US DOL Issues New Adminstrator Interpretation

The U.S. Department of Labor is not waiting around for employers and employees to request informal opinion letters. The administrator is busy reviewing its previous letters and issuing new Administrator Interpretations. These are not the same as official regulations, but they give you an idea of how the department will enforce its laws.

The department issued its second such letter yesterday. This one addresses "donning and doffing" - basically whether changing at the beginning and end of the shift constitutes "preliminary" or "postliminary" activity (non-compensable under federal law) or compensable work time.

The issue arises under the federal Fair Labor Standards Act, as modified by the Portal-to-Portal Act:

Section 3(o) of the Fair Labor Standards Act (FLSA) provides that time spent “changing clothes or washing at the beginning or end of each workday” is excluded from compensable time under the FLSA if the time is excluded from compensable time pursuant to “the express terms or by custom or practice” under a collective bargaining agreement. 29 U.S.C. § 203(o).

In 1997, the DOL issued an opinion letter saying that meat packing employees' putting on "protective" clothing or gear, such as smocks, arm guards, belly guards, gloves, etc. was compensable time because these items were not considered "clothes." In 2002 and 2007, the DOL retreated from this position and held that donning/doffing "protective clothing" could be considered "clothes," excluded from work time.

In its Administrative Interpretation, No. 2010-2, the DOL returns to its 1997 interpretation. After reviewing the legislative history and court decisions, the DOL says:

the § 203(o) exemption does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job. This interpretation reaffirms the interpretations set out in the 1997, 1998 and 2001 opinion letters and is consistent with the “plain meaning” analysis of the Ninth Circuit in Alvarez. Those portions of the 2002 opinion letter that address the phrase “changing clothes” and the 2007 opinion letter in its entirety, which are inconsistent with this interpretation, should no longer be relied upon.

The DOL then went a step further. The DOL opined that changing clothes, even if not compensable, may constitute a "principal activity" where changing is integral to the job. When changing is considered a "principal activity," it starts the work day. The activities that follow are part of the work day and compensable, even if they would not be compensable by themselves. So, if changing clothes is a "principal activity," then walking from the locker to the work area is also compensable under the "continuous workday" doctrine:

it is the Administrator’s interpretation that clothes changing covered by § 203(o) may be a principal activity. Where that is the case, subsequent activities, including walking and waiting, are compensable. The Administrator issues this interpretation to assist employees and employers in all industries to better understand the scope of the § 203(o) exemption.

This interpretation is highly significant in industries where employees change clothes at the beginning and end of the shift, even when they do not necessarily wear "protective clothing" or equipment. That is because time that otherwise would not be compensable may become so if the clothes changing is considered a "principal activity."

The Obama administration's DOL, run by former California legislature member Hilda Solis, is awake. Employers should not ignore the federal agency, even in California.
The new interpretation is posted here.

U.S. Supreme Court to Review California Arbitration

So, I asked in this post whether the California Supreme Court's jurisprudence on class action waivers in arbitration would survive the U.S. Supreme Court's recent decision in Stoltt-Nielsen v. AnimalFeeds. There, the SCOTUS held that the Federal Arbitration Act does not authorized arbitrators to require class action arbitration when an arbitration agreement is silent.
The California Supreme Court, on the other hand, say that arbitration agreements cannot preclude class-wide arbitration.

Looks like we're going to find out. The U.S. Supremes just granted review of a 9th Circuit decision in AT&T Mobility v. Concepcion. There, the Ninth Circuit held that a class action waiver was "unconscionable" under California law and that the FAA does not preempt California's unconscionability jurisprudence. Ross Runkel's arbitration blog posts the details here. This case will be argued next term, which begins in October 2010.

