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Saturday, June 30, 2012

Kinecta v. Superior Court: Court of Appeal Reverses Trial Court Order Compelling Class Arbitration

Kinecta Alternative Financial Solutions, Inc. v. Superior Court (4/25/12) --- Cal.App.4th ---, presents another interesting angle in the Arbitration Wars.

Defendant Kinecta employed plaintiff Malone. Malone signed an employment agreement that included an arbitration clause, but not a class arbitration waiver. Malone filed a putative class action against Kinecta for wage and hour violations. Kinecta moved to compel individual arbitration and to dismiss Malone's class allegations. The trial court (Los Angeles Superior, Judge Abraham Khan) denied the motion to strike class allegations and ordered the parties to arbitrate the entire dispute. Kinecta petitioned for a writ of mandate.

The Court of Appeal granted the writ. Reviewing the decisions in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, Gentry v. Superior Court (2007) 42 Cal.4th 443, and AT&T Mobility LLC v. Concepcion (2011) __ U.S. __, 131 S.Ct. 1740 (discussed here), the Court noted in particular that Gentry holds:
[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider . . . the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can "vindicate [their] unwaivable rights in an arbitration forum."
Gentry, 42 Cal.4th at 463. The Court declined to rule on whether Concepcion overrules Gentry, but held instead that, assuming that Gentry is still good law, Malone had not met her burden under Gentry:
Even if Gentry has not been overruled ... Malone had to provide evidence of the four Gentry factors. Plaintiff has the burden of establishing that the arbitration provision (here, limiting arbitration to bilateral arbitration) is invalid by making a factual showing of the four Gentry factors. (Brown v. Ralphs Grocery Co., supra, 197 Cal.App.4th at p. 497.) The record shows that Malone provided no evidence as to any of the four Gentry factors required to support a trial court's determination that the arbitration should proceed as a class action arbitration. Thus there is no evidence, and no substantial evidence, that plaintiff had established a factual basis that would require a declaration that the arbitration agreement was unenforceable. (Ibid.)
Slip op. at 11.

The Court then considered whether classwide arbitration was authorized under Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758, 1775–1776 (2010) (discussed here).
By denying Kinecta's motion to dismiss class allegations from Malone's complaint, the order compelling arbitration imposed class arbitration even though the arbitration provision was limited to the arbitration of disputes between Malone and Kinecta. Malone cites no evidence that despite the language of the arbitration provision, the parties agreed to arbitrate disputes of classes of other employees, employee groups, or employee members of classes identified in the complaint. The parties' arbitration agreement authorizes arbitration only of “any claim, dispute, and/or controversy that either I may have against the Credit Union (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) or the Credit Union may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Credit Union[.]” (Italics added.) We conclude that the parties did not agree to authorize class arbitration in their arbitration agreement. (Stolt-Nielsen, supra, 130 S.Ct. at p. 1776.) Therefore the order denying Kinecta's motion to dismiss class claims without prejudice must be reversed.
Slip op. at 13.

The Court did not consider Malone's arguments that the arbitration was unenforceable for a number of reasons because Malone did not seek review of the trial court's order compelling arbitration.

The opinion is available here.  

Friday, June 29, 2012

Governor Brown Signs SB 1038, Eliminating FEHC and Transferring Duties to DFEH

Governor Brown yesterday signed Senate Bill 1038, which eliminates the Fair Employment and Housing Commission (FEHC), transfers its duties to the Department of Fair Employment and Housing (DFEH) and makes certain other changes to the Fair Employment and Housing Act (FEHA). The new law takes effect on January 1, 2013.  As summarized by DFEH Director Phyllis Cheng:
The California Fair Employment and Housing Act [FEHA] establishes the Department of Fair Employment and Housing [DFEH] in the State and Consumer Services Agency, with the power and duties to, among other things, receive, investigate, and conciliate complaints relating to employment and housing discrimination. The [FEHA] also establishes the Fair Employment and Housing Commission [FEHC] within the State and Consumer Services Agency, with the powers and duties to, among other things, conduct hearings, subpoena witnesses, create or provide financial or technical assistance to advisory agencies and conciliation councils, publish opinions and publications, and conduct mediations at the request of the [DFEH].

This bill would eliminate the [FEHC] and would transfer the duties of the commission to the [DFEH]. The bill would create within the department a Fair Employment and Housing Council that would succeed to the powers and duties of the former commission. The bill would establish the Fair Employment and Housing Enforcement and Litigation Fund in the State Treasury to be administered by the department, subject to appropriation, for purposes of deposit of attorney’s fees and costs awarded to the department in specified civil actions. The bill would expand specified powers of the department related to complaints, mediations, and prosecutions, and would provide mandatory dispute resolution at no cost to the parties involved, as specified. The bill would eliminate a specified cap of actual damages under the act, and would instead require certain actions be brought in court by civil action, rather than by accusation by the department. The bill would make these provisions operative on January 1, 2013.
For those who want to read the whole bill (all 150+ pages of it), it is available here

Thursday, June 28, 2012

Patterson v. Domino's Pizza: Franchisor May Be Liable in FEHA Action

Patterson v. Domino's Pizza (6/27/12) --- Cal.App.4th ---, considers whether a franshisor may be liable for a franchisee's alleged violations of the Fair Employment and Housing Act (FEHA).

