9th Circuit Rules that Class Actions are "Concerted Action"; Employees Cannot be Compelled to Waive Them

In Morris v. Ernst & Young, LLP (9th Cir. 2016) ___ F.3d ___, the Ninth Circuit held that the National Labor Relations Act prohibits employers from requiring, as a condition of employment, that employees waive their right to participate in concerted legal claims in the form of a class action.

Ernst & Young required employees to sign agreements saying that they would pursue any legal claims through arbitration, and only as individuals, in separate proceedings, barring the joining of multiple plaintiffs or a putative class in any such arbitration. In fact, the agreement expressly barred any claims to be brought on behalf of any other person. Plaintiffs filed a wage and hour class and collective action in District Court, and the court granted Ernst & Young's motion to compel arbitration. The Ninth Circuit reversed, holding that the agreement’s “separate proceedings” provision violates the essential, substantive right established by the NLRA to participate in concerted activities for the purpose of collective bargaining "or other mutual aid or protection.”  The Court distinguished Johnmohammadi v. Bloomingdale's, Inc. (9th Cir. 2014) 755 F.3d 1072, 1075 by noting that Ernst & Young offered its workers no opportunity to opt out of the agreement. The decision leaves a split between the circuits, with the 7tth Circuit and 9th Circuit holding in favor of employees, and the 2nd, 5th and 8th Circuits siding with the employers.

California, in Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal. 4th 348, 373, upheld class action waivers, but suggested that in some instances, they could violate the NLRA. Morris would appear to at least offer a distinction, if not a broad limitation of Iskanian, which may give some employers pause when considering whether to cite CAFA and remove a case to District Court, since district courts in California will now be bound to follow Morris.

You can download the full text of Morris here in PDF.

DIRECTV Prevails in Class Arbitration Waiver SCOTUS Case

Petitioner DIRECTV, Inc., and its customers entered into a service agreement that included a binding arbitration provision with a class-arbitration waiver. It specified that the entire arbitration provision was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. The agreement also declared that the arbi­tration clause was governed by the Federal Arbitration Act. At the time that respondents, California residents, entered into that agree­ment with DIRECTV, California law made class-arbitration waivers unenforceable, see Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P. 3d 1100. This Court subsequently held in AT&T Mobility LLC v. Concepcion, 563 U. S. 333, however, that California’s Discover Bank rule was pre-empted by the Federal Arbitration Act, 9 U. S. C. § 2.

When respondents sued petitioner, the trial court denied DIRECTV’s request to order the matter to arbitration, and the Cali­fornia Court of Appeal affirmed. The court thought that California law would render class-arbitration waivers unenforceable, so it held the entire arbitration provision was unenforceable under the agree­ment. The fact that the Federal Arbitration Act pre-empted that Cal­ifornia law did not change the result, the court said, because the par­ties were free to refer in the contract to California law as it would have been absent federal pre-emption. The court reasoned that the phrase “law of your state” was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the court held, the parties had in fact included California law as it would have been without federal pre-emption.

Held: Because the California Court of Appeal’s interpretation is preempted by the Federal Arbitration Act, that court must enforce the arbitration agreement. Pp. 5–11.

(a) No one denies that lower courts must follow Concepcion, but that elementary point of law does not resolve the case because the parties are free to choose the law governing an arbitration provision, including California law as it would have been if not pre-empted. The state court interpreted the contract to mean that the parties did so, and the interpretation of a contract is ordinarily a matter of state law to which this Court defers, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 474. The issue here is not whether the court’s decision is a correct statement of California law but whether it is consistent with the Federal Arbitration Act. Pp. 5–6.

(b) The California court’s interpretation does not place arbitration contracts “on equal footing with all other contracts,” Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 443, because California courts would not interpret contracts other than arbitration contracts the same way. Several considerations lead to this conclusion.

First, the phrase “law of your state” is not ambiguous and takes its ordinary meaning: valid state law. Second, California case law—that under “general contract principles,” references to California law in­corporate the California Legislature’s power to change the law retro­actively, Doe v. Harris, 57 Cal. 4th 64, 69–70, 302 P. 3d 598, 601– 602—clarifies any doubt about how to interpret it. Third, because the court nowhere suggests that California courts would reach the same interpretation in any other context, its conclusion appears to re­flect the subject matter, rather than a general principle that would include state statutes invalidated by other federal law. Fourth, the language the court uses to frame the issue focuses only on arbitra­tion. Fifth, the view that state law retains independent force after being authoritatively invalidated is one courts are unlikely to apply in other contexts. Sixth, none of the principles of contract interpreta­tion relied on by the California court suggests that other California courts would reach the same interpretation elsewhere. The court ap­plied the canon that contracts are construed against the drafter, but the lack of any similar case interpreting similar language to include invalid laws indicates that the anti-drafter canon would not lead Cali­fornia courts to reach a similar conclusion in cases not involving arbi­tration. Pp. 6–10.

225 Cal. App. 4th 338, 170 Cal. Rptr. 3d 190, reversed and remanded.

DIRECTV, Inc. v. Imburgia (US 14–462 12/14/15). 6-3; BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and SCALIA, KENNEDY, ALITO, and KAGAN, JJ., joined. THOMAS, J., filed a dissenting opinion. GINSBURG, J., filed a dissenting opinion, in which SOTOMAYOR, J., joined.



California Supreme Court to Review Opinion on Class Action Attorney's Fees

The California Supreme Court has decided to grant review in Laffitte v. Robert Half International (Brennan) (2014) 180 Cal.Rptr.3d 136. The case addresses whether, under Serrano v. Priest (1977) 20 Cal.3d 25, the trial court can anchor its calculation of reasonable attorney's fees in a class action on a percentage of the common fund recovered. The Court of Appeal said yes. You can read the underlying opinion at this link.

The objection was based on eight points: (1) the attorneys’ fee request was excessive; (2) “[m]oney to charity should not be a part of the Court’s attorneys’ fee award calculation”; (3) information necessary for class members to intelligently object to or comment on the proposed settlement was missing from the notice and the pleadings; (4) the clear sailing provision warranted the appointment of a class guardian; (5) the notice to the class was deceptive regarding the responsibility for payment of attorneys’ fees; (6) class counsel and counsel for Robert Half had not filed a report, as required by the amended settlement agreement; (7) the notice did not disclose that unclaimed funds would be donated to a charity of the Robert Half defendants’ choice; and (8) certain other provisions of the settlement were improper.

The plaintiffs' counsel argued that they had sent class notices to 3,996 class members and had received only two objections: an objection from Brennan and an “objection” that was actually a dispute over the amount the individual class member was to receive. The class representatives also filed a motion for attorneys’ fees, costs, and class representative enhancements. The motion requested $6,333,333.33 in attorneys’ fees for class counsel, $127,304.08 in costs, $79,000 in settlement administrator expenses, and $80,000 in class representative enhancement payments. The class representatives explained that class counsel were requesting as attorneys’ fees one-third of the gross settlement, which constituted a common fund for the benefit of class members, and argued that this amount was reasonable and appropriate. Class counsel asserted that their hourly rates and number of hours worked were fair and reasonable and that the successful result, the difficulty of the issues in the case, the quality of their representation, the contingency risk, and the preclusion of other employment justified a lodestar multiplier.

The trial court overruled his objections and approved the settlement, which included an award of attorneys’ fees to class counsel of one-third of the settlement, or approximately $6.3 million. Brennan appeals from the order approving the settlement and entering final judgment, challenging both the class action settlement notice regarding the award of attorneys’ fees and the amount of attorneys’ fees awarded.

The Court of Appeal affirmed.

"As discussed, class counsel received a percentage of the recovery commensurate with percentages awarded in other cases, and the class members received a significant monetary distribution. The clear sailing agreement did not provide for a payment of attorneys’ fees separate and apart from the common fund but provided for a payment of attorneys’ fees out of the fund. Finally, there was no arrangement that fees not awarded would revert to the Robert Half defendants. (See In re Toys “R” Us-Delaware, Inc.—Fair and Accurate Credit Transactions Act (FCTA) Litigation (C.D.Cal. 2014) 295 F.R.D. 438, 458 [“despite the clear sailing provision,” the “absence of a ‘kicker provision’ in the parties’ settlement and the fact that the class is receiving reasonable value reduces the likelihood that plaintiffs and [the defendant] colluded to confer benefits on each other at the expense of class members”]; Larsen v. Trader Joe’s Company (N.D.Cal. 2014) 2014 WL 3404531 at p. 8 [“clear sailing provisions generally do not raise concerns where, as here, the fees are to come from the settlement fund,” as opposed to “where attorneys’ fees are paid on top of the settlement fund”].) In the absence of any of the recognized warning signs of collusion or other evidence of collusion, the inclusion of a clear sailing provision in the settlement agreement did not constitute a breach of fiduciary duty on the part of class counsel."

All seven justices signed the order granting review.

Review Granted - Mendiola v. CPS Security Solutions

The California Supreme Court has granted review in Mendiola v. CPS Security Solutions (2013) 159 Cal.Rptr.3d 159 on the following issues:

Petition for review after the Court of Appeal affirmed in part and reversed in part an order granting a preliminary injunction in a civil action. This case presents the following issue: Are the guards that defendants provide for construction site security entitled to compensation for all nighttime "on call" hours, or may defendants deduct sleep time depending on the structure of the guards' work shifts?

The original opinion can be read here. The Court of Appeal held that

CPS must compensate the trailer guards for the nighttime hours spent on the jobsites during the week, as the trial court ruled. However, in accordance with settled principles of California law, we conclude that CPS is permitted to deduct eight hours for sleep time on those weekend days when the trailer guards are on duty for 24 hours.

The docket can be followed here.

© Walsh & Walsh, P.C., wage & hour, California Supreme Court published opinions, on call hours, off-the-clock claims

SCOTUS Strictly Enforces 9 U.S.C. § 2 - American Express Co. v. Italian Colors Restaurant

In another 5-4 decision, the Supreme Court has again declared its passion the Federal Arbitration Act, and specifically for 9 USC § 2 - Validity, irrevocability, and enforcement of agreements to arbitrate. Section 2 provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

In American Express Co. v. Italian Colors Restaurant (2013) __ U.S. __ [No. 12-133) the Supreme Court extended its recent trend of rejecting challenges to the FAA, and arbitration agreements containing class action waivers, holding that a contractual waiver of class arbitration is enforceable under the FAA even where the cost of pursuing individual arbitration claims exceeds the amount in controversy. Although this is not an employment case and the plaintiff was a business entity and not an individual, the holding in American Express Co. v. Italian Colors Restaurant will likely have a substantial impact on employment class action litigation.

Barring a change in the FAA or a change in the majority bloc of justices on the Supreme Court, there may be only three ways left to avoid class action waivers in employee/employer arbitration agreements: disproving the existence of the agreement; invalidating the agreement under state unconscionability law or some other state law that is generally applicable to all contracts, and not just arbitration agreements; or suing under a federal statute that guarantees the plaintiff's right to bring a class action.

