In Lubin v. The Wackenhut Corp., the plaintiffs were security guards who claimed they should be certified as a class because their employer maintained a consistent policy of requiring them to remain constantly on-duty throughout their shifts at certain job sites. (The facts of the case were therefore basically similar to those in Augustus v. ABM Industries, Inc.)
The 50-page opinion thoroughly reviews and synthesizes the recent state and federal authorities related to class certification and collective proof. The opinion is worthy of several separate posts (which may be forthcoming). For now, however, I wanted to highlight what may be the most important aspects of the opinion -- i.e., how class-wide liability may be properly based on an evaluation of the employer's general policy.
The trial court in Lubin had determined that, even if Wackenhut's general policy was unlawful, it could still avoid liability by proving that "in practice" some individuals were nevertheless able to take legally compliant breaks. The trial court further reasoned that, under the U.S. Supreme Court's Title VII decision in Wal-Mart v. Dukes, such individual instances of compliance would need to be separately adjudicated.
The Appellate Court decisively rejected this liability standard. Instead, it explained that proof of an unlawful policy will, by itself, establish the employer's liability.
Throughout its order the court also found that individualized inquiries were necessary because, pursuant to Wal–Mart, Wackenhut was entitled to defend by proving that, even if plaintiffs presented evidence that it had a general policy of not providing valid meal or rest breaks, in practice some employees were afforded an off-duty meal or rest break. This rationale misapplies Wal–Mart. In Wal–Mart, the Supreme Court found that plaintiffs failed to present evidence establishing the existence of a common policy of discrimination. In this case, when it originally certified the class, the trial court found that plaintiffs had presented sufficient evidence that Wackenhut had policies and practices that violated wage and hour laws. Because plaintiffs met their burden of establishing a common policy, whether an individual was permitted to take a valid meal or rest break on any given day is a question of damages.
In other words, once liability is established on the basis of an unlawful policy, any instances in which legally compliant meal or rest breaks might have occurred in spite of the unlawful policy will merely serve to reduce the employer's aggregate damages.
In its 2014 decision of Brinker v. Superior Court, the California Supreme Court explained that employees must be "relieved of all duties" during their statutorily required 30-minute meal periods. Since that time, however, courts have struggled to define the exact status that employees are entitled to enjoy during the shorter 10-minute rest breaks which are also required by statute. In particular, is it permissible for employees to remain "on-call" during their rest breaks?
For example, ABM Industries required its security guards to wear two-way radios and pagers and to remain "vigilant" and "available to respond" during their rest breaks. The trial court entered a 90 million class action judgment on the ground that this "on-call" status was tantamount to requiring the employees to work during their rest breaks. An appellate panel overturned this judgment on the ground that being on-call should not be considered the same as being required "to work."
But the December 22, 2016 Supreme Court opinion in Augustus v. ABM Industries, emphatically settled the issue. The Supreme Court held that the same "relieved of all duty" standard for legally compliant meal periods also applies to rest periods. This means that during rest periods employees must be temporarily relieved of even the minimal duty to remain available to respond to radio or pager calls. As a result, "state law prohibits on-duty and on-call rest periods."
In Lewis v. Epic Systems Corp., the Seventh Circuit held that arbitration agreements that prohibit class or collective actions by employees are illegal and unenforceable under the National Labor Relations Act ("NLRA"). In particular, the May 26, 2016 decision explained that class lawsuits are a form of "protected concerted" activity under NLRA Sections 7 and 8. Thus, the court reasoned that any purported contractual waiver of these statutorily protected rights is unenforceable:
The [class waiver] provision prohibits any collective, representative, or class legal proceeding. Section 7 provides that “[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection.” A collective, representative, or class legal proceeding is just such a “concerted activit[y.” Under Section 8, any employer action that “interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]” constitutes an “unfair labor practice.” Contracts that stipulate away employees’ Section 7 rights or otherwise require actions unlawful under the NLRA are unenforceable.
(Internal Citations omitted).
The Lewis Court further held that this result is not at odds with the Federal Arbitration Act ("FAA"), as the FAA's "savings clause" only requires enforcement of arbitration agreements which are lawful and otherwise enforceable according to general contract law.
As a general matter, there is no doubt that illegal promises will not be enforced in cases controlled by the federal law. The FAA incorporates that principle through its saving clause: it confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Illegality is one of those grounds. The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in “concerted activities.” Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s saving clause for nonenforcement. Here, the NLRA and FAA work hand in glove.
(Internal punctuation and citations omitted).
In striking down class action waiver agreements Lewis joins with the reasoning adopted by the NLRB itself. However, it splits with the Fifth and Tenth Circuits, which have held that the pro-arbitration policy of the FAA takes precedence over the right to engage in "protected concerted" activity.
Unless Lewis is overruled following a grant of en banc review, the circuit split regarding the legality of class action waivers will inevitably end up before the Supreme Court. However, the Supreme Court's prior pro-waiver decisions have been sharply divided 5-4 decisions authored by the recently departed Justice Scalia. As a result, time may be running out on employers' most effective technique for avoiding class action liability.
The federal Consumer Financial Protection Bureau (CFPB) has issued a proposed regulation, 12 C.F.R. part 1040, that would ban the enforcement of class action waivers in most consumer financial contracts.
The new regulation does not apply to employment contracts. Moreover, the new regulation will only apply prospectively to arbitration agreements formed more than 180 days after the regulation becomes effective. However, it will inevitably stir up some interesting legal and political issues surrounding the enforcement of class action waivers.
The new rule amounts to a regulatory reversal of the landmark 2011 U.S. Supreme Court decision in AT&T v. Concepcion, which held that the Federal Arbitration Act ("FAA"), requires states to enforce class action waivers even if they would be illegal under state law. Indeed, the new regulation would prohibit states from enforcing class action waivers even if they would be legal under state law.
The elephant in the room, however, is whether the CFPB actually has the authority to do any of this. Section 128(b) of the Dodd-Frank Act purportedly gives the CFPB authority to prohibit arbitration agreements containing class action waivers. However, the FAA already contains a statutory mandate that private arbitration agreements are to be deemed “valid, irrevocable, and enforceable," and are to be enforced "according to their terms."
Denying enforcement of class action waiver provisions is arguably a partial repeal of the FAA, at least as it was interpreted in AT&T v. Concepcion. It is therefore dubious that Congress can constitutionally delegate this legislative function to an administrative agency.
Employers obviously benefit from a well-trained workforce. On the other hand, why invest in training when an employee can just quit (or be fired) and take his improved skills elsewhere. To avoid this scenario, many companies have instituted policies that require employees to pay back the cost of their training if their employment terminates.
The problem, however, is that such training pay-back programs may be illegal under California Labor Code Section 2802, which generally prohibits employers from passing on the costs of their business operations to employees.
For example, in In re Acknowledgement Cases, the plaintiffs challenged a Los Angeles Police Department (LAPD) policy that required new recruits to agree that if they left employment within 60 months of graduating from the Police Academy they would pay back a corresponding portion of their training costs.
As a matter of first impression, the Second District Court of Appeal held that Section 2802 requires that employers must remain financially responsible for all training costs, except for those costs incurred by the employee to obtain a legally required license.
[T]he broad purpose of Labor Code section 2802 is to require an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit. It is consistent with this purpose to require that where an individual must, as a matter of law, have a license to carry out the duties of his or her employment, the employee must bear the cost of obtaining the license. It is also consistent with this purpose to require an employer to bear the cost of training which is not required to obtain the license but is intended solely to enable the employee to discharge his or her duties.
The record below established that the LAPD required 644 hours of training directly related to meeting statutory licensing requirements, as well as an additional 420 hours of non-statutory "department required" training.
The Court declined to decide whether, in such a hybrid program, it would be permissible to apportion the training costs between the employer and employee.
Rather, the case below had been tried by the parties under an "all-or-nothing" theory in which the pay-back policy would either be fully enforceable or entirely void. Any equitable apportionment defense had therefore been waived. And because the program purported to require employees to repay some training costs in violation of Labor Code Section 2802, the entire repayment program was therefore properly found to be unenforceable as "null and void."
Obtaining class certification in wage and hour cases typically requires a showing that the employer has engaged in a systemic policy that violates the law. Maintaining scheduled hours, expecting employees to meet minimum production requirements, and requiring advance approval to work overtime are not illegal practices. In combination, however, these policies can result in an environment that systemically pressures employees to work unreported hours beyond their scheduled shifts and to skip breaks in order to complete their assigned tasks in the time allotted.
For example, in Alberts v. Aurora Behavioral Health Care, 241 Cal.App.4th 388 (2015), the Second District Court of Appeal held that the lower court had erred in refusing to certify a class of registered nurses based on the following allegations:
Hospital policy requires overtime be approved in advance, and failure to seek approval for overtime may subject an employee to discipline. Plaintiffs assert that the Hospital actively discouraged nursing staff from requesting overtime by criticizing and threatening to discipline employees who worked too much overtime, criticizing and intimidating employees who requested overtime and repeatedly denying legitimate overtime requests. At the same time, employees—especially RN’s, who were required to complete charts and other mandatory paperwork—were placed under pressure to ensure that all their work was completed each shift. . . . As a result, employees were routinely forced to clock out after their shifts, then return to work to complete paperwork.
The lower court had articulated a number of rationales for rejecting certification based on such evidence, including its view that there would be no liability if the decision to work off-the-clock was a personal choice made by individual workers. The appellate court rejected this reasoning, noting that:
[E]ven if we assume there is evidence some members of the nursing staff voluntarily worked uncompensated overtime, such a "choice" is impermissible under California law. A nonexempt employee (such as the putative class members here) may not lawfully volunteer to work off-the-clock without compensation.
Alberts v. Aurora thus reinforces several important lessons. Employers need to be aware that their policies need not be illegal on their face to trigger class-wide liability -- it may be sufficient that their cumulative effect communicates an implied expectation for employees to under-report their work time. Employees on the other hand should recognize that they are still entitled to additional compensation even if they "voluntarily" agreed to work off-the-clock.
As every lawyer practicing in the field has known since at least 2011, the U.S. Supreme Court's approval of mandatory class action waivers in AT&T v. Concepcion has reshaped the entire field of consumer and employment law.
The odd thing is that this momentous legal development has flown entirely under the radar of the media. I am sure it's hard for journalist to make the technicalities of Federal Arbitration Act preemption seem "sexy." But that's still a pretty lame excuse for totally ignoring one of the most important legal story of the decade.
By banning class actions, companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination, court records show.
“This is among the most profound shifts in our legal history,” William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, said in an interview. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”
However, the authors also go a little overboard in blaming the Supreme Court's rulings on a shady cabal of corporate conspirators.
More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records. Strategizing from law offices on Park Avenue and in Washington, members of the group came up with a plan to insulate themselves from the costly lawsuits.
(But like I said, it must be hard to make arbitration "sexy" without a secret conspiracy of evil-doers).
To the extent the class action ban is bad law or bad policy the only people really responsible are the five Supreme Court Justices who created the rule. Indeed, one interesting revelation is that when Chief Justice Roberts was a private attorney working for Discover Bank, he argued for overturning the California Supreme Court decision that held such class action bans to be unenforceable. As Chief Justice he was able to implement his own arguments by providing the fifth vote in AT&T v. Conception, which struck down the same California "Discover Bank" rule that he had advocated against as a lawyer.
When the court ruled 5-4 in favor of AT&T, it largely skipped over Mr. Pincus’s central argument [of states' rights].
“Requiring the availability of classwide arbitration,” Justice Scalia wrote for the majority, “interferes with fundamental attributes of arbitration.” The main purpose of the Federal Arbitration Act, he wrote, “is to ensure the enforcement of arbitration agreements according to their terms.”
It was essentially the same argument Mr. Roberts had made as a lawyer in the Discover case.
Perhaps the Times' article will start a long-overdue trend of more media attention and political discourse on the subject of class action waivers. Or, more likely, the issue will hing on the next appointment to the Court which may result in a new 5-vote coalition to re-examine the rule.
Side Note: I couldn't help looking up the NYT subscriber agreement to see if it has a class action waiver clause. It doesn't. But the WSJ has one.
Increases in minimum wages and other compensation laws have led many service-based businesses to dispense with tipping as a way to reduce the bottom line cost to their customers. For example, as the New York Times recently reported "an expanding number of restaurateurs are experimenting with no-tipping policies as a way to manage rising labor costs."
If not implemented properly, however, attempting to eliminate tips may trigger liability to employees under California law.
It is well-settled for example that employers may simply implement a “no tipping” policy. An employer may also implement a “mandatory service charge” which it need not directly share with employees.
However, under Labor Code § 351, to the extent any “tip” is included as part of a transaction, it is the sole property of the employee. Thus, if an employer advertises to customers that a “tip is included” in the price of a service it implies that the employer is adding a tip to the price and passing it along to the employee. If the employer doesn’t actually pay such an additional amount to the employee it may be liable for converting this advertised “tip.”
Indeed, this theory was recently endorsed in O’Conner v. Uber Technologies, 2015 WL 5138097 (N.D. Cal. 2015), in which the district court granted class certification to such a claim for tip conversion.
Plaintiffs have cited extensive evidence that Uber has consistently and uniformly advertised to customers that a tip is included in the cost of its fares (i.e., evidence that Uber “takes or receives” a gratuity). See, e.g., Docket No. 277, Ex. 12 (November 2011: “When the ride is over, Uber will automatically charge your credit card on file. No cash is necessary. Please thank your driver, but tip is already included.”) (emphasis added); Ex. 16 (November 2011: “All Uber fares include the tip ....”) (emphasis added); Ex. 13 (May 2012: “There’s no need to hand your driver any payment, and the tip is included.”) (emphasis added); Ex. 14 (January 2013: “With UberBlack, SUV, and UBERx there is no need to tip. With Uber TAXI we’ll automatically add 20% gratuity for the driver.”) (emphasis added); Ex. 15 (April 2015: “payment is automatically charged to a credit card on file, with tip included ”) (emphasis added). Uber does not even contest this fact in its papers.
Moreover, Uber has stipulated for the purposes of this litigation that, despite its representations that a “tip is included,” a “tip has never been part of the calculation of fares for either UberBlack or UberX in California.” See Docket No. 313–16 (emphasis added). That is, Uber essentially admits that despite making allegedly consistent and uniform representations to customers that a tip was included in all of its fares, Uber never actually calculated such a tip, and clearly never segregated and remitted any tip amount to drivers. Or, put differently, Uber has stipulated that it kept the entire amount of any tip that might be “included” in its fares. These facts, if proven at trial, will likely establish Uber’s uniform and classwide liability for violating California’s Tips Law.
The bottom line is that a "tip" is, by definition, an amount paid by the customer and received by the server. Thus, while employers are free to adopt no tipping policies they cannot falsely claim to customers that a "tip" has been "included" in the cost of the service when no additional amount is actually paid to the employee.
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?
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.
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.
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 Dukes, Comcast 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.
Appellate courts produce a steady stream of opinions discussing the criteria for certifying class actions. But guidance as to how such cases should be actually proven at trial has been conspicuously lacking. This dearth of authority has been remedied somewhat by Duran v. U.S. Bank, N.A.,, in which the California Supreme Court finally came face-to-face with "that exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict."
Performing an autopsy on this "rare beast" allowed the Court to explain where the trial court went wrong and how other courts might avoid the same mistakes in future class action trials.
How Not to Conduct A Trial of Class Claims
The issue in Duran was whether, and to what extent, U.S. Bank had denied overtime to a class of loan officers by classifying them as exempt "outside sales" employees when they primarily performed non-exempt "inside sales" activities.
The trial court developed its own trial plan in which it heard evidence from a sample of 21 out of 260 class members. From this sample testimony, the Court found that all of the class members (both testifying and non-testifying) were misclassified. It then calculated class-wide damages by assuming that the testifying and non-testifying employees worked the same number of overtime hours per week.
The Supreme Court rejected this method of proof as unfair and contrary to the Defendant's due process rights. In particular, the verdict had to be reversed because:
The selected sample of 21 employees were neither statistically representative nor numerous enough to support the court's findings as to the rest of the class.
The Court violated the Defendant's rights by barring its proffered testimony that other class members did, in fact, meet the duties of the "outside sales" defense.
How to Conduct A Trial of Class Claims
The Supreme Court was highly critical of the lower court's trial plan. But it did not rule that the plaintiffs' claims could not be tried on a class-wide basis. Rather, it explained that the existence of certain individual issues such as the percentage of time spent on exempt duties, or the number of overtime hours worked, are potentially manageable.
The Supreme Court then articulated the following elements of a viable plan for resolving these individual issues in the context of a class-wide trial.
Class-wide claims must be supported by proof of a common set of facts, not merely a statistical showing.
Once these “issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still by some means prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the trial of common issues.”
However, if "sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling."
"In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable."
Moreover, "a class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.”
Yet, "No case, to our knowledge, holds that a defendant has a due process right to litigate an affirmative defense as to each individual class member."
Duran does not attempt to dictate what level of statistical certitude -- i.e., the appropriate "confidence interval" or "margin of error" -- will be appropriate in a particular case. But it does provide useful guidance in determining when and how expert testimony can be used to make reasonably reliable factual determinations for a large group of individuals.
In 2007, the California Supreme Court held that class action waivers by employees were (almost always) unenforceable. This result was upended, however, by the U.S. Supreme Court's decision in AT&T Mobility v. Concepcion, which held that under the Federal Arbitration Act ("FAA") such waivers were (almost always) enforceable, and that the FAA preempted any state rule to the contrary.
This set off an "arbitration war" whereby pro and anti class action courts have sought to either apply or distinguish Concepcion in employment cases.
One of the most interesting pro-class action decisions came from the National Labor Relations Board, which held that: (a) wage and hour class actions are a non-waivable form of "protected concerted activity" under Section 7 of the National Labor Relations Act ("NLRA"); (b) the FAA does not preempt the later-enacted NLRA; therefore: (c) the FAA cannot be read as allowing waiver of class action rights protected under the NLRA.
This reasoning, however, has now been rejected on appeal by the Fifth Circuit in D.R. Horton v. NLRB.
The Fifth Circuit was sympathetic to (without quite endorsing), the premise that class action lawsuits are "protected concerted activity" under Section 7 of the NLRA. However, the Court held that the employer's right to require individual arbitrations under the FAA should nevertheless trump an employee's right to engage in concerted action under the NLRB.
The Fifth Circuit's reasoning on this point is lengthy but not particularly impressive. The Board's central point was that Section 7 rights are different from other statutory claims because the NLRA's "fundamental precept is the right for employees to act collectively."
But the Court never grappled with that point directly. Instead it based its decision on the fact that the NLRB does not specifically refer to arbitration.
In effect, the Fifth Circuit is holding that workers may have the substantive right to seek better working conditions - but they can be required to pursue these goals solely on an individual basis. It should be pretty obvious that this is a direct negation of employees' right under Section 7 to engage in mutual aid and support by acting in concert. It's a bit like having a worker sign an agreement that nominally preserves his substantive right to picket, but requires him to stand on the street corner all by himself.
