A new resolution in Congress seeks to abolish the 13th Amendment’s so-called slavery loophole allowing people convicted of a crime to work for little or no pay. But current litigation over carceral subminimum wages shows that eliminating the clause might not be enough to boost wage protections, experts say.

Introduced by Rep. Nikema Williams, D-Ga., and Sen. Jeff Merkley, D-Ore., in June, the resolution proposes to amend the U.S. Constitution by adding the phrase “neither slavery nor involuntary servitude may be imposed as a punishment for a crime.”

“We can’t celebrate Juneteenth as a federal holiday on one end of the spectrum and still have in our Constitution of the United States of America an exception that allows for slavery for people who have been convicted of crime,” Williams told Law360 recently.

People incarcerated for criminal offenses who work in facilities’ maintenance or in state correctional industries to make goods, like eyeglass lenses or license plates, are not constitutionally entitled to minimum wage. This arrangement is a vestige of the 13th Amendment’s abolition of slavery and “involuntary servitude” save for “as a punishment for crime whereof the party shall have been duly convicted.”

But circuit courts have also repeatedly ruled that the custodial relationship between an incarcerated person and their imprisoner/boss does not constitute an employee-employer relationship under the Fair Labor Standards Act.

. . .

Abolition Amendment’s Impact is Hard to Predict

It is unclear what immediate impact the abolition of the 13th Amendment’s exclusionary clause would have on incarcerated workers’ rights.

If such a constitutional amendment were enacted, further action might not be needed, said D. Michael Hancock, of counsel at Cohen Milstein Sellers & Toll PLLC and a former assistant administrator in the Wage and Hour Division of the U.S. Department of Labor. But it would be “prudent” to make clear that criminal detainees are covered by the FLSA through a statutory amendment, for example, he said.

. . .

‘Distorting’ the FLSA

The crux of incarcerated workers’ failed efforts to secure pay for hours worked comes down to the idea that inmates’ particular circumstances — they are in custody, their basic needs are met, and they are not part of the free labor market — negate the kind of employee-employer relationship envisioned by Congress under the FLSA.

Litigation involving civil immigration detainees in privately run facilities has wrestled with this recently. These individuals, unlike their criminal detention counterparts, are free from the13th Amendment’s exclusionary clause.

. . .

Still, courts have determined that detainees are not covered by the FLSA “without any clear reason or any clear articulation,” Hancock said.

“I think it’s useful to bear in mind there’s no specific exemption in the FLSA that could plausibly extend to civil detainees, and one of the core principles of the FLSA is unless you’re specifically exempt then you’re covered,” he said.

The courts have bypassed that idea by saying, “We don’t have to get to exemptions because you’re just not part of that universe of people that the act was intended to protect,” he added.

Hancock also said that by concluding civil detainees have their basic needs met and are not entitled to wage protections, the courts are “distorting the whole framework of the Fair Labor Standards Act.” 

“If you’re going to go down that road, then in every wage and hour investigation, you’re going to have to ask if this person wasn’t being paid by their employer, would they otherwise have the basic necessities of life provided?” he said.

The SEC has been intense about ESG and wait-and-see on Reg BI. But new Enforcement Director Gurbir Grewal supported New Jersey’s fiduciary rule and may put teeth in the broker advice standard.

If you’re into sustainable investing, you must be thrilled with the Securities and Exchange Commission.

In his first three months in office, SEC Chairman Gary Gensler has given numerous speeches about the importance of environmental, social and governance factors in the investment climate. He has put on the SEC’s agenda rule proposals on climate risk and human capital reporting.

But if you’re into investment advice reform, you may be feeling a bit neglected by the SEC.

Regulation Best Interest, the broker advice standard, went into force last June. After more than a year of operating under Reg BI, we don’t know to what extent brokerages have changed their advice practices to ensure that their registered representatives are not placing their own revenue desires ahead of their customers’ interest in investment returns.

The brokerage industry maintains Reg BI is much stronger than the previous suitability standard. Investor advocates asserted that Reg BI was too weak to curb brokers’ conflicts of interest.

It likely will take a good while longer to know who is right.

The measure was the centerpiece of former SEC Chair Jay Clayton’s agenda. Gensler will not rip it up and start over. Rather, he told lawmakers when asked at an online congressional hearing, the agency will use guidance, examinations and enforcement to ensure the rule actually protects investors.

