Last week a California Court of Appeal held that class certification was appropriate in a case alleging that the employer failed to reimburse employees for expenses associated with using their personal cell phones for work calls. At the trial court level, the employer successfully opposed class certification, arguing that liability could not be established on a class wide basis because it required individualized inquiry regarding whether an employee purchased a plan over and above what he normally would have had for purely personal use, and/or whether the employee incurred charges over and above his personal plan. The employer also argued that if someone other than the employee paid the employee’s cell phone bill, the employee would not have standing to pursue a claim for relief and this also created individualized issues. In addition to the individualized issues bearing on liability under Labor Code section 2802, the employer also successfully argued that damages would be highly individualized. The trial court denied class certification based on the predominance of individualized issues.
The Court of Appeal reversed, holding that the trial court abused its discretion in denying class certification. The Court of Appeal held that the trial court relied on the wrong standard for liability for a reimbursement claim under Labor Code section 2802. According to the Court of Appeal, all that is required to prove liability under Labor Code section 2802 is that the employee necessarily incurred expenses in the course of his job duties. The employee does not need to prove that he incurred expenses over and above what he would have incurred absent the job, nor does he have to prove that he actually paid his cell phone bill. The court held that if the rule were otherwise, the employer would receive a windfall by being able to pass on some of its operating expenses to employees. Thus, the court held that to be in compliance with Labor Code section 2802, “the employer must pay some reasonable percentage of the employee’s cell phone bill” if the employee uses a personal cell phone for work purposes. In other words, "reimbursement is always required." The court did not define what a “reasonable percentage” is, but instead held that “the calculation of reimbursement must be left to the parties and the court in each particular case.”
Based on its interpretation of the standard for liability under Labor Code section 2802, the Court of Appeal held that a class should have been certified because liability could be determined on a class wide basis and did not depend on adjudication of numerous individualized issues. The court acknowledged that damages issues were “more complicated” (i.e. individualized) but held that individualized damage issues do not defeat class certification and that the trial court could employ statistical sampling to calculate damages under the standards set forth by the California Supreme Court in Duran v. U.S. Bank.
The case is Cochran v. Schwan Home Service, Inc. and is available here. Employers that have employees using personal cell phones for business calls should review their expense reimbursement policies to ensure that these employees are reasonably compensated for the expense of making business calls on their personal devices.
Last week the California Supreme Court continued its trend of issuing employee-friendly decisions, this time in a case involving the commissioned salesperson exemption. In Peabody v. Time Warner Cable, the plaintiff was a commissioned salesperson who sold advertising spots for Time Warner Cable. She was classified as exempt from overtime under California's commissioned salesperson exemption, which applies to a sales employee whose earnings exceed at least one and one-half times the minimum wage if more than half of those earnings represent commissions. Time Warner paid plaintiff her regular wages on a biweekly basis, but only paid her commission wages once per month. Thus, at least one paycheck per month was comprised only of base hourly pay and did not reflect earnings exceeding more than one and one-half times the minimum wage. However, the monthly commission check, which represented commissions earned for a monthly period (not just for a bi-weekly period), brought the employee's wages for the month to more than one and one-half times the minimum wage.
Plaintiff sued, arguing that she was not properly paid overtime wages for hours worked in excess of eight per day or forty per week. The trial court granted summary judgment for Time Warner, agreeing with Time Warner that it properly paid plaintiff under the commissioned salesperson exemption and that plaintiff was not entitled to additional overtime compensation. Plaintiff appealed to the Ninth Circuit, which certified a question to the California Supreme Court concerning whether an employer could properly allocate commission wages over the pay periods in which they were "earned," or whether the commission wages could only be attributed to the pay period in which they were actually paid. The California Supreme Court said the latter.
In so holding, the California Supreme Court reasoned that California overtime exemptions are narrowly construed and must be interpreted in favor of the employee and against the employer. The Court's holding certainly accomplishes that. The Court acknowledged that California law permits commission wages to be paid less frequently than regular wages and that monthly, or even less frequent, payment of commission wages is permissible (given that commission wages often are not "earned" until certain conditions are satisifed and are not calculable with the same frequency as the regular payroll schedule). However, the Court reasoned that just because California law allows less frequent payment of commission wages that aren't "earned" every pay period does not mean that an employer can use a monthly or less frequent schedule to pay commission wages that are earned. The Court reasoned that California law requires that all wages earned for work performed generally be paid no less frequently than twice per month. Time Warner was arguing that it could allocate commission wages to the pay periods in which they were "earned," but the Court said that permitting this would be tantamount to authorizing monthly pay periods for wages earned. Because monthly pay periods are not authorized by the California Labor Code, the Court held that Time Warner had not properly paid the plaintiff and she did not qualify for the commissioned salesperson exemption.
