Collective Action

A Maryland federal judge recently ruled that the Supreme Court class action ruling in Wal-Mart v. Dukes does not bear on an FLSA overtime pay class action suit. The court conditionally certified the collective action, rejecting the argument that the Dukes ruling applies to all aggregate actions. The court stated that the court's holding in Dukes only bears on Rule 23 class actions and is not applicable to FLSA actions.

In Dukes, the Supreme Court held that classes cannot be certified when each class member would be entitled to different relief against a defendant.

At issue was a collective action suit against Wells Fargo, where in the company's loan officers were classified as exempt and were not paid overtime if and when they worked more than 40 hours a week, up until April 1, 2011, when their status was changed to nonexempt, according to the judge's ruling. Prior to the switch, the officers were paid on a "draw and commission" basis ranging from $1,000 to $5,000 per month depending on their performance. After, they were paid $12 an hour, plus net commissions.

 

Today, the General Assembly passed a bill to make Indiana the 23rd right-to-work state.  Governor Mitch Daniels has promised to immediately sign the bill into law.  The law will make Indiana the first state in the nation’s traditionally union-heavy manufacturing region—or “rust belt”—to pass such a law. 

Labor organizations, including trucking and transportation unions like the Teamsters, fiercely opposed the bill because it prohibits union security provisions in collective bargaining agreements entered into, modified, renewed, or extended after March 14, 2012 and carries criminal penalties.  Union security provisions require employees to (1) become or remain a union member, (2) pay union dues, fees, assessments, or other charges to the union, or (3) pay the equivalent of union dues, fees, assessments, or other charges to a charity or third party.  The new prohibitions stand to greatly affect the way unions attempt to organize workers, a company’s response to organizing efforts, and how contracts are negotiated.

The National Labor Relations Board ("NLRB") ruled on January 3, 2012, that employers may not force employees to sign arbitration agreements that waive (prohibit) class actions and class arbitrations over issues involving pay and other working conditions.  The decision seeks to distinguish the Supreme Court's ruling in AT&T Mobility v. Concepcion last April, which provided that the Federal Arbitration Act ("FAA") preempts state laws and court decisions that invalidate bans on class arbitration. 

The Board found that the FAA did not override the National Labor Relations Act, which provides workers the right to unionize and take part in joint action.  Specifically, the NLRB ruled that employers who force their employees to sign, “as a condition of employment, an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial,” are engaging in an “unfair labor practice” in violation of the National Labor Relations Act.

The decision will affect trucking and other transportation carriers in at least two ways.  Unionized carriers may now face the prospect of class (fleetwide) arbitration of grievances that a collective bargaining agreement might previously have limited to individual arbitration proceedings.  Carriers will want to review the wording of the grievance provisions in their collective bargaining agreements.

For non-unionized carriers, the NLRB decision provides an added reason to hesitate before requiring employee-drivers or contractors to sign agreements to arbitrate disputes.  Transportation carriers already miss out on the preemptive effect of AT&T Mobility to the extent their arbitration agreements are deemed to be contracts with transportation workers, which are expressly exempted from the FAA, the statute on which that Supreme Court decision was based.  Now the NLRB decision adds a possible federal-law basis on which employee-drivers – or contractors successful in persuading a court to reclassify them as employee-drivers – may try to argue a right to use a carrier’s arbitration agreement to institute a class arbitration.
    
The Board did not ban agreements that require employees to arbitrate in order to settle workplace issues, but held that such agreements must provide a way for workers to bring class or collective claims in court or arbitration.

In the Board decision, D.R. Horton, Inc. and Michael Cuda, Case 12-CA-25764 (Jan. 3, 2012), the respondent-home builder was ordered to stop “maintaining a mandatory arbitration agreement that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.”

During the second week of Georgia's special session, the generally assembly is expected to discuss laws that could freeze the tax collected on fuel purchases, along with address a proposed transportation tax vote.

Georgia’s fuel tax is a two-part tax. A 4 percent portion of the tax is calculated twice per year and is based on the average price per gallon of fuel in the state at the time. The rate can change every six months on Jan. 1 and July 1.  Gov. Nathan Deal decided in June to freeze the state’s fuel taxes to help consumers avoid more pain at the pump. The tax rates were slated to increase the first of July.

