By: Andrew McKinley

Seyfarth Synopsis: Businesses with arbitration programs often oppose the issuance of notice in FLSA collective actions on the ground that many potential recipients have binding arbitration agreements precluding them from participating in a case. The majority of federal appellate courts have not yet addressed whether arbitration must be addressed before or after notice issues. The Sixth Circuit recently joined the Fifth and Seventh Circuits in requiring the question to be addressed pre-notice. Unlike the Fifth and Seventh Circuits, it went a step further and placed the burden of showing arbitration-related similarity squarely on plaintiffs.

In Hoffman-La Roche v. Sperling, the Supreme Court held that district courts have authority, in appropriate cases, to facilitate notice of an FLSA collective action to similarly situated potential plaintiffs. The Supreme Court made clear, however, that the notice process should not function as a claim solicitation tool. In the over thirty years since Hoffman-La Roche, there has been limited appellate-level guidance on when notice should issue, leading a number of district courts to uncritically grant conditional certification, authorize expansive notice, and reserve consideration of facts bearing on similarity until a later stage. This rubber-stamping has led to the exact result the Supreme Court intended to avoid: the broad solicitation of plaintiffs who have little to no chance of achieving a resolution in a single proceeding, but who by virtue of their numbers alone, place increased settlement pressure on the employer.

More recently, circuit courts have begun reconsidering the level of rigor that a district court should apply before authorizing the issuance of notice. As we detailed here, the Sixth Circuit, in Clark v. A&L Homecare and Training Center, LLC, has now joined the Fifth Circuit in rejecting the previously prevalent, seemingly foregone conclusion that early collective certification may be granted under a “lenient” standard. But Clark is significant for another reason: its discussion of the interplay between arbitration and notice. Although the Sixth Circuit—like the Fifth and Seventh Circuits before it—determined that the application of arbitration agreements to the putative collective must be addressed before notice issues, it held that the burden on that question rests with the plaintiff alone.

JPMorgan and Bigger

In 2019, the Fifth Circuit’s decision in In re JPMorgan Chase & Co. marked the first appellate-level decision addressing whether a court should authorize the issuance of FLSA notice to individuals with binding arbitration agreements. In concluding that they should not, the Fifth Circuit, relying on Hoffman-La Roche, observed that a court’s role in an FLSA action is to facilitate notice to “potential plaintiffs” for the “efficient resolution in one proceeding of common issues.” Issuing notice to individuals with arbitration agreements, however, does precisely the opposite. Indeed, as the Fifth Circuit observed, it ultimately informs individuals who cannot participate in the collective action of a potential right to participate in a wholly separate proceeding—i.e., a potential arbitration—and thus “merely stirs up litigation.” Although it determined that arbitration should be addressed before the issuance of notice, the JPMorgan court placed the burden on the employer to show, by a preponderance of the evidence, the existence of valid arbitration agreements for the individuals sought to be excluded from the collective.

Almost a year after JPMorgan, the Seventh Circuit faced the same question in Bigger v. Facebook, Inc. Much as the Fifth Circuit had done, the Seventh Circuit began by noting that the unmanaged use of collective actions “present[s] dangers.” Chief among them is the possibility that the collective-action device could be abused by plaintiffs to increase settlement leverage by simply increasing the pool of plaintiffs. Given that reality, the Bigger court concluded that a court could not authorize notice to individuals for whom a court has been presented evidence of a binding arbitration agreement.

Citing to JPMorgan, the Bigger court held that, when an employer contends that proposed notice recipients entered into arbitration agreements, a court must first determine whether the plaintiffs contest the employer’s assertion that valid agreements exist. If no challenge is made, according to the Seventh Circuit, a court could not authorize notice to the individuals the employer contends have agreements. If, however, the plaintiff contests the employer’s assertions, the court must permit the presentation of additional evidence, with the employer bearing the burden of showing—by a preponderance of the evidence—that each individual it seeks to have excluded has a valid arbitration agreement.

The Sixth Circuit Weighs In

In Clark, the Sixth Circuit became the third federal appellate court to address the interplay between arbitration agreements and FLSA notice. At the outset of its analysis, the Sixth Circuit observed that any analysis of arbitration across a putative collective may impact a host of potential individualized issues, including consent, consideration, fraud, duress, mistake, and unconscionability. The Sixth Circuit, therefore, rejected the analytical standards outlined by JPMorgan and Bigger, noting the impracticability of conclusively resolving such issues for absent individuals on limited evidence.

At the same time, the Sixth Circuit expressly rejected the argument that arbitration should not be resolved before notice is authorized because it is a “merits” issue. Indeed, the court observed, “nearly every defense concerns the claim’s merits,” and the purpose of the similarly situated analysis is to determine whether the merits of the putative collective’s claims are similar to the merits of the plaintiff’s claims.