Plaintiff Taylor Patterson was employed by defendant Sui Juris, LLC, a Domino's Pizza franchisee. Patterson filed suit against Sui Juris and the franshisor, Domino's, alleging that her supervisor sexually harassed her at work. The trial court (Ventura Superior Court, Judge Barbara A. Lane) granted Domino's motion for summary judgment, finding that (1) Domino's did not employ Patterson and had no role in the franchisee's employment decisions, and (2) even if Domino's could be held liable as an employer, Patterson still could not prevail on her claims against it.

The Court of Appeal reversed.
Whether a franchisor is vicariously liable for injuries to a franchisee's employee depends on the nature of the franchise relationship. "[A] franchisee may be deemed to be the agent of the franchisor." ... If the franchisor has substantial control over the local operations of the franchisee, it may potentially face liability for the actions of the franchisee's employees.
Slip op. at 3. Reviewing the franchise agreement and other controlling documents, the Court found that "provisions of the agreement substantially limit franchisee independence in areas that go beyond food preparation standards." Slip op. at 5. The Court then held that this evidence of control raised "reasonable inferences" supporting Patterson's claims that the franchisee was not merely an independent contractor, as Domino's argued. Slip op. at 6. And these reasonable inferences were sufficient to defeat summary judgment. Slip op. at 8.

The Court then turned to the trial court's holding that, even if Domino's is considered the employer, there are no triable issues of fact showing it had notice of, ratified, or condoned the alleged conduct. The Court held that this was irrelevant because the alleged harasser was Patterson's supervisor, and Patterson was a minor.

A single sexually offensive act by one employee against another usually is not sufficient to establish employer liability.  But "where the act is committed by a supervisor, the result may be different."  "'Because the employer cloaks the supervisor with authority, we ordinarily attribute the supervisor's conduct directly to the employer.'"  "'Thus, a sexual assault by a supervisor, even on a single occasion, may well be sufficiently severe so as to alter the conditions of employment and give rise to a hostile work environment claim.'" 
Slip op. at 9 (internal citations omitted).

The opinion is available here.

Housing Partners v. Duncan: Court of Appeal Declines to Combine Statutory Exemptions to Prevailing Wage Requirement

A quick note on this case for those of you who deal with prevailing wage law. In Housing Partners I, Inc. v. Duncan (6/15/12), a developer appealed from a judgment denying its petition for writ of mandate against respondent John C. Duncan, the Director of Industrial Relations for the State of California (Director). The Director had determined that a low-income housing project developed by HPI was a “public work” within the meaning of Labor Code section 1720 and was not subject to a statutory exception to the requirement that it pay prevailing wages.

The developer had argued that the Director should combine two statutory exemptions to find the project was exempt from the prevailing wage requirement:
One exception, section 1720, subdivision (c)(4), applies to affordable housing projects that receive money from a redevelopment agency's low and moderate income housing fund. Another exemption, section 1720, subdivision (c)(6)(E), applies to residential projects that receive below-market interest rate loans if the project dedicates a percentage of its units to low income occupants. Because a combination of three kinds of funding sources was used for the subject project, the Director concluded that neither exemption under section 1720, subdivision (c)(4) or subdivision (c)(6)(E) could be satisfied.
Slip op. at 3.

The trial court (San Bernardino Superior, Judge W. Robert Fawke) denied the developer's petition, and the developer appealed. The Court of Appeal affirmed, holding that the project did not qualify for either of the claimed exemptions.  
Section 1720, subdivision (c)(4) applies to a project receiving money solely from a qualified housing fund or from a combination of housing funds and private funds.  In contrast, subdivision (c)(6)(E) applies to a project receiving below-market interest rate public funding.  The exceptions operate independently, neither expressly including nor excluding one another.  Had the Legislature intended for the two exceptions to operate together, it would have been simple to draft the statute that way.  As the statute currently exists, however, the two exceptions are distinct and operate separately. 
Slip op. at 11. 

The opinion is available here.

Wednesday, June 27, 2012

Cinel v. Barna: Failure to Pay Arbitration Fees Waives Right to Compel Arbitration

Another wrinkle in the Arbitration Wars. In Cinel v. Barna (6/15/12) --- Cal.App.4th ---, the plaintiff, Cinel, sued for securities fraud, and defendant Barna petitioned to compel arbitration. The trial court (Los Angeles Superior, Judge Malcolm H. Mackey) granted the petition, and the parties initiated arbitration proceedings. Barna paid his mediation fees, but Cinel and several defendants refused to do so. The arbitrator terminated the proceedings.

Back in the trial court, one of the defendants moved to confirm the arbitrator's termination ruling and dismiss Cinel's complaint. The trial court denied the motion, finding the termination of the arbitration did not constitute an award subject to confirmation. The Court of Appeal affirmed this ruling. Cinel v. Christopher (2012) 203 Cal.App.4th 759. 

On remand, Barna once again petitioned to compel arbitration. The trial court "admonished the paying parties to 'work it out,' or the matter would proceed to trial." Barna advised the court he did not have the funds to pay for the nonpaying parties to the arbitration, and the court denied the motion to compel.

The Court of Appeal affirmed, holding that "the defendants have waived their right to arbitrate by refusing to reach a resolution with Cinel on the fee dispute." Slip op. at 6.

