Pot Pourri of Recent Cases I missed

There have been so many recent employment law decisions that I can't long-form blog them all.  So, here's a quick roundup of three recent, significant rulings -

Don't miss Serri v. Santa Clara University opinion here.  This case is a defense lawyer's summary judgment go-to. Of note, the court handled a number of claims that are rarely seen (such as defamation by self-compelled publication, intentional interference, and the Labor Code's equal pay law. Here are some of the highlights:

- Upholds denial of extension to file opposition to motion for summary judgment.

- Affirms summary judgment against discrimination, retaliation and wrongful termination claims.  Good analysis of the employee's burden of establishing "pretextual" reason for termination.

- Upholds summary judgment on a national origin harassment claim because the alleged comments were not severe or pervasive.

- Agrees that the trial court properly adjudicated the plaintiff's claim under the state Equal Pay Act (Labor Code section 1197.5). The court held the plaintiff did not establish the proper "comparators" to establish she was paid less than someone performing substantially equal work.

- Rare bird:  Upholds summary judgment against the plaintiff's claim of breach of employment contract. The court held that the university had "good cause" to fire Serri as a matter of law.

- Affirmed summary judgment on the plaintiff's defamation claim, including "compelled self-defamation."  The court held that all statements were true or privileged.

- Affirmed summary judgment on an intentional interference with prospective economic advantage claim.

*****

Ruiz v. Affinity Logistics, opinion here is the Ninth Circuit's second pass on an independent contractor v. employee analysis for delivery drivers. The court reversed the district court and held that  the delivery drivers were mis-classified:  "Affinity retained absolute control over drivers’ rates, payment, routes, schedules, trucks, equipment, appearance, decision to hire helpers, choice of helpers, and the right to deal with customers."  Thus, the court held, the most important factor under the Borello analysis—right to control—indicates overwhelmingly that the drivers were Affinity’s employees."  Close case, right? 

*****

Anderson v. City and County of San Francisco, opinion here, is another unusual case, testing out a "bona fide occupational qualification" defense under Title VII of the Civil Rights Act of 1964.  San Francisco's jail implemented a policy of prohibiting male guards from supervising female inmates.  The Sheriff articulated four reasons: "(1) to protect the safety of female inmates from sexual misconduct perpetrated by male deputies, (2) to maintain the security of the jail in the face of female inmates’ ability to manipulate male deputies and of the deputies’ fear of false allegations of sexual misconduct by the inmates, (3) to protect the privacy of female inmates, and (4) to promote the successful
rehabilitation of female inmates."  Guards sued, alleging they were denied promotional opportunities, overtime, and other harms because of the restriction.  Reversing the district court, the Ninth Circuit held that the plaintiff was entitled to a jury trial on whether the policy violated Title VII.  The Court explained that a BFOQ is narrow and requires the defendant employer to prove specific issues as an affirmative defense. Because the city failed to do that, the city was not entitled to judgment as a matter of law.  The "common sense" assumption that females should be supervised by females to avoid sexual contact, invasions of privacy, etc. are not enough.

 

Court of Appeal: OK to Deduct from Exempt Employees' PTO/Vacation for Partial Day Absences of Any Length

Basic wage-hour principle: With some exceptions, an employee classified as "exempt" under the federal Fair Labor Standards Act is entitled to a full salary for any week in which she / he performs any work.  There are some exceptions allowing for salary deductions. For example, an employer can deduct from an exempt employee's salary for full-day absences for personal pursuits, or full day absences for illness if the employer has a bona fide paid sick leave plan.

The corollary of the above:  It generally is illegal to deduct from "exempt" employees' salaries for missing partial days of work, except in very limited circumstances such as partial day, federal FMLA leave.   The consequences could be invalidation of the exemption.  That statement is true under both federal law (FLSA) and California law.

When employees have vacation or PTO balances, can employers lawfully deduct from them when exempt workers are absent for partial days, and leave the salary intact?  Well, it's a definite yes under federal law. Federal law does not consider vacation / PTO to be "vested," and does not care if employers deduct from those balances for any reason.

Under California law, it's a little trickier.  That is because vacation / PTO are "vested" balances. The argument against allowing deductions is that the exempt employee can work variable hours and is entitled to the full salary. Deducting from PTO is an end-around, which reduces a vested balance of wages otherwise owed, for an absence that the employee is entitled to take without affecting his or her pay.  That's the plaintiffs' bar's argument, but it's not correct.

In 2005, the Court of Appeal decided in Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, that California law follows federal law in this area.  However, the PG&E policy provided that exempt employees' partial day absences were subject to a deduction from PTO, only if the absence was longer than 4 hours.  After Conley, the state Division of Labor Standards Enforcement, grudgingly, decided that Conley only authorized deductions from exempt employees' PTO when the absence was more than 4 hours.

Although Conley says nothing about a 4 hour minimum absence, employment lawyers were hesitant to advise employers to go farther than the Conley holding because of the DLSE opinion.  And for good reason....

Enter Lori Rhea, who sued her employer, General Atomics.  General Atomics had a policy allowing deductions from PTO in any amount of time that exempt employees were absent from their jobs for partial days.  Rhea challenged this policy, arguing that Conley was wrongly decided, and that Conley only allowed deductions when her time away from work exceeded 4 hours.  The trial court disagreed, granting General's motion for summary judgment.

The Court of Appeal affirmed:

We do not agree with Rhea's contention that by requiring employees to use vested Annual Leave for partial-day absences, General Atomics is requiring a forfeiture of vested Annual Leave as that term is used in California law. In Suastez and Boothby the vacation time was forfeited because the employer took away the employee's vested vacation time. Suastez and Boothby establish that if an employer provides vacation benefits, the employer "is not free to reclaim it after it has been earned." (Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 5, italics added.) Here, General Atomics does not take away or reclaim vested Annual Leave when an employee is absent for a partial day; it merely requires that the employee use the Annual Leave under the terms and conditions that it has created. "The law permits an employer to offer new employees no vacation time" (Owen v. Macy's, Inc. (2009) 175 Cal.App.4th 462, 464; see Henry, at p. 6), and it correspondingly also affords an employer the right to control the terms under which vacation time may be exercised by employees. (Suastez, supra, 31 Cal.3d at p. 778, fn. 7 [noting "an employer's right to control the scheduling of its employees' vacations"].) General Atomics has set rules for the exercise of Annual Leave, which it is permitted to do. It has not taken away Annual Leave that has already vested.

