Martinez v. Joe’s Crab Shack Holdings: Court Reverses Order Denying Class Certification in Misclassification Action

In Martinez v. Joe's Crab Shack (2013) 221 Cal.App.4th 1148 (discussed here) the plaintiffs alleged that the defendants misclassified its salaried managers and assistant managers as exempt from California’s overtime requirements. The trial court denied certification, finding that the plaintiffs failed to establish typicality, adequacy of representation, predominance of common questions, and superiority of the class action mechanism. After the Court of Appeal reversed, the California Supreme Court granted review and remanded in light of its opinion in Duran v. US Bank N.A. (2014) 59 Cal.4th 1 (2014). On remand, the Court of Appeal once again reversed the trial court's decision, holding as follows: 

The trial court erred in finding that the plaintiffs’ claims were not typical of the class and that the plaintiffs would not be adequate class representatives because the plaintiffs' claims would be "vulnerable to the defense that each of them performed exempt tasks more than 50% of their work time." Slip op. at 12-13. Nor did the antagonism "voiced by general managers, who overwhelmingly opposed the litigation," necessarily indicate inadequacy of representation. On remand, the trial court could exercise its discretion to  create a general managers subclass or to exclude general managers entirely from the class. Slip op. at 13-14. 

"The theory of liability in this litigation—that, by classifying all managerial employees as exempt, [defendant] violated mandatory overtime wage laws—is, to paraphrase Brinker, 'by nature a common question eminently suited for class treatment.'" Slip op. at 18. Although such a theory of liability "has the potential to generate individual issues," considerations such as the employer's realistic expectations and the actual overall requirements of the job are "likely to prove susceptible of common proof." Slip op. at 20. Courts in such actions must analyze these common questions, rather than focusing on whether a particular employee was engaged in an exempt or non-exempt task at a given time. Slip op. at 21. Statistical sampling may prove helpful in analyzing these common questions, provided that the use of such sampling "accords the employer an opportunity to prove its affirmative defenses." Slip op. at 22. 

The Court concluded by recognizing that a number of appellate decisions have affirmed trial court decisions denying certification in misclassification actions. 

However, we understand from Brinker, Duran and Ayala that classwide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof. By refocusing its analysis on the policies and practices of the employer and the effect those policies and practices have on the putative class, as well as narrowing the class if appropriate, the trial court may in fact find class analysis a more efficient and effective means of resolving plaintiffs’ overtime claim.

Slip op. at 23. 

The opinion is available here. 

Haro v. City of Los Angeles: Ninth Circuit Affirms Overtime Award to Fire Department Employees

In Haro v. City of Los Angeles, ___ F.3d ___ (9th Cir. 3/18/14), the plaintiffs worked as dispatchers or aeromedical technicians for the City of Los Angeles Fire Department. They alleged that the City improperly classified them as employees "engaged in fire protection" and improperly failed to pay them weekly overtime compensation under the federal Fair Labor Standards Act (FLSA). 

The district court granted summary judgment to the plaintiffs, finding that they were not engaged in fire protection work. The City appealed, and the Ninth Circuit affirmed, finding as follows: 

Dispatchers do not have the "responsibility to engage in fire suppression" and do not qualify for the FLSA overtime exemption for employees "engaged in fire protection." Slip op. at 17-18. Aeromedical technicians also do not "engage in fire suppression" and also do not qualify for the FLSA overtime exemption. Slip op. at 19. 

The FLSA's three year statute of limitations applied because the City's violation of the FLSA was "willful," meaning that the City "either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." Slip op. at 19-21. 

The plaintiffs were entitled to liquidated damages in the amount of the unpaid overtime compensation (i.e. double damages). Slip op. at 21-22. 

The City was entitled to credit overtime payments already made to employees against overtime payments owed to them under the FLSA. However, such offsets must be calculated and could be applied only on a workweek-by-workweek basis. Slip op. at 22-25. 

Haro v. City of Los Angeles is available here. 

Williams v. Superior Court: Court of Appeal Reverses Decertification Order In Off-the-Clock Class Action

Williams v. Superior Court (Allstate Insurance Company) (12/6/13, mod. 12/24/13) 221 Cal.App.4th 1353, concerns facts very similar to those in Jones, which I discussed recently. The plaintiff sued his employer, Allstate, alleging that he and other insurance adjusters worked off the clock, performing tasks such as logging onto their work computers, but that they “hesitated to request overtime because they did not want to be perceived as ‘bad’ employees.” Slip op. at 3. 

The trial court originally certified an “off-the-clock” class, but granted Allstate’s motion for decertification after the United States Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes (2011) 131 S.Ct. 2541, 564 U.S. 277. Relying on evidence that not all adjusters worked off the clock and others worked only de minimis amounts of time, the trial court held that trial would result in Allstate presenting evidence of affirmative defenses to more than 200 individual claims, an unmanageable prospect. Slip op. at 6. The Court of Appeal reversed, noting as an initial matter: 

A certification motion does not invite the trial court to resolve disputed facts in a free-floating inquiry aimed at deciding the merits of the plaintiff’s claims. The trial court ordinarily must assume the claims have merit. Slip op. at 6, citing Brinker, at 1023 (resolution of merits must be postponed until after certification has been decided).  

The Court then held that Dukes’ discussion of affirmative defenses in a federal Title VII pattern and practice discrimination action did not apply to the present case. Slip op. at 8-14. In particular, the Court held that Rule 23(b)(2) of the Federal Rules of Civil Procedure, under which the Dukes plaintiffs sought certification, differs greatly from California Code of Civil Procedure section 382, which applies in state court. Slip op. at 11. In addition, although the Supreme Court in Dukes disapproved of a “trial by formula” of Wal-Mart’s statutory affirmative defenses to liability, trial by formula is permitted in state court to determine damages, and damage calculations have “little, if any, relevance at the certification stage....” Slip op. at 11-12. 

Here, the question is whether Allstate had a practice of not paying adjusters for off-the-clock time. The answer to that question will apply to the entire class of adjusters. If the answer to that question is “yes” – which is the answer the trial court initially assumed when it first certified the Off-the-Clock class, and is the answer we must presume in reviewing decertification – then, in Dukes’ phrase, that answer is the “glue” that binds all the class members. If some adjusters had more uncompensated time off the clock than other adjusters, that difference goes to damages. But differences in the amount of individual damages do not by themselves defeat class certification. 

Slip op. at 12-13 (internal citations omitted).  

Next, the Court held that Dukes’ discussion of commonality did not support decertification because the alleged commonality was the practice of adjusters working off-the-clock, and the allegation of that practice was sufficient on certification. Slip op. at 17. Allstate disputed that such a practice existed, but the Court declined to engage in an improper examination of the merits. Slip op. at 18. 

Finally, the Court reiterated that the need to prove individual damages could not defeat certification: 

It may be true that some adjusters never worked off the clock, and such adjusters were thus not injured by Allstate’s practice of adjusters working off the clock. But the existence of individuality as to damages does not defeat class certification.

Slip op. at 19. 

The opinion is available here. 

