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

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

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

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

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

* * * 

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

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

 

 

 

 

'Right to Control' and 'At-Will' Termination Are Keys to Employment vs. Independent Contractor Status -- Ayala v. Antelope Valley Newspapers, Inc.

Courts and agencies have traditionally invoked the familiar "multi-factor" common law test to distinguish between an employee and an independent contractor.  The trend over time, however, has been to focus ever more tightly on the single factor of who has "control" over the individual's work.  

In Ayala v. Antelope Valley Newspaper, Inc., the California Supreme Court has now made clear that the issue is even narrower than "control" -- it is the "right to control."   

As the parties and trial court correctly recognized, control over how a result is achieved lies at the heart of the common law test for employment. . . . Significantly, what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.

Thus, a company objecting that it has no history of micro-managing its workers may find that this argument carries little weight because, "That a hirer chooses not to wield power does not prove it lacks power." 

Rather, the "right" of control will inevitably flow from the rights set forth in the parties' contract.  It is extremely significant how Ayala formulates the litmus test for determining whether a contract creates a right of control.    

Whether a right of control exists may be measured by asking whether or not, if instructions were given, they would have to be obeyed on pain of at-will discharge for disobedience.

(Internal punctuation omitted).  The Supreme Court has thus essentially laid down a bright-line rule that a contractual power to fire at-will creates a corresponding right to control the performance of the work.

The newspaper delivery workers at issue in Ayala all had contracts providing the company with a "right to terminate the contract without cause on 30 days' notice."  The Court did not quite reach the merits.  However, it did reverse the trial court's denial of class certification on the ground that the contract terms might well negate the independent contractor status of the entire class.  This is a pretty strong indication that at-will termination is considered inconsistent with independent contractor status.

  

Wal-Mart v. Dukes does not apply to California Wage and Hour Class Actions -- Williams v. Superior Court (Allstate Ins. Co.)

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.

 

 

An Employer's Failure to Affirmatively Authorize Meal and Rest Breaks Is Grounds for Class Certification -- Benton v. Telecom Network Specialists, Inc.

Benton v. Telecom Network Specialists reversed the trial court's decision not to certify a class of employees for purposes of determining whether they had been denied meal and rest breaks.  In doing so, the decision also clarifies the affirmative nature of an employer's legal obligation to provide off-duty breaks. 

Last year's Supreme Court decision in Brinker explained that an employer cannot avoid liability merely by establishing that it has not actively prohibited or prevented breaks.  To the contrary, employers have a legal duty under the Labor Code to affirmatively publish and implement internal policies that expressly authorize and permit employees to take compliant off-duty meal and rest breaks.  An employer who fails to discharge this affirmative duty may be liable. 

Benton continues the recent trend of appellate court decisions (including Bradley v. Networkers Int'l), which have instructed trial courts to follow this aspect of Brinker when evaluating a motion for class certification.  The putative class of security guards in Benton claimed that they could establish class-wide liability based on their employer's lack of a compliant policy.

[T]he plaintiffs' “theory of legal liability” is that TNS violated wage and hour requirements by failing to adopt a policy authorizing and permitting its technicians to take meal or rest break periods. In plaintiffs' view, TNS was obligated to implement procedures ensuring that technicians received notice of their meal and rest period rights and were permitted to exercise those rights. For the purposes of class certification, the question is whether this theory of recovery can be “proved (or disproved) through common facts and law.”

In response, the employer argued that it could avoid liability by establishing that individual employees might nevertheless have had "opportunities" to take compliant breaks when they were not busy even if no company policy specifically authorized them to do so.  The lower court bought this argument, finding that an assessment of the scope of these "opportunities" for each employee would prevent class certification. The appellate court in Benton held that this was error. 

Rather than focusing on whether plaintiffs' theory of liability—that TNS violated wage and hour requirements by failing to adopt a meal and rest period policy—was susceptible to common proof, the court improperly focused on whether individualized inquiry would be required to determine which technicians had missed their meal and rest periods. The written order (as well as statements made at the motion hearing) make clear that the trial court did not believe TNS would be liable upon a determination that its lack of a meal and rest policy violated applicable wage and hour requirements; rather, it concluded that TNS would become liable only upon a showing that a technician had missed breaks as a result of TNS's policies.

[H]owever, Brinker “expressly rejected” this mode of analysis. As succinctly stated in Faulkinbury [v. Superior Court]: “the employer's liability arises by adopting a uniform policy that violates the wage and hour laws. Whether or not the employee was able to take the required break goes to damages, and ‘[t]he fact that individual [employees] may have different damages does not require denial of the class certification motion.'"

Benton therefore reinforces the message that class certification will normally be proper where the predominant issue is the legal sufficiency of the employer's meal and rest break policies, or the lack thereof.     

 

Unconscionable Arbitration Agreements are unenforceable under California Law -- Sonic-Calabasas v. Moreno

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.      

 

 

 

Can an Employer Require On-Duty Meal Breaks Because it Understaffs its Own Locations? -- Abdullah v. U.S. Security Associates, Inc.

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.    

Seventh Circuit Distinguishes Comcast and Rejects "Bean Counting" of Common Issues -- Butler v. Sears II

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.

Finding of Independent Contractor Status for Tax Purposes is Binding for Wage and Hour Purposes -- Happy Nails & Spa v. Su

The legal determination of whether a worker is properly classified as an employee or an independent contractor triggers a variety of legal consequences under various statutes.  These include whether the employer is required to: (a) withhold and pay various federal and state payroll taxes;  and (b) whether the employer must comply with minimum wage, overtime and expense reimbursement under the California Labor Code or federal FLSA.  

These separate legal obligations are enforced by different governmental agencies which may each use slightly different tests for distinguishing between employees and independent contractors.  This could result in multiple prosecutions with different results -- e.g., that the same workers may be contractors for tax purposes but employees for wage payment purposes.  The Fourth District Court of Appeal opinion in Happy Nails & Spa of Fashion Valley L.P. v. Su, addressed this precise scenario. 

In 2004 the California Employment Development Department (the "EDD"), which is charged with collecting unemployment insurance taxes and paying benefits to employees, brought an action claiming that the manicurists at Happy Nails were employees subject to these provisions.  After an administrative trial an administrative law judge decided that they were properly classified as contractors.

In 2008, however, the Division of Labor Standards Enforcement ("DLSE"), which is charged with enforcing the California Labor Code and Wage Orders, brought its own action claiming the manicurists were  employees for purposes of the Labor Code. Despite the company's objection that the issue had already been decided the Labor Commissioner decided that Happy Nails was properly "subject to the civil penalties because the cosmetologists are employees, not independent contractors."    

The Appellate Court overturned this second decision however on the ground that it was barred by the result of the 2004 EDD determination.  In particular, the Court explained that different enforcement divisions of the same government are should be deemed to be in "privity" with one another.  Moreover, the independent contractor test used both agencies was essentially the same and, despite the passage of time, there had been no "material" changes in the facts.  Thus,

Giving preclusive effect to the Board's decisions [that the workers were independent contractors] fosters the integrity of both administrative and judicial proceedings. The California Supreme Court has held that “the possibility of inconsistent judgments which may undermine the integrity of the judicial system would be prevented by applying collateral estoppel to the [administrative] decision.”

The rule in Happy Nails will help employers avoid multiple challenges to the classification of their independent contractors.  But it is just as clearly a double-edged sword because an administrative determination that a contractor is misclassified will be equally binding in future actions for unpaid taxes or wages.  

In short, Happy Nails raises the stakes in administrative proceedings involving independent contractor status.           

Finding of Independent Contractor Status for Tax Purposes is Binding for Wage and Hour Purposes -- Happy Nails & Spa v. Su

The legal determination of whether a worker is properly classified as an employee or an independent contractor triggers a variety of legal consequences under various statutes.  These include whether the employer is required to: (a) withhold and pay various federal and state payroll taxes;  and (b) whether the employer must comply with minimum wage, overtime and expense reimbursement under the California Labor Code or federal FLSA.  

These separate legal obligations are enforced by different governmental agencies which may each use slightly different tests for distinguishing between employees and independent contractors.  This could result in multiple prosecutions with different results -- e.g., that the same workers may be contractors for tax purposes but employees for wage payment purposes.  The Fourth District Court of Appeal opinion in Happy Nails & Spa of Fashion Valley L.P. v. Su, addressed this precise scenario. 

In 2004 the California Employment Development Department (the "EDD"), which is charged with collecting unemployment insurance taxes and paying benefits to employees, brought an action claiming that the manicurists at Happy Nails were employees subject to these provisions.  After an administrative trial an administrative law judge decided that they were properly classified as contractors.

In 2008, however, the Division of Labor Standards Enforcement ("DLSE"), which is charged with enforcing the California Labor Code and Wage Orders, brought its own action claiming the manicurists were  employees for purposes of the Labor Code. Despite the company's objection that the issue had already been decided the Labor Commissioner decided that Happy Nails was properly "subject to the civil penalties because the cosmetologists are employees, not independent contractors."    

The Appellate Court overturned this second decision however on the ground that it was barred by the result of the 2004 EDD determination.  In particular, the Court explained that different enforcement divisions of the same government are should be deemed to be in "privity" with one another.  Moreover, the independent contractor test used both agencies was essentially the same and, despite the passage of time, there had been no "material" changes in the facts.  Thus,

Giving preclusive effect to the Board's decisions [that the workers were independent contractors] fosters the integrity of both administrative and judicial proceedings. The California Supreme Court has held that “the possibility of inconsistent judgments which may undermine the integrity of the judicial system would be prevented by applying collateral estoppel to the [administrative] decision.”

The rule in Happy Nails will help employers avoid multiple challenges to the classification of their independent contractors.  But it is just as clearly a double-edged sword because an administrative determination that a contractor is misclassified will be equally binding in future actions for unpaid taxes or wages.  

In short, Happy Nails raises the stakes in administrative proceedings involving independent contractor status.           

"Stand-By" or "On-Call" Time Must Be Paid When Employee Activities Are Restricted -- Mediola v. CPS Security Solutions, Inc.

As the name suggests, "wage and hour" claims involve two equal determinations  -- i.e., the "wage" paid to the employee and the number of "hours" that he worked to receive it.  All too often, however, employers focus only on the wage rate being paid and simply assume that the number of "hours worked" can be defined as whatever time the employee is "clocked in" or whatever time the employer considers "productive work."

In fact, the calculation of "hours worked" for entitlement to overtime and minimum wage compensation is a specific legal definition, and cannot be defined by the agreement of the parties or the unilateral designation of the employer.  Rather, as illustrated in the recent decision in Mediola v. CPS Security Solutions, Inc., the test for compensation is whether the worker is sufficiently restricted from engaging in personal pursuits that he is deemed to be "subject to" the employer's control. 

In practice, this means that workers will be frequently entitled to compensation for literally "doing nothing."  Indeed, according to the venerable and oft-quoted 1944 U.S. Supreme Court decision in Armour & Co. v. Wantock:

“[A]n employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen. Refraining from other activity often is a factor of instant readiness to serve, and idleness plays a part in all employments in a stand-by capacity. Readiness to serve may be hired, quite as much as service itself . . .

In Mediola, the court applied this rule to security guards who were required to be "on-call" to respond to emergencies at construction sites where they temporarily resided in trailer homes.  As the Court explained, under California law they were entitled to be paid for this time.            

[The guards] are required to live on the jobsite. They are expected to respond immediately, in uniform, when an alarm sounds or they hear suspicious noise or activity. During the relevant hours, they are geo-graphically limited to the trailer and/or the jobsite unless a reliever arrives; even then, they are required to take a pager or radio telephone so they may be called back; and they are required to remain within 30 minutes of the site unless other arrangements have been made. They may not easily trade their responsibilities, but can only call for a reliever and hope one will be found.

Most important, the trailer guards do not enjoy the normal freedoms of a typical off-duty worker, as they are forbidden to have children, pets or alcohol in the trailers and cannot entertain or visit with adult friends or family without special permission. On this record, we conclude the degree of control exercised by the employer compels the conclusion that the trailer guards' on-call time falls under the definition of “hours worked” under California law.

In its everyday usage most people would probably define "work" as some form of productive activity requiring mental or physical effort.  But as the Mediola case illustrates this common understanding bears little resemblance to the actual legal test for triggering compensation. 

Employers should thus take a hard look at any policy that restricts personal activities during "non-working" hours.  Employees subject to these restrictions may be entitled to substantial recoveries of unpaid wages.     

 

 

 

     

"Piecework" Compensation Systems Must Separately Compensate Each and Every Hour Worked -- Gonzalez v. Downtown LA Motors

As most practitioners in the field are well aware, California's Labor Code and Wage Order protections are generally intended to be more beneficial to employees than federal law.  California's minimum wage protections are a case in point. 

California Law Requires That Each and Every Hour Worked Must Be Separately Compensated

California's minimum wage rate ($8.00 per hour) is obviously higher than the federal minimum ($7.25).  In addition, however, California law calculates the accrual of minimum wage payments in a very different way.  Federal law simply divides weekly compensation by the number of hours worked in the week.  The employer satisfies the federal standard so long as the average compensation is greater than $7.25 per hour. 

California minimum wage law is very different because it requires that the minimum rate of $8.00 per hour must be separately accrued and paid for each hour worked. For example, suppose a truck driver earns $20 per hour for time spent driving but receives no additional compensation for time spent on other tasks.  Now suppose he spends 30 hours per week driving and ten hours on other tasks such as loading and inspecting his vehicle, filing out paperwork, etc.  The driver has worked 40 hours and earned $600 ($20/hr. x 30 hrs. driving).  This easily satisfies federal law because the driver's average hourly rate of compensation is $15 ($600/40hrs.). 

But this pay system just as clearly violates California's per hour minimum wage standard because the driver earned nothing for the ten hours when he was not driving.  Under California law, the driver is entitled to an additional $8.00 in compensation for each of these ten hours of work irrespective of what he may have been paid for any other time worked.

California's "Each and Every" Hour Standard Applies Equally to Piecework Compensation Plans

The recent case of Gonzalez Downtown LA Motors, LP, explained that the requirement to provide separate minimum compensation for each hour worked is not limited to hours-based compensation systems.  Rather, the same standard must also be applied to compensation systems based on commissions, piecework, or other productivity-based metrics.    

By its terms, Wage Order No. 4 does not allow any variance in its application based on the manner of compensation. Subdivision 1 of the wage order states that subject to exceptions that are not applicable here: “This order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis.” (Cal. Code Regs., tit. 8, § 11040, subd. 1, italics added.) Subdivision 4(B) similarly requires uniform application of the minimum wage requirements regardless of how an employee is paid: “Every employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.” (Cal. Code Regs., tit. 8, § 11040, subd. (4)(B), italics added.) That DTLA compensated its technicians on a piece-rate basis is not a valid ground for varying either the application or interpretation of the wage order.

There is an obvious tension between pay systems that seek to compensate for performance or productivity alone and a legal standard that requires minimum payments for time alone.  Reconciling these two standards is problematic to say the least and I will try to explore the nuances of doing so in future posts. 

In the meantime, however, employers and their workers should be aware that any "creative" compensation scheme that does not expressly pay a flat minimum rate for each and every hour is legally suspect under California law.               

Is Arbitration The New "Lochnerism?" -- American Express v. Italian Colors

Some of our readers may recall from their days taking Constitutional Law that Lochner v. New York was a landmark 1905 Supreme Court decision striking down a maximum 60-hour workweek law in the baking industry as contrary to a Constitutional "right to contract."  During the New Deal the Court eventually had a change of heart (arguably in response to FDR's Court-packing scheme) and came to the epiphany that contract rights may be overridden by legislation with at least a "rational basis" in public policy.  

Generations of legal scholars have since wielded the phrase "Lochnerism" as a term of abuse for judicial activism that would judicially preempt remedial legislation enacted by democratically elected state and federal representatives.  And the supremacy of contract rights espoused by "Lochnerism" seemed to be a historical dead letter. 

Until now, that is.  The recent Supreme Court decision in American Express Co. v. Italian Colors Restaurant (aka "Amex III"), seems to have breathed new life into the idea that private contract rights may once again reign supreme at the expense of public legislation.    

In Amex III, a small merchant sought to file a class action lawsuit alleging that Amex exploited its monopoly position in the market for revolving charge cards to impose anti-competitive prices.  However, the "take-it-or-leave-it" arbitration agreement which Amex required merchants to sign contained a "divide-and-conquer" clause that barred them from joining together to share litigation costs or to jointly prove-up their mutual allegations of a common anti-competitive scheme by Amex.  

The Majority recognized that under these ground rules no individual merchant would have the financial incentive to prosecute an anti-trust claim against Amex, which would thereby avoid any exposure to the claims regardless of their merit.  As the court explained, however, federal arbitration law "reflects the overarching principle that arbitration is a matter of contract" and the Court is therefore duty-bound to "rigorously enforce arbitration agreements according to their terms."  Thus, the Majority held that Amex's right to contract for arbitration rules of its choosing must preempt any right to effectively enforce anti-trust laws for the benefit of the public.  In the summary of the Dissent, if the arbitration agreement is framed in a way that prevents anti-trust enforcement that's just "too darn bad." 

Of course the Court's rationale is different from good, old-fashioned Lochnerism in that the source of the right to contract is now located in the federal arbitration act rather than the Due Process Clause of the Constitution itself.  But the principle is largely the same  -- by invoking the right to contract a company may effectively "opt-out" of unfavorable legislation.  

It remains to be seen whether an arbitration agreement can be so aggressively one-sided that even the present Court would not enforce it "according to its terms."  But in response to Amex III, corporate lawyers across the country are undoubtedly drafting agreements that will be testing these limits in short order.  For the time being, however, it appears that contract rights are once again clearly ascendant over statutory rights.                  

 

 

    

Strict Liability for Harassment Is Limited to "Supervisors" Who Can Hire and Fire -- Vance v. Ball State University

When a company is sued for sexual harassment it makes a big difference who the alleged perpetrator is. If the perp is a low level "co-employee," the Company is not responsible for his conduct unless it was negligent in failing to prevent his harassment or in failing to investigate or remedy the harassment after it was brought to light. By contrast, if the harasser is a "supervisor" the employer is strictly liable for his conduct regardless of its diligence or good faith.

In Vance v. Ball State University, the U.S. Supreme Court thus gave employers a big win by using a restrictive standard for who qualifies as a "supervisor" under Title VII. EEOC regulations defined a supervisor as anyone whose workplace authority was sufficient "to assist the harasser explicitly or implicitly in carrying out the harassment." The Court rejected this definition as a "study in ambiguity." Instead, it defined the term to include only those who are "empowered by the employer to take tangible employment actions against the victim."

There are probably three main points worth making about this definition. First, it definitely tightens the standard and, as a result, reduces the number of managers for whom employers will be strictly liable.

Second, this new test is not as unambiguous as the Majority seems to imagine. Large companies often require consensus decision-making and there may be precious few individuals who are individually "empowered" to fire or demote employees. For example, consider a line manager who can give an employee a poor performance review. Another higher-up manager can rely on that negative review to recommend the elimination of the position. An executive VP can act on that recommendation, but only so long as the CEO and head of the HR Department give their permission. Who "had the power" to fire the employee?

Finally, the Vance decision may not have much impact in California, as the state law anti-discrimination statute contains its own definition of "supervisor." The California Fair Employment and Housing Act ("FEHA"), defines a supervisor in much broader terms:

"Supervisor" means any individual having the authority, in the interest of the employer, to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

So, at least in California, employers will still be strictly liable for anyone who can control the alleged victim's job assignments or who can "effectively recommend" rewards or discipline.

What Does it Mean to Be Terminated "Because Of" A Protected Characteristic -- Harris v. City of Santa Monica

Under California law it is illegal to terminate an employee "because of" his race, gender, religion, etc.  In Harris v. City of Santa Monica, the California Supreme Court delved into the question of what that means where an employer had "mixed motives" for a decision.

In a mixed-motives case . . . there is no single “true” reason for the employer's action. What is the trier of fact to do when it finds that a mix of discriminatory and legitimate reasons motivated the employer's decision? That is the question we face in this case. 

Such a "mixed motive" scenario scenario might arise, for example, where a decisionmaker clearly considered an employee's race (or other protected status) in deciding to terminate.  But where there is also clear evidence (such as poor performance or misconduct) that the employer would inevitably have made the same decision even if race had not been considered.       

[W]hat legal consequences flow from an employer's proof that it would have made the same employment decision in the absence of any discrimination. To be clear, when we refer to a same-decision showing, we mean proof that the employer, in the absence of any discrimination, would have made the same decision at the time it made its actual decision.

