Wage Law

CJAC Class Action Initiative Withdrawn, For Now

An article published in the Daily Journal this week reports that the ballot initiative sought by the Civil Justice Association of California (CJAC) to limit class-action lawsuits (the "California Class Action Lawsuit Fairness Act") has been withdrawn from the June 2008 ballot. John Sullivan, CJAC president, said that it did not appear that June was a good time to advance such a ballot measure, because of other measures on that ballot which are predicted to cause a high turnout from Democratic voters. The other potential ballot measures include one to change the state's electoral vote to proportional, rather than winner take all; a defense-of-marriage initiative; and a prisoner-rights statute.

The CJAC initiative was similar to failed Assembly Bill 1505, sponsored by Assemblywoman Nicole Parra. Fundraising efforts for the CJAC initiative were said to be doing poorly, but that claim was neither admitted nor denied by Sullivan. Sullivan also suggested that the measure might still be pursued in the November 2008 election.

Notwithstanding the withdrawal of the California Class Action Lawsuit Fairness Act measure, consumer and labor groups are proceeding with their four counter-initiatives, including one to toughen civil and criminal penalties against corporate executives who fail to report corporate wrongdoing; one to provide compensation for victims of corporate fraud and make certain executives liable for making victims whole; one to force publicly traded corporations to disclose executive compensation; and one to standardize by statute the procedures for filing and maintaining class-action lawsuits.

Gentry: Class Action Arbitration Bans Not Always Enforceable in Wage Cases

In a 4-3 decision, the Supreme Court has reversed an appellate decision upholding a ban on class actions in wage and hour arbitrations, holding that, in certain cases, class action waivers/bans are unenforceable, even if the arbitration agreement itself was not procedurally unconscionable as a whole. The holding in Gentry v. Superior Court (Circuit City Stores) provides:

[C]lass arbitration waivers should not be enforced if a trial court determines, based on [certain] factors ... that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration. We therefore reverse the judgment of the Court of Appeal upholding the class arbitration waiver and remand for the above determination.

On the second issue, the court held that

[A] finding of procedural unconscionability is not required to invalidate a class arbitration waiver if that waiver implicates unwaivable statutory rights. But such a finding is a prerequisite to determining that the arbitration agreement as a whole is unconscionable. ... Contrary to the Court of Appeal, we conclude the present agreement has an element of procedural unconscionability notwithstanding the opt-out provision, and therefore remand for a determination of whether provisions of the arbitration agreement were substantively unconscionable.

Thought equivocal in the holding, it would appear that the factors that the Supreme Court requires the lower courts to consider would favor permitting class arbitrations in the vast majority of wage and hour cases. The majority opinion discussed, at length, three factors that favor permitting arbitrations to proceed as class actions.

• According to the DLSE’s report in response to Gentry’s Public Records Act request, the average award from its wage adjudication unit for 2000-2005 was $6,038. (See also Asian Pacific American Legal Center et al., Reinforcing the Seams: Guaranteeing the Promise of California’s Landmark Anti-Sweatshop Law, An Evaluation of Assembly Bill 633 Six Years Later (Sept. 2005) p. 2 [average claim for overtime and minimum wage violations submitted to DLSE ranged from $5,000-$7,000, and settlement ranged from $400-$1,600].)
• A second factor in favor of class actions for these cases, as noted in Bell, is that a current employee who individually sues his or her employer is at greater risk of retaliation. We have recognized that retaining one’s employment while bringing formal legal action against one’s employer is not “a viable option for many employees.” (Richards v. CH2M Hill, Inc. (2001) 26 Cal.4th 798, 821; see also Mullins v. Rockwell Internat. Corp. (1997) 15 Cal.4th 731, 741.) Richards and Mullins involved high-level managerial and professional employees. The difficulty of suing a current employer is likely greater for employees further down on the corporate hierarchy. As one court observed: “ ‘Although there is only plaintiff’s suggestion of intimidation in this instance, the nature of the economic dependency involved in the employment relationship is inherently inhibiting.’ ” (O’Brien v. Encotech Const. Services, Inc. (2001) 203 F.R.D. 346, 351.) ... “[I]t needs no argument to show that fear of economic retaliation might often operate to induce aggrieved employees quietly to accept substandard conditions.” (Mitchell v. Robert DeMario Jewelry, Inc. (1960) 361 U.S. 288, 292.)
• Third, some individual employees may not sue because they are unaware that their legal rights have been violated. The New Jersey Supreme Court recently emphasized the notification function of class actions in striking down a class arbitration waiver in a consumer contract: “[W]ithout the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged. As commentators have noted, ‘often consumers do not know that a potential defendant’s conduct is illegal. When they are being charged an excessive interest rate or a penalty for check bouncing, for example, few know or even sense that their rights are being violated.’ ” (Muhammad v. County Bank of Rehoboth Beach, Delaware (N.J. 2006) 912 A.2d 88, 100.) Similarly, it may often be the case that the illegal employer conduct escapes the attention of employees. Some workers, particularly immigrants with limited English language skills, may be unfamiliar with the overtime laws. (See Ha, An Analysis in Critique of KIWA’s Reform Efforts in the Los Angeles Korean-American Restaurant Industry (2001) 8 Asian L.J. 111, 122-123.) Even English-speaking or better educated employees may not be aware of the nuances of overtime laws with their sometimes complex classifications of exempt and nonexempt employees. (See Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 796-798.) The likelihood of employee unawareness is even greater when, as alleged in the present case, the employer does not simply fail to pay overtime but affirmatively tells its employees that they are not eligible for overtime. Moreover, some employees, due to the transient nature of their work, may not be in a position to pursue individual litigation against a former employer. (Ansoumana v. Gristede’s Operating Corp. (S.D.N.Y. 2001) 201 F.R.D. 81, 86-87.)

