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February 2005

Schwarzenegger Administration "Proud" To Have Violated Law Against Government Propaganda

Government Code § 15254 prohibits the use of state communication facilities from being "used for political, sectarian or propaganda purposes." Despite this, a California state agency has spent public money to produce a video promoting the withdrawal of lunch and rest period rights for California workers. California Assemblyman Paul Koretz has asked Attorney General Bill Lockyer to investigate the matter.

Twelve television stations have broadcast the video made by the California Labor and Workforce Development Agency. The video was distributed with suggested news copy for reporters to read on the air, including the claim that regulations "interpreting" Labor Code § 226.7 would resolve uncertainty in the business community and create better workplaces.

The claim is completely false. The battle over the governor's new regulations may shape up to be the single most significant development in California wage and hour law this year, but its outcome will not resolve any uncertainty. Instead, the proposed regulations would turn almost every pending lawsuit involving meal and rest periods into a potential Supreme Court case, since there are substantial questions over the regulations' constitutionality.

The video does not discuss that issue, nor does it show the overwhelming worker opposition to the proposed rules. It presents only the new administration's favored position. The agency's undersecretary, Rick Rice, boasted of the video's effectiveness, calling it "a very successful video news release ... We hit 1.6 million people" at a cost of just $1,260. "I'm proud of that too," he added.

Asked whether the video indicates that the agency has already made up its mind about the proposed regulations, currently undergoing public comment and review, Rice issued the following non-denial denial: "Every word of testimony is reviewed to see if we should have potential changes on the regulations. In fact, they are thinking of tweaking some of the wording." Rice also says there are technical defenses to charges that the agency violated the law. Among other things, he says, it was not propaganda. Besides, he added, the law "only applies to broadcasting to the public, which we didn't do."

The fight has turned nasty in part because the proposed regulations are among the worst anti-employee proposals made recent years, and they are intended to aid the most pervasive violators -- companies like Wal-Mart, which has been known to sometimes clock its employees out, lock the doors, and have them finish work without pay. If enacted and upheld, the new rules would, among other things, give employers a means to avoid giving meal periods to their employees by merely informing employees of their right to a meal period.

While decent employers do not prevent employees from taking meal periods, the worst of the lot -- car dealerships, restaurant chains, Wal-Mart and similar employers -- have pervasive policies under which employees are afraid that they will lose their jobs if they insist on taking their breaks. We recently had a manager testify in a meal period case that she never even thought about letting the employees take breaks, because it was "so widely accepted" that no one at her company got breaks.

Under the new proposed rules, there would be nothing wrong with that.

Schemes to Avoid Paying Prevailing Wage Payments

Contractors who bid on public works jobs in California must be willing to pay prevailing wages to all employees who work on those projects. Prevailing wages are considerably higher than the minimum wage. Workers on a prevailing wage job typically earn more than $30 per hour.

Many contractors gain an advantage in the bidding process by cutting their labor costs through illegal schemes to deny paying prevailing wages. Often, this involves hiring undocumented workers or inexperienced, but documented, workers who don't know that their $10 per hour pay is unlawfully low. Public works contractors are required by law to regularly submit certified payroll reports, verified under penalty of perjury, to show their compliance with prevailing wage laws.

One of several schemes we've seen to get around prevailing wage laws is the "in-house check cashing" scheme. In this scheme, workers might be shown paychecks, with proper pay rates and deductions, and told to endorse them back to the employer, or, often, to the project manager. The employer or the manager then cashes the checks and returns to the work site with cash. The employees are then paid, in cash, the lower amount that they were promised -- often as little as $10-12 per hour. In other instances, the employees know their true rate of pay, but are told that money has been deducted for taxes, insurance, retirement, tools or other expenses. The money deducted from the check is then pocketed by the contractor.

These prevailing wage violations often go on for years without detection, because the companies who engage in these practices frequently hire only the least sophisticated, Spanish-speaking, undocumented workers they can find. But, from time to time, a worker speaks out or a union-related investigator happens upon a violation.

This week in Temecula, California, a construction company foreman was charged with 102 counts of accepting kickbacks and embezzling hundreds of thousands of dollars from undocumented immigrant employees in an alleged "in-house check cashing" scheme. Juan Gonzalez Valdovinos, a 53-year-old foreman for Four Point Builders, is accused of cashing his workers' paychecks and giving the employees only a small percentage of the money. Riverside County prosecutors claim that he would tell them he was "taking it for tools" or "putting it in a savings account" for the workers.

