Wage Law

You can download or read this interesting publication for free at:

http://www.fjc.gov/public/pdf.nsf/lookup/classgde.pdf/$file/classgde.pdf

[Hat Tip: The UCL Practitioner]

Last week, the Supreme Court granted review in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2007) 148 Cal.App.4th 39 (holding that an individual’s assignment of a cause of action to a third party does not carry with it the individual’s statutory right to sue in a representative capacity under PAGA or the Unfair Competition Law at Business and Professions Code § 17203). The court has now posted an official summary of issues on review:

(1) Does a worker’s assignment to the worker’s union of a cause of action for meal and rest period violations carry with it the worker’s right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Labor Code § 2698 et seq.) or the Unfair Competition Law (Business & Professions Code § 17200 et seq.)?

(2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant “complies with Section 382 of the Code of Civil Procedure,” require that private representative claims meet the procedural requirements applicable to class action lawsuits?

The second issue is a particularly interesting one, and has the potential for much wider implications than the first issue.

In Burnside v. Kiewit Pacific Corporation (9th Cir. 2007) ___ F.3d ___ (June 20, 2007, Case No. 0457134), a group of construction workers filed suit in San Diego County Superior Court, alleging that Kiewit never compensated them for time they spent traveling from designated meeting sites to their jobsites and from those jobsites back to the designated meeting sites; Kiewit required them to undertake this round trip daily; and they were not allowed to get to the jobsites on their own. Because the workers were subject to a collective bargaining agreement, Kiewit removed the case to U.S. District Court, where Judge Marilyn Huff ruled that their wage and hour claims, brought under state law, were preempted by section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185(a) (which governs suits between employers and collective bargaining units and members).

On appeal, the Ninth Circuit reversed, holding that such claims are not preempted because the claims are based on rights conferred by state law, independent of the collective bargaining agreements, and can be resolved without interpreting the agreements, and thus were not preempted by LMRA § 301. In light of this decision, the trial court's summary judgment, based upon a failure to exhaust administrative rights, and failure to file suit within six months under the LMRA, 29 U.S.C. § 160(b), was granted in error. Writing for a unanimous court, Justice Marsha Berzon went on to explain that this case falls under the rule set forth in Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 578.

The California Supreme Court has recognized an employee’s state law right to be compensated for time spent traveling from a designated meeting point to the jobsite and from the jobsite back to the meeting point, when the employer requires this travel. See Morillion v. Royal Packing Co., 22 Cal. 4th 575, 578 (2000) (applying a wage order that covers agricultural employees). Moreover, post-Morillion, the state’s Industrial Welfare Commission (“IWC”) adopted a regulation, known as California Industrial Commission Wage Order 16-2001, that applies this right to the employees in this appeal. See CAL. CODE REGS. tit. 8, § 11160. As a result, because the right to be compensated for employer-mandated travel exists as a matter of state law, independent of the CBAs, on this initial basis at least the employees’ claims are not preempted.

In short, a unionized employee cannot be deprived of the full protections afforded by state law simply by virtue of the fact that her union has entered into a CBA. The court also rejected Kiewit's arguments that the claims are nevertheless preempted by section 301 because they “substantially depend on” an interpretation of the terms of the CBAs; and that the claims are primarily claims for overtime wages, not compensation for compulsory travel time, and thus preempted by section 301 Firestone v. Southern California Gas Co. (9th Cir. 2000) 219 F.3d 1063, where the overtime premium was determined by interpreting a CBA.

Contrary to some news stories and summaries we've read elsewhere, the Ninth Circuit did not hold that the employees were entitled to any pay. The factual inquiry as to liability (did they require such off-the-clock travel) and damages (how many times and for how many hours) will be made, on remand, in state court.

One of the things we discussed at last week's wage & hour seminar in Costa Mesa was the long list of questions that remain unanswered after Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094. Here's one we hadn't mentioned before:

Must meal and rest period premium wages be included in the "regular rate of pay" upon which overtime is calculated?

The DLSE originally said that such pay should not be included in the regular rate of pay, and most practitioners considered the question answered. However, with the way the Supreme Court analyzed the wage-penalty issue, some people think the answer is no longer so clear, and an argument can be made that such pay increases an employee's regular rate of pay for the purpose of calculating the correct overtime rate. We haven't seen any briefs arguing the point, and we haven't briefed the issue ourselves, but the point seems well worth raising.

The Class Action Fairness Act has undoubtedly resulted in a larger number of wage and hour class actions being sent to U.S. District Court. So many, in fact, that some lawyers have started filing their class actions in District Court to begin with, denying the defense the opportunity to choose a (perceived) better forum for the employer, particularly if they believe that there could be a nationwide FLSA claim included in the complaint. Some now do so whether or not their class action meets the subject matter jurisdictional requirements under CAFA, assuming that, once it has jurisdiction over the case as a federal (FLSA) question, the District Court will exercise supplemental jurisdiction over all related wage and hour claims arising under state law. That assumption isn't always correct.

In one recent case filed in U.S. District Court in Connecticut, a group of employees alleged that their employer failed to pay overtime required under both the FLSA and Connecticut law. Neary v. Metropolitan Prop. & Cas. Ins. Co. (D. Conn. 2007) 472 F.Supp.2d 247, 248. Their fourth and fifth causes of action sought sought remedies for alleged violations of state wage and hour laws "in each state in which each plaintiff worked." The defendant filed a motion to dismiss, arguing that the court needn't and shouldn't exercise its discretion to here both an opt-in FLSA collective action and an opt-out class action based upon state law. The District Court agreed, finding that an irreconcilable conflict existed between the state law class procedures and the FLSA collective action procedures, such that it would be better for the court and the litigants if the court declined to exercise supplemental jurisdiction over the state wage and hour class action.

The rationale expressed by the court in Neary won't apply to every mixed FLSA and state law case. It certainly would not apply if the court already had jurisdiction over state law claims under CAFA, and its persuasive value might not be as powerful in cases involving just one state's wage and hour laws, because the court based its ruling in part on the unusual circumstances presented where “the proposed class ... involves not just one state's wage and hour statute in addition to FLSA claims, but potentially involves claimed violations of fifty states' wage and hour statutes, each with potential novelties ... and complexities."

There have been numerous cases, before and since, in which the trial court invoked supplemental jurisdiction over state law (opt-in) wage and hour class actions filed along with FLSA claims (e.g., Cryer v. Intersolutions (D. D.C.) Case No. 06-2032, April 20, 2007), but the possibility that a motion to dismiss will be granted must be considered when the class action plaintiff is deciding which forum to choose.

This is way off topic, so we'll throw it in for an out-of-the-ordinary weekend post.

Suppose an old man is trying to up to or walk down from a dais to the floor in an area of some facility like, say, the Yale Club. Suppose further that there is an arguably inadequate handrail, or even no handrail, and he stumbles and falls, injuring himself. What should he do? Let it go? Sue for negligence, seeking medical expenses only? Sue for medical expenses, income and reasonable compensation for pain and suffering? Or does he make a federal case out of it, literally, and seek not just medical expenses and general damages, but a million dollars in damages, plus a heaping dollop of punitive damages on top of it, plus attorney's fees and interest, even though state law doesn't permit fees and interest (and of course, a jury trial is a must). Which path is best? Which, if any, should the system permit? For two interesting and divergent viewpoints on this hypothetical, check with two prominent American judges: Robert Bork in 2002, and Robert Bork in 2007.