Thus, after rejecting JPMorgan and Bigger, the Sixth Circuit noted that arbitration, like any other defense, must be assessed by a district court as part of the determination of whether employees are similarly situated. And because the burden of showing similarity rests with the plaintiff, the Sixth Circuit held—unlike the Fifth and Seventh Circuits—that the burden of showing similarity as to presenting evidence on arbitration also rests with the plaintiff (not the employer).

What Does This Mean?

Alongside JPMorgan and Bigger, Clark is another arrow—and an even deadlier one—in the quiver of employers utilizing arbitration programs. Each of these decisions make clear that—contrary to the common refrain of the plaintiffs’ bar—arbitration is not a merits consideration that courts should reserve until after notice issues. And each confirms—as Hoffman-La Roche previously made clear—that any use of the collective action procedure as a claim solicitation tool should be viewed with skepticism. Three appellate courts have now held that arbitration must be addressed before notice may issue, and none have held otherwise. As a growing chorus of caselaw makes clear that certification not only should, but must, be more than a rubber stamp, Clark offers a powerful tool for employers with arbitration programs to oppose rushed motions for collective certification.

By: Phillip J. Ebsworth and Michael Afar

Seyfarth Synopsis: The Second Appellate District entered the fray and, like the Fourth and Fifth Districts in Galarsa and Piplack, held that an individual PAGA representative still maintains standing to pursue non-individual representative PAGA claims in court, even if the individual claims are compelled to arbitration.

In concluding that plaintiffs compelled to arbitrate their individual PAGA claims retain standing, the court reasoned that while the arbitration agreement required the plaintiff “to litigate a portion of his PAGA claim in an alternative forum governed by different procedures… PAGA does not require a plaintiff to resolve certain portions of his or her PAGA claim in a judicial—as opposed to an arbitral—forum.” Thus, the employee is not stripped of standing “simply because he or she has been compelled to arbitrate his or her individual PAGA claim.”

Unlike Galarsa and Piplack, the court expressly held that the representative claim in state court should be stayed pending the outcome of individual arbitration. This conclusion was based on the language of the arbitration agreement at issue: “To the extent that there are any claims to be litigated in a civil court of competent jurisdiction because a civil court of competent jurisdiction determines that the PAGA Waiver is unenforceable with respect to those claims, the [p]arties agree that litigation of those claims shall be stayed pending the outcome of any individual claims in arbitration.”

Gregg is the third of a series of recent appellate decisions disagreeing with the U.S. Supreme Court’s Viking River majority opinion to hold that plaintiffs do not lose representative standing once their individual PAGA claims are compelled to arbitration. However, the court enforced the language of the arbitration agreement which expressly provided that the representative claims were to remain stayed—a helpful tool to be considered in drafting arbitration agreements.

By: Kevin Young and Noah Finkel

Seyfarth Synopsis. Businesses familiar with FLSA litigation are aware of the frustrating ease with which some courts have turned single-plaintiff cases into large-scale collective action proceedings. But the tides are shifting, as the Sixth Circuit Court of Appeals has joined the Fifth Circuit in rejecting the “lenient standard” for collective action certification and demanding that plaintiffs do more to unlock the gears of mass litigation. The decision—which may be the most important wage-hour decision of the year—marks a critical development for all employers facing FLSA litigation.

Litigation under the Fair Labor Standards Act has soared for years. A leading factor driving this trend is the near-reflexive ease with which many courts have historically “conditionally certified” FLSA collective actions and authorized distribution of notices and invitations to join to their members. Simply stated, individual skirmishes have morphed early and easily into big lawsuits. And big lawsuits mean higher stakes; which means greater settlement pressure; which means more lawsuits.

For many years, district courts labored under the view that this approach is required. Many declined to consider well-founded arguments about whether it makes sense, whether it works, or even whether it is supported by the FLSA’s text. But the tides are changing, as evidenced most recently by the Sixth Circuit’s May 19, 2023 decision in Clark v. A&L Homecare and Training Center, et al.

The Low Bar of Lusardi

The concept of conditional certification was created by federal district courts to manage wage and hour litigation. And because there’s sparse appellate guidance on the issue—and even fewer Supreme Court decisions—the result is a hodgepodge of district court decisions that rely on shifting standards with diverse (and sometimes contradictory) outcomes.

A little history first. In 1989, in the seminal Hoffmann-La Roche, Inc. v. Sperling decision, the Supreme Court held that courts have discretion (within limits) to send notice of a collective action to potential opt-in plaintiffs. But the Court also cautioned that “intervention in the notice process” cannot devolve into “the solicitation of claims.” Further, the Court instructed district courts to “avoid even the appearance of judicial endorsement of the merits of the action.” Since Hoffmann-La Roche, the Supreme Court hasn’t provided further guidance on the issue.

Without guidance from the text of the FLSA or higher courts, district courts have searched for the right approach. Historically, most settled on the Lusardi ad hoc approach (from the District of New Jersey’s 1987 decision in Lusardi v. Xerox Corporation).