Valdovinos was busted because of an investigation by Peter Rodriguez, a representative of the Carpenters/Contractors Cooperation Committee, which sends him to visit work sites to educate workers about their rights and, of course, make sure that contractors are not competing unfairly by winning bids that they can only perform by cheating their employees. If convicted of all charges, Valdovinos could be sentenced to 70 years in prison.

We have represented, and will continue to represent, workers who are victimized by such schemes. They often have claims not only against the crooked contractor, but also its payment bond, contractor's license bond and sometimes even the construction funds held by the school district or other public agency contracting for the work. If you know workers who have been victimized by such a scheme, let us know.

Settlement in J. Jill Case

Walsh & Walsh, P.C. announces that a settlement was reached yesterday in the Balogh v. The Birch Pond Group, Inc. class action. The case, currently pending in Riverside County Superior Court, involves the wardrobing and employee break policies of Birch Pond Group's J. Jill The Store retail clothing stores in California from July 1999 to July 2003. The terms of the settlement will not be released until after a formal agreement has been signed by all parties.

AAA Does Not Follow The Lead of JAMS re Anti-Employee Arbitration Clauses

Last year, the landmark Green Tree Financial Corp. case held that, if an arbitration agreement is silent regarding the availability of class-wide relief, the arbitrator, rather than a judge, decides whether class certification and class-wide relief is permitted. In response Green Tree Financial Corp., the American Arbitration Association issued supplementary rules for class arbitrations last year, governing proceedings framed as class arbitrations. AAA will administer demands for class arbitration pursuant its Supplementary Rules for Class Arbitrations if (1) the underlying agreement specifies that disputes arising out of the parties' agreement shall be resolved by arbitration in accordance with any of the Association's rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims. AAA is not currently accepting demands for class arbitration where the underlying agreement prohibits class claims, consolidation or joinder, unless a court order directs the parties to submit their dispute to an arbitrator or to AAA.

The policy was recently reviewed and AAA had this to say:

It has been the practice of the American Arbitration Association since its Supplementary Rules for Class Arbitrations were first enacted to require a party seeking to bring a class arbitration under an agreement that on its face prohibits class actions to first seek court guidance as to whether a class arbitration may be brought under such an agreement. The Association’s practice has been neither to commence administration of a case nor to refer such a matter to an arbitrator until a court decides that it is appropriate to do so. The Association’s determination not to administer class arbitrations where the underlying arbitration agreement explicitly precludes class procedures was made because the law on the enforceability of class action waivers was unsettled; the Association takes no position as to whether such clauses are or should be enforceable.

In a recent review of this practice by the Association’s Executive Committee it was agreed that this practice should be maintained in light of the continued unsettled state of the law. Courts in different states and different federal circuits have reached differing conclusions concerning the preclusion of class actions by agreement and “gateway” issues generally. However, the courts that have confronted the question have generally concluded that the decision as to whether an agreement that prohibits class actions is enforceable is one for the courts to make, not the arbitrator. In fidelity to its Due Process Protocols, the Association will continue to require all proceedings brought to it for administration to meet the standards of fairness and due process set forth in those protocols, but the Association will not seek to make decisions concerning class action agreements that the courts appear to have reserved for themselves.

The Executive Committee also determined at the same meeting to proceed forthwith in the creation of a special committee to explore the possibility of identifying counsel who could assist parties who cannot afford to pay for an attorney in arbitral proceedings. This effort would supplement the Association’s current ability to provide arbitrators who will serve pro bono, or for a reduced fee, in appropriate cases.

The Association will continue to monitor developments in this rapidly evolving intersection of arbitration and the courts.

The policy certainly is not illegal, but it reinforces the widespread belief that an AAA hearing room is not a friendly environment for consumers, employees and other individuals.

Prop 64 Retroactivity Still in the News

We thought the decision in Branick v. Downey Savings & Loan Association (eight days after oral argument) was fast. We hadn't seen nuthin' yet.

