CDF Attorneys Convince Court to Invalidate Use of Representative Testimony in Class Action Trial

share print

CDF is pleased to report its recent victory in Duran v. U.S. Bank, a seminal decision striking down the use of statistical sampling and representative testimony to establish liability and restitution in a class action trial involving claims of alleged misclassification and unpaid overtime.  Reversing a $15 million judgment awarded to a class of business banking officers (BBOs), the court held that the trial court’s use of statistical sampling and representative testimony to extrapolate liability and restitution from a sample group of 21 witnesses to a class of 260 bankers violated U.S. Bank’s constitutional due process rights.  The court held that this trial plan improperly prevented U.S. Bank from presenting relevant evidence to contest classwide liability and to challenge the claims of individual class members outside of the sample.  The court also held the trial court erred in focusing on U.S. Bank’s policies and uniform exempt classification in maintaining class treatment.  Because the validity of each class member’s exempt misclassification claim required individual analysis, class treatment was improper and unmanageable.  As a result, the court, in addition to reversing the judgment, ordered that the class had to be decertified.  This case is significant because it is the first known California appellate decision reviewing a trial verdict in an overtime misclassification case, where the trial court employed one of the purported “innovative procedural tools” (statistical sampling) to manage class action trials referenced by the California Supreme Court in Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 339 (2004).  The Court stated that “while innovation is to be encouraged, the rights of the parties may not be sacrificed for the sake of expediency.”  

Background

This case was originally filed as a putative class action alleging claims of misclassification brought under various provisions of the California Labor Code, as well as conversion and unfair competition under Business & Professions Code § 17200 (the “UCL” claim).  U.S. Bank claimed that the BBOs were properly classified under the administrative exemption, commissioned salesperson exemption, and outside sales exemption.  In opposing class certification, U.S. Bank argued that individual issues predominated as shown by the declarations of over 70 putative class members, in addition to deposition testimony of the four prior named class representatives, who all stated under oath that they spent a majority of their time outside U.S. Bank premises, and were therefore properly classified as exempt.  After certifying the class, the trial court granted Plaintiffs’ motion for summary adjudication as to the administrative and commissioned salesperson exemptions.  Just months before trial, Plaintiffs dismissed their legal claims and proceeded to a bench trial only on the equitable UCL claim that was premised on the alleged Labor Code violations and U.S. Bank’s defense based on the outside salesperson exemption. 

The “Fatally Flawed” Trial Plan Violated U.S. Bank’s Due Process Rights

Although the trial court requested briefing and proposals from both parties as to an appropriate trial management plan, it ultimately decided to implement a trial plan that was neither proposed by the parties nor endorsed by their experts.  Over U.S. Bank’s objections, the trial court determined that it would take a random sample of 20 class members (drawn out of a “hat”) plus the two named plaintiffs to testify at trial to determine both classwide liability and damages.  The trial court also selected 5 class members as “alternates” in case any of the 20 originally drawn class members were unavailable.  After this random witness group (“RWG”) was selected, however, the trial court ordered a second opt-out notice to be sent to the class because Plaintiffs had chosen to dismiss their legal claims.  U.S. Bank argued that any member of the RWG group that opted out after receiving the second opt-out notice should be required to provide deposition and trial testimony to maintain the integrity of the original sample and ensure statistical reliability of the  extrapolation process.  Four of the 20 class members (or 20%) of the RWG opted out, while only 5 of the remaining 250 (or 2%) absent class members opted out.  Notwithstanding the disproportionately higher opt-out rate among the RWG, the trial court denied U.S. Bank’s motion to allow two of the RWG witnesses to opt back into the class.  When those witnesses were later called to testify by U.S. Bank as to their percipient knowledge of other RWG members, they were precluded from testifying as to their own BBO experiences.