Under the Lusardi approach, courts apply a two-step “ad hoc” process to determine whether FLSA plaintiffs are “similarly situated” under the FLSA. At stage one—conditional certification—the court looks at whether the proposed collective members are sufficiently “similarly situated” to receive notice. This stage is often based solely on the pleadings and some affidavits. Some courts refuse to even consider the evidence a defendant-employer might present in the name of not diving into the “merits.” Those courts call it a “lenient standard” under which the plaintiff must make only a “modest showing” to clear the “low burden” necessary to send notice.

As a result, the vast majority of motions for conditional certification result in a collective action notice being issued to eligible current and former employees advising them of how they can join the case. Even when defendant-employers set forth persuasive, substantiated explanations on why those employees are not similarly situated, district courts often respond: “That may be a good argument about why this case ultimately should not be a collective action, but that’s appropriate for consideration after notice goes out, notice recipients ‘join ‘opt in’ to the case, and discovery takes place.” Of course, that later stage is often years down the line, after considerable expenditures of time and money.

In theory, stage two of the Lusardi approach—decertification—takes place after discovery has been completed. At that point, the defendant may move to “decertify” the collective, and the court applies a stricter test to assess whether the named and opt-in plaintiffs are sufficiently similarly situated to proceed together as a collective at trial. Many cases don’t reach decertification, however, because of the settlement pressure created by a conditional certification decision.

Living With Lusardi

The onslaught of FLSA litigation has been fueled, in part, by the low standard for obtaining conditional certification under Lusardi. Unlike traditional “opt out” Rule 23 class actions, plaintiffs’ attorneys have been able to obtain conditional certification before much if any discovery takes place and without the need for expert witnesses. In 2020, for example, the plaintiffs’ bar won a staggering 84% of conditional certification motions (231 out of 274).

Once certification is granted, there are real consequences for employers. Court-sanctioned notice must be sent to past and current employees advising them of their right to join the case. In addition to potential business disruptions, this can create significant potential exposure. As a result, employers face enormous settlement pressure early in these cases.

But nothing in the FLSA requires any of this. Certification, conditional or otherwise, isn’t mentioned in the Act—the concept is judge-made. Rather, the FLSA permits employees to sue for unpaid minimum wage and overtime compensation, and it states that the lawsuit may be brought “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.” It also requires that each plaintiff who joins the case file a written consent to join.

Swales Enters the Chat

All of this started to change in January 2021, when the Fifth Circuit rejected Lusardi and announced a new approach Swales v. KLLM Transport Services, LLC.

In the first-ever appellate-level, head-on consideration of the Lusardi framework, the Fifth Circuit found that the two-step approach “frustrates, rather than facilitates, the notice process,” “has no universally understood meaning,” and, though reduced to common practice, was not based on valid precedent. Swales explained that refusing to consider the “merits” before the distribution of notice ignores the FLSA’s requirement that plaintiffs be “similarly situated.”

Accordingly, the Fifth Circuit rejected Lusardi and set out a new approach for handling FLSA collective actions. Under the Swales approach, a court must: (1) decide what facts and legal questions will be material to the “similarly situated” analysis early in the case; (2) authorize preliminary discovery directed toward these issues; and then (3) analyze all of the evidence available to determine whether the putative collective is similarly situated.

While Swales left some important questions open—e.g., how high is the bar that a plaintiff must clear—it marked a victory for employers. That is certainly true in the Fifth Circuit, where the Swales standard rejects rubber-stamping collective actions early in a case’s life without a balanced consideration of whether its members are in fact similarly situated. And Swales also has proven valuable outside the Fifth Circuit, as it has caused some other courts to take a closer look at whether Lusardi is appropriate.

The Sixth Circuit Joins In

In the first appellate level decision to directly confront the issue since Swales, the Sixth Circuit joined its sister circuit in rejecting Lusardi as unwarranted and improper. In fact, Clark rejects the Swales approach too, adopting yet a third approach.

In Clark, the Sixth Circuit endorsed a two-step process, like Lusardi, while raising the bar for the showing a plaintiff needs to make in order for notice to be issued. Gone is the “lenient standard,” “modest showing,” and “low burden” that Lusardi endorsed. Instead, within the Sixth Circuit, a plaintiff wishing to unlock the gears of collective litigation now must show a “strong likelihood” that those to whom they seek to send notice are similarly situated to the plaintiffs themselves. Doing so commonly will require discovery, acknowledged the court.

What Does This Mean?

Clark marks a welcome development for employers facing FLSA litigation in the Sixth Circuit, and a potential watershed moment even for those fighting in other jurisdictions.

In the Sixth Circuit, the impact is clear: individual plaintiffs seeking to pursue collective actions must first engage in discovery. Through that discovery, they must show a “strong likelihood” that they are similarly situated with the individuals they desire to round up for their litigation. The days of issuing notice without discovery or consideration of a defendant-employer’s evidence regarding the “similarly situated” question are seemingly over.