In 2002, in the Harvard Journal of Law & Public Policy, Judge Bork decried the harm that frivolous claims and excessive punitive damage awards brought to our justice system.

State tort law today is different in kind from the state tort law known to the generation of the Framers. The present tort system poses dangers to interstate commerce not unlike those faced under the Articles of Confederation. Even if Congress would not, in 1789, have had the power to displace state tort law, the nature of the problem has changed so dramatically as to bring the problem within the scope of the power granted to Congress. Accordingly, proposals, such as placing limits or caps on punitive damages, or eliminating joint or strict liability, which may once have been clearly understood as beyond Congress's power, may now be constitutionally appropriate.

In 2007, Judge Bork takes a slightly different approach, perhaps because he now is the plaintiff in our hypothetical. You can read the complaint, filed on his behalf by the law firm of Gibson, Dunn & Crutcher, LLP (which almost certainly would rather be defending this lawsuit, but for the prominence of the plaintiff), at this Wall Street Journal link. Bork now believes that the lack a handrail suitable for someone of his age and frailty is evidence of gross negligence, justifying a seven figure verdict that includes punitive damages to punish, deter and make an example of the Yale Club.

We aren't passing judgment on his claims. They may very well have merit (well, except for the fees and interest, which NY PI attorneys tell us he can't get). But we are struck by the irony. It reinforces our belief that most tort reformers are just lucky folks who have never needed the legal system to save them from injustice. Their secret message? "Do as I say, not as I will do when I need to."

Meanwhile, over at Overlawyered, Ted Frank has this to say:

I sympathize with Judge Bork's serious injuries, but it's beyond me what his lawyers are thinking in asking for punitive damages. And if any danger is open and obvious such that there is an assumption of the risk, surely the absence of stairs to reach a lectern on a dais is—especially if the dais is of the "unreasonable" height that the complaint alleges it to be.

Robert Bork is to tort reform what Ted Haggard is to family values. In a 1995 opinion piece in the Washington Times, Bork criticized the expensive, capricious and unpredictable justice system:

"Today's merchant enters the marketplace with trepidation -- anticipating from the civil justice system the treatment that his ancestors experienced with the Barbary pirates."

But now, he's one of the pirates. All he needed was a hand up to the ship. And at the time of the accident, all he needed was a hand up. According to the New York Times, he went on to deliver the speech after he had fallen. The subject is a popular one around the blogosphere.

• Bork: Tort Reform for Thee But Not for Me (Booman Tribune)
• Leading Conservative Activist Seeks Punitive Damages (American Constitution Society)
• The Urgent Need for Tort Reform (Grasping Reality With Both Hands)
• Lawsuit of the Day: Robert Bork Hearts Plaintiffs? (Above The Law)
• The Fall of Bork (Reason Magazine - Brian Doherty)
• Is Bork's Trip and Fall a Misstep? (New York Times Opinionater - Tobin Harshaw)
• Legal Funnies (Alas, A Blog)
• Advocate for tort reform sues for over $1M (Bring it on!)
• When Tort Reformers Slip And Fall (Mother Jones)

[We'd give credit to other bloggers for finding the quotes, but frankly, we saw so many of them writing about this subject that we can no longer recall where we saw any of it first.]

It looks like the principles of Fireside Bank v. Superior Court (Gonzalez) (2006) 40 Cal.4th 1069, will doom the novel theory advanced in Ortiz v. Lyon Management Group, Inc., where the defendant won a summary judgment motion, before hearing a certification motion, and then asked the court to go back and certify the case. In the appeal, the defendant argued that the trial court abused its discretion by refusing to certify the case, after entry of the summary judgment order. The defendant claimed that the court should have forced the plaintiff to serve as an unwilling class representative on a doomed claim, and should have ordered publication and service of a notice to class members informing them that: (i) there was a class action pending; (ii) they already lost; and (iii) they were not going to be permitted to opt out of it.

At today's oral argument, the first question directed to the appellant came from Justice Ikola, who asked (and we admittedly paraphrase here) whether the appellant could direct the court to any case in which any court had ever done anything remotely similar to what the defendant asked of the court in this case. This question seemed to set the tone for the rest of the appellant's argument.

If you check the case docket, you may notice quite a few friends of the court submitting papers in favor of Lyon Management Group, Inc. Upon closer examination, you will note that they submitted their amicus papers in support of Lyon Management as a respondent, on the underlying creditor issue that was at stake in the summary judgment motion. As appellant, on its appeal seeking retroactive certification by a prevailing party after determination of the merits, Lyon Management seems to be without any friends.

We leave the argument wondering not whether the appeal will be denied, but whether the cross-appeal will reinstate the case. On the appeal, we also wonder whether the court will find that there can be no after-the-fact certification; or merely that there can be no after-the-fact involuntary no-opt-out class; or merely that the trial court was within its discretion to deny certification. If the cross-appeal succeeds, it is possible that the opinion will be an unpublished reversal. If the cross-appeal fails, an interesting published opinion seems more likely.

In April, the Supreme Court reiterated the well-settled rule that class certification cannot follow a substantial determination on the merits. In Fireside Bank v. Superior Court (Gonzalez) (2006) 40 Cal.4th 1069, the court held that a trial court never depart from the preferred practice of deciding whether to certify a class action before adjudicating any class claims on the merits. Generally, this rule comes up only when plaintiffs win some preliminary ruling, like a judgment on the pleadings, or summary adjudication, and they then move to certify the class, given the class a notice that tells them that they might as well join, since they already won.

Ortiz v. Lyon Management Group, Inc. presents the opposite. Here, a defendant won a summary judgment motion, then decided to file its own motion to certify the class. The trial court denied the motion.

DEFENDANT’S TO CERTIFY CLASS – DENIED The issues presented in this Motion are of first impression to this Court. Although novel, they can be resolved on the basis of one legal principle, waiver. Neither Defendant or Plaintiff has cited any case where a Defendant was allowed to bring a motion for class certification after there had been a final adjudication of the merits of the case. Defendant’s citation of the Frazier and Lowry cases is not helpful, as both of those cases involved a class that was certified prior to the adjudication of the merits. The case of Colwell Co. v. Superior Court (1975) 50 Cal.App.3rd 32 and Civil Service Employees Insurance Company v. Superior Court (1978) 33 Cal.3rd 362 are controlling here. They hold that a defendant who fails to object to the adjudication of the merits of the Plaintiff’s claim prior to the class certification mechanism being fully implemented, waives the right to object and cannot thereafter seek a judgment which is binding on the absent class members. By bringing its Motion for Summary Judgment to determine liability prior to the determination of class certification, Defendant waived its right to have a judgment binding on absent class members.

The case is now on appeal. The appellant is, amazingly enough, the defendant. The plaintiff filed a cross-appeal challenging the summary judgment. Oral argument is tomorrow, Friday, June 22, 2007 at 9:00 a.m. at the Fourth District Court of Appeal in Santa Ana. Justices O’Leary, Fybel and Ikola will hear the matter. We want to see it, but we will be late, or might miss it completely.

If you just found out about us at Bridgeport Continuing Education's seminar on wage and hour litigation, welcome, and thank you for attending. I (Mike) presented an hour on Recent Developments in California Wage and Hour Litigation and distributed a set of materials that Mark and I put together last week. We hope you enjoyed the materials and presentation.

