Pearl Law Firm Wins Summary Adjudication of Independent Contractor, Exemption Defenses in Nursing Case

On March 25, 2010, Los Angeles Superior Court judge Conrad R. Aragon granted summary adjudication in favor of two licensed vocational nurses (LVNs) represented by The Pearl Law Firm. The Court found that the undisputed evidence showed that the LVNs were neither independent contractors nor exempt employees.

The action alleges that the employer, a home health agency, failed to pay the LVNs overtime and missed meal and rest period compensation, failed to provide them with timely and accurate wage and hour statements, and failed to pay them all earned wages on separation. The defendant asserted in its answer that the LVNs were either independent contractors or exempt employees.

The Court first held that the LVNs were not independent contractors as a matter of law. The Court held that the employer had not only the right to control the LVN's work, but also the duty to do so under California's home health agency regulations. Further, the Court found that the employer exercised control over the LVNs "on a pervasive, continual basis throughout their employment." As such, the LVNs were employees, not independent contractors.

The Court also held that the exemption defense did not apply for several reasons. First, the employer paid the LVNs on an hourly basis, not a salary. Second, the Court held that the LVNs were not engaged in a "learned or artistic profession" within the meaning of the exemption. Instead, the Court found that the LVNs were "primarily engaged" in work that "either required no particular skill and knowledge, such as bathing and changing diapers, or that required only the limited education and clinical training of an LVN [high school diploma, plus one year of combined classroom instruction and clinical rotation]." Third, the LVNs did not "customarily and regularly exercise discretion and independent judgment" as defined in the regulations. Instead, they "applied [their] knowledge in following prescribed procedures." As such, they could not be exempt employees.

The Court's ruling on summary adjudication establishes liability against the employer. The case will now go to trial on damages.

United States Supreme Court Grants Certiorari in Ninth Circuit Arbitration Case

On January 15, 2010, the United States Supreme Court granted a writ of certiorari in Rent-A-Center, West, Inc. v. Jackson, 130 S.Ct. 1133, 78 USLW 3271, 78 USLW 3407, 78 USLW 3413. The Court placed the matter on an expedited briefing schedule. I did not blog the Ninth Circuit's underlying decision in Jackson v. Rent-A-Center, West, Inc. 581 F.3d 912 (C.A.9 (Nev.), 2009), which came down in September, just before I broke my leg. Here is a summary from Public Justice, which has filed an amicus brief on behalf of the respondent employee:

Antonio Jackson, an African-American man who worked for Rent-A-Center in Nevada, claims that the company discriminated against him on grounds of race when it repeatedly denied him promotions and promoted non-African-American employees with less experience. When he sued in federal court alleging violations of federal civil rights laws, Rent-A-Center moved to compel arbitration under a contract it had required Jackson to sign as a condition of working for the company. The clause provides that the arbitrator, not a court, has "exclusive authority" to resolve any dispute, including a dispute about whether the arbitration clause itself is valid. Jackson fought enforcement of the clause, arguing that several of its provisions -- including terms requiring him to pay half of the filing fees and arbitration costs and limiting the discovery he could take to prove his case -- were unconscionable under state law. He also argued that the clause was one-sided and unenforceable because it permitted Rent-A-Center, but not its employees, to pursue its own claims in court. The district court granted Rent-A-Center's motion, enforced the clause, and held that any challenges to its validity were for the arbitrator to decide.

The U.S. Court of Appeals for the Ninth Circuit reversed, holding that under U.S. Supreme Court precedent, courts -- not arbitrators -- must determine the threshold question of whether an arbitration clause is valid and enforceable. The court explained that, because "arbitration is a matter of contract," no party can be ordered to arbitrate before a judicial determination that the arbitration clause creates a contractual duty to arbitrate.

I am adding this case to our watch-list of pending appellate cases.

Department of Labor Wage and Hour Division Issues First Administrator Interpretation, Finds That Loan Officers Are Not Exempt under Federal Law

On March 24, 2010, the United States Department of Labor (DOL) Wage and Hour Division (WHD) announced that it would begin issuing "Administrator Interpretations" to address important issues. The WHD web site states:

In order to provide meaningful and comprehensive guidance and outreach to the broadest number of employers and employees, the Wage and Hour Administrator will issue Administrator Interpretations when determined, in the Administrator’s discretion, that further clarity regarding the proper interpretation of a statutory or regulatory issue is appropriate. Administrator Interpretations will set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue. Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees. The Wage and Hour Division believes that this will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome. Requests for opinion letters generally will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented. In addition, requests for opinion letters will be retained for purposes of the Administrator’s ongoing assessment of what issues might need further interpretive guidance.