But we think that Clark, particularly when combined with Swales, could stand for something much greater. In the apt words of Swales, while the Lusardi approach “may be common practice[,] practice is not necessarily precedent.” In two recent federal appellate matters, defendants have now challenged the practice of Lusardi and won. The ground on which the “lenient standard” rests is shakier than ever before.

Simply stated, Clark provides employer-defendants in all FLSA litigation—not just in the Sixth Circuit—renewed motivation and increased ammunition to challenge application of the Lusardi approach and rushed attempts to convert individual cases into collective actions. The bar is rising, and the timing for an employer community facing a continued torrent of FLSA litigation and the settlement pressure it so often inflicts couldn’t be better.

By: Christine M. Costantino

Seyfarth Synopsis: In what could become a trend, Judge T.S. Ellis, III recently broke with other courts in the Eastern District of Virginia when he rejected the two-step conditional certification process commonly used in FLSA collective actions and endorsed the one-step process and rationale outlined in 2021 by the Fifth Circuit in Swales v. KLLM Transp. Servs., LLC.

Employers have long been subject to a two-step “certification” process when facing putative collective claims under the FLSA.  This two-step process, established by the District of New Jersey’s 1987 decision in Lusardi v. Xerox Corp., permits court-authorized notice to be sent to an initial, “conditionally certified” group of individuals based on allegations that the individuals were subject to a single decision, policy or plan by an employer.  Employers may then move for “decertification” of the collective after the completion of discovery.  As a result, employers are frequently forced to incur the time and expense of discovery on a collective basis or explore resolution with individuals who may not, in fact, be similarly situated to the named plaintiff(s), regardless of the merit of the underlying claims.

In 2021, the Fifth Circuit undermined the validity of the two-step “conditional certification” process in Swales v. KLLM Transp. Servs., LLC, reasoning that a one-step certification process after targeted discovery better served the text of the FLSA.  The issue has not been squarely addressed by the Fourth Circuit and, until recently, district courts within the Fourth Circuit routinely elected to maintain the two-step process created by Lusardi and its progeny.  On April 14, 2023, however, a federal judge in the Fourth Circuit has now similarly rejected the two-step “conditional certification” process and endorsed the reasoning in Swales. 

In Mathews v. USA Today Sports Media Group, et al., the named plaintiff alleges that she and other “site editors” were misclassified as independent contractors rather than employees and not paid owed overtime.  The plaintiff filed a motion for conditional certification the day after the defendants filed their answer to the complaint.  Judge Ellis denied plaintiff’s pre-discovery motion for conditional certification and ordered the parties to engage in threshold discovery on the facts and legal issues material to the question of whether the named plaintiff is “similarly situated” to the putative collective. 

Judge Ellis observed that the FLSA does not provide for the “conditional certification” procedure.  Rather, the text of the FLSA permits the provision of notice only to those who are “similarly situated” to the named plaintiff(s).  On that basis, the court reasoned that the two-step certification framework established in Lusardi is inherently flawed.  The broad provision of notice to “potential” collective members at step one “commonly” results in notice being sent to at least some individuals who are not “similarly situated” to the named plaintiff(s).  In other words, the Lusardi framework often results in distribution of notices that are not authorized by the FLSA.

Judge Ellis thus found that the “correct approach” must be one that is authorized by the FLSA’s text and sends notice only to those individuals who are “similarly situated.”  Therefore, courts should determine at the outset of the case – not at the close of discovery – whether the individuals in the proposed collective are similarly situated to the named plaintiff.  Judge Ellis’ reasoning would permit employers to request and Courts to require discovery to determine the threshold issues relating to any collective designation and provide for a one-step process to identify any collective before notice is authorized or distributed.

Although it remains to be seen whether other judges will revisit their position on Lusardi (the Sixth Circuit Court of Appeals currently is deliberating on whether to do so in Clark v. A&L Care & Training Center, LLC), this decision provides employers further ammunition to push back against the “conditional certification” process and insist on a one-step collective designation process.

By: Phillip J. Ebsworth and Justin T. Curley

Seyfarth Synopsis: The Fourth Appellate District provides further support that plaintiffs do not lose representative standing once their individual PAGA claims are compelled to arbitration. In doing so, it rejected the argument that the language of PAGA requires a plaintiff to be able to maintain both individual and representative PAGA claims in the same forum.

The Fourth Appellate District held, like the Fifth District in Galarsa, that a PAGA plaintiff compelled to individual arbitration still retains standing to pursue a PAGA representative action in state court. The Fourth District, however, addressed the “and” language in the PAGA statute and PAGA’s legislative history distinguishing PAGA standing from “general public” standing.