The trial court will be required to consider these factors and decide whether to invalidate the waiver on public policy grounds, in which case the parties may proceed to class arbitration, unless the trial court invalidates the arbitration agreement altogether. On remand, however, the dice seem to be loaded in favor of Gentry, not Circuit City.

We do not foreclose the possibility that there may be circumstances under which individual arbitrations may satisfactorily address the overtime claims of a class of similarly aggrieved employees, or that an employer may devise a system of individual arbitration that does not disadvantage employees in vindicating their rights under section 1194. But class arbitration waivers cannot, consistent with the strong public policy behind section 1194, be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees’ prosecution of those claims.

Whether Gentry will be able to proceed in court, rather than be sent to a class arbitration, is much less clear. Before discussing the many factors that the lower court could consider in determining whether the Circuit City arbitration agreement had sufficient procedural unconscionability to render the entire agreement invalid, the court made this interesting observation.

We believe that severance is particularly appropriate in the case of class arbitration waivers because, unlike limitations on remedies or other limitations that are invalid on their face (see Armendariz, supra, 24 Cal.4th at pp. 103-104), such waivers will only be invalidated after the proper factual showing, as discussed above.

The opinion then focuses on the procedural issues, and here, the majority's discussion of procedural unconscionability and the distinction between unconscionability analysis and the enforcement and protection of unwaivable rights will be applicable not only to class cases, but individual cases as well.

[T]he validity of a class arbitration waiver was analyzed in the previous part of this opinion in terms of unwaivable statutory rights rather than unconscionability. (See Armendariz, supra, 24 Cal.4th at p. 113.) Because the statutory rights under section 1194 at issue in this case are not waivable, the minimal requirements imposed on arbitration agreements to ensure their vindication cannot be waived by the employee in a prelitigation agreement. (Armendariz, supra, 24 Cal.4th at p. 103, fn. 8.) As we clarified in Armendariz, such waiver could only occur “in situations in which an employer and an employee knowingly and voluntarily enter into an arbitration agreement after a dispute has arisen.

In the end, we are left not knowing the forum in which Gentry will ultimately be sent to litigate his overtime class action against Circuit City. The Supreme Court disagreed with most of Circuit City's arguments that carried the day in the Court of Appeal, but kept quite open the possibility that the trial court could sever [additional] parts of the arbitration agreement and enforce the rest.

Justice Moreno wrote the majority opinion, joined by Chief Justice George and Justices Kennard and Werdegar; Justice Baxter wrote a dissent, joined by Justices Chin and Corrigan. For a change, we came pretty close to predicting the outcome of this one.

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.

We got the majority right, but the opinion did not go quite as far as we anticipated and hoped. Nonetheless, the opinion strongly favors the rights of employees in wage and hour class actions and in wage cases generally. The language in Gentry v. Superior Court is so interesting that it instantly becomes one of those cases that every wage and hour practitioner should keep in a Word file with a shortcut to it on their desktop. For the next 60 days or so, you can download the full text here in pdf or Word format.

Gentry Class Action Arbitration Decision Due Out Tomorrow

Among three opinions to be published by the Supreme Court tomorrow is the eagerly anticipated decision in Gentry v. Superior Court (Circuit City Stores) S141502 (B169805 – Los Angeles County Superior Court – BC280631), argued in Los Angeles 6-05-07. The issue under review is described by the Supreme Court as follows:

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.

You can read our notes from the oral arguments in a post here. After the hearing, we thought we were pretty sure there were at least four votes for Gentry, but a subsequent order granting review of a similar case where the appellate court struck down the class action ban (while simultaneously denying a petition to stay) left us scratching our heads. We'll know for sure tomorrow at 10:00 a.m.

CJAC Membership

The Civil Justice Association of California, the organization trying to get Nicole Parra's class action destruction bill passed by the electorate as a ballot measure, tries to make itself sound like a grass roots organization - a "twenty-five year old non-profit organization whose membership is made up of hundreds of businesses, professional associations and local governments" with the goal of educating the public about ways to improve the state’s civil liability laws in terms of fairness, efficiency, economy and certainty. In fact, CJAC is an organization of very large business interests, seeking to influence the courts and the legislature into passing business-friendly laws, and eschewing consumer and individual-friendly laws. Here is the list of CJAC board member organizations for 2007, which is largely the same group of names on CJAC's letterhead last year:

. 21st Century Insurance Group
. Allstate Insurance Company
. Altria Corporate Services, Inc.
. American Insurance Association
. American International Group, Inc.
. Amgen, Inc.
. AT&T Inc.
. Bayer HealthCare
. Blue Cross of California
. BP
. California Apartment Association
. California Association of Physician Groups
. California Association of Realtors
. California Building Industry Association
. CalChamber
. California Dental Association
. California Hospital Association
. California State Association of Counties
. Caterpillar Inc.
. Chevron Corporation
. Cisco Systems, Inc.
. CNA Insurance Companies
. Consulting Engineers & Land Surveyors of California
. Cooperative of American Physicians, Mutual Protection Trust
. Countrywide Financial Corporation
. Crown Cork & Seal Company
. ExxonMobil Corporation
. Farmers Insurance Group
. Fireman's Fund Insurance Company
. Ford Motor Company
. General Electric Company
. General Motors Corporation
. Georgia-Pacific Corporation
. GlaxoSmithKline
. Goodrich Corporation
. Greenberg Traurig
. Hewlett-Packard Company
. HSBC - North America
. Intel Corporation
. Johnson & Johnson
. Kaiser Foundation Health Plan
. League of California Cities
. Liberty Mutual Insurance Group
. Motion Picture Association of America
. Nielsen, Merksamer, Parrinello, Mueller & Naylor
. Oracle Corporation
. Pacific Gas & Electric Company
. Pacific Life Insurance Company
. PepsiCo
. Pfizer Inc.
. Pharmaceutical Research & Manufacturers of America
. Sempra Energy
. Shell Oil Company
. Southern California Edison
. State Farm Insurance Companies
. The Accountants Coalition
. The Doctors' Company
. The Dow Chemical Company
. The Flanigan Law Firm
. The Hartford Life Insurance Company
. The Irvine Company
. The Travelers Indemnity Company
. Toyota Motor Sales, U.S.A., Inc.
. United Services Auto Association
. Valero Energy Corporation

