Separating Claim Recovery and Lawsuit Fees: 2nd Circuit Paves Way for Better Negotiations in FLSA Claims

In Fair Labor and Standards Act (FLSA) lawsuits, recovering damages for claims is typically only one part of the discussion when negotiating settlements. Employers engaged in FLSA lawsuits and settlement negotiations with employees and their representative counsel, can quickly become aware that lawsuit costs and plaintiff’s attorney fees are a factor in the overall bargaining process. On February 4, 2020, the Second Circuit, in Fisher v. SD Protection Inc., 2020 WL 550470 (2d Cir. 2020) held that attorneys’ fee awards in FLSA claim settlements are not limited by the principle of “proportionality” in that such fees are not limited or subject to a 1/3 cap based on the amount of the overall settlement.

In the Second Circuit, settlements in FLSA lawsuits were typically subject to strict court scrutiny court review to ensure that the agreed upon terms, including the amount of attorneys’ fees, were fair and reasonable. Thus, many of the district courts within the Second Circuit applied the rule of “proportionality” and refused to approve fee amounts greater than an amount 1/3 of the total settlement.

In Fisher, however, the Second Circuit held that such a rule is at odds with the purpose of the FLSA and has the potential to discourage competent lawyers from taking on cases for low-wage workers due to such limitations on collecting attorneys’ fees. The issue in Fisher arose from a wage dispute brought by an hourly employee, which is a normal cause of action under FLSA lawsuits. The employee sued under the FLSA based on the employer’s alleged failure to pay overtime and provide mandatory accurate wage statements.

The parties reached a settlement before a class was certified, with the total settlement amount at $25,000, including fees and costs. In submitting approval for the settlement from the district court, the parties disclosed that the plaintiff would be paid only $2,000 of that amount, with the remaining $23,000 going to the employee’s attorney. The district court judge disagreed with the terms and reduced the attorneys’ fee to only $8,250, or 1/3 of the total settlement amount as a matter of general policy.

The plaintiff appealed the district judge’s actions to the Second Circuit, and in a detailed decision, the Court reversed and remanded, disapproving of the district court’s requirement of “proportionality” between the amount of the settlement and the size of the fee award. The Second Circuit held that such a rule is not mandated by either the text or the purpose of the FLSA statute. While acknowledging that the proposed split of $23,000 to the plaintiff’s attorney and $2,000 to the plaintiff “understandably gave the district court pause,” the Court rejected an “explicit percentage cap” on fee awards. The Second Circuit justified this decision as in most FLSA wage dispute cases, the plaintiffs are generally hourly workers, and favorable settlement outcomes result in limited recovery. Limiting attorney fees can dissuade competent attorneys from taking on FLSA cases when fee recovery would be proportional to only 1/3 of total recovery. The Second Circuit also criticized the district court judge for rewriting the settlement agreement instead of just simply rejecting the agreement and having the parties revise it. The Second Circuit concluded that in rewriting the agreement, the district court judge exceeded his authority.

The ruling in Fisher is good news for employers in the negotiation process of FLSA lawsuits. In practice it should allow for more free negotiating of settlements, without limitations imposed on fee awards. This ruling will hopefully foster settlements and drive down costs for all parties involved.

VW Contributor: Ryan J. Coufal
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Circuit Courts Continue to Rule in Agreement that Future Potential Disabilities are not a “Disability” under the ADA

The Seventh and Eleventh Circuit Courts of Appeal recently joined the Eighth, Ninth, and Tenth Circuits, in holding that individuals with no current disability cannot be regarded as disabled under the Americans with Disabilities Act (ADA).  The mere possibility or even likelihood the individual will develop an impairment or disability in the future is not sufficient to sustain a cause of action under the ADA.  In Shell v. Burlington Northern Santa Fe Railway Co., 941 F.3d 331 (7th Cir. 2019) and EEOC v. STME, LLC, 938 F.3d 1305 (11th Cir. 2019) the Seventh and Eleventh Circuits respectively, refused to extend protections under the ADA to employees with a “perceived risk” of potential impairment.

In Shell, a transportation company refused to hire a job applicant with a body mass index (BMI) over 40, which is classified as Class III Obesity or “extreme” or “severe” obesity.  The Defendant had a policy that prohibited individuals with a BMI over 40 from being employed in “safety-sensitive” positions, due to individuals with Class III Obesity being at an increased risk for sleep apnea, diabetes, or heart disease, conditions that could lead to dangerous consequences while on the job.  The Seventh Circuit first noted that obesity in and of itself does not qualify as a disability under the ADA, unless it is caused by an underlying physiological disorder or condition.  Likewise, obesity alone does not qualify as a disability even if the individual’s obesity may increase the likelihood that he or she will develop a future qualifying ADA disabling impairment.  The condition of being “regarded as” having an impairment applies when an individual has been subjected to an impairment, in a past or present sense, not a perceived future impairment that has not yet occurred.  Thus, the Seventh Circuit held that since Defendant only declined to hire the Plaintiff based on a perceived future impairment and not a current ADA disability, the ADA did not afford protection to the Plaintiff.

