No Waiver Of PAGA Representative Claims (Yet)

This week, the U.S. Supreme Court denied certiorari in connection with the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angleles, LLC.  Had the Court heard the Iskanian case, it was expected to find that representative claims under California’s Private Attorney General Act (PAGA) could be waived by an arbitration agreement, as has been approved with class action claims.  The U.S. Supreme Court, however, decided that it would not hear the dispute, leaving the holding in Iskanian to be good law, at least for now. Continue reading

Ninth Circuit Enforces Arbitration Class Waiver

Since the 2011 United States Supreme Court decision in AT&T Mobility v. Concepcion, appellate courts have assessed whether arbitration clauses with class action waivers are enforceable.  Concepcion said yes and most courts have followed that precedent.  The Ninth Circuit in Richards v. Ernst & Young on August 21, 2013 also followed the majority of the case law and held that Ernst & Young’s arbitration agreement, which provided for a waiver of class action claims, was enforceable.  The Ninth Circuit held that the individual claims must be arbitrated and they vacated the district court’s order certifying a class of plaintiffs with Richards as the class representative.

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A Busy Day In The World of Employment Law

In case you slept late this morning, you missed a flurry of activity in the world of employment law.  The U.S. Supreme Court issued a trio of decisions which affect workplace relations.  In Vance v. Ball State University, the Court held that a supervisor for purposes of vicarious liability under Title VII is a someone whom the employer empowers to take tangible employment actions against the victim.  In University of Texas Southwestern Medical Center v. Nassar, the Court found that retaliation claims under Title VII require proof of “but for” causation, rather than the lower standard of proof the plaintiff’s bar offered.  Finally, in Fisher v. University of Texas At Austin, the Court found that affirmative action in education was still permissible, but nonetheless remanded the case to the Fifth Circuit because the appeals court did not apply the appropriate test for strict scrutiny of race-based decisions.

In other significant news, the U.S. Supreme Court agreed to hear the Noel Canning decision from the D.C. Circuit which had found that the President’s recess appointments to the NLRB were invalid and that the Board did not have a proper quorum.   And, last week, the Court continued its assault against class actions in American Express Co. v. Italian Colors Restaurant, finding that contractual waivers of class arbitration continue to be enforceable, even if the plaintiff’s cost of litigation exceed her potential recovery.

Stay tuned to the blog for updates on these recent developments in the upcoming days.

- Dan Handman

 

 

Brinker Made Me Do It: Class Certification Required Where Issue is Facial Validity of Break Policy

When the California Supreme Court issued its landmark decision in Brinker Restaurants a year ago, it was greeted with predictions that it would stem the flow of meal and rest period class action claims.  For the most part, that prediction has proved accurate:  in a majority of cases, the courts have ruled that class treatment of meal and rest claims is inappropriate because individual issues predominate when determining liability.  But Brinker also was careful to note that class treatment is appropriate where the claim challenges the facial validity of a policy applicable to the class as a whole.  Thus, the rest period policy in Brinker that provided a rest period only for work periods of 3.5 hours or more – rather than those exceeding two hours – was amenable to class treatment.

On the first anniversary of Brinker, a California appellate court has echoed that principle, holding that class certification is required where the issue is the facial legality of a meal period policy.  Faulkinbury v. Boyd & Assocs., Inc., No. G041702 (Cal. Ct. App. 4th Dist. May 10, 2013) (“Faulkinbury II”).  The members of the putative class in Faulkinbury II worked as security guards at various customer sites.  The employer required all security guards to sign an on-duty meal period agreement when they were hired.  In addition, none were ever provided a duty-free off-duty meal period.  The plaintiffs claimed that the on-duty meal period agreements were invalid because they were not voluntary and because the nature of security guard work did not qualify for the on-duty meal period exception.  The trial court had denied class certification in early 2009, finding that individual issues predominated in determining whether the employer had acted unlawfully toward class members for missed off-duty meal periods.  On appeal in 2010, prior to Brinker, the appellate court affirmed that denial (Faulkinbury I).  The California Supreme Court granted review in 2010 pending its decision in Brinker.  After it issued Brinker, the Supreme Court sent the case back to the appellate court with directions to reconsider its prior decision in light of Brinker