The court also rejected the plaintiff's premise that partial day deductions was an impermissible "substitution" of vacation wages for salary that was legally required to be paid:

Put another way, Rhea argues that General Atomics is impermissibly "substituting" the employee's Annual Leave hours for the employee's salary earned during the partial-day absence. * * * * 

[W]e conclude that Rhea's argument fails because she has not established that General Atomics fails to pay all of the wages that it is obligated to pay during an employee's partial-day absence. It is undisputed that General Atomics continues to pay an employee's full salary during a partial-day absence and that the employee fully continues to accrue Annual Leave during a partial-day absence.13 Thus, there is no shortfall in wages or compensation during a partial-day absence that General Atomics "makes up" by requiring an employee to use Annual Leave for that period. This is simply not a situation like in Armenta where employees worked for a period without receiving compensation. Here, General Atomics' employees continue to receive their full compensation even when they are absent for a partial day.

Finally, the Court held that the "four hour" minimum absence is not required under California law:

we find no basis in California law for concluding that an employer is prohibited from requiring exempt employees to use their vacation or leave time when they are absent from work for a partial day. Rhea has not identified any reason for us to distinguish between partial-day absences of different lengths. Instead, she simply points out that the employer's policy in Conley only covered absences of at least four hours. We conclude that regardless of whether the absence is at least four hours or a shorter duration, a requirement that exempt employees use Annual Leave time for a partial-day absence does not violate California law.

So, it is legal to debit an exempt employee's PTO balance for absences of any length.  However, employers must consider the employee relations aspects of doing so.  If an employee works six 12-hour days, are you going to nick that employee's PTO balance for working only 4 hours on the seventh day in the week?

Also, as the court of appeal noticed, General Atomic did not deduct negative PTO balances from final pay upon termination of employment.  You don't do that either, right?  Cuz that would be bad.

The case is Rhea v. General Atomics 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

9th Circuit: California Meal / Rest Period Laws Apply to Trucking Companies; Not Preempted by Federal Law

Trucking companies subject to the Federal Aviation Administration Authorization Act have litigated a number of cases concerning whether federal law preempts California wage-hour requirements concerning meal and rest periods.  The FAAAA provides: “States may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).

So, are meal / rest period laws "related to" a price, route or service? The district courts had split on the issue.  The Ninth Circuit finally weighed in with its first opinion on the matter.  The three-judge panel said:

Although we have in the past confronted close cases that have required us to struggle with the “related to” test, and refine our principles of FAAAA preemption, we do not think that this is one of them. In light of the FAAAA preemption principles outlined above, California’s meal and rest break laws plainly are not the sorts of laws “related to” prices, routes, or services that Congress intended to preempt. They do not set prices, mandate or prohibit certain routes, or tell motor carriers what services they may or may not provide, either directly or indirectly. They are “broad law[s] applying to hundreds of different industries” with no other “forbidden connection with prices[, routes,] and services.”

The court rejected all of the employer's arguments as to how meal / rest period laws adversely affect pricing, routes and service.  The court particularly emphasized that the California meal/ rest period  laws do not apply to motor carriers exclusively, but to nearly all employers in the state. 

So, truckers involved in the transportation of property covered by the FAAAA, the 9th Circuit has spoken regarding meal and rest periods.  The employer may seek "en banc" review or petition the U.S. Supreme Court for review.  Stay tuned.  

This case is Dilts v. Penske Logistics, Inc. and the opinion is here. 

U.S. Supreme Court Ends Term With 3 L/E Law Decisions

The U.S. Supreme Court's Term ended last week.  The Court issued three labor/employment-related opinions.  You probably heard about "Hobby Lobby," which the lay media butchered and sensationalized.  You may have heard about Harris v. Quinn, which the lay media half-ignored, and half butchered and sensationalized. And, unless you are a labor / employment law or benefits wonk, you may have missed Fifth Third Bancorp. v. Dudenhoeffer.   Here are summaries of these three opinions.  Each applies to specific employers in specific ways.

Fifth Third Bancorp v. Dudenhoeffer (opinion here) is an ERISA case.  (Those of you operating machinery or driving please skip to the next decision).  Fifth Third's retirement plan permitted employees to invest in a variety of vehicles, including Fifth Third's stock via an Employee Stock Ownership Plan (ESOP).  When the company's stock declined (74%) after the great recession killed Fifth Third's mortgage portfolio, employees sued Fifth Third and some of its officers, claiming that as administrators of the retirement plan, they owed the investors a fiduciary duty to be prudent, and should have taken actions to mitigate losses.  They did not, and bought and held the stock as normal.

The lower courts decided that the administrator was entitled to a "presumption" that their decisions were prudent. The Supreme Court unanimously disagreed, holding that the administrators of an ESOP had the same duty as fiduciaries as anyone else.

You might say, "duh," but an ESOP exists to buy and hold the stock of the company.  ERISA does not require administrators to diversify ESOP holdings as it requires administrators to diversify traditional retirement plan holdings.

Thus, an ESOP fiduciary is not obliged under §1104(a)(1)(C) to “diversif[y] the investments of the plan so as to minimize the risk of large losses” or under§1104(a)(1)(B) to act “with the care, skill, prudence, and diligence” of a “prudent man” insofar as that duty “requires diversification."

The Court then rejected the lower courts' "presumption of prudence" that it conferred on ESOP administrators.

In our view, the law does not create a special presumption favoring ESOP fiduciaries. Rather, the same standard of prudence applies to all ERISA fiduciaries, including ESOP fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP’s holdings. This conclusion follows from the pertinent provisions of ERISA,

The fiduciaries argued that if they are not provided protection from lawsuits, then decreases in stock price will lead to meritless lawsuits against ESOP administrators. The Court recognized the concern, and provided guidance to lower courts on how to weed out "sour grapes" lawsuits that do not allege actual breaches of fiduciary duties.  As with many Supreme Court decisions, the Court left it to the lower courts to sort out how future claims will be addressed.

So, this case removes some protection from administrators of ESOPs.  Employers should have their ESOPs reviewed to ensure the administrators act consistently with ERISA's "prudent" person standard. 

*  *  *  *

Harris v. Quinn (opinion here)  is a case about the First Amendment and those public sector employees who perform in-home, personal attendant work.  These are workers paid by the state, funded by federal Medicaid, who provide in-home care to the elderly and others who would require nursing home care.  However, unlike most public sector employees, the laws creating these positions provide that the true "employer" is not the state, but rather the "customer" who receives the care.   So, these personal care attendants are a special type of public sector worker.   The Harris case concerns the Illinois program and workers.

Unions have organized many of these employees.  State law authorized the unions to bargain with the state over personal attendants' terms and conditions of employment.  Those who choose not to join the union still are covered by the collective bargaining agreements the union negotiates. They are required to pay a reduced fee (called "fair share") to pay for the unions' collective bargaining activities. The employees do not pay additional "dues," which go towards other union activities, such as lobbying and political contributions.

Several Illinois personal attendants sued the state, claiming the state law authorizing union representation and the "fair share" fee violate the First Amendment, because they require employees to pay a union they do not support.   If the union workers were true "public sector" employees, the Supreme Court already upheld "fair share" agreements against a First Amendment claim in Abood v. Detroit Bd. of Ed. 431 U. S. 209 (1977).

