U.S. Supreme Court: Rejected Settlement Offer Cannot "Moot" Plaintiff's Class Action Claim

Back in 2013, a 5-4 U.S. Supreme Court "assumed" in Genesis Healthcare v. Symczyk that an unaccepted "offer of judgment" could moot a plaintiff's class action, if the offer would have provided the plaintiff complete relief on her individual claim. We posted about that here.

The Court chose not to address the issue directly because of the way the case had been litigated.  As a result of the assumption, though, the court held that the plaintiff's decision to ignore the settlement offer took her out of the case, leaving the case without a proper named plaintiff.  Because the Court "assumed without deciding" the issue, it had no binding effect on lower courts.

Fast-forward to now, and the Court directly addressed the "assumed" issue above, and came out the other way.  This time, in Campbell-Ewald Company v. Gomez, the Court adopted the Genesis Healthcare dissent's position:  the unaccepted offer of compromise does not affect the plaintiff's right to continue litigation on behalf of the class. Let me explain.

Gomez was a recipient of a "spam" text message, for which he claimed he had not opted in. Campbell-Ewald Company, via a sub-contractor, sent the text message on behalf of the Navy. The Navy had hired Campbell to help with a recruiting campaign.

Gomez sued on behalf of a class of other recipients under a federal law not related to employment law. During the litigation, Campbell made an "offer of judgment" under Federal Rule of  Civil Procedure 68, under which Gomez would receive full payment for the text messages he received, including "treble damages." The offer included a proposed injunction, but no attorney's fees, and no relief for the other potential class members. (The statute does not provide for attorney's fees. The court had not yet granted class certification.)

Gomez let the offer lapse, resulting in a rejection. Campbell then asked the district court to dismiss the case. Campbell argued that its expired offer rendered Gomez's claim "moot" because he could not hope to recover more than Campbell had offered.  Campbell also argued that, as a federal contractor, it was immune from suit.  I'm focusing on the mootness argument here. The district court and 9th circuit rejected both arguments.

So, the Supreme Court had to decide if the unaccepted offer resulted in the case being "moot." Mootness is a doctrine that federal courts use to ensure that they are deciding "live" controversies, required by the Constitution.   A case may be moot if the plaintiff no longer has any personal stake in the litigation.

The 5-4 majority, led by Justice Ginsburg, decided that Campbell's offer did not mean Gomez had no personal stake in the litigation:

Having rejected Campbell’s settlement bid, and given Campbell’s continuing denial of liability, Gomez gained no entitlement to the relief Campbell previously offered. See Eli- ason v. Henshaw, 4 Wheat. 225, 228 (1819) (“It is an undeniable principle of the law of contracts, that an offer of a bargain by one person to another, imposes no obligation upon the former, until it is accepted by the latter . . . .”). In short, with no settlement offer still operative, the par- ties remained adverse; both retained the same stake in the litigation they had at the outset.

 * * *

Because Gomez’s individual claim was not made moot by the expired settlement offer, that claim would retain vitality during the time involved in determining whether the case could proceed on behalf of a class. While a class lacks independent status until certified, see Sosna v. Iowa, 419 U. S. 393, 399 (1975), a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.

The majority of course is correct that once expired, the offer could not be accepted. But the majority's decision weakened the point of Rule 68.  Rule 68 is supposed to end litigation early, and penalize parties who continue with litigation when they are offered a viable settlement.  

Justice Thomas concurred in the judgment, adding a sixth vote in favor of Gomez.  Justice Thomas, however, did not agree with the majority opinion. Rather, he focused on the fact that Campbell did not actually "tender" the settlement funds, and denied liability.  Historically, Justice Thomas noted, Campbell's actions were not enough to end the case. Therefore, there was no basis to hold the case was moot.

Chief Justice Roberts, writing for himself, and Justices Scalia and Alito dissented. They opined that Campbell offered Gomez what he wanted the district court to award him under federal law:

When a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III. After all, if the defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court, and the defendant’s interests are not adverse to the plaintiff.

Seizing on language in the majority opinion, the Chief Justice suggested that there is a way for defendants to moot future plaintiffs claims by actually paying the offered sums:

The good news is that this case is limited to its facts. The majority holds that an offer of complete relief is insufficient to moot a case. The majority does not say that payment of complete relief leads to the same result. For aught that appears, the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the District Court. See ante, at 11–12. This Court leaves that question for another day—assuming there are other plaintiffs out there who, like Gomez, won’t take “yes” for an answer.

 The majority did not actually decide this question. Therefore, it remains to be seen whether five justices will hold that paying an offer into Court will moot a plaintiff's case in a class action.  Stay tuned. 

This case is Campbell-Ewald Company v. Gomez and the opinion is here. 

Two Recent California Employment Law Decisions of Note

I know I haven't been blogging as much lately. I don't want to let you three readers down.
I'll try to do better.  Sometimes I think this blog has run its course, but then I get a meaningful piece of hate mail and my faith is restored.

Don't worry, you can catch up on all of the year's significant decisions at our upcoming legal update, which you can attend in person or via a convenient webinar.

Here are two recent employment law opinions of note, briefly summarized -

Class Action - No Precertification Discovery to Find New Plaintiff When Original Plaintiff Had No Case.

The plaintiff alleged that CVS has a policy under which it automatically terminates employment of those who perform no work for 45 consecutive days.  (It seems unlikely that such a policy would exist without containing any exceptions, given the need for FMLA/ CFRA / PDL leave).

The problem is that the plaintiff herself did not miss 45 days of work and was not fired under that policy. She was dismissed for lack of standing.

But the plaintiff's attorneys tried to obtain discovery of all the names and addresses of everyone fired under the alleged policy, despite the lack of a viable client.

There is case law allowing the search for a new plaintiff in class action cases, but only when the original plaintiff had some sort of viable case.  Here, the court of appeal was having none of it:

Deluca was never a member of the class she sought to represent. She does not claim a disability and CVS did not terminate her. We are hard pressed to explain why the trial court stated it “does not find that Deluca or her counsel had no reasonable, good faith belief that she lacked standing when the suit was initiated.”  * * * *

Class actions rest on considerations of equity and justice. Based on the facts before us, and applying the Parris test, we find the actual or potential abuse of the class action procedure outweighs the potential benefits that might be gained. Therefore, the trial court abused its discretion in allowing the proposed precertification discovery.

This case is CVS Pharmacy, Inc. v. Superior Court and the opinion is here.


Retaliation Claims Under Lab. Code Section 1102.5(b) Are Independent from Common Law Wrongful Termination (Tameny) Claims

The plaintiff in Cardenas v. Fanaian, DDS was a nurse who lost her wedding ring at work.   She filed a police report. The dentist / practice owner objected and fired the nurse. She sued under Labor Code section 1102.5, which prohibits retaliation against employees who report illegal conduct to law enforcement.  She also sued for wrongful termination in violation of public policy.   The jury awarded her damages.

On appeal, the defense lawyers mishandled the arguments according to the court of appeal. However, the court decided NOT to rule on the applicability of the wrongful termination claim.  There was a good argument that her "complaint" that someone stole her ring was not a "public" policy issue.

On the statutory claim, though, you can't fire someone for going to the police about a co-worker:

The special verdict findings bring this case squarely within the parameters of section 1102.5. The jury determined that Cardenas reported a workplace theft of her property to the police. Theft is a violation of the law. (Pen. Code, § 484.) The jury found that she was subsequently terminated from her employment and that her report to the police was a motivating reason for her termination. Thus, she engaged in protected activity, was subjected to an adverse employment action and there was a causal link between the two. (McVeigh, supra, 213 Cal.App.4th at p. 468.) She met all of the statutory elements of a claim under section 1102.5. She was not required to prove anything more.

So, this case is significant because section 1102.5 does not require reports about the employer's wrongdoing pertaining to business issues.  Rather, the law prohibits retaliation even if the employee makes a report to the government about something entirely unrelated to the employer.