Disregard, however, the mention we made in the section on PAGA and Private Rights of Action, about Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2007) 148 Cal.App.4th 39 (holding that an individual’s assignment of a cause of action to a third party does not carry with it the individual’s statutory right to sue in a representative capacity under PAGA or the Unfair Competition Law at Business and Professions Code § 17203). Today, the Supreme Court issued an order granting review of Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court. It is no longer good law. It was perfectly good when we handed out the materials. Six hours later, not so much. Like we said, it's an area of law that is constantly changing. We previously discussed Amalgamated Transit Union at the post linked here. The underlying decision came on a 2-1 vote, as did the decision to deny rehearing. All seven justices voted in favor of granting review.

Last month, after requests by, among others CELA and the State Labor Commissioner, the Third District Court of Appeal ordered published a previously unpublished opinion upholding a trial court determination that a group of couriers were misclassified as independent contractors and should have been classified as employees. In Air Couriers International v. Employment Development Department (2007) 150 Cal.App.4th 923, the plaintiff company filed a complaint for a refund against the EDD to recover employment taxes it paid for the drivers, claiming that they were independent contractors.

Among the factors that the employer argued in favor of independent contractor status:

• Drivers serviced numerous customers; fewer than one percent performed services for only one customer.
• Drivers worked flexible schedules.
• Individual drivers determined their own schedules and decided when and how long to work.
• Some drivers, by choice, worked long hours.
• Drivers took breaks, and they alone determined the frequency and duration of the breaks.
• Many drivers worked other jobs while driving for the employer, which made no effort to prevent drivers from working other jobs, including delivering for other companies.
• Drivers were not required to accept each and every job. To the contrary, drivers rejected jobs for a variety of reasons and were not required to provide reasons for doing so.
• Drivers who rejected jobs did not suffer adverse consequences; they continued to receive assignments.
• Drivers were paid by the job, with mileage factored into the job rate.
• Drivers were paid biweekly based on handwritten and computer manifests.
• Drivers got no sick leave, paid vacation, or medical insurance.
• Many jobs were paid under a flat rate, based on the number of miles driven.
• Drivers negotiated higher rates on some jobs for a variety of reasons, including “after hours” charges, premiums for long drives, amounts added for “deadhead miles,” and weekend charges.
• There were no negative repercussions for negotiating rates.
• Drivers with superior skills made more money.
• Drivers got no formal training.
• Drivers supplied their own vehicles, supplies, and equipment.
• Drivers used their own cellular phones, and some provided their own business cards.
• They did not require drivers to wear uniforms, and most did not, although some drivers wore uniforms to expedite access to buildings and airports.
• Drivers were not required to wear identification badges, although some drivers used identification badges to gain access to airports and high security buildings.
• Drivers got IRS 1099 forms, and reported the income earned from driving on their individual tax returns and deducted expenses incurred.

Nonetheless, the trial court found the drivers to be employees, and even though the EDD failed to comply with the requirement that it provide the Court of Appeal with an accurate summary of the evidence, complete with page citations, that supports the trial court’s judgment, the Court of Appeal found that the trial court’s judgment was supported by ample evidence.

The EDD presented testimony from several drivers and an auditor from Franchise Tax Board, that, among other things:

• Many drivers never signed a Contract.
• Most did not turn down jobs relayed to them by the dispatchers.
• Drivers were terminated if they proved unreliable.
• New drivers began by driving with more experienced drivers, and there was a training video provided.
• Uniforms were available for drivers; were useful for identification and prevented drivers from working for other employers while uniformed.
• Many drivers worked for lengthy tenures.
• Some add the company to their automobile insurance or obtain workers’ compensation insurance.
• Most did not obtain a business license or solicit other delivery customers.
• The employer provided some drives with pagers.
• Every job involved a deadline.
• Drivers did not advertise.

The court determined that the drivers performed an integral and entirely essential aspect of the business. The employer provided forms to the drivers, encouraged them to wear uniforms, and provided identification badges and vehicle placards. The customers serviced by the drivers were not customers of the drivers. Therefore, the company retained all necessary control over the drivers, negating its claim that the drivers operated as independent contractors.

The determination was upheld. The “most important factor is the right to control the manner and means of accomplishing the result desired [but] other factors to be taken into consideration are (a) whether or not the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.”

Here, the company's failure to control the actual routes and speeds drivers chose when making deliveries denoted no lack of control. The simplicity of the work made detailed supervision, or control, unnecessary. Drivers testified they worked a regular schedule, consistent with employee status and reflect employer control. As a practical matter, drivers did not turn down jobs. They were not engaged in a separate profession or operating an independent business. The company required only a car and insurance; drivers made no major investments in equipment or materials. The drivers' contract did not control. Most did not recall signing a contract, and the terms of the contract were never enforced by the company. The drivers never had the contract explained to them and did not understand it. The trial court considered the Contracts and all other indicia relating to the employment relationship between the company and the drivers and found that the drivers were properly classified as employees.

You can download the full text of Air Couriers International here in pdf or word format. A request to depublish has been filed.

The Supreme Court has denied review of Reyes v. Van Elk, Ltd. (2007) 148 Cal.App.4th 604, in which the 2nd District Court of Appeal held that undocumented workers are not precluded from bringing prevailing wage claims. We previously discussed Reyes in a prior post linked here.

An interesting new wage and hour case came down this week: Eicher v. Advanced Business Integrators, Inc. In a trial de novo in the superior court, after an adverse decision in a Labor Commissioner hearing, Michael Eicher prevailed in his claim for unpaid overtime compensation, along with prejudgment interest and attorney’s fees, against his former employer, Advanced Business Integrators (ABI).

ABI appealed the judgment, arguing that Eicher was an exempt administrative employee not entitled to overtime; that the court’s award was excessive; and that Labor Code § 98.2 did not authorize an award of fees to a plaintiff who prevails in a trial de novo. Labor Code § 1194 allows a prevailing employee to recover fees "in a civil action" for unpaid overtime wages. ABI contended that an appeal from an administrative decision was not itself a "civil action" for unpaid wages.

The court of appeal mostly agreed with Eicher, holding that:

• Labor Code § 1194 authorizes an award of attorney's fees incurred in the trial court when an employee prevails in a trial de novo under Labor Code § 98.2; and
• ABI did not carry its burden of establishing the affirmative defense of the administrative exemption. Even though Eicher learned management policies and business operations in the course of his work, he had no personal effect on the policy or general business operations of employer or its customers; and he regularly engaged in employer's core day-to-day business, such as implementing employer's software product and providing related customer service; but
• When calculating damages for unpaid overtime, the trial court should not have counted PTO (paid time off) as "hours worked."

There aren't many published cases that discuss the administrative exemption. That makes this case well worth reading. For the next few weeks, you can download the full text of Eicher v. Advanced Business Integrators here in pdf or word format.

The Supreme Court has denied review of Lee v. Southern California University for Professional Studies, in which the 4th District Court of Appeal denied the defendant's right to compel arbitration where the plaintiff/putative class representative did not sign an agreement to arbitrate, but other members of the putative class did. We previously discussed Lee in a prior post linked here.

Assembly Bill 435 originally proposed to extend wage record retention requirements for employers to ten years, and enlarge the limitations period for wage claims to five years for a civil action for unequal wages and six years for actions in which there is willful misconduct of the employer. The bill was amended in April to make the time periods five years for record retention, four years for unequal wage claims and five years if the claims arise from an employer's willful violation. The bill was passed on June 7 and has now been sent to the Senate.