You can read the entire opinion in American Express Co. v. Italian Colors Restaurant here in PDF.

Gordon Ramsey's Restaurant Hit With Class Action

Gordon Ramsey's Fat Cow restaurant has been hit with a wage and hour class action in California alleging failure to provide meal breaks, rest breaks, failure to pay minimum wage and proper overtime pay. It also seeks waiting time penalties for former employees who were not paid all wages due upon termination. Ramsey's PR firm released a statement explaining that the claims involve former workers, that the restaurant's "previous management" is at fault, and the practices have been corrected.


Bluford v Safeway Stores - Court of Appeal Orders Certification of Wage Statement Class Action

In Bluford v. Safeway Stores, Inc. (2013) __ Cal.App.4th __, the 3rd District considered an appeal from an order denying certification of a class action arising from allegations of improper payroll wage statements. Plaintiff Kenneth Bluford alleges that Safeway violated statutory and regulatory laws requiring it to provide its employees with paid rest periods, earned meal periods, and sufficiently itemized wage statements. The trial court denied the motion to certify a class, ruling that individual issues predominated over common issues on the rest period and meal period claims, and that plaintiff failed to allege a common injury resulting from the inadequate wage statements.The court of appeal reversed and remanded with instructions to enter an order granting the motion for class certification.

Insufficient evidence supports the trial court’s ruling, as common issues predominate over individual issues, and plaintiff in fact alleged a common injury resulting from the wage statements. We order the trial court to grant plaintiff’s motion.

You can download the full opinion in Bluford here in PDF or Word.

ACI's 18th National Forum on Wage & Hour Claims and Class Actions

ACI is presenting its 18th National Forum on Wage & Hour Claims and Class Actions on Wage & Hour Claims and Class Actions in May 2013 in New York, NY. The conference takes place at One UN New York on May 31 and 31. Here is a synopsis of the conference:

The wage and hour landscape continues to evolve at a blistering pace, with the potential for damaging claims at an all-time high. That is why it is essential that defense counsel be fully prepared for the coming tidal wave of claims and class actions. Come join your colleagues and clients at the nation’s premier wage and hour defense forum and hone the skills and strategies needed to keep pace with this rapidly changing area of law, defend against new and innovative claims, and prepare for emerging regulations and evolving enforcement priorities.

American Conference Institute’s 18th National Forum on Wage & Hour Claims and Class Actions will provide you with an unparalleled opportunity to convene with expert in-house counsel from Walmart, Coca-Cola, Bank of America, Microsoft, Home Depot, U.S. Bank, Dow Jones & Co., American Airlines, Darden Restaurants, Covidien, Cisco Systems, Wells Fargo, Marsh & McLennan, RBS, Kaplan, IBM, The Hartford, DIRECTV, Family Dollar Stores, TIAA-CREF, Reed Elsevier, and AXA Equitable, as well as renowned federal and state judges, top government officials, and leading outside defense counsel from around the nation, who will provide you with expert advice, insider strategies, and comprehensive updates on:
  • Assessing the impact of Wal-Mart v. Dukes and its progeny on FLSA collective actions, Rule 23 class actions, and hybrid cases
  • Obtaining decertification of a class at different stages of the litigation process
  • Overcoming the complexities of managing and defending against multidistrict litigation
  • Managing and defending against the latest claims from the plaintiffs’ bar

We've been to this seminar before, and it was a valuable experience. It's good for a minimum of 7.75 hours of California MCLE credits, plus another 2 hours for each focus session.

The list of topics and speakers is impressive. A complete brochure can be downloaded here. If we're not in trial, we'll see you there.

SCOTUS Hears Argument in American Express v. Italian Colors Restaurant

The U.S. Supreme Court heard oral arguments Wednesday in American Express Co. v. Italian Colors Restaurant, an arbitration class action waiver case from the Second Circuit that could expand or reduce the scope of AT&T Mobility LLC v. Concepcion, 131 S. Ct.1740 (2011). The Circuit Court decision can be read here.

The issue presented on review is:

Whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.

In Green Tree Financial v. Randolph, 531 U.S. 79, 90 (2000), the SCOTUS implied that plaintiffs shouldn’t have to arbitrate if they could prove that they could not effectively vindicate their federal statutory rights in the arbitral forum. A decade later, in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) , the SCOTUS held that the Federal Arbitration Act prohibits arbitrators from imposing class arbitration on parties that have not agreed to such procedures. A year after that, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) , the SCOTUS held that the FAA preempts state laws invalidating commercial arbitration agreements on the ground that they forbid class arbitration. However, AT&T Mobility addressed unconscionability principles under state law, within the scope of Section 2 preemption, so it did not address the vindication of rights doctrine, which is a federal common law doctrine. Now, the SCOTUS addresses this issue in American Express

The Second Circuit held that the American Express class action waiver was unenforceable because its effect would be to prevent the plaintiffs from effectively vindicating their statutory rights plaintiffs, notwithstanding the holdings in Stolt-Nielsen or AT&T Mobility.

It is usually difficult to predict where a majority of justices stand based on the questions they pose during oral argument, but if you enjoy doing so, you can read the transcript here. We suspect that the vote will be 5-3 to overturn the Second Circuit (Justice Sotomayor recused herself because she sat on the Second Circuit panel that issued one of the earlier rulings). If we are right, companies will be able to effectively give themselves contractual immunity from liability for violating even important statutory rights on a large scale, as long as each individual's damages aren't large enough to warrant hiring a lawyer.

Review Denied in See’s Candy Shops, Inc. v. Superior Court (Time Rounding)

In October, the 4th District Court of Appeal issued its published opinion in See’s Candy Shops, Inc. v. Superior Court (Silva) (2012) __ Cal.App.4th __, permitting employers to round employees' time to the nearest tenth of an hour, provided that the rounding method "will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." The employee petitioned the California Supreme Court for review, and alternatively sought to depublish the opinion. The Supreme Court has denied both petitions. See’s Candy Shops, Inc. will remain good law in California.

You can download the original opinion from the Court of Appeal here in PDF or Word format. Here is the background:

Pamela Silva brought a wage - and - hour class action complaint against her former employer, See' s Candy Shops, Inc. After certifying a class of current and former California employees, the trial court granted Silva' s summary adjudication motion on four of See' s Candy's affirmative defenses and entered an order dismissing the four defense . In a writ petition, See's Candy challenged the dismissal of two of the affirmative defenses. These defenses pertained to See's Candy's timekeeping policy that rounds employee punch in/out times to the nearest one-tenth of an hour.

After the Court of Appeal denied the petition, the California Supreme Court granted See's Candy's petition for review and ordered the Court of Appeal to vacate its prior order and issue an order to show cause and hear the matter. After briefing (including several amicus briefs) and argument, the Court of Appeal concluded that the trial court had erred in granting summary adjudication on the two affirmative defenses pertaining to the rounding policy:

Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and "it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." (29 C.F.R. § 785.48; see DLSE Manual, supra, §§ 47.1, 47.2.) Applying this legal standard, we turn to address whether the parties met their summary adjudication burdens with respect to the 39th and 40th affirmative defenses alleging that See's Candy's nearest-tenth rounding policy was consistent with California law.

The ruling leaves open the issue of which party will prevail on these issues at trial. If the rounding policy can be proven to have resulted in a loss to employees, the workers will prevail. If not, the employer will prevail.


Review granted, Franco v. Arakelian Enterprises, Inc.

Review has been granted in the class action waiver case of Franco v. Arakelian Enterprises, Inc. (2012) 149 Cal.Rptr.3d 530 (SC S207760/B232583 review granted 2/13/13) in which the Court of Appeal affirmed an order denying a petition to compel arbitration. The court ordered briefing deferred pending its decision in Iskanian v. CLS Transportation Los Angeles, LLC, S204032 (#12-97), which will address whether AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740, 179 L.Ed.2d 742] impliedly overruled Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights.

Brinker Decision To Be Pushed Back

Due to some post-hearing briefing, the Brinker case is no longer considered submitted. The Supreme Court has posted this docket entry:

Pursuant to California Rules of Court, rule 8.520(f)(7) and this court's December 2, 2011, order, the parties' answers to the amicus curiae brief of the California Employment Law Council, addressing the grounds for prospectively applying portions of this court's eventual decision on the merits, are due Tuesday, January 3, 2012. Each party may file a simultaneous reply to the other party's answer within 10 days thereafter. Submission of the cause is vacated. (See Cal. Rules of Court, rule 8.524(h)(1) [submission runs from expiration of the time in which to file briefs, including supplemental briefs].) The cause will be resubmitted on January 13, 2012.

As a result, don't expect a decision until sometime next Spring. It could be as late as April 12, 2012.

Brinker Argument Will Be Broadcast Live

We received word from Katie Lichty, the Project Coordinator for the California Channel, that the Brinker hearing will indeed be broadcast live tomorrow morning at 9:00 a.m. You can watch it on cable if you get the California Channel, or you can watch it streamed live at www.calchannel.com.

This proceeding will be heard at the Supreme Court’s Courtroom, Earl Warren Center, 350 McAllister Street, San Francisco, where you can watch it in person - if you come early enough to get a seat. For more information please contact the court’s press office at (415) 865.7726.

California Supreme Court Sets Hearing in Brinker

Brinker Restaurant v. Superior Court (Hohnbaum), one of the most eagerly-awaited cases on the California Supreme Court's docket, will be argued on Tuesday, November 8, 2011 at 9:00 a.m. in San Francisco. The petition for review of the decision in Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25 was filed more than three years ago. The case presents issues concerning the proper interpretation of California's statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers.

Here is our take on the original opinion, published on July 22, 2008. There are quite a few companion cases.

Supreme Court Grants Cert in Wal-Mart Class Action

The Supreme Court has granted certiorari in the landmark wage and hour class action case Wal-Mart Stores, Inc. v. Dukes, case no 10-277. The review is limited to two issues:

Petition GRANTED limited to Question I presented by the petition. In addition to Question I, the parties are directed to brief and argue the following question: "Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."

Question I was "Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) - which by its terms is limited to injunctive or corresponding declaratory relief - and, if so, under what circumstances.

If you'd like to review the petition-related documents, you can check them out at the links below:

Opinion below (9th Circuit)

Petition for certiorari

Brief in opposition

Amicus brief of Intel

Amicus brief of the U.S. Chamber of Commerce

Amicus brief of the Defense Bar

Amicus brief of Retail Litigation Center, Inc.

Amicus brief of Altria Group et al.

Amicus brief of the Equal Employment Advisory Council

Amicus brief of Pacific Legal Foundation

Amicus brief of Washington Legal Foundation

Amicus brief of California Employment Law Council

Petitioner's reply

More Cases Added to the Brinker Grant-and-Hold Group

There are now four cases in which the California Supreme Court has granted review and held pending further decision in the Brinker Restaurant v. Superior Court matter. Brinker, which "presents issues concerning the proper interpretation of California's statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers" is fully briefed and awaits a hearing date for oral argument. The first grant-and-hold review was in Brinkley v. Public Storage (2008) 167 Cal.App.4th 1278, followed by the unpublished decision in Bradley v. Networkers International, LLC (Petition for review after the Court of Appeal affirmed the judgment in a civil action).