The Court acknowledged that Time Warner's pay system was proper under the federal commissioned salesperson exemption, but declined to find it proper under California law because California law, unlike federal law, requires at least semi-monthly pay periods.
The California Supreme Court's decision makes it much more difficult for employers to satisfy the commissioned salesperson exemption under California law. Employers that look back and allocate commission wages over the pay periods in which they were "earned" as a means of ensuring that the employee's pay is at least one and one-half times the minimum wage, should revise their practices in light of this decision.
Yesterday the California Supreme Court issued its decision in Ayala v. Antelope Valley Newspapers, holding that the trial court erred in denying class certification to a group of newspaper carriers who worked as independent contractors for Antelope Valley Newspapers and later sued the newspaper for wage and hour violations on the basis that they should have been classified as employees. The Court held that the trial court focused on the wrong legal criteria in denying class certification and that the matter had to be remanded for the trial court to re-assess class certification using proper criteria. In denying class certification, the trial court held that the issue of whether the carriers were employees or independent contractors could not be decided in one stroke as to the entire class because the evidence showed substantial variation in the degree of control the newspaper exercised over its carriers’ work, and the issue of degree of control is the primary factor in assessing whether a worker is an independent contractor or an employee.
The California Supreme Court held that the trial court erroneously focused on variation in the level of control actually exercised by the newspaper, rather than on whether the newspaper uniformly retained the right to control the carriers’ work. The Court emphasized that the key issue is whether the hirer has the right to control the work, not whether the hirer actually exercises that right. The Court explained that evidence of whether the hirer retains the right of control typically is found in the contract between the hirer and the worker. In this case, the newspaper used largely the same form independent contractor agreement for all of its carriers. The Court stated that the trial court “afforded only cursory attention” to the parties’ agreement, when it should have focused on the agreement as the starting point for its analysis. Rather than outright saying that if a hirer uniformly uses the same agreement for all of its workers, the issue of right to control can always be decided on a class wide basis, the Court reserved some room for trial courts to look to the parties’ “course of conduct” (and beyond just the agreement).
“While any written contract is a necessary starting point, [ ] the rights spelled out in a contract may not be conclusive if other evidence demonstrates a practical allocation of rights at odds with the written terms. In deciding whether claims that hinge on common law employee status are certifiable, then, a court appropriately may consider what control is ‘necessary’ given the nature of the work, whether evidence of the parties’ course of conduct will be required to evaluate whether such control was retained, and whether that course of conduct is susceptible to common proof – i.e. whether evidence of the parties’ conduct indicates similar retained rights vis-à-vis each hiree, or suggests variable rights, such that individual proof would need to be managed.”
The Court directed that on remand, the trial court would need to assess whether the newspaper, notwithstanding the form contract it entered with all carriers, actually had different rights with respect to each that would necessitate mini-trials. The Court briefly addressed the fact that the test for determining whether a worker is an independent contractor or an employee depends not only on the right of control, but also on numerous secondary factors (method of payment, who supplies the tools and equipment, place of work, etc.). The Court minimized the significance of the secondary factors and of evidence of individualized variation bearing on those factors, reasoning that variation in one or more secondary factors may not impact class certification if the factor is not a heavy one in the analysis compared to the other factors.
The Court’s decision and reasoning makes class certification more likely in independent contractor misclassification cases is likely to fuel more of this litigation. This is because many companies use form independent contractor agreements and these agreements often spell out the “right to control” retained by the company. The full decision is available here.
California employers must be aware that the state’s minimum wage increases to $9 per hour on Tuesday, July 1st. This is the first increase in the state minimum wage in six years, and represents a $1 per hour increase from the previous minimum wage of $8 per hour. This new minimum wage is only temporary, and will increase to $10 per hour on January 1, 2016.