In a unanimous decision yesterday, the U.S. Supreme Court ruled that home healthcare workers are not entitled to overtime pay or even minimum wage under federal law. In Long Island Care at Home, Ltd. v. Coke, the Court upheld a Department of Labor regulation [29 CFR 552.109(a)] that eliminated overtime for home health care workers providing "companionship services" employed by outside agencies and not directly by families. The case arose after Evelyn Coke sued her former employer for more than two decades of overtime claims. The District Court found the regulation enforceable, and a series of appeals followed, most recently leading to the Second Circuit invalidating the regulation in 2004 (9 WH Cases 2d. 1377 (2nd Cir. July 22, 2004)). The Supreme Court reversed, holding:

A provision of the Fair Labor Standards Act exempts from the statute’s minimum wage and maximum hours rules “any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary [of Labor]).” 29 U. S. C. § 213(a)(15). A Department of Labor regulation (labeled an “interpretation”) says that this statutory exemption includes those “companionship” workers who “are employed by an employer or agency other than the family or household using their services.” 29 CFR § 552.109(a) (2006). The question before us is whether, in light of the statute’s text and history, and a different (apparently conflicting) regulation, the Department’s regulation is valid and binding. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 843–844 (1984) . We conclude that it is.

You can download Long Island Care at Home here in pdf or html format.

Under California law, most such workers are covered by Industrial Welfare Commission Wage Order 5 (Regulating wages, hours and working conditions in the Public Housekeeping Industry), or, more often, Wage Order 15 (Regulating wages, hours and working conditions for Household Occupations) which broadly exempts from overtime compensation (but not minimum wage) all personal attendants, "employed by a private householder or by any third party employer recognized in the health care industry to work in a private household, to supervise, feed, or dress a child or person who by reason of advanced age, physical disability, or mental deficiency needs supervision."

According to a press release from the law offices of Carroll, Burdick & McDonough, governor Schwarzenegger has appointed Angela Bradstreet, the managing partner of the that firm, as California's next Labor Commissioner. Her firm does a considerable about of union-side labor work, but she has primarily represented management. She frequently defended wage and hour claims for employers. Bradstreet is a former president of the Bar Association of San Francisco and a Democrat who worked on Senator Dianne Feinstein's campaign as co-chair, but also endorsed Schwarzenegger and publicly criticized Democratic gubernatorial candidate Phil Angelides. The appointment requires approval from the state senate.

In a highly controversial 5-4 decision handed down last week, the U.S. Supreme Court held that a disparate treatment pay discrimination claim is untimely unless a discriminatory pay-setting decision has been made within the 180 day limitation period immediately prior to the filing of a charge with the EEOC (Equal Employment Opportunity Commission). Thus, a woman who has a valid disparate treatment pay discrimination claim, but does not realize it until many months or years after her pay level has been set, is forever precluded from challenging the unlawful discrimination, even if the discrimination and its effects are ongoing.

In Ledbetter v. Goodyear Tire & Rubber (Case No. 05-1074, May 29, 2007) the issue was whether plaintiff Lily Ledbetter had filed her employment discrimination case within 180 days "after the alleged unlawful employment practice occurred.” Ledbetter worked for Goodyear for almost twenty years. After retiring, she filed a Title VII claim, alleging that supervisors had given her poor evaluations based upon her gender, resulting in reduced pay throughout her career. She argued that her claim was timely because she had received paychecks, within the limitations period, which reflected the lower pay rate that stemmed from the discrimination.

The Supreme Court rejected the argument, holding that there must be an identifiable employment act taken by the employer, with discriminatory intent, during the 180 day period prior to the filing of the EEOC charge. There was no claim that the issuance of each paycheck was undertaken by Goodyear with a discriminatory intent. Rather, the discriminatory intent came with her prior evaluations that were negative because of her gender. Thus, each evaluation and pay-setting decision was a "discrete act" triggering the 180 day limitations period, but the issuance of paychecks thereafter were not such acts. The Court considered, and rejected, application of the continuing violations doctrine that is often appied to hostile work environment claims.

The dissent pointed out that employees often do not know other employees' pay rates, and those who are discriminated against may not learn of the discrimination until long after the discreet discriminatory acts occur. Justice Ruth Bader Ginsburg read the dissent from the bench. The plaintiff has already taken her cause to Congress, which will hold hearings soon to decide whether to amend Title VII to permit such claims to be heard.

Contrary to some misguided descriptions in the media, the decision does not affect claims under the Equal Pay Act, which need not be brought before the EEOC; which are governed by two or three year statutes of limitation (depending upon whether willfulness is proven); and which need not include proof of discriminatory intent.

      I was extremely disappointed by the manner in which the Daily Journal chose to report the opinion in Haluck v. Ricoh Inc. G035681. The plaintiff's appeal was based on judicial misconduct, a view that the appeals court agreed with. Your paper is influential in the legal community, and by focusing on the humor angle, you do a disservice to your readers. In essence, you excuse and minimize Judge James M. Brooks' misconduct by portraying this as a comedy routine gone bad. Many lawyers and litigants spend countless hours and countless thousands of dollars to have their day in court; the least your paper could [do] is illuminate the extreme seriousness of what this opinion really means.  Patrick Turner, Lake Forest, CA

      Judge James M. Brooks was far from discreet, and this 30-day trial was far from a "stab at comedy." It was an abomination, and such conduct easily could have swayed the jury. Fortunately, the Court of Appeal remanded and ordered that the case be retried with a different judge. Robert F. Cohen San Francisco, CA
      
      Given this article's cavalier attitude towards plaintiffs who are trying to enforce the civil rights of all of us, it is no wonder that every whistle-blower I have represented has told me that, even though they obtained a good recovery through trial or settlement of their case, no amount of money could compensate them adequately for the harm they suffered. ... It is a scandal that judges such as Judge James M. Brooks (whose track record of ignored admonishments shows that he clearly lacks a proper judicial temperament) are allowed to remain on the bench. Joan Herrington Oakland, CA
      
      I am extremely offended by the Daily Journal's lighthearted spin on judicial misconduct as expressed in today's (June 5, 2007) article "Judge's Stab at Comedy Was a Legal Flop, Panel Rules." What plaintiffs' counsel Michelle Reinglass, her clients and the jury witnessed was not, as Amy Yarbrough suggests, a stab at comedy that flopped; instead, it was egregious misconduct aimed solely at belittling and disparaging plaintiffs' counsel and her clients.
      The Daily Journal failed to report the true spirit of the Court of Appeal opinion: outrage and shock at the egregious judicial misconduct of Orange County Superior Court Judge James M. Brooks. The Court of Appeal did not think Brooks' behavior was funny. On the contrary, here are examples of the court's comments: "The delineated exchanges between the court and counsel are antithesis of judicial decorum and courtesy. ... A trial is not a sporting event"; "A courtroom is not the Improv and the presider's role model is not Judge Judy. We can only imagine what was in the jurors' minds as they endured a 30-plus day trial in this atmosphere or the impression of the judicial system they took away with them posttrial."
      The Daily Journal missed an opportunity to comment on the effects of judicial misconduct on our judicial system. Eugenia Hicks, Beverly Hills, CA

The UCL Practitioner has several posts with perspectives from others who attended the Gentry argument on Tuesday. Most observers seem to agree that the Supreme Court appears unlikely to uphold Circuit City's agreement, and that they will specify some or all of the circumstances, at least in wage & hour cases, in which a class action prohibition would be invalidated. We, of course, are rooting for "always." One of Kimberly Kralowec's observations that we found worth repeating, is that Supreme Court appears to have been granting review in cases upholding class action prohibitions, and denying review in cases striking them. That could give further cause for speculation that there will be a sweeping opinion in Gentry.

