Retaliation for Filing a Class Action Warranted $6.6 Million Punitive Damages Award -- Marlo v. United Parcel Service

Plaintiff Michael Marlo was a UPS shipping supervisor who claimed that he was owed unpaid overtime wages because UPS had misclassified the position as salaried-exempt.  In fact, he signed on as the named plaintiff in a class action lawsuit.  

And then he got fired.  

The class action apparently sputtered out after the District Court denied class certification.  However, Marlo brought a separate lawsuit alleging that he was wrongfully terminated in retaliation for his involvement in the case.  A jury not only agreed with him but awarded $15.9 million in punitive damages (which was later reduced to $6.6 million).    

Although the Ninth Circuit's opinion upholding this $6.6 Million punitive damage award is unpublished, it nevertheless contains an interesting analysis as to when personnel decisions by individual managers may trigger punitive damages against the corporate employer.     

Further, Robinson viewed part of his role as maintaining a company “culture”—in essence, a company policy—of supervisors acting as “owners” subject to a salary, rather than the overtime pay sought by Marlo. Marlo’s lawsuit, which initially sought $400 million in class-wide damages, threatened to upend that culture. Robinson discussed the potential impact of Marlo’s lawsuit with his senior staff and expressed his displeasure that other supervisors were filing similar lawsuits. He viewed the lawsuit as a “distraction” that had a negative effect on employee morale. The jury could thus reasonably conclude that Robinson’s decision to terminate Marlo was a policymaking decision aimed at protecting the company “culture.”   

In other words, the court seemed to endorse the theory that a self-conscious "corporate culture" is tantamount to a corporate "policy."  And efforts to sustain or protect that culture may therefore amount to "policy making" decisions sufficient to trigger company-wide liability for punitive damages.

Nine Employees May Be Sufficient to Constitute a Class -- Hendershot v. Ready to Roll Transportation, Inc.

To most people the term "class action" invokes an image of hundreds or thousands of people seeking a remedy against a large corporate defendant.   As a result, it never occurs to many small and mid-size businesses (or their workers) that they may be sued in a class action.  

However, in Hendershot v. Ready To Roll Transportation, Inc., the Second District Court of Appeal reminded lower courts that there is no fixed minimum number of employees necessary to constitute a certifiable class.  Rather, the test under California law is merely whether it would otherwise be "impracticable" to individually join all the employees with the same type of claim into the lawsuit.  

The requirement of Code of Civil Procedure Section 382 that there be ‘many’ parties to a class action suit is indefinite and has been construed liberally. No set number is required as a matter of law for the maintenance of a class action. Thus, our Supreme Court has upheld a class representing the 10 beneficiaries of a trust in an action for removal of the trustees. [¶] The ultimate issue in evaluating this factor is whether the class is too large to make joinder practicable. ‘Impracticality’ does not mean ‘impossibility,’ but only the difficulty or inconvenience of joining all members of the class.”

Based on this analysis, the lower court was found to have improperly denied class certification based on its finding that there would ultimately be only nine employees in the proposed class.

Courts have repeatedly recognized that class actions are a generally superior method for enforcing the Labor Code and collecting allegedly unpaid wages.  This is due to a variety of factors, including the economies of scale in pooling claims, avoiding redundant issues of proof, and overcoming the fear of retaliation by current employees.  

The Hendershot opinion is a timely reminder that employers should not jump to the conclusion that they are too small to be the target of a class action.  

 

Is Political Affiliation the New Black When it Comes to Discrimination?

Most lay people are thoroughly familiar with the usual categories of "protected" characteristics which cannot be considered in denying workplace opportunities -- e.g., race, gender, religion, disability, etc.  Less familiar is California's ban on discrimination based on one's political affiliations or activities.  

According to a new academic study, however, discrimination based on partisan politics is not only already rampant but rapidly increasing.  Dana Milbank of the Washington Post recently summarized the findings as follows: 


It has long been agreed that race is the deepest divide in American society. But that is no longer true, say Shanto Iyengar and Sean Westwood, the academics who led the study. Using a variety of social science methods (for example, having study participants review résumés of people that make both their race and party affiliation clear), they document that “the level of partisan animus in the American public exceeds racial hostility.”

Americans now discriminate more on the basis of party than on race, gender or any of the other divides we typically think of — and that discrimination extends beyond politics into personal relationships and non-political behaviors. Americans increasingly live in neighborhoods with like-minded partisans, marry fellow partisans and disapprove of their children marrying mates from the other party, and they are more likely to choose partners based on partisanship than physical or personality attributes.

“Unlike race, gender and other social divides where group-related attitudes and behaviors are constrained by social norms, there are no corresponding pressures to temper disapproval of political opponents,” they conclude. “If anything, the rhetoric and actions of political leaders demonstrate that hostility directed at the opposition is acceptable, even appropriate. Partisans therefore feel free to express animus and engage in discriminatory behavior toward opposing partisans.”

