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.