Meanwhile, a somewhat less glamorous wage and hour case was argued yesterday, and there seems to be little discussion about it yet. Prachasaisoradej v. Ralph’s Grocery Co., no. S128576, will answer the question of whether an employee bonus plan based on a profit figure that is reduced by a store's expenses, including the cost of workers compensation insurance and cash and inventory losses, violates Business and Professions Code § 17200, Labor Code §§ 221, 400 through 410, or 3751, or California Code of Regulations, title 8, section 11070. In Prachasaisoradej, a production manager challenged his bonus calculations, relying on the holding in Ralphs Grocery Co. v. Superior Court (2003) 112 Cal.App.4th 1090, that said workers' compensation expenses cannot be included in bonus calculations. The Court of Appeal ruled in favor of the employee. We aren't quite as optimistic for Prachasaisoradej as we are for Gentry, but we haven't the benefit of any news from yesterday's audience.

Orange County Superior Court Judge James M. Brooks, who was publicly admonished last year for his courtroom manner, after previous, private admonishments, was sharply criticized in an opinion issue last Friday, and published on Monday by the 4th District Court of Appeal, overturning a defense verdict in the case of Haluck v. Ricoh Electronics. The plaintiff's appeal was based almost entirely upon judicial misconduct, claiming that it was pervasive to the point that it deprived the plaintiffs of a fair trial. The Court of Appeal didn't just agree. It went beyond that and ripped the trial judge but good.

We are not persuaded by defendants’ assertion that many of the exchanges between the judge and defendants’ lawyer [2004 Trial Lawyer of the Year Dan Callahan], such as the Twilight Zone colloquy, cannot be judicial misconduct because they were made by counsel, not the judge. That misses the point. Although some of these comments were counsel’s, the judge instigated and encouraged many of them. He also allowed, indeed helped create, a circus atmosphere, giving defendants’ lawyer free rein to deride and make snide remarks at will and at the expense of plaintiffs and their lawyer. That was misconduct. (Cal. Code Jud. Ethics, canon 3(B)(3) [“A judge shall require order and decorum in proceedings”].)

It is obvious that much of the judge’s conduct was not malicious but rather a misguided attempt to be humorous; and defendants’ lawyer played into it, often acting as the straight man. But a courtroom is not the Improv and the presider’s role model is not Judge Judy. We can only imagine what was in the jurors’ minds as they endured a 30-plus day trial in this atmosphere or the impression of the judicial system they took away with them posttrial.

The defense take on the trial was profoundly different. On Callahan's website, the firm had this to say:

An Orange County Superior Court jury voted unanimously after a two month trial in favor of Callahan & Blaine’s client, Ricoh Electronics, Inc. The jury found that Ricoh Electronics did not discriminate on the basis of race or national origin in its promotion, demotion and/or termination practices. Plaintiffs James Haluck and Michael Litton sued Ricoh in August of 2003 alleging that they had been passed over for a promotion by Asian employees. These plaintiffs asserted that the basis of the decision to promote Asian employees was based upon race and national origin. The jury unanimously found to the contrary, vindicating Ricoh’s employment practices and policies. For the first 7 1/2 weeks of this 8 week trial, plaintiffs called witnesses, including themselves. Dan Callahan and Brian McCormack representing Ricoh called three witnesses in a day and a half and rested the case after having cross-examined plaintiffs’ witnesses and destroying plaintiffs’ credibility. Defendants’ witnesses on the other hand had strong credibility with the jury and led to the verdict which was achieved by the jury within five hours of commencing deliberations.

Plaintiffs had demanded in excess of $1,000,000 in economic and non-economic damages and was prepared to seek another $1,000,000 in attorneys’ fees if plaintiffs had won or obtained any recovery.

The net result of the Judgment is that Ricoh is vindicated in its employment practices and has no obligation to pay any further sum to the plaintiffs. In fact, Ricoh is entitled to recover its costs and, at the discretion of the judge, its attorneys’ fees against these plaintiffs. The verdict was entered on the record on March 1, 2005.

Now it's back to the drawing board, with a new trial judge. The full opinion is well worth reading, and you can read the entire opinion here in pdf or Word format. But if you just want to read the juiciest parts, we'll present here the part of the opinion entitled: "THE MISCONDUCT":

We recite only the most egregious instances of the judicial misconduct cited by plaintiffs.

Ricoh sought to introduce a video it used for training or public relations purposes.  (Characterization by the trial court.)  Plaintiffs’ lawyer contended, among other reasons for excluding it, that the video was “prejudicial . . . and it’s a marketing piece and has no bearing on the lawsuit.”  The court announced it would watch the video during the lunch hour and did so together with defense counsel without notifying plaintiffs’ lawyer that he would be present or inviting her to join them.  It then overruled plaintiffs’ objections to admission of the video.

Somewhere midpoint in trial, in overruling one of plaintiffs’ objections, the judge held up a hand-lettered sign, apparently prepared by him, stating “overruled.”  The next day, when the court overruled another of plaintiffs’ objections, defendants’ attorney presented the judge with a different sign, stating:  “Your honor, I want to help you if I may.  This is a much nicer version.  [¶] The Court:  Better than my homemade one.  [¶] Ms. Reinglass:  Plaintiffs object to Mr. Callahan presenting another ‘overruled’ sign to the court.  The court’s sign was adequate enough.  [¶] The Court:  The court will await receiving a ‘sustained’ sign from plaintiff[s] so we can split the benefits here.  [¶] Ms. Reinglass:  How many do I get?”

A week later, when plaintiffs’ lawyer objected to a question, the court apparently used Mr. Callahan’s “overruled” sign.  “Ms. Reinglass:  [I am objecting to a]ny reading of the document not in evidence.  [¶] The Court:  He’s not reading, [he’s] asking questions.  [¶] Ms. Reinglass:  Hopefully he won’t read.  [¶] The Court:  And hopefully he won’t keep talking.  [¶] Mr. Callahan:  Your honor, I didn’t get a chance to make that.  [¶] The Court:  It took too much time to make that sign.  [¶] Ms. Reinglass:  And there’s a sign, and I object to that.  [¶] The Court:  He is directing it to me.  It’s lightening things up.  And the jury nods.”

Midway into the trial, the court stated, “Jeffrey [the clerk], we’re going to the soccer style method here.  Red card, 50 bucks each.  Okay.  If I say, red card plaintiff, write it down, 50 bucks.  Red card defense, 50 bucks.  [¶] We’ll keep a running tab.  End of trial, we’ll collect it from them and we may take you guys [presumably the jury] to lunch at a very nice place.  Okay.  Court has enough money for now, and that will either stop the talking or give you a very nice lunch.”  (Italics added.)

Over the next 20 pages of transcript, during which plaintiff Litton was being examined, defendants’ lawyer raised at least nine objections, six of which were overruled, with no mention of a red card.  Then, when plaintiffs’ counsel stated she was reading the last portion of a deposition, defendants’ counsel stated, “Very good.  [¶] . . . [¶] I probably shouldn’t say very good.  No objection.”  The court states, “That’s an orange card, not a red card.”

During the next 12 pages or so in the transcript, defendants’ lawyer made three objections, two of which were overruled.  As plaintiffs’ lawyer continued her examination of Litton, she noted she was almost finished with a section.  Defendants’ counsel stated “352.”  The court responded, “351 and a half.  [¶] Go ahead.”  After several questions, defendants’ lawyer stated, “351 and three-quarters,” to which the court replied, “Overruled.  Numbers junky.”  No red cards were mentioned.