My guess is that the only reason political discrimination claims are not being filed is because practically no one is aware that this is, in fact, illegal under California law.  If this study is correct in concluding that animus against members of the "other" party already pervades our society it can only be a matter of time before such discrimination generates its own litigation boomlet.  

 

Bans on Re-employment In Settlement Agreements May be Unenforceable -- Golden v. California Emergency Physicians Medical Group

Employers prefer to include a "no re-hire" provision in their settlement agreements with former employees.  This provision usually states that the former employee will agree never to re-apply for employment and, if he does, the employer will be entitled to reject his application.  

The rationale for these clauses is that any refusal to hire the plaintiff in the future could be characterized as "retaliation" for having raising protected complaints in the prior lawsuit.  And why would an employer want to settle one lawsuit only to set itself up for another?

But the validity of such "no re-hire" clauses has been cast in doubt by the Ninth Circuit opinion in Golden v. California Emergency Physicians Medical Group.  As the Ninth Circuit explained, the problem with these provisions is that they may be at odds with section 16600 of the California Business and Professions Code, which provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

In reviewing the case law interpreting section 16600, the Ninth Circuit found that California's ban on employment restraints is extremely broad in its scope and extremely "stark" in its prohibition.  As a result, the statute does not merely ban traditional "non-compete" agreements in which an employee is precluded from working for a competitor.  Rather,

[T]he crux of the inquiry under section 16600 is not whether the contract constituted a covenant not to compete, but rather whether it imposes “a restraint of a substantial character” regardless of “the form in which it is cast.

Having articulated this standard, the Court declined to apply it to the specific agreement before it, which involved a settlement agreement by a physician that bound him to never again work for "a large consortium of over 1000 physicians."    Instead, it remanded to the district court with directions to determine if the restraint was "of a substantial character," and therefore void.

It is unclear how this "substantial character" standard may be fleshed out over time.  However, relevant factors would presumably include the market share of the employer, the number of viable alternative employment opportunities in the market, and the employee's degree of specialization.  If the foreclosed employment opportunities, in the context of the specific employee and industry, are "substantial" then any "no re-hire" agreement will be void.   

 

 

U.S. Supreme Court Addresses Pregnancy Discrimination Standards -- Young v. United Parcel Service, Inc.

Under the  federal Pregnancy Discrimination Act ("PDA"), 42 U.S.C. Sec. 2000e(k), employers are prohibited from discriminating against female employees  "because of " pregnancy.   Thus, as with other protected categories like gender or race, a pregnant employee may establish her claim by showing that she was treated less favorably than "similarly situated" non-pregnant employees.  

But the standard for establishing illegal discrimination is much less clear under the second part of the PDA, which provides that employers must treat "women affected by pregnancy ... the same for all employment-related purposes ... as other persons not so affected but similar in their ability or inability to work."   

For example, in Young v. United Parcel Service, Inc., the U.S. Supreme Court wrestled with the interpretation of this duty.  The plaintiff had requested "light duty" as an accommodation for her pregnancy-related lifting restriction of 20 lbs.   The employer denied the request however as its policy only allowed light duty for short-term disabilities which were covered by the ADA or which temporarily prevented the employee from driving.     

This naturally raised the question of which group of employees should be considered "similarly situated" to the plaintiff for comparison purposes.  In other words, should she win her case because some non-pregnant employees with the same restrictions received an accommodation that she did not?  Or, should she lose because non-pregnant employees who, like her, did not meet the criteria of the policy, were also denied leave?

The Supreme Court, in the end, rejected both of these theories.  Instead, the Court held that the real question was whether a jury could find that UPS's light duty policy was motivated by an intent to discriminate against pregnancy-related conditions.  Thus, once a plaintiff demonstrates that she was denied an accommodation that others received, it becomes the employer's burden to justify its exclusion of pregnancy as a qualifying criterion under its policy. 

  

The employer may then seek to justify its refusal to accommodate the plaintiff by relying on “legitimate, nondiscriminatory” reasons for denying accommodation. That reason normally cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those whom the employer accommodates. If the employer offers a “legitimate, nondiscriminatory” reason, the plaintiff may show that it is in fact pretextual. The plaintiff may reach a jury on this issue by providing sufficient evidence that the employer's policies impose a significant burden on pregnant workers, and that the employer's “legitimate, nondiscriminatory” reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination. The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers.

 

 The Court has thus seemingly created hybrid test that melds the separate liability theories pertaining to unintentional disparate impact claims and intentional disparate treatment claims.  Thus, the Court has authorized a finding of liability based on a showing that a facially neutral policy of the employer has causes a disparate burden on pregnant women without a sufficiently compelling business justification. 