Jones v. Farmers Insurance Exchange: Court of Appeal Reverses Denial of Class Certification in Off-the-Clock Class Action

In Jones v. Farmers Insurance Exchange (10/28/13, mod. and pub. 11/26/13) 221 Cal.App.4th 986, the plaintiff worked as an adjuster for Farmers. He sued, alleging that Farmers should have paid him for "computer sync time" work performed before beginning his scheduled shifts.  

The plaintiff filed for class certification, and Farmers opposed, arguing that it had no uniform policy requiring unpaid pre-shift work and that individual issues thus predominated. The trial court denied certification, and the Court of Appeal reversed, finding as follows: 

Under Brinker and Sav-On the question on commonality is "whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment," and the fact that individual class members will have to prove their damages does not defeat certification. Slip op. at 9-11. 

Although the trial court is "afforded great discretion in ruling on class certification" (slip op. at 11-12), the trial court here abused its discretion "by focusing on individual issues concerning the right to recover damages rather than evaluating whether the theory of recovery is amenable to class treatment." 

Slip op. at 14. Further, "the trial court erred to the extent that its ruling was based on its evaluation of the merits of Plaintiffs’ claim as to the existence of such a uniform policy." Slip op. at 15. 

Plaintiffs’ theory of recovery is that Farmers applied a uniform policy to all putative class members denying them compensation for “computer sync time” work performed at home before the beginning of their scheduled shifts. The existence of such a policy is a factual question that is common to all class members and is amenable to class treatment.

Whether such a policy, if it exists, deprives employees of compensation for work for which they are entitled to compensation is a legal question that is common to all class members and is amenable to class treatment.  Slip op. at 12-13. Farmers disputed that it had such a policy, but this argument raised a "common question amenable to class treatment." Slip op. at 13. Farmers' other evidence went to damages, which did not defeat certification. Slip op. at 13-14. “Farmers’s liability depends on the existence of such a uniform policy and its overall impact on its APD claims representatives, rather than individual damages determinations.” Slip op. at 15. 

Because of the predominance of common issues, class certification would "provide substantial benefits to the litigants and the courts," and a class action would be a superior method of resolving the dispute. Slip op. at 15. 

Substantial evidence supported the trial court's finding that Mr. Jones was not an adequate class representative because he did not file a declaration stating that he understood his fiduciary obligation to the class. Slip op. at 17. However, rather than deny certification on this basis, the trial court should have allowed plaintiffs to amend their complaint to name a suitable class representative. Slip op. at 17-18. 

Martinez v. Joe's Crab Shack: Court Reverses Certification Denial in Misclassification Class Action

In Martinez v. Joe's Crab Shack (11/12/13, pub. 12/4/13) 221 Cal.App.4th 1148, the plaintiffs alleged that the defendants misclassified them and other salaried management employees as exempt from California’s overtime requirements. The trial court denied certification, and the Court of Appeal reversed, holding as follows: 

The plaintiffs adequately represented the class because any antagonism to the case voiced by putative class members did not go “to the very subject matter of the litigation” and could be managed by creating subclasses. Slip op. at 10-12. 

The plaintiffs’ claims were typical, even though different managers may have spent more or less than 50% of their time engaged in exempt administrative tasks. The trial court erred in focusing too greatly on this potential difference among putative class members and in attempting to resolve factual conflicts in the evidence. Slip op. at 11-12. 

Common questions of law and fact predominated, and the trial court erred in failing to find ways to prove the plaintiffs’ claims through the resolution of those common questions. Slip op. at 13-19. 

“Rather than engage in a post hoc calculation for each employee of hours worked in excess of the mandated 40-hour work week,” the fact finder should determine common issues, such as whether the employer properly classified the class members as exempt, by examining the employer’s “realistic expectations and classification of tasks.”

Slip op. at 14-15. 

Finally, the Court remanded to the trial court to reconsider whether class treatment was a superior method of resolving the plaintiffs’ claims: 

[W]e understand from Brinker, supra, 53 Cal.4th 1004, a renewed direction that class-wide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof.

 Slip op. at 19. 

The opinion is available here. 

Heyen v. Safeway: Court Affirms Judgment for Employee In Individual Wage and Hour Action

Heyen v. Safeway Inc. (5/23/13) --- Cal.App.4th ---, began as a putative class action and -- eleven years later -- has ended as an individual case.

Linda Heyen worked for Safeway as an assistant store manager. In 2006, she was added as a named plaintiff in an existing putative class action as against Safeway. The plaintiffs alleged that Safeway should have treated them and other assistant store managers as nonexempt employees. The trial court denied their motion for class certification in 2008, and Heyen's individual action went to trial in 2009. An advisory jury and the trial court found that Safeway improperly classified her, and the court entered judgment in her favor. The Court of Appeal affirmed, holding:

The trial court did not apply an incorrect legal standard to determine that Heyen was a nonexempt employee. Slip op. at 24-37. It properly found that time during which Heyen was performing both exempt and nonexempt tasks -- for example, when she was both running a cash register and simultaneously managing the front end of the store, including instructing and coaching other employees -- should count as nonexempt time for purposes of determining whether she was “primarily engaged in duties which meet the test of the exemption.” The Court drew four general principles from the Wage Order and the federal regulations incorporated therein: 

First, work of the same kind performed by a supervisor's nonexempt employees generally is “nonexempt,” even when that work is performed by the supervisor. If such work takes up a large part of a supervisor's time, the supervisor likely is a “nonexempt” employee. (§§ 541.108(g), 541.111(b), 541.115(b).)  

Second, the regulations do not recognize “hybrid” activities—i.e., activities that have both “exempt” and “nonexempt” aspects. Rather, the regulations require that each discrete task be separately classified as either “exempt” or “nonexempt.” (§§ 541.102(a), 541.108(a)-(g).)  

Third, identical tasks may be “exempt” or “nonexempt” based on the purpose they serve within the organization or department. Understanding the manager's purpose in engaging in such tasks, or a task's role in the work of the organization, is critical to the task's proper categorization. A task performed because it is “helpful in supervising the employees or contribute[s] to the smooth functioning of the department” is exempt, even though the identical task performed for a different, nonmanagerial reason would be nonexempt. (§ 541.108(a).)   

Finally, in a large retail establishment where the replenishing of stocks of merchandise on the sales floor “is customarily assigned to a nonexempt employee, the performance of such work by the manager or buyer of the department is nonexempt.” (§ 541.108(c).) Similarly, in such a large retail establishment, a manager's participation in making sales to customers is nonexempt, unless the sales are made for “supervisory training or demonstration purposes.” (§ 541.108(e).) 

Slip op. at 31. Based on these principles, the Court concluded that the following jury instruction was not erroneous: 

If a party claims that an employee is engaged in concurrent performance of an exempt and non-exempt work, you must consider that time to be either an exempt or a non-exempt activity depending on the primary purpose for which the employee undertook the activity at that time. The nature of the activity can change from time to time. 

Slip op. at 35. The trier of fact must determine the "objective purpose" of the employee's actions. "If such actions were taken to 'supervis[e] the employees or contribute to the smooth functioning of the department,' they were 'exempt work'; if they were taken for some other reason, they were 'nonexempt work.'" Slip op. at 37.  