Essentially, a collection of huge corporations, their trade groups, and three or four law/lobbying firms whose sole goal in the courtroom is to reduce or eliminate tort and wage liability, while simultaneously preserving their right to continue to clog the court dockets with contract cases.

Class Action Ballot Battle Shaping Up

To counter a ballot initiative proposed by the CJAC, calling itself the "California Class Action Lawsuit Fairness Act", that would gut class action litigation in California, the Consumer Attorneys of California (CAOC) filed initiatives this month that would bring reform to corporate America by making large corporations and their CEOs accountable for their wrongdoing. A broad coalition is forming against the corporate class action killing initiative, including:

AARP Foundation Litigation, ACLU of Northern California, ACLU of San Diego and Imperial Counties, American Association for Justice, Asian Law Caucus, Asian Pacific American Legal Center, California Alliance for Retired Americans, California Employment Lawyers Association, California Foundation for Independent Living Centers, California Labor Federation, California Reinvestment Coalition, California Teamsters, Public Affairs Council, California Women's Law Center, Center for Justice and Democracy, Coalition of Disability Access Professionals, Consumer Action, Consumer Federation of California, Consumers for Auto Reliability and Safety, Designing Accessible Communities, Disability Rights Advocates, Disability Rights Education and Defense Fund, Equal Rights Advocates, Foundation for Taxpayer and Consumer Rights, Gray Panthers, Law Foundation of Silicon Valley, Lawyers' Committee for Civil Rights of the San Francisco Bay Area Legal Aid Society, Employment Law Center, Legal Services for Prisoners with Children Mexican, American Legal Defense and Educational Fund, National Center for Youth Law, National Consumer Law Center, National Immigration Law Center, National Senior Citizens Law Center, Privacy Rights Clearinghouse, Protection & Advocacy, Inc., Public Advocates, Public Counsel, Public Interest Law Project, Speak Out California, Strengthening Our Lives (LA County Federation), Teamsters Union Local No. 70 Utility, Consumers' Action Network, Western Center on Law & Poverty, Women's Employment Rights Clinic, and the Youth Law Center.

The CAOC has identified significant class actions against each one of the CJAC board members and are expanding their efforts to educate the public about each company's wrongdoing. For further information including press releases about CAOC's initiatives or CJAC's initiative and text of the measures, check out http://www.caoc.com/ClassActionInitiative.

Profit-Sharing Bonus Plans May Take Company Expenses and Losses Into Account

In their own words, in Prachasaisoradej v. Ralphs Grocery Company, Inc. (2007) __ Cal.4th __, the California Supreme Court confronted a significant question of California wage law.  The order granting review set forth the following limited issue on appeal:

Petition for review after the Court of Appeal reversed the judgment in a civil action. The court limited review to the following issue: Does 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, violate (a) Business and Professions Code section 17200, (b) Labor Code sections 221, 400 through 410, or 3751, or (c) California Code of Regulations, title 8, section 11070?

Ralphs Grocery Company, Inc. implemented a written incentive compensation plan whereby certain employees of each store were eligible to receive, over and above their regular wages, supplementary sums based upon how the store’s actual Plan-defined profits, if any, for specified periods compared with preset profitability targets. For both target and actual purposes, profits were determined by subtracting store operating expenses from store revenues. Plaintiff claimed the Plan’s formula for calculating these supplemental profit-sharing payments violated California law prohibiting an employer from shifting certain of its costs to employees by withholding, deducting, or recouping them from wages or earnings, or otherwise obliging employees to contribute to them.

Labor Code § 221 provides that an employer may not “collect or receive from an employee any part of wages theretofore paid.” Labor Code § 3751(a) prohibits an employer from “exact[ing] or receiv[ing] . . . any employee . . . contribution,” or “tak[ing] any deduction from [employee] earnings . . . , either directly or indirectly, to cover the whole or any part the cost of [workers’] compensation.” Industrial Welfare Commission Wage Order 5 forbids such deductions and charges against the wages of nonexempt employees in the mercantile industry. Based upon these statutes and regulations, the Court of Appeal in Ralphs Grocery Co. v. Superior Court (2003) 112 Cal.App.4th 1090 held that the profit-based supplementary Plan was invalid because it considered a store’s costs for workers’ compensation when computing the store profit on which Plan payments were calculated and it factored cash shortages and merchandise damage and loss into the profit calculation. By doing so, the Plan effectively charged back a portion of such costs to employees through deductions from their wages. In Prachasaisoradej, the trial court sustained, without leave to amend, a demurrer to a complaint alleging unlawful bonus plan pay reductions based upon company expenses and losses. Relying upon Ralphs Grocery v. Superior Court, the Court of Appeal reversed, and the Supreme Court granted review, and last week, overturned the Court of Appeal's decision, holding that the reasoning of Ralphs Grocery is flawed, and the authorities on which that decision relied are distinguishable.

