Spotlight on Fair Pay for Female Law Firm Partners: Class Action Lawsuit Filed Against Sedgwick

Traci Ribeiro’s class action lawsuit against her employer Sedgwick LLP is the latest in a string of lawsuits in the pay equity battle, which has been highlighted in this year’s Presidential election and through the recent EEOC claim filed by the U.S. womens’ soccer team. Ribeiro is a non equity partner who claims that, as one of the firm’s three highest revenue generating partners, she has been denied equity partnership and was subjected to retaliation for filing an EEOC complaint claiming gender discrimination.  She seeks to represent a class of past and present female attorneys in partnership track positions at the firm; her complaint alleges violations of the California Fair Pay Act, Illinois Fair Pay Act, and Federal Equal Pay, as well as gender discrimination and retaliation under the California FEHA, Illinois Human Rights Act, and Title VII.  Ribeiro claims, in addition to routinely paying women lawyers less than their male counterparts, Sedgwick has denied women equity partnership and membership on its Executive Committee (until 2016, when Ribeiro made a formal complaint about gender discrimination).  She asserts discrimination under both a disparate treatment and disparate impact theory.

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Seventh Circuit: Tipped Employees Can Perform Limited Non-Tipped Work At The Tip Credit Rate Of Pay

The U.S. Court of Appeals for the Seventh Circuit issued a significant decision last week addressing the compensation of tipped employees who perform non-tipped work.  In Schaefer v. Walker Bros. Enterprises, 2016 WL 3874171 (7th Cir. July 15, 2016), a restaurant server in Illinois pursued a class and collective action alleging, among other things, that his employer violated state and federal wage and hour laws by failing to pay servers minimum wage for the time they spent on non-tipped duties.  The Seventh Circuit affirmed summary judgment dismissal of the lawsuit.  The Court held that an employer may compensate a tipped employee at the reduced “tip credit rate” of pay for:  (1) limited non-tipped work incidental or related to tipped work; and (2) other negligible non-tipped work.  The decision provides helpful guidance to restaurant employers regarding the types of duties that tipped employees may perform at a reduced rate of pay.

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Split Circuit Court Decisions Create Uncertainty on Class Action Waivers and likely Supreme Court Review

Last week the 7th Circuit U.S. Circuit Court of Appeals, in Lewis v. Epic-Systems Corp., held that a company’s arbitration agreement, which prohibits employees from participating in “any class, collective or representative proceeding,” violated an employees’ right to engage in concerted activity under the National Labor Relations Act (NLRA).  The ruling creates a circuit split on the enforceability of class action waivers because the 2nd, 5th, and 8th Circuits each have held that class action waivers do not violate an employee’s rights under the NLRA.  Because of this circuit split, it is likely that the Supreme Court will visit this issue in the near future.

Background on Enforceability of Class Action Waivers

In recent years, federal courts have largely upheld arbitration pacts with class or collective action waiver language that provides that not only must an employee bring his or her claim exclusively in arbitration, but also that he or she must do so on an individual, and not on a class-wide basis. Specifically, in AT&T Mobility v. Concepcion (2011), the Supreme Court ordered the enforcement of arbitration agreements in a dispute involving an arbitration provision in cellphone contracts.  In the process, Concepcion generally held that the Federal Arbitration Act (FAA) preempts state bans on class action arbitration waivers.  The case however, did not directly address the viability of class action waivers in the employment context.

Shortly thereafter, in January 2012, the National Labor Relations Board (NLRB) ruled that an employer could not force its employees to sign arbitration agreements with class waiver provisions because such agreements were unlawful under the NLRA. See D.R. Horton, Inc., 357 NLRB 184 (2012).  On appeal, the 5th Circuit rejected the NLRB’s holding that class waivers in mandatory arbitration agreements are unlawful, joining the 2nd and 8th Circuits, which had issued similar rejections.