Low-end, hourly employees are not the only employees who are affected by this increase, however. It is also important to remember that California law also requires salaried, exempt employees to earn a monthly salary equivalent of no less than two times the new state minimum wage for full-time employment. Consequently, even some exempt employees will see an increase in their salary as a result of the minimum wage increase. Effective July 1st, the new minimum monthly salary for exempt employees will be $3,120, or $37,440 per year.
It is also important to remember that effective January 1, 2014, the City and County of San Francisco increased its minimum wage for all employees working in San Francisco to $10.74 per hour. The notice that San Francisco requires its employers to post can be found and printed here.
Not to be outdone by the City of Seattle, San Francisco Mayor Ed Lee recently proposed a measure to increase San Francisco’s minimum wage to $15 per hour by July 2018. Voters will have the opportunity to weigh in on Mayor Lee’s proposal in the upcoming November ballot. Even if Mayor Lee’s proposal is voted down (which seems unlikely given the proposal’s support), San Francisco’s minimum wage is already set to increase to $11.03 on January 1, 2015.
The San Francisco Board of Supervisors also recently voted to increase employers’ expenditures under the Health Care Security Ordinance (“HCSO”). Under the HCSO, employers must satisfy the Employer Spending Requirement by calculating and making required health care expenditures on behalf of all covered employees. Effective January 1, 2015, these expenditures are set to increase, depending on the number of employees. The notice that San Francisco requires its employers to post regarding the HCSO can be found and printed here. For more information on the HSCO in general, please click here.
The HSCO and the proposed increase to its minimum wage rate are additional examples of employment-related ordinances unique to the City and County of San Francisco. Employers should recall San Francisco’s Commuter Benefits, Family Friendly Workplace, and Paid Sick Leave.
Any employers interested in discussing or implementing any of the above changes to California and San Francisco law or any other employment-related policy or practice (or even the recent woes of the San Francisco Giants) are encouraged to contact Ryan McCoy in CDF’s San Francisco office.
Yesterday the Ninth Circuit issued its opinion in Ruiz v. Affinity Logistics Corp., holding that Affinity Logistics violated California law by misclassifying its home delivery drivers as independent contractors rather than employees. The full opinion is available here.
Prior to working for Affinity Logistics, Ruiz worked as a driver for Penske Logistics, a furniture delivery company that had a contract with Sears. Ruiz was classified as an employee throughout the time he worked for Penske. In 2003, Sears announced that Affinity Logistics was taking over the services that had previously been provided by Penske. Sears advised Ruiz and his fellow Penske drivers to speak to Affinity about working for Affinity. Affinity told Ruiz and the other drivers that if they wished to work for Affinity, they would have to do so as independent contractors. Affinity advised them that they would need a fictitious business name, a business license, and a commercial checking account. Affinity helped the drivers complete all necessary forms and procedures to accomplish these tasks. Affinity also required the drivers to sign an independent contractor agreement that automatically renewed from year to year but could be terminated for any reason on 60 days’ notice. Affinity’s drivers leased their trucks from Affinity and were required to leave them at Affinity during non-working hours.
Ruiz filed a class action lawsuit against Affinity, alleging that Affinity misclassified its drivers as independent contractors rather than employees and thereby deprived them of various benefits afforded employees, including sick leave, vacation, holiday, and severance wages, and improperly charged them workers’ compensation fees. The district court held a bench trial to determine whether or not the independent contractor classification was proper. Following the bench trial, the district court concluded that the drivers were properly classified as independent contractors under California law. The drivers appealed and the Ninth Circuit reversed, holding that the district court’s legal conclusion was wrong.
The Ninth Circuit applied the test set forth by the California Supreme Court in 1989 in Borello & Sons, Inc. v. Dep’t of Industrial Relations, in order to analyze whether a worker is an employee or an independent contractor. Under that test, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant: (1) whether the worker is engaged in a distinct occupation or business; (2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision; (3) the skill required in the particular occupation; (4) whether the principal or the worker supplies the tools and place of work; (5) the length of time for which services are to be rendered; (6) whether or not the work is part of the regular business of the principal; and (7) whether or not the parties believe they are creating the relationship of employer-employee.