[N]othing in those authorities suggests that an employer violates California wage-protection laws by providing, as Ralphs did, supplementary compensation designed to reward employees, over and above their regular wages, if and when their collective efforts produced a positive financial result for the store where they worked.
...
The [plan] did not create an expectation or entitlement in a specified wage, then take deductions or contributions from that wage to reimburse Ralphs for its business costs.  At the outset, all Plan participants received, regardless of the store’s performance, their guaranteed normal rate of pay—the dollar wage they were promised and expected as compensation for carrying out their individual jobs. Over and above this regular wage, participants in the Plan understood that their collective entitlement to incentive compensation payments, and the amounts thereof, arose only under a formula that compared the store’s actual Plan-defined profit, if any, for a specified period, with target figures previously set by the company.
...
pursuant to normal concepts of profitability, ordinary business expenses, such as storewide workers’ compensation costs, and storewide cash and merchandise losses, were figured in, along with such other store expenses as the electric bill and the cost of goods sold, to determine the store’s profit, upon which the supplementary incentive compensation payments were calculated.  By doing so, Ralphs did not illegally shift those costs to employees.  After fully absorbing the expenses at issue, Ralphs simply determined what remained as profits to share with its eligible employees in addition to their normal wages.

To sum up, a true profit sharing bonus can taking into account any of the elements that are normally included in determining whether and in what amount a profit was earned. You can download the opinion in Prachasaisoradej from the Supreme Court's website in pdf or word format. What little we had to say about the Supreme Court argument was posted here.

Ninth Circuit Rejects Immediate Appeal From Denial of Motion For Notice in FLSA Collective Action

A District Court order denying a plaintiff's motion to issue notice of an FLSA collective action is not immediately appealable, according to a 9th Circuit opinion issued last week in McElmurry v. U.S. Bank National Association (9th Cir. 2007) __ F.3d __, an FLSA case filed in Oregon. Appellants twice asked the district court to approve notice to potential plaintiffs and to toll the statute of limitations pending the notice process. The district court denied both requests. The appeal was taken from the district court’s second order denying a request for notice and rejecting, as moot, a request to toll the statute of limitations. One of the court's bases for the decision was its finding that post-judgment appellate review provided an adequate remedy. We fail to see how.

The FLSA permits collective actions of "similarly situated” employees. 29 U.S.C. § 216(b). Unlike class actions under FRCP Rule 23, in a collective action, participants must affirmatively opt in: “no employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the Court in which such action is brought.” 29 U.S.C. §  216(b). More importantly, the statute of limitations is not automatically tolled by filing the action. Instead, unIess a court orders (which infrequently happens), or the parties stipulate (which happens even more infrequently), the statute of limitations continues to run for each individual until he or she files a written consent to participate in the litigation.

Because the statute of limitations on an FLSA claim continues to run until the employee files a written consent, it is important for potential participants to receive notice of the collective action so that they can decide whether or not to opt in. In a collective action, each participating members' claims do not relate back to when the complaint was filed. Most potential collective action members do not even know they have a claim until and unless they get a notice. Thus, as a practical matter, by the time any post-judgment appellate review is made, all the potential claimants aggrieved by the trial court's order (i.e, everyone who didn't already opt in) will have stale claims.

The appellants, of course, noticed this dilemma and brought it to the court's attention. The court was not persuaded.

The district court’s order denying Appellants’ motion for notice would not be “effectively unreviewable” if we do not exercise jurisdiction. An order is deemed effectively unreviewable only where “ ‘the legal and practical value of [the right at stake will] be destroyed if not vindicated before trial.’ ” Midland Asphalt Corp. v. United States, 489 U.S. 794, 799 (1989).

We cannot see that Appellants will forfeit the opportunity to raise their arguments on an appeal from a final judgment in this case. Appellants argue that the statute of limitations will continue to run, and that some employees may lose their opportunity to participate in a collective action if they wait until after an appeal from final judgment. Although employees who may be similarly situated but have not opted in to the action are not bound by its conclusion, and may pursue their actions individually, see Ballaris v. Wacker Siltronic Corp., 370 F.3d 901, 906 n.9 (9th Cir. 2004), we understand Appellants’ concern. However, these arguments have been made in the context of class action suits as well, and it is well established that there is no collateral order jurisdiction over a district court decision to certify or not to certify a class action under Rule 23. [citations] Although, as we have pointed out, there are differences between a collective action brought pursuant to § 216(b) and a class action brought under Rule 23, those differences are not relevant ..."

Thus, the appeal was dismissed for lack of jurisdiction, and the alternate petition for writ of mandamus was denied. The lesson for the defense: if you can defeat the motion for notice in an FLSA case, you just won damn near the whole case. The lesson for the plaintiffs: if you lose a motion for precertification notice, your only meaningful remedy is to renew your motion after gathering better evidence ("nothing in the district court orders would preclude the court from revisiting its decision during subsequent proceedings. See Comer, 454 F.3d at 548- 49; Baldridge, 404 F.3d at 931-32.")

The Popularity of PAGA

According to a statement made in May 2007 by Anne Stevason, former Chief Counsel of the Division of Labor Standards Enforcement (DLSE), as of mid-2007, the DLSE has received PAGA (The Private Attorneys General Act of 2004) settlement checks ranging from $60 to $450,000, with a total of $750,000. Due to a federal lawsuit under Section 1983 (42 U.S.C. § 1983), the DLSE has adopted a policy against participating in lawsuits or negotiating the settlements, and they have yet to object to any settlements.

[Editor's Note: As originally posted, the disclosure by Anne Stevason did not read correctly, and the editor was literally out to sea (correcting his attorney work life balance) and unable to correct the error before the post was published.]