But much remains unanswered about Reg BI. For instance, “best interest” is an amorphous term, and what qualifies as “mitigation” of conflicts remains in the eye of the beholder.

. . .

PUTTING TEETH IN REG BI?

Gensler already has made a major decision that likely will affect how Reg BI evolves. In late June, he appointed New Jersey Attorney General Gurbir S. Grewal to head the agency’s Division of Enforcement.

. . .

In selecting Grewal, Gensler went in a completely different direction. Grewal has served as New Jersey AG for more than three years. Previously, he was a county prosecutor and an assistant U.S. attorney. He only worked in private practice for about seven years.

If the effectiveness of Reg BI depends on how it’s enforced, Grewal is uniquely qualified for the job. He was New Jersey AG when the state’s Bureau of Securities, a part of the AG’s office, proposed a fiduciary rule. State regulators said they needed to pursue their own advice standard because they didn’t have confidence in Reg BI.

Grewal’s support was instrumental for pushing ahead with New Jersey’s fiduciary rule, said Laura Posner, a partner at Cohen Milstein Sellers & Toll. A final rule has not yet been released.

“I believe he understands [investment advice] issues well and will not shy away from enforcing Reg BI to the fullest extent possible,” said Posner, who served as chief of the New Jersey Bureau of Securities before Grewal was AG but worked with him when he was an assistant U.S. Attorney. “I know him to be incredibly smart, conscientious and not afraid of a fight.”

As part of the submissions process for Bloomberg Law’s inaugural class for “They’ve Got Next: The 40 Under 40,” editors asked nominees to submit recommendations from senior partners, clients, outside counsel, and others who could speak to their client successes and leadership skills (on the record).

Read on for a sampling of what they said.

Mass Torts

On Emmy Levens: “Emmy manages all day-to-day aspects of the [Flint Water Crisis] case, including spearheading the investigations into the legal claims, making key legal arguments, and taking the lead on drafting key briefs, including a pivotal brief in August 2018, which led to the court reinstating former Governor Rick Snyder as a defendant in 2019. Persuaded by Emmy’s brief, the court determined that Snyder not only knew about the health consequence of the State of Michigan’s and the Emergency Manager’s decisions, but covered it up, and “misled” Flint residents and “even encouraged them to continue to drink and bathe in the water.” —Theodore Leopold, Cohen Milstein, co-lead of Flint Water Crisis litigation

• Case settled shortly before trial date
• Deal covers about 17,000 people

BlackRock Institutional Trust Co. got early approval from a California federal judge for a $9.65 million class settlement in a lawsuit challenging the in-house funds in its employees’ 401(k) plan.

The deal, which represents nearly one-third of the class’s potential damages, provides relief to about 17,000 people covered by BlackRock’s $1.8 billion retirement plan. Judge Haywood S. Gilliam Jr. of the U.S. District Court for the Northern District of California signed the preliminary approval order on Monday.

The lawsuit accuses BlackRock—the world’s largest asset management company—of taking unreasonable profits from the collective investment trusts it offers to retirement plans, including the plan covering its own workers. Last year Gilliam certified a class of thousands of workers covered by the BlackRock plan, but declined to certify a larger class of investors in more than 250 other retirement plans that offer BlackRock’s collective trusts.

The parties reached a tentative deal in February, one month after Gilliam ruled the 401(k) investors could go to trial on their claims under the Employee Retirement Income Security Act. They were scheduled to begin a seven-day trial on March 1.

. . .

The class is represented by Feinberg Jackson Worthman & Wasow LLP and Cohen Milstein Sellers & Toll PLLC.

The complete article can be viewed here.

Benefits attorneys are hoping a Supreme Court ruling in a case against Northwestern University will restore certainty on what employees must show to plausibly allege their retirement plans are being charged excessive fees.

The justices agreed last week to hear the long-running fight in their next term starting in October. It’s a case that could either stamp out disputes over plan mismanagement or spark a whole new wave of challenges, attorneys say.

. . .

A proposed class of current and former Northwestern University employees who participate in the school’s retirement plans sued the school and its retirement plan committee for allegedly offering expensive retail class investments with excessive management fees when lower-cost funds were available and for allegedly failing to rein in unreasonable record-keeping costs.