As required by state law, lawmakers must ratify the freeze through passage of a bill – HB2EX.

Also moving through the statehouse is the bill – HB3EX – that addresses regional transportation referendums.

The referendums would add a 1-cent sales tax to pay for transportation projects. The governor wants to push back votes from the 2012 presidential primary ballot on July 31 to the Nov. 6 general election.

Friday, Feb. 4, the Virginia House endorsed Gov. Bob McDonnell’s $4 billion transportation plan, which now advances to the Senate.

The bill includes borrowing about $3 billion during the next three years. Another $1 billion in available cash would be used to pay for up to 900 projects.

The governor’s proposal represents what could be the largest one-time state infusion of money into transportation since the Virginia fuel tax was increased in 1986.

Nearly $1.8 billion of the proposed debt relies solely on state revenue. About $1.1 billion would be repaid using a portion of federal highway funds the state gets each year.

Critics of the plan say the state should not undertake new debt to get road work done. At the same time, many detractors acknowledge that something needs to be done about the state’s transportation system.

The bill – HB2527 – represents the biggest chunk of the McDonnell’s overall transportation proposals.

One component of the governor’s agenda has already advanced from the House to the Senate. A proposed constitutional amendment is sought to protect the state’s transportation fund.

Sponsored by Delegate Glenn Oder, R-Newport News, the measure – HJ511 – would protect the fund from transfers to the general fund.

A separate component of the governor’s agenda has been rejected. HB2404 called for taking $100 million of sales tax revenue collected in Northern Virginia each year and applying it to road and transit projects. Another $50 million in tax revenue in Hampton Roads would have been added.

In a move that stands to affect motor carriers, the National Labor Relations Board (the “Board”), on December 22, 2010, published a Notice of Proposed Rulemaking (the “Notice”) in the Federal Register relating to employer obligations under the National Labor Relations Act (the “Act”).  The Notice is the fulfillment of the Board’s recent promise to effect policy through rulemaking rather than by statute.  The Board issued the proposed rule because the Board believes employees are unaware of their rights under the 75 year old Act.

Under the proposed rule, private-sector employers (including motor carriers but excluding airline and railroad employers) must post a notice of employee rights, including the right to:
 

• Organize a union to negotiate wages, hours, and other terms of employment.
• Form, join or assist a union.
• Bargain collectively through representatives of employees’ own choosing for a contract with the employer setting wages, benefits, hours, and other working conditions.
• Discuss terms of employment or union organizing with co-workers or a union.
• Take action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, and seeking help from a union.
• Strike and picket, depending on the purpose or means of the strike or the picketing.
• Choose not to do these activities, including joining or remaining a member of a union.

The notice of employee rights would also expressly inform employees that it is illegal for the employer to:

• Prohibit soliciting for a union during non-work time, such as before or after work or during break times; or from distributing union literature during non-work time, in non-work areas, such as parking lots or break rooms.
• Question employees about their union support or activities in a manner that discourages employees from engaging in that activity.
• Fire, demote, or transfer employees, or reduce hours, change shifts, or otherwise take adverse action, or threaten to take any of these actions, because employees join or support a union, or because employees engage in concerted activity for mutual aid and protection, or because employees choose not to engage in any such activity.
• Threaten to close the workplace if workers choose a union to represent them.
  • Promise or grant promotions, pay raises, or other benefits to discourage or encourage union support.
• Prohibit employees from wearing union hats, buttons, t-shirts, and pins in the workplace except under special circumstances.
• Spy on or videotape peaceful union activities and gatherings or pretend to do so.

To the extent an employer’s workforce is mobile or remote, and the employer regularly communicates with employees electronically, the above notice must be communicated in the same way.  Currently, only federal contractors are required to post a notice similar to the notice proposed by the Board.  The Board has asked for comments on the proposed rule before the Board finalizes the rule, including comments on whether the Board has the power under the Act to create the proposed rule at all.  Comments, however, must be submitted within 60 days. 

 

The federal judge presiding over the FedEx Ground Package System Inc. (“FedEx Ground”) multidistrict litigation (“MDL”) ruled this week that classes of FedEx Ground drivers in numerous states are independent contractors, not employees. In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Dec. 13, 2010) (“Dec. 13, 2010 Order”).   