This question led the Court down the rabbit hole of what might be termed the metaphysics of causation.   For example, the Court considered at length whether an employee who would have been terminated anyway has still been discriminated against if his protected status also played a  "substantial" or "motivating"  factor in the employer's mind.   In the end, the Court emerged with the following standard:

We hold that under the FEHA, when a jury finds that unlawful discrimination was a substantial factor motivating a termination of employment, and when the employer proves it would have made the same decision absent such discrimination, a court may not award damages, backpay, or an order of reinstatement.

Harris v. City of Santa Monica is important insofar as it clarifies the language that courts should include in their instruction to the jury.  However, I am skeptical that such granular semantic distinctions will make any difference to the deliberations of real jurors.  Jurors don't need an instruction to know what "because of" means.  They will continue to evaluate the credibility of witnesses and the totality of evidence and will arrive at their own gut level determination of whether the plaintiff was discriminated against "because of" his protected status.         

 

Internal Sexual Harassment Complaints are Protected by Anti-SLAPP statute -- Aber v. Comstock

California's so-called anti-SLAPP statute, CCP section 425.16 et seq., is a powerful weapon for quickly disposing of lawsuit based on allegations that arise out of free speech or "public participation."   To proceed with such a lawsuit the plaintiff must present admissible evidence establishing that he is "likely to prevail."   Moreover, he must normally make this heightened showing at the start of the case without the benefit of any discovery.  Most lawsuits which are covered by the anti-SLAPP statute fail to survive this rigorous test and are dismissed, which also triggers an obligation to pay the other side's attorney fees.  

In Aber v. Comstock the Califonia Court of Appeal has significantly expanded the reach of the anti-SLAPP statute by extending its protection to purely internal complaints of sexual harassment.  As the court explained:

 Aber argued that her statements to Bush, the Kluwer HR manager, are protected under section 425.16, subdivision (e)(1) and (e)(2), as statements prior to litigation or other official proceedings. Her theory was that the statements were necessary to address a commonly used affirmative defense by an employer in a sexual harassment case—a defense, not incidentally, that Kluwer has in fact asserted against Aber here.  We agree.

As a result, the accused harasser's lawsuit for defamation based on these internal allegations was dismissed under the anti-SLAPP procedure.  Aber thus serves as a cautionary tale to any employer or co-employee who might otherwise be tempted to file a cross-complaint against a sexual harassment accuser -- unless your counterclaim is exceptionally strong on its face it will likely backfire and result in liability for attorney fees under the anti-SLAPP statute.    

Class Certification is Appropriate Where Employer has No Break Policy -- Bradley v. Networkers International, LLC

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.     

 

Bad "Business Judgment" is not Discrimination -- Veronese v. Lucasfilm

The challenge in discrimination cases is always proving the subjective intent of the decisionmaker.  In other words, was the decision motivated by some legitimate business reason, or did the company base its decision on the plaintiff's _______? [fill in the legally protected category] 

As there is no way to peer into the mind of a decisionmaker the fact-finder must resort to making inferences from the surrounding circumstances.  And this raises a host of thorny issues regarding what constitutes legitimate evidence to prove up this inference of discrimination, and how such evidence may be considered.   

For example, in Veronese v. Lucasfilm a jury found that Lucasfilm had not hired the plaintiff due to her pregnancy.  The reviewing court, however, reversed the verdict and remanded the case for retrial because the judge had failed to give the jury the following special instruction:

You may not find that Lucasfilm discriminated or retaliated against Julie Gilman Veronese based upon a belief that Lucasfilm made a wrong or unfair decision. Likewise, you cannot find liability for discrimination or retaliation if you find that Lucasfilm made an error in business judgment. Instead, Lucasfilm can only be liable to Julie Gilman Veronese if the decisions made were motivated by discrimination or retaliation related to her being pregnant.

The purpose of the instruction is merely to advise the jury that it is not illegal, by itself, to treat someone unfairly or to do something that seems illogical.  Going forward some version of this instruction, which the parties and the Court referred to as a "business judgment instruction," will effectively be mandatory in all disparate treatment discrimination cases. 

Companies should not rely too heavily on this "business judgment" rule, however.  Like many legal instructions it may not have much impact on the deliberations of real juries.  Jurors are looking for logical reasons to explain what happened.  It is not particularly persuasive for an employer to argue that "our reason for firing the plaintiff may seem illogical and unfair but he still can't prove the real reason was discrimination."   Jurors are usually more than willing to chose an illegal reason over an illogical reason as the most likely version of what really happened.         

Employees Who Wear "Two Hats" Can Have Two Separate Employment Contracts -- Faigin v. Signature Group Holdings

For various legal and financial reasons large corporations frequently do business through an array of interrelated parent, subsidiary and sibling entities.  Executives and other employees are frequently shifted back and forth or end up working for two different entities at the same tme.  (I have been involved in several cases in which highly placed executives literally did not know which corporate entity employed them.) 

The holding in Faigin v. Signature Group Holdings, Inc. illustrates that one consequence of this scenario is that an employee who works for two different entities may have two different contracts.  The employee may have an integrated, written employment contract with a parent company that is terminable at-will.  But unless the contract is specifically worded to govern all employment with related entities there is no reason that a "dual employee" cannot also have a separate implied agreement with a subsidiary company that requires a higher standard for termination.   As the Faigin Court explains:

 

A subsidiary employing an individual who has a written employment contract with the parent conceivably could agree to continue to employ the individual unless there is good cause to terminate the employment even if the parent, for whatever reason, terminates the individual's employment with the parent.

 

Thus, the Court upheld a $1.37 million wrongful termination award against a subsidiary company despite the fact that the executive's written contract with the parent company stated that his employment was terminable at-will.

Employers who wish to avoid this problem might draft their an at-will termination provision to specifically govern any potential employment relationships with related companies.  But  having one corporation control the labor policies of another in this manner naturally tends to erode any claim that they are entirely separate entities and thus open the possibility of alter ego claims and the like.         

 

At-Will Termination May Be Fatal to Independent Contractor Status -- Monarrez v. Automobile Club of Southern California

In Monarrez v. Automobile Club of Southern California a motorist was struck by a car while his disabled vehicle was being hooked up by a tow truck operator who had been dispatched by the defendant.  This raised the question of whether the tow truck operator was an employee for whom the dispatching company was legally responsible, or an independent contractor.  

In conducting this analysis the Court hit all the usual points.  Noting for example that "The label placed by the parties on their relationship is not dispositive" and that the essence of the test is "whether the principal has the right to control the manner and means by which the worker accomplishes the work."  

But most interesting was the degree to which the court stressed the company's right to terminate the relationship at-will as a nearly outcome-determinative indication of "control." 

The right to terminate employment at any time strongly tends to show the subserviency of the employee, since it is incompatible with the full control of the work usually enjoyed by an independent contractor. Perhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so.

Other courts have tended to treat the right to terminate at-will as a mere "secondary" factor apart from the central control issue.  But if the trend is to treat an at-will termination provision as dispositive (or nearly so) it will go a long way toward creating a bright-line rule which can be evaluated on the face of the parties' contract.   

Monarrez involved tort liability to an injured third party.  But the greatest exposure for many employers will arise from Labor Code section 226.8 which imposes a penalty of up to $25,000 for each misclassified contractor (not to mention the separate obligations to reimburse the expenses and pay overtime wages to misclassified employees).   

    

Charging Union Dues for Politcs may Violate Free Speech Rights of Non-Members -- Knox v. SEIU

In Knox v. Service Employees Int' Union, Local 1000, the SEIU imposed a special assessment on all employees which it represented -- union members and non-members alike -- in order to fund a special campaign to defeat  Propositions 75 and 76, which were part of Arnold Schwarzenegger's 2005 attempt at public finance reform. 

The non-members brought a class action alleging that this violated prior Supreme Court precedent holding that a public sector union cannot charge non-member employees for the cost of its political activities without first giving them prior written notice and an opportunity to opt out of the payments (i.e., so-called "Hudson Notice").  The Court agreed.

The result itself was pretty obvious.  But what was really interesting about the decision is the extent to which the Supreme Court laid the groundwork for a future decision that might strip unions of the right to make coerced political contributions from non-members. For example, the Court first explained that imposing mandatory charges for political purposes inevitably raises serious First Amendment concerns:

When a State establishes an “agency shop” that exacts compulsory union fees as a condition of public employment, the dissenting employee is forced to support financially an organization with whose principles and demands he may disagree. Because a public-sector union takes many positions during collective bargaining that have powerful political and civic consequences the compulsory fees constitute a form of compelled speech and association that imposes a “significant impingement on First Amendment rights.”

In contrast with this impingement on employee constitutional free speech rights, the Court noted that "“unions have no constitutional entitlement to the fees of nonmember-employees” and their “collection of fees from nonmembers is authorized by an act of legislative grace . . . that we have termed “unusual” and “extraordinary.”  Interestingly the Court then cast doubt on the continuing validity of the precedents allowing such political deductions under certain circumstances as an "anomaly" that may violate the First Amendment. 

By authorizing a union to collect fees from nonmembers and permitting the use of an opt-out system for the collection of fees levied to cover nonchargeable expenses, our prior decisions approach, if they do not cross, the limit of what the First Amendment can tolerate.

(emphasis added). 

Thus, while the SEIU's political charges were easily struck down because they were not preceded by notice and a right to opt-out, the Court clearly implied that even these procedural protections may not be enough to justify such deductions in the future.

 

 

 

 

Webinar - The Impact of Brinker: Understanding The Supreme Court's Decision On Meal & Rest Breaks

Be among the first in California to understand the complete impact the monumental decision in Brinker v. Superior Court will have on employers. The Court’s decision is expected on April 12, and Anthony Zaller and Daniel Turner will analyze and discuss the impact of the decision. The webinar will explain the decision and what it means for employers and wage and hour class actions, discussing among other items:

  • Can meal periods be offered to employees, or do they need to be ensured?
  • When during the shift can meal and rest periods be taken?
  • What does the Court’s ruling mean for the status of meal and rest break class actions and class certification issues?
  • What is the impact for cases currently being litigated?

The cost is $150 per connection. 

Date: Wednesday, April 18
Time: 10:00 a.m. PST

Click here to register.  Existing clients can email us here to have the fee waived.

Unpaid Wages May be Recovered Under PAGA -- Thurman v. Bayshore Transit Management, Inc.

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.

 

      

 

     

NLRB Holds Class Arbitration Waivers Are an Unenforceable "Unfair Labor Practice" -- D.R. Horton, 357 NLRB No. 184

The National Labor Relations Board (NLRB) has now weighed into the fray concerning the enforceability of class arbitration waivers. Its January 3, 2012 decision in D.R. Horton, 357 NLRB No. 184, the Board held that class arbitration waivers are unenforceable under the federal National Labor Relations Act (“NLRA”).  

The Right to Bring Class-Wide Claims is a Form of “Protected Concerted Activity” under Section 7 of the NLRB.

As the Board’s decision explains, Section 7 of the NLRA expressly protects the rights of employees to engage in “concerted activity” for purposes of “mutual aid or protection.” Over 80 years of decisional law, the scope of this “mutual aid or protection” clause has been broadly interpreted to include just about any effort by more than one employee to raise complaints or improve working conditions. In addition, “the Board has consistently held that concerted legal action addressing wages, hours or working conditions is protected by Section 7.”

The Board then made the short analytical leap to conclude that class litigation is a form of protected concerted activity, holding that:

 When multiple named-employee-plaintiffs initiate the action, their activity is clearly concerted. In addition, the Board has long held that concerted activity includes conduct by a single employee if he or she “seek[s] to initiate or to induce or to prepare for group action.” [Citation] Clearly, an individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7. 

These forms of collective efforts to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7. Such conduct is not peripheral but central to the Act's purposes. After all, if the Respondent's employees struck in order to induce the Respondent to comply with the FLSA, that form of concerted activity would clearly have been protected. See NLRB v. Washington Aluminum Co., 370 U.S. 9 (1962). Surely an Act expressly stating that “industrial strife” can be “avoided or substantially minimized if employers, employees, and labor organizations each recognize under law one another's legitimate rights in their relations with one another,” equally protects the concerted pursuit of workplace grievances in court or arbitration. To hold otherwise, the Supreme Court recognized in Eastex [Inc. v. NLRB, 437 U.S. 556 (1978)],“could ‘frustrate the policy of the Act to protect the right of workers to act together to better their working conditions.”’437 U.S. at 567 (quoting Washington Aluminum, 370 U.S. at 14).

By extension requiring employees to forego collective legal action is an “unfair labor practice” under Section 8(a)(1) of the Act, which prohibits any restraint or interference with Section 7 rights. 

At this point it is probably worth pointing out that (contrary to a misconception among many employers and employees), NLRB Section 7 rights are not limited to union members or union organizing activities. Rather, these rights extend to virtually all non-managerial employees regardless of union affiliation. Thus, the prohibition on waiving class litigation or arbitration rights under D.R. Horton, applies equally to union and non-union workforces alike.

Section 7 of The NLRB Trumps The Policy Concerns AT&T Mobility v. Concepcion.

In AT&T Mobility v. Concepcion, the U.S. Supreme Court upheld the enforceability of a class action waiver contained in a consumer arbitration agreement. However, as the NLRA was enacted after the FAA and is more specific in its protections it would necessarily trump the FAA and the holding in Concepcion. 

As a result, the D.R. Horton decision essentially holds that collective or class claims by employees must be carved out of any general rule upholding waivers in other contexts. As the Board explained:

[T]he holding in this case covers only one type of contract, that between an employer and its covered employees, in contrast to the broad rule adopted by the California Supreme Court at issue in AT&T Mobility. Accordingly, any intrusion on the policies underlying the FAA is similarly limited.

The Board’s interpretation of the NLRA is not, strictly speaking, binding on court or arbitration proceedings. However, it is very likely to be followed by any court or arbitrator tasked with deciding whether a class arbitration agreement is enforceable. Unless overturned on appeal, the D.R. Horton case thus appears to be a nearly fatal blow to employer attempts to enforce arbitration waivers.

California Supreme Court Decision in Brinker Delayed

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.  

   

California Supreme Court Likely to Issue Ruling in Brinker Restaurant v. Superior Court Soon

Today, the California Supreme Court set oral argument in Brinker Restaurant v. Superior Court (Hohnbaum) to take place on November 8, 2011. The Court typically provides a ruling on cases within 90 days of oral argument, so I expect a ruling very early in 2012.

This case is the much anticipated ruling on whether employers need to “ensure” meal breaks or merely make the breaks available to employees.  The Supreme Court explains, "This case presents issues concerning the proper interpretation of California's statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers."   Click here for a detailed analysis of the lower court’s ruling and the different issues that the Supreme Court may address.

We will continue to provide case updates routinely as the decision nears. 

Does Wal-Mart v. Dukes Impact California Wage and Hour Claims -- U.S. Supreme Court Vacates Certification Order in Chinese Daily News v. Wang

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 Granting Class Certification District Courts "Must" Consider the Merits of the Claims -- Ellis v. Costco Wholesale Corp.

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.

  

First California Court Pushes Back Against AT&T Mobility v. Concepcion -- Brown v. Ralphs Grocery Company

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.

Shades of O.J. -- Casey Anthony Verdict May Affect Settlement Negotiations In Jury Cases

For years it was a common refrain for mediators and attorneys in L.A. to persuade clients to settle before trial with statements to the effect that "remember, your case will be decided by the same jury pool that decided O.J. Simpson wasn't guilty -- no matter how good you think your case is absolutely anything can happen in a jury trial."

It wasn't a Los Angeles jury this time but it appears that Casey Anthoy may be the new poster child for jury irrationality.  In fact, O.J. prosecutor Marcia Clark thinks the Casey aquittal is even worse.  I think she may be right. 

Court Clarifies Pay Stub Requirements -- McKenzie v. FedEx

 The federal district court decision in McKenzie v. FedEx, provided some useful guidance to employers and employees regarding what information must be included in pay statements under Labor Code section 226(a).  For example, in fulfilling the requirement to show "all hours worked," a wage statement doesn't necessarily have to contain a separate line item listing that number.  However, the wage statement must contain sufficient information for an employee to easily add up the total hours from the other lines.  

In McKenzie, the court granted summary judgment to the employee on the ground that FedEx's "idiosyncratic" wage statements were not self-explanatory and therefore failed the test.  

[T]he total regular and overtime hours listed in FedEx's wage statements, when added together, do not sum up to the total hours worked by the employee during the pertinent time period. Without additional information regarding the wage statement, an employee cannot simply “arrive at the sum of hours worked.”  Evidence of this can be seen in the sample wage statement provided by FedEx for McKenzie's pay period ending on March 21, 2009. When the total overtime categories and the regular rate hours listed in that document are added together, the sum of these figures is 58.24, which represents a total of 40 regular hours and 18.24 overtime hours. However, because information provided by FedEx (and not disclosed on the wage statement itself) explains that the overtime hours are always listed twice, the sum of all of the figures on the wage statement during the relevant period is actually 49.12, not 58.24.  Thus, the Morgan rationale, which contemplates that an employee can determine his or her total hours worked by summing up the figures on a wage statement without need to reference any other time records or other documents, does not apply to FedEx's somewhat idiosyncratic wage statement.  Accordingly, the Court finds that FedEx violated Section 226(a)(2) by failing to state the “total hours worked by [an] employee” in its wage statements.

The Court also found that FedEx's wage statements violated Section 226(a)(6) because they listed only the end date and not the start date of the covered pay period, and violated Section 226(a)(9) because they failed to separately list the applicable overtime rate of pay.   The Court further held that these violations would trigger penalties on behalf of all similarly situated employees under the Private Attorney General Act of 2004 ("PAGA"), regardless of whether the employees had suffered any specific injury.

It is surprising how many employers, even large employers like FedEx, will incorrectly assume that the design and content of their pay stubs is a trivial issue.  In reality, the Labor Code recognizes that supplying employees with the information necessary to review their own wages and hours for legal compliance is a crucial part of the overall enforcement scheme. 

As a result, Labor Code Section 226(a) requires the issuance of accurate, itemized wage statements that contain the specific categories of information spelled out in the Labor Code. The good news for employers is that Section 226(a) sets up clear, bright-line requirements which should be easy to follow.  The bad news is that Section 226(e) and PAGA impose penalties for issuing defective statements.  And due to the typically uniform nature of a wage statement program these penalties claims are likely to be assessed on behalf of every employee who ever received a statement.

  

 

California Wage Laws Apply to Non-California Residents Working Temporarily In The State -- Sullivan v. Oracle

As the "global economy" becomes more fluid it is increasingly common for employees to cross borders for short-term assignments.  This can lead to confusion concerning the proper calculation of wages for these assignments  -- e.g., should it be based on the law where the work is performed, or where the employee lives?

In Sullivan v. Oracle the California Supreme Court has clarified that California's overtime rules apply to anyone performing work within the state, regardless of their state of residency or how long they may be working in California. 

Although the Court's ruling is technically limited to overtime rules the same analysis would necessarily also apply to most other Labor Code protections.  Thus, employers and workers alike should assume that the provisions of the Labor Code will generally govern any work performed in California. 

In a secondary part of the decision the Court also held that plaintiffs could not use California's unfair competition law ("UCL") to recover overtime payments which were earned under federal law in another state.  That would be stretching the long arm of California law a bit too far.

 

 

California Court Requires Evidence of Same-Sex Harasser's Sexual Orientation -- Kelley v. The Conoco Companies

It is well-settled that an employee may state a claim for sexual harassment even if the harasser is the same gender as the victim.  But it is still mandatory to prove that the harassing conduct was directed at the victim "because of" his or her gender. 

Courts have been fairly willing to infer that any sexually charged comments from a man to a woman are based on her sex.  But when one (presumably heterosexual) man uses sexually charged comments to harass or intimidate another man courts have been much less likely to find that the conduct was "based on sex."

In Kelley v. The Conoco Companies, for example, the Fifth District Court of Appeal recently dealt with a same-sex harassment claim arising out of an incident on a construction site.  The plaintiff's foreman started out criticizing his technique for tying re bar and then proceeded to unleashed a slew of gay-sex themed comments about how he was going to make the plaintiff his "bitch," etc.  I won't repeat all the graphic comments, but if your into that kind of thing you can see them here.     

