Quote of the Week: Andrew Jackson

One man with courage makes a majority.

Andrew Jackson

Why post this here? As advocates for employees in wage and hour cases, we sometimes have the good fortune to represent people who want to help not only themselves, but also their co-workers. The decision to stand up for other people can be difficult to make. Our clients know that class actions can take years to prosecute and that they will have to provide information, documents, and a deposition, and be available at every step along the way. They also know that their current or former employer may be tempted to retaliate against them for standing up for themselves and their co-workers. The people who ultimately choose to be class representatives are those who trust the courage of their own convictions. One person with courage makes a majority.

More Good Stuff From the UCL Practitioner: Live Blog of Advanced Class Action Seminar

Last night, the UCL Practitioner did a live blog from a seminar on Advanced Class Action topics, with a focus on wage and hour. Speakers included Judges Robert Freedman and Steven Brick from Alameda County's complex department, Judge David Flinn from Contra Costa County's complex department, and research attorneys Philip Obbard and Walter Stemmler from Alameda County's complex department. Many thanks to the UCL Practitioner for making this info available for those of us who couldn't make it. (It sounded like a good seminar, but I wasn't going to travel from LA for it!)

California Supreme Court Will Review Arbitration Decision

The California Supreme Court has granted review in Sonic-Calabasas A, Inc. v. Moreno (2009) 94 Cal.Rptr.3d 544, which held that an employee who signs an otherwise valid pre-dispute arbitration agreement may not pursue his claims for unpaid vacation pay in front of the Labor Commissioner. The Court of Appeal held that the plaintiff waived his right to a Labor Commissioner hearing, and that enforcement of the waiver was not barred by Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, or Gentry v. Superior Court (2007) 42 Cal.4th 443. The Supreme Court framed the issues to be decided as follows:

(1) Can a mandatory employment arbitration agreement be enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee's statutory wage claim?

(2) Was the Labor Commissioner's jurisdiction over employee's statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) 552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917?

The Supreme Court's docket is available here. It will be interesting to see whether the Court puts this case on track with Pearson Dental, a case discussing similar issues in the context of the Fair Employment and Housing Act.

Quote of the Week: The Seventh Amendment

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

Seventh Amendment to the Constitution of the United States of America.

Why post the Seventh Amendment? Too many companies and employers are forcing their customers to waive their right to jury trial by imposing mandatory arbitration schemes that work to protect the companies' and employers' short-term interests, but subvert the interests of justice. People far too often forget that the right to jury trial is not trivial. It is a fundamental, core principal of American democracy. If it was important enough for our country's founders to put in the Bill of Rights, it is important enough for us to fight to protect.

Ninth Circuit Decision on Individual Manager Liability Under FLSA

This case arises out of Nevada, but it has parallels in California law that make it worth reading. In Boucher v. Shaw (9th Cir. July 27, 2009), the Ninth Circuit looked at whether an employer's individual managers could be held liable for unpaid wages under Nevada law or the Fair Labor Standards Act (FLSA). The Ninth Circuit certified the first issue to the Nevada Supreme Court, which held that the managers could not be held liable under Nevada law. The Ninth Circuit held that the managers could be held liable under FLSA.

Plaintiffs sued three individuals: the employer's chairman and CEO; the CFO; and the person responsible for handling labor and employment matters. Between them, the CEO and CFO owned 100% of the employer. The plaintiffs alleged that each defendant had custody or control over the “plaintiffs, their employment, or their place of employment at the time that the wages were due.” The District Court granted the individuals' motions to dimiss, and the plaintiffs appealed.

The Ninth Circuit reversed and remanded. First, the Court noted that the FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .” 29 U.S.C. § 203(d). Citing cases going back to Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947), the Court then noted:

[T]he definition of “employer” under the FLSA is not limited by the common law concept of “employer,” but “ ‘is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.’ ” The determination of whether an employer-employee relationship exists does not depend on “isolated factors but rather upon the circumstances of the whole activity.”

***

Where an individual exercises “control over the nature and structure of the employment relationship,” or “economic control” over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability.

With these principals in mind, and accepting the complaint's allegations as true, the Court held that the District Court erred in granting the motions to dismiss. The Court further held that the employer's bankruptcy filing had "no effect" on the claims against the individual managers under the FLSA, a point that the individuals tried to rely on. "[T]he managers are independently liable under the FLSA, and the automatic stay has no effect on that liability."

Given Reynolds v. Bement and its progeny and the fact that we still don't have a ruling in Martinez v. Combs, employees left holding the bag when their employer goes out of business or files for bankruptcy should carefully consider whether the employers individual managers can be held liable under the FLSA.

Another Decision for Employees on Independent Contractor Status

Although not every case on independent contractor status has gone in favor of the employees, the list of such cases is long and growing. This testifies in part to the efforts of employers to avoid their obligations by calling their employees independent contractors. It also testifies to the broad efforts by employees and government agencies to fight this growing trend.

In Messenger Courier Assn. of the Americas v. Cal. Unemployment Ins. Appeals Bd. (July 15, 2009), the Fourth District Court of Appeal held that the Appeals Board got it right when it assessed unemployment insurance employer contributions and penalties against a courier service that designated its drivers as independent contractors, rather than employees. NCM Direct Delivery v. Employment Development Department, Precedent Tax Decision No. P-T-495 (2007). The Court held that the Board properly applied the mutli-factor test found in SG Borello and Sons and other cases to the unemployment insurance case at issue, rather than relying only on the common law right of control test.

Quote of the Week: MLK

All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.

Dr. Martin Luther King, Jr.

Supreme Court To Decide Whether Charter City Must Follow Prevailing Wage Law

The Supreme Court has granted review in State Bldg. and Const. Trades Council of California, AFL-CIO v. City of Vista (2009) 93 Cal.Rptr.3d 95. The case addresses an interesting issue: Whether a charter city must follow the prevailing wage law with respect to public works contracts that are financed solely from city revenues. The City of Vista decided not to follow the prevailing wage law in its construction contracts, and the AFL-CIO filed suit. Both the trial court and the Court of Appeal held that the city need not comply with the prevailing wage law. As stated by the Court of Appeal:

We conclude the PWL does not address matters of statewide concern and therefore Vista, as a charter city, is not required to comply with the PWL with respect to public works contracts which are financed solely from city revenues. Rather, such contracts are municipal affairs over which Vista has paramount power under article XI, section 5, subdivision (a) of the California Constitution.

Amazingly, the Court of Appeal did not mention a long line of cases holding that the prevailing wage law is a minimum wage law that guarantees a minimum cash wage for employees on public works contracts and that serves the important public policy goals of protecting employees on public works projects, competing union contractors, and the public. See cases cited in Road Sprinkler Fitters Local Union No. 669, v. G & G Fire Sprinklers, Inc. (2002) 102 Cal. App. 4th 765, 778-779.

It will be interesting to see where the Court comes down on this one. The Court's docket is here.

Follow-Up on Hiestand v. City of Sacramento

Kim Kralowec obtained a copy of the complaint discussed in my post yesterday. She added an interesting discussion of standing, class certification, and recovery issues arising under 17200 and In re. Tobacco II, which I discussed here. Kim's post is here.

Quote of the Week: FDR

No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages I mean more than a bare subsistence level -- I mean the wages of decent living.

President Franklin Delano Roosevelt in 1933, urging the passage of federal minimum wage legislation.

Employees of Unlicensed Subcontractor are Employees of General Contractor

In Sanders Construction Co, Inc. v. Cerda (2009) 175 Cal.App.4th 430, the Court of Appeal held that a general contractor ("GC") who hires an unlicensed subcontractor ("sub") is responsible for the wages of the sub's employees.

In Sanders, the GC’s contract with the sub included the costs of labor and materials: the GC paid the sub, and the sub paid its employees. When the GC stopped paying, the sub's employees filed DLSE wage claims against the GC for wages, interest, and “waiting time” penalties. 

The DLSE hearing officer looked to worker’s compensation law by analogy and held that the GC was the employees’ statutory employer because “Labor Code Section 2750.5 operates to conclusively determine that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractors.” Section 2750.5 provides: “There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a [contractors'] license is required... or who is performing such services for a person who is required to obtain such a license is an employee rather than an independent contractor.” 
The Court of Appeal agreed and determined that, for public policy reasons, employees can bring wage claims against GCs even if they were hired by an unlicensed sub: 

These same public policy considerations concerning the subterranean economy [applied in the worker’s comp context] could apply in the present circumstances. For example, an unscrupulous general contractor could collude with an unlicensed subcontractor to cheat workers hired by the subcontractor out of their wages, plus all the related benefits...We discern no meaningful distinction exists between being paid wages and receiving other benefits based on wages. In both instances, the same policy reasons militate against allowing a general contractor to escape liability for the obligations of an unlicensed subcontractor.

