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.