Wage Law

CJAC Class Action Initiative Withdrawn, For Now

An article published in the Daily Journal this week reports that the ballot initiative sought by the Civil Justice Association of California (CJAC) to limit class-action lawsuits (the "California Class Action Lawsuit Fairness Act") has been withdrawn from the June 2008 ballot. John Sullivan, CJAC president, said that it did not appear that June was a good time to advance such a ballot measure, because of other measures on that ballot which are predicted to cause a high turnout from Democratic voters. The other potential ballot measures include one to change the state's electoral vote to proportional, rather than winner take all; a defense-of-marriage initiative; and a prisoner-rights statute.

The CJAC initiative was similar to failed Assembly Bill 1505, sponsored by Assemblywoman Nicole Parra. Fundraising efforts for the CJAC initiative were said to be doing poorly, but that claim was neither admitted nor denied by Sullivan. Sullivan also suggested that the measure might still be pursued in the November 2008 election.

Notwithstanding the withdrawal of the California Class Action Lawsuit Fairness Act measure, consumer and labor groups are proceeding with their four counter-initiatives, including one to toughen civil and criminal penalties against corporate executives who fail to report corporate wrongdoing; one to provide compensation for victims of corporate fraud and make certain executives liable for making victims whole; one to force publicly traded corporations to disclose executive compensation; and one to standardize by statute the procedures for filing and maintaining class-action lawsuits.

Gentry: Class Action Arbitration Bans Not Always Enforceable in Wage Cases

In a 4-3 decision, the Supreme Court has reversed an appellate decision upholding a ban on class actions in wage and hour arbitrations, holding that, in certain cases, class action waivers/bans are unenforceable, even if the arbitration agreement itself was not procedurally unconscionable as a whole. The holding in Gentry v. Superior Court (Circuit City Stores) provides:

[C]lass arbitration waivers should not be enforced if a trial court determines, based on [certain] factors ... that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration. We therefore reverse the judgment of the Court of Appeal upholding the class arbitration waiver and remand for the above determination.

On the second issue, the court held that

[A] finding of procedural unconscionability is not required to invalidate a class arbitration waiver if that waiver implicates unwaivable statutory rights. But such a finding is a prerequisite to determining that the arbitration agreement as a whole is unconscionable. ... Contrary to the Court of Appeal, we conclude the present agreement has an element of procedural unconscionability notwithstanding the opt-out provision, and therefore remand for a determination of whether provisions of the arbitration agreement were substantively unconscionable.

Thought equivocal in the holding, it would appear that the factors that the Supreme Court requires the lower courts to consider would favor permitting class arbitrations in the vast majority of wage and hour cases. The majority opinion discussed, at length, three factors that favor permitting arbitrations to proceed as class actions.

