Court of Appeals lacked jurisdiction altogether. Id. at 1422-23.

Justice Ginsberg crafted the most scathing dissent. She called out the disingenuity of the majority’s central premise that arbitration “is strictly a matter of consent.” Id. at 1421. In reality, people rarely have genuine choice when signing arbitration agreements. Rather, they are often a condition of employment. Id. When Congress passed the FAA in 1925, Ginsberg noted, Congress intended arbitration to simplify dispute resolution between businesses with equal bargaining power. Id. at 1420. This is a far cry from the role of arbitration today. Now, employers can force arbitration agreements on employees to insulate themselves from the consequences of unlawful employment practices. As Ginsberg argued in her dissent, mandatory individual arbitration thwarts “effective access to justice.” Id. at 1422.  

It is the unfortunate reality that a growing number of employees must agree to mandatory, pre-dispute, individual arbitration as a condition of employment. Nevertheless, employees may overcome arbitration agreements, or make employer’s pay in arbitration – employers sometimes fail to obtain arbitration consent from all employees, or waive a right to compel arbitration by proceeding in court extensively before moving to compel arbitration. Employers do not expect massive numbers of employees to file in arbitration – they hope employees will simply abandon their claims. However, mass filing of arbitrations by aggrieved employees sends a strong message: arbitration is not meant to be a get-out-of-jail free card. In California, employees have the option of bringing a representative action under the Private Attorneys General Act of 2004 (“PAGA”), standing in the shoes of the state, which cannot be compelled involuntarily to arbitration. With our vigilance, and notwithstanding the best efforts of the present U.S. Supreme Court to abandon workers’ rights to the whims of big business, workers’ claims may yet be vindicated. If you are an employee and have questions about a supposed arbitration agreement between you and your employer, contact Bryan Schwartz Law 

Supreme Court Favors Delegation Clauses, But Courts Retain Jurisdiction Over Formation Disputes

On January 8, 2019, the Supreme Court reversed the Fifth Circuit decision in Henry Schein, Inc. v. Archer and White Sales, Inc., Case No. 17-1272. 

The case is a business dispute in which plaintiff Archer and White seeks both money damages and injunctive relief. Defendant Schein moved to compel arbitration and Archer and White opposed, arguing that the dispute was not subject to arbitration because the complaint seeks injunctive relief, at least in part. The relevant contract provision states:

Disputes. This agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

Schein argued that because of the contract's express incorporation of the American Arbitration Association's rules, the parties agreed that questions of arbitrability, including the arbitrability issue raised by Archer and White, would be decided by an arbitrator. Archer and White responded that because they seek injunctive relief, which is excluded in the above provision, the court may resolve a threshold question of arbitrability if the argument for arbitration is "wholly groundless." The district court agreed and Schein's motion to compel was denied. The Fifth Circuit affirmed, citing its own precedent for a "wholly groundless" exception to enforcing a delegation clause. 

In his first Opinion, Justice Kavanaugh writes for a unanimous Supreme Court that when parties contract to delegate arbitrability questions to an arbitrator, a court may not override this agreement even if the court believes that arbitrability of the particular dispute is "wholly groundless." He explains that "[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator."

However, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), and Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the Opinion clearly states that courts retain the power to decide whether there is "clear and unmistakable evidence" of a meeting of the minds to delegate arbitrability questions to an arbitrator. Rather than ordering the lower courts to grant Schein's motion to compel, the Court remanded to the Fifth Circuit to consider, in the first instance, the issue of whether the contract in fact delegated the arbitrability question to the arbitrator.

In employment law, workers' rights attorneys generally seek to avoid arbitration because of the ways in which arbitration agreements are being used not only to stop workers and consumers from vindicating their rights in a concerted manner, but also to exert control over the dispute resolution process, primarily by companies building repeat-customer relationships with certain preferred arbitrators.    