Here, by refusing to agree among themselves to pay the fees of the nonpaying parties, both plaintiff and defendant Barna have waived the arbitration agreement by their collective and simultaneous repudiation of it through their refusal to reach an agreement as ordered by the arbitrator over the payment of fees. The panel, under the authority of the AAA Rules, ordered the parties to split the fees of the nonpaying parties; when the paying parties refused to do so, the arbitration was terminated. By failing to come to an agreement that would permit them to proceed with the arbitration, the parties have collectively waived their right to arbitrate. Unless and until the parties agree to pay the pro rata share of the nonpaying parties per the panel's order, there can be no arbitration.
Slip op. at 7-8.  The opinion is available here

Pulli v. Pony International: Court Holds That Labor Code 206.5 Does Not Prohibit Waiver of Right to Jury Trial in Wage Actions

Pulli v. Pony International, LLC (6/19/12) --- Cal.App.4th ---- addresses an unusual wrinkle in the Arbitration Wars.

The plaintiff, Pulli, alleged that the defendant, Pony, fraudulently induced him to enter into an employment agreement and wrongfully terminated his employment. Pulli alleged that Pony hired him under false pretenses, then forced him to sign a second employment agreement, threatening that if he refused to do so, he would forfeit certain earned wages. Pulli alleged that this agreement was void under Labor Code section 206.5, which prohibits an employer from requiring an employee to execute "a release of a claim or right on account of wages due unless the wages are actually paid."

Pony moved to compel arbitration, arguing that all claims against it were subject to an arbitration clause in the employment agreement. In opposition, Pulli argued -- as he had alleged in his complaint -- that the agreement was void under section 206.5.

The trial court (San Diego Superior Court, Judge Joan M. Lewis) denied the motion, finding that the employment agreement was void under section 206.5, and that the arbitration provision contained in the employment agreement was therefore unenforceable.

On appeal, Pony argued that the trial court erred in failing to permit the arbitrator to determine whether section 206.5 rendered the arbitration provision unenforceable. On the merits, Pony argued that the trial court erred in determining that the arbitration provision was unenforceable pursuant to section 206.5.

The Court of Appeal held that Pony waived its right to have the arbitrator determine the section 206.5 issue. "By submitting the section 206.5 issue to a judicial forum, Pony acted in a manner 'inconsistent with the right to arbitrate,' and 'substantially invoked' 'the litigation machinery'." Slip op. at 9.

On the merits -- and more importantly for our purposes -- the Court concluded that the arbitration provision was not unenforceable under section 206.5. "Pulli contends that section 206.5 precludes an employer from requiring an employee to either agree to an arbitration provision and release his right to a jury trial or forfeit wages that the employee has earned." Slip op. at 13. The Court rejected this argument.

Accordingly, we conclude that section 206.5 prohibits an employer from obtaining a release of a claim for wages under specified circumstances, and does not preclude a party from waiving its right to a jury trial by entering into an agreement containing an arbitration provision.
Slip op. at 17. 

Pulli apparently did not make the broader Armendariz argument that requiring him to arbitrate his statutory claims would result in their forfeiture, and the Court did not address this issue.  

But the case does raise a puzzling question: If a plaintiff alleges that an agreement to arbitrate is void, and makes the same argument in opposition to a motion to compel arbitration, how can a defendant counter the plaintiff's argument and at the same time preserve its right -- if it believes it has such a right -- to have the issue determined by an arbitrator?

The opinion is available here.

Tuesday, June 26, 2012

Rickards v. UPS: Court Holds that Plaintiff's Counsel Properly Obtained Right To Sue Letter On DFEH Web Site Without Plaintiff's Signature

Rickards v. United Parcel Service, Inc. (6/19/12) --- Cal.App.4th --- presents an important, discrete issue: Is a complaint filed by counsel through the Department of Fair Employment and Housing’s automated online system properly verified? According to the Court of Appeal, the answer is yes.

The plaintiff, Rickards, sued UPS for violating the Fair Employment and Housing Act (FEHA). The trial court (Los Angeles Superior, Judge William Fahey) granted summary judgment on the sole ground that Rickards had not filed a verified complaint with the Department of Fair Employment and Housing (DFEH). Rickards appealed, and the Court held that the complaint Rickards' attorney filed through DFEH's online automated system was sufficient under FEHA.
The instructions on DFEH's automated system make clear that requests for an immediate right-to-sue letter are accepted from complainants who have decided to go directly to court without an investigation by DFEH, and such a decision is advisable only if the complainant has an attorney. The right-to-sue letter that can be immediately printed after inputting information into the automated system is accompanied by a notice to complainant‘s attorney. Since the system is essentially intended to be used by complainants who have counsel, such complainants should not be penalized for retaining counsel.
Slip op. at 9. In the unpublished portion of the opinion, the Court affirmed the summary judgment on grounds not considered by the trial court.

The opinion is available here.

Coito v. Superior Court: Cal. Supreme Court Rules On Witness Interviews and Work Product

The California Supreme Court yesterday issued its ruling in Coito v. Superior Court. In short, the Court held:
[R]ecorded witness statements are entitled as a matter of law to at least qualified work product protection. The witness statements may be entitled to absolute protection if [a party] can show that disclosure would reveal its “attorney's impressions, conclusions, opinions, or legal research or theories.” (Cal. Code Civ. Proc. § 2018.030, subd. (a).) If not, then the items may be subject to discovery if [the opposing party] can show that “denial of discovery will unfairly prejudice [her] in preparing [her] claim . . . or will result in an injustice.” (Cal. Code Civ. Proc. § 2018.030, subd. (b).)
[T]he identity of witnesses from whom [a party's] counsel has obtained statements, we hold that such information is not automatically entitled as a matter of law to absolute or qualified work product protection. In order to invoke the privilege, [a party] must persuade the trial court that disclosure would reveal the attorney's tactics, impressions, or evaluation of the case (absolute privilege) or would result in opposing counsel taking undue advantage of the attorney's industry or efforts (qualified privilege).  
The opinion is available here.  