Consistent with its determination that the trial plan only allowed for testimony and evidentiary submissions regarding the RWG, the trial court steadfastly rejected U.S. Bank’s repeated attempts to introduce relevant evidence from absent class members outside of the RWG, including sworn deposition testimony and declarations from nearly one-third of the class (including that of the four prior named class representatives) indicating they spent a majority of their time outside of their offices and were therefore properly classified as exempt.  At the conclusion of the liability phase, the trial court concluded that the two plaintiffs and all 19 class members in the RWG were misclassified (one RWG member failed to appear at trial and was then treated as an absent class member) and therefore extrapolated those liability findings to conclude that all 260 members of the class were misclassified.  In Phase II of the trial, the trial court accepted Plaintiffs’ experts’ testimony that concluded, using the testimony provided by the RWG and the two named plaintiffs, at a 95% confidence level, that the class members worked an average of 11.87 hours of overtime per week, with a margin of error of 5.14 hours or 43.3%.  This “average” hours of weekly overtime was then extrapolated to the remaining 239 absent class members.

The Court of Appeal found the lower court’s trial methodology to be both legally unprecedented and statistically unsound.  The court was extremely troubled that U.S. Bank was “hobbled” in its ability to prove its affirmative defense not only as to individual absent class members but as to classwide liability because it was “prohibited from introducing evidence pertaining to any non-RWG members, evidence that arguably would have shown some class members were either properly classified or did not work overtime.”  The trial court’s blind adherence to its trial plan sacrificed “fair and accessible justice” for convenience and efficiency. The court noted that neither state nor federal law supported the use of statistical sampling or representative evidence to determine liability in a misclassification case where time spent performing exempt duties may differ between employees.  Experts from both sides agree that, statistically speaking, even if 21 out of the 21 testifying class members were found to be misclassified, up to 13% of the class could nonetheless be properly classified.  Hence, there is no statistical basis to conclude that 100% of the class is misclassified based on a fact-finding process involving only a small sample of class members.  The court explained that using statistics to determine classwide liability in a misclassification case is problematic because a certified class that included both injured and uninjured class members would necessarily require individual mini-trials to determine which class members fell in which category.

Significantly, the court stated that  “due process principles require individualized inquiries where the applicability of an exemption turns on the specific circumstances of each employee, even in cases where the employer’s misclassification may be willful.”  The court distinguished this case from Bell v. Farmers Insurance, 115 Cal.App.4th 715 (2004) (Bell III), where this same court had approved the use of statistical sampling to determine classwide damages.  The trial court in Bell III had conducted an appropriate pilot study to determine an appropriate sample size and desired margin of error at the outset.  Importantly, both parties’ experts largely agreed on the sampling methodology and proposed margin of error.  In contrast, the trial court in Duran committed a number of errors in its unscientific and inconsistent use of statistics in its trial plan, including arbitrarily using a 20-member sample group without any surveys or pilot studies, permitting selection bias by allowing randomly selected members to opt out and for including the two non-randomly selected class representatives in its sample, arbitrarily using a mid-point to determine average work hours for class members who provided a range of hours worked, and failing to extrapolate results unfavorable to Plaintiffs (such as a RWG member signing a release that prevented him from personal recovery, or that a RWG member was properly classified for two weeks of his employment).  These and other errors resulted in a statistically invalid and inaccurate judgment, as evidenced by the 43.3% margin of error associated with the 11.87 “average” overtime hours worked.  This meant that the overtime hours worked by class members could range anywhere from 6.73 hours to 17 hours per week.  Using the low end of this margin of error meant that the $15 million judgment awarded to the class could actually be half as much and still fall within the undisputed margin of error.  While the court again declined to issue a bright-line rule as to an unconstitutional level of inaccuracy, it noted its consistent rejection of results containing a large margin of error, such as 32% in Bell III’s calculation of double-time damages, and 43.3% in Duran.

In concluding that the multitude of errors committed by the trial court resulted in serious due process violations, the Court of Appeal found persuasive the reasoning and analysis laid out in the recent U.S. Supreme Court opinion in Wal-Mart Stores v. Dukes, which had rejected a similar “trial by formula” theory advanced by plaintiffs to determine liability and damages from a sample group to the class as a whole in a gender discrimination class action.  The Court’s parallel reasoning and analysis of Dukes dispels any contention that the holding in Dukes would be limited to federal cases or discrimination claims.

