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In good news for California employers, over the last two weeks, two more favorable decisions have been issued denying class certification in California wage and hour actions.  Yesterday, in Dailey v. Sears, Roebuck and Co., a California court held that class certification was properly denied in a case alleging certain Sears auto center managers and assistant managers were improperly classified as exempt and denied overtime compensation as well as proper meal and rest breaks.  The court held that substantial evidence supported the trial court’s finding that individual issues predominated over issues common to the class on each claim.  The plaintiff had argued that his theory for class treatment was that Sears uniformly classified the positions as exempt, and had uniform policies and procedures (including strict labor budgets) that effectively required the employees to spend the majority of their time on non-exempt work and to work at least 50 hours per week.  Plaintiff submitted a declaration stating that he spent the majority of his work time on non-exempt work, and submitted declarations of just 4 co-workers stating the same thing.  In contrast, Sears submitted declarations of 21 putative class members, each explaining that they regularly spent the majority of their work time on exempt, managerial tasks. 

The plaintiff argued that his evidence was sufficient to demonstrate that misclassification was widespread and that class certification should have been granted.  Plaintiff argued that individual issues effectively could be managed at trial through the use of representative sampling to determine both liability and damages, whereby a random sample of class members would testify to their work experience and from that testimony liability and damages determinations would be made and extrapolated to the rest of the class.  The court rejected Plaintiff’s arguments.  The court held that the existence of uniform classification policies and other uniform policies and procedures applicable to the class was not enough to support class treatment.  Rather, the proper focus is on the impact of those allegedly uniform policies on the class and how much time class members spent on exempt versus non-exempt tasks.  In this regard, the court determined that substantial evidence supported the trial court’s finding that Sears’ evidence showed that work experiences (and time spent on exempt versus non-exempt work) materially varied from employee to employee depending on a number of factors and that there were no uniform policies “commonly” dictating that the putative class members spend the majority of their time on non-exempt work.  As such, individual issues would predominate over any common issues, making class treatment inappropriate.

The same conclusion was reached with respect to Plaintiff’s meal and rest break claims.  The court held that there was no evidence of a uniform policy or practice depriving class members of meal or rest breaks, making class treatment inappropriate.

Regarding Plaintiff’s proposed sampling plan for managing individual issues, the court expressed its doubt as to whether the use of representative sampling is proper to determine liability (as opposed to damages), based on the United States Supreme Court’s ruling in Wal-Mart v. Dukes.  The court held that even if it is permissible to use sampling to determine liability in some cases, it was not appropriate in this particular case given the predominance of individual issues and lack of common experience among class members. 

In another recently issued decision, Wang v. Chinese Daily News, the Ninth Circuit overturned a judgment following jury and bench trial in favor of a certified class of newspaper employees alleging various wage and hour claims.  The case has quite a procedural history.  First, a California district court granted class certification in favor of the newspaper employees.  Second, the district court granted summary judgment in favor of the class, finding that they did not qualify for exempt status as a matter of law.  Following that order, the district court held a trial on damages that resulted in the class being awarded over $2.5 million in damages.  Chinese Daily News appealed the judgment to the Ninth Circuit, and the Ninth Circuit affirmed.  The Supreme Court granted review and later reversed the Ninth Circuit’s decision in light of Wal-Mart v. Dukes. 

On remand, the Ninth Circuit reversed the district court’s grant of class certification.  In light of Wal-Mart v. Dukes, the court held that class certification could not be maintained under Federal Rule of Civil Procedure 23(b)(2) because the class sought individualized monetary relief, which was not merely “incidental” to their request for injunctive relief.  The Plaintiffs actually conceded that class certification was improper under 23(b)(2).  However, this still left open the question as to whether class certification properly could be maintained under Rule 23(b)(3), which applies when a court determines that common issues predominate over any issues requiring individualized adjudication.  In this regard, the court remanded the issue to the district court to reconsider in light of Wal-Mart v. Dukes and the Ninth Circuit’s decision.  In providing guidance and direction to the district court to consider on remand, the Ninth Circuit emphasized that “commonality” does not exist simply because the claims raise “common questions” about the employer’s compliance with wage and hour laws.  “What matters to class certification is not the raising of common questions—even in droves—but rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”  The court held that commonality could not be established simply because the employer had a uniform classification policy.  The court further emphasized that “dissimilarities within the proposed class may impede the generation of common answers.”  As a result, the court emphasized that on remand “Plaintiffs must show significant proof that [CDN] operated under a general policy of [violating California labor laws]” in order for class certification to be warranted.