Monday, June 25, 2012

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

I am presenting "Advanced Mediation Techniques in Wage and Hour Cases" at the State Bar's Second Annual Wage and Hour Conference. 

The Conference is July 25, 2012, at the JW Marriott Los Angeles at L.A. Live (near Staples Center).  The brochure is here.  Lots of top notch speakers at a very reasonable price: $150 for Labor and Employment Law Section members and $225 for non-members.  I'm also sponsoring, so please stop by and say hello.  

Friday, June 22, 2012

Christopher v. Smithkline Beecham: SCOTUS Holds that Pharma Reps Are Exempt Salespeople Under FLSA

The Supreme Court of the United States has issued its decision in Christopher et al. v. Smithkline Beecham Corp., --- U.S. --- (6/18/12). In a five-to-four vote along well-established lines, the Court held that pharmaceutical sales representatives are exempt from the Fair Labor Standards Act (FLSA) overtime requirements as "outside salesmen." 

In short (very short) the Court held that the DOL's interpretation of the exemption -- that pharma reps are not exempt because they are not primarily engaged in sales -- (a) is entitled to no deference and (b) has no persuasive value.  Examining the exemption itself, the Court found that (c) pharma reps are outside sales exempt because they are primarily engaged in sales, which includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”  

As it frequently does, the Court has made my job easy (a little too easy, perhaps?) by issuing a detailed syllabus, which reads as follows:

The Fair Labor Standards Act (FLSA) requires employers to pay employees overtime wages, see 29 U. S. C. §207(a), but this requirement does not apply with respect to workers employed “in the capacity of outside salesman,” §213(a)(1). Congress did not elaborate on the meaning of “outside salesman,” but it delegated authority to the Department of Labor (DOL) to issue regulations to define the term. Three of the DOL’s regulations are relevant to this case. First, 29 CFR §541.500 defines “outside salesman” to mean “any employee . . . [w]hose primary duty is . . . making sales within the meaning of [29 U. S. C. §203(k)].” §§541.500(a)(1)?(2). Section 203(k), in turn, states that “ ‘[s]ale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Second, §541.501 clarifies that “[s]ales within the meaning of [§203(k)] include the transfer of title to tangible property.” §541.501(b). Third, §541.503 provides that promotion work that is “performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work,” whereas promotion work that is “incidental to sales made, or to be made, by someone else is not.” §541.503(a). The DOL provided additional guidance in connection with its promulgation of these regulations, stressing that an employee is an “outside salesman” when the employee “in some sense, has made sales.” 69 Fed. Reg. 22162.

The prescription drug industry is subject to extensive federal regulation, including the requirement that prescription drugs be dispensed only upon a physician’s prescription. In light of this requirement, pharmaceutical companies have long focused their direct marketing efforts on physicians. Pharmaceutical companies promote their products to physicians through a process called “detailing,” whereby employees known as “detailers” or “pharmaceutical sales representatives” try to persuade physicians to write prescriptions for the products in appropriate cases. 

Petitioners were employed by respondent as pharmaceutical sales representatives for roughly four years, and during that time their primary objective was to obtain a nonbinding commitment from physicians to prescribe respondent’s products in appropriate cases. Each week, petitioners spent about 40 hours in the field calling on physicians during normal business hours and an additional 10 to 20 hours attending events and performing other miscellaneous tasks. Petitioners were not required to punch a clock or report their hours, and they were subject to only minimal supervision. Petitioners were well compensated for their efforts, and their gross pay included both a base salary and incentive pay. The amount of incentive pay was determined based on the performance of petitioners’ assigned portfolio of drugs in their assigned sales territories. It is undisputed that petitioners were not paid time-and-a-half wages when they worked more than 40 hours per week. 

Petitioners filed suit, alleging that respondent violated the FLSA by failing to compensate them for overtime. Respondent moved for summary judgment, arguing that petitioners were “employed in the capacity of outside salesman,” §213(a)(1), and therefore were exempt from the FLSA’s overtime compensation requirement. The District Court agreed and granted summary judgment to respondent. Petitioners filed a motion to alter or amend the judgment, contending that the District Court had erred in failing to accord controlling deference to the DOL’s interpretation of the pertinent regulations, which the DOL had announced in an amicus brief filed in a similar action. The District Court rejected this argument and denied the motion. The Ninth Circuit, agreeing that the DOL’s interpretation was not entitled to controlling deference, affirmed.

Held: Petitioners qualify as outside salesmen under the most reasonable interpretation of the DOL’s regulations. Pp. 8–25.