• According to the DLSE’s report in response to Gentry’s Public Records Act request, the average award from its wage adjudication unit for 2000-2005 was $6,038. (See also Asian Pacific American Legal Center et al., Reinforcing the Seams: Guaranteeing the Promise of California’s Landmark Anti-Sweatshop Law, An Evaluation of Assembly Bill 633 Six Years Later (Sept. 2005) p. 2 [average claim for overtime and minimum wage violations submitted to DLSE ranged from $5,000-$7,000, and settlement ranged from $400-$1,600].)
• A second factor in favor of class actions for these cases, as noted in Bell, is that a current employee who individually sues his or her employer is at greater risk of retaliation. We have recognized that retaining one’s employment while bringing formal legal action against one’s employer is not “a viable option for many employees.” (Richards v. CH2M Hill, Inc. (2001) 26 Cal.4th 798, 821; see also Mullins v. Rockwell Internat. Corp. (1997) 15 Cal.4th 731, 741.) Richards and Mullins involved high-level managerial and professional employees. The difficulty of suing a current employer is likely greater for employees further down on the corporate hierarchy. As one court observed: “ ‘Although there is only plaintiff’s suggestion of intimidation in this instance, the nature of the economic dependency involved in the employment relationship is inherently inhibiting.’ ” (O’Brien v. Encotech Const. Services, Inc. (2001) 203 F.R.D. 346, 351.) ... “[I]t needs no argument to show that fear of economic retaliation might often operate to induce aggrieved employees quietly to accept substandard conditions.” (Mitchell v. Robert DeMario Jewelry, Inc. (1960) 361 U.S. 288, 292.)
• Third, some individual employees may not sue because they are unaware that their legal rights have been violated. The New Jersey Supreme Court recently emphasized the notification function of class actions in striking down a class arbitration waiver in a consumer contract: “[W]ithout the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged. As commentators have noted, ‘often consumers do not know that a potential defendant’s conduct is illegal. When they are being charged an excessive interest rate or a penalty for check bouncing, for example, few know or even sense that their rights are being violated.’ ” (Muhammad v. County Bank of Rehoboth Beach, Delaware (N.J. 2006) 912 A.2d 88, 100.) Similarly, it may often be the case that the illegal employer conduct escapes the attention of employees. Some workers, particularly immigrants with limited English language skills, may be unfamiliar with the overtime laws. (See Ha, An Analysis in Critique of KIWA’s Reform Efforts in the Los Angeles Korean-American Restaurant Industry (2001) 8 Asian L.J. 111, 122-123.) Even English-speaking or better educated employees may not be aware of the nuances of overtime laws with their sometimes complex classifications of exempt and nonexempt employees. (See Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 796-798.) The likelihood of employee unawareness is even greater when, as alleged in the present case, the employer does not simply fail to pay overtime but affirmatively tells its employees that they are not eligible for overtime. Moreover, some employees, due to the transient nature of their work, may not be in a position to pursue individual litigation against a former employer. (Ansoumana v. Gristede’s Operating Corp. (S.D.N.Y. 2001) 201 F.R.D. 81, 86-87.)

The trial court will be required to consider these factors and decide whether to invalidate the waiver on public policy grounds, in which case the parties may proceed to class arbitration, unless the trial court invalidates the arbitration agreement altogether. On remand, however, the dice seem to be loaded in favor of Gentry, not Circuit City.

We do not foreclose the possibility that there may be circumstances under which individual arbitrations may satisfactorily address the overtime claims of a class of similarly aggrieved employees, or that an employer may devise a system of individual arbitration that does not disadvantage employees in vindicating their rights under section 1194. But class arbitration waivers cannot, consistent with the strong public policy behind section 1194, be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees’ prosecution of those claims.

Whether Gentry will be able to proceed in court, rather than be sent to a class arbitration, is much less clear. Before discussing the many factors that the lower court could consider in determining whether the Circuit City arbitration agreement had sufficient procedural unconscionability to render the entire agreement invalid, the court made this interesting observation.

We believe that severance is particularly appropriate in the case of class arbitration waivers because, unlike limitations on remedies or other limitations that are invalid on their face (see Armendariz, supra, 24 Cal.4th at pp. 103-104), such waivers will only be invalidated after the proper factual showing, as discussed above.

The opinion then focuses on the procedural issues, and here, the majority's discussion of procedural unconscionability and the distinction between unconscionability analysis and the enforcement and protection of unwaivable rights will be applicable not only to class cases, but individual cases as well.

[T]he validity of a class arbitration waiver was analyzed in the previous part of this opinion in terms of unwaivable statutory rights rather than unconscionability. (See Armendariz, supra, 24 Cal.4th at p. 113.) Because the statutory rights under section 1194 at issue in this case are not waivable, the minimal requirements imposed on arbitration agreements to ensure their vindication cannot be waived by the employee in a prelitigation agreement. (Armendariz, supra, 24 Cal.4th at p. 103, fn. 8.) As we clarified in Armendariz, such waiver could only occur “in situations in which an employer and an employee knowingly and voluntarily enter into an arbitration agreement after a dispute has arisen.

