Federal Agencies Required to ‘Pay Up’ for Frivolous Labor and Employment Enforcement

Courts have been increasingly critical of agencies’ “sue first, ask questions later” strategy.

Of late, federal agencies have drawn the ire of the courts for trampling the rights of regulated parties in labor and employment enforcement litigation. Indeed, courts have been increasingly critical of agencies’ “sue first, ask questions later” strategy.[1] The following cases illustrate the sometimes-overzealous tactics and positions asserted by the Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor (DOL). As these decisions indicate, courts have not been shy to award substantial fees and costs to employers who have been required to combat frivolous claims.

EEOC pays handsomely for pursuing ‘unreasonable’ and ‘frivolous’ claims

If the EEOC brings a frivolous lawsuit against an employer, the employer may be able to recover attorney fees, costs and expenses. Title VII of the 1964 Civil Rights Act provides that “[i]n any action or proceeding under this title the court, in its discretion, may allow the prevailing party, other than the Commission or the United States, a reasonable attorney’s fee (including expert fees) as part of the costs, and the Commission and the United States shall be liable for costs the same as a private person.”[2] In Christiansburg Garment Co. v. EEOC, the United States Supreme Court set forth an additional requirement for prevailing defendants — that is, a prevailing defendant is only entitled to attorneys’ fees and out-of-pocket expenses when “the plaintiff’s action was frivolous, unreasonable or without foundation, even though not brought in subjective bad faith.”[3] Thus, combining Title VII and Christianburg produces a two-part analysis: (1) Did the employer prevail? And (2) was the EEOC’s lawsuit frivolous?

In EEOC v. CRST Van Expedited Inc., the U.S. District Court for the Northern District of Iowa awarded the employer almost $4.19 million in attorney fees, and $413,000 in out-of-pocket expenses for a total of $4.6 million because of the EEOC’s frivolous and burdensome lawsuit.[4] After scant investigation, the EEOC initiated a class action, alleging that female employees were subjected to sexual harassment and a sexually hostile working environment, and that CRST failed to prevent, correct and protect them.[5] At one point in the litigation, the EEOC was pursuing claims on behalf of as many as 275 allegedly aggrieved individuals. Two years after the litigation began, all claims had either been dismissed by the district court or withdrawn by the EEOC; the EEOC settled one claim for $50,000.[6]

On the “prevailing party” issue, the EEOC argued that because it had settled one claim out of 275, that CRST could not be considered the “prevailing party.” The court found this argument very unpersuasive:

The EEOC, in essence, argues that, as long as it names one individual in a complaint and succeeds as to that individual, it can include as many frivolous allegations as it wishes in a complaint using the vague language “and a class of similarly situated individuals” without ever being liable for a defendant’s attorneys’ fees …. The EEOC is correct that CRST did not prevail on one such claim. However … CRST need not prevail on every claim to be entitled to an award of attorneys’ fees.[7]

Having determined that CRST was the prevailing party, the court next concluded that the EEOC’s pursuit was, in fact, frivolous. First, the court found the pattern-or-practice claim unreasonable because the “EEOC … did not present any expert evidence, statistics or legal authority to support its argument … and its argument boils down to little more than … bald assertions.”[8] Second, the court dismissed 98 claims as a discovery sanction against the EEOC. Third, the court granted summary judgment against various groups of plaintiffs based on the statute of limitations (12 plaintiffs), judicial estoppel (three plaintiffs), lack of knowledge of the alleged harassment on the part of CRST (14 plaintiffs), because CRST had addressed the sexual harassment (four plaintiffs), and because the plaintiffs did not suffer actionable sexual harassment as a matter of law (50 plaintiffs). Finally, the court dismissed the remaining 67 plaintiffs because the EEOC “wholly abandoned its statutory duties” by failing to investigate the individual claims until after the EEOC filed suit, failing to make a reasonable cause determination as to any of the 67 individuals, and failing to attempt to conciliate the allegations of those individuals prior to filing the complaint, which is an administrative prerequisite under Title VII.[9]

In EEOC v. Peoplemark Inc., the Sixth Circuit Court of Appeals affirmed an award of $751,942 in fees and costs to an employer that the EEOC accused of having a blanket policy of denying jobs to applicants with criminal records.[10] Peoplemark, a temporary service employer, asked all applicants whether they had a felony record and conducted an independent investigation into the criminal records of all applicants. Sherri Scott, an African American with a felony conviction, submitted an application and was not referred for employment. She filed a charge of discrimination with the EEOC. During the EEOC investigation, the company’s Vice President and Associate General Counsel stated that the company had a policy of rejecting applicants with a felony criminal record. As it turned out, however, he was mistaken about the policy.