Similar to 401(k) plans run by for-profit companies, defined-contribution plans offered by Northwestern and other tax-exempt employers are commonly called 403(b) plans. Under the Employee Retirement Income Security Act (ERISA), sponsors can be held liable for plan losses if they fail to prudently manage these plans.

Potential to Affect Every Plan

If the court sides with the Northwestern employees, it could clearly set out standards that plan sponsors must follow in selecting investments, monitoring those investments, and determining and monitoring the reasonableness of fees, said Jerry Schlichter, an attorney for the Northwestern employees and founding and managing partner of Schlichter Bogard & Denton LLP.

“This case has the potential to affect every 401(k) and 403(b) plan in America,” he said.

The U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s decision to dismiss the proposed class action.

The appeals court said plans can offer a wide range of investment options and fees without breaching any fiduciary duty to act prudently, and a flat fee for record-keeping or a sole record-keeper isn’t required. The court noted Northwestern had explained it was sticking with multiple record-keepers in order to offer one particular type of investment option.

In a statement, Northwestern said it believes the lower courts were right to dismiss the lawsuit against it and that the school will continue to oppose the employees’ claims as legally and factually unmeritorious.

“The University stands by the management of its retirement benefits, and the talented and dedicated investment committee that administers its plans,” the university said.

Northwestern’s attorney, Craig Martin of Willkie Farr & Gallagher LLP, didn’t respond to a request for comment, but in the school’s reply to the court he said ERISA demands prudence not perfection.

“It does not subject plan administrators to lawsuits based merely on allegations that a negotiated mix of plan offerings (which included numerous options that petitioners deemed prudent) was not, by petitioners’ reckoning, optimal,” he wrote.

. . .

Higher Standard

The Northwestern employees argue the Seventh Circuit set the standard retirement plan participants have to meet for their case to survive a motion to dismiss so high “as to make it virtually impossible for participants of defined-contribution plans to plead a claim for imprudent management.”

. . .

The Seventh Circuit’s decision “really threw a wrench in the interpretation of ERISA’s pleading standard with respect to excessive fees in that circuit,” said Michelle Yau, a partner at Cohen Milstein who represents employees and plan beneficiaries.

“Before the Northwestern decision the law was pretty well settled,” she said.

Other circuits, including the Eighth, Third, and Ninth, have found that if you allege an ERISA plan, whether it be a 401(k) plan or a 403(b) plan, is being caused to pay more for the exact same investment through a more expensive share class, that those claims are meritorious, Yau said.

. . .

Though Lockman thinks reversing the Seventh Circuit’s decision could lead to more litigation, Yau disagrees that would be the impetus for new claims.

“Essentially the impetus is that the conduct underlying those claims is pretty egregious,” she said. “You have a plan that would be eligible for the cheapest share class, and the fiduciary doesn’t put the plan in the cheapest share class even though they qualify based on the asset size. That’s the reason for the number of cases that have been filed.”

• Suit alleges scheme to drive down pay for poultry workers
• Pilgrim’s will pay and cooperate, settlement motion says

JBS SA subsidiary Pilgrim’s Pride Corp. will pay $29 million to resolve antitrust claims over its alleged role in an industrywide scheme to depress pay for the largely immigrant workforce employed at poultry processing plants, according to a federal court filing in Baltimore.

The employees leading the lawsuit sought preliminary approval from Judge Stephanie A. Gallagher for the agreement, which would let Pilgrim’s exit the proposed class action moving forward in the U.S. District Court for the District of Maryland.

. . .

The $29 million figure comes to “roughly $2 million for each percentage point of Pilgrim’s relevant market share—a remarkable financial recovery for such an early-stage settlement,” the filing says.

In addition to the cash payment, the agreement calls for Pilgrim’s to cooperate against the other poultry processors accused of colluding to depress the pay of workers through unlawful exchanges of sensitive information and annual secret meetings.

The other defendants include Tyson Foods Inc., Hormel Food Corp., Sanderson Farms Inc., Perdue Farms Inc., Cargill Inc., Butterball LLC, Koch Foods Inc., ContiGroup Cos., Mountaire Farms Inc., Simmons Foods Inc., George’s Inc., Fieldale Farms Corp., Peco Foods Inc., and Webber Meng Sahl & Co.