The Supreme Court held, 5-4, that Abood did not apply to personal attendants, who were in fact "employed" by the private sector "customer," but paid by the state.  The Court's majority analyzed and criticized Abood as based on flawed reasoning and a misinterpretation of precedent. But the majority did not overrule it as it applies to "full-fledged," public sector employees. The personal attendants, employed by private sector "customers" were not "full fledged."

Without Abood's protection, the Illinois law therefore violated the First Amendment.  Here is the money quote:

we refuse to extend Abood in the manner that Illinois seeks. If we accepted Illinois’ argument, we would approve an unprecedented violation of the bedrock principle that, except perhaps in the rarest of circumstances, no person in this country may be compelled to subsidize speech by a third party that he or she does not wish to support. The First Amendment prohibits the collection of an agency fee from personal assistants in the Rehabilitation Program who do not want to join or support the union.

The dissent, penned by Justice Kagan, essentially argued that Abood controlled the case.  The dissent rejected the majority's distinction between personal attendants and other state-paid employees.  The dissent also noted that the majority criticized, but did not overrule Abood.

Thus, unless or until Abood is overruled in a future case, it remains good law.  This decision applies only to personal care attendants working under state laws that treat them as employees of private customers.  Those employees need not join unions or pay agency fees if they do not wish to do so.  It remains to be seen if the state laws will be modified to fit the employees within Abood, or if this decision applies equally to personal attendants in states other than Illinois.  Breathe.

*  *  *  *

Finally, Burwell v. Hobby Lobby Stores, Inc.  (opinion here) involves the interplay between the Affordable Care Act (ACA aka Obamacare)  and the Religious Freedom Restoration Act (RFRA).  As explained by the Court:

RFRA prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability” unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”

Congress passed RFRA in response to an earlier Supreme Court decision that upheld a law against a claim that it violated religious beliefs. The Court noted "[b]y enacting RFRA, Congress went far beyond what this Court has held is constitutionally required." RFRA provides broad protection to religious practices, but allows the government to demonstrate the necessity of a law that burdens religious beliefs under the standard above.

The ACA requires employer health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.”  The Department of Health and Human Services issued regulations, implementing that statutory provision. The regulations require the health plans to include 20 contraceptive methods approved by the FDA.  The 20 include 4 methods that "may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus."

The regulations expressly exempt religious organizations, such as churches,  from that contraception mandate.  HHS also excluded non-profits with religious objections.  But this case involves whether a for-profit, "closely held" corporation (Hobby Lobby and others) can claim that providing the 4 contraception methods described above impinge on its religious convictions, violating the RFRA.

The majority, 5-4, over vigorous dissents, held that the "contraception mandate" violated the RFRA.  The Court decided that, as a closely held corporation, Hobby Lobby and the other employers involved were "persons" covered by RFRA.

The Court then decided that the mandate burdens the religious beliefs of the persons who own these close corporations.  The Court noted that the employer's options were (1) ignore their religious beliefs to provide the mandated coverage (2) pay humongous penalties for non-compliance with the ACA.

The Court assumed that the mandate served a "compelling interest."  But the Court decided that the regulations were not the "least restrictive means of furthering" the government's interest in providing preventive care.   The Court noted that the ACA itself contained alternatives that would provide the contraception desired, but without requiring the employers to pay for them in a way that burdened their religious beliefs.

This is a politically charged decision engendering much controversy and loud arguments about important social and political issues.  My job is to explain what the opinion says, and how it affects employers.  So here goes:

1.  The decision applies only to "closely held" corporations: "a federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with RFRA."  The term "closely held" corporation will be contained in state and federal corporate law.  In this case, the companies were owned and operated by one family.  Publicly traded corporations, private corporations owned by unrelated shareholders who have no day-to-day responsibilities to operate the business, etc. are not covered by this decision.

2.   The ruling applies only to those closely held corporations that operate under sincerely held religious beliefs that conflict with a law that burdens those beliefs.  Closely held corporations that do not operate under religious tenets will not be covered. Still, this is a broad standard. But the Court majority pointed out that federal courts must ferret out insincere religious beliefs in a variety of contexts.  Larger corporations, with diverse shareholders, likely will not be able to establish a common religious  belief, or that its belief governs the operation of the business.

3.   As the majority points out, the law and regulations already provide full access to contraceptives for religious entities and non-profits, even though the contraceptive mandate does not apply.  So, the administration and/or Congress can still ensure women who want the 4 contraceptives at issue, and who work for closely held corporations with religious objections to them, can obtain them free of charge.

The employees of these religious nonprofit corporations still have access to insurance coverage without cost sharing for all FDA-approved contraceptives; and according to HHS, this system imposes no net economic burden on the insurance companies that are required to provide or secure the coverage. **** 

Although HHS has made this system available to religious nonprofits that have religious objections to the contraceptive mandate, HHS has provided no reason why the same system cannot be made available when the owners of for-profit corporations have similar religious objections. 

4.   The Hobby Lobby opinion therefore does not apply to most employers or most workers.  Smaller businesses are grandfathered in old plans, do not offer health insurance, and are exempt from ACA's penalties.  Even if the ACA fully applies to a business, some businesses offer no coverage and pay the penalties, allowing employees to buy individual coverage via the health exchanges.  It remains to be seen whether the HHS will modify its regulations, or if the insurance companies will change coverage options to provide contraception coverage to affected workers as it does to employees of religious organizations and non-profits.

There are several dissents, with the lead dissent penned by Justice Ginsburg.   Two dissenters (Justice Ginsburg and Sotomayor) would not confer RFRA protections to for-profit corporations. Justices Kagan and Breyer would not reach that issue. Justice Ginsburg also argued that the contraception mandate did not burden the employers' owners' religious beliefs because it was up to employees whether or not to use the contraceptives involved.  Finally, Justice Ginsburg warned of a flood of claims for religious exemption.

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 Confirms: "Refusing to Sign" Is Insubordination. But it's not "Misconduct."

Somewhere along the line, employees got the idea that they can "refuse to sign" personnel documents.  Our advice is always to clearly indicate on a form that "signing" simply means acknowledgement of receipt.  Yet, employees still refuse to sign, even with that disclaimer.  Some then claim they did not receive them, usually during depositions.

Can the employer fire a worker for refusing to sign?  One of this blog's most popular posts addressed the court of appeal's decision in Paratransit v. Unemployment Insurance Appeals Board.  (Here)  The court there held that an employee's "refusing to sign" a disciplinary notice was insubordination, warranting discharge. But the court also held that the employee's refusing to sign was also "misconduct" within the meaning of  unemployment insurance law, disqualifying the fired worker from benefits.