U.S. Supreme Court on Attorney's Fees in ERISA cases

The Supreme Court unanimously held that a court may award attorneys fees in ERISA benefits denial cases to any party without proving it is a "prevailing" party:

a fees claimant must show "some degree of success on the merits" before a court may award attorney’s fees under §1132(g)(1), id., at 694. A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’"

The ERISA attorney's fees statute awards fees to "any" party in the district court's discretion. Courts had read into that statute the requirement that a litigant be deemed the "prevailing" party. Under case law, a "prevailing" party has to demonstrate certain characteristics, like monetary gain, etc. The Supreme Court held that as a matter of statutory construction, courts could not simply add a prevailing party requirement.

So, in ERISA benefits denial cases, it will be easier for litigants to claim attorney's fees, even if they simply win a remand by the district court to the insurance plan administrator, rather than total victory.

Justice Stevens concurred in most of the opinion and in the judgment. The decision otherwise was unanimous.

The case is Hardt v. Reliance Standard Life Insurance Co. and the opinion is here.

U.S. Supreme Court on Timeliness of Disparate Impact Claims

The U.S. Supreme Court unanimously held that disparate impact claims were timely even though the plaintiffs did not challenge the original implementation of the alleged discriminatory practice. Justice Scalia wrote the opinion. So there, Scalia haters.

The City of Chicago conducted an examination for firefighters in 1995. It announced it would begin selecting from among the highest scorers, called "well-qualified." The middle tier was called "qualified." Applicants who scored in this range would be kept on an eligibility list. No one brought suit attacking the examination at the time it was given.

Over time, the city exhausted the "well-qualified" list. On March 31, 1997, some African-American applicants filed a charge with the EEOC. They claimed the use of the "well qualified" score had a disparate impact on black applicants - i.e., it resulted in exclusion of a disproportionate number of black applicants. After receiving right to sue letters, they brought a class action on behalf of 6,000 "qualified" applicants.

The Court framed this issue like this:

We consider whether a plaintiff who does not file a timely charge challenging
the adoption of a practice—here, an employer’s decision to exclude employment
applicants who did not achieve a certain score on an examination—may assert
a disparate-impact claim in a timely charge challenging the employer’s later
application of that practice.

The city argued the charges were untimely and that the scoring was justified by business necessity. The city lost at trial. The district court rejected the business necessity of the test as a justification for the admittedly "severe" disparate impact.

Regarding timeliness, the plaintiffs were timely regarding the city's more recent selections of well-qualified applicants, but were untimely regarding the city's initial classification of qualified and well qualified persons.

The Supreme Court decided that the city's use, rather than adoption, of the practice was the discriminatory act. Therefore, the decision that the City's selection of well-qualified applicants within the limitations period was sufficient to establish a disparate impact claim.

The issue in Ledbetter v. Goodyear Tire & Rubber Co., 550 U. S. 618 (2007), in contrast, was whether a plaintiff could allege disparate treatment - intentional discrimination - based on time-barred past decisions. The court distinguished Ledbetter because the disparate impact claim is based on the use of neutral, but discriminatory, criteria, without the need to prove intent. So, Ledbetter is not in conflict with this decision.

The case is Lewis v. City of Chicago and the opinion is here.

California Supreme Court Defines "Employer" in Wage Hour Cases

In 2005, the California Supreme Court held in Reynolds v. Bement (2005) 36 Cal.4th 1075, that individual agents / managers cannot be held liable as "employers" under California wage-hour law. In Martinez v. Combs, opinion here, the court similarly held that investors / business partners could not be held liable as "employers" either.

To get there, the Court engaged in a rigorous, painstaking (euphemisms for tedious) analysis of the history of California wage-hour laws, all the way back to the Magna Carta, or so it seemed.

But the Court did something that had not been done before. It came up with a framework for deciding just what entity can be held liable for unpaid wages.

This case arises because Munoz, the employer that hired, supervised, and (previously) paid its farm workers, went bankrupt. So, the case has relevance during these troubled times. Munoz operated a strawberry harvesting operation. Because of lower strawberry prices and financial reverses, Munoz could not pay its workers and then declared bankruptcy.