Despite the sexual nature of the comments, the Court upheld the grant of summary judgment on the ground that the Plaintiff had presented no evidence that the comments were "based on sex."  As the Court explained:

 The statements made to Kelley were crude, offensive and demeaning, as it was evident that they were intended to be. No evidence, however, was presented from which a reasonable trier of fact could conclude that they were an expression of actual sexual desire or intent by [the harasser], or that they resulted from Kelley's actual or perceived sexual orientation. The mere fact that words may have sexual content or connotations, or discuss sex is not sufficient to establish sexual harassment. While the use of vulgar or sexually disparaging language may be relevant to show discrimination, it is not necessarily sufficient, by itself, to establish actionable conduct. 

The Court went on to hold that in a same-sex harassment case a plaintiff must present "evidence that an alleged harasser was acting from genuine sexual interest" in order to raise "an inference of discrimination because of sex."

The Court's ruling seems problematic in several regards.  First, I don't see why the Court is so certain that a reasonable jury could not question the sexuality of a male who told another man he wanted to have sex with him. 

Second, to avoid summary judgment the Court's rule would apparently require plaintiffs to do pre-trial discovery and present evidence on the "genuine sexual interests" of the harasser.  One can only imagine the problems this rule will cause in practice.  Will plaintiffs be required to do discovery on a harasser's past sexual partners?  Will alleged harassers be required to undergo court ordered mental exams to ferret out evidence of repressed homosexual tendencies?

The Kelley Court also acknowledges that it creates a split with the Second District's 2006 opinion in Singleton v. United States Gypsum Company, which held that no evidence of a same-sex harasser's homosexuality is required.  Thus, this is an issue that may well be headed to the California Supreme Court.

 

AT&T Mobility v. Concepcion Unsettles State Arbitration Rules

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. 

Class Action Waivers Alive Again In California - AT&T Mobility v. Concepcion

California employers have long argued that arbitration agreements that require employees to only bring their cases as individual cases and not class actions should be enforceable. California courts routinely disagreed with this rational, arguing that class action waivers effectively obstructed employees’ rights because the employees were less likely to sue if only suing to recover their individual damages. The California Supreme Court explained in Discover Bank v. Superior Court that most arbitration agreements in the consumer context waiving the right to bring a class action were unconscionable contracts under California law. This rule has also carried over into the employment context and invalidating most employment arbitration agreements in which the employee waived any right to bring a class action for claims that arose during employment. But this week, the California Supreme Court’s decision was expressly overturned by the United Stated Supreme Court in AT&T Mobility LLC v. Concepcion.

The United States Supreme Court held in AT&T Mobility LLC v. Concepcion that the California Discovery Bank ruling “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” by enacting the Federal Arbitration Act (FAA). In the case, Plaintiffs brought suit against AT&T for false advertising and fraud by claiming that it provided consumers with a free phone, but the Plaintiffs were required to pay sales tax on the phones, and Plaintiffs alleged therefore the phones were not “free.” AT&T had an arbitration agreement that prevented Plaintiffs from bringing a class action, and required the Plaintiffs to arbitrate their claims. The lower courts held that California’s Discover Bank rule invalidated the class action waiver in the agreement as “unconscionable”. In overturning the lower courts, the US Supreme Court held that California’s Discover Bank rule “classifying most collective-arbitration waivers in consumer contracts as unconscionable” is a clear obstacle to the goals of the FAA. Therefore the FAA preempted California’s Discover Bank rule, allowing the class action waiver in the arbitration agreement to be enforceable.

Ramifications For California Employers

Until now, most class action waivers contained in arbitration agreements entered into with employees were unenforceable under California law. Now the AT&T Mobility decision gives employers an argument again that these types of agreements are permitted under Federal law, and therefore are enforceable. California employers still must be careful to follow other considerations to make such agreements enforceable, and it is important to keep in mind that the AT&T decision was in the consumer context – not an employment agreement.

NLRB Accuses Boeing of Illegally Moving Production Facility to South Carolina

The General Counsel of the National Labor Relations Board has issued a complaint against Boeing claiming that it will violate federal labor law if it follows through on its decision to open a production line in South Carolina instead of the Puget Sound area. 

Since the 1930's the guiding principle of federal labor law has been to create a fair and level playing field for collective bargaining.  It is not intended, however, to dictate the results of that bargaining or to compel specific business decisions like when and where to open manufacturing facilities.   Thus, businesses are normally free to make decisions about where to locate their plants. 

On the other hand, the Nation Labor Relations Act does prohibit employers from making specific threats or promises designed to coerce workers from forming unions or engaging in other protected activities.  For example, if an employer tells its workers before a unionization vote that it will shut down the plant and move to Mexico rather than allow a union that would clearly violate the Act.

The NLRB is seeking to extend this anti-coercion theory as the hook to require Boeing to keep its production facility in a pro-union state.

In repeated statements to employees and the media, company executives cited the unionized employees’ past strike activity and the possibility of strikes occurring sometime in the future as the overriding factors in deciding to locate the second line in the non-union facility.

The NLRB launched an investigation of the transfer of second line work in response to charges filed by the Machinists union and found reasonable cause to believe that Boeing had violated two sections of the National Labor Relations Act because its statements were coercive to employees and its actions were motivated by a desire to retaliate for past strikes and chill future strike activity.

Barring an employer from relocating a plant on the ground that it might chill speculative future strikes represents quite a stretch over prior precedents.  It is unclear whether this is a serious complaint or a case of political posturing.  However, this NLRB Complaint is sure to set off a wave of controversy as it inevitably pits the interests of Washington State and South Carolina against one another.        

US Supreme Court Holds Employers May Be Liable Under "Cat's Paw" Theory

Today, the U.S. Supreme Court ruled that an employer can have liability for discrimination based on a “cat’s paw” theory. As the Court explained in its decision Staub v. Proctor Hospital, the theory derives its name from a fable of Aesop. In the fable, a monkey convinces a cat to pull hot chestnuts from a fire (burning its paws in the process) and taking the chestnuts, leaving the cat with nothing for its efforts.

In this case, the plaintiff sued his employer for discrimination in violation of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). The plaintiff alleged that his supervisors discriminated against him due to his role as a military reservist. The plaintiff did not allege that the person who made the final employment decision to terminate his employment (Proctor’s HR manager, aka the cat), but that the decision was influenced by his two directed supervisors who did have animus towards his military service. As the Court explained:

The central difficulty in this case is construing the phrase “motivating factor in the employer’s action.” When the company official who makes the decision to take an adverse employment action is personally acting out of hostility to the employee’s membership in or obligation to a uniformed service, a motivating factor obviously exists. The problem we confront arises when that official has no discriminatory animus but is influenced by previous company action that is the product of a like animus in someone else.

While this case involved liability under USERRA, the Court noted that USERRA is “very similar” to Title VII which prohibits discrimination based on an individual’s race, color, religion, sex, or national origin. Therefore, it is very likely courts will hold that the “cat’s paw” theory of liability will extend into the more prevalent Title VII claims.

Also, as noted by the Ohio Employer’s Law Blog, this ruling will likely make it very difficult for employers to dispose of discrimination cases at the summary judgment stage as supervisor’s intent and causation issues almost always involve issues of fact. The likely result is that any cat’s paw theory cases will survive summary judgment and be heard before a jury. The case, Staub v. Proctor Hospital, can be downloaded from the Supreme Court’s website here [PDF].

Monetary PAGA Penalties Appy to Violation of Wage Order Working Condition Provisions -- Bright v. 99 Cent Only Stores

In Bright v. 99 Cent Only Stores, the Second Appellate District reversed the dismissal of a cashier's claim for penalties because her employer failed to give her a place to sit while she was working.  One unfamiliar with California's unique employment law enforcement scheme may be excused for reacting along the lines of "so what? that sounds like no big deal." 

Au contraire gentle reader. In fact, this may be a very big deal and may signal a whole new wave of employment litigation in California.

The reason is that providing "suitable seats" to employees is one of the many "working condition" provisions contained solely in the administrative Wage Orders.  These requirements generally provide no express remedy or private right of action.  To the extent employers have even been aware of these administrative working condition provisions at all (which most aren't) they have generally been ignored on the assumption that they could be enforced only through a governmental prosecution for injunctive relief.  And given budget restrictions and the lack of any realistic monetary penalty these "Wage Order only" regulatory requirements have gone essentially unenforced. 

By contrast, since the advent of the Labor Code Private Attorney General Act of 2004 ("PAGA"), violations of the Labor Code have triggered penalties of at least $100-200 for each pay period that the violation continues.  In a class or collective action on behalf on an entire workforce these penalties can add up very quickly indeed.  By its terms, however, PAGA applies only to violations of the "Labor Code." 

The great innovation of Bright v. 99 Cent Only Stores, is that it extends PAGA remedies to the violation of obligations which are contained solely in the administrative Wage Orders and which are not independently set forth in the Labor Code.  It does this with an assist from Labor Code section 1198, which states that:

“The maximum hours of work and the standard conditions of labor fixed by the commission shall be the maximum hours of work and the standard conditions of labor for employees. The employment of any employee for longer hours than those fixed by the order or under conditions of labor prohibited by the order is unlawful.”             

The Court in Bright reasoned that Labor Code section 1198 effectively incorporates the provisions of the Wage Orders and converts them into a separate violation of Labor Code section 1198 itself.  Once converted to a "Labor Code" violation, the non compliance now triggers the scary penalty and collective action remedies set forth in PAGA.

For example, by failing to provide a chair at its cashier stations 99 Cent Only Stores could owe $200 per month to every cashier in California for the entire limitations period -- which could certainly equal many million of dollars in the aggregate.    

Cataloging the previously unenforced Wage Order provisions which are now enforceable under PAGA is probably worthy of a separate blog post.  But the Bright decision noted that these obligations may include topics as diverse as keeping adequate records of hours worked, supplying tools and uniforms, providing changing rooms and rest facilities, providing adequate seating, and maintaining an appropriate workplace temperature.  

In light of the Bright decision, employers would be well advised to familiarize themselves with the more obscure Wage Order working condition requirements that they have probably been ignoring and to begin aggressive compliance efforts.    

    

Ninth Circuit Defines Limits of Labor Law Antitrust Exemption -- State of California v. Safeway, Inc.

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

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

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

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

 

Discriminatory "Stray Remarks" May Defeat Summary Judgment -- Reid v. Google

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

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

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

Some Wage and Hour Claims May Be Insurance Covered -- California Daries, Inc. v. SRUI Indemnity Co.

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.      

California Courts Provide Yet More Guidance on Drafting Class Action Settlements -- Munoz v. BCI Coca-Cola Bottling Co.

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.

 

Parties Have Flexibility in Allocating Settlement Amounts in Class Actions -- Nordstrom Commission Cases

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.  

 

Promoting A Product Without The Ability to Close a Sale is not Exempt "Outside Sales" Activity -- In re Novartis Wage and Hour Litigation

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

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

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

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

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

California Supreme Court Trims Back Attorney Fees For Plaintiffs Attorneys -- Chavez v. City of Los Angeles

Most employment law claims, including most claims for discrimination and unpaid wages, require the award of attorney fees to a "prevailing plaintiff."  Indeed, it is very common for a Plaintiff to recover tens of thousands in damages at trial and yet be awarded hundreds of thousands of dollar to compensate his attorney for the time spent on the case.  This creates a strong incentive for employers to reach early settlement in small dollar cases before the accumulated attorney fees become the driving economic factor in the case.  Many an employer has settled a case based on the threat that "if plaintiff recovers one dollar, you will have to pay all of his attorney fees."

The recent California Supreme Court decision in  Chavez  v. City of Los Angeles threatens to change that dynamic by giving trial courts the discretion to severely limit the recovery of attorney fees where a plaintiff achieves only limited success.  In Chavez the plaintiff sued and won at trial in an action for discrimination in violation of the California Fair Employment and Housing Act the ("FEHA").  At trial, however, she recovered a mere $11,500 in damages.  Yet her attorneys claimed a whopping $870,935.50 in fees for prevailing in the case.  

The Supreme Court decided that "in light of plaintiff's minimal success and grossly inflated attorney fee request, the trial court did not abuse its discretion in denying [all] attorney fees."   In reaching this result, the Court articulated the following guidelines for trial courts to consider in deciding whether to reduce, or even deny outright, any fee request.

  • Where a plaintiff brings an "unlimited civil action" and yet recovers less than $25,000 (which is the maximum jurisdictional threshold for a streamlined "limited" civil action), the trial court has greater discretion to deny the request  for fees.
  • Plaintiffs are not entitled to recover for attorney time expended on any factually distinct claim on which they did not prevail.
  • “A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether."

The bottom line is that Plaintiffs attorneys can no longer assume that they will be permitted to recover all of their fees even if they prevail.  If a request is grossly disproportionate to the plaintiff's actual recovery they will face the prospect of taking a substantial "haircut" on their fees.  Indeed, if the trial judge believes they are being greedy or padding their fee request they may get nothing at all.   

Vesting of Incentive Compensation -- Schachter v. Citigroup, Inc.

The California Labor Code is very strict in protecting an employee's right to be paid for all compensation that he earns.  As we have repeatedly blogged in the past, it is often a thorny issue to determine exactly when these protections attach -- in other words, when has a mere hope or expectation of a reward matured into a fully vested proprty right that must be paid by the employer without further delay or reduction?  

The California Supreme Court recently shed a bit more light on this issue in Schachter v. Citigroup, Inc.  In that case, a stockbroker had elected to take some of his compensation in the form of "restricted stock," which would only vest if he were still employed by the Company on a specified date.  The broker quit before the vesting date and never received the stock.  Schachter argued that  this arrangement violated the Labor Code because it required him to "forfeit" compensation that he had already earned.  (He also argued that it was irrelevant that he had agreed to the deal in the first place because the Labor Code also prohibits any agreement to waive its protections).

The Supreme Court rejected the theory that this restricted stock deal was an illegal forfeiture.  In doing so, the Court basically construed the deal as a "stay bonus" or "longevity bonus."  Under this construction, the employee never earned the compensation in the first place because he voluntarily quit.

Only when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation (thereby necessitating payment upon resignation or termination).

The Court seemingly went out of its way, however, to caution employers against overreaching.  For example, the Court specifically noted that bonuses, commissions, and other incentive compensation may have to be paid out where the worker does not quit but is fired.  

If the employee is discharged before completion of all of the terms of the bonus agreement, and there is not valid cause, based on conduct of the employee, for the discharge, the employee may be entitled to recover at least a pro-rata share of the promised bonus.  In the analogous context of commissions on sales, it has long been the rule that termination (whether voluntary or involuntary) does not necessarily impede an employee's right to receive a commission where no other action is required on the part of the employee to complete the sale leading to the commission payment.  This concept has been colorfully described as “He who shakes the tree is the one to gather the fruit.”

The Bottom Line:  Employers may lawfully condition bonus payments on an employee's voluntary decision to quit.  But employers generally cannot condition payment on matters solely within their own unilateral control, such as a decision to fire an employee before he can perform all of the contractual conditions.  

     

Ninth Circuit Authorizes a Practical "Alternative Workweek" Solution -- Parth v. Pomona Valley Hospital

In Parth v. Pomona Valley Hospital Medical Center, the Ninth Circuit authorized employers and employees to exercise some flexibility in attempting to work around the overtime requirements of the FLSA.

In Parth, a group of nurses was originally assigned to work almost exclusively in 8-hour shifts.  The majority of the nurses, however, "preferred working 12-hour shifts in order to have more days away from the hospital."  As a result, the Company implemented a new pay plan.

The pay plan provided nurses the option of working a 12-hour shift schedule in exchange for receiving a lower base hourly salary (that at all times exceeded the minimum wage set forth by the FLSA) and time-and-a-half pay for hours worked in excess of eight per day. The result: nurses, who volunteered for the 12-hour shift schedule, would make approximately the same amount of money as they made on the 8-hour shift schedule (while working the same number of hours and performing the same duties).

Several years later Parth filed a class action claiming that the whole plan was just an artificial scheme to avoid paying overtime, and that the lower base rate for 12 hour shifts therefore violated the FLSA.  The Court disagreed.  It held instead that the use of a lower base rate of pay for longer shifts is permissible so long as the rate is not so low as to be wholly "unrealistic and artificial." 

A number of other factors, while not strictly relevant to its interpretation of the FLSA, also influenced the Court.  For example, the employees had apparently expressed their preference for the longer shifts, the 12 hour shifts were voluntary, and  the whole arrangement was eventually codified in a CBA that was ratified by the bargaining unit.   Under these circumstances it was pretty difficult to paint a picture of employees being unfairly exploited.

Since its passage in the 1930's the FLSA has been one of the preeminent examples of government paternalism designed to protect employees by taking away their right to bargain with their employers over certain working conditions.  The Parth decision is an especially refreshing development because it restores a small degree of discretion to employers and employees to work together to craft "win-win" alternatives to the standard 9 to 5 workweek.  

 

Dan Rather's Wrongful Termination Suit Against CBS is Dismissed Pursuant to "Pay or Play" Clause

Dan Rather was famously terminated following his 2004 "60 Minutes II" report which used forged documents to accuse George W. Bush of evading military service.   And a New York State Appellate Court has just dismissed the last remnants of Rather's wrongful termination lawsuit against the network.

After the 2004 scandal, CBS had continued to pay Rather's $6 million salary even while it stopped using his services for any on-air broadcasts.  Once he was formally terminated in June 2006, CBS accelerated and paid the remaining five-months of compensation due under the term of the contract. 

Rather claimed, however, that if he were not utilized as the CBS Evening News anchor his contract required CBS to reassign him to actual broadcast stories on 60 Minutes or 60 Minutes II.  The Appellate Court disagreed.  It held that the contract's "pay or play" clause clearly allowed the network to keep him off the air so long as it continued to pay the compensation due under the contract.

Rather claims that, in effect, CBS "warehoused" him, and that, when he was finally terminated and paid in June 2006, CBS did not compensate him for the 15 months "when he could have worked elsewhere." This claim attempts to gloss over the fact that Rather continued to be compensated at his normal CBS salary of approximately $6 million a year until June 2006 when the compensation was accelerated upon termination, consistent with his contract.

Contractually, CBS was under no obligation to "use [Rather's] services or to broadcast any program" so long as it continued to pay him the applicable compensation. This "pay or play" provision of the original 1979 employment agreement was specifically reaffirmed in the 2002
Amendment to the employment agreement.
 

The Court also dismissed Rather's final claim that CBS breached a fiduciary duty on the ground that "employment relationships do not create fiduciary relationships."   

Employers Cannot Avoid Liability For Discrimination By Subcontracting Hiring Decisions -- Halpert v. Manhattan Apartments

In Halpert v. Manhattan Apartments, Inc. a job applicant sued after being told he was "too old" for a position.  The prospective employer initially won summary judgment on the ground that it was not liable as the hiring decision was made by an outside contractor who was not its employee.  

The Second Circuit reversed on the ground that the independent contractor status of the decision maker was irrelevant -- so long as he was acting as an authorized agent on behalf of the Company it is directly liable for his discriminatory decisions:

That prohibition [against age discrimination] applies regardless of whether an employer uses its employees to interview applicants for open positions, or whether it uses intermediaries, such as independent contractors, to fill that role. . . . [I]t makes no difference whether the person whose acts are complained of is an employee, an independent contractor, or for that matter a customer.  If a company gives an individual authority to interview job applicants and make hiring decisions on the company's behalf, then the company may be held liable if that individual improperly discriminates against applicants on the basis of age.

This result is logically sound since a corporation acts only through its agents and must therefore bear legal responsibility for the illegal personnel decisions of those agents.   The decision is a stark reminder, however, that employers cannot absolve themselves of liability merely by delegating personnel decisions to outsiders such as temp agencies, business consultants, or even unions. 

Court holds independent contractor status of cab drivers not suitable for class action.

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.”

Based on these facts, the trial court ruled, and the appellate court agreed, that this case was not suitable for class treatment. The opinion, Ali v. USA Cab Ltd., can be downloaded here (Word).
 

Federal Judge Rejects $33 million SEC Settlement with Bank of America over Excessive Bonuses

Bank on August 6, we blogged that the SEC's just-announced deal with BofA to settle claims of concealing unpaid executive bonuses was pretty lame.  We pointed out two glaring problems with the settlement: i.e.,  that the $33 million settlement was "infinitesimal" next to the multi-billion dollar fraud being alleged and that "even more conceptually problematic" this amount was supposed to "be paid by the same shareholders who were the victims of the non-disclosure in the first place."  

Federal District Judge Jed Rakoff is apparently on the same page.  As reported in today's LA Times, he has rejected the proposed settlement on exactly these grounds. 

In his 12-page ruling, Rakoff criticized the $33-million payment, saying that if Bank of America intentionally deceived shareholders, "$33 million is a trivial penalty for a false statement that materially infected a multibillion-dollar merger."

