th Cir.: Union did not act arbitrarily in declining to take rest break claim to arbitration

By Ronald Miller, J.D.

After certifying a class action against an employer for breaching its collective bargaining agreement and against a union for breaching its fair representation duty, a federal district court then correctly granted summary judgment in favor of the defendants, ruled the Eighth Circuit (Inechien v Nichols Aluminum, LLC, August 28, 2013, Kelly, J). In view of the parties’ history on the issue of rest breaks for employees working on continuously operating lines, the union did not have a duty to pursue to arbitration a grievance that it believed did not warrant such action. Thus, under the facts and circumstances of this case, an employee failed to raise a genuine issue of material fact on whether the union failed in its duty of fair representation. Because summary judgment in favor of the union was properly granted, summary judgment in favor of the employer was also proper.

The employer operated two facilities, with three of its production lines operating continuously. Employees at the facilities were represented by a union and their working conditions governed by a CBA. In January 2010, the employee first complained to his supervisor and the union president that employees on the coil coating line were not receiving breaks. Ultimately, he filed a grievance on this issue. The employer responded that the employees, in fact, did get to take their rest breaks “as time permits.” Dissatisfied with this response, the employee pursued the grievance. Eventually, the grievance was denied and the union did not request arbitration. The employee said he did not receive notice that his grievance was denied.

The employee filed a second grievance stating he thought employees would be notified regarding breaks and lunch periods. The employer refused to accept the grievance because it considered the matter closed. In response, the employee filed this class action class action, alleging that the employer breached the CBA by failing to establish rest periods for workers on the continuously operating lines and against the union for breach of the duty of fair representation. The district court certified the class pursuant to Rule 23 as to those employees who worked on continuously operating lines at any time during the ten-year period preceding the lawsuit but then granted summary judgment to both defendants.

Union investigation. To prevail on this “hybrid” action pursuant to Sec. 301 of the LMRA, the employee had to prove both that the employer violated the CBA and that the union breached its duty of fair representation. “A union breaches its duty of fair representation when its conduct is ‘arbitrary, discriminatory, or in bad faith,’” the court began. In this instance, the employee asserted that the union acted arbitrarily and breached its duty of fair representation when it failed to conduct an investigation into the merits of his grievance and failed to process his grievance properly. He presented evidence that the union did not, in fact, conduct interviews of employees on continuously operating lines regarding whether they were taking breaks. Thus, the appeals court agreed with the district court that there remained a disputed issue of fact regarding whether the union acted arbitrarily or in bad faith when it failed to arbitrate the grievance that coil coating line employees were not actually receiving their rest periods.

However, whether or not employees on a continuously operating line were receiving rest periods was not the basis for certifying the class. Instead, the claim in the class action was that the employer failed to establish scheduled rest breaks on the continuously operating lines, as required by the CBA, and that the union, in turn, failed in its duty of fair representation when it refused to take this claim to arbitration. Any purported failure of the union to investigate individual claims by individual class members was not relevant to the analysis of the appeals court.

Further, the union had previously addressed a grievance on the issue of a lack of scheduled breaks on the continuously operating lines in 1990. At that time, the employer responded that, for most workers on continuously operating lines, breaks are not scheduled. Instead, workers are “allowed break time without disrupting production.” The employer explained that the continuously operating line simply could not be shut down for a “scheduled” break, and the union did not take the matter to arbitration.

A year later, the union negotiated a possible change to the CBA’s rest period provision. At that time, the employer and union discussed the impracticality of designating specific times for scheduled rest periods on the continuously operating lines, and the proposal was ultimately abandoned. Thus, when the union was faced this issue in the past, it proposed changing the language of the rest period provision, rather than asserting a violation of the CBA as it is currently written. Consequently, given the longstanding practice at the employer and the previous experience with the issue of scheduled rest breaks for employees on continuously operating lines, the union’s decision not to take this particular issue to arbitration was not arbitrary.