Review Granted in Meyer v. Sprint Spectrum

On Wednesday, the Supreme Court granted review in Meyer v. Sprint Spectrum L.P. (2007) 150 Cal.App.4th 1136, in which the Fourth District Court of Appeal held that Proposition 64 created a two-part, standing test, and applied that test to bar claims by plaintiffs who were unable to show that the defendant had attempted to enforce the unlawful and unconscionable provisions in their agreements. The case is only applicable to wage and hour cases to the extent that they include unfair competition claims arising from unlawful employment practices found in handbooks that have not been enforced, and no arising from PAGA notices. We're following the case, however, for that reason and because we think someone should sue the pants off of Sprint, too.

Attorney Work Life Balance Calculator

Still recalling the billable hour chase from those early years at Pettit & Martin, we offer you the Attorney Work Life Balance Calculator^TM. Do with it what you wish.

Liberty Mutual Claims Adjusters Are Non-Exempt, Says Court of Appeal

Wage Order 4-2001 continues to provide the same protection to misclassified production workers, such as insurance claims adjusters, that was provided under earlier wage orders adjudicated in the Bell v. Farmers Ins. Exchange series of cases, according to the Second District Court of Appeal in an opinion published yesterday in Harris v. Superior Court. The holding is stated as follows:

In these original proceedings we hold that plaintiffs are not exempt from the overtime compensation requirements imposed by California law. Defendants are insurance companies. Plaintiffs are the companies’ claims adjusters, who seek damages based on overtime work for which they allege they were not properly paid. Plaintiffs’ claims are governed by two different California regulations: Wage Order 4 applies to claims arising before October 1, 2000, and Wage Order 4-2001 applies to claims arising thereafter. The matter is before us on the parties’ cross-petitions for writ review. Defendants claim that the administrative exemption to the overtime compensation requirements covers the adjusters. Plaintiffs claim that they are not covered by that exemption. Their dispute turns on the relationship between the administrative exemption and a legal distinction known in the case law as the “administrative/production worker dichotomy.” The meaning of that phrase will become clear in due course. For now, it suffices to say that the trial court originally certified plaintiffs’ proposed class on the ground that application of the administrative/production worker dichotomy was a predominant issue and could well be dispositive with respect to the administrative exemption. Later, however, the court revisited the issue and decertified the class for all claims arising after October 1, 2000, on the ground that under Wage Order 4-2001, but not under Wage Order 4, the administrative/production worker dichotomy is neither dispositive nor a predominant issue that would justify class treatment of plaintiffs’ claims.

As the trial court recognized, the only cases interpreting the administrative exemption under Wage Order 4 are Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805 (hereafter Bell II), and, to a more limited extent, Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 (hereafter Bell III). There is no case law interpreting the administrative exemption under Wage Order 4-2001. Under Wage Order 4 as interpreted by the Bell cases, the administrative/production worker dichotomy would indeed be predominant and dispositive in cases like the one before us.

We agree with the Bell cases concerning the role of the dichotomy under Wage Order 4, and we hold that the dichotomy plays the same role under Wage Order 4-2001. On that basis, we grant plaintiffs’ petition and deny defendants’ petition.

The case is full of language useful for any plaintiff seeking to recovery overtime after being misclassified as an administratively exempt employee. You can read the full test of Harris v. Superior Court here in pdf or word format.

Depublication Request Denied in Air Couriers International

In May, after requests by, among others CELA and the State Labor Commissioner, the Third District Court of Appeal 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. Air Couriers International v. Employment Development Department (2007) 150 Cal.App.4th 923. On Yesterday, the Supreme Court denied a depublication request by the Messenger Courier Association of the Americas. We previously commented about the case here.

The Latest Donning and Doffing Case

Judge Charles R. Breyer of the Northern District of California has granted in part and denied in part a defense motion for partial summary judgment regarding an FLSA collective action for donning and doffing police uniforms and equipment.

The Court concludes that Plaintiff and his fellow consenting officers are not entitled to compensation for the time they spend donning and doffing their police uniforms. Insofar as their claims purport to recoup compensation for such activity, Defendant’s motion for summary judgment is GRANTED in part. As for the donning and doffing of required “duty equipment,” the Court concludes that summary judgment is unwarranted, notwithstanding Defendant’s formal policy of permitting officers to put on and take off their protective gear at home. In the Court’s view, a triable issue of fact exists about whether the “nature of [a peace officer’s] work” actually requires them to don and doff their gear at the station. 29 C.F.R. § 790.8(c) n.65. For this reason, Defendant’s motion for summary judgment in DENIED in part.

There is no sure indication that this case will be appealed, but Martin v. City of Richmond is nonetheless interesting reading if you have donning/doffing cases. You can download it in pdf here.

Estrada v. FedEx

The Second District Court of Appeal has affirmed a certification order and trial court finding that FedEx drivers are employees, and affirmed the plaintiffs' right to recover attorneys’ fees, but reversed and remanded the case for reconsideration of the amount and method of calculating those fees, in Estrada v. FedEx Ground Package System, Inc. Three drivers brought this class action against FedEx Ground Package System, Inc., contending that, for the limited purpose of their entitlement to reimbursement for work-related expenses, they were employees, not independent contractors.  They sought reimbursement and declaratory and injunctive relief, and obtained class certification for their reimbursement claim.

In a trifurcated trial, the court found the drivers were employees within the meaning of Labor Code § 2802 (Phase I), ordered FedEx to reimburse some (about $5 million, including prejudgment interest) but not all of their expenses (Phase II), granted most of the equitable relief sought by the drivers (Phase III), and ordered FedEx to pay the drivers’ costs and attorneys’ fees (about $12.3 million). This is the third [major]appeal.