Seventh Circuit Opinion

In Lewis v. Epic-Systems Corp., the plaintiff had entered into an arbitration agreement with his employer in which he had waived his “right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”  Lewis later filed a suit in federal court on behalf of himself and other employees alleging that the company had violated the Fair Labor Standards Act (FLSA) by misclassifying the employees and depriving them of overtime.

The employer moved to dismiss plaintiff’s claims and compel arbitration on an individual claim basis. The plaintiff argued that the agreement’s class and collective action waiver was unenforceable because it interfered with his right to engage in concerted activity under Section 7 of the NLRA.  The district court agreed with plaintiff and denied employer’s motion to dismiss, relying primarily on a prior decision the district court had issued adhering to the D.R. Horton’s decision.  The district court believed the 5th Circuit’s majority opinion “never persuasively rebutted the board’s conclusion that a collective litigation waiver violates the NLRA and never explained why, if there is tension between the NLRA and the FAA, it is the FAA that should trump the NLRA, rather than the reverse.”  The employer subsequently appealed the district court’s decision to the 7th Circuit.

In its analysis, the 7th Circuit adopted the NLRB’s reasoning (as stated in D.R. Horton) that engaging in class, collective or representative proceedings is “concerted activity” and a protected right under Section 7 of the NLRA.  Therefore, the court concluded, it would be an unfair labor practice under Section 8 of the NLRA for an employer “to interfere with, restrain, or coerce employees in the exercise” of this right.

Surprisingly, the 7th Circuit rejected the argument that the arbitration agreement must be enforced under the FAA—an argument adopted by all the other circuits that have ruled on this matter. In its ruling, the court focused on the FAA’s savings clause, which provides that arbitration agreements are enforceable except if the agreements themselves are unlawful.  Thus, the court found that Epic’s arbitration agreement is illegal under the NLRA, and because an illegal agreement is not enforceable under the FAA’s savings clause, there is no conflict between the FAA and the NLRA.

General Takeaways for Employers

The Lewis decision leaves employers with several takeaways:  First, employer need to know that class and collective action waivers will not be enforced in federal courts sitting in Illinois, Indiana and Wisconsin, which are the states within the Seventh Circuit’s jurisdiction.

Second, these same agreements will likely continue to be enforced in federal courts sitting in the circuits that have rejected the NLRB’s reasoning in D.R. Horton (for now, 2nd, 5th, and 8th Circuits).

Third, this circuit split will likely involve the input of the Supreme Court in the future but perhaps not between the Presidential election, and the appointment of a ninth Justice, given the desire to avoid a 4-4 split. If the case is brought before the Supreme Court before a new Justice is confirmed by the Senate, and the Supreme Court decision is split 4-4, each of the Circuit’s decisions will remain in effect.

What Are Your Company’s Wage & Hour Risks?

Wage & Hour class actions are being filed at a pace that dwarfs almost all other types of litigation. With a myriad of federal and state laws and regulation, employers not only need to take steps to minimize the risk of a suit, but also must be prepared to defend themselves. Launch the brief video below to hear how Labor and Employment Group partners Cheryl Orr and Stephanie Gournis are helping employers involved in employment class actions, as well as helping companies to minimize the risk of litigation.

 

Wage-and-Hour

 

Unpaid Internships – Training Programs or a Lesson in Class Actions?

Summer is quickly approaching, and eager students are lining up for internship opportunities, some of which may be unpaid.  The whole topic has caused a firestorm of news stories lately – including an NYU students’ petition to remove unpaid internship postings from the campus career center, and an auction by an on-line charity website for a six week unpaid internship at the UN NGO Committee on Human Rights (the current bid is $26,000).  Do unpaid internships run afoul of federal and state minimum wage laws?  The answer potentially is yes, but given recent successful challenges to class certification, employers now have useful guidance in developing defense strategies against such claims.