The suit, filed in 2019, also targets Agri Stats Inc., which compiles the farm sector databases the poultry processors allegedly used to trade wage information. Gallagher let the case move forward in March.

It’s part of a wave of cartel cases involving livestock and protein, including beef, turkey, pork, tuna, salmon, and eggs. Most of the suits allege price-fixing schemes centering on the illegal laundering of price or wage data through Agri Stats.

The poultry industry has been particularly hard hit. Along with the price-fixing and wage-fixing claims, top processors are accused of a scheme to drive down pay for chicken farmers until they’re permanently indebted “modern sharecroppers.”

. . .

Cohen Milstein Sellers & Toll PLLC, Hagens Berman Sobol Shapiro LLP, and Handley Farah & Anderson PLLC are interim co-lead counsel for the poultry workers.

Benefits litigators have no shortage of cases to watch in 2021’s second half, as courts consider high-profile questions such as when a retirement plan’s investments are adequately diversified, how suits over plan fees can clear dismissal bids, and whether plans can make workers arbitrate claims of plan mismanagement.

Here, Law360 offers a guide to Employee Retirement Income Security Act litigation to keep an eye on for the rest of the year.

When Workers Can Sue

A war over when workers can sue over benefit plan mismanagement has raged in the courts for years, with the U.S. Supreme Court weighing in last year on the circumstances that must be present for workers to sue pension plans.

The lower courts have begun interpreting that decision, largely ruling that it doesn’t apply to suits against 401(k) plans, but it can be used to curtail litigation against health insurance plans.

These arguments over workers’ standing to sue have played out at the motion to dismiss stage of ERISA litigation. But the argument also arises at the class certification stage, when courts decide whether workers are adequately positioned to represent their coworkers in the lawsuit.

The defense bar has mounted the same argument at the class certification stage that it tried at the motion to dismiss stage, claiming workers don’t have standing to sue over a 401(k) plan investment unless they personally kept money in that fund.

An appellate court is set to weigh in on the validity of that argument now that the Third Circuit has taken up a case called Boley v. Universal Health Services Inc.

The plaintiffs bar has notched notable wins against the argument at the motion to dismiss stage, but if they lose it at the class certification stage, those victories could be for naught.

“If the court [accepts this argument], then it makes the standing holdings not that helpful,” said Karen Handorf, a partner at the plaintiff-side firm Cohen Milstein Sellers & Toll PLLC. “You win a battle, but you’ve lost the war.”

The case is Boley et al. v. Universal Health Services Inc. et al., case number 2:20-cv-02644, in the U.S. District Court for the Eastern District of Pennsylvania.

The Arbitration Question

Courts have already considered the question of when workers are compelled to arbitrate ERISA mismanagement suits this year, but they’re set to continue mulling this far-from-settled issue in 2021’s second half.

The Seventh Circuit will consider whether Triad Manufacturing Inc. was allowed to write a mandatory consent-to-arbitration provision into its employee stock ownership plan document, booting all ERISA mismanagement cases from court. The company is fighting an Illinois federal judge’s decision that it was not allowed to do so.

Meanwhile, a New York federal judge will consider whether the consent-to-arbitration provision in DST Systems Inc.’s 401(k) plan grants workers the right to arbitrate their claims against the company even if a class action advancing the same allegations has settled.

DST argues workers should be forced to drop their arbitrations and participate in the settlement — in the process, making the same argument against arbitration provisions’ power usually advanced by the plaintiffs bar.

“As plaintiffs attorneys, we read that brief with a fair amount of satisfaction,” said Mark Boyko, a partner at Bailey & Glasser LLP, adding that he’s looking forward to seeing how the Triad and DST cases play out.

The cases are Smith v. Board of Directors of Triad Manufacturing Inc. et al., case number 20-2708, in the U.S. Court of Appeals for the Seventh Circuit, and Ferguson et al. v. Ruane Cunniff & Goldfarb Inc. et al., case number 1:17-cv-06685, in the U.S. District Court for the Southern District of New York.

Fee Suits’ Foundation

Ever since the plaintiffs firm Schlichter Bogard & Denton LLP began filing suits challenging benefit plans’ administrative fees in the mid-2000s, litigation of this type has become common, hitting corporations, universities, and, more recently, health insurance plans and multiple employer plans.