Next, the Court held that the trial court did not fail to address the rule that the trier of fact must take into account the “employer's realistic expectations and the realistic requirements of the job.” Slip op. at 38-39. Substantial evidence supported the jury's finding that that "Heyen's practice of doing significant amounts of nonexempt work did not 'diverge[] from [Safeway's] realistic expectations.'" Slip op. at 39.  

The opinion is available here.  

Dailey v. Sears, Roebuck: Court Affirms Order Denying Certification of Manager / Assistant Manager Misclassification Action

In Dailey v. Sears, Roebuck and Co. (3/27/13) --- Cal.App.4th ---, the Court of Appeal affirmed a trial court order denying certification of a putative class action alleging that the employer, Sears, violated California wage and hour laws by classifying its auto center managers and assistant managers as exempt employees.  The Court held that the record contained "substantial evidence that Dailey's theory of liability — i.e., that Sears acted in a uniform manner toward the proposed class members, resulting in their widespread

misclassification as exempt employees — is not amenable to proof on a classwide basis" and that the trial court did not abuse its discretion in denying certification.  Slip op. at 3.

Specifically, the Court held: 

The trial court did not fail to explain sufficiently its reasons for denying class certification. The law does not demand great detail from the trial court, and while the order was "succinct," and a more detailed order may have been "desirable," the lack of detail did not preclude "meaningful review" by the Court of Appeal.  Slip op. at 14-17. 

The trial court did not abuse its discretion in denying class certification. The parties presented conflicting evidence of Sears's policies and practices and the effect of those policies and practices on the putative class members. The trial court did not improperly evaluate the merits of the case in evaluating the evidence presented by both sides and crediting the evidence presented by Sears, which indicated "that highly individualized inquiries would dominate resolution of the key issues in this case."  Slip op. at 17-25. 

Substantial evidence supported the trial court's finding that common questions did not predominate. For example, Sears presented evidence that there was no shortage of hourly labor, and the putative class members were not required to fulfill the roles of their nonexempt employees.  Given this and other evidence, "showing a wide variation in proposed class members' job duties," the trial court did not abuse its discretion in finding that plaintiff's theory of liability was not susceptible of common proof at trial.  Slip op. at 25-33. 

Dailey's proposal to use random sampling as a means of managing any individual questions did not "cure the deficiencies of his evidentiary showing." The sampling proposal was "not tied specifically to the facts of this case, or tailored to the evidence presented by the parties," and the trial court did not err in rejecting it.  Slip op. at 34-38.  

Dailey failed to present substantial evidence that "Sears employed any policy or routine practice to deprive proposed class members of 'off duty' meal and rest breaks and, accordingly, Dailey failed to show that this allegation could be proved on a classwide basis." Evidence that Sears had no formal written policy regarding meals and rest periods for the putative class members, provided "no evidence of a policy or widespread practice of Sears  to deprive nonexempt employees of uninterrupted meal periods and rest breaks." Indeed, such evidence was consistent with Sears's treatment of them as exempt employees.  Slip op. at 38-42. 

The trial court did not err in ruling on Sears's motion to preclude certification, even though it was addressed to a broader, statewide class that Dailey subsequently narrowed, in the second amended complaint, to a San Diego district class.  Evidence presented by Sears was relevant to the more narrow class defined by Dailey, and the trial court's order was not "so broad as to preclude any class beyond the San Diego district class."  Slip op. at 42-44. 

The opinion is available here.  

Dailey filed his petition for review in the California Supreme Court on April 30, 2013.  My gut reaction is this: after Brinker and all of its progeny, I would be surprised if the Court were to grant review, but I would not be surprised if it were to grant a petition for depublication.  

Guerrero v. Superior Court: Court of Appeal Reverses Order Sustaining Demurrer on Joint Employment Issues

In Guerrero v. Superior Court (Weber) (2/11/13) --- Cal.App.4th ---, the plaintiff, Guerrero, was employed to provide in-home support services (IHSS) to eligible recipients in Sonoma County (County) under the In-Home Support Services Act. Cal. Welf. & Inst. Code § 12300 et seq. She sued the County and its In-Home Support Services Public Authority (the Authority) for violation of federal and state wage law, alleging that they jointly employed her along with the individual to whom she rendered services.

The trial court sustained without leave to amend the demurrer of the County and the Authority. The Court of Appeal reversed, holding:

Although providing IHSS-funded care does not constitute employment for all purposes, the County and the Authority were Guerrero's joint employers for FLSA purposes because: (1) "their power over the employment relationship by virtue of their control over the purse strings was substantial"; (2) her wages were determined and paid by the state and its agents, the County and the Authority; (3) the County and the Authority maintained employment records on Guerrero; and (4) the County had an inherent role in in supervising the provision of services by IHSS providers such as Guerrero. Slip op. at 12-30. The Court relied heavily on Bonnette v. California Health and Welfare Agency (9th Cir. 1983) 704 F.2d 1465 (state and counties were employers under California's IHSS program) and distinguished Moreau v. Air France (9th Cir. 2003) 356 F.3d 942 (airline was not joint employer of service workers hired by outside entities for purposes of FMLA and CFRA).

Because Guerrero alleged that she "performed general household work exceeding twenty percent of her total weekly hours worked," the trial court erred in sustaining the demurrer on grounds that her job was exempt from FLSA minimum wage and overtime protections pursuant to the domestic service companionship exception. 29 U.S.C. section 213. "Determining whether or not all of the elements of the exemption have been established is a fact-intensive inquiry. The appropriateness of any employee's classification as exempt must be based on a review of the actual job duties performed by that employee." Slip op. at 30-34.

The Court rejected the concern that allowing such wage claims on a joint employment basis make the County and the Authority "liable for wages that they have no power to control."  

The IHSS program pays for specified services delivered to qualified recipients up to a maximum number of hours. Where a qualified provider delivers services other than those authorized and covered by the program or for a greater number of hours than authorized and real parties have no knowledge that such is occurring and are realistically unable to inform themselves of such, we agree it would be inappropriate to impute the recipient's knowledge to real parties so as to require real parties to pay for such services. 

However, this was a factual issue not ripe for adjudication on demurrer.  Slip op. at 34-36.

The County and the Authority were Guerrero's employers for purposes of California wage law because: (1) California's protections cannot be any less protective of employees than federal law; (2) while they did not directly hire, fire or supervise providers, through their "power of the purse" and quality control authority, the County and the Authority had "the ability to prevent recipients and providers from abusing IHSS authorizations both as to the type of services performed and the hours worked." The trial court thus erred in finding that they did not suffer or permit Guerrero to work and were not her employers.  Slip op. at 36-45. 

Public agencies are not exempt from the provisions of Wage Order No. 15-2001.  Slip op. at 45-50. 

The trial court erred in holding that the personal attendant exemption barred Guerrero's claims because whether she rendered services as a personal attendant was a question of fact. Guerrero's allegation that she spent more than 20 percent of her time performing "general household work" raised an issue of fact as to her personal attendant status under the wage order.  Slip op. at 50-52.  

The opinion is available here.  