The opinion in Cardenas v. Fanaian is here.

CA Supreme Court: On-Premises, On-Call Time = Hours Worked (All Sleeping Time Too).

The California Supreme Court (unanimously) affirmed the Court of Appeal's decision in Mendiola v. CPS Security Solutions, Inc.  We posted about the Court of Appeal's decision here.  However, the Supreme Court actually went farther than the Court of Appeal in deciding that security guards' on-premises, on-call time is compensable as hours worked.

At issue were security guards who were required to remain on premises and on call at times when they were not active.  When "on-call" time applied, they could stay in trailers provided for their use on the construction sites to which they were assigned.  They were paid for time actually worked, but not for time they were "on call" in the trailers. There are more details in the post linked above.

The Supreme Court agreed with the court of appeal that the on-call time involved significant enough employer control to constitute hours worked.  Here's some of the key analysis:

California courts considering whether on-call time constitutes hours worked have primarily focused on the extent of the employer’s control.  * * * Indeed, we have stated that “[t]he level of the employer’s control over its employees . . . is determinative” in resolving the issue. * * *  ‘When an employer directs, commands or restrains an employee from leaving the work place . . . and thus prevents the employee from using the time effectively for his or her own purposes, that employee remains subject to the employer’s control.  According to [the definition of hours worked], that employee must be paid.’ ”  (Id. at p. 583.)
Courts have identified various factors bearing on an employer’s control during on-call time:  “ ‘(1) whether there was an on-premises living requirement;  (2) whether there were excessive geographical restrictions on employee’s movements;  (3) whether the frequency of calls was unduly restrictive;  (4) whether a fixed time limit for response was unduly restrictive;  (5) whether the on-call employee could easily trade on-call responsibilities;  (6) whether use of a pager could ease restrictions; and  (7) whether the employee had actually engaged in personal activities during call-in time.’  ([Owens v. Local No. 169 (9th Cir. 1992) 971 F.2d 347,] 351, fns. omitted.)”  (Gomez v. Lincare, Inc. (2009) 173 Cal.App.4th 508, 523-524 (Gomez).)    Courts have also taken into account whether the “[o]n-call waiting time . . . is spent primarily for the benefit of the employer and its business.”  

The Supreme Court, applying these factors, easily found sufficient control:

The guards here were required to “reside” in their trailers as a condition of employment and spend on-call hours in their trailers or elsewhere at the worksite.  They were obliged to respond, immediately and in uniform, if they were contacted by a dispatcher or became aware of suspicious activity.  Guards could not easily trade on-call responsibilities.  They could only request relief from a dispatcher and wait to see if a reliever was available.  If no relief could be secured, as happened on occasion, guards could not leave the worksite.  CPS exerted control in a variety of other ways.  Even if relieved, guards had to report where they were going, were subject to recall, and could be no more than 30 minutes away from the site.  Restrictions were placed on nonemployee visitors, pets, and alcohol use. 

Additionally, the Court of Appeal correctly determined that the guards’ on-call time was spent primarily for the benefit of CPS.  

So, we're not talking about a beeper or a requirement that on call employees call into work within 30 minutes of a page.  We're also not talking about special rules applicable to ambulance drivers. We're talking about people required to live on the premises during on-call periods. We are also not talking about the specific sleep provisions contained in Wage Order 5 and 9. So,
relax those of you who have on-call employees who are not required to stay at work.

Of note, though, the Court rejected federal regulations that allow on-premises employees to be uncompensated when they are free to engage in personal pursuits.  Therefore, the level of control that one must exercise over an on-premises employee is not dependent on federal case law.

The Court of Appeal cut CPS some slack, holding that an employee could agree that 8 of a 24 hour shift was unpaid sleep time under certain conditions. But the Supreme Court was having none of it.
Analyzing the control issue, the Court said that the employees were sleeping on premises, they were restricted and, therefore, they were "engaged to wait."

Finally, the Court took a slap at the Legislature concerning the difficulty employers have in deterring how to conduct themselves under the myriad wage hour laws:

We acknowledge CPS’s efforts to ascertain whether its policy complied with California’s labor laws and recognize the difficulty it and other employers can face in this regard.  Several factors may contribute to ongoing uncertainty, including the defunding of the IWC and the lack of adequate funding for DLSE enforcement.  Such issues, however, must be addressed by the Legislature

So, employers should ensure that their on-call policies comply with this new decision, particularly employers who exercise significant control.  The Court did not reject or modify the multiple factor test for on-call employees who are not required to live or sleep on premises.

The case is Mendiola v. CPS Security Solutions and the opinion is here.

.

9th Circuit Upholds Statistical Sampling to Determine Liability in Off the Clock Overtime Class Action

Allstate re-classified its adjusters to be non-exempt some years back.  Rather than require employees to keep their work time on time sheets or use a time clock, the employees were paid a standard eight hours per day / 40 hours per week.  However,

the manager of each local office has the power to file a timekeeping “exception” or “deviation” from the default expectation of 8 hours per day and 40 hours per week. This adjustment takes place when a claims adjuster’s request for overtime or early leave is approved. Managers do not adjust time cards based on either their own observations of work habits or on the technological records contained in computer and telephone systems. Each local office has a nonnegotiable compensation budget, which creates a functional limit on the amount of overtime a manager may approve.

Auto-punching, overtime pay only upon request, and a budget restricting overtime... What could go wrong?  

Right.  Jiminez, an adjuster, filed a class action. He claimed Allstate had an "unofficial policy" of discouraging employees from reporting overtime.  As a result, he and the class  members worked "off-the-clock" overtime for which they were not compensated.

Of note, the panel approved a district court's formulation of the elements of an off the clock work claim as follows:

Under California law, there are three elements of an off-the-clock claim of the type raised by the class here: “[A] plaintiff may establish liability for an off-the-clock claim by proving that (1) he performed work for which he did not receive compensation; (2) that defendants knew or should have known that plaintiff did so; but that (3) the defendants stood idly by.” Adoma v. Univ. of Phoenix, Inc., 270 F.R.D. 543, 548 (E.D. Cal. 2010) (internal quotation marks omitted).

Unfortunately, the court did not also cite Jong v. Kaiser Found. Hospital, a California decision (prior post here).

Anyway, the Court of Appeals here agreed with the district court that the class action should be certified.  The district court found these common questions predominated over individual ones:

(i) whether class members generally worked  overtime without receiving compensation as a result of Defendant’s unofficial policy of discouraging reporting of such overtime, Defendant’s failure to reduce class members’ workload after the reclassification, and Defendant’s policy of treating their pay as salaries for which overtime was an “exception”; (ii) whether Defendant knew or should have known that class members did so; and (iii) whether Defendant stood idly by without compensating class members for such overtime.

The Court of Appeals decided that these common questions would resolve the "common issue" of whether Allstate could be liable for off-the-clock work.  You may ask how a class can prove that its employees worked under the "unofficial" policy or the "official" policy requiring payment for all overtime?  

With statistics, that's how.  The Ninth Circuit panel held that the statistical models proposed by the plaintiff, and approved by the district court, could be used to prove liability:

the district court carefully analyzed the specific statistical methods proposed by plaintiffs. It struck some of the expert testimony offered by plaintiffs as insufficiently empirically supported and took pains to ensure that the statistical analysis it did accept conformed to the legal questions to which the analysis was being applied. Unlike the putative class in Comcast, 133 S.Ct. at 1434, which relied on
statistical analysis that was not closely tied to the relevant legal questions, or in Duran, 325 P.3d at 940, which used a sample of 20 names drawn from a hat without evidence showing that the number of names chosen or the method of selection would produce a result that could be “fairly extrapolated to the entire class,” the district court has accepted a form of statistical analysis that is capable of leading to a fair determination of Allstate’s liability, and preserved the rights of Allstate to present its damages defenses on an individual basis.