WHD also issued its first Administrative Interpretation (No. 2010-1), finding that mortgage loan officers typically do not qualify as bona fide administrative employees under the Federal Fair Labor Standards Act (FLSA) and should not be treated as exempt from the FLSA's minimum wage and overtime compensation requirements.

WHD begins by noting that the employee's job duties and compensation determine exempt status, rather than the job title. WHD then reviews the job duties typically performed by mortgage loan officers. WHD notes that minimum wage and overtime exemptions “are to be narrowly construed" against the employer and reviewed the requirements for the exemption:

1. The employee must be compensated on a salary or fee basis as defined in the regulations at a rate not less than $455 per week;
2. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
3. The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200.

WHD focuses on the second of these requirements. Using the "production vs. administrative dichotomy, WHD concludes that mortgage loan officers typically "have a primary duty of making sales," which is a production function, rather than administrative. In addition, WHD notes that loan officers typically are paid commissions based on sales, are trained in sales techniques, and that "many employers defending against FLSA lawsuits brought by mortgage loan officers argue that the employees are exempt under section 13(a)(1) as outside sales employees."

WHD goes on to conclude that "because homeowners [who interact with loan officers] do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer's customers."

Finally, WHD clarifies a 2006 opinion letter, FLSA2006-31 (Sept. 8, 2006), which "appears to assume that the example provided in 29 C.F.R. § 541.203(b) creates an alternative standard for the administrative exemption for employees in the financial services industry." WHD clarifies that "the administrative exemption is only applicable to employees that meet the requirements set forth in 29 C.F.R. § 541.200. The regulation at 29 C.F.R. § 541.203(b) merely provides an example to help distinguish between those employees in the financial services industry whose primary duty is related to the management or general operations of the employer’s customers and those whose primary duty is selling the employer’s financial products."

Judge Orders Immediate End to Furloughs for Tens of Thousands of State Workers

The Los Angeles Times is reporting that Alameda County Superior Court judge Frank Roesch has ordered the state to end furloughs immediately for tens of thousands of state workers and that the Schwarzenegger administration intends to appeal the order.

If anyone has seen analysis of the point, I am interested in knowing whether and how this will impact Superior Court funding and lay-offs.

Lawyer Can't Sue Lawyer for Fraud Based on "Approval" of Agreement

This is not a wage and hour issue, but it struck me as being so ridiculous that I had to write about it.

The signature block on a contract bears an attorney signature under the legend “approved as to form and content.” Does that signature amount to an actionable representation to an opposing party's attorney? We conclude that it does not.

Thus starts the Second District Court of Appeal's decision in Freedman v. Brutzkus, ___ Cal. App. 4th ___, 2010 WL 820478 (March 11, 2010). Mr. Brutzkus represented a client in negotiating a trademark licensing agreement. Mr. Brutzkus and the other party's counsel, Mr. Freedman, executed the agreement under the line, "Approved as to Form and Content." After the agreement fell apart, Mr. Freedman sued Mr. Brutzkus, alleging that:

Brutzkus made an actionable representation to Freedman as to the accuracy of the agreement. Freedman pled causes of action for intentional misrepresentation, fraudulent concealment, and fraudulent inducement that rested on Brutzkus's alleged misrepresentation in approving the agreement “as to form and content.” The trial court sustained respondents' demurrer as to all causes of action without leave to amend, and entered judgment for respondents. Freedman filed a timely

appeal from the judgment.

Slip op. at 4.

We conclude that the only reasonable meaning to be given to a recital that counsel approves the agreement as to form and content, is that the attorney, in so stating, asserts that he or she is the attorney for his or her particular party, and that the document is in the proper form and embodies the deal that was made between the parties.

Slip op. at 5-6.

Even though the Court of Appeal came to the (obviously) correct conclusion, maybe it is time that we as lawyers reconsider "approving" our clients' agreements. What are we approving, anyway? I don't want to get into a Roseanne Roseannadanna-style rant, but what's the point? It's the parties' agreement, not the attorneys'. We as lawyers give our best advice, but at the end of the day, it's the client who has to decide whether to enter into a particular agreement or not. The lawyer's "approval" adds nothing.