Under this new standard, employers would be well-advised to explicitly include pregnancy related conditions under their short term disability plans even if doing so is "more expensive or less convenient."  It they fail to do so, they could easily be found liable for intentional discrimination.  

 

During Rest Breaks Employees Can Be Required to Do "Noun" Work, But Not "Verb" Work -- Augustus v. ABM Security Services, Inc.

In Augustus v. ABM Security Services, Inc., the Second District Court of Appeal was called upon to decide whether time spent "on-call" by security guards (i.e., time spent on premises with a duty to respond to all radio calls) constituted a legitimate "rest period."  

California law requires minimum compensation for all "hours worked."  However, it also requires paid rest periods during which an employee "shall not be required to work."   And just weeks earlier the California Supreme Court held in Mendiola v. CPS Security, Inc., that this exact type of "on-call" time by security guards was compensable "work."  

So one would be excused for thinking the decision in Augustus should be an easy call.  After all, if the same time has already been held to be "work," it can't also be a period of rest which is free from "work."  Right?

Actually, wrong.  

It turns out one can never underestimate the law's ability to find a linguistic distinction -- even if it's a distinction within the same word.  Thus, the Augustus court explained that the crucial distinction for purposes of providing a rest break is whether an employee's required activities are work "as a noun" or work "as a verb." 

The word “work” is used as both a noun and verb in Wage Order No. 4, which defines “Hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” (Cal. Code Regs., tit. 8, § 11040, subd. 2(K).) In this definition, “work” as a noun means “employment”—time during which an employee is subject to an employer's control. “Work” as a verb means “exertion”—activities an employer may suffer or permit an employee to perform. (See Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123 (1944) 321 U.S. 590, 598, 64 S.Ct. 698, 88 L.Ed. 949 [work is “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business”].) Section 226.7, which as noted provides that “[a]n employer shall not require an employee to work during a meal or rest or recovery period,” uses “work” as an infinitive verb contraposed with “rest.” It is evident, therefore, that “work” in that section means exertion on an employer's behalf.

As the court explained  "Not all employees at work actually perform work."  Employing this analysis, the court suggested there may be no need to provide distinct rest breaks to security guards as their jobs are "indistinguishable" from one long rest break anyway.  

The Augustus Court's distinction between "noun work" and "verb work" is novel and is based on little more than the court's assertion that "it is evident" that this is what the Legislature must have intended.  Moreover, it may be a problematic distinction to apply in practice as most employees inevitably have short periods during the day when they are not engaged in actual "exertion."  

For example, under Augustus a cashier who waits more than ten minutes before a new customer comes into a store has apparently had a legal rest break whether she knew it or not.  And an employer can apparently provide a legally compliant rest break by merely requiring its employees to stand motionless for 10-minutes.  I am not sure this is really what the Legislature had in mind for a bona fide rest period.  

 

Law School Enrollments Continue to Plunge

 Conventional wisdom is that legal costs are consuming an ever-greater portion of the economy each year as Americans supposedly grow more litigious over time. But that view apparently isn't shared by prospective lawyers, who are staying away from law school in droves.

Indeed, the New York Times reports that new law school enrollment in 2014 fell to the lowest level since 1973. The 2014 enrollment numbers are also down 30% from just four years ago.  The reason is simple: “employment figures are dismal.”  In 2013, the article reports for example that “fewer than two-thirds of newly minted lawyers had found jobs that required passing the bar exam.”

The various experts who opined for the article blamed factors such as software automating routine legal functions and outsourcing to India. These reasons don’t seem particularly persuasive however.
Personally, my guess is that during the recession employers realized that lawyers need some experience to really add value. As a result, an over-supply of inexperienced and underemployed lawyers has been accumulating for several years. Until this backlog is finally absorbed it may be tough for brand new graduates to compete.

When Must "On-Call" or other Employee Time Be Paid -- Mendiola v. CPS Security Solutions, Inc.

California law is very clear in requiring that "all hours worked" must be compensated at statutory minimum wage or overtime rates.  Less clear, however, is what time must be counted as "work."  In Mendiola v. CPS Security, Inc., the California Supreme Court clarified that a liberal two-pronged standard applies to this determination.

CPS Security provided on-site guards at construction sites.  As part of their duties the guards were  required to be on-call to respond to any emergencies and to sleep in trailers placed at the sites.  The Supreme Court found that the guards' on-call and sleep time both met the definition of "hours worked" under California law and therefore had to be paid.

The Mendiola Court first clarified that California has two separate and independent tests under which time may be defined as "hours worked." 

In Morillion [v. Royal Packing Co.], we explained that “the two phrases—‘time during which an employee is subject to the control of an employer’ and ‘time the employee is suffered or permitted to work, whether or not required to do so’ “ can be viewed “as independent factors, each of which defines whether certain time spent is compensable as ‘hours worked.’ Thus, an employee who is subject to an employer's control does not have to be working during that time to be compensated....