No union bad faith. Finally, the appeals court concluded that the employee failed to show that the union engaged in conduct sufficient to establish a breach of the duty of fair representation. The employee asserted that the union acted in bad faith by failing to communicate openly and honestly with him about the investigation and the grievance process. However, he failed to show that the union acted in bad faith as to the issue certified for the class action. The question of whether the employer breached the CBA on the issue of scheduled rest breaks did not require the same type of investigation in order to assess its validity and viability for arbitration. Mere negligence, poor judgment or ineptitude on the part of the union was insufficient to establish a breach of the duty of fair representation. Accordingly, the appeals court affirmed the judgment of the district court.

The case number is 12-3734.

Attorneys: Brad J. Brady (Brady & Preston) for Charles Inechien. Kathleen Marie Anderson (Barnes & Thornberg) and Martha L. Shaff (Betty & Neuman) for Nichols Aluminum, LLC. John S. Callas (McCarthy & Callas) for International Brotherhood of Teamsters Union, Local No 371.

9th Cir: Employees’ labor code claims could not be aggregated under PAGA to satisfy amount-in-controversy requirement; federal court lacked jurisdiction

By Lisa Milam-Perez, J.D.

Individual employees’ California Labor Code claims could not be aggregated under the state’s Private Attorney Generals Act (PAGA) in order to satisfy the amount-in-controversy requirement for establishing federal court jurisdiction, a divided Ninth Circuit panel held (Urbino v Orkin Services of California, Inc, August 13, 2013, Hawkins, M). As a result, the appeals court refused to resolve the “quintessential California dispute” over whether an employer’s arbitration agreement that contained a PAGA arbitration waiver was unenforceable under state law. Instead, the majority vacated the district court’s order denying an employee’s motion to remand his labor code claims. Judge Thomas dissented.

PAGA action filed. An Orkin employee filed a representative PAGA action alleging that the company deprived him (and his fellow nonexempt, hourly workers) of meal periods, overtime, and vacation pay, and failed to furnish accurate itemized wage statements. The employer removed the case to federal court on the basis of diversity—presenting evidence that the aggregated claims of some 811 individual employees, who were issued at least 17,182 possibly faulty paychecks, could result in liability that satisfied the minimum federal jurisdictional requirements.

The employee moved to remand the case to state court, leaving the district court to ponder whether the potential penalties could be combined or aggregated to satisfy the amount in controversy requirement. If they could, federal diversity jurisdiction would lie because statutory penalties for initial violations of California’s Labor Code would total $405,500 and penalties for subsequent violations would aggregate to more than $9 million. If not, the $75,000 threshold would not be met because penalties arising from the plaintiff’s sole claims would be limited to $11,602. Noting the split opinions among other district courts on the issue, the court below, addressing the question for the first time, found PAGA claims to be common and undivided and therefore capable of aggregation. The Ninth Circuit reversed, concluding the penalties recoverable on behalf of all aggrieved employees could not be considered in their totality to clear the jurisdictional hurdle.

The traditional rule is that multiple plaintiffs who assert separate and distinct claims are precluded from aggregating them to satisfy the amount in controversy requirement unless the individual plaintiffs “unite to enforce a single title or right in which they have a common and undivided interest,” the appeals court wrote, quoting the Supreme Court in Snyder v Harris. To determine whether such a common interest exists, courts look to the source of plaintiffs’ claims. “If the claims are derived from rights that they hold in group status, then the claims are common and undivided. If not, the claims are separate and distinct.” However, just because claims arise from questions of fact and law “common to the group” does not mean they have a “common and undivided interest,” the court explained. Such an interest exists only when the claims can be asserted “by pluralistic entities as such,” or, put another way, if the defendant “owes an obligation to the group of plaintiffs as a group and not to the individuals severally.”

The employer argued to no avail that the interest asserted by the employee is not his individual interest, but rather “the state’s collective interest in enforcing its labor laws through PAGA.” To the extent that the employee asserted anything but his individual interest, the majority could not be persuaded that such a suit—“the primary benefit of which will inure to the state”—satisfies the requirements of federal diversity jurisdiction, noting that the state, as the real party in interest, is not a “citizen” for diversity purposes.