Court of Appeal Affirms Class Cert Denial in Restaurant Manager Case

In Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723, the plaintiffs brought a mis-classification class action, alleging that defendant improperly designated certain employees as exempt from California's overtime requirements. The trial court denied the plaintiffs' motion for class certification, holding that individual questions predominated because of differences in individual restaurant operations. The Court of Appeal affirmed, holding that the trial court did not abuse its discretion.

Quote of the Week: Bobby Kennedy

It is from numberless diverse acts of courage such as these that the belief that human history is thus shaped. Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope, and crossing each other from a million different centers of energy and daring those ripples build a current which can sweep down the mightiest walls of oppression and resistance.

...

Few men are willing to brave the disapproval of their fellows, the censure of their colleagues, the wrath of their society. Moral courage is a rarer commodity than bravery in battle or great intelligence. Yet it is the one essential, vital quality for those who seek to change the world which yields most painfully to change.

Robert F. Kennedy, speaking at the University of Capetown on June 6, 1966.

I have seen this quote many times, but had never read the entire speech until today. It is a remarkable call to action. You can find it at the JFK Presidential Library web site.

Court of Appeal Upholds Finding the Gardner is Independent Contractor

In Lara v. Workers' Compensation Appeals Bd. (Second Dist. February 25, 2010) ___ Cal. App. 4th ___, 2010 WL 654379, the Court of Appeal considered whether a gardener, hired twice in the space of 12 months to prune bushes for a diner, was an employee of the diner at the time he sustained injury or an independent contractor exempt from worker's compensation coverage. Slip op. at 1. After reviewing the leading case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, the Court upheld the WCAB's determination that the gardener was an independent contractor. The Court considered the following factors: the diner did not possess the right of control over gardener’s activities, gardener performed work as part of his own occupation as a gardener, gardener supplied his own equipment for the job, gardener was not hired on a regular basis, taxes were not taken out of money gardener was paid, neither diner nor gardener were obligated for work in the future, and work was not related to diner’s regular business. The Court had this to say with regard to the primary test, the right of control:

Commencing with the right-of-control criterion, Lara was engaged to produce the result of trimming the bushes. Neither party here presented evidence that Metro Diner had the power to control the manner or means of accomplishing the pruning. Just as in Torres [v. Reardon (1992) 3 Cal.App.4th 831] where we held that the plaintiff, hired by homeowners to prune a tree, was an independent contractor, the means and manner to accomplish the result of pruning here were neither discussed nor were part of the agreement.

Indeed, it is this lack of power by Metro Diner to control the means and manner by which Lara provided the pruning service that puts the facts of this case in stark contrast to the facts in Borello. There, the Supreme Court held that unskilled migrant cucumber harvesters were employees largely because the owner “exercise[d] ‘pervasive control over the operation as a whole [ ]’,” as “‘[a]ll meaningful aspects of this business relationship: price, crop cultivation, fertilization and insect prevention, payment, [and] right to deal with buyers ... are controlled by [Borello].’” (Borello, supra, 48 Cal.3d at p. 356) The migrant harvesters controlled only the decision when to irrigate and harvest, the manner of training the vines, and weeding. The migrants' work was an integral component of the grower's operations, over which the grower exercised pervasive control, and the supposed “independence” of the harvesters from the grower's supervision was not a result of superior skills but was a function of the unskilled nature of the labor, which required little supervision. Here, however, Lara testified that no one told him how to do the pruning and that no one tells him how to do his work. Once he accepts a job, he testified, he did it without direction from the person for whom the service was rendered. Thus, the lack of supervision here was not a function of the unskilled nature of the job. Nor does the fact that Patricia asked Lara to arrive early suggest that Metro Diner controlled any aspect of the pruning. It was Lara who chose both the date and time to perform the service. In short, the principal test of the employment relationship and the very definition of an independent contractor, namely, whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired (§ 3353), supports the Board's finding that Lara was an independent contractor.

Slip op. at 3-4. This decision does not break new ground but is important in light of the number of businesses now classifying workers as independent contractors, rather than employees.

