California Labor and Employment Defense Blog : California Employment Lawyer & Attorney : Van Vleck Turner & Zaller Law Firm : Wage and Hour Class Actions : Serving Los Angeles, San Diego, San Francisco

Many companies use time keeping systems (such as the market-leading Kronos software) that "round" employee time entries to the nearest quarter-hour.  For example, if an employee clocks in at 8:53 a.m., the system will credit him as starting work at 9:00 a.m.  On the other hand, if he had started work at 8:52 a.m., the system will typically round the other direction giving him credit as having started work at 8:45 a.m.

Most employers assume that the rounding works in both directions and will just average out over time.  But when other workplace rules are in effect, the rounding can be systematically skewed.  

For example, employers who follow rigid scheduling regimes often set their timekeeping software so that employees are "locked out" and cannot clock in more than seven minutes before their scheduled start time.  This ensures that the rounding will inevitably operate in one direction only.  This effect may be further compounded by policies requiring employees to arrive at work at least ten minutes before their shift begins.      

These minutes can add up, especially as they will often be compensable at time-and-a-half overtime rates when added back into the total hours worked.  By losing just seven minutes per day to rounding a full time worker could be owed nearly 30 hours of overtime by the end of the year.  Over a four-year statute of limitations this is nearly a month of uncompensated work.

The bottom line is that workers and employers should pay close attention to these small timekeeping details, which are too often ignored on the theory that they involve only negligible amounts of time.        

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Unions exist for the purpose of aggregating individual employees into a united front in order to bargain collectively for higher wages.  This is a classic price-fixing agreement which would generally be illegal under the Sherman Act.  Indeed, the only reason collective bargaining can exist is because unions were (for the most part) explicitly exempted from the anti-trust rules during the New Deal.

Congress has never enacted such an explicit statutory antitrust exemption for employers.  Nevertheless, the Supreme Court has found that such a parallel exemption is implicit in the collective bargaining regime established by the National Labor Relations Act.  In State of California v.  Safeway, Inc., however, the Ninth Circuit has now clarified that this implicit employer exemption has a fairly limited scope.  

The case arose out of the bitter 2003-2004 Southern California grocery workers strike against Safeway, Albertson's, and Ralph's/Kroger.  In order to prevent the UFCW from employing a "divide and conquer" bargaining strategy, the employers not only agreed to bargain as a group, but also to "share profits" during the strike.  The Ninth Circuit held, however, that such a "profit sharing" arrangement stretched the NLRA's antitrust exemption too far. 

In reaching this result, the Court held that the implied anti-trust exemption for employers only extends to agreements "needed to make the collective-bargaining process work."  Thus, agreements among employers that directly pertain to the "bargaining process," such as coordinating their bargaining positions and implementing these offers in the event of impasse, are immunized from anti-trust scrutiny.  But agreements to split profits, allocate market shares, or engage in other conduct that is not directly related to bargaining itself will fall outside the exemption. 

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In age discrimination cases, plaintiffs frequently support their claims with evidence of comments by managers such as "you can't teach an old dog new tricks,"  that the company needs "young blood," or referring to some employees as "old timers."  When comments like these are made by those who not involved in the termination decision, or in a context unrelated to the decision, courts have tended to brand them as mere "stray remarks" which are not evidence of discrimination.

In Reid v. Google, Inc., the California Supreme Court held that such "stray remarks" cannot be "categorically" dismissed from consideration, however.   Instead, the Court explained that while such remarks may not be persuasive by themselves, they can tip the scale when combined with other evidence.  Thus when deciding whether to grant or deny summary judgment Courts must analyze the "totality of circumstances." 

In reality, this may not be much of a change in the law as courts were always really applying the "stray remarks" doctrine on a case-by-case, fact-specific basis anyway.  But the lesson for employers is to make all reasonable efforts expunge "politically incorrect" references from official communications.                 

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California takes a dim view of employee non-competion agreements, which are generally unenforceable and against public policy under Business and Professions Code sec. 16600.  Nevertheless, employers (and especially out-of-state employers) persist in including them in employment contracts under the theory that "it can't hurt" to have them as a deterrent and a potential source of leverage. 

