In two companion cases decided today, the California Supreme Court provided clarification on whether cases brought as “representative” actions under California’s Unfair Competition Law (UCL) and Private Attorneys General Act (PAGA) must meet class action requirements.  In Arias v. Superior Court (Angelo Dairy), the Court held that a plaintiff seeking relief on behalf of others under the UCL must satisfy the requirements for a class action set forth in California Code of Civil Procedure section 382.  The Court based its decision on the plain language and voter intent behind Proposition 64, which amended the standing requirements of the UCL to preclude uninjured plaintiffs from seeking relief on behalf of others under the statute.

With respect to the PAGA claim, however, the Court held that an individual may pursue a representative claim for penalties without satisfying statutory class action requirements.  The Court reasoned that PAGA, in contrast to the UCL, contains no express requirement that an individual comply with the requirements of Code of Civil Procedure section 382. The Arias decision is here.

In a companion case also decided today, Amalgamated Transit Union, et al v. Superior Court (First Transit, Inc.), the California Supreme Court held that a labor union that has not suffered actual injury under the UCL, and that is not an “aggrieved employee” under PAGA, may not bring a representative action under those laws on behalf of injured members.  The Court reasoned that injured parties’ claims under the UCL and PAGA may not be assigned to an uninjured party, and that an uninjured party does not have standing to sue under either law.  The Amalgamated Transit decision is here.

July 21 Limiting Exposure When Conducting Layoffs:
WARN Act Issues, Severance Agreements, and How to Select Employees for Layoffs

August 18 Pre-Dispute Mandatory Arbitration Agreements:
Do They Still Work, How to Draft and Implement, and Their Future Under the Obama Administration

September 15 Dealing with the EEOC and DFEH:
Responding to Administrative Charges

October 20 Top Ten Pitfalls for California Employers:
Proactive Strategies to Avoid Liability

November 17 Looking Ahead to 2010:
New Laws, Regulations, and Cases That California Employers Must Know for 2010.

For more information and/or to register, please click here.  Our roundtables are approved for HRCI credit.

On June 18, 2009, in a 5-4 decision the Supreme Court held that a plaintiff bringing an age discrimination case under the Age Discrimination in Employment Act of 1967 (the “ADEA”) must prove by a preponderance of the evidence, that age was the “but-for” cause of the employment decision.  The Supreme Court further held that even if the employee presents some evidence that age was a factor, the burden of proof does not shift to the employer to show that it would have acted regardless of plaintiff’s age.

Plaintiff Jack Gross began working for FBL Financial Group, Inc. (“FBL”) in 1971.  In 2003, at age 54, Gross held the position of “claims administration director.”  Gross was reassigned to the position of “claims project coordinator.”  At the same time, FBL transferred many of Gross’ job duties to a new position called “claims administration manager.”  The new position was given to a woman in her early forties.  Gross contended that the reassignment constituted a demotion and sued under the ADEA. 

At trial, Gross presented evidence suggesting that his reassignment was based at least in part on his age. FBL contended that the reassignment was part of a corporate restructuring.  Over FBL’s objections, the District Court instructed the jury that it must return a verdict for the Plaintiff if it found that “age was a motivating factor” in the demotion.  The jury was further instructed that Gross’ age would be considered a motivating factor if it “played a part or a role in [FBL’s] decision to demote him.”  The jury was also instructed that if FBL proved by a preponderance of the evidence that it would have demoted Gross regardless of his age, the jury must find in FBL’s favor.  The jury found in favor of Gross and awarded him $46,945.

On appeal, the Eighth Circuit held that the jury had been incorrectly instructed.  The Court of Appeals found that Gross needed to present “[d]irect evidence…sufficient to support a finding by a reasonable fact finder that an illegitimate criterion actually motivated the adverse employment action” in order to shift the burden of persuasion to FBL to establish that it would have made the same decision regardless of Gross’ age.  Because Gross did not present any “direct evidence” of discrimination, the Court of Appeals found that he was not entitled to a “mixed motive” jury instruction.    