The GC argued that the employees, as unlicensed persons performing work for which a license was required, lacked standing to bring their claims, pursuant to Business and Professions Code Section 7301. The court rejected this argument, noting that Section 7503 limits the reach of Section 7301, excluding employees who do not have independent businesses and who do not have the right to control the manner of their work.

Thanks to Leonard H. Sansanowicz for his contribution to this post. 

Quote of the Day: Leviticus

Do not unjustly withhold that which is due your neighbor.
Do not let a worker’s wages remain with you overnight until morning.

Leviticus 19:13

Some employers complain about California wage law being too strict, but at least we don't have to pay wages every night!

A Pair of New Cases on Class Action Settlements

I've been wanting to note these cases for a couple of weeks, but haven't had the chance. Both deal with the class action settlement approval process. As everyone knows, it's a two-step process. If the Court makes a preliminary determination that the settlement is fair, it orders notice to be sent to the parties and holds a final approval hearing where it hears any objections and determines whether the settlement is fair.

In In re Consumer Privacy Cases (June 30, 2009), the First District Court of Appeal considered objections to the settlement of consolidated actions against Bank of America. The settlement provided up to $10.75 million in various fee waivers and other benefits to class members, $3.25 million to cy pres beneficiaries, and up to $4 million in fees and costs to class counsel.

Noting the trial court's "broad discretion" to determine "whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper," the Court of Appeal affirmed to order approving the settlement, finding that:

The settlement agreement here met the four Kullar requirements entitling it to a presumption of fairness. Experienced counsel negotiated the settlement after seven years of litigation, including extensive investigation and discovery. The court found that the settlement was ―the product of arm‘s-length negotiations, and only a very low percentage, approximately .000454 percent, of the over 35 million class members objected. ... The court, moreover, contrary to the [objectors'] claim, conducted an extended analysis of the fairness of the settlement.

With regard to attorney fees, the Court approved use of the lodestar method, and noted that the trial court may, but need not, cross-check the lodestar against the total common fund, including the attorney fee award.

On July 6, the Second District Court of Appeal issued its opinion in Clark v. American Residential Services LLC, reversing a trial court's final approval order. The Court of Appeal held:

We conclude the order approving the settlement must be vacated because the trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement. This was due to the court's apparent reliance on counsel's evaluation of the class's overtime claim as having "absolutely no" value, without regard to the objectors' claim that counsel's evaluation was based on an allegedly "staggering mistake of law." While the court need not determine the ultimate legal merit of a claim, it is obliged to determine, at a minimum, whether a legitimate controversy exists on a legal point, so that it has some basis for assessing whether the parties' evaluation of the case is within the "ballpark" of reasonableness. We further conclude that the court abused its discretion in finding that the $25,000 enhancements for [the class representatives] were fair and reasonable, and that it erred in awarding costs greater than the maximum amount specified in the notice given to the class.

Federal Minimum Wage Increases to $7.25 per Hour

Good news today for low wage workers. The federal minimum wage increases today from $6.55 to $7.25 per hour. That is a big increase, but it still leaves many working families at or below the poverty level. Our friends at Workplace Fairness explain:

With this new increase to $7.25 an hour, a full-time worker still only earns $15,080 a year. At the nationwide work-week average of 33 hours, the worker would earn only $12,441. The United States government sets the poverty level at $10,830 for one person or $22,050 for a family of four in 48 states and D.C. A worker who is above this low poverty level would not be eligible for certain welfare-related assistance. Thereby, the new federal minimum wage will just barely put many Americans above the poverty level, exempting them from certain assistance, yet barely allowing them to live comfortably.

You can find more information on the federal minimum wage increase here. California minimum wage remains unchanged at $8.00 per hour.

Quote of the Day: Deuteronomy

From time to time, I am going to post some of my favorite quotes. No better place to start than this:

Do not withhold the wages due to your poor or destitute hired hand, whether he
is one of your brethren or a proselyte living in a settlement in your land.

You must give him his wage on the day it is due, and not let the sun set with him
waiting for it. Since he is a poor man, and his life depends on it, do not let
him call out to God, causing you to have a sin.

Deuteronomy 24:14-15.

Court of Appeal Does an Emily Litella

Do you remember Emily Litella? The brilliant and amazing Gilda Radner played her on Saturday Night Live's Weekend Update. She would come in and say things like, "What's all this fuss about Soviet Jewelry?" or "What's all this fuss about violins on television?"

The Court of Appeal just had a real Emily Litella moment. Last week, I blogged about Martorana v. Marlin & Saltzman, holding that a class member who fails to submit a settlement claim form can't sue class counsel. Yesterday, the Court modified its decision. Here is the full text of the modification:

On pages 2 and 3, the last sentence: "After several years of litigation, the parties in the Sekly action agreed to a class action settlement totaling $1.2 million." The sentence should read: "after several years of litigation, the parties in the Sekly action agreed to a class action settlement totaling $120 million."

"Oh. That's different."

Court of Appeal Holds That Some Employees Do Not Get Vacation

This seems evident to me, but it's surprising how many employees think that employers must provide vacation time. In Owen v. Macy’s Inc. (June 29, 2009, Second District, Div. Two), the employer had a policy that new employees would not earn vacation time during their first six months of employment. After termination, an employee alleged that this policy violated California Labor Code Section 227.3. The trial court disagreed and granted summary judgment for the employer.

The Court of Appeal affirmed:

An employer is entitled to adopt a policy specifying "the amount of vacation pay an employee is entitled to be paid as wages," depending on length of service. (Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 783.) The law permits an employer to offer new employees no vacation time: If an express written company policy forewarns new employees that their compensation package does not include paid vacation during their initial employment, then no vacation pay is earned and none is vested. When such a policy is in place, as it is in this appeal, employees cannot claim any right to vested vacation during their initial employment, because they know in advance that they will not earn or vest vacation pay during this period. The trial court correctly determined that plaintiff was not unlawfully denied vacation pay when her employment ended.

Owen includes a good explanation of the limits on LC 227.3 and Suastez. The full text of the opinion is here.

Ninth Circuit Reverses Class Certification Order

In In re Wells Fargo Home Mortg. Overtime Pay Litigation (2009) --- F.3d ---, the Ninth Circuit Court of Appeals considered "whether the court abused its discretion in finding that the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) was satisfied, based-in large part-on an employer's internal policy of treating its employees as exempt from overtime laws." Slip op. at 1. The Court held that while "such uniform exemption policies are relevant to the Rule 23(b)(3) analysis," "it is an abuse of discretion to rely on such policies to the near exclusion of other relevant factors touching on predominance." Ibid.

New California Electronic Discovery Act Takes Effect Immediately

In her most excellent blog, The UCL Practitioner, Kim Kralowec notes that Governor Schwarzenegger on Monday signed into law A.B 5, the Electronic Discovery Act. The Act takes effect immediately, so everyone should read up. The full text of the Act is here. Kim's post is here.

Supreme Court Says Representative PAGA Actions Need Not Be Certified - As We Predicted

It's good to know that my powers of prediction are not failing me, at least not completely. In March, I predicted here that the Supreme Court would hold that Prop. 64 requires class certification in Unfair Competition Law ("UCL") actions, but not in actions seeking civil penalties on a representative basis under the 2004 Labor Code Private Attorneys General Act ("PAGA"). Cal. Labor Code section 2698, et seq. This morning, the Supremes issued their decisions in Arias v. Superior Court (Angelo Dairy) and Amalgamated Transit Union v. Superior Court (First Transit, Inc.) addressing these and other issues. In Arias, a unanimous Court held:

We hold that an employee who, on behalf of himself and other employees, sues an employer under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) for Labor Code violations must satisfy class action requirements, but that those requirements need not be met when an employee‘s representative action against an employer is seeking civil penalties under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.).

I didn't do as good a job predicting the outcome in Amalgamated. The Court held:

This case presents two issues. First, may a plaintiff labor union that has not suffered actual injury under the unfair competition law, and that is not an "aggrieved employee" under the Labor Code Private Attorney General Act of 2004, nevertheless bring a representative action under those laws (1) as the assignee of employees who have suffered an actual injury and who are aggrieved employees, or (2) as an association whose members have suffered actual injury and are aggrieved employees? The answer is "no." Second, must a representative action under the unfair competition law be brought as a class action? The answer is "yes," for the reasons stated in the companion case of Arias v. Superior Court (June 29, 2009, S155965) ___ Cal.4th ___.

