Employment Law

Drivers’ Class Action Against Uber Crashes Into Arbitration

Why it matters

Uber drivers seeking to be classified (and compensated) as employees and not independent contractors were dealt a blow by the U.S. Court of Appeals, Ninth Circuit when the federal appellate panel reversed class certification and ordered the drivers to arbitration. The litigation began in 2013. Over the years, multiple class actions were consolidated and worked their way through the court system, including making a prior visit to the Ninth Circuit. In that ruling, the panel held that arbitration agreements between the drivers and Uber were neither substantively nor procedurally unconscionable and that the agreements delegated the threshold question of arbitrability to the arbitrator. With that background in mind, the Ninth Circuit granted Uber’s motion to compel arbitration, reversing the district court. The mere fact that the lead plaintiff opted out of arbitration did not bind the other drivers, the court said. In light of this conclusion, the court also decertified the class of approximately 160,000 drivers.

Detailed discussion

Douglas O’Connor and a fellow Uber driver filed a putative class action complaint against the company in August 2013, alleging claims for failure to remit the entire gratuity paid by customers to drivers in violation of California Labor Code Section 351 and for misclassifying the drivers as independent contractors and failing to pay their business expenses (including vehicles, gas and maintenance) in violation of California Labor Code Section 2802.

After several similar suits were consolidated with the original complaint, a California federal court judge certified a class of roughly 160,000 drivers in September 2015.

The court later ruled that the arbitration agreements signed by some of the drivers in 2014 and 2015 were unenforceable on public policy grounds, relying on the California Supreme Court’s decision in Sanchez v. Valencia Holding Co., because they contained a waiver of claims under the Private Attorneys General Act (PAGA).

Uber argued that the nonseverable PAGA waiver didn’t ban all PAGA claims but only prevented such claims from being arbitrated, with the blanket PAGA waiver found in a different section of the agreement that was severable. But the court disagreed.

The defendant appealed to the U.S. Court of Appeals, Ninth Circuit, telling the federal appellate panel that the 2014 and 2015 arbitration agreements featured an opt-out provision and that drivers who failed to exercise this choice should not be permitted to avoid the results. The court agreed and reversed the district court’s denial of Uber’s motion to compel arbitration. The agreements were not unconscionable, the court said, and the relevant provisions in the agreements delegated the threshold question of arbitrability to the arbitrator.

On remand, the district court upheld the class certification order and denial of the motion to compel arbitration for that class. Back before the Ninth Circuit, the federal appellate panel unequivocally ruled that the denial of Uber’s motions to compel arbitration must be reversed, rejecting the drivers’ alternative arguments that the arbitration agreements are unenforceable.

The drivers contended that the lead plaintiffs “constructively opted out” of arbitration on behalf of the entire class, but the court was not persuaded this was possible. “Nothing gave the O’Connor lead plaintiffs the authority to take that action on behalf of and binding other drivers,” the panel wrote, finding that the drivers’ only legal authority—a Georgia Supreme Court decision—relied on state law grounds and did not discuss the Federal Arbitration Act (FAA), which “requires courts to enforce agreements to arbitrate according to their terms.”

Alternatively, the drivers argued that the arbitration agreements were unenforceable because they contained class waivers in violation of the National Labor Relations Act (NLRA). This position was rejected by the Supreme Court earlier this year in Epic Systems v. Lewis, when a divided Court held that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain class or collective waivers.

“In sum, the district court’s orders denying Uber’s motions to compel arbitration … must be reversed,” the panel said. In light of this ruling, the court also decertified the class created by the district court.

“Certification of the class by the district court … was premised upon the district court’s conclusion that the arbitration agreements were not enforceable,” the court explained. “The class as certified includes drivers who entered into agreements to arbitrate their claims and to waive their right to participate in a class action with regard to those claims. … [T]he question whether those agreements were enforceable was not properly for the district court to answer. The question of arbitrability was designated to the arbitrator.”

The panel reversed the denial of the motions to compel arbitration as well as the class certification orders.

To read the opinion in O’Connor v. Uber Technologies, Inc., click here.

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Starbucks to Face Suit Over De Minimis Time

Why it matters

A putative class action against Starbucks will move forward after the U.S. Court of Appeals, Ninth Circuit applied the reasoning of the California Supreme Court’s August decision involving application of the Fair Labor Standards Act (FLSA) de minimis doctrine to state law. The dispute involves Douglas Troester’s claims that Starbucks employees spent additional, compensable time working after they clocked out of the store’s computer terminal—bringing in patio furniture, for example, or reopening the store to allow workers to retrieve items left behind. A federal court found the time to be de minimis and granted summary judgment in favor of the employer. On appeal, the Ninth Circuit punted the case to the state’s highest court. Earlier this year, the California Supreme Court ruled that the FLSA’s de minimis doctrine does not apply to the state’s wage and hour rules and regulations and instead mandates that employees be paid for “all hours worked.” In light of this ruling, the federal appellate panel reversed summary judgment in favor of Starbucks and remanded the case to the district court.