Individual Analysis Required to Determine Exempt Classification Compels Decertification

The court acknowledged that Sav-On held there was not a requirement that “courts assess an employer’s affirmative exemption defense against every class member’s claim before certifying an overtime class action,” but concluded this passage does not apply to the trial phase of a class action lawsuit.  In so doing, the Duran court addressed the problem frequently ignored by many trial courts that certified class actions with no indication as to how a class action trial would be properly managed that comported with a defendant’s due process rights.  The court concluded that the evidence at trial showed that because BBOs were not monitored or tracked in any way, the “only way to determine with certainty if an individual BBO spent more time inside or outside the office would be to question him or her individually.”  The court held that the trial court erred in failing to grant U.S. Bank’s second motion to decertify at the close of the liability phase of trial because it erroneously relied on U.S. Bank’s policies (primarily its uniform classification of BBOs as exempt) and ignored variances in admissible evidence that “cast serious doubts as to the prevalence of common issues affecting liability.” 

This case is a welcome development to California employers that have been besieged with wage-and-hour class actions in the last decade.  It calls into question the viability of using statistical sampling and representative testimony in misclassification cases where a proper exemption inquiry turns on an individual analysis.  It also forces trial courts to carefully consider trial management issues and due process arguments that have been largely ignored at the class certification stage.  The entirety of the Duran opinion can be read here.

CDF represented U.S. Bank during the entire pendency of the case at the trial court level and on appeal.

California Supreme Court Issues Long Awaited Administrative Exemption Decision

share print

Today the California Supreme Court issued its decision in Harris v. Superior Court (Liberty Mutual Insurance Co.), a case addressing whether insurance claims adjusters qualify for the administrative exemption under California law.  The Court's decision focused solely on the issue of the "administrative/production worker dichotomy" and whether employees who fall on the "production" side can qualify for the administrative exemption.  [By way of background, the administrative/production worker dichotomy is a doctrine whereby the court looks at the employee's duties as compared to the business of the employer.  If the employee's work centers on "producing" the product or service the company chiefly exists to provide, then the employee is a production worker.  Thus, in the insurance context, if the company is solely in the business of adjusting claims, the claims handlers who provide that very service are production workers.]  The lower court held that because the claims adjusters at issue serviced individual claims and did not provide advice on general policies or operations of the company, they were production workers and could not qualify for the administrative exemption as a matter of law. 

Today, the California Supreme Court reversed, holding that the lower court erred in applying the administrative/production worker dichotomy so simplistically and using it to hold that claims adjusters were non-exempt as a matter of law.  The Court did not go so far as to eliminate the administrative/production worker analysis, but made clear that this analysis was not dispositive of whether an employee qualifies for the administrative exemption.  The Court emphasized that this was the error of the lower court.  The lower court relied heavily on an earlier decision, Bell v. Farmer's Insurance Exchange, which had similarly applied the administrative/production worker dichotomy to find that claims adjusters were non-exempt production workers.   The Supreme Court today held that the lower court's reliance on Bell was misplaced, given that the Bell case dealt with an older version of the applicable Wage Order--a version that provided very little guidance on the meaning of an administrative employee, justifying the court in that case in resorting to guidance outside the Wage Order (such as caselaw and opinion letters on the administrative/production worker dichotomy) to interpret the exemption.  In contrast, in this case, the applicable Wage Order (4-2001) contains much more explanation of the administrative exemption and also specifically incorporated several federal regulations interpreting the exemption.  As such, the starting point for analyzing the exemption should simply be the express language of the Wage Order and referenced regulations, and not the judicially created administrative/production worker dichotomy.  Notably, the Court declined to decide whether the claims adjusters at issue actually qualified for the administrative exemption.  However, the Court cited with approval several federal cases finding claims adjusters to be administratively exempt.  The Court noted that an employee's role in "servicing" a company, such as a claims adjuster does, may well be exempt if sufficiently important and the employee's duties involve the regular use of discretion and independent judgment.  The Court suggested that an employee does not have to advise the company on its overall policies or operations in order to meet the test for exemption.  Nonetheless, the Court made clear that its ruling was limited to holding that the lower court erred in finding that the "production" worker analysis barred exempt status as a matter of law.  The Court held that the trial court on remand would have to undertake a factually intensive analysis of the claims adjusters' actual duties (regardless of whether deemed "production" duties) and determine whether they meet the test for exemption as defined in the Wage Order and the regulations incorporated therein.