In Estrada I, the Court of Appeal held that orders dismissing some potential class members were not appealable, and dismissed the appeal as premature. Estrada v. RPS, Inc. (2005) 125 Cal.App.4th 976.  In Estrada II, the Court of Appeal reversed all of the equitable orders, resolving those issues against the drivers and in favor of FedEx. On this appeal, FedEx challenged the trial court’s class certification order, the court’s Phase I finding that the drivers are employees, its Phase II reimbursement awards, and its post-trial attorneys’ fee award. In a cross-appeal, the drivers challenged limitations imposed on the Phase II reimbursement awards and to the pretrial orders dismissing potential class members, which were addressed prematurely in Estrada I.

The Court of Appeal affirmed the finding that the drivers are employees; affirmed the certification order; and affirmed the finding that attorneys’ fees are recoverable. The court reversed the fee award because the amount must be reconsidered, and on the cross-appeal, reversed two orders limiting the scope of reimbursable expenses.

The opinion is of interest to anyone handling class actions, UCL cases or independent contractor determinations. You can download the full opinion in Estrada v. FedEx Ground Package System, Inc. here in pdf or word format.

Arbitrator Rejects Putative Class; Trial Court Resumes Jurisdiction

In Clark v. First Union Securities, Inc., defendant Wachovia obtained a trial court ruling that a putative class and class action causes of action were to be resolved in arbitration. Then, in a bold effort to have its cake and eat it, too, Wachovia obtained a ruling from the arbitrators that these causes of action were not eligible for arbitration. Thereafter, the trial court, on its own motion, reconsidered its first ruling and issued an order holding that the putative class and class causes of action were to be heard in the trial court. Wachovia appealed. The Court of Appeal affirmed. Very interesting reading can be had in Clark v. First Union Securities, Inc. available here in pdf or word format.

Brinker Meal and Rest Period Argument Reset

Brinker Restaurant Corporation v. Superior Court (Hohnbaum) which was previously set for argument in May 2007 before the Fourth District Court of Appeal, is back on calendar. The matter will now be heard on September 13, 2007, at 1:30 p.m. at Division One. A significant issue in that appeal will include what it means to "provide" a meal period, as such term is used in Labor Code § 512. We previously discussed the case in a post last July, and in another post in May of this year.

Gattuso Argument Set For September 6

Labor Code § 2802 requires employers to indemnify employees for necessary expenditures incurred in discharge of their duties. What if an employer doesn't want to be bothered with that requirement, and instead, "ballparks" the usual costs and increases its workers' wages accordingly? In October 2005, in Gattuso v. Harte-Hanks Shoppers, Inc., the Second District Court of Appeal held that Section 2802 does not preclude employers from paying increased salaries or commissions "in lieu of" reimbursement for actual expenses, at least with respect to the expenses at issue in that case (automobile expenses). Review was granted by the Supreme Court, and after a long wait, the Supreme Court has scheduled oral argument for Thursday, September 6, 2007, at 9:00 a.m., in San Francisco.

To offer a little bit of background, Labor Code § 2802(a) provides:

An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.

In Gattuso, the plaintiffs brought a class action on behalf of themselves and other employees of defendant Harte-Hanks Shoppers, Inc. (Harte-Hanks) seeking indemnification under Labor Code § 2802 for expenses incurred in using their personal automobiles in the discharge of their employment duties. The trial court denied certification of the case as a class action after also ordering that section 2802 permits an employer to pay increased salaries or commissions instead of reimbursing the employee for actual automobile expenses incurred. Once the class was denied certification, the employees appealed and the Court of Appeal affirmed both orders, agreeing with the trial court’s interpretation of section 2802 and determining that the trial court did not abuse its discretion in denying plaintiffs’ motion for class certification. The Court of Appeal decision was chock full of discussions of the peculiar factual and procedural quirks of the case, but the decision also involved broader questions of law applicable to any employment relationship.

Supreme Court Grants Review of Unpublished Class Action Ban Opinion

With apologies to C&C Music Factory, count this review order among the things that make you go "hmm." Gentry v. Superior Court has been under submission since June 5. Prior to that time, we thought we had noticed a pattern whereby the Supreme Court seemed to be granting review of cases in which arbitration agreements with class action bans had been upheld by the courts, and seemed to be denying review in instances where the appellate court had stricken the class action bans or the entire arbitration agreement. Now, with the Gentry decision no more than a few weeks away, comes Massie v. Ralphs Grocery, where the Supreme Court has granted review of a case in which the Court of Appeal affirmed a trial court order denying a petition to compel arbitration in a case involving a prohibition against arbitrating as a class action.

The petition for review is GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Gentry v. Superior Court, S141502 (See Cal. Rules of Court, rule 8.512(d)(2)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.520, is deferred pending further order of the court. The application for stay is denied. Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Moreno, and Corrigan, JJ.

This is a very curious grant of review given that the publication of the Gentry opinion is imminent, especially since the ordering granting review also denied the employer's application for a stay. Read into it what you wish. The original, unpublished opinion in the Massie matter is no longer available on the court's website, but www.rossandtheunionboss.com has posted a pdf of the opinion here.

Bogus Attorney Rankings

There is a new attorney ranking system that is rapidly turning into more of an attorney rankling system. The system is called Avvo, and get be accessed for free at www.avvo.com. Avvo tries to affix a score of 1 to 10 on thousands of attorneys across the country. The ratings progress from extreme caution (1+), to strong caution (2+), to caution (3+), to concern (4+), average (5+), good (6+), very good (7+), excellent (8+) and superb (9+). Several lawyers we've never heard of scored 10s. Avvo's chief executive Mark Britton scored an 8.0. We originally scored a 6.6.