The County and the Authority just last week filed their petition for review in the California Supreme Court. The Court last year granted review in Patterson v. Domino's Pizza (discussed here), in which the Court of Appeal held that a franshisor may be liable for a franchisee's alleged violations of the Fair Employment and Housing Act, but denied review in Aleksick v. 7-Eleven (2012) 205 Cal.App.4th 1176, in which the Court of Appeal held that 7-Eleven is not liable for allegedly failing to pay its franchisees' employees their earned wages. If I had to wager, I would say that the Court will deny review, particularly because Guerrero arises on the defendants' demurrer.  

Muldrow v. Surrex: On Remand Following Brinker, Court of Appeal Again Affirms Judgment for Employer, and Supreme Court Denies Depublication Request

The California Supreme Court meets each week to act on cases and publishes its actions on its web site (here) on Thursday mornings. This week, the Court denied a request for depublication in Muldrow v. Surrex Corporation (8/29/12) 208 Cal. App. 4th 1381. I did not catch the Court of Appeal decision when it came down, so here it is:  

In Muldrow v. Surrex Solutions Corporation (1/24/12) 202 Cal.App.4th 1232 (discussed here), a recruiter sued his employer for failure to pay overtime and meal period compensation. The trial court certified the class and, after a bench trial, found: (1) the class members were subject to the commissioned employees exemption from the overtime requirements; (2) the employer provided meal periods to them, and (3) it was not obligated to ensure that they took their meal periods. The Court of Appeal affirmed, and the Supreme Court issued a grant-and-hold order pending Brinker.  On remand after Brinker, the Court of Appeal once again affirmed the judgment, holding: 

1. Brinker had no impact on the Court's analysis of the overtime exemption for commissioned employees, and the trial court correctly held that the employees were subject to the exemption. 
2. The trial court did not err “in ruling that [the employer] was not obligated to ensure that meal period[s] were taken." Citing Brinker, 53 Cal.4th at p. 1040. 

The opinion is available here. 

As I mentioned above, the California Supreme Court on January 3 denied a request for depublication filed by the Brinker plaintiffs. The Muldrow plaintiffs apparently did not file a petition for review. 

Harris v. Superior Court (Liberty Mutual): California Supreme Court Denies Review of Administrative Exemption Decision, Grants Depublication

In Harris v. Superior Court (Liberty Mutual Ins. Co.) (2011) 53 Cal.4th 170 (discussed here), a unanimous California Supreme Court held that that the “administrative/production worker dichotomy” is not dispositive of the administrative exemption defense.

On remand (discussed here), the Court of Appeal held once again that the trial court erred in granting the defendants' motion to decertify the class and in denying the plaintiffs' motion for summary judgment on the administrative exemption defense.

Thank you to Kim Kralowec for pointing out on her blog that on Wednesday, the California Supreme Court denied the employer's petition for review of the most recent decision, but granted a depublication request filed by the California Employment Law Council.  

Harris v. Superior Court (Liberty Mutual): On Remand, Court of Appeal Again Reverses Orders Decertifying Class and Denying Plaintiffs' Motion for Summary Judgment of Exemption Defense

In Harris v. Superior Court (Liberty Mutual Ins. Co.) (2011) 53 Cal.4th 170 (discussed here), a unanimous California Supreme Court held that that the “administrative/production worker dichotomy” is not dispositive of the administrative exemption defense. 

On remand, the Court of Appeal has held once again that the trial court (Los Angeles Superior, Judge Carolyn B. Kuhl) erred in granting the defendants' motion to decertify the class and in denying the plaintiffs' motion for summary judgment on the administrative exemption defense.  

Here's the Court's summary, which describes the ruling pretty clearly: 

Employers claim that the administrative exemption to the overtime compensation requirements applies to claims adjusters.  Adjusters claim that the exemption does not apply.  In addition, Adjusters contend that the issue of whether their work duties are of the kind required for application of the administrative exemption is a predominant issue common to the claims of all putative class members, warranting class certification.  The trial court initially agreed and certified Adjusters' proposed class.  Later, however, the court revisited the issue and decertified the class for all claims arising after October 1, 2000, on the ground that under Wage Order 4-2001, but not under Wage Order 4-1998, the work duties issue is neither dispositive nor a predominant issue that would justify class treatment of Adjusters' claims.  

Both sides petitioned for writ review.  Employers seek decertification of the portion of the class that remains certified.  Adjusters seek recertification of the decertified portion of the class and also challenge the trial courts denial of their motion for summary adjudication of Employers' affirmative defense based on the administrative exemption.  We grant Adjusters' petition and deny Employers' petition because Adjusters' primary work duties are the day-to-day tasks of adjusting individual claims not directly relating to management policies or general business operations. 

Slip op. at 3.  Here's my more detailed review: 

Overview of California and Federal Regulations.  

The 2001 series of Wage Orders incorporates the Federal regulations -- as they existed as of January 1, 2001 -- into the definition of what work meets the test of the exemption.  "So, just as the statute is understood in light of the wage order, the wage order is construed in light of the incorporated federal regulations."  Slip op. at 8. 

Parsing the language of the regulation reveals that work qualifies as "administrative" when it is "directly related" to management policies or general business operations.  Work qualifies as "directly related" if it satisfies two components.  First, it must be qualitatively administrative.  Second, quantitatively, it must be of substantial importance to the management or operations of the business.  Both components must be satisfied before work can be considered "directly related" to management policies or general business operations in order to meet the test of the exemption.  (Fed. Regs. § 541.205(a) (2000).) 

Slip op. at 9-10.  At issue in Harris is whether the adjusters' work satisfies the "qualitatively administrative" requirement of the "directly related" test.  Ibid.  

Wage Order 4-1998 and the Federal Regulations.  

Next, the Court explained that the Federal regulations -- which are not incorporated into the 1998 wage orders -- none-the-less guide the Court's interpretation of the 1998 wage orders.  

Accordingly, because we conclude that the same federal regulations that are incorporated into Wage Order 4-2001 must be used as a guide to interpreting Wage Order 4-1998, we agree with the parties that the analysis of the administrative exemption should be the same under both wage orders.

Slip op. at 11.  

The Qualitative Component of the “Directly Related” Requirement

Under the federal regulations ... an employee's work duties meet the test of the exemption only if they "relat[e] to the administrative operations of a business as distinguished from "production" or, in a retail or service establishment, 'sales' work" (Fed. Regs. § 541.205(a) (2000)), but the import of that statement is not perfectly clear.  We take it to mean that only duties performed at the level of policy or general operations can satisfy the qualitative component of the "directly related" requirement.  In contrast, work duties that merely carry out the particular, day-to-day operations of the business are production, not administrative, work.

Slip op. at 11-12 (emphasis added).  An employee who is primarily engaged in work that is not "directly related to the administrative operations of a business" cannot fall under the administrative exemption.  Ibid.  

Application of the Qualitative Component of the “Directly Related” Requirement

The undisputed evidence showed that the adjusters are not exempt employees because they are "primarily engaged in work that fails to satisfy the qualitative component of the 'directly related' requirement because their primary duties are the day-to-day tasks involved in adjusting individual claims."  Slip op. at 13.  This non-exempt work includes investigating and estimating claims, making coverage determinations, setting reserves, negotiating settlements, making settlement recommendations for claims beyond their settlement authority, and identifying potential fraud.  