The employer in STME fired an employee who had traveled to Ghana during an Ebola outbreak in countries neighboring Ghana, even after the employer raised concerns about the Plaintiff making such a trip.  The employer’s decision was based on a potential future impairment, which is not protected by the ADA under the “regarded as” theory of recovery, which requires a current impairment.  The potential physical or perceived impairment of Ebola was not enough to get ADA protection; the Eleventh Circuit found there was no violation of the ADA in the firing of the Plaintiff.

Both cases demonstrate a continued trend at the appellate level of federal courts that future or potential impairments are not protected under the ADA.  This should be good news to employers who have concerns about potential impairments with employees and whether they feel such concerns could impact the ability for that employee to perform their job functions.

VW Contributor: Ryan J. Coufal
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Sixth Circuit Holds Employers cannot shorten time frame to file Title VII Discrimination Claims

Date: December 31, 2019

The federal Sixth Circuit Court of Appeals recently held that employers cannot reduce the time employees have to file a charge alleging Title VII employment discrimination under the Civil Rights Act of 1964.  The court found that contractual provisions and clauses that shorten Tile VII’s statute of limitations 300-day filing time frame are unenforceable.

Title VII prohibits discrimination by an employer on the basis of race, color, religion, sex, and national origin, and requires employees to first file a discrimination complaint with the Equal Employment Opportunity Commission (EEOC).  The statutory deadline requires charges to be filed within 300 days of the alleged unlawful employment action, and cannot be changed by contract.  After a charge is filed, the EEOC can investigate the allegations, or take administrative remedial measures to resolve the issue (such as mediation).  Alternatively, the EEOC can grant the employee a right-to-sue letter, giving the employee a chance to sue the employer outright in court on their own.  If an employee receives this letter, they have ninety (90) days to file a lawsuit in federal court against their employer.

In the Sixth Circuit case, the Plaintiff’s employment contract contained a provision waiving her right to sue if she waited longer than six (6) months following a discrimination event to file a claim.  The lower federal district court initially adopted the employer’s deadline-shortening clause, but the Sixth Circuit reversed the decision on a case of first impression, stating “[W]here statutes that create rights and remedies contain their own limitation periods, the limitation period should be treated a substantive right . . . [a]nd this type of substantive right generally is not waivable in advance by employees.”  The court distinguished Title VII’s statute of limitations from those under the Employee Retirement Income Security Act of 1974 (ERISA) or Section 1981 claims in that those statutes rely on general limitation periods created by other statutes.  Title VII’s statute of limitations to bring a discrimination claim is found within its own text.  The court also held that Title VII created a “uniform, nationwide system using ‘an integrated, multistep enforcement procedure.’”  The court rejected the employer’s policy of imposing contractual limitations on Title VII’s statutory remedies because it would disrupt Title VII’s uniform national procedures.

The Sixth Circuit oversees federal district courts in Kentucky, Michigan, Ohio, and Tennessee.  Nevertheless, this case provides context to federal questions and interpretations of federal authority, and provides a framework of considerations should you have a business practice that is any state.

VW Contributor: Ryan Coufal
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2nd Circuit Ruling that Dodd-Frank Whistleblower Retaliation Claims are Arbitrable under Employment Agreements filed for US Supreme Court Review

Date: December 31, 2019

On December 16, 2019 Petitioner Erin Daly filed a petition for writ of certiorari to have the United States Supreme Court review the 2nd Circuit ruling of Daly v. Citigroup Inc., 939 F.3d 415 (2nd Cir. 2019), which held that arbitration clauses were valid for whistleblower retaliation complaints under the Dodd-Frank Act.

The facts of the case pertain to the Plaintiff working in the Private Bank Division of Citigroup.  The Plaintiff allegedly complained to internal bank attorneys and human resources employees that her supervisor repeatedly demanded of her to disclose material non-public information to the supervisor’s favored clients, and was subsequently fired when she reported her complaint.  The Plaintiff then filed a complaint in the Southern District of New York alleging several claims under the whistleblower retaliation clauses of the Dodd-Frank and Sarbanes-Oxley Acts.  Citigroup responded by filing a motion to dismiss the Plaintiff’s Sarbane-Oxley Act claims and compel arbitration for the Dodd-Frank Act claims.  Citigroup argued the Plaintiff’s signed employment agreement contained an arbitration clause, and all of the claims, except the claims under the Sarbanes-Oxley Act were subject to mandatory arbitration.  In regard to the Sarbanes-Oxley Act claim, Citigroup argued for dismissal based on the fact the Plaintiff had not exhausted all of her administrative remedies.  The district court granted both of Citigroup’s motions.