Detailed discussion

A former shift supervisor at a California Starbucks, Douglas Troester, filed suit in August 2012. He claimed that during his year of employment with the company, Starbucks’ computer software required him to clock out of every closing shift before initiating the software’s “close store procedure” on a separate computer terminal in the back office.

In addition, Troester was required by company policy to walk coworkers to their cars and, on occasion, wait with employees for their rides to arrive, bring in store patio furniture that had been left outside or reopen the store to allow employees to retrieve items they left behind. These tasks generally took between four and ten minutes, which in aggregate over Troester’s employment would have netted him $102.67 had he been paid for the time.

Ruling on Starbucks’ motion for summary judgment, a federal district court judge found the time to be de minimis. While acknowledging that the closing activities occurred on a regular basis, the court said the FLSA’s de minimis doctrine foreclosed recovery in the suit.

Troester appealed, and the U.S. Court of Appeals, Ninth Circuit turned to the California Supreme Court for assistance, certifying the question: “Does the federal [FLSA’s] de minimis doctrine … apply to claims for unpaid wages under the California Labor Code?”

The state’s highest court answered in the negative, holding that “the relevant California statutes and wage order have not incorporated the de minimis doctrine found in the FLSA … [and] do not allow employers to require employees to routinely work for minutes off-the-clock without compensation.”

Further, “although California has a de minimis rule that is a background principle of state law, the rule is not applicable to the regularly reoccurring activities that are principally at issue here,” the California Supreme Court said.

Applying the holding, the Ninth Circuit returned the case to the district court to move forward on the merits. “In light of the answer to the certified question, we reverse and remand for further proceedings consistent with the California Supreme Court,” the panel wrote.

To read the memorandum in Troester v. Starbucks Corporation, click here.

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Hostile Work Environment Claim Based on Racial Slurs Advances

Why it matters

The U.S. Court of Appeals, Eleventh Circuit reversed dismissal of a plaintiff’s Title VII suit based on the use of racial slurs, although the court affirmed summary judgment in favor of the employer on claims for discriminatory termination and retaliation. A customer service supervisor, Brenda Smelter, was the only African-American employee in her office and claimed she heard coworkers making racist remarks, some of which were directed at her, on an almost daily basis. The language went on for months and culminated in an altercation where another employee called her a “dumb black n*****.” Smelter was terminated and filed suit. While the Eleventh Circuit agreed with the district court that the plaintiff failed to establish pretext in response to the employer’s legitimate, nondiscriminatory reasons for terminating her, the panel reversed on her hostile work environment claim. Smelter provided sufficient evidence to create a genuine issue of material fact that the harassment she suffered was severe or pervasive enough to alter the terms or conditions of her employment, the panel wrote.

Detailed discussion

Brenda Smelter was hired as a customer service supervisor by Southern Home Care Services, a company that provides personalized home healthcare services. Smelter joined the Perry, Georgia, office of Southern Home, where four other employees worked. She was the only African-American employee in the office.

By her own admission, Smelter struggled with her job duties after she left training and began working in the Perry office. She repeatedly asked the same questions, made the same errors and had difficulty coordinating with caregivers—her primary responsibility. Smelter received an unprecedented level of support from coworkers as well as additional training from the company.

According to Smelter, she was also subject to racist remarks by her coworkers nearly every day. Comments included statements that black men were “lazy” and “the scum of the earth,” as well as that “black women had babies on welfare” and President Barack Obama’s ears made him “look like a monkey.” On one occasion, an employee told Smelter that her hair made her look like a “mixed monkey” from the movie Planet of the Apes; another time a coworker saw black people exiting a bus and commented that it looked like they were “chained together,” adding that she wished she could “send them all back … to Africa.”

Smelter never reported the comments until her last day of employment. On that day, a caregiver complained about Smelter, who responded that she had not made a mistake. A verbal altercation between Smelter and one of her coworkers ensued, with the other employee telling her to “get out of my office … you dumb black n*****.”

When Smelter spoke with her supervisor, she reported the racist comments for the first time while explaining the altercation. The other employees denied making the comments, and Smelter was terminated for yelling in the office and not meeting the employer’s expectations. Smelter was still within her six-month probationary period at Southern Home.