Unable to recover from Munoz, the employees sued: "two of the produce merchants through whom Munoz sold strawberries: Apio, Inc. (Apio), and Combs Distribution Co., together with its principals, Corky and Larry Combs, and its field representative Juan Ruiz (collectively Combs). Plaintiffs’ separate action against a third merchant, Frozsun, Inc. (Frozsun), has been stayed pending the outcome of this action."

The Labor Code does not specify who is liable for unpaid wages under Lab. Code Section 1194:

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

The Court first decided that liability under Section 1194 is limited to an "employer" under the Industrial Welfare Commission's Wage Orders. The Wage Orders do define "employer." As the Court related:

Employ’ means to engage, suffer, or permit to work,” and “ ‘[e]mployer’ means any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”

So, who is an employer? The Court said that under the IWC's definition, one can become an employer in one of three ways:

To employ, then, under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.

Suffer or permit - The Court clarified that to "suffer or permit" someone to work results in a finding of employer only when the person permitting the work has the power to stop it. The vendors / defendants could not stop or prevent the work. Munoz had all the power to hire or fire his own workers.

Regarding the "control over the wages hours and working conditions," the Court rejected the claim that the vendors' financial relationships with Munoz resulted in de facto control over the plaintiffs' working conditions.

Finally, "to engage" means that the employer hires the employees to work, which is the straightforward way of establishing an employment relationship. There was no such evidence in this case.

So, this test will be used to define who is liable under California law as an "employer," with the exception of the employer's agents / employees. The employer's own agents and employees are not liable under Reynolds v. Bement, cited above. If the IWC changes the definition of "employer," then this case may be superseded. But the Legislator has all but abolished the IWC. So, the Legislature will have to define the employment relationship or reconstitute the IWC to change the effect of this case.

The opinion in Martinez v. Combs is here.

FAA Does Not Permit Claswide Arbitration Unless Parties Agree

Well, the U.S. Supreme Court may have made employment arbitration agreements really popular, until Congress decides to ban them.

The court held in a non-employment case, STOLT-NIELSEN S. A. ET AL. v. ANIMALFEEDS INTERNATIONAL CORP., that parties cannot force the arbitration of class actions unless the arbitration agreement permits it.

What if the agreement is silent about class arbitration? The court said silence does not mean consent.

In California, though, it is illegal to prohibit class action arbitration. So, what if the agreement is silent? Does that now mean you're prohibiting class arbitration because of the silence? If you argue that, under the Federal Arbitration Act, a silent agreement essentially prohibits class arbitration, where does that leave the arbitration agreement under California law?

Will the Federal Arbitration Act trump the California Supreme Court's decision in Gentry v. Superior Court (opinion here; post here), in which the California high court held that classwide arbitration waivers are illegal / unconscionable?

I know, so many questions. My opinion is: I think so. But I have never really understood how California arbitration agreement law has escaped the FAA anyway.

The U.S. Supreme Court's decision is here. Stay tuned!

DGV

Ninth Circuit Issues Walmart Class Certification Opinion

Dukes v. Walmart is the massive class action filed on behalf of some 1.5 million current and former female employees. Back in 2007, we posted about this case here and here.

An en banc panel of the Ninth Circuit just issued a "rather lengthy" opinion (read: super-long). It's a scholarly exposition of class action certification law. It makes a law review article read like a comic book.

The court's intention is to clarify the standards for class certification in the Ninth Circuit for cases brought or removed to federal district court. Federal court class action practitioners are going to want to read this opinion again and again. They're going to have to, because the majority's opinion is a bit, well, windy.

I will spare you the details because you can read as much of the opinion as you can stand. To sum up, the court is permitting the certification of a class of hundreds of thousands of current workers claiming sex discrimination. The court, however, remanded the case to the district court regarding whether to allow a separate class of former employees, and whether punitive damages makes the case inappropriate for certification.

The case is Dukes v. Walmart and the opinion is here.