The California Supreme Court has now weighed in on the case. As stated by the Court:

Craig Medeiros (Claimant) worked for Paratransit, Inc. (Employer) as a vehicle operator for approximately six years. As a condition of his employment, Claimant was required to join a union. The union and Employer were parties to a collective bargaining agreement (CBA) containing the following provision: “The Employer shall provide a Vehicle Operator with copies of complimentary letters received regarding his or her job performance and with copies of disciplinary notices, including verbal warnings that have been put in writing. All disciplinary notices must be signed by a Vehicle Operator when presented to him or her provided that the notice states that by signing, the Vehicle Operator is only acknowledging receipt of said notice and is not admitting to any fault or to the truth of any statement in the notice.”

Yet, when Paratransit attempted to discipline Medeiros, he refused to sign the document.  Later, he claimed he was tired and confused, and believed he did not have to sign because of advice he had received from his union.  

Paratransit contested Medeiros's claim for unemployment benefits.  Ultimately, the Court of Appeal decided, 2-1, that Medeiros was disqualified, because his refusal to sign amounted to "misconduct" within the meaing of California's Unemploymet Insurance Code section 1256.

The Supreme Court previously ruled in Amador v. Unemployment Ins. Appeals Bd. (1984) 35 Cal.3d 671, that misconduct means the following:

“conduct evincing such wilful or wanton disregard of an employer‟s interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer‟s interests or of the employee‟s duties and obligations to his employer. On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion are not to be deemed "misconduct" within the meaning of the statute.” 

With respect to insubordination, the Court noted prior rulings established that

“an employee‟s unequivocal refusal to comply with the employer‟s rule, without more, is not misconduct within the meaning of section 1256.” (Robles v. Employment Development Dept. (2012) 207 Cal.App.4th 1029, 1035 (Robles).) As in all cases of misconduct, the employee‟s insubordination must be marked by fault. (See Amador, supra, 35 Cal.3d at p. 678; Robles, at p. 1035.) Hence, violating an employer‟s reasonable order because of a good faith error in judgment does not disqualify an employee from receiving benefits. (See Amador, at p. 680; Moore v. Unemployment Ins. Appeals Bd. (1985) 169 Cal.App.3d 235, 243 (Moore).)

The Supreme Court acknowledged that refusing to sign the paper was insubordinate and justified discharge.  But the Court also unanimously held that Medeiros's refusing to sign one disciplinary notice was insufficient evidence of "misconduct" under the above definitions.

So, the Court found the disciplinary notice's disclaimer ambiguous, because it did not say that signing was "only" for acknowledging receipt of the document.  So, it pays to include a clear statement on documents requiring an employee's signature.  Additionally, the Court was concerned that Medeiros merely made a "good faith error in judgment" rather than misconduct.  The Court may have been persuaded otherwise had Medeiros engaged in a pattern of insubordination, or if his action had been detrimental to the employer.

This case is Paratransit v. CUIAB and the opinion is here.

California Supreme Court Washes Unclean Hands. And After Acquired Evidence, Too

The defense of "after acquired evidence" is a variation on the equitable defense of "unclean hands." A party's "unclean hands" are supposed to "close the courthouse door" to those guilty of wrongdoing directly related to the heart of his or her claims.  "Unclean hands" is supposed to apply only when the wrongdoing goes to the heart of the claims the employee is asserting.

After-acquired evidence is a broader concept, in that the focus is on whether the employer would have denied employment to the employee, had the employer known about the misconduct during the hiring process or before termination.  As the Supreme Court explained:

The doctrine of after-acquired evidence refers to an employer‟s discovery, after an allegedly wrongful termination of employment or refusal to hire, of information that would have justified a lawful termination or refusal to hire.

Unlike unclean hands, the after-acquired information may not have to cut to the heart of the employee's case. But the employer must prove that the employee would not have been hired or would have lost his or her job.

In the employment law context, for example, a California court once held that someone who lied on his employment application, that he was not convicted of a crime, was not permitted to sue for martial status discrimination under the Fair Employment and Housing Act. The court reasoned the employee was not entitled to the job in the first place because of his misconduct, because he never would have been hired. (Camp v. Jeffer Mangels et al.) Another court held that an employee who was unauthorized to work in the U.S. could not proceed on termination-based claims because she was not entitled to the job in the first place.  (Murillo v. Rite-Stuff Foods).

Under federal employment laws, such as Title VII, however, these defenses can limit damages available, but are not complete bars to liability. McKennon v. Nashville Banner Publishing Co. (1995) 513 U.S. 352.  That is, if the employer proves it would have fired an employee had it known about information acquired after the termination, the employer can argue that damages should be reduced, but cannot assert a complete defense.

The California Supreme Court just decided in Salas v. Sierra Chemical that the federal rule is the better one.

Vicente Salas intentionally and repeatedly used someone else's social security number to obtain employment with Sierra Chemical Company. He signed an I-9 form under penalty of perjury, attesting to the documents he submitted in support of his eligibility to work in the U.S.  Because his job with Sierra was seasonal, Salas repeatedly misrepresented his social security number, every time he re-applied for seasonal work.

Mirabile dictu, the social security bureaucracy figured out that Salas's social security number was bogus. Of course, that was the social security office of many years ago; the one that issued "no-match" letters and required an explanation from the employees whose numbers did not match their names.  Sierra Chemical apparently didn't do anything about the employees with no-match letters.  They allowed Salas and the other employees to continue working.

Meanwhile, in 2006, Salas injured himself  He returned to work the next day, with restrictions, which Sierra honored.  He returned to full duty a couple of months later, in June. But in August, he hurt himself again, and required modified duty until December, when he was laid off for the season (as he had been in the past).

Salas went to work for another company after the layoff.  But then his Sierra managers called him and asked if he wanted to return to work. They then told him he would have to have a release from his doctor - to full duty - before he could return. (Spot the issue, accommodation mavens).

Salas told his boss he would try to get the release by June 2007. The boss said he would hold open Salas's job.  But Salas did not contact the boss again.  Instead, he sued.  He claimed denial of reasonable accommodation under the Fair Employment and Housing Act, and retaliation for filing a workers' compensation claim, in violation of public policy.

As the trial date approached, both parties filed motions in limine regarding evidence.  Salas acknowledge it is a crime (illegal) under federal and state law:

for a person to use false identification documents to conceal the person‟s true citizenship or resident alien status. Plaintiff stated that he would testify at trial and assert his privilege against self-incrimination under the Fifth Amendment to the United States Constitution if asked about his immigration status. He asked that he be allowed to assert the privilege outside the jury's presence and that the court and counsel not comment at trial on his assertion of the privilege. 

So, Salas' disclosure for the first time prompted the defense to investigate the bona fides of Salas' immigration status.  The defendant found out that Salas' social security number actually belonged to a person on the East Coast.

Sierra moved for summary judgment on the ground that Salas falsified his employment authorization paperwork. The company submitted a sworn statement from the real owner of the social security number and of the company's president, who said they would have fired Salas had they known of his deception.