Add to them now Faulkinbury v. Boyd & Associates (2010) Cal.App.4th 1363 (Petition for review after the Court of Appeal affirmed in part and reversed in part an order denying class certification in a civil action) and the unpublished opinion in Brookler v. Radioshack Corporation (Petition for review after the Court of Appeal reversed an order decertifying a class action).

Next on the likely list of cases to be granted review and held - Hernandez v. Chipotle Mexican Grill, Inc. (2010) __ Cal.App.4th __.  (Opinion in pdf here, or in Word here). The Chamber of Commerce is taking a bit of a victory lap for this opinion, which was originally handed down as an unpublished decision, but was ordered published on October 28. It is likely to be a short lap, at least until and unless the Supreme Court weighs in on Brinker in favor of the employers.

"Are we going to tell California what it has to consider unconscionable?"

That was the question Justice Antonin Scalia posed during oral arguments today in AT&T Mobility LLC v. Concepcion. In one of the most closely watched cases of the new session, which some half-jokingly refer to as Arbitrations v. Class Actions, the Supreme Court will decide whether California law governing unconscionable contracts is preempted by the Federal Arbitration Act when a consumer contract specifies that the parties must arbitrate any disputes, and that the arbitration cannot include any claims on behalf of a class. All indications were that a majority of the justices were not interested in telling states that unconscionable agreements had to be enforced even if they fell under the scope of the FAA.

Andrew Pincus of Mayer Brown, who represents AT&T, argued that the California standard for determining unconscionability discriminated against arbitration and therefore ran afoul of the FAA. He called the lower court ruling "[making] up a special rule for arbitration." Justice Ruth Bader Ginsburg didn't buy it. "The rule is the same whether it's litigation or arbitration," she said.

If Justice Antonin Scalia and Justice Ruth Bader Ginsburg are suggesting that they hold the same position on the issue, it's a good bet that theirs is the majority position. If you want to read the transcript and draw your own inferences, click this link.


It looks like class actions are going to be with us a while longer.

Court Approves $85 Million Settlement Involving Wal-Mart Wage Disputes

U.S. District Judge Philip M. Pro has given preliminary approval to an $85 million wage and hour class action settlement resolving 30 cases against Wal-Mart Stores Inc. in coordinated proceedings entitled In Re: Wal-Mart Wage and Hour Employment Practices Litigation, MDL 1735, U.S. District Court, District of Nevada (Las Vegas). The approval covers just part of a larger $640 million settlement reached last December.

Picking Off The Class One at a Time - Chindarah v. Pick Up Stix

Probably the most important wage-and-hour case to be published so far in 2009 has been Chindarah v. Pick Up Stix Inc. (2009) 171 Cal.App.4th 796, which holds that Labor Code § 206.5 does not apply to any wage release that is given in connection with payment that settles a good faith dispute.

Pick Up Stix was the defendant in a wage-and-hour class action involving, among other things, a claim for overtime brought by two plaintiffs, on behalf of a group of employees who were alleged to have been misclassified. After an unsuccessful mediation, Pick Up Stix went to the individual employee class members, many of whom weren't even aware that there was a case pending, and offered to pay them their share of what was offered at the mediation (the opinion does not explain how the amount was calculated) in exchange for a full release."By signing the agreement, the employee acknowledged that he or she had spent more than 50% of the time performing managerial duties, released Stix from all claims for unpaid overtime and any other Labor Code violations during the relevant time period, and agreed “not to participate in any class action that may include ... any of the released Claims ....”  The plaintiffs and several other employees, including eight current and former employees who had signed the releases, alleged that the releases were not valid under Labor Code §§ 206.5 and 1194(a).

Labor Code § 206.5 provides: 

 “An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made.  A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee.  Violation of the provisions of this section by the employer is be a misdemeanor.” 

Labor Code § 1194(a) provides:

“Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.”

After some of those employees joined the putative class action, Pick Up Stix filed a cross-complaint against them, alleging breach of contract, and it defended the underlying wage claims asserting the release as an affirmative defense.  Both sides brought summary judgment motions. The trial court found the Labor Code did not prohibit the release of a claim for unpaid wages where there is a bona fide dispute over whether any wages were owed, and that Pick Up Stix “produced evidence showing a good faith dispute with regard to classification of the employees,” and thus had a bona fide dispute as to "whether or not [plaintiffs] were owed any additional wages.”  Finding the releases valid as a matter of law, the trial court then granted Pick Up Stix’s motion for summary judgment and denied the motion brought by the plaintiffs.

The Court of Appeal affirmed.

This public policy is not violated by a settlement of a bona fide dispute over wages already earned.  The releases here settled a dispute over whether Stix had violated wage and hour laws in the past; they did not purport to exonerate it from future violations.  Neither did the releases condition the payment of wages concededly due on their executions.  The trial court correctly found the releases barred the Chindarah plaintiffs from proceeding with the lawsuit against Stix.

Unfortunately, the short (10-page) opinion offers no guidance as to what must be shown to render a dispute sufficiently bona fide to get around Section 206.5's language that invalidates releases given in exchange for less than all wages actually owed. It appears that any "good faith" belief by the employer will suffice, whether or not it would have actually passed scrutiny:

 “[W]ages are not ‘due’ if there is a good faith dispute as to whether they are owed.  Because [the employer’s] defense that [the plaintiff] was an exempt employee under California law would, if successful, preclude any recovery for [the plaintiff], a bona fide dispute exists and the overtime pay cannot be considered ‘concededly due.’” 

Rare is the case in which an employer cannot argue that its misclassification of employees was done, subjectively, in good faith. Thus, almost any misclassification case would be subject to this sort of tactic. Moreover, since the quantification of hours in almost any off-the-clock case is usually subject to bona fide disputes, this tactic would also seem easily available in any off-the-clock cases.

The opinion does not offer any guidance as to what - or even whether - employees need to know about the existence of the bona fide dispute. It would appear that the employee need not even know that there is a good faith dispute, or any dispute, about the wages due. In the case of Pick Up Stix, there is no indication that most, if any, of the unnamed class members even knew that a dispute existed until they were offered money in exchange for a release.

The opinion does not set any standard as to the amount that must be paid, as long as the wages that are "concedely due" are paid. Theoretically, as long as the employer knows of the dispute, and it holds a good faith belief in the dispute, any sum, no matter how small, that exceeds the "concedely owed" wages, would be sufficient consideration for a release that would withstand any contrary requirements specified in Labor Code § 206.5.

The opinion offers no standards to follow for the communications used by the employer when soliciting such releases. Thus, for example, there seems to be no obligation for an employer to disclose to employees that there is a matter pending. If it does, the employer is under no apparent obligation to engage in neutral, honest communication. An offer could be accompanied by a notice, for example, explaining that the company is aware that some employees have asserted the right to this additional money, and that the company is offering this additional payment simply to keep its workers happy and to prevent greedy lawyers from charging them outrageous attorney's fees. Such a communication would be improper as part of a court-supervised communication with class members (See, e.g., Gainey v. Occidental Land Research (1986) 186 Cal.App.3d 1051, 1058 [“One of the purposes of the court's supervisory role is to assure that the notice be "neutral and objective in tone, neither promoting nor discouraging the assertion of claims."]) but would not run afoul of anything in the Pick Up Stix opinion.

Perhaps most troubling for plaintiffs is the fact that, although the case was pending as a putative class action, the court did not impose any requirements for judicial oversight of the payments or releases. The Court of Appeal considered, but rejected the concept that court oversight or approval should be required:

The Legislature is capable of expressly providing oversight for employee releases or compromises of claims.  It did so when enacting Labor Code section 5001, which bars any compromise or release of such a claim unless approved by the workers’ compensation appeals board.  The Legislature did not enact a similar provision for wage claims.

As an employee's counsel, my first reaction to that language is to observe that judicial oversight of a compromise would be superfluous where the Legislature has already dictated that such releases are only valid upon payment of all wages that are actually due. In other words, the reason the Legislature didn't impose such a requirement is because the Labor Code's plain language doesn't permit any release to be valid until after all wages that were due have been paid. My second reaction would be to note that allowing this settlement mechanism not only defeats the purpose of Section 206.5 - which is to prohibit employers from persuading employees to accept less than their full wages due - but that it creates an ethical dilemma for judges and class counsel who are faced with settlement offers in class action cases where the offers are clearly unreasonable, but might be accepted by unsophisticated or intimidated employees. Essentially, Pick Up Stix did an end-run around the class action, and although the court (and in particular, this trial judge) is always concerned about the fairness of a class action settlement, there was no analysis, much less concern, over whether Pick Up Stix's offers to settle out from under the class action were fair or adequate.

To prevent fraud, collusion or unfairness to the class, settlement or dismissal of a class action, or a cause of action in a class action, or a party requires court approval. Dunk v. Ford Motor Co.(1996) 48 Cal.App.4th 1794, 1800-1801. Any settlement of a class action must be shown to be fair, adequate and reasonable. California Rules of Court Rule 3.769(a), 3.770(a); In re Microsoft I-V Cases(2006) 135 Cal.App.4th 706, 723. The trial court has broad discretion in determining whether the settlement is fair, but normally must consider certain factors, including the strength of plaintiff's case; the risk, expense, complexity and likely duration of further litigation; the risk of maintaining class action status through trial; the amount offered in settlement; the extent of discovery completed and stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. The court is free to balance and weigh the factors depending on the circumstances of the case, but must take them all into consideration. Wershba v. Apple Computer, Inc.(2001) 91 Cal.App.4th 224, 244-245.

If the plaintiff's case appears very strong, there is relatively little risk and expense being faced taking the case to trial, there is little discovery completed, and an experienced attorney representing the putative class believes the damages to be significant, a lowball offer at mediation must be rejected. If that lowball offer is accepted, the court must scrutinize the settlement, whether or not any objectors challenge the settlement. If the settlement is not fair, adequate and reasonable, the court must reject the settlement. In fact, even if the settlement is actually fair and adequate, if the court is not given sufficient evidence to support the fairness, adequacy and reasonableness of the settlement, it must reject the settlement. Kullar v. Foot Locker Retail, Inc.(2008) 168 Cal.App.4th 116. This is true even though putative class members always have the right to opt out of a settlement that they do not wish to accept.

