December 23, 2013

5 Things Courts Clarified This Year

Oral argument in one of this year's most important wage and hour Supreme Court cases, Sandifer v. United States Steel Corp., began with a moment of jocularity. At issue in Sandifer was the scope of an exemption under the Fair Labor Standards Act (FLSA) that excludes time spent "changing clothes" from compensable work time. Attempting to find common ground and show that not everything a person wears fits within the exemption, counsel for the petitioners told the justices that "a toupee" is not something that is "commonly referred to as clothes." The assertion led Justice Scalia to quip, "I resent that."

The laughter from the gallery that greeted Justice Scalia's quip betrayed an obvious but fundamental principle in litigation: some arguments are so clear that there is no need for case law or other authority to support them. Unfortunately, the law—especially complex employment law—is rarely that intuitive.

With that in mind, we thought it would be helpful to close out the year by summarizing five major concepts in complex employment litigation that courts clarified—or attempted to clarify—in 2013. Here they are:

1.  Federal Courts Are Increasingly Upholding Arbitration Agreements With Class Action Waivers

In American Express Co. v. Italian Colors Restaurant, the plaintiffs signed agreements with American Express that required all disputes to be resolved by arbitration and specifically stated that there was "no right or authority" to arbitrate on a "class action basis." Nonetheless, the plaintiffs formed a class and sued. The issue of the enforceability of the waiver made its way to the Supreme Court this year, and the Court enforced the waiver, noting that arbitration agreements are matters of contract that must be "rigorously enforce[d]." The Supreme Court's opinion led to a series of rulings by lower federal courts enforcing arbitration agreements with class action waivers, including in the employment law context.

2. Plaintiffs Cannot Forum Shop Among State Courts By Using A Precertification Stipulation Of Damages

In Standard Fire Insurance Co. v. Knowles, the Supreme Court considered a district court's decision to remand a case to state court where the amount in controversy exceeded the jurisdictional threshold of $5 million but the plaintiff stipulated to damages under $5 million. The Court held that the district court "wrongly concluded that [the] precertification stipulation could overcome its finding that the . . . jurisdictional threshold had been met" because the plaintiff "lacked the authority to concede the amount-in-controversy issue for the absent class members." The upshot of this case is that employment litigation plaintiffs, who are increasingly turning to state law causes of action to stay out of federal court, cannot overcome federal jurisdiction under the Class Action Fairness Act by stipulating to damages on behalf of putative class members.

3. Courts Must Consider A Case's Underlying Merits When Ruling on Class Certification

In Comcast Corp. v. Behrend, the Supreme Court reaffirmed that, before granting class certification, district courts must conduct a "rigorous analysis" that will "frequently entail overlap with the merits" of the case to ensure that all requirements of Rule 23 are satisfied. It also held that courts may not certify a class seeking monetary damages unless all of the damages sought resulted from a common mechanism, e.g., an employment policy that harmed all class members. Using language that could be helpful to employers facing complex employment lawsuits, the Court cautioned that class certification is not proper when "damage calculations will inevitably overwhelm questions common to the class."

4.  Courts Are Tweaking the Standards that Govern Certification of Collective Actions

In Espenscheid v. DirectSat USA, LLC, the Seventh Circuit held that there "isn't a good reason to have different standards for the certification" of opt-in collective actions under the FLSA and opt-out class actions under Rule 23. The court's opinion was focused on the standards that govern decertification of collective actions—a process that typically does not occur until years into a lawsuit and after the court has conditionally certified a class under the "lenient," pro-plaintiff standard that governs conditional certification. Even so, authority like Espenscheid that moves collective actions closer to Rule 23 class actions benefits employers by requiring employees to meet more demanding standards before proceeding with class claims.

5. An Employer's Lack of Actual Or Constructive Knowledge Of Work Time May Be A Defense In FLSA Cases

In October, the Supreme Court denied a petition for certiorari seeking review of the Sixth Circuit's decision in White v. Baptist Memorial Health Care Corp., which held that an employer may escape liability under the FLSA based on an employee's failure to report extra work time that the employer did not know and should not have known that the employee was working. While the significance of a decision denying certiorari is always open to debate, the Court's willingness to let the White case stand lends additional support to other decisions holding that employers cannot be liable under the FLSA for work they did not know about. For example, in Boelk v. AT&T Teleholdings Inc., the Western District of Wisconsin stressed that the FLSA does not require the employer to pay for work it neither knew about nor had reason to know about, and thus, "the employer cannot be held liable for FLSA violations unless it had actual or constructive knowledge of an employee's overtime work."

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