In the end, we are left not knowing the forum in which Gentry will ultimately be sent to litigate his overtime class action against Circuit City. The Supreme Court disagreed with most of Circuit City's arguments that carried the day in the Court of Appeal, but kept quite open the possibility that the trial court could sever [additional] parts of the arbitration agreement and enforce the rest.

Justice Moreno wrote the majority opinion, joined by Chief Justice George and Justices Kennard and Werdegar; Justice Baxter wrote a dissent, joined by Justices Chin and Corrigan. For a change, we came pretty close to predicting the outcome of this one.

We think Justices Moreno, Werdegar, Kennard and George, who were all in the 4-3 majority that decided Discover Bank, will join in a majority opinion that will hold class action prohibitions to be substantively unconscionable under California law. If forced to guess further, we would wager that the Court will find sufficient procedural unconscionability to render the Circuit City arbitration agreement completely unenforceable under Calfornia law.

We got the majority right, but the opinion did not go quite as far as we anticipated and hoped. Nonetheless, the opinion strongly favors the rights of employees in wage and hour class actions and in wage cases generally. The language in Gentry v. Superior Court is so interesting that it instantly becomes one of those cases that every wage and hour practitioner should keep in a Word file with a shortcut to it on their desktop. For the next 60 days or so, you can download the full text here in pdf or Word format.

Gentry Class Action Arbitration Decision Due Out Tomorrow

Among three opinions to be published by the Supreme Court tomorrow is the eagerly anticipated decision in Gentry v. Superior Court (Circuit City Stores) S141502 (B169805 – Los Angeles County Superior Court – BC280631), argued in Los Angeles 6-05-07. The issue under review is described by the Supreme Court as follows:

This case presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California’s wage and hour laws.

You can read our notes from the oral arguments in a post here. After the hearing, we thought we were pretty sure there were at least four votes for Gentry, but a subsequent order granting review of a similar case where the appellate court struck down the class action ban (while simultaneously denying a petition to stay) left us scratching our heads. We'll know for sure tomorrow at 10:00 a.m.

CJAC Membership

The Civil Justice Association of California, the organization trying to get Nicole Parra's class action destruction bill passed by the electorate as a ballot measure, tries to make itself sound like a grass roots organization - a "twenty-five year old non-profit organization whose membership is made up of hundreds of businesses, professional associations and local governments" with the goal of educating the public about ways to improve the state’s civil liability laws in terms of fairness, efficiency, economy and certainty. In fact, CJAC is an organization of very large business interests, seeking to influence the courts and the legislature into passing business-friendly laws, and eschewing consumer and individual-friendly laws. Here is the list of CJAC board member organizations for 2007, which is largely the same group of names on CJAC's letterhead last year:

. 21st Century Insurance Group
. Allstate Insurance Company
. Altria Corporate Services, Inc.
. American Insurance Association
. American International Group, Inc.
. Amgen, Inc.
. AT&T Inc.
. Bayer HealthCare
. Blue Cross of California
. BP
. California Apartment Association
. California Association of Physician Groups
. California Association of Realtors
. California Building Industry Association
. CalChamber
. California Dental Association
. California Hospital Association
. California State Association of Counties
. Caterpillar Inc.
. Chevron Corporation
. Cisco Systems, Inc.
. CNA Insurance Companies
. Consulting Engineers & Land Surveyors of California
. Cooperative of American Physicians, Mutual Protection Trust
. Countrywide Financial Corporation
. Crown Cork & Seal Company
. ExxonMobil Corporation
. Farmers Insurance Group
. Fireman's Fund Insurance Company
. Ford Motor Company
. General Electric Company
. General Motors Corporation
. Georgia-Pacific Corporation
. GlaxoSmithKline
. Goodrich Corporation
. Greenberg Traurig
. Hewlett-Packard Company
. HSBC - North America
. Intel Corporation
. Johnson & Johnson
. Kaiser Foundation Health Plan
. League of California Cities
. Liberty Mutual Insurance Group
. Motion Picture Association of America
. Nielsen, Merksamer, Parrinello, Mueller & Naylor
. Oracle Corporation
. Pacific Gas & Electric Company
. Pacific Life Insurance Company
. PepsiCo
. Pfizer Inc.
. Pharmaceutical Research & Manufacturers of America
. Sempra Energy
. Shell Oil Company
. Southern California Edison
. State Farm Insurance Companies
. The Accountants Coalition
. The Doctors' Company
. The Dow Chemical Company
. The Flanigan Law Firm
. The Hartford Life Insurance Company
. The Irvine Company
. The Travelers Indemnity Company
. Toyota Motor Sales, U.S.A., Inc.
. United Services Auto Association
. Valero Energy Corporation