Yet the trial court denied Sierra's motion for summary judgment.  The Court of Appeal, on the other hand, held Salas's claims were barred. Per the Supreme Court:

The Court of Appeal reasoned that the doctrine of after-acquired evidence barred plaintiff‟s causes of action because he had misrepresented to defendant employer his eligibility under federal law to work in the United States. It also held that plaintiff‟s claims were subject to the doctrine of unclean hands because he had falsely used another person's Social Security number in seeking employment with defendant, he was disqualified under federal law from working in the United States, and his conduct exposed defendant to penalties under federal law.

The lower court's decision was entirely consistent with California law up to this point.

But the California Supreme Court disagreed with the Court of Appeal and held that "after-acquired evidence" or "unclean hands" defenses are not complete bars to liability under FEHA.  Rather, the Court decided, these defenses in some cases may be used only to limit damages. As a result, summary judgment based on the defenses no longer is an option.

California law protects  immigrant workers who are unauthorized to work by guaranteeing them access to the same employment laws that protect those legally entitled to work.  So, Salas argued, if late-discovered unauthorized status resulted in application of unclean hands, these worker would be barred from bringing wrongful termination claims.

The Court agreed with Salas. First, the Court decided that federal immigration laws do not preempt California's laws preserving illegal aliens' employment-based claims. If federal law preempted California law, the California statutes would not impede the application of unclean hands. The Court engaged in a lengthy analysis of federal preemption jurisprudence, concluding that California was free to pass laws guaranteeing illegal aliens the right to benefit from employment law on the same terms as authorized workers.

The Court could have limited its discussion to whether unclean hands / after acquired evidence may be applied to hose who lie about their immigration status / identification documents.  But no.

The Court then examined, and gutted, the application of after-acquired evidence / unclean hands in FEHA cases generally.  The Court decided that the defenses are not complete bars in Fair Employment and Housing Act cases because employers should not be insulated from liability for making unlawful employment decisions, even those taken against employees who should never have been employed in the first place.  The Court reasoned that the employer made the challenged decisions without knowing of the employee's misconduct that would have led to termination or refusal to hire.

The Court then decided that, like under the federal rule, employees found to have engaged in misconduct that would have disqualified them from employment should be limited in their potential remedies:

Generally, the employee's remedies should not afford compensation for loss of employment during the period after the employer‟s discovery of the evidence relating to the employee‟s wrongdoing. When the employer shows that information acquired after the employee‟s claim has been made would have led to a lawful discharge or other employment action, remedies such as reinstatement, promotion, and pay for periods after the employer learned of such information would be “inequitable and pointless,” as they grant remedial relief for a period during which the plaintiff employee was no longer in the defendant‟s employment and had no right to such employment. (McKennon, supra, 513 U.S. at p. 362.)

The remedial relief generally should compensate the employee for loss of employment from the date of wrongful discharge or refusal to hire to the date on which the employer acquired information of the employee‟s wrongdoing or ineligibility for employment. Fashioning remedies based on the relative equities of the parties prevents the employer from violating California‟s FEHA with impunity while also preventing an employee or job applicant from obtaining lost wages compensation for a period during which the employee or applicant would not in any event have been employed by the employer. In an appropriate case, it would also prevent an employee from recovering any lost wages when the employee's wrongdoing is particularly egregious.

The lower courts apparently are left to decide what an "appropriate case" or "egregious" means in this context.

The significance of the Court's no-preemption holding now becomes clear.  If preemption applies, it is likely that federal law would preclude any post-termination or back pay to an employee who falsifies employment documents to obtain employment.  Given the California Supreme Court decided state law is not preempted, its holding under state law is viable.  But if the U.S. Supreme Court hears this case and decides federal immigration law applies, it could be that unauthorized workers are entitled to no post-termination pay, but could still recover for pre-termination damages due to unlawful harassment, for example.

The Court then separated the "unclean hands" defense from the "after-acquired evidence" analysis.  But then the Court simply said that the defense of unclean hands, normally a complete bar, would not apply in FEHA cases either, but again authorized trial courts to fashion appropriate equitable remedies.  It's hard to tell, but it seems like the courts will apply the same analysis whether the defense is expressed as "unclean hands" or "after-acquired evidence."  Again, "unclean hands" likely will apply only when the misconduct relates to serious application fraud, but it appears not to matter anymore.

Retired Justice Joyce Kennard wrote the opinion for 5 justices; her final gift to the plaintiffs' bar.  Retiring Justice Baxter wrote a concurrence/dissent, joined by Justice Ming Chin, the editor of the "leading employment law treatise" in the words of a recent court opinion.  Justice Baxter opined that federal immigration law indeed precludes any remedy to employees who falsify eligibility to work in the U.S. And Justice Baxter pointed out that the "unclean hands" defense, when applicable, generally is a complete bar to a plaintiff's access to court.

The opinion in Salas v. Sierra Chemical Co. is here.

U.S. Supreme Court: President's "Recess Appointments" to NLRB Were Invalid

The U.S. Supreme Court unanimously held that the President made invalid "recess appointments" to the National Labor Relations Board in January 2012. The Senate declared itself in recess for three-day periods during that month. The President then appointed three out of five members to the NLRB.

The Court's judgment - that the recess appointments were invalid - is unanimous. But only 5 out of 9 justices joined the majority opinion, written by Justice Breyer (joined by Justices Kennedy, Kagan, Sotomayor, and Ginsburg), Four justices, led by Justice Scalia (with Justices Thomas, CJ Roberts, and Alito), issued a separate opinion, disagreeing with the majority's conclusions regarding when recess appointments are valid.

This opinion is over 50 pages long, and it is mostly devoted to the history of the Constitution's recess appointments clause, and the way it has been used historically.  The upshot, however, is that the President has a lot of power to make recess appointments, but there has to be a sufficiently long recess. Moreover, the house of Congress that is controlled by the political party not in power may re-call the Congress from recess and thwart recess appointments. Checks and balances.

Because the appointments were invalid, the NLRB operated without a quorum for several months.  As a result, hundreds of decisions are invalid. It remains to be seen precisely what the NLRB will do with those decisions. The Board currently has a full compliment of members.  Therefore, recent decisions issued since the Senate confirmed the 5 members will be valid and enforceable.  We will update what happens next when we find out.

This case is National Labor Relations Board v. Noel Canning and the opinion is here. 

CA Supreme Court: Class Action Waivers in Arbitration Are Valid; Overrules Gentry; But...

... not all good news for employers or arbitration fans.

The California Supreme Court ruled that the Federal Arbitration Act preempts its previous decision in Gentry v. Superior Court (2007) 42 Cal.4th 443, which invalidated class action waivers in most wage-hour matters.