This work is not carried on at the level of management policy or general operations.  Administratively exempt work would include, for example, serving on committees to develop company policies and practices.  Defendants' summary judgment fails because defendants did not show that any class members spent more than 50% of their time engaged in such work.  Slip op. at 14.  

The undisputed facts show that Adjusters are primarily engaged in work that fails to satisfy the qualitative component of the "directly related" requirement. Adjusters therefore are not primarily engaged in work that is "directly related to management policies or general business operations." Accordingly, Adjusters cannot be exempt administrative employees under either Wage Order 4-1998 or Wage Order 4-2001.

Slip op. at 15.  

Application of Federal Regulations Former Part 541.205(b) (2000)

Federal Regulations former part 541.205(b) (2000) provided: 

The administrative operations of the business include the work performed by so-called white-collar employees engaged in "servicing" a business as, for[] example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.

Defendants argued that the Adjusters are exempt because they are engaged in this type of work.  The Court rejected this argument, holding that "not all activities that involve advising management, planning, negotiating, and representing the company satisfy the qualitative component of the 'directly related' requirement."  Slip op. at 16.  The Court then held: "Because Employers make no attempt to specify where the line should be drawn, let alone to show that Adjusters' work falls on the proper side, their argument fails."  Slip op. at 17.  

This holding would appear to have fairly broad application to other professions, and the Court used the example of legal secretaries to illustrate the point.  Legal secretaries perform many of the types of work described in the regulation, but "it is difficult to see how any of that secretarial work could constitute work that is 'directly related to management policies or general business operations.'"  Slip op. at 18.  

The Court then emphasized an important point that it undoubtedly hopes will help insulate its ruling from further review before the California Supreme Court: 

The Supreme Court observed that "the one element of the administrative exemption" that is at issue in these proceedings concerns "the character of [Adjusters'] duties," and the court pointed out that the analysis in the Bell cases was based on the plaintiffs' role in their employer's business and consequently did not address the character of those plaintiffs' duties. Nowhere in this opinion do we in any way rely upon the Bell cases, and our discussion of Employers' argument concerning Federal Regulations former part 541.205(b) (2000) concerns only Adjusters' duties and is entirely independent of Adjusters' role in Employers' business. 

Slip op. at 19 (internal citations omitted).  

Producing the Employer’s Product

"Employers argue that Adjusters do not produce Employers' product because Employers' product is the transference of risk, not claims adjusting."  Slip op. at 19. The Court rejected this argument for two reasons: first, because adjusting claims is "an important and essential part of transferring risk;" and second, because "workers who do not produce their employer's product can still do work that fails to satisfy the qualitative component of the 'directly related' requirement."  Slip op. at 20.  

The Court here demonstrates the Supreme Court's point that the production worker / administrative dichotomy does not always work.  The Court again uses the example of the legal secretary.  He or she does not produce the law firm's product -- legal advice -- but he or she also does not perform work that is directly related to the firm's management policies or general business operations.  Slip op. at 21.  

Effect of Federal Regulations Former Part 541.205(c)(5) (2000)

Federal Regulations former part 541.205(c) (2000) provided: 

The test of "directly related to management policies or general business operations" is also met by many persons employed as advisory specialists and consultants of various kinds, credit managers, safety directors, claim agents and adjusters, . . . and many others.  

Defendants again argued that the Adjusters are exempt because they are engaged in this type of work.  The Court rejected the argument, holding that this regulation is related to the quantitative element of the "directly related" requirement, and the Supreme Court has already held that only the qualitative element is at issue.  Slip op. at 22.  

Agency Opinion Letters and Federal Case Law

The Court declined to follow opinion letters from the DOL or the DLSE.  It also declined to follow district court cases.  Slip op. at 22-24.  

The Alleged Heterogeneity of the Class

Finally, the Court addressed the Defendants' argument that "the qualitative component of the "directly related" requirement cannot be dispositive, and class treatment cannot be appropriate because the certified class is so heterogeneous." Slip op. at 24.  The Court dismissed this argument, again relying on its conclusion that "no evidence shows that any class members primarily engage in work at the level of management policy or general business operations."  Slip op. at 24.  In other words, absent evidence that any class members are subject to the administrative exemption, the Defendants' exemption defense fails.  And that is a predominant issue common to the class members.  Slip op. at 25.  

Conclusion

The parties do not disagree as to Adjusters' work duties. Indeed, the evidence is essentially undisputed as to what those duties are. We hold that, with the few exceptions we have noted, Adjusters' work duties do not satisfy the qualitative component of the "directly related" requirement because they are not carried on at the level of policy or general business operations. Adjusters therefore are not primarily engaged in work that is "directly related to management policies or general business operations." (Fed. Regs. § 541.205(a) (2000).) It follows that Adjusters are not exempt administrative employees under either Wage Order 4-1998 or Wage Order 4-2001. Accordingly, Adjusters' motion for summary adjudication should have been granted, and, because the qualitative component of the "directly related" requirement is a predominant common issue under both wage orders, Employers' motion for class decertification should have been denied in its entirety.

Slip op. at 25-26. Defendants undoubtedly will petition the California Supreme Court for review, and it will be very interesting to see how the Supreme Court responds.  

As I said regarding the Supreme Court's decisions in Harris and Brinker, this court seems to be looking for its identity, at least in employment law cases.  Perhaps by the time Harris goes back up -- if it does go back up -- this Court will have a better sense of how it is going to approach and resolve employment cases and it will give us a more definitive decision than it did the first time around.  On the other hand, perhaps the Court of Appeal has done enough to satisfy the concerns raised by the Supreme Court the first time around, and the Supreme Court will deny review.  

The opinion is available here.  

Cash v. Winn: Court of Appeal Clarifies "Personal Attendant" Overtime Exemption

The Court did a very good job summarizing the issues in this case, so here it is:  

When a family hires an employee to care for an elderly person in his or her home, is the employee entitled to overtime pay? Under California law, the answer depends on the type of work performed by the caretaker. If the employee performs work of a "personal attendant[ ]," defined to mean "a person employed . . . to supervise, feed, or dress" the client, the caretaker is exempt from overtime pay requirements. (Industrial Welfare Commission (IWC) Wage Order No. 15-2001, §§ 1(B), 2(J), codified at Cal. Code Regs., tit. 8, § 11150.) However, if the caretaker performs a "significant amount of work" in addition to these tasks, the caretaker is not exempt from overtime pay requirements. (§ 11150, subd. 2(J).) Additionally with certain exceptions, if the caretaker is a registered nurse employed to engage in the practice of nursing in the home, the nurse is not exempt from overtime pay requirements. (§ 11150, subd. 1(A)(3)(f), (g).) 