The Supreme Court's decision in Schein is prompting defense attorneys to advise their employer clients to review their arbitration agreements and include a clearly worded delegation clause. However, employers cannot circumnavigate the courts merely through the presence of a provision attempting to delegate questions of arbitrability to an arbitrator. Workers remain able to argue defenses to formation of such an agreement, and courts must hear these arguments. Workers, if you can argue that the defendant lacks "clear and unmistakable evidence" that the parties agreed to arbitrate, or that the parties agreed to delegate issues of arbitrability to an arbitrator, the Supreme Court has made clear, unanimously, that this argument must be heard by the court before compelling arbitration.

On Remand, Ninth Circuit Holds that Car Service Advisors Do Not Fall within the Fair Labor Standards Act’s Car Salesman Exemption from Overtime Pay (Overturned by the United States Supreme Court in Encino Motorcars, LLC v. Navarro 584 U. S. ____ (2018))

Update: On April 2, 2018, the United States Supreme Court overturned the Ninth Circuit's decision in Encino Motorcars, LLC v. Navarro 584 U. S. ____ (2018).
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On January 9, 2017 the Ninth Circuit held that car service advisors do not fall within the exemption from overtime-compensation for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” provided in § 213(b)(10)(A) of the Fair Labor Standards Act (“FLSA”). (Navarro v. Encino Motorcars, LLC, No. 13-55323, Slip Op. 4 (9th Cir. 2017)).

Individuals working as “service advisors” filed an FLSA overtime action against their employer, a dealership that sells and services new and used cars. Plaintiffs alleged that service advisors’ duties include: greeting car owners as they arrive at the dealership’s service area; evaluating cars’ repair and maintenance needs; suggesting services for cars; writing up estimates; and following up with customers. (Slip Op. 4-5)

The U.S. District Court for the Central District of California dismissed the overtime claim. Thus began the case’s long appellate journey. Initially, the Ninth Circuit reversed, holding that a 2011 regulation by the Department of Labor reasonably interpreted § 213(b)(10)(A) to exclude service advisors. The Supreme Court held that the Ninth Circuit’s first decision erred by relying on the 2011 regulation and vacated the decision. The Court then remanded to the Ninth Circuit to construe § 213(b)(10)(A) without deferring to the 2011 regulation. (Slip Op. 5)

On remand the Ninth Circuit performed a detailed inquiry into the text and legislative history surrounding § 213(b)(10)(A). After reviewing “the ordinary meaning of the exemption’s words and the rule that we must interpret exemptions narrowly,” the court concluded, “we are convinced that Congress intended to exempt only salesmen selling cars, partsmen servicing cars, and mechanics servicing cars.” (Slip Op. 23)

However, assuming for the sake of argument that the FLSA’s language leaves room for ambiguity, the court examined the legislative history of the amendments and held that “Congress did not intend to exempt service advisors.” The legislative history for the operative amendments to § 213(b)(10)(A) “reveal[s] clear concerns with applying the overtime-compensation requirement to exactly three categories of a dealership’s employees: automobile salesmen, partsmen, and mechanics. The extensive legislative record . . . contains hardly a mention of service advisors, and the few references that exist display no concern about overtime compensation for service advisors.” On these bases, the Court held that Congress did not intend to exempt service advisors. (Slip Op. 31)

In ruling that Congress did not intend to include service advisors within the § 213(b)(10)(A) exemption, the Ninth Circuit maintains a split with the Fourth and Fifth Circuits as well as the Supreme Court of Montana, each of which has held that car services advisors were exempt from overtime. Walton v. Greenbrier Ford, Inc., 370 F.3d 446 (4th Cir. 2004); Brennan v. Deel Motors, Inc., 475 F.2d 1095 (5th Cir. 1973); Thompson v. J.C. Billion, Inc., 294 P.3d 397 (Mont. 2013). Navarro's journey may include another trip to the Supreme Court.