Now, the U.S. Supreme Court is considering taking up the question of what’s needed to plead an ERISA fee suit, through a case called Hughes v. Northwestern University.

The justices asked the federal government to weigh in on whether it should take the case in October. In May, the government answered in the affirmative.

A Supreme Court ruling in the case could have a “big impact,” because “obviously, there’s a lot of fee cases out there,” Handorf said.

. . .

The case is April Hughes et al. v. Northwestern University et al., case number 19-1401, in the Supreme Court of the United States.

Manuel J. “John” Dominguez, a partner in Cohen Milstein’s Antitrust practice was featured in FSU Law Focus June 25, 2021 e-newsletter.

“Attending FSU College of Law was a life-changing event. The professors and my classmates were truly gifted and wonderful people who made the academic environment at the school special and unique. Being in Tallahassee also provided me with many chances to work and interact with several attorneys in that legal community and helped set the course of my career. While my practice is national, addressing antitrust and anticompetition claims on behalf of plaintiffs, I am still ‘local’ and practice out of Cohen Milstein’s Palm Beach Gardens Office. I will always be very grateful to have had the opportunity to attend FSU and will always look back at my time at the school with great fondness and admiration. Go ‘Noles!”

• COURT: D. Nev.
• TRACK DOCKET: No. 21-cv-1189
• JUDGE: Andrew P. Gordon

Two mixed martial arts fighters hit Ultimate Fighting Championship with federal antitrust claims in Las Vegas over its alleged scheme to cement its “iron-fisted control” over the sport—and drive down athlete pay—by acquiring rival promoters and locking top talent into long-term exclusive contracts.

The lawsuit was filed Wednesday in the U.S. District Court for the District of Nevada by Kajan Johnson and Clarence Dolloway, MMA fighters who participated in UFC bouts between 2008 and 2018.

. . .

The proposed class action accuses the organization of leveraging its 90% market share to force fighters into exclusive deals that starve competitors of talent unless they agree to become little more than its minor league affiliates.

“Multiple actual or potential rivals were forced to sell to the UFC, exit the market entirely, or be relegated to ‘feeder league’ status,” the complaint says. “The only remaining promoters of MMA bouts are either fringe competitors” or “entities that have essentially been conscripted by the UFC,” it adds.

As a result, the UFC makes roughly $900 million a year, at among the highest profit margins in all of sports, while its fighters “collectively earn less than 20% of the revenues generated by UFC events,” far less than the 50% share taken in by other major pro athletes, according to the complaint.

“UFC fighters are paid a mere fraction of what they would make in a competitive market,” going “substantially undercompensated despite the punishing—and popular—nature of their profession” and its “natural parallels” to boxing, which is orders of magnitude more lucrative for athletes, the suit says.

The organization’s leaders have even bragged publicly about driving rivals out of business, including in a promotional video featuring a “mock tombstone” and UFC president Dana White calling himself “the grim reaper,” according to the complaint.

As a result of the UFC’s stranglehold on MMA, fighters are allegedly forced to affiliate themselves with it—and accept its prevailing low pay rates—instead of striking out on their own.
The allegations echo an ongoing antitrust case brought by six MMA fighters in 2014. The complaint seeks to update the earlier suit, a proposed class action covering bouts only through mid-2017.

• Cause of Action: Section 2 of the Sherman Act.
• Relief: Treble damages, an injunction, costs, and fees.
• Potential Class Size: Anyone who has competed in a UFC bout since July 1, 2017.
• Attorneys: The fighters are represented by Kemp Jones LLP, Berger Montague PC, Joseph Saveri Law Firm Inc., Cohen Milstein Sellers & Toll PLLC, and Warner Angle Hallam Jackson & Formanek PLC.

Ultimate Fighting Championship has long dominated the world of mixed martial arts. But UFC’s effort to swallow up competitors has triggered a class action by fighters who claim it’s abusing its power. Now a key court victory threatens the organization’s very business model. Bloomberg’s Josh Eidelson investigates.

The antitrust class action discussed in this Bloomberg video is Cung Le, et al v. Zuffa, LLC, d/b/a Ultimate Fighting Championship and UFC, Case No. 2:15-cv-01045 (D. Nev.)  Cohen Milstein is Co-Lead Counsel in this case.