Wage Law

In a published 2-1 decision, the Second District Court of Appeal has again upheld a class action waiver in an employment arbitration agreement. In Konig v. U-Haul Company of California (2006) ___ Cal.App.4th ___, the court holds that a class action waiver in an employment contract’s arbitration clause is not unconscionable where the class action would have involved more than "predictably...small amounts" of damages to individual class members, which would otherwise render the waivers unenforceable under the standards set forth in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 156-174. The holding is unremarkable, in that it comes from the same district that also upheld such waivers in Gentry v. Superior Court (2006) 135 Cal.App.4th 944, review granted April 26, 2006, S141502 (Gentry is fully briefed by the parties, but various amicus briefs, including this one just filed on behalf of the plaintiff by CELA and various employee unions.)

Konig involves a claim for overtime, vacation pay and other wage-related causes of action brought on behalf of employees classified as outside sales associates. In March 2006, the trial court granted a motion to compel arbitration and dismiss class allegations, citing Gentry as authority validating a class action waiver. The plaintiff appealed and this opinion resulted less than nine months after the trial court entered its order.

The court focused its analysis upon the plaintiff's failure to present evidence to the trial court that each class member's claim would be predictably small.

[P]laintiff failed to establish “predictably . . . small amounts” of damages payable to class members are at issue as required under the Discover Bank test. Thus, plaintiff failed to sustain his burden of proving substantive unconscionability. The complaint in this case alleges defendant has engaged in a scheme to defraud its employees out of overtime compensation. Plaintiff presented no evidence in the trial court the potential damages and penalties payable to class members would be “predictably . . . small.” Thus, plaintiff failed to establish that the class action waiver was substantively unconscionable under the Discover Bank test. In the absence of any evidence the potential damages payable to class members would be predictably small, the trial court reasonably could have found plaintiff failed to sustain his burden of proving the class action waiver was procedurally unconscionable.

On appeal, the plaintiff presented evidence of the average amount of claims recovered by the United States Department of Labor, Wage and Hour Division in 2003 ($212,537,544 in back wages for 342,358 employees, for an average award of $620.80 per aggrieved employee), but the Court of Appeal found this information irrelevant for two reasons: first, it was never presented to the trial court; and second, it was not indicative of the amount of these particular claims. To the contrary, the court considered the potential exposure to the employer under Labor Code § 558 and found that each employee's claims could reached into the thousands of dollars.

Oddly enough, the opinion fails to point out that there is no private right of action under Section 558 since Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, so those claims actually had a value of $0 to each class member.

We certainly hope that the Supreme Court reviews Konig, and not just because it went against the employee. The decision leaves litigants with literally no idea what standard must be met to show that a class action waiver is unconscionable, or what evidence must be presented to prove it. Must you show that each plaintiff's claim is less than a certain amount? If so, what amount? There was a reference to the plaintiff's claims being claims of "general jurisdiction" which means more than $25,000. Is $25,000 the threshold? Or must you show that each claim is under $7,500 -- the small claims limit? Or lower? Or worse, is the standard subjective and case-by-case? Must you show that, in this particular case, the amount is low enough that few claimants would be motivated to enforce their rights? How do you prove that, especially when these motions are generally brought at the onset of a case, depriving the opposing party of any meaningful opportunity to conduct discovery to obtain the facts and evidence needed to oppose the motion? The odd practicality of any answer to these questions (unless the answer is that no common and widespread wage violations are subject to class action waivers) is that employers would escape responsibility for large claims, but not small ones. The advice to employers would be: if you are going to rip off your workers, do so on a grand scale.

Because of Gentry (which already has two companion cases), we believe that a grant of review by the Supreme Court is inevitable. The interesting question will be whether the cases will be heard separately, or whether there will be a "grant and hold" order issued. There is one significant issue present in Gentry which is not present in Konig, and if Gentry is decided on that issue -- whether an option to opt out of the arbitration agreement destroys the procedural prong of the unconscionability test -- Konig could become an important case. However, the order granting review in Gentry suggests that the Supreme Court will address the larger issue of enforcing class action waivers in wage and hour class actions whether or not the opt-out provision matters. If so, this week's buzz about Konig will be brief and meaningless.

You can download the full text of Konig from these links to the court's website in pdf or Word format.

The Supreme Court has denied the employer's petition for review in JKH Enterprises Inc. v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046, which upheld (by denying a petition for a writ of administrative mandamus) a DIR stop work order and penalty assessment for misclassification of 15 drivers as independent contractors. The opinion has a wealth of good language for employees seeking to overturn misclassification as independent contractors.