Essentially, a collection of huge corporations, their trade groups, and three or four law/lobbying firms whose sole goal in the courtroom is to reduce or eliminate tort and wage liability, while simultaneously preserving their right to continue to clog the court dockets with contract cases.

Class Action Ballot Battle Shaping Up

To counter a ballot initiative proposed by the CJAC, calling itself the "California Class Action Lawsuit Fairness Act", that would gut class action litigation in California, the Consumer Attorneys of California (CAOC) filed initiatives this month that would bring reform to corporate America by making large corporations and their CEOs accountable for their wrongdoing. A broad coalition is forming against the corporate class action killing initiative, including:

AARP Foundation Litigation, ACLU of Northern California, ACLU of San Diego and Imperial Counties, American Association for Justice, Asian Law Caucus, Asian Pacific American Legal Center, California Alliance for Retired Americans, California Employment Lawyers Association, California Foundation for Independent Living Centers, California Labor Federation, California Reinvestment Coalition, California Teamsters, Public Affairs Council, California Women's Law Center, Center for Justice and Democracy, Coalition of Disability Access Professionals, Consumer Action, Consumer Federation of California, Consumers for Auto Reliability and Safety, Designing Accessible Communities, Disability Rights Advocates, Disability Rights Education and Defense Fund, Equal Rights Advocates, Foundation for Taxpayer and Consumer Rights, Gray Panthers, Law Foundation of Silicon Valley, Lawyers' Committee for Civil Rights of the San Francisco Bay Area Legal Aid Society, Employment Law Center, Legal Services for Prisoners with Children Mexican, American Legal Defense and Educational Fund, National Center for Youth Law, National Consumer Law Center, National Immigration Law Center, National Senior Citizens Law Center, Privacy Rights Clearinghouse, Protection & Advocacy, Inc., Public Advocates, Public Counsel, Public Interest Law Project, Speak Out California, Strengthening Our Lives (LA County Federation), Teamsters Union Local No. 70 Utility, Consumers' Action Network, Western Center on Law & Poverty, Women's Employment Rights Clinic, and the Youth Law Center.

The CAOC has identified significant class actions against each one of the CJAC board members and are expanding their efforts to educate the public about each company's wrongdoing. For further information including press releases about CAOC's initiatives or CJAC's initiative and text of the measures, check out http://www.caoc.com/ClassActionInitiative.

Profit-Sharing Bonus Plans May Take Company Expenses and Losses Into Account

In their own words, in Prachasaisoradej v. Ralphs Grocery Company, Inc. (2007) __ Cal.4th __, the California Supreme Court confronted a significant question of California wage law.  The order granting review set forth the following limited issue on appeal:

Petition for review after the Court of Appeal reversed the judgment in a civil action. The court limited review to the following issue: Does an employee bonus plan based on a profit figure that is reduced by a store's expenses, including the cost of workers compensation insurance and cash and inventory losses, violate (a) Business and Professions Code section 17200, (b) Labor Code sections 221, 400 through 410, or 3751, or (c) California Code of Regulations, title 8, section 11070?