The Supreme Court reversed the Eighth Circuit decision, holding that a Plaintiff bringing a disparate-treatment claim under the ADEA must prove by a preponderance of the evidence, that age was the “but-for” cause of the employment action.  The Supreme Court noted that, unlike Title VII, which was amended to prohibit employment actions where a protected category was a “motivating factor” in the employment decision, the ADEA prohibits discrimination “because of” the individual’s age.  Due to the distinction between the language of Title VII and the ADEA, the Court declined to apply the “mixed motive” standard applicable in Title VII cases.  The Court held that the plaintiff “retains the burden of persuasion to establish that age was the ‘but-for’ cause of the employer’s adverse action.”  The Court noted that the burden of persuasion does not shift to the employer “even when the plaintiff has produced some evidence that age was one motivating factor in that decision.”

Although the Gross decision places a more onerous burden on Plaintiffs suing under the ADEA, it remains to be seen whether California courts will apply a similar standard to FEHA age discrimination cases.

The decision in Gross v. FBL Financial Group is here.

Carlton DiSante & Freudenberger LLP is very active in both of these fellowship programs.  Mark S. Spring has been on the Sacramento County Bar Association's Minority and Diversity Committee (the Committee that organizes the Sacramento Fellowship Program) for many years and remains very active as a Committee member.  Dave Carothers, managing partner of the firm's San Diego office, is one of the founding participants of the Diversity Fellowship Program in San Diego County and serves on the Diversity Fellowship Program Committee.  Carlton DiSante & Freudenberger LLP is proud of these and other efforts that our firm is making to increase the number of ethnic minorities and other disadvantaged group in private law practice.

In Smith v. T-Mobile USA, the Ninth Circuit held that an appeal of a district court’s denial of conditional certification of an FLSA collective action is moot where the named plaintiffs settled all of their individual claims prior to appeal.

Plaintiffs Mentha Smith and Justin Gossett filed an FLSA collective action against T-Mobile for unpaid wages and meal and rest break violations, seeking to represent a class of 25,000 current and former T-Mobile USA employees.

After the District Court denied conditional certification of the class, Smith and Gossett settled all of their individual claims with T-Mobile.  Hoping to preserve their ability to appeal the District Court’s denial of certification while still settling their individual claims, plaintiffs agreed to a stipulated judgment that included a provision in which they reserved their right to appeal the denial of conditional certification and to continue to prosecute the case on behalf of the putative class should their appeal be successful.

On appeal, the Ninth Circuit ruled that plaintiffs did not have standing to pursue the appeal, thus rendering the appeal moot.  The Court reasoned that “a FLSA plaintiff who voluntarily settles his individual claims prior to being joined by opt-in plaintiffs and after the district court’s certification denial does not retain a personal stake in the appeal so as to preserve our jurisdiction.”  Because Smith and Gossett did not have a personal stake in the appeal, their appeal was declared moot and they were barred from recovering attorneys’ fees, liquidated damages, and punitive damages relating to the collective action claims.  The decision is here.

In Munson v. Del Taco, Inc., the California Supreme Court unanimously ruled that a plaintiff who seeks damages under California Civil Code Section 52 (Civ. Code sec. 52), claiming the denial of full and equal treatment on the basis of disability in violation of the Unruh Civil Rights Act (Civ. Code sec. 51) and the Americans with Disabilities Act of 1990 (42 U.S.C. sec. 12101 et seq.), does not need to prove "intentional discrimination".  Based on its ruling, the Court did not address the second issue regarding the meaning of "intentional discrimination".