In Dunbar v. Albertson's, Inc. (2006) 141 Cal.App.4th 1422, a case upholding a denial of class certification in a misclassification case, the appellants decided not to seek Supreme Court review, and shortly after the remittitur was issued, the appellant and other interested parties sought to depublish the opinion. Those requests were denied yesterday. We now have three interesting overtime case class certification opinions, and the count is: 1 certification order upheld (Sav-On); 1 certification denial upheld (Dunbar); and 1 certification denial reversed (Aguiar).

The Supreme Court today denied review of an unpublished opinion of the Fourth District Court of Appeal adhering to La Sala v. American Savings & Loan Association (1971) 5 Cal.3d 864 and its minimum standards for dismissing a yet-to-be-certified class action where the lead plaintiff is determined to be unsuitable to continue to represent the class.

In Andrade v. Dollar Tree Stores, Inc., the lead plaintiff accepted his share of a settlement in a related class action which addressed the claims of only part of the class that he had sought to represent. The defendant brought a motion to dismiss, and another putative class member simultaneously sought to intervene or join the suit as class representative in an amended complaint. The class urged the trial court to follow La Sala, which held that, if a court concludes that the plaintiff can no longer represent the class, "it should at least afford plaintiffs the opportunity to amend their complaint, to redefine the class, or to add new individual plaintiffs, or both, in order to establish a suitable representative." However, the trial court chose not to follow La Sala, and dismissed the action, holding that putative class members have no right to intervene in or amend the pleadings in an action which has not yet been certified. On appeal, the Fourth District Court of Appeal reversed the trial court's order in full, and remanded with instructions to file the proposed first amended complaint.

The petition for review sought to make it significantly easier for defendants to obtain dismissals of class actions before a certification hearing and without any adjudication on the merits of the cases. A letter brief joining in the request for review was filed on Dollar Tree's behalf by the California Employment Law Council, an employment defense organization headed by the law firm of Paul, Hastings, Janofsky & Walker LLP.

Any current or former retail store workers at any California Dollar Tree store can get more information by contacting us here. We'll be posting copies of the Supreme Court briefs on our website dollartreeclassaction.com within the next few days.

In Aguiar v. Cintas Corp. No. 2 (2006) 144 Cal.App.4th 121 (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), a petition for publication was granted, and a petition review has now been filed with the Supreme Court.

In Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223 (upholding demurrer to a wage and hour class action on the basis of collateral estoppel arising out a previous denial of class a certification motion in another matter), a petition for review has been filed, along with a request for depublication.

In JKH Enterprises Inc. v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046 (upholding denial of its petition for a writ of administrative mandamus to overturn a DIR stop work order and penalty assessment for misclassification of 15 drivers as independent contractors), a petition for review was filed, and the Supreme Court has extended its time to grant or deny review.

The Supreme Court heard oral argument in Pioneer Electronics v. Superior Court on December 5, 2006. 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?

Rather than recount what others have told us about their observations, we'll just refer you to a couple of posts at the UCL Practitioner. We're expecting good news for employees' attorneys in this opinion, but we've been surprised before, and we'll be surprised again.

Employees who have to pay a fee or incur a delay in getting funds from their paychecks because the checks are written on an out-of-state bank have standing to bring a class action lawsuit against their employer. In March 2006, a class action lawsuit, Fleming v. Dollar Tree Stores, Inc., U.S District Court case no. 06 CV 03409 MJJ, was filed against Dollar Tree Stores, Inc. This complaint arose because Dollar Tree paid its wages in the form of paychecks issued by an out-of-state bank with no in-state address for presentation and no provision for negotiating the paycheck within the State of California. Thus, its employees were required to pay a fee to cash their paycheck or were subject to having a hold placed on their paychecks. In denying a motion to dismiss and motion to strike, U.S. District Court judge Martin J. Jenkins ruled that such a policy runs afoul of California Labor Code § 212.

California Labor Code § 212(a)(1) regulates the payment of wages by check, and requires such checks to be: (1) negotiable, (2) payable in cash, (3) on demand, (4) without discount, (5) at an established place of business in the State, (6) the name and address of which appears on the instrument, and (7) which place of business has been prepared, by the deposit of funds, the establishment of credit, or by some arrangement or understanding, to pay the money called for by the instrument.

Dollar Tree's payroll checks were drawn on Wachovia Bank, which has no locations in California. Hence, section 212 applies to Dollar Tree's payroll.