The Wang decision, like the Sears decision, also contains some positive guidance on the impropriety of using sampling at trial in the event a class is again certified on remand.  The court explained its view that the United States Supreme Court has disapproved of “trial by formula” whereby sampling is used to determine damages, which are then extrapolated to the rest of the class without further individualized proceedings.  The court emphasized that “employers are entitled to individualized determinations of each employee’s eligibility for monetary relief” and that “employers are also entitled to litigate any individual affirmative defenses they may have to class members’ claims.” 

This guidance from both a California court and the Ninth Circuit on the impropriety of sampling to determine liability and/or damages is good stuff for California employers defending wage and hour class actions.  Employers should of course be aware that further guidance on this important issue is expected from the California Supreme Court in Duran v. U.S. Bank, which is currently under review.

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Yesterday, the United States Supreme Court issued its decision in Standard Fire Ins. Co. v. Knowles, resolving a split of authority among the federal circuit courts as to whether a class action plaintiff filing in state court can prevent the defendant from removing the case to federal court under the Class Action Fairness Act (CAFA) by stipulating that plaintiff and the putative class will not seek damages in excess of $5 million (the jurisdictional minimum for CAFA removal).  Several circuits, including the Ninth Circuit (which governs California's federal courts) had ruled that a class action plaintiff could successfully avoid CAFA removal by signing a stipulation at the beginning of the case agreeing not to seek damages in excess of $5 million.  Other circuits had held that this practice was ineffective and could not be used to avoid removal under CAFA because a named plaintiff cannot bind absent class members in an uncertified class action.  As such, regardless of any stipulation by the named plaintiff to limit damages, a defendant could still remove under CAFA by demonstrating that the parties are diverse and that the amount in controversy is sufficient under CAFA.  Yesterday, in a unanimous decision authored by Justice Breyer, the United States Supreme Court in Knowles agreed with the latter view, thereby eliminating one forum shopping tool used by plaintiffs' class action lawyers to avoid federal court.  The Knowles decision overrules prior bad Ninth Circuit precedent to the contrary in Lowdermilk v. U.S. Bank National Association, which is good news for California employers.  The full opinion of the Supreme Court in Knowles is here.

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Following the California Supreme Court's long-awaited decision in Brinker last year, lower courts were left to resolve the numerous meal and rest break cases that had been held pending Brinker.  As we recently reported, a number of these cases have been favorably decided for California employers, with courts holding that class certification was improper on meal break claims due to the predominance of individual issues bearing on a determination of liability.  We reported on two of these specific cases, In re Lamps Plus Overtime Cases and Hernandez v. Chipotle here and here.  Following their losses, the plaintiffs in each of these cases petitioned for review to the Supreme Court.  Yesterday, the Supreme Court denied review but depublished both cases--suggesting that the Supreme Court did not agree with the court of appeals' analysis in some fashion.  This is unfavorable news for California employers and possibly an indicator that the highest court in this state will continue to view class certifcation standards in wage and hour cases with an employee-friendly eye.

In related  news, the California Supreme Court granted review yesterday of Reyes v. Liberman Broadcasting--another case addressing the enforceability of employment arbitration agreements and issues of FAA preemption (see our post here).  Review was granted on a "grant and hold" basis pending the Court's decision in Iskanian v. CLS (see our related posts here).  It appears the Court will continue to grant review on a grant and hold basis of cases dealing with these same issues until the lead case is decided.

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On Friday, the United States Supreme Court granted review in Oxford Health Plans, LLC v. Sutter, which presents the question of whether class wide or collective arbitration may be imposed where the parties' arbitration agreement is silent on the issue of class claims.  In the Oxford Health case, the Third Circuit upheld an arbitrator's determination that the arbitration agreement permitted claims to be resolved on a class basis in arbitration.  Many readers of this blog are probably scratching their heads reading this, thinking that the Supreme Court already resolved this issue (and favorably for employers) a couple of years ago in Stolt-Nielsen v. AnimalFeeds International.   Those thoughts are well taken.  In Stolt-Nielsen, the Supreme Court held that arbitration fundamentally is a matter of contract and that a party to an arbitration agreement could not be compelled to arbitrate claims on a class or collective basis "unless there is a contractual basis for concluding the parties agreed to do so."  In the Stolt-Nielsen case, the parties stipulated that their arbitration agreement was silent on the issue of class arbitration and that there was not any agreement to arbitrate on a class basis.  As such, the Supreme Court in that case did not analyze what contractual circumstances would be sufficient to conclude that the parties agreed to arbitrate on a class basis.   Since Stolt-Nielsen, a split has developed among the circuit courts, with the Second and Third Circuits holding that an agreement may be inferred from other language in the agreement, and the Fifth Circuit rejecting that reasoning and holding that there must be more explicit language authorizing class arbitration in order for an agreement to be found.  With its grant of review in the Oxford Health case, the Supreme Court is expected to resolve this conflict and provide more clarity in this oft-litigated area.