Over the next 10 pages of transcript, defendants’ lawyer raised two more objections, one of which was overruled.  Defendants then interposed a hearsay objection.  The court asked, “We’re going to have [the expert witness] testify, right?  [¶] Ms. Reinglass:  Pardon me?  [¶] The Court:  We’re going to have him testifying, right?  [¶] Ms. Reinglass:  Yes.  [¶] The Court:  And [Litton] is testifying to his numbers pretrial and questioned on the complaint and not about experts and discovery, so we’ll wait for the expert to tell us what those numbers were and how had he arrived on them.  [¶] Sustained.  [¶] Ms. Reinglass:  May I?  [¶] The Court:  Red card plaintiff, Jeffrey.  [¶] Ms. Reinglass:  I was asking.  [¶] The Court:  5-0.  Next question.”

In testifying as to his emotional distress, Litton stated that he felt like he was in a white room without doors or windows that had no boundaries.  On cross-examination as to this testimony, the following exchange occurred:

“Mr. Callahan:  Q  Have you ever heard of The Twilight Zone?”  [¶]  A  Yes sir.  [¶] Q  Goes kind of like this, do do, do do.  [¶] Ms. Reinglass:  Your Honor, I would just object.  This is argument.  [¶] The Court:  Your objection’s on the record, ma’am.  [¶]  Ms. Reinglass:  Also improper argument.  [¶] Mr. Callahan:  You’re traveling through another dimension, a dimension not only of sight and sound, but of mind, a journey into a wondrous land, whose boundaries are that of imagination[;] that’s a sign post up ahead, your next stop, The Twilight Zone.  Do do, do do.  Do do, do do.  [¶] The Court:  That was terrible.  Get to the question, please.  [¶] Ms. Reinglass:  Noting for the record, counsel was singing The Twilight Zone theme song.  [¶] The Court:  And how the jurors left it will be reflected on the same record.  [¶] By Mr. Callahan:  Q  Endless white room with no doors or windows.  [¶] Is that where you got your idea of this white room theory?  [¶] . . . [¶] A  From where?  [¶] . . . [¶] The Court:  Twilight Zone.  That’s his question.  [¶] The Witness:  No sir.  [¶] Mr. Callahan:  Do do, do, do.  Do do, do do.  [¶] Ms. Reinglass:  I request that counsel stop singing.  As entertaining as it is for the jury, it’s mocking my client and mocking the trial.  [¶] By Mr. Callahan:  Q  Ever heard of The Twilight Zone, the show?  [¶] A  Yes sir.  [¶] The Court:  For the record, he hit a few notes of The Twilight Zone theme song which I don’t see as mocking.  He was off color [sic].  [¶] Mr. Callahan:  I go through life tone deaf and colorblind.  This is tough.”

During defense counsel’s cross-examination of Litton, he read approximately 30 pages of the deposition of Rhonda Stevenson, a one-time employee of Ricoh.  Stevenson was not a defendant and at the time of her deposition no longer worked for Ricoh.  She never testified at trial.  Litton had complained to her about what he believed was unfair treatment.  Litton was asked whether he had read her deposition and then counsel was allowed to read several portions of her testimony and ask Litton if he recalled reading that testimony.  For example, “Did you read . . . where [Stevenson] said you were insincere and tried to manipulate both her and [another employee]?”  “Do you recall [Stevenson’s] testimony that you were a proper candidate for layoff . . . ?  When Litton said he did not recall, the court permitted defendants’ lawyer to read Stevenson’s testimony to that effect.
  During that testimony, plaintiffs’ lawyer raised numerous objections.  At one point she asked to “have a running objection until I add anything new.  [¶] The Court:  That would help.  Same objection that’s been going on all day will be deemed to be made to every question and every answer throughout time.  [¶] Ms. Reinglass:  There may be some I like.  [¶] The Court:  With the same ruling.  Well, until I die.  Same ruling.  Okay.  [¶] Ms. Reinglass:  Just as to Ms. Stevenson’s deposition.  I’ll settle for that for now.”

As defendants’ counsel continued to cross-examine Litton using that deposition, before one question he stated, “Okay.  This one is not good for Mr. Haluck . . . .  [¶] Ms. Reinglass:  Objection to the characterization by counsel.  Improper argument.  [¶] The Court:  It’s a warning.  Just giving the witness a heads up.”  [¶] What’s the question, sir?”
The next day, as defendants’ lawyer again began to cross-examine Litton using the deposition, plaintiffs’ lawyer objected, to which the court responded:  “Overruled.  Objection, 187.  [¶] Ms. Reinglass:  Huh?  [¶] The Court:  I got a number for all these things.  [¶] Mr. Callahan:  187 in the Penal Code, what is that, your honor?  [¶] The Court:  Murder.”

In another instance, when Litton was testifying that he was discriminated against because of his race, his lawyer asked:  “And did you feel that it was based upon your race because of comments by [defendant] Nomura?”  The court sustained an objection as leading.  Counsel then rephrased, asking, “Was there any other reason why you felt that it was based upon your race?  [¶] A  [D]ue to the comment by [defendant] Nomura.”  Defendants’ attorney stated, “What a surprise,” to which the judge remarked, “Aren’t they clever.  [¶] (Laughter).”

As defendants’ counsel was concluding his cross-examination of Litton, the following exchange occurred:  “With that, your honor --  [¶] Oh, do you [Litton] play poker?  [¶] A  No, sir.  [¶] Q  Terrific poker face.”  Plaintiffs’ lawyer objected “to the editorializing by counsel.”  There was no ruling.

After a question by plaintiffs’ counsel, defendants’ attorney stated, “Objection.  Gosh, what is that?  [¶] The Court:  What is it?  [¶] Mr. Callahan:  Hearsay.  [¶] The Court:  Overruled.  [¶] Mr. Callahan:  How about --  [¶] The Court:  No.  Go back to sleep.  [¶] . . . [¶] Mr. Callahan:  Wake me when it’s break time.  [¶] The Court:  It’s very close.  [¶] (Laughter).”  Later that day, when Mr. Callahan made an objection, the court stated, “Don’t wake him up,” to which Mr. Callahan replied, “Hey, I don’t get a lot of sleep.”

The reversal, incidentally, rendered moot a motion filed by the defendant against Michelle Reinglass for sanctions, claiming that the appeal was frivolous. It takes a special kind of chutzpah to run with the circus like that and then threaten the appellant's attorney with a sanctions for having the audacity to expect a fair trial, and then express "shock" that the case was reversed. On a less interesting side note, a "protective" cross-appeal was found to be without merit.

Some media takes on the story focus on the humor of the situation. If we were the plaintiff's attorneys on the case, we'd see nothing funny about it. In fact, we're amazed that she was able to maintain her composure and dignity throughout the trial. Congratulations to Michelle Reinglass for sticking to it and getting her clients the justice they deserve.

Yesterday's oral argument in Gentry v. Superior Court, no. S141502, had something for everyone. It appeared that the panel was sharply divided on the key issue of whether a pre-dispute arbitration agreement that prohibits classwide arbitrations in wage and hour cases should be enforceable. Several of the justices had trouble with at least some part of each side's arguments, and both sides presented well-assembled arguments. Michael Rubin and Cliff Palefsky argued on behalf of the employees, while Rex Berry argued for real party in interest Circuit City. The hearing was well-attended. The crowd overflowed into not one, but a pair of overflow rooms. Arriving less than ten minutes before the 2:00 p.m. hearing, I was part of the crowd invited to the overflow rooms, but I passed on the opportunity to watch from one of those two rooms, and instead waited outside until there was space inside the courtroom. As a result, I missed Mr. Rubin's argument, but was escorted in to take an empty chair about 15 to 20 minutes into the hearing.