He also questioned why Bank of America shareholders should foot the bill for misdeeds approved by executives. Regulators say shareholders weren't aware of the bonuses before voting to approve the deal to acquire Merrill late last year, according to regulators.

"The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money . . . is absurd," Rakoff wrote.
 

Perhaps Judge Rakoff is a reader of this blog.  More likely, however, he just had the good common sense to reject a transparently absurd deal whose purpose was to achieve a politically expedient press release rather than any substantive recovery for fraud victims.

Ninth Circuit Clarifies When Travel and Commuting Time Must be Paid -- Rutti v. LoJack

In Rutti v. LoJack, the Ninth Circuit examined the issue of which employee activities must be counted as "hours worked" and which may be disregarded as non-compensable.  In doing so, it touched upon most of the important issues raised in so-called "off-the-clock" cases.  It also applied these rules under both the FLSA and California Labor Code (where there is currently a dearth of authority on the subject). 

As a result, Rutti it is an important case for both employers and plaintiffs that warrants several distinct posts.  This entry focuses on the Ninth Circuit's ruling on commuting time.

In that regard, Rutti reemphasized the familiar rule that commuting time (i.e., travel time from home to the first place of employment for the day) need not be paid under the FLSA or California Labor Code. 

Under federal law, the 1996 Employee Commuting Flexibility Act (“ECFA”), 29 U.S.C. Sec. 254(a)(a)(2), generally excludes "traveling to and from the actual place or performance of the principal activity or activities which such employee is employed to perform."

Under California law, Labor Code section 510(b), likewise provides that "[t]ime spent commuting to and from the first place at which an employee's presence is required by the employer shall not be considered part of the day's work." 

Rutti held that this commuting rule applies even where the employee is required to use a company vehicle and is restricted from making unauthorized stops or engaging in personal business. 

Rutti did allow that an employee's travel time could become compensable if he were  required to perform any "additional legally cognizable work" during his commute.  The Court gave no specific examples of such work.  However, making work related cell phone calls or entering data in an on-board  computer system would seem to be likely real-world examples of such activities that would have to be paid even if they are done during otherwise non-compensable commute time. 

Ninth Circuit Approves Whistleblower Claim by In-House Counsel

In Van Arsdale v. International Game Technology, the Ninth Circuit reversed the grant of summary judgment against the retaliation claims of a husband and wife who worked together as in-house counsel and who claimed to have been wrongfully terminated for raising internal concerns about potential Sarbanes-Oxley violations.  

In reaching this result, the Court made clear that even a Company's own in-house counsel may bring retaliation claims when their internal counselling activities are not well-received.  The district court had found the lawsuit should be barred as contrary to the attorney-client privilege and the ethical obligations requiring confidentiality.  The Ninth Circuit, however, felt there was nothing fundamentally incoherent in allowing an internal whistleblower suit by legal counsel so long as the district court took steps to shield confidential information from public disclosure.

 To the extent this suit might nonetheless implicate confidentially-related concerns, we agree with the Third Circuit that the appropriate remedy is for the district court to use the many “equitable measures at its disposal” to minimize the possibility of harmful disclosures, not to dismiss the suit altogether. . . . Nothing in this section indicates that in-house attorneys are not also protected from retaliation under this section, even though Congress plainly considered the role attorneys might play in reporting possible securities fraud.

The Ninth Circuit seemed unconcerned that its decision may damage the attorney-client relationship and chill internal legal analysis.  Indeed, the decision may even prompt many companies to rely more heavily on the advice of outside counsel -- where the relationship is strictly legal and not compromised by the panoply of rights accorded to an internal employee.  

Ninth Circuit appeals court holds Wal-Mart cannot be held liable for foreign suppliers' labor violations

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
 

Employer's Uniform Classification of Its Own Employees Does Not Justify Class Treatment -- Wells Fargo Home Mortgage Overtime Pay Litigation

In re Wells Fargo Home Mortgage Overtime Litigation clarifies the role played by an employer's use of uniform job classifications when deciding to certify an overtime class.       

The opinion arose from Wells Fargo's appeal of the District Court order certifying a class of Wells Fargo "home mortgage consultants" for the purpose of determining whether they had been internally misclassified as exempt from overtime. 

As usual, the Company had an internal policy of designating everyone within this job title as being exempt from overtime regardless of any individual variation in his or her job duties.  Once sued, however, the Company took the arguably inconsistent position that it was impossible to determine overtime eligibility on such a group-wide basis.

The Ninth Circuit first made clear that an employer's internal decision to treat all members of a given job title as exempt from overtime is clearly relevant to class treatment.

The first line of attack, that Wells Fargo's exemption policy was an impermissible factor, is a non-starter. An internal policy that treats all employees alike for exemption purposes suggests that the employer believes some degree of homogeneity exists among the employees. This undercuts later arguments that the employees are too diverse for uniform treatment. Therefore, an exemption policy is a permissible factor for consideration under Rule 23(b)(3).

The District Court had gone much further, however, by employing the logic that “it is manifestly disingenuous for a company to treat a class of employees as a homogeneous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation.”

The Ninth Circuit felt that this went too far and placed too much weight on Wells Fargo's internal overtime classification policy.  In the view of the Appellate Court, this internal policy was relevant, but should have warranted only slight weight in determining whether individual or common issues could be said to "predominate."

Wells Fargo's uniform exemption policy says little about the main concern in the predominance inquiry: the balance between individual and common issues. As such, we hold that the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry

Significantly, the Ninth Circuit made no ruling as to whether a class should be certified in the case.  It merely remanded with directions to re-consider the matter with more weight on the job duties of the position and less weight on the internal "uniform exemption policy."    

   

Between A Rock and A Hard Place -- Ricci v. DeStefano Addresses the Conflict Between Disparate Treatment and Disparate Impact Theories

The U.S. Supreme Court decision in Ricci v. DeStefano is very much in the tradition of the Court's affirmative action jurisprudence of the last 40 years.  In other words, it is confusing and provides little or no practical guidance to real-world employers.

The factual scenario in Ricci placed the employer (the New Haven Fire Department) in an excruciating dilemma.  It had taken great pains to design and administer a promotion test that would be job related and fair to members of all ethnic groups.  But when the results came back, the only candidates eligible for promotion were white.  The minority candidates threatened a lawsuit if the test results were used.  And the white candidates threatened a lawsuit if they were thrown out.

The hapless City chose to be sued by the white firefighters.  In throwing out the test results, the City admittedly acted for  racially discriminatory reasons -- i.e. because "too many" whites had passed the test.  The City argued, however, that avoiding a lawsuit over the unintended  disparate impact of its test should be a legal justification for its intentional disparate treatment in voiding the results for racial reasons.

The Court recognized that employers may be faced with a conflict between potential liability for "disparate treatment" and  "disparate impact."  The Court's resolution was to create a new affirmative defense under which an employer may be immunized from liability for an adverse employment action if it had a "strong-basis-in-evidence" to believe that its action was necessary to avoid liability under another theory of discrimination.

This is a strange rule because it basically directs employers to put themselves on trial and reach a legal conclusion as to how they are most likely to be found liable (even where they believe they have done nothing wrong under any theory) . 

It also goes without saying that this "strong-basis-in-evidence" standard is inevitably in the eye of the beholder. After all, the Supreme Court ruled in favor of the white firefighters on the ground that the evidence of intentional disparate treatment was slam-dunk compared to the very weak claim for disparate impact from the test.  However, the First Circuit panel whose decision was overruled (including soon-to-be Supreme Court Justice Sonia Sotomayor) had looked at the same record and found the opposite to be true.    

Binding Effect of PAGA Decisions Is An Alternative To Class Certification -- Arias v. Superior Court

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.

Arias v. Superior Court - Class Action Requirements Clarified By California Supreme Court

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 Supreme Court Tweaks Burden of Proof for Age Discrimination -- Gross v. FBL Financial Services, Inc.

The U.S. Supreme Court decision in Gross v. FBL Financial Services, Inc. has been hailed by the news media and some commentators as effecting a significant change in the law which makes it "much harder" to prove age discrimination.  The reality, however, is that the decision will have little or no impact in real world cases.

Under the prior rule if a plaintiff submitted direct evidence at trial (such as an admission by a person involved in his termination decision) that his age was a "motivating factor" in selecting him for termination, the burden of proof would then shift to the employer to demonstrate that it would have made the same decision regardless of age.  Gross v. FBL says that the burden should remain with the employee in this situation.

This might sound like a big deal.  But the "mixed motive" issue only arises after an employee has already submitted not only a prima facie case -- but strong "direct evidence" of a discriminatory motive.  At this point, arguing about who bears the ultimate burden of proof is a mostly metaphysical question. 

The jury will either believe discrimination was the real reason for the termination decision, or it won't.  But the burden of proof would only be dispositive in the highly unlikely event that the jury determines that the evidence submitted by both sides is in perfect equipoise.  This is simply not the way real jurors think or act.   

Furthermore, the decision applies only to claims under the federal ADEA and has no application to cases decided under Title VII or California anti-discrimination law.  And, in any event, the adverse publicity will cause Congress to legislatively overule the opinion in short order.  For all of these reasons, employers should take no comfort from Gross v. FBL.  

Incentive Awards for Class Representatives -- Rodriguez v. West Publishing Corporation

Class settlement agreements typically provide that individuals serving as class representatives may recovery special monetary payments, known as "enhancements" or "service awards."    In the recent decision of Rodriguez v. West Publishing Corporation the appellate court discussed when such payments are proper and when they may cross the by creating potential conflicts of interest with other class members

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.            

 

 

Employment Ruling At Center Stage For Sotomayor Confirmation

As judge for the Second Circuit Court of Appeals in 2007, Judge Sotomayor affirmed a lower court’s ruling that 17 white and two Hispanic firefighters were not discriminated against in violation of Title VII and the equal protection clause of the U.S. Constitution. The case is Ricci vs. DeStefano.  This ruling is being closely examined in Judge Sotomayor's confirmation to the US Supreme Court and is drawing many criticisms.  

The firefighters argued that the city of New Haven discriminated against them on the basis of their race when it threw out the results of a test that qualified the 19 firefighters for a promotion. The city threw out the results on the basis that none of the 27 black firefighters who took the exam, and passed, scored high enough to qualify for the promotion.

The lower court judge, Janet Bond Arterton, ruled that the city did not discriminate against the white and Hispanic firefighters. She said the city’s attempt to avoid discriminating against minority firefighters was "race neutral," because "all the test results were discarded, no one was promoted, and firefighters of every race will have to participate in another selection process." The firefighters’ appeal of the decision brought the case in front of Judge Sotomayor and two other judges for the Second Court of Appeals.

Judge Sotomayor and the other two judges upheld the lower court’s ruling in a two-paragraph opinion citing the reasons set forth in the lower court’s “thorough, thoughtful, and well-reasoned opinion.” The Los Angeles Times reports that other judges in the Second Circuit thought the opinion was inadequate, but a move to have it reconsidered was stopped by a vote of 7-6 by the judges.

The United States Supreme Court accepted review of the case. Oral arguments took place in April 2009, and a ruling from the Supreme Court is expected this month.

Managers Who Provide Table Service May Share in Tip Pool -- Appellate Court Reverses Award Against Starbucks

As we previously blogged, Starbucks was hammered last year with a class restitution award of $105 million in a fight over the ownership of the change dropped in its tip jars.   The central issue was whether store managers who also served customers could share in the tips which were left for all servers.  The trial court took the technical line that Labor Code section 351 prohibits any "agent" of the employer from sharing in tips -- period.

The Appellate Court reversed and took a considerably more common sense approach, explaining

There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties. Accordingly, we reverse the judgment and order the trial court to enter judgment in Starbucks's favor.

 Employers should not jump to the conclusion, however, that managers now have free reign to sharing in employee tips.  Rather, the rule in  Chau v. Starbucks decision  applies only where (a) There is a "collective tip box" or analogous circumstances in which "a customer would necessarily understand the tip will be shared among the employees who provide the service;" and (b) the managerial employee is part of the "team" that provided the service.  

 

UCL ClassAction Standards are Clarified By California Supreme Court -- In re Tobacco Cases II

In re Tobacco Cases II, is the California Supreme Court’s most recent attempt to clarify the requirements for bringing a class action under the of California Unfair Competition Law, Business and Professions Code section 17200 et seq. (“UCL”). While the case involved claims of deceptive advertising by the Tobacco Industry, the opinion is also extremely important for employment class actions – the majority of which are also brought under the UCL.

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.

Supreme Court Upholds "Grandfathered" Seniority System -- AT&T v. Hulteen

When Congress passed Title VII in 1964 it did not initially ban pregnancy discrimination.  In fact, it was not until the passage of the Pregnancy Discrimination Act (PDA) in 1978 that Congress finally added pregnancy as an expressly protected status.  

In AT&T v. Hulteen, however, the plaintiff challenged AT&T's current retirement payments on the ground that they are based on seniority calculations that fail to give adequate credit for pregnancy leaves which were taken before pregnancy was protected under Title VII.  The High Court came down squarely on the side of the seniority system.

Although adopting a service credit rule unfavorable to those out on pregnancy leave would violate Title VII today, a seniority system does not necessarily violate the statute when it gives current effect to such rules that operated before the PDA.  Seniority systems are afforded special treatment under Title VII . . . reflecting Congress's understanding that their stability is valuable in its own right.When Congress passed Title VII in 1964 it included a special provision that the continued operation of a "bona fide seniority system" may not be deemed unlawful. Moreover, it was not until 1978 that Congress added pregnancy as a protected status under the statute.

As a matter of statutory construction, the Court's result seems solid.  Applying the 7-2 opinion in other cases may not always be so clear cut, however.  In part this is because Souter's opinion intertwines what are really two independent grounds for upholding the employer's payment calculations -- i.e.,  (1) that they are based on decisions which were not illegal when they were made; and (2) that they fell within the express "bona fide seniority system" carve out.   

Finally, despite the characterization of some early commentators, the opinion really has nothing to do with the Lily Ledbetter Fair Pay Act of 2009, which only extends the statute of limitations for employment decisions that were illegal at the the time they were made.    

 

 

Watkins v. Wachovia Corporation - New Class Action Opinion On The Effects Of Releases In Severance Agreements And Individually Settling With Named Plaintiffs

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]. 

 

 

Unions Can Require Their Members to Arbitrate Claims For Violation of Individual Statutory Rights -- 14 Penn Plaza v. Pyett

The National Labor Relations Act (NLRA) has always encouraged unions and management to contract for an exclusive grievance and arbitration procedure to resolve claims for violation of their collective bargaining agreements (CBAs).  Since at least 1991, the Supreme Court has also allowed individual employees to contract for mandatory arbitration of their individual claims for violation of statutory rights.  Until now, however, the Court had never squarely addressed the next logical question -- i.e., Can a union collectively bind its members to a CBA provision that requires them to arbitrate their own individual statutory claims such as claims for discrimination?     

The 5-4 majority opinion in 14 Penn Plaza v. Pyett, answers that question in the affirmative.  But the reasoning is so riddled with prerequisites, caveats, and reservations that few, if any, real-world CBAs could be read to actually require arbitration of individual statutory claims. 

First, the arbitration provision must "clearly and unmistakeably" cover such claims.  Most CBAs include a generic "non-discrimination" clause.  But virtually none go as far as the Penn Plaza agreement, which specifically listed various state and federal anti-discrimination statutes and provided that "All such claims shall be subject to the grievance and arbitration procedures [of the CBA] as the sole and exclusive remedy for violations."

Second, the Penn Plaza decision deliberately sidesteps the most important issue -- whether the procedural limitations of a union-controlled grievance and arbitration process amount to an unenforceable waiver of substantive rights.  For example, what if (as is usually the case) the grievance and arbitration process can be initiated only by the union and not the employee.  And what if (again, the usual case) the CBA imposes shortened limitations periods and no access to discovery.  

Under the substantial body of case law governing non-labor arbitration agreements, including the California Supreme Court's Armendariz decision, such limitations would render an arbitration agreement unconscionable and unenforceable.  Should a different result apply merely because an arbitration agreement is part of a collective bargaining agreement?   

The parties in Penn Plaza had a live dispute as to whether the procedural limitations of the arbitration clause amounted to a  de facto waiver of substantive anti-discrimination rights.  But the Supreme Court merely remanded these issues back to the lowers courts without any constructive guidance.  As a result, the main upshot of the Penn Plaza decision will be to spawn a wave of lower court litigation to determine whether CBA arbitration remedies can be stretched to include statutory claims for violation of Title VII, the FEHA, and wage and hour laws.     

 

 

 

  

Federal Service Contractors are Not Exempt from California Labor Code -- Naranjo v. Spectrum Security Services, Inc.

Employers who provide services under contract to the federal government are required to pay minimum wages and benefits set by the Department of Labor pursuant to the McNamara-O'Hara Service Contract Act of 1965 (the "SCA") (41 U.S.C. § 351 et seq.).   In Naranjo v. Spectrum Security Services, Inc. the Second District Court of Appeal held that being subject to the SCA  confers no exemption from the California Labor Code -- in other words, employers must comply with whichever regulatory scheme is the most favorable to the worker on any given issue. 

The opinion includes a useful explanation of how general preemption principles apply to the California Labor Code, especially the requirement to pay compensation for missed meal breaks.      

As our Supreme Court has explained, the additional compensation identified in subdivision (b) of this provision is not a penalty, but a form of “premium wage” paid to employees to compensate them for an adverse condition they have encountered during their work hours, namely, the potential hazard to their health and welfare from the denial of rest and meal breaks. ( Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal .4th 1094, 1102-1111.) As such, the additional compensation is akin to overtime pay, which is another form of premium pay. (Id. at pp. 1109-1110.)

Thus, according to the Court, the purpose of California' s meal period legislation is in no way inconsistent with the goal of the SCA, which is  "to secure for employees minimum wages and benefits determined by the Secretary of Labor."

Court Refuses to Enforce Class Arbitration Waiver -- Franco v. Athens Disposal Company, Inc.

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.    

     

Bartenders May Participate in Mandatory Tip Pools Even If They Do Not Provide "Direct Table Service" -- Budrow v. Dave & Busters

California confers a special legal status on employee tips.  Under California Labor Code section 351, tips are not considered part of the wage paid by the employer, but are rather treated as a direct payment from the patron to the employee.  As a result, they are the property of the server from the very beginning and the employer is not permitted to take a "cut."   

Courts have recognized, however, that more than one employee often contributes to the service. And customers presumably expect that their tips will be fairly apportioned among these employees.  Thus, opinions such as the 1990 decision in Leighton v. Old Heidelberg, held that employers may require servers to "split tips" with busboys, hosts, and others.  As that court explained:

[T]he restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard, a ‘house rule and is with nearly all Restaurants,’ by which the restaurant employer, as part of the operation of his business and to ensure peace and harmony in employee relations, pools and distributes among those employees, who directly provide table service to a patron, the gratuity left by him, and enforces that policy as a condition of employment.

But Old Heidelberg's reference to employees "who directly provide table service to a patron," created uncertainty as to which employees may qualify.  What about cooks, bartenders and others whose work does not bring them into direct contact with the customer's table?

The Second District Court of Appeal decision in Budrow v. Dave & Busters has seemingly laid this particular issue to rest by declaring that the Labor Code cannot be read as creating a distinction between "direct" and "indirect" table service when it comes to eligibility for tip pooling.  Instead, the court held that the touchstone must be the intent of the customer under the totality of the specific circumstances.

It is in the nature of a tip pool that it is based on the general experience of each particular establishment, that it is only broadly predictive of the reasons for and the patterns of tipping in that particular restaurant and that, in the final analysis, this is the best that anyone can do. It is simply not possible to devise a system that works with mathematical precision and solomonic justice in each one of the millions of transactions that take place every day.

Section 351 provides that the tip must have been "paid, given to, or left for" the employee.  Given that restaurants differ, there must be flexibility in determining the employees that the tip was “paid, given to or left for.” A statute should be interpreted in a reasonable manner.  Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons' intentions. It is, in the final analysis, the patron who decides to whom the tip is to be “paid, given to or left for.”  It is those intentions that must be anticipated in deciding which employees are to participate in the tip pool.

This "customer intent" standard is consistent with the purpose of the statute.  However, it also raises more thorny issues than it answers.  For example, if some customers intend to benefit only the waitress and not the cook, can their tips be thrown into the general pool?  Should surveys or opinion polls be used to determine how customers wish to apportion their tips between different categories of workers?   