Here are the facts per the Court:

Plaintiff Arshavir Iskanian worked as a driver for defendant CLS Transportation Los Angeles, LLC (CLS) from March 2004 to August 2005. In December 2004, Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement” providing that “any and all claims” arising out of his employment were to be submitted to binding arbitration before a neutral arbitrator. The arbitration agreement provided for reasonable discovery, a written award, and judicial review of the award; costs unique to arbitration, such as the arbitrator’s fee, would be paid by CLS. The arbitration agreement also contained a class and representative action waiver that said: “[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.”

The Supreme Court previously held in Gentry, cited above, that most of these class action waivers would be void and contrary to public policy. As a result, courts invalidated many class action waivers, despite the U.S. Supreme Court's ruling in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __. In Concepcion, the U.S. Supremes held that the Federal Arbitration Act preempts state law rules that invalidate class action waivers.

So, in this case, Iskanian v. CLS Transportation Los Angeles, opinion here, the Court recognized that Gentry could not survive Concepcion.

The high court in Concepcion made clear that even if a state law rule against consumer class waivers were limited to “class proceedings [that] are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration “even if it is desirable for unrelated reasons.”

The California Supreme Court also rejected Iskanian's argument that class action waivers are illegal under the National Labor Relations Act.  The National Labor Relations Board so held in D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184.  But the courts have not agreed. In fact, the Court of Appeals for the Fifth Circuit refused to enforce the decision.  The Supreme Court joined the other courts in rejecting the NLRB's rule:

We agree with the Fifth Circuit that, in light of Concepcion, the Board’s rule is not covered by the FAA’s savings clause. Concepcion makes clear that even if a rule against class waivers applies equally to arbitration and nonarbitration agreements, it nonetheless interferes with fundamental attributes of arbitration and, for that reason, disfavors arbitration in practice. (Concepcion, supra, 563 U.S. at pp. __–__ [131 S.Ct. at pp. 1750–1752].) Thus, if the Board’s rule is not precluded by the FAA, it must be because the NLRA conflicts with and takes precedence over the FAA with respect to the enforceability of class action waivers in employment arbitration agreements. As the Fifth Circuit explained, neither the NLRA’s text nor its legislative history contains a congressional command prohibiting such waivers. (Horton II, supra, 737 F.3d at pp. 360–361.)

The news was not all good for arbitration, however.

The Court maintained its rule in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (Sonic II)," such that courts may find arbitration agreements unconscionable if they do not provide protections similar to the wage claim statute.   That means the court is leaving open the door to invalidation of arbitration agreements under state law for a variety of reasons that courts have come up with over the years.  Only the U.S. Supreme Court will be able to fix this ongoing situation, if the Court is so inclined.

The Court also held that employers may not require waiver of "representative" actions in arbitration.  Therefore, employees who cannot maintain class actions in arbitration can pursue claims under the Private Attorney General Act, or PAGA.

What is a PAGA representative action?  The Court explained, quoting from a prior decision:

An employee plaintiff suing . . . under the [PAGA] does so as the proxy or agent of the state’s labor law enforcement agencies. . . . In a lawsuit brought under the act, the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies — namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency. [Citations.] . . . . Because collateral estoppel applies not only against a party to the prior action in which the issue was determined, but also against those for whom the party acted as an agent or proxy [citations], a judgment in an employee’s action under the act binds not only that employee but also the state labor law enforcement agencies.

“Because an aggrieved employee’s action under the [PAGA] functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations (Lab. Code, § 2699, subds. (a), (g)), and an action to recover civil penalties ‘is fundamentally a law enforcement action designed to protect the

Also, the plaintiff keeps just 25% of the penalties recovered, the rest go to the state.

Iskanian's arbitration agreement waived "representative" claims as well as class claims. Therefore, because he had to arbitrate all claims, and could not arbitrate representative claims at all, the question was whether the agreement was enforceable.

The Supreme Court said, "no."

a prohibition of representative claims frustrates the PAGA’s objectives. As one Court of Appeal has observed: “[A]ssuming it is authorized, a single-claimant arbitration under the PAGA for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code. That plaintiff and other employees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has collateral estoppel effects. (Arias, supra, 46 Cal.4th at pp. 985–987.) Other employees would still have to assert their claims in individual proceedings.” (Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 502, fn. omitted.)

The Court then addressed whether the Federal Arbitration Act would require the courts to allow waiver of representative claims.  Again, the California Supreme Court said "no."

We conclude that the rule against PAGA waivers does not frustrate the FAA’s objectives because, as explained below, the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Labor and Workforce Development Agency.

* * *

Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents — either the Labor and Workforce Development Agency or aggrieved employees — that the employer has violated the Labor Code. Through his PAGA claim, Iskanian is seeking to recover civil penalties, 75 percent of which will go to the state’s coffers.

So, where does this leave us with respect to arbitration:

1.  Class action waivers are enforceable. Employers may implement valid arbitration agreements with class action waivers and foreclose employees from bringing class actions in court or arbitration.  That will change only if the U.S. Supreme Court overrules itself, or if Congress amends the FAA.  Given the ease with which courts are granting class certification, a properly managed and implemented arbitration program may be a wise decision for employers exposed to wage hour class actions.

2. Arbitration agreements cannot validly waive "representative" actions. Therefore employees proceeding under PAGA may pursue those Labor Code penalties  authorized by PAGA, whether in arbitration or court.  However, employees cannot use PAGA to bring claims for, damages, such as meal and break premiums, overtime,  etc.  Only penalties.  This may change if the U.S. Supreme Court takes up this case.

3.  Employers still must draft arbitration agreements to comply with the courts' notions of what is "unconscionable."  This case does nothing to affect the unconscionabilty jurisprudence that the California courts have developed. That means arbitration will be remain expensive, and employers will not be able to use arbitration agreements to unfairly limit claims, statutes of limitations, or remedies. This will not change unless the U.S. Supreme Court decides that the FAA overruled the California courts' unconscionability jurisprudence.

4.  The California Supreme Court's interpretation of the FAA and the NLRA provide a means for the U.S. Supreme Court to review this case, because of the federal laws involved.  Let's see if the high Court takes the opportunity to clarify when state law "unconscionability" or "public policy" doctrine  conflicts with the FAA.

U.S. Supreme Court Protects Public Sector Employee's First Amendment Rights

Central Alabama Community College hired Edward Lane to be Director of Community Intensive Training for Youth (CITY).  After learning CITY had budget problems, he audited the program’s expenses.  During the audit, Lane found out Schmitz, an Alabama state representative, was on the CITY payroll, but not working.  Lane pressed the issue, demanding Schmitz report to work.  She refused.  Lane fired Schmitz.

Schmitz took offense that Lane would try to save the tax payers some money by firing someone collecting a salary for not doing any work.   She allegedly told another employee she would seek retribution against Lane and that she would see to it that his agency would not receive favor from the legislature.  The FBI became involved, and Schmitz was later convicted of corruption charges.   Lane testified under oath before a grand jury and at trial, under subpoena.