Some well-regarded and accomplished lawyers didn't fare as well: Harriet E. Miers and U.S. Solicitor General Paul Clement each scored a 6.1; Alberto Gonzales, U.S. attorney general, a 6.5; U.S. Supreme Court Justices Ruth Bader Ginsburg and Samuel Alito each got a 6.5, as did New York lawyer David Boies, who argued Bush v. Gore. Joe Jamail, the so-called King of Torts, got a 6.5. In fact, most lawyers got 6.5s, including a few dead guys and a few convicts, including Lynne Stewart. Convicted fraudster Ulysses Ware got a 6.3, the same as OJ's DNA specialist Barry Scheck, and Stanford Law professor Larry Lessig.

According to the Seattle Post-Intelligencer, a class action suit was filed in Seattle last month by a Seattle class-action attorney who wants to shut down the service because of inaccurate and misleading scores for attorneys that violate the Consumer Protection Act. A copy of the complaint can be found at http://blog.seattlepi.nwsource.com/venture/library/Avvo_Complaint_FINAL_secured1.pdf. It appears that Avvo is taking action in response to the lawsuit, but all we've noticed is that our ratings have been revised to a "no concern."

Unpublished Opinion Reverses and Certifies Class Action Against Lowe's

The Second Appellate District, Division Seven, has reversed Judge Aurelio Munoz’s denial of a motion for class certification in Parris v. Lowe’s, an “off-the-clock” case involving over 30,000 putative class members, because the trial court used improper criteria. An earlier Court of Appeal opinion in this case permitted a pre-certification notice to putative class members. This is a case that should be published, as there are few cases guiding trial courts' decisions in certification of “off-the-clock” claims.

In support of his motion for class certification, Lopez presented 17 declarations plus deposition testimony from Lowe’s employees asserting they had worked off the clock on a regular basis. He also presented deposition testimony from Lowe’s management personnel to demonstrate that payroll is the largest controllable expense at individual Lowe’s stores; that store managers are entitled to bonuses from 50% of their salary for meeting their annual budget to as much as 150% for beating their budget by 10%; the bonus structure followed a sliding scale to various management employees below the store manager who earn bonuses from 30% of their base salary and can double this percentage twice for meeting and beating their goals; Lowe’s stores had either a no overtime policy or a severely restricted overtime policy for each of its California stores which required employees to finish their assignments off the clock—Lowe’s allocated approximately 8/10 of one hour overtime per week per employee; employee scheduling was created at Lowe’s corporate headquarters in North Carolina though its proprietary “Staff Works” program, with schedules set based on actual store sales and tasks done in all of the same departments in the nation; according to its Human Resources Director; Lowe’s stores are standardized, with the same number of departments (19 plus one miscellaneous department), same layout and same operations with the corporate goal of ensuring that nationwide, customers have the same shopping experience; stores keep the same hours, occupy a standard 12,000 square feet and price merchandise in the same manner; and Lowe’s had never affirmatively investigated whether its employees were working off the clock. Lopez argued that these facts demonstrated a community of interest for certification purposes because Lowe’s management had an incentive to limit overtime as much as possible resulting in its employees working OTC, and in light of its corporate policies, Lowe’s had to be constructively aware of this fact. Further, the predominate issues driving the litigation were whether employees worked OTC and whether Lowe’s had constructive knowledge of this fact under the test set forth in Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575. Moreover, the pervasive scope of the OTC problem and the damages owed the class could be determined thought statistical sampling evidence as contemplated and urged in Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 and Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319 (Sav-On).

Lowe’s argued that individual issues predominated, Lopez was not typical of the proposed class and class action was not a superior method of adjudicating Lopez’s claims. More particularly, it argued a highly individualized inquiry was required to ascertain whether an employee worked off the clock, was granted overtime, or was assigned too much work to complete in a shift. It submitted 67 declarations including 40 from managers asserting that employees did not work OTC and that OTC varied depending on the store and department. Accordingly, Lowe’s argued, liability including its knowledge of each employee’s OTC work could not be tried through common proof and class adjudication was not a superior means of resolving such claims.

The trial court denied certification, ruling:

The Court acknowledges that employees may be working off the clock and that Lowe’s wage structure may invite that to happen, but that does not make this case susceptible to class action. Plaintiff failed to provide sufficient evidence to support his theory that common questions of law and fact predominate over individual questions, or, in the alternative, that Lowe’s liability could be determined by facts common to all members of the class. (Hicks v. Kaufman & Broad, supra.) For example, as the Court indicated in the hearing on the Motion, there are 70 different stores, each with 19 different departments and there are not consistent policies. Further, some stores allowed overtime and some stores did not. The declarations themselves indicate there is not a consistent practice. Accordingly class adjudication is not superior and the theory of recover advanced by plaintiff is not amenable to class treatment.

