class action in Labor relations

In the underlying decision, Sanchez v. Valencia Holding Company, LLC (11/23/11) 200 Cal.App.4th 11 (discussed here), the Court of Appeal found the arbitration provision unenforceable as procedurally and substantively unconscionable. The Court held that AT&T Mobility LLC v. Concepcion, 563 U. S. __, 131 S.Ct. 1740 (2011), did not apply because the question was not “the enforceability of a class action waiver or a judicially imposed procedure that is inconsistent with the arbitration provision and the purposes of the Federal Arbitration Act (FAA).”

In 2007, purchasers of Microsoft Xbox 360 game consoles brought a putative class action, alleging design defects. Scratched Disc Litigation, 2009 WL 10219350. The judge in that case denied certification, finding that common issues did not predominate because most Xbox owners had not experienced the purported defect.

In Baker v. Microsoft Corporation, ___ F.3d ___ (9th Cir. 3/18/15, mod. 7/20/15), another group of Xbox owners brought another putative class action alleging the same design defects. The district court struck the plaintiffs’ class allegations, finding that comity required deferral to the 2009 order denying certification. The Ninth Circuit denied the plaintiffs’ petition for an interlocutory appeal, the parties stipulated to dismiss the case with prejudice, the district court approved the stipulation, and the plaintiffs appealed.

The Ninth Circuit reversed, holding as follows:

The Court had jurisdiction to hear the appeal, even though the parties stipulated to the dismissal. Absent a settlement, a stipulated dismissal “does not destroy the adversity in that judgment necessary to support an appeal.”

The district court erred in striking the class allegations. In Wolin v. Jaguar Land Rover N. Am. LLC, 617 F.3d 1168 (9th Cir. 2010) (discussed here — it’s funny to look back at my old posts and see how bad they were!) the Court rejected “the notion that individual manifestations of a defect precluded resolution of the claims on a class-wide basis.” As in Wolin, which controls the current case, questions regarding the Xbox’s design and any breaches of warranty are common questions that are “susceptible to proof by generalized evidence and do not require proof of individual causation.” The fact that individual class members may have suffered different damages would not affect class certification. Defendant’s arguments on the merits are not relevant at the class certification stage. The Court did not hold that the class should be certified; it held only that the district court erred in striking the class allegations.

The opinion is here.

The district court granted summary judgment on other grounds, and the plaintiff appealed. The defendant argued that the Court of Appeals lacked jurisdiction because the offer of compromise mooted the plaintiff’s individual and class claims. The Ninth Circuit rejected this argument, holding that an unaccepted Rule 68 offer of compromise that would fully satisfy a plaintiff’s claim does not moot either the individual or class claim. The Court distinguished Genesis Healthcare Corp. v. Symczyk, ___ U.S. ___, 133 S.Ct. 1523 (2013) (discussed here) on grounds that Genesis Healthcare was a putative collective action under the Fair Labor Standards Act (FLSA), rather than a Rule 23 class action, and the precedents established in FLSA collective actions do not apply in Rule 23 class actions.

The United States Supreme Court granted certiorari on May 18. Campbell-Ewald Company v. Gomez, case no. 14-857, will be heard next term. SCOTUSblog has a page for the case here. The Ninth Circuit opinion is available here.

The district court certified the case as a FLSA collective action under 29 U.S.C. § 216(b) and a class action under Federal Rule of Civil Procedure 23. At trial, the plaintiffs “proved liability and damages by using individual timesheets, along with average donning, doffing, and walking times calculated from 744 employee observations.” The jury returned a verdict in favor of the employees, and the court entered judgment. Tyson appealed, and the Eighth Circuit Court of Appeal affirmed, holding as follows:

The district court did not err in granting certification. Tyson had uniform policies that affected all class members, and time studies showed that the employees were underpaid. Certification was proper even if evidence at trial showed that some employees worked no overtime and could not recover damages.

The employees did not rely improperly on a formula to prove liability and damages at trial. The employees proved liability “for the class as a whole, using employee time records to establish individual damages.” Because Tyson had no records of actual donning, doffing, and walking time, the employees could show their damages “as a matter of reasonable inference.”

The Eighth Circuit opinion is available here.

The United States Supreme Court granted certiorari on June 8, 2015. Tyson Foods, Inc. v. Bouaphakeo, case no. 14-1146, will be heard next term. SCOTUSblog, which is the best resource for all things SCOTUS, has a page for the case here.

The plaintiffs in a separate class action then sought to intervene and objected to the settlement, but the court denied their intervention motion and overruled their objections. The court granted final settlement approval, and the intervenors/objectors appealed.

The Ninth Circuit affirmed in part and reversed and remanded in part, holding as follows:

The court properly denied the motion to intervene. Although the court did not give its reasons for denying the motion, the Ninth Circuit affirmed on grounds that the intervention motion was not timely, as the Allen case had been pending for four years at the time of settlement, and the intervenors knew of the case and had regularly asked the defendant about the status of settlement talks there.