On September 19, 2019, the 2nd Circuit affirmed the district court’s ruling and joined the 3rd Circuit in holding that Dodd-Frank whistleblower retaliation complaints are arbitrable (See Khazin v. TD Ameritrade Holding Corp., 773 F.3d 488 (3d Cir. 2014)).  The 2nd Circuit justified its decision in noting that unlike the Sarbanes-Oxley Act, which explicitly contains an anti-arbitration provision, the Dodd-Frank Act contains no language, signaling Congress’s intent to not preclude whistleblower retaliation complaints under the Dodd-Frank Act from being precluded.  Thus, the Plaintiff, in signing the employment agreement with the arbitration provision, was bound to arbitration for her Dodd-Frank Act whistleblower retaliation claims.

While there is no guarantee that the Supreme Court will grant certiorari and review the case, this is an important case to follow as the 2nd Circuit is now the second federal appellate court decision to conclude that mandatory arbitration clauses in employment agreements are enforceable with respect to whistleblower retaliation claims under the Dodd-Frank Act.

VW Contributor: Ryan Coufal
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Holding the EEOC Accountable: 8th Circuit affirms EEOC must pay attorney fees incurred by employer on frivolous claims

On December 10, 2019 the 8th Circuit affirmed a federal district court’s order requiring the Equal Employment Opportunity Commission (EEOC) to pay $3.3 million in attorneys’ fees to CRST Van Expedited, Inc. (CRST) for pursuing claims that the commission knew or should have known were frivolous and failing to satisfy presuit obligations under Title VII.

The EEOC originally filed suit against CRST in 2007, after a female driver alleged that two male trainers sexually harassed her during a training trip.  The litigation was filed on behalf of over 250 female employees, and claimed that CRST was responsible for severe and pervasive sexual harassment and that it subjected its female employees to a hostile work environment. The district court found the EEOC had not established a pattern or practice of CRST tolerating sexual harassment, and dismissed the suit. Finding CRST as the prevailing party and that the EEOC had failed to satisfy Title VII’s presuit obligations, the district court entered an attorneys’ fee sanction of nearly $4.7 million against the EEOC.

This award of attorneys’ fees has been hotly contested, and has made its way through the 8th Circuit and back on remand, and up to the United States Supreme Court, which held that a favorable judgment on the merits is not a requirement to be a “prevailing party” when awarding attorneys’ fees.

The case was sent back to the district court, which engaged in extensive individualized inquiries, and found that most of the EEOC’s claims on behalf of 78 claimants for sexual harassment that were dismissed on summary judgment were frivolous, groundless, and/or unreasonable. The district court further found that the dismissal of the 67 other claims as a result of the EEOC’s failure to satisfy the presuit obligations constituted a sufficient alteration of the parties’ legal relationship to award fees.   The district court ultimately issued a fee award of $3,317,289.17, and the EEOC again appealed to the 8th Circuit.

In the recent decision, the 8th Circuit affirmed the district court’s $3.3 million fee award, holding that the district court did not abuse its discretion in holding individualized inquiries, and determining that 71 of the claims it dismissed on summary judgment were frivolous.  The 8th Circuit also upheld the district court’s method of fee calculation and stated the reasoning was sound “in light of the realities of the case, how it was litigated and the [lower] court’s unique understanding of these proceedings.”

The 8th Circuit rejected the EEOC’s arguments that its claims were not frivolous as it conjectured that the EEOC could not hold a reasonable belief that it satisfied its presuit obligations when it actually “wholly failed to satisfy them [under Title VII].”

This ruling should provide employers with assurance of the 8th Circuit holding the EEOC accountable for bringing frivolous claims, and failing to meet its mandatory presuit duties.

VW Contributor:  Ryan Coufal
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Oral Argument to Be Heard By Supreme Court Over Specifics of Title VII

Supreme Court Update

The 2019-20 term of the United States Supreme Court opens today.

On October 8th, the Court will heard an oral argument on a set of cases that could determine whether sexual orientation and gender identity are covered by Title VII of the 1964 Civil Rights Act.  Courts and commentators are divided on the issue, which has been the subject of active litigation in multiple cases for several years.  This may be the most significant ruling of the Court in the area of employment law this term, and will be closely watched.

A decision could be issued before the end of the year; timing is to be determined by the Court.

https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/17-1618.html

VW Contributor: Matthew G. Dunning
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Final Ruling Announcement: Required Minimum Salary for Employees to be Exempt from Overtime

The federal Department of Labor has announced its final rule increasing the required minimum salary for employees to be considered exempt from overtime. The new threshold is $38,845/year, up from $23,660. At one point in time the DOL was going to require employees to be paid a minimum of more than $47,000 annually.

Absent litigation, or action by Congress, the final rule will be effective January 1, 2020.

https://www.dol.gov/whd/overtime2019/

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VW Contributor: Matthew G. Dunning
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