DISCUSSION:  In this case, the trial court’s comments establish it was “scare[d]” by the class size and the fear that it meant a “mess.” “I’ll tell you what’s bothering me[--]the size of the class. . . . I don’t doubt that what is alleged is actually going on. The bonuses that are paid to the managers are too big not to encourage this type of thing. . . . The question is . . . how do I adjudicate 30,000 claims? What’s common? Basically, is the class too big?” The court also expressed concern about “inconsistent policies,” commenting that some stores allowed overtime will some did not. However, in Sav-On, supra, 34 Cal.4th at page 339, italics added, our Supreme Court stated: “For decades, ‘[t]his court has urged trial courts to be procedurally innovative’ [citation] in managing class actions, and ‘the trial court has an obligation to consider the use of . . . innovative procedural tools proposed by a party to certify a manageable class.’ [Citations.]” In Bell, supra, 115 Cal.App.4th 715, and Sav-On, supra, 34 Cal.4th 319, the court specifically acknowledged the use of statistical evidence to prove classwide damages, including as a method to infer wages owed absent class members. The size of the employee group has no impact on the utility or reasonableness of the measure. (Bell, supra, 115 Cal.App.4th at p. 749.) “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” (Hicks v. Kaufman & Broad Home Corp., supra, 89 Cal.App.4th at p. 916, fn. omitted.) “In order to determine whether common questions of fact predominate the trial court must examine the issues framed by the pleadings and the law applicable to the causes of action.” (Ibid.) “The relevant comparison lies between the costs and benefits of adjudicating plaintiffs’ claims in a class action and the costs and benefits of proceeding by numerous separate actions—not between the complexity of a class suit that must accommodate some individualized inquiries and the absence of any remedial proceeding whatsoever. [Citations.]” (Sav-On, supra, 34 Cal.4th at p. 339.) Because “hours worked” includes “all the time the employee is suffered or permitted to work, whether or not required to do so,” (Morillion v. Royal Packing Co., supra, 22 Cal.4th at p. 582), Lowe’s argument that individualized mini-trials will be required to adjudicate its defense that it did not know whether a particular was working overtime is unavailing. “In reviewing the extent of an employer’s awareness, a court ‘need only inquire whether the circumstances . . . were such that the employer either had knowledge [of overtime hours being worked] or else had “the opportunity through reasonable diligence to acquire such knowledge.”’” (Reich v. Dept. of Conservation and Natural Resources (11th Cir. 1994) 28 F.3d 1076, 1078.) Because the trial court was improperly swayed by the class size, its ruling was based on improper criteria resulting in erroneous legal assumptions. “The class action in California evolved from ‘the equitable doctrine of virtual representation which ‘“rests upon considerations of necessity and paramount convenience, and was adopted to prevent a failure of justice.”’” (Bell, supra, 115 Cal.App.4th at p. 739.)

"Claims such as this are precisely the sort proper for class adjudication."

This is an unpublished opinion worth reading. Check it out here in pdf or word format.

Individuals Sued Under Alter Ego Can Compel Arbitration

Until this week, no published case had expressly decided whether, under California law, alleged alter ego nonsignatories to an arbitration agreement could enforce that agreement, though one had recognized the existence of this theory under federal arbitration law (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 268). On Tuesday, in Rowe v. Exline, the First District Court of Appeal addressed the issue for the first time in California, holding that individual defendants, who were not signatories to a contract containing an arbitration provision but were sued as alter egos of a corporate defendant who was a signatory, can compel another signatory party to arbitrate the controversies raised in the complaint. You can download the opinion here in pdf or word format.

Union Cannot Challenge Prevailing Wage Rates Without Exhausting Administrative Remedies

Between 2002 and 2004, Solano County Roofing, Inc., a roofing subcontractor, installed metal roofs on three public works of improvement in San Mateo and Santa Clara Counties. The scope of work provisions posted on the DLSR (Division of Labor Statistics and Research) web site for the craft of roofer in these counties included specific references to metal roofing, based on language drawn from the collective bargaining agreements of the local roofers unions. None of the public entities specified prevailing wage rates other than those posted by the DLSR for the work performed by the subcontractor, whose scope of work posted by the DLSR for the craft of sheet metal worker included “all . . . metal work.” The subcontractor classified its workers installing sheet metal roofs as "roofers" on each of these projects and paid them the local prevailing wage for roofers, rather than sheet metal workers, whose prevailing wage rate was higher than that for roofers. Sheet Metal Workers International Association, Local Union No. 104 challenged the prevailing rate determinations on three projects, but did not do so within the 20-day period after the call for bids as specified under Labor Code § 1773.4. Instead, it requested rate of pay determinations for each of these three projects after the subcontractor had begun work. The DIR upheld the rates.

The union then filed an action for writ of mandate, administrative mandate and declaratory relief against acting DIR Director John Rea. The trial court sustained demurrers on all causes of action, finding that the union’s action was barred for several reasons, including its failure to exhaust its administrative remedies. The union appealed the subsequent judgment dismissing its petition.

On appeal, the trial court's decision was upheld. Prior to bringing such an action in Superior Court, the union must exhaust its administrative remedies within the times specified in the Labor Code. Sheet Metal Workers International Association, Local Union No. 104 v. Rea (2007) __ Cal.App.4th __.

By law, a petition seeking the DIR Director’s review of whether the prevailing rate specified for a public works contract was determined in accordance with section 1773 must be filed within 20 days after commencement of advertising of the call for bids by the awarding body. The union is an interested party permitted to raise such a challenge. However, if the 20-day period after the call for bids elapses without a request for review of a prevailing rate to be paid on the proposed contract, the doctrine of exhaustion of administrative remedies bars any later civil action seeking to invalidate the subsequent contract on which those rates were paid.

The opinion, which includes a very good general description of the procedures and requirements under California's prevailing wage law, can be read here in pdf or word format.

Request for Pay Raise Leads to Murder

Car dealerships are notoriously bad at complying with wage and hour laws, and the list of stories we have about dealers who found ways to minimize their payroll expenses and intimidate their employees is long and impressive. But Rolandas Milinavicius, the owner of an Atlanta area car dealership called RM Auto International, is clearly the worst of the lot. He murdered two employees who asked for pay raises. Milinavicius confessed to the murders, saying that the reason he committed them was because he was under a lot of stress.