This time, in Falkinbury II, the court appeal changed course, reversing the trial court’s denial of class certification.  It first concluded that the plaintiffs’ claim was that the employer’s meal period policy was facially unlawful.  It further reasoned that there were at least two common questions that could be determined on a class-wide basis relevant to its legality:  (i) whether to be valid, an on-duty meal period agreement must be voluntary, that is, the employee given a choice whether to sign it or not; and (ii)  whether the nature of security guards’ work prevented them from being relieved of all duty. Because Brinker teaches that certification is required where the issue is the lawfulness of a common policy, the Falkinbury II court reversed and held that the trial court should have granted class certification.  The court brushed aside concerns that individual issues would be required to determine whether the agreements were valid as to each class member – such as determining whether the nature of a particular class member’s work at a particular site precluded an off-duty meal period – by noting that the employer required everyone to sign the agreements and thus should be forced to defend them on a class-wide basis.  Notably, this last rationale has been debunked as a basis for certification by both state and federal courts in California in the context of misclassification cases where all employees in a particular job category are classified as exempt.  E.g., Vinole v. Countrywide, 571 F.3d 935 (9th Cir. 2009); Walsh v. IKON, 148 Cal.App. 4th 1440, 1461-62 (2007).

There were two other claims in the case on which class certification was required as well.  First, the plaintiffs’ claim for denial of rest periods, the court held, was based on the legality of the employer’s admitted class-wide practices of (i) having no formal written rest period policy and (ii) having an explicit policy that required employees to stay at their posts unless relieved by a supervisor or other security guard.  The court held that the common question arising from these facts was whether company policies (or lack thereof) effectively forbade off-duty rest periods.  It reached this conclusion despite the employer’s evidence that some security guards had indeed been authorized and permitted to leave their stations for rest breaks, calling the existence of a class-wide practice into question.

Second, the plaintiffs claimed that the employer had unlawfully failed to include certain payments when calculating the “regular rate of pay” for overtime purposes.  The excluded payments included expense reimbursements for uniform cleaning and gas, as well as an annual bonus the company contended was discretionary but which the plaintiffs contended was not.  Since the practice of excluding these items from overtime calculations was a class-wide practice, the court held that legality of the practice could be decided on a class-wide basis and certification should have been granted.

Take-Away Lessons

It is not news that the legality of a written policy is an issue that calls out for class treatment.  What is noteworthy about this decision is the lengths to which the appellate court went to fit the meal and rest period claims into the that box.  The Falkinbury II decision stands as a reminder for employers to examine their meal and rest period policies to ensure that what they say is identical to what the law allows and requires.  It also teaches that employers who utilize on-duty meal period agreements should do so with great caution.  These agreements should be entered into on an individual basis, rather than requiring all employees in a specific job classification to execute them, and only after a specific determination that the nature of the individual’s work really does as a practical matter preclude an off-duty break.

Felicia Reid

 

COURT UPHOLDS DENIAL OF CLASS CERTIFICATION IN CALIFORNIA OVERTIME MISCLASSIFICATION CASE

In yet another sign that the tide is turning in employers’ favor on the wage/hour class action front, a California appellate court has upheld the denial of certification in a case challenging the exempt status of managers and assistant managers at Sears auto centers.  Dailey v. Sears, Roebuck & Co.  Evidence of material variations in the way individual managers spend their time, the court held, indicates that individual issues would predominate over issues common to the class, rendering certification inappropriate.

The plaintiff in Dailey was an assistant manager and then a manager of a Sears auto center in the San Diego region.  After his termination, the plaintiff filed a class action, claiming that he and all other managers and assistant managers in the region had been misclassified as exempt employees and were entitled to overtime and premiums for missed meal periods.  He argued that class treatment was warranted because Sears had uniform policies and practices that resulted in all managers spending more than half of their time performing non-exempt work such as customer service, sales, inventory, and mechanical work, and that as such, as a class they had been misclassified as exempt.  In support of class certification, the plaintiff submitted declarations from four other managers as well as himself stating that they spent most of their time performing non-exempt work, regularly worked 50 hours per week, and were unable to take meal breaks.

In opposition, Sears argued that there were wide variations among the members of the proposed class in how managers spent their time.  It submitted declarations and testimony from six corporate managers and 21 class members attesting to significant differences in the proportion of time spent in non-exempt functions, ranging from 1% to 40%.  Sears’ evidence also disputed the existence of a company policy or practice mandating a non-exempt mix of work, instead showing that managers had substantial discretion to adjust staffing levels and set their own work schedules.  Based primarily on evidence of wide variations in the mix of exempt and non-exempt duties among managers, the trial court denied class certification.