Allstate argued that the "unofficial policy" did not exist and that it had strong policies against off-the-clock work. But the court held that this argument was properly made at trial rather than certification:

Allstate argues that its formal policies which call for employees to be  paid for all overtime worked are lawful, and that the alleged informal “policy-to-violate-the-policy” does not exist. This argument is appropriately made at trial or at the summary judgment stage, as it goes to the merits of the plaintiffs’ claim. See In re Whirlpool Corp. Front-Loading Washer Products Liab. Litig. , 722 F.3d 838, 857 (6th Cir. 2013) (noting that if a defendant has a strong argument against classwide liability, it “should welcome class certification” as that allows it the opportunity to resolve claims of all class members at once). Whether any of these common questions are ultimately resolved in favor of either side is immaterial at this class certification stage, where we determine whether any answer that the questions could produce will drive resolution of the class’ claims.

So, take-aways: 

- "auto-clocking" is not a good practice if you want to avoid off-the-clock class actions.  

-  courts are continuing to certify now, ask about liability later.  

- statistical sampling can be used to determine liability without violating due process, at least for now. The U.S. Supreme Court has yet to rule on this issue.

This case is Jimenez v. Allstate Ins. Corporation and the opinion is here.

California Supreme Court Narrows the Inside Sales Exemption in California

The California Supreme Court unanimously decided the following:  "an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California‟s compensation requirements."

This decision will affect employers and employees trying to qualify for the inside sales exemption for sure, which was the issue before the court.  Will it affect other areas of wage-hour law?  What other areas?  Gee, you ask a lot of questions.   Read on.

Here are the relevant facts per the Court:

From July 2008 to May 15, 2009, Susan Peabody was a Time Warner account executive selling advertising on the company's cable television channels. Every other week, Time Warner paid $769.23 in hourly wages, the equivalent of $9.61 per hour, assuming a 40-hour workweek. About every other pay period, Time Warner paid commission wages under its account executive compensation plan.

Peabody claimed she worked more than 40 hours per week.  In some weeks, she worked 48 hours.  In those weeks, she would earn less than minimum wage per hour if there was no commission payment that week.

Hold the phone - Time Warner claimed Peabody was an exempt, inside sales person.  To qualify under the inside sales exemption, she must, among other things, satisfy two compensation criteria.  The one that matters here is "'that an employee's 'earnings exceed one and one-half (1 1/2) times the minimum wage” (ibid.), i.e., $12 per hour. '"

Peabody of course did not earn $12.00 per hour in base pay.  As shown above, she earned less than $10.00 per hour. So, for the exemption to apply, commissions would have to make up the difference.

Time Warner paid its commissions about once a month.  And therein lies the issue the Court decided.  Could Time Warner allocate the monthly commission payments over the course of the month in which they were paid?   Could Time Warner allocate the commissions across the time period during which the commissions were "earned"?

No, no, and.....no, said the California Supreme Court, unanimously.  Yes that was three "nos."

It was clear in this case that Peabody did not receive 1.5 times minimum wage for the hours worked on many of her paychecks.  Time Warner argued that the commissions it paid Peabody "counted" towards the period during which the commissions were "earned."  So, if the commission check was paid on March 23 for commissions earned in February, then the minimum wage calculation had to take into consideration those commission wages.

Agreeing with Peabody, the Court rejected that argument.  The Court held that commissions may be earned over time. It may be that a sale occurs in January, but is not earned until payment is received in April.  That's fine with respect to wage-hour law governing commissions.

But if the commission check is paid in April because the commissions are finally earned, then those commissions are counted towards minimum wage only during the (bi-weekly or semi monthly) pay period  for which the pay check is paid.

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.

The Court then explained why it was making satisfying the exemption difficult:

Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption‟s minimum earnings prong. 

Finally, the court refused to rely on Fair Labor Standards Act cases interpreting the federal inside sales exemption, aka "7(i)."  Under federal law, the employer may pay commissions at greater intervals than per pay period and still comply with the exemption.

So, bottom line re inside sales exemption in California:

- to satisfy the exemption, the employee must receive in each pay check at least 1.5 times the minimum wage, for the hours worked during the applicable workweeks covered by that pay check. That means $13.50 per hour worked, starting July 1 of this year.  An employer who pays commissions less frequently than semi-monthly or bi-weekly must pay a sufficient hourly rate to ensure the 1.5 times minimum wage threshold is met.

-  This requirement will increase the non-commission earnings, by increasing the hourly pay required to maintain the exemption. That will have two consequences. First, payroll expense will increase absent a reduction in the commission rate.  Second, the inside sales exemption depends on a second criterion:  the employee must make more than 50% of wages from commission.  Paying a higher hourly rate will make it harder for employers to meet that 50% threshold.

Moving on... on the bright side the Court unanimously endorsed the view that commissions are earned when conditions are met, even if there is a delay between when a sale occurs and when commissions are earned:

an employment agreement may require receipt of a client's payment before any commissions on sold advertising are earned. If a client routinely pays its bills on the 15th of each month, commissions will be earned and owed once a month. Yet this does not create a monthly pay period in contravention of section 204(a). To summarize, section 204 establishes semimonthly pay periods, but there is no obligation to pay unearned commission wages in any pay period. Commissions are owed only when they have been earned, even if it is on a monthly, quarterly, or less frequent basis.

(emphasis is mine).

Finally, some thoughts:

-   If commissions are only counted towards minimum wage in the pay period during which they are actually received, will that holding also affect the "regular rate of pay" calculation in California?  Overtime pay is based on the "regular rate of pay."  The "regular rate of pay" can include hourly wages and commissions.  The calculation of the "regular rate" may include allocating periodic payments like bonuses or commissions over the periods during which they are earned. So, if  commissions are only counted towards wages earned in the pay period in which payment is made, then should those commissions be counted for overtime earnings purposes only during that same pay period?

If this Peabody rule applies outside the inside sales exemption context, then during the pay period when the commission check is received, there will be a high regular rate of pay, and during non-payment weeks, the regular rate of pay will be low.   That could drastically affect employees' overtime pay calculations.  What about quarterly bonuses?  If Peabody is extended to overtime calculations, will "retroactive" overtime still be due for pay periods during which the bonuses were not paid?

My guess is that the courts will continue to allocate periodic payments over longer periods of time for overtime purposes.  For one thing the allocation of commissions or bonuses over more than one pay period for overtime purposes is settled federal law, and California appears to have followed that rule.

-  I still want to know if the inside sales exemption is valid in California under Wage Order 4, which applies to businesses that do not involve a "retail concept."  Under federal law, there is no inside sales exemption outside of retail, e.g., you can't have an  exempt, inside salesperson at a hospital.   Under state law, there appears to be a broader exemption because non-retail employees can qualify for the state exemptoin. If federal law requires overtime, but a state law exemption applies, isn't that an issue?  Can you be exempt under state law, but non-exempt under federal law?  (I also ask a lot of questions.)

The case is Peabody v. Time Warner Cable and the opinion is here.

Be careful out there!

Greg

California Supreme Court Again Weighs in on Class Certification

The California Supreme Court decided Duran v. U.S. Bank Nat. Assn., 59 Cal.4th 1, just a few weeks ago.  We  discussed that here.  That was a major decision on class actions.  The Court there explained how courts are to consider whether to certify a class action. The Court suggested that trial courts must consider not only whether there are "common questions" but whether a class action is "manageable" in that the individual issues won't drown the trial court. From the opinion in Duran:

In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.

Now, the Court has issued another class-action-related opinion in Ayala v. Antelope Valley Newspapers, Inc., opinion here.  Here, the court considered another "misclassification case," one involving the issue of independent contractors.  The Court's focus again was whether common issues "predominate" and how trial courts make that determination.

Curiously, other than a quick cite to the opinion for an unremarkable proposition of law, there is no discussion of Duran in this latest case.  Perhaps that is because this case is a roadmap to certification of independent contractor v. employee class actions.