The employer’s argument was that PAGA only authorizes an aggrieved employee to file an action “on behalf of himself or herself and other current or former employees.” As a result, the employer argued a plaintiff who cannot maintain an individual PAGA claim in court also cannot maintain a representative PAGA action in court. The Court dismissed this argument pointing to Kim v. Reins where the California Supreme Court held that because the individual Labor Code claims (which had been sent to arbitration) and the PAGA action (which remained in court) were part of the “same lawsuit” standing was not lost simply because the claims are being pursued in different fora. As a result, the Court concluded that the plaintiffs satisfied the standing requirement because they were pursuing a single PAGA action “on behalf of [themselves] and other current or former employees,” albeit across two fora.

By A. Scott Hecker, Adam R. Young, Patrick D. Joyce, James L. Curtis, and Craig B. Simonsen

Seyfarth Synopsis: On April 14, 2023, we attended a webinar presented by U.S. DOL Solicitor Seema Nanda, DOL Wage and Hour Division Principal Deputy Jessica Looman, DOL Occupational Safety and Health Administration Assistant Secretary Doug Parker, National Labor Relations Board General Counsel Jennifer Abruzzo, and U.S. Equal Employment Opportunity Commission Chair Charlotte Burrows.  The webinar addressed 1) what retaliation is and how each agency addresses it, 2) best practices for prevention, 3) best practices to respond to instances of retaliation, and 4) available resources.

Solicitor Nanda explained, despite nuances among the laws and standards enforced by the participating agencies, retaliation generally encompasses an employee’s engaging in protected activity, which results in an adverse action.  Adverse actions can include termination, confiscating immigration documents, threats, shift changes, reducing hours or responsibilities, blacklisting, demotion, isolation, and ostracizing – effectively any action dissuading an employee from raising a concern about a possible violation or engaging in other protected activity.  Protected activity may involve filing a complaint, planning or joining a lawsuit, complaining to a supervisor, or refusing to work.  Solicitor Nanda also represented that the Solicitor’s Office aims to engage with its agencies early in retaliation claims to seek, e.g., temporary restraining orders and to ensure every worker can exercise rights and participate in investigations.

Each participant described the laws they enforce and the circumstances they encounter when working through retaliation claims.  Specifically, OSHA’s Doug Parker explained the agency’s whistleblower program covers not only the OSH Act, but also 24 other laws covering product and food safety, fraud and financial issues, and transportation.

Solicitor Nanda labeled addressing retaliation in the workplace as a win-win.  Because it is illegal, it is a critical part of employer compliance, and by instituting anti-retaliation programs, employers can help employers avoid increased penalties and bad publicity.  Addressing retaliation can also improve the work environment, as employers who take retaliation prevention and response seriously can identify shortcomings and encourage employee engagement by reducing or eliminating fear of retribution for reporting issues.  The government takes retaliation so seriously because without employee participation in the enforcement process, agencies cannot effectively execute their missions.  Indeed, these agencies’ view retaliation as:

one of the greatest threats to workers being able to exercise the rights guaranteed to them under the law, and to the ability of agencies to protect the exercise of those rights and ensure compliance with our laws. As a result, preventing and addressing retaliation is a top priority across agencies

The presenters next shared recommendations for employers to implement best practices concerning prevention and response to retaliation.  They represented the recommendations are general, not mandatory, and do not interpret or create legal obligations.  But many derived from the work of the Whistleblower Protection Advisory Committee.

Assistant Secretary Parker kicked off a discussion concerning developing anti-retaliation programs and policies, identifying components of effective protocols to both prevent and respond to retaliation.

To prevent retaliation, employers should:

  • Provide training in plain, comprehensible language that employees can understand on: relevant laws and regulations; types of retaliatory acts; employees’ rights and obligations; and elements of the employer’s retaliation program.  Managers and supervisors should understand – and be provided examples of – what constitutes retaliation; how to deal with reports of retaliation and harassment; strengthen skills regarding de-escalation, conflict resolution, effective communication, and problem solving; and the consequences of retaliation.
  • Ensure accountability by having management take a leadership role in preventing and addressing retaliation.  Managers should set the tone, lead by example, hold themselves accountable, and empower workers.
  • Develop a complaint process that provides avenues for employees to raise concerns.  The process should provide for transparent evaluation, as well as fair, effective, and timely resolution of complaints.  Assistant Secretary Parker suggested employers should want robust anti-retaliation prevention and response programs in place because these policies are closely intertwined with substantive compliance with applicable laws and regulations.  Put another way, employees’ sharing concerns may facilitate employers’ ability to address potential safety and health shortcomings in their workplaces.
  • Maintain program oversight through ongoing monitoring of, e.g., the efficacy of anti-retaliation training, trends in complaints and subsequent resolutions, compliance with anti-retaliation policies, and numbers of worker reports to evaluate whether employees are coming forward with concerns.  Internal audits can be beneficial as well.
  • Evaluate policy and culture, including transparency surrounding working conditions and pay; potential chilling effects of safety incentive programs and employee monitoring; communications regarding the value of employees’ raising concerns; and no retaliation for employees who report alleged violations to the government.