Applying this test to the largely undisputed facts, the Ninth Circuit held that Affinity’s drivers clearly were employees and not independent contractors. First, the court held that Affinity substantially controlled the manner and means of its drivers’ performance of their duties. Affinity determined and controlled the flat “per stop” rate paid to the drivers for their work and the drivers could not negotiate for higher rates, as independent contractors commonly do. Affinity decided the drivers’ schedules and set their daily routes each day, with specific instruction not to deviate from the order of deliveries list on the route manifests. Affinity also controlled the drivers’ appearance by requiring that they wear specific uniforms and prohibiting them from wearing earrings, displaying tattoos, or having certain designs of facial hair. Affinity also required its drivers to comply with a detailed procedures manual and closely monitored and supervised their work. Each morning, the drivers were required to report to the warehouse for a morning meeting where supervisors and drivers would discuss customer satisfaction reviews from previous deliveries and any other issues arising out of previous deliveries. Affinity further monitored its drivers by inspecting their appearance and the loading of their trucks and monitoring their progress throughout the day, including through a requirement that the drivers call their Affinity supervisor after every two or three stops and contacting them if they were running late or off course. Based on all of these facts, the court determined that Affinity retained and exercised the right to control the drivers’ work.
The district court had found that the drivers retained sufficient control over their work, largely because their independent contractor agreements stated that the drivers could hire helpers, and the right to hire others generally is indicative of independent contractor status. However, the Ninth Circuit disagreed that the drivers had any truly independent right to hire helpers because the evidence revealed that Affinity had the right to approve or disapprove of the helpers and the only time drivers hired helpers was if Affinity suggested they do so.
The court held that the balance of the secondary factors also supported a finding that the drivers were employees, not independent contractors. Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity, and the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor. The only reason the drivers established the formality of separate businesses was because Affinity required them to. However, most only performed work for Affinity. Indeed, they were not permitted to use the trucks they leased from Affinity for any purpose other than carrying out duties for Affinity. Affinity provided the trucks and phones for their drivers’ use, and required that the trucks be kept on Affinity property when not in use. Affinity even retained the right to use the drivers’ trucks for other purposes when not in use by the driver. The district court had held that because the drivers were required to pay for the use of the trucks and phones (through a payroll deduction), the drivers “provided” their own equipment. The Ninth Circuit rejected this analysis, effectively holding that paying for the use of the equipment is not the same thing as providing it. Affinity encouraged or required the drivers to use the trucks and phones owned and provided by Affinity and this equipment was only used by the drivers to perform work for Affinity—not for any other purpose. As such, this factor was suggestive of an employment relationship rather than an independent contractor relationship.
The court also reiterated that the drivers did not perform work without supervision because Affinity closely monitored and directed their work. Furthermore, the drivers’ work was a regular part of Affinity’s business. Affinity is a provider of home delivery services and, thus, the drivers’ work was at the very core of Affinity’s business. Additionally, the contracts between Affinity and its drivers did not contemplate any set duration or end for the drivers’ work for Affinity. The contracts automatically renewed from year to year, and many drivers worked for Affinity for years. The court further stated that the fact that the contracts were terminable on 60 days’ notice was not unique to an independent contractor relationship.
The court acknowledged that the drivers were paid a flat rate per delivery, rather than by the hour, but disagreed with the district court’s conclusion that this supported a finding of independent contractor status. The Ninth Circuit reasoned that because most drivers made eight deliveries per day, their pay generally remained about the same week to week, and this was more akin to be being paid by a regular rate of pay than “per job” or “per assignment.” As such, this factor too was indicative of an employee relationship.
Finally, the Ninth Circuit acknowledged that the drivers and Affinity understood their working arrangement to be an independent contractor arrangement rather than an employment relationship. However, the court dismissed this factor, reasoning that the parties’ label is not dispositive and that the parties’ conduct in fact revealed an employment relationship.
The Ruiz v. Affinity Logistics decision serves as a reminder to employers that litigation surrounding the independent contractor/employee classification remains alive and well in California, and improper classification carries substantial risk for employers. Employers who have independent contractor arrangements should carefully review these classifications to ensure that these workers are properly classified. The fact that a worker agrees to be classified as an independent contractor, or even asks to be classified as an independent contractor, does not prevent a misclassification claim nor does it prevent liability if the worker ultimately is determined to have been misclassified.