When an employee leaves for a competitor these former employers will often send a sternly worded "cease and desist" letter to the new employer.  It has been widely accepted that this type of letter can carry certain risks for the old employer, such as a claim for intentional interference with contract.  But the recent Second District Court of Appeal decision in Silguero v. Creteguard illustrates that the new employer is also exposed to liability if it responds to the threat by terminating the employee.

The Silguero court began with the substantial body of case law holding that, in California, "the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers."  Based on this strong public policy the Court determined that any explicit no-hire agreement between the two companies would have been illegal and unenforceable.  The Court further concluded that terminating Silguero "out of respect for" the non-compete agreement with his prior employer was merely achieving the same result in an indirect manner.  As a result, the Court found that if Silguero could prove his allegations, his new employer would be liable for the common law tort of Wrongful Termination in Violation of Public Policy.

The bottom line is that employers should not automatically terminate a new employee merely because he has executed a (presumably unenforceable) non-compete agreement.

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One of the reasons employers purchase Directors and Officers (D&O) or Employment Practices Liability (EPL) coverage is to protect against employee lawsuits.  And the most important source of exposure for California employers is the seemingly ubiquitous class action lawsuits for Labor Code violations.  Once they have been sued, however, employers are sorely disappointed when their carrier contends that the policy contains a blanket exclusion for all wage and hour claims.

The standard verbiage excludes coverage for any alleged violation of the federal "Fair Labor Standards Act . . . or any similar provision of federal, state or local statutory law or common law." 

According to the Eastern District decisions in California Dairies, Inc. v.  RSUI Indemnity Co., however, this exclusion does not apply to all California wage and hour laws.  Rather, under the terms of the exclusion, the issue is whether a particular Labor Code provisions has a sufficiently "similar" analog within the FLSA to trigger the exclusion.  

Applying this analysis to the claims plead in the underlying lawsuit, the Court (unsurprisingly) held that claims for unpaid minimum wage and overtime under California law, which closely track federal law are within the scope of the exclusion.  In a much closer question, the Court further held that claims for meal period penalties under Labor Code section 226.7 were within the scope of the exclusion because federal implementing regulations require payment of minimum wages during rest breaks.  

But the Court found that federal law contained no analog to California Labor Code sections 226 (requiring accurate itemized wage statements), section 2802 (requiring reimbursement of employee expenses), and section 201-201 (requiring timely payment of wages at termination and imposing "waiting time" penalties.  The carrier was therefore required to cover defense and indemnity costs for these claims notwithstanding the so-called "wage and hour" exclusion.

The lesson for employers is (i) always tender employment related claims even if they involve wage and hour issues and (ii) you don't necessarily have to take "No" for an answer when the carrier denies coverage.      

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In my prior post, I noted that the recent decision in Nordstrom Commission Cases by the Fourth Distrct Court of Appeal had given much needed guidance in drafting class action settlement agreements.  Well, there may be a trend afoot because the Second DCA has now weighed in with Munoz v. BCI Coca-Cola Bottling. 

Both cases are pro-settlement.  But while the Nordstrom case is mostly concerned with how the consideration is structured and allocated, Munoz v. Coca-Cola (which was decided the same day) provides more of a road map for the specific facts which the parties need to put in the record as part of the settlement review process.  The highpoints of the decision are:

• Amount in Controversy.  To approve a settlement the reviewing court must be able to generally understand the "amount that is in controversy and the realistic range of outcomes."  But this does not require an "explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims." 
   
• Source of Settlement Data.  It is immaterial whether the data used to determine the general amount in controversy has been obtained through formal discovery,other litigation or informal disclosures by the defendant.
   
• Potential Certification Difficulties.  Class members must presumably share enough commonality to warrant the formation of a settlement class.  The court nevertheless cited the potential difficulty in obtaining a contested certification order as a factor favoring the adequacy of an agreed-upon settlement amount.
   
• The Unsettled Status of Brinker Supports Settlement.   In a clear allusion to the California Supreme Court's ongoing (and seemingly never ending) review of Brinker v. Superior Court, the court found that "The uncertain state of the law with respect to meal and rest period claims was likewise a substantial concern" which favors settlement approval.
   
•  No Opt-Out Form Need Be Provided.  Although potential class members must be informed of their right to opt-out of the settlement the parties are not required to provide a separate opt-out form with the class notice.
   