In Ayala, the plaintiff's case involves the test for employee v. independent contractor status.  The Court made clear that to determine whether common issues predominate, one must look at the nature of the legal claims.  Said the Court:

We begin by identifying the principal legal issues and examining the substantive law that will govern. In doing so, we do not seek to resolve those issues. Rather, the question at this stage is whether the operative legal principles, as applied to the facts of the case, render the claims susceptible to resolution on a common basis. (Brinker, supra, 53 Cal.4th at pp. 1023–1025; Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327 [the focus ―is on what type of questions—common or individual—are likely to arise in the action, rather than on the merits of the case‖].) 

* * *

A court evaluating predominance ―must determine whether the elements necessary to establish liability [here, employee status] are susceptible to common proof or, if not, whether there are ways to manage effectively proof of any elements that may require individualized evidence.‖ (Brinker, supra, 53 Cal.4th at p. 1024.)

So, it's more than just the plaintiff's "theory" that drives whether issues are common. That "theory" has to be valid within the context of the substantive law.

Here, the theory was that Antelope Valley's "right to control" its newspaper carriers rendered them employees, rather than independent contractors.  That indeed is the central issue in employee v. independent contractor cases.  So, the Court evaluated whether that right to control was susceptible to resolution via common proof.

at the certification stage, the relevant inquiry is not what degree of control Antelope Valley retained over the manner and means of its papers‘ delivery. It is, instead, a question one step further removed: Is Antelope Valley‘s right of control over its carriers, whether great or small, sufficiently uniform to permit classwide assessment? That is, is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers? Alternatively, did its rights vary substantially, such that it might subject some carriers to extensive control as to how they delivered, subject to firing at will, while as to others it had few rights and could not have directed their manner of delivery even had it wanted, with no common proof able to capture these differences?

The Court then assessed whether the trial court properly decided that Antelope Valley's "right to control" the carriers was susceptible to common proof.  The Court decided the trial court applied the wrong analysis, because it focused on the degree to which Antelope Valley actually exercised control. The trial court believed that because it did not uniformly exercise control, the case would splinter into mini-trials of whether each carrier was a contractor or employee.

The Supreme Court instead focused on Antelope's contract with the carriers, which was uniform in that it applied to all of the carriers.  The contract specified the "right to control," thereby providing a sufficient "common issue":

At the certification stage, the importance of a form contract is not in what it says, but that the degree of control it spells out is uniform across the class. Here, for example, the two form contracts address, similarly for all carriers, the extent of Antelope Valley‘s control over what is to be delivered, when, and how, as well as Antelope Valley‘s right to terminate the contract without cause on 30 days‘ notice.

* * *

Evidence of variations in how work is done may indicate a hirer has not exercised control over those aspects of a task, but they cannot alone differentiate between cases where the omission arisesbecause the hirer concludes control is unnecessary and those where the omission is due to the hirer‘s lack of the retained right. That a hirer chooses not to wield power does not prove it lacks power. (Malloy, at p. 370 [―It is not essential that the right of control be exercised or that there be actual supervision of the work of the agent.

The Court summarized:

For class certification under the common law test, the key question is whether there is evidence a hirer possessed different rights to control with regard to its various hirees, such that individual mini-trials would be required. Did Antelope Valley, notwithstanding the form contract it entered with all carriers, actually have different rights with respect to each that would necessitate mini-trials?

Then the Court explained how to address whether there is variation in the right to control, such that there is no "common" question.  For example, the Court explained that, despite the written contract, there could be evidence of the parties' course of dealing that showed individual rights to control depending on the carrier involved.  The Court explained that when there is a dispute in the evidence over the central issue, a trial court must consider it if certification "depends on" resolution of that dispute:

The extent of Antelope Valley‘s legal right of control is a point of considerable dispute; indeed, it is likely the crux of the case‘s merits. To address such an issue on a motion for class certification is not necessarily erroneous. We recently reaffirmed that a court deciding a certification motion can resolve legal or factual disputes: ―To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.‖ (Brinker, supra, 53 Cal.4th at p. 1025; see Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 990–991.) But we cautioned that such an inquiry generally should occur only when ―necessary.‖ (Brinker, at p. 1025.) The key to deciding whether a merits resolution is permitted, then, is whether certification ―depends upon‖ the disputed issue. (Ibid.)

Finally, the Court addressed the "secondary factors" that apply in independent contractor cases.  These include who specifies the location of the work, whether the contractor uses his or her own tools, how the relationship is terminated, the form of compensation, etc.  The Court wrote that trial courts must weigh individual v. common issues, but give special weight to whether the "more important" factors are susceptible to common proof. 

Accordingly, the impact of individual variations on certification will depend on the significance of the factor they affect. Some may be of no consequence if they involve minor parts of the overall calculus and common proof is available of key factors such as control, the skill involved, and the right to terminate at will; conversely, other variations, if they undermine the ability to prove on a common basis the most significant factor or factors in a case, may render trial unmanageable even where other factors are common. The proper course, if there are individual variations in parts of the common law test, is to consider whether they are likely to prove material.

All 7 justices agreed the trial court erred. But the majority opinion, by Justice Werdegar, is joined by  (Liu, Kennard, Corrigan, and CJ. Cantil-Sakauye).  Justice Baxter wrote a concurring opinion, joined by Justice Corrigan, in which he argued that most of the majority's opinion was unnecessary to the decision.  It is a bit strange that Justice Corrigan joined Justice Baxter's concurrence, but also joined the majority opinion.  And Justice Chin concurred in the result only, authoring a long opinion explaining his view of the record and the flaws in the majority's analysis. 

So, bottom line:

- The California Supreme Court's recent decisions in Duran and Ayala have clarified class certification practice. However, on the whole, class certification will be easier to obtain.

- Class action defense must change strategies to defeat certification.  The proffered "differences' among the putative class members have to concern the common issues advanced by the plaintiff.  

- Larger employers facing class actions in a variety of contexts may wish to consider arbitration agreements containing class action waivers.

- Companies relying on large groups of independent contractors to perform aspects of their work should review their independent contractor agreements and consider (1) whether the classification is defensible and (2) whether the "right to control" is common enough to allow for class certification, or whether the agreement can build in variations in the right to control.

California Supreme Court's Class Action Decision in Duran

Employees and employers alike have awaited the California Supreme Court's opinion in Duran v. U.S. Bank Natl Assoc. for some time.  Our little firm submitted an "amicus curiae" brief on behalf of the California Chamber of Commerce, supporting the employer (available here).  And, we're happy to say, the Court saw things our way, not that we are taking credit. #humblebrag.

That said, as the California Supreme Court is wont to do lately, the Court left a lot open to interpretation and further litigation.  There are some guidelines, but no bright line rules.  So, let's see what we have ....

Duran and the class were loan officers. USB classified them as outside sales, who are exempt if they spend more than 50% of their time outside the office making sales.

Per the Court:

After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

You don't hear about many class action trials.  In fact, this was one of the only cases in California history to go to trial on an exemption case.  The trial court, apparently believing 260 class members should not be testifying about their duties, selected 21 people, at random, to testify.  Then, statisticians testified how much overtime the 260 people worked to calculate their damages.

So, about 240 employees did not testify about their duties or their time worked at all. US Bank had this notion that it should be able to prove employees are exempt by using any employee or manager's testimony, and that any employee who did not deserve overtime should not be paid based on a statistical extrapolation.  The trial court would not allow any such testimony.

The Court of Appeal agreed with US Bank, holding that the plaintiff's statistical proof of liability violated USB's entitlement to due process of law.  As such, the Court reversed the $15 million judgment.

The Supreme Court upheld the Court of Appeal in full, unanimously. So, this case will be sent back to the trial court for a new trial, and a new fight over class certification.  The Supreme Court did not rule on the constitutional "due process" issue.   The Court also did not draw any bright line rules about whether statistical evidence is appropriate at the liability phase.  But the Court strongly criticized the superior court's methods, and there is very helpful language for employers.  There is some helpful language for the plaintiff's bar too.

