US Supreme Court deals with FCRA, FAA waiver and litigation

The U.S. Supreme Court in 2021 issued a landmark ruling on the status of Article III in a class action lawsuit brought under the Fair Credit Reporting Act (FCRA). The Court has also granted certiorari in cases that will significantly impact employers’ right to arbitration (instead of expensive litigation).

“No concrete harm, no position”

In recent years, many employment class action lawsuits have been based on technical violations of the law. Examples include actions alleging faulty FCRA notices issued during pre-employment background checks, faulty COBRA election notices and violations of state privacy laws. A Supreme Court ruling this summer could allow employers defending such actions to demonstrate that some or all of the employees alleging these simple technical violations suffered no material harm and, therefore, their claims should be dismissed.

Significantly, the Supreme Court declined to address “[w]Either Rule III or Rule 23 permits a class action for damages where the vast majority of the class suffered no actual injury, let alone an injury similar to that suffered by the class representative.

In a 5-4 split opinion dealing with consumers’ right to sue a credit bureau for technical violations of the FCRA, the Supreme Court ruled: “Standing under Article III requires prejudice concrete even in the context of a violation of the law”. Thus, only individuals whose inaccurate credit records were disclosed to third parties had standing to seek damages under the FCRA since they suffered material damage to their reputation. The other members of the class, whose inaccurate credit reports were not disseminated to third parties, suffered no recognizable damage and therefore do not have standing to sue.

Writing for the majority, Justice Brett M. Kavanaugh concluded, “The mere presence of an inaccuracy in an internal credit file, if not disclosed to a third party, causes no material harm. To the extent that plaintiffs whose credit files had not been released argued that inaccurate and defamatory alerts on their credit reports could still be passed on to a third party, the majority of the Court suggested that the approach appropriate to such alleged future harms would be to cross that bridge of injury when they get there. Judge Kavanaugh also addressed the plaintiffs’ claim that the forms of the disclosures they received did not comply (a claim that many employers face in costly and time-consuming class action suits), ruling that they failed to demonstrate the alleged deficiencies “caused them harm with a close relationship to harm traditionally recognized as a basis for legal action in U.S. courts.

Significantly, the Supreme Court declined to address “[w]Either Rule III or Rule 23 permits a class action for damages where the vast majority of the class suffered no actual injury, let alone an injury similar to that suffered by the class representative. Although the majority opinion held that each class member must prove that he or she had standing to recover individual damages in federal court, it did not address the question of whether Article III was required in group certification stage.

FAA Transportation Worker Exemption

In December, the Supreme Court granted certiorari to determine whether the FAA’s exemption for transportation workers for categories of workers engaged in foreign or interstate commerce applies to ramp workers of an airline operating at from Chicago Midway Airport. The Court will consider[w]Workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport those goods themselves, are interstate “transportation workers” exempt from federal arbitration law. The court’s decision will determine whether the workers will be able to pursue their overtime class action in Federal Court or, instead, will have to arbitrate their claims on an individual basis under an arbitration agreement with their employer.

The Supreme Court previously denied two separate petitions for certiorari filed by an online retailer asking judges to rule on the highly controversial issue of whether concert conductors can be compelled to arbitrate claims of misclassification by independent contractors. At issue was whether the transportation worker exemption applies to “last mile” delivery drivers who do not cross state lines when delivering goods out of state. The Supreme Court’s decision not to accept the petitions had left a divided circuit in place.

In recent years, the exemption of transportation workers has become one of the most significant issues in class action lawsuits, especially as employers have increasingly adopted arbitration agreements with waivers of Class and class action lawsuits to limit legal costs and wage and hour lawsuits. have proliferated among employees and independent contractors claiming to fall under the exemption.

Litigation as a waiver of arbitration

The Supreme Court will also consider whether a plaintiff should be required to show prejudice when claiming that a defendant waived its right to arbitrate (under an arbitration agreement between the parties) by engaging in conduct that indicates an intention to take legal action.

In the case below, a district court denied an employer’s motion to compel a fast food worker to arbitrate her FLSA overtime claims, finding that the employer had waived the right to compel arbitration while waiting eight months to do so. An inverted divided eighth circuit. The majority of the panel pointed out that four of those eight months were spent not actively litigating, but waiting for the court to rule on the defendant’s motion to dismiss. Moreover, according to the majority, instead of focusing on the employer’s delay in asserting its right to arbitration, the lower court should have taken into account the nature motion to dismiss: The employer’s motion related to the “first to file” rule, so the parties did not spend time debating the merits of the case. Because no discovery was made and there was no evidence that the employee would have to duplicate her efforts during arbitration, the appeals court concluded that the employee had not been harmed by the employer’s litigation strategy.

In reaching its decision, the Eighth Circuit joined eight other federal appeals courts and most state supreme courts in requiring the party asserting the waiver to show that the inconsistent acts of the party who waives have caused harm. However, in her motion for certiorari, the employee argued that these courts erred in grafting an additional requirement on the waiver analysis when the contract at issue happens to involve arbitration. Ordinary contract principles have turned into a “confused mess” in the context of arbitration, the employee claims. The petition notes that three other federal appeals courts and the supreme courts of at least four states do not do not include the prejudice as an essential element in proving the waiver of the right to arbitrate. He further asserts that the arbitration-specific requirement that the proponent of a contractual waiver defense must prove that an injury violates the Court’s decision in AT&T Mobility LLC vs. Concepcion: that lower courts must “place arbitration agreements on an equal footing with other contracts”.

© 2022 Jackson LewisNational Law Review, Volume XII, Number 52

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