Court of Appeal Says Witness Statements Prepared by Counsel Are Not Protected Work Product

In Coito v. Superior Court (State of California) (March 4, 2010) ___ Cal. App. 4th ___, 2010 WL 728571, the Fifth District Court of Appeal, citing a long line of cases going back to Greyhound Corp. v. Superior Court (1961) 56 Cal.2d 355, held that the attorney work product doctrine does not protect attorney-prepared statements of third party witnesses. The Court criticized and refused to follow Nacht & Lewis Architects, Inc. v. Superior Court (1996) 47 Cal.App.4th 214, which held to the contrary. The Court explained:

We agree with petitioner's argument that witness statements are classic evidentiary material. They can be admitted at trial as prior inconsistent statements (Evid.Code, § 1235), prior consistent statements ( id., § 1236), or past recollections recorded ( id., § 1237). Yet, if the statements are not subject to discovery, the party denied access to them will have had no opportunity to prepare for their use. Moreover, a witness statement could contain information favorable to the party denied access, who otherwise could use the statement to refresh the witness's recollection, impeach the witness's testimony, or rehabilitate the witness after cross-examination. These impacts on the quest for truth simply are not justified by the policy of encouraging lawyers to prepare their cases for trial or the policy of protecting the diligent attorney from others who would take advantage of his or her industry. (§ 2018.020.)

“The purpose of the [work-product] doctrine is to prevent incompetent counsel from taking unfair advantage of his adversary's efforts in preparation for trial, not to suppress relevant testimony which happened to have been obtained by the opposition.” (Jasper Construction, Inc. v. Foothill Junior College Dist. (1979) 91 Cal.App.3d 1, 16.)

For those reasons, we choose to follow the weight of authority and hold that written and recorded witness statements, including not only those produced by the witness and turned over to counsel but also those taken by counsel, are not attorney work product. Because such statements are not work product, neither is a list of witnesses from whom statements have been obtained (the list requested by form interrogatory No. 12.3).

Slip op. at 5-6. I believe the Court reached the correct result.

California Supreme Court Grants Review to Consider Class Action "Death Knell" Doctrine

On February 18, 2010, the Cal. Supreme Court granted review in Baycol Cases I and II to consider the following issue:

Did the "death knell doctrine" require plaintiff to immediately appeal the sustaining of a demurer as to class claims when the ruling resolved both individual and class claims, or did the one final judgment rule apply and require a single appeal from the subsequent entry of final judgment on all claims?

The Court's docket is available here. Anyone litigating class actions in California is going to want to follow this case. You can sign up for email notification of all developments on the Court's docket page.

US Supreme Court Issues CAFA "Principal Place of Business" Ruling

In Hertz Corp. v. Friend --- S.Ct. ----, 2010 WL 605601 (U.S. (Cal.) February 23, 2010) the plaintiffs filed a putative class action in state court against Hertz Corp. alleging violations of California's wage and hour laws. Following removal under the so-called Class Action Fairness Act (CAFA), plaintiffs moved to remand, alleging that Hertz's principal place of business was in California, destroying diversity jurisdiction. Hertz countered by submitting a declaration "stating, among other things, that it operated facilities in 44 States, that California accounted for only a portion of its business activity, that its leadership is at its corporate headquarters in New Jersey, and that its core executive and administrative functions are primarily carried out there." Slip op. at 1. "The District Court concluded that it lacked diversity jurisdiction because Hertz was a California citizen under Ninth Circuit precedent, which asks, inter alia, whether the amount of the corporation's business activity is 'significantly larger' or 'substantially predominates' in one State. Finding that California was Hertz's 'principal place of business' under that test because a plurality of the relevant business activity occurred there, the District Court remanded the case to state court. The Ninth Circuit affirmed." Ibid.

The US Supreme Court granted Hertz's petition for certiorari. After finding that it had jurisdiction to decide the matter, a unanimous Supreme Court held:

The phrase “principal place of business” in § 1332(c)(1) refers to the place where a corporation's high level officers direct, control, and coordinate the corporation's activities, i.e., its “nerve center,” which will typically be found at its corporate headquarters.

***

“[P]rincipal place of business” is best read as referring to the place where a corporation's officers direct, control, and coordinate the corporation's activities. In practice it should normally be the place where the corporation maintains its headquarters-provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings.

Slip op. at 1-2. The Court remanded the case for further proceedings.

Ninth Circuit Issues Commuting Time Decision

In Rutti v. Lojack Corporation, Inc. ___ F. 3d ___ (9th Cir. (Cal.) March 2, 2010), the Ninth Circuit Court of Appeals decided a number of federal and state law issues related to commuting time.