The issue here is whether there exists an additional exception to the personal attendant exemption rule applicable if a caretaker, who is not a licensed nurse, performs any form of health care related services for an elderly client. Based on a sentence originally contained in an interpretive bulletin issued by the Department of Labor Standards Enforcement (DLSE) in 1986, the court instructed the jury that the personal attendant exemption to the overtime requirements is inapplicable if a caregiver, who is not a licensed nurse, regularly performs any health care functions, even if those tasks are incidental to the caretaker's primary tasks and regardless of the amount of time spent on these functions.  We conclude this instruction reflects an improper interpretation of Wage Order No. 15 and, based on the jury's findings in the special verdict form, constituted prejudicial error.  

Cash v. Winn (5/14/12) --- Cal.App. 4th ----.  

Plaintiff Joy Cash cared for defendant Iola Winn in Winn's home.  After her employment ended, she sued for overtime compensation.  At trial, the court (San Diego Superior, Judge Steven R. Denton) instructed the jury that the personal attendant exemption would not apply if Cash's "duties require the regular administration of health care services such as the taking [of] temperatures or pulse or respiratory rate . . . , regardless of the amount of time such duties take . . . ."  Slip op. at 3.  On a special verdict, the jury found that Cash's work involved "the regular administration of health care services" as defined by the court and returned a verdict for Cash.  Winn appealed.  

The Court of Appeal reversed and ordered the trial court to enter judgment for Winn. After a long recitation of the facts and the trial, the Court held that there is no exception to the "personal attendant" overtime exemption for one who regularly performs health care related services, such as taking a temperature or pulse or or assisting with over-the-counter blood sugar tests.  

There is no California case law supporting this exception to the personal attendant definition.4  And there is nothing in the provisions of Wage Order No. 15 providing an exception to the personal attendant definition for an individual who engages in "regular administration of health care services," but who is not a trained health care provider. 

Slip op. at 17.  

The opinion is available here. 

Supreme Court Cleans House After Harris v. Superior Court

In Harris v. Superior Court (2011) 53 Cal.4th 170, the Supreme Court held that the administrative / production worker dichotomy is not dispositive in cases involving the administrative exemption from California's overtime requirements.

On February 29, 2012, the California Supreme Court cleared its docket of two cases in which it had granted review pending Harris.

In Pellegrino v. Robert Half Intern., Inc. (2010) 182 Cal.App.4th 87 ("Pellegrino I"), the Court of Appeal held, inter alia, that substantial evidence supported the trial court's finding that the administrative exemption did not apply to the plaintiffs. The Supreme Court granted review pending Harris. On February 29, the Court transferred Pellegrino back to the Court of Appeal for reconsideration in light of Harris. I find this a little odd because the Court of Appeal did not rely on the administrative / production worker dichotomy.  

In Hodge v. AON Insurance Services (2011) 192 Cal.App.4th 1361, the Court of Appeal affirmed a judgment after bench trial holding that the defendant did not violate the Unfair Competition Law in classifying a class of insurance adjusters as exempt employees.  On February 29, the Supreme Court dismissed the case.   It also denied an amicus request for an order directing republication of the Court of Appeal's original decision.  

Muldrow v. Surrex Solutions: Court of Appeal Holds That Recruiters Are Subject to Commissioned Sales Overtime Exemption

I failed to pick up this case when it was published. In Muldrow v. Surrex Solutions Corporation (1/24/12) 202 Cal.App.4th 1232, a recruiter sued his employer for failure to pay overtime and meal period compensation. The trial court (San Diego Superior, Judge Nugent) certified the class, and the case was tried to the court. The court found that the class members were subject to the commissioned employees exemption from the overtime requirements, that the employer provided meal periods to them, and it was not obligated to insure that they took their meal periods.

The Court of Appeal affirmed. First, it reviewed the relevant cases: Keyes Motors, Inc. v. DLSE (1987) 197 Cal.App.3d 557, Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28, and Areso v. CarMax, Inc. (2011) 195 Cal.App.4th 996 (blogged here).

The Court held that the class members were engaged principally in sales. In essence, the Court found that recruiters have to sell an employer and an applicant on each other. "Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit." Slip op. at 12.

The Court then held that the class members were paid on a commission basis. "Some candidates were hired directly by employer clients. For these so called "direct hire" placements, appellants received a commission equal to a percentage of the placement fee that Surrex received from the client." The plaintiff conceded that this compensation constituted a commission. Slip op. at 15.

"Surrex placed other candidates by hiring them as consultants. The candidate-turned-consultant would then perform work for the client, and Surrex would in turn bill the client at an hourly rate for the consultant's services." Slip op. at 15. The class members would earn a percentage of the compensation thus earned by Surrex. Distinguishing Keyes Motors and Ramirez, the Court held that this arrangement constituted a commission:

Appellants' contention that the term "commissions" in the relevant regulation should be interpreted to include only those commissions that are based strictly, and solely, on a percentage of the price of the product or service rendered constitutes an excessively narrow and wooden application of Keyes Motors and Ramirez. Such a limited definition would not comport with the contemporary legal sense of the word "commission." On the contrary, the relevant Black's Law Dictionary's definition of "commission" expressly includes payments derived from profits. Moreover, a commission based on profits is hardly a concept foreign to California law.

Slip op. at 18 (citations omitted).

Finally, the Court held that Surrex's system constituted a "bona fide" commission system "as a matter of law." Noting that the DLSE Enforcement Policies and Interpretations Manual states, "Consistent commission earnings below, at or near the draw are indicative of a commission plan that is not bona fide," the Court cited evidence in the record that certain class members were paid commissions in excess of their draws. Slip op. at 22-23. 

The last part of the opinion addresses the plaintiffs' meal period claim. The plaintiffs raised the issue to preserve their right to petition the Supreme Court in the event that it reverses the Court of Appeal's decision in Brinker. Accordingly, the Court of Appeal found no error in the trial court's decision, which was consistent with Brinker. 

The opinion is available here. 

Duran v. U.S. Bank: Court of Appeal Reverses Judgment after Class Action Trial, Orders Decertification

In Duran v. U.S. Bank (blogged here), 260 current and former business banking officers employed by U.S. Bank filed suit, alleging that USB misclassified them as outside sales personnel. After a bench trial (Alameda County Superior, Judge Robert B. Freedman) the Court awarded $15 million to the class members and an additional $18 million in attorney fees.

The Court of Appeal has reversed the judgment and ordered the class decertified. I have not had a chance to read this decision (it's 75 pages long), but here's the introduction from the opinion:

Following a bifurcated bench trial, defendant U.S. Bank National Association (USB) has appealed the resulting $15 million judgment in this wage and hour class action brought under Business and Professions Code section 17200 (section 17200). The plaintiffs in the class action are 260 current and former business banking officers (BBO‘s) who claimed they were misclassified by USB as outside sales personnel exempt from California‘s overtime laws, and were thus unlawfully denied overtime pay. In addition to arguing the case should not have been certified as a class action, USB contends the trial court‘s trial management plan deprived it of its constitutional due process rights in that the plan prevented it from defending against the individual claims for over 90 percent of the class. We agree the trial management plan was fatally flawed and reverse the judgment. We also conclude the case must be decertified, and reverse an order awarding certain expert witness fees to plaintiffs. We remand the two named plaintiffs‘ meal and rest break period violation claims for reconsideration in light of the California Supreme Court‘s ruling in Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25, review granted October 22, 2008 (S166350). 