During a visit to a Del Taco restaurant, Plaintiff Kenneth Munson ("Munson"), whose disability requires the use of a wheelchair, was unable to access the restaurant's parking lot and restrooms because of architectural barriers.  Munson filed suit against Del Taco in the Central District of California.  Munson alleged violations of the American with Disabilities Act of 1990 ("ADA"), 42 U.S.C. sections 121010-12213, and the Unruh Civil Rights Act, Cal. Civ. Code sec. 51.  Munson sought injunctive relief, damages, and attorney fees under California Civil Code sec. 52 for the alleged Unruh Act violations.  The District Court granted partial summary judgment in favor of Munson because there was no genuine issue of fact that an ADA violation had occurred.  The District Court found Del Taco liable under the Unruh Act and determined that Munson was entitled to pursue statutory damages.  The parties stipulated to $12,000 in damages under the Unruh Act. Del Taco appealed the District Court's grant of Munson's motion for partial summary judgment.  Del Taco argued that it was entitled to summary judgment because Munson was required to allege evidence that Del Taco had intentionally discriminated against him. Munson argued that no such requirement existed.

Pursuant to California Rule of Court 8.548, the United States Court of Appeals, Ninth Circuit requested that the California Supreme Court decide whether a plaintiff seeking damages under Civ. Code sec. 52 needs to prove "intentional discrimination" and, if the answer is yes, provide the meaning of "intentional discrimination".

Despite its decision in Harris v. Capital Growth Investors XIV, Cal. 3d 1142, 1175 (1991), in which the California Supreme Court ruled that proof of intentional discrimination was necessary to establish a violation of the Unruh Civil Rights Act, the Court determined that based on the Legislature's addition of subdivision (f) to Civ. Code sec. 51, which was subsequent to the Harris decision, as well as the Legislature's intent in adding subdivision (f), a plaintiff need not prove intentional discrimination in order to obtain damages under Civ. Code sec. 52.

The California Supreme Court also concluded that the Federal Court's interpretation of Civ. Code sec. 51 in, Lentini v. California Center for the Arts, 370 F.3d 837, 846-847 (9th Cir. 2004) was right - section 51, subdivision (f) added ADA violations, whether or not involving intentional discrimination, to the class of discriminatory acts for which the Unruh Civil Rights Act provides remedies.  Moreover, the Supreme Court overruled the Court of Appeal's decision in Gunther v. Lin, 144 Cal. App. 4th 223 (2006), which was in direct contrast to the Federal Court's interpretation of Civ. Code sec. 51 in Lentini.  The California Supreme Court also overruled, Coronado v. Cobblestone Village Community Rentals, 163 Cal. App. 4th 831 (2008).

This ruling will encourage more plaintiffs to bring more disability lawsuits alleging violations of the Unruh Act and will make it easier for them to prevail.  Employers should seek legal counsel in order to ensure they are operating in full compliance with disability laws.

On June 9, 2009 the Court of Appeal for the Second Appellate District clarified the differences between a FLSA opt-in action and an opt-out class action, holding that actions under the Fair Labor Standards Act (“FLSA”) cannot be maintained as class actions under the California Rules of Civil Procedure.

In Randy Haro v. City of Rosemead, plaintiffs Randy Haro and Robert Ballin filed a collective action under 29 U.S.C. § 216(b), also known as the Fair Labor Standards Act of 1938.  Plaintiffs later attempted to certify the action as a class under California Code of Civil Procedure section 382.  The trial court denied plaintiffs’ motion for class certification, finding that the Plaintiffs had improperly attempted to certify their FLSA action as a class action. 

The Court of Appeal noted that FLSA actions are collective actions where potential plaintiffs must opt in in order to be a part of the action, whereas in a class action, potential plaintiffs must opt out if they do not wish to be a member of the class.  The Court made clear that while the critical difference between FLSA actions and class actions is the opt-in versus the opt-out feature, there are other important differences as well, such as the difference in the tolling of the statute of limitations, the difference in the trial court’s involvement in the process of notifying potential additional plaintiffs, and the definitions of parties “similarly situated.”

Due to the significant differences between FLSA collective actions and class actions under Section 382, as well as the absence of any established procedures for an "opt in" class action in the California Code of Civil Procedure, the Court held that FLSA collective actions cannot be maintained as class actions.

With a variety of Democrats publically coming out over the last two months and stating that they will not support the current version of the Employee Free Choice Act (which includes both card check and mandatory interest arbitration provisions), it is fairly clear that the current EFCA bill, introduced in both houses on March 10 (S. 560 and H.R. 1409), will not pass.  Various legislators are now considering introducing a compromise bill that would likely contain some concessions to the Democratic legislators that are not eager to support card check recognition and mandatory interest arbitration of the initial labor contract in this difficult business environment. 