Ralphs Grocery Company, Inc. implemented a written incentive compensation plan whereby certain employees of each store were eligible to receive, over and above their regular wages, supplementary sums based upon how the store’s actual Plan-defined profits, if any, for specified periods compared with preset profitability targets. For both target and actual purposes, profits were determined by subtracting store operating expenses from store revenues. Plaintiff claimed the Plan’s formula for calculating these supplemental profit-sharing payments violated California law prohibiting an employer from shifting certain of its costs to employees by withholding, deducting, or recouping them from wages or earnings, or otherwise obliging employees to contribute to them.

Labor Code § 221 provides that an employer may not “collect or receive from an employee any part of wages theretofore paid.” Labor Code § 3751(a) prohibits an employer from “exact[ing] or receiv[ing] . . . any employee . . . contribution,” or “tak[ing] any deduction from [employee] earnings . . . , either directly or indirectly, to cover the whole or any part the cost of [workers’] compensation.” Industrial Welfare Commission Wage Order 5 forbids such deductions and charges against the wages of nonexempt employees in the mercantile industry. Based upon these statutes and regulations, the Court of Appeal in Ralphs Grocery Co. v. Superior Court (2003) 112 Cal.App.4th 1090 held that the profit-based supplementary Plan was invalid because it considered a store’s costs for workers’ compensation when computing the store profit on which Plan payments were calculated and it factored cash shortages and merchandise damage and loss into the profit calculation. By doing so, the Plan effectively charged back a portion of such costs to employees through deductions from their wages. In Prachasaisoradej, the trial court sustained, without leave to amend, a demurrer to a complaint alleging unlawful bonus plan pay reductions based upon company expenses and losses. Relying upon Ralphs Grocery v. Superior Court, the Court of Appeal reversed, and the Supreme Court granted review, and last week, overturned the Court of Appeal's decision, holding that the reasoning of Ralphs Grocery is flawed, and the authorities on which that decision relied are distinguishable.

[N]othing in those authorities suggests that an employer violates California wage-protection laws by providing, as Ralphs did, supplementary compensation designed to reward employees, over and above their regular wages, if and when their collective efforts produced a positive financial result for the store where they worked.
...
The [plan] did not create an expectation or entitlement in a specified wage, then take deductions or contributions from that wage to reimburse Ralphs for its business costs.  At the outset, all Plan participants received, regardless of the store’s performance, their guaranteed normal rate of pay—the dollar wage they were promised and expected as compensation for carrying out their individual jobs. Over and above this regular wage, participants in the Plan understood that their collective entitlement to incentive compensation payments, and the amounts thereof, arose only under a formula that compared the store’s actual Plan-defined profit, if any, for a specified period, with target figures previously set by the company.
...
pursuant to normal concepts of profitability, ordinary business expenses, such as storewide workers’ compensation costs, and storewide cash and merchandise losses, were figured in, along with such other store expenses as the electric bill and the cost of goods sold, to determine the store’s profit, upon which the supplementary incentive compensation payments were calculated.  By doing so, Ralphs did not illegally shift those costs to employees.  After fully absorbing the expenses at issue, Ralphs simply determined what remained as profits to share with its eligible employees in addition to their normal wages.

To sum up, a true profit sharing bonus can taking into account any of the elements that are normally included in determining whether and in what amount a profit was earned. You can download the opinion in Prachasaisoradej from the Supreme Court's website in pdf or word format. What little we had to say about the Supreme Court argument was posted here.

Ninth Circuit Rejects Immediate Appeal From Denial of Motion For Notice in FLSA Collective Action

A District Court order denying a plaintiff's motion to issue notice of an FLSA collective action is not immediately appealable, according to a 9th Circuit opinion issued last week in McElmurry v. U.S. Bank National Association (9th Cir. 2007) __ F.3d __, an FLSA case filed in Oregon. Appellants twice asked the district court to approve notice to potential plaintiffs and to toll the statute of limitations pending the notice process. The district court denied both requests. The appeal was taken from the district court’s second order denying a request for notice and rejecting, as moot, a request to toll the statute of limitations. One of the court's bases for the decision was its finding that post-judgment appellate review provided an adequate remedy. We fail to see how.