Here are the main takeaways with supporting quotes:

1.  Courts must consider not just whether there are common questions, but also whether it is feasible to try those common questions in one proceeding:

In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.

2.  The issue of "manageability" is a co-equal and separate issue from whether common questions predominate.  Manageability goes to whether the class action is "superior" to individual lawsuits:

Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. ... In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)

* * *

Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.

3.  Class certification in wage-hour cases alleging misclassification will depend on whether individual questions predominate as to the liability for overtime, not the amount of overtime pay due:

Defenses that raise individual questions about the calculation of damages generally do not defeat certification. (Sav-On, supra, 34 Cal.4th at p. 334.) However, a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability. This distinction is important. As we observed in City of San Jose v. Superior Court, supra, 12 Cal.3d at page 463: “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.”

4.  Class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work:

Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.

5.  Statistical proof cannot establish liability without additional "glue" binding a class together.  Courts should consider whether statistical proof is a viable way of handling individual issues at the certification stage:

if sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling. Statistical methods cannot entirely substitute for common proof, however. There must be some glue that binds class members together apart from statistical evidence. . . .

If statistical evidence will comprise part of the proof on class action claims, the court should consider at the certification stage whether a trial plan has been developed to address its use. A trial plan describing the statistical proof a party anticipates will weigh in favor of granting class certification if it shows how individual issues can be managed at trial. Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable.

And

While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.

And, this language, which casts some doubt on how there can be statistical proof of liability in mis-classification cases that are fact intensive:

We need not reach a sweeping conclusion as to whether or when sampling should be available as a tool for proving liability in a class action. It suffices to note that any class action trial plan, including those involving statistical methods of proof, must allow the defendant to litigate its affirmative defenses. If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of the parties.

6.   The employer's "blanket" classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.

7.  The way to defeat certification remains by demonstrating that individual issues will swamp the common ones.

. . . USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.

In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.

8.  The trial of a class action must allow for litigation of affirmative defenses.  Therefore, courts evaluating certification must weigh that litigation in deciding the manageability issue.  If a court does not make this finding at the certification stage, the certification is reversed:

Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.

* * * 

the trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams, (2007) 549 U.S. 346, 353.)

9.  Classwide liability in misclassification cases is possible, but just got harder:

This is not to say that an employer’s liability for misclassification may never be decided on a classwide basis. A class action trial may determine that an employer is liable to an entire class for misclassification if it is shown that the employer had a consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption.

10. Statistical proof may be allowed to prove damages. However, estimates of damages cannot be based on overtime that was worked by those employees found to be exempt. That alone creates a major impediment to class-wide trials in misclassification cases.

So, I'm sure others will have more to say.  But this is a lot.  Although the Supreme Court's unanimous opinion is not definitive about the use of sampling and statistics for liability, the Court has left only a narrow gap in the door.

This case is Duran v. U.S. Bank Nat. Assn. and the opinion is here.

Court of Appeal: Employer Not Responsible for Off-the-Clock Work

Kaiser won summary judgment against an employee who claimed he was working off the clock, contrary to Kaiser policy and procedures for reporting time worked.

To recover on a claim for unpaid work time, the employee must prove that the employer knew or should  have known (via the exercise of reasonable care) that the employee was working off the clock. That is called "actual" or "constructive" knowledge.  This court distinguished between "should" have known and "could" have known.  That is, it is not enough for the employee to argue that the employer somewhere had enough data to infer that an employee was working off the clock. Quoting analogous federal authorities interpreting the federal Fair Labor Standards Act, the Court of Appeal explained:

In Forrester v. Roth’s I.G.A. Foodliner, Inc. (9th Cir. 1981) 646 F.2d 413, the court held that “where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation of § 207.” (646 F.2d at p. 414.) “An employer must have an opportunity to comply with the provisions of the FLSA. This is not to say that an employer may escape responsibility by negligently maintaining records required by the FLSA, or by deliberately turning its back on a situation. However, where the acts of an employee prevent an employer from acquiring knowledge, here of alleged uncompensated overtime hours, the employer cannot be said to have suffered or permitted the employee to work in violation of § 207(a).” (Id. at pp. 414-415; see also, e.g., Kellar v. Summit Seating, Inc. (7th Cir. 2011) 664 F.3d 169, 176-178; cf. Brown v. Scriptpro, LLC (10th Cir. 2012) 700 F.3d 1222, 1230-1231.) This qualification was implicitly endorsed by our Supreme Court in a different context (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 585 [“ ‘ “[T]he words ‘suffer’ and ‘permit’ as used in the statute mean ‘with the knowledge of the employer.’ ” ’ ”]

Here is what the plaintiff-employee testified to:

Jong acknowledged that he “knew of Kaiser’s written policy that OPMs should be clocked in whenever they were working,” that he was always paid for time he recorded on Kaiser’s recording system, including overtime hours, that he was instructed he was eligible to work and be paid for overtime hours, that there was never an occasion when he requested approval to work overtime that was denied and there were occasions when he worked and was paid overtime even though he did not seek pre-approval, that he was not told by any of his managers or supervisors or any other Kaiser management personnel that he should perform work before he clocked in or after he clocked out or otherwise work off-the-clock,1 and that he signed the attestation form and understood it was an attestation that he would not work off-the clock.

The plaintiff tried to get around that testimony by arguing that Kaiser knew he was working off the clock - or should have known - because other employees dong the same job testified that they were working off the clock; sort of "me-too" wage hour evidence.

Agreeing with the trial court, the Court of Appeal held that "me too" evidence was irrelevant:

Under these admitted circumstances, evidence that Kaiser was aware that many OPMs worked more than 40 hours a week before being reclassified would not support a finding that after the reclassification Kaiser knew or should have known that Jong was not correctly reporting his hours.

The Court of Appeal also rejected the plaintiff's argument that Kaiser "should have known" the plaintiff was working off the clock because the "alarm code" records showed he was reporting to work before his shift started, and activated the alarm code long after he punched out.

We again find the trial court’s reason for rejecting the sufficiency of this evidence to be persuasive: “[E]ven assuming that the availability of such data could otherwise meet the ‘should have known’ requirement, as opposed to ‘could have known’ [citation], the alarm data does not show what Jong was doing during the time between disarming the alarm and clocking in, or between checking out and arming the alarm.” While the summary judgment papers may have contained evidence that Jong was working whenever the alarm was off, that information was not before Kaiser when paying Jong and Kaiser could reasonably believe that he did not begin or end work except as he reported.

So, although this case involves an individual employee's summary judgment loss, this case is going to help in class action cases involving off the clock work.  The court will not accept the premise that other employees' testimony that a job took them more than 40 hours to perform proves that it takes more than 40 hours to perform ALL class members' job duties. 

There are good take-aways for employers prevention efforts here, as well.  It is key to have a written policy prohibiting off-the-clock work.  Employers also should have employees acknowledge, in writing, and perhaps under penalty of perjury, that they accurately report hours worked.  It is helpful, too, to have proof of paying overtime when work is reported. 

This case is Jong v. Kaiser Foundation Health Plan, Inc. and the opinion is here. 

California Court of Appeal: Certify 'Em All!

The California Supreme Court has to clarify class action standards again.  If there were any doubt, the Court of Appeal's decision in Hall v. Rite Aid, opinion here, seals it.  Strong words, I know.  But read on and you'll see what I mean.

In Hall,  the Rite-Aid cashiers sued because they claim they were denied "suitable seating" under the California wage orders:

Kristin Hall filed this action, on behalf of herself and similarly situated persons, alleging defendant Rite Aid Corporation did not provide seats to employees while the employees were operating cash registers at Rite Aid check-out counters in violation of section 14 of Wage Order 7-2001 (section 14) (Cal. Code Regs., tit. 8, § 11070(14)), promulgated by California's Industrial Welfare Commission (IWC). Section 14 requires an employer to provide employees with suitable seats "when the nature of the work reasonably permits the use of seats." (Cal. Code Regs., tit. 8, § 11070(14)(A).)