Dollar Tree attempted to avoid liability by citing to a narrow exception under Section 212(c), exempting bank employers from the requirement of printing the name and address on employees' paychecks. that argument failed. Section 212(c) reads,

"Notwithstanding paragraph (1) of subdivision (a), if the drawee is a bank, the bank's address need not appear on the instrument and, in that case, the instrument shall be negotiable and payable in cash, on demand, without discount, at any place of business of the drawee chosen by the person entitled to enforce the instrument."

However, both the plain language and the legislative history indicate this exception applies to bank employers and only exempts them from the requirement of printing the name and address on the paycheck.

Dollar Tree also attempted to invoke National Bank Act (NBA) preemption, claiming that section 212 impairs the efficiency of the national banking system, because it requires out-of-state banks doing business with California employers to open California branches. The court rejected that argument, too. The purpose of the NBA is to regulate national banks. Weiner v. Bank of King of Prussia (E.D. Pa.1973) 358 F. Supp. 684, 687. An entity that is neither a national bank, nor a wholly-owned subsidiary of a national bank may not claim preemption under the NBA.

The court also rejected Dollar Tree's claims that section 212 violates the "dormant Commerce Clause" because (i) on its face section 212 does not discriminate between in-state and out-of-state commerce; (ii) section 212 does not have an incidental discriminatory or practical effect on out-of-state employers or banks; and (iii) the burdens imposed are not clearly excessive in relation to the State of California's legitimate local interests in protecting in-state employees.

Finally, the court rejected Dollar Tree's claim that section 212 violates the Equal Protection Clause. Under Equal Protection analysis, state legislation ordinarily is entitled to broad deference from the federal courts and will be sustained so long as it is rationally related to a legitimate state interest. See, e.g., Exxon Corp. v. Eagerton (1983) 462 U.S. 176, 195-96, 103 S. Ct. 2296, 76 L. Ed. 2d 497. There is a rational basis for the State of California to protect its in-state employees, and the state has a legitimate interest in ensuring its in-state employees do not face delay or additional costs in receiving their earned wages.

The court also held that, under California's Unfair Competition Law, a four-year limitations period applies. The recovery of "costs incurred" is a proper form of restitution under California Business and Professions Code § 17200, even though Dollar Tree was not the actual recipient of the lost wages and costs incurred by Plaintiffs, because Dollar Tree profited by unfairly passing costs to the Plaintiffs. Restitution, including restitutionary disgorgement of profits, is a proper relief under section 17200. See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1148.

Despite repeated failures to obtain dismissals without any factual determinations regarding class issues or merits, defendants are more frequently filing motions to dismiss, particularly in U.S. District Court, where it is perceived that such motions stand a better chance. The language in Fleming v. Dollar Tree is quite useful to any plaintiff facing such a motion. To read the entire opinion, check 2006 U.S. Dist. LEXIS 67749, 11 Wage & Hour Cas. 2d (BNA) 1633. Our firm does not represent the plaintiffs in this action. The plaintiffs are represented by the Thierman Law Firm P.C., the Law Office of Scott A. Miller, and the Law Office of Steve Miller. With potential penalties of $100 for the first violation and $200 for subsequent violations, on more than 100,000 paychecks per year, Dollar Tree's liability could be substantial, as the company acknowledged when it removed the case to U.S. District Court under the Class Action Fairness Act (CAFA). CAFA only applies to class actions involving claims exceeding $5 million.

International Business Machines Corp. (IBM) has agreed to pay $65 million to settle a federal class-action lawsuit, Rosenburg v. IBM, US District Court, Northern District (San Francisco) case no. 06-cv-00430-PJH, brought on behalf of approximately 32,000 workers classified as "Technical Services Professional and Information Technology Specialists." IBM paid the workers a straight salary and classified them as exempt professionals under the Fair Labor Standards Act (FLSA) and California Industrial Welfare Commission wage orders. The settlement is subject to court approval by judge Phyllis J. Hamilton. The hearing for preliminary approval of the settlement, which is unopposed, is set for January 3, 2007. The class is represented by Steven G. Zieff, of Rudy, Exelrod & Zieff, along with seven other law firms.

The Supreme Court has denied a petition to publish a scathing Court of Appeal opinion in Zamani v. St. John Knit's, Inc. We discussed the case and the opinion in a post last August.

While we were out trying cases, the Supreme Court denied review in Dunlap v. Superior Court (2006) 142 Cal.App.4th 330 (employees need not follow the Labor Code Private Attorneys General Act of 2004's administrative procedures as long as they are not seeking PAGA civil penalties which would otherwise only be available to the Labor Commissioner). And in Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313 (upholding verdict determining commission chargebacks to be lawful reimbursement of non-wage advances), a petition for review was denied.