However, if (to borrow a phrase coined by one of my defense counsel colleagues) a defendant decides to "pull a Pick Up Stix" on the case, the very same offer, already rejected by class counsel and/or rejected by the trial court, can be repackaged and stuffed, along with a coercive memo, into a payroll envelope during the holidays, and any employees who accept it are bound by the release. Those who reject the offer, like those who opt out of a class action settlement, get nothing, not even the "concededly due" wages. Failure to pay those employees their "concededly due" wages does not appear to have any bearing upon the validity of the other employees' releases, and the releases can be as broad and heavy-handed as the employer wishes. In a class action settlement, of course, there are limits as to how overbearing the employer can be in the release. See, e.g., Kakani v. Oracle Corp.(N.D. Cal 2007) 2007 U.S. Dist. LEXIS 47515; 12 Wage & Hour Cas. 2d (BNA) 1308; 154 Lab.L.Rep. (CCH) 35,310. Why the greater scrutiny should apply when the employees are being represented by putative class counsel, who have fiduciary duties to the employees, and no scrutiny should apply with the employees are left flapping in the wind, facing an inherently coercive request from their employer, makes no sense to us.

The plaintiffs in Chindarah have filed a petition for review. There have been If review is denied, we can expect to see a lot of lowball settlement offers, followed by individual lowball offers, at least to existing employees. It will be interesting to see how courts handle objections to low, unfair settlements when the only response that can be offered in reply to an objection is "but if we don't take the deal, they will just cram it down the employees' throats anyhow."

You can download the full text of Chindarah v. Pick Up Stix here in PDF or Word format.

Supreme Court Ruling Favors of Class Action Plaintiffs in UCL Cases

In a close 4-3 vote, the Supreme Court has rendered its decision in the landmark case In re Tobacco II Cases (2009) __ Cal.App.4th __, and it's a huge victory for class action plaintiffs in California. Because the opinion has such broad implications for future unfair competition claims, it is of interest to wage and hour lawyers, even though the case has nothing to do with wages or employment disputes. 

Prior to the 2004 amendment of the unfair competition law by Proposition 64, “[a]ctions for relief [under the UCL could be] prosecuted ... by the Attorney General or any district attorney or by any county counsel ... [or] by a city prosecutor ... [or] by a city attorney ... or upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.”  Former Business & Professions Code § 17204; see also Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227. After Proposition 64, the section provides

“[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with section 382 of the Code of Civil Procedure”

In other words, the plaintiff must be a “person who has suffered injury in fact and has lost money or property as a result of [such] unfair competition.” Business & Professions Code § 17204, as amended by Prop. 64, § 3.

The plaintiffs in In re Tobacco Cases II alleged that the tobacco industry defendants violated the UCL by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.  Prior to passage of Proposition 64, the trial court had certified the case as a class action.  The class was defined as “All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 to April 23, 2001, and who were exposed to Defendants’ marketing and advertising activities in California.”  After Proposition 64 was approved, the trial court granted defendants’ motion to decertify the class on the grounds that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition.  The Court of Appeal affirmed.

On review, the Supreme Court addressed two questions: 

1. Who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? 

We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. 

2. What is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase “as a result of” in section 17204? 

We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.  Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign.  Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing. 

This doesn't entirely save the case for the plaintiffs just yet, but their prospects, as a class, seem good. In granting the motion to decertify the class, and in concluding that the entire class was required to demonstrate standing, the trial court’s order also stated, “Further, it appears from the record that not even Plaintiffs’ named representatives satisfy Prop[osition] 64’s standing requirement.”  The trial court did not elaborate on the basis for its conclusion, so the appellate courts cannot ascertain whether or not the named plaintiffs are adequate post-Proposition 64 class representatives. However, assuming that they are no longer adequate representatives of the class because they lack standing,

the proper procedure would not be to decertify the class but grant leave to amend to redefine the class or add a new class representative. “This rule is usually applied in situations where the class representative originally had standing, but has since lost it by intervening law or facts.”  (First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564, 1574.)  We ourselves sanctioned this procedure in a post-Proposition 64 case.  (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 243 [“courts have permitted plaintiffs who have been determined to lack standing, or who have lost standing after the complaint was filed, to substitute as plaintiffs the true parties in interest”].)  Accordingly, we reverse the order granting the decertification motion and remand the case for further proceedings to determine whether these plaintiffs can establish standing as we have now defined it and, if not, whether amendment should be permitted.

Taking all this in, one must conclude that the case is now likely to proceed as a class action with new or additional plaintiffs who can meet the new standing requirements. You can download the full text of the opinion here in PDF or Word format. For more detailed analysis, we recommend visiting the UCL Practitioner blog, where yesterday's post on the opinion is sure to be followed up with more links and analysis in the days to come.

People who read this blog often ask "where do you find the time?" The answer, sometimes, is "we can't." But now that we've taken our leave of absence, bookended by the argument and opinion in the Tobacco II Cases, we are working on catching up with all the really important wage and hour cases and developments that we've been tracking since March. There's been a lot to talk about, and we'll have it here soon.

Whatever Happened in Banda v. Richard Bagdasarian?

We wondered what happened in Banda v. Richard Bagdasarian, Inc. 2008 WL 888524, one of the penalty/wage cases that was a companion case to Murphy v Kenneth Cole Productions, Inc. (2007) 40 C4th 1094, and checked to see if it was still pending. It is not. In April 2008, in an unpublished opinion, the Fourth District, Division Two, ordered the Superior Court to approve a settlement agreement in the matter. In Banda, a class of farmworkers challenged the defendant’s failure to provide meal periods and rest breaks, and its practice of requiring them to taste unwashed and pesticide-laden grapes for sweetness. The claims were brought under the Unfair Competition Law. The first unpublished Fourth District opinion, 2006 WL 1554441, had been transferred by the Supreme Court back to the Fourth District on May 23, 2007, for reconsideration in light of Murphy.

The main provisions of the settlement agreement create a settlement fund to be distributed by a settlement administrator (1) to pay specified fees, costs, and expenses and (2) to make specified payments in compensation for omitted breaks ( Lab.Code, § 226.7) to plaintiffs and other persons employed by defendant during the 2001 and 2002 harvests who show their entitlement under the settlement agreement by timely submitting a settlement claim form. No provision is made for payment of wait time penalties. ( Lab.Code, § 203.) Claimants must execute a release of any and all claims “resulting from or occurring in connection with [the claimant's] employment by [defendant].” The settlement agreement includes a procedure to notify potentially eligible claimants.


Pursuant to the Supreme Court's transfer order, the opinion previously filed June 8, 2006, is vacated. Pursuant to the stipulation of the parties, the judgment is reversed. This reversal of the judgment does not indicate a ruling on the merits of the judgment, but serves only to vacate the judgment and restore jurisdiction to the trial court so that it may carry out the following directions implementing and enforcing the parties' settlement agreement.

The clerk of this court is directed to send, with the copy of this opinion sent to the superior court, a copy of the recitals re: stipulation to reverse, with the attached settlement agreement, filed in this court April 2, 2008. The trial court is directed: (1) to approve the settlement agreement, and to approve the form and content of the settlement notice and claim form attached to the settlement agreement; (2) to enter a judgment ordering the agreed permanent injunction, which shall terminate at the conclusion of the 2012 grape harvest, and ordering the parties to abide by the terms of the settlement agreement; and (3) to retain jurisdiction until the permanent injunction is terminated to take any actions necessary to implement and enforce the injunction, the judgment, and the settlement agreement.

The opinion did not mention the dollar amount of the settlement, but two news stories reported that the cash value of the settlement was $585,000.

Litigation Increased From 2007 to 2008

Portfolio Media Inc.'s Law 360 Litigation Almanacs reports that U.S. District Court civil case filings increased 9% from 2007 to 2008, and class actions increased 8% (to 7,661). Employment cases were up just 6% from 2007. With the economy bringing layoffs and other terminations in large numbers, employment litigation will probably increase more in 2009 that other types of litigation.

Court Upholds Verdict Finding Drivers to be Independent Contractors

Employers frequently lose determinations of their staffs' independent contractor status. However, in Cristler v. Express Messenger Systems, Inc.  (2009) __ Cal.App.4th __, the employer prevailed at trial, and the Court of Appeal has affirmed the finding that California Overnight's package delivery drivers were bona fide independent contractors.

James W. Cristler, John Purves, James G. Harrod, Sydney Moroff and Mark Lambert, individually and as the representative of a class of similarly situated persons (collectively Cristler), sued a parcel delivery company, Express Messenger Systems, Inc., doing business as California Overnight (Express Messenger).  The lawsuit contained a number of causes of actions, all based on a core contention that Express Messenger improperly classified its employees as independent contractors.  The case was litigated before a jury and, with respect to certain claims, a trial court.  Express Messenger prevailed.

Cristler appeals, contending that the trial court erred in a number of respects.  Cristler argues that the trial court:  (i) abused its discretion by failing to amend the class definition in light of developments subsequent to class certification; (ii) erred in instructing the jury as to both the burden of proof and with respect to the pertinent classification factors that distinguish employees from independent contractors; (iii) applied incorrect legal standards in adjudicating Cristler's unfair and unlawful business practices causes of action; (iv) abused its discretion by allowing the introduction of irrelevant and "inflammatory" evidence as to the relative benefits of independent contractor status; and (v) erroneously permitted Express Messenger to recover costs for the production of exhibits that were not used at trial.  As discussed below, we conclude these contentions are without merit and affirm.

The complaint alleged causes of action for: (1) unfair and unlawful business practices in violation of Business and Professions Code section 17200; (2) failure to pay overtime compensation in violation of Labor Code sections 510, 515, and 1194; (3) failure to provide properly itemized wage statements in violation of section 226; (4) failure to fully compensate for business expenses in violation of section 2802; and (5) wrongful termination in violation of public policy. Each cause of action arose from the claim that the employer's classification of its delivery personnel as independent contractors was improper. The plaintiffs certified a class and tried the case to a jury and, on some equitable issues, the court. The result was a determination that the drivers were independent contractors.

On appeal, the plaintiffs cited various published opinions in which similar groups of workers were found to be employees, rather than independent contractors, essentially arguing that this dictated an identical result for the California Overnight drivers. The Court of Appeal disagreed.

The simple answer to these references is that these cases concerned different circumstances presented to a different finder of fact. Indeed, even if the facts of this case were identical to those in the cases Cristler cites (and they are not), we would not be authorized to overrule the determination of the jury to achieve conformity with other cases — particularly as Cristler does not even argue that the jury's verdict is unsupported by substantial evidence.

The opinion contains an interesting analysis of the jury instructions given on the core issue of independent contractor status. The trial court instructed the jury that "The issue for you to decide is whether or not the Plaintiffs are employees or independent contractors. "The Plaintiffs allege that they . . . were Defendant's employees. "The Defendant . . . claims that the Plaintiffs were independent contractors, and were not employees. "Plaintiffs have the obligation to prove that they were Defendant's employees. The Defendant has the obligation to prove that the Plaintiffs were independent contractors."