(a) The DOL filed amicus briefs in the Second Circuit and the Ninth Circuit in which it took the view that “a ‘sale’ for the purposes of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought.” Brief for Secretary of Labor as Amicus Curiae in In re Novartis Wage and Hour Litigation, No. 09–0437 (CA2), p. 11. The DOL changed course after the Court granted certiorari in this case, however, and now maintains that “[a]n employee does not make a ‘sale’ . . . unless he actually transfers title to the property at issue.” Brief for United States as Amicus Curiae 12-13. The DOL’s current interpretation of its regulations is not entitled to deference under Auer v. Robbins, 519 U. S. 452. Although Auer ordinarily calls for deference to an agency's interpretation of its own ambiguous regulation, even when that interpretation is advanced in a legal brief, see, id., at 461-462, this general rule does not apply in all cases. Deference is inappropriate, for example, when the agency’s interpretation is “‘plainly erroneous or inconsistent with the regulation,’ ” id., at 461, or when there is reason to suspect that the interpretation “does not reflect the agency’s fair and considered judgment on the matter,” id., at 462. There are strong reasons for withholding Auer deference in this case. Petitioners invoke the DOL’s interpretation to impose potentially massive liability on respondent for conduct that occurred well before the interpretation was announced. To defer to the DOL’s interpretation would result in precisely the kind of “unfair surprise” against which this Court has long warned. See, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158, 170-171. Until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA. The statute and regulations do not provide clear notice. Even more important, despite the industry’s decades-long practice, the DOL never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully. The only plausible explanation for the DOL’s inaction is acquiescence. Whatever the general merits of Auer deference, it is unwarranted here. The DOL’s interpretation should instead be given a measure of deference proportional to its power to persuade. See United States v. Mead Corp., 533 U. S. 218, 228. Pp. 8–14. 

(b) The DOL’s current interpretation—that a sale demands a transfer of title—is quite unpersuasive. It plainly lacks the hallmarks of thorough consideration. Because the DOL first announced its view that pharmaceutical sales representatives are not outside salesmen in a series of amicus briefs, there was no opportunity for public comment, and the interpretation that initially emerged from the DOL’s internal decisionmaking process proved to be untenable. The interpretation is also flatly inconsistent with the FLSA. The statute defines “sale” to mean, inter alia, a “consignment for sale,” and a “consignment for sale” does not involve the transfer of title. The DOL relies heavily on 29 CFR §541.501, which provides that “[s]ales . . . include the transfer of title to tangible property,” §541.501(b), but it is apparent that this regulation does not mean that a sale must include a transfer of title, only that transactions involving a transfer of title are included within the term “sale.” The DOL’s “explanation that obtaining a non-binding commitment to prescribe a drug constitutes promotion, and not sales,” Reply Brief for Petitioners 17, is also unconvincing. Since promotion work that is performed incidental to an employee’s own sales is exempt, the DOL’s conclusion that detailers perform only nonexempt promotion work is only as strong as the reasoning underlying its conclusion that those employees do not make sales. Pp. 14–16. 

(c) Because the DOL’s interpretation is neither entitled to Auer deference nor persuasive in its own right, traditional tools of interpretation must be employed to determine whether petitioners are exempt outside salesmen. Pp. 16–24.

(1) The FLSA does not furnish a clear answer to this question, but it provides at least one interpretive clue by exempting anyone “employed . . . in the capacity of [an] outside salesman.” 29 U. S. C. §213(a)(1). The statute’s emphasis on “capacity” counsels in favor of a functional, rather than a formal, inquiry, one that views an employee’s responsibilities in the context of the particular industry in which the employee works. The DOL’s regulations provide additional guidance. Section 541.500 defines an outside salesman as an employee whose primary duty is “making sales” and adopts the statutory definition of “sale.” This statutory definition contains at least three important textual clues. First, the definition is introduced with the verb “includes,” which indicates that the examples enumerated in the text are illustrative, not exhaustive. See Burgess v. United States, 553 U. S. 124, 131, n. 3. Second, the list of transactions included in the statutory definition is modified by “any,” which, in the context of §203(k), is best read to mean “ ‘one or some indiscriminately of whatever kind,’ ” United States v. Gonzales, 520 U. S. 1, 5. Third, the definition includes the broad catchall phrase “other disposition.” Under the rule of ejusdem generis, the catchall phrase is most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity. Nothing in the remaining regulations requires a narrower construction. Pp. 16–20.

(2) Given this interpretation of “other disposition,” it follows that petitioners made sales under the FLSA and thus are exempt outside salesmen within the meaning of the DOL’s regulations. Petitioners obtain nonbinding commitments from physicians to prescribe respondent’s drugs. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies operate, comfortably falls within the catchall category of “other disposition.” That petitioners bear all of the external indicia of salesmen provides further support for this conclusion. And this holding also comports with the apparent purpose of the FLSA’s exemption. The exemption is premised on the belief that exempt employees normally earn salaries well above the minimum wage and perform a kind of work that is difficult to standardize to a particular time frame and that cannot easily be spread to other workers. Petitioners—each of whom earned an average of more than $70,000 per year and spent 10 to 20 hours outside normal business hours each week performing work related to his assigned portfolio of drugs in his assigned sales territory—are hardly the kind of employees that the FLSA was intended to protect. Pp. 20–22.
(3) Petitioners’ remaining arguments are also unavailing. Pp. 22–24.

Justice Alito wrote the opinion, joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas. Justice Breyer write a dissent, joined by Justices Ginsburg, Sotomayor, and Kagan. The opinion is available here

Steven G. Pearl to Speak at California State Bar Solo and Small Firm Summit June 23, 2012

I will present "Mediating Employment Law Cases" at the State Bar Solo and Small Law Firm Summit this Saturday. I am speaking with John Barber of Lewis Brisbois and Andrew Friedman of Helmer Friedman. The summit is taking place at the Renaissance Long Beach Hotel. If you're there, please stop by and say hello.  