Hall moved for class certification arguing the following:

(1) all Cashier/Clerks are covered by the same job description and have similar job duties, including check-out work; (2) on average, Cashier/Clerks spend a 4 majority of their hours working at the register; (3) most check-out work (which largely involves scanning and bagging merchandise, processing payments, and handing the bags and receipt to the customer) can be done while seated, but Rite Aid required its Cashier/Clerks to stand while performing check-out work; and (4) Rite Aid's standard counter configurations could accommodate a seat with minimal modifications.

Rite-Aid pointed out in opposition to class certification:

(1) its stores differed in size, sales volume, number of Cashier/Clerks, and sales counter configurations; (2) when Cashier/Clerks are not performing check-out counter work they are tasked with duties that varied among the stores; and (3) the percentage of time each Cashier/Clerk spent behind the check-out counter varied from 2 percent to 99 percent (with an average of about 42 percent) and the time spent on stockroom or floor duties was equally varied. Rite Aid's evidence also showed that, even when performing duties at the check-out counter, the distance Cashier/Clerks had to move away from the register (to retrieve controlled items such as tobacco and liquor) varied depending on the specific configuration of each store, and they often or very often performed tasks requiring them to lift, bend, twist, lean over, or move around while working at the check-out register. Because of the variety of tasks, 69 percent of surveyed Cashier/Clerks reported they spent at least half their time moving behind the counter, and 31 percent reported they spent at least 3/4 of their time moving behind the counter.

So, do common issues predominate (making class certification appropriate)?  Or do individual issues predominate, making class certification inappropriate?  To answer this question, don't you have to know what the "nature of the work" means under the Wage Order?  You would have to know whether the common issues, if decided in the plaintiff's favor, would lead to victory for the plaintiff, wouldn't you?  For example, don't you need to know whether suitable seating is required even if significant parts of the job involve moving around?

That's what the trial court did. It looked at the term "nature of the work," and decided that the variances in employees duties made it impossible to generalize on a class wide basis.

Specifically, it concluded, contrary to Hall's postulated theory, that section 14 does not mandate the provision of suitable seats when the nature of a substantial task within an employee's range of duties would reasonably permit the use of seats, but instead mandates the provision of suitable seats only when the nature of an employee's work as a whole would reasonably permit the use of seats. Based on that construction of section 14, the trial court concluded decertification was proper because individual issues as to each class member's "job as a whole" would predominate over common questions.

Wrong, said the Court of Appeal.

Our review of Brinker, which is binding on this court (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450), compels the conclusion the trial court erroneously based its decertification order on its assessment of the merits of Hall's claim rather than on the theory of liability advanced by Hall.

The Court went even further:

Rite Aid asserts the trial court properly reached the merits of (and correctly rejected) Hall's theory of liability when it ruled on the decertification motion because Brinker cannot be read to permit a plaintiff to "invent a class action by proposing an incorrect rule of law and arguing, 'If my rule is right, I win on a class basis.' "

* * *

We read Brinker to hold that, at the class certification stage, as long as the plaintiff's posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff's theory is ultimately incorrect at its substantive level, because such an approach relieves the defendant of the jeopardy of serial class actions and, once the defendant demonstrates the posited theory is substantively flawed, the defendant "obtain[s] the preclusive benefits of such victories against an entire class and not just a named plaintiff." (Brinker, supra, 53 Cal.4th at pp. 1034, 1033.) For these reasons, Brinker has concluded "[i]t is far better from a fairness perspective to determine class certification independent of threshold questions disposing of the merits, [because] defendants who prevail on those merits, equally with those who lose on the merits" (id. at p. 1034) have the benefits of their substantive legal victory applied to the class as a whole.

So, the Court of Appeal now held that trial courts must rely virtually exclusively on whether the plaintiff's "theory" presents common questions.  But a class action is not a lawsuit to prove a plaintiff's theory.  It's a lawsuit to prove something illegal happened to a group.   As the U.S.  Supreme Court put it in the Wal-Mart v. Dukes case,

That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

Frankly, the California Supreme Court in Brinker also did not go as far as the Court of Appeal in Hall.  In Brinker, the Supreme Court recognized:

Presented with a class certification motion, a trial court must examine the plaintiff's theory of recovery, assess the nature of the legal and factual disputes likely to be presented, and decide whether individual or common issues predominate. To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.

The Hall court even quoted this language - repeatedly - but appeared to have ignored its significance.

Let's put the Hall court's holding into practice with a (rather extreme) example:  Let's say a plaintiff files a class action that alleges:   the Defendant law firm has a policy of requiring its lawyers  to wear red ties. Therefore, the law firm  misclassified the lawyers as exempt from overtime.  Under the Hall decision, the class must be certified, because under the plaintiff's "theory," the red-tie policy is common to all members of the class and can be resolved on a class wide basis.  True, but answering that common question proves nothing. The red-tie policy will not determine the employees' exempt status.  Lawyers are exempt because they are licensed professionals.  The legal standard for who is exempt does not take into consideration tie color.  Therefore, red ties and the policy requiring them to have red ties are common, but have no bearing on the relevant legal issue.

Four thoughts. First, the Court of Appeal's theory is an abdication of the trial court's role to protect defendants from unmeritorious class actions as a gatekeeper.  Certify now, ask questions later is no way to ensure due process.  When certification happens, cases settle out of fear.

Second, the Court of Appeal's suggestion that defendants can rely on summary judgment motions and motions for judgment on the pleadings to defeat unmeritorious class actions is cold comfort.  Anyone who litigates in state court lastly knows that the odds of winning summary judgment are low, even in the best of cases  And losing summary judgment is not appealable.  If there's anything less likely than winning summary judgment, it is obtaining writ review of summary judgment rulings.  Perhaps the courts of appeal will consider more writs. But that remains to be seen.  As for judgment on the pleadings, they are based on the four-corners of the complaint.  The plaintiffs' bar is capable of developing a complaint that will survive a motion for judgment on the pleadings.

Third thought:  Easy certification means that attorneys' fees for class actions will climb precipitously, as will employer commitment to discovery and depositions. Depending on how the Supreme Court rules in the upcoming Duran case, class action litigation may end up focusing on expert witnesses and motions for summary judgment. Or mediation.

Fourth thought:  When the legal theory is frivolous, despite the commonality of factual issues, Defendants will have to strongly consider motions for sanctions under Civ. Proc. Code section 128.7 to stop class action claims that simply have no substantive merit.  Those motions are granted less frequently than summary judgment motions.  But perhaps when the stakes are this high, superior courts will begin taking these motions more seriously.

So, I know this is a long post, but if your company or clients face class actions, this case is a game-changer.  Perhaps the Supreme Court will take it up. I'm hoping Rite-Aid is preparing its Petition for Review.

DGV

Ninth Circuit Poses Questions to CA Supreme Court Re Suitable Seating Obligations

Happy New Year!
The Ninth Circuit is considering several class action appeals over California's "suitable seating" requirement contained in its wage orders.  Here is an example from Wage Order 7-2001, governing the retail industry:

14. Seats.(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats. 

The Ninth Circuit is considering appeals in two cases.  One involves bank tellers.  One involves retail clerks.

In the retail case, CVS's cashiers spend about 90% of the time working a cash register, ringing up transactions.  The other 10% of the time, she has to walk around the store, performing various tasks. CVS does not provide seats for the cashiering duties, believing that standing employees provide better customer service.  CVS told the plaintiff her job involved extensive standing when it hired her. 

In the bank case, tellers spend a great deal of time at their windows, making deposits, processing withdrawals, etc.  They also escort customers to safety deposit boxes, check ATMs and perform other duties that require mobility.

The employees argue:

if an employee is engaged in a task that can objectively be performed while seated, the employer must provide the employee with a suitable seat. Under this interpretation, neither the employee’s other tasks nor the employer’s business judgment would affect whether the nature of the work reasonably permits the use of seats.