From what some observers told me, the first few minutes included some questions and comments from Justice Moreno (the author of the majority opinion in Discover Bank) that suggested a swing-vote mentality. I was also told that the court didn't seem quite as interested in the debate about whether arbitration mandates and class action prohibitions were inherently exculpatory.

Right around the time I arrived, Justice Moreno asked whether employees should be presumed to always fear retaliation for refusal to sign a pre-dispute arbitration agreement. Mr. Palesky said that the court has long recognized this fear and the employer's superior bargaining position. Justice Moreno also asked whether Circuit City gave up its rights in any way in the agreement. Palefsky replied that it did not. The class action prohibition and other substantively unconscionable terms were all unilateral, benefitting only the employer, and that the employer gave up nothing. The defense later argued that Circuit City gave up rights just as important as those Gentry gave up.

Justices Werdegar and Kennard asked whether the class action prohibition must always be invalid, or whether the court should look at the issue more narrowly. She and Justice Kennard seemed to find it important that this particular "prohibition" (one of the justices pointed out that this wasn't exactly a "waiver") arises in the context of a claim for unpaid wages, and even more specifically, overtime wages. When Justice Kennard asked whether the class action waiver is always invalid, or determined on a case by case basis, Mr. Palefsky said that it is always invalid, and then discussed reasons why this case illustrated the reasons to invalidate such prohibitions. During that response, he began a point by saying “in a wage case,” and Justice Kennard interrupted him, saying "You just said the magic words ... 'in this case' ... 'in a wage case'." Earlier, she had mentioned a statistical average of $6,000 in individual wage cases, and asked whether the court should take into consideration the comparatively small amounts in wage and hour cases. This seemed to be the most telling line of questioning we observed.

Mr. Palefsky later switched to the qualifying phrase, “in an employment case,” but Justice Kennard repeatedly brought the focus back to the issue of wages, pointing out during one exchange that the competing public policies were not just those favoring class actions and those favoring arbitration, but also those favoring employees being paid for overtime. When Justices Baxter and Chin framed the issue as one to determine whether "the public policy in favor of class actions should trump the public policy in favor of arbitration,” she added that there was a third important public policy to consider. In light of her comments during the Murphy argument, and the importance of the wage & hour policies that were emphasized in the subsequent opinion, it seemed that the policy of making sure employees are able to fairly adjudicate all of their wage claims was an important consideration to the panel.

Werdegar also asked if the particulars, such as whether a class action prohibition was in bold face, on the front page, etc., was important. Mr. Palefsky said no, but in any event, here, the particulars did not favor Circuit City. She also asked what would have happened in Gentry had opted out. Mr. Palefsky responded that retaliation was foreseeable.

Mr. Berry then stepped up for Circuit City. He started by arguing that there are two flaws to Gentry’s arguments. Before he finished his first point, Justice George asked about the “voluntariness” of the agreement, and whether it was a contract of adhesion. Berry responded that it was not, and that a fear of retaliation should never be presumed, and particularly not in this case, where the opposition was not supported by any declaration from Gentry saying that he had feared retaliation.

Justice Werdegar asked: “We’ve been told that Labor Code § 923 prohibits class action waivers. Is that correct?” Berry said it does not, and said arbitration is perfectly acceptable, and as for the plaintiff's claim that arbitration is somehow harmful to the employee, "We know that's not true." Justice Werdegar interrupted him and noted that the opposing party focused on the class action issue, not just the arbitration issue. She asked: “Are we not talking about class action waivers?” Berry said it was both. Gentry is asking this court to render the agreement unenforceable because there was a class action waiver. He argued that this is not a commercial contract of adhesion. He indicated that employees were given a presentation about the terms of the agreement and an opportunity to opt out. Baxter helped him out by adding that Circuit City even advised the employees to get advice from their own counsel, and Justice Corrigan pointed out that Gentry got a package that gave him the right to opt out (the defense did a nice job of pointing out that opting out is a central part of class action procedures).

Justice Chin said that he sees this as a tension between class action policy verses the arbitration policy. He asked if they are both legislative policies. Berry said that the policy concerning arbitration is a legislation policy, but the policy concerning class actions is a “judicial” policy. Justices Chin and Baxter both seemed to be in agreement there, and both seemed to consider that distinction important.

Justice Kennard then quickly pointed out that the policy concerning overtime wages is a legislative concern. Mr. Berry said something about being in dangerous territory there, and Justice Kennard really came alive. "I am lost as to why we are in dangerous territory. ... To borrow one of your phrases, there is nothing sinister about this court determining the various policies" and deciding whether a class waiver is valid. Arbitration is not disfavored, but "the legislature is also concerned about the protection of employees ... regarding payment of their overtime wages." She also added that "the opposing side [Gentry] pointed out that it is very clear that the employer very much favored arbitration" and asked what is or is not in the employment handbook about the disadvantages an employee is accepting under the Circuit City agreement. The employee has no idea about "significant disadvantages, such as the reduction of the statute of limitation from four to one year and the the restriction of back pay to one year," she said. At first, Mr. Berry dodged the question and said, essentially, that the court should look at the criteria in the holding under Discover Bank and determine that this case is "not such a claim."

Justice Kennard pressed him to answer the question: "What about the reduction of the statute of limitations from four years to one?" He responded that California law allows parties to enter into such agreements. Justice George interjected: "But were the employees told that?" And Justice Kennard asked again "Was that in the handbook?" Berry said said, "yes," there was a receipt for the handbook that the employees signed, acknowledging the presentation, the video, a brochure, etc.

Justice Moreno then asked Mr. Berry to address to the issue regarding reciprocity of the contractual terms, specifically whether Circuit City gave up some rights. “Absolutely,” said Berry. He noted that the employer is surrendering its right to a jury and appellate review (tired arguments that do not answer the question, as this is inherent in every unilateral arbitration agreement), and added that Circuit City arbitrates all of its claims against employees who resigned before "earning" their relocation expense bonuses. That ended Circuit City's argument.

Justice Kennard still showed a keen interest in whether the provisions of the agreement were all in the handbook, and particularly, whether the handbook advised employees that they were agreeing to limit their claims from four years to one year. Her first question to Mr. Rubin on rebuttal addressed this issue. Mr. Rubin then focused his argument on specific pages of the record, pointing out that what the employees were given never mentioned reducing the statute of limitations, or eliminating punitive damages. He also pointed out that the record didn't support the contention that Circuit City had taken employees to arbitration, and added that the plaintiff had no chance to conduct discovery to determine whether there were any such cases. He also referenced a page in the handbook which expressly bars lawsuits “brought by associates.”

Justice Chin asked about Labor Code § 923 and how Circuit City claimed this section only applies to a collective bargaining situation. Justice Moreno asked about the term “concerted activity” being a term of art. Mr. Rubin responded by saying that federal courts have permitted people to apply the term “concerted activity” to consolidate cases.