Division One of the Fourth District Court of Appeal recently weighed in with its opinions on Proposition 64 retroactivity in two cases that were argued on February 17, 2005.** Just one day after hearing arguments, the court issued its opinion in Bivens v. Corel Corp. The court agreed with the Branick and Benson decisions, and followed Branick's rule permitting substitution of suitable plaintiffs under certain circumstances, if the plaintiff of record fails to meet the standing requirement. The opinion in Lytwyn v. Fry's Electronics, Inc. didn't make it out for another court day, which, because of the weekend and holiday, was today. Not surprisingly, it, too, held that Prop. 64 applies to pending cases. You can read or download Bivens in word format or in pdf. Lytwyn is also available in word format or in pdf.

Meanwhile, in the only published case going the other way, Californians For Disability Rights v. Mervyn's California, Inc., Division 4, Case Number A106199, the defendant has filed a petition for rehearing, undoubtedly to discuss the four new cases calling for retroactive application of the new standing requirements.

The appellate districts' published opinions currently state as follows:
1st District - Not Retroactive.
2nd District - Retroactive.
3rd District - No word yet.
4th District - Retroactive (Per Divisions 1, 3)
5th District - No word yet.
6th District - No word yet.

** I tried to make it down to watch the arguments in those cases, but couldn't. As it turns out, I didn't need to wait long to find out where that court stood.

Class Action Deform Complete

As expected, President Bush signed the Class Action "Fairness" Act of 2005 this morning. The law is intended to curb frivolous class actions by taking the very good cases, worth $5 million or more, and making them harder to pursue. The frivolous cases, worth less than $5 million, will still remain in state court, where they will continue to occasionally frustrate defendants and judges, enriching a very small number of plaintiff's lawyers and a somewhat larger count of defense lawyers, and benefitting few, if any, consumers. If the bill has an unintended result of letting big corporate donors off the hook for mass-inflicted harms on low wage workers, consumers and other individuals, that is probably a pure coincidence.

Next up for the Bush administration: fighting frivolous medical malpractice cases by capping the amount of damages that plaintiffs can recover in good cases. The logic, though flawed, is at least consistent.

Class Action Bill To Be Signed By Bush Friday

The House of Representatives approved today the class action federalization bill that the Senate passed on February 10. President Bush is expected to sign the measure into law tommorrow. The House vote was 279-149, largely along party lines.

House leaders hailed the bill as a tool to prevent greedy lawyers from profiting by filing "frivolous lawsuits" in state court. Absurdly, they chose to battle these "frivolous lawsuits" solely by attacking claims worth more than $5 million, which, by most definitions, is more than a frivolous lawsuit is worth.

"Frivolous lawsuits are clogging America's judicial system, endangering America's small businesses, jeopardizing jobs and driving up prices for consumers," said House Majority Whip Roy Blunt. Moving those cases to federal court will ensure that state judges will no longer "routinely approve settlements in which the lawyers receive large fees and the class members receive virtually nothing," he added.

However, class actions in which the class members "receive virtually nothing" will be unaffected by the bill, since claims valued at $5 million and below are exempt from the new procedures.

"These out-of-control class action lawsuits are killing jobs, they're hurting small business people who can't afford to defend themselves and they're hurting consumers who have to pay more for products," said Rep. Ric Keller. Curiously, however, the bill will exclude most, if not all, lawsuits against "small business people", who rarely if ever find themselve defending against lawsuits, class action or otherwise, with claims in excess of $5 million.

Representative Jay Inslee was more honest. "This bill is the Vioxx protection bill, it is the Wal-Mart protection bill, it is the Tyco protection bill and it is the Enron protection bill," he said. "It's the final payback to the tobacco industry, to the asbestos industry, to the oil industry, to the chemical industry at the expense of ordinary families who need to be able go to court to protect their loved ones when their health has been compromised," said Rep. Ed Markey. "And these people are saying that your state isn't smart enough, your jurors aren't smart enough" to hear those cases.

The bill will only affect cases that are filed after president Bush signs it into law. We made a point of making sure our large class action cases were all filed before the courts close today.

Employers May Backcharge Payroll For Prior Commissions Paid If Conditions Are Never Met

It has long been the law in California that an employer may not set off debts an employee owes the employer against wages due to that employee. See Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 6 (employer may not deduct from employee's final paycheck payments on debt employee owed to employer); Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563, 572.

There are, of course, exceptions. These include: state and federal income taxes, social security taxes, and state disability insurance taxes; wage garnishments; deductions that may authorize in advance in writing, including insurance premiums, pension or retirement plans funding; voluntary deductions on wage assignments (Labor Code § 300); and certain costs of board, lodging or other "facilities" furnished to employees in addition to their wages.

These protections inure to the benefit of almost all employees. But what about telemarketers? Does anyone really care if the paychecks of a telemarketers are protected? In a recent published opinion issued by the Second District Court of Appeal, the answer was "no."

In Steinhebel v. Los Angeles Times Communications, LLC ( --- Cal.App.4th ---, Feb. 7, 2005) the court of appeal held an employer may legally "advance" commissions before the completion of all conditions for payment and, by agreement, may charge back those advances against future commissions if the conditions are never satisfied. Telephone solicitors for the L.A. Times worked under a policy that immediately paid them a commission upon the sale of a subscription, subject to a chargeback if the customer did not keep the subscription for at least 28 days. The employees sued, claiming that the policy ran afoul of sections 203 (waiting time penalties), 221 (collection or receipt of wages previously paid), 223 (secret payment of wage lower than designated scale), 225 (unlawful receipt or withholding of wages and secret payment of wage below scale) and 400 through 410 (restrictions on employee bonds, “the Employee’s Bond Law”) of the Labor Code, as well as the unfair, fraudulent or unlawful business practice prohibitions under Business and Professions Code § 17200.

The trial court disagreed, granting a summary judgment motion in favor of the employer. The court of appeal reviewed the ruling de novo and agreed with the trial court. The wages were never "earned" because the conditions were not met until a subscription continued for 28 days. And the deduction was not a violation of Labor Code § 221 because of a written agreement between the employees and the Times which provided:

“However, if the subscription is rejected by The Times [an “in-house kill”] or by the customer before 28 days, the amount advanced in respect to the rejected subscription will be deducted from your compensation payable subsequent to the date of such rejection based on your commission rate for [the] current week and you hereby authorize such deductions.”

The agreement made the defense. Citing Korry of California v. Lefkowitz (1955) 131 Cal.App.2d 389, 393 [allowing recovery of excess of advances over earned commissions where agreement specifically provided employee would have weekly advance that would be charged against his commissions]; and Agnew v. Cameron (1967) 247 Cal.App.2d 619, 622, 624 [“it is clearly the law in California that a salesman is required to repay the excess of advances made over commissions earned when there is an express agreement on the part of the salesman to repay such excess”; “when there is an express or implied promise by the salesman to repay excess advances to his principal, the salesman is obliged to repay the surplus ‘draws’”], the court of appeal found the arrangement fair and lawful. Consequently, the unfair competition claims under the Business & Professions Code failed as well.

"While an employer’s policy or practice that violates the Labor Code may also be held an “unlawful business practice” under Business and Professions Code section 17200 et seq. (see Hudgins, supra, 34 Cal.App.4th at p. 1126), where, as here, an employer’s policy is lawful and permissible, there is no basis for relief under the unfair competition law. (See Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 827-830.)"

The full opinion can be viewed or saved here as a word document or in pdf format.

Class Action Fairness Decimation Act of 2005 Passes Swiftly

The Class Action Fairness Act of 2005 moved through the Senate in just two weeks. Introduced on January 25, 2005, it was on the full Senate floor by February 7. It passed without amendment on February 10. The Chamber of Commerce is giddy. Full text of the passed bill can be seen here.

Why is this bill so bad? Senator Reid said it best. In his remarks, set forth in full at this link, he noted several circumstances in which cases would actually be thrown out of federal court on the ground that they involve too many issues of state law. Then, when the plaintiffs try to pursue their claim in state court, they will be unable to do so because only the federal court has jurisdiction. In other words, the worse the violation of state law, the easier it becomes for the corporation to avoid liability entirely!

Is this bill really about protecting working Americans and small businesses? As the saying goes: "Follow the money." This bill is about protecting the largest companies from liability for the most egregious acts against the largest number of individuals -- consumers and employees -- who have no viable recourse other than class action litigation. Who supported the senators who supported this bill? Check it out:

Goldman Sachs: $568,910
$281,590 to Sen. Charles Schumer [D-NY]
$22,250 to Sen. John Sununu [R-NH]
$38,750 to Sen. Joseph Lieberman [D-CT]
$19,000 to Sen. Blanche Lincoln [D-AR]
$90,320 to Sen. John McCain [R-AZ]
$70,000 to Sen. Christopher Dodd [D-CT]
$23,000 to Sen. Lamar Alexander [R-TN]
$24,000 to Sen. John Cornyn [R-TX]

MBNA Corp: $526,497
$34,500 to Sen. George Allen [R-VA]
$29,000 to Sen. Jon Kyl [R-AZ]
$129,447 to Sen. Thomas Carper [D-DE]
$52,800 to Sen. Michael DeWine [R-OH]
$164,750 to Sen. Olympia Snowe [R-ME]
$86,750 to Sen. Susan Collins [R-ME]
$29,250 to Sen. George Voinovich [R-OH]

Citigroup Inc: $520,790
$16,750 to Sen. John Sununu [R-NH]
$79,000 to Sen. Joseph Lieberman [D-CT]
$17,250 to Sen. Trent Lott [R-MS]
$92,750 to Sen. Christopher Dodd [D-CT]
$12,750 to Sen. Mel Martinez [R-FL]
$19,740 to Sen. Richard Santorum [R-PA]
$241,100 to Sen. Charles Schumer [D-NY]
$41,450 to Sen. John McCain [R-AZ]

Bear Stearns: $322,550
$26,000 to Sen. Richard Santorum [R-PA]
$122,400 to Sen. Christopher Dodd [D-CT]
$16,000 to Sen. Charles Grassley [R-IA]
$140,400 to Sen. Charles Schumer [D-NY]
$17,750 to Sen. Orrin Hatch [R-UT]

Do those firms have the financial ability to fight back against the so-called frivolous lawsuits that this bill purports to oppose? Of course. Two million dollars will beat a lot of frivolous lawsuits, and the lawyers who bring them, into oblivion. As it turns out, two million dollars can also help minimize the risk that a meritorious lawsuit will let these financial firms' victims find justice.

“The Senate has taken a critical step toward granting families, consumers and employers relief from the heavy burden of lawsuit abuse,” said Thomas Donohue, Chamber President and CEO of the U.S. Chamber Institute for Legal Reform . “Now it’s time for the House to finish the job and take back our civil justice system from plaintiffs’ lawyers seeking jackpot justice.”

Is class action litigation really about “jackpot justice?” It is this time. And Bear Stearns, Goldman Sachs, MBNA, Citigroup and every tortfeasing consumer cheater and labor law breaking employer just hit the jackpot.

Fourth District Also Says Prop 64 Is Retroactive

A third appellate court has weighed in on the retroactivity of Prop 64. The First Appellate District held on February 1st, in Californians for Disability Rights v. Mervyn’s, LLC, that the new law does not apply to pending cases. Eight days later, the Second Appellate District disagreed in Branick v. Downey Savings & Loan Association.

It took the Fourth Appellate District, just one more day to join the debate. In Benson v. Kwikset Corp., ___ Cal.App.4th ___ (Feb. 10, 2005), Division Three of the Fourth District held that Prop 64 does apply to pending cases. Moreover, unlike the Branick decision, the Benson decision rejected the possibility of granting leave to amend so that a suitable plaintiff could be substituted in to pursue the unfair competition claim. In that respect, there are now three different published opinions for trial courts to follow:

1. Mervyn's: Prop 64 does not apply to pending cases;

2.  Branick: Prop 64 does apply, but a new plaintiff can substitute in to meet standing requirements; and

3. Benson: Prop 64 does apply, and no substitution of parties may cure the lacking of standing under the new rule.

The Supreme Court is likely to grant review of all three cases. There will certainly be more to follow. To read the full text of Benson, you can open or download a copy of the opinion in word format or in pdf.

Second District Says Prop 64 IS Retroactive

Barely a week after the Court of Appeal, First Appellate District, ruled that Proposition 64 does not apply to pending cases, the Court of Appeal, Second Appellate District, has published a contrary opinion in Branick v. Downey Savings & Loan Association. You can save or view the opinion in word format or as a pdf file. This all but assures that the Supreme Court will review the Prop 64 retroactivity issue this year. That does not, of course, mean that we will have an answer from the high court this year.

What is most remarkable about the opinion is not so much what it said, but when it was said. The decision was published just 8 days after oral argument, clearly for the purpose of publishing the Second District's view of the retroactivity issue. Justices Mosk and Armstrong, joined by Superior Court Judge Sandy Kriegler, sitting on assignment as justice pro tem, expressly rejected the First District view. Justice Mosk, writing for the unanimous panel, wrote:

On the day of oral argument in this case, the First District Court of Appeal issued its decision in Californians for Disability Rights v. Mervyn’s, LLC (Feb. 1, 2005, A106199) ___ Cal.App.4th ___ [2005 WL 230019] (Californians For Disability Rights).) In that case, the First District held that Proposition 64 does not apply in cases pending at the time of its enactment. Plaintiffs request that we take judicial notice of that decision. Although we grant plaintiffs’ request, as discussed below, we disagree with the First District’s reasoning regarding the applicability of Proposition 64 to pending cases.

The court's holding in Branick focuses on Government Code § 9606, which provides that the presumption against retroactivity of new statutes does not apply when a statutory enactment repeals a statute that provides a purely statutory cause of action. In that instance, the enactment takes immediate effect in all pending cases—including cases in which a judgment has been entered but the matter is pending on appeal—unless the enactment contains a saving clause. (citing Governing Board v. Mann (1977) 18 Cal.3d 819, 829; Northern Cal. Carpenters Regional Council v. Warmington Hercules Assocs. (2004) 124 Cal.App.4th 296, 302; Beckman v. Thompson (1992) 4 Cal.App.4th 481, 489.)

So far, none of the key cases, published or unpublished, have involved wage and hour or other [good] Labor Code claims, which are generally amenable to pursuit under the Unfair Competition Law even after Proposition 64 because they are often suitable for class action proceedings (e.g., Bell v. Farmers Ins. Exch. (2004) 115 Cal.App.4th 715), and usually involve a deprivation of money or property. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163. onetheless, wage and hour lawyers can't afford to overlook Prop. 64 retroactivity issues in their pending cases.

There are going to be many cases in which the state of the law at the time of filing will be significantly different than the state of the law when the opposition is due, different still when the reply is filed, and even further developed when the hearing takes place. It has never been more important to shepardize the issue before filing every brief.

Update on the Gap Wardrobing Settlement

We spoke this afternoon with Patrick Kitchin, the class counsel handling the Gap/Old Navy/Banana Republic wardrobing case, and he informed us that the San Francisco County Superior Court has already given preliminary approval to the $1.8 million settlement. We are going to obtain a copy of the settlement agreement and preliminary approval order, and we've added a link, in the upper right column, to Kitchin's web page, which should have links to the class notice and claims forms posted soon.

Restaurants on the Run From Class Action Litigation

Delivery Drivers Inc., which provides the drivers who deliver food for Restaurants on the Run, a service that runs food from restaurants like California Pizza Kitchen, Chili's, Pick Up Stix and Claim Jumper, has been sued by a former worker who challenges the firm's independent contractor status assigned to its delivery drivers. The putative class action complaint in Levinson v. Delivery Drivers Inc., Orange County Superior Court case no. 05CC00022, filed last week, alleges that the drivers are bona fide employees who are required to work 11 hour shifts for $50, without payment of overtime wages, reimbursement for gas and other expenses.

The complaint fails to specify the amount of damages sought, but the plaintiff's attorneys assert that the case for could be worth millions. They don't say how many million. The company, which does not comment on pending litigation, claims that the employees' independent contractor status has been evaluated before and found lawful by the California Employment Development Department. That finding, however framed or worded, will not be binding upon the class action participants.

Among other things, the drivers allege that they had to wear employee uniform for Restaurants on the Run, which contracts with Delivery Drivers, Inc., had to claim to be working for Restaurants on the Run, and had to put was Restaurants on the Run signs on their cars. They were designated as "at-will" workers, rather than fixed contract service providers, and had to work the specific hours assigned each day by Delivery Drivers, Inc.

If the company prevails on the independent contractor status, the workers cannot avail themselves of any of the protections of the California Labor Code, including the rights to overtime, breaks, and reimbursed employee expenses. However, if the workers are found to be employees, the damages, back wages, interest and penalties could be substantial.

One of the strangest allegations of the complaint is the claim that drivers were encouraged to drive at high speeds to make more deliveries, a practice that caused accidents. Thus, the plaintiff alleges, drivers had to fix their own cars and nurse their own injuries without worker's compensation benefits.

We'll be curious to see how that part of the claim does when the court considers class certification. Determining which accidents, if any, resulted from the alleged employment practice of encouraging speeding will be an interesting, if even possible, task.

Gap Settles Wardrobing Class Action

A proposed settlement between California retail workers and Gap Inc., the operator of The Gap and Banana Republic clothing chains, could pay almost 55,000 employees a total of $1.8 million to settle a 2-year-old lawsuit. The payout is proposed to be given in the form of gift cards worth anywhere from $40 to $260 per employee.

The employees alleged that Gap compelled its workers to patronize its stores to satisfy dress codes that only allowed the wearing of Gap apparel while workers were on duty. The company denied that its policies violated the law, claiming that employees are "encouraged to wear brand-like merchandise, but it's absolutely not mandatory," according to Kimberly Terry, a spokeswoman for the chains.

nThe settlement is believed to be just the second of its kind. In 2003, Abercrombie & Fitch paid $2.2 million to settle similar wardrobing claims involving even more employees. "Wardrobing" is a term used in the retail industry to describe policies under which retail workers wear the same fashions that their employer is selling to customers. When the employees are forced to buy their work clothes from the employer, however, companies can run afoul of California Labor Code § 450, which prohibits employers requiring their workers to purchase from them "anything of value."

The practical effect of a policy that merely "suggests" or "encourages" workers to wear their employers' fashion is often to make employees believe that they need to buy the clothing to be considered a good employee. However, the potential that an employee could disregard the policy without consequences presented a challenge for the attorneys for the class, Patrick R. Kitchin and Daniel Feder. To prevail, the class would have needed to prove that the company's practices had the effect of "compelling" workers to follow the suggestions at the risk of losing their jobs and/or opportunities for advancement. This, Kitchen argued, violated both Labor Code § 450 and the Industrial Welfare Commission's wage order number seven (mercantile industry), which provides that "[w]hen uniforms are required by the employer to be worn by the employee as a condition of employment, such uniforms shall be provided and maintained by the employer."

As "coupon settlements" go, this might be one of the better ones, although there is a distinct irony in paying employees with Gap clothing gift cards as compensation for forcing them to buy Gap clothing in the first instance. However, employees need not return their clothing purchases giving rise to the claims, and they can use or sell the gifts card, which routinely sell on eBay for 70-95% of their face value. We haven't seen all of the terms of the settlement, but assuming that the compensation is rationally based upon the expected amount of clothing purchases necessary to meet the suggested wardrobe standards, it should be approved by the San Francisco Superior Court, and gift cards could be paid to the employees within three or four months.

Senate Bill 5 Broad Enough To Apply To Most Wage and Hour Class Actions

The Class Action Fairness Act of 2005, aka the Big Government Federalization of Class Action Litigation Act of 2005, has made it to the floor of the U.S. Senate as Senate Bill S.5. The application of the act is set forth in section 4, which we will quote verbatim at the bottom of this post. We are more than a bit surprised at the breadth of its scope. As currently worded, it could apply to many California wage and hour class actions.

Why are they overhauling the system? Even Democrats disapprove of those coupon settlement shakedowns, where lawyers make big fees as part of coupon settlements that either sell good cases short, or satisfy the extortive demands that come with a frivolous class action. Though relatively few, these cases are the ones that  make the headlines and outrage most sensible people. "That system is broken and it needs fixing," said Senator Tom Carper (D-Del.) "There are too many instances where consumers are getting very little or nothing from their settlements, while companies are not being forced to change the way they do business."

Perhaps so, but restrictions on coupon settlements can be imposed easily without sending every partially diverse large class action to federal court. Wage and hour class actions, for example, are not among the devices which need such fixing. Businesses almost always change their illegal practices after a hit from a meritorious wage and hour class action. Moreover, Plaintiffs retain the bulk of the proceeds from settlements and judgments obtained through these actions, and lawyers for the class are rewarded only if they produce good results for the employees they represent.

But this bill is not about correcting injustice. It is about limiting the exposure of the largest companies who commit the most egregious violations of law. Because the bill only affects claims worth more than $5 million, the smallest, least meritorious cases -- the best candidates for coupon settlements -- are unaffected. In other words, this bill does not come close to doing what it purports to be enacted to do.

In that respect, the bill is a metaphor for the Republicans who seek and support it. The GOP is all for state rights, and minimizing federal interference in state rights, unless the states seek to control their own judicial systems so that they protect ordinary workers and consumers from the abuses of large corporations who finance the campaigns of Republican candidates for office.

Friends of working Americans will continue to fight against this restriction on the aggregation of workers' claims against unscrupulous employers. The best hope for wage and hour practitioners and their thousands of clients is the proposed civil rights/labor amendment to carve out state law civil rights and wage-and-hour cases from the bill. Without this amendment, the removal process in the bill would delay and, in some instances, cause the dismissal of meritorious class action cases. Here in California, one of the best ways to be heard is to contact Senator Dianne Feinstein, one of the bill's supporters among Senate Democrats. Supporting Consumer's Union is another. If you are not in California, you can reach your own Senator by calling the Capitol Switchboard at (202) 224-3121.

The language of Section 4 of the bill is as follows:



      (1) by redesignating subsection (d) as subsection (e); and

      (2) by inserting after subsection (c) the following:

    `(d)(1) In this subsection--

      `(A) the term `class' means all of the class members in a class action;

      `(B) the term `class action' means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action;

      `(C) the term `class certification order' means an order issued by a court approving the treatment of some or all aspects of a civil action as a class action; and

      `(D) the term `class members' means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.

    `(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which--

      `(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

      `(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

      `(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

    `(3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of--

        `(A) whether the claims asserted involve matters of national or interstate interest;

        `(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;

        `(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;

        `(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;

        `(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and

        `(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.

      `(4) A district court shall decline to exercise jurisdiction under paragraph (2)--

        `(A)(i) over a class action in which--

          `(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

          `(II) at least 1 defendant is a defendant--

            `(aa) from whom significant relief is sought by members of the plaintiff class;

            `(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

            `(cc) who is a citizen of the State in which the action was originally filed; and

          `(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

        `(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

        `(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

      `(5) Paragraphs (2) through (4) shall not apply to any class action in which--

        `(A) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief; or

        `(B) the number of members of all proposed plaintiff classes in the aggregate is less than 100.

      `(6) In any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.

      `(7) Citizenship of the members of the proposed plaintiff classes shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.

      `(8) This subsection shall apply to any class action before or after the entry of a class certification order by the court with respect to that action.

      `(9) Paragraph (2) shall not apply to any class action that solely involves a claim--

        `(A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E));

        `(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or

        `(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).

      `(10) For purposes of this subsection and section 1453, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.

      `(11)(A) For purposes of this subsection and section 1453, a mass action shall be deemed to be a class action removable under paragraphs (2) through (10) if it otherwise meets the provisions of those paragraphs.

      `(B)(i) As used in subparagraph (A), the term `mass action' means any civil action (except a civil action within the scope of section 1711(2)) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).

      `(ii) As used in subparagraph (A), the term `mass action' shall not include any civil action in which--

        `(I) all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.

When Arbitration Isn't Arbitration

Employers love arbitration agreements. Arbitrators are rarely as shocked as juries are when they see egregious abuses of employees, rampant discrimination, unsafe working conditions or theft of employee wages. Consequently, employers prefer to have arbitrators, rather than juries, assess their liability on an employee grievance. On the other hand, many employers want then protections of the courts, so that when an arbitrator does something stupid -- as they sometimes do -- the employer can appeal the arbitration award to a trial court or a court of appeal.

One-sided appeal rights no longer past judicial scrutiny. In Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, the California Supreme Court reviewed an "appeal" provision that let any party seek review of an award of $50,000 or more. This, the court observed, left the employer free to appeal any substantial adverse award, but left employees with no right to seek review of a smalle award, or a defense award, which an employee would be more likely to challenge. But what if the agreement lets either side appeal?

That issue was addressed Monday in American Federation of State, County and Municipal Employees v. Metropolitan Water District of Southern California. Whether an agreement is one to arbitrate depends on the nature and effect of the proceeding. To create an arbitration, a dispute resolution procedure must establish that the arbitrator's decision is final and binding. The decision is not final and binding if it can be reviewed by a court. A not final and not binding arbitration process is not an "arbitration" within the mean of California Code of Civil Procedure §§ 1280, et seq., and it cannot be compelled as such.

The full text of the court's decision can be read or saved here as a Word document or pdf file.

Published Opinion: Prop 64 Does NOT Apply To Pending Cases

Today, the First District Court of Appeal issued a published opinion "concluding that Proposition 64, which imposes limits on private enforcement of unfair competition laws, does not apply to lawsuits filed before its effective date of November 3, 2004." Californians for Disability Rights v. Mervyn's, LLC is, for now at least, the law of the land -- the only published opinion addressing Prop 64 retroactivity. If you would like to read the court's rationale, you can open or download a copy of the court's opinion in Word format, or as a pdf file.