Perhaps most importantly, who bears the burden of proving that a restaurant's tip splitting scheme reflects a "reasonable assessment of the patrons' intentions?"  The Budrow Court seems to have implicitly placed the burden on the non-bartender employees because it upheld the grant of summary judgment against them despite the apparent absence of any admissible evidence of customer intent. 

 

 

 

When Are Releases of Wage Claims Valid? -- Chindarah v. Pick Up Stix, Inc.

The California Labor Code contains a number of provisions that prohibit employees from waiving their rights to receive all wages due.  For example, Section 206.5 states that "an employer shall not require the execution of a release of  a claim or right on account of wages due . . . unless payment of those wages has been made."   Any release in violation of this requirement is declared "null and void."

It would plainly defeat the paternalistic objectives of the Labor Code if employees could simply contract away their entitlement to minimum wages, overtime, or other minimum protections.  For example, if an employer did not pay overtime but required its workers to sign a release in order to receive each bi-weekly paycheck, it is pretty clear the agreement would not be enforced. 

On the other hand, if a formal lawsuit or administrative claim has been filed, there would be no end to the dispute if the parties could not enter into a binding compromise.   Practitioners have always operated on the presumption that this type of settlement is enforceable.      

In between these two extremes, however, lies a vast gray area of factual scenarios in which a release of claims might, or might not be enforceable.   

The Fourth District Court of Appeal decision in Chindarah v. Pick Up Stix, Inc. casts some additional light on the analysis.   In Chindarah, the employer entered into individual settlement and release agreements with a number of employees who were also members of a putative class that was suing for unpaid overtime wages.    The lower court held that the releases were valid, and the Appellate Court affirmed.

In the process the Appellate Court seemingly created a new rule that Section 206.5 will not bar a release of wage claims so long as: (a) all wages that are "concededly"  due have already been paid; and (b) whether any additional wages are owed is the subject of a "bona fide dispute."  

As authority for this rule, the Court relied on a combination of dicta from cases that had rejected various release agreements as well as its conception of sound "public policy."   In practice, however, the holding may be problematic as an employer is essentially empowered to negate the protections of Section 206.5 by merely refusing to "concede" that anything is due.        

Employer Wins Class Action Trial on Independent Contractor Status of Messengers -- Cristler v. Express Messenger Service, Inc.

In late 2002 Express Messenger required its drivers to sign contracts designating them to be independent contractors rather than employees.   The drivers sued.  Their lawsuit claimed that they remained "employees" under California law and that the change in their status therefore denied them overtime, expense reimbursement and other benefits required by law.

The trial court certified the lawsuit as a class action and (somewhat unusually for a class action), the case was tried to a jury verdict.  And the the jury decided that the class members were legitimately classified as independent contrators.  The employee class appealed but the verdict was upheld.

The case is instructive for several reasons.  First, it demonstrates that the correct classification of large groups of employees can be manageably tried to a jury -- and that the outcome may well be favorable to the employer.  Second, the appellate decision contains one of the best short summaries of California law on independent contractor status that I have seen.  Here is that summary:

Employers have varying responsibilities with respect to persons performing services on their behalf. These responsibilities depend, in part, on whether those persons are classified as employees or independent contractors under the Labor Code. (See, e.g., §§ 2802 [indemnification for work-related expenses], 3700 [workers' compensation coverage], 510, 515, 1194 [overtime compensation]; Unemp. Ins.Code, §§ 13020, 13021 [income tax withholding].) The Labor Code defines “ ‘[e]mployee[s]’ “ to include virtually all persons “in the service of an employer under any ... contract of hire” (§ 3351), but specifically excludes “independent contractors” (§ 3357). An independent contractor is defined as “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” (§ 3353.)

Due to the numerous variables that can inform the employee/independent contractor distinction, our Supreme Court has supplemented these statutory definitions with a host of classification factors. In doing so, the court has consistently emphasized, in keeping with the statutory definition, that “the most important factor is the right to control the manner and means of accomplishing the result desired.”( Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43-44, 168 P.2d 686(Empire Star Mines ). The court has also stated that “[s]trong evidence in support of an employment relationship is the right to discharge at will, without cause,” and that “[o]ther factors to be taken into consideration are (a) whether or not 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 workman 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.”(Ibid., citing Rest.2d Agency, § 220.)
 

Court Holds Employees' Contact Information Must Be Disclosed Despite Employee Agreement Stating Otherwise

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. 

 

Calculating "Bonus Overtime" -- Marin v. Costco

It is shocking how many employers don't realize that paying a bonus to hourly employees will trigger an additional overtime obligation.  The decision in Marin v. Costco is a reminder of this obligation and an illustration of just how convoluted the calculation can become, especially where the bonus is variable based on work effort or performance.

The Marin decision involves a lengthy, eye-glazing mathematical analysis of a particularl bonus scheme that was arguably a hybrid between a "flat rate" and "performance-based" payment.  The main take-away points, however, are that:

  • Additional overtime payments are triggered when a bonus is paid; and
  • The method for calculating the amount of this "bonus overtime" depends on whether the bonus is characterized as a "flat rate" bonus or a "production" bonus. 

These concepts are outlined below in a somewhat simplified form.    

The Concept of "Bonus Overtime" -- Bonuses Retroactively Increase Employees' "Regular Rate"

"Bonus overtime" stems from the fact that overtime premium pay is computed based on a multiple (usually 1.5x) of the employee's "regular rate" of hourly compensation.  The regular rate is calculated by dividing the hours worked in a week by all compensation earned for that week.  But if the employee is later given a bonus that is partly due to the work performed in that week this additional pay must be added into the total compensation for the week (i.e., the denominator of the regular rate calculation).  This retroactively increases the employee's regular rate of pay.  

For example, suppose an employee's straight time hourly pay is $10/hr and he works 40 regular hours and ten overtime hours in a given week.  His regular weekly paycheck would include $400 of straight time pay ($10 x 40 hours) plus an additional $150 of overtime pay (1.5x his base rate, or $15/hr,  times 10 hours). 

The Retroactive Effect of A "Flat Rate" Bonus on Overtime.

Now suppose the employer has a generous annual profit-sharing program that pays this employee $5,200 at the end of the year based on the company's overall performance.  Because the bonus is equally attributable to all weeks in the year, this payment retroactively increases his weekly compensation by $100 (i.e., $5,200 divided by 52 weeks). 

Under California law, this additional $100 per week payment also retroactively raises the employee's regular hourly rate for the week by a full $2.50 (i.e., $100 divided by 40 straight time hours).   

Since his recalculated regular rate for the week is now $12.50 per hour, his recalculated overtime rate increases proportionately from $15/hr. to $18.75/hr.  Our hypothetical employee is therefore entitled to an additional $3.75 for each overtime hour worked, totaling $37.50 for the week. 

The Retroactive Effect of a "Production Bonus" on Overtime.

Now this time suppose the employer paid the same $100 per week amount as a performance bonus based on the employee's individual volume of production during the year -- making sales, manufacturing widgets, etc.   In this case, California law  calculates bonus overtime differently.  Instead of dividing the $100 by 40 straight time hours to determine the "regular rate" for bonus overtime, the employer is allowed to divide the amount by all 50 hours worked (i.e., both straight time and overtime hours worked).  

As a result, the employee's regular rate for the week rises by just $2.00 (i.e., $100 divided by 50 total hours worked), and the hypothetical employee is entitled to only an additional $20 in bonus overtime for the week ($2.00 x 10 hours). 

The idea behind this different calculation is that  the extra production generated by working overtime hours helped contribute to achieving the "production" bonus in the first place.  Thus, not counting the overtime hours in the "regular rate" would amount to a partial double recovery.     

The Bottom Line: Calculating bonus overtime is a complex headache for employers.  However, they ignore it at their peril because the use of a mistaken formula is an ideal subject for a class action with the potential for huge liability.          

Court Rejects Punitive Damages for Labor Code Violations -- Brewer v. Premier Golf Properties

California Civil Code section 3294 provides that punitive damages are generally available in any "action for the breach of an obligation not arising from contract."  So if the Legislature creates a statutory obligation and does not specifically limit the remedies, shouldn't a plaintiff be able to recover punitive damages if he proves the defendants acted with the requisite "malice, fraud or oppression?"

This question has been the subject of many demurrers over the years but has never had a very clear answer.  In the context of state statutes prohibiting employment discrimination courts long ago held that punitive damages should be available even though they were not specifically authorized by the statutes themselves.  Courts have been more reluctant, however, in the context of Labor Code violations.

Brewer v. Premiere Golf Properties is the first published appellate opinion to directly address the issue.  The decision rejected the recovery of punitive damages for Labor Code violations -- or at least for an employer's violation of its obligation to pay minimum wage and provide meal periods.   

The Court's first rationale for rejecting punitive damages was to invoke the so-called "new right-exclusive remedy" doctrine.  Under this theory, the Legislature is presumed to deny punitive damages as a remedy for any new statutory right except where there is already a pre-existing "common law analog" for the new right.  

Next, the Court opined that punitive damages should also be unavailable because "claims for unpaid wages and unprovided meal/rest breaks arise from rights based on [the plaintiff's] employment contract."  

Neither rationale seems compelling.  In particular, the Court's attempt to distinguish the cases allowing punitive damages for employment discrimination is less than convincing.  After all, there was no common law cause of action for racial, gender, age or disability discrimination.  And a claim for unequal wages due to discrimination could just as easily be described as "arising from" the underlying employment relationship.  In either case, employees cannot contract out of their statutory rights.    

The opinion is a welcome development for employers, who face enough liability from class action wage and hour claims already.  But the Court reaches its result through some pretty suspect reasoning.  And for that reason (as well as the importance of the issue), the case seems like a prime candidate for Supreme Court review.  

 

California Employment Applications Must Exclude Certain Marijuana Convictions -- Starbucks v. Superior Court (Lords)

An obscure provision of California law, Labor Code section 432.8, prohibits employers from asking job applicants about marijuana-related convictions which are more than two years old.  Most standard employment applications include a general question asking for disclosure of all criminal convictions.  As a practical matter California applications must therefore include a special disclaimer to inform applicants that  these marijuana convictions are excluded from the generic disclosure request.  

In Starbucks v. Orange County Superior Court, the Fourth District Court of Appeal recently clarified two questions: (1) how employers should physically design their applications to comply with the statute; and (2) which applicants will have standing to sue if the application is defective.

 As to the first issue, Starbucks used a standard nationwide application form which actually did contain the special California disclaimer language under a heading "For California Applicants Only."  The problem, however, was that this disclaimer appeared only on the back of the form alongside unrelated boilerplate disclaimers for Massachusetts and Maryland applicants.  

The Court explained that "Had Starbucks included the California disclaimer immediately following the conviction questions, Starbucks would have been entitled to summary judgment in its favor on the reasonableness of the employment application."  But placing the language on the back of the page in a nationwide "one-size-fits-all style" was not sufficiently clear to meet the standard of "clarity for which California law strives." 

Luckily for Starbucks it was entitled to summary judgment on other grounds.  For one thing, the class representatives had never themselves been convicted of anything.  As a result, they had no right to sue under a statute which was designed to protect reformed stoners rather than law abiding citizens with nothing to hide.  If the Court had gone the other way on this standing-to-sue issue Starbucks could have faced $26 million in fines for all persons who ever filled out an application.     

This is an instructive holding which will undoubtedly be cited as authority in cases testing the sufficiency of all manner of disclaimers contained in form documents.  The lesson for employers and other business is that they must consider the physical layout of their standardized forms as well as the actual language used in the form.      

 

 

Sullivan v. Oracle -- Residents of Other States are Entitled to Labor Code Remedies for Work in California

The recent case of Sullivan v. Oracle dealt with the thorny issue of what law should apply to employees whose work carries them across state lines.  The Ninth Circuit held that work performed  in California should generally be governed by California's strict wage and hour laws -- even if the employee is a resident of another state and is only temporarily working in California.

Due to a prior lawsuit Oracle treated its "technical instructors" in California as non-exempt  and entitled to overtime.  Outside of California, however, its instructors remained classified as salaried-exempt.  The "choice-of-law" problem arose when several instructors from Colorado and Arizona performed short term assignments in California.  These individuals filed a class action lawsuit seeking overtime wages under California law. 

In the end, the Ninth Circuit held that the "balance of interests" supported the application of California Law.  As the Court explained: "We fail to see any interest Colorado or Arizona have in ensuring that their residents are paid less when working in California than California residents who perform the same work."

The Ninth Circuit's decision  to apply California law was not particularly surprising.  The interesting part is how it got there -- by holding, in effect, that whichever law allows the employee to be paid more should apply.

New Ruling On Meal Breaks and Itemized Wage Statements: Brinkley v. Public Storage, Inc.

A recent case, Brinkley v. Public Storage, Inc. (October 28, 2008) is getting quite a bit of attention due to its ruling on employers’ duty to provide meal breaks. The court in Brinkley (out of the Second Appellate District), agreed with the holding of the appellate court in Brinker v. Superior Court that employer only had to provide meal breaks and not ensure that they were taken. Since the California Supreme Court granted review of Brinker, it is not controlling law, and this is why Brinkley is getting a lot of attention. (While Brinkley is good law for now, the issue will be ultimately decided by the Supreme Court in the Brinker case, and as many commentators have stated, it is likely that the Supreme Court will issue an order granting and holding Brinkley making it un-citable law until Brinker is decided.)

The Brinkley decision also addressed another hotly litigated wage and hour issue involving itemized wage statements, which is being overlooked given the meal break drama. Labor Code 226 requires employers to place certain information on the employee’s pay stub. In Brinkley, the Plaintiff alleged that defendant violated Labor Code section 226, subdivision (a), which requires employers to provide pay stubs that list (among other items): “(1) gross wages earned, (2) total hours worked by the employee . . . and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” Plaintiff alleged that Public Storage violated this statute because certain pay stubs listed a mileage reimbursement rate that was different than the actual rate employees received.

In regards to section 226, the court noted that:

Section 226, subdivision (e) provides that an employee “suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)” is entitled to recover the greater of actual damages or specified statutory penalties. The trial court found that defendant did not knowingly and intentionally violate section 226, subdivision (a). We agree.

Defendant met its burden of production by filing a declaration stating that the misstatement of the associated mileage rate was inadvertent and, when discovered, corrected. This evidence showed that plaintiff could not establish an essential element of his claim, namely that defendant intentionally and knowingly failed to provide required information on its paystubs. The burden of production thus shifted to plaintiff. Plaintiff, however, produced no evidence of knowing or intentional conduct by defendant.

The court also found that Plaintiff failed to show that he or any other proposed members of the class action suffered any injury. The court stated:

Plaintiff argues that the receipt of an inaccurate paystub ipso facto constitutes injury within the meaning of section 226, subdivision (e). This interpretation, however, renders the words “suffering injury” surplusage and meaningless. Such an interpretation is disfavored. We hold that section 226 means what it says: a plaintiff must actually suffer injury to recover damages or statutory penalties.

The present case is distinguishable from Wang v. Chinese Daily News, Inc. In Wang, the paystubs stated that the employees worked 86.66 hours regardless of the number of hours actually worked, the length of the pay period, or the number of work days in the pay period. This caused the employees to suffer injury because they might not be paid for overtime work to which they were entitled and they had no way of challenging the overtime rate paid by the employer. Here, by contrast, plaintiff was not underpaid or given insufficient information to challenge the payments he received. This inadvertent technical violation of section 226 caused no resulting damages.

(citations omitted).
 

Wal-Mart's Wage And Hour Issues Continue In Massachusetts

The Supreme Judicial Court of Massachusetts reversed an order decertifying a class of current and former Wal-Mart hourly workers who claimed that Wal-Mart failed to provide meal period and rest breaks as required by law. Salvas v. Wal-Mart (Mass. 9/23/08) The Court held:

We conclude, inter alia, that the judge abused his discretion in allowing Wal-Mart's motions to exclude the testimony of the plaintiffs' expert and to decertify the class. We further conclude that the judge erred in granting partial summary judgment to Wal-Mart. We remand the case for the entry of an order certifying the class and for further proceedings consistent with this opinion.

This overturns one of Wal-Mart’s few victories, and I have to agree with Michael Fox (not the actor) that this opinion will probably generate more wage and hour class action litigation – and not just here in California.

 

New Appellate Case Upholds Independent Contractor Status

Appellant Al Varisco sued Gateway Science and Engineering for wrongful termination of employment and similar causes of action. In order to sue under these legal theories, Varisco had to establish that he was an employee, not an independent contractor as Gateway contended.

The trial court agreed with Gateway that Varisco was an independent contractor, and the appellate court affirmed this ruling. In its ruling, the appellate court provided a great analysis for employers who face the issue of whether their independent contractors are properly classified. The court began its analysis with the following:

Control is the principal factor in determining whether an individual worker is an employee or an independent contractor. "An independent contractor is 'one who renders service in the course of an independent employment or occupation, following his employer's desires only in the results of the work, and not the means whereby it is to be accomplished.' [Citations.] On the other hand, the relationship of master and servant or employer and employee exists whenever the employer retains the right to direct how the work shall be done as well as the result to be accomplished. [Citations.] But this rule requires that the right to exercise complete or authoritative control, rather than mere suggestion as to detail, must be shown. [Citations.] Also, the right to control, rather than the amount of control which was exercised, is the determinative factor." (S. A. Gerrard Co. v. Industrial Acc. Com. (1941) 17 Cal.2d 411, 413.)

Thus, the most significant question in the independent contractor/employee determination is "'whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.' [Citation.]" (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350.)

The appellate court continued to explain that there are “secondary indicia” of whether someone is an independent contractor. These factors are:

  1. whether the one performing services is engaged in a distinct occupation or business;
  2. 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;
  3. the skill required in the particular occupation;
  4. whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  5. the length of time for which the services are to be performed;
  6. (the method of payment, whether by the time or by the job;
  7. whether or not the work is a part of the regular business of the principal; and
  8. whether or not the parties believe they are creating the relationship of employer-employee. (citing Borello, 48 Cal.3d at p. 351.)

Base on these factors, the appellate court held that Varisco was an independent contractor. He received a 1099 for all his compensation from Gateway. Gateway did not provide any uniform, apparel, equipment, material, or tools to him. Varisco wore his own hardhat and work boots, mandatory apparel on the job site, and he testified that he provided his own equipment. He used his own car for transportation to and from the job site, and was not reimbursed for mileage or gas. Varisco was responsible for his own training, and did not receive any training from Gateway. His work hours were not set by Gateway, he only went to Gateway’s office twice a month to pick up his paychecks. Gateway did not have personnel at the LAUSD job sites. When issues or questions arose at the job site, he addressed them to the LAUSD architect, not Gateway. When asked "did Gateway give you any direction on how to perform your duties?" Varisco answered "no."

Varisco argued that because he was paid on an hourly basis, he should be considered an employee. Not persuaded by this argument, the court stated, “[a]n hourly rate traditionally indicated an employment relationship [citation] but independent contractors are now commonly paid on that basis. [citation].”

Finally, Varisco argued that he had an agreement with Gateway that provided the relationship was “at-will”, which supports his argument that he was an employee, not an independent contractor. The court, again, disagreed:

An independent contractor agreement can properly include an at-will clause giving the parties the right to terminate the agreement. Such a clause does not, in and of itself, change the independent contractor relationship into an employee-employer relationship. If it did, independent contractor arrangements could only be established through agreements which limited the right of a party, or perhaps both parties, to terminate the agreement. This would be absurd, and it is not the law.

Employers with independent contractors should take a look at the case for some guidance about whether their independent contractors are properly classified. The case, Varisco v. Gateway Science & Engin. can be downloaded as a PDF or in Word.
 

U.S. Supreme Court Clarifies Test for "Disparate Impact" Age Discrimination in Meachum v. Knolls Atomic Power

It is not enough for employers to avoid deliberate discrimination against members of protected groups when selecting employees for layoff.  In addition, they must avoid inadvertently using any selection criteria that tend to have a "disparate impact" on a particular group.  

In Meachum v. Knolls Atomic Power Lab., the U.S. Supreme Court made it harder for employers to disprove this type of discrimination claim -- which is sometimes referred to as "negligent" or "unintended" discrimination.  As the Court explained, under the federal Age Discrimination in Employment Act (ADEA), it is the employer's burden to affirmatively prove that any statistical disparate impact against older workers is actually the result of a "reasonable factor" not tied to age.  

Disparate impact cases usually turn on conflicting expert analysis of the statistical data.  Having to carry the burden of persuading a jury on these complicated issues will thus tend to place employers at a significant disadvantage.   For example, in the trial court, the plaintiffs were able to prevail by showing that the employer's performance rankings included scores for "flexibility" and "criticality" and that older workers did significantly worse on these criteria.