California Supreme Court Continues to Love Arbitration! (Not)

In its latest installment of "let's silently kill mandatory arbitration," the California Supreme Court (by Justice Moreno, writing for a 4-3 majority), decided that courts may vacate arbitration awards in FEHA or other statute-based claims merely when the arbitrator makes a legal error that results in a ruling in favor of the employer without a "hearing on the merits."

Will arbitrators ever grant motions for summary judgment now that a court will review the decision for "legal error"? They'll get right on that. Here's the money quote:

We therefore hold that when, as here, an employee subject to a mandatory employment arbitration agreement is unable to obtain a hearing on the merits of his FEHA claims, or claims based on other unwaivable statutory rights, because of an arbitration award based on legal error, the trial court does not err in vacating the award. Stated in other terms, construing the [California Arbitration Act] in light of the Legislature’s intent that employees be able to enforce their right to be free of unlawful discrimination under FEHA, an arbitrator whose legal error has barred an employee subject to a mandatory arbitration agreement from obtaining a hearing on the merits of a claim based on such right has exceeded his or her powers within the meaning of Code of Civil Procedure section 1286.2, subdivision (a)(4), and the arbitrator’s award may properly be vacated. (See Armendariz, supra, 24 Cal.4th at pp. 106-107.)

To emphasize: this holding does not authorize court review for an arbitrator's mere legal errors when a "hearing on the merits" has occurred. In this case, the arbitrator decided the claim was barred by the statute of limitations. That, of course, is not a "merits" argument.

The case is Pearson Dental Supplies v. Superior Court (Turcios) and the opinion is here.

US DOL Clarifies Unpaid Internships

The US Department of Labor issued new guidance regarding unpaid internships (here). The DLSE just got done with their opinion letter (posted here), and here come the feds with a fact sheet of their own. Coincidence? I think NOT! Scuse me, I need to dry clean my tinfoil hat.

California Fair Employment and Housing Commission to Issue Pregnancy Discrimination Regulations

So, the California FEHC, which enforces the Fair Employment and Housing Act (FEHA) is fixing to revise its pregnancy disability leave regulations. The webpage devoted to these efforts, including a link to the first draft of the regulations is here. If history is a guide, there will be a number of hearings and revisions before final regulations are promulgated. We will have a detailed article on these proposed regulations in the coming weeks. However, one highlight I noticed right away is that the new regulations will explain in more detail how pregnancy disability dovetails with other disabilities regarding "reasonable accommodation obligations" (over and above the separate pregnancy disability leave requirement).

CA Division of Labor Standards Issues Opinion Letter re Internships

Summer's here and the time is right for hiring free labor - er educational interns, that is! The Division of Labor Standards Enforcement issued an opinion letter, here, explaining when an internship / training period may be unpaid. The opinion letter arose in the context of a non-profit's training program. But the agency goes into detail regarding the factors it considers relevant, etc.

El Torito Managers Denied Class Certification

The courts are not requiring class certification in class actions attacking the executive exemption. The main point continues to be that the trial court's decision is entitled to lots of deference. If the trial court's factual findings are supported by "substantial evidence" is does not matter that there is conflicting evidence. The appellate court then looks to whether the trial court applied the proper legal standard. The bottom line is that the trial court has a lot of power in class certification matters.

In this case, involving restaurant managers, the trial court properly found evidence that a class of managers, even broken into sub-classes, was not amenable to common class treatment. Therefore, the court of appeal upheld the trial court's denial of certification. The court sets forth a long discussion regarding what the trial court found to be important on the certification issue....

The plaintiff arguments that classifying everyone as exempt proves commonality, and that chain restaurant managers don't have enough discretion to create individual issues precluding class certification, continue to be losers.

So lawyers defending restaurants in wage and hour matters, take note.

Arenas v. El Torito Restaurants, Inc. et al. and the opinion is here.

Nevada Minimum Wage Going Up 7/1/2010

Our neighbor to the east will raise its minimum wage on July 1. In Nevada, there are different minimum wage levels for employees who receive qualifying health benefits and those who do not.