The court’s decision comes on the heels of its August 11, 2010 ruling that a class of Kansas drivers are independent contractors, not employees, under the Kansas Wage Payment Act. See In re MDL-1700 FedEx Ground Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700), 2010 WL 3239363 (N.D. Ind. Aug. 11, 2010) (“August 11, 2010 Order”).  Following that ruling, the Court instructed the parties to file supplemental briefing explaining whether the Court should reach the same result – on claims under the laws of other relevant States relating to overtime, business expense deductions from wages, late payment of wages, meal-and-rest breaks, and similar wage-related statutory and breach-of-contract claims – in the MDL’s many other collected cases in which similar summary judgment motions regarding drivers’ employee-vs.-independent-contractor status were awaiting decision. 

The MDL consists of numerous class action cases filed by drivers against FedEx Ground in courts around the country that were combined for coordinated pre-trial proceedings in the U.S. District Court for the Northern District of Indiana in 2005.  In general, the cases allege that FedEx Ground drivers were improperly misclassified as independent contractors, and that the drivers were therefore covered by state and federal laws applicable to employees.  Some of the cases also alleged violations of federal law, including the FLSA and the FMLA, and common law causes of action for breach of contract.  Eventually, at least 56 separate putative class actions from 40 states were transferred to the Northern District of Indiana as part of the MDL.  In 2008 and 2009, the MDL court certified some of the cases as class actions and declined to certify others.  The parties then proceeded to file summary judgment motions on the issue of the drivers’ employee-vs.-independent-contractor status.  The Court’s ruling this week represents the latest stage of the litigation.

In its August ruling in the Kansas case, the Court summarized its conclusion that drivers were independent contractors as follows:

The plaintiffs have all signed Operating Agreements labeling themselves as independent contractors, they can hire others to perform their assigned work and go work for another delivery company, and they can sell their routes to other qualified drivers; yet, they contend they are employees.  The court sees it differently. Upon review of the evidence in the light most favorable to the plaintiffs, the only reasonable inference is that FedEx hasn’t retained the right to direct the manner in which drivers perform their work. FedEx supervises the drivers’ work and offers numerous suggestions and best practices for performance of assigned tasks, but the evidence doesn’t suggest that FedEx has the authority under the Operating Agreement to require compliance with its suggestions. Further, other factors strongly weigh in favor of independent contractor status; in particular, the parties intended to create an independent contractor arrangement, the drivers have the ability to hire helpers and replacement drivers, they are responsible for acquiring a vehicle and can use the vehicle for other commercial purposes, they can sell their routes to other qualified drivers, and FedEx doesn’t have the right to terminate contracts at-will. Although some facts weigh in favor of employee status, after considering all the relevant factors, the court finds that the plaintiffs are independent contractors as a matter of law.

See Aug. 11, 2010 Ruling at 3.  In this week’s decision, the court repeated this same passage (beginning with “Upon review of the evidence…”).  See Dec. 13, 2010 Ruling at 11-12 (quoting Aug. 11, 2010 Ruling at 3). 

In the vast majority of states involved (AL, AZ, AR, CA, FL, GA, IN, KY, LA, MD, MN, NH, NJ, NY, NC, OH, OR, PA, RI, SC, TN, TX, UT, WV, WI, in addition to KS), the MDL court this week ruled that drivers were independent contractors under each respective state’s legal test. The Court’s detailed reasoning, state by state, is set forth on pages 18-176 of the decision.

The Court noted (at 4-5) that in arriving at both the Kansas decision and this week’s decision, it “has considered evidence common to the drivers’ relationships with FedEx on a nationwide basis:  the Operating Agreement [lease] and generally applicable Policies and Procedures.  As a condition of class certification, the court excluded particularized evidence of actual control between FedEx and the drivers. …These cases might or might not come out differently under a different procedural posture allowing wider scope for review of extrinsic and particularized evidence, but that situation is not before the court today.” 