The court did not engage in the “searching inquiry” required for settlement of uncertified class actions. The Ninth Circuit found three signs that the settlement may have been improper:

(1) all of the money that does not go toward claims actually made, the attorneys’ fees and costs and the administration costs reverts to Labor Ready; (2) Labor Ready agreed not to dispute the award of fees to class counsel, as long as that award did not exceed 25% of the common fund; and (3) when the attorneys’ fee award is examined in terms of “economic reality,” the award exceeds the maximum possible amount of class monetary relief by a factor of three.

The court should have examined these factors, built a record to support its final approval decision, and fulfilled its “special obligat[ion] to assure itself that the fees awarded in the agreement were not unreasonably high.” The court also should have made express findings regarding the value of the stipulated injunctive relief and plaintiff’s counsel’s reasonable attorney fee lodestar.

The court also erred in that the deadline for filing class member objections was before counsel submitted its final fee request. The court should have allowed settlement class members to object to the fee award.

The Ninth Circuit expressed no opinion on the settlement’s substantive fairness, leaving that issue for the district court on remand.

The opinion is available here.

The California Supreme Court granted review on January 28, 2015. The issue presented, according to the Court’s web site, is as follows:

In a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, may a class be certified based on the Industrial Welfare Commission definition of employee as construed in Martinez v. Combs (2010) 49 Cal.4th 35, or should the common law test for distinguishing between employees and independent contractors discussed in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 control?

Dynamex is Case No. S222732, and the Court’s web site for it is here.

The California Supreme Court granted review on November 12, 2014. The Court’s docket page for Sandquist is here.

On class certification, the Court found that Augustus presented evidence of “a uniform policy requiring employees to remain on call during rest breaks.” The Court noted that ABM did not deny in the trial court that it had such a policy, then held that whether such a policy is permissible is an issue “eminently suited for class treatment.”

On the merits, the Court held that the Wage Order does not define the nature of a rest period, but Labor Code section 226.7 states that an employer shall not “require any employee to work during a meal, rest, or recovery period.” The question then became whether being on call requires an employee “to work” during his or her rest period.

The Court then held that “to work” means to exert one’s self physically or mentally. Merely being on call does not require an employee to exert himself or herself. “In other words, [section 226.7] prohibits only working during a rest break, not remaining available to work.”

The Court contrasted section 12 of the Wage Order (rest periods) to section 11 (meal periods), which requires an employer to relieve its employees of all duty during their meal periods. The Court held that this means that an employer need not relieve employees of all duty during their rest periods. “If the IWC had wanted to relieve an employee of all duty during a rest period, including the duty to remain on call, it knew how to do so.”

The Court rejected arguments that Brinker v. Superior Court (discussed here), Faulkinbury v. Boyd and Associates (discussed here), Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, or a 2002 DLSE opinion letter changed this result. None of these authorities, the Court held, addressed the issue before the Court here: whether the law allows an on-duty rest period.

In Gomez, the plaintiff filed an individual and putative class action under the Telephone Consumer Protection Act (TCPA). The defendant made a Rule 68 offer of judgment for the full amount of the plaintiff’s individual claim, and the plaintiff rejected the offer. After the district court dismissed the action on grounds not relevant here, the plaintiff appealed. The defendant then moved to dismiss the appeal for lack of jurisdiction, arguing that the personal and putative class claims were mooted by Gomez’s refusal to accept the settlement offer. The Ninth Circuit rejected this argument, holding as follows:

Under Ninth Circuit precedent, “an unaccepted Rule 68 offer that would fully satisfy a plaintiff’s claim is insufficient to render the [individual] claim moot,” and such an offer, even if made before the plaintiff moves for class certification, does not render the class claims moot. Slip op. at 6-8.

Genesis Healthcare did not change this result. Genesis Healthcare was a putative collective action under the Fair Labor Standards Act (FLSA), rather than a Rule 23 class action, and the precedents established in FLSA collective actions do not apply in Rule 23 class actions. Slip op. at 8-9.

The opinion is available here.

The plaintiff satisfied the commonality requirement of Federal Rule 23(a)(2) by identifying common questions, the truth or falsity of which would “resolve an issue that is central to the validity of each claim in one stroke”:

(i) whether class members generally worked overtime without receiving compensation as a result of Defendant’s unofficial policy of discouraging reporting of such overtime, Defendant’s failure to reduce class members’ workload after the reclassification, and Defendant’s policy of treating their pay as salaries for which overtime was an “exception”; (ii) whether Defendant knew or should have known that class members did so; and (iii) whether Defendant stood idly by without compensating class members for such overtime.

These common questions constituted the “glue” necessary to say that “examination of all the class members’ claims for relief will produce a common answer to the crucial question[s]” raised by the plaintiffs’ complaint. Slip op. at 7-11.

The plaintiff could use statistical sampling and representative testimony to prove liability, “so long as the use of these techniques is not expanded into the realm of damages.” The district court “was careful to preserve Allstate’s opportunity to raise any individualized defense it might have at the damages phase of the proceedings” and “preserved the rights of Allstate to present its damages defenses on an individual basis.” As a result, the district court did not err by certifying the class. Slip op. at 11-15.