The Nevada minimum wage will increase to the federal level of $7.25 per hour for employees who receive qualifying health benefits. The rate goes up to $8.26 per hour for those workers who do not receive health benefits. The increase is covered in this article. It is not yet posted on the Nevada Labor Commissioner's website, but likely will show up here. Qualifying health benefits are defined here.

Megan's Law and SLAPPs

The court of appeal's decision in Mendoza v. ADP Screening and Selection Services is interesting and perhaps dangerous for employers. The plaintiff, Mendoza, applied for an unspecified job with an unnamed employer. The employer conducted a background check through ADP Selection Services. ADP, as part of its services, checked the Megan's Law website, where information about registered sex offenders is kept. Although he does not definitively say so, the implication is that he was denied employment because of his appearance on the Megan's Law website.
Mendoza sued ADP, alleging that its use of the website was unlawful - because it was supplying the information to the employer. He claimed the disclosure violated Megan's Law itself, as well as the California investigative consumer report law.
ADP filed a motion to strike the complaint, claiming Mendoza's lawsuit was a "SLAPP" - strategic lawsuit against public participation. ADP claimed it has the right to republish the Megan's Law information, doing so is a protected activity, and Mendoza was seeking to interfere with that right by filing suit.
And both the trial court and court of appeal agreed. So, ADP won this case on the motion and on appeal, and obtained a huge award of attorney's fees, as the anti-SLAPP statute provides.
But do not be fooled. Mendoza did not sue the prospective employer for denying him employment. Had he done so, the court of appeal acknowledged, he might have had a good case.
So, why would an employer agree to receive the information from a third party, when it faces liability for using that information?
Of note, the court did say that an employer MAY use the information on the Megan's Law website "to protect a person at risk" even if for employment purposes. So, employers with operations exposing employees to minors, for example, possibly can use the Megan's Law website's information. The question remains whether the employer's use fits within the definition of "protecting a person at risk."
The bottom line is that unless the employer is using the information from the Megan's Law website to "protect a person at risk," which is not defined, it remains illegal for the employer to "use" that information to deny employment, whether it comes from the website itself or a third party. Therefore, notwithstanding this decision, employers should carefully consider whether to permit third party background investigators to disclose information found on the Megan's Law website.
The case is Mendoza v. ADP Screening and Selection Services and the opinion is here.

Ninth Circuit Changes Its Mind a Little

We posted about Rutti v. Lojack Corp. here, and wrote an article about compensation for preliminary/postliminary work here. Rutti was a case in which the plaintiff and a class of workers for Lojack claimed they were not paid for off-the-clock work performed at home, as well as for their commutes to and from work. The initial panel opinion shut down most of Rutti's claims, holding Rutti's activities were either de minimus or not compensable under the FLSA and California law. The panel did find that Rutti's uploading data at the end of the day potentially was compensable, however.

The first panel voted 2-1 that Rutti's use of a company vehicle to commute to and from home was not compensable under California law. But, on rehearing, the panel changed its position. Judge Cynthia Holcomb Hall flipped her vote. So, the new opinion gave Rutti a trial on his claim that driving to and from work is compensable under California law. The issue is the amount of control Lojack exercised over the use of the company truck. Money quote from Judge Silverman's separate majority opinion (which looks a lot like his previous dissent):

Rutti was required to drive the company vehicle, could not stop off for personal
errands, could not take passengers, was required to drive the vehicle directly from home to his job and back, and could not use his cell phone while driving except that he had to keep his phone on to answer calls from the company dispatcher. In addition, Lojack’s computerized scheduling system dictated Rutti’s first assignment of the day and the order in which he was to complete the day’s jobs. There is simply no denying that Rutti was under Lojack’s control while driving the Lojack vehicle en route to the first Lojack job of the day and on his way home at the end of the day.

So, employers who provide employees with company vehicles, take note. Too many restrictions on use of a company vehicle could turn commuting time into compensable time. And that means overtime, and maybe more meal periods, etc.