Last week, in Wang v. The Hearst Corporation, U.S.D.C. S.D.N.Y. Case No. 12-CV-00793, the court denied class certification in a case brought by interns at various Hearst-owned magazines.  The interns challenged Hearst’s practice of classifying them as unpaid interns, allegedly to avoid minimum wage and overtime laws under the Fair Labor Standards Act (“FLSA”) and New York state law.  The court found that the plaintiffs could not satisfy the commonality requirement for class certification.  While plaintiffs could demonstrate a corporate-wide policy of classifying proposed class members as unpaid interns, the nature of the internships varied greatly from magazine to magazine.  The court noted there was no evidence of a uniform policy among the magazines regarding the interns’ specific duties, training, or supervision.

Days later, attorneys for the defendant in Glatt v. Fox Searchlight Pictures Inc., U.S.D.C. S.D.N.Y. Case No. 11-CV-06784, made a similar argument to defeat class certification in a case in which Fox interns challenged their unpaid status under federal and New York state minimum wage and overtime laws.  In that case, the interns worked on the sets of different films or were based out of corporate offices, and weren’t governed by a centralized policy or procedure.  The defendant in Glatt argued that class certification should be denied because of the lack of a uniform policy.  While the court in Glatt has not yet ruled, these two cases suggest that, although claims by unpaid interns may persist, plaintiffs may find it increasingly difficult to sustain them as class actions.

In light of these cases, now is a good time to review the rules for internships.  According to the Department of Labor, internships in the for-profit private sector will be viewed as employment relationships for which the FLSA minimum wage and overtime rules will apply, unless the intern is truly receiving training which meets six criteria:  (1) the internship is similar to training that would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern is not replacing employees and works under close supervision; (4) the sponsor of the intern does not derive immediate benefit from intern’s activities and at times, its operations may actually be impeded; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the sponsor and the intern understand the intern is not entitled to wages for the time spent in the internship.  As of 2010, the California Division of Labor Standards Enforcement (“DLSE”) relaxed the multi-factor test it previously applied and now uses the same criteria as the DOL.

While the Hearst ruling is good news for employers, the case did not address the merits of the interns’ claims and does not mean employers can relax their compliance efforts.  If an employer improperly classifies an internship as “unpaid,” the employer could be liable for failure to pay minimum wage and overtime, penalties for failure to provide meal and rest breaks, as well as potential liability for violations of anti-discrimination and anti-harassment laws that apply to employees.  The bottom line is that employers should apply the DOL/DLSE six-factor test and if their internships do not meet the criteria, the interns should be paid at least minimum wage.

Editors note: Be sure to check out Kate’s guest blog post for thewrap.com on the use of interns by entertainment and media companies.

Supreme Court Ducks Mootness Question In Genesis

Does an unaccepted offer of judgment for full relief made prior to a motion to certify moot the plaintiff’s claim in an FLSA collective action?  That was the question we hoped the Supreme Court would answer in Genesis Healthcare Corp. v. Symczyk.  Unfortunately, the majority in the 5-4 opinion issued April 16 refused to decide that question, finding that the issue was not properly before the Court because the plaintiff had conceded her claim was moot in the district court and Third Circuit, and had not contested the issue in her opposition to the petition for certiorari.  While we now know from the dissent that Justices Kagan, Breyer, Sotomayor and Ginsburg would find that an unaccepted offer of judgment has no impact on the validity of the underlying claim, the majority opinion leaves unresolved a split among the Circuits.  The Seventh Circuit accepts the argument that a claim must be dismissed as moot when an offer of judgment for full relief is made prior to a motion to certify, while the Third, Fifth and Ninth Circuits allow plaintiffs to circumvent mootness by immediately filing a motion to certify (the Second and Sixth Circuits accept mootness but reject the argument that the case should be dismissed, finding instead that judgment should be entered for the plaintiff in the amount offered by the defendant).  Because the issue remains in doubt, Defendants in FLSA collective actions may prefer to pursue settlement with the individual plaintiff  before a motion to certify has been filed to end the claim, rather than make an offer of judgment, in order to avoid endless litigation over the impact of the offer.

To read our client alert for this case click here.

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