On the other hand, the employers say: 

courts should discern the nature of an employee’s work by considering the entire range of tasks the employee actually performs in combination with the employee’s job description, the layout of the workplace, the employer’s business judgment concerning the employee’s job, and any other factors the court deems relevant. An employer would only be subject to Section 14(A) when all of these factors taken together reasonably permit the use of a seat.

The Court's dilemma is that the Wage Order's text permits either interpretation because it's vague.

So, does the "nature of the work" in either or both cases reasonably permit the use of seats?  And who gets to decide?  The Ninth Circuit wants to know how the California Supreme Court interprets "the nature of the work."  Here are the questions the federal court would like answered:

1. Does the phrase “nature of the work” refer to an individual task or duty that an employee performs during the course of his or her workday, or should courts construe “nature of the work” holistically and evaluate the entire range of an employee’s duties? 

a. If the courts should construe “nature of the work” holistically, should the courts consider the entire range of an employee’s duties if more than half of an employee’s time is spent performing tasks that reasonably allow the use of a seat? 

2. When determining whether the nature of the work “reasonably permits” the use of a seat, should courts consider any or all of the following: the  employer’s business judgment as to whether the  employee should stand, the physical layout of the workplace, or the physical characteristics of the employee? 

3. If an employer has not provided any seat, does a  plaintiff need to prove what could constitute “suitable seats” to show the employer has violated Section 14(A)?

As the Ninth Circuit points out in its request, if the Supreme Court agrees to answer these questions, it will have a significant effect on California employers and employees:

Section 14 could have a dramatic impact on public policy in California as well as a direct impact on countless citizens of that state, both as employers and employees. Even a conservative estimate would put the potential penalties in these cases in the tens of millions of dollars. See Cal. Lab. Code § 2699(f)(2) (“If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.”); see also Home Depot U.S.A., Inc. v. Super. Ct., 120 Cal. Rptr. 3d 166, 177 (Cal. Ct. App. 2010) (finding California Labor Code § 2699(f)(2) applies to Section 14 of Wage Order 7-2001); Bright v. 99cents Only Stores, 118 Cal. Rptr. 3d 723, 730 (Cal. Ct. App. 2010) (same).

As a former restaurant worker, I was thinking that if the plaintiffs' interpretation is correct, then a waiter taking an order would have the right to sit down at the table?  Taking the order, after all, is a duty that may be accomplished while seated.  How about the bartender?  There are other industries where the task-based approach could change the workplace significantly. Third base coach?  Factory worker?  Professor?  Will the seat have to have wheels if some movement is required within the work area (because that is "suitable")?  Does the employer have any say in what the "nature of the work" involves, or will that be up to the courts / a jury / the Division of Labor Standards Enforcement?   

Anyway, we'll see in the next few weeks if the California Supreme Court is interested in answering these and other questions.  Let's hope these questions are addressed so employers and lower courts may understand what is expected of them.

The case is Kilby v. CVS and the Ninth Circuit's request to the California Supreme Court is here.  As of now, there is no Supreme Court online docket for this case. 

Court of Appeal Finds Way to Certify Exempt / Overtime Class Action

In recent months, some California courts of appeal appear to have changed their analysis of how to analyze the class certification question.  In the most recent example, the court reversed an order denying certification of a proposed class of restaurant managers.

This case involved all salaried employees of Joe's Crab Shack, including the general managers and assistant managers.  The plaintiffs submitted evidence that class members performed non-exempt work, and that they lacked sufficient discretion and independent judgment.  They relied on corporate policies, as well as declarations from 27 of the management employees.  However, named plaintiffs could not testify how much time they spent on exempt or non-exempt tasks, and admitted that their time spent on different tasks varied from day to day.  The employer put on evidence showing that management employees uniformly spent more than 50% on exempt duties.

The way class certification has appeared to work in the past is that courts certify a class if common questions predominate over individual ones.  In an exemption classification, if the proof shows that a common issue does not determine the liability to the entire class, then individual issues predominate over common ones.  Thus, it may be that an employer classifies all managers as exempt.  That uniform policy and a uniform job description are some evidence of commonality.  If that job description said "all managers are exempt and earn less than 2X minimum wage" then that would be a predominant common question.  Why?  Because the salary is too low to qualify for exempt treatment.  Similarly, if a job description requires employees to perform non-exempt work > 50% of the time, that's an issue that potentially could lead to liability in favor of everyone covered by the job description.

In a case like this one, though, the evidence before the trial court seemed to demonstrate that there would be too many individual issues pertaining to how the managers spent their time, such that it would be impossible to say that all managers in the class were mis-classified as non-exempt.   Only mis-classification is illegal.  Uniform classification is not.

I wasn't on the panel, though.  The court of appeal appeared to reject this analysis.  The court did not cite to the case law that says a common issue must decide liability for the entire class, or that common questions must predominate in a way that affects liability.

In fact, the court seems to say that it is appropriate to certify a class action even if there are putative class members who were properly, lawfully deemed exempt:

even if there were individual managerial employees whose work remained more than 50 percent managerial in nature, if CAI’s and Landry’s policies as implemented across California resulted in managerial employees being undercompensated for performing exempt work, class relief is appropriate.

Well, that just doesn't make any sense.  The lawsuit asserts the company unlawfully classified a class of managers as exempt.  The class, therefore, should not include people who were lawfully classified.  If you cannot discern the lawful from the unlawful, you do not have a liability issue that is common to the entire class.  As the court noted,  “‘As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.’”

The court of appeal seemed to say that Brinker v. Superior Court requires courts to "prefer" class treatment for nearly all wage-hour issues:

We have not ignored the substantial case authority, including our own, upholding trial court decisions not to certify class actions for claims similar to those raised here (see, e.g., Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974; Mora v. Big Lots Stores, Inc., supra, 194 Cal.App.4th 496; Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723); nor do we express any disagreement with the outcome of those cases. However, we understand from Brinker, supra, 53 Cal.4th 1004, a renewed direction that class-wide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof.

So, despite the evidence that there is no common proof of liability, the Court sent the case back to superior court.

Perhaps the Supreme Court will once again review class certification standards.  Brinker does not require certification of a class action if there are "any" common questions.  In every case involving one employer, there are common issues - whether all employees worked for the same corporation, whether they all wore the company logo, whether they worked at a restaurant.   The key issue is whether the plaintiff presents a common issue that is dispositive of liability.  And that's not the analysis that the court of appeal has presented in this case.

If this trend continues, there will be many more class actions certified. Employers will have to try their cases as class actions or settle.  Settlements of class actions often occur because of fear of class wide liability.  Settlement of a class action like this means paying managers who were not mis-classified.  Therefore, making it easy to certify class actions simply encourages payouts to undeserving putative class members.  At least for now, the courts do not seem to be losing sleep over this injustice.  Have a nice day!

This decision is Martinez v. Joe's Crab Shack Holdings and the opinion is here.

Court of Appeal Reverses Order Decertifying Class

Allstate employs auto insurance field adjusters. They track work  time via a computerized system. The system "assumes" that the arrival at the first job site for the day is the beginning of the work day. Therefore, there is the potential that adjusters performing work for the company before the arrival is "work off the clock."

Among the overtime tasks those adjusters declared they performed outside their eight-hour shifts were (1) logging onto their work computers, (2) downloading their assignments, (3) making courtesy calls to auto repair shops and car owners to confirm appointments, (4) checking their voice mail, and (5) traveling to and from their first and last appointments of the day.

Allstate claimed it had a policy prohibiting work off the clock.  It had a policy requiring approval for overtime.  If an adjuster worked before the start of the day, there was a means to claim the work time.

The Allstate workers filed a class action, in part alleging that Allstate's timekeeping system was illegal because Allstate permitted off the clock work.  The trial court initially granted certification.  After Wal-Mart v. Dukes came out, though, the company filed a motion to "decertify" the class.  The trial court granted decertification, which prompted the plaintiff to appeal.