In a case that CDF has been handling since its inception in 2001, we are pleased to report that yesterday the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association, affirming in full a Court of Appeal decision overturning a $15 million judgment in favor of a class of Business Banking Officers (“BBOs”) who alleged that they were misclassified as exempt outside salespersons and owed overtime wages. The California Supreme Court agreed with the Court of Appeal that the trial plan resulting in the judgment was fundamentally flawed and violated U.S. Bank’s due process rights. The flawed trial plan involved the use of sampling and “representative” testimony of just 21 class members to determine class-wide liability and restitution to the entire class of 260 BBOs. The plan precluded U.S. Bank from presenting evidence or testimony bearing on liability or damages as to any class member outside the 21-person sample. Thus, U.S. Bank was precluded from, among other things, presenting evidence that 1/3 of the class members had executed declarations under oath establishing that spent the majority of their time on sales duties outside the Bank and, therefore, were properly classified. U.S. Bank was also precluded from presenting evidence that the four prior named Plaintiffs in the case also all testified under oath that they spent the majority of their time on sales duties outside the Bank. Based instead only on the limited evidence surrounding the small sample, the trial court found that the entire class was misclassified. The trial court then allowed the overtime hours reported by the sample group to be extrapolated to the entire class (with a 43% margin of error), resulting in a verdict of $15 million and an average recovery of over $57,000 per person. U.S. Bank appealed.
The Court of Appeal reversed the judgment, holding that the trial plan violated U.S. Bank’s constitutional due process rights by preventing U.S. Bank from presenting its affirmative defenses. The Court of Appeal also held that the trial court should have decertified the class based on the demonstrated unmanageability of individual issues at trial. Our post on the Court of Appeal decision is available here. The California Supreme Court granted review and issued its opinion affirming the Court of Appeal’s decision in full.
The Trial Court’s Use of Sampling Was “Profoundly Flawed”
In upholding the reversal of the judgment, the California Supreme Court explained that “the judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery.” The Court explained that misclassification cases, and particularly cases involving the outside salesperson exemption, have the “obvious potential” to generate individual issues “because the primary considerations are how and where the employee actually spends his or her workday.” In such cases, “a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability.” The Court acknowledged that trial courts may employ various procedural tools to manage individual issues at trial, including statistical sampling, but emphasized that any such trial plan "must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues." Additionally, the trial plan must be statistically sound. "[W]hen a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable." Against this backdrop, the Court held that the trial plan in this case was a "flawed statistical plan that did not manage but instead ignored individual issues." The Court explained that the parties' evidence revealed great variation among class members in the amount of time they spent outside the Bank and that such variation signaled that the exemption question could not be resolved by a simple "yes" or "no" answer as to the entire class. However, the trial plan ignored this variation by limiting the evidence from which liability would be determined to a small, unrepresentative sample of class members. The Court criticized the trial court's arbitrary determination of the size of the sample, which was done without any expert input or validation, and further attacked the trial court's method of determining which class members would comprise the purportedly "random" sample. This is because, among other things, the trial court allowed the named plaintiffs to be in the "representative" sample and also allowed BBOs to choose to opt-out of the trial sample (even though there was evidence that several class members with testimony favorable to the Bank opted out on the urging of Plaintiffs' counsel). The Court also heavily criticized that the plan precluded U.S. Bank from presenting relevant evidence relating to BBOs outside the sample group:
"The court's decision to extrapolate classwide liability from a small sample, and its refusal to permit any inquiries or evidence about the work habits of BBOs outside the sample group, deprived USB of the opportunity to litigate its exemption defense. USB repeatedly submitted sworn declarations from 75 class members stating that they worked more than half their time outside the office. This evidence suggested that work habits among BBOs were not uniform and that nearly one-third of the class may have been properly classified as exempt and lacking any valid claim against USB. USB also sought to introduce live testimony from witnesses about their work outside the office as BBOs. Yet the court refused to admit any of this evidence or allow it to be considered by experts as part of a statistical sampling model. Instead, extrapolating findings from its small sample and ignoring all evidence proffered to impeach these findings, the court found that the entire class was misclassified. The injustice of this result is manifest. While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant's right to present relevant evidence."
Thus, while the Court did not go so far as to say that statistical sampling may never be used to prove liability in a wage and hour class action, the Court strongly emphasized that any such use must, as a matter of constitutional due process, still allow the defendant to present its affirmative defenses.