The Court denied the plaintiffs’ request to give preclusive effect – that is, to treat as already having decided the issue – the California Court of Appeal’s decision in Estrada v. FedEx Ground Package System, Inc., 64 Cal. Rptr. 3d 327 (Cal. Ct. App. 2007) that a FedEx Ground Single Work Area (“SWA”) class of drivers were employees.  The Court stated (at 8): “The facts before the Estrada court and those before this court are dissimilar insofar as the facts available to this court don’t go beyond the Operating Agreement and generally applicable Policies and Procedures…. Also, the SWA class in Estrada was markedly different from the classes before this court because the MDL classes lump together SWA and MWA drivers.  Thus, though the parties litigated a right to control issue in Estrada, the issue decided in Estrada, isn’t identical to issue before this court.”

The Court also rejected the plaintiffs’ assertion that it viewed as dispositive the Operating Agreement’s indication that the parties intended to create an independent-contractor relationship.  The Court said (at 10) that “the intent factor weighed ‘strongly’ because the intent expressed in the contracts was so clear, not because the intent factor had special status or carried dispositive weight.”

The Court went on to declare (at 10-11, citations omitted) that “Most important in Kansas – and the most important under the common law and Restatement tests generally – is the right to control, which typically is the weightiest factor….  This court held that there was no reasonable inference that FedEx retained the right to control the methods and means of the drivers’ work on a class-wide basis. This finding came in light of the distinction between control of means and control of results.  In most states, control of results doesn’t indicate employee status; control of means used to achieve contracted-for results does indicate employee status.  Drawing the line between means and results is a challenging, highly contextual and fact-specific task.  Bright-line rules prove elusive here.  This court held that the controls reserved to FedEx were results-oriented:   FedEx provides work to and pays contractor-drivers to provide the specific result of timely and safely-delivered packages to FedEx customers.  The totality of the circumstances and review of all the relevant facts and factors led to this results-oriented conclusion.”

The Court further explained (at 11) that it “found the drivers’ entrepreneurial opportunities to be highly probative of independent contractor status.”

The drivers are expected to appeal the court’s ruling.  
 

Paycheck comparisons between lead plaintiff and his colleagues failed to satisfy the modest factual nexus standard.

The case arises from allegations, first asserted in October 2009, that Rick Bus denied overtime to all its employees and was imprecise in recording its workers' start and end times.

In deciding not to grant certification the court stated that the plaintiff provided "mere generalizations and legal conclusions,” and failed to “put forth any relevant facts for the court to consider, such as the names of any similarly situated employees." 

The judge pointed to a split within the Third Circuit on which standard should apply at the conditional certification stage. Some judges require only an allegation that plaintiffs are victims of a company-wide policy, but most — Judge Wolfson included — demand a modest factual nexus between the lead plaintiff's circumstances and those of fellow class members.

In addition to plaintiff's proposed class, a second putative FLSA class, which has yet to move for certification, seeks to represent Rick Bus employees who were allegedly victims of "rounding" — the practice of rounding employees' start and end times to the nearest 5-, 10- or 15-minute interval, according to the complaint.

On March 11, 2010, the UCRA Board voted to prohibit states from collecting any UCR fees for 2010 until a final rule is published by the FMCSA or until further notice from the Board.  The Board concluded that the FMCSA regulatory guidance issued last week allowing for the collection of 2010 fees at 2009 rates would lead to severe administrative problems for the program.  The Board’s resolution had been circulated to all of the states that participate in the UCRA.  The federal rule to set the 2010 fees is anticipated to be issued this summer.

Cargo loss and damage claims against common or contract carriers for damages to interstate shipments have long been governed by the Carmack Amendment. Further, courts have routinely held the Carmack Amendment preempts state law claims for negligence, breach of contract and tort claims.  In other words, since federal law provides the exclusive remedy for cargo loss or damage on an interstate shipment, the claimant can not assert state law claims. 

Earlier this month, a Texas federal court followed this long line of authority and held the Carmack Amendment preempts state law claims – even when those state law claims are for the intentional tort of conversion.  See Tran Enterprises LLC d/b/a Nutrition Depot v. DHL Express (USA), Inc., 2010 LEXIS 2092, at *2 (S.D. Tex. January 12, 2010).  In this case, the plaintiff alleged DHL converted COD checks it collected at the time of delivery, failed to tender these checks to it, and was liable for conversion under state law.  The court held intentional tort claims under state law, like the plaintiff's conversion claim, are preempted and Carmack remains the shipper's exclusive remedy. 

Whether involved in class action defense, truck accident litigation, or cargo loss and damage claims, a recent order from a New York federal court will likely impact transportation litigation going forward.     