Plaintiff contended that these instructions were erroneous because they obscured the fact that California law required Express Messenger to bear the burden of establishing that persons in its service were independent contractors. (Labor Code § 3357: "Any person rendering service for another, other than as an independent contractor, or unless expressly excluded herein, is presumed to be an employee.") However, the Court of Appeal found no error, because the instructions included these:

  • "Any person rendering service for another, other than as an independent contractor, is presumed to be an employee."
  • "With respect to this challenge, the trial court instructed the jury as follows: "In determining whether the Plaintiffs and other class members ('drivers') were employees or independent contractors, you must consider a number of factors. You will need to weigh all of these factors based on the evidence that you have heard. 1. The most important factor to consider is the extent to which the Defendant has the right to control the details of the work performed. The following additional factors are to be considered: 2. The right to discharge at will without cause; 3. Whether the drivers are engaged in a distinct occupation or business; 4. The skill required in this occupation; 5. Whether the driver or California Overnight pays for vehicles, equipment, and business expenses; 6. The length of time for which the services are to be performed; 7. The method of payment to drivers, whether by the hour or by the job; 8. Whether or not the work done by drivers is part of the regular business of California Overnight; 9. Whether or not the parties believe they are creating an employer-employee relationship; 10. The driver's opportunity for entrepreneurial profit or loss depending upon his/her managerial skill; 11. The drivers' use of helpers/replacements; and 12. The degree of permanence of the working relationship.
  • "These individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often upon particular combinations."

In totality, listing these factors appropriately allowed the jury to apply the factors as it saw fit, and the findings were supported by adequate evidence. You can download the full text of the Christler opinion here in Word or PDF.

En banc review for Dukes v. Wal-Mart, Inc.

Dukes v. Wal-Mart, Inc. (9th Cir. 2007) 509 F.3d 1168 (one of very few pending cases to have an extensive wikipedia page) is no longer good law; the 9th Circuit is reviewing it en banc. The order provides:

Upon the vote of a majority of nonrecused active judges, it is ordered that this case be reheard en banc pursuant to Circuit Rule 35-3. The three-judge panel opinion shall not be cited as precedent by or to any court of the Ninth Circuit. Judges McKeown, Rawlinson and Bybee did not participate in the deliberations or vote in this case.

If the prior order permitting the case to proceed as a class action is upheld, the number of plaintiffs could approach two million.

Modification of Opinion in Lu v. Hawaiian Gardens Casino

The Second District Court of Appeal has modified its opinion in Lu v. Hawaiian Gardens Casino (2009) __ Cal.App.4th __ (Labor Code § 351 and Labor Code § 450 do not provide for a private right of action, but may serve as predicate statutes for suits under the unfair competition law). The modification does affect the judgment. The modification is as follows:

The opinion filed by this court on January 22, 2009 is hereby modified as follows:

On page 2, line three of the second full paragraph starting with “to sue, that they”, insert the word “may” before the word “nonetheless”.

On page 6, delete heading 1 and insert, “1.  Lu does not have a private right to sue directly under Labor Code sections 351 and 450 but said statutes may serve as predicates to causes of action under the UCL for violation thereof.”

On page 11, line one of the second full paragraph starting with “Nevertheless,” insert the word “possible” before the words “cause of action”.

On page 11, lines seven and eight of the second full paragraph, delete the sentence starting with “The UCL is a proper avenue”, and insert, “It therefore follows that sections 351 and 450 can serve as predicates for a UCL claim by Lu.”

On page 11, at the end of the second full paragraph, insert “We express no opinion about whether Lu’s UCL claim can withstand demurrer.  We simply hold that these statutes can serve as predicates to a UCL cause of action.”

On page 24, delete the first full sentence and insert, “The trial court’s order granting summary adjudication with respect to the UCL cause of action premised on a violation of Labor Code section 351 is reversed with directions to deny summary adjudication of that cause of action.”

The modifications affect the judgment.

We discussed the original opinion in a recent post found at this link.

Review Denied in Harper v 24 Hour Fitness

The Supreme Court has denied a petition for review in Harper v. 24 Hour Fitness, Inc. (2008) 167 Cal.App.4th 966, wherein the Court of Appeal reversed a decertification order. The reversal was based upon a holding that the need to individually examine each class member's records to determine whether he or she qualifies for inclusion in the class does not establish a lack of ascertainability or manageability or establish that common questions of fact or law do not predominate.

We discussed Harper v. 24 Hour Fitness, Inc. at length in a post last December.

Federal Courts on the Brinker Issues

As we wait for the California Supreme Court to decide Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25, we can assume with a high degree of certainty that any state court opinion dealing with provide/permit issues or meal/rest break certification orders will be reviewed as a companion case to Brinker. For the next few months, therefore, we will have only Cicairos v. Summit Logistics (2005) 133 Cal.App.4th 949 as controlling authority in Superior Court, but in U.S. District Court, judges are free to guess what they think the California Supreme Court would decide.** When interpreting state law, federal courts are bound by decisions of the state's highest court (In re Kirkland (9th Cir.1990) 915 F.2d 1236, 1238), but in the absence of such a decision, a federal court shall apply the rule that it believes the state supreme court would adopt if faced with the same issue. Arizona Electric Power Cooperative, Inc. v. Berkeley (9th Cir.1995) 59 F.3d 988, 991.

The "make available" and/or denied certification cases that reject or distinguish Cicairos include:

  • White v Starbucks (N.D. Cal. 2007) 497 F.Supp.2d 1080
  • Brown v FedEx (C.D. Cal.2008) 249 F.R.D. 580
  • Salazar v. Avis (S.D. Cal. 2008) 251 F.R.D. 529
  • Kenny v. Supercuts, Inc. (N.D. Cal 2008) 252 F.R.D. 641
  • Perez v. Safety-Kleen Systems, Inc. (N.D.Cal. 2008) 253 F.R.D. 508
  • Kimoto v. McDonald's Corps. (C.D.Cal. 2008) 2008 WL 4690536
  • Watson-Smith v. Spherion Pacific Workforce, LLC (N.D.Cal. 2008) 2008 WL 5221084

    If you are aware of any others, please drop us an email or leave a comment and we will add them to the list. The opening brief in Brinker has been filed

  • ** Well, maybe not entirely free to guess. As a reader points out, a Ninth Circuit case from Oregon holds that a federal court is obligated to follow the decisions of the state's intermediate appeallate courts, unless there is convincing evidence that the state supreme court would decide differently. Ryman v. Sears-Roebuck & Co. (9th Cir. 2007) 505 F.3d 993, 995. 

    ‘[W]here there is no convincing evidence that the state supreme court would decide differently, a federal court is obligated to follow the decisions of the state's intermediate appellate courts.’ ” Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir.2001) (quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir.1996) (internal quotation marks omitted)). The district court did not cite any evidence that the Oregon Supreme Court would disaffirm Yeager. It merely disagreed with Yeager. FN1 Because there is no evidence that the Oregon Supreme Court would have decided the OFLA issue differently, the district court erred in not applying the Yeager rule.FN2

    FN1. We note that the district court did cite opinions by other federal district judges expressing their disagreement with the Yeager rule. The opinions of other federal judges on a question of state law do not constitute “convincing evidence that the state supreme court would decide [an issue] differently,” Vestar, 249 F.3d at 960, nor do those opinions contain any relevant “convincing evidence.”

    FN2. Although not dispositive, we note that the Oregon Supreme Court declined to grant review of Yeager. See Yeager v. Providence Health Sys. Or., 337 Or. 658, 103 P.3d 641 (2004) (table).

    Given the decision of the Supreme Court not to review Cicairos v. Summit Logistics (2005) 133 Cal.App.4th 949 and Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, and their decision to grant review in Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25, and Brinkley v. Public Storage, Inc. (2008) 167 Cal.App.4th 1278, in a case where the employer cannot clearly distinguish Cicairos, the District Court should feel obligated to follow it.

    Motions to Stay Pending Brinker

    We know of several judges who are encouraging parties to delay briefing schedules on class certifications pending the outcome of the Supreme Court's decision in Brinker v. Superior Court. The Court of Appeal has granted a request to stay the proceedings in Sepulveda v. Wal-Mart. Do any readers know of formal motions that have been brought in Superior Court to impose a stay pending the decision in Brinker v. Superior Court? If you do, leave a comment or send us an email.

    5th Circuit Opinion on Class Action Tolling

    In a recent 5th Circuit decision, the Court of Appeal reversed the dismissal of a labor law class action that was filed within the limitations period, as extended by a tolling period that continued throughout the entire proceedings, including appeal, of a prior, certified, class action. The opinion contains a good explanation of the development of the law regarding tolling while a class action in pending. In Taylor v. United Parcel Service, Inc. (9th Cir. 2008) __ F.3d __, 2008 WL 5401487, the plaintiff, a member of a certified labor law class that had been dismissed filed a new putative class action during the period in which the prior class action was on appeal. The District Court dismissed the new class action, holding that the claims were barred by various statutes of limitations.

    Existing Supreme Court precedent holds that members of a certified class are to be treated essentially as named plaintiffs—and are bound by the resulting judgment—when they are adequately represented by the class representative and the other requirements of FRCP 23 are met. Matsushita Elec. Indus. Co. v. Epstein (1996) 516 U.S. 367, 395. The purpose of Rule 23 would be subverted by requiring a class member who learns of a pending suit involving a class of which he is a part to monitor that litigation to make certain that his interests are being protected. That responsibility does not end at the district court. "It is axiomatic that an appeal is a significant element in the judicial process.”

    This rule does not apply equally to members of a putative class that has not been certified. See American Pipe & Construction Co. v. Utah (1974) 414 U.S. 538; Crown, Cork & Seal Co. v. Parker (1983) 462 U.S. 345. However, in Taylor, because the District Court certified the prior class action, the 5th Circuit held that American Pipe and Crown, Cork & Seal did not apply.

    Because Taylor remained a member of a certified class while Morgan was on appeal, he was entitled to assume that the class representatives continued to represent him and protect his interests in appealing the order dismissing the class claims on the merits. This is consistent with the general rule that all members of a certified class enjoy the same rights as individually named plaintiffs in the suit. Thus, we conclude that Taylor’s claims were tolled until August 30, 2004, when the Eighth Circuit affirmed the district court’s order in Morgan. This action by the Court of Appeals was the final adverse determination of the claims of the certified class of which Taylor was a member.

    As a result, the applicable statutes of limitation did not expire, the judgment of dismissal was reversed, and the case remanded to the District Court. You can download a copy of the Taylor decision in PDF at this link.

    Certification Order in Polo Ralph Lauren Case

    An interesting certification order was entered last year in a wage case entitled Otsuka v. Polo Ralph Lauren Corp. (N.D. Cal. 2008) 251 F.R.D. 439. For those of you who like to collect such orders, here is a link to the order by District Court Judge Susan Illston, who held that: (1) numerosity requirement was satisfied; (2) commonality requirement was satisfied with respect to main class; (3) commonality requirement was satisfied with respect to subclass that consisted of former sales associates who had been misclassified as exempt from premium overtime compensation; (4) commonality requirement was satisfied with respect to arrears subclass; (5) named plaintiffs who had been forced or coerced to skip rest breaks as part of culture established by employer that discouraged taking of rest breaks were typical of main class; (6) employer's payment of overtime to named plaintiffs did not prevent claims of those plaintiffs from being typical of absent class members; (7) disagreements that had arisen in past between class counsel and named plaintiff did not adversely affect adequacy of representation requirement; and (8) common questions predominated over individual questions.