The FLSA permits collective actions of "similarly situated” employees. 29 U.S.C. § 216(b). Unlike class actions under FRCP Rule 23, in a collective action, participants must affirmatively opt in: “no employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the Court in which such action is brought.” 29 U.S.C. §  216(b). More importantly, the statute of limitations is not automatically tolled by filing the action. Instead, unIess a court orders (which infrequently happens), or the parties stipulate (which happens even more infrequently), the statute of limitations continues to run for each individual until he or she files a written consent to participate in the litigation.

Because the statute of limitations on an FLSA claim continues to run until the employee files a written consent, it is important for potential participants to receive notice of the collective action so that they can decide whether or not to opt in. In a collective action, each participating members' claims do not relate back to when the complaint was filed. Most potential collective action members do not even know they have a claim until and unless they get a notice. Thus, as a practical matter, by the time any post-judgment appellate review is made, all the potential claimants aggrieved by the trial court's order (i.e, everyone who didn't already opt in) will have stale claims.

The appellants, of course, noticed this dilemma and brought it to the court's attention. The court was not persuaded.

The district court’s order denying Appellants’ motion for notice would not be “effectively unreviewable” if we do not exercise jurisdiction. An order is deemed effectively unreviewable only where “ ‘the legal and practical value of [the right at stake will] be destroyed if not vindicated before trial.’ ” Midland Asphalt Corp. v. United States, 489 U.S. 794, 799 (1989).

We cannot see that Appellants will forfeit the opportunity to raise their arguments on an appeal from a final judgment in this case. Appellants argue that the statute of limitations will continue to run, and that some employees may lose their opportunity to participate in a collective action if they wait until after an appeal from final judgment. Although employees who may be similarly situated but have not opted in to the action are not bound by its conclusion, and may pursue their actions individually, see Ballaris v. Wacker Siltronic Corp., 370 F.3d 901, 906 n.9 (9th Cir. 2004), we understand Appellants’ concern. However, these arguments have been made in the context of class action suits as well, and it is well established that there is no collateral order jurisdiction over a district court decision to certify or not to certify a class action under Rule 23. [citations] Although, as we have pointed out, there are differences between a collective action brought pursuant to § 216(b) and a class action brought under Rule 23, those differences are not relevant ..."

Thus, the appeal was dismissed for lack of jurisdiction, and the alternate petition for writ of mandamus was denied. The lesson for the defense: if you can defeat the motion for notice in an FLSA case, you just won damn near the whole case. The lesson for the plaintiffs: if you lose a motion for precertification notice, your only meaningful remedy is to renew your motion after gathering better evidence ("nothing in the district court orders would preclude the court from revisiting its decision during subsequent proceedings. See Comer, 454 F.3d at 548- 49; Baldridge, 404 F.3d at 931-32.")

The Popularity of PAGA

According to a statement made in May 2007 by Anne Stevason, former Chief Counsel of the Division of Labor Standards Enforcement (DLSE), as of mid-2007, the DLSE has received PAGA (The Private Attorneys General Act of 2004) settlement checks ranging from $60 to $450,000, with a total of $750,000. Due to a federal lawsuit under Section 1983 (42 U.S.C. § 1983), the DLSE has adopted a policy against participating in lawsuits or negotiating the settlements, and they have yet to object to any settlements.

[Editor's Note: As originally posted, the disclosure by Anne Stevason did not read correctly, and the editor was literally out to sea (correcting his attorney work life balance) and unable to correct the error before the post was published.]

Review Granted in Meyer v. Sprint Spectrum

On Wednesday, the Supreme Court granted review in Meyer v