I had predicted that the Court would answer both questions in the affirmative, so I missed on that one. Although I have to say that the Court framed the issue a little differently in its decision than it did in granting review, when it framed issue #1 thus:

Does a worker's assignment to the worker's union of a cause of action for meal and rest period violations carry with it the worker's right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, sec. 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, sec. 17200 et seq.)?

That was the question I thought the Court would answer in the affirmative. In any case, you can read the full text of Arias here and Amalgamated here.

Supreme Court to Issue Decision on 17200 and PAGA

The Cal. Supreme Court just announced that its decision in Arias v. Superior Court is forthcoming. I blogged about Arias here. The issues presented are:

(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, section 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, section 2699) bring them as a class action?

I predicted that "the Court is likely to answer: (1) Yes; (2) No." I can't wait to see how good my crystal ball is.

Ninth Circuit Disapproves of "Incentive Agreement" Between Class Representatives and Class Counsel

This is an issue that anyone who is prosecuting class actions should be aware of. In Rodriguez v. West Publishing Corporation (full text here) the Ninth Circuit held that "incentive agreements" between class representatives and class counsel, which class counsel did not disclose at the certification stage, created an unacceptable conflict of interest between the class representatives and class counsel, on the one hand, and the members of the class, on the other. What is an "incentive agreement," you ask? The Court described it as follows:

Class counsel filed a motion seeking incentive awards for the class representatives after preliminary approval of the settlement and dissemination of the Settlement Notice, but before the final fairness hearing. It turns out that, as part of their retainer agreement, the named plaintiffs ... had entered into an incentive arrangement with [class counsel]. The incentive agreements obligated class counsel to seek payment for each of these five in an amount that slid with the end settlement or verdict amount: if the amount were greater than or equal to $500,000, class counsel would seek a $10,000 award for each of them; if it were $1.5 million or more, counsel would seek a $25,000 award; if it were $5 million or more, counsel would seek $50,000; and if it were $10 million or more, counsel would seek $75,000.

It seems pretty obvious that such an agreement is a bad idea for everyone involved, even if the Court did call it harmless error.

Court Sanctions Employer and Attorney for Seeking Information on Employee's Immigration Status

Los Angeles Superior Court Judge Judith Chirlin recently sanctioned an employer/defendant and its counsel $1,200 for seeking information related to an employee/plaintiff's immigration status.

Our clients worked at a car wash. The employer paid them $40 to $50 for a ten-hour day. After the employer ignored our pre-litigation offer to negotiate a resolution, we filed suit for wage and hour violations.

Employer's counsel propounded discovery seeking information regarding our clients' immigration status, including seeking their green cards and social security cards. We repeatedly advised counsel that such discovery is off limits in a wage and hour matter, but he persisted.

At deposition, counsel attempted to question our client regarding a resident alien card and social security card. We objected on grounds of our client's constitutional and statutory privacy rights and instructed him not to answer. Employer's counsel moved to compel our client to answer, arguing that he had the right to know whether our client was the same person shown on the cards. He also sought $1,090 in fees and costs.

The Court denied the motion, correctly holding that the employer has no right to information on our clients' immigration status. (Go here for an extensive post on this issue.) The Court held that defendant and its counsel made the motion in bad faith and ordered both to pay plaintiffs' attorney fees in the amount of $1,200.

Ninth Circuit Holds that Tribal Business on Tribal Land is Subject to FLSA

In Solis v. Matheson (full text here) the Ninth Circuit held that the Fair Labor Standards Act (FLSA) applies to a Native American-owned business on Native American land, and the Department of Labor can enter Native American land to audit such a business. I don't suppose that this is going to affect a whole lot of people, but I find it fascinating. I quote at length, omitting citations:

Paul Matheson is a member of the Puyallup Tribe. The Puyallup Tribe is a Pacific Northwest Indian tribe that has a reservation in the State of Washington. Paul Matheson owns and operates a retail store known as Baby Zack’s Smoke Shop “Baby Zack’s”), located on trust land within the Puyallup Indian Reservation. Baby Zack’s sells tobacco products and sundries to Indians and non-Indians. Some of the goods sold by Baby Zack’s have been shipped in from locations outside the State of Washington. Baby Zack’s accepts credit card and debit card payments and uses electronic or telephonic means of communication to banks and credit card companies located outside of the State of Washington. Baby Zack’s regularly employs both Indian and non-Indian workers.

The Puyallup Tribe entered into a treaty in the 1850s known as the Treaty of Medicine Creek. The Treaty of Medicine Creek provides that the “tribes and bands agree to free all slaves now held by them, and not to purchase or acquire others hereafter.” The Treaty of Medicine Creek also provides that certain lands are for “exclusive use” of the Indians, “nor shall any white man be permitted to reside upon the same without permission of the tribe and the superintendent or agent.”

Indian tribes have a special status as sovereigns with limited powers. Indian tribes are dependent on, and subordinate to the federal government, yet retain powers of selfgovernment. However, those powers may be limited, modified, or eliminated by Congress.

The tribes’ retained sovereignty reaches only that power needed to control internal relations, preserve their own unique customs and social order, and prescribe and enforce rules of conduct for their own members. Toward this end, the Supreme Court has recognized that a tribe may regulate any internal conduct which threatens the political integrity, the economic security, or the health or welfare of the tribe.

Indians and their tribes are equally subject to statutes of general applicability, just as any other United States citizen. However, a statute of general applicability that is silent on the issue of applicability to Indian tribes, like the FLSA, does not apply to Indian tribes if: (1) the law touches exclusive rights of selfgovernance in purely intramural matters; (2) the application of the law to the tribe would abrogate rights guaranteed by Indian treaties; or (3) there is proof by legislative history or some other means that Congress intended the law not to apply to Indians on their reservations. In any of these three situations, Congress must expressly apply a statute to Indians before we will hold that it reaches them.

The Ninth Circuit held: (1) FLSA does not touch exclusive rights of selfgovernance in purely intramural matters (in part because the Puyallup Tribe had not enacted its own wage and hour laws); (2) the 1850 Treaty of Medicine Creek, by which the Puyallup Tribe agreed to free all slaves, does not address employment rights and the payment of overtime compensation; (3) the Puyallup Tribe's right to exclude non-Native Americans from their land does not prevent the Department of Labor from entering the reservation to investigate FLSA violations.

I have mixed feelings about this decision. Far be it from me to argue against extending minimum wage protections to any employee, but there's a part of me that believes that decisions like this one render Native American "sovereignty" illusory.

9th Circuit Holds FLSA Collective Action Rep. May Not Settle Individual Case and Still Appeal Denial of FLSA Conditional Cert.

In Smith v. T-Mobile USA Inc., 570 F.3d 1119 (C.A.9 (Cal.), 2009), two plaintiffs filed suit against T-Mobile, alleging violations of the California Labor Code, the Fair Labor Standards Act (FLSA), and the Unfair Competition Law, Bus. & Prof. Code 17200 (UCL). The District Court denied their Section 216 motion for conditional certification. No other employees had opted into the suit. The plaintiffs settled their individual claims with T-Mobile, signing a stipulated judgment that purported to reserve the plaintiffs' right to appeal the District Court's denial of conditional certification.

The Ninth Circuit dismissed the appeal as moot. It held that a plaintiff in a FLSA collective action may not settle his or her individual claims and still appeal a denial of conditional certification. The Court did not reach the question of whether a plaintiff in a Rule 23 class action may do so.

That will be the next issue when these plaintiffs try to file their Rule 23 motion.

Ninth Circuit Affirms Decision Shifting Class Notice Costs to Defendant

Hunt v. Imperial Merchant Svcs. Inc., 560 F.3d 1137, is not a wage and hour case, but it is a class action and it makes a good point. The plaintiff in Hunt sued a debt collector for violating the Debt Collection Practices Act. The plaintiff moved for class certification and partial summary judgment. The District Court granted both motions and ordered the defendant to pay the cost of giving notice to the class members. The defendant appealed, and, on March 31, the Ninth Circuit affirmed:

District courts may order a class action defendant to pay the cost of class notification after they determine that the defendant is liable on the merits. They may in an appropriate case shift these notice costs even when the liability decision is under appeal. Here, considering the totality of circumstances, we conclude that the district court did not abuse its discretion by placing the cost of class notification on IMS.

You can read the full opinion here.