Under the Employee Commuter Flexibility Act, use of a company vehicle to commute--even if a condition of employment--is not compensable, and district court did not err in dismissing class action by plaintiff seeking compensation for time technicians were employed by company to install alarms in customers’ cars and for time spent on preliminary and postliminary activities. District court similarly did not err in holding that conditions limiting employee’s use of company vehicle during times in question did not amount to additional legally cognizable work. Employee’s off-the-clock activities prior to leaving home--receiving, mapping, and prioritizing jobs and routes for assignment--were related to his commute and presumptively noncompensable. To the extent activities were distinct from commute and related to employee’s principal activities, district court did not err in granting summary judgment denying compensation absent any evidence activities took more than a de minimis amount of time to complete. Where record indicated employee’s work-related activities after returning home were an integral part of his principal activities, and the amount of time required to complete activities was in dispute, district court erred in granting employer summary judgment. Employee was not entitled to compensation for commute time under continuous workday doctrine--even if such doctrine were adopted--where preliminary activities were not principal activities or were de minimis, and where employee could use intervening time between completing a job and conducting postliminary activities for his own purposes.

On the other hand, the district court erred in granting summary judgment for employer on plaintiff’s California law claim for compensation for commuting because the "level of the employer’s control over its employees" is determinative, and there was no dispute that employee was under employer’s control while driving company vehicle to first job of the day and on his way home at the end of the day.

Court of Appeal Decides Attorney Fee Issues - "Pellegrino II"

On January 28, 2010, the Court of Appeal issued its second decision in Pellegrino v. Robert Half Intern., Inc., 182 Cal.App.4th 278 (January 28, 2010) ("Pellegrino II"). Six former account executives sued their former employer for failure to pay overtime compensation and commissions, failure to meal periods and itemized wage statements, and violation of the Unfair Competition Law (UCL). The trial court entered judgment in favor of the employees. In Pellegrino I (discussed here) the Court of Appeal affirmed the decision on the merits.

In Pellegrino II, the Court considered the trial court's order awarding the employees $978,000 in attorney fees. The trial court arrived at that figure by: (1) reducing the lodestar by 15% to account for the time spent on the UCL claims; and (2) multiplying the adjusted lodestar by a 1.75 multiplier.

The employer appealed, and the Court of Appeal affirmed in part and reversed in part.

First, the trial court did not err by reducing the lodestar amount by 15 percent to reflect the parties' litigation of the unfair competition claims, because the legal and factual issues presented in the UCL claims "could not be more interrelated" with the issues presented by plaintiffs' wage and hour claims (for which attorney fees of course were available). Slip op. at 5.

Second, the record supported the trial court's application of a 1.75 multiplier to the reduced lodestar amount for attorney fees generated up until plaintiffs brought their motion for attorney fees, based on the factors set forth in Ketchum v. Moses (2001) 24 Cal.4th 1122. The Court explained:

The record supports the court's finding as to the novelty and difficulty of the questions at issue in this litigation. This case was vigorously litigated. Twelve motions for summary judgment were filed, which involved separate sets of facts unique to each plaintiff. The case involved complex issues of employment law including the enforceability of a contractually shortened statute of limitations provision contained in an employment agreement and the scope of the administrative exemption for each plaintiff in the context of RHI's business. Furthermore, RHI's classification of plaintiffs as exempt employees resulted in RHI not maintaining time and wage records, creating the difficult task of reconstructing records to determine the extent of the wages, penalties, and other damages owed to each plaintiff. Although RHI argues the issues presented in this case were not novel or difficult because no expert witness testified at trial, the record shows RHI designated two “liability” experts and had also retained a damages expert, each of whom were deposed by plaintiffs' counsel.

Slip op. at 7. The fact that the employees' counsel risked not being paid at all if the employees did not prevail also supported the enhancement. Slip op. at 7, citing Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1174.

Finally, the record did not support the application of a 1.75 multiplier to fees incurred in bringing the motion for attorney fees, citing Ketchum, supra, 24 Cal.4th at 1141, and Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 582-583 (a case most notable for its holding on the "catalyst" attorney fees). Slip op. at 9-10.

The Court reversed the amended judgment to the extent it applied a multiplier to fees incurred in bringing the attorney fees motion and otherwise affirmed.