To show a disparate impact, the workers relied on a statistical expert's testimony to the effect that results so skewed according to age could rarely occur by chance; and that the scores for “flexibility” and “criticality,” over which managers had the most discretionary judgment, had the firmest statistical ties to the outcomes.

The lesson for employers is to always check the outcomes of layoff criteria before implementing the terminations.  A significant over-representation of any one group is a red flag that should result in a re-evaluation of the criteria. 

 

Petition For Review Filed In Brinker v. Superior Court

Plaintiff has filed a petition to the California Supreme Court requesting that it review the appellate decision in Brinker v. Superior Court (Hohnbaum) [as previously written about here and here]. The Supreme Court has at least 60 days to decide whether or not to grant review of the case – so until then the appellate court’s decision is still citable case law.

[Hat tip Wage Law]

 

California Supreme Creates Appellate Rights for Losing Parties in Arbitration

In Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court has fundamentally altered the nature of arbitration in California. 

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.     

Reasonable Limits On Employee's Time To File A Lawsuit Upheld By Appellate Court in Pearson Dental Supplies, Inc. v. Superior Court (Turcios)

Plaintiff Luis Turcios sued his former employer, defendant Pearson Dental Supplies, Inc., for age discrimination under the California Fair Employment and Housing Act (FEHA) (Click here to read the opinion: Pearson Dental Supplies, Inc. v Superior Court (Turcios)). Plaintiff signed an agreement with the employer that contained a mandatory arbitration clause for employment-related claims. The agreement contained a clause that plaintiff would waive any claims unless he submitted the claim to arbitration within one year from the date the dispute arose or from the date plaintiff first became aware of facts giving rise to the dispute.

While the arbitration agreement required that plaintiff submit the claim within one year, FEHA, in Government Code section 12960 requires a similar deadline, and provides, in part:

(b) Any person claiming to be aggrieved by an alleged unlawful practice may file with the department a verified complaint, in writing. . . .
(d) No complaint may be filed after the expiration of one year from the date upon which the alleged unlawful practice.

Government Code section 12965 also provides in relevant part:

(b) If an accusation [in the name of DFEH] is not issued within 150 days after the filing of a complaint, or if the department earlier determines that no accusation will issue, the department shall promptly notify, in writing, the person claiming to be aggrieved that the department shall issue, on his or her request, the right-to-sue notice. This notice shall indicate that the person claiming to be aggrieved may bring a civil action under this part against the person, employer, labor organization, or employment agency named in the verified complaint within one year from the date of that notice.

(emphasis added).  Defendant compelled arbitration of plaintiff’s claims and argued that the arbitration provision requiring that plaintiff file the claim within one year controlled and, therefore, plaintiff did not file a timely claim. The arbitrator agreed with the defendant’s argument and granted summary judgment in defendant’s favor. The trial court, however, vacated the arbitration award on the ground that the one-year limitation period impermissibly infringed on plaintiff’s unwaivable statutory rights under the FEHA. Defendant appealed the trial court’s ruling, resulting in this decision.

The appellate court overruled the trial court’s ruling, stating that the arbitration agreement did not infringe upon plaintiff’s unwaivable rights under FEHA. The appellate court stated:

In arguing that the arbitrator’s award violated public policy, plaintiff relies (as did the trial court) on his cause of action alleging age discrimination in violation of the FEHA. Under the FEHA, the plaintiff must file an administrative complaint within one year from the date of the discriminatory act. Then, a civil action must be filed within one year from the date the administrative agency issues a “right to sue” letter. (Gov. Code, §§ 12960, subd. (d), 12965, subd. (b).) Plaintiff urged, and the trial court found, that the arbitrator’s application of the one-year limitations period in the DRA contravened public policy because it shortened the FEHA limitations period. We disagree.

(footnote omitted). The appellate court held that the arbitrator’s enforcement of the one-year arbitral limitation period did not unfairly burden plaintiff’s opportunity to vindicate his FEHA claim. The court noted that “despite adequate opportunity to investigate, prepare, and litigate, plaintiff chose to ignore the arbitration requirement and the arbitral limitation period, and never argued that the limitation period was unconscionable when opposing the petition to compel arbitration.” The court did caution, however, that this case did have unique facts that compelled it to rule in this way. Nevertheless, this opinion confirms that employers may enter into arbitration agreements that reasonably require their employees to submit their claims in a timely manner, or else their claims will be waived.
 

Podcast On Brinker v. Hohnbaum: What Are Employers' Obligations To Provide Meal and Rest Breaks?

Alch v. Superior Court (Time Warner) -- Court Reaffirms Discoverability of Private Employee Data in Class Actions

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.       

CA Supreme Court Holds Non-Competes Are Generally Unenforceable and Release of "Any And All" Claims Not Unlawful

In Edwards v. Arthur Andersen LLP, the California Supreme Court ruled on the following issues: (1) To what extent does Business and Professions Code section 16600 prohibit employee noncompetition agreements; and (2) is a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?

Noncompetition Agreements
Noncompetition agreements are governed by Business & Professions Code section 16600, which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute permits noncompetition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).

Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.  Andersen argued that California courts have held that section 16600 embrace the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with Andersen, and noted:

We conclude that Andersen’s noncompetition agreement was invalid. As the Court of Appeal observed, “The first challenged clause prohibited Edwards, for an 18-month period, from performing professional services of the type he had provided while at Andersen, for any client on whose account he had worked during 18 months prior to his termination. The second challenged clause prohibited Edwards, for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional services to any client of Andersen’s Los Angeles office.” The agreement restricted Edwards from performing work for Andersen’s Los Angeles clients and therefore restricted his ability to practice his accounting profession.

The Court found that this agreement was invalid because it restrained Edwards’ ability to practice his profession.

However, Andersen argued that section 16600 has a “narrow-restraint” exception and that its agreement with Edwards survives under this exception.  Andersen pointed out that a federal court in International Business Machines Corp. v. Bajorek (9th Cir. 1999) upheld an agreement mandating that an employee forfeits stock options if employed by a competitor within six months of leaving employment. Andersen also noted that another Ninth Circuit federal court in General Commercial Packaging v. TPS Package (9th Cir. 1997) held that a contractual provision barring one party from courting a specific customer was not an illegal restraint of trade prohibited by section 16600, because it did not “entirely preclude[]” the party from pursuing its trade or business.

In refusing to accept the “narrow-restraint” exception for noncompetition agreements in California, the Court stated:

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported California state court decision has endorsed the Ninth Circuit’s reasoning, and we are of the view that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” [citation] Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.

The Court’s ruling basically eliminates the validity of non-competition agreements under California that are not expressly provided for in Section 16600.

Contract Provision Releasing “Any and All” Claims
The second issues in the case was whether Andersen's condition of Edwards’s obtaining employment that Edwards execute an agreement releasing Andersen from, among other things, “any and all” claims, including “claims that in any way arise from or out of, are based upon or relate to [Edwards’s] employment by, association with or compensation from” Andersen.

Edwards argued that Labor Code section 2804 voids any agreement to waive the protections of Labor Code section 2802 (which provides that employers must reimburse employees for all business related expenses that the employee incurs) as against public policy.

The Court noted that Labor Code section 2804 has been interpreted to apply to Labor Code section 2802, making all contracts that waive an employee’s right to reimbursement null and void. Therefore an employee’s right to be reimbursed for business expenses provided under Labor Code section 2802 are nonwaivable, and any contract that does purport to waive an employee’s right would be contrary to the law.  Edwards maintained, therefore, the agreement was an independent wrongful act that would support another claim he was alleged for intentional interference with prospective advantage.

The Court disagreed with Edwards, and concluded that a contract provision releasing “any and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802.  Therefore, such agreements are still valid and enforceable under the law.

DLSE Orders Staff To Follow Brinker

The DLSE has recently issued a memorandum to its deputy labor commissioners instructing them to follow the holding in Brinker v. Superior Court. The July 25, 2008 DLSE memorandum provides, in pertinent part, that the Brinker decision is “a published decision, and its rulings are therefore binding upon the [DLSE].” In addition, the memorandum makes clear that Brinker:
  • Held that Labor Code Section 512 and the meal period requirements set forth in the applicable wage order mean that employers “must provide meal periods by making them available, but need not ensure that they are taken. Employers, however, cannot impede, discourage or dissuade employees from taking meal periods.”
  • Rejected the so-called “rolling five hour” requirement as being inconsistent with the plain meaning of Labor Code Section 512 and the applicable wage order. The memorandum made clear that “[a]n employer must 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, or (2) both the employee and the employer agreed by “mutual consent” to waive the meal period.
  • Held that the rest period requirements set forth in the applicable wage order mean that “employers must provide rest periods, but need not ensure that they are taken. Employers, however, cannot impede, discourage or dissuade employees from taking rest periods.”
  • Held that employers need only authorize and permit rest periods every four hours or major fraction thereof and they need not, where impracticable, be in the middle of each work period.
To review the complete text of the DLSE memorandum click here.

Although this is a significant development as employers frequently find themselves before the labor commissioner, the DLSE memorandum is of little value if an employee chooses to pursue their claims in court. Moreover, the memorandum does not state if the DLSE will continue to follow Brinker in the event the California Supreme Court decides to review the decision. Nevertheless, the DLSE’s position will undoubtedly be welcomed by employers throughout California.

Perspectives on Brinker (Part II) -- When Must Employers Schedule Employee Meal Breaks

In a prior post on Brinker v. Superior Court (Hohnbaum), we examined what the decision means in terms of defining the duty of California employers to make meal and rest breaks "available" to employees.  In this post we look at what Brinker says about when during the day those breaks need to be provided.

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.

Conclusion
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. 

Braun v. Wal-Mart, Inc.: Wal-Mart Hammered For Meal and Rest Break Violations in Minnesota

Companies doing business in California frequently lament the “unique” burdens imposed by California wage and hour laws. But with all the attention on California wage and hour class action litigation, it is worthwhile to remember that many other states actually have similar laws.
No one knows this better than Wal-Mart, which has just been handed another costly meal period class action defeat under Minnesota law in the case of Braun v. Wal-Mart. The International Labor Communications Association blog has a good summary of what the case means for Wal-Mart:
Dakota County District Judge Robert King ordered the company to pay $6.5 million in back pay. In addition, Wal-Mart faces fines as high as $2 billion for the wage-and-hour violations.

King's ruling culminated a seven-year legal battle by four former Wal-Mart workers who filed a class-action lawsuit on behalf of 56,000 current and former employees who worked at Minnesota Wal-Mart and Sam's Club stores between Sept. 11, 1998, and Jan. 31, 2004.

"I was treated like so many of my co-workers," said Nancy Braun of Rochester, Minn., one of the four plaintiffs. "There was just too much work to do and never enough time to do it. There just wasn't enough time in the day to take the breaks we were entitled to."

Judge King found that Wal-Mart repeatedly and willfully violated Minnesota labor laws or its contract with its employees on the issues of contractual rest breaks, statutory meal breaks, shaving time from paid rest breaks and failure to maintain accurate records.

In the decision, the judge found that Wal-Mart was aware that employees were not receiving breaks to which they were entitled. "In essence, they put their heads in the sand," King stated.

He found that Minnesota law requires every employer to provide its employees with a sufficient time to eat a meal. King stated, "No time to eat a meal is not a sufficient time to eat a meal." King found that Wal-Mart violated the meal break law 73,864 times.

U.S. Supreme Court Issues Three New Employment-Related Decisions Today

The United States Supreme Court has just issued a 5-4 ruling on an age discrimination issue in Kentucky Retirement System v. EEOC and a 6-1-2 ruling on an ERISA issue in Metropolitan Life Insurance Co. v. Glenn.   In addition, the Court also ruled on a burden-of-persuasion issue on an age discrimination claim in Meacham v. Knolls Atomic Power Laboratory. We will be updating the blog after we have a chance to review the decisions. In the meantime, click here for the Kentucky Retirement opinion; here for the Metropolitan decision; and here for the Meacham decision.

Attorney's Letter or DFEH Charge Triggers Employer's Duty to Tender Claim to Insurance Carrier Even if No Lawsuit Filed

Westrec Marina Management, Inc. v. Arrowood Indem. Co., contains some important lessons for employers who believe they have insurance coverage for employment claims.

In Westrec, an employee’s attorney sent a letter on June 24, 2003 to the Company asserting that his client had been sexually harassed by supervisory employees, and inviting the Company to engage in a settlement discussion. The Company apparently did not take up the offer and the employee filed a lawsuit six months later, in December.

At this point the employer probably took comfort from the fact that it had a “directors and officers” insurance policy, which would at least defray the cost of defending the case. The carrier, however, refused to defend the case on the ground that the “claim” should have been tendered before the lawsuit was even filed. The Court agreed. 

The reason is that the policy covered only claims which were first made during the policy period and were “reported within 30 days after the expiration of the policy.” The original policy had a coverage period of July 1, 2003 to July 1, 2004. Although the employer had renewed its coverage at the expiration of this original period, the first policy had nevertheless technically “expired” on July 1, 2004. 

As a result, the court held that: (a) the first policy period expired on July 1, 2004 – and the attorney letter should therefore have been tendered within 30 days of that date; (b) the lawsuit and the letter were the same “claim” for purposes of determining insurance coverage; and (c) the time to report the claim under the policy had therefore expired before the lawsuit had even been filed. 

The lessons for employers are clear. First, you must carefully read the language of your policy. Businesspeople who are not versed in the intricacies of insurance law generally concentrate on the seemingly broad grants of coverage in the first portion of the policy, without examining all of the ways in which this coverage is whittled down by the exclusions, definitions, and reporting requirements. (It is no coincidence that insurance carriers do not draft their policies in “plain English.”) Second, when in doubt -- immediately tender everything that even resembles a potentially covered claim.

Motion To Strike Class Certification Allegations Upheld By Appellate Court

Three Plaintiffs filed two separate class actions against AZ3, Inc., doing business as BCBG Maxazria (BCBG), on behalf of all managers and assistant managers in BCBG’s California stores. The complaints alleged causes of action for failure to pay overtime compensation (Lab. Code, §§ 1194, 1197) and disgorgement of unpaid wages (Bus. & Prof. Code, § 17200 et seq.). The three Plaintiffs filed a coordinated complaint against BCBG in March 2005.

The coordinated complaint sought to recover overtime for all managers and assistant managers on the basis that they were misclassified as “exempt” employees. The plaintiffs alleged that BCBG had a policy of operating stores to minimize employee overtime, which resulted in the managers and assistant managers working over forty hours per week and “spend over fifty percent of their working hours performing the duties delegated to non-exempt employees.”

In a “preemptive strike” against the Plaintiffs, BCBG filed a motion to strike the class action allegations from the complaint alleging that the purported class was not amendable to class treatment. This motion was filed in January 2007, before Plaintiffs filed their motion for class certification.

In support of the motion to strike the class action allegations, BCBG explained the nature of its business as:
an haute couture design house for French-American styled women’s clothing. . . . In California, BCBG has maintained approximately 32 business locations with a variety of differing operating scenarios – for instance, some boutiques are small, stand-alone shops, others are large destination locations; some other[s] are small outlet/discount locations, while others are large (even multi-level) locations in malls; still others are incorporated as part of outdoor shopping plazas.
BCBG also noted the differences between the 32 locations: the stores do not carry the same merchandise; stores each have different target markets, requiring different marketing efforts; and the staffing and hours of operation differ from store-to-store. BCBG submitted declarations of 25 current or former managers and assistant managers from various California stores supporting its contention that managers are not assigned uniform duties and spend more than 50 percent of their time on non-managerial work.

The Plaintiffs opposed the motion, contending it was an improper attempt to circumvent the class certification process. The trial court granted BCBG’s motion to strike the class action allegations from the complaint, which prevented Plaintiffs' from continuing with the case as a class action.  Plaintiff’s appealed the trial court’s ruling.

In holding that BCBG’s motion to strike the class allegations was proper, the appellate court noted that any party can file a motion for class certification, and that trial courts should determine whether the action should be maintained as a class action “[a]t an early practicable time after a person sues or is sued as a class representative….” (citing Federal Rules Civ. Proc. Rule 23 (c)(1).)

The Plaintiffs’ argued that the motion to strike was premature, and that they did not have enough time to conduct adequate discovery into whether the class issues. The appellate court disagreed:
BCBG’s motion was filed 22 months after the filing of Plaintiffs’ coordinated complaint, 33 months after Denkinger’s complaint, and four years after Williams and Thornhill’s complaint. During the time between the filing of the coordinated complaint and the motion, Plaintiffs had, as Deckinger puts it, been engaged in “an extensive law and motion battle regarding the identity of members of the putative class and the declarations filed in support of Respondent’s Motion . . . .”
BCBG evidently was contacting former and current putative class members to have them sign an optout agreement from the class action. The Plaintiffs’ argued that this was unfair, as they did not have the names and telephone numbers for the putative class members and, therefore, could not contact the same people. The appellate court did not give Plaintiffs' argument any merit:
Plaintiffs did not have contact information for the putative class members and had been unsuccessful in discovery attempts to obtain it from BCBG. Plaintiffs suspected that BCBG might be giving the putative class members misinformation to induce them to settle their potential claims. The [trial] court remarked, “[T]his is frankly when a class rep ought to be out there dialing for dollars, talk[ing] to their friends and former employees, . . . and saying what’s going on out there, what have you heard. And that’s the kind of investigative work that would really, to me, make a class rep worth their weight in gold.”
The opinion, In re BCBG Overtime Cases, can downloaded from the court's website in Word or PDF.

U.S. Supreme Court Turns Down Employer's Appeal Regarding FMLA Rights

The United States Supreme Court rejected an appeal by Progress Energy, Inc. regarding the waiver of an employee’s rights under the Family and Medical Leave Act (“FMLA”). In Progress Energy v. Taylor, the Court rejected – without comment – Progress Energy’s appeal from a 4th Circuit Court of Appeal ruling that held an employer cannot induce to waive their rights under the FMLA. The 4th Circuit based their ruling on a 1995 Labor Department rule that said employees cannot waive their rights under the act, nor can employers encourage them to do so. On appeal, Progress Energy argued that the Labor Department ruling only applied to the waiver of future rights, not to the settlement of past claims. Click here for more information on the case.

Although the Bush Administration agreed with Progress Energy’s position, it encouraged the Supreme Court to turn down the case because the Labor Department is issuing a new rule that makes clear that the waiver prohibition only applies to prospective rights, rather than past claims.

Amaral v. Cintas Corporation: The Wide World of Local Wage Laws

The recent decision in Amaral v. Cintas contains a full plate of legal issues involving a city’s authority to regulate conduct outside its borders, employer’s duties to keep records, and a court’s discretion to reduce an employer’s potential penalties under the Labor Code Private Attorney General Act of 2004 (“PAGA”).     Perhaps the main message lesson for employers, however, is that the effect of local “living wage” ordinances can spread far beyond the jurisdiction of the actual city itself. 

In this case, Cintas signed a seemingly straightforward contract to provide laundry services to the City of Hayward, a city of approximately 147,000 residents in the San Francisco Bay Area.  Hayward, however, had passed a local wage ordinance (LWO) that required city contractors to pay at least $9.25 to “any individual employed by a service contractor on or under the authority of any contract for services with the City.” Cintas apparently paid the specified rates to its employees who worked within the City of Hayward. But Cintas also took laundry from inside the city to a centralized plant in another city, where laundry from various clients was comingled for processing. 

A class action lawsuit was filed on behalf of all employees at the plant who claimed that they, too, were entitled to earn the higher wage rate. Cintas argued that the local Hayward ordinance only required higher wage rates for hours worked on the city contract itself. The Court, however, gave the ordinance an extremely broad reading – finding, in effect, that every employee who ever touched the city of Hayward’s laundry was entitled to be paid $9.25 an hour on every other project that he or she worked on. As the Court explained:

A contractor with many employees might choose to limit its obligations by segregating City contract work and assigning this work to a smaller subset of employees. That it did not occur to Cintas to do so does not require us to reach a different interpretation of the ordinance.

As a result of this simple failure to segregate the city contract work, Cintas received an adverse judgment for restitution, penalties, attorney fees, and interest that was probably greater than the entire gross receipts of its contract with the city. This should serve as a cautionary tale for any employer doing business with a governmental entity that has a so-called “living wage” or “prevailing wage” requirement. 

U.S. Supreme Court Rules Against Public Employee

The United States Supreme Court ruled against an individual public employee who invoked the equal protection clause of the Constitution in support of her claim. The Court ruled, in a 6-3 decision, that individual public employees have a variety of protections from personnel actions, however, the equal protection clause of the Constitution is not one of them.