U.S. Supreme Court Upholds University of Texas’s Race-Conscious Admissions Program

In a 4-3 decision Thursday, the Supreme Court affirmed that a race-conscious admissions program used by the University of Texas is legal under the Equal Protection Clause of the 14th Amendment—at least, as that program was implemented in 2008 when UT rejected Abigail Fisher’s college application. Justice Kennedy’s majority opinion in Fisher v. University of Texas (Fisher II) was far from an enthusiastic defense of the need for race-conscious admissions programs at public universities, but it affirmed the status quo in reiterating the narrow range of circumstances in which such programs are constitutionally permissible. For that reason, advocates for racial justice can mark Fisher in the win column.

Fisher first came before the Court during the October 2012 term (Fisher I), at which point Ms. Fisher had already graduated from Louisiana State University with a degree in finance. The Court set forth the principles the UT admissions program needed to satisfy under the 14th Amendment (discussed below), said that the Fifth Circuit had failed to apply those principles, and sent the case back for the Fifth Circuit to reconsider.

The Supreme Court first addressed the constitutionality of affirmative action in higher education when it struck down a quota system for applications to the University of California Medical School at Davis in 1978. However, that case, Regents of University of California v. Bakke, also established that affirmative action would be constitutionally permissible, at least in some circumstances. The Court did not clearly establish the applicable level of scrutiny until the mid-1990s, when the Rehnquist Court held that all racial classifications—without regard to whether those classifications were intended to hinder or help people of color—would be subject to the highest level of scrutiny (strict scrutiny) under the Equal Protection Clause. In dissent, Justice Stevens wryly chided the majority as unable to tell “the difference between a ‘No Trespassing’ sign and a welcome mat.”

More recently, the Court considered two race-based admissions programs at the University of Michigan in 2003. The Court (in two opinions by Justice O’Connor) struck down the undergraduate school’s use of a point system to boost applications from people of color while it upheld the Law School’s use of race as a “plus factor” as part of a flexible assessment of other “soft variables.” Those decisions also established “attaining a diverse student body”—for the benefit of all students—as the only permissible basis for an affirmative action program. An affirmative action program that sought to remedy the effects of past discrimination, for example, would not pass constitutional muster. These Michigan cases established the needle which UT needed to thread if it wanted to promote diversity at its flagship university while satisfying strict scrutiny under the Equal Protection Clause.

UT thus developed an intriguing strategy to diversify its student body, by taking advantage of widespread racial segregation in the state’s public schools: it would offer admission to all students who placed in the top 10% of their high school class, up to 75% of the class. UT would then admit the remaining 25% according to an individualized inquiry which would consider race as one factor among many, much like the Michigan Law School plan approved by the Court. In alleging that her rejection from UT was racially discriminatory, Ms. Fisher challenged only the latter aspect of the admissions program (as she did not place in the top 10% of her high school class).

In Fisher I, Justice Kennedy described three controlling principles to assess the constitutionality of a public university’s race-conscious admissions program. First, such a program would have to satisfy strict scrutiny under the Equal Protection Clause (that is, it must be narrowly tailored to achieve a compelling government interest, and diversity qualifies as such an interest). Second, courts should defer to a university’s academic judgment, accompanied by reasoned explanation, that a diverse student body would promote its educational goals. Third, the university bears the burden of proving that a race-neutral approach would not accomplish the same goals.

In Fisher II, Justice Kennedy determined that UT had met its burden with respect to all three principles. In large part, Kennedy appears to have been persuaded by the comprehensiveness of the data produced by UT in support of its need to go beyond the Top 10% program to achieve the educational benefits of a diverse student body, the modesty of the program (using race as “but a ‘factor of a factor of a factor’ in the holistic-review calculus”), and a desire to defer to UT’s academic judgment.

Justice Kennedy’s Fisher II opinion (much like his Fisher I opinion) is far from a model of clarity. Justice Kennedy went to great lengths to explain that UT’s admissions program was one-of-a-kind, that the Court’s ruling was meant only to capture a moment in time, and that the opinion had “limit[ed] value for prospective guidance.” Justice Kennedy referred to UT’s program as unique (he used the Latin), although it is unclear why he thinks other states will not adopt a similar approach now that the Court has given its seal of approval—Texas is not unique in its de facto racially segregated public schools. He also noted that the opinion did not intend to approve of UT’s admissions program today or in the future, explaining that UT should continually assess the need for a race-conscious admissions policy.