In Wal-Mart v. Dukes, the U.S. Supreme Court rejected a proposed class of 1.5 million women who claimed they were discriminated against in separate hiring and promotion decisions by different managers throughout the nation. Many defendants (and a few courts) read this federal Title VII decision for the proposition that statistical evidence was somehow an improper method of proof in class actions -- a method which was denigrated by the short-hand term "trial by formula."
The decision of the California Court of Appeal in Williams v. Superior Court (Allstate) makes clear, however, that the analysis of the proposed Title VII class in Dukes has little or no application to California wage and hour claims. As the Court explained, “We agree with those courts that have found Dukes distinguishable in comparable situations.”
Indeed, the Court's four-page distinguishing analysis of Dukes is extremely thorough. In particular, the Williams Court noted that Dukes was concerned with provisions of federal Rule 23 that do not apply under California Code of Civil Procedure Section 382. As a result, "the trial court's reliance on Dukes analysis of subpart (b)(2) of Rule 23 – a class action seeking injunctive relief – was thus misplaced because appellant’s class members here were seeking principally, if not exclusively, monetary damages."
In addition, wage and hour claims normally turn on objective standards regarding the number of hours worked and wages paid. For class certification purposes such claims are thus fundamentally different from the discrimination claims at issue in Dukes "which depended on proof of the subjective intents of thousands of individual supervisors."
Finally, the Williams Court clarified the phrase "Trial by Formula," explaining that statistical inference is a perfectly valid method of establishing damages, and is no obstacle to certification where a class-wide policy or practice is alleged as the basis for liability.
Trial by Formula is a method of calculating damages. Damage calculations have little, if any, relevance at the certification stage before the trial court and parties have reached the merits of the class claims. At the certification stage, the concern is whether class members have raised a justiciable question applicable to all class members. Although Allstate may have presented evidence that its official policies are lawful, this showing does not end the inquiry. Here, the question is whether Allstate had a practice of not paying adjusters for off-the-clock time. The answer to that question will apply to the entire class of adjusters. If the answer to that question is “yes” – which is the answer the trial court initially assumed when it first certified the Off-the-Clock class, and is the answer we must presume in reviewing decertification (Brinker, supra, 53 Cal.4th at p. 1023) – then, in Duke’s phrase, that answer is the “glue” that binds all the class members. If some adjusters had more uncompensated time off the clock than other adjusters, that difference goes to damages.
(Internal punctuation and citations omitted).
Williams continues the recent post-Brinker trend of finding that class treatment of California wage and hour claims is generally proper so long as the question of liability is tied to an alleged class-wide policy or practice of the employer. It also clarifies that the U.S. Supreme Court holding in Dukes is no impediment to certification in such a case.
Sonic-Calabasas A, Inc. v. Moreno, addressed the specific legal issue of whether an employer can require an employee to waive his right to have an administrative hearing before the Labor Commissioner (a so-called "Berman Hearing"), as part of an arbitration agreement. In the end, the California Supreme Court merely remanded the case back to the trial court to decide whether this result would be "unconscionable" based on all of the surrounding circumstances.
In Concepcion v. AT&T, the U.S. Supreme Court held that federal law requires arbitration agreements to be enforced "according to their terms" and that state law rules to the contrary are preempted. But Sonic-Calabasas, pushes back against this federalizing of arbitration contracts by explaining that: (a) the state law doctrine of "unconscionability" may still be used to strike down excessively unfair agreements; (b) California's existing caselaw defining unconscionable and unenforceable arbitration terms is still in effect notwithstanding Concepcion; and (c) California courts should continue to evaluate arbitration agreements under the totality of the facts surrounding their formation and substantive terms to determine if "the overall bargain was unreasonably one-sided."
Examples of arbitration terms cited by the Court as unconscionable include:
An arbitration agreement that "effectively gave the party imposing an adhesive contract the right to choose a biased arbitrator."
An equal division of costs that "has the potential in practice of being unreasonably one-sided or burdening an employee's exercise of statutory rights."
A $50,000 threshold for an arbitration appeal that "decidedly favored defendants in employment contract disputes."
A clause limiting the recovery of damages.
An "obligation to pay [the employer's] attorney fees if [the employer] prevails in the proceeding, without granting [the employee] the right to recoup her own attorney fees if she prevails.”
A requirement "to pay $8,000 in administrative fees to initiate the arbitration."
Sonic-Calabasas therefore stands for the proposition that the permissible terms of an arbitration agreement in California have not necessarily changed much in the aftermath of Concepcion. The legal basis for evaluating these agreements, however, should be grounded in a case-by-case analysis under principles of "unconcionability" rather than on any "categorical" rules based on public policy.
The unaddressed "elephant in the room" however is whether an arbitration agreement that requires a waiver of class remedies may be found to be unconscionable and unenforceable. This issue is still pending before the California Supreme Court. However, the groundwork laid in Sonic-Calabasas suggests that the court is leaning in that direction.
In Abdullah v. U.S. Security Associates, Inc., the Ninth Circuit upheld the lower court’s grant of class certification where the employer required “on-duty meal period agreements” based on its contention that off-duty breaks were incompatible with “the nature of the work.”
In the course of reaching this result the Ninth Circuit fleshed out the scope of this often misunderstood defense. The Court explained, for example, that an employer might legitimately require on-duty meal breaks "where the employee is the only person employed in the establishment and closing the business would work an undue hardship on the employer." But the Court also noted that this defense may be dicey where, as in most cases, it was the employer who made the decision to staff only one employee in the first place.
In Abdullah, the employer claimed that its security guards could not take off-duty breaks because they were assigned to work by themselves and could not leave their posts unattended. The Ninth Circuit did not purport to prejudge this defense. But it was clear in holding that the lower could reject this defense on a class-wide basis.
[T]he merits inquiry will turn on whether USSA is permitted to adopt a single-guard staffing model that does not allow for off-duty meal periods—namely, whether it can invoke a “nature of the work” defense on a class-wide basis, where the need for on-duty meal periods results from its own staffing decisions.
Presumably this inquiry would involve an analysis of the feasibility or "undue burden" of alternative staffing models such as having guards work in shifts, hiring "relief" guards to cover during breaks, etc. At the very least, however, the Abdullah decision signals that employers cannot merely rely on their own desire to avoid additional staffing expenses as a rationale for requiring on-duty meal breaks.
In Butler v. Sears II, a class of consumers alleged that the "low volume and temperature of the water" in certain frontloading washing machines had resulted in mold growth and bad odors that amounted to a breach of warranty. Sears argued that while it never eliminated these alleged design defects it had implemented changes in successive models that tended to reduce the problem. As a result, Sears argued that class treatment was improper because the variations between the different models created "individualized" issues that would supposedly predominate in the case.
The Court rejected this argument, holding instead that whether the alleged design was a breach of warranty was the "predominant" issue. The differences between the models merely went to the calculation of damages. Writing for the court, Judge Posner further explained that the touchstone for class certification is the efficiency to be achieved by deciding common issues just once for an entire group of plaintiffs.
Sears thinks that predominance is determined simply by counting noses: that is, determining whether there are more common issues or more individual issues, regardless of relative importance. That's incorrect. An issue “central to the validity of each one of the claims” in a class action, if it can be resolved “in one stroke,” can justify class treatment. . . . [P]redominance requires a qualitative assessment . . . it is not bean counting.
If the issues of liability are genuinely common issues, and the damages of individual class members can be readily determined in individual hearings, in settlement negotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not preclude class certification.
Butler II, also distinguished the U.S. Supreme Court decision in Comcast v. Behrund, which contains confusing verbiage about the role of a particular damage model in an unusual antitrust case in an unusual procedural setting. Butler II confirmed however that Comcast did not "cut the ground out from under" the normal rule that damage calculations do not prevent class certification.
The Fourth District Court of Appeal decision in Bradley v. Networkers International, LLC is significant because it directly addresses how the landmark Brinker decision should effect class certification of meal and rest break claims. (Bradley is also significant concerning misclassification of independent contractors but that warrants a whole separate post).
The employer in Bradley had never promulgated any policy specifically authorizing meal and rest breaks. Originally the trial court had denied certification and the appellate court had upheld the denial on the ground that it would be necessary to individually determine which workers had the opportunity to take breaks and whether they had voluntary chosen to waive the breaks. The Supreme Court issued a "grant and hold" and then remanded for reconsideration in light of its Brinker decision.
The Bradley Court explained upon remand that Brinker had changed everything. Under the Supreme Court's new rules the same record now required class certification of the meal and rest period claims. First, because Brinker clarified that employers have a legal obligation to affirmatively provide breaks, not having a policy is itself a common class-wide policy that warrants certification.
Networkers argues Brinker is not controlling because in Brinker the plaintiffs challenged an express meal and break policy whereas here plaintiffs are challenging the fact that the employer's lack of a policy violated the law. This is not a material distinction on the record before us. Under Brinker and under the facts here, the employer engaged in uniform companywide conduct that allegedly violated state law.
Secondly, the lack of an affirmative meal and rest break policy effectively takes the issue of "waiver" off the table, removing it as an obstacle to certification as well.
[A]s Brinker made clear, an employer is obligated to provide the rest and meal breaks, and if an employer does not do so, the fact that an employee did not take the break cannot reasonably be considered a waiver. “No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.”
Prior to Brinker many employers got by with arguing that they did not prohibit breaks and that it was therefore up to their workers to take meal and rest breaks and that they could not prove that they had not voluntarily chosen to take breaks. Bradley is crystal clear in holding that this is no longer an option.
Under Brinker, the failure to implement and enforce an affirmative break policy (including records of whether the breaks were actually taken), is a substantive violation of the employer's legal duty under the Labor Code. Under Bradley this substantive violation will also be certified as a class action. In short, an employer without an affirmative break policy is now officially a sitting duck.
The California Supreme Court announced today that the opinion in Brinker v. Superior Court(Hohnbaum) will be published tomorrow at 10:00 a.m. The opinion will address many issues surrounding meal and rest break requirements under the California Labor Code, such as whether employers need to ensure or simply provide meal breaks, and when breaks should be taken during a shift.
Since its passage in 2004 the Labor Code Private Attorney General Act of 2004 (aka "PAGA") has been a persistent thorn in the side of the defense bar. The statute created a private right of action to enforce almost every section of the Labor Code and also created new monetary penalties for violations where none had existed before.
What was even worse (fom the Defendant's perspective) is that PAGA authorized a single person to bring a representative action on behalf of an entire group of similarly "aggrieved" employees without having to obtain a formal class certification from the court.
The only mitigating factor was that while PAGA's procedural remedies were sweeping, its substantive remedies were limited to monetary penalties and injunctive relief and did not include the recovery of actual unpaid wages . . . until now.
The Fourth District Court of Appeal decision in Thurman v. Bayshore Transit Management, Inc. has just opened a whole new horizon for PAGA litigation by holding that the statute can serve as a vehicle for wage recovery. (At least as to the wages covered by sections 500-556 of the Code, which includes both meal period premiums and overtime.)
The opinion gets to this result in two steps: First, the Court finds that Labor Code section 558 authorizes the award of a "civil penalty" for violating sections 500-556 that may include "an amount sufficient to recover underpaid wages." Next, the Court finds that this penalty (which would otherwise be enforceable solely by the Labor Commissioner), can be recovered in a private lawsuit under PAGA. And . . . Voilà!
Plaintiffs now have a brand new way to recover unpaid wages on a class-wide basis without class certification.
Judge Posner of the Seventh Circuit produces more than his fair share of insightful analysis in his opinions. A case in point is McReynolds v. Merill Lynch.
The issue was whether Merill Lynch's policy of allowing its advisors to form self-selecting teams resulted in a harmful disparate impact on its black financial advisors. Relying on Wal-Mart v. Dukes, the trial court denied class certification on the ground that the plaintiffs' theory turned on proof of individual acts of discrimination by the individual advisors who allegedly excluded blacks from their internal teams.
Posner's opinion reversed the denial of class cert. In doing so, the Court made some potentially far-reaching points concerning the lessons of Wal-Mart, and the nature of class certification generally.
The crucial point about Wal-Mart is that there was no company-wide policy at issue. Rather, it involved a theory of liability under which individual managers intentionally discriminated against women in violation of the company's policy. Thus,
Wal–Mart holds that if employment discrimination is practiced by the employing company's local managers, exercising discretion granted them by top management (granted them as a matter of necessity, in Wal–Mart's case, because the company has 1.4 million U .S. employees), rather than implementing a uniform policy established by top management to govern the local managers, a class action by more than a million current and former employees is unmanageable; the incidents of discrimination complained of do not present a common issue that could be resolved efficiently in a single proceeding.
By contrast, a different analysis applies where the plaintiffs are challenging the (intentional or unintentional) effect of a class-wide policy. As the Court explained with the following hypothetical example:
Suppose a police department authorizes each police officer to select an officer junior to him to be his partner. And suppose it turns out that male police officers never select female officers as their partners and white officers never select black officers as their partners. There would be no intentional discrimination at the departmental level, but the practice of allowing police officers to choose their partners could be challenged as enabling sexual and racial discrimination—as having in the jargon of discrimination law a “disparate impact” on a protected group—and if a discriminatory effect was proved, then to avoid an adverse judgment the department would have to prove that the policy was essential to the department's mission. [Citations.] That case would not be controlled by Wal–Mart (although there is an undoubted resemblance), in which employment decisions were delegated to local managers; it would be an employment decision by top management.
The main take-away point for class certification is significant because it applies to the entire spectrum of putative class claims, including wage and hour claims:individual intent cannot be determined on a class-wide basis but the impact of a policy can be determined on a class-wide basis, even if its impact is partly due to the intentional acts of individuals.
The California Supreme Court may generally take as long as it likes to decide a case. The only semi-firm deadline is created by California Rule of Court 8.524(h)(1), providing that a case is deemed "submitted" upon completion of oral argument, and the Constitutional requirement to decide a matter within 90 days of submission (See Cal. Const. Article IV, Sec. 9).
The completion of oral arguments in Brinker v. Superior Court on November 9, 2011 thus stoked expectations that the blockbuster meal break and class action issues raised in the case were finally on the verge of resolution after more than three years on the Supreme Court's docket.
But not so fast . . . the Supreme Court has now ordered further briefing and has vacated the "submitted" status of the case. Under this latest order the case will be deemed "resubmitted" on January 13, 2012. This gives the court until at least April 12, 2012 to issue its decision.
This delay is frustrating for all the courts, attorneys, and parties who are awaiting some clarity on these thorny legal issues.
However, I do find it interesting that the further briefing ordered by the court concerns the extent to which its ultimate decision may apply prospectively only. To me this suggests that: (a) The Court's decision will not merely uphold the (pro-employer) decision below; and (b) The opinion will set forth a new and detailed quasi-legislative standard for determining whether an employer has successfully provided timely and realistic meal and rest breaks to its employees.
The U.S. Supreme Court yesterday vacated the Ninth Circuit decision in Chinese Daily News v. Wang, which had upheld class certification of various California Labor Code claims. The Supreme Court makes no substantive analysis of the opinion but merely directed that it be remanded back to the Ninth Circuit "for further consideration in light of Wal-Mart Stores, Inc. v. Dukes."
Some may see this as a vindication of the view that Dukes is a "game changer" for certification of wage and hour claims. But I tend to disagree.
The unusual aspect of the Chinese Daily News decision was that it had based certification of the plaintiffs' monetary wage claims under both Rule 23(b)(2) (applicable to equitable claims) and Rule 23(b)(3) (applicable to damage claims). Dukes however rejected the use of Rule 23(b)(2) for certifying monetary claims. So it is understandable that the case was vacated and remanded.
The vast majority of wage claims, however, are certified exclusively under Rule 23(b)(3). And Dukes did not change the standard applicable to that prong of the rule. Consequently, I predict that the Ninth Circuit will merely decide on remand that certification in the Chinese Daily News case was independently proper under Rule 23(b)(3).
For example, in the recent Second Circuit opinion of Shahriar v. Smith & Wollensky Restaurant Group, the Court upheld class certification of wage claims under Rule 23(b)(3) without finding the need to even mention Dukes.
In short, at this point there is really no reason to believe that Dukes will have any significant impact on class certification of California wage and hour claims.
In Ellis v. Costco Wholesale Corp., the district court certified a nation-wide class of female Costco employees in what amounted to a carbon copy of the Dukes case against Wal-Mart. The Ninth Circuit was therefore required to re-evaluate the certification decision in light of the Supreme Court's ruling in Dukes.
The result was a mixed bag that affirmed as to some certification findings but vacated and remanded as to others. The most significant (in my opinion) aspect of the ruling is the Ninth Circuit's express directive to weigh the merits of the class-wide discrimination claims on remand as part of the certification decision:
[T]he merits of the class members’ substantive claims are often highly relevant when determining whether to certify a class. More importantly, it is not correct to say a district court may consider the merits to the extent that they overlap with class certification issues; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements.
This seems to be the culmination of long terms trend to break down the distinction between the procedural certification decision and the assessment of the merits of the case. This emphasis on the merits may make certification more difficult in some cases. However, it further reinforces the certification decision as the "big event" that not only decides whether the case may proceed as a class action but also suggests that the court is favorably disposed toward the merits.
The U.S. Supreme Court decision in AT&T Mobility v. Concepcion held that the Federal Arbitration Act preempts California's rule against waiving class action rights in consumer arbitration contracts. As we previously posted, if the reasoning of Concepcion were extended to the arbitration of employment claims it would overrule a vast body of well settled California law.
It was thus inevitable that California state courts would begin pushing back on this federal takeover of state contract and arbitration law. And Brown v. Ralphs Grocery Company may be the first shot in that campaign.
Brown ducks the big issue of whether Concepcion effective overruled the California Supreme Court's decision in Gentry v. Superior Court, which generally prohibits class action waivers in employment arbitrations. But Brown nevertheless creates a firebreak against the spread of the Concepcion rule to the employment context. It did this by holding that Concepcion does not allow the enforcement of an arbitration provision that waives the right of an employee to pursue a representative action on behalf of similarly situated employees under the Labor Code Private Attorney General Act, or "PAGA."
What is significant about the Brown Court's analysis, however, is that it utterly ignores the policy concerns stated in Concepcion regarding the need to enforce arbitration agreements exactly as written. Instead, it bases its conclusion on the public policies favoring the enforcement of PAGA on a representative basis. As the Court explained:
The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. Here, the relief is in large part for the benefit of the general public rather than the party bringing the action. And, a representative action has significant institutional advantages over a single claimant arbitration. The representative action is a means for public enforcement of the labor laws. Thus, assuming it is authorized, a single-claimant arbitration under the PAGA for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code. That plaintiff and other employees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has collateral estoppel effects. Other employees would still have to assert their claims in individual proceedings. In short, representative actions under the PAGA do not conflict with the purposes of the FAA. If the FAA preempted state law as to the unenforceability of the PAGA rep-resentative action waivers, the benefits of private attorney general actions to enforce state labor laws would, in large part, be nullified.