The Court's decision in Harris is a positive one in that it limits both the application and importance of the administrative/production worker dichotomy--a doctrine that has been used by many courts to find employees did not qualify for the administrative exemption.  However, the Court's decision falls short in providing much specific guidance (and certainly not any bright lines) on how to define or apply the administrative exemption.  It seems clear that determination of exempt status will continue to necessitate an individualized fact-intensive inquiry based on the circumstances involved in any particular case.  The full text of the Harris case is available here. 

Court Favorably Resolves Claims for Reporting Time and Split Shift Pay

share print

This week, a California court summarily adjudicated claims for reporting time pay and split shift pay brought by former employees of AirTouch Cellular.  The employees claimed that AirTouch owed them reporting time pay for having to show up to scheduled meetings that were less than 2 hours long.  The employees also claimed that AirTouch failed to pay them split shift pay on days when they worked split shifts.  The trial court threw out the claims and awarded attorneys' fees to AirTouch under Labor Code section 218.5.  A California appellate court agreed with the trial court's rulings on the reporting time and split shift claims, but reversed the award of attorneys' fees.

As for the reporting time pay claim, the facts were undisputed that on certain occasions the employees were required to attend scheduled meetings that were less than two hours in length, and that was their entire "work" for the day.  The plaintiffs claimed that California's wage orders required AirTouch to pay them for a minimum of two hours as reporting time pay.  The court disagreed, holding that reporting time pay is only required where an employee is furnished with less than half the scheduled day's work.  Because the employees' scheduled day was two hours or less, as long as the employees were furnished and paid for at least half of that time, no additional reporting time pay was owed.

As for the split shift claim, the facts were similarly undisputed that the employees on occasion worked a split shift.  However, the parties disputed whether a split shift premium was owed in the circumstances.  California's wage orders state as follows:  "When an employee works a split shift, one hour's pay at the minimum wage shall be paid in addition to the minimum wage for that workday..."  AirTouch's position was that because the employees' regular wages were well over the minimum wage, they were paid more than the minimum wage for all hours worked plus one additional hour and, as a result, there was no requirement to pay an additional split shift premium.  The court agreed, endorsing the following example: 

"As an example, on November 26, 2005, Krofta worked a total of eight hours.  Because he was making $10.58 per hour at the time, he was paid a total of $84.64 (8 x $10.58).  The minimum wage at the time was $6.75, so a minimum wage worker would be paid wages of $54 (8 x $6.75) plus, pursuant to subdivision 4(C), one additional ―hour‘s pay at the minimum wage, for a total of $60.75 ($54 + $6.75).  AirTouch contended that since subdivision 4(C) by itself required no greater payment for the workday than $60.75, the pay for an employee who earned more than that amount (like Krofta) would not be affected.  We agree that this analysis, which was followed by the trial court, is correct."

The court's analysis of these split shift and reporting time pay issues is favorable for California employers confronting these claims.  Notably, the court also issued a favorable ruling on the validity of another employee's release of claims.  The employe had signed a general release in favor of AirTouch and AirTouch argued that the release barred the employee's claims for reporting time and split shift pay.  The employee argued that Labor Code section 206.5 invalidated the release.  The court disagreed, holding that Labor Code section 206.5 only invalidates a release of wage claims where the entitlement to wages is undisputed.  Because the employee's reporting time and split shift claims were far from conceded by AirTouch, the claims were in dispute and could be included in the scope of an otherwise valid general release.