Because the employees’ individual claims could not be aggregated, the amount in controversy requirement was not satisfied, and federal subject matter jurisdiction did not lie. The district court was directed to return the matter to state court for resolution.

Dissent. Arguing that PAGA claims can be aggregated for purposes of diversity jurisdiction, Judge Thomas dissented. The dissent noted that PAGA is fundamentally a law enforcement tool to protect the public, not to benefit private parties. “The Act neither creates nor vindicates substantive rights of individual aggrieved employees. Rather, it deputizes aggrieved employees to vindicate the State’s interest in labor code enforcement.” As such, a PAGA plaintiff is not entitled to “damages,” but only a share of recovery as an incentive payment. Consequently, Thomas argued, PAGA plaintiffs do not represent “separate and distinct” claims subject to the anti-aggregation rule.

A PAGA plaintiff is comparable to a plaintiff in a shareholder derivative suit, who likewise lacks a direct proprietary interest in the subject of the litigation and sues as a proxy for the injured corporation, in the dissent’s view. “Notwithstanding the individual recovery secured by successful shareholder derivative plaintiffs, we have long held their claims subject to aggregation, relying on the rationale that derivative suits vindicate corporate interests and benefit the shareholders only indirectly.” The dissent also noted, in support of the notion that PAGA does not vindicate “separate and distinct” claims, that PAGA claims are not assignable; they may only be pursued individually if the state chooses not to take enforcement action; and the judgment binds nonparty aggrieved employees (as would a judgment in a suit brought by the government). “If aggrieved employees possessed individual substantive rights under the Act, this broad rule of preclusion would raise serious due process concerns,” Thomas argued. This is why a PAGA judgment does not bar aggrieved employees from later pursuing individual claims based on the same labor code violations.

The case number is 11-56944.

Attorneys: Kenneth H. Yoon (Law Offices of Kenneth H. Yoon) and Peter M. Hart (Law Offices of Peter M. Hart) for John Urbino. Christopher Charles Hoffman (Fisher & Phillips) and Theodore Robert Scarborough (Sidley Austin) for Orkin Services.

By Lisa Milam-Perez, J.D.

Reversing in part a district court’s grant of summary judgment to employees who brought a WARN Act suit after their casino employer fell victim to a gambling crackdown, the Eleventh Circuit concluded the court below incorrectly aggregated a layoff and a plant closing that took place a month apart (Weekes-Walker v Macon County Greyhound Park, Inc aka Victoryland, August 5, 2013, Wilson, C). The appeals court reversed and remanded the case for the district court to determine whether employees who were laid off in January 2010 were “affected employees” as a result of the February plant closing, and thus entitled to notice under the statute.

However, the lower court correctly classified February 2010 and August 2010 layoffs as plant closings, the appeals court held, finding the employer liable for violations of the WARN Act notice provisions. The appeals court also affirmed that the employer could not avail itself of the statute’s unforeseeable business circumstances defense because the company failed to at least provide its employees with notice of the layoffs as soon as practicable. And it rejected the notion that the employer’s PR counter-offensive to the gambling crackdown was enough to satisfy WARN’s employee notice requirements.

In the first layoff, in January 2010, 68 workers were let go as the result of scheduled renovations. That layoff was portrayed as temporary, and the employer conceded that it did not provide WARN Act notice to the employees who were terminated. One month later, the task force showed up and seized the employer’s gaming machines after the state supreme court vacated a temporary restraining order against the task force. That prompted the disheartened employer, in February, to lay off its remaining 249 workers—again, without WARN notice.

In March, county officials filed suit challenging the authority of the gambling task force, and the county court entered a second restraining order (then a preliminary injunction) against the task force. The casino reopened for business almost immediately. But in July, the state supreme court vacated this injunction too. Bracing for another raid, the casino ceased its electronic gaming operations and, in August, laid off its workforce for good. Without notice.