All of this policy analysis is equally applicable to non-PAGA class actions. Indeed, this is almost the identical reasoning employed by the California Supreme Court in Gentry. Thus, notwithstanding its stated reservation of the issue, Brown has to be read as a strongly suggesting that Gentry is still good law in California and that Concepcion should be limited as closely as possible to its facts -- i.e., as applying only in the consumer context.
As widely reported, the U.S. Supreme Court held in Dukes v. Wal-Mart that the Title VII gender discrimination claims of 1.5 million employees were far too diverse to be decided on a class-wide basis. While the result is hardly surprising, the opinion is notable because it substantially revises the standards applicable to class certification under Rule 23(b)(2).
(b)(2) vs. (b)(3)
To briefly summarize, Rule 23 is the statute governing class certification in federal court. Subsection (b)(2) of the Rule provides an easier path to certification where a class is seeking mainly equitable or injunctive relief. By contrast, claims for money damages must normally be certified under subsection (b)(3), which requires additional proof that common issues "predominate" over individual issues and that a class action is the "superior" method of deciding the claims.
As originally enacted, Title VII provided only for equitable remedies (back pay and front pay were available but were deemed to be equitable substitutes for reinstatement). For many years Title VII claims were thus commonly certified under the relaxed standard of Rule 23(b)(2). This became much less common however after Title VII was amended in 1991 to allow for emotional distress and punitive damage awards.
Rule 23(b)(2) after Dukes.
The district court's certification order in Duke's v. Wal-Mart was thus a bit of an anomaly because it allowed certification under the easier 23(b)(2) standard even though the plaintiffs were claiming literally billions in damages.
In rejecting the lower court's certification analysis the Supreme Court effectively closed what some might characterize as the "loophole" of using 23(b)(2) to certify Title VII damage claims. The Court did this in two ways. First, the Court held that (b)(2) certification should be unavailable in almost all claims that include monetary relief. Second, even to the extent subsection (b)(2) is available the Court took away its main attraction by requiring plaintiffs to meet a standard of "commonality" that is effectively the same as the "predominance" test required by (b)(3).
The effects of Dukes should be felt primarily in Title VII cases. California wage and hour class actions are virtually never certified solely under Rule(b)(2), so the impact on these cases should be minimal.
Since the AT&T Mobility v. Concepcion case was issued last month, the legal community has been trying to decide what it means for employment class actions in California. Is it the death of employment class actions? Or will it be limited to the consumer context? Does it amount to a federal takeover of California arbitration and class action law? Or will California courts find a way to circumvent its preemptive effect in the employment context?
Only time will tell, but in the meantime we will be doing a running series of posts on the fallout of the Concepcion case. As a starting point this post will focus on what I think is the central doctrinal innovation of the majority opinion -- i.e., the re-interpretation of the federal arbitration act (FAA) as, in effect, preempting the field of state law contract formation and enforcement rules to the extent they involve arbitration contracts.
The New FAA Preemption Paradigm Under Concepcion
Section 2 of the FAA states that that arbitration agreements shall be enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." Since its enactment in 1925 the FAA was thus held to only narrowly preempt state law only to the extent necessary to “place arbitration agreements on an equal footing with other contracts.”But Concepcion abruptly reverses this 85 years of precedent.
It does this by first holding that while "§ 2’s saving clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." And what is the "objective" which cannot be prevented by state law? The Court's answer is simply that "The principal purpose of the FAA is to ensure that private arbitration arbitration agreements are enforced according to their terms." (Emphasis added).
In short, under Concepcion state law governing the enforceability of contracts cannot overrule the parties' privately agreed terms about how the arbitration shall be conducted. (Which the Court notes may be unilaterally dictated in an adhesion contract.) It is hard to see how this differs from a federal preemption of the entire field of arbitration law.
Thus, the Majority explicitly converts the FAA from a mere shield against state anti-arbitration rules into a potent sword for cutting away general rules of contract law that would otherwise stand in the way of a private agreement.
To invoke an employment law analogy, Concepcion effectively converts the FAA from a non-discrimination statute that protects arbitration contracts against differential treatment into an affirmative action plan that requires preferential treatment over other contracts.
Under California law, for example, a non-arbitration contract that purports to waive a consumer’s right to file a class action is plainly unenforceable. But under Concepcion, that same illegal waiver provision must be enforced so long as it is incorporated into an arbitration agreement.
The Potential Effect on Existing Law and Agreements.
This new paradigm has the potential to unsettle the whole body of California case law relating to the enforceability of arbitration agreements and the conduct of arbitrations.
For example, Concepcion could easily be read as completely overruling Armendariz v. Foundation Health Psychare Services, Inc., which has governed California arbitrations for over a decade. Under Armendariz,employment arbitration agreements cannot impose excessive costs on employees, cannot deny adequate discovery, and cannot impose a one-way duty to arbitrate on the employee while allowing the employer to sue in court.
The logic of Concepcion would seemingly dictate that none of these conditions can be judicially imposed as doing so would inevitably interfere with the FAA's prime objective of enforcing every private arbitration agreement "according to its terms."
Employers may be tempted to take full advantage of Concepcion by drafting heavily one-sided arbitration agreements. But if they go too far or the preemptive effect of Concepcion is somehow limited to non-employment agreements the resulting agreements will simply be unconscionable and unenforceable.
We will explore some of these implications in our follow-up posts.
This result turned mainly on the potential conflict of interest between a union and those employees who may object to union membership. More interesting was the Court's analysis of the employment class action cases that have followed Pioneer Electronics by allowing discovery of employee contact information. The Court seemed to interpret this line of cases as explicitly vesting trial courts with the discretion to allow discovery of contact information in such cases without prior notice.
We recognize not all compelled disclosure warrants procedural safeguards. But these cases generally fall into two categories-non-party, percipient witnesses whose identity was previously disclosed and have no right to object to disclosure, and putative class members. For these putative class members, there is an assumption that they want their information disclosed because the class action involves a vindication of their statutory rights. [Internal citations omitted]
Many trial judges already routinely dispense with such pre-disclosure notices in employment cases and this decisions seems to explicitly approve of the practice.
The Ninth Circuit's Decision in Wang v. Chinese Daily News is an important decision on several levels. One of these is to demonstrate just how difficult it can be for an employer to prove a defense to overtime under the professional exemption.
The Chinese Daily News argued that its reporters qualified as exempt "creative professionals," because their primary work duties required "invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.”
As the court explained, however, "newspaper reporters who merely rewrite press releases or who write standard recounts of public information by gathering facts on routine community events are not exempt creative professionals." Rather, exempt duties include "performing on the air in radio, television or other electronic media; conducting investigative interviews; analyzing or interpreting public events; writing editorials, opinion columns or other commentary; or acting as a narrator or commentator."
In short, the difference is between being a mere conduit for facts and being an investigator, analyst or interpreter of those facts. The Court opined that this "creative professional" standard should only apply to the "small minority of journalists" who work at national papers such as "The New York Times" or "Washington Post." But reporters at "small or unsophisticated" "community" papers such as the Chinese Daily News in Monterrey Park are presumably not exempt professionals.
I have to imagine this is a slightly bitter-sweet victory for the reporters. On the one hand, they won the right to collect back overtime pay. On the other hand, the Ninth Circuit has essentially declared that, as a matter of law, they are a bunch of "unsophisticated" hacks who can't pretend to the title of a "professional" journalist. In the law it's sometimes impossible to eat your cake and have it, too.
The meal period requirement does not explicitly exclude public sector employees and the plaintiffs argued that this indicated an intent to cover all employees -- both public and private. The Appellate Court held that plaintiffs arguments about alleged legislative intent were trumped by a more general presumption that the Labor Code does not apply to government employees:
This argument runs contrary to well-established principles of statutory construction. Our Supreme Court has noted: “A traditional rule of statutory construction is that, absent express words to the contrary, governmental agencies are not included within the general words of a statute.” The Legislature has acknowledged that this rule applies to the Labor Code.
Government employees should be aware, however, that they are still protected by the federal Federal Fair Labor Standards Act ("FLSA"). Although the FLSA contains no requirement to provide meal periods, its core protections are largely the same as under state law. Thus, California state and local employees may sue under the FLSA for violations, including:
Failure to pay overtime for all hours worked over 40 in a week.
Failure to pay for all hours actually worked, including time spent working during unpaid lunch breaks, at home, or "off-the-clock" outside of regular shift times.
Failure to timely pay the full amount of all wages earned on each pay period.
Special rules apply to the calculation of minimum wage and overtime for certain police and fire employees. But state and local employees who believe they are being shortchanged may discover that they have a remedy under federal law.
The article accurately highlights some of the problems with the classic Big Firm business model, which generates big profits only by combining sky-high billing rates with a highly leveraged ratio of partner to associate billable hours.
Certain clients, already spooked by the size of their legal bills, balk at being billed $1,000 an hour, especially when a partner is redoing the work of an associate who bills at half that rate (or more), but does not offer half the value. Another reason partners want to move on is that Big Law makes big bucks—up to $1.3 million per year for a sixth-year associate who bills $650 an hour at one firm that shall remain nameless—on the inexperience of young lawyers. "Some make a point of objecting to junior associates on the bill," said Joshua Stein, a former real estate partner at Latham & Watkins who left last month to start his own practice. "In the context of [my practice], those issues won't exist and, so far, what I've seen is that it's appealing to clients."
The surprising thing is that so many institutional clients are willing to stick with the traditional model.
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.
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.
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.
As we have previously posted, over the past few years arbitrators following U.S. and California Supreme Court precedent have consistently found that "silent" arbitration agreements must be interpreted to allow class-wide arbitrations.
The recent U.S. Supreme Court opinion in Stolt-Nielsen v. Animal Feeds , however, holds that arbitrators may not conduct a class-wide arbitration where the parties' agreement fails to address the issue at all. As the Court succinctly stated: "[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."
Many employers and other defendants will be tempted to read this opinion as creating a new panacea against class actions. In California, however, this interpretation is probably wrong.
The reason is the California Supreme Court's holding Gentry v. Superior Court , which created a state law rule that any arbitration agreement that precludes class certification is an unenforceable "exculpatory clause." Gentry explained that this state law rule creates no conflict with the Federal Arbitration Act ("FAA") because it applies generally to all class-waiver "exculpatory clauses" regardless of whether they happen to appear in arbitration agreements.
Furthermore, Stolt-Nielsen merely holds that, without an express agreement by the parties, class arbitrations cannot be ordered "under the FAA." The opinion does not hold, however, that the FAA preempts California courts from compelling class-wide arbitration under state law, such as the California Arbitration Act or the anti-exculpatory rule announced in Gentry.
In short, defendants will inevitably argue that Stolt-Nielsen bars class certification -- whether in court or arbitration -- if an arbitration agreement does not expressly consent to it. But California courts are still presumably bound by Gentry to reject this argument as a back-door attempt to enforce an exculpatory class-waiver clause. Defendants thus may be forced to choose between class-wide arbitration or class-wide litigation. But under Gentry it is too much to avoid both.
The en banc decision in Dukes v. Wal-Mart reviews the lower court decision to certify a monster class of 1.5 million women who claim they were systematically discriminated against by Wal-Mart's corporate culture and subjective decision making.
There's a lot in the decision. And at times, the 140-page opinion reads like a monastic debate over the number of angels who might dance on a pinhead. But here are the four main points boiled down about as far as possible:
A Plaintiff's Challenge to a "Common Policy" Is Sufficient To Justify Certification. In deciding to certify a class District Courts should evaluate the merits of the claims only to the extent necessary to decide if they raise sufficient "common issues" to justify class treatment. Thus, the majority rejected the dissent's suggestion that "Plaintiffs must show a common policy of proven discrimination at the class action stage." Instead, Plaintiffs need only show a "common policy alleged to be discriminatory." (Emphasis in original).
The Requisite "Common Policy" Can Be Derived From a Combination of Management Structures and Practices. The Court seemed to hold that this "common policy" requirement was met by a showing that "Wal-Mart operates a highly centralized company that promotes policies common to all stores and maintains a single system of oversight." Plaintiffs offered sufficient evidence of "Common Policy" with evidence of: "uniform personnel and management structure across stores;" central "oversight of store operations;" "company-wide policies governing pay and promotion decisions;" "centralized corporate culture;" and "consistent gender-related domestic disparities" in every region of the company.
Expert Opinion, Statistical Evidence, and Annecdotal Evidence Can All Support An Inference That The Challenged "Common Policy" Could Have Resulted In Discrimination. A trial judge need not decide if the Plaintiffs expert analysis supported a finding that Wal-Mart managers were actually discriminating. Rather, the point of expert testimony was to present "scientifically reliable evidence" supporting the existence of a "common question of fact" -- i.e., "Does Wal-Mart's policy of decentralized, subjective employment decision making operate to discriminate against female employees?" Likewise, testimony from individuals describing alleged discrimination against them personally also support the inference of a link between the challenged policies and the alleged discrimination.
A Rule 23(b)(2) Class Can Be Certified Where The Benefit to an Average Class Member from Equitable Relief Will be Greater Than Money Damages. The more lenient Rule 23(b)(2) certification standard applies where "the importance of injunctive and declaratory relief" will be greater than "the amount of monetary recovery available for each plaintiff." Moreover, where money damages are larger they may be split off and certified under Rule 23(b)(3). For example, the Court found that claims for back pay were properly certified under Rule 23(b)(2), while punitive damages and claims by former employees (who could no longer benefit from an injunction) would have to be remanded for certification under Rule23(b)(3).
The bottom line is that this en banc opinion gives plaintiffs plenty of ammunition in seeking to have their claims certified for class treatment. Although its primary impact will be in discrimination cases, the impact will no doubt be felt in other areas such as wage and hour claims.
USA Cab owns a fleet of about 45 taxis that it leases to drivers, and it operates a taxi dispatch service. At issue in the case was whether USA Cab’s classification of the drivers as independent contractors was proper. The Plaintiffs’ brought a putative class action alleging that due to the misclassification, USA Cab failed to provide workers’ compensation insurance, failed to pay minimum wages, improperly required drivers to pay security deposits and other fees, and denied them meal and rest breaks.
Under the terms of the agreement with the drivers, USA Cab provided the lessee-drivers with a taxi "painted with [its] insignia and equipped with meter, radio, and any other equipment as required by state law and local ordinances relating to taxicabs.” The company also paid for all licenses, taxes and fees assessed on the taxi, and to furnish liability insurance, oil, tires, and maintenance, except that required by the lessee's misuse or abuse of the taxi. The company also allowed the lessee to select from specified daily, weekly or monthly lease rates depending on his or her driving record.
USA Cab argued the purported class would be unmanageable, and common questions do not predominate over individual issues, given differences among the driver-lessees' situations.
The court noted, that while the merits of the case are not determined at the class certification stage, the facts and defenses pertinent to the merits of the case are taken into consideration to determine whether class certification is appropriate. With regards to the test of which workers can be classified as independent contractors, the court noted:
While the right to control work details is the most important factor, there are also " 'secondary' indicia of the nature of a service arrangement." [citation] The secondary factors are principally derived from the Restatement Second of Agency, and include "(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee." [citation] "Generally, the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations." [citation]
The court provides an excellent overview of California law regarding which workers can be classified as independent contractors. The opinion is well worth the read for anyone dealing with this issue in California.
In this case, USA Cab submitted a number of declarations from primarily current drivers to oppose Plaintiffs’ motion for class certification. The court noted that the declarations tended to show that the case was not proper for class certification because the they tended to show that individualized issues predominated the case:
The declarations tended to show a lack of class-wide damage. For instance, most declarants said they incurred no work-related injuries, customarily took meal and rest breaks, and earned wages equaling or exceeding minimum wage.
The declarations established that the drivers were not required to use USA Cab's dispatch service. Some drivers used it for between 20 and 60 percent of their business, many used it infrequently, and some chose not to use it at all.
The declarations also showed that drivers paid for their own tools, such as map books, flashlights, tool kits, jumper cables, cell phones, computers, GPS navigational systems, and credit card machines.
Some of the drivers also established that they conducted their own marketing and advertising to gain new customers.
The drivers also declared that “with varying frequency they chose to set their own rates, such as flat rates for trips, or rates below the standard metered rate.”
Plaintiffs in this case, Jane Doe v. Wal-Mart, were employees of suppliers to Wal-Mart who work in foreign countries. Their lawsuit alleged that Wal-Mart should be liable for the suppliers’ labor code violations. The employees worked for companies who manufactured goods for Wal-Mart in countries such as China, Nicaragua, and Bangladesh.
Plaintiffs alleged a unique theory for establishing liability on Wal-Mart’s behalf. They argued that Wal-Mart’s code of conduct for its suppliers (called the “Standards for Suppliers”) established a duty for Wal-Mart to ensure that the suppliers were complying with the foreign countries’ labor laws. Plaintiffs also relied on the Standards’ provision that gave Wal-Mart a right to inspect the suppliers’ to ensure they were complying with the applicable laws.
Wal-Mart filed a motion to dismiss the case on the grounds that under the law Wal-Mart could not be found liable for these third-party suppliers’ foreign labor code violations. The Court agreed with Wal-Mart in holding that the Standard for Suppliers policies did not create an obligation for Wal-Mart to monitor the suppliers’ compliance with the law – it only gave Wal-Mart a right to inspect the suppliers and then cancel orders if violations existed.
The Court also held that the facts plead by Plaintiffs did not make Wal-Mart a joint employer with its suppliers. The Court explained that to be a joint employer, an employer must have “the right to control and direct the activities of the person rendering service, or the manner and method in which the work is performed.” The Court also explained that there needs to be a day-to-day level of control, which simply did not exist in this case.
While Wal-Mart prevailed in this case, it should be a clear warning to employers to be careful in how it enters into relationships with vendors and suppliers. Employers need to be careful about how much control it has over vendors’ employees. If the relationship if not documented properly, or there is day-to-day control over the outside companies’ employees, there may be a possibility that the contracting employer could be liable for the vendors’ labor code violations.
Oral argument of the case can be listened to here.
The California Supreme opinion in Arias v. Superior Court has created a potent new alternative to class actions for enforcing Labor Code provisions.
The Supreme Court granted review to decide whether plaintiffs must obtain formal class certification in order to bring claims under two different statutes -- the Unfair Competition Law (the "UCL," Business and Professions Code section 17200, et seq.) and the Labor Code Private Attorney General Act of 2004 ("PAGA," Labor Code section 2698, et seq.). The answers were "Yes" as to the UCL, and "No" as to PAGA.
The really interesting part of the decision, however, was the Supreme Court's elucidation of how principles of collateral estoppel should apply in a representative PAGA action which has not been formally certified as a class action. To understand the due process issues raised by such an action the Court first explained the burdens imposed on a defendant by the prospect of "one-way intervention."
Unfairness may result from application of collateral estoppel when, for example, various plaintiffs in separate lawsuits against the same defendant assert claims presenting common issues. Because collateral estoppel may be invoked only against a party to the prior lawsuit in which the issue was determined, and because in our example the defendant would be a party to every lawsuit while each of the various plaintiffs would be a party in only one lawsuit, the defendant would in later lawsuits be bound by any adverse determination of the common issues, while none of the plaintiffs would be similarly bound by prior determinations in the defendant's favor. Thus, one plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevailed; then everyone else would ride on that single success. (Internal Citations omitted).