While the court issued favorable rulings on the foregoing issues, the court also issued an unfavorable ruling on the issue of an employer's ability to recover attorneys' fees for defeating a wage claim.  The trial court had awarded AirTouch its attorneys' fees under Labor Code section 218.5's fee shifting provision.  The appellate court reversed, holding that section 218.5 did not apply and that claims for reporting time pay and split shift pay fall under Labor Code section 1194 (which applies to actions to recover minimum wage and overtime compensation).  Because Labor Code section 1194 has a one-way fee shifting provision (entitling only a prevailing employee to recover fees and not a prevailing employer), the court held that AirTouch was not entitled to recover its fees. 

This author predicts more litigation and court decisions regarding all of these issues addressed by the court in the AirTouch case.  We will continue to keep you posted of such developments.  In the meantime, the Aleman v. AirTouch case is available here. 

Class Waiver Upheld by California Court Post-AT&T v Concepcion

share print

A California court ruled yesterday that a class waiver in an employment arbitration agreement was enforceable in a wage and hour putative class action. This is the first published California decision addressing the issue since the United States Supreme Court issued its decision in AT&T Mobility v. Concepcion and held that the Federal Arbitration Act preempts state unconscionability rules interfering with enforceability of arbitration agreements.

In Brown v. Ralphs Grocery Co., the court addressed whether plaintiffs, who sought to represent a class of current and former employees suing for various wage and hour violations, could be compelled to arbitrate their claims on an individual basis as a result of a class action and representative action waiver in the company's arbitration agreement. Importantly, the plaintiffs alleged claims for violation of various Labor Code provisions, a piggy back claim for violation of the unfair competition law, and a representative action under PAGA. In passing on the enforceability of the class action waiver, the court applied the framework for enforceability set forth by the California Supreme Court in Gentry. The court held that Gentry requires the plaintiffs seeking to avoid the class action ban to make an evidentiary showing under Gentry as to why enforcing the class waiver would amount to a waiver of statutory rights. The court took the easy way out and held that the plaintiffs had failed to make any evidentiary showing upon which the court could find the class waiver to result in a waiver of statutory rights. On this basis, the court held that the class action waiver was not unenforceable. The court refused to decide whether AT&T v Concepcion separately mandated a finding of enforceability of the class action waiver based on preemption by the FAA. The court essentially punted the issue, though dropping an interesting parenthetical hinting its belief that had plaintiffs satisfied the Gentry standards, AT&T might not require preemption and enforceability because Gentry is concerned with waiver of statutory rights and not just unconscionability, which was the focus of the AT&T case. (In this author's opinion, this type of effort to distinguish Gentry from AT&T Mobility is a stretch.)

Although the court held that the class action waiver was enforceable as to the class claims, the court decided differently as to the PAGA claim, which is a "representative" claim, not a class claim. As to that claim, the court held that the arbitration agreement's ban on representative actions was not enforceable and that AT&T Mobility v. Concepcion did not apply to this type of waiver. The court relied on the intent behind PAGA to essentially allow private enforcement actions to be maintained without satisfying class certification requirements, with the goal of furthering enforcement of state wage and hour laws. The court held that AT&T Mobility applies to consumer cases brought as class actions and not to private enforcement actions. The result? Expect wage and hour cases to universally include PAGA claims going forward, in an effort to thwart preclusion of pursuit of classwide relief.

Stay tuned for more developments in this arena, which will surely be the subject of much litigation in the coming year.

Unlicensed Accountants May Qualify for Overtime Exemptions

share print

In Campbell v. PricewaterhouseCoopers (PwC),plaintiffs, a classof some2,000unlicensed junior accountants, sued their employer under California law for alleged unpaid overtime wages. Plaintiffs filed a motion for summary judgment,asking the court to find, as a matter of law, thatplaintiffs wereentitled to overtime compensation as they did not qualify for any overtime exemption. PwC opposed the motion,arguing that there weretriable issues of fact and that the plaintiffsqualified for theprofessional and/oradministrative exemptions. Thedistrictcourt disagreed, holding that unlicensed accountants are categoricallyineligible forthe professional exemption and thatthere was insufficient evidence to support a finding that they met the administrative exemption.