The Court acknowledged that the use of statistical methods to prove damages in a class action is more acceptable than to prove liability, but that the statistical methods still must be scientifically sound and expert-endorsed. Here, the trial court's extrapolation of overtime from the sample group to the entire class had an astounding 43% margin of error, which the Court held was unacceptably high, in addition to having been linked to an invalid finding of classwide liability. For these reasons, the Court held that the judgment could not stand.
The Class Properly Was Decertified
In addition to holding that the trial plan was unconstitutional and required reversal of the judgment, the Court also held that the class properly was decertified due to the lack of manageability of individual issues surrounding U.S. Bank's exemption defense. The Court emphasized that the presence of common issues does not necessarily mean that class certification is appropriate, if there are still individual issues that cannot be effectively managed at trial, as was the case here. The Court instructed that the time to consider manageability issues is at the class certification stage, not at trial. "In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class." The Court held that while statistical methods possibly may be used to manage individual issues, such "methods cannot entirely substitute for common proof." "There must be some glue that binds class members together apart from statistical evidence." If statistical evidence will comprise a part of the proof on a class action claim, trial courts should consider at the class certification stage how such methods will be used and whether they will effectively and fairly manage individual issues. "Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable."
Because the trial court had "no evidence establishing uniformity in how BBOs spent their time" and the trial plan wholly failed to manage individual issues bearing on U.S. Bank's exemption defense, class certification could not stand.
The Court's decision is clearly favorable for California employers defending wage and hour class actions, both on certification principles and on the use of statistical methods to prove liability and damages in such cases. The decision confirms a class action defendant's right to present its affirmative defenses, even where those defenses hinge on individualized issues, and also underscores that manageability issues must be at the forefront of the initial decision to certify a class. CDF has represented U.S. Bank throughout this litigation and is very pleased to report this outstanding result.
This week a California court issued a favorable decision for the employer in an off-the-clock case, holding that the employer was not liable to the plaintiff for work the plaintiff performed off-the-clock because there was no evidence that the employer knew about the off-the-clock work. While this is not a novel holding (it is well-settled that an employer is only liable for wages for off-the-clock work if the employer had actual or constructive knowledge about such work), the case is useful in illustrating the types of evidence that courts consider in analyzing whether the employer had “knowledge” of off-the-clock work being performed.
In Jong v. Kaiser Foundation Plan, the plaintiffs were three outpatient pharmacy managers for Kaiser. Their position previously was classified as exempt but Kaiser reclassified the position to non-exempt in connection with the settlement of a prior class action challenging the exempt classification of this position. Following the reclassification of the position to non-exempt, the plaintiffs filed a putative class action against Kaiser, alleging that Kaiser had a policy and practice of requiring its outpatient pharmacy managers to perform work off-the-clock and without pay. Kaiser filed a motion for summary judgment as to each of the three named plaintiffs’ off-the-clock claims. The trial court granted Kaiser’s motion as to Plaintiff Jong (holding that Kaiser was not liable to Jong and ending Jong’s claim against Kaiser), but denied the motion as to the other two named plaintiffs, allowing their claims to proceed. Jong appealed the adverse ruling against him.
The Court of Appeal upheld the trial court’s order summarily adjudicating Jong’s off-the-clock claim in Kaiser’s favor. The court explained that in order for an employer to be liable for unpaid wages for work performed off-the-clock, there must be evidence that the employer had actual or constructive knowledge that the employee was performing work off-the-clock. The court held that Jong had failed to present evidence from which it could be concluded that Kaiser had knowledge that he performed any work off-the-clock. The court’s holding was based on several admissions that Jong made in the case, including that (1) he knew Kaiser had a policy prohibiting off-the-clock work; (2) no manager or supervisor ever told him that he should perform work off-the-clock; (3) he was specifically told that he was eligible to work and be paid for overtime hours; (4) there was never an occasion when he requested approval to work overtime that was denied; (5) that he was paid for all work hours he recorded, including overtime hours, even when he did not seek pre-approval for the overtime work; and (6) he signed an attestation form agreeing not to perform work off-the-clock in accordance with Kaiser policy.