The Court went on to explain, however, that this "one-way intervention" problem cannot arise as to employee claims for the penalties provided solely by PAGA itself.
Because an aggrieved employee's action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. . . . Accordingly, with respect to the recovery of civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under the act, and therefore defendants' due process concerns are to that extent unfounded.
Just as significantly, however, the Court went on to specifically approve "one-way intervention" for employees who wish to "piggyback" on a favorable PAGA ruling by seeking wages and other remedies which are not provided by PAGA itself.
[I]f an employee plaintiff prevails in an action under [PAGA] for civil penalties by proving that the employer has committed a Labor Code violation, the defendant employer will be bound by the resulting judgment. Nonparty employees may then, by invoking collateral estoppel, use the judgment against the employer to obtain remedies other than civil penalties for the same Labor Code violations. If the employer had prevailed, however, the nonparty employees, because they were not given notice of the action or afforded any opportunity to be heard, would not be bound by the judgment as to remedies other than civil penalties.
In short, as construed by the Supreme Court, an action under PAGA represents the best of both worlds for plaintiffs' attorneys. On the one hand, they need not obtain class certification to bring an action on behalf of an entire group of employees. And yet, a favorable decision on the merits will still bind the employer on a class-wide basis as to both PAGA and non-PAGA claims.
In almost every employment law class action filed, the plaintiff alleges a cause of action under California’s unfair competition law, found in California’s Business & Professions Code section 17200. Likewise, plaintiffs’ routinely allege causes of action under California Labor Code Private Attorneys General Act of 2004, found in Labor Code section 2698. These claims can be filed by one plaintiff as a “representative action” in which the individual plaintiff is seeking remedies on behalf of all other employees.
The issue decided by the California Supreme Court in Arias v. Superior Court was whether the plaintiff bringing a "representative action" must have the class certified as a class action when pursing a unfair competition claim and a Private Attorneys General Act claim. The Supreme Court held that a plaintiff must have the class certified as a class action when pursuing a Business & Professions Code section 17200 claim, but the plaintiff does not have to certify a class action to maintain a “representative action” under the Private Attorneys General Act.
The Court explained, “[a] party seeking certification of a class action bears the burden of establishing that there is an ascertainable class and a well-defined community of interest among the class members.” If a class is certified by a trial court, then everyone who fits the class definition receives notice that they are automatically in the class (unless they affirmatively opt out), and are bound by the ultimate outcome of the case.
Claims Under The Unfair Competition Law Must Be Certified As a Class Action
The Supreme Court explained that the unfair competition law prohibits “any unlawful, unfair or fraudulent business act or practice . . . .” Furthermore, in 2004, California voters passed Proposition 64 that amended Business & Professions Code section 17200 to only allow a plaintiff to bring a representative action under if he or she “suffer injury in fact and has lost money or property as a result of such unfair competition” and that the action must comply with California Code of Civil Procedure section 382, which (generally) allows for class actions under California law. The Supreme Court explained the intent of the voters in passing Proposition 64:
A thorough review of the Voter Information Guide prepared by the Secretary of State for the November 2, 2004, election at which the voters enacted Proposition 64 leaves no doubt that, as discussed below, one purpose of Proposition 64 was to impose class action requirements on private plaintiffs’ representative actions brought under the Unfair Competition Law.
Therefore, the Court held that claims brought under Section 17200 must be certified as a class action.
Claims Under The Private Attorneys General Act of 2004 Do Not Need To Be Certified As A Class Action
The Private Attorneys General Act (sometimes referred to as the bounty hunter law) was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws. As the Court noted in its opinion, at the time the legislation passed, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, the Act allows aggrieved employees to act like a private attorney general in collecting civil penalties for Labor Code violations. The employee must give 75% of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations.
Employees seeking recovery under the Private Attorneys General Act must comply with requirements that place the Labor and Workforce Development Agency and the employer on notice that the employee will be seeking remedies under the Act and give the Agency a chance to investigate itself. If the Agency does not investigate, then the plaintiff can proceed with the claim.
The Supreme Court did not agree with defendants' arguments that Private Attorneys General Act claims must be certified as a class action. The defendants argued that by not requiring class certification for these claims deprives defendants of their due process rights. Defendants explained that there is a scenario where plaintiffs could continually bring Private Attorneys General Act claims against their employer over and over for the same issues until they eventually prevail if the class certification is not required. The Supreme Court explained that this is not a concern:
Because an aggrieved employee’s action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations (Lab. Code, § 2699, subds. (a), (g)), and an action to recover civil penalties “is fundamentally a law enforcement action designed to protect the public and not to benefit private parties."
Therefore, because all employees on whose behalf the representative plaintiff seeks remedies are bound by the ultimate outcome of the case, defendants are not faced with this possibility.
The Rodriguez decision arose when objectors challenged the lower court's approval of a $49 million settlement in an anti-trust action against the providers of the Bar-Bri and Kaplan bar review courses. The objectors claimed that a conflict of interest existed because Class Counsel and certain class representatives had agreed at the outset of the action to seek specific awards based on the amount of any future settlement. In particular:
[I]f the [settlement] amount were greater than or equal to $500,000, class counsel would seek a $10,000 award for each of them; if it were $1.5 million or more, counsel would seek a $25,000 award; if it were $5 million or more, counsel would seek $50,000; and if it were $10 million or more, counsel would seek $75,000.
The Court began its analysis by noting that there is nothing wrong or unusual about incentive awards to class representatives in general.
Incentive awards are fairly typical in class action cases. Such awards are discretionary, and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general. Awards are generally sought after a settlement or verdict has been achieved. (Internal citations omitted)
The Court proceeded to explain, however, that any agreement that purports to tie a class representative's compensation to particular settlement target may result in perverse incentives and conflicts of interest.
[O]nce the threshold cash settlement was met, the agreements created a disincentive to go to trial; going to trial would put their $75,000 at risk in return for only a marginal individual gain even if the verdict were significantly greater than the settlement. The agreements also gave the contracting representatives an interest in a monetary settlement, as distinguished from other remedies, that set them apart from other members of the class. Further, agreements of this sort infect the class action environment with the troubling appearance of shopping plaintiffships. If allowed, ex ante incentive agreements could tempt potential plaintiffs to sell their lawsuits to attorneys who are the highest bidders, and vice-versa. In addition, these agreements implicate California ethics rules that prohibit representation of clients with conflicting interests.
The Rodriguez decision thus seems to stand for the proposition that any "ex ante" agreement to seek a specific enhancement for class representatives is disapproved and may jeopardize the validity of any class settlement. Admittedly, this was a highly unusual arrangement to begin with. (As bar review customers the class representatives in Rodriguez were presumably lawyers or lawyers-to-be, which probably accounts for the unusually self-serving deal.)
Nevertheless, Rodriguez v. West Publishing is still an important decision because it expressly recognizes and approves of enhancement awards generally, as well as its discussion of the interplay between the financial incentives and fiduciary duties of class representatives.
The old version of the UCL allowed any person or organization to file a lawsuit on behalf of the "general public." Prop 64 curbed the perceived abuses of lawyers who were filing case without any real plaintiff involved in the case. Prop 64 did this by prohibiting anyone from representing the general public unless he "has some skin in the game" -- i.e., he must also have been injured in roughly the same way as those he is seeking to represent.
The gist of the Supreme Court's Tobacco II decision is that the same standard now applies for class certification of UCL and non-UCL class actions. In other words, while the standing requirement added by Prop 64 requires proof that the named plaintiff suffered some "injury," this imposes no higher standard than in any other class action.
As the Supreme Court explained, “the effect of Proposition 64 is to prevent uninjured private persons from suing for restitution on behalf of others.” An individual may therefore serve as a class representative in a UCL lawsuit so long as he has suffered some loss “as a result of” the alleged unfair business practice. But this requirement is pretty easily satisfied. For example, where the wrongful conduct is a false or deceptive statement, “the plaintiff is not required to allege that those misrepresentations were the sole or even the decisive cause of the injury-producing conduct.” Rather, he must only allege that the misrepresentations had some effect on his conduct – and even this minimal level of causation may be presumed where the defendant’s misrepresentations involved a material issue. This is the same injury standard applicable to individuals who file UCL actions solely on their own behalf.
On the other hand, the Court specifically rejected the argument that “all class members must individually show they have the same standing as the class representative in order to be part of the class.” Indeed, the Court repeatedly emphasized that “the UCL focus [is] on the defendant’s conduct rather, rather than the plaintiff’s damages.” Thus it is no defense to class certification to argue that some class members were not injured and could not recover under Prop 64. Instead, a class with sufficiently similar interests that meets the normal requirements of “typicality and adequacy of representation” has standing to sue “as an entity.”
The bottom line is that the UCL will continue to be a potent weapon for seeking certification in California, including class claims for unpaid wages and other employment claims.
Plaintiffs Brown and Watkins brought a wage and hour class action against Wachovia seeking damages for unpaid overtime on behalf of all California sales assistants on the basis that they were misclassified as exempt employees or that Wachovia simply did not pay the hourly employees for overtime worked.
Brown’s Release of All Claims In Connection With A Severance Package Precludes Her From Participating In This Lawsuit
At the trial court level, Wachovia brought a motion for summary judgment against Brown’s claims on the basis that Brown signed a release of all claims in conjunction with a severance package. Wachovia won the summary judgment motion at the trial court level, but Brown appealed. The issue on this appeal is whether Brown’s release of all claims in her severance package precluded her from bringing her claim for unpaid overtime in this case.
In exchange for additional severance benefits when leaving Wachovia, Brown signed a release of all claims against Wachovia. Brown argued that the release is unenforceable because it violates the law in that Labor Code section 206.5(a) prohibits the release of all claims for unpaid wages unless payment is made in full for all claimed wages. The section provides:
“An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee.”
The court rejected this argument on the basis that section 206.5 must be read with Labor Code section 206(a). Section 206(a) provides “In case of a dispute over wages, the employer shall pay, without condition . . . all wages, or parts thereof, conceded by him to be due, leaving to the employee all remedies he might otherwise be entitled to as to any balance claimed.”
The court noted that this exact argument proffered by Brown was rejected recently in another case, Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796. The court explained:
[The Pick Up Stix court] concluded that Labor Code section 206.5 simply prohibits employers from coercing settlements by withholding wages concededly due. In other words, wages are not considered “due” and unreleasable under Labor Code section 206.5, unless they required to be paid under Labor Code section 206. When a bona fide dispute exists, the disputed amounts are not “due,” and the bona fide dispute can be voluntarily settled with a release and a payment – even if the payment is for an amount less than the total wages claimed by the employee.
The issue then is whether there was a dispute of wages due when Brown signed her release. If there was a dispute about the amount of wages owed, then the release bars Brown from ever suing Wachovia. If there was no dispute at the time Brown signed the release with Wachovia, then she could sue for unpaid wages – even though she signed the release.
The court ruled in Wachovia’s favor in holding that there was a dispute over unpaid wages at the time Brown signed the release. The court said this was evidenced by the fact that she complained to management earlier that she was not being paid overtime. The court also noted the fact that Brown was maintaining two time sheets while she was working for Wachovia – one time sheet she submitted to Wachovia and was paid for all time on, and another time sheet that included all of her overtime that was not paid.
The court concluded:
In other words, when Brown’s employment was terminated, she: (1) received all wages Wachovia conceded were due to her (based on the time sheets she had submitted); (2) believed she possessed a claim for further overtime pay; and (3) voluntarily elected to receive enhanced severance benefits in exchange for releasing her claims against Wachovia. Under these circumstances, the release is enforceable. Summary judgment was therefore appropriately granted.
Watkins’s Individual Settlement Precludes Her From Proceeding With The Class Action
Watkins filed a motion for class certification, which was denied by the lower court. The parties entered into settlement discussions, and she agreed to settle her individual claims, but purported to retain her rights to continue her appeal of the class action claims. Wachovia argued that Watkins’s appeal must be dismissed as moot because of the settlement she no longer has standing to pursue the class action.
The court explained:
Watkins assumes, however, that her “class claim” for unpaid overtime wages has independent vitality and can continue after she has settled her “individual claim” for the same wages. The argument reflects a misunderstanding of the nature of a class action. A class action is a procedural device used “when the parties are numerous, and it is impracticable to bring them all before the court.” (Code Civ. Proc., § 382.) In such a situation, “one or more may sue or defend for the benefit of all.” (Ibid.) When a plaintiff brings a class action, the plaintiff undertakes a fiduciary duty to the other members of the class, under which the plaintiff agrees not to settle the other class members’ claims for the plaintiff’s individual gain. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871.) But this duty should not be confused with an additional claim for relief. A representative plaintiff still possesses only a single claim for relief – the plaintiff’s own. That the plaintiff has undertaken to also sue “for the benefit of all” does not mean that the plaintiff has somehow obtained a “class claim” for relief that can be asserted independent of the plaintiff’s own claim. “[T]he right of a litigant to employ [class action procedure] is a procedural right only, ancillary to the litigation of substantive claims. Should these substantive claims become moot . . . , by settlement of all personal claims for example, the court retains no jurisdiction over the controversy of the individual plaintiffs.” (Deposit Guaranty National Bank v. Roper (1980) 445 U.S. 326, 332. (“Roper”)).
The court concluded that Watkins’s appeal must be dismissed. She voluntarily released her wage claim against Wachovia for $51,000. As the court explained, her “class claim’ is simply a procedural device by which she pursued her substantive claim for overtime wages. Having settled her substantive claim, the class claim disappears, and her appeal of the denial of class certification must be dismissed.”
The opinion, Watkins v. Wachovia Corporation, is a must read for wage and hour litigators [especially the analysis regarding “pick off” cases – when defendants try to stop class actions from going forward by picking off the named plaintiff by entering into an individual settlement with them].
[In the interest of full disclosure – my firm represents Western Pizza in this case. Because of this, we are expressing none of our own analyses about the Court’s opinion, but are simply reporting the court’s findings.]
Octavio Sanchez works as a delivery driver for defendant. He filed a class action lawsuit alleging that the drivers not only are not adequately reimbursed for their expenses incurred in the performance of their job duties, but also as a result are paid less than the legal minimum wage. Sanchez signed an arbitration agreement that contained a provision that he would not participate in any class action litigation. Western Pizza filed a motion to enforce the arbitration agreement, which the trial court denied. Western Pizza appealed the lower court’s decision.
Western Pizza argued on appeal that:
The enforceability of the arbitration agreement is a question for the arbitrator to decide;
The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempts California law to the extent that California law would prevent the enforcement of the agreement;
The class arbitration waiver does not impermissibly interfere with the employees’ ability to vindicate their statutory rights, and therefore is enforceable;
The terms of the arbitration agreement are neither procedurally nor substantively unconscionable.
The court, not the arbitrator decides the enforceability of the arbitration agreement
The court explained:
Accordingly, we conclude, consistent with the rule stated in Discover Bank, supra, 36 Cal.4th at page 171, that the question whether the arbitration agreement is enforceable based on general contract law principles, including the question whether it is unconscionable or contrary to public policy, is a question for the court to decide rather than an arbitrator, regardless of whether the FAA applies.
Federal Arbitration Act (FAA) does not preempt California law
The court held that under the FAA, the validity and enforceability of an arbitration agreement is governed by state contract law:
Under California law, the question whether an arbitration agreement is unenforceable, in whole or in part, based on general contract law principles is a question for the court to decide, rather than an arbitrator. (Discover Bank, supra, 36 Cal.4th at p. 171; Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1530; see Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1365.) This includes the determination whether an arbitration agreement is unconscionable or contrary to public policy. (Discover Bank, supra, at p. 171.) Discover Bank concluded that the FAA, and particularly the opinion by the United States Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [123 S.Ct. 2402], did not conflict with California law on this point and that the California rule therefore governs.
The Enforceability of the Class Arbitration Waiver
The court set out the factors established in Gentry v. Superior Court to determine whether the class action waiver is unenforceable:
Gentry stated that a trial court determining whether a class arbitration waiver impermissibly interferes with unwaivable statutory rights must consider: “[(1)] the modest size of the potential individual recovery, [(2)] the potential for retaliation against members of the class, [(3)] the fact that absent members of the class may be ill informed about their rights, and [(4]) other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.” Gentry continued: “If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘ vindicate [their] unwaivable rights in an arbitration forum.’
(citations omitted). The court found that these factors supports the lower court’s holding that the agreement was unenforceable: the amounts at issue for reimbursement are modest, retaliation against low wage earners is “significant,” and most of the drivers here are immigrants with limited English skills “who are likely to be unaware of their legal rights.”
Unconscionability Of The Agreement\
The court held that the arbitration agreement was distinguishable from the agreement used in Gentry:
The record here does not indicate a distorted presentation of the benefits of arbitration to the degree that was present in Gentry, supra, 42 Cal.4th 443. The arbitration agreement states that the purpose of the agreement is “to resolve any disputes that may arise between the Parties in a timely, fair and individualized manner,” but otherwise does not extol the benefits of arbitration. The arbitration agreement does not limit the limitations periods, the remedies available, or the amount of punitive damages. It states, “Except as otherwise required by law, each party shall bear its own attorney fees and costs,” and therefore incorporates any statutory right to recover fees rather than creating a presumption against a fee recovery. Thus, the arbitration agreement neither contains the same types of disadvantages for employees as were present in Gentry nor fails to mention such disadvantageous terms. Moreover, the arbitration agreement expressly states that that the agreement “is not a mandatory condition of employment.”
The court still found, however, that there were elements of unconscionability in the agreement:
We conclude, however, that the record indicates a degree of procedural unconscionability in two respects. First, as in Gentry, the inequality in bargaining power between the low-wage employees and their employer makes it likely that the employees felt at least some pressure to sign the arbitration agreement. Second, the arbitration agreement suggests that there are multiple arbitrators to chose from (“the then-current Employment Arbitration panel of the Dispute Eradication Services”) and fails to mention that the designated arbitration provider includes only one arbitrator. This renders the arbitrator selection process illusory and creates a significant risk that Western Pizza as a “repeat player” before the same arbitrator will reap a significant advantage. These circumstances indicate that the employees’ decision to enter into the arbitration agreement likely was not a free and informed decision but was marked by some degree of oppression and unfair surprise, i.e., procedural unconscionability. We therefore must scrutinize the terms of the arbitration agreement to determine whether it is so unfairly one-sided as to be substantively unconscionable.
(citations and footnote omitted).
The court also held that the agreement did not provide for a neutral arbitrator. This is despite the fact that the arbitration agreement contained a clause that both parties had to agree to the arbitrator before the arbitrator could bind the parties. The court explained that “it seems likely that an employee in Sanchez’s position would not feel free to reject the arbitration provider designated by his employer under the terms of the agreement even after a dispute had arisen.”
In conclusion, the Court stated:
The arbitration agreement here includes a class arbitration waiver that is contrary to public policy and an unconscionable arbitrator selection clause, as we have stated. These are important provisions that, if they were not challenged in litigation, could create substantial disadvantages for an employee seeking to arbitrate a modest claim. Although it may be true that neither of these provisions alone would justify the refusal to enforce the entire arbitration agreement (see Gentry, supra, 42 Cal.4th at p. 466; Scissor Tail, supra, 28 Cal.3d at p. 828), we believe that these provisions considered together indicate an effort to impose on an employee a forum with distinct advantages for the employer. As in Armendariz, supra, 24 Cal.4th at page 124, we conclude that the arbitration agreement is permeated by an unlawful purpose. Accordingly, the denial of the motion to compel arbitration was proper.
The opinion, Sanchez v. Western Pizza, can be viewed at the Court’s website for a short period of time in Word and PDF.
This opinion comes on the heels of others that have also rejected arbitration agreements with class action waivers. And while the California Supreme Court left open the possibility that waivers may be enforceable in Gentry v. Superior Court, the recent line of lower appellate decisions (see Franco v. Athens Disposal Co.), including the decision in Sanchez v. Western Pizza, seems to have all but closed the door on any such possibility.
In Franco v. Athens Disposal Company, Inc. the Court refused to enforce a class action waiver in an arbitration agreement which the employer was attempting to use to thwart class claims for missed meal periods. The case vividly illustrates how attempting to enforce such an agreement will likely result in an early ruling on the desirability of class certification.
This is because the California Supreme Court's 2007 decision in Gentry v. Superior Court generally disapproved of arbitration agreements that purport to prohibit class-wide arbitration. The Court's rationale was that the procedural obstacles to enforcing small claims individually would typically be prohibitive -- so that waiving the class remedy would have the same effect as an "exculpatory" waiver of substantive rights. It thus left the door open just a sliver by allowing employers to try to prove a class-wide remedy is not necessary to ensure effective enforcement of the statutory rights of employees.
At such an early stage, however, the deck is stacked against the employer. And trying to meet the standard set by Gentry may amount to a trap that can prejudice any later attempt to avoid class certification. For example, just in the context of denying the motion to compel arbitration the Franco court concluded that: "Here, class treatment would be more practical than individual actions, regardless of whether the claims are adjudicated through arbitration or in the trial court."
When deciding to enforce an arbitration agreement employers will have to think carefully if precipitating such a ruling at the outset of the case is ultimately in their best interests.
President Obama signed the Ledbetter bill into law today. The bill overturned the Supreme Court’s ruling in Ledbetter v. Goodyear Tire & Rubber, which held that employees must file a discrimination claim within six months after being discriminated against. Ledbetter argued that the Supreme Court should apply a type of continuing violations doctrine to her situation. Under such a theory, Ledbetter argued that the first discriminatory act (receiving a lower than deserved raise because of her gender) continued with each additional pay raise because pay raises are cumulative over time. Therefore, she alleged that even though she had no evidence that her pay raises during the applicable 180 day time period to file a suit were discriminatory, the original discrimination continued into this time period. The Supreme Court rejected this argument, but now the new law allows employees to file a lawsuit 180 days after receiving their final paycheck, even if the discrimination took place decades earlier.
The new law removes any time limits on pay discrimination claims. A discrimination case can now be brought long after evidence has gone stale or witnesses have died, which was the case with Ms. Ledbetter's former boss. There is no doubt that this will result in more litigation against employers.
What is the effective date that this law applies? May 28, 2007. And yes, that is not a typo - the law is retroactive. This is the date of the Supreme Court's decision in the case.
What Does Obama Have Next For Employers?
The Paycheck Fairness Act. This bill, which Obama co-sponsored while in the Senate, provides for stronger remedies under the already existing Equal Pay Act. This Act was coupled with the Ledbetter bill, but Democrats were worried that the two bills together would raise too much of an opposition to their passage. Therefore, the PFA was severed from the Ledbetter bill, and will definitely be placed on the President’s desk in the next couple of months, if not sooner.
The PFA would create a new, more difficult legal standard for employers to meet in showing that their pay structures were not discriminatory. Under the new standard, employers would have to show that wage disparities are job-related, not sex-based, and could only use a defense if they prove that business necessity demands the unequal pay. Under the current Equal Pay Act, employers need only show that the difference in wages results from “any factor other than sex” and the employer does not have to show a business necessity for the difference in pay.
Under the PSA, the government will inject itself into areas of business over which it has no experience. For instance: Does experience constitute a "bona fide factor other than sex"? A woman earning less than a man with more experience could argue that her employer should be required to send her to training and then pay them identical wages. She would have a strong case to argue that experience was not a "bona fide" factor because an alternative employment practice would eliminate the disparity.
The paycheck fairness legislation would also require the use comparable worth in creating "voluntary" wage guidelines for industries, and makes class action lawsuits on these grounds easier to bring. The Wall Street Journal notes:
Voluntary or not, these guidelines would become the basis for more litigation against companies that didn't follow them. Meanwhile, the bill strips companies of certain defenses against claims of sex-based pay discrimination. It also makes it easier to bring class actions, and it allows plaintiffs to claim unlimited punitive damages even in cases of unintentional discrimination.
To close out 2008 wage and hour law, an appellate court issued a ruling in Crab Addison, Inc. v. Superior Court. The case is a very significant holding on employees' privacy rights in the context of wage and hour class actions.
Crab Addison, Inc. (CAI), which operates Joe’s Crab Shack, refused to disclose employee names and contact information when asked to do so by plaintiff’s counsel in a wage and hour class action. Plaintiff, Martinez, argued that this information was necessary to meeting his burden of proving class certification was appropriate, he was entitled to the information, and production of the information would not violate the witnesses’ right to privacy.
CAI argued that its employees had a heightened expectation of privacy as to their contact information based on forms they signed regarding release of their contact information. After the lawsuit was filed by plaintiff, CAI had its employees sign a form stating the following:
RELEASE OF CONTACT INFORMATION
From time to time, Joe’s Crab Shack (the “Company”) may be asked to provide your contact information, including your home address and telephone number, to third parties. The Company may be asked to provide such information in the context of legal proceedings, including class action lawsuits.
We understand that many employees may consider this information to be private and may not want it released. Accordingly, please indicate whether you consent to the disclosure of your contact information by marking the appropriate box.
No, I do not consent to the Company’s disclosure of my contact information to third parties.
Yes, I consent to the Company’s disclosure of my contact information to third parties.
I would like to be asked on a case-by-case basis whether I consent to the disclosure of my contact information to a particular third party, and my contact information should only be provided if I affirmatively consent in writing.
The bottom of the release forms contained the following:
NOTE: Your response does not create a guarantee that the Company will not release your contact information as circumstances may require or warrant it. For instance, the Company may be required or compelled by law to disclose your contact information, regardless of whether you consent to such disclosure, or it may determine that it must do so should it determine that you are a witness in a lawsuit or should it be requested by law enforcement officers. In such an event, the Company cannot be held responsible for disclosing this information even if you have not consented to disclosure or asked for a case-by-case determination of disclosure.
Arguing that this release form created a heightened expectation of privacy, CAI said that if the employees’ contact information is disclosed, only contact information for employees who affirmatively “opt in” to have their information disclosed should be given to plaintiff's counsel. Defendant argued for an “opt in” process because it would result in a smaller number of employees’ contact information being disclosed. This is opposed to an “opt out” process by which the employees’ contact information is automatically disclosed to plaintiff’s counsel unless they object to the disclosure.
The appellate court heavily relied on the recent case, Puerto v. Superior Court (2008) 158 Cal.App.4th 1242. In that case the court explained that “[t]he ‘expansive scope of discovery’ is a deliberate attempt to ‘take the “game” element out of trial preparation’ and to ‘do away “with the sporting theory of litigation—namely, surprise at the trial.”” [citations omitted] Therefore, discovery statutes are broadly construed in favor of discovery whenever possible in order to aid the parties in preparation for trial. The court also noted, however, that there needs to be a balancing of interests. In summarizing the Puerto case, the court stated:
The right of privacy in the California Constitution (art. I, § 1), ‘protects the individual’s reasonable expectation of privacy against a serious invasion.’” (Puerto v. Superior Court, supra, 158 Cal.App.4th at p. 1250, quoting Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, 370.)
While contact information generally is considered private, this “does not mean that the individuals would not want it disclosed under these circumstances.” (Puerto v. Superior Court, supra, 158 Cal.App.4th at pp. 1252-1253.) While employees would not likely want their contact information broadly disseminated, this does not mean they would want it withheld “from plaintiffs seeking relief for violations of employment laws in the workplace that they shared.” (Id. at p. 1253.) Rather, employees similarly situated to petitioners “may reasonably be supposed to want their information disclosed to counsel whose communications in the course of investigating the claims asserted in [petitioners’] lawsuit may alert them to similar claims they may be able to assert.” (Ibid.)
The court said there were two major differences between this case and the Puerto case. First, in Puerto, the employer voluntarily disclosed the identities of the witnesses but sought to protect addresses and telephone numbers. Here, CAI sought to protect the names of employees as well as addresses and telephone numbers. Second, in Puerto there was no release form like the one used here.
In quickly rejecting defendant’s argument on the first issue, the court found that employees’/witnesses’ names do not have any more heightened protection than their addresses and telephone numbers, and therefore should be disclosed.
The court then turned its analysis to the effect that the release forms had in this case:
CAI argues that these forms gave their employees a heightened expectation of privacy in their contact information, requiring that the contact information be given greater protection and making an “opt in” notice procedure proper. We are unconvinced by this argument.
We first address the question whether, as a matter of public policy, we should enforce a release form that may have the effect of waiving an employee’s right to notice of a pending class action lawsuit concerning the employer’s alleged violations of overtime and wage statutes. While not determinative, the Supreme Court’s recent opinion in Gentry v. Superior Court (2007) 42 Cal.4th 443 is instructive. In Gentry the court addressed the question “whether class arbitration waivers in employment arbitration agreements may be enforced to preclude class arbitrations by employees whose statutory rights to overtime pay [under the Labor Code] allegedly have been violated.” (Id. at p. 450.) The court noted the Legislature through its enactment in the Labor Code established “‘“a clear public policy”’” that “minimum wage and overtime laws should be enforced in part by private action brought by aggrieved employees.” (Id. at p. 455.) So great is the public policy protecting employees’ right to overtime compensation that the right is “unwaivable.” (Ibid.)
The court looked to a recent case, Gentry v. Superior Court, for guidance on this issue. Gentry did not deal with disclosure of putative class members’ contact information, but with arbitration agreements in which the employee agreed not to participate in class actions for wage and hour violations. The Gentry court observed that class arbitration waivers in wage and overtime cases would frequently exculpate employers for violations and undermine the enforcement of wage and overtime laws; second, current employees suing their employers run a greater risk of retaliation; and, third, that employees may be unaware of the violation of their rights and their right to sue.
Based on this analysis, the court in this case concluded that the release form used by CAI did not create a higher expectation of privacy in the employees’ contact information. The court found that “public policy concerns weigh in favor of enforcing unwaivable statutory wage and overtime rights through class action litigation over a right to privacy in “relatively nonsensitive [contact] information.” (citing Puerto v. Superior Court, supra, 158 Cal.App.4th at p. 1259.) The court held:
[T]o the extent the right to privacy is based on the release forms, there are strong reasons for not giving effect to those forms. Employees indicating that they did not want their contact information disclosed, or wanted disclosure on a case-by-case basis, were unaware at the time they signed the forms of the pending litigation to enforce their statutory wage and overtime rights through a class action lawsuit. We may presume that, had they known about the litigation, their response on the form would have been different. Additionally, the forms apprised them that their contact information could be disclosed if required by law, so they were aware of the limitation on privacy offered by the forms.
Therefore, Defendant was required to provide the employees’ names, addresses, and telephone numbers even though the release form had been utilized by Defendant in this case. The case is a must read for every wage and hour class action litigator in California.
As many readers have no doubt heard the venerable law firm of Heller Ehrman recently dissolved after nearly one hundred years in business. During this time it was intermittently the biggest firm in the Bay Area and close to the top in the state.
One unfortunate aspect of the dissolution is that the Firm apparently made a strategic decision not to pay accrued vacation to its terminated California employees. Under California law (Labor Code section 227.3) such accrued payments are deemed to be earned wages which are property of the employee every bit as much as regular salary. As a result, a class action lawsuit has been filed by former Heller Ehrman employees to recover these and other amounts allegedly due at termination.
The lawsuit is interesting on a number of levels. It is a reminder to employers that California vacation wages are an accrued liability that must be taken into account.
It is also a sad commentary on modern Big Firm economics. A law firm, no matter how large, is essentially a collection of individuals working together. The assets of the firm "leave the building every night" as the saying goes. And if they don't return the next morning, there is really nothing left for creditors, including employees. Clearly the plaintiffs challenge will not be establishing liability but satisfying any judgment from a defunct partnership.
In opposing class certification employers frequently argue that identifying the class members will be prohibitively expensive or time consuming due to lack of records. For example, it may be difficult to determine who was affected by certain commission terms, who worked overtime, or who did or did not take a full 30 minute meal break on particular days.
In the recent case of Harper v. 24 Hour Fitness, the Second District Court of Appeal emphasized that difficulty in ascertaining class members is no defense where the problems stem from deficiencies in the employer's own recordkeeping.
Harper involved a claim that 24 Hour's standard membership agrement violated certain consumer laws and was unconscionable. The Defendant argued that many members had handwritten modifications to their form contracts and that it would be extremely difficult to determine who had such modifications and whther the changes should exclude them from the class. The trial court found this persuasive and relied on this argument, in part, in deciding to decertify the class. The Appellate Court reversed, however, found that this analysis was error. The reviewing court noted in the process that a defendant "may not avoid class certification by comingl[ing] or fail[ing] to document" particular transactions.
Few businesses deliberately keep bad records to avoid a "paper trail" of potential misconduct. But for those who might consider this a valid strategy, Harper v. 24 Hour Fitness serves as caveat that this may not be an effective strategy, at least not in the class action arena.
The California Supreme Court announced today that it will be reviewing the much analyzed case Brinker v. Superior Court (Hohnbaum). The lower court ruling in the case was favorable to California employers, in holding that employers did not have to "ensure" that meal breaks were taken, but only that employers had to provide meals breaks. Click here for further analysis on the lower court's ruling.
This much awaited decision by the Supreme Court makes the lower court's ruling in the case non-citable, which means that it is not binding on courts in California. Therefore, California employers will have to wait for the Supreme Court decision to have some finality on this issue.
The group is devoted to discussing questions about human resource and other employment law issues that arise in California.
If you know of anyone else that would find the group beneficial, please send them to the group.
To get things started, I will be conducting a free webinar for the group in early October on how to use the Internet to conduct background checks on applicants and/or employees without creating liability for your company. More information to come.
Previously, it had been well established that an arbitrator's decision was final and binding and could be vacated only for the most limited of reasons, such as outright corruption, refusing to hold a hearing, or exceeding his jurisdiction. By agreeing to arbitrate, parties were deemed to have accepted the risk that an arbitrator might commit errors of fact or law -- and to have thereby waived any right to second-guess the ruling in the event that they lost. Under this scheme, the whole point of arbitration was to allow disputes to be resolved quickly and economically with little or no involvement by the judicial system.
Under Cable Connections, however, the arbitrator's ruling is no longer necessarily final. Instead, if the parties' contract is interpreted to allow appellate review, the arbitrator's ruling may now be reviewed by an Appellate Court to the same extent as any findings of fact or law made by a Superior Court Judge or jury.
Significantly, the Court was coy about what contract language may trigger this new level of appellate review.
[T]o take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts. Here, the parties expressly so agreed, depriving the arbitrators of the power to commit legal error. They also specifically provided for judicial review of such error. We do not decide here whether one or the other of these clauses alone, or some different formulation, would be sufficient to confer an expanded scope of review. However, we emphasize that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously.
Very few arbitration agreements currently contain an express provision allowing for appellate review. On the other hand, many, if not most, arbitration agreements contain some formulation to the effect that the arbitrator is required to "apply the substantive law" of California. If this latter type of clause is deemed sufficient to subject the parties to appellate proceedings, then arbitration in California may have just become significantly more costly and time-consuming.
Conventional wisdom among defense counsel has long been that arbitration is the preferable forum for resolving individual employment disputes such as wrongful termination, discrimination and sexual harassment. As a result, the number of employers with mandatory ADR programs skyrocketed in the 1990's and early 2000's.
By contrast, many defense counsel have come to believe that arbitration is a decidedly less favorable forum for employers when it comes to class-wide claims. The main reason is that the lack of a jury or meaningful appellate review, combined with the more flexible procedural rules of arbitration are likely to result in class certification.
The majority of arbitration agreements are simply silent on the whole question of class arbitration. As to these agreements, arbitrators consistently determine that they should be interpreted as allowing a class wide arbitration to take place (assuming, of course, that the arbitrator also finds that the case to be appropriate for class certification). For example, in a very informative post from The Metropolitan Corporate Counsel, authors P. Christine Deruelle and Robert Clayton Roesch surveyed the actual decisions on this issue by neutrals with the American Arbitration Association ("AAA"). They concluded that "At bottom, AAA arbitrators have - almost without exception - construed otherwise silent arbitration agreements to permit class proceedings." As the basis for their conclusion, the authors explained:
As of June 15, 2007, AAA arbitrators have rendered 51 Clause Construction Awards concerning otherwise silent arbitration agreements, and in all but two of those decisions, the arbitrators have allowed classwide proceedings. Three recurring rationales for interpreting an otherwise silent agreement to permit class arbitration appear in these AAA Clause Construction Awards: (i) if the parties intended to prohibit class arbitration, they could have included an express prohibition in their arbitration agreement to this effect; (ii) a misapprehension of Bazzle as specifically authorizing class arbitration where the applicable agreement is silent; and (iii) that silence regarding the propriety of class proceedings renders the agreement ambiguous, which requires that it be construed against the drafter, consistently resulting in a construction favoring class arbitration. In contrast to the 49 AAA Clause Construction Awards construing silence to permit class arbitration, only two such awards have reached the opposite conclusion.
Thus, the proliferation of employment class actions in recent years presents employers with a bit of a conundrum -- do the perceived benefits of arbitrating single plaintiff claims outweigh the perceived detriments of arbitrating employee class actions?
The Class Action Defense Blog published by Michael J. Hassen has made a regular weekly feature of tracking the new filings of class actions in state and federal courts in California. The weekly results confirm what most class action practioners have long-recognized -- the deluge of labor law class actions far outnumbers any other category. In fact, employment law class actions (the vast majority of which are based on wage and hour violations), consistently outnumber all other categories of class action lawsuits combined.
For example, over the past week labor law class actions represented nearly two thirds of the total class actions filed. As Mr. Hassen summarizes:
This report covers August 8 - 14, 2008, during which time 37 new class action lawsuits were filed. Labor law class action lawsuits generally top the list of new class action filings in California state and federal courts, often by a wide margin, and this again proved to be the case. Twenty-four (24) new labor law class action lawsuits were filed during the past week, representing 65% of the total number of new class action lawsuits filed during the time period. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 5 new filings (14%).