In the class action WARN Act suit that followed, the district court granted summary judgment to the laid-off workers. It found the WARN Act applied to all three layoff events. It aggregated the first two layoffs as a “mass layoff” and found the final closure was a “plant closing” within the meaning of the statute. On appeal, the employer argued that the January layoff was not covered by the WARN Act and, as such, the lower court erred in aggregating the January and February layoffs. The employer also contended, as to the February and August layoffs/plant closings, that it was subject to the WARN Act’s unforeseeable business circumstances defense.

The district court erred by using the definition of “plant closing” from WARN Sec. 2101(a)(2) as an aggregation source or method. It reasoned that as long as the January layoff occurred within 30 days of the February plant closing, then the two events can be aggregated together to reach the threshold for a “plant closing.” But the language of the “plant closing” definition itself does not allow for that sort of aggregation. “Plant closing” is defined as “the permanent or temporary shutdown of a single site of employment . . . if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees.”

The phrase “during any 30-day period,” the appeals court explained, is “merely the timeframe for determining whether enough employees were laid off in ‘the shutdown’ — singular, not plural — in order for that shutdown to qualify as a plant closing under the WARN Act. This language does not allow us to count an earlier and unrelated layoff as part of the same ‘plant closing’ just because the two events happened within 30 days of one another.”

Nor could the January layoff and February plant closing be aggregated to constitute a “mass layoff,” defined as “a reduction in force which . . . is not the result of a plant closing…” It would be contrary to the plain language of the statute to aggregate the February plant closing with an unrelated layoff to create a “mass layoff,” the appeals court said.

Nonetheless, it reasoned, the employees laid off in January could potentially be “affected employees” who were entitled to notice of the February plant closing under Sec. 2101(a)(5) of the Act. Whether they were entitled to notice depends on how long the January layoff was expected to last — whether it was always intended to exceed six months or whether the February plant closing turned what was an otherwise “short-term layoff” into an “employment loss.” In that case, the employees would be entitled to notice. That was a fact issue for the district court to decide on remand.

Unforeseen business circumstances defense foreclosed. The Eleventh Circuit also affirmed that the employer could not avail itself of the WARN Act’s unforeseeable business circumstances defense because it provided no notice at all to its workforce. Under Sec. 2102(b)(3), an employer averring this defense “shall give as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period.” That is, the statute imposes a condition precedent such that an employer seeking to leverage the unforeseeable business circumstances defense must first give notice to affected employees. “It is manifest that a WARN Act employer attempting to circumvent the 60-day notice requirement must still give some notice in accord with Sec. 2102(b)(3),” wrote the court. “The unforeseeable business circumstances defense does not jettison this absolute requirement under the WARN Act; even where the defense is properly invoked, some notice must be given.”

In support of this conclusion, the appeals court noted that the title of the provision itself reads, “Reduction of notification period.” Had Congress intended to allow the notification period to be eliminated completely, “it would have indicated such by way of delineation between that and a reduction; it did not.” Rather, the defense allows employer to obtain a reduction of the notification period due to unforeseeable business circumstances, but not an elimination of the notice requirement. Moreover, the DOL regulations separately list circumstances under which no WARN Act notice is required, and none of those circumstances were present here.

First, the WARN regulations require that notice must be specific, outlining specific methods of notice that are acceptable under the Act, such as payroll inserts. Moreover, while the task force raid was highly publicized, the employer could not show that each affected employee actually received notice. Thus, the employer’s putative methods of “notice” did not satisfy the fundamental statutory requirement that an employer “give or serve a form of notice that will ensure delivery and receipt.”

The case number is 12-14673.

Attorneys: John M. Segrest (The Segrest Law Firm), Charles A. Hardin (Hardin & Hughes), James B. Perrine (Bailey & Glasser), and Robert Simms Thompson, Attorney at Law, for Judy Weekes-Walker. Patrick L.W. Sefton (Sasser Sefton Brown Tipton & Davis), Fred D. Gray, Sr. (Gray Langford Sapp McGowan Gray Gray & Nathan) for Macon County Greyhound Park, Inc.

Hot Topics in WAGES HOURS & FMLA: