Wage Law

We recently found out that the judgment in Savaglio v. Wal-Mart Stores, Inc., the $172 million break case tried in late 2005, was entered on October 11, 2006. The appeal clock is now ticking. Wal-Mart has already appealed several orders in the case, and their attorneys have been quoted promising to appeal this judgment. The opinion(s) should be interesting and will likely be published. We see at least a half-dozen substantial matters of first impression that could be raised in a well-drafted opening brief. In the interim, our spies tell us there is a motion for a new trial being heard on December 4.

U.S. District Judge Percy Anderson has formally sentenced Ralphs Grocery Co. under a plea agreement in which Ralphs pleaded guilty in July to felony charges including indentity theft, money laundering, obstruction of justice, false use of a social security number and conspiracy arising from the company's ill-fated plan to secretly rehired striking or locked-out workers during a work stoppage in 2003 and 2004. The court imposed a $20 million fine and ordered Ralphs to pay $50 million in restitution to an 19,000 workers and their unions. Attorneys for the company reported to the court that the workers have already been paid. The worker restitution awards were intended to cover seven weeks of back pay.

Unlike the standard language in typical civil settlements, Ralphs accepted responsibility for its conduct. Judge Anderson remarked that the company's conduct displayed a "pervasive and powerful corporate culture that exalted the value of profits and win at any costs above the rule of law." As part of the agreement, Ralphs and its parent company, Kroger Co., agreed to cooperate with prosecutors in an ongoing probe that could lead to charges being brought against Ralphs officials or their attorneys. Prosecutors Jeremy Matz and Adam Braun made comments that suggested that the second investigation was gaining steam.

The Daily Journal reported earlier this month that several law firms may be facing an investigation into their role in the criminal conduct by their Ralphs Grocery Co. officials. The plea agreement included a waiver of some attorney-client privileged communications. Those communications could be made available to prosecutors as early as this week.

The Daily Journal cited an anonymous source who identified Thelen Reid & Priest LLP, which was among the most prominent of the outside counsel representing Ralphs during the lockout, as one firm likely to be subpoenaed. Attorney George Newhouse, who led the Thelen Reid legal team working on the lockout, reportedly declined comment. Seeking to determine whether there was any obstruction of justice on the part of attorneys or the client, prosecutors are investigating whether attorneys advised Ralphs to label unprivileged documents as attorney-client communications or attorney work product.

Though the cases have nothing to do with wage and hour matters, In re Tobacco Cases II and Pfizer, Inc. v. Superior Court could affect a large number of wage and hour cases brought as class actions and representative cases under the Unfair Competition Law. Though we might enjoy talking about them from time to time here, The UCL Practitioner is a better place to keep abreast of the rapidly unfolding developments in these cases, and it was there that we read an excerpt from the Daily Journal that caught our attention:

The main question the court will decide in the newest case, lawyers for both sides said, is whether plaintiffs must show that each individual member of the class has been harmed, a nearly impossible burden.

That could be more than just a "nearly impossible" burden in many cases. It could absolutely impossible, and even where possible, it could require an inquiry into every single class member's claims, eviscerating the whole point of the class action procedure.

The questions presented by the petition for review in the Tobacco Cases were these:

(1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered "injury in fact," or is it sufficient that the class representative comply with that requirement?

(2) In a class action based on a manufacturer's alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer's representations?"

If the answer to either of these questions is "yes," assuming that it could still be possible to litigate class actions in all but a few remarkable cases, one of the unforeseen consequences of such a rule might be the end of the distinction between pre-certification and post-certification discovery. The Daily Journal is right. Under existing precedent that limits the scope of pre-certification discovery in putative class actions, a plaintiff cannot possibly prove that every member of the proposed class suffered an "injury in fact," except in the most extraordinary of cases. If every UCL claim and class action must meet the threshold of proving an injury by each and every class member, the parties must be permitted to inquire about any and every member of the putative class.

Existing authority (e.g., Bell v. Farmers Insurance Exchange (2004) 115 Cal.App.4th 715 -- fact that 9% of employees in 295 employee sample had no overtime claims did not warrent decertification of class action) holds that one can certify a class even if a certain number of class members will be unable to prove eligibility to recover. The Tobacco Cases will certainly test that rule.

Up to 4,500 Wells Fargo & Company consultants and analysts will share in a $12.8 million overtime class action settlement that was approved on October 6, 2006, by U.S. District Court Judge Claudia Wilkin. The settlement involves claims that salaried business systems employees who worked for the firm between 2001 and 2006 producing automated versions of paper forms and performing other "routine production" duties were misclassified as exempt from overtime pay, and denied overtime pay and ERISA benefits due for such pay. California workers will receive larger shares than employees in other states, presumably due to differences between California law and the FLSA or other state statutes regarding eligibility for and calculations regarding overtime pay.

The case is Gerlach v. Wells Fargo & Co. USDC, NDCA, Case no. 05-cv-00585-CW. It was interesting to follow, among other reasons, because Wells Fargo filed a counterclaim against the class representative for conversion and other claims, seeking to make the plaintiff and inadequate representative. The settlement came after four mediation sessions, over seven months, before retired Judge Edward Infante.

As usual, the company paid the money while simultaneously denying any liability. "Wells Fargo maintains that it has compensated all of its team members fully and fairly, and in accordance with the law," spokeswoman Melissa Morey said. "However, to avoid any further costs to the business and interference with our operations, the company has decided to settle the lawsuit." If they settled without changing their practices, they'll be denying liability again in another 3-4 years.

According to an Associated Press report we saw in the Washington Post today, among the first goals Nancy Pelosi will pursue as Speaker of the House is a raise in the minimum wage under the FLSA, from $5.15 to $7.25, "maybe in one step." We don't want to give away any trade secrets, but there are some cases that currently are not worth pursuing under the FLSA that would, at a $7.25 an hour minimum wage, finally make economic sense to pursue.

The Supreme Court will hear oral argument in Pioneer Electronics v. Superior Court (Olmstead) on December 5, 2006, at 9:00 a.m. in Los Angeles. The case includes the following issue:

In a putative class action, would the privacy rights of potential class members be violated by a pre-certification letter to be sent to those potential class members who had complained to defendant regarding the alleged defect upon which the action is based, when the letter states that failure to respond to the letter will be treated as consent to disclose the identity of the potential class member to plaintiffs' counsel for the purpose of this action?

Though not a wage and hour matter, this case will have a significant effect upon wage and hour class actions, because those cases are often particularly suited for pre-certification notices, in that employers usually have access to at least the currently employed putative class members, and class representatives usually have very limited access to those witnesses.

We had a discussion with a colleague the other day about this meal period statute of limitations issue that is so frequently discussed here. The question, relevant to us because we are both practicing in Orange County, was whether the 4th District Court of Appeal, Division 3, had ever issued an opinion, published or otherwise, on the "penalty or wage" issue for Labor Code § 226.7 pay. He insisted that Justice Rylaarsdam had authored a majority opinion in Division Three that held the hour of pay to be a statutory penalty. We were certain that there was no such case. After all, since 2004, we have literally read every single published and unpublished case, on an almost daily basis, and we would remember if someone from our local appellate division had made such a decision.

To an outsider, the conversation must have sounded about as fascinating as two World of Warcraft players arguing over the value of their virtual weapons, but to us, of course, these issues can have a profound impact on the value of very large cases. Thus, we obsess.

Anyhow, we were right. When our colleague went to Westlaw and dug up the case -- Walton v. Resource Consultants, Inc., 2003 WL 21213267 -- it said the opinion was authored by Rylaarsdam, and although it was a case arising from facts that predated the enactment of Labor Code § 226.7, it did call that later-enacted benefit of an hour of pay a statutory penalty. However, Walton was a Division One appeal arising from a San Diego County case. Rylaarsdam is not a Division Three justice. So we checked Lexis and saw that Lexis says the opinion was written by Justice Judith Lynette Haller. The court's official website says the same. We've come to the conclusion that Westlaw got the author wrong, and will continue to conclude so unless we see a signed opinion showing that Rylaarsdam was sitting on assignment in Division One for that case. So we won the bet. On the other hand, you should be able to trust Westlaw, so we won't make him pay up.

It sounds like a minor error, but if you were a lawyer getting ready for oral argument in front of Justice Rylaarsdam, thinking that he wrote Walton could be a costly mistake.

Our traffic is up, and we're pretty sure it's related to our presentation at the Bridgeport Continuing Education program on Wage and Hour Litigation today at the Bonaventure Hotel in Los Angeles.  If you missed it, you missed out. The topics were interesting, we enjoyed hearing from the other presenters, and the materials were great. Of course, our recent developments discussions and materials were actually out of date as soon as we turned in the materials, but we gave a few updates verbally. Keep this page bookmarked if you want to see the latest wage and hour developments.

And for those of you who asked during the settlement panel discussion, the code section that ended the once liberal and widely-accepted residue reversions to defendants in California state court class actions is Code of Civil Procedure § 384(b):

384. (a) It is the intent of the Legislature in enacting this section to ensure that the unpaid residuals in class action litigation are distributed, to the extent possible, in a manner designed either to further the purposes of the underlying causes of action, or to promote justice for all Californians. The Legislature finds that the use of funds collected by the State Bar pursuant to this section for these purposes is in the public interest, is a proper use of the funds, and is consistent with essential public and governmental purposes. (b) Except as provided in subdivision (c), prior to the entry of any judgment in a class action established pursuant to Section 382, the court shall determine the total amount that will be payable to all class members, if all class members are paid the amount to which they are entitled pursuant to the judgment. The court shall also set a date when the parties shall report to the court the total amount that was actually paid to the class members. After the report is received, the court shall amend the judgment to direct the defendant to pay the sum of the unpaid residue, plus interest on that sum at the legal rate of interest from the date of entry of the initial judgment, to nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the objectives and purposes of the underlying cause of action, to child advocacy programs, or to nonprofit organizations providing civil legal services to the indigent. The court shall ensure that the distribution of any unpaid residual derived from multistate or national cases brought under California law shall provide substantial or commensurate benefit to California consumers. (c) This section shall not apply to any class action brought against any public entity, as defined in Section 811.2 of the Government Code, or against any public employee, as defined in Section 811.4 of the Government Code. However, this section shall not be construed to abrogate any equitable cy pres remedy which may be available in any class action with regard to all or part of the residue.

We hope that answers your questions.

[Update: It doesn't. We clearly did a poor job of explaining this initially.

Section 384 does not preclude accomplishing the same or similar objectives with what is commonly referred to as a "claims-made" settlement. Under a typical "claims-made" settlement (somewhat of a misnomer, in that even most "common fund" settlements require class members to submit claims), there is no true residue. Unclaimed shares of the potential settlement are simply never considered or paid by the defendant, because the payout is determined by the amount of claims submitted. Moreover, courts can permit the same sort of arrangements as part of a cy pres remedy to distribute unclaimed proceeds in a manner consistent with the goals of the litigation and the interests of the class. See In re Microsoft I-V Cases (2006) 135 Cal.App.4th 706 ("reversion" to the defendant of part of a potential settlement fund can be approved as part of an equitable cy pres remedy). Still, even a Microsoft-type reversion is subject to the discretion of the trial court, and although In re Microsoft I-V Cases called the retention of some unclaimed funds by Microsoft a "reversion," we are aware of many judges who read CCP § 384(b) to prohibit any sort of reversion to defendants, including the type that was permitted in the Microsoft cases.

It is also important to note that any "residue" from uncashed checks that represent payroll to class claimants generally do not fall within the same category as other types of residue. If the settlement includes payroll distributions, uncashed checks are wages payable to the employee, and should generally escheat to the State of California like any other uncashed check. This principle might not apply to other kinds of wage and hour settlements, including those involving civil or statutory penalties.]

Last month, the Second District Court of Appeal issued an unpublished opinion in Aguiar v. Cintas Corporation (B182477) reversing and remanding a Los Angeles County Superior Court order denying class certification of a claim for violations of the Los Angeles Living Wage Ordinance (LWO) (Los Angeles Admin. Code, § 10.37 et seq.) and related claims. The trial court found that the proposed class was not ascertainable, lacked a well-defined community of interest and class treatment was not the superior means to resolve the litigation. However, because the complexities of the case on which the trial court relied to find class certification inappropriate can be addressed by the use of subclasses and, with those issues resolved, the requirements for class treatment are satisfied, and the Court of Appeal reversed the order denying certification and remanded the case with directions for the trial court to certify two subclasses of Cintas employees and to conduct further proceedings consistent with the opinion.

The LWO provides employees with a private right of action against a violating employer and specifies the available damages. The first amended complaint alleged six causes of action: (1) violation of the LWO; (2) violation of BPC § 17200; (3) violation of Labor Code §§ 201 and 202; (4) violation of Labor Code § 227.3 (for failing to compensate employees who have quit or been discharged for accrued vacation time); (5) violation of Labor Code § 204 (for civil penalties under the PAGA); and (6) breach of contract. The plaintiffs proposed to represent a class of "all of [Cintas’s] current and former employees [of its Whittier, Pico Rivera and Ontario facilities] who have worked at least 20 hours per month on [Cintas’s] contracts to provide rental, uniform, and laundry services to the DWP.”

Cintas opposed certification on the ground that each named plaintiff and putative class member would be required to demonstrate he or she worked at least 20 hours per month to be eligible for protection under the LWO. The trial court denied the motion for class certification because the plaintiffs had failed to specify available means to identify the individual class members, and because the testimony from the plaintiffs regarding the amount of time they worked on DWP contracts was “incompatible and contradictory,” rendering the plaintiffs not typical of the proposed class and inadequate representatives..

After acknowledging the rule that a trial court’s ruling on a motion for class certification is reviewed for abuse of discretion (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326), because "trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification," the Court of Appeal reversed. A trial court ruling supported by substantial evidence generally will not be disturbed “unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]” [citation]. . . . “ However, here, none of the grounds relied on by the trial court was a valid basis for denying plaintiffs’ class certification motion.

The use of subclasses is an appropriate device to facilitate class treatment. Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470-471. Thus, any distinctions between class members who worked over the 20 hour threshold could be resolved by creating two subclasses. Morever, the court wrote, "to the extent questions arise later in the litigation about how to determine which putative class members worked at least 20 hours per month on the DWP contracts, or whether their schedules varied from month to month, that burden falls on Cintas. It was Cintas’s business decision to commingle DWP items with those of other customers and to allow all employees to work on the items at each substation (for example, sorting, hanging, folding) as they were processed through the plant. Moreover, the LWO through its implementing regulations requires employers to provide the City a list of all employees subject to the LWO (Regulation No. 4); and at the time Cintas was awarded the DWP contracts it certified it would do so, including the name, position, classification and rate of pay for each employee. Thus, Cintas was aware that, if the LWO was applicable to its contracts, it was responsible for keeping track of employee time. Accordingly, it is appropriate to shift the burden of proof on issues regarding employee time spent on DWP contracts to Cintas."

Where an employer is obligated to maintain such records, the burden shifts to the employer to come forward with evidence of the precise amount of work performed or with evidence to negative the reasonableness of the inference to be drawn from the employee’s evidence. If the employer fails to produce such evidence, the court may then award damages to the employee, even though the result be only approximate.’ [Citations.]” (Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727; see also Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 961-964 [burden of proof in wage-and-hour case on defendant to prove employer provided proper employee rest breaks].

Thus, the validity of the 20-hour rule was not a bar to class certification because the putative class can be divided into subclasses. With the use of subclasses, class members were ascertainable and had a well-defined community of interest and class treatment was not the superior method for both the litigants and the courts for resolving the litigation.

As to the initial requirement of an ascertainable class, class members are "ascertainable" where they may be readily identified without unreasonable expense or time by reference to official records." (Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932.) Since members of plaintiffs’ proposed class are ascertainable from Cintas’s payroll records, which identify each employee by name, job code, dates of employment and rate of pay, that element was also met.