In doing so, he also fell prey to the same dubious assumption as Justice O’Connor in the Michigan cases: that racism in the United States will soon become a distant memory (Justice O’Connor stated that affirmative action would cease to be necessary by 2028). This premise was misleading, even before a major U.S. political party nominated an overtly racist demagogue as its standard bearer.

Still, Justice Kennedy should be commended for his evolution on affirmative action. He voted to strike down the use of race as a plus factor in the Michigan Law School case less than 15 years ago, and less than 10 years ago joined the majority in striking down Seattle’s use of race in school assignments to further Seattle’s goal of racially integrated public schools. In fact, Justice Kennedy has never before affirmed an affirmative action program. Particularly before the death of Justice Scalia, many commentators suspected that Fisher II would effectively end race-conscious admissions at public universities, and deny countless students of color a fair shake in the application process. Fisher II instead preserved the status quo, for which the four justices in the majority should be applauded.

Another Good Day for Class Actions before the Eight-Member Supreme Court

In a continuation of what is starting to look like a trend before the ideologically split, eight-member Supreme Court, on Monday morning a majority of the Justices signed on to a narrow procedural ruling in Spokeo v. Robins, which had the practical effect of preserving consumer class actions based on statutory, non-pocketbook injuries. Had the Court ruled in favor of Spokeo, the ability of consumers to bring class action lawsuits for harms such as the privacy rights at stake in this case would have been severely limited.

Thomas Robins sued Spokeo, the self-described “people search engine,” under the Fair Credit Reporting Act (“FCRA”), on behalf of a class of consumers, for publishing inaccurate reports concerning his age, marital status, education, and employment history. Mr. Robins alleged that the misinformation had negatively interfered with his job search efforts. The FCRA, an attempt by Congress to address widespread inaccuracies in consumer credit reporting and the significant challenges consumers face in trying to correct such information, requires that consumer reporting agencies take certain steps to ensure the accuracy of consumer data and grants injured consumers a right to sue for negligent or willful noncompliance with the Act.

The district court had granted Spokeo’s motion to dismiss on the basis that Robins lacked Constitutional standing to sue because he had not adequately pleaded an injury-in-fact. The injury-in-fact requirement demands that a plaintiff has suffered a harm that is both individualized and concrete. The Supreme Court has aggressively enforced this and other components of standing doctrine in the past three decades, making it more difficult for individuals to challenge corporate or government misconduct. For example, in an influential but extremely troubling 1984 decision, the Supreme Court held that the parents of African-American school children lacked standing to challenge the unlawful granting of tax-exempt status to racially discriminatory private schools, because they lacked an injury-in-fact.

Mr. Robins appealed to the Ninth Circuit, which ruled in his favor, finding that he had satisfied the injury-in-fact requirement by alleging that Spokeo had violated his statutory rights granted by FCRA and that he had a personal (rather than collective) stake in the handling of his own credit information.

Prior to Justice Scalia’s death, Spokeo seemed destined to continue the efforts of the Court’s conservative majority to weaken the ability of employees and consumers (amongst others) to recover against corporations through class action lawsuits. The conservatives Justices’ previous successes in this realm include two infamous decisions handed down five years ago: AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (upholding class-action waivers in consumer arbitration agreements) and Wal-Mart Stores Inc. v. Dukes (2011) 131 S. Ct. 2541 (de-certifying a nationwide class of female employees who relied on statistics to prove rampant sex discrimination). These decisions led to increasingly aggressive attempts by corporations to immunize themselves from class actions. Spokeo’s assertion that Mr. Robins lacked standing to sue Spokeo for violations of the FCRA reflected one such attempt, this time relying on the modern standing doctrine, described above, to strip consumers of an essential remedy for the widespread abuses in credit reporting.