The Court of Appeal affirmed, holding that Sears had submitted sufficient evidence to support a finding that individual issues predominated.  It rejected the plaintiff’s argument that in crediting Sears’ evidence of variation over his evidence of a common practice, the trial court had improperly decided the merits of his claims.  The court held that when the parties’ evidence conflicts relevant to whether common or individual questions predominate, the trial court is permitted to credit one party’s evidence over the other.  The plaintiff also protested the trial court’s refusal to consider random sampling to minimize and manage individual questions.  The appellate court rejected that argument as well, noting that the use of such techniques to determine liability rather than simply damages was controversial and that in any event, the plaintiff had simply proposed the methodology; he had not submitted actual data evidencing that existence of a common policy or practice.

What this means for employers:  This case reflects the encouraging trend of courts being more stringent in their examination of class certification motions in wage and hour cases, which inevitably benefits employers.  That said, employers are well advised to periodically review their exempt employee classifications, particularly those that fall in the gray area.  Audits by the U.S. Department of Labor are on the rise, including in California, with the agency pursuing an aggressive enforcement agenda.  In addition, individual overtime claims based on misclassification remain common both in the courts and before the California Labor Commissioner.

Felicia Reid

 

Overtime Collective Actions Dealt A Major Blow By The U.S. Supreme Court

Yesterday, the U.S. Supreme Court found that a plaintiff could not maintain a collective action under the Fair Labor Standards Act (FLSA) when her former employer had offered her full monetary relief in an offer of judgment under the Federal Rules of Civil Procedure.  In a surprising 5-4 decision in Genesis HealthCare Corp. v. Symczyk, the Court rejected the plaintiff’s arguments that the employer’s tactics allowed employers an unfair means of “picking off” named plaintiffs to defeat collective actions. 

A bit of background.  Unlike Calfiornia state law, the FLSA does not allow for class actions where class members are presumed to be “in” unless they “opt out,” but rather only permits a “collective action” where “similarly situated” employees “opt in” after notice.  In this case, the plaintiff claimed that she and a group of similarly situated employees were not paid for time that they worked during meal breaks.  Ordinarily in a collective action under the FLSA, the court must determine that there are “similarly situated” employees before sending out an “opt in” notice.  In this case, before doing so, the employer made an Offer of Judgment to the single named plaintiff of the full amount of damages she had individually. 

In federal court, offers of judgment under Rule 68 operate very much like they do in state court under Cal. Code of Civ. Pro. 998.  Specifically, the rule allows defendants to make offers to have judgment in a certain amount entered against them and exposes a non-accepting plaintiff to exposure for certain post-offer costs.  The plaintiff here, however, rejected the offer, but the trial court still entered judgment on the case, effectively extinguishing the possibility of a continued “collective action”

The U.S. Supreme Court approved of the lower court’s action.  It found that there was no “actual controversy” because the individual named plaintiff had been offered full relief which made her whole.  As a result, she no longer had a “personal stake” in the litigation and could not pursue it on behalf of the “similarly situated” employees.

To be sure, that is an amazing ruling.  And it required some sleight of hand to get there.  In reaching that decision, the majority skirted the issue of whether the case had been made “moot” by virtue of the unaccepted offer of judgment.  Instead,the Court specifically declined to reach the issue and found that the plaintiff had waived it by not challenging the lower court’s ruling that the issue was moot.  Having said that, the majority did cite to a number of decisions which have found just that and the dissent even acknowledged that “a court has discretion to halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders.”

This decision potentially gives employers a powerful tool to combat collective actions under the FLSA.  But, argulably, it leaves more questions unanswered than answered.  For example, what effect, if any, will the decision have on class actions where it may be argued that a potential class of employees have a stake in the outcome?  Likewise, if the plaintiff seeks injunctive relief will that operate as a bar to an offer of monetary judgment that would otherwise make her whole?  

Undoubtedly, the courts will answer these and other questions in the coming years.  We will keep you posted on those developments.

- Dan Handman

 

THE TIDE IS TURNING ON WAGE AND HOUR CLASS ACTIONS

Over the last two years, California employers have gotten progressively better news from the state and federal courts on the wage and hour class action front.  The trend began in 2011 with two favorable U.S. Supreme Court decisions.  In Dukes v. Wal-Mart, the court significantly tightened the federal standards for class certification, suggesting in the process that looser state standards might violate the due process guarantees of the U.S. Constitution.  In AT& T Mobility v. Concepcion, the Supreme Court held that an arbitration agreement waiving class claims is valid and enforceable, news in California where previous state court decisions were to the contrary.  Then one year ago, in April 2012, the California Supreme Court issued its Brinker Restaurants decision, holding that liability for violation of California meal period rules is not automatic but rather depends on why the employee failed to take a compliant meal period.  The meal period cases since Brinker have overwhelmingly held that meal period claims are not amenable to class treatment because the individual issues overwhelm the common ones:  for each class member, for each day, the court must ask “why did you miss your meal period?” to determine whether liability is triggered.   