Notwithstanding these fatal admissions by Jong, Jong argued that Kaiser nevertheless still had constructive knowledge that he was performing work off-the-clock based on the fact that store alarm records revealed that Jong disarmed the alarm prior to the time he recorded beginning work and that Kaiser could have compared the alarm records to his time keeping records to discern that he was performing work off-the-clock prior to the start of his shifts. The court rejected this argument, suggesting that the standard for constructive knowledge is not whether the employer “could have known” that off-the-clock work was being performed, but rather whether the employer “should” have known about it. Moreover, the court held that the records did not establish that Jong was actually performing any work during any gap between disarming the alarm and signing in for the start of his shift.
Jong also argued that Kaiser was on notice that outpatient pharmacy managers must be performing work off-the-clock based on depositions in the misclassification class action revealing that employees in this position testified to working an average of 48 hours per week. The court rejected Jong’s argument, reasoning that this evidence related to work habits prior to the reclassification of the position from exempt to non-exempt and, in any event, the evidence did not establish that Kaiser had knowledge that Jong (as opposed to OPMs generally) was performing work off-the-clock. For these reasons, the court entered judgment in favor of Kaiser on Jong’s claims.
While Kaiser was successful in defending Jong’s claims, it did not have the same success in getting the other two named plaintiffs’ claims thrown out. The trial court denied Kaiser summary judgment of their claims, based on testimony by those plaintiffs that they had conversations with their supervisors about performing work off-the-clock. Based on that testimony, the trial court concluded that there was a triable issue of fact regarding whether Kaiser had sufficient notice of those plaintiffs’ off-the-clock work to be liable for unpaid wages and that this issue would have to be tried.
The Jong v. Kaiser case is a good reminder of the importance of well-drafted and communicated policies prohibiting off-the-clock work and how documentation of those policies is effective evidence in defeating off-the-clock claims. The opinion also has useful language for employers to use in emphasizing the individualized nature of the liability inquiry on an off-the-clock claim, for purposes of opposing class certification when such claims are brought as putative class actions. The full opinion is here.
Just when you think that California cannot get any more employer-unfriendly, the California Legislature reminds us that it actually can. The latest reminder is legislation that was recently introduced by Democratic Assemblyman Mark Stone (AB 2416) to allow employees to record liens against their employers’ property for alleged unpaid wages. That’s right—alleged. In order to record a lien, the employee does not need to have proven his entitlement to unpaid wages in a court action or Labor Commissioner proceeding or otherwise. It is only after the lien is recorded that the employee must prove up the lien by demonstrating that he is actually owed the unpaid wages. If the employee succeeds, he is also entitled to recover attorneys’ fees and costs. A lien can also be recorded and enforced by a group of employees or by a government agency (e.g. the DLSE). The only way the employer can avoid the lien is by obtaining a surety bond (similar to that required to stay a money judgment pending appeal), which is itself a costly procedure.
At least there’s some faint protective relief built in to the legislation for employers--well, sort of. If an employer defeats an action to enforce a lien, the employer can, in very limited circumstances, recover its attorneys’ fees and costs IF the employer can prove that the employee’s action was brought unreasonably and in bad faith. (Conversely, the employee of course automatically gets awarded his attorneys’ fees and costs if he proves entitlement to unpaid wages, regardless of whether the wage withholding was in good faith.)
The proposed legislation has exclusions for employees covered by collective bargaining agreements if certain specified conditions are met, and also excludes employees who are exempt administrative, professional or executive employees (of course, the employee can challenge his exempt status and thereby avoid this exclusion, and the legislation specifically states that it is the employer’s burden to prove, as an affirmative defense, that the employee meets the test for exemption).
Employers should voice their opposition to this unnecessary legislation, which has already passed one labor committee and, if enacted, will provide one more tool for the plaintiffs’ employment bar to use to pressure employers to settle wage and hour claims, particularly those brought on behalf of a class of employees. The text of the proposed legislation is available here.
News media are widely reporting that President Obama intends this week to direct the Department of Labor to materially revise the Fair Labor Standards Act (FLSA) regulations pertaining to overtime exemptions so that fewer employees will qualify for an exemption from overtime. Obama's move relies on his executive authority to revise the rules that carry out the FLSA. Obama is relying on this executive authority to carry out his pro-worker agenda, as a means of sidestepping the need to pass actual legislation that likely would be blocked by Republicans in Congress.