United States Supreme Court Issues Decision on Pleading Standards in Federal Court

The United States Supreme Court last week issued its decision in Ashcroft v. Iqbal 129 S.Ct., 173 L.Ed.2d 868 (2009). The following is the syllabus:

Following the September 11, 2001, terrorist attacks, respondent Iqbal, a Pakistani Muslim, was arrested on criminal charges and detained by federal officials under restrictive conditions. Iqbal filed a Bivens action against numerous federal officials, including petitioner Ashcroft, the former Attorney General, and petitioner Mueller, the Director of the Federal Bureau of Investigation (FBI). See Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619. The complaint alleged, inter alia, that petitioners designated Iqbal a person “of high interest” on account of his race, religion, or national origin, in contravention of the First and Fifth Amendments; that the FBI, under Mueller's direction, arrested and detained thousands of Arab Muslim men as part of its September-11th investigation; that petitioners knew of, condoned, and willfully and maliciously agreed to subject Iqbal to harsh conditions of confinement as a matter of policy, solely on account of the prohibited factors and for no legitimate penological interest; and that Ashcroft was the policy's “principal architect” and Mueller was “instrumental” in its adoption and execution. After the District Court denied petitioners' motion to dismiss on qualified-immunity grounds, they invoked the collateral order doctrine to file an interlocutory appeal in the Second Circuit. Affirming, that court assumed without discussion that it had jurisdiction and focused on the standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929, for evaluating whether a complaint is sufficient to survive a motion to dismiss. Concluding that Twombly 's “flexible plausibility standard” obliging a pleader to amplify a claim with factual allegations where necessary to render it plausible was inapplicable in the context of petitioners' appeal, the court held that Iqbal's complaint was adequate to allege petitioners' personal involvement in discriminatory decisions which, if true, violated clearly established constitutional law.

Held:

1. The Second Circuit had subject-matter jurisdiction to affirm the District *1940 Court's order denying petitioners' motion to dismiss. Pp. 1944 - 1947.

(a) Denial of a qualified-immunity claim can fall within the narrow class of prejudgment orders reviewable under the collateral-order doctrine so long as the order “turns on an issue of law.” Mitchell v. Forsyth, 472 U.S. 511, 530, 105 S.Ct. 2806, 86 L.Ed.2d 411. The doctrine's applicability in this context is well established; an order rejecting qualified immunity at the motion-to-dismiss stage is a “final decision” under 28 U.S.C. § 1291, which vests courts of appeals with “jurisdiction of appeals from all final decisions of the district courts.” Behrens v. Pelletier, 516 U.S. 299, 307, 116 S.Ct. 834, 133 L.Ed.2d 773. Pp. 1945 - 1946.

(b) Under these principles, the Court of Appeals had, and this Court has, jurisdiction over the District Court's order. Because the order turned on an issue of law and rejected the qualified-immunity defense, it was a final decision “subject to immediate appeal.” Behrens, supra, at 307, 116 S.Ct. 834. Pp. 1946 - 1947.

2. Iqbal's complaint fails to plead sufficient facts to state a claim for purposeful and unlawful discrimination. Pp. 1947 - 1954.

(a) This Court assumes, without deciding, that Iqbal's First Amendment claim is actionable in a Bivens action, see Hartman v. Moore, 547 U.S. 250, 254, n. 2, 126 S.Ct. 1695, 164 L.Ed.2d 441. Because vicarious liability is inapplicable to Bivens and § 1983 suits, see, e.g., Monell v. New York City Dept. of Social Servs., 436 U.S. 658, 691, 98 S.Ct. 2018, 56 L.Ed.2d 611, the plaintiff in a suit such as the present one must plead that each Government-official defendant, through his own individual actions, has violated the Constitution. Purposeful discrimination requires more than “intent as volition or intent as awareness of consequences”; it involves a decisionmaker's undertaking a course of action “ ‘because of,’ not merely ‘in spite of,’ [the action's] adverse effects upon an identifiable group.” Personnel Administrator of Mass. v. Feeney, 442 U.S. 256, 279, 99 S.Ct. 2282, 60 L.Ed.2d 870. Iqbal must plead sufficient factual matter to show that petitioners adopted and implemented the detention policies at issue not for a neutral, investigative reason, but for the purpose of discriminating on account of race, religion, or national origin. Pp. 1947 - 1949.

(b) Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” “[D]etailed factual allegations” are not required, Twombly, 550 U.S., at 555, 127 S.Ct. 1955, but the Rule does call for sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face,” id., at 570, 127 S.Ct. 1955. A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556, 127 S.Ct. 1955. Two working principles underlie Twombly. First, the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements. Id., at 555, 127 S.Ct. 1955. Second, determining whether a complaint states a plausible claim is context-specific, requiring the reviewing court to draw on its experience and common sense. Id., at 556, 127 S.Ct. 1955. A court considering a motion to dismiss may begin by identifying allegations that, because they are mere conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the complaint's framework, they must be supported by factual allegations. When there are well-*1941 pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Pp. 1948 - 1951.

(c) Iqbal's pleadings do not comply with Rule 8 under Twombly. Several of his allegations-that petitioners agreed to subject him to harsh conditions as a matter of policy, solely on account of discriminatory factors and for no legitimate penological interest; that Ashcroft was that policy's “principal architect”; and that Mueller was “instrumental” in its adoption and execution-are conclusory and not entitled to be assumed true. Moreover, the factual allegations that the FBI, under Mueller, arrested and detained thousands of Arab Muslim men, and that he and Ashcroft approved the detention policy, do not plausibly suggest that petitioners purposefully discriminated on prohibited grounds. Given that the September 11 attacks were perpetrated by Arab Muslims, it is not surprising that a legitimate policy directing law enforcement to arrest and detain individuals because of their suspected link to the attacks would produce a disparate, incidental impact on Arab Muslims, even though the policy's purpose was to target neither Arabs nor Muslims. Even if the complaint's well-pleaded facts gave rise to a plausible inference that Iqbal's arrest was the result of unconstitutional discrimination, that inference alone would not entitle him to relief: His claims against petitioners rest solely on their ostensible policy of holding detainees categorized as “of high interest,” but the complaint does not contain facts plausibly showing that their policy was based on discriminatory factors. Pp. 1950 - 1953.

(d) Three of Iqbal's arguments are rejected. Pp. 1952 - 1954.

(i) His claim that Twombly should be limited to its antitrust context is not supported by that case or the Federal Rules. Because Twombly interpreted and applied Rule 8, which in turn governs the pleading standard “in all civil actions,” Rule 1, the case applies to antitrust and discrimination suits alike, see 550 U.S., at 555-556, and n. 14, 127 S.Ct. 1955. Pp. 1952 - 1953.

(ii) Rule 8's pleading requirements need not be relaxed based on the Second Circuit's instruction that the District Court cabin discovery to preserve petitioners' qualified-immunity defense in anticipation of a summary judgment motion. The question presented by a motion to dismiss for insufficient pleadings does not turn on the controls placed on the discovery process. Twombly, supra, at 559, 127 S.Ct. 1955. And because Iqbal's complaint is deficient under Rule 8, he is not entitled to discovery, cabined or otherwise. Pp. 1952 - 1954.

(iii) Rule 9(b)-which requires particularity when pleading “fraud or mistake” but allows “other conditions of a person's mind [to] be alleged generally”-does not require courts to credit a complaint's conclusory statements without reference to its factual context. Rule 9 merely excuses a party from pleading discriminatory intent under an elevated pleading standard. It does not give him license to evade Rule 8's less rigid, though still operative, strictures. Pp. 1953 - 1954.

(e) The Second Circuit should decide in the first instance whether to remand to the District Court to allow Iqbal to seek leave to amend his deficient complaint. P. 1954.

It remains to be seen how broadly the District Courts will interpret Iqbal (a good test of judicial restraint/activism?), whether Democrats in Congress will attempt to pass corrective legislation, or whether plaintiffs will attempt to use Iqbal to strike boilerplate from defendants' answers.

Ninth Circuit Limits Reach of So-Called Class Action "Fairness" Act

On March 27, the Ninth Circuit rejected a defendant's effort to consolidate multiple actions for purposes of remving the actions to federal court under the so-called Class Action "Fairness" Act (CAFA). CAFA extends federal removal jurisdiction only to civil actions in which monetary relief claims of 100 or more persons are proposed to be tried jointly. The Ninth Circuit held that CAFA does not permit a defendant to remove to federal court separate state court actions, each involving fewer than 100 plaintiffs, as one mass action. Tanoh v. Dow Chemical Company.

