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Employer gets stay of class action pending Supreme Court class action waiver review

By Ronald Miller, J.D.

Concluding that it would be inefficient to proceed to the certification stage in this case until it could be resolved regarding whether employees of certain nonparty entities were properly part of a putative class, and whether alleged arbitration agreements were enforceable, a federal district court in California granted an employer’s motion to stay proceedings until the U.S. Supreme Court issued its decision in Epic Systems Corp. v. Lewis . However, the court determined that the employee could proceed with discovery regarding whether various employer entities constituted a single enterprise/joint employer (Campanelli v. Image First Healthcare Laundry Specialists, Inc., July 10, 2017, Hamilton, P.).

According to the employee, as a delivery driver for a uniform rental service, he worked over 40 hours a week but was denied meals and rest periods, and was never paid overtime compensation. He sought to represent a class of similarly situated delivery persons of any ImageFIRST entity nationwide in a collective action for failure to pay overtime wages under the FLSA. He also sought to represent a Rule 23 class of delivery persons who were wrongfully classified as exempt under the California labor laws.

On May 2, 2017, the employer filed a motion to stay all class and collective action proceedings until the Supreme Court issues its decision reviewing the Seventh Circuit’s ruling in Lewis v. Epic Systems Corp. and the cases consolidated with it, including the Ninth Circuit’s ruling in Morris v. Ernst & Young, LLP. The Supreme Court will address whether “an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the NLRA.”

In arguing for a stay, the employer argued that “virtually all” of the putative class members had signed arbitration agreements that included a concerted action waiver. As a result, if the Supreme Court overturns the Ninth Circuit’s ruling in Morris, it is possible that many of the putative class members will be precluded from participating in a class or collective action. Thus, ImageFIRST argued that the decision in Epic could have a dramatic impact on the size of the putative class.

Courts are divided over whether to grant stays pending a decision in Epic. However, under the particular circumstances of this case, the court found that a stay was appropriate because two preliminary legal issues must be resolved before the propriety of the class/collective certification can be determined. The court concluded that it was required to make a judicial determination as to (1) whether the employees of nonparty entities were properly part of the putative class, and (2) whether the alleged arbitration agreements were enforceable, and if so, how many putative class members had signed concerted action waivers.

Employer entities. With regard to the first question, the court noted that the parties have contested the issue of whether various entities may be considered the “employer” of some or all of the putative class members throughout this litigation. The employee claimed that all similarly situated employees of any ImageFIRST entity may be included in the putative class under a joint employer/single enterprise theory. However, only two ImageFIRST entities are named as defendants in this action. Since this legal issue may be determinative of the numerosity requirement of Rule 23, the scope of joint employer liability must be resolved prior to certification.

Arbitration agreements. The second legal issue was the existence and enforceability of the alleged arbitration agreements/class action waivers signed by putative class members. Here, the court found that if the agreements were enforceable, they would have a significant impact on the size of the class. However, at this point, evidence submitted by the employer was inadequate to compel arbitration because they are not currently enforceable under Morris, and because the employer did not submit any signed, dated arbitration agreements. If the Supreme Court overturns Morris and concludes that these types of agreement are enforceable, the employer would be permitted to move for summary judgment as to whether certain putative class members are precluded by contract from participating in the class/collective.

Under these circumstances, the court found that the balance of equities and the orderly course of justice favored a partial stay.

Joint employer status. However, while Epic is pending, the employee would be afforded the opportunity to obtain discovery on his “joint employer” theory. Thus, the court and the parties would have clarity as to which ImageFIRST entities may be considered to be an “employer” for purposes of the employee’s FLSA claims.