Morever, if there was no plaintiff suitable to represent the new subclass, the putative class members for that subclass could be represented adequately by a named plaintiff who did not work 20 hours per month on the DWP contracts; and the second amended complaint may be amended once again on remand to add another named plaintiff should it be determined that the subclass of employees who did not work 20 hours per month on the DWP contracts needs an additional, adequate representative. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 872

And, finally, class treatment was plainly the superior means for resolving the litigation for both the parties and the court. “[W]age and hour disputes (and others in the same general class) routinely proceed as class actions.” Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1328. "Absent class treatment, each individual plaintiff would present in separate, duplicative proceedings the same or essentially the same arguments and evidence, including expert testimony. The result would be a multiplicity of trials conducted at enormous expense to both the judicial system and the litigants”. "By establishing a technique whereby the claims of many individuals can be resolved at the same time, the class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation.” Thus, the trial court’s denial of class certification in this case constitutes an abuse of discretion.

You can download a copy of Aguiar v. Cintas here in pdf or Word format.

One of the more common sources of overtime litigation is the liberal application by management of the administrative exemption from overtime under the applicable IWC wage orders. In general, exempt administrative employees must be primarily engaged in exempt duties. These must be non-manual work directly related to management policies or general business operations. They must customarily and regularly exercise discretion and independent judgment. They must regularly and directly assist a proprietor, or another exempt administrative or executive employee; perform under only general supervision; work along specialized or technical lines requiring special training, experience or knowledge; or execute under only general supervision special assignments and tasks.

In Bell v. Farmers Insurance Exchange (2001) 87 Cal.App.4th 805, 820, a California Court of Appeal adopted the federal distinction between administrative employees who perform work “directly related to management policies or general business operations” of the employer or its customers, and “production employees” whose primary duty is producing the goods or services, that the enterprise exists to produce. Production employees are nonexempt. Bell involved insurance adjusters who generally used little discretion, handling small claims, and worked on the service that the business existed to provide -- handling insured claims. The Bell case went to trial as a class action in July 2001, resulting in a $90 million jury award for overtime pay, virtually all of which was upheld on appeal. Bell v. Farmers Insurance Exchange (2004) 115 Cal.App.4th 715.

Not surprisingly, the “production worker” exception inspired broader claims, and last week, in Miller v. Farmers Insurance Exchange (9th Cir. 2006) ___ F.3d ___, 2006 U.S. App. LEXIS 26671, the 9th Circuit illustrated the distinctions between state and federal law by reversing a $52.5 million class action judgment against the same employer, involving similar suits filed both as federal and state class actions in Colorado, New Mexico, Oregon, Washington, Minnesota and Michigan. After a three week bench trial, the district court concluded, among other things that: (i) automobile damage adjusters are non-exempt; (ii) property adjusters are non-exempt if more than 50 percent of their pay-outs in any one month are less than $ 3,000; (iii) adjusters are non-exempt if they spend more than 38-3/4 hours per week handling residential property claims on which the pay-out averages, on a monthly basis, less than $ 3,000; (iv) multi-line adjusters are non-exempt if they spend more than 38-3/4 hours per week handling automobile damage claims in any amount and/or residential property claims on which the pay-out averages, on a monthly basis, less than $ 3,000; (v) all other adjusters, including liability adjusters, are exempt. The 9th Circuit reversed, finding the adjusters exempt and rejecting the $3,000 threshold. "If the DOL should choose to distinguish between adjusters based on the type or value of the claims they handle, it is free to amend the regulations and tell employers how to do that…."

Because the Bell case was based on this "production worker" test, the plaintiffs surely thought that the same standards would apply under the FLSA. The 9th Circuit, however, seemed shocked that the District Court could have possibly thought these workers to be exempt. The opinion notes that "[t]he district court's findings almost track word for word" the language of the law defining an exempt administrative workers.

The plaintiffs are expect to request an en banc review by the full 9th Circuit. For California wage and hour practitioners, the case is significant only for those who regularly assert claims under the FLSA, which, in most cases, offers less protection to California workers than state law provides. The case is also required reading for lawyers who litigate regional wage and hour class actions that include workers both in and out of Calfornia.

You can read Miller v. Farmers Insurance Exchange for yourself here in pdf or html form.