The California Supreme Court's decision last year in Pioneer Electronics v. Superior Court, 40 Cal.4th 360 (2007), held that the privacy rights of current and former employees will not normally prevent a class action plaintiff from discovering their names, addresses, phone numbers and other data in litigation. Pioneer explained that any privacy concerns could be dispelled by providing the targets of the discovery with a written notice and an opportunity to object.
The Facts of Alch: 47,000 Privacy Notices and 7,700 Objections.
In the aftermath of Pioneer, a steady stream of appellate decisions have reinforced and expanded plaintiffs' rights to pre-certification discovery regarding potential class members. Alch v. Superior Court, 2008 WL 3522099 (2008), is the latest and most expansive of these decisions.
Alch involved a discovery dispute arising as part of a complex litigation alleging that studios and talent agencies have systematically discriminated against older television writers. The plaintiffs subpoenaed documents showing the ages and work histories of thousands of Writers Guild members in the hope that the data would demonstrate a statistically significant pattern of discrimination.
Following the procedure approved in Pioneer, 47,000 members of the Writers Guild received privacy notices. Of these, 4,700 filed objections to the disclosure of their information. The plaintiffs then asked the court to overrule these privacy objections and allow the discovery anyway. The trial court barred further discovery as to the 7,700 objectors. The appellate court granted writ review and reversed the trial court's decision.
The Holding: Privacy Interests Insufficient to Avoid Discovery.
In reaching this result, Alch is interesting for two main reasons.
First, it makes clear that a third party's objection in response to a privacy notice is not at all dispositve. Rather, notwithstanding an individual's objection, the public interest in “facilitat[ing] the ascertainment of truth and the just resolution of legal claims," may still override his or her privacy interest.
In fact, this aspect of Alch tends to beg the question of why the parties should have been required to send 47,000 privacy notices in the first place if the requested information was to be produced regardless of whether anyone objected. (In fairness to the trial court, however, the plaintiffs had trimmed the scope of their discovery requests somewhat by the time the case reached the appellate court). In the future, Courts will inevitably cite the reasoning of Alch as a rationale for dispensing with the cumbersome and expensive privacy notification altogther and merely ordering disclosure in the first instance.
Secondly, Alch is significant for its categorical rejection of what might be termed the "cart-before-the-horse" defense argument to discovery -- i.e., that class-wide discovery should not be allowed until the plaintiffs have first demonstrated that the requested information will prove their claims. As the Court explained:
Real parties' argument is, in effect, a claim that, because privacy interests are involved, the writers must prove that the data they seek will prove their case before they may have access to the data. But there is no support in law, or in logic, for this claim. . . . [s]uch a rule would be wholly impractical and unreasonable in the context of class action litigation requiring complex statistical analysis. . . Some information in the databases doubtless will be, in the end, irrelevant or unusable for any number of reasons, including the subject's lack of interest or availability for television writing. But that does not mean that the overall body of information subpoenaed-demographic and work history information of Writers Guild members-is not directly relevant and essential to the writers' case.
In short, there is now a fairly unassailable wall of authority in place allowing plaintiffs to discover the contact information and vital statistics of potential class members. Many employers may be better served if their defense counsel were to simply acknowledge this new reality rather than engaging in expensive, but ultimately futile attempts to block the discovery.
One of the main findings of the study is that plaintiffs, statistically speaking, stand to gain more in taking a settlement offer than litigating the case.
“The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.
The article also found that defendants made the wrong decision of going to trial (i.e., they plaintiff was willing to take less in a settlement than what the jury eventually found for the plaintiff) less often than plaintiffs. Defendants made the incorrect decision only in 24 percent of cases, according to the study, where plaintiffs were wrong 61 percent of the time. The article states that “[i]n just 15 percent of cases, both sides were right to go to trial — meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.”
However, the study also concluded that a wrong decision by defendants cost them much more (costing $1.1 million), as opposed to if plaintiffs got it wrong (costing $43,000).
The findings are consistent with research on human behavior and responses to risk, said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.
“If you approach a class of students and say, I’ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500,” most students will take the $200 rather than risk getting nothing, Mr. Asher said.
But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. “They’ll take the gamble.”
Definitely some food for thought for litigators that have to assit clients in the difficult decision about whether to settle or try a case.
Brinker analyzes this question based on the language of California Labor Code section 512(a), which provides that “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes.”
The Meal Period Timing Issue
At first glance, the phrase “work period” in the above-quoted provision might seem self-explanatory. In fact, hundreds of millions of dollars and the daily activities of millions of people hinge on the semantic ambiguity arising from these two words. The two competing interpretations are as follows:
Interpretation # 1: The Continuous “Work Period.” The five-hour “work period” must refer to any five-hour period of continuous work. Thus, employers must provide at least one meal period for each continuous five-hour period of work.
Interpretation #2: The Cumulative “Work Period.” The five-hour “work period” must refer to the total number of hours worked by the employee during any day. In other words, the statute is merely saying that whenever an employee is required to work more than a total of five hours in a day he must receive a 30 minute meal break at some point in the day – but the statute is not intended to dictate when during the day that break must be taken.
In Brinker v. Superior Court-- the first published opinion to address the issue – the lower court agreed with interpretation # 1. The Appellate Court, however, reversed in favor of interpretation #2. So does this mean that employers now have carte blanche to schedule meal breaks at whatever time of day they wish so long as they give the correct number of meal breaks per day?
We wouldn’t recommend it.
To begin with, there is a good chance that the California Supreme Court will grant review of Brinker– thereby rendering it non-citable. Moreover, the Brinker opinion has some pretty sizable holes in its reasoning. Thus, we would not bet the farm on Brinker’s interpretation holding up in the long run. Any employer who relies on Brinker to aggressively schedule meal breaks very close to the start or end of the workday could therefore find itself exposed to massive penalties if, and when, Brinker is eventually overturned by the Supreme Court.
The Vulnerabilities of Brinker Brinker is vulnerable to be being overruled on several grounds. For example, Brinker rejects Interpretation #1, above, on the ground that if the Legislature meant to trigger a meal period for each consecutive five hour work period it could have done so without using the words “per day” in the phrase “a work period of more than five hours per day.” Adopting an interpretation that gives significance to every word is one goal of statutory interpretation. But this “per day” reference is a fairly thin reed to grasp for purposes of making this argument.
For one thing, the monetary penalties imposed by the Labor Code do not even arise from Section 512. Rather, it is Labor Code Section 226.7 which imposes a penalty of “one additional hour of pay at the employee's regular rate” for any failure “to provide an employee a meal period . . . in accordance with an applicable order of the Industrial Welfare Commission.” Each of the IWC’s Wage Orders, however, conspicuously omits the very “per day” language that Brinker used as the basis for its ruling.
Brinker dismisses the significance of the Wage Orders themselves by holding that they must be interpreted as if they merely track the text of Section 512(a) verbatim. But why would the Legislature have used a violation of the IWC Wage Orders as the triggering event for imposing a penalty if it believed that the Wage Orders could only duplicate the text of Section 512? Brinker’s dismissive treatment of the actual text of the Wage Orders thus arguably repeals the portion of Section 226.7 that incorporates the Wage Orders by reference. In doing so, Brinker potentially violates its own standard that the words of a statute cannot be rendered meaningless.
Brinker also fails to address the significance of Labor Code Section 512(b), which authorizes the IWC to adopt Wage Orders allowing meal periods to begin "after six hours of work" if it determines that this is "consistent with the health and welfare of the affected employees." This provision presupposes that, in the absence of any new Wage Order provision, an employee cannot agree to wait more than six hours for a meal break.
Brinker also leads to some problematic practical results. For example, the over-arching Legislative purpose was to afford relief from fatigue and hunger that could result from long stretches of constant work. But under Brinker, an employer could schedule an employee to begin work at 9:00 a.m., take a meal break from 9:05 to 9:35 a.m., and then work thirteen hours straight before taking another 30-minute meal break immediately before leaving at around 11:05 p.m. It is hard to envision the Supreme Court endorsing this result as the true intent of the Legislature.
Notwithstanding the undeniably pro-employer Brinker decision, prudent employers should still strive to establish a record of good faith, affirmative efforts to enforce internal meal and rest break policies. Part of this record includes scheduling employee meal periods to begin before the start of any sixth consecutive hour of work. These steps may not be easy at an operational level, but they are necessary to avoid exposure to large-scale class action liability in the long run.
I was co-counsel for the employees in the appellate-level proceedings, and my normal policy is not to blog about my own cases (with an occasional exception if they are already getting outside press or blogosphere coverage). I am putting up this post only because I must clarify a comment that was attributed to me in the Recorder article:
[Kralowec] also said the 4th District's decision creates an appellate split that likely will ensure Supreme Court review. In Cicairos v. Summit Logistics Inc., 133 Cal.App.4th 949, Sacramento's 3rd District ruled in 2005 that employers have an affirmative duty to ensure that employees receive meal periods.
I do believe that the new Brinker decision creates a split in authority with Cicairos, and I also believe that the Supreme Court often grants review to resolve issues that are the subject of a split among the lower courts, particularly when two Court of Appeal panels have handed down conflicting published opinions. However, I did not say that I thought that in this specific case, the split between Brinker and Cicairos "likely will ensure Supreme Court review." I would never say something so presumptuous. It would have been more accurate to say that Brinker creates an appellate split, that such splits often lead to Supreme Court review, that Brinker is a particularly appropriate case for review, and that I certainly hope that the Supreme Court decides to grant review.
Wow. So, this is a major decision that could bring meal and break period class actions to a screeching halt, even though the Legislature does not seem inclined to do so. The only thing is, if the Supreme Court grants review, the decision could disappear for as much as a couple of years and could get reversed by the High Court.
I will post more later on this opinion, after I have chance to evaluate it further. For now, courts with pending meal break, rest break and off-the-clock claims should expect for the inevitable onslaught of paper that this will generate.
However, it was not the first, and Brinker disagrees with many prior opinions, most specifically, Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 962-963, which it discussed at length, and Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, which it did not even mention, and more generally, a string of cases which promote class actions as an efficient way to resolve wage and hour disputes and a string of cases which discuss the remedial nature of wage and hour laws in California. With Brinker and Cicairos presenting such starkly contrasting views on California law, with Brinker presenting so many novel ideas regarding wage and hour claims and class actions, and with so many U.S. District Court cases disagreeing with Cicairos and each other, this case looks like an outstanding candidate for Supreme Court review.
Why do I bring this up in a Connecticut blog? For a few reasons. First, there are several Connecticut employers that have California employees, whether through sales or otherwise. Second, California tends to be on the cutting edge of some legal issues. With nearly 36 million people (or roughly 10 times the population of Connecticut), those issues just tend to pop up more than in a small state like Connecticut. Third, the case provides a good opportunity to highlight the Connecticut meal period law -- an underappreciated law that lays out what is necessary and is much different than California.
The consensus across the commentators (including our take on the issue) is that the California Supreme Court will likely grant review of this monumental ruling.
The Appellate Court, Fourth Appellate District, Division One, issued a much awaited opinion today in Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. (July 22, 2008). The case is one of the first California state appellate court to rule on the parameters of employers’ duties under the California Labor Code requiring rest and meal breaks for hourly employees. As discussed below, the court’s opinion was across the board in favor for California employers. The primarily holding by the appellate court was that an employer does not have to “ensure” that meal and rest breaks are taken, therefore making these types of cases very difficult to certify as a class action.
Due to the monumental impact this case will have on the vast wage and hour litigation in California, this post is longer than we typically like to write. And this post will definitely not be the last time we discuss the case.
In November 2005 Brinker filed its first petition for writ of mandate (D047509) in this matter. In the petition, Brinker challenged the court's July 2005 meal period order. Specifically, Brinker requested a writ directing the trial court to "vacate its earlier order holding that: (1) a non-exempt employee is entitled to a meal period for each five-hour block of time worked[; and] (2) the premium pay owed for a violation of [section 226.7] is a wage."
In support of its petition, Brinker argued the trial court erred by interpreting section 512 to mean that an hourly employee's entitlement to a meal period is "rolling," such that "a separate meal period must be provided for each five-hour block of time worked . . . regardless of the total hours worked in the day. In other words, the [court] interpreted the law to be that . . . [o]nce a meal period concludes, the proverbial clock starts ticking again, and if the employee works five hours more, a second meal period must be provided."
Brinker also argued that although an employee working more than five hours and less than 10 hours is entitled under section 512 to a 30-minute meal period at some point during the workday, "nothing in [s]ection 512 . . . requires a second meal period be provided solely because [the] employee works five hours after the end of the first meal period, where the total time worked is less than  hours." Brinker further asserted that IWC Wage Order No. 5 also "does not dictate the anomalous result that meal periods must be provided every five hours" because, like section 512, it requires only that an employee working more than five hours "gets a meal period at some point during the workday." Brinker complained that the court's meal period ruling "requires servers to sit down, unpaid, during the most lucrative part of their working day."
Plaintiff’s Motion For Class Certification
Plaintiffs moved to certify a class of "[a]ll present and former employees of [Brinker] who worked at a Brinker[-]owned restaurant in California, holding a non-exempt position, from and after August 16, 2000 ('Class Members')." In their moving papers, plaintiffs alternatively defined the class as "all hourly employees of restaurants owned by [Brinker] in California who have not been provided with meal and rest breaks in accordance with California law and who have not been compensated for those missed meal and rest breaks."
Plaintiffs' motion also sought certification of six subclasses, three of which are pertinent to the appeal: (1) a "Rest Period Subclass," consisting of "Class Members who worked one or more work periods in excess of three and a half (3.5) hours without receiving a paid 10 minute break during which the Class Member was relieved of all duties, from and after October 1, 2000"; (2) a "Meal Period Subclass," consisting of "Class Members who worked one or more work periods in excess of five (5) consecutive hours, without receiving a thirty (30) minute meal period during which the Class Member was relieved of all duties, from and after October 1, 2000"; and (3) an "Off-The-Clock Subclass," consisting of "Class Members who worked 'off-the-clock' or without pay from and after August 16, 2000."
The class in question is estimated to consist of more than 59,000 Brinker employees.
Plaintiffs Rest Break Claims
Plaintiffs allege Brinker willfully violated section 226.7 and IWC Wage Orders Nos. 5-1998, 5-2000 and 5-2001 by "fail[ing] to provide rest periods for every four hours or major fraction thereof worked per day to non-exempt employees, and failing to provide compensation for such unprovided rest periods." Section 226.7, subdivision (a) provides: "No employer shall require any employee to work during any meal or rest period mandated by an applicable order of the [IWC]." (Italics added.)
The pertinent provisions of IWC Wage Order No. 5-2001 are codified in California Code of Regulations, title 8, section 11050, subdivision 12(A), which provides:
Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages. (Italics added.)
The court held that the phrase "per four (4) hours or major fraction thereof" does not mean that a rest period must be given every three and one-half hours:
Regulation 11050(12)(A) states that calculation of the appropriate number of rest breaks must "be based on the total hours worked daily." Thus, for example, if one has a work period of seven hours, the employee is entitled to a rest period after four hours of work because he or she has worked a full four hours, not a "major fraction thereof." It is only when an employee is scheduled for a shift that is more than three and one-half hours, but less than four hours, that he or she is entitled to a rest break before the four hour mark.
Moreover, because the sentence following the "four (4) hours or major fraction thereof" limits required rest breaks to employees who work at least three and one-half hours in one work day, the term "major fraction thereof" can only be interpreted as meaning the time period between three and one-half hours and four hours. Apparently this portion of the wage order was intended to prevent employers from avoiding rest breaks by scheduling work periods slightly less that [sic] four hours, but at the same time made three and one-half hours the cut-off period for work periods below which no rest period need be provided.
The court also held that the DLSE’s opinion that the term "major fraction thereof" means any time over 50 percent of a four-hour work period is wrong because it renders the current version of Regulation 11050(12)(A) internally inconsistent. As an employee cannot be entitled to a 10-minute break if she or she "works more than 2 . . . hours in a day," if the employee is not entitled to a 10-minute break if he or she works "less than three and one-half" hours in a day. The court also noted that it is not required to follow the DLSE opinion on the matter, citing Murphy v. Kenneth Cole, 40 Cal.4th at p. 1105, fn. 7.
The court also held that the law does not required employers to provide rest breaks before meal breaks:
Furthermore, contrary to plaintiffs' assertion, the provisions of Regulation 11050(12)(A)do not require employers to authorize and permit a first rest break before the first scheduled meal period. Rather, the applicable language of Regulation 11050(12)(A)states only that rest breaks "insofar as practicable shall be in the middle of each work period." (Italics added.) Regulation 11050(12)(A)is silent on the question of whether an employer must permit an hourly employee to take a 10-minute rest break before the first meal period is provided. As Brinker points out, an employee who takes a meal period one hour into an eight-hour shift could still take a post-meal period rest break "in the middle" of the first four-hour work period, in full compliance with the applicable provisions of IWC Wage Order No. 5-2001.
The court explained that Regulation 11050(12)(A) allows employers some “discretion to not have rest periods in the middle of a work period if, because of the nature of the work or the circumstances of a particular employee, it is not ‘practicable.’” In explaining what “practicable” means, the court specifically mentioned that:
…this discretion is of particular importance for jobs, such as in the restaurant industry, that require flexibility in scheduling breaks because the middle of a work period is often during a mealtime rush, when an employee might not want to take a rest break in order to maximize tips and provide optimum service to restaurant patrons. As long as employers make rest breaks available to employees, and strive, where practicable, to schedule them in the middle of the first four-hour work period, employers are in compliance with that portion of Regulation 11050(12)(A).
Ultimately, the court held that a determination about whether it is practicable to permit rest breaks near the end of a four hour work period is not an issue that can be litigated on a class-wide basis. In overruling the trial court’s granting of class certification the Appellate Court stated:
Had the court properly determined that (1) employees need be afforded only one 10-minute rest break every four hours "or major fraction thereof" (Reg. 11050(12)(A)), (2) rest breaks need be afforded in the middle of that four-hour period only when "practicable," and (3) employers are not required to ensure that employees take the rest breaks properly provided to them in accordance with the provisions of IWC Wage Order No. 5, only individual questions would have remained, and the court in the proper exercise of its legal discretion would have denied class certification with respect to plaintiffs' rest break claims because the trier of fact cannot determine on a class-wide basis whether members of the proposed class of Brinker employees missed rest breaks as a result of a supervisor's coercion or the employee's uncoerced choice to waive such breaks and continue working. Individual questions would also predominate as to whether employees received a full 10-minute rest period, or whether the period was interrupted. The issue of whether rest periods are prohibited or voluntarily declined is by its nature an individual inquiry.