Senators Tom Harkin and Arlen Spector seem to be leading the charge in trying to settle on a compromise bill.  The specific details of what such a bill would actually contain remain a mystery, as the negotiations have not been made public.  However, it is expected that any compromise bill is likely to:

      a) eliminate card check procedures, or only allow card check recognition only if a supermajority of bargaining agent employees signed card as opposed to the strict majority rule in the current bills; and/or

      b) eliminate interest arbitration for the first contract or modify the interest arbitration procedures to give the parties more time and discretion to reach a first contract through the collective bargaining/negotiation process.

As Congress continues to debate and negotiate the next steps for EFCA, we will continue to keep you updated. 

If you wish to review a recent article from the Wall Street Journal discussing the mandatory interest arbitration provisions of the bill, please click here.

The implementation of regulations requiring federal contractors and subcontractors to use E-Verify has been delayed again until September 8, 2009 so that the Obama administration can review the proposed rules.  E-Verify is a free, internet-based system that allows employers who are enrolled in the E-Verify program to confirm the legal status of new employees.  Although use of E-verify is currently voluntary, the proposed regulation will make its use mandatory for all federal contractors who are awarded a new contract after September 8, 2009 that includes the Federal Acquisition Regulation E-Verify clause.

Additional information on the proposed E-Verify regulations can be found here.

The Fifth Appellate District recently confirmed that unless a statute specifically provides otherwise, public agencies are exempt from wage and hour provisions of California’s Labor Code.  In Johnson v. Arvin-Edison Water Storage District, Plaintiff Randell Johnson filed a putative wage and hour class action against the Arvin-Edison Water Storage District (“District”), a public agency, alleging violations of various provisions of the California Labor Code, including failure to pay overtime, failure to provide proper meal breaks, and failure to provide all wages due upon termination.  The Court of Appeal upheld the trial court’s granting of the District’s demurrer that public agencies are exempt from the provisions of the Labor Code alleged by Plaintiff in the Complaint.

The Court of Appeal held that absent express statutory authorization, governmental agencies are not subject to a general statute like the Labor Code.  For example, in Labor Code Section 555, the Legislature specifically stated that provisions of that chapter (sections 550-552 and 554) pertaining to maximum consecutive working days (generally stating that employees are entitled to one day of rest in seven days of work),“ are applicable to cities which are cities and counties and to the officers and employees thereof.” Because Labor Code sections 510 and 512 pertaining to overtime and meal periods do not expressly contain language applying these statutes to public agencies, they are held to apply only to the private sector.  Moreover, Labor Code section 220(b) states that provisions in that chapter (including final pay provisions under Labor Code sections 201 and 202) do not apply to “employees directly employed by any county, incorporated city, or town or other municipal corporation.”  The Court held that the District exercises a governmental function and therefore qualified as an “other municipal corporation.”

The Court of Appeal further noted that the District is also exempt under the “sovereign powers” maxim.  Under the “sovereign powers” maxim, a statute infringes upon a public entity’s sovereign powers if it affects the entity’s governmental purposes and functions, and the Court held that setting employees’ compensation was a fundamental function of the District.  While public agencies like the District must still comply with the wage and hour laws set forth in the federal Fair Labor Standards Act (“FLSA”), this decision confirms that absent specific statutory authorization, most public agencies will not be subject to provisions of the California Labor Code.

On June 3, 2009, a California Court of Appeal issued a favorable decision for employers regarding post-termination commission claims.

The plaintiff was a salesman who suggested a transaction to his employer that was not consummated until a month after the employer terminated the plaintiff's employment.  The plaintiff sued his former employer for failure to pay him any commission on the transaction.

The plaintiff's employment contract stated that he "will be eligible for commission pay … so long as he remains employed with the Company."  The Court of Appeal ruled that this language "is reasonably susceptible to only one interpretation - that once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay."  Consequently, the Court of Appeal affirmed summary judgment in favor of the employer because "pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated."