California employers should also be aware that the California Supreme Court has several cases pending review that address the enforceability of class action waivers in employment arbitration agreements in California.  Additionally, the NLRB's anti-class waiver decision in D.R. Horton is similarly pending review.  For now, employers should stay the course and continue including express class waiver language in their arbitration agreements pending further guidance from the courts in this unsettled area. 

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This week, a California court affirmed a victory for clothing retailer Wet Seal, who successfully defeated class certification on wage and hour claims for alleged failure to reimburse uniform expenses and alleged failure to compensate employees for expenses associated with using their personal vehicles to travel between store locations.  The plaintiff and proposed class of retail employees alleged that Wet Seal required employees to purchase and wear Wet Seal clothing at work, but failed to reimburse employees for the cost of this alleged "uniform."  The employees further alleged that Wet Seal at times required them to use their own cars to travel from one store location to another for meetings or other business reasons, but did not reimburse employees for mileage or other travel expense.  In seeking to have a class of some 12,000 employees certified, the plaintiff submitted declarations of several employees stating that they purchased Wet Seal clothing without being reimbursed and used their car to travel to stores without reimbursement.  In opposing the motion, Wet Seal presented its expense reimbursement and work attire policies, which on their face made very clear that employees are entitled to reimbursement for travel expenses in accordance with law and that employees are not required to purchase Wet Seal clothing but rather simply expected to dress in the fashion style of the store.  Wet Seal also offered employees a generous discount on the cost of store merchandise.  Wet Seal additionally presented declarations of numerous employees confirming that they understood they did not have to buy or wear Wet Seal clothing, and that they had submitted documentation of travel expense and been reimbursed in accordance with company policy.

In concluding that class certification was not appropriate on these claims, the court explained that Wet Seal's policies were facially lawful and thus could not supply the necessary "common policy" or "common method of proof" needed to support a determination of liability on a class wide basis.  Instead, a determination of liability would depend on individualized testimony of employees that, for example, their particular supervisor required them to purchase Wet Seal clothing and/or told them that they could not be reimbursed for travel expenses.  In the circumstances, any trial of liability would require numerous individualized inquiries, making class certification unmanageable and inappropriate.  The case is Morgan v. Wet Seal and the decision is here. 

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Continuing the trend of decisions finding class certification inappropiate for meal break claims in the post-Brinker climate, today another California court held that class certification was properly denied in a case alleging a California employer failed to provide its employees meal breaks.  This case was brought against Lamps Plus and alleged meal and rest break claims, as well as other claims du jour, such as inaccurate wage statements and failure to timely pay wages on termination of employment.  The plaintiffs moved for class certification and the trial court denied the motion, finding that class treatment was not appropriate given the predominance of individual issues bearing on a determination of liability.  The court of appeal agreed with the trial court, reasoning that Lamps Plus had compliant meal and rest break policies and that based on Brinker, Lamps Plus was not obligated to ensure employees complied with those policies for every single meal (or rest) break.  As such, the fact that employees may have taken short breaks on some occasions or skipped a break entirely on occasion, did not support class treatment because the individual reasons for missed or short breaks would need to be analyzed to determine if the employer was liable.  The case is Lamps Plus Overtime Cases and the decision is here.

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Last week, a California court held that class certification was properly denied in a case alleging the restaurant chain Chipotle failed to provide meal breaks to its employees.  In Hernandez v. Chipotle Mexican Grill, the plaintiff filed a putatitve class action alleging Chipotle failed to provide hourly workers with meal breaks.  The case was brought before the California Supreme Court decided Brinker and, as such, much of the dispute on class certification focused on whether Chipotle was required to ensure that meal breaks were taken or was simply required to provide employees the opportunity to take such breaks.  The plaintiff argued that Chipotle was required to ensure the breaks were taken and held that class certification was, therefore, appropriate based on evidence from time records revealing missed breaks or breaks less than 30 minutes in duration.  Chipotle argued that its obligation was only to provide the opportunity to take breaks and, thus, time records showing missed or short breaks were of little utility in analyzing liability.  Chipotle correctly argued that a determination of liability would require an individualized inquiry into why any particular employee missed a break or took a short break on any given day, making resolution on a class wide basis inappropriate.  This was particularly true on the facts of this case, given that Chipotle (unlke many employers) paid employees for meal break time, even though employees were relieved of duties and free to leave the premises if they wished.  Given that the time was paid, employees had little incentive to accurately record meal break times and there was evidence in the record that employees inaccurately recorded their breaks without correction.  The trial court agreed with Chipotle and denied class certification.