Plaintiffs argued that even if the trial court erred in failing to define the elements of plaintiffs' rest period claims prior to certifying the class the appellate court should remand the case to the trial court to permit the trial court to rule on if plaintiffs' "expert statistical and survey evidence" makes their rest break claims amenable to class treatment. The appellate court refused to remand the case, stating that while courts may use such evidence in determining if a claim is amenable to class treatment, here, that evidence does not change the individualized inquiry in determining if Brinker allowed or forbade rest periods. The court stated:
The question of whether employees were forced to forgo rest breaks or voluntarily chose not to take them is a highly individualized inquiry that would result in thousands of mini-trials to determine as to each employee if a particular manager prohibited a full, timely break or if the employee waived it or voluntarily cut it short. (Brown v. Federal Express Corp. (C.D.Cal. 2008) ___ F.R.D. ___ [2008 WL 906517 at *8] (Brown) [meal period violations claim not amenable to class treatment as court would be "mired in over 5000 mini-trials" to determine if such breaks were provided].)
For these reasons, the appellate court vacated the order granting class certification for the rest break subclass.
Plaintiffs’ Meal Break Claims
In their second cause of action, plaintiffs allege Brinker violated sections 226.7 and 512, and IWC Wage Order No. 5, by failing to "provide meal periods for days on which non-exempt employees work(ed) in excess of five hours, or by failing to provide meal periods [altogether], or to provide second meal periods for days employees worked in excess of  hours, and failing to provide compensation for such unprovided or improperly provided meal periods." Plaintiffs claim that Brinker’s “early lunching” policy that required its employees to take their meal periods soon after they arrive for their shifts, usually within the first hour, and then requiring them to work in excess of five hours, and sometimes more than nine hours straight, without an additional meal period violated California law.
Plaintiffs asserted that common issues predominate on their rest break claims because they "presented corporate policy evidence of a pattern and practice by Brinker of failing to provide a rest period prior to employees' meal period as a result of its practice of scheduling meals early." Specifically, plaintiffs argued that "Brinker maintains company-wide policies discouraging rest periods, including requiring servers to give up tables and tips if they want a break and failing to provide rest periods prior to scheduled early meals."
1. Rolling five-hour meal period claim
The lower trial court in this case, found that a meal period "must be given before [an] employee's work period exceeds five hours." The lower court also stated that "the DLSE wants employers to provide employees with break periods and meal periods toward the middle of an employee[']s work period in order to break up that employee's 'shift.'" The court further stated that Brinker "appears to be in violation of [section] 512 by not providing a 'meal period' per every five hours of work."
In overruling the lower court, the appellate court ruled that this interpretation of the law was incorrect and that the trial court’s class certification order rests on improper criteria with respect to the plaintiffs' rolling five-hour meal period claim.
The appellate court began its analysis with Labor Code Section 512, subdivision (a), which provides:
An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.
The appellate court held that Section 512(a) thus provides that an employer in California has a statutory duty to make a first 30-minute meal period available to an hourly employee who is permitted to work more than five hours per day, unless (1) the employee is permitted to work a "total work period per day" that is six hours or less, and (2) both the employee and the employer agree by "mutual consent" to waive the meal period.
The appellate court also held that this interpretation of section 512(a), regarding an employer's duty to provide a first meal period, is consistent with the plain language set forth in IWC Wage Order No. 5-2001, which provides in part: "No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes, except that when a work period of not more than six (6) hours will complete the day's work the meal period may be waived by mutual consent of the employer and the employee."
On the issue regarding when an meal break must be provided the court stated:
With respect to the issue of when an employer must make a first 30-minute meal period available to an hourly employee, Brinker's uniform meal period policy (titled "Break and Meal Period Policy for Employees in the State of California") comports with the foregoing interpretation of section 512(a) and IWC Wage Order No. 5-2001. It provides that employees are "entitled to a 30-minute meal period" when they "work a shift that is over five hours."
The court continued in holding that Section 512(a) also provides that an employer has a duty to make a second 30-minute meal period available to an hourly employee who has a "work period of more than 10 hours per day" unless (1) the "total hours" the employee is permitted to work per day is 12 hours or less, (2) both the employee and the employer agree by "mutual consent" to waive the second meal period, and (3) the first meal period "was not waived."
Plaintiffs argue that Brinker's written meal policy violates section 512(a) and IWC Wage Order No. 5 (specifically, Cal. Code Regs., tit. 8, § 11050, subd. 11(A)) because it allows the practice of “early lunching” and fails to make a 30-minute meal period available to an hourly employee for every five consecutive hours of work. Plaintiffs maintained that every hourly employee should receive a second meal break five hours after they return from the first meal break. The court found this argument unpersuasive:
Under this interpretation, however, the term "per day" in the first sentence of section 512(a) would be rendered surplusage, as would the phrase "[a]n employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes" in the second sentence of that subdivision.
The appellate court held that without a proper interpretation of section 512(a), the lower court could not correctly ascertain the legal elements that members of the proposed class would have to prove in order to establish their meal period claims, and therefore could not properly determine whether common issues predominate over issues that affect individual members of the class.
2. Brinker's failure to ensure employees take meal periods
Plaintiffs also claim that Brinker's uniform meal period policy violates sections 512 and 226.7, as well as IWC Wage Order No. 5, by failing to ensure that its hourly employees take their meal periods. In the primary holding of the case, the appellate court stated:
We conclude that California law provides that Brinker need only provide meal periods, and, as a result, as with the rest period claims, plaintiffs' meal period claims are not amenable to class treatment.
The appellate court disagreed with Plaintiffs’ contention that an employer’s duty was to ensure a meal break. The court stated:
If this were the case, employers would be forced to police their employees and force them to take meal breaks. With thousands of employees working multiple shifts, this would be an impossible task. If they were unable to do so, employers would have to pay an extra hour of pay any time an employee voluntarily chose not to take a meal period, or to take a shortened one.
3. Amenability of plaintiffs' meal break claims to class treatment
The appellate court held that because meal breaks need only be made available, not ensured, individual issues predominate in this case and the meal break claim is not amenable class treatment. The court explained:
The reason meal breaks were not taken can only be decided on a case-by-case basis. It would need to be determined as to each employee whether a missed or shortened meal period was the result of an employee's personal choice, a manager's coercion, or, as plaintiffs argue, because the restaurants were so inadequately staffed that employees could not actually take permitted meal breaks. As we discussed, ante, with regard to rest breaks, plaintiffs' computer and statistical evidence submitted in support of their class certification motion was not only based upon faulty legal assumptions, it also could only show the fact that meal breaks were not taken, or were shortened, not why. It will require an individual inquiry as to all Brinker employees to determine if this was because Brinker failed to make them available, or employees chose not to take them.
The appellate court also found that the evidence does not show that Brinker had a class-wide policy that prohibited meal breaks. Instead, the evidence in this case indicated that some employees took meal breaks and others did not, and it requires the court to perform an individualized inquiring into the reasons why an employee did not take the break. The court also held that the plaintiffs’ statistical and survey evidence does not render the meal break claims one in which common issues predominate because while the time cards might show when meal breaks were taken and when there were not, they cannot show why they were or were not taken.
Plaintiffs’ Off-the clock claim
Plaintiffs also allege Brinker unlawfully required its employees to work off the clock during meal periods. This claim was comprised of two theories: (1) time worked during a meal period when an individual was clocked out; and (2) time “shaving,” which is defined as an unlawful alteration of an employee's time record to reduce the time logged so as to not accurately reflect time worked.
The court held, and the Plaintiffs did not dispute, that employers can only be held liable for off-the-clock claims if the employer knows or should have known the employee was working off the clock. (citing Morillion v. Royal Packing Co., 22 Cal.4th at p. 585.) The evidence also established that Brinker has a written corporate policy prohibiting off-the-clock work. Because of these facts, the court found that plaintiffs' off-the-clock claims are not amenable to class treatment. As the court stated:
Thus, resolution of these claims would require individual inquiries in to whether any employee actually worked off the clock, whether managers had actual or constructive knowledge of such work and whether managers coerced or encouraged such work. Indeed, not all the employee declarations alleged they were forced to work off the clock, demonstrating there was no class-wide policy forcing employees to do so.
The opinion can be viewed at the court’s website [Word] [PDF]. This case will no doubt change many wage and hour litigator's case strategies, unless the California Supreme Court grants review of the decision.
In Advanced-Tech v. Superior Court, Ester Roman worked as a security guard for Advanced-Tech Security Services, Inc. (Advanced-Tech). Ms. Roman brought a class action lawsuit against Advance-Tech for violations of Labor Code sections 510, 1194, and 1198, as well as failure to provide accurate itemized statements to her in accordance with section 226 and unfair business practices in violation of Business and Professions Code 17200.
At issue in this case is the interpretation of Labor Code section 510, subdivision (a) that requires that an employer pay an employee time and one-half of the employee’s “regular rate of pay” for (1) more than 8 hours of work in one workday, (2) more than 40 hours of work in any workweek, and (3) for the first eight hours worked on the seventh consecutive workday. Any work over 12 hours in one day must be paid at twice the regular rate of pay, as well as work longer than eight hours on the seventh consecutive day of work.
Advance-Tech provided its employees with “holiday pay” at time and one-half for hours worked on designated holidays pursuant to the Employee’s Handbook. Ms. Roman worked 12 hours on Labor Day in 2006, and argued that the 4 hours of daily overtime should have been paid at time and one-half of her higher “holiday” rate of pay, instead of at her normal, non-holiday rate of pay. Therefore, Ms. Roman asserted that the time and one-half she was paid for working on Labor Day should be considered her “regular rate of pay” and that she was entitled to be paid one and one-half times the premium holiday rate for the hours she worked on Labor Day.
The court disagreed with Ms. Roman’s interpretation of Labor Code section 510. The court held that premium holiday pay is not considered as a “regular rate” of pay an employee receives for a normal workday. An employer is allowed to credit the time and one-half premium pay on holidays against the overtime owed to the employee.
Side Note: Generally, there is no obligation for employers to provide a higher rate of pay for work completed on holidays. As done by Advance-Tech in this case, an employer may voluntarily agree to pay a higher rate of pay to incentivize and/or reward employees to work on holidays. However, employers' policies (as set forth in the employee handbook or elsewhere) could arguably create a contractual right for the employee to receive the higher pay rate promised, and employers should use caution when drafting such policies.
As any reader of our blog knows, pursuant to Labor Code section 226.7 and the Wage Orders (for example Wage Order 4-2001, section 11(b)), each failure to provide the specified meal period entitles the employee to receive an additional compensation premium equal to one hour of pay.
The Wage Order provides for an “on duty” meal period that is an exception to the required meal break if the following requirements are met:
An "on duty" meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time.
Wage Order No. 4-2001(a)(emphasis added). Unfortunately, the definition of the “nature of the work” is not clear, and the only real guidance California employers have on this issue is a Department of Labor Standards Enforcement (“DLSE”) opinion letter. Click here to download the opinion letter.
In the opinion letter, the DLSE addressed the issue of whether a shift manager in a fast food restaurant working the night shift would be allowed to take a “on duty” meal period. The DLSE began its analysis in stating that the off duty meal period is the default requirement, and any exceptions to this requirement should be narrowly construed.
The DLSE set forth factors it considered in determining whether the nature of the work prevents the employee from taking an off-duty meal period. The factors included:
the type of work
the availability of other employees to relieve the employee during a meal period
the potential consequences to the employer if the employee is relieved of all duty
the ability of the employer to anticipate and minimize these staffing issues such as by scheduling employees in a manner that would allow the employee to take an off-duty meal break and
whether the “work product or process” would be destroyed or damaged if the employee were given an off-duty meal period.
The DLSE concluded that based on the facts presented in the situation of the fast food restaurant, it did not understand why the nature of the work in the restaurant prevented the shift manager from being relieved of all duties for 30 minutes.
As this issue has yet to be addressed by the courts (maybe the court in Bufil will provide some guidance), employers should follow the limited analysis set forth in the DLSE opinion letter, even though the DLSE opinion letter is not binding on the courts.
This case is a class action lawsuit filed by Caren Bufil for violations of California’s meal and rest break laws, and violation of California’s Unfair Competition Law against Dollar Financial Group, Inc. (Dollar). Bufil v. Dollar Financial Group, Inc. (filed April 14, 2008, ordered published May 13, 2008). Dollar is a company with 130 retail stores in California that provides check cashing, Western Union services and loans.
The plaintiff’s suit defined the putative class as consisting of two subclasses of hourly employees working in California from September 2003 until the present. The two subclasses were employees for whom Dollar’s meal break records showed that they did not receive a meal break because (1) they were the only employee working in the store at the time of their meal break or (2) they were training another employee who could not be left alone to operate the store when their meal break should have been taken.
Dollar’s “On-Duty” Meal Period Agreement
In 2001 Dollar implemented an "on-duty" meal agreement with hourly employees. The agreement was given to all new employees and states that (1) Dollar and the employees acknowledge that the nature of the business may prevent employees from being relieved of all duties during meal periods; (2) Dollar and the employees agree that an employee may take an on-duty meal break, and be paid accordingly; and (3) the employees may revoke their right to have the meal break deemed “on duty” by giving 24-hour written notice to a supervisor.
Dollar introduced an updated meal break policy effective September 2003. The revised policy sets forth that on-duty meal breaks are only permitted when the hourly employee (1) is the only employee in the store working during the entire work shift; and (2) is working with only one other employee who has been employed less than 90 days and is not certified to transact business alone. An e-mail to store managers in June 2006 reiterated this policy.
Dollar’s rest break policy did not require consecutive 10-minute breaks, but permitted a “net” 10 minutes of time that the employee could use throughout the day. The appellate court, relying upon a DLSE opinion letter, stated that the rest breaks had to be consecutive, and held that Dollar did not permit employees working alone or who were supervising other employees had the ability to take a 10-minute rest break.
Dollar Defeats Class Certification In Its First Wage & Hour Class Action: Chin v. Dollar Financial Group
Bufil’s lawsuit was filed just four months after an appellate court upheld a denial of class certification in favor of Dollar in a case that alleged similar violations of California’s wage and hour laws. In Chin, the plaintiff in that case filed a lawsuit against Dollar for missed meal and rest breaks, and proposed to certify a class of employees who were (1) employed for a period of more than five hours without a meal period of not less than 30 minutes, and/or (2) not authorized or permitted to take a rest break for every four hours of work.
In the Chin case, the court held the trial court properly ruled that the action was not suitable for class treatment because common questions of fact and law did not predominate over individualized issues. Because each employee would have to testify as to the particular facts pertaining to his or her case, it therefore was not a case suitable for class wide treatment.
Bufil’s Procedural History
The Plaintiff Bufil moved for class certification, and Dollar moved for judgment on the pleadings. Dollar argued that Bufil’s case was collaterally stopped because the earlier Chin litigation resolved these issues, and it is unfair that it has to defend itself again for the same issues already litigated in the previous lawsuit. The trial court agreed with Dollar, dismissed Bufil’s class allegations and denied plaintiff’s motion for class certification.
The appellate court overruled the trial court with the following holdings.
1. Bufil Is Not Precluded From Brining Her Suit On the Basis of the Collateral Estoppel Doctrine.
The principle behind the collateral estoppel doctrine is to prevent re-litigation of issues previous argued and resolved in an earlier proceeding. As the court set out, in order for the doctrine to apply, the issues must be identical to an issue that was actually litigated and decided to be final on the merits.
The court examined Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, which held that two cases filed against May Department Stores prior to the Alvarez case precluded the Alvarez case from proceeding under collateral estoppel. In Alvarez, the court held collateral estoppel applied because the two prior cases sought to certify the same class of employees, concerned the same policies, concerned the same time period, and one of the prior cases had the same attorneys. In this case, however, the court held that Bufil’s legal issues were not the same as the issues litigated in the prior Chin lawsuit against Dollar. The court held:
Unlike Alvarez, the class that Bufil asserts is not identical to the class asserted by Chin. Rather, it is a distinct subclass restricted to hourly employees who tracked Dollar’s recordkeeping system from September 2003 to the present with the designation of not having taken a meal period because the employee was the only employee in the store or was supervising a trainee who could not be left alone.
The court held Bufil’s theory that the meal period waivers for employees who were the only employees working at the store or who were providing training to employees are invalid because the waivers do not meet the “nature of the work” exception in Wage Order No. 4-2001 is different than the issues litigated in the Chin case. Wage Order No. 4-2001 provides:
An "on duty" meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time. (emphasis added)
The court ruled that this is a legal question that was not present in the Chin litigation, and therefore was not barred under the collateral estoppel doctrine.
2. Bufil’s Case Is Appropriate For Class Certification.
The court also held that the lower court’s finding that “commonality”, an element that plaintiffs must prove in order to proceed as a class action, did not exist in this case was flawed. Despite Dollar’s argument, the court held that the individual employee’s understanding of the meal period waiver was irrelevant in this case. The court also held that a class was ascertainable in this case through Dollar’s records, which allowed the employee to electronically record if they did not take the meal break due to (1) the fact they were the only person in the store or (2) they were the only person with a trainee. Finally, the court held that Bufil could show that the class action was a superior method to resolve the litigation as class actions permit individuals to resolve all of their claims at the same time, it is more efficient and avoids repetitive actions, and allows for recover of small amounts of damages that may be too insignificant for individual litigation.
CNN Money.com reports that many companies across the U.S. are encountering wage and hour issues that California companies are all too familiar with. The article reports:
Rod Cotner, owner of Jericho Mortgage in Lancaster, Ohio, was shocked when the U.S. Department of Labor showed up at his door to investigate a wage-and-hour lawsuit filed on behalf of his 54 loan officers and sales managers.
His company was growing - sales exceeded $4 million that year - and his employees were profiting: "Some of the staffers named in the lawsuit were making over $150,000," he says. "After working in the industry for years, I'd never heard of this happening. Everyone pays their officers on a commission basis. How can someone who makes six figures a year demand back wages for his time?"
In 2006 the U.S. Department of Labor collected $172 million in back wages from employers, which is reported to be 3.6 percent higher than 2005.
Also, the article illustrates that while these laws were intended to protect employees, the laws often times have the opposite effect. This is especially true in California where the meal and rest break laws are so rigid that the employees cannot enter into agreements with their employer to skip meal breaks when needed for family issues. The article quotes Don Turner, the owner of the Golden Bear Inn in Berkeley:
"I had an employee who wanted to watch his child's Little League game at four, but he was scheduled to get off at 4:30," he says. "He asked me if he could work through his lunch break instead, and I had to refuse him - the overtime law just wouldn't let me."
The article concludes with a very appropriate caution to employers:
For now, the best that a small-business owner can do to avoid overtime lawsuits is keep painstaking payroll records for nonexempt employees and consult an employment lawyer to verify workers' status. And make sure to keep a sharp eye out for the kind of dedicated worker who might be tempted to skip lunch.
As a final warning, California employers need the advice of an attorney well versed in California labor and employment law - California law is more restrictive than federal law in almost every aspect. Courts apply the law that provides employees with the most protection, which means that California law applies in almost every case.
On January 15, 2008, the Court of Appeal in Puerto v. Superior Court (Wild Oats) [PDF] [Word], concluded that an opt-in notice established by the trial court as a process to obtain witnesses' residential contact information "unduly hampered" plaintiffs' in conducting discovery.
In October 2006, Plaintiffs filed suit against Wild Oats alleging they were misclassified as exempt employees, and are seeking recovery for overtime compensation, compensate for all hours worked, and unfair business practices.