As to the "control" test, the Court found that an employee will normally satisfy the test whenever he is required to remain on the employer's premises.

When an employer directs, commands or restrains an employee from leaving the work place ... and thus prevents the employee from using the time effectively for his or her own purposes, that employee remains subject to the employer's control. According to [the definition of hours worked], that employee must be paid.

Applying this standard, the Court found that the guards were entitled to pay because they were required to stay at the job site during their on-call hours. 

As to the "permitted to work" test, the Court found that the threshold question is whether the time is primarily for the benefit of the employer and its business."  The guards were therefore entitled to compensation under this test as well because their on-call time was directly connected to their employer's "business model" and the service being offered to its clients.

CPS's business model is based on the idea that construction sites should have an active security presence during the morning and evening hours when construction workers arrive and depart the site, but that theft and vandalism during the night and weekend hours can be deterred effectively by the mere presence of a security guard in a residential trailer.  Thus, even when not actively responding to disturbances, guards' “mere presence” was integral to CPS's business.

These clarified standards for paid "hours worked" will have far reaching effects.  Indeed, under Mendiola any activities which require attendance at a job site, effectively preclude personal activities, or directly relate to the employer's "business model," will likely require compensation.  

 

 

 

 

Sharing of Corporate Payroll and HR Functions May Result in "Joint Employment" -- Castaneda v. The Ensign Group, Inc.

Publicly traded corporations have increasingly adopted a structure in which a main corporate entity acts as a central "holding company" which conducts its operations through a series of wholly owned entities. The Corporation internally designates its workers as being "employed" by these entities.  As often as not, however, the employees have never heard of the specific entity that allegedly employs them.  Moreover, the employment policies and payroll functions for these operating entities typically emanate from a central corporate HR department and a "shared services" entity.  

In Castaneda v. The Ensign Group, Inc., the California Appellate Court held that this structure of common ownership and shared services is likely to create a "joint employment" relationship for purposes of wage and hour liability.  

An entity that controls the business enterprise may be an employer even if it did not directly hire, fire or supervise the employees.  Multiple entities may be employers where they control different aspects of the employment relationship. This occurs, for example, when one entity (such as a temporary employment agency) hires and pays a worker, and another entity supervises the work.

* * * 

Here Ensign has more than a contractual relationship with Cabrillo. Ensign owns Cabrillo. It purchased it in 2009 and it owns all of its stock. A trier of fact could infer this evidence refutes Ensign's claims of lack of control and responsibility.

(Internal citations and punctuation omitted).  Moreover, the court noted that the corporate parent could be found to be a joint employment based on evidence that its various subsidiaries shared "centralized information technology, human resources, accounting, payroll, legal, risk management, educational and other key services."  (Emphasis in original).

Thus, while it may make eminent business sense for related entities to share common HR, accounting and payroll functions, these shared functions are also likely to result in shared responsibility for wage and hour obligations.   

 

Statistical Sampling and Representative Testimony are Acceptable Ways to Determine Liability -- Jimenez v. Allstate

 In Jimenez v. Allstate, the Ninth Circuit upheld the certification of a class of claims adjusters who alleged that their employer "knew or should have known" that they commonly worked unrecorded overtime beyond their normally scheduled hours.  

In particular, the Plaintiffs' theory of recovery was that the employer had an "unofficial policy of discouraging reporting of such overtime," that it "fail[ed] to reduce class members' workload" after reclassifying the position as overtime-eligible, and "treat[ed] their pay as salaries for which overtime was an 'exception.'”  The Court explained that this was a proper basis for certification as "Proving at trial whether such informal or unofficial policies existed will drive the resolution of" liability.

Perhaps more significantly, the Court held that a lower court may avoid a defendant's due process objections by establishing liability through class-wide "statistics and sampling" while bifurcating potential defenses to individual damages.  

Since Dukes and Comcast were issued, circuit courts including this one have consistently held that statistical sampling and representative testimony are acceptable ways to determine liability so long as the use of these techniques is not expanded into the realm of damages.

* * * 

In crafting the class certification order in this case, the district court was careful to preserve All-state's opportunity to raise any individualized defense it might have at the damages phase of the proceedings. It rejected the plaintiffs' motion to use representative testimony and sampling at the damages phase, and bifurcated the proceedings. This split preserved both Allstate's due process right to present individualized defenses to damages claims and the plaintiffs' ability to pursue class certification on liability issues based on the common questions of whether Allstate's practices or informal policies violated California labor law.

Unfortunately, the Jimenez Court did not detail the specific proposed statistical method that the lower court found to be a sufficient liability model.  However, it does seem to stand for the proposition that DukesComcast and Duran are to be narrowly interpreted as rejecting certification only based on the particular flaws in the statistical models used by the Plaintiffs in those cases.