    Review Denied in Glaxosmithkline

    This one escaped our radar initially. Last month, the California Supreme Court denied a petition for review in Johnson v. Glaxosmithkline (2008) 166 Cal.App.4th 1497, which we discussed last month in a post found at this link. The case involved the applicability of collateral estoppel to prior orders denying class certification in actions brought on behalf of a similar putative class.

    Sandeep Baweja Withdraws

    On Monday, Judge S. James Otero granted Sandeep Baweja's motion to withdraw as counsel for the class of employees from whom he took several million dollars in settlement money in the matter of Lubocki v. ZipRealty, Inc. In the order, Judge Otero expressly retains jurisdiction over Baweja.

    On December 24, 2008, Baweja filed this Motion to Withdraw as Counsel for David Lubocki, et al. pursuant to California Rules of Professional Conduct 3-300 and 3-310. On December 30, 2008, this Court sent letters to Sal Hernandez, Assistant Director in Charge, FBI Los Angeles; Thomas P. O'Brien, United States Attorney; William J. Bratton, Chief of the Los Angeles Police Department; Steve Cooley, Los Angeles County District Attorney; Scott Drexel, Chief Trial Counsel of the State Bar of California; and the Standing Committee on Discipline for the Central District of California, notifying them of Baweja's admissions.

    The order declares, quite matter-of-factly, that the court grants the motion because Baweja's interests are now adverse to his clients.

    In secretly taking and investing $2.72 million of the class settlement funds, without notifying or seeking the permission of class members, Baweja acquired an interest adverse to his clients without their informed consent in violation of California Rule of Professional Conduct 3-300. See Connor, 791 P.2d at 317; Cal. R. Prof'l Conduct 3-300; Baweja Decl. ¶ 5. Because he currently owes his clients approximately $2 million, his own interests are likely to conflict with those of his clients and, thus, he cannot fulfill his duty of absolute and undivided loyalty to his clients.

    Ernest J. Francheschi, Jr., who has not been accused of any wrongdoing, remains as class counsel "pending this Court's decision on any objection to his representation." The next status conference in the case is set for April 27.

    We discussed the case in a post earlier this month, found at this link.

    Unconscionable Contract Terms, Without Actual Damage, Do Not Bestow Standing

    Has a person suffered “damage” within the meaning of the Consumer Legal Remedies Act (Civil Code § 1780(a)), such as to allow that person to bring an action under the act, if that person is a party to an agreement containing an unconscionable term, but no effort has been made to enforce the unconscionable term? No; and without such damage, a person lacks standing to bring any action, including one for declaratory relief. Meyer v. Sprint Sprectrum L.P. (2009) __ Cal.4th __.

    In this case, plaintiffs sued defendant cellular telephone company alleging that its arbitration agreement and other remedial provisions were unconscionable, although plaintiffs did not otherwise allege that these provisions had been enforced against them or caused them damage. There are two questions before us. First, whether under these circumstances, a plaintiff may obtain injunctive relief to compel the removal of the allegedly unconscionable provisions under the California Consumer Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.). Second, whether a plaintiff may obtain declaratory relief pursuant to Code of Civil Procedure section 1060 to declare these provisions unlawful and unenforceable.

    We conclude that a plaintiff has no standing to sue under the CLRA without some allegation that he or she has been damaged by an alleged unlawful practice, an allegation plaintiffs do not sufficiently make here. Moreover, we conclude the trial court did not abuse its discretion in ruling that declaratory relief was not appropriate under these circumstances. We therefore uphold the Court of Appeal’s judgment affirming the trial court’s order sustaining a demurrer to plaintiffs’ complaint.

    You can download the opinion in Meyer v. Sprint Sprectrum L.P. here in PDF or Word format. The opinion has little applicability to wage-and-hour class actions or labor law claims brought under the UCL, but we've been following it, so we followed it to its conclusion.

    Release Bars PAGA Claims, but Not Subsequent Claims

    A prior release of various labor code claims might preclude later actions brought under the PAGA for the same underlying violations, but cannot preclude subsequent actions based upon continuing or repeated violations that occur after the release date. Deleon v. Verizon Wireless (2009) __ Cal.App.4th __.

    Saul Deleon, on behalf of himself and other aggrieved employees, brought this action under the Labor Code Private Attorneys General Act (Labor Code § 2698) against AirTouch Cellular, doing business as Verizon Wireless, alleging various Labor Code violations. The trial court sustained without leave to amend the demurrer brought by Verizon Wireless ruling that Deleon’s lawsuit was barred by the doctrine of res judicata to the extent Deleon seeks relief on behalf of class members who settled a prior class action against Verizon Wireless that adjudicated the same claims. While we agree with the trial court’s analysis, we conclude that it abused its discretion in denying Deleon leave to amend to state claims that accrued after the date of the earlier action. Accordingly, we reverse.

    In 2006, a class was certified, for settlement purposes, comprising “all individuals who worked for Verizon Wireless as an hourly commissioned sales employee ... who were subject at any time during the Class Period to Verizon Wireless’ policy providing that sales commission advances are not earned if the customer cancelled service for any reason within 365 days...." The class period was from March 6, 1999 to April 1, 2006. Class members who did not opt out released Verizon from all “Released Claims,” which were defined to include

    all claims, actions, suits, causes of action, damages whenever incurred, liabilities of any nature whatsoever, including penalties arising out of “any conduct, events, or transactions occurring during the class period” that were alleged or which were required to have been alleged in the litigation under the doctrine of compulsory joinder in the prior suit.

    In exchange for this release, Verizon agreed to pay a maximum settlement of $5.2 million. Deleon and a few others opted out of the settlement. Deleon then brought a complaint under the PAGA on essentially the same factual grounds as the original lawsuit. Deleon contended that the prior action made no PAGA allegations and “hence Plaintiff and the aggrieved employees are entitled to recover the civil penalties available under PAGA.” Verizon demurred, asserting res judicata.

    Deleon opposed the motion “for one simple reason,” namely, that the element of privity was lacking. According to Deleon, the State or the Attorney General is the “real party in interest” in a PAGA action, not the employees on whose behalf the PAGA action is brought. Hence, the question is not whether he as private attorney general is in privity with the Evenson plaintiffs, but whether the State is in privity with the Evenson plaintiffs, Deleon reasoned. Also, Deleon argued that the Evenson plaintiffs had never exhausted the administrative prerequisites to sue under PAGA, and so unlike he, they were never authorized to pursue their action on behalf of the State

    Next, after assuming the State is the interested party, Deleon argues that the State could not be in privity with the Evenson plaintiffs because Evenson made no attempt to demonstrate compliance with PAGA’s prerequisites. This same contention was rejected by the Federal District Court in Waisbein v. UBS Financial Services, Inc. (N.D.Cal. Dec. 5, 2007, No. C-07-2328) 2007 WL 4287334. There, the plaintiffs filed a prior class action against UBS for violations of various Labor Code provisions and pursuant to PAGA. In the ensuing settlement, the class released UBS for the state law claims. (Id. at p. *1.) As did Deleon here, Waisbein opted out of the class and filed his action against UBS on behalf of himself and “ ‘other aggrieved employees’ ” bringing, among other things, PAGA claims for many similar Labor Code violations. (Ibid.)

    The Court of Appeal rejected Deleon's arguments concerning the PAGA claims, but held that Deleon must be given the opportunity to amend his complaint to allege violations of the Labor Code that accrued after the Evenson release period. Therefore, the judgment is reversed and remanded to allow Deleon to amend his complaint to allege violations that occurred after April 1, 2006. Deleon may continue to bring this lawsuit on behalf of himself and those Evenson plaintiffs who opted out of the Evenson settlement.

    You can download the full text of Deleon here in PDF or Word format.

    Tip Pooling and Private Rights of Action

    Labor Code § 351 does not prohibit mandatory tip pooling in California casinos. Labor Code § 351 and Labor Code § 450 do not provide for a private right of action, but either may serve as predicates for suits under the unfair competition law (Business & Professions Code § 17200). Lu v. Hawaiian Gardens Casino (2009) __ Cal.App.4th __. Therefore, most of the trial court's order granting summary judgment of this casino worker wage-and-hour class action is upheld.

    A triable factual issue about whether some tip pool recipients are “agents” in contravention of section 351 precludes summary judgment of the UCL cause of action based on that statute only. In all other respects, summary judgment was properly granted. Accordingly, we affirm the judgment in part and reverse it in part.

    There was a prior District Court case holding that Labor Code § 351 does not contain a private right of action. Matoff v. Brinker Restaurant Corp. (C.D.Cal. 2006) 439 F.Supp.2d 1035. Labor Code § 351 reads:

    “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”

    Labor Code § 450 reads, in relevant part,

    “No employer, or agent or officer thereof, or other person, may compel or coerce any employee, or applicant for employment, to patronize his or her employer, or any other person, in the purchase of any thing of value.”

    We still believe that there is a private right of action under Labor Code § 450 as it applies to the compelled purchase of clothing that constitutes a uniform. See Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, 1088, 1091-1092 (where the employer requires its employees to wear uniforms at work, the employer must furnish the uniform and pay for its upkeep; these payments are "wages." 8 CCR § 11070, ¶9(A).) There is clearly a private right of action to recover wages. Labor Code § 218.

    You can read the entire text of Lu v. Hawaiian Gardens Casino here in PDF or Word format.

    Modification Upon Rehearing in Marin v. Costco

    The Second District Court of Appeal has modified its opinion and denied rehearing in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804. The modification does not change the judgment. The modification is as follows:

    It is ordered that the opinion filed herein on December 23 2008, be modified as follows:

    1. On page 13, the second full paragraph is modified to read: In sum, no California court decision, statute, or regulation governs bonus overtime, the DLSE Manual sections on the subject do not have the force of law, and the DLSE advice letters on the subject are not on point. Thus, there is no controlling California authority apart from the directive that overtime hours be compensated at a rate of no less than one and one-half times the regular rate of pay. (Lab. Code, § 510, subd. (a).) In deciding whether defendant’s bonus plan fulfills that directive, we are persuaded that the DLSE Manual provisions for overtime on production bonuses set forth a valid formula. (See Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 563 [court may adopt a DLSE statutory interpretation embodied in a void regulation if it independently determines that the interpretation is correct].) We conclude that defendant’s plan is consistent with that formula, and thus that the plan does not violate California law. 
    2. On page 14, the third sentence in the first full paragraph is modified to read as follows (the citation following the sentence is unchanged): Therefore, as one commentator has observed, overtime on a bonus based on hours worked should be calculated in the same manner as overtime on a bonus based on production, under the formula set forth in section 49.2.4 of the Manual.