Meanwhile, the CITY agency continued its budget woes.  Lane's boss, Franks, later laid off Lane and another probationary employee.  Lane sued Franks under 42 U.S.C. 1983 for violation of his civil rights (First Amendment right to testify without retaliation, among other things).  He sued Franks in his "official capacity" as a substitute for the state, and in his individual capacity.

But the lower courts held that Lane was not entitled to First Amendment protection because the testimony he haves were related to his official duties.  Precedents establish that when government employees speak within the course of their duties, the First Amendment provides minimal protection, because of the employer's interest in orderly operation of its work place. 

The U.S. Supreme Court accepted the case to determine if the First Amendment protects employees who provide testimony under oath on matters that concern the job site.  The Court unanimously held that it does, thereby giving Lane a retaliation claim against Franks in his "official capacity" as a representative of the state.  (Lane sought reinstatement and equitable relief against Franks in his official capacity).  

From the Court's unanimous opinion:

Truthful testimony under oath by a public employee outside the scope of his ordinary job duties is speech as a citizen for First Amendment purposes. That is so even when the testimony relates to his public employment or concerns information learned during that employment.

The Court also held:

The content of Lane’s testimony—corruption in a public program and misuse of state funds—obviously involves a matter of significant public concern.

The Court also held that the government did not have an adequate justification to tip the balance in its favor:

an employee’s sworn testimony is not categorically entitled to First Amendment protection simply because it is speech as a citizen on a matter of public concern. Under Pickering, if an employee speaks as a citizen on a matter of public concern, the next question is whether the government had “an adequate justification for treating the employee differently from any other member of the public” based on thegovernment’s needs as an employer. * * * 

Here, the employer’s side of the Pickering scale is entirely empty: Respondents do not assert, and cannot demonstrate, any government interest that tips the balance in their favor. There is no evidence, for example, that Lane’s testimony at Schmitz’ trials was false or erroneous or that Lane unnecessarily disclosed any sensitive, confidential,or privileged information while testifying . . . .  

So, Lane's case against the state could proceed via his suit against Franks in his "official capacity."  But the Court also held that the lawsuit against Franks personally would be barred by "qualified immunity.":

Qualified immunity “gives government officials breathing room to make reasonable but mistaken judgments about open legal questions.” Ashcroft v. al-Kidd, 563 U. S. ___, ___ (2011) (slip op., at 12). Under this doctrine, courts may not award damages against a government official in his personal capacity unless “the official violated a statutory or constitutional right,” and “the right was ‘clearlyestablished’ at the time of the challenged conduct.” * * * 

The relevant question for qualified immunity purposes is this: Could Franks reasonably have believed, at the time he fired Lane, that a government employer could fire an employee on account of testimony the employee gave, under oath and outside the scope of his ordinary job responsibilities? Eleventh Circuit precedent did not preclude Franks from reasonably holding that belief. And no decision of this Court was sufficiently clear to cast doubt on the controlling Eleventh Circuit precedent. * * * *

So, Lane's official capacity case was returned to the lower courts.  Franks is off the hook personally.

This case is Lane v. Franks and the opinion is here.

Happy 8th Anniversary Shaw Valenza LLP

Shaw Valenza and this blog celebrate our 8th anniversary today. 8 years is a long flash in the pan.  We wouldn't be here if it wasn't for our great team, our fantastic clients, and our exclusive club of readers.  That's you.  So, thank you all!

Thank you, too, to the Legislature, agencies, and courts for keeping us busy.

Finally, thank you Jennifer Brown Shaw, the best employment lawyer, partner, and friend one could hope to have.

DGV 6/19/2014

Court of Appeal: Extortion Is Not a Legally Protected Pre-Litigation Demand

From the Court of Appeal's opinion:

Jerome Stenehjem sued his former employer, Akon, Inc., and Surya Sareen, Akon‘s president and chief executive officer, for defamation, among other causes of action. Sareen countersued for civil extortion. Sareen alleged in an amended cross-complaint (Cross-Complaint) that Stenehjem (1) had asserted, through his counsel, a prelitigation claim for defamation; and (2) had later, while representing himself, made a written threat by e-mail to file a false criminal complaint against Sareen unless he paid Stenehjem monies to settle his defamation claim. Stenehjem‘s e-mail demand mentioned a potential qui tam suit; alluded to accounting documents created by Stenehjem at Sareen‘s specific direction, and referred to potential involvement of the United States Attorney General, Department of Justice, and Department of Defense. Sareen alleged that Stenehjem‘s demand constituted extortion in violation of criminal laws.

Shorter:  Stenehjem is Akon's ex employee. Akon is the employer.  Sareen is Akon's CEO.  Stenehjem  claims wrongful discharge, defamation, etc.  His lawyer tries to demand over $600,000 in settlement. Akon, the former employer, repeatedly tells him to jump in the lake.

Then, Stenehjem discontinues his relationship with his lawyer and sends the following email to Akon's lawyer, McDonnell:

Dear Mr. McDonnell, [¶] Although you have been quite firm and I feel un-professional in your response to my request to discuss the matter of my wrongful termination and the defamation claim I know is valid face to face, I take your comments about this being a Bogus claim very personnelly [sic]. I at no time wanted to cause any un-neccessay [sic] or long court procedings [sic] to hinder Akon or Mr. Sareen from continuing to doing bussiness [sic] as usual. As Akon‘s attorney I leave it in your hands to get the facts from Mr. Sareen and Dick Sanders in regards to a contract review by the aduitor [sic] Wayne Vartek and the documents I created on orders from Mr. Sareen regarding BOM‘s and purchase orders for three DLVA‘s under contract aduit [sic]. Mr. Sareen went into great detail about the reasons and figures which he had me write down in my notebook required in the BOM documentation he asked me to provide. [¶] I never wanted this to become a long and expensive process let alone involve the United States Attorney General, the Department of Justice or the DOD. Other then [sic] the wrongful termination I have never held any ill feeling towards Akon or Mr. Sareen. I also never wanted to enrich a bunch of bottom feeding attorneys such as yourself and the ones I have been meeting with. With that said I advise you to forward this to Mr. Sareen, act in good faith as his attorney and decide if this is the manner in which you want to continue responding in [sic]. [¶] In closing please inform your client I do not wish to make a Federal case out of this or create any unneccessary [sic] stress on Mr. Sareen or any Akon employees. Please remind Mr. Sareen of his statement that ―when I am wrong I will be the first to admit it and appoligize [sic.]‖ [I]t is still my desire to resolve this matter face to face and with no involvement of the courts and a bunch of attorneys serving there [sic] own self interests. [¶] I am extending my hand and this offer to meet one last time because of my disgust with the idea of enriching a large group of bottom feeding attorneys such as you and the ones advising me. It is not my first choice to procede [sic] with the Qui Tam option but the choice of a group of attorneys looking for the biggest payout they can get with the least effort and expense. I have yet to sign an agreement with the Lawyer out of Los Angeles who specializes in Qui Tam suits but he has reviewed my statement, investigated the facts, talked to former Akon employees, and wants to fly up to sign an agreement and formalize my statement. [¶] I was always honest with Mr. Sareen[;] hence my disclosure of the pending actions and my extension of one last opportunity to settle this in a gentlemens [sic] manner, shake hands and put this matter behind us. If you are acting [sic] in his best interests you will forward this letter to Mr. Sareen and respond in a civil and professional manner and not in the manner which you so un-professionally replied previously. [¶] Sincerely, Jerry Stenehjem‖

(emphasis mine)

In essence, Stenehjem attempted to gain advantage in his own civil suit by threatening Akon with a "qui tam" or false claims suit, the involvement o the government, etc., unless Akon settled with Stehehjem.