 I will write more once I have a chance to digest this. The opinion is available here.

An update on Duran.  The employees filed their petition for review in the Supreme Court on March 19.  The employer filed its response on April 25.  The Supreme Court's docket is here.

Harris v. Superior Court (Liberty Mutual Insurance): Cal. Supreme Court Reverses Insurance Adjuster Exemption Case

Plaintiffs worked as claims adjusters for defendants. They alleged that defendants erroneously classified them as exempt “administrative” employees and sought unpaid overtime. Plaintiffs moved for class certification, and the trial court certified a class of “all non-management California employees classified as exempt by [defendants] who were employed as claims handlers and/or performed claims-handling activities.”

Plaintiffs moved for summary adjudication of defendants’ affirmative defense that plaintiffs were exempt from the overtime compensation requirements under Industrial Welfare Commission (IWC) Wage Order No. 4. Cal. Code Regs., tit. 8, § 11040. Defendants opposed the motion and moved to decertify the class.

The trial court decertified the class in part, depending on then the plaintiffs’ claims arose. For claims arising before October 1, 2000, the trial court granted the motion for summary adjudication on grounds that the Bell v. Farmers Insurance line of cases – Bell v. Farmers Ins. Exchange (2001) 87 Cal. App. 4th 805 (“Bell II”) and Bell v. Farmers Ins. Exchange (2004) 115 Cal. App. 4th 715 (“Bell III”) – compelled a ruling that the claims adjusters were nonexempt “production workers.” The court decertified the class as to all claims arising after October 1, 2000, the effective date of a new Wage Order 4.

Both parties appealed. A divided court of appeal ruled for plaintiffs, concluding that they could not be considered exempt employees under either version of the Wage Order. The court of appeal directed the trial court to vacate its prior order and enter an order granting plaintiffs’ motion for summary adjudication and denying defendants’ motion to decertify.

The California Supreme Court granted defendants’ petition for review. In a unanimous but relatively narrow decision, the Court reversed and remanded to the court of appeal for reconsideration, holding that the “administrative/production worker dichotomy” is not dispositive.

In 1998, the IWC issued a new series of wage orders, abolishing overtime compensation for work over eight hours in a day. In response, the Legislature passed the AB 60, “Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999.” The Act amended Labor Code section 510 to provide overtime compensation for work over eight hours in a day. It also added section 515, which permits the IWC to exempt from overtime compensation executive, administrative, and professional employees, provided that they are primarily engaged in duties that meet the test of the exemption, that they regularly exercise discretion and independent judgment in performing those duties, and that they earn a monthly salary no less than two times the state minimum wage for full-time employees, currently $640 per workweek.

Following passage of AB 60, the IWC issued new wage orders, including Wage Order 4-2001. Whereas Wage Order 4-1998 did not “articulate the precise scope” of the administrative exemption, Wage Order 4-2001 contains “a much more specific and detailed description of work that is properly described as administrative.” Harris, slip op. at 4, 7. The Order provides a multi-pronged test of the exemption. Harris focuses on the first and last factors: that an administrative employee is one whose duties and responsibilities involve “the performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers” and who is primarily engaged in duties that meet the test of the exemption.

The Wage Order provides that the activities constituting exempt and non-exempt work “shall be construed in the same manner” as in certain regulations under the federal Fair Labor Standards Act in effect as of the date of the order. The relevant regulation provides that work is “directly related to management policies or general business operations” only if it satisfies two components. Fed. Regs. § 541.205(a) (2000). First, it must be qualitatively administrative. Second, quantitatively, it must be of substantial importance to the management or operations of the business. Both components must be satisfied before work can be deemed exempt in nature. Harris, slip op. at 10.

In their motion for summary adjudication, plaintiffs argued that defendants could not show that their work was qualitatively administrative in nature. They argued that they fell on the production side of the administrative/production worker dichotomy, as explained in the Bell cases. The administrative/production worker dichotomy distinguishes between administrative employees who are primarily engaged in “administering the business affairs of the enterprise” and production-level employees whose “primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market.” (Bell II, 87 Cal. App. 4th at p. 821.)

Like Harris, Bell asked whether a class of insurance adjusters could be deemed administrative exempt employees. Examining the role of the plaintiffs in the defendant’s business, the Bell court held that the defendant’s business was to handle claims, the adjusters fell squarely on the production side of the administrative/production dichotomy, and they could not be deemed administrative employees. Bell II, 87 Cal. App. 4th at 826.

The Supreme Court distinguished Bell on two grounds. First, the Bell courts were careful to limit their holdings to the facts before them, including the defendants’ stipulation that the plaintiffs’ work was “routine and unimportant.” Bell II, 87 Cal. App. 4th at 826. “Second, because Wage Order 4-1998 did not provide sufficient guidance, the Bell II court looked beyond the language of the wage order and employed the administrative/production worker dichotomy as an analytical tool.” Harris, slip op. at 17. In contrast, Wage Order 4-2001 provides “detailed guidance” on the issue. Ibid.

Having thus distinguished Bell, the Supreme Court held that the court of appeal erred in placing too much reliance upon it.

First, the court of appeal both failed to consider all of the relevant aspects of the federal regulations incorporated into Wage Order 4-2001 and it “reached out for support” to other regulations not incorporated into the Wage Order. Harris, slip op. at 18.

Specifically, the court of appeal focused on former part 541.205(a), concluding that only work performed at the level of policy or general operations can qualify as “directly related to management policies or general business operations” and that work that merely carries out the particular day-to-day operations of the business is production, not administrative, work. Harris, slip op. at 19. The court failed to take into account former part 541.205(b), which provides that “administrative operations of the business” includes work performed by “white-collar employees engaged in ‘servicing’ a business as, for example, advising the management, planning, negotiating, [and] representing the company.” Ibid. The court thus read the phrase “directly related to management policies or general business operations” in too narrow a fashion. Ibid.

Second, the court of appeal erred in relying on Bratt v. County of Los Angeles (9th Cir. 1990) 912 F.2d 1066 to support its conclusion that “although advising management about the formulation of policy is exempt administrative work, advising management about the settlement of an individual claim is not.” Harris, slip op. at 19-20. The Supreme Court distinguished Bratt because the Ninth Circuit more recently held that claims adjusters may be exempt from the Fair Labor Standards Act’s overtime requirements and because Bratt involved probation officers, not claims adjusters. Harris, slip op. at 20. The court of appeal’s reliance on Bratt “highlights the difficulty in relying on the particular role of employees in one enterprise to deduce a rule applicable to another kind of business” and “reveals the limitations of the administrative/production worker dichotomy itself as an analytical tool.” Harris, slip op. at 20-21. The Court held that modern-day, post-industrial, service-oriented businesses may not follow the administrative/production worker dichotomy, and that courts should not strain to apply the dichotomy where it does not fit. Harris, slip op. at 21.