    There is no change in the judgment. The petition for rehearing is denied.

    We discussed the original opinion in a recent post found at this link.

    On-Call Gap Time Claims Can Be Certified as a Class

    The Second District Court of Appeal has reversed Los Angeles County Superior Court Judge Michael L. Stern's order denying certification of a class action brought by a limousine driver against his employer for wage and hour violations arising from on-call time and related claims. In Ghazaryan v. Diva Limousine, Ltd. (2009) __ Cal.App.4th __,  the court held that a proposed class of all drivers employed by the company during a specific period was ascertainable; a sufficient community of interest existed for class certification; and that a class action was the superior method for resolving the dispute.

    Diva operates a limousine service in the Greater Los Angeles area. At the time Ghazaryan filed his class certification motion in May 2006, Diva indicated it had employed approximately 190 drivers during the previous four years; approximately 100 still worked for the company. On any given day Diva places between 40 to 45 drivers in the field, and those drivers are dispatched on 140 to 150 trips or runs. However, the number of trips can fluctuate between 100 on a slow day and more than 200 on days when special events occur (for example, the Academy Awards). Typically, Diva notifies drivers of their first few assignments before their shift begins in part to allow them to plan their gap time. Approximately 75 percent of Diva's drivers have permission to take their Diva vehicles home and commute to their first run using their Diva vehicles. After these initial runs have been completed, drivers are assigned by the dispatcher to additional trips according to location, availability and fairness among drivers. On a busy day a driver may receive six to eight assignments. On a slow day that number often falls below five trips. Drivers have no way of predicting the length of any particular period of gap time although, on occasion, dispatchers may accommodate requests to schedule assignments around the drivers' personal appointments. According to anecdotal and statistical estimates submitted by both sides, it is clear drivers were placed on-call daily for substantial periods of time.
    Ghazaryan filed his lawsuit in May 2006 alleging Diva by its practice of paying drivers by the job, not by the hour, had failed to pay earned wages and overtime or to provide required rest breaks and meal periods in violation of multiple provisions of the Labor Code and implementing administrative regulations. He further also alleged Diva had engaged in unlawful business practices under Business and Professions Code section 17200 et seq. Although Ghazaryan's complaint originally identified one broad class with four subclasses, his motion sought to certify only two overlapping subclasses: (1) based on Diva's alleged failure to pay earned overtime and straight time, “All current and former employees of Defendant who worked as Limousine Drivers during the period of May 10, 2002 to the present”; and (2) targeting Diva's failure to provide mandatory rest breaks, “All current and former employees of Defendant who work as Limousine Drivers at any time during the period of May 10, 2002 to the present, worked one or more four-hour increments of time without being given a rest break for each such increment and who were not properly compensated therefor[ ].”
    Diva opposed class certification principally because of the purported difficulties in identifying eligible members of the class and assessing the validity of Diva's compensation policy as applied to different drivers who may or may not have used their gap time for personal pursuits. Diva explained it has several categories of drivers, some of whom are paid for gap time. Thus, dedicated event drivers, L'Ermitage Hotel drivers and organ transplant drivers are paid on a strictly hourly basis including any on-call time. Diva also submitted declarations from a number of drivers who typically use unpaid gap time for their own purposes, such as working out at the gym, napping or eating at home or running personal errands. Several of those drivers stated they are not in favor of Ghazaryan's lawsuit and do not want Diva to change the way it compensates its drivers.

    The trial court found these declarations convincing and denied the motion on the ground certification would raise too many individualized issues.

    Held: the trial court utilized improper criteria in analyzing the class certification request by evaluating class suitability as dependent on determination of the merits rather than evaluating whether the theory advanced by plaintiff was amenable to class treatment; and plaintiff proposed two classes which satisfied the ascertainability, community of interest and superiority of class treatment requirements. Reversed and remanded.

    The court spent considerable time discussing the interpretation of the term “hours worked” under IWC Wage Order No. 9, which defined it as "time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” The court also considered two opinion letters from the Division of Labor Standards Enforcement ("DLSE").

    The letter dated March 31, 1993, acknowledges the inquiry is “highly fact-driven,” but “[t]he bottom line consideration is the amount of ‘control’ exercised by the employer over the activities of the worker.... [I]mmediate control by the employer which is for the benefit of the employer must be compensated.” In a subsequent advisory letter dated December 28, 1998,, the DLSE summarized the factors relevant to this inquiry: “1. Whether there are excessive geographic restrictions on the employee's movements[;][¶] 2. Whether the frequency of calls is unduly restrictive[;][¶] 3. Whether a fixed time limit for response is unduly restrictive[;][¶] 4. Whether the on-call employee can easily trade his or her on-call responsibilities with another employee[;] and [¶] 5. Whether and to what extent the employee engages in personal activities during on-call periods.”

    There is no question class treatment constitutes the superior mode of resolving Ghazaryan's claims in this action. Based on the evidence submitted by Diva in opposition to the motion, its compensation policy has been carefully drafted; and Diva very well may find its policy upheld as reasonable under the existing DLSE standard. We see no advantage to either party to resolution of this question on a piecemeal basis and agree with Ghazaryan such a prospect would jeopardize the ability of employees to find competent representation if restricted to their own individual claims. (See Harper v. 24 Hour Fitness (2008)167 Cal.App.4th 966, 976, 84 Cal.Rptr.3d 532.) In light of this conclusion, we need not accept Ghazaryan's invitation to decide whether a trial court has a duty to modify the class definition put forth by counsel for the putative class.

    You can download the full text of Ghazaryan here in Word or PDF. Perhaps in the next appeal, we will get an interesting ruling on the merits, answering the question of whether an employer is obligated to pay an employee for such on-call time.

    Crab Addison Adds to Line of "Opt-Out" Class Action Privacy Notice Cases

    The Second District Court of Appeal has further clarified the broad discovery rights that class action litigants enjoy. In Crab Addison v. Superior Court (2008) 169 Cal.App.4th 958, the employer's tactics, after a wage-and-hour class action was filed, included having employees sign forms indicating whether or not they wanted their personal information disclosed to third parties. Not surprisingly, many employees chose the privacy option. This, argued the employer, meant that the plaintiffs could not have access to such personal data as the putative class members' contact information, because the completion of those forms gave the employees a "heightened expectation of privacy as to their contact information."

    The trial court weighed the privacy interests of potential class members against the compelling need for discovery of their names and contact information, and found that plaintiffs were entitled to the requested information subject to an ‘opt-out’ notice. The employer sought a writ of mandate directing the trial court to vacate the two discovery orders that pertained to the issue. The Court of Appeal denied the petition. The primary issue on appeal was whether Puerto v. Superior Court (2008) 158 Cal.App.4th 1242 applied to the case against Crab Addison (CAI).

    There are two significant differences between Puerto and the instant case. First, in Puerto, the employer voluntarily disclosed the identities of the witnesses but sought to protect addresses and telephone numbers. Here, CAI seeks to protect identities as well as addresses and telephone numbers. Second, in Puerto there was no release form like the one utilized by CAI. We attach no great significance to the fact that CAI did not voluntarily disclose the identities of the witnesses whose contact information it sought to protect. As noted in Pioneer Electronics (USA), Inc. v. Superior Court [(2007) 40 Cal.4th 360], at page 373, “[c]ontact information regarding the identity of potential class members is generally discoverable, so that the lead plaintiff may learn the names of other persons who might assist in prosecuting the case. [Citations.]
    This brings us to the key question in this case: the effect of the release forms. CAI argues that these forms gave their employees a heightened expectation of privacy in their contact information, requiring that the contact information be given greater protection and making an “opt in” notice procedure proper. We are unconvinced by this argument. ... Gentry also highlights the dangers of placing in the employer’s hands the responsibility for notifying employees of the pending litigation and requiring employees to opt in to the litigation. Current employees may decline to opt in to the litigation for fear of retaliation by their employer. This in turn could immunize the employer from liability for violation of statutory wage and overtime requirements. This would violate the public policy protecting employee rights. The public policy concerns expressed in Gentry weigh against enforcing a release form that may have the effect of waiving an employee’s right to notice of a pending class action lawsuit concerning the employer’s alleged violations of overtime and wage statutes. Gentry did not stop its analysis with public policy concerns, however. ... The language of the release forms was not sufficient to apprise employees that by checking the “no” box they were declining to have their contact information released to “plaintiffs seeking relief for violations of employment laws in the workplace that they shared.” (
    Puerto v. Superior Court, supra, 158 Cal.App.4th at p. 1253.) The release forms stated that CAI “may be asked to provide such information in the context of legal proceedings, including class action lawsuits.” We do not believe that a lay employee reading this language would realize that the reference to “class action lawsuits” meant lawsuits intended to vindicate their rights, rather than lawsuits by third parties against CAI that would be of no benefit to the employees. In other words, any “heightened” expectation of privacy the employees may have does not extend to situations in which CAI is required by law to disclose their contact information, including in the course of litigation.

    Furthermore, reading the note in the context of the release form as a whole, an employee reasonably would interpret the form to mean that checking the “no” box meant that CAI would not provide employee contact information to third parties seeking it for use “in the context of legal proceedings, including class action lawsuits,” unless compelled to do so by law. The trial court’s discovery order falls within this exception. Thus, the court followed Puerto and upheld the opt-out notice procedure.

    The form, for what it's worth, reads as follows:


    From time to time, Joe’s Crab Shack (the “Company”) may be asked to provide your contact information, including your home address and telephone number, to third parties. The Company may be asked to provide such information in the context of legal proceedings, including class action lawsuits.

    We understand that many employees may consider this information to be private and may not want it released. Accordingly, please indicate whether you consent to the disclosure of your contact information by marking the appropriate box.

    ‪___ No, I do not consent to the Company’s disclosure of my contact information to third parties.

    ___ Yes, I consent to the Company’s disclosure of my contact information to third parties.

    ___ I would like to be asked on a case-by-case basis whether I consent to the disclosure of my contact information to a particular third party, and my contact information should only be provided if I affirmatively consent in writing.

    You can download the full text of Crab Addison here in PDF or Word format. A petition for rehearing is pending. A request for leave to seek a modification of the opinion was denied.

    Unless we find something really interesting that we haven't seen before (perhaps a District Court or out-of-state decision), this is the last of the 2008 cases we'll be discussing. Next week, we'll start posting about the first half-dozen wage and hour cases of 2009.

    Another Certification Denial Reversed With Instructions

    Another trial court denial of class certification was reversed in Medrano v. Honda of North Hollywood (2008) 166 Cal.App.4th 89, a consumer case involving the sale of new and used Honda, Suzuki and Yamaha motorcycles, allegedly in violation of sections 11712.5 and 24014 of California’s Vehicle Code, which require sellers to attach a label, or “hang tag”, setting forth the manufacturer’s suggested retail price for the motorcycle and defendant’s added charges.