The Court of Appeal, however, made clear that the outcome would not necessarily be so favorable for employers in other cases because "there is an exception to this principle when a contract provision is unconscionable," which the Court of Appeal did not consider in this case because the plaintiff did not make that argument.  The Court of Appeal gave as an example a previous case where a provision in an employment agreement that a salesman forfeited his right to a commission if he terminated his employment before his employer received payment for the sale was found to be unconscionable and therefore unenforceable.

Accordingly, commission agreements need be carefully analyzed and drafted to maximize the likelihood that a court will uphold the language on which the employer bases its decisions regarding commission payments.  The case is Nein v. Hostpro, Inc. and can be found here.

Earlier today, a California Court of Appeal overturned a recent trial court verdict awarding a class of current and former Starbucks baristas $86 million in tips they were required to share with shift supervisors.  The Court of Appeal held in Chau v. Starbucks that the trial court erred in ruling that Starbucks’ tip allocation policy violated California law.  More specifically, the court explained:

“The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes.  The court’s ruling was improperly based on a line of decisions that concerns an employer’s authority to mandate that a tip given to an individual service employee must be shared with other employees.  The policy challenged here presents the flip side of this mandatory tip-pooling practice.  It concerns an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.  There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.”

The Court of Appeal further explained that it did not matter whether or not the shift supervisors qualified as “agents” of Starbucks under California Labor Code section 350.  “Even if shift supervisors can be considered ‘agents’ within the meaning of section 350, subdivision (d), Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors.”  According to the court, the evidence established that shift supervisors spent the majority of their time performing the same service tasks as the baristas, and that customers would not be capable of distinguishing between an employee who was a barista and one who was a shift supervisor.   "Thus, customers who place money in the tip box understand and intend that the money will be shared by the entire team, including baristas and shift supervisors.”

Based on this reasoning, the Court of Appeal reversed the trial court judgment against Starbucks and ordered the trial court to enter judgment in Starbucks’ favor.  This is a very positive decision for California businesses that have tip allocation policies based on the use of collective tip jars similar to those used by Starbucks.  However, businesses with mandatory tip pooling policies involving customers who leave personal tips for a specific employee (as is often the case in restaurants with direct table service) must continue to be mindful of the general restriction against permitting “agents” of the employer to share in pooled tips.

Late last week, the Second District Court of Appeal published its decision in Sonic-Calabasas A, Inc. v. Moreno, holding that a properly drafted arbitration agreement can be used by the employer to force an employee who filed a wage claim under section 98.2 of the California Labor Code to proceed with the claim under the terms and conditions of the arbitration agreement in the arbitral forum.  First, the Court of Appeal looked at section 229 of the California Labor Code and held that because the arbitration agreement was drafted under the provisions of the Federal Arbitration Act, the FAA superseded section 229 of the California Labor Code and therefore that statute was not a bar to arbitration.  Second, the Court analyzed the arbitration agreement under the Armenderiz and Gentry standards.  The Court of Appeal found that these prior California Supreme Court decisions did not preclude mandatory arbitration of the wage claim. 

A complete copy of the Sonic-Calabasas opinion is available here.  The lesson of this decision is that employers can successfully avoid having to litigate wage claims before the California Labor Commissioner with a properly worded mandatory arbitration agreement drafted under the FAA. 

Earlier today, the California Supreme Court issued its decision in Strauss v. Horton, upholding Proposition 8, an initiative passed by California voters in November 2008 to amend the California Constitution to ban the right of same-sex couples to marry.  The Court rejected a variety of constitutional challenges to the Proposition and ultimately concluded that the Proposition was a validly enacted constitutional amendment that must be enforced.  Therefore, going forward, only marriages between a man and a woman are recognized as valid in California.

Interestingly, however, the California Supreme Court held that Proposition 8 is not retroactive.  Thus, same-sex marriages entered into prior to the effective date of Proposition 8 (and following the Supreme Court's prior decision in In re Marriage Cases) continue to be valid in California.