After the California Supreme Court granted review in Brinker, it similarly granted review on a grant and hold basis in Hernandez v. Chipotle (and many other cases whose outcome was premised on the extent of an employer's obligation to "provide" meal periods).  Of course, the Brinker Court ultimately held that employers need only provide employees the opportunity to take meal breaks, not ensure that they are actually taken.  After the Brinker decision was issued, the Supreme Court remanded all of the cases that had been granted review on a grant and hold basis, for reconsideration in light of Brinker.  On remand, the court in Hernandez v. Chipotle reached the same conclusion as it had previously--that class certification was properly denied on the meal break claim because a determination of liability would require a predmoninantly individualized inquiry as to why any meal break was missed on a given day.  The Hernandez v. Chipotle decision is here.

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Last week, another California court issued an employer-friendly decision compelling individual arbitration of a case brought as a wage and hour class action.  In Reyes v. Liberman Broadcasting, Inc., the plaintiff signed an arbitration agreement as a condition of his employment, agreeing to arbitrate any and all disputes arising out of the employment relationship, including wage claims.  Notwithstanding his agreement to arbitrate, the plaintiff later filed a putative class action in state court alleging various Labor Code violations.  The employer filed an answer to the complaint, failing to assert any defense that the claims were subject to arbitration.  The employer then proceeded to litigate the case in state court for about a year.  After the Supreme Court issued its decision in Concepcion in April 2011, breathing new life into the enforceability of employment arbitration agreements and class action waivers, the employer in this case decided to move to compel arbitration.  The trial court denied the motion, finding that the employer had waived the right to arbitrate.  The employer appealed.

The court of appeal reversed and held that the employer had not waived the right to arbitrate, despite having engaged in the litigation process for a year and not raising arbitration during that time.  The court reasoned that the employer's conduct in not raising arbitration pre-Concepcion was reasonable in light of the state of the law in California at the time.  Based on that law, the employer likely would not have prevailed on the motion and/or would have risked having an arbitration ordered on a classwide basis.  The court also reasoned that even though the litigation had been going on for a year, not much of substance had really occurred.  There were no dispositive motions and little discovery had actually been conducted.  Ultimately, the court found that there was no prejudice to the plaintiff in the one year delay in compelling arbitration. 

The court went beyond its finding of no waiver and addressed the enforceability of the arbitration agreement itself.  The court held that although the agreement did not include an express class action waiver, such a waiver had to be implied because of United States Supreme Court law (Stolt-Nielsen) making clear that class claims cannot be compelled to arbitration unless the parties to the agreement expressly agreed to arbitrate class claims.  The court then addressed the enforceability of the class waiver, finding it enforceable under Concepcion.   The court noted conflict among California state and federal courts on whether Concepcion preempts California's previous test (set forth in Gentry) for determining whether a class waiver in an employment arbitration agreement is enforceable.  The court held that in this case, the plaintiff had not made any showing why the agreement would fail under Gentry, even if Gentry is still good law.  As such, the court held that it did not need to decide whether Gentry is still good law.  The court held that under Gentry and Concepcion, the agreement was enforceable.

Finally, the court addressed the argument that the agreement was unenforceable under the NLRB's decision in D.R. Horton.  The court rejected this argument, holding (like other California courts) that the NLRB's reasoning in D.R. Horton was "unpersuasive." 

The Reyes decision is a favorable case for employers to cite in moving to compel arbitration in wage and hour class actions.  The decision is also a useful one for refuting arguments that the employer has waived the right to arbitrate by participating in state court litigation.  Employers are cautioned, however, that they should assert the right to arbitrate at the earliest opportunity (e.g. as an affirmative defense in the answer to the civil complaint) and avoid conduct inconsistent with the right to arbitrate, to prevent the possiblity of a finding of waiver.