Sanchez v. Valencia Holdings: Cal. Supreme Court Grants Review, Will Determine Whether Federal Law Preempts Unconscionability Analysis of Arbitration Agreement

On March 21, the California Supreme Court granted review in Sanchez v. Valencia Holding Co. LLC (Case No. S199119) (discussed here).  The vote was unanimous. Sanchez presents the following issue:
Does the Federal Arbitration Act (9 U.S.C. section 2), as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U. S. __, 131 S.Ct. 1740, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?
Interesting. The Court already has Sonic-Calabasas A, Inc. v. Moreno on its docket awaiting oral argument after remand from the United States Supreme Court. Is the identification of Sanchez as a consumer case intended to signal that the Court will analyze consumer and employment cases differently? Does it signal that Moreno will not resolve all of the issues that some believe it will resolve (e.g., overturning Armendariz and Gentry)? I guess we'll just have to wait and see.

The Supreme Court's web page is here. I have added it to our watch list.

Thursday, June 21, 2012

California Supreme Court Remands Brinker Grant-and-Holds

The California Supreme Court issued grant-and-hold orders in eight cases related to Brinker v. Superior Court (2012) 53 Cal.4th 1004 (discussed here):
Brinkley v. Public Storage (Case No. S168806)
Bradley v. Networkers International LLC (Case No. S171257)
Faulkinbury v. Boyd & Associates (Case No. S184995)
Brookler v. Radioshack Corporation (Case No. S186357)
Hernandez v. Chipotle Mexican Grill (Case No. S188755)
Tien v. Tenet Healthcare (Case No. S191756)
Lamps Plus Overtime Cases (Case No. S194064)
Muldrow v. Surrex (Case No. S200557)
On June 20, 2012, the Court issued orders vacating and remanding each case to its respective Court of Appeal for reconsideration in light of Brinker.  

It will be very interesting to see how the Courts of Appeal handle these cases.  Specifically, will they answer any of the questions that Brinker left open, such as whether employees can certify cases in which they allege that employers with facially compliant meal period policies coerced against the taking of, created incentives to forego, or otherwise encouraged the skipping of meal and rest periods?  Brinker, slip op.  at 36.  

Wednesday, June 20, 2012

Sanchez v. Valencia Holding Co: Court of Appeal Invalidates Arbitration Agreement on Unconscionability Grounds

In Sanchez v. Valencia Holding Company, LLC (11/23/11) 200 Cal.App.4th 11, a car buyer brought a putative class action against a car dealer, alleging violations of the Consumers Legal Remedies Act ("CLRA"), the Unfair Competition Law ("UCL"), and other California statutes.  The dealer moved to compel individual arbitration based on its sales contract, which contained an arbitration clause and class action waiver.  The trial court (Los Angeles Superior, Judge Rex Heeseman) denied the motion, holding that the buyer had a statutory right to maintain a class action under the CLRA.  Because the arbitration clause contained a "poison pill" -- a statement that it was not to be enforced if the class action waiver was found unenforceable -- the court denied the motion.  

The dealer appealed, and the Court affirmed, although on different grounds.  Rather than addressing the class action waiver, the Court held that other aspects of the arbitration provision were procedurally and substantively unconscionable, and that unconscionability permeated the agreement such that it could not be enforced.  

The Court began by reviewing unconscionability law in California and by holding that "
Concepcion ... does not preclude the application of the unconscionability doctrine to determine whether an arbitration provision is unenforceable."  Id. at 23, citing Rent–A–Center, West, Inc. v. Jackson (2010) ––– U.S. –––– (given language in arbitration agreement authorizing arbitrator to decide the agreement's “enforceability,” the arbitrator, rather than the trial court, should decide whether the agreement was unconscionable and therefore unenforceable). 
Thus, Concepcion is inapplicable where, as here, we are not addressing the enforceability of a class action waiver or a judicially imposed procedure that is inconsistent with the arbitration provision and the purposes of the Federal Arbitration Act (FAA)

The Court went on to find that the arbitration agreement was procedurally unconscionable in that the defendant presented it on a 'take it or leave it' basis with no opportunity to negotiate, and it was placed on the back of the last page in small font with reduced line spacing.  Id. at 24-25.  The Court found the agreement substantively unconscionable in that it contained four one-sided provisions, separate and apart from the class action waiver:  
First, a party who loses before the single arbitrator may appeal to a panel of three arbitrators if the award exceeds $100,000. Second, an appeal is permitted if the award includes injunctive relief. Third, the appealing party must pay, in advance, "the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs." Fourth, the provision exempts repossession from arbitration while requiring that a request for injunctive relief be submitted to arbitration. Although these provisions may appear neutral on their face, they have the effect of placing an unduly harsh burden on the buyer. 
Id. at 26.  Finally, the Court declined to strike these provisions from the agreement and instead held that the trial court properly refused to compel arbitration.  

The opinion is available here

Iskanian v. CLS Transportation Los Angeles: Court of Appeal Issues Important Class Action Waiver Decision

In Iskanian v. CLS Transportation Los Angeles, LLC (6/4/12) --- Cal.App.4th ---, the plaintiff worked as a driver for the defendant, CLS. In 2005, the plaintiff signed an agreement that “any and all claims” arising out of his employment were to be submitted to binding arbitration before a neutral arbitrator.
The agreement provided for reasonable discovery, a written award, and judicial review of the award. Costs unique to arbitration, such as the arbitrator's fee, were to be paid by CLS. The arbitration agreement also contained a class and representative action waiver, which read: “[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.”
Slip op. at 2-3. 