Smelter then filed a Title VII lawsuit, asserting claims for discriminatory termination, retaliation and a hostile work environment. A district court judge granted summary judgment in favor of the employer, and Smelter appealed.

The U.S. Court of Appeals, Eleventh Circuit reached a mixed decision: While the court affirmed summary judgment of the termination and retaliation claims, it reversed on the hostile work environment claim, finding sufficient evidence that Smelter’s work environment was both subjectively and objectively hostile.

Smelter’s subjective perception of her environment was one of stressful and hurtful racist comments, the court said, based on her testimony that it felt like the harassment “never stopped.” From an objective perspective, the court found that Smelter provided “ample evidence” that the racial harassment was frequent and that she heard racist comments “every day” during her employment, offering eight examples that allegedly occurred over a two-month period.

“Even if these eight examples were the only racist remarks made in Smelter’s presence during her two months of employment, this Court has held that harassment was pervasive when it occurred at a similar frequency,” the panel wrote.

A reasonable jury could find that the harassment was severe, the court added. “Southern Home argues that [the] ‘one-time use’ of [the n-word] was insufficient to establish severity as a matter of law,” the Eleventh Circuit said. “We disagree. This Court has observed that the use of this word is particularly egregious when directed toward a person in an offensive or humiliating manner.”

The other comments Smelter alleged “involved obvious racial slurs conveying highly offensive derogatory stereotypes of black people,” the court added, and “[c]omments like these are sufficiently severe to create a hostile work environment.” While Smelter’s evidence of the impact of the harassment on her job performance was “weak,” this failing was not enough to end her claim.

“Considering the totality of the circumstances, particularly the daily frequency and extreme severity of the harassment, including racist remarks made directly to Smelter about her, we conclude that she provided sufficient evidence for a reasonable jury to find that the harassment was objectively severe or pervasive,” the panel wrote.

However, the court found Smelter’s claims for discriminatory termination and retaliation unable to overcome the employer’s legitimate, nondiscriminatory reason for her firing: that she was a substandard employee who required remedial training and had difficulty coordinating with caregivers.

Smelter “failed to cast sufficient doubt on [the reason] that she was a substandard employee who was still in her probationary period,” the panel said. She argued that any shortcomings were the company’s fault by providing her poor training, but the court noted the employer “went to great lengths” to provide Smelter with the resources she needed to succeed, providing supplemental training and help from coworkers.

“Smelter offers nothing that casts any doubt on Southern Home’s explanation that her problems performing her duties were the true reason behind her termination,” the court said. “She has failed, therefore, to establish that Southern Home’s nondiscriminatory reason for firing her is unworthy of belief.”

The Eleventh Circuit reached a similar conclusion with regard to the plaintiff’s retaliation claim.

To read the opinion in Smelter v. Southern Home Care Services, Inc., click here.

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Plaintiff Fails to Exhaust Remedies in EEOC Charges

Why it matters

An employee failed to exhaust her administrative remedies where her second Equal Employment Opportunity Commission (EEOC) charge alleging retaliation didn’t reference her initial charge filed in 2012, the U.S. Court of Appeals, Tenth Circuit held, affirming dismissal of her complaint. Diane Smith filed her first charge with the EEOC in 2012, alleging that she had been harassed by her supervisors and denied promotions based on her race and age in retaliation for complaining about discrimination. The EEOC issued her a right-to-sue notice in 2013, however she declined to file a lawsuit. But when Smith was allegedly harassed by a new supervisor, she filed a second charge in 2014 and followed it up with a federal complaint. Her employer moved to dismiss based on a lack of subject matter jurisdiction, arguing that the plaintiff failed to exhaust her administrative remedies. The court granted the motion, and the federal appellate panel affirmed. As the 2014 charge did not reference the earlier charge or contain allegations related to the alleged retaliation for having filed it, Smith failed to satisfy her duty to exhaust, the Tenth Circuit held.

Detailed discussion

Diane Smith worked as a food server at the Pointe Frontier Retirement Community. In 2012, she filed a complaint with the Equal Employment Opportunity Commission (EEOC) alleging that she had been harassed and intimidated by her supervisors and denied promotions and advancements on the basis of her age and race, and in retaliation for previous discrimination complaints.

Finding “there was no reasonable cause to conclude that [Pointe Frontier] engaged in discriminatory acts detrimental to [Smith],” the EEOC dismissed the charge and issued a right-to-sue letter in 2013. Smith did not pursue her claims in court.

In early 2014, the company hired a new shift leader, who became Smith’s supervisor. According to Smith, he immediately began to harass her by subjecting her to enhanced scrutiny compared with her colleagues. She believed that he had been “instructed” to treat her that way because of her 2012 EEOC charge.