The opinion is available here.

The showing of an actionable expenditure or loss by . . . class member[s] pertains to [defendant’s] liability, not to class members’ damages as it is set forth in . . . section 2802. If the class member[s] did not incur . . . loss[es], there can be no liability.”

Where an employer gives an employee thirty days to opt out of an arbitration policy that forbids class-wide arbitration, the employer does not violate either the Norris-LaGuardia Act, 29 U.S.C. § 101 et seq., or the National Labor Relations Act, 29 U.S.C. § 151 et seq. Such a policy does not interfere with, restrain, or coerce the employee in the exercise of her right to file a class action. As the Court stated:

If [the employee] wanted to retain [the right to file a class action], nothing stopped her from opting out of the arbitration agreement. [The employer] merely offered her a choice: resolve future employment-related disputes in court, in which case she would be free to pursue her claims on a collective basis; or resolve such disputes through arbitration, in which case she would be limited to pursuing her claims on an individual basis. In the absence of any coercion influencing the decision, we fail to see how asking employees to choose between those two options can be viewed as interfering with or restraining their right to do anything.

Slip op. at 9.

The Court of Appeal affirmed, holding as follows:

The defendants’ 2001 arbitration agreement expressly excluded from its scope “any matter within the jurisdiction of the California Labor Commissioner.” Plaintiff’s statutory wage claims fell within the jurisdiction of the Labor Commissioner, who “may enforce the provisions of [the Labor Code] and all labor laws of the state the enforcement of which is not specifically vested in any other officer, board or commission.” Slip op. at 12-16.

The Court rejected the defendant’s argument that the arbitration agreement intended to exclude only the claims actually filed before the Labor Commissioner, rather than any claims that could have been filed before the Labor Commissioner. If the defendants had intended to exclude only those claims actually filed before the Labor Commissioner, it could have said so in the operative arbitration agreement. Slip op. at 16-22.

To the extent that the defendants’ 2005 arbitration agreement modified the terms of the 2001 arbitration agreement, such modification was not effective because the 2001 document stated that it could be modified only with the signatures of the President, Senior Vice President and Director of Human Resources. The defendants did not provide evidence that all three such executives executed the 2005 document and they could not enforce it. Slip op. at 22-26.

The opinion is available here.

After AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), defendant Nordstrom, revised its employee handbook to preclude class actions. Weeks later, the plaintiff filed a wage and hour class action, and Nordstom moved to compel individual arbitration. The district court denied the motion, holding that the revision was not valid.

The Ninth Circuit reversed, holding that Nordstrom provided sufficient notice of the change by mailing the revised handbook to its employees and giving them thirty days to decide whether to remain employed by Nordstrom. Under California contract law, the revised handbook constituted a binding agreement between the parties. The law did not require Nordstrom to list the policy revisions in the cover letter that it sent with the revised handbook. Nor did the law require Nordstrom to advise its employees that their continued employment constituted acceptance of the revised policy.

Davis v. Nordstrom is available here.

First, the Court did not address an issue that many of us thought they would: In determining whether one is an employee or independent contractor, what is the relevance of the test set forth in IWC wage order No. 1-2001, subdivision 2(D)–(F)? See Martinez v. Combs (2010) 49 Cal.4th 35, 57-66. “[B]ecause plaintiffs proceeded below on the sole basis that they are employees under the common law, we now conclude we may resolve the case by applying the common law test for employment, without considering these other tests.” Slip op. at 5-6.

Under the common law, “the principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Slip op. at 6. Courts also may consider a number of secondary indicia. Slip op. at 7. What matters “is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” Slip op. at 8.

Accordingly, the proper test on class certification is this: “is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers?” Slip op. at 10. The carriers’ relationship with Antelope Valley was governed by a form contract, and “[s]uch agreements are a significant factor [though not the only factor] for consideration in assessing a hirer’s right to control a hiree’s work. Slip op. at 10. Rather than focusing on whether Antelope Valley’s right to control could be proven on common evidence, the trial court erred in focusing on the ways in which the workers’ delivery practices differed. Slip op. at 11. In doing so, the trial court “based its decision on erroneous legal assumptions about the relevant questions…” Slip op. at 15.

With regard to the secondary indicia of employment status, the Court held that a trial court “must identify whether the factor will require individual inquiries or can be assessed on a classwide basis.” Slip op. at 17. The Court must then weigh whether whether “the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.” Slip op. at 17. Further, in weighing these factors, the court must keep in mind that some factors are of far greater significance than others. Slip op. at 18. The proper course is to consider whether individual variations are “likely to prove material,” and if so, “whether they can be managed.” Slip op. at 19.

The opinion is available here.

In this case, we again address whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. Here, an employee seeks to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer‘s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The question is whether a state‘s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent. We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry.

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. As explained below, we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA‘s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf.

Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract. Finally, we hold that the PAGA does not violate the principle of separation of powers under the California Constitution.

The opinion is available here.