For your reference, section 923 provides:

In the interpretation and application of this chapter, the public policy of this State is declared as follows: Negotiation of terms and conditions of labor should result from voluntary agreement between employer and employees. Governmental authority has permitted and encouraged employers to organize in the corporate and other forms of capital control. In dealing with such employers, the individual unorganized worker is helpless to exercise actual liberty of contract and to protect his freedom of labor, and thereby to obtain acceptable terms and conditions of employment. Therefore it is necessary that the individual workman have full freedom of association, self-organization, and designation of representatives of his own choosing, to negotiate the terms and conditions of his employment, and that he shall be free from the interference, restraint, or coercion of employers of labor, or their agents, in the designation of such representatives or in self-organization or in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.

The last sentence, the plaintiff argued, as well as the broad descriptions under federal law of what constitutes "concerted activity", draws class action litigation into the scope of Section 923. Justices Chin and Baxter were particularly skeptical of this analysis, and as usual, Justice Chin wanted to know what legislative history could guide the court in its determination of whether Section 923 sets forth the legislature's policy favoring class action litigation (none), and whether the court was being asked to declare that the public policy supporting class litigation was more important than the public policy favoring arbitration.

The argument wrapped up with a reiteration of Gentry's position. Mr. Rubin articulated that a class action bar in pre-dispute employment cases (as in Gentry’s case) is unenforceable “if it is reasonably foreseeable that the effect would be to eliminate non-waiveable statutory claims.” Justice Werdegar then asked: "if this court were to agree ... would they have to say that class action arbitration would not be permissible?” Mr. Rubin said no; this court was correct when it decided Keating and said that classwide arbitration was not disfavored. Werdegar then clarified Gentry's his first position that the court should strike the entire agreement, and that his fallback position is that any arbitration should proceed without the class action prohibition being recognized. She then framed the question one final time, as being one which leaves open the possibility that a class action ban is sometimes enforceable. Mr. Rubin responded that it should be unenforceable in a pre-dispute situation in which it is reasonably foreseeable that absent class members would lose non-waiveable statutory rights. The matter then stood submitted.

In general, Justices Baxter and Chin, the two remaining dissenters from Discover Bank (former Justice Janice Rogers Brown was the third) seemed least inclined to invalidate the class action prohibition. They seem to give great weight to the legislative mandate to favor arbitration, which perhaps "trumps" any competing judicial precedent. Justice Corrigan said very little, but her few comments seemed to encourage Circuit City just a bit. She seemed unimpressed with the overall unconscionability of the agreement, and seemed more impressed with the right (at least technically) of the employee to mail in an opt-out form within 30 days.

Justice Moreno didn't seem to agree wholeheartedly with all of Gentry's arguments, especially on the Labor Code § 923 issue, but he did not seem hostile to the more important issues regarding the overwhelming substantive unconscionability and the existence of some procedural unfairness. Justice George had few questions, but they tended to challenge the defense position regarding voluntariness and fair disclosure. Justices Werdeger and Kennard both seemed overwhelmingly opposed to enforcing what they appeared to consider oppressive terms that served only to permit an employer to prohibit employees from vindicating important rights, particularly under an unfair agreement imposed without full and fair disclosure.

Having learned, over the past three years of writing this blog, that it is impossible to guess where this panel stands, we shouldn't even hazard a guess, but we'll do so anyway. We think Justices Moreno, Werdegar, Kennard and George, who were all in the 4-3 majority that decided Discover Bank, will join in a majority opinion that will hold class action prohibitions to be substantively unconscionable under California law. If forced to guess further, we would wager that the Court will find sufficient procedural unconscionability to render the Circuit City arbitration agreement completely unenforceable under Calfornia law. Whether Justices Chin, Baxter and Corrigan join the majority to present another unexpected unanimous opinion is even more impossible to tell. Although Justices Chin and Corrigan were part of the three member dissent in Discover Bank, that dissent was based significantly upon their assertion that Delaware law governed the underlying agreement. At one point in the hearing, Justice Baxter suggested that the outcome might be different if the facts involved, for example, a large law firm hiring a labor law attorney who understood what was in the agreement. Perhaps this comment suggests that there will be a unanimous decision as long as the opinion isn't too sweeping in its condemnation of class action prohibitions, barring them, for example, only in the wage & hour context, and only among unsophisticated employees, leaving for another day the question of whether and when they can be enforced against other plaintiffs, even in the employment context. If the opinion runs against Gentry, we expect it to be Moreno who makes the switch, with George, Kennard and Werdegar signing a dissent.

We'll know in a month or two.

One of Best Buy Co., Inc.'s favorite outside counsel will be withdrawing from the defense of a consumer class action after the shocking revelation that one of its partners, Timothy Block, had altered documents given to the plaintiffs in discovery. Robins, Kaplan, Miller & Cerisi has already put Block on an indefinite "medical leave", and the firm has removed Block's profile from their website (but you can still read it via Google cache). According to a news story from The Recorder, posted at law.com, the day after Block stopped working, he informed the firm "that he had redacted and altered documents that he later produced to plaintiffs in this matter." Block's attorney says he self-reported his actions to the Minnesota Board of Professional Responsibility. Block is currently being treated "for psychological conditions related to stress and depression." Robins Kaplan's withdrawal motion will be heard June 22 in the case entitled Odom v. Microsoft, 04-2-10618-4. Block's bio boasted of several successful cases involving Best Buy. We have heard of quite a few wage and hour cases against Bust Buy. If you litigation involving the firm, Mr. Block and/or Best Buy, you might want to take a fresh look at your discovery files.

Arguments in Gentry v. Superior Court will be heard tomorrow before the California Supreme Court in Los Angeles. We might actually catch this one, but in case we don't, please feel free to email us your notes if you attend. Gentry will determine whether Discover Bank applies to substantial wage and hour class actions, and makes it substantively unconscionable to impose a class action ban upon employees whose wage and hour claims might sometimes be large enough to pursue individually. The issue on appeal in Gentry reads as follows:

Petition for review after the Court of Appeal denied a petition for peremptory writ of mandate. This case presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws.

It appears that Ellen Lake will be arguing the case for the employees, and will share her time with Michael Rubin, Dorothea Langsam or Cliff Palefsky (for amicus International Brotherhood of Teamsters); and that Steven Katz of Thelen Reid will argue on behalf of the employer.

It isn't a wage and hour case, but because wage and hour cases often end up in arbitration, the just-published holding in Eternity Investments, Inc. v. Brown could be useful to wage and hour practitioners. Under the California Arbitration Act (Code of Civil Procedure §§ 1280–1294.2), a petition or response seeking to correct or vacate an arbitration award must be brought in the superior court within 100 days after service of a signed copy of the award (C.C.P. § 1288). However, a petition to confirm the award may be brought within four years after service.

In Eternity Investments, Inc., the arbitrator issued an award in favor of the plaintiff. Plaintiff then sat on the award for about four months. During the 100-day period, the defendants did not file any petition or response in the trial court to correct or vacate the award. Three weeks after that period expired, the plaintiff filed a petition to confirm the award. The defendants opposed the award, arguing that the arbitrator's ruling was invalid. The trial court disregarded those points and entered a judgment confirming the award. On appeal, the trial court's order was affirmed.

We conclude that, because defendants did not bring a timely petition or response to correct or vacate the award, the trial court had no choice but to disregard defendants’ challenge and “confirm the award as made.” (§ 1286.) We therefore affirm.

When an employee wins an arbitration, one's first instinct is to rush into court to get the award confirmed so that the employee can collect right away. However, this case illustrates how it might be a better tactic to wait 101 days before doing so, if there is any irregularity in the award that could potentially result in an order vacating or correcting the arbitrator's ruling.

You can download the full text of  Eternity Investments, Inc. v. Brown here in pdf or Word format.

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