While the details of the intended revisions have not yet been announced, it is reported that Obama will be urging at least two significant changes: (1) an increase in the amount of minimum compensation that must be paid to an employee in order for the employee to qualify for exempt status (the minimum currently is $455 per week under the FLSA, and Obama is expected to direct that the minimum be substantially increased, with some urging that it be doubled); and (2) replacing the FLSA "primary duty" test with a more quantitative test that requires an employee to spend a certain percentage of his or her time (likely at least 50%) on exempt duties in order to qualify for exempt status. These changes would substantially decrease the number of employees who qualify for overtime exemption under the FLSA, and would also likely substantially increase the number of wage and hour lawsuits (already soaring) filed against employers to challenge exempt status and seek unpaid overtime compensation. Business groups are expected to vigorously oppose the intended overhaul of the regulations.
So what does this mean for California employers? Probably not much. California employers are already subject to more narrow overtime exemption laws under California law. To qualify for exemption in California, an employee (among other things) must be paid a guaranteed salary of at least $640 per week (rising to $800 per week in 2016) and must spend more than 50% of his or her weekly work time on exempt duties. Thus, the changes being contemplated by the White House are already in effect in California, and the Obama administration appears to be looking to California's laws as guidance in revising the FLSA's overtime exemptions. This is not good news for employers.
As many predicted, the Fifth Circuit’s recent invalidation of the NLRB’s D.R. Horton decision has not caused the NLRB to revise its enforcement position on the subject of class action waivers in employment arbitration agreements. The NLRB basically takes the position that, unless overruled by the United States Supreme Court (as opposed to a circuit court of appeal), Board decisions (such as D.R. Horton) remain in effect and are binding on the NLRB’s administrative law judges (“ALJ”). A decision last week from an ALJ in Leslie’s Poolmart, Inc. and Keith Cunnigham evidences the NLBR’s continued adherence to its D.R. Horton decision and policy. Indeed, the Leslie’s Poolmart decision actually expands D.R. Horton by holding that an arbitration agreement that was silent on the issue of class and collective claims still violated Section 7 of the NLRA by interfering with employees’ rights to engage in collective, concerted activity for mutual aid and protection.
In Leslie’s Poolmart, employees were required to sign an arbitration agreement upon hire, whereby they agreed that they would arbitrate any employment-related disputes. The agreement said nothing about whether an employee could pursue class or representative relief in arbitration. Notwithstanding his agreement to arbitrate, employee Cunningham filed a class action lawsuit in California state court against Leslie’s, alleging various wage and hour violations. Leslie’s removed the case to federal court and then filed a motion to compel arbitration of Cunningham’s individual claims and requested that the class claims be dismissed. The court granted the motion (with the exception of a PAGA claim, which the court held was exempt from individual arbitration).
Not to be deterred, Cunningham filed a charge with the NLRB alleging that Leslie’s arbitration agreement and efforts to enforce it violated section 7 of the NLRA. Last week, a NLRB ALJ agreed. The ALJ held that she was still bound by D.R. Horton regardless of the fact that the Fifth Circuit effectively overruled the decision. The ALJ further held that D.R. Horton applied even though the arbitration agreement in this case (unlike the one at issue in D.R. Horton) did not expressly preclude arbitration of class or representative claims. The ALJ reasoned that even though the agreement did not expressly foreclose class claims, it effectively foreclosed such claims because the employer required all employees to sign the agreement and responded to court actions by making motions to compel individual arbitration and to dismiss any class allegations. Thus, the ALJ found that the agreement interfered with employees’ ability to engage in collective concerted activity. The ALJ further held that a single employee's filing of a class action claim (even without active participation of any other employee) constituted protected concerted activity. The ALJ ordered Leslie’s to rescind its arbitration policy and/or to revise it to make clear that employees can pursue class claims either in arbitration or in court. The ALJ further ordered Leslie’s to file a motion with the district court requesting that it vacate its order compelling Cunningham to arbitrate his individual claims. The January 17, 2014 Leslie’s Poolmart decision is available in full on the NLRB’s website here.
Unless and until the United States Supreme Court overrules D.R. Horton, it appears, at least for now, that some plaintiffs' class action lawyers may continue using unfair labor practice charges as a last ditch effort to try to avoid dismissal of their class claims. Given the wide rejection by courts of the NLRB's D.R. Horton decision, the ultimate success of this type of tactic is doubtful.