• Incentive Payments for Named Plaintiffs.  "[N]amed plaintiffs are eligible for reasonable incentive payments to compensate them for the expense or risk they have incurred in conferring a benefit on other members of the class."  An additional incentive payment of $5,000 for the named plaintiff is reasonable where the average participating class member received $4,300.  

 As with Nordstrom Commissions Cases, the Munoz decision helps everyone involved by providing some fairly clear rules for approving class settlements.

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In traditional litigation a plaintiff is obviously free to settle his differences with the defendant on whatever terms he chooses.  And if a settlement removes the case from an overcrowded docket the Court's normal reaction is to immediately grant a dismissal with a sigh of "good riddance."  

As class action practitioners are acutely aware, however, these cases are a whole different animal.  Because the Court has an obligation to safeguard the procedural rights of "absent class members," it must give approval to the class settlement after certifying that it is "fair and reasonable" to the class under the circumstances.  This places judges in the anomolous position of acting as a sort of quasi-advocate for the interests of one group of litigants.  As a result, there has been a great deal of uncertainty about exactly what the court must do in order to discharge its obligation to review and approve class settlements.

In Nordstrom Commission Cases the California Appellate Court has provided some useful guidance for the Courts that review class action settlements and the parties who negotiate and draft them.  The Appellate Court upheld the lower court's decision to approve a settlement involving the calculation and payment of commissions to Nordstrom sales clerks.  In doing so, it affirmed the following principles:

• A lower court's determination that the relative "strength of the case" supports settlement approval will not be second-guessed so long as the parties have provided a "substantiated explanation of the strengths and weaknesses of the class's claims, as well as the potential total recovery by the class under various damage theories."
   
• The parties need not allocate specific money to each claim and, in particular, may properly allocate "$0" to claims under PAGA.  This is significant because 75% of all PAGA penalties must be paid to the state of California.
   
• Vouchers for products provided by the defendant are a proper form of settlement consideration and such so-called "coupon settlements" are not disfavored under California law.

By clarifying the standards and making settlements easier to negotiate and approve, the Nordstrom Commission case is actually beneficial to both plaintiffs and defendants.  

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Pharmaceutical representatives (aka "drug reps") are an unusual breed.  Their job duties are essentially the same as travelling salesmen -- i.e., visiting potential customers to sing the praises of their employer's products.  But it is only after these visits that the doctors will write prescriptions for their individual patients, which will be filled by independent pharmacists.  Unlike a true salesperson, drug reps therefore cannot actually close a sale.

In In re Novartis Wage and Hour Litigation, the Second Circuit determined that this was a crucial distinction which prevented Novartis from avoiding FLSA overtime payments under the "outside sales" exemption.  As the court explained, the essence of a salesperson is "obtaining commitments to buy" a product.  Merely proving information or promoting demand for a product is insufficient:

In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.

The Novartis decision is a reminder of the important distinction between "sales" and "promotion" work.  Promotion work can be counted toward satisfying a sales-based exemption only when it is done in furtherance of a salesperson's efforts to generate her own commissioned sales.  It can also be counted toward the administrative exemption if an employee also exercises "independent judgment and discretion" in important matters. 

But Novartis's drug reps fell short of both exemptions because they had no authority to close sales and no authority to make any important administrative decisions.  

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In Martinez v. Combs, the California Supreme Court has provided long overdue guidance on the question of who may be held liable for unpaid wages as a "joint employer."  

A large part of the decision is an historical treatise tracing the development of California wage regulation since the Progressive Era.  But the "take-away" rules are the following:

• The Industrial Welfare Commission ("IWC") has the authority to define who is a covered "employer" through its Wage Orders.
• The California definition of "employer" does not impose liability on "individual corporate agents acting within the course and scope of their agency." 
• California law also does not incorporate the extremely broad "economic realities" definition of employer used under the federal FLSA.
• Rather, the California definition of employer includes only entities which have the practical ability to prevent the alleged violations -- in other words, those parties with the power to "hire and fire," "set wages," or to tell workers "when and where to report to work." 
• The true employer may not shield itself from liability by exercising this level of control through a "straw man" or by using some other "sham arrangement." 

 The main beneficiaries of the new standards are companies that purchase personal services or labor-intensive products from outside contractors.  So long as the purchasing company is not directly supervising the workers or making hiring and firing decisions it should not face liability for unpaid wages.

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