The court of appeal did not err in considering two opinion letters issued by the Division of Labor Standards Enforcement (DLSE): a 1998 letter applying the administrative/production worker dichotomy to find that certain claims adjusters were not exempt; and a 2003 letter stating that the dichotomy is still viable after adoption of Wage Order 4-2001. Harris, slip op. at 21. The Supreme Court stated that its opinion was not inconsistent with the opinion letters.

We do not hold that the administrative/production worker dichotomy was misapplied to the Bell II plaintiffs, based on the record in that case, or that the dichotomy can never be used as an analytical tool. We merely hold that the Court of Appeal improperly applied the administrative/production worker dichotomy as a dispositive test.

Harris, slip op. at 22.

The Supreme Court thus reversed and remanded with instructions that the court of appeal review the trial court’s denial of the summary adjudication motion, applying the legal standards set forth in the opinion. The Court did not take immediate action in either of the two companion cases, Pellegrino v. Robert Half International, Inc., Case No. S180849 (blogged here) and Hodge v. AON Insurance Services, Case No. S191415 (blogged here). 

The opinion is available here. 

Zelasko-Barrett v. Brayton-Purcell: Court Finds that Law School Graduate Was Exempt Professional

A number of recent cases address the scope of the white collar exemptions under California law. The Cal. Supremes have Harris v. Superior Court, (blogged here) in which they will determine whether insurance adjustors are exempt administrative employees, on their docket. They have granted review in two other cases pending their decision in Harris:

Hodge v. AON Insurance Services (blogged here) (whether insurance adjustors are administrative exempt) and Pellegrino v. Robert Half Intern., Inc. ("Pellegrino I," blogged here) (whether account executives are administrative exempt).

In June, the Second District Court of Appeal issued Soderstedt v. CBIZ (blogged here) holding that unlicensed employees of a public accounting firm may be exempt as learned professionals, and the Ninth Circuit Court of Appeals issued Campbell v. PricewaterhouseCoopers LLP (blogged here) reaching the same conclusion.

And now the First District Court of Appeal has issued the battle of the hyphenated names, Zelasko-Barrett v. Brayton-Purcell, LLP (8/17/11) --- Cal.App.4th ----, 2011 WL 3594015, holding that a law school graduate who was not licensed to practice law but who worked for a law firm and performed tasks customarily performed by junior attorneys was exempt as a learned professional.

I will not get into the details of the case, because I assume that the plaintiffs will petition for review and have an odd's on chance of it being granted pending Harris.

The opinion is available here.

Prieto v. US Bank: District Court Denies Motion for Summary Judgment on Prior Class Action Res Judicata Grounds

Thank you to Christian Schreiber for providing this decision.

In Prieto v. U.S. Bank, 2011 WL 2181459 (E.D. Cal. 6/2/11), the District Court for the Eastern District of California (Judge Kimberly J. Mueller) held, on a defendant's motion for summary judgment, that a wage and hour class action settlement on behalf of hourly employees does not prevent an action by an employee who alleges that the defendant misclassified her as exempt during part of her employment. That sounds more confusing than it is. Here are the facts:

Dolores Prieto worked for U.S. Bank in both non-exempt and exempt positions. She filed an action alleging that U.S. Bank misclassified her as exempt and thereby violated California and federal wage and hour laws. U.S. Bank settled a separate class action (Ross) on behalf of non-exempt employees. The settlement included a broad release of claims under California and federal law. Ms. Prieto was a member of the Ross settlement class for the time when she worked as a non-exempt employee. U.S. Bank moved for summary judgment, arguing that the Ross settlement barred Ms. Prieto's action.

The Court denied U.S. Bank's motion. First, relying on California law, the Court held that Ms. Prieto's claims were not barred by the doctrine of release because Ms. Prieto did not sign a release in the Ross action. Then the Court held:

Even if the court construes the settlement provisions of the Ross class action as a release, there are material issues of fact as to its scope.... [T]he agreement in this case must be read in its context: it was negotiated by hourly employees on behalf of other hourly employees, as defined by the two classes. Defendant has pointed to nothing beyond the language of the agreement itself suggesting that the named class members had any authority to negotiate a settlement on behalf of non-exempt employees.

Slip op. at 12. The Court then held that res judicata also did not bar Ms. Prieto's action:

Plaintiff does not dispute the fact that there was a final judgment in the Ross case, but argues that the instant cause of action is different than that litigated in Ross. Defendant insists that the same primary right is involved: the right to be compensated for earned overtime and for meal and rest periods that were denied. ECF No. 44 at 14. To resolve this dispute, the court “must compare the two actions, looking at the rights which are sought to be vindicated and the harm for which redress is claimed.” Citizens for Open Access to Sand and Tide, Inc. v. Seadrift Association, 60 Cal.App.4th 1053, 1067 (1998).

***

There is much overlap in the two actions, starting with the similarity of the facts and the Labor Code violations presented through the requests for payment of lost wages. In the case proceeding in this court, however, the harm flowed from defendant’s alleged misclassification of plaintiff and could have occurred even if it honored all its obligations concerning meal and rest periods and off the clock work to hourly employees; in Ross, the harm flowed from defendant’s refusal to pay hourly employees’ wages due under the provisions of the Labor Code. The harm in the instant case is the misclassification, which led to the alleged failure to pay, while the harm in Ross was the failure to pay. Because the actions involve different primary rights, res judicata does not bar the instant suit.

Slip op. at 14-15.

Areso v. CarMax, Inc.: Court of Appeal Issues Surprising Commission Decision

In Areso v. CarMax (5/20/11) --- Cal.App.4th ----, 2011 WL 1902200, plaintiff sold cars for defendant. Defendant classified plaintiff as an exempt commissioned salesperson. Defendant paid plaintiff a minimum guaranteed base, plus approximately $150 for each vehicle sold, but did not pay her overtime compensation. Plaintiff filed a class action, challenging defendant's pay practices. The trial court (Los Angeles Superior, Judge Highberger), granted summary judgment for defendant, holding that plaintiff was properly classified as exempt. The Court of Appeal affirmed.

First, it held that, although the order granting summary judgment did not dispose of all causes of action, plaintiff could appeal because the remaining causes of action (waiting time penalties, unfair competition, and PAGA penalties) were "purely ancillary" in that they "all depend entirely upon Areso's overtime claim, and therefore all became moot once the trial court granted summary adjudication on that claim." Slip op. at 5.

Second, it held that defendant's payments to plaintiff of $150 per vehicle constitute commission wages "based proportionately on the amount or value" of defendant's property or services sold, making plaintiff an exempt employee. Slip op. at 6-7.

The Court distinguished Keyes Motors, Inc. v. DLSE (1987) 197 Cal.App.3d 557, which held:

Labor Code section 204.1 sets up two requirements, both of which must be met before a compensation scheme is deemed to constitute commission wages. 'First, the employees must be involved principally in selling a product or service, not making the product or rendering the service. Second, the amount of their compensation must be a percent of the price of the product or service.'

Keyes at 563; see also Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 804 (adopting Keyes). Contrary to Keyes and Ramirez, the Court held that "commission wages may be based proportionately on the amount (number) of property or services sold by the employee." Slip op. at 11. In other words, defendant's compensation structure of $150 per car was based on the amount of product sold and constituted a commission.  

The opinion is available here.