In Engquist v. Oregon Department of Agriculture, the plaintiff lost her job with the Oregon Department of Agriculture and claimed that her dismissal was for "arbitrary, vindictive and malicious reasons." The Supreme Court agreed with the 9th Circuit in ruling that the plaintiff's claim involved an area of law where the rights of public employees should not be as expansive as those of ordinary citizens. Chief Justice Roberts stated that the Court has "often recognized that government has significantly greater leeway in dealing with citizen employees." Accordingly, unlike private employees who may bring an equal protection claim as a "class of one,"
public employees' rights are more limited in this context.

In reaching its ruling, the Court agreed with the Bush Administration which warned that a contrary ruling would mean that federal courts would have to referee run-of-the-mill decisions in the public workplace. Such an undertaking, of course, would be substantial as the federal government currently employees approximately 2.7 million civilian employees.

"Holiday Pay" Is Not Considered An Employee's "Regular Rate Of Pay" For Calculating Overtime

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. 

Thompson v. North American Stainless, LP: Anti-Retaliation Protection is Expanded to Include Friends, Relatives and Anyone "Closely Associated" with a Complaining Employees

In Thompson v. North American Stainless, LP, the plaintiff alleged he had been fired because his wife -- who had previously worked for the same employer –filed a charge of discrimination against it with the EEOC. The trial court granted summary judgment against the husband on the ground that he himself had never engaged in any of conduct protected by Title VII – such as opposing the alleged discrimination or participating in the government investigation. 

In a very significant March 31, 2008 opinion, the Sixth Circuit court of appeals reversed and allowed his suit to go forward. As the majority acknowledged, “a literal reading of [Title VII] section 704(a) suggests a prohibition on employer retaliation only when it is directed to the individual who conducted the protected activity.”  It concluded, however, that the language of the statute itself should not be controlling because “tolerance of third-party reprisals would, no less than the tolerance of direct reprisals, deter persons from exercising their protected rights under Title VII.” 

Thus, the Court followed the position urged by the EEOC by extending statutory protection to any third party that is deemed to be “so closely related to or associated with the person exercising his or her statutory rights that it would discourage that person from pursuing those rights.” (citing the EEOC Compliance Manual.)

In construing the rights provided by the California Fair Employment and Housing Act (FEHA), California courts typically follow the interpretations that federal courts have given to analogous provisions of Title VII. As a result, it is a safe bet that California courts will begin applying Thompson in state court FEHA actions at the first opportunity.

Employers must therefore recognize that action affecting “associated” individuals will now be subjected to increased scrutiny. For example, imagine a small employer who is being sued for wrongful termination while the plaintiff’s spouse continues to work in the same office – perhaps in a sensitive position with access to confidential information. The employer may rightly feel that the spouse is a “security risk” who may funnel confidential information to the other side, or that her loyalty must inevitably be tainted by her disgruntled spouse. Under these circumstances, it would be tempting to terminate or transfer the remaining spouse. Under Thompson this would be a very dangerous course of action.

Appellate Court Allows "On-Duty" Meal Period Class Action To Proceed

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.

Appellate Court Holds Network Director For Start-up Company Was Properly Classified As Exempt Employee

In a recently published opinion, Combs v. Skyriver Communications, Inc., the plaintiff Mark Combs appealed a judgment against him in an action to recover overtime pay and meal and rest breaks. He alleged that he was misclassified as an exempt employee while working for Skyriver Communications, Inc. (Skyriver). He sued Skyriver and its chief executive officer for the unpaid wages under three causes of action: . (1) violation of Labor Code sections 510 and 1194 and applicable Industrial Welfare Commission (IWC) wage orders; (2) violation of the Unfair Competition Law (the UCL) (Bus. & Prof. Code, § 17200 et seq.); and (3) penalties under the Private Attorneys General Act of 2004 (the PAGA) (§ 2698 et seq.). Combs sought to hold Skyriver’s CEO liable on an alter ego theory.

The employer, Skyriver is a high-speed, wireless, broadband internet service provider. When Combs worked for Skyriver, it was a “young start-up company” and Combs was the first manager for capacity planning, and then became the director of network operations. He voluntarily resigned in November 2004.

Combs alleged the trial court committed an error by failing to apply the administrative/production worker dichotomy pertaining to the administrative exemption from IWC overtime compensation requirements, which was set forth in Bell v. Farmers Insurance Exchange (2001) 87 Cal.App.4th 805, cert. denied 534 U.S. 1041 (Bell II). Combs also contends that application of the Bell II dichotomy would have resulted in a determination that Combs was a production worker, not an administrator, and thus that he was not administratively exempt.

Administrative/Production Dichotomy Defined
As the appellate court explained, the administrative/production dichotomy was defined in the Bell II case when the court drew "a distinction between administrative employees, who are usually described as employees performing work 'directly related to management policies or general business operations of his employer or his employer's customers,' and production employees, who have been described as 'those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce.' [Citation.]" (citing Bell II, supra, 87 Cal.App.4th at p. 820, fns. omitted.) Therefore, under this framework, employees who produce the company’s goods or services cannot qualify as exempt administrative employees.

However, this test has become more and more difficult to apply given today’s new technology, more “flat” organizational structures within companies, and the fact that with the advent of computers and the internet, it is often times hard to exactly describe what a company’s product actually is. The appellate court recognized this difficulty, and explained that the Bell II court further explained that dichotomy's "somewhat gross distinction" between administrative employees and production employees "may not be dispositive in many cases," and warned that it should be applied with "great caution." (citing Bell II at pp. 826-827.)

Combs claimed that the administrative/production dichotomy was "binding [legal] precedent" and that the courts were required to apply this framework to his case. However, the appellate court disagreed and held that:
Combs's reliance on Bell II and Bell III is unavailing because those cases are factually and legally distinguishable. They are factually distinguishable in that the class plaintiffs in that litigation were former and current insurance claims adjusters who worked in California branch claims offices and, according to their employer's own characterization in its regional claims manual, their job responsibilities were restricted to the "handling of the routine and unimportant." (Bell II, supra, 87 Cal.App.4th at pp. 827-828, italics added.) In upholding the trial court's determination that the claims adjusters were production, not administrative, employees within the meaning of the administrative exemption set forth in former IWC Wage Order No. 4, the appellate court in Bell II concluded that the record as a whole confirmed that the claims adjusters were "ordinarily occupied in the routine of processing a large number of small claims," and "[o]n matters of relatively greater importance, they [were] engaged only in conveying information to their supervisors—again primarily a 'routine and unimportant' role." (Bell II, supra, 87 Cal.App.4th at p. 828, italics added.) Here, however, as we shall explain, post, there is no evidence to show that Combs's responsibilities at Skyriver were limited to "the routine and unimportant."
The appellate court explained that Combs's job responsibilities were high-level and important. The trial record showed that Combs performed "specialized functions" that, unlike the "routine and unimportant" functions performed by the claims adjusters in the Bell cases, could not be readily categorized in terms of the administrative/production worker dichotomy. Evidence showed that the wide variations in Combs's job responsibilities called for "finer distinctions than the [Bell II] administrative/production worker dichotomy provides." The evidence also showed that Skyriver's corporate administrators commonly worked side-by-side with employees who were not administrative employees, and there is no evidence in the record to show that Combs's job responsibilities were limited to "the routine and unimportant" as was the case in Bell II. Therefore, the appellate court upheld the trial court's decision to not apply the administrative/production worker dichotomy

Administrative Exemption Test
The court then turned to analyze Combs’s claim under the requirements of the administrative exemption test. Combs conceded that he earned a monthly salary equivalent to no less than twice the state minimum wage (he earned between $70,000 and $90,000 per year) for full-time employment, that his worked was “office or non-manual work,” and that he performed his work “under only general supervision [and] along specialized or technical lines requiring special training experience or knowledge.”

Combs, however, challenged that Skyriver failed to prove the remaining "critical" elements of the “duties test” that are required to meet the administrative exemption.

    a. Work "directly related to management policies or general business operations"
Combs contended that his work did not rise to the level of being related to management policies or general business operations. The court disagreed. Combs was responsible for maintaining, developing and improving Skyriver's network, and his duties involved high-level problem solving, preparing reports for Skyriver's board of directors, capacity and expansion planning, planning for the integration of acquired networks into Skyriver's network, lease negotiations, and equipment sourcing and purchasing.

The appellate court also emphasized that Combs's own resume and his trial testimony showed that his job functions as manager of capacity planning included "network planning"; design of network operations center (NOC) policies and procedures; "project management, budgeting, vendor management, purchasing, forecasting[, and] employee management"; management of "overseas deployment of wireless data network"; among other duties.

    b. Customary and regular exercise of discretion and independent judgment
Combs testified that he spent 60 to 70 percent of his time on his core responsibility of maintaining Skyriver's network. Witnesses from Skyriver testified that Combs, in carrying out his role of "troubleshooting an issue with [Skyriver's] network," had "the authority to determine the course of action to correct the problem." The court again turned to Combs’ resume and found that the job responsibilities he listed “also supported a finding that he customarily and regularly exercised discretion and independent judgment with respect to matters of significance.”

    c. Primary engagement in duties that meet the administrative exemption test
The term "primarily" is defined to mean "more than one-half the employee's work time." (Cal. Code Regs., tit. 8, § 11040, subd. 2(N).) Combs himself testified that he spent 60 to 70 percent of his time on his core responsibility of maintaining the well-being of Skyriver's network. As the court set forth above, this type of activity is both "work directly related to assisting with the running or servicing of the business," and work that includes "computer network, internet and database administration" within the meaning of 29 Code of Federal Regulations 541.201 (which is the federal regulation incorporated in IWC Wage Order No. 4-2001). Therefore, the court held that Combs did in fact spend more than 50 percent of his time performing duties that meet the administrative exemption.

Lessons From This Case
  1. The administrative exemption is alive and well.
  2. Start-up companies and technology companies should be able to use this holding in order to urge courts to not apply the administrative/production dichotomy – which should increase the likelihood that an employee meets the requirements for the administrative exemption.
  3. An employee’s resume explaining their duties while working at a former company in a misclassification case is valuable evidence. It lists their true duties while they worked at a former job – which is probably a much more accurate description than they will testify to during litigation.

CA Supreme Court Holds Individuals Not Liable For Retaliation In Jones v. The Lodge At Torrey Pines

The California Supreme Court issued its ruling today in Jones v. The Lodge At Torrey Pines.  The Court held:
In Reno v. Baird (1998) 18 Cal.4th 640 (Reno), we held that, although an employer may be held liable for discrimination under the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.), nonemployer individuals are not personally liable for that discrimination. In this case, we must decide whether the FEHA makes individuals personally liable for retaliation. We conclude that the same rule applies to actions for retaliation that applies to actions for discrimination: The employer, but not nonemployer individuals, may be held liable.
The opinion can be read here.

Jones v. Torrey Pines Supreme Court Opinion Forthcoming Monday

The California Supreme Court announced today that on Monday, March 3, 2008, it will issue an opinion in Jones (Scott) v. The Lodge At Torrey Pines Partnership. 

The issue in this case is whether an individual be held personally liable for retaliation under the California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.).  We will post the opinion and hopefully have some time to include some analysis about the case on Monday.

Court Strikes Down Plaintiff's Attempt to Recover $46,000 In Attorney's Fees For $45 (rounded up) In Unpaid Wages

In Harrington v. Payroll Entertainment Services, Inc. (2008) __ Cal.App.4th __, Plaintiff brought suit against his employer for $44.63 in unpaid overtime, which was eventually settled for $10,500. After the settlement, the plaintiff (read the plaintiff’s lawyer) asked the trial court for about $46,000 for his attorneys’ fees. According to plaintiff, five lawyers and one paralegal worked on this case, with one lawyer billing 55.6 hours at $525 per hour, and another billing 67.15 hours at $275 per hour. The trial court denied the motion, and the plaintiff (read the plaintiff’s lawyer) appealed on the ground that he has a statutory right to recover his reasonable fees. The appellate court agreed, but in a scathing opinion only provided plaintiff $500 for his “reasonable” fees.

The appellate court stated:
It is as plain to us as it was to the trial court that, from the outset, this was a dispute about $44.63 and that it was not viable as a class action. It is equally plain that Harrington was underpaid as the result of an honest mistake made in reliance on a formula provided by his union, not based on any willful or knowingly wrongful conduct by PESI. (Cf. § 203.) At the risk of understatement, there is no way on earth this case justified the hours purportedly billed by Harrington’s lawyers.

We decline Harrington’s invitation to remand the matter to the trial court for its determination of a fee. The record is sufficient to allow us to make that determination, thereby saving the parties the additional fees and costs they would incur in refreshing the trial court’s recollection about this case, and avoiding any further expenditure of judicial resources. Given the nature of the dispute, the amount of the settlement, and the record on appeal, we are satisfied that the trial court could not reasonably award an amount in excess of $500, and thus fix the fee at that amount. (See PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1096; compare Chavez v. City of Los Angeles (2008) ___ Cal.App.4th ___ (Feb. 22, 2008, B192375).)
The opinion can be read here.

US Supreme Court Tackles Employment Law Cases This Week

Today, the Court will hear argument in Gomez-Perez v. Potter, on whether the Age Discrimination in Employment Act bars retaliation by public employers for the filing of age discrimination complaints.  For more information about the facts of the case, click here.

On Wednesday, the Court is scheduled to hear oral argument in CBOCS West v. Humphries, on whether a race retaliation claim can be brought under 42 U.S.C. § 1981 (Section 1981).  Section 1981 provides that any “person within the jurisdiction of the United States” has the same right to “make and enforce” contracts, regardless of their skin color.  Section 1981 protects parties to a contract (both at the time of formation and post-formation).  The argument arises that Section 1981 applies to aspects of the employment relationship because that relationship is considered contractual, but courts have not defined to what extent this protection exists in the employment context.  Employees who have not filed a lawsuits within the time limits proscribed by Title VII (which allows for retaliation claims), often revert to Section 1981 in order to keep their claim alive. 


Can Internet User Protect His Or Her Identity Under The First Amendment?

As employment litigators, we are finding ourselves dealing more and more with Internet related issues, such as an employer’s right to monitor employees’ computer usage, and an employee’s privacy rights to information posted on the Internet. A recent case, Krinsky v. Doe 6, __ Cal.App.4th ___ (Feb. 6, 2008), (click here for the opinion) dealt with the issue whether someone who posts anonymously on the Internet can protect his or her identity under the First Amendment. While not directly related to employment law, the ruling's effects could be felt by companies and should be read by anyone dealing with human resource issues in California.

Lisa Krinsky, a corporate officer of a Florida company, SFBC International, Inc., filed a lawsuit against 10 unknown individuals for defamation and intentional interference of contractual relations. She claimed the 10 unknown individuals (sued as Does 1-10) posted scathing attacks about her and her company on Yahoo!’s message board. Krinsky attempted to discover the identity of 10 of the pseudonymous posters by serving a subpoena on the custodian of records of the message-board host, Yahoo!, Inc. (Yahoo!) in Sunnyvale, California.

Yahoo! notified Defendant “Doe 6” that it would comply with the subpoena in 15 days unless a motion to quash or other legal objection was filed. Doe 6 then moved in California superior court to quash the subpoena on the grounds that (1) plaintiff had failed to state a claim sufficient to overcome his First Amendment rights for either defamation or interference with a contractual or business relationship, and (2) plaintiff's request for injunctive relief was an invalid prior restraint. Doe 6 moved to quash the subpoena in California in an attempt to hide his identity, but the trial court denied the motion. Doe 6 appealed this decision, contending that he had a First Amendment right to speak anonymously on the Internet.

The appellate court discussed the fact that there is never really true anonymity on the Internet. Moreover, Yahoo! warns users that their identities can be traced, and that it will reveal their identities if legally required to do so. The parties in the case agreed that the enforceability of the subpoena should be determined by weighing Doe 6's First Amendment right to speak anonymously against plaintiff's interest in discovering Doe 6’s identity in order to pursue her claim.

The appellate court’s decision ultimately turned on the issue whether the statements posted by the defendant were in fact defamatory. The analysis begins with examining whether plaintiff can establish with supporting evidence that a libelous statement has been made. If plaintiff can establish this, then the writer’s message has no First Amendment protections.

The California appeals court, in applying Florida defamation legal standards due to the fact that this is where the Plaintiff filed the underlying case, stated:
A publication is libelous per se in Florida "if, when considered alone without innuendo: (1) it charges that a person has committed an infamous crime; (2) it charges a person with having an infectious disease; (3) it tends to subject one to hatred, distrust, ridicule, contempt, or disgrace; or (4) it tends to injure one in his trade or profession. Plaintiff maintains that Doe 6 implied that she was dishonest by calling her a "crook" and asserted that she had a "fake medical degree," thereby accusing plaintiff of being dishonest or at least of engaging in conduct incompatible with her employment. He also subjected her to ridicule and disgrace and damaged her reputation by stating that she had "poor feminine hygiene."
(citations and footnote omitted)
After examining the statements posted on the Yahoo! message board, the court found that the statements were not defamatory:
We likewise conclude that the language of Doe 6's posts, together with the surrounding circumstances -- including the recent public attention to SFBC's practices and the entire "SFCC" message-board discussion over a two-month period -- compels the conclusion that the statements of which plaintiff complains are not actionable. Rather, they fall into the category of crude, satirical hyperbole which, while reflecting the immaturity of the speaker, constitute protected opinion under the First Amendment.
As to plaintiff’s interference with contractual/business relationships claim, the appellate court held that this also failed:
As to Doe 6, it is clear from the pleading that the business tort alleged in the interference cause of action is based entirely on the "defamatory remarks" that were protected speech under the First Amendment. Casting the defamation claim in terms of interference with a business relationship does not save plaintiff's cause of action.
The appellate court concluded:
We thus conclude that Doe 6's online messages, while unquestionably offensive and demeaning to plaintiff, did not constitute assertions of actual fact and therefore were not actionable under Florida's defamation law. Because plaintiff stated no viable cause of action that overcame Doe 6's First Amendment right to speak anonymously, the subpoena to discover his identity should have been quashed. (fn. Omitted)

California Supreme Court Holds that Employers May Terminate Employees For Use of Medical Marijuana

Last week, the California Supreme Court held that it is not a violation of California law for an employer to terminate an employee who tests positive for marijuana, even though the employee was prescribed the marijuana for medical purposes under California’ Compassionate Use Act of 1996.

The conflict in Ross v. Ragingwire Telecommunications, Inc. was between California's Compassionate Use Act, (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and Federal law (which prohibits the drug’s possession, even by medical users). The employer in this case terminated plaintiff’s employment based on a positive test for marijuana even through the plaintiff provided a doctor’s note explaining that he was prescribed marijuana to alleviate back pains. 

The Supreme Court explained that the employer's decision to terminate plaintiff was not illegal:
Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and duties of employers and employees. Under California law, an employer may require preemployment drug tests and take illegal drug use into consideration in making employment decisions. (Loder v. City of Glendale (1997) 14 Cal.4th 846, 882-883.)
Plaintiff’s position might have merit if the Compassionate Use Act gave marijuana the same status as any legal prescription drug. But the act’s effect is not so broad. No state law could completely legalize marijuana for medical purposes because the drug remains illegal under federal law (21 U.S.C. §§ 812, 844(a)), even for medical users (see Gonzales v. Raich, supra, 545 U.S. 1, 26-29; United States v. Oakland Cannabis Buyers’ Cooperative, supra, 532 U.S. 483, 491-495). Instead of attempting the impossible, as we shall explain, California’s voters merely exempted medical users and their primary caregivers from criminal liability under two specifically designated state statutes. Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and obligations of employers and employees.
The Court also provided that a reasonable accommodation, as required under California’s FEHA, does not include an employer’s permission to use illegal drugs:
The FEHA does not require employers to accommodate the use of illegal drugs. The point is perhaps too obvious to have generated appellate litigation, but we recognized it implicitly in Loder v. City of Glendale, supra, 14 Cal.4th 846 (Loder). Among the questions before us in Loder was whether an employer could require prospective employees to undergo testing for illegal drugs and alcohol, and whether the employer could have access to the test results, without violating California’s Confidentiality of Medical Information Act (Civ. Code, § 56 et seq.). We determined that an employer could lawfully do both. In reaching this conclusion, we relied on a regulation adopted under the authority of the FEHA (Cal. Code Regs., tit. 2, § 7294.0, subd. (d); see Gov. Code, § 12935, subd. (a)) that permits an employer to condition an offer of employment on the results of a medical examination. (Loder, at p. 865; see also id. at pp. 861-862.) We held that such an examination may include drug testing and, in so holding, necessarily recognized that employers may deny employment to persons who test positive for illegal drugs. The employer, we explained, was “seeking information that [was] relevant to its hiring decision and that it legitimately may ascertain.” (Id. at p. 883, fn. 15.) We determined the employer’s interest was legitimate “[i]n light of the well-documented problems that are associated with the abuse of drugs and alcohol by employees — increased absenteeism, diminished productivity, greater health costs, increased safety problems and potential liability to third parties, and more frequent turnover . . . .” (Id. at p. 882, fn. omitted.) We also noted that the plaintiff in that case had “cite[d] no authority indicating that an employer may not reject a job applicant if it lawfully discovers that the applicant currently is using illegal drugs or engaging in excessive consumption of alcohol.” (Id. at p. 883, fn. 15.) The employer’s legitimate concern about the use of illegal drugs also led us in Loder to reject the claim that preemployment drug testing violated job applicants’ state constitutional right to privacy. (Id. at pp. 887-898; see Cal. Const., art. I, § 1.)
(footnote omitted).