The case is still Rutti v. Lojack Corp. The new, fractured opinion, is here.

Ninth Circuit Upholds Tip Pooling Under FLSA

The Fair Labor Standards Act does not prohibit employers from allocating tips under a tip pool, if the employer does not apply a "tip credit" to satisfy the minimum wage obligation.
The Fair Labor Standards Act permits payment of a sub-minimum wage to tipped workers, so long as the base subminimum wage plus tips exceeds the normal minimum wage.
The plaintiffs claimed that the employer's allocation of pooled tips violated the Fair Labor Standards Act. They raised a number of arguments regarding the validity of the tip pooling arrangement, under which 55-70% of tips were distributed to kitchen and dishwashing staff. But the court said the FLSA does not prohibit tip allocations where the employee earns full minimum wage before tips. When an employer does pay subminimum wage and relies on tips to fill the gap, however, there are restrictions on tip pooling under FLSA (29 U.S.C. s. 203(m)). But those did not apply in this instance.
California law, however, does not permit the subminimum wage. Neither does Oregon law, which is where this case arose. Therefore, employers complying with state law minimum wages will not have to worry about the FLSA when constructing tip pools.

The case is Cumbie v. Woody Woo, Inc. and the opinion is here.

U.S. Supreme Court Breathes Life Into Removal Statute

Employers usually prefer federal court over California state court. Federal court practice includes a unanimous jury, tough rules that drive plaintiff attorneys nuts, judges that seem to grant summary judgment more readily, and other perceived benefits.

Federal courts don't routinely hear state law claims unless they are tied to a federal claim, or unless the plaintiff and defendant are "diverse" citizens. But federal courts often prefer not to litigate relatively simple state-law based claims. So, they have limited jurisdiction to hear those matters based on "diversity" of the parties' citizenship.

The Supreme Court stepped in to clarify how to determine a corporation's citizenship for diversity jurisdiction. The case arose in California. Melinda Friend and other sued Hertz for wage and hour violations. Hertz sought to remove the case on the ground that Friend was a California Citizen, and Hertz was a citizen of New Jersey. The lower federal courts determined that Hertz was the equivalent of a California citizen, because it had substantial activities in California.

On review, the Supreme Court rejected the analysis. The Court concluded:

“principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its head-quarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

So, that's a much more straightforward analysis, which will result in the limitation of corporations' citizenship to its state of incorporation and the state where the officers/ senior management primarily do business. As a result, employers with lots of operations in different states will be able to remove cases to federal court based on diversity of citizenship jurisdiction.

The case is Friend v. Hertz Corporation and the opinion is here.

No Attorney's Fees for Minimal Recovery in FEHA Case

The California Supreme Court held that trial courts may deny attorney's fees to prevailing plaintiffs in discrimination cases brought under the Fair Employment and Housing Act, if the plaintiff recovers less than the $25,000 jurisdictional minimum for superior court. The plaintiff recovered about $11,000 and tried to recover over $800,000 in attorney's fees. Code of Civil Procedure Section 1033 authorizes trial courts to deny recovery of costs and fees when the jurisdictional minimum is unmet. The Supreme Court held that Section 1033 applies in FEHA cases. The court also held that the trial court properly considered that the plaintiff grossly inflated his request for attorney's fees. The case is Chavez v. Los Angeles and the opinion is here.

No Short Limitations Periods for Wage Claims

The Court of Appeal held an employer could not include in an employment agreement applicable to wage and hour claims. The court also held that the plaintiff was entitled to judgment as a matter of law against the defendant's administrative exemption. The case involved recruiting managers. The opinion is Pellegrino v. Robert Half International and the opinion is here.

DFEH to Issue Procedural Regulations

The California Department of Fair Employment and Housing has proposed a series of procedural regulations regarding, among other things, how charges are processed. The proposal codifies the DFEH's case-handling procedures, which have not been included in the agency's regulations up to now. The draft proposal is here. There will be hearings and a comment period before they are revised and ultimately promulgated.