To address incidents of retaliation, employers should

  • Implement a system, which workers trust, to receive and address complaints. 
  • Authorize appropriate personnel to respond to complaints, including providing remedies to employees. 
  • Establish independent reporting channels and ensure the confidentiality of reports to the extent practical, but do not impede government investigations or prevent employees from seeking other support or assistance
  • Investigate reports of retaliation promptly and thoroughly, ensuring reports are taken seriously and investigations are not tainted by preconceptions
  • Make sure the investigatory process is clear and is explained to the reporting employee.  Both the employee and management should be kept informed throughout investigation. 
  • Close the investigation respectfully and properly
  • Follow up, as needed, to maintain continued anti-retaliation protection for reporting employees.

When providing remedies to employees who report workplace concerns, employers should consider how to make employees whole, e.g., through reinstatement, by providing lost wages or other damages, and through disciplining supervisors who failed to follow retaliation policies.

All the participating government entities represented additional resources are available on their respective websites.  OSHA’s Assistant Secretary Parker referenced not only www.whisteblowers.gov, but also the agency’s materials on health and safety management programs and its safe and sound campaigns.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Workplace Safety and Health (OSHA/MSHA) Team.

By: Phillip J. Ebsworth and Justin T. Curley

Seyfarth’s Wage Hour Litigation practice group is excited to share this inaugural post in our new series, PAGA Paraphrased. The everchanging world of PAGA is full of verbose opinions, unwieldy statutory language, and a unique and sometimes perplexing vocabulary that even an exasperated United States Supreme Court expressed confusion over. Whether you deal with PAGA on a regular basis, you are new to this area of law, or somewhere in between, PAGA Paraphrased is a resource to keep you informed with straightforward and easy to understand updates.

Over the next couple of weeks we will provide updates on the recent Court of Appeals cases that have considered whether plaintiffs whose individual claims have been compelled to arbitration maintain standing to pursue the representative PAGA claims in Court. Then, we will keep you informed on developments as and when they happen including connecting you with Seyfarth’s more substantial PAGA analysis on the bigger developments in the field.

We hope you find these updates helpful and do not hesitate to reach out to our authors if you ever need a longer explanation.

Seyfarth Synopsis: The Fifth Appellate District provided its prediction for the California Supreme Court’s decision in Adolph v. Uber Technologies, expected later this year. The first appellate authority addressing whether plaintiffs maintain standing after their individual PAGA claims have been compelled to arbitration comes out in favor of plaintiffs and disavows Viking River’s conclusion that plaintiffs lose standing, in turn, compelling dismissal of the representative PAGA claims.

This decision first introduces “Type A” and “Type O” claims into the PAGA lexicon. “Type A” is used for a claim seeking to recover a civil penalty imposed because of  a Labor Code violation suffered by the plaintiff. The Court labelled these claims “Type A” because this type of PAGA claim will be ordered to arbitration if it is covered by an arbitration agreement. “Type O” is used for a claim seeking to recover a civil penalty imposed because of  a Labor Code violation suffered by an employee other than the plaintiff—“O” taken from the word “other”.

The Court concluded that a plaintiff compelled to arbitrate their Type A claims retains standing to pursue their Type O claims in state court. In doing so, the Court “predict[ed] that [the] California Supreme Court will conclude that California law does not prohibit an aggrieved employee from pursuing Type O claims in court once the Type O claims are separated from the Type A claims ordered to arbitration. The reason for this prediction is simple—it is the interpretation of PAGA that best effectuates the statute’s purpose, which is ‘to ensure effective code enforcement.’” The Court also adopted the reasoning in Gavriiloglou v. Prime Healthcare Management, Inc. and concluded that Type A and Type O claims litigate two separate rights thus, California’s general rule against splitting a cause of action is not violated as Type A claims and Type O claims are not based on the same “primary right.”

By Ryan McCoy, Alex Simon, and Cary Burke

Seyfarth Synopsis: Recently, the U.S. Court of Appeals for the Fifth Circuit ruled that a crane mechanic who performed some work on a truck chassis came within the purview of the Motor Carrier Act exemption to the Fair Labor Standards Act, irrespective of the percentage of time he spent performing such work in comparison to his other duties. 

Last week, the United States Court of Appeals for the Fifth Circuit confirmed that a crane mechanic’s work on mobile cranes falls squarely within the scope of the Motor Carrier Act Exemption (MCE) to the Fair Labor Standards Act (FLSA).

This was not a heavy lift for the three-judge panel deciding Cunningham v. Circle 8 Crane Services. As the Fifth Circuit reminded the plaintiff, the Motor Carrier Act Exemption applies whenever the Secretary of Labor has the power to regulate a particular employee’s qualifications and maximum hours of service, even if that power is unexercised.