The Ninth Circuit disagreed.With respect to the professional exemption, the court held thatunlicensed accountants are not categoricallyineligible forthe exemptionsimplybecause of their unlicensed status.The court held that unlicensed accountants mayqualify as "learned professionals." The court did not go so far as to holdthat the plaintiffs in this case actually qualifiedfor the exemption asa matter of law, but rather held that the plaintiffs, orsome of them, could qualify depending on their actual job duties and thus the district court had erred in ruling that no unlicensed accountant could qualifyfor the professional exemption inany circumstance. According to the court, such a holding "ignore[s] the potential for substantial variance [in job duties] from one unlicensed accountant to another."The courtemphasizedthat "[e]ach case will require afact-specific inquiry into whether the unlicensed accountant meets the subsection's various benchmarks--e.g.,engaging in work that is 'predominantly intellectual and varied in character." The court held that the evidencebefore it revealed significant differences in skill level, responsibility and experience among theclass member accountants.

With respect to the administrative exemption, the court similarly concluded that PwC had demonstrated a triable issue of fact regarding the plaintiffs' actualjob duties and whether they met the test for the exemption.The court specifically noted conflicting evidence on the issues of whether plaintiffs performed work under only general supervision and whether their work was of substantial importance to their employer's clients. The court heldthat these factual issues had to be decided by a jury and that the districtcourt had erred in deciding, as a matter of law, that the unlicensed accountants did not qualify forthe administrative exemption.

The Ninth Circuit's decisionis a favorable one for California employers, both on thescope of the professionaland administrative exemptions, and for purposesof trying to defeat class certification given the substantial focus of thedecision on the need toindividually examine whether a particular employee qualifies forexempt status based on a review of the employee's actual job duties and how the employee spends his or her time.

Supreme Court Reverses Class Certification in Dukes v. Wal-Mart

share print

Today the United States Supreme Court handed down its decision in Dukes v. Wal-Mart, holding that discrimination claims on behalf of some 1.5 million female Wal-Mart employees could not properly be pursued as a class action. The case challenges Wal-Mart's promotion and pay practices. Pay and promotion decisions are generally committed to the discretion of local managers, whom the plaintiffs claim exercise that discretion in a manner that favors male employees. The U.S. District Court of the Northern District of California certified the case as a class action, and the Ninth Circuit substantially affirmed. Today the Supreme Court reversed the Ninth Circuit's ruling and found that class treatment was not appropriate. Justice Scalia delivered the opinion of the Court.

In holding that class treatment was not appropriate, the Court began with the requirement set forth in Federal Rule of Civil Procedure 23 (a)(2) that in order for a class to be maintained, there must be questions of fact or law that are common to the class. The Court explained that"commonality" requires the plaintiff to demonstrate that class members have suffered the same injury, and that this injury depends upon a "common contention--for example, the assertion of discriminatory bias on the part of the same supervisor."The Court further explained: "That common contention, moreover, must be of such a nature that it is capable of class wide resolution--which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." According to the Court, what matters to class certification is not the mere existence of common questions, but rather "the capability of a class wide proceeding to generate common answers apt to drive the resolution of the litigation."Dissimilarities among proposed class members may preclude such common answers.

Addressing the specifics of the class before it, the Court noted that the plaintiffs seek to sue"about literally millions of employment decisions at once." "Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members' claims for relief will produce a common answer to the crucial question why was I disfavored?" The Court explained that in discrimination cases, this generally requires a showing of a discriminatory policy or practice of discrimination, e.g. use of a biased testing procedure. The Court held that there was no such evidence of a company wide policy or practice of discrimination on the part of Wal-Mart. Instead, the evidence showed that Wal-Mart allowed local managers to exercise subjective discretion over pay and promotions, which is the exact opposite of a uniform policy or practice. The Court reasoned that one manager's discretion may not be exercised using the same criteria or reasoning as any other manager, and the reasoning behind the decision-making is the crux of proving discrimination. As such,a class proceeding would not generate "common answers"applicable to the whole class.