In 2006, the plaintiff filed a putative class action for wage and hour violations. CLS moved to compel individual arbitration and dismiss the class allegations, and the trial court (Los Angeles Superior, Judge Robert Hess) granted the motion. After the plaintiff appealed, the California Supreme Court issued its decision in Gentry v. Superior Court (2007) 42 Cal.4th 443, holding that class waivers in arbitration agreements should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” The Court of Appeal reversed the trial court's order and remanded for reconsideration in light of Gentry. On remand, CLS withdrew its motion to compel arbitration.  

After the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, --- S.Ct. ----, 2011 WL 1561956 (4/27/11) (discussed here), CLS renewed its motion, and the trial court again granted it. The Court of Appeal affirmed, issuing a number of rulings of great interest to class action practitioners. 

Of note is the fact that the Court heard the issue on appeal because the order dismissing class allegations constituted the "death knell" for the class action. In re Baycol Cases I & II (2011) 51 Cal.4th 751, 757 (
discussed here). Slip op. at 4.

After reviewing the Federal Arbitration Act (FAA), California arbitration law, and Concepcion, the Court turned its attention to Gentry. The Court rejected the plaintiff's argument that Concepcion did not overturn Gentry, and that the trial court should have relied on Gentry to deny the motion, holding that Concepcion "conclusively invalidates the Gentry test. " First, the Court held that invalidation of the class action waiver would result in class arbitration, "But Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them." Slip op. at 8, citing StoltNielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 130 S. Ct. 1758, 1775 (blogged here). Second, although the Court agreed that Gentry "rested primarily on a public policy rationale, and not on Discover Bank's unconscionability rationale," this "does not mean that Gentry falls outside the reach of the Concepcion decision." Slip op. at 9. Third, "the premise that Iskanian brought a class action to 'vindicate statutory rights' is irrelevant in the wake of Concepcion.... The sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the FAA, as expressed in Concepcion." Slip op. at 9-10.

Interestingly, the Court held: "Iskanian did not contend that the arbitration agreement was unconscionable on a basis governing all contracts, rather than a basis premised on the uniqueness of arbitration. Our opinion, therefore, is not inconsistent with Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74, 87-89, review granted March 21, 2012, S199119, in which Division One of this Court held that an arbitration provision was unconscionable for reasons that would apply to any contract in general." Slip op. at 10, fn 4. It will be very interesting to see whether the California Supreme Court issues a grant-and-hold order here pending Sanchez.

The Court next turned its attention to the NLRB's recent decision in D.R. Horton (discussed here). Because D.R. Horton construes not only the NLRA, but also the FAA, the Court declined to follow it. Relying on Concepcion and CompuCredit Corp. v. Greenwood, __ U.S. __ (2012) (discussed here), the Court held that the NLRB in D.R. Horton

identified no “congressional command” in the NLRA prohibiting enforcement of an arbitration agreement pursuant to its terms. D.R. Horton’s holding—that employment-related class claims are “concerted activities for the purpose of collective bargaining or other mutual aid or protection” protected by section 7 of the NLRA, so that the FAA does not apply—elevates the NLRB's interpretation of the NLRA over section 2 of the FAA. This holding does not withstand scrutiny in light of Concepcion and CompuCredit.  
Slip op. at 13. 

The Court next addressed Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489 (discussed here), which held that Concepcion does not apply to a plaintiff's representative claims under the Private Attorneys General Act ("PAGA"). Disagreeing with Brown, the Court held:
We recognize that the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by application of the FAA. But we believe that United States Supreme Court has spoken on the issue, and we are required to follow its binding authority.
Slip op. at 15, citing Southland Corp. v. Keating, 465 U.S. 1, 10-11 (1084) and Kilgore v. KeyBank, N.A. (9th Cir. 2012) 673 F.3d 947. "Following Concepcion, the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration." Slip op. at 17.

Interestingly, the Court held that the plaintiff may pursue his individual PAGA claims in arbitration. The Court disagreed with the holding in Reyes v. Macy’s Inc. (2011) 202 Cal.App.4th 1119, 1123-1124 (blogged here) that employees may only bring PAGA claims on a representative basis. "We do not believe that an individual PAGA action is precluded by the language of the [PAGA]." Slip op. at 17, fn. 6.

Finally, the Court held that CLS did not waive its right to demand arbitration by withdrawing its motion to compel arbitration after the California Supreme Court's decision in Gentry.

Reviewing the evidence and the history of this case, we find that the trial court did not err by declining to impose the disfavored penalty of waiver. Substantial evidence supported a finding that CLS acted consistently with its right to arbitrate. CLS originally moved to compel arbitration soon after the case was filed. It likely would have been successful in that effort if not for the issuance of Gentry while the case was on appeal.
Slip op. at 19. 

Iskanian is the decision that defendants have been waiting for, addressing most if not all of the plaintiffs' best post-Concepcion arguments.  As with all of these cases, it will be interesting to see whether the California Supreme Court allows the decision to stand or grants review, as it has done frequently in recent controversial cases.  (For example, it issued grant-and-hold orders in eight cases related to Brinker v. Superior Court.)  And of course it will remain to be seen whether the United States Supreme Court allows California Supreme Court decisions to stand if it finds them incorrectly decided. (See Sonic-Calabasas A, Inc. v. Moreno (discussed here) vacating and remanding to California Supreme Court for reconsideration in light of Concepcion).