California Supreme Court Issues Important Decision on Unfair Competition Law

Much has been written already about the California Supreme Court's decision yesterday in In re Tobacco II Cases. I wanted to add a couple of points regarding the impact of this decision on wage and hour cases.

First, we should note that the Court reversed the trial court, finding that the trial court abused its discretion in decertifying a class. This was largely because the decertification decision relied upon the trial court's interpretation of Proposition 64, a question of law that the Supreme Court reviewed de novo. Although appellate opinions reversing trial court certification decisions are rare, they do happen. Tobacco II reminds us that parties who lose on certification in the trial court will have a much better chance of reversal if they can argue that the issue involved turns on statutory interpretation.

Second, Tobacco II deals with the UCL's "fraudulent act" prong. As a reminder, the UCL defines unfair competition as "any unlwful, unfair or fraudulent business practice...." Most wage and hour actions rely on the UCL "unlawful" and "unfair" act prongs. In appropriate circumstances, however, wage and hour plaintiffs may be able to allege that an employer committed common law fraud and violated the UCL's "fraudulent" prong, for example, in representing to employees that they are independent contractors or exempt from California's overtime requirements. Such a class action would be able to rely on Tobacco II to gain class certification. Where an employer relies on such a policy to misclassify a class of employees, such employees would have a strong argument for class certification under Tobacco II.

Another Decision on Class Arbitration Waivers

On March 17, the Second District Court of Appeal issued its in Sanchez v. Western Pizza Enterprises, Inc. The Court held:

1. Where a restaurant / employer moved to compel arbitration in an action by a delivery driver / employee alleging that the employer failed to pay minimum wage and failed to reimburse expenses as required under Labor Code Section 2802, the Federal Arbitration Act did not preempt state law in the absence of a conflict as applied, and the question whether to enforce the agreement on general contract law principles, including the question of whether the agreement was unconscionable or contrary to public policy, was for the court, rather than an arbitrator, to decide.

2. The trial court properly held that a class arbitration waiver was contrary to public policy and unenforceable where the action involved enforcement of unwaivable statutory rights (Labor Code Sections 1194 and 2802), and where any individual recovery was likely to be modest, class members faced significant potential of retaliation, and many were likely to be unaware of legal rights due to limited English skills.

3. The arbitration agreement was procedurally unconscionable where the parties' inequality in bargaining power made it likely that employees felt at least some pressure to sign, and where agreement suggested choice of arbitrator could be made from panel of multiple arbitrators that actually included only one.

4. The arbitrator selection provision was not rendered substantively unconscionable by the absence of express provisions requiring written arbitration award and allowing discovery -- which are implied as a matter of law -- or by a small claims provision, but was rendered substantively unconscionable by creating a false sense of mutuality in the selection of the arbitrator, where the agreement proivded that the arbitrator would be selected from a given panel, but in fact the panel only included a single arbitrator.

5. The arbitration agreement was permeated by unlawful purpose and unenforceable where the class arbitration waiver was contrary to public policy and the unconscionable arbitrator selection clause indicated an effort to impose on employees a forum with distinct advantages for the employer.

Cal. Supreme Court Agrees to Hear Case on Waiting Time Penalties

A few weeks ago, I blogged about a case that held, among other things, that Labor Code Section 203 "waiting time" penalties are not available as restitution under the Unfair Competition Law. Pineda v. Bank of America. I am surprised to report that the California Supreme Court has agreed to review Pineda. The Court's case summary is here.

Franco v. Athens Disposal: Court Rules on Class Arbitration Waivers

On March 10, the Second District Court of Appeal issued an interesting decision on a number of issues, including class arbitration waivers. The Court held:

1. An arbitration agreement between an employer and employee that purported to waive class arbitrations and preclude employee from acting in "a private attorney general capacity" was unconscionable and unenforceable.

2. Where the trial court erroneously found that the class arbitration waiver was enforceable, any subsequent motion for reconsideration or renewal in the trial court had no effect on the plaintiff's right to appeal that first order.

3. The trial court erred in considering the merits of plaintiff’s overtime claims in determining the enforceability of the class arbitration waiver.

4. Employees cannot waive -- and cannot be forced to waive -- the protections of California's meal and rest period laws.

5. The record did not support the trial court’s determination that the employees’ claims would be so individualized as to render class arbitration treatment significantly less effective than individual arbitrations where employer used a computer and an electronic timecard system to keep track of employees’ work hours, allegedly engaged in a systematic course of illegal practices and policies, and allegedly subjected all employees to the same unlawful conduct.

6. The arbitration agreement provision purporting to prevent the plaintiff from acting as a private attorney general impermissibly sought to nullify the Labor Code Private Attorneys General Act ("PAGA") and was unconscionable.

Supreme Court to Review Lu v. Hawaiian Gardens Tip Decision

The California Supreme Court today granted the plaintiff's petition for review in Lu v. Hawaiian Gardens Casino, Inc. (2009) 88 Cal.Rptr.3d 345. The Court limited its review to the following issue:

Does Labor Code section 351, which prohibits employers from taking "any gratuity or part thereof that is paid, given to, or left for an employee by a patron," create a private right of action for employees?

Our post on the Court of Appeal decision is here. The Supreme Court's docket is here.

Alltop.com Calls Our Blog a "Gold Nugget"

Alltop.com is a web site that aggregates the world's best news sources and blogs. Here's how they describe what they do:

We do this by collecting the headlines of the latest stories from the best sites and blogs that cover a topic. We group these collections — “aggregations” — into individual web pages. Then we display the five most recent headlines of the information sources as well as their first paragraph.

Put differently, they give you the "gold nuggets" on any given topic. Alltop now lists The California Wage and Hour Blog for Employees on its "California" and "Law" web pages.

Ninth Circuit Asks Cal. Supreme Court to Rule on Wage and Hour and Unfair Competition Law Issues

A very interesting development involving both the Ninth Circuit and the California Supreme Court. On February 17, 2009, in Sullivan v. Oracle Corp., the Ninth Circuit asked the Supremes to decide the following issues:

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does § 17200 apply to the overtime work described in question one?

Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

On April 22, the Supremes agreed to review the case.

This is a fascinating case. Questions one and two seem to be gimme's for the employees. California has an overwhelming interest in applying California law to work done in California, whether the emploee typically resides within or outside California.

Question three is more complicated. Does 17200 apply to extra-territorial acts? I have not researched the issue and don't know the answer, but I'm eager to see what the Court has to say.

Stay tuned. The Court's docket sheet is here.

Postal Inspectors Get OT

Good news for all the potal inspectors out there. In Nigg v. USPS, the Ninth Circuit held that postal inspectors are entitled to overtime compensation under the Fair Labor Standards Act ("FLSA"). I won't go into all the details, but anyone who's interested can read the opinion here.

Cal. Supreme Court Issues Important Decision in Consumer Protection Case

On January 29, 2009, The California Supreme Court issued an important ruling in a case under the California Consumer Legal Remedies Act ("CLRA"). Cal. Civil Code Section 1750, et seq. The Court in Meyer v. Sprint Spectrum L.P. held that a plaintiff has no standing to sue under the CLRA without some allegation that allegedly unlawful practice resulted in some kind of tangible increased cost or burden to plaintiff, even if the plaintiff seeks only injunctive relief to prevent an unlawful practice. In this case, the Court held that the plaintiff lacked standing to sue for injunctive relief to prohibit the defendant from placing an unconscionable arbitration provision in its service contract, where the defendant had no yet invoked the arbitration provision. Obviously, this is a bad ruling for consumers and consumer advocates battling mandatory pre-dispute arbitration agreements.

Ninth Circuit: Federal Law Does Not Preempt State Wage Claims

On January 27, 2009, the Ninth Circuit Court of Appeal held that the Federal Railway Labor Act does not preempt a putative class action law suit against an airline company for willfully failing to pay former employees all wages due upon termination pursuant to Oregon law. Moore-Thomas v. Alaska Airlines, Inc.

Ninth Circuit Court of Appeal Hears Oral Argument in Wal-Mart National Gender Discrimination Class Action

On March 24, 2009, an en banc panel of eleven judges heard oral argument in Dukes v. Wal-Mart Stores, Inc., a national gender discrimination class action. When Federal District Court Judge Martin Jenkins certified Dukes as a class action in 2004, it became the largest case discrimination class action in the nation's history.

A three judge panel of the Ninth Circuit Court of Appeal affirmed the class certification order in February, 2007, then modified its decision in December, 2007, again affirming certification, but the Ninth Circuit subsequently granted Wal-Mart's petition for en banc review. So Tuesday, the Court once again heard arguments on whether to affirm the District Court order.