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California employers were provided a helpful ruling from the California Supreme Court late last year when it issued its decision in Harris v. Superior Court (Liberty Mutual), rejecting the oft-cited administrative/production worker dichotomy as a dispositive test for determining whether employees qualify for the administrative exemption.  The court of appeal had held that insurance company claims adjusters were "production" employees who did not advise on general policies or business operations of the employer, but rather merely carried out the day to day affairs of the business and, as such, could not qualify for the administrative exemption from overtime pay.  The California Supreme Court reversed, holding that the court of appeal erred in focusing so heavily on the production worker dichotomy as a dispositive test for excluding application of the exemption.  The Court held that the adjusters' duties (as opposed to their general "production" role within the company) had to be examined to assess applicability of the exemption.  Notably, the Court cited with approval federal regulations and caselaw suggesting that the exemption may well apply to certain employees, such as claims adjusters, involved in servicing the employer's business.  The Court also disapproved of the reasoning of certain cases finding that adjusters did not qualify for the administrative exemption based on the fact that adjusters service the business rather than advising management on policies or general operations.  The Supreme Court did not go so far as to decide whether the exemption applied to the adjusters at issue in the case, but instead remanded the case back to the court of appeal to undertake an appropriate examination and revisit whether the administrative exemption applied to the claims adjusters at issue (bearing in mind the guidance and direction of the Supreme Court on the proper focus for the analysis). 

Yesterday, the court of appeal issued its decision on remand, surprisingly finding that the adjusters as a whole group (including 39 job classifications of adjusters working for at least two companies in three different lines of business) did not qualify for the administrative exemption as a matter of law.  The court's reasoning again focused on the "production" nature of the adjusters' work, with a slight twist.  The court explained that it was following Supreme Court guidance by not focusing on the adjusters' production "role," but was instead focusing on the adjusters' "duties," which it viewed as production duties and hence non-exempt.  The court held that adjusting individual claims is just carrying out the day to day production work of the company and does not involve advising management on policies or general business operations, much less formulating such policies or operational strategies on their own.  The court acknowledged that the adjusters at issue had varying levels of responsibility and authority (some with authority to settle claims for $100,000 while others had lesser authority of $40,000, and some advised management on certain policies while others did not), but the court dismissed these differences as immaterial to the exemption analysis.  The court reasoned that regardless of the amount of their authority, all adjusters' duties were to adjust individual claims and that simply is not "administrative" work at the level of policy or general operations.  Furthermore, even though some adjusters may have advised management some of the time, which might qualify as administrative work, they would have to engage in this work the majority of their work time in order to qualify for the administrative exemption.

So, what about the federal regulations and caselaw cited with approval by the California Supreme Court, suggesting adjusters may well qualify for the exemption?  As noted, one federal regulation specifically cites claims adjusters as an example of the type of service employee who may qualify for exemption.  Similarly, the Supreme Court cited with approval a Ninth Circuit case (Miller v. Farmers Insurance) holding that adjusters were exempt based on their duties of interviewing witnesses, determining coverage and value of claims, determining fault, and negotiating settlements.  The Supreme Court also noted that many other federal cases are in accord with Miller and that these cases are "instructive."   Well, notwithstanding the fairly clear import of the Supreme Court's statements, the court of appeal on remand simply dismissed all of this authority as "not persuasive."

The court of appeal's decision on remand in Harris is a very unfavorable one for California employers, given the court's very narrow interpretation of the administrative exemption.  Stay tuned for yet another likely petition for review to the California Supreme Court.  Our prior post on the Supreme Court's decision in Harris is here.  The court of appeal's decision on remand is here.

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Yesterday, in Nelsen v. Legacy Partners, another California court followed the lead of the recent decision in Iskanian v. CLS, enforcing an employment arbitration agreement notwithstanding that it precluded class wide relief for alleged wage and hour violations.  Interestingly, the agreement at issue in Nelsen was silent on whether class claims could be pursued in arbitration.  However, following Supreme Court precedent (Stolt-Nielsen), the Nelsen court held that because arbitration is a matter of contract, a party cannot be required to arbitrate claims it has not expressly agreed to arbitrate.  Silence on the issue of class claims could not be interpreted as the employer's express agreement to arbitrate class claims.  As a result, the court held that Nelsen had to pursue her claims individually in arbitration. 

The court also rejected the employee's argument that the implicit class waiver was unconscionable under California law (Gentry).  The court refused to decide whether Gentry is preempted by Concepcion, instead finding that even if Gentry is still good law, the employee made no factual showing as to why the class waiver would be found unconscionable under the factors set forth by the California Supreme Court in Gentry.  The court also rejected the employee's argument that the implicit class waiver was unenforceable under the NLRB's decision in D.R. Horton.  The court essentially rejected the NLRB's analysis and further found that the NLRA did not even apply to Nelsen because she was a supervisor. 

Finally, the court rejected Nelsen's argument that her claim for injunctive relief under Business and Professions Code section 17200 was exempt from arbitration.  The court held that Concepcion makes clear that the FAA preempts laws that exempt certain claims from arbitration.  The Nelsen v. Legacy Partners decision is available here.