For context, an employee falls under the Secretary of Labor’s jurisdiction when he or she (1) is employed by a motor carrier or a private motor carrier subject to the Department of Transportation’s (DOT) jurisdiction, and (2) engages in activities that directly affect the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce.

With limited exceptions, drivers, driver’s helpers, loaders, and mechanics who meet these criteria and engage in interstate commerce are not eligible for overtime under the FLSA.

In this case, the crane mechanic argued that the MCE did not apply to his employment because the “bulk” of his work was done on the crane itself, rather than the truck chassis that drove the crane, which did not directly affect how safely the vehicle could operate on highways. The employer countered, among other things, that ensuring that the crane was in safe working condition would prevent it from becoming hazardous to highway safety.

In short order, the Fifth Circuit took a wrecking ball to the crane mechanic’s argument. Under the Motor Carrier Act, it doesn’t matter how a mechanic spends the “bulk” of their time. Because it was undisputed that the crane mechanic worked on the truck chassis that moved the crane on interstate highways, he qualified as a “mechanic” for purposes of the MCE. Therefore, the Court did not even need to address whether work on immobile crane components would trigger the exemption.

In the end, the Supreme Court has long made clear that the Motor Carrier Act Exemption exists to ensure that employers who operate motor vehicles are not hamstrung by regulations from two agencies. The Fifth Circuit’s opinion here demonstrates that this principle remains safe, secure, and hooked on a reinforced-steel cable.  

By: Paul J. Leaf and Kyle Winnick

Seyfarth Synopsis: In Rocha v. U-Haul Co. of Cal., the California Court of Appeal held that a plaintiff asserting a PAGA claim does not have standing to pursue a PAGA claim on behalf of others, if an arbitrator denies the plaintiff’s individual claims on the merits and finds no underlying Labor Code violations.

The California Court of Appeal, Second Appellate District, recently handed employers a powerful tool to combat claims brought under California’s Private Attorneys General Act (“PAGA”).  PAGA authorizes “aggrieved employees” to file representative lawsuits to recover civil penalties on behalf of themselves, other current and former employees, and the State of California for violations of the California Labor Code.  Cal. Lab. Code § 2699(a). 

In Rocha v. U-Haul Co. of Cal., the plaintiffs brought individual retaliation claims against their former employer under Labor Code § 1102.5.  They later sought leave to add a PAGA claim based in part on the same alleged conduct and Labor Code provision underlying their individual retaliation claims.  The trial court denied them leave and compelled the individual retaliation claims to arbitration.  The arbitrator ruled in favor of U-Haul, finding that it had not retaliated against the plaintiffs by violating Labor Code § 1102.5.

After the trial court affirmed the arbitration award, the plaintiffs appealed.  In assessing whether leave to add the PAGA claim should have been given, the Court of Appeal first considered whether the plaintiffs had standing to pursue the proposed PAGA claim.  After all, only “aggrieved employees” have standing to bring PAGA claims, and those individuals are defined as “any person who was employed by the alleged violator [of the Labor Code] and against whom one or more of the alleged violations was committed.”  Cal. Labor Code § 2699. 

The Court of Appeal found that “[o]nce the Labor Code violations based on which a plaintiff seeks to qualify for PAGA standing have been finally adjudicated, the extent to which that adjudication prevents a plaintiff from qualifying for [PAGA] standing will depend on general principles of issue preclusion.”  Applying this principle, the Court held that the plaintiffs “cannot establish PAGA standing to bring a claim based on Labor Code violations by U-Haul already alleged in the [current] complaint, because the arbitrator found no such violations occurred, and that finding has issue preclusive effect.  It would thus have been futile to allow the [plaintiff]s to allege such a PAGA claim.”  In other words, “the arbitrator’s finding that the [plaintiff]s did not suffer a section 1102.5 violation as alleged in the [current] complaint precludes them from qualifying as ‘aggrieved employees’ based on that same alleged [Labor Code] violation.”  

The Rocha Court distinguished the California Supreme Court’s decision in Kim v. Reins Int’l Cal., Inc., 9 Cal. 5th 73 (2020), which held that plaintiffs who settle their individual Labor Code claims against an employer may still be “aggrieved employees” with standing to assert a PAGA claim based on the same alleged employer conduct.  The Kim Court reasoned that a settlement does not obviate the possibility that Labor Code violations may have occurred.  By contrast, the Rocha Court reasoned that an adjudication on the merits in favor of an employer definitively means none of thoseLabor Code violation(s) occurred, so issue preclusion bars these plaintiffs from being “aggrieved employees.”     

Rocha is particularly useful after the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana.  As discussed here, in Viking River, the Court first held that the individual portion of PAGA claims—as distinct from the group portion of PAGA claims asserted on behalf of others—can be compelled to arbitration under the Federal Arbitration Act.  Second, the Court held that after plaintiffs’ individual PAGA claims are compelled to arbitration, their group PAGA claims should be dismissed for lack of standing.