Kim Kralowec of the very fine UCL Practitioner blog has given an excellent live report and follow-up report on the oral argument. Kim writes, in part:

Judge Pamela Rymer asked lead plaintiffs' counsel Brad Seligman, "in 25 words or less, what is the claim in this case?" Seligman said "uniform delegation of discretion regarding pay decisions in a business with a culture of discrimination."

15 words. This -- boiling such a complicated case down to such a concise statement -- is very high-level lawyering, folks. You can listen to the oral argument on the web site run by class counsel.

US Supreme Court Extends Anti-Retaliation Protections

On January 26, 2009, the United States Supreme Court in Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee held that the Civil Rights Act’s Title VII antiretaliation provision’s protection extends to an employee who speaks out about discrimination in answering questions during an employer’s internal investigation. Because the Civil Rights Act does not define the term "oppose" in its anti-retaliation provisions, it carries its ordinary dictionary meaning of resisting or contending against, and a person can "oppose" discrimination by responding to someone else’s questions as well as by provoking discussion. The Court therefor held that an employee’s disapproving account of coworker’s sexually obnoxious behavior toward her in response to questioning during an internal investigation constituted "opposition" to an unlawful employment practice and was covered by the Act’s antiretaliation provision.

Although Crawford is not a wage and hour case, it will not be difficult to make the jump from Title VII's anti-retaliation provisions to the the anti-retaliation provisions of the federal wage and hour law, the Fair Labor Standards Act ("FLSA"). In other words, advocates for employees will be able to use Crawford use it to help protect employees from retaliation when they complain about illegal wage practices, whether the employee or the employer initiates the conversation.

Court of Appeal Issues Class Action "Virtual Representation" Decision

On January 22, 2009, the Second District Court of Appeal published its previous decision in Deleon v. Verizon Wireless, one of a growing list of cases that considers when the filing of an earlier class action will prohibit the filing of a later class action. In Deleon, the Court held that where the plaintiff in a class action pleads the same set of operative facts violating same primary rights as raised in a prior class action against the same defendant -- that employer made unlawful chargebacks against employees’ commissions -- even though parties sought different forms of relief, the primary right invaded was identical, and the latter class action was barred by res judicata to the extent that the plaintiff sought relief on behalf of class members who had settled the prior class action. The Court also held that the trial court abused its discretion in denying the plaintiff leave to amend his complaint to state claims that accrued after the settlement date of the prior action.

Court of Appeal Issues Decision on Tip Pools

In Lu v. Hawaiian Gardens Casino, the Second District Court of Appeal on January 22, 2009, held: (1) Labor Code section 351 does not prohibit tip pooling in casinos; and (2) Although sections 351 and 450 contain no private right of action, they do serve as predicates for actions under the Unfair Competition Law. Not surprisingly, the Court confirmed that casinos and their "agents" -- that is, “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees" -- may not take any part of a gratuity given to an employee by a patron.

Court of Appeal Holds that Waiting Time Penalties are Not Available Under UCL

On January 21, 2009, the First District Court of Appeal issued a decision that has a number of bad points for employees. A little background: the plaintiff was employed by Bank of America, and resigned effective May 11, 2006. B of A did not pay him his final wages until May 16, 2006. Plaintiff filed a class action lawsuit on October 22, 2007, more than a year later. The trial court granted B of A's motion for judgment on the pleadings, and the plaintiff appealed.

The Court of Appeal held: (1) As held in McCoy v. Superior Court (Kimco) (2007) a 1-year statute of limitations applies to Section 203 claims where the employer pays the employee all earned wages before the employee sues; (2) The trial court did not abuse its discretion in denying the plaintiff leave to amend to name a new class representative plaintiff whose claims were not barred by the 1-year statute of limitations; and (3) Labor Code Section 203 waiting time penalties cannot be recovered as restitution under the Unfair Competition Law, California Business and Professions Code Section 17200.

I hate to say it, but this is one of those cases that I wouldn't have pursued. As the saying goes, bad facts make bad law.

Steven G. Pearl to Speak at Advanced Wage and Hour Conference

I will speak at the California Employment Lawyers Association's ("CELA") Fifth Annual Advanced Wage and Hour Conference. I will moderate a panel addressing the use of obtain injunctions and pre-judgment writs of attachment in wage and hour cases. The panel, "Starting off on the Right Foot: Intake, Investigation, and Provisional Remedies," will include Hon. Victor Greenberg of the Los Angeles Superior Court.

I am the primary organizer of this year's conference. CELA is a statewide organization of approximately 750 attorneys representing employees in employment cases. I serve as co-chair of CELA's Wage and Hour Committee.

Cal. Supreme Court Sets Hearings in Wage and Hour Cases

The California Supreme Court has set hearings in two cases that we're watching. On March 8, the Court will hear arguments in Arias v. Superior Court (Angelo Dairy) and Amalgamated Transit Union v. Superior Court (First Transit, Inc.).

In Arias, the Court will consider the following issues:

(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, section 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, section 2699) bring them as a class action?

It seems to me that the Court is likely to answer: (1) Yes; (2) No. But I'm not on the Court.

In Amalgamated, the Court will consider the following:

(1) Does a worker's assignment to the worker's union of a cause of action for meal and rest period violations carry with it the worker's right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, sec. 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, sec. 17200 et seq.)? (2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant "complies with Section 382 of the Code of Civil Procedure," require that private representative claims meet the procedural requirements applicable to class action lawsuits?

I think the Court is likely to answer: (1) Yes; (2) Yes. Let's see how my predictions do.

Obama Budget Boosts DOL Funding

Great news! President Obama's proposed 2010 federal budget would boost the U.S. Department of Labor's discretionary budget authority to $13.3 billion in fiscal year 2010, in what the administration says is a bid to restore the agency's ability to enforce worker protection laws.

Hilda Solis Confirmed as US Secretary of Labor

News outlets are reporting that the Senate has confirmed California Representative Hilda L. Solis to be the Obama administration's Secretary of Labor, after several weeks of delays by Republican Senators. The fight over Rep. Solis's nomination foreshadows the larger fight that is expected over the Employee Free Choice Act, legislation that would make joining a union easier.

The Department of Labor defines its mission as follows:

The Department of Labor fosters and promotes the welfare of the job seekers, wage earners, and retirees of the United States by improving their working conditions, advancing their opportunities for profitable employment, protecting their retirement and health care benefits, helping employers find workers, strengthening free collective bargaining, and tracking changes in employment, prices, and other national economic measurements. In carrying out this mission, the Department administers a variety of Federal labor laws including those that guarantee workers’ rights to safe and healthful working conditions; a minimum hourly wage and overtime pay; freedom from employment discrimination; unemployment insurance; and other income support.

After eight years of an administration that was hostile to this mission, I look forward to changes that the new Secretary of Labor undoubtedly will bring to office.

More New Laws For 2009: Final Pay Requirements for Temporary Employees

Amanza Smith was working as a salesperson in a Beverly Hills boutique when a representative of L’Oreal approached her and asked if she would like to be a “hair model” at an upcoming show featuring L’Oreal products and a hair stylist. After she attended a modeling call, L'Oreal agreed to pay her $500 for one day’s work at the show. Ms. Smith worked at the show, where her hair was colored and styled, and she then walked a runway a few times. Ms. Smith stayed at the show until she was told she could leave. L'Oreal did not immediately pay her the $ 500 in wages it owed her, but waited over two months to do so.

Ms. Smith filed a class action law suit against L'Oreal, alleging that she worked for one day, that her employment was terminated at the end of the day, that L'Oreal violated its obligation to pay earned wages promptly upon separation, and that it should pay her and all similarly situated temporary employees "waiting time" penalties under Labor Code Section 203.

In Smith v. L'Oreal USA, Inc. (2006) 39 Cal. 4th 77, the California Supreme Court agreed. The Court held that the discharge element of Section 201 can be satisfied either when an employee is involuntarily terminated from an ongoing employment relationship or when an employee is released after completing the specific job assignment or time duration for which the employee was hired. An employee who works on a job assignment of short duration is not excluded from the protective scope of Sections 201 and 203.

Effective January 1, 2009, Labor Code Section 201.3 provides, with certain exceptions:

if an employee of a temporary services employer is assigned to work for a client, that employee's wages are due and payable no less frequently than weekly, regardless of when the assignment ends, and wages for work performed during any calendar week shall be due and payable not later than the regular payday of the following calendar week. A temporary services employer shall be deemed to have timely paid wages upon completion of an assignment if wages are paid in compliance with this subdivision.