    The class representative brought claims under California’s Unfair Business Practices Act and its Consumer Legal Remedies Act, seeking injunctive and restitutionary relief. The trial court denied class certification on the grounds that dealers are not obligated to attach hang tags unless they are supplied by the manufacturer, the sales agreement plaintiff signed set forth the dealer-added costs, putting her on notice of those costs, and the class was not ascertainable because defendant’s records did not indicate which motorcycles had hang tags attached and which did not.

    Citing well-worn authorities, the Court of Appeal rejected each of the three bases. The defenses on the merits were not grounds for denial of certification, and on the ascertainability issue, a class is ascertainable if it identifies a group of unnamed plaintiffs by describing a set of common characteristics sufficient to allow a member of that group to identify himself or herself as having a right to recover based on the description. Bartold v. Glendale Federal Bank (2000) 81 Cal.App.4th 816, 828. Therefore, the order denying certification was reversed, and on remand, the trial court is directed to certify the class.

    You can download the full text of the opinion here in PDF or Word format. A petition for review was denied by the Supreme Court.

    Whereupon the District Court Dismisses All Remaining Claims

    If the only claim invoking federal court jurisdiction fails, do not count on the court exercising supplemental jurisdiction over remaining state law claims. Rojas v. Brinderson Constructors Inc. (C.D. Cal. 2008). 567 F.Supp.2d 1205.

    In Rojas, a wage and hour class action, the defendant moved for a dismissal under Rule 12(b)(6) on the plaintiff's Labor Code § 2810 claim, which the district court had previously dismissed with leave to amend. That claim was the only one, among plaintiff's six claims, over which the District Court had original jurisdiction. Judge Otis D. Wright II granted the motion, holding that the plaintiff failed to state a claim on which relief could be granted. That left nothing but five causes of action over which the U.S. District Court lacked original jurisdiction. "Where the federal head of jurisdiction has vanished from the case, and there has been no substantial commitment of judicial resources to the nonfederal claims, it is … akin to making the tail wag the dog for the District Court to retain jurisdiction." Murphy v. Kodz (9th Cir. 1965) 351 F.2d 163, 167-68. Therefore, the court declined to exercise supplemental jurisdiction over the state court claims, and the entire case was ordered dismissed.

    Plaintiffs fail to state a claim under California Labor Code section 2810, and this sixth cause of action is hereby DISMISSED WITHOUT LEAVE TO AMEND. The court declines to exercise supplemental jurisdiction over the remaining state law claims against Brinderson and, accordingly, claims one through five are also DISMISSED. Brinderson’s motions to dismiss, stay and/or strike are all rendered MOOT.

    You can download a copy of the Rojas order here in PDF.

    Bonus Calculations and Regular Rates of Pay

    Where a bonus payment is considered a part of the regular rate at which an employee is employed, it must be included in computing his regular hourly rate of pay and overtime compensation. No difficulty arises in computing overtime compensation if the bonus covers only one weekly pay period. The amount of the bonus is merely added to the other earnings of the employee (except statutory exclusions) and the total divided by total hours worked. Under many bonus plans, however, calculations of the bonus may necessarily be deferred over a period of time longer than a workweek. In such a case the employer may disregard the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained. Until that is done he may pay compensation for overtime at one and one-half times the hourly rate paid to the employee, exclusive of the bonus. When the amount of the bonus can be ascertained, it must be apportioned back over the workweeks of the period during which it may be said to have been earned. The employee must then receive an additional amount of compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocable to the bonus for that week multiplied by the number of statutory overtime hours worked during the week. 29 C.F.R. § 778.209(a).

    Applying that standard, the Court of Appeal in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 reviewed the bonus/overtime payment plan of Costco, and reversed a $5.3 million class action judgment.

    This case concerns the lawfulness of defendant Costco Wholesale Corporation’s formula for computing overtime compensation on semi-annual bonuses paid to hourly employees. The trial court determined that defendant’s bonus overtime formula for the class of employees who qualify for the maximum base bonus (plaintiffs) violates California law, and ordered use of a different formula.  We conclude that defendant’s formula violates neither California nor federal law, and reverse the judgment with directions to enter judgment for defendant.

    The description of the bonus and overtime payment plan goes on for several pages. If you have a bonus/overtime case that could be affected by the holding in Marin v. Costco, you can download the full text of the opinion here in PDF or Word format. A petition for rehearing is pending. A petition for review would appear likely.

    No Appeal of Class Certification Denial After You Settle

    If you lose a summary adjudication motion and motion for class certification, you cannot settle all of your individual claims and stipulate to the entry of a judgment bawed upon that settlement while still preserving your right to appeal the summary adjudication and class certification issued. If you try, your appeal will be dismissed as moot. Larner v. L.A. Doctors Hosp. Assocs. (2008) 168 Cal.App.4th 1291.

    Josephine Larner, a nurse, sued her former hospital employer for violation of overtime laws, purporting to represent a class of current and former nonexempt employees. The trial court granted in part the hospital’s motion for summary adjudication of Larner’s claim that the hospital failed to pay for overtime hours. Larner then amended her complaint, stating individual and class claims for failure to properly calculate overtime pay rates and for failure to keep accurate and complete wage records. The trial court denied Larner’s motion for class certification. The parties entered into a settlement agreement and stipulated to the entry of final judgment in favor of the hospital. Larner appeals both the summary adjudication of her overtime hours claim and the denial of her certification motion. We dismiss the appeal as moot. 

    “Generally, courts decide only ‘actual controversies’ which will result in a judgment that offers relief to the parties. [Citations.] Thus, appellate courts as a rule will not render opinions on moot questions . . . . The policy behind this rule is that courts decide justiciable controversies and will normally not render advisory opinions. [Citations.] [¶] One such event occurring for which a reviewing court will dismiss an appeal is when the underlying claim is settled or compromised.” (Ebensteiner Co., Inc. v. Chadmar Group (2006) 143 Cal.App.4th 1174, 1178-1179.) When a case has settled, dismissal of the appeal is the appropriate disposition because “settlement operates as a merger and ban as to all preexisting claims and those alleged in the lawsuit that have been resolved.” (Id. at p. 1179, citing Armstrong v. Sacramento Valley R. Co. (1919) 179 Cal. 648, 651].)

    This may not mean that a plaintiff cannot settle a case individually and still proceed with some classwide claims on behalf of others. See La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871. Individual relief to the named plaintiffs in a class action does not, in itself, render those plaintiffs unfit per se to represent the class. Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582, 594. A defendant’s offer to settle, by waiving its right to enforce a complained-of clause in a contract against class representatives, or by offering the named plaintiff reimbursement of fees the class action challenged as improperly deducted, does not necessarily end the class action. Even after an offer of individual relief, the named plaintiff may retain an interest in proceeding on behalf of the other members of the class who are similarly situated. If, because of such relief, the court concludes that the named plaintiff is no longer a suitable representative, the court should grant the plaintiff leave to amend the complaint to redefine the class, or add new class representatives, or both.

    You just can't do it by stipulating to a final judgment on the settlement after losing your class certification motion, and then appealing, as they did here. You can download the full text of Larner here in PDF or Word format. 

    Peculiar procedural detail: "After a number of continuances, the court set a final trial date of July 11, 2007 on Larner’s remaining claims. On May 23, 2007, Larner moved for certification of two separate classes, one for each of her two remaining issues: improper calculation of overtime rates and failure to keep accurate and complete wage records. The trial court denied the motion on June 20, 2007, because the motion was unduly tardy, because Larner’s claims were not typical of the proposed classes, and because the class definitions were overbroad." A certification motion set for hearing three weeks before trial? That must have been a nightmare.

    California Labor Laws, Non-Residents and Work Outside California

    Does the California Labor Code protect out-of-state residents who work in California? Can the California Unfair Competition Law be used as a long-arm statute to pursue remedies for FLSA violations that occur outside of California? Yes. And no. Non-Californians may invoke the Labor Code or the UCL for labor they perform in California, but cannot assert a cause of action under California’s UCL for violations of the FLSA which occurred outside the State of California. Sullivan v. Oracle Corp. (9th Cir. 2008) 547 F.3d 1177, 14 Wage & Hour Cas.2d (BNA) 321.

    We reverse the district court’s grant of summary judgment on Plaintiffs’ first two claims. We hold that California’s Labor Code applies to work performed in California by nonresidents of California. We affirm the district court’s grant of summary judgment on Plaintiffs’ third claim. We hold that § 17200 does not apply to allegedly unlawful behavior occurring outside California causing injury to nonresidents of California.

    You can download the full text of the case here in PDF.

    More on Reversions and Claims-Made Settlements

    Code of Civil Procedure § 384 governs the disposition of unpaid residuals in class action lawsuits. When a claims-made settlement results in some of the checks being returned as undeliverable, and some of the checks are never cashed, the unpaid funds constitute "unpaid residue" required to be paid under Code of Civil Procedure § 384 to "nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons," notwithstanding the claims-made nature of the settlement. Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718.

    In Cundiff, the parties reached an agreement for a claims-made settlement. Some of the class members submitted claims, but then did not receive or did not cash their settlement checks. At the end of the administration, more than $400,000 in funds remained undisbursed. Verizon wanted that money returned to Verizon, to be treated as if the intended recipient of the uncashed checks had never submitted a claim in the first place. Instead, the money must go to a charitible organization.

    Consider the possibility, however, that in wage and hour class actions, a different rule may apply. Code of Civil Procedure § 1513 provides that

    “Subject to Sections 1510 and 1511, the following property held or owing by a business association escheats to this state: … (g) Any wages or salaries that have remained unclaimed by the owner for more than one year after the wages or salaries become payable.”

    Adhering to that provision, it would appear that any unclaimed checks in a wage and hour settlement should escheat to the State of California’s unclaimed property program, at least to the extent that the checks represented wages.

    You can download a copy of Cundiff here in PDF or Word format. A depublication request was filed in December 2008 by the California Employment Law Council.

    Supreme Court Grants Review in Brinkley v. Public Storage

    A petition for review has been granted in Brinkley v. Public Storage, Inc. (2008) 167 Cal.App.4th 1278, the paystub violation and meal and rest break case that was published on October 28, 2008. As we predicted, the case was given a Rule 8.512(d) grant-and-hold review, and is now a companion case to Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25.

    The petition for review is GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant Corp. v. Superior Court, S166350 (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.

    George, C.J., was absent and did not participate. Votes: Corrigan, A.C.J., Kennard, Baxter, Werdegar, Chin and Moreno, JJ.

     We previously discussed Brinkley in posts that can be found here and here.

    Brinkley is no longer good law and cannot be cited in California courts. California Rules of Court, Rule 8.115 prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, and Rule 8.1105(e)(1) provides that unless otherwise ordered, an opinion is no longer considered published if the Supreme Court grants review.

    Briefing in the Brinker case gets underway next week.