Akon, bless 'em, then sued Stenehjem for extortion.  Actually, Akon filed a cross-complaint to Stenehjem's complaint for defamation etc.  In response to the cross-complaint, Stenehjem filed a motion to strike that extortion claim as a "SLAPP" or "Strategic Lawsuit Against Public Participation."

The trial court granted the motion to strike, deciding that Stenehjem's email was protected pre-litigation speech.  But the Court of Appeal reversed the trial court.  It held that Akon's lawsuit would go forward against Stenehjem because his e-mail was indeed extortion.  Extortion is not protected speech.

It is important to consider the context under which the e-mail was sent. This backdrop included Stenehjem‘s initial settlement demand through counsel of $675,000; McDonnell‘s repeated statements that Stenehjem‘s claims had no merit; and McDonnell‘s having previously rebuffed any idea of settling the claims. McDonnell: (1) advised Stenehjem‘s attorney, Heymann, six months earlier that the claims were ―meritless‖ and that the only way Stenehjem would receive any monetary payment was by obtaining a judgment against Defendants; (2) told Heymann, in response to the latter‘s overtures regarding mediation of the dispute, that Akon would not mediate the matter and would not ―waste any more time on pointless settlement discussions‖; and (3) responded to Stenehjem‘s personal e-mail of June 23, 2011, in which Stenehjem had sought ―to settlethis matter by direct negotiation,‖ by stating that ―AKON is not interested in spending any time on any further settlement discussions of your bogus claims.‖13 Stenehjem in his August e-mail is therefore characterizing as unprofessional McDonnell‘s consistent position that Stenehjem‘s claims were unmeritorious and that his clients would pay no money to settle them.

*  *  *

We conclude that Stenehjem‘s August e-mail constituted extortion as a matter of law. It threatened to expose Sareen to federal authorities for alleged violations of the False Claims Act unless he negotiated a settlement of Stenehjem‘s private claims. Even were it true that Sareen had in fact committed acts violating the False Claims Act—and there is no evidence to support this, since Stenehjem filed no declarations in connection with the motion other than his attorney‘s fee declaration—this is ―irrelevant‖ to whether the threatened disclosure was extortion. (Flatley, supra, 39 Cal.4th at p. 330.) And it is of no consequence that the e-mail did not specifically identify the crime of which Stenehjem intended to accuse Sareen. (Flatley, at p. 331; Mendoza, supra, 215 Cal.App.4th at p. 806.)

* * *  

Furthermore, the alleged criminal activity that Stenehjem threatened to expose in a qui tam action was ―entirely unrelated to any alleged injury suffered by‖ Stenehjem as alleged in his defamation and wrongful termination claims. (Flatley, supra, 39 Cal.4th at pp. 330-331.)

Bottom line -  plaintiffs, you cannot attempt to leverage your own weak cases by threatening to expand claims to unrelated matters.  If you do, that could be extortion, for which you could be held liable.  I hope a few of my adversaries read this.  I've heard threats like this during my own lawsuits.

This case is Stenehjem v. Sareen and the opinion is here.

Court of Appeal: Employer Must Litigate Exhaustion of Remedies in FEHA Cases and More

Kim v. Konad USA Distribution, Inc. is an opinion about a sexual harassment / wrongful termination claim against a small employer and its owner.  No, Beavis, the accused harasser's name is not Whang Dong.  OK, yes it is.

Anyway, the opinion concerns some procedural issues, so I won't review the facts, which are pretty bad.  You can review the opinion here.

The plaintiff in a Fair Employment and Housing Act case must "exhaust" administrative remedies by filing an administrative complaint with the Department of Fair Employment and Housing, and by obtaining a right to sue letter.  The agency has reduced this obligation to filing a boiler-plate form online and receiving an immediate right to sue letter.   But the filing is still mandatory.

If the employer believes the administrative complaint is not filed, or inadequate to cover the claims in the lawsuit, the employer may raise that issue before trial via motion for summary judgment, demurrer, or judgment on the pleadings.  But, the Court of Appeal decided, the employer cannot wait until the end of a trial to seek dismissal of a claim under the Fair Employment and Housing Act on the basis that an employee failed to exhaust her administrative remedies:

If a defendant timely presents the issue of whether a FEHA plaintiff has properly presented all claims to the DFEH, a court must decide the merits of this question. (Keiffer, supra, 65 Cal.App.4th at p. 900.) But “‘it would be grossly unfair to allow a defendant to ignore this potential procedural defense at a time when facts and memories were fresh and put a plaintiff to the time and expense of a full trial, knowing it could assert the failure to exhaust administrative remedies if it received an adverse [judgment].’” (Ibid.; see also Mokler, supra, 157 Cal.App.4th at p. 136 [defendant waived exhaustion defense by “waiting to raise exhaustion until after a full trial on the merits”].)

We therefore disagree with defendants’ underlying premise that exhaustion of administrative remedies affects the fundamental subject matter jurisdiction of the court. Prior to submission of the case for decision, defendants did not request dismissal of the FEHA causes of action based on plaintiff’s failure to exhaust.

The Court of Appeal also addressed the defendants' separate argument that the plaintiff did not establish 5 or more employees worked for the employer, which would establish coverage by the statute.  The employer argued on appeal that a common law wrongful termination claim would not be viable if it had fewer than five employees. 

But the plaintiff was suing for sexual harassment as well. Sexual harassment requires only one employee.  Plaintiff claimed she was forced to quit due to the sexual harassment.  Therefore, she argued the public policy applied to the employer, even though it was too small to be held liable for discriminatory or retaliatory termination under the FEHA.

The Court of Appeal decided the plaintiff had the better argument:

all employers (not just those with five or more employees) accused of harassment (based on sex or some other classification listed in Gov. Code, § 12940, subd. (j)(1)) are subject to a FEHA harassment claim. Likewise, because plaintiff’s common law claim is based on sexual harassment, the applicable FEHA public policy applies to employers with less than five employees.

Again, you can read Kim v. Konad USA Distribution, Inc. here.

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.