New Laws for 2009: Overtime Exemption for Employees in the Computer Software Field

Assembly Bill 10 was passed effective October 1, 2008, to extend the exemption for employees in the computer software field to those paid on a salary basis.

Here's the background: In 2000, the legislature passed a bill (SB 88) providing that certain employees in the computer software field are exempt from the overtime compensation laws. In order to be exempt under the law in 2000, an employee had to:

(1) be "primarily engaged" in work that is "intellectual or creative and that requires the exercise of discretion andindependent judgment";
(2) be "primarily engaged" in certain duties that cover most of what employees in the computer software field do;
(3) be "highly skilled and proficient in thetheoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering"; and
(4) be paid an "hourly rate" of "not less than $41.00."

For a regular work year with 2,080 hours (not that any of you computer people work regular work years of 2,080 hours), this would equal $85,280. This "hourly rate" increased annually:

$42.64 per hour ($88,691) effective January 1, 2002;
$43.58 per hour ($90,646) effective January 1, 2003;
$44.63 per hour ($92,830) effective January 1, 2004;
$45.84 per hour ($95347) effective January 1, 2005;
$47.81 per hour ($99,444) effective January 1, 2006;
$49.77 per hour ($103,521) effective January 1, 2007.

That was it. I think the idea that a programmer earning $100,000 per year would not be exempt from the overtime law drove businesses nuts, and they worked hard to change the law. Effective January 1, 2008, the legislature brought the "hourly rate" of pay down to $36.00 ($74,880 per year).

But this still left a question about whether salaried employees could be exempt. Those of us who represent employees argued that the language of the statute meant what it said: that only employees who were paid on a hourly basis could be exempt, leaving salaried employees eligible for overtime compensation. And the legislative history backed that up. Defendants, of course, argued that it didn't matter whether someone was paid on an hourly or salary basis, as long as the math worked out.

Effective October 1, 2008, any employee meeting the other requirements of Section 515.5 is exempt from the overtime requirements as long as her or she earns not less than $36.00 per hour or not less than $75,000 per year, paid at not less than $6,250 per month.

Effective January 1, 2009, this rate started to climb back up. For year, anyone who meets the other requirements is overtime exempt as long as he or she earns an hourly rate not less than $37.94 or annual salary of not less than $79,050 for full-time employment, and paid not less than $6,587.50 per month.

Schwarzenegger and Business Interests Fail to Roll Back Employee Protections

Last week I posted about the Schwarzenegger administration's efforts to use the budget crisis as an excuse to roll back overtime, meal and rest period laws that protect employees. The Sacramento Bee now reports that a budget deal has been reached, and that the administration and business interests failed to roll back the wage and hour laws that protect employees:

While businesses were unable to obtain rollbacks in labor provisions related to meal breaks and overtime pay, they scored victories on tax code changes. A major shift in how the state calculates each company's sales could save businesses an estimated $650 million in state taxes. Republicans also have asked for a $2,000 tax credit per each new employee hire.

This is good news for all Californians. Congratulations to those who worked very, very hard to defeat the administration's efforts.

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Will the Economy Turn Juries Against Employers?

A recent article from the National Law Journal says ... maybe.

Some attorneys believe that increased lay-offs will bring more sympathy for employees who have been terminated or suffered discrimination or harassment, and that corporate mis-management scandals have eroded the public trust in corporate America. Others believe that jurors will take into account how badly companies are doing, and that all the news about lay-offs will lead jurors to believe that terminations are justified.

I believe that the cases that are most likely to increase in value are whistle-blower cases in which an employee raises concerns about an employer's management and suffers retaliation or termination as a result. These cases will raise juries' sympathy for the terminated employee and their anger at corporate mismanagement.

You can find the article here.

L.A. City Attorney Files Criminal Charges in Car Wash Case

Los Angeles City Attorney Rocky Delgadillo today announced that he has filed a 176-count criminal complaint against two Los Angeles car wash owners, a manager, and their four car wash businesses, for repeatedly and willfully violating labor laws and creating a work environment that bordered on indentured servitude.

The complaint, filed Monday in Los Angeles County Superior Court, alleges car wash owners Benny and Nissan Pirian, their four car wash businesses, and manager Manuel Reyes, routinely ignored wage, hour, and rest break laws, forced workers to drink non-potable water, and required employees to purchase uniforms and equipment from their bosses, in violation of numerous laws.

The four car wash businesses named in the criminal complaint are: Celebrity Car Wash, Inc. (901 N. Vine Street, Hollywood), Five Star Car Wash, Inc. (9240 Reseda Blvd, Northridge), Hollywood Car Wash, Inc. (6200 Sunset Blvd, Hollywood), and Vermont Hand Wash, Inc. (1666 N. Vermont, Los Feliz).

The owners, Benny and Nissan Pirian, are each charged with 172 counts of California Labor and Penal Code violations. If convicted on all counts, the Pirians each face nearly 86 years in county jail, and $136,000 in fines. The manager, Manuel Reyes, faces 2 counts each of witness intimidation and brandishing a deadly weapon, which carries a maximum penalty of 2 ½ years in county jail, and $3,000 in fines.

"With this lawsuit, the City Attorney is sending a clear message: wage theft is a crime, and it won't be tolerated in Los Angeles," said Kevin Kish, Director of the Employment Rights Project at Bet Tzedek Legal Services the legal-aid organization. Bet Tzedek attorneys are representing employees of Pirian-owned car washes in a class-action suit in Los Angeles County Superior Court.

The City Attorney's press release can be found here.

The Class Action Fairness Act and the Securities Act of 1933

I'm not a securities litigator, but given the rise in wage and hour cases being prosecuted in federal court since passage of the so-called "Class Action Fairness Act" ("CAFA") in 2005, I found this article interesting. As reported on law.com:

The 7th U.S. Circuit Court of Appeals has made it tougher for plaintiffs to keep securities class actions in state court by holding that the 2005 Class Action Fairness Act's preference for federal jurisdiction trumps the Securities Act of 1933.
The decision, issued on Jan. 5, stems from a disputed real estate investment trust merger and splits with a 9th Circuit interpretation of conflicting terms between the 1933 Act's anti-removal provisions and the Class Action Fairness Act's terms that allow removal of state class actions to federal court.
The 7th Circuit held that an anti-removal provision in Section 22 of the Securities Act of 1933 does not prevent removal when other requirements of the CAFA are met. The CAFA is more recent and thus generally allows removal, despite the 1933 Act bar, so long as terms of the CAFA are met. Katz v. Gerardi, 08-8031 (7th Cir.).
This breaks with a 2008 decision in the 9th Circuit that held that the more specific terms of the 1933 Act, applying to securities cases, can trump the generalized terms of the 2005 act applying to all civil actions, Luther v. Countrywide Home Loans Servicing, 533 F.3d 1031 (9th Cir. 2008).

Ninth Circuit Invalidates Forum Selection and Choice of Law Clauses

The use and enforcement of choice of law and forum selection clauses has become a very important issue in wage and hour law.

In Doe 1 v. AOL, LLC (Jan. 16, 2009) the plaintiffs filed a class action against AOL after AOL made public information regarding its users' search records. The plaintiffs sued in federal court in California for violation of a federal privacy law, and the California plaintiffs sued for violation of the Consumer Legal Remedies Act ("CLRA"). California Civil Code Section 1770.

AOL moved to dismiss the case, relying on its member agreement, which designated the courts of Virginia as the proper venue for any dispute between AOL and its members, and designated Virginia law to govern such disputes. The District Court granted the motion without prejudice to plaintiffs' right to file in the Virginia state or federal courts.

The Ninth Circuit Court of Appeals reversed the trial court's decision. First, the Ninth Circuit held that the Member Agreement's clause designating the "courts of Virginia" as the proper fora for any dispute meant the Virginia state courts, and not the federal courts located in Virginia.

Next, the Court held that "the forum selection clause so construed is unenforceable as a matter of federal law, because it violates California public policy against waivers of class action remedies and rights under the California Consumers Legal Remedies Act." Despite the "heavy burden" on the party opposing the forum selection clause to show that it is not enforceable, the Court held that the forum selection clause is not enforceable. The Court relied on a 2001 California Court of Appeal decision finding the same forum selection clause unenforceable because the clause violated California public policy on two grounds:

(1) enforcement of the forum selection clause violated California public policy that strongly favors consumer class actions, because consumer class actions are not available in Virginia state courts, id. at 712;12 and (2) enforcement of the forum selection clause violates the anti-waiver provision of the Consumer Legal Remedies Act (CLRA), id. at 710, which states “[a]ny waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.” Cal. Civ. Code § 1751.