The Court separately addressed the plaintiffs' contention that a class could be certified under Rule 23(b)(2) because the plaintiffs sought injunctive and declaratory relief against Wal-Mart and their claims for back pay were, according to plaintiffs, "incidental" to their request for injunctive relief.A unanimous Court rejected this argument, holding that claims for individual monetary relief such as those before the Court, could not be certified under the injunctive relief provisions of 23(b)(2).

Today's Dukes v. Wal-Mart decision is a positive development for employers fighting employment claims sought to be pursued as class actions.

Another California Court Says Meal Breaks Must Be Provided, Not Ensured

share print

As California employers continue to await the California Supreme Court's decision in Brinker regarding the extent of an employer's obligation to "provide" mealbreaks to employees, another court has decided the issue favorably for employers. In Flores v. Lamps Plus, Inc., a California court of appeal held that class certification was properly denied in a case alleging meal and rest break violations on behalf of a putative class of some 2,600 employees across the state. Citing to numerous federal cases, the court held that California law does not require employers to ensure meal breaks are taken, but rather requires employers to provide employees the opportunity to take them. Based on this standard, the court held that individual issues predominated as to why any particular employee may have missed meal and/or rest breaks. As such, class treatment was inappropriate. The court similarly held that class treatment was inappropriate for the plaintiffs' other claims, including failure to provide accurate wage statements, off the clock work, and failure to timely pay wages on termination of employment.

The court also held that a stay of the proceedings (including ruling on class certification) was properly denied, nothwithstanding the pendency of the Brinker decision before the California Supreme Court. The Lamps Plus case is another positive case for employers as we continue to await a definitive determination on meal break requirements from the state's high court.

US Supreme Court Gives New Life to Class Action Waivers in Arbitration Agreements

share print

There has been substantial litigation in California over the enforceability of class action waivers in consumer arbitration agreements and in employment arbitration agreements. California courts, including the California Supreme Court, have invalidated these class action waivers based on a finding that they are unconscionable and unenforceable under California contract law.Yesterday, the United States Supreme Court, in a 5-4 decision authored byJustice Scalia,dealt a swift blow to this California jurisprudence andheld that the Federal Arbitration Act (FAA) preempts California law that interferes withtheFAA's purpose of promoting arbitration.

The case, AT&T Mobilityv. Concepcion, is not an employment case but a consumer case involvingthe propriety of sales taxcharged by AT&T to consumers for "free" phones. AT&T's customers signed contracts including an agreement to arbitrate any and all disputes.The agreement required that any dispute be pursued individually and prohibited class claims. Theplaintiffs in the case had sought to pursue a class action against AT&T regardingthe allegedly impropercharges. AT&Tmovedto compel arbitration.Thetrial court denied AT&T's motion, finding the arbitration agreementand in particular, theclass actionwaiver, unconscionable and unenforceable under Californialaw.AT&T appealed to the Ninth Circuit,but the NinthCircuit affirmed, agreeing the provision was unconscionable. Both courts relied onCalifornia Supreme Court precedent startingwith a case called Discover Bank, in which the Court explained the circumstances in which classwaivers in consumerarbitration agreementswould be deemed unconscionable. AT&T petitioned for review by the United Stated Supreme Court.

Yesterday, the Supreme Court handed down its decision, reversing the Ninth Circuit and holding that the FAA preempts California law insofar as the law operates to interfere with the purpose of the FAA, which is to promote arbitration as a streamlined procedure for resolving disputes. The Court held that the operation of California law to void the class action waiver in AT&T's contract nullified the parties' agreement to arbitrate and ran afoul of the FAA. The Court held that the FAA requires arbitration agreements to be enforced according to their terms and on the same footing as any other type of contract. The Court explained that defenses to enforceability (fraud,duress, unconscionability)still existbut may not be applied in a manner so as to discriminate against the type of contract at hand. The Courtsuggested that California courts have applied the doctrine of "unconscionability" to disfavor arbitration agreements and avoid their enforcement, contrary to the FAA.