However, without a fifth conservative vote, the high court instead sent the case back to the Ninth Circuit for further consideration of whether Mr. Robins’s injury was sufficiently concrete to satisfy the injury-in-fact requirement. Justice Alito, writing for a six-Justice majority, expounded on the concreteness element and noted that standing requires something more than “a bare procedural violation” of a statute. As an example, Justice Alito hypothesized that the incorrect reporting of an individual’s zip code likely would not result in concrete harm. Justice Alito added that a risk of future concrete harm could also satisfy the injury-in-fact requirement.

Justice Ginsburg, in an opinion joined by Justice Sotomayor, dissented to opine that remand to the Ninth Circuit was unnecessary because Mr. Robins’ allegations met the concreteness requirement. Therefore, all eight Justices appeared to agree that Congress may confer standing by creating statutory rights and remedies, so long as the plaintiff bringing suit has suffered an individualized harm resulting from something more than a bare procedural violation of a statute.

This issue is likely to return before a nine-member Court, but by preserving the status quo with respect to standing and class actions, the result was a clear win for consumers, employees, and those who advocate on their behalf.

A Close Call for Unions and the Employees they Represent at the U.S. Supreme Court

Public-sector unions will live to fight another day after the U.S. Supreme Court issued a 4-4 split decision in Friedrichs v. California Teachers Association on Tuesday. The ruling—which comprised of a single sentence and has no precedential value outside the Ninth Circuit—is most notable for what it did not do: that is, provide a means to gut unions for both public- and private-sector employees nationwide.

Friedrichs challenged a long-standing rule, first applied to public-sector unions in the 1977 Supreme Court case Abood v. Detroit Board of Education, 431 U.S. 209, 235-36. In Abood, the Court determined that public sector unions could require non-members to pay an agency fee (also known as a “fair share fee”)  to support the union’s collective-bargaining and-grievance adjustment activities from which all employees would benefit regardless of their union membership. Id. at 225-31. The Court distinguished these expenditures from a union’s political spending, for which a non-member could not be compelled to contribute to the union under the First Amendment. Id. at 232-36. The Abood decision in turn relied on earlier decisions by the high court which affirmed the right of private-sector unions to require all employees within a bargaining unit to contribute to non-political union expenditures. See Machinists v. Street, 367 U.S. 740 (1961); Railway Employees’ Department v. Hanson, 351 U.S. 225 (1956).

As a practical matter, a union’s ability to ensure that all employees pay their fair share of collective bargaining expenses is essential to its survival. A union bargains on behalf of all employees, regardless of whether those employees are members. Without the ability to require fair share fees, a union faces a collective action problem: why would an individual employee pay union dues when that employee can reap all of the benefits of the union’s collective bargaining efforts for free?

The necessity of fair share fees to the survival of unions has made them an enticing target for conservative efforts to attack unions and worker protections generally. The Roberts Court (or rather, its five most conservative members) signaled its eagerness to overturn the nearly forty-year old Abood precedent in its 2014 decision Harris v. Quinn, in which Justice Alito’s majority opinion criticized Abood extensively and declined to extend its holding to home health care workers paid by the state of Illinois. See Harris v. Quinn, 134 S.Ct. 2618 (2014). After Harris, the conservative advocacy group the Center for Individual Rights took the bait and brought the Friedrichs case with the goal of eliminating fair share fees from public-sector unions. Then, after the oral argument in Friedrichs this January, those same five justices from the Harris majority appeared primed to overrule Abood, notwithstanding the consequences for unions nationwide and the millions of workers they represent. 

Thus, little doubt exists that were Justice Scalia still on the Court, Friedrichs would have crippled public-sector unions and provided a blueprint to apply the same reasoning to target private-sector unions as well. That decision would have paralyzed the collective bargaining rights of teachers, firefighters, healthcare workers, and countless other public employees in the 23 states that allow fair share fees.

Unions and workers had a good day on Tuesday, but the fight continues. The Center for Individual Rights has already announced its intent to file a petition for rehearing of Friedrichs in light of the split decision. The future of public-sector employee unions thus rests in the hands of the Supreme Court’s next member. 