Accordingly, the Court held that the forum selection clause in AOL's member agreement is unenforceable as to California resident plaintiffs bringing class action claims under California consumer law.

Judge Nelson wrote the Court's opinion. Judges Reinhardt and Bea joined, with Judge Bea writing a separate concurring opinion.

Court of Appeal Reverses Decision Denying Class Certification

The California Court of Appeal recently reversed a decision denying class certification, holding that the trial court had abused its discretion. In Ghazaryan v. Diva Limousine, Ltd. (December 22, 2008, ordered published January 12, 2009) 169 Cal.App.4th 1524, the plaintiff challenged his employer's policy of "paying its drivers an hourly rate for assigned trips but failing to pay for on-call time between assignments ('gap time')." The plaintiff, like his co-workers, frequently had substantial periods of gap time for which he was not compensated. After a run-in with his employer over his right to eat during this "gap time," the plaintiff filed suit, alleging failure to pay overtime and earned wages, failure to provide meal and rest periods, failure to provide timely and accurate wage and hour statements, and violation of the Unfair Competition Law.

The plaintiff sought to certify two classes of employees: "(1) based on Diva’s alleged failure to pay earned overtime and straight time, 'All current and former employees of Defendant who worked as Limousine Drivers during the period of May 10, 2002 to the present'; and (2) targeting Diva’s failure to provide mandatory rest breaks, 'All current and former employees of Defendant who work as Limousine Drivers at any time during the period of May 10, 2002 to the present, worked one or more four hour increments of time without being given a rest break for each such increment and who were not properly compensated therefor.'"

The employer used a very common strategy in defending class certification, focusing on purported differences in the way that its drivers used their gap time. The employer emphasized that some members of the putative class were paid for their gap time and submitted declarations from others who stated that they used gap time for personal business and did not support the law suit.

The trial court found the declarations "convincing" and denied class certification. The trial court held that it could not determine how many people would be in the class (and thus whether the numerosity requirement was satisfied) without first determining whether the employer's gap time policy was legal, which the court said it could not do at the certification stage. Similarly, the court held that it could not tell who would fit into the class unless it determined the legality of the policy, and thus found that ascertainability was lacking.

The Court of Appeal held that the trial court utilized "improper criteria" in analyzing the class certification motion.

The trial court is, of course, correct, under well-established Supreme Court authority, “The certification question is ‘essentially a procedural one that does not ask whether an action is legally or factually meritorious.’” (Sav-On Drug Stores, supra, 34 Cal.4th at p. 326.) But the trial court fundamentally misconceived the import of the rule against evaluating the merits of the plaintiff’s claims in deciding whether class treatment is appropriate. Rather than denying certification because it cannot reach the merits, as the court did here, the trial court must evaluate whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment: “As the focus in a certification dispute is on what type of questions -- common or individual -- are likely to arise in the action, rather than on the merits of the case [citations], in determining whether there is substantial evidence to support a trial court’s certification order, [the reviewing court] consider[s] whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.” (Id. at p. 327.)

Having set forth the proper standard for evaluating the class certification motion, the Court went on to hold that the case satisfied all requirements for class certification.

Regarding ascertainability and numerosity, the Court held that the plaintiff had properly identified the class. The Court stated, "a class is properly defined in terms of 'objective characteristics and common transactional facts,' not by identifying the ultimate facts that will establish liability." The plaintiff's proposed class, consisting of all drivers employed during a particular time, was perfectly appropriate. Any drivers who had been paid for their on-call time, the Court held, could be excluded from the class without destroying ascertainability. "Alternatively, the class can be modified to specify only those drivers who were not paid for their on-call or gap time." Either way, the proposed class satisfied "the purpose of the ascertainability requirement to ensure notice to potential class members who at some time during their employment by Diva accumulated gap time."

Regarding community of interest, the Court reiterated: "Determining whether a sufficient community of interest exists to warrant class certification, however, depends not on the differences among individual drivers’ use of their gap time but on the reasonableness of Diva’s policies as applied to its drivers as a whole." Rather than focusing on the different rates at which the drivers accumulated gap time or the way they spent that time, the Court held that the proper focus was on the employer's gap time policies -- policies that should be examined on a class-wide basis:

Diva dictates to a large extent how drivers use their on-call time. Diva distributes an official “Chauffeur’s Handbook” to all drivers that expressly bars personal use by drivers of Diva’s vehicles (albeit Diva appears to ignore incidental errands within a geographically proximate area), requires drivers to respond promptly to dispatch calls and accept trip assignments absent pre-arranged circumstances, requires drivers to be in full uniform while in or proximate to their vehicles and requires drivers to clean and maintain their vehicles during their on-call time. Those limitations apply across the board to all drivers who have on-call time during the course of a day. Although individual testimony may be relevant to determine whether these policies unduly restrict the ability of drivers as a whole to utilize their oncall time for personal purposes, the legal question to be resolved is not an individual one. To the contrary, the common legal question remains the overall impact of Diva’s policies on its drivers, not whether any one driver, through the incidental convenience of having a home or gym nearby to spend his or her gap time, successfully finds a way to utilize that time for his or her own purposes.

Regarding superiority, the Court held:

There is no question class treatment constitutes the superior mode of resolving Ghazaryan’s claims in this action. Based on the evidence submitted by Diva in opposition to the motion, its compensation policy has been carefully drafted; and Diva very well may find its policy upheld as reasonable under the existing DLSE standard. We see no advantage to either party to resolution of this question on a piecemeal basis and agree with Ghazaryan such a prospect would jeopardize the ability of employees to find competent representation if restricted to their own individual claims.

Judge Perluss wrote the Court's opinion. Judges Zelon and Jackson joined.

Steven G. Pearl to speak at LACBA Labor and Employment Law Symposium 3/31/09

I am speaking at the Los Angeles County Bar Association's Twenty Ninth Annual Labor and Employment Law Symposium on March 31, 2009, at the Millennium Biltmore Hotel in Los Angeles. I am speaking on the increasingly common practice of employers classifying their employees as independent contractors.

Why would an employer classify its employees as independent contractors? I don't know, but maybe it has something to do with the fact that employers don't have to pay independent contractors overtime compensation, don't have to provide them with meal periods, rest periods, or proper wage statements, don't have to pay them promptly on termination or quitting, and don't have to follow the other laws that protect employees, but don't protect independent contractors.

Oh yeah, and they don't have to pay their fair share of employment taxes to the government, either. Sounds like a great deal for the employer, and a bad deal for everyone else.

Go here for more information on the Symposium.

California Supreme Court Schedules Oral Argument in Unfair Competition Case

California's Unfair Competition Law ("UCL"), Business and Professions Code Section 17200 et seq., "was enacted to protect consumers as well as competitors from unlawful, unfair or fraudulent business acts or practices, by promoting fair competition in commercial markets for goods and services." Over the years, the UCL has been used to stop such practices as stores selling cigarettes to underage kids or selling re-packaged meat as new. It has been used succesfully in countless wage and hour cases.

On November 2, 2004, California voters passed Proposition 64, amending the UCL in several important ways. Among other changes, Prop. 64 amended Section 17204 to provide that only the Attorney General, district attorney, city attorney, or "any person who has suffered injury in fact and has lost money or property as a result of such unfair competition" could prosecute a UCL action.

The Supreme Court announced today that it will hear oral argument in In re. Tobacco II Cases, Case S147345, on March 3 at 9:00 a.m. in San Francisco. The case includes the following issues:

(1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, section 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered "injury in fact," or is it sufficient that the class representative comply with that requirement?

(2) In a class action based on a manufacturer's alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer's representations?

In a typical wage and hour case, all class members will have suffered "injury in fact," so the Tobacco case will not be as important in wage and hour litigation as in other areas, but the case remains of interest.

Layoffs Trigger More Employment Lawsuits

We've seen a number of articles recently talking about how the economic down-turn is increasing the amount of employment-related litigation. This makes sense and follows a pattern that we've seen for years.

People don't like to sue their employers. Even if things are bad at a job -- even if the employer doesn't pay for all overtime or there's discrimination -- most people don't like to complain and don't want to risk losing their job. Most people only step forward after there's been some kind of break in the employment relationship -- either the boss or supervisor does something that the employee just can't take any more, or the job ends. With all the lay-offs, it's no surprise that more people are filing law suits.

Here's an article from today's New York Times on this issue.