Unfortunately, California state courts have consistently followed only the first holding of Viking River—individual PAGA claims may be compelled to arbitration.  That holding was based on federal law, so no state court may override it.  But the second holding of Viking River—plaintiffs lack of standing to pursue group PAGA claims after their individual PAGA claims are compelled to arbitration—was based on the U.S. Supreme Court’s interpretation of California law.  This latter holding may therefore be undone by California state courts, and this precise issue is before the California Supreme Court in Adolph v. Uber Technologies, Inc., No. S274671.

Even if the California Supreme Court holds in Adolph that plaintiffs maintain standing to assert group PAGA claims after their individual claims are compelled to arbitration, the first holding of Viking River, combined with Rocha,still provides a roadmap for employers to defeat PAGA claims: 

  1. Under Viking River, a plaintiff’s individual claims are compelled to arbitration. 
  2. If Adolph disagrees with Viking River, the group portion of the PAGA claim will not be dismissed and will remain in state court. 
  3. The employer files a motion under California Code of Civil Procedure § 1281.4 to stay the PAGA claim still in court until the plaintiff’s arbitration is resolved.  The stay is mandatory if the claims in court and arbitration overlap.    
  4. Under Rocha, any Labor Code claims that the employer defeats on the merits in arbitration will have preclusive effect and strip the plaintiff of standing to assert those claims on a PAGA group basis in court.   

In short, Rocha weakens plaintiff counsels’ argument that PAGA claims are impenetrable, given their expectation that the California Supreme Court will expand PAGA standing in Adolph.  Technically, the issue to be decided in Adolph is not whether an employee has PAGA standing after losing on the merits at arbitration.  So, Rocha should remain undisturbed by Adolph, and allow employers to attack PAGA claims no matter how Adolph treats the second holding of Viking River.  Unfortunately, the possibility can never be dismissed that the California Supreme Court in Adolph might find a way to undo Rocha.

By Alison Silveira and Kerry Friedrichs

Seyfarth Synopsis: Last week, the United States Court of Appeals for the Third Circuit held that employers can deduct from an employee’s PTO bank for failure to meet clearly defined productivity minimums without violating the salary basis test and jeopardizing the employee’s exempt status.  Higgins v. Bayada Home Health Care Inc. provides some positive news for employers, following the Supreme Court’s recent adverse salary basis decision in Helix Energy Solutions Group v. Helix.  The opinion also sheds some light on how courts are likely to view “salary” for purposes of the salary basis test moving forward.

The definition of “salary” is a recent hot topic in wage and hour litigation and, for many courts, is an issue of first impression.  Earlier this month, in Helix, the Supreme Court looked to several dictionaries for a definition of “salary” in finding that a highly compensated employee who was paid on a day rate did not meet the “paid on a salary basis” requirement of the federal overtime exemptions, even though (1) the day rate for just one day’s work satisfied the salary level required by the exemptions, and (2) the salary basis test does not require that an employee be paid their “salary” if they work no days during a workweek. 

The Third Circuit has now followed in the footsteps of Helix, and looked to not one but three different dictionaries to come up with a definition of “salary”: “a fixed amount of compensation that an employee regularly receives.”  In Higgins, the plaintiff was an exempt health care clinician. She and her other exempt colleagues were paid a salary, and were required to meet certain productivity minimums each week.  If an employee exceeded those minimums in a week, they earned additional compensation.  If, however, they failed to meet those minimums in a week, the employer withdrew from the employee’s available PTO bank to supplement the difference between actual and expected minimum productivity.  Importantly, the employer never withdrew from the employee’s salary to cover this delta.  While the employee believed the employer would reduce her salary if her PTO bank was insufficient to cover the delta, the employer never did and the court clarified that the relevant question is not “whether an employer threatens to dock a salaried employee’s base pay; it is whether an employer made an actual deduction from an employer’s base pay.”  Against this backdrop, the Third Circuit concluded that PTO is a “fringe benefit,” which “has no effect on the employee’s salary or wages,” and that deduction from a PTO bank does not jeopardize an employee’s exempt status under the FLSA.

The Court’s conclusion that PTO is neither wages nor part of an employee’s salary is not novel; the Department of Labor reached the same conclusion in a 2009 opinion letter on the topic, finding that the salary basis test does not apply to nonmonetary compensation like vacation time and sick leave.  But the Higgins court only mentions this interpretation in a footnote, after spending several pages independently examining the FLSA’s enabling regulations and dictionary definitions.  Helix similarly made no reference whatsoever to DOL opinion letters interpreting the “salary basis” test regulations, instead looking exclusively to the regulations themselves and the dictionary.  We expect this is a foreshadowing of opinions to come on the topic, and that courts will continue to look to strict statutory construction and the plain meaning of the text of a regulation, as opposed to affording traditional Auer deference to an agency’s interpretations of its own regulations.