Plaintiffs served written discovery on Wild Oats that included Form Interrogatory No. 12.1, which requested that Wild Oats: “State the name, ADDRESS, and telephone number of each individual: [¶] (a) who witnessed the INCIDENT or the events occurring immediately before or after the INCIDENT; [¶] (b) who made any statement at the scene of the INCIDENT; [¶] (c) who heard any statements made about the INCIDENT by any individual at the scene; and [¶] (d) who YOU OR ANYONE ACTING ON YOUR BEHALF claim has knowledge of the INCIDENT (except for expert witnesses covered by Code of Civil Procedure section 2034).”
Wild Oats disclosed between 2600 and 3000 names and positions in the responses to Interrogatory No. 12.1. However, Wild Oats withheld the individuals’ residential telephone numbers and addresses, citing privacy rights on behalf of the individuals listed.
After plaintiffs brought a motion to compel disclosure of the individuals’ contact information, the trial court approved a process by which a third party administrator would send a letter to each of the individuals informing them of plaintiffs’ request for their contact information. The letter contained an opt-in provision that stated, “The court has ordered the parties to send this letter to you so that you may decide whether or not you wish to disclose this information to the Plaintiffs’ attorneys. If you consent to the disclosure of your contact information, please complete and return the enclosed postcard to the Third-Party-Administrator . . . .”
The Court of Appeal found that the trial court’s use of the opt-in procedure was an abuse of discretion that exceeded the protections necessary to safeguard the legitimate privacy interests in the addresses and telephone numbers of the witnesses. The Court of Appeal stated:
While the trial court here implicitly found that a serious invasion of privacy would result unless an opt-in notice was used, we believe that conclusion is unsupported by facts or law. Here, just as in Pioneer, the requested information, while personal, is not particularly sensitive, as it is merely contact information, not medical or financial details, political affiliations, sexual relationships, or personnel information. [citations] This is basic civil discovery. These individuals have been identified by Wild Oats as witnesses. Nothing could be more ordinary in discovery than finding out the location of identified witnesses so that they may be contacted and additional investigation performed. [citation] As the Supreme Court pointed out in Pioneer, the information sought by the petitioners here—the location of witnesses—is generally discoverable, and it is neither unduly personal nor overly intrusive. [citation] In some respects, the potential intrusion here is even less significant than that in Pioneer, because here the requested disclosure does not involve individuals’ identities, which had already been disclosed by Wild Oats prior to the filing of the motion to compel. There simply is no evidence that disclosure of the contact information for these already-identified witnesses is a transgression of the witnesses’ privacy that is “sufficiently serious in [its] nature, scope, and actual or potential impact to constitute an egregious breach of the social norms underlying the privacy right.” [citation]
It is important to note that the court also recognized that the employer has a duty to protect employee’s contact information and “[s]hould any individual identified as a witness later feel that there has been an unnecessary invasion of his or her privacy, this will become an issue between the employee and [the employer], not the employee and [plaintiffs].”
The Court of Appeal did, however, still leaves open alternative discovery avenues to limit public disclosure of employee contact information:
This is not to say that the trial court was without the ability to enter a protective order limiting the dissemination of the witnesses’ contact information: Certainly the trial court may require that the information be kept confidential by the petitioners and not be disclosed except to their agents as needed in the course of investigating and pursuing the litigation. Moreover, should the trial court find that the record evidences discovery abuse warranting a protective order as to the manner and means of contacting witnesses, the trial court always retains the discretion to impose such an order.
In Kakani v. Oracle, 2007 WL 1793774 (N.D.Cal. 2007), Judge Alsop of the Northern District of California denied approval of a proposed class settlement agreement. In doing so, he cast doubt on so-called “claims made” or “reversionary” settlement agreements that are commonly used to settle wage and hour class actions.
Class action settlement agreements must be reviewed and approved by the court to ensure that the settlement is “fair and reasonable” to the absent class members. In recent years class action settlements typically provide a release of all class claims and also set forth a maximum amount that may be recovered by the class. All class members are given notice by mail of the settlement terms. However, for any individual class member to claim his or her portion of the settlement he or she must complete and return a written claim form. Any portion of the settlement which is not claimed in this fashion will “revert” back to the employer. Significantly the fees awarded to class counsel under such agreements are generally calculated based on a percentage (usually about 25%) of the gross settlement amount, before any reversion to the employer.
In Oracle, Judge Alsop held that this settlement model was inherently unfair to the many class members that inevitably fail to file claim forms and thereby receive no consideration for the release of their legal claims. The Court further held that such agreements were likely to over-compensate class counsel by basing their fees on settlement amounts that may ultimately go unclaimed by the class.
While Oracle is merely a district court decision, and is not binding on other trial courts, Judge Alsop’s analysis has already had a tremendous influence on both federal and state courts throughout California. In the future, class settlements are much more likely to be “non-reversionary” – i.e., the entire settlement amount must be distributed to class members and may not revert to the employer.
By altering the economic incentives of the various participants, this change will have a profound and far reaching effect on class action litigation in California. This shift will likely create an unusual alignment of winners and losers:
The Losers: Class Counsel and Employers.
Employers are economic “losers” under the emerging Oracle settlement model because they will be unable to retain the unclaimed portion of the settlement amount, which often amounts to 30-50% of the total settlement. Moreover, in return for this higher price of settlement, employers are also likely to receive a less expansive release of liability.
Class counsel are also “losers” because they must base their court-approved contingency fee on the amount actually recovered, rather than the amount theoretically available to the class. To justify their fee class counsel will thus feel compelled to hold out for more money, work up the case more extensively, and settle later in the action.
The Winners: Defense Counsel and Absent Class Members.
Class action defense counsel will likely receive more work in the aftermath of Oracle, because class actions are likely to be litigated longer prior to settlement, thereby generating higher hourly fees.
Absent class members will likely receive more money on average in any particular class settlement, as post-Oracle settlements will allow them to receive compensation regardless whether they submit valid timely claim forms.
[UPDATE: On July 22, 2008 - the Fourth Appellate District court issued a published decision (which can be read about here) after the Supreme Court transferred the case back to the court for reconsideration.]
The Fourth Appellate District today issued its much-anticipated decision in Brinker Restaurant v. Superior Court (Hohnbaum). The case had come to the appellate court via a grant of writ review following the trial court’s certification of a class of approximately 60,000 employees who were seeking compensation for “missed” meal and rest breaks.
The big issue in Brinker was how to interpret the word “provide” when construing Labor Code section 512’s directive to “provide” a 30-minute meal period to employees. Does an employer meet its obligation by simply allowing its employees to take the statutory meal period if they wish to? Or must the employer effectively “force” its workers to take the unpaid break and be strictly liable for penalties if they refuse? Or is there perhaps some middle ground between a completely optional meal period and one that is completely mandatory?
For those who wanted a definitive resolution, Brinker was definitely a disappointment. First, the decision is unpublished, and hence un-citable as precedent. Second, the appellate court ducked the main issue and sent the case back to the trial court with directions to make a determination of its own regarding the scope of the duty. (The trial court had also ducked the issue by certifying the class without deciding exactly what elements the plaintiffs would have to prove).
The Brinker opinion does, however, contain a useful discussion of the separate statutory duty to “authorize and permit” rest breaks, which all parties agreed are generally waivable by employees. The court first disposed of some rather strained statutory interpretations by the plaintiffs as to when rest breaks must be provided during a shift. The Court then determined that – given that rest periods are waivable – it was necessarily an abuse of discretion for the trial court to have certified a rest period class. As the Court explained:
[B]ecause (as the parties acknowledge) Brinker’s hourly employees may waive their rest breaks, and thus Brinker is not obligated to ensure that that its employees take those breaks, any showing on a class basis that plaintiffs or other members of the proposed class missed rest breaks or took shortened rest breaks would not necessarily establish, without further individualized proof, that Brinker violated the provisions of [Labor Code] section 226.7, subdivision (a) and IWC Wage Order No. 5 as plaintiffs allege in the complaint.
The interesting part of this holding is that it reversed certification despite recognizing that the trial court’s decision is entitled to “great deference on appeal.”
This aspect of the ruling also illustrates why the stakes are so high in construing the duty to “provide” meal periods. If the duty is only to provide an optional, waivable meal break it would follow that the same result should apply – and meal period claims would likewise be un-certifiable as a matter of law in most cases.
Petitions to publish the opinion will presumably be filed shortly and we’ll post again if there is any change in the opinion’s current status as non-citable authority.
Daniel Schwartz over at the Connecticut Employment Law Blog, notes that Business Week's cover story on "Wage Wars" is not exactly breaking news (or at least should not be) for HR professionals and companies.
Audit your exempt employees. Go over job descriptions and compare that with actual duties. Sometimes "managers" are just glorified sales workers.
Take seriously any complaints by employees about their overtime. If there is a problem, odds are the complaining employee isn't the only one with the problem. And that means the potential for a class action case.
California has been "leading" the wage and hour class action trend mentioned in the Business Week article. These cases have arguably been the leading types of lawsuits filed in California for over the last five years. This is primarily due to California's unique wage and hour laws. Employers not familiar with California law mistakenly believe that because their policies comply with the FLSA, they are in compliance with California law. This is a costly mistake, as California's labor code is very unique, and out-of-state employers should always seek a California employment attorney's advice regarding whether the complies with California law. For example, the following are issues that illustrate how unique California law is compared to the rest of the country:
Meal and Rest Period Penalties
This is the current favorite claim of plaintiff’s class action attorneys in California. A 2001 statute imposes substantial penalties on employers who do not comply with very technical regulations concerning the timing and duration of employee lunch and rest breaks. In general, employees must receive a 30-minute meal break (during which they must be relieved of all duty and be free to leave the premises) before they complete 5 hours of work if their shift will be longer than 6 hours for the day. Employees are entitled to a second meal break whenever their shift will be longer than twelve hours. And employees are also entitled to take paid rest periods of at least 10-minutes for every four hours of work, taken as close to the middle of each work period as possible. The aggregate liability that can result over time was apply demonstrated by a 2005 jury verdict in a meal and rest break class action against Wal-Mart that awarded over $192 million in penalties and punitive damages.
California Overtime Exemptions Are Based on “Counting Hours” Test
Like the FLSA, California law provides that various job categories are exempt from overtime, including outside salespeople, commissioned salespeople and “white collar” employees. Employers have often defined positions on a nation-wide basis as salaried or hourly based on the definitions of exempt duties provided by the FLSA and its implementing regulations. California law, however, frequently rejects these federal rules in favor of its own, narrower definition of exempt duties. For example, under federal law, a position may be exempt from overtime where its “primary,” or most important job functions are exempt. In California, by contrast, the duties test is strictly quantitative — i.e., “does the employee spend more than 50% of his or her time performing exempt duties?” If not, the position may be misclassified and substantial back overtime may be due.
Daily Overtime and Double-Time
Virtually all employers know that the FLSA requires payment of “time-and-one-half” premium pay for all hours worked beyond 40 hours in one workweek. But a surprisingly large number of employers who set up shop in California are ignorant of the fact that California also requires “time-and-a-half” overtime for all hours worked beyond eight in a single workday and for the first eight hours worked on the seventh consecutive day worked in a workweek. Unlike, the FLSA, California also requires overtime at a double-time rate for all hours worked beyond 12 hours in a single workday and for hours worked beyond eight on the seventh consecutive day worked in a single week.
Mandatory Sexual Harassment Training for Supervisors
California law requires employers with 50 or more employees to provide two hours of sexual harassment training to all supervisors once every two years. Regulations are currently being proposed to clarify the extent to which this obligation applies to supervisors who are located outside California, but supervise California employees and other issues raised by the requirement.
No “Use-It-Or-Lose-It” Vacation Policy
California treats earned, but unused vacation time, as a form of vested compensation, which cannot be forfeited and must be paid out in full at the termination of employment. So-called “use-it-or-lose-it” vacation plans, which are permissible in most other states, are therefore illegal in California.
Appellate arguments were made recently in the case Brinker v. Superior Court (Hohnbaum). One issue that is being closely watched by all wage and hour attorneys raised in the appeal is whether the term “provide” in Labor Code § 512 requires employers to force employees to take meal breaks or whether employers only need to offer meal breaks to employees (similar to the "authorize and permit" requirement for rest breaks).
California Labor Code § 512(a) states:
An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.
This distinction argued in Brinker is critical in meal and rest break class actions. If the appellate court holds that Labor Code § 512 imputes a requirement on employers to force employees to take their meal and rest breaks, plaintiffs will have an easier argument that meal and rest break cases are subject to class certification. On the other hand, if the court holds that employers only need to make meal breaks available for employees, then class certification would be much harder to achieve because the court would have to make an individual inquiry into whether each employee could have taken a meal break and voluntarily waived it, or if the employee was forced to forego the break.
Courts that have reviewed this issue have reached differing conclusions about the meaning of the term “provide” in § 512. One court, in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, held that “employers have ‘an affirmative obligation to ensure that workers are actually relieved of all duty.’” Id. at 962 - 963 (citing Dept. of Industrial Relations, DLSE, Opinion Letter 2002.01.28, p. 1.). However, another California federal district court held employers are only required to offer meal breaks. White v. Starbucks, Corp., (N. D. Cal. July 2, 2007) 497 F.Supp.2d 1080, 2007 WL 1952975. The court refused to follow the DLSE opinion letter relied upon in Cicairos, and stated:
In the absence of controlling California Supreme Court precedent, the court is Erie-bound to apply the law as it believes that court would do under the circumstances. See Wyler Summit Partnership v. Turner Broadcasting System, Inc., 135 F.3d 658, 663 (9th Cir.1998). The interpretation that White advances-making employers ensurers of meal breaks-would be impossible to implement for significant sectors of the mercantile industry (and other industries) in which large employers may have hundreds or thousands of employees working multiple shifts. Accordingly, the court concludes that the California Supreme Court, if faced with this issue, would require only that an employer offer meal breaks, without forcing employers actively to ensure that workers are taking these breaks. In short, the employee must show that he was forced to forego his meal breaks as opposed to merely showing that he did not take them regardless of the reason.
The California Labor & Employment Defense Blog will post about the appellate court’s ruling in Brinker v. Superior Court once it is issued.
Based on a very quick review of the opinion, it appears that the Court has pushed the issue back to the trial courts and provides instruction to the trial courts to make the determination regarding the enforceability of class action waivers based on a number of factors. The Court states:
Nonetheless, when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can “vindicate [their] unwaivable rights in an arbitration forum.” (Little, supra, 29 Cal.4th at p. 1077.) The kind of inquiry a trial court must make is similar to the one it already makes to determine whether class actions are appropriate. “[T]rial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action . . . .” (Linder v. Thrifty Oil, Co., supra, 23 Cal.4th at p. 435.) Class arbitration must still also meet the “community of interest” requirement for all class actions, consisting of three factors: “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav-On Drug Stores, supra, 34 Cal.4th at p. 326.)
We will definitely post more analysis on the ruling once we have some time to digest the opinion further.
The California Supreme Court will be issuing its opinion in Gentry v. Superior Court this morning. This case is a landmark labor and employment case deciding if an arbitration agreement entered into between an employer and an employee is enforceable when the employee agrees not to participate in class action lawsuits brought against the employer.
We attended the oral arguments before the Supreme Court back in June, and our thoughts on the arguments can be read here. While we have our normal workload today, we will try to have at least some analysis posted today, and if time permits possibly a podcast discussing the case posted by Monday.
FedEx is still litigating its classification of its drivers as independent contractors. FedEx lost a case recently in California in Los Angeles and the court ruled the company owes 200 drivers $5.3 million in expenses. In addition, the California Employment Development Department (EDD), which is responsible for collecting payroll taxes, assessed FedEx Ground owed more than $7.88 million in back payroll taxes because it also held the drivers were misclassified as independent contractors. The audit covered the period July 2001 to June 2004 and concluded that some of the drivers were properly classified as independent contractors, but found the “single-route” drivers were employees.
As these cases illustrate, California employers need to approach the independent contractor classification very carefully. If a worker is properly classified as an independent contractor it can save the company money and give the workers great flexibility. However, misclassifying employees as independent contractors exposes the company large damages for unreimbursed expenses, unpaid overtime, back payroll taxes, and many other items.
For guidance on whether employers have properly classified its workers as independent contractors, the California Division of Labor Standards Enforcement (“DLSE”) provides an explanation of the “economic realities” test. The DLSE maintains that the most indicative fact determinative of whether a worker is an employee or an independent contractor depends on whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. The DLSE also sets forth the other factors that are considered when determining an employee’s status:
Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
Whether or not the work is a part of the regular business of the principal or alleged employer;
Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
Whether the service rendered requires a special skill;
The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
The length of time for which the services are to be performed;
The degree of permanence of the working relationship;
The method of payment, whether by time or by the job; and
Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.
Further details about the DLSE’s position on who classifies as an independent contractor can be found here. The DLSE’s information provides a great starting point for employers to audit their classifications of employees, but each case may present different facts, and the economic realities test may change depending on the jurisdiction (i.e., civil court or an EDD assessment) and whether state or federal law is at issue.
The U. S. Department of Labor’s Wage and Hour Division website provides a self assessment tool for restaurants that employ minors. The assessment covers common violations of the Fair Labor Standards Act (FLSA ). Restaurant owners should note that this assessment does not cover California state law items. The assessment covers items that the DOL found in the past to be some of the most common problems encountered in restaurants, and therefore, are likely issues a DOL investigator will look for in a restaurant.
Here is a list of a few of the items covered in the assessment:
Do any workers under 18 years of age do the following: 1. Operate or clean power-driven meat slicers or other meat processing machines?
2. Operate or clean any power-driven dough mixer or other bakery machines?
3. Operate, load, or unload scrap papers baler or paper box compactors?
4. Drive a motor-vehicle on the job?
Do any workers under 16 years of age do the following:
7. Clean cooking equipment or handle hot oil or grease?
8. Load or unload goods from a truck or conveyor?
9. Work inside a freezer or meat cooler?
10. Operate power-driven bread slicers or bagel slicers?
11. Operate any power-driven equipment?
12. Work from ladders?
13. Work during school hours?
14. Work before 7:00 a.m. on any day?
15. Work past 7:00 p.m. between Labor Day and June 1?
16. Work past 9:00 p.m. between June 1 and Labor Day?
17. Work more than 3 hours on a school day, including Fridays?
18. Work more than 8 hours on any day?
19. Work more than 18 hours in any week when school was in session?
20. Work more than 40 hours in any week when school was not in session?
21. Do you employ any workers who are less than 14 years of age?
22. Do you fail to maintain in your records a date of birth for every employee under 19 years of age?
Click here to take the entire assessment. At the end of the assessment, there is a rules summary that explains an employer’s responsibility under the FLSA for the issues on the assessment.
California Employment & Labor Defense Lawyer & Attorney, Van Vleck Turner & Zaller, offering services related to employment litigation, wrongful termination, class action lawsuits, sexual harassment training and employment policies to the cities of Los Angeles, San Diego, San Jose, San Francisco, Long Beach, Fresno, Sacramento, Oakland, Santa Ana.