A few months later, Smith called the Pointe Frontier employee hotline to complain about the harassment. Two weeks later, she was terminated. In response, Smith filed a second charge of discrimination with the EEOC. She alleged that she was “subjected to disparate treatment and a hostile work environment and was fired from [her] server position after [she] complained.”

Smith checked boxes for race, age and retaliation, further elaborating by stating she believed she had been “discriminated against based on my race/color (black) and age (56) and that I was retaliated against for complaining against [sic] discriminatory treatment,” along with additional details about her new supervisor’s alleged harassment. The 2014 charge did not refer to the events of 2012.

Responding to the 2014 charge, the employer made reference to the 2012 charge, noting that the new charge was “Smith’s second EEO charge” and that previously “the EEOC decided in favor of Pointe Frontier.” Unable “to conclude that the information obtained establishes violations of the statutes,” the agency again provided Smith with notice of her right to sue.

Smith then filed a complaint in Wyoming federal court, alleging that her termination was pretextual and in retaliation for filing the previous charge of discrimination in 2012. The employer moved to dismiss the suit for lack of subject matter jurisdiction. While Smith facially satisfied her duty to administratively exhaust with the 2014 charge, she stated different claims in the lawsuit against Pointe Frontier, specifically unlawful retaliation for filing the 2012 charge, the employer argued.

A district court judge granted the motion to dismiss, and Smith appealed. The U.S. Court of Appeals, Tenth Circuit affirmed dismissal.

“While the 2014 EEOC Charge does allege retaliation, it is clear from the text of that charge that it does not encompass retaliation for having filed the 2012 EEOC Charge, which is the Title VII violation Ms. Smith now alleges in federal court,” the panel wrote. “The first line of the 2014 EEOC Charge alleges that Ms. Smith was ‘subjected to disparate treatment and a hostile work environment and was fired from my Server position after I complained.’ While this alone would perhaps be sufficient to suggest the ‘complaint’ referenced was the 2012 EEOC Charge, Ms. Smith spends the rest of the 2014 EEOC Charge making clear this is not the case.”

Instead, the plaintiff elaborated in her charge that she complained about her new supervisor’s treatment and that as a result of her complaint, she was looked upon as a troublemaker. The 2014 charge “makes only a passing reference to the events that precipitated the 2012 EEOC Charge, and in fact never mentions that a charge was filed in 2012,” the court said.

The 2014 charge concludes with a statement that “the real reason I was fired is because I complained against [sic] [the supervisor’s] discriminatory treatment.” Given that this supervisor “was not hired at Pointe Frontier until 2014, that line alone makes clear that the 2014 EEOC Charge does not encompass the claims Ms. Smith now brings, namely that she was fired for filing the earlier 2012 EEOC Charge,” the court added.

Smith urged the panel to consider Pointe Frontier’s response, which did mention the 2012 charge. While recognizing that the “argument has a certain appeal,” the Tenth Circuit refused to stray from prior precedent that the court rely solely on the plaintiff’s complaint.

“[W]e have consistently held, time and again, that the reasonable and likely scope of the investigation is determined by the allegations contained in the Charge itself, rather than in the Charge and any responsive documents,” the panel wrote. “And there is good reason for this requirement. After all, the twin purposes of the exhaustion requirement would be ill-served if an employer’s response could expand the scope of the EEOC inquiry.”

Using the charge itself to establish the scope of the investigation allows the employer to know exactly what allegations to defend itself against, and were the court to hold that a defendant’s response to an EEOC charge could expand the scope of that charge, “we would be incentivizing employers to respond to such charges in as bland and general a manner as possible,” the court explained. “The goal for employers would be to avoid any language that could be used to expand the employee’s claim beyond the face of the Charge itself, which would hinder the EEOC’s ability to gather and collect enough detailed information to conciliate the claim.”

Liberal construction of the content of the 2014 EEOC charge did not help Smith either.

“[E]ven construed liberally, the 2014 EEOC Charge raises two claims for relief: (1) that Ms. Smith was repeatedly intimidated and harassed by [her new supervisor] on the basis of her age and race, and (2) that she was fired for complaining about this treatment to management,” the panel said. “No matter how liberally we may construe these two grounds for relief, they do not include Ms. Smith’s claim in this lawsuit that her termination ‘was motivated by [her] filing [in 2012] of a charge of discrimination with the [EEOC].’”

The court affirmed dismissal of Smith’s complaint, albeit without prejudice to provide the plaintiff with an opportunity to file a second complaint should she be able to exhaust her administrative remedies.

To read the opinion in Smith v. Cheyenne Retirement Investors L.P., click here.

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