Then, on March 28, 2013, the U.S. Supreme Court issued yet another decision that is sure to have further limiting effects on wage and hour class actions, Comcast Corp. v. BehrendComcast itself is not a wage/hour class action, but rather an anti-trust case.  The plaintiffs claimed that Comcast’s actions in buying up competing cable systems often in return for Comcast pulling out of areas where it was less competitive, violated the Sherman Act.  They were successful in obtaining certification of a class of two million Comcast subscribers in the Philadelphia area.  The Supreme Court, however, held that certification should not have been granted because the damages model proposed by the plaintiffs did not fit their liability theory and as a result “[q]uestions of individual damages calculations will inevitably overwhelm questions common to the class.”  To warrant certification under the federal rules, the court held, class-wide damages must be calculable through a “common methodology.”  To determine whether this standard has been met, trial courts must conduct a “rigorous analysis.” 

 What this means for employers: 

The impact of the Comcast decision on wage and hour class actions is potentially significant, because damages in these cases can be very fact intensive and based on facts specific to each individual class member.  For example, in a meal period case based on a well-established class-wide policy or practice of failing to provide compliant meal periods – which until Comcast would be sufficient to warrant class certification – damages would still have to be calculated individually because on any given day an individual employee may have skipped the meal period voluntarily.  The appropriateness of class certification in such cases is now in question after Comcast.  The Comcast decision gives employers a previously unavailable weapon for opposing class certification in wage and hour cases, at least in federal court.  It remains to be seen how effective that weapon will be in federal trial courts as well as how receptive California state courts will be to its use.

Felicia R. Reid

SUPREME COURT CLOSES OFF CLASS ACTION FORUM SHOPPING TACTIC

In 2005, Congress enacted the Class Action Fairness Act, or “CAFA” as it is popularly known. CAFA is a piece of tort reform legislation.  It was enacted against the backdrop of a number of notorious state jurisdictions where a large proportion of class actions were filed and where huge verdicts against corporate defendants were rendered.  CAFA prevents this type of state court “forum shopping” by granting jurisdiction to the federal courts over class actions involving more than 100 class members and more than $5 million in controversy, among other requirements.  Under CAFA, defendants have the ability to remove class actions meeting these requirements from state court to federal court.  Predictably, CAFA has inspired creative approaches by plaintiffs’ counsel to avoid federal removal.  One frequently employed approach is to concede that less than $5 million is being sought in the action.  On March 19, 2013, the U.S. Supreme Court closed off that approach.

In Standard Fire Insurance v. Knowles, the plaintiff had filed a putative class action against a large insurance company in an Arkansas state court, claiming that property losses paid by the company unlawfully failed to include general contractor fees.  The complaint alleged that the amount in controversy in the case was below $5 million, and for good measure attached a sworn stipulation to that effect.  The insurance company removed the case to federal court under CAFA.  The plaintiff objected, citing the stipulation.  The federal court remanded the case back to state court, even though the evidence showed that potential damages exceeded $5 million, because it considered the plaintiff’s stipulation binding.  The case was eventually taken up by the U.S. Supreme Court. 

In a unanimous opinion, the Supreme Court reversed.  It held that that before a class action is certified as a class action, any stipulation about damages the plaintiff makes cannot be binding.  The reason is that prior to class certification, the named plaintiff does not represent the class.  While that plaintiff can stipulate as to his own damages, he does not have power to bind anyone else in the class as to their damages.  Rather let a stipulation control, courts must examine the evidence and add up the value of all potential class claims to determine the amount in controversy. 

What This Means For You:  Despite the relatively obscure jurisdictional question in this case, the Standard Fire decision will have a major impact on California employers.  Plaintiffs’ counsel prefer California state courts for wage and hour class actions, in part because it is easier to obtain class certification than in federal court.  For many years, wage/hour class action plaintiffs have attempted to prevent removal to federal court through the same tactic used in Standard Fire:  alleging in the complaint that less than $5 million was being sought and/or was “in controversy.”  That tactic was generally successful because the Ninth Circuit had set a very high bar for establishing amount in controversy under CAFA.  In a 2007 case called Lowdermilk v. U.S. Bank Nat’l Ass’n, the Ninth Circuit had held that where the complaint asserts an amount below the $5 million threshold, the defendant must establish with “legal certainty” that the amount in controversy exceeds $5 million to trigger CAFA.  Standard Fire effectively overrules Lowdermilk.  In doing so, it gives California employers new opportunities to remove appropriate cases to federal court, thereby enhancing their ability to defeat certification and stop wage/hour class actions in their tracks. 