The Court of Appeal here reversed the trial court and decided that the class should have been certified.  Here are the key points:

-  A motion to "decertify" a previously certified class action can be brought only when there has been a significant change - newly discovered facts or new law.

- On review of a motion to decertify, the court of appeal evaluates the trial court's stated rationale.  If the trial court's stated rationale is wrong, the appellate court will reverse.

- The court will ignore individual issues regarding how to calculate damages for individual employees if there is a common question applicable to all class members regarding liability:

Damage calculations have little, if any, relevance at the certification stage before the trial court and parties have reached the merits of the class claims. At the certification stage, the concern is whether class members have raised a justiciable question applicable to all class members. Although Allstate may have presented evidence that its official policies are lawful, “this showing does not end the inquiry.” (Jimenez, supra, 2012 WL 1366052, *8.) Here, the question is whether Allstate had a practice of not paying adjusters for off-the-clock time. (Ibid.) The answer to that question will apply to the entire class of adjusters. If the answer to that question is “yes” – which is the answer the trial court initially assumed when it first certified the Off-the-Clock class, and is the answer we must presume in reviewing decertification (Brinker, supra, 53 Cal.4th at p. 1023) – then, in Duke’s phrase, that answer is the “glue” that binds all the class members. (Dukes, supra, 131 S.Ct. at p. 2552 [a class requires the “glue” of a single answer for a question applicable to all class members].) If some adjusters had more uncompensated time off the clock than other adjusters, that difference goes to damages.

- The court's analysis of whether common questions predominate - usually the central issue on a motion for class certification is notable because it is part of a recent trend of holding that the absence of commonality does not preclude a finding of commonality:

Commonality exists when the class claim poses a question for which the answer advances the litigation. As Dukes explained, class “claims must depend upon a common contention . . . . That common contention, moreover, must be of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” (Dukes, supra, 131 S.Ct. at p. 2551.) * * *

* * * *
Allstate disputes whether a company-wide practice existed of adjusters working off the clock. According to Allstate, it instructs adjusters not to begin work before they arrive at their first appointment. Allstate asserts that at most “the evidence shows that reactions differed from manager to manager and from employee to employee, purportedly leading some adjusters to work off-the-clock, while others did not.” Allstate also asserts its policy is to pay for all overtime that adjusters work, and indeed, appellant concedes he received overtime pay 70 times.

But the Court of Appeal wasn't hearing it:

We need not, however, address the accuracy of Allstate’s assertions because doing so goes to the merits of the class claims. As our Supreme Court said in Brinker, supra, 53 Cal.4th at page 1024, inquiries into the merits as part of a certification motion are “closely circumscribed.” We instead assume based on the evidence appellant and other adjusters put to the trial court that Allstate had a company-wide practice of adjusters working off-the-clock. (Id. at p. 1023 [court assumes claims have merit].) An unlawful practice may create commonality even if the practice affects class members differently. “[C]lass treatment does not require that all class members have been equally affected by the challenged practices—it suffices that the issue of whether the practice itself was unlawful is common to all.”

So, this means that to defeat class certification, it is necessary to establish through evidence the absence of an unlawful practice. Yet, the court says that the employer's evidence that a practice is not unlawful as to all potential class members is part of the "merits" and, therefore, not part of the certification inquiry. That seems like a rather one-sided ruling, says Captain Obvious.

Anyway, this case is an important warning to employers with timekeeping systems that "assume" that hours worked start at a given time.  Employers should ensure timekeeping systems are not based on automatic punching and allow a worker to clock in or out based on when the work day (or meal breaks) actually starts and stops.

This case is Williams v. Superior Court and the opinion is here.

Ninth Circuit Upholds Certification of On-Duty Meal Period Class

The Ninth Circuit Court of Appeals decided that an employer's "on duty" meal period program for security guards was susceptible to class action treatment.

The big issue here is the Court's analysis of when on-duty meal periods are authorized under California law.  The general rule is that unpaid meal periods are compliant with California law only if the employee is relieved of all duty. There is an exception:

An “on duty” meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time.

Although on duty meal periods are paid as hours worked, the missed meal period penalty / premium does not apply.

When does the "nature of the work" prevent an employee from being relieved of all duty?  The Court of Appeals noted that the California courts have not explored this issue in any detail. A federal court is supposed to predict how the California Supreme Court would decide the issue.  This Court did not mention that requirement.  Nor did the Court certify the question to the California Supreme Court, as it has the power to do. Instead, the Court primarily reviewed the DLSE opinion letters on the subject of the "nature of the work" exception.

we can characterize the instances in which DLSE has found that the “nature of the work” exception applies into  two categories: (1) where the work has some particular, external force that requires the employee to be on duty at all times, and (2) where the employee is the sole employee of a particular employer.

The Court also relied on a post-Brinker Court of Appeal opinion involving security guards, where the state court upheld class certification.  That case, Faulkinbury v. Boyd & Assocs.,  216 Cal. App. 4th 220 (2013), involved security guards too.  But the Court of Appeal in Faulkinbury was simply concerned with whether the employees' claims should proceed as a class based on Boyd's policy, not a definitive evaluation of the on-duty meal period law.

This Abdullah case also involved security guards assigned to work at schools, hospitals, etc.  In many instances, only one guard was assigned to do the work at the particular site.  The Court of Appeals rejected the employer's argument that a lone security guard automatically is entitled to an on-duty meal period - because s/he is ALONE at the job site (at least the only U.S. Security Associates employee):

First, as the district court explained, the DLSE letters make clear that “the showing necessary to establish the ‘nature of the work’exception is a high one.” In order to make such a showing, USSA had to demonstrate not just that its employees’ duties
varied, but that they varied to an extent that some posts would qualify for the “nature of the work” exception, while others would not. It failed to do so. Indeed, USSA’s sole explanation for why it requires on-duty meal periods is that its guards are staffed at single-guard locations. It does not argue that any particular posts would qualify for the “nature of the work” exception absent the single-guard staffing model.

Then the Court appeared to say that the employer must prove that the tasks themselves prevent the employee from taking a meal period even when the employee works alone:

Consider, for example, the illustrative list of duties that USSA has provided to demonstrate the variety of its employees duties:  [T]he duties performed by security guards include patrolling parking lots; checking receipts; signing in and out trucks; setting up  school parking lots and assisting with student drop-offs and pick-ups; inspecting vehicles; restraining unruly patients; escorting dead bodies; checking the inventory, mileage, and temperature of trucks; working undercover to catch shoplifters; monitoring psychiatric patients; checking in employees and answering phones at a front desk; performing surveillance; and enforcing hotel quiet hours.

These duties are undoubtedly distinct from one another, but the only reason any of them “prevent” the employee from taking a meal period is because USSA has chosen to adopt a single-guard staffing model. See Cal. Code Regs., tit. 8, § 11040, subd. 11(A) (stating that an “on-duty” meal periodis permitted “only when the nature of the work prevents an employee from being relieved of all duty” (emphasis added)).

The Court  seems to be saying that the job's tasks themselves must preclude an off-duty meal, even if the employee works alone.  If that is the Court's position, then in many cases employers will have to hire people for the sole purpose of relieving employees who work alone, or pay the meal period premiums associated with on-duty meal periods.

That said, the Court and DLSE have noted there are jobs involving solo employees that could qualify for on-duty meal periods, such as a late-night gas station where there were no other workers, or a truck driver carrying dangerous materials.

So, if California courts decide to adopt the reasoning of this case, it could further narrow the on-duty meal period exception. Additionally, employers attempting to secure on-duty meal period waivers must carefully consider the employee's job duties.  If the duties "always" prevent an off duty lunch because the job is inherently too dangerous or isolated, fine.  But if the employee's duties vary such that the employee could take an off-duty meal on some days but not others, that on duty agreement could be held invalid if it precludes employees from taking off duty meal periods when they can do so.

The case is Abdullah v. U.S. Security Associates, Inc. and the opinion is here.