The opinion in Iskanian is available here

Friday, June 1, 2012

Sciborski v. Pacific Bell: Court of Appeal Rejects LMRA Preemption Defense in Wage Deduction Action

In Sciborski v. Pacific Bell Direct. (5/8/12) --- Cal.App.4th ----, the plaintiff sued her former employer, Pacific Bell Directory ("Pac. Bell"), challenging Pacific Bell's actions in deducting approximately $19,000 from her wages to recover a $36,000 sales commission paid to her. A jury found Pac. Bell's wage deductions violated Labor Code section 221 and resulted in Sciborski's constructive discharge in violation of public policy. It awarded her $36,000 in lost earnings, but found she did not prove her claimed future economic loss and emotional distress damages. The court awarded her attorney fees based on her prevailing on the section 221 claim.

Pac. Bell appealed, arguing that Sciborski's claims were preempted by section 301 of the Labor Management Relations Act ("LMRA") because she was a union member governed by a collective bargaining agreement and her claims required the court to interpret the CBA.  The Court rejected this argument and held that Sciborski's claims were not preempted because they arose from independent state law and did not require the interpretation of the CBA.  

I am not going to discuss LMRA preemption at any length, but here is the basic law, as stated by the Court: 
Under section 301 preemption analysis, it is helpful to apply a two-part test to determine whether a claim is preempted.  First, the court should evaluate whether the claim arises from independent state law or from the collective bargaining agreement.  If the claim arises from the collective bargaining agreement, the claim is preempted as a matter of law.  However, if the claim arises from independent state law, the court must then proceed to the second step.  In this step, the court determines whether the claim requires "interpretation or construction of a labor agreement," or whether a collective bargaining agreement will merely be "reference[d]" in the litigation.  A state law claim is preempted if a court must interpret a disputed provision of the collective bargaining agreement to determine whether the plaintiff's state law claim has merit.  
The term "interpret" in this context "is defined narrowly — it means something more than 'consider,' 'refer to,' or 'apply.'"  Although the plaintiff cannot avoid preemption by "artfully pleading" the claim , the claim must "require interpretation" of the collective bargaining agreement.  Preemption does not arise when interpretation is required only by a defense.  Preemption occurs when a claim cannot be resolved on the merits without choosing among competing interpretations of a collective bargaining agreement and its application to the claim.  The determination of whether a claim is preempted depends on the particular facts of each case.  
Slip op. at 14-15.  The Court rejected Pac. Bell's argument that Sciborski's section 221 claim required interpretation of the CBA: 
We agree that the CBA (and incorporated documents) contain detailed and complicated rules for assigning employees to particular customer accounts, and that disputes regarding the meaning of these provisions require interpretation of the CBA.  However, the fundamental issue for the jury's determination in this case was not the nature of these assignment rules, i.e., whether Sciborski was a "loaner" representative or whether the new-connect account was properly assigned to her....  Instead, she argued that the misassignment based on Pacific Bell's admitted clerical error was not a proper basis for concluding that she did not earn the commission.  
No interpretation of the CBA was necessary to resolve this claim.  There were provisions in the CBA and the incorporated Market Selection document supporting Pacific Bell's position that the assignment of the new-connect account to Sciborski was inconsistent with her status as a "loaner" representative in the Metro account area.  However, there was nothing in these documents stating this inconsistency was a basis for finding a commission was not earned if the employee performed all of the other work to earn the commission.  And there was nothing in these documents providing that Pacific Bell was permitted to deduct amounts from an employee's wages based on the employer's clerical error in the account assignment process.  
Absent an express provision to this effect, Pacific Bell was not entitled to unilaterally declare that the commission was not earned and use self-help measures to deduct funds from Sciborski's wages that had already been paid to her.  Under California law, employers and employees may agree that an employee must satisfy certain conditions before earning a sales commission and an employer may recoup an advance if these conditions are not satisfied.  However, to rely on those conditions as a basis for recouping an advance paid for a commission, the condition must be clearly expressed and generally must be set forth in writing.  Additionally, the conditions must relate to the sale and cannot merely serve as a basis to shift the employer's cost of doing business to the employee.   
Under these principles, Pacific Bell's argument that the jury was required to interpret implied provisions in the CBA to determine whether Pacific Bell had a legal right to recoup Sciborski's commission is unsupported by California law.  Because the claimed disputed provisions of the CBA were irrelevant to Sciborski's right to recover on her state law claim, they did not support section 301 preemption.  
Slip op. at 23-25. The Court held that Sciborski's wrongful discharge claims were not preempted for the same reasons.

The trial court (San Diego County, Judge Frederic L. Link) awarded Sciborski $291,155 in attorney fees based on her prevailing on the Labor Code section 221 claim. The Court rejected Pac. Bell's argument that the award was excessive, holding that the award fell within the trial court's discretion, even though it seemed large in comparison to the $36,000 damage award. Slip op. at 34-35. The Court also rejected Sciborski's argument that the trial court abused its discretion in rejecting her request for a multiplier. Slip op. at 36.

The full opinion is here.  Sorry for the long block quotes on this one.  I promise to do better next time.