Felicia R. Reid

 

Is It Fair to Have a Chair? Is It Sweet to Have a Seat?

If only class actions were as easy as a Dr. Seuss book.  It has been several years since “suitable seating” cases gained popularity among the plaintiff’s bar, leaving employers in California to wonder, what’s next.  Fortunately, as a recent ruling from the U.S. District Court for Central District of California demonstrates, some courts share that sentiment, particularly with these kinds of case. 

As employers now know, Section 14(A) of Wage Order No. 4 states that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.”  This requirement to provide “suitable seats” is not new—it has been on the books since 1913.  What is new is the Private Attorneys’ General Act or “PAGA”.  Enacted in 2003, PAGA permits private parties to seek civil penalties for violations of the California Labor Code and related regulations.  In 2010, seven years after PAGA came into effect, California courts held that “suitable seating” claims could be asserted through PAGA. 

The California Supreme Court has made it easy to assert PAGA claims, finding that they are not class actions and, as a result, it is not necessary to meet the sometimes onerous procedural requirements of a class action.  See Arias v. Superior Court (2009) 46 Cal. 4th 969.  In federal court, however, there is a difference of opinion: some federal courts subject PAGA actions to the rigorous procedural hurdles of a class action. 

In a recent case, a federal court showed just how dangerous those procedural hurdles can be for plaintiffs in PAGA actions.   In Henderson et al. v. JP Morgan Chase Bank, the plaintiff sought to certify a class of 8,500 bank tellers employed at Chase branches in California, but the court refused to allow it.  Ultimately, the judge found that there was not sufficient “commonality,” in order to satisfy a class action – namely that there were not common questions of law and fact.  The 2011 decision of the U.S. Supreme Court in Wal-Mart Stores, Inc. v. Dukes added this important wrinkle:  “commonality” does not mean just common questions of fact and law, but questions which are capable of providing a common answer that make class treatment sensible and efficient.  Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2548 (2011). 

Here, the court ruled that there was a slew of evidence that made clear that a “common answer” would not be forthcoming:  different subclassifications of tellers, different duties for such tellers, different physical configurations from one branch to another, and different demands from location to location based upon the volume of business, i.e., how busy the branch was.  Because of those variables, the court found this case could not proceed as a class action. 

Takeaways

The upshot, then, is this:  if your employees are presently not provided with seats, you should ask if the work they do “reasonably permits” them to sit.  Obviously no blanket statement can be made in this regard.  Depending on the business, one job position would “reasonably permit” sitting while another would not.  What is clear, however, is that a thoughtful analysis is warranted, and that employers cannot simply continue to have employees stand because that is that way it has been done since the dawn of time. 

The second takeaway from Henderson is that, for purposes of avoiding a potential class certification, individual inquiries regarding sitting or not sitting are a good thing.  Although not conclusive, a company-wide policy against such workplace seating is the type of evidence that can tip the scales toward class certification.   

One big caveat:  as explained at the outset, whether one is litigating in federal or California State court, at least for the present, makes a substantial difference.  If an employer is forced to defend itself in a California State court, all of the above-discussed class certification issues go away.  If an employer is defending itself in federal court, these class action issues become paramount.  Eventually, there will be Ninth Circuit authority to guide the parties in such cases, but for the present, defending a “suitable seating claim” harkens the old real estate adage: “location, location, location.” 

- Monte Grix

Rounding Policies Are Legal Under California Labor Code

Last week, the California Supreme Court declined to review a challenge to an appellate decision on the lawfulness of timekeeping policies that round employee punch in and out times.  The case, See’s Candy Shops, Inc. v. Superior Court, provides key guidance to California employers with rounding policies, because no state statutory authority or case law previously authorized the practice.  Under federal law, on the other hand,  an employer’s practice of rounding a worker’s starting and stopping times to the nearest 5 minutes or to the nearest tenth or quarter of an hour is permissible as long as the practice averages out over a period of time so that the worker is compensated for all time worked. 

In See’s Candy Shops, Inc. v. Superior Court, the employer had a timekeeping system that rounded in and out punches up or down to the nearest tenth of an hour.  The Court held that a rounding policy is permissible if it is fair and neutral on its face, and does not result in the failure to properly compensate the employee.  In reaching its holding, the Court relied on the federal rounding standard (which California’s Department of Labor Standards Enforcement also follows).

Employers with rounding policies should ensure that their policies are in writing and communicated to all employees, and do not operate to deprive employees of wages for all time worked.

- Amy Durgan