The Plaintiff also alleged a cause of action for wrongful termination in violation of public policy. Generally, at-will employees can terminate or be terminated from their job at any time, but an employer cannot terminate an employee for reasons that violate a fundamental public policy of the state. The Court rejected plaintiff’s position that there was a fundamental public policy that permitted him to use medical marijuana and be under its influence while at work. “Nothing in the [Compassionate Use Act’s] text or history indicates the voters intended to articulate any policy concerning marijuana in the employment context, let alone a fundamental public policy requiring employers to accommodate marijuana use by employees."

The opinion can be viewed at the Court’s website (WRD) (PDF).

New Case Decision On Witness Contact Information Disclosure In Class Action Litigation

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.

Court Denies Employee's Attorney Fees For Tort Claims

Apart from being an informative warning about some tactics used by car dealerships to increase the price paid by consumers by using “legs” or “payment packing” techniques, the court’s opinion in Casella v. Southwest Dealer Services, Inc. also analyzed when parties may recover their attorney fees in litigation.

As a general rule, in the United States each party bears the costs their own attorney’s fees. However, this general rule can be modified if a statute allows for prevailing parties to recover attorney’s fees or by a contractual agreement by the parties.

In Casella v. Southwest Dealer Services, the following attorney fee provision was at issue:
If any legal action arises under this Agreement or by reason of any asserted breach of it, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorney’s fees, incurred in enforcing or attempting to enforce any of the terms, covenants or conditions, including costs incurred prior to commencement of legal action, and all costs and expenses, including reasonable attorney’s fees, incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.
Casella’s lawsuit was based on tort claims for wrongful termination in violation of public policy, fraud, and violation of Labor Code section 970. He did not allege a breach of the employment contract. The court interpreted the attorney’s fee provision as being very narrow:
In this case, the attorney fees provision starts out broadly, using the phrase “[i]f any legal action arises under this Agreement”…. [And then] the provision then narrows in scope, limiting the recovery of reasonable attorney fees to those “incurred in enforcing or attempting to enforce any of the terms, covenants or conditions,” including reasonable attorney fees “incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.”
Therefore, the court held that “[s]uch tort claims do not seek to enforce the employment agreement. Section 1717, subdivision (a) of the Civil Code “makes clear that a tort claim does not ‘enforce’ a contract. That statute expressly refers to, and therefore governs, ‘attorney’s fees . . . which are incurred to enforce th[e] contract.’ Because section 1717 does not encompass tort claims [citations], it follows that tort claims do not ‘enforce’ a contract.” (citing Exxess Electronixx, 64 Cal.App.4th at p. 709.) Because the employment contact did not provide for recovery of attorney’s fees for tort claims, plaintiff’s claim for attorney’s fees failed.

However, the plaintiff was awarded $12,500, a small portion of his attorney’s fee claim. This was due to the fact that after plaintiff filed the lawsuit, the defendant brought a Cross-Complaint against the plaintiff for breach of contract under the employment agreement. The defendant eventually withdrew this claim prior to trial, which made plaintiff the prevailing party on the claim.  Therefore, the court awarded plaintiff the pro-rata costs he incurred in defending this the breach of contract claim.

After Kakani v. Oracle Are "Claims Made" Class Settlements Obsolete?

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.

CA Supreme Court Grants Review In Harris v. Superior Court

The California Supreme Court granted review of Harris v. Superior Court.  As previously posted about here, the only legal issue reviewed by the lower appellate court was the proper construction and application of the single phrase limiting exempt administrative duties to those that are “directly related to management policies or general business operations.”  The lower court dealt a serious blow to the viability of the administrative exemption for all employers in California and the Supreme Court may have granted review in order to give at least some life back to the administrative exemption.

The EEOC's Hard Times Continue

You may have read some of our posts (here for example) about the EEOC’s recent losses and/or dressing downs by the courts. Well, the hits keep on coming, and now it is the U.S. Supreme Court chastising the EEOC for the way it conducts business. 

Ross Runkel at the Employment Law Blog notes that while the issue in front of the Supreme Court in Federal Express v. Holowecki was a simple one, the oral arguments “turned into a judicial pile-on, seeing which Justice could be the most critical of the way the EEOC does business.”

Ross further commented:

I'll give the award to Justice Scalia. When the government's lawyer stood up to talk, the lawyer didn't get past his formal introduction before Justice Scalia jumped on him.

"JUSTICE SCALIA: Mr. Heytens, let me tell you going in that my -- my main concern in this case, however the decision comes out, is to do something that will require the EEOC to get its act in order, because this is nonsense: These regulations that are contradicted by forms; this failure to give notice, but it's okay because it's a charge anyway.

"This whole situation can be traceable back to the agency, and I -- whoever ends up bearing the burden of it, it's the agency's fault, and this scheme has to be revised."

Hopefully the U.S. Supreme Court’s comments knock some sense back into the agency – but we are not holding our breaths.

Gattuso v. Harte-Hanks: Positive Ruling for Employers

In Gattuso v. Harte-Hanks, the California Supreme Court shed some light on the relatively unexamined issue by the courts of expense reimbursement. At issue in the case was whether Harte-Hanks could reimburse its outside sales force for mileage by paying a higher “lump sum” in the form of wages and/or commissions, as opposed to paying a specified sum for each mile driven. The Supreme Court ultimately held that employers may reimburse employees under the lump sum method, but also provided an excellent examination of:

  • Employer's obligations under alternative methods of reimbursing employees for expenses,
  • Who bears the burden of proof when challenging the reimbursement amount (short answer: the employee - as explained below),
  • Whether employers and employees can independently negotiate an expense reimbursement amount (short answer: yes, and this amount does not have to be the IRS mileage rate), and
  • What a court needs to consider in determining whether expenses incurred by the employee were “reasonable” and, therefore, reimbursable (short answer: this is a individualized analysis for each employee).

1.      Reimbursement Method One: Actual Expense Method

The Court first examined the actual expense method that employers can utilized in reimbursing employees for business costs. The Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation. 

To calculate the reimbursement amount using the actual expense method the employee must keep detailed and accurate records of amounts spent in each of these categories. Calculation of depreciation will require information about the automobile’s purchase price and resale value (or lease costs). In addition, the employee must keep records of the information needed to apportion those expenses between business and personal use. This is generally done by recording the miles driven for business and personal use.  Then the employee submits this information for the employer to calculate the reimbursement due. 

2.      Method Two: Mileage Reimbursement Method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven."  The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. Therefore, the employee may challenge the amount of reimbursement. However, if the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” 

Therefore, the employee must prove his case by producing the records of: fuel, maintenance, repairs, and depreciation, among other items as discussed above under the actual expense method. This analysis involves what the employee actually spends, and whether the expenses were “reasonable." This is a very difficult hurdle to overcome as the records required to meet the burden of proof under Gattuso need to be very detailed. In addition, the Court all but said that in determining what is “reasonable” requires an individualized review by the judge, which supports the argument that these types of cases are not appropriate for class-wide treatment.

The Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate, which is contrary to the DLSE’s opinion (I guess depending on which opinion letter you read). The Court stated:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802. 

3.      Method Three: Lump Sum Payment

Under this method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays a fixed amount for automobile expense reimbursement. The Court stated that these type of lump sum payments are often labeled per diems, car allowances, and gas stipends. 

In permitting lump sum expense reimbursement payments, the Court held:

We agree with Harte-Hanks, and also with the trial court and the Court of Appeal, that section 2802 does not prohibit an employer’s use of a lump-sum method to reimburse employees for work-required automobile expenses, provided that the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. 

The Court made it clear that employers paying a lump sum amount, however, have the extra burden to separately identify the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.


Gattuso v. Harte-Hanks Supreme Court Decision Forthcoming Next Week

The California Supreme Court announced today that it will be issuing a decision on November 5 at 10:00 a.m. in the closely watched mileage reimbursement case.  The Supreme Court issued the following notice:

GATTUSO (FRANK) v. HARTE-HANKS SHOPPERS, INC.
S139555 (B172647; Los Angeles County Superior Court – BC247419)
Argued in San Francisco 9-06-07

This case includes the following issue: May an employer comply with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses?

Opinion(s) in the above case(s) will be filed on:

Thursday, November 5, 2007 at 10:00 a.m.

Unpublished Brinker Opinion Ducks Meal Period "Policing" Issue

[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.

Meal Periods
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).

Rest Breaks
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.

Brinker - Court to Determine Employers' Obligation To "Provide" Meal Breaks

UPDATE: On July 22, 2008, the Appellate Court issued a published decision, which can be read about at our post "Meal and Rest Break Requirements Clarified By Court in Brinker v. Hohnbaum"

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.

Gentry v. Superior Court (Circuit City) Opinion

The Supreme Court's opinion in Gentry v. Superior Court (which can be read here) was issued this morning.

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.

Gentry v. Superior Court Decision To Be Issued Today

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. 

Green v. State of California: Employee Alleging Disability Discrimination Has Burden To Prove Qualified For Job

The California Supreme Court ruled in employers' favor this week by holding that an employee alleging disability discrimination has the burden of proof to show that he or she can perform the essential functions of the job with or without reasonable accommodation. The case, Green v. State of California, clarified that it is the employee who must make this showing in order to prove disability discrimination and that the employer does not have to affirmatively prove that the plaintiff was unqualified in order to avoid liability. 

The Court stated:

[W]e disagree with the statement of defendant’s burden of proof adopted by the Court of Appeal and advocated by plaintiff here. Instead, we conclude that the Legislature has placed the burden on a plaintiff to show that he or she is a qualified individual under the FEHA (i.e., that he or she can perform the essential functions of the job with or without reasonable accommodation). As explained further below, legislative intent, case law, and legislative history support defendant’s position—a view that also finds support in Evidence Code section 500, which requires a plaintiff to prove each fact essential to the claim for relief he or she is asserting.

However, employers should still approach this subject very carefully. For example, an employer is required to explore with the employee all possible means of reasonably accommodating a person prior to rejecting the person for a job or making any employment related decision.  The accommodation may arise from a mitigating measure, such as medication taken for the primary disability.  An accommodation is reasonable if it does not impose an undue hardship on the employer’s business.  Reasonable accommodation can include, but is not limited to, changing job duties or work hours, providing leave, relocating the work area, and/or providing mechanical or electrical aids.  

Human resource professionals, in-house counsel and/or business owners in California should take a few minutes to review the DFEH’s website for an employer's general obligations in regards to disabled employees, particularly the following helpful documents:

[This is a good resource to refresh the basic requirements of California law, including, what is required by the interactive process, what constitutes an undue hardship and what questions may be asked of an applicant or employee about his or her ability to perform the job.]

[This is a brief two page pamphlet published by the DFEH summarizing the law.]

Harris v. Superior Court: The "Administrative/Production Worker Dichotomy" as litmus test for the administrative exemption

The recent Harris v. Superior Court opinion dealt with that most-litigated species of employee – the California claims adjuster. And the only legal issue on appeal was the proper construction and application of the single phrase limiting exempt administrative duties to those that are “directly related to management policies or general business operations.” Nevertheless, the case deals a serious blow to the viability of the administrative exemption for all employers in California. 

The Court began its analysis by surveying the exemption language of the California Wage Orders, federal regulations under the Fair Labor Standards Act and the substantial body of state and federal case law. I won’t retrace the tortuous semantic analysis that follows. Suffice it to say, however, that the majority concluded that the so-called “administrative/production” dichotomy is the correct test to apply. 

Many of the federal courts that originally developed and applied the “dichotomy” terminology considered it to be as a mere guidepost or analytical tool. But Harris elevates the distinction to the status of a legal litmus test for determining who may be exempt. At the same time it elevated the status of the “dichotomy” test, it also made the test far more restrictive. Indeed, according to the majority’s vision of the workplace, the vast majority of white collar employees will always qualify only as mere “production” workers because they inevitably spend their time on “day-to-day” business rather than determining how the business should operate “at the level of management policy or general operations.” 

As applied to the adjusters at issue in the case, the Court held that they could not be exempt because the work they did, although clearly sophisticated and important, was deemed to be a frequent part of the employer’s core business.

The undisputed facts show that plaintiffs are primarily engaged in work that falls on the production side of the dichotomy, namely, the day-to-day tasks involved in adjusting individual claims. They investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud, and so forth. None of that work is carried on at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of defendants' business.

Moreover, the Court also took pains to emphasize that the test should not depend on the nature of the employer’s business but rather on the level at which the employee operates.

[T]he phrase “ administrative/production worker dichotomy” is misleading. Properly understood, the dichotomy is not between workers engaged in “ production” (e.g., factory workers) and workers engaged in “ administration”  (e.g., office workers). Rather, it is between office or nonmanual work that is at the level of policy or general operations and office or nonmanual work that is not. Thus, any office or nonmanual work that is not at the level of policy or general operations constitutes production work for purposes of the dichotomy, regardless of how loosely or intimately the work is connected with producing the employer's product.

The Harris decision thus represents a severe restriction on the use of the administrative exemption in California. Moreover, employers must remember that the “administrative/production worker dichotomy” discussed in Harris is merely one of the elements that must be satisfied. For example, it is also the employer’s burden to establish that the employee “customarily and regularly exercises discretion and independent judgment” and performs under only “general supervision.” 

Oral Argument Set for Gattuso v. Harte Hanks

The California Supreme Court announced today that it will hear oral arguments in GATTUSO v. HARTE HANKS SHOPPERS, (Case No. S139555) on Thursday, September 6, 2007, at 9:00 a.m., in San Francisco. 

As according to the California Supreme Court, the issue in the case is whether "an employer complies with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses."

In simpler terms, the case will address whether employers can agree to pay employees a higher rate of pay in order to compensate employees for business expenses they incur during their job, as opposed to reimbursing the employee for each expense as it occurs.  We have seen a large increase in wage and hour cases alleging violation of Labor Code Section 2802, and hopefully the Supreme Court will provide some guidance for California employers on this issue. 


The EEOC's Insatiable Appetite For Publicity In The Litigation Process

Any company that has had to defend a case against the EEOC knows of the special aggravation associated with litigation against the Federal Government. Unlike private litigants, who are motivated primarily by money, the EEOC often pursues political, ideological or bureaucratic agendas that can seem downright baffling to private sector lawyers. For example, the EEOC will often pursue claims that the supposed “victim” does not even wish to pursue – the EEOC lost a case recently against Universal where the individual on behalf who the EEOC was litigating the case settled out of court privately, but the EEOC still litigated the case.  Read more about the EEOC's loss here. 

Furthermore, as noted recently by Judge Frederick J. Martone of the Federal District Court of Arizona (who had distinguished career on Arizona’s Supreme Court prior to being appointed to Federal Court) in E.E.O.C. v. Serrano's Mexican Restaurants, LLC, that the EEOC should not utilize press releases as a litigation tool – a common practice by the EEOC. Judge Martone stated:

Our denial of the defendant’s motion is not an expression of our view on the underlying merits or the propriety of the EEOC in using press releases as part of its approach to litigation. Lawyers have a professional obligation to avoid extrajudicial statements that may prejudice a proceeding, see ER 3.6, and an obligation to be truthful in statements to others, see ER 4.1. LRCiv 83.2(d). There is a big difference between promoting the public’s right to know through keeping proceedings public, on the one hand, see Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122 (9th Cir. 2003), and affirmatively issuing press releases, on the other. The United States, and its employees, have a special duty not to injure the reputations of its citizens. Nor should it use press releases as a bargaining tool in litigation.

Judge Martone’s comments are refreshing for employers and individuals who have had to litigate cases against the EEOC and to provide some good language for parties disputing the EEOC’s usual practice of issuing press releases upon settling a case. Hopefully many more judges in the Ninth Circuit follow Judge Martone’s example. 

[Hat tip to Jottings By An Employment Lawyer.]

Employer Created Liability - When None Exists

Diane Pfadenhauer at Strategic HR Lawyer has an excellent post about the recent Sixth Circuit case Thomas v. Miller. The court in Thomas held that even though an employer may have less than 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. Diane reminds employers to carefully draft their policies to ensure that the policy does not apply to employee who may otherwise be exempt from the law at issue.

I see this occur often in regards to California specific laws. For example, California Labor Code section 230 provides certain protections to victims of domestic violence or sexual assault. Employers cannot discriminate against employees who must take time off to seek a temporary restraining order or other injunctive relief to ensure the health or safety of the employee and/or his or her child. If an employer has 25 or more employees, however, the employer is prohibited from discharging, discriminating, or retaliating against an employee who is a victim of domestic violence or sexual assault and who takes time off to seek medical attention and a list of other services. Often times small employers assume this second requirement pertains to them and incorporate it into their policies without noticing that they are not covered by this law.

Analysis on Gentry v. Superior Court (Circuit City)

We attended the oral arguments yesterday in Gentry v. Superior Court.  Kimberly Kralowec, the author of the UCL Practitioner was kind enough to post our initial analysis on the oral arguments in Gentry v. Superior Court

Ledbetter v.Goodyear Tire & Rubber

At issue in the case of Ledbetter v. Goodyear Tire & Rubber, was whether Ledbetter had filed her employment discrimination case (alleging she was paid less than male coworkers) with the EEOC within 180 days "after the alleged unlawful employment practice occurred” as required by Federal law. The Court, in a 5-4 ruling held that Ledbetter had not filed the complaint with the EEOC in a timely manner, therefore barring her claim. 

As Orin Kerr notes at the Volokh Conspiracy, “Ledbetter worked for Goodyear for about ten years, and after she retired in 1998 she sued Goodyear for giving her low raises on account of her gender throughout the term of her employment. Goodyear responded that under federal law she could only sue for any discrimination within the last 180 days, and that no discrimination occurred within the 180-day window.” 

Ledbetter argued that the 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 Court disagreed with Ledbetter’s argument and held that employees must bring a claim within 180 days of the actual discriminatory act, which in this case was the actual discriminatory pay raise. The dissenting Justices argued that often times employees do not know other employees pay rates, and employees discriminated against may not discover this information until well after the discrimination, therefore it would be unfair to apply the strict 180 day filing period to these types of cases.

While the dissenting Justices relied on fairness to support an alternative holding than the majority, it would likewise not be fair to employers to force them to defend cases regarding acts that may have occurred ten or more years earlier. Statutes of limitations requiring plaintiffs to file lawsuits within a given timeframe are intended to promote justice because evidence goes stale, witnesses go missing, and memories fade over time. 

California Supreme Court To Hear Arguments In Landmark Arbitration Case and Bonus Plan Case

The California Supreme Court is scheduled to hear oral arguments in two cases that will have large ramifications for California employers. 

On Tuesday, June 5, 2007 the Supreme Court will hear oral arguments in GENTRY v. SUPERIOR COURT (CIRCUIT CITY STORES).

The issue being heard by the Court in Gentry is:

This case presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws.

On Wednesday, June 6, 2007, the Supreme Court will hear oral arguments in PRACHASAISORADEJ v. RALPHS GROCERYThe issue being heard by the Court in Ralph’s is:

Does an employee bonus plan based on a profit figure that is reduced by a store's expenses, including the cost of workers compensation insurance and cash and inventory losses, violate (a) Business and Professions Code section 17200, (b) Labor Code sections 221, 400 through 410, or 3751, or (c) California Code of Regulations, title 8, section 11070?

The Supreme Court will have a written opinion within 90 days after the oral arguments. I plan on attending the oral arguments for Gentry, and will provide more analysis about the cases within the next few weeks leading up to and immediately after the oral arguments. 

DOL On-Line Self Assessment For Restaurateurs Employing Minors

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:
5. Cook?

6. Bake?

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.