The EEOC filed suit on behalf of Scott and a class of similarly situated persons alleging that Peoplemark had violated Title VII because its alleged “companywide policy” of rejecting felon applicants had a disparate impact on African Americans. During the discovery phase, a review of more than 18,000 documents showed that Peoplemark had, in fact, referred felons to job opportunities. Additional discovery revealed that there was no company policy to exclude felons. Peoplemark moved for summary judgment, and the EEOC quickly dismissed its case. Peoplemark then moved for attorneys’ fees and costs as the prevailing party, and the district court awarded $751,942.48.[11] The award also included Peoplemark’s expert fees, exceeding $500,000.[12]

In concluding that the EEOC’s suit satisfied the two-step fee analysis, the district court found, and the Sixth Circuit affirmed, that it was unreasonable for the EEOC to continue the burdensome litigation after Oct. 1, 2009. As the Sixth Circuit put it, “To be sure, the Commission’s case was not groundless when filed. [The vice president’s] incorrect statements that there was a companywide policy gave the Commission a basis to file the complaint. However, the district court did not abuse its discretion by finding that the Commission could only rely on these statements up to a point. When discovery clearly indicated that these statements belied the facts, the Commission should have reassessed its claim. From that point forward, it was unreasonable to continue to litigate ….”[13]

DOL chastised for litigation that was not ‘substantially justified’

In Gate Guard Services L.P. v. Perez, the district court ordered the DOL to pay Gate Guard Services (GGS), nearly $600,000 in attorneys’ fees and other expenses after the employer was accused of owing millions of dollars in fines and back pay to independent contractors.[14] The DOL accused the employer of misclassifying gate attendants as independent contractors. GGS counter-sued and sought a declaratory judgment. In February 2013, the district court granted GGS summary judgment and dismissed DOL’s claims against the company. GGS then sought attorneys’ fees under the Equal Access to Justice Act (EAJA).[15]

Under the EAJA, the government must prove that its position in a lawsuit had a reasonable basis in both fact and law (“substantially justified”) at every stage of the action.16 The district court agreed with GGS that DOL’s lead investigator departed from DOL enforcement procedures when he destroyed interview notes and assessed a $6 million fine after he had interviewed only three gate attendants.[17]

The court explained that:

Had the DOL interviewed more than just a handful of GGS’s roughly 400 gate attendants before presenting GGS with a $6,000,000 demand and filing its Enforcement Action against GGS, it would have known the gate attendants were not employees. Once discovery revealed the facts cited in the paragraph above, the DOL should have abandoned this litigation. The DOL failed to act in a reasonable manner both before and during the course of this litigation, and it continues to insist that the gate attendants are employees, despite overwhelming contradictory evidence.[18]

The district court then listed 10 different factors that DOL failed to reasonably consider, including that “the federal government itself, via the [Army Corps of Engineers] uses the services of gate attendants at federal parks and classifies these individuals as independent contractors.”[19]

The court had no trouble concluding that the DOL’s actions both before and during the litigation were not substantially justified and, therefore, awarded the fees and costs to GGS.

Conclusion

On the bright side, these recent fee awards vindicated employers who were required to defend extensive and costly enforcement claims. Unfortunately, it is the taxpayers who have been saddled with these expenses (both for the initial litigation and the fee awards); all for claims that either should have never been pursued in the first place, or which should have been dismissed after discovery revealed they were meritless. Employers would like to think that these awards would cause the agencies to be more diligent in their investigations and more selective in their enforcement strategies. That, however, remains to be seen.

Notes

  1. EEOC v. Cintas Corp., No. 04-4013, 2011 U.S. Dist. LEXIS 86228 ( E.D. Mich. Aug. 4, 2011); EEOC v. CRST Van Expedited Inc., No. 07-CV-95-LRR, 2010 U.S. Dist. LEXIS 11125, *25 (N.D. Iowa Feb. 9, 2010).
  2. 42 U.S.C. § 2000e-5(k).
  3. 434 U.S. 412, 421 (1978).
  4. No. 07-CV-95-LRR, 2013 U.S. Dist. LEXIS 107822 (N.D. Iowa Aug. 1, 2013).
  5. Id. at *3.
  6. Id. at *21.
  7. Id. at **31-32.
  8. Id. at *45.
  9. See 42 USCS § 2000e-5(b) (“If the Commission determines after such investigation that there is reasonable cause to believe that the charge is true, the Commission shall endeavor to eliminate any such alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.”).
  10. 732 F.3d 584 (6th Cir. 2013).
  11. Id. at 589.
  12. Id.
  13. Id. at 591-92.
  14. No. V-10-91, 2014 U.S. Dist. LEXIS 48859 (S.D. Tex. April 9, 2014).
  15. 28 U.S.C. § 2412)(d)(1)(A) (“Except as otherwise specifically provided by statute, a court shall award to a prevailing party other than the United States fees and other expenses, in addition to any costs awarded pursuant to subsection (a), incurred by that party in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.”).
  16. Id.
  17. Gate Guard Servs., supra, at *20.
  18. Id. at *27.
  19. Id. at *24.

Edward G. Phillips EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is an associate with Kramer Rayson LLP in Knoxville where his primary areas of practice are labor and employment, and litigation. He earned a bachelor’s degree from the University of Tennessee and a law degree from UT College of Law in 2012.