The Court further explained that the FAA permits parties to agree to limit the types of issues to be arbitrated, including limiting class or collective claims, to further the arbitral goal of providing an efficient, streamlined procedure for resolution of disputes. The Court further stated that any rule, like California's,"[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."

So what does this mean for California employers? As noted, the AT&T case is not an employment case and did not involve the enforceability of a class action waiver in an employment arbitration agreement. That said, the Court's reasoning should apply equally to the enforceability of class action waivers in employment arbitration agreements. This will no doubt be more definitively determined in other cases in the near future. In the meantime, employers continuing to battle the cottage industry of wage and hour class actions in California should certainly revisit their arbitration agreements and ensure that a class action waiver is included. These provisions stand much greater likelihood of enforceability in the wake of the AT&T decision. Employers are cautioned, however, that the AT&T case does NOT hold that all California unconscionability standards relating to arbitration agreements are preempted by the FAA. It is likely that the scope of preemptionwill be the subject of much litigation to come, with the focus being whether the standards are applied or operate inamanner that frustrates thepurpose of the FAA.For now,employers should continue to ensure that their arbitration agreements meet general standards of fairness for employment disputes, generally prescribed by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services.

Class Certification Properly Denied in Overtime Exemption Case

share print

Trial courts are given significant discretion to determine whether class treatment is appropriate in wage and hour cases. Last week, one California appeals court upheld a trial court's determination that class treatment was not appropriate in a case alleging that a retail chain misclassified its store managers as exempt from overtime compensation requirements. In Mora v. Big Lots Stores, Inc., the plaintiffs worked as store managers in various Big Lots stores throughout California. They sued Big Lots alleging their employer misclassified them as exempt employees to avoid payment of overtime compensation (among other related claims).The plaintiffs sought to sue as a class on behalf of all store managers throughout California. Their primary argument in favor of class treatment was that Big Lots uniformly classified all of the managers as exempt and utilized the same job description and work rules for all managers, with no attention paid to how any individual manager actually spent his or her work time. Big Lots presented evidence that even though its managers were uniformly classified as exempt, the amount of time the managers spent on various job duties (exempt versus non-exempt) varied widely depending on a number of factors, including number of employees, store volume, season, etc.

The trial court denied class certification, finding that the evidence presented by Big Lots (declarations from store managers as well as an expert study based on observation of randomly selected managers in various storesperforming their job duties) showed that the actual time spent on exempt and non-exempt job duties materially varied from one manager to the next, such that common issues could not be said to predominate, making class treatment unmanageable and inappropriate. Notably, the court devalued the evidence (declarations) submitted by the plaintiffs in support of class certification, based on the fact that the declarations were largely boilerplate and there was significant evidence of discrepancies between the declarations and deposition testimony by the same individuals.

On appeal, the court upheld the trial court's ruling, largely based on the deferential standard of review allowing the trial court wide discretion in deciding whether to allow class treatment. The Big Lots case is a favorable decision for California employers fighting the continued cottage industry of wage and hour class actions in this state. The case provides further authority for the position that the lawfulness of exemptclassification requires an individualized analysis of how an employee spends his or her time, and the mere fact that a class of employees is classified as exempt and given the same job description does not end the inquiry.

Court Follows Logic of Brinker in Denying Class Certification

share print

Another California court has followed the logic of Brinker, in holding that employers need only provide their employees the opporunity to take a lunch break and need not ensure that such breaks are taken. In Tien v. Tenet Healthcare, class certification was denied in a case alleging claims for failure to provide meal and rest breaks. The court held that individual issues predominated over common issues because the evidence demonstrated there could be numerous individualized reasons why a meal or rest break was not taken on a given day, and the mere fact that time records revealed missed breaks was not enough to establish liability. Even though the Brinker and Brinkley cases are pending review by the California Supreme Court on the issue of what it means to "provide" a meal period, the Court of Appeal held that the trial court was permitted to follow the logic and reasoning of these cases in determining the propriety of class certification.

The Tien case is another in the line of recent cases showing a trend of courts in following the logic of Brinker/Brinkley. In the meantime, California employers continue to await the California Supreme Court's definitive ruling on the issue.