Six years ago, Judge Shira A. Scheindlin, of the Southern District of New York authored the Zubulake decision.  The Zubulake decision provided the basis for current law and rules regarding the discovery of electronically stored information (“ESI”).  Recently, Judge Scheindlin has issued another decision involving ESI that will likely be looked to by other courts when addressing similar issues: The Pension Committee of the University of Montreal Pension Plan, et al., v. Banc of America Securities, et al., 05-civ-9016, (S.D. N.Y. January 10, 2010)(as corrected on January 15, 2010)(collectively, the “Order”).

In her order entitled “Zubulake Revisited: Six Years Later,” Judge Scheindlin found that – although the case did not present any egregious examples of purposeful destruction of documents – the plaintiffs failed to timely institute written litigation holds and were careless and indifferent in their preservation and collection of documents after the duty of preservation arose.  Judge Scheindlin sanctioned the Plaintiffs, with an instruction to the jury allowing the jury to assume missing documents were bad for Plaintiffs, requiring Plaintiffs to pay certain attorney’s fees and costs to Defendant, and ordering Defendant to search backup tapes for additional information.

This case is interesting because most cases addressing discovery of ESI, particularly those awarding sanctions, involve egregious behavior.  The facts of this case, however, are much more pedestrian – a party that didn’t instruct all persons with electronic documents relating to a matter in litigation to preserve all those documents with a formal litigation hold letter; gathering relevant documents was largely left to operational employees without supervision; together with other factors that led the court to describe the party’s ignorance and indifference towards discovery (including the search for and preservation of electronic documents).

Courts have previously held that failure to instruct relevant employees to preserve documents constituted gross negligence.  Likewise, courts have previously held issuing a litigation hold memorandum and delegating the task of identifying relevant documents to operational level employees is not enough. 

However, this court clarifies that instructions to employees to provide the company’s counsel with relevant documents via phone, e-mail, a memorandum, and in a monthly litigation update are not sufficient to satisfy the duties of preservation and production – since the employees were not instructed to preserve all relevant documents and there was little supervision over the preservation and collection. 

The concepts forming the basis for the Order are not novel or new.  But because these concepts were used to justify an award of sanctions where there was no intent to destroy documents or other shocking behavior, and because the author of modern law on this subject spends 87 pages laying out the rules that justify these sanctions, it is increasingly likely other courts will follow suit.
 

The 7^th Circuit has implemented a pilot program (the “7^th Circuit Pilot Program”) designed to address the rising cost associated with the discovery of electronically stored information (“ESI”). In the initial stage of this pilot program a proposed Standing Order Relating to the Discovery of Electronically Stored Information has been created and will be used in select cases by certain judges within the district. 

The 7^th Circuit Pilot Program, like the recently amended Federal Rules of Civil Procedure, requires the parties to understand and discuss likely sources of discoverable ESI at the beginning of a case. At this time the parties are also required to discuss what ESI is to be preserved and anticipated issues relating to production of that information including the format of production and privilege issues. Unlike the Federal Rules, the pilot program requires litigants to consider and discuss whether discovery can be conducted in stages to minimize cost to the parties.

The pilot program’s initial report and proposed Standing Order Relating to the Discovery of Electronically Stored Information can be viewed at:

http://www.ilcd.uscourts.gov/Statement%20-%20Phase%20One.pdf

If your company is involved in trucking class action cases, truck accident litigation, cargo claims, or simply trying to collect your freight charges, it is important to understand the role of ESI, along with traditional paper documents, in litigation. The 7^th Circuit Pilot Program illustrates that courts, like litigants, are becoming more familiar with ESI and are addressing ESI issues both under the recently amended Federal Rules and via unique approaches like the 7^th Circuit Pilot Program. As businesses store more and more information electronically it is important to recognize that this information may be discoverable in litigation and have an organizational plan regarding storage of this information (who, where, when, how long), a procedure for disposing of outdated electronic information, and the ability to suspend disposal once litigation is reasonably anticipated. Although programs like the 7^th Circuit Pilot Program may ultimately help contain the rising costs associated with discovery of ESI, a company can reduce its litigation cost related to ESI significantly by taking steps in advance of litigation to understand and manage its stored data.