High Court Affirms Workers’ Right to Prove Mass Wage Theft Cases With Statistical Evidence

Today, the United States Supreme Court affirmed a basic principal underlying lawsuits challenging mass wage theft – if employers fail to keep records of employees’ work, then employees get to use their best estimate to prove their employer’s wage theft, including estimates based on statistical and representative evidence. The Court also confirmed that representative evidence may be used beyond the wage and hour context.

As we wrote here, the Court seemed unpersuaded at oral argument last fall that it should overrule seventy years of precedent, first established in Anderson v. Mt. Clemens Pottery Co., that employees may use a “representative sample to fill an evidentiary gap created by the employer’s failure to keep adequate records.” Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, 2016 WL 1092414, at *9 (Mar. 22, 2016). Writing for a 6-2 majority, Justice Kennedy affirmed this long-standing and critical rule of law.

Importantly, the Court went beyond the lenient standard of proof established in Mt. Clemens, which is unique to the Fair Labor Standards Act context, and thereby confirmed that representative evidence can be used as common proof of classwide liability and damages in other legal contexts. In particular, the Court clarified that Wal-Mart Stores, Inc., v. Dukes, the infamous decision that struck down a nationwide gender discrimination class action and has been the cause of much consternation for worker and consumer advocates, “does not stand for the broad proposition that a representative sample is an impermissible means of establishing classwide liability.” Id. at *10. Instead, the Court correctly recognized that representative evidence, like any evidence, can be persuasive or unpersuasive to a jury depending “on the purpose for which the sample is being introduced and on the underlying cause of action.” Id. at *8. In cases where “each class member could have relied on that sample to establish liability if he or she had brought an individual action,” representative evidence is more appropriate in contrast to cases where affected individuals are not sufficiently “similarly situated.” Id. at *8, *11. Thus, any doubt about the propriety of representative evidence to prove classwide liability in the wake of Wal-Mart and Comcast Corp. v. Behrend has been dispelled. The new battleground appears to be not if, but when representative evidence can be deployed to establish an element of a cause of action on a classwide basis. Id. at *8.

Interestingly, the Court observed that the district court would have erred in denying class certification if its sole basis for denying class certification were the lower court’s perception of the expert report as unpersuasive. Id. at *11. Only if the lower court “concluded that no reasonable juror could have believed that the employees spent roughly equal time donning and doffing” would denying class certification have been proper. Id. See also Amgen Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1194-95 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.”) The takeaway appears to be that the Court will require aggrieved plaintiffs seeking to use representative evidence to first establish that they were “similarly situated” such that the defendant’s harmful conduct affected them “roughly” in the same way. Id. However, once this threshold is met, the representative evidence may be used to establish classwide liability if it is otherwise admissible – no “Trial by Formula” concerns in sight.

Also, as anticipated by comments at oral argument, the Court declined to consider the important question of whether the possibility of uninjured class members prevents a district court from certifying a class action because Defendants abandoned the issue. The district court will have to address this issue in the first instance on remand. If not addressed in this case, the issue of possibly uninjured class members likely will continue to be raised by employers seeking to avoid accountability for their wrongdoing by arguing that if they didn’t steal from each of its employees, then its victims cannot stand together because unaffected employees might possibly receive a windfall. Thus, the employer should be let off the hook, or so the defense bar’s argument goes. A patently ridiculous argument, but one that will be resolved another day. 

            Lastly, the Court cautions that any representative evidence that relies upon expert witnesses, sampling, and similar evidence remains subject to a Daubert challenge, and thus, must be methodologically sound. This is in line with California Supreme Court jurisprudence that a class action may be certified using representative evidence, but the methodology behind the representative evidence must be credible and free of defects such as sampling errors. See Duran v. U.S. Bank Nat. Assn., 59 Cal. 4th 1, 13, 50-8 (2014) (Liu, J., concurring). See also here and here for discussion of the holding in Duran, and issues relating to the use of representative proof to advance the cause of workers.

            Thus, Tyson Foods, far from spelling the end of representative evidence in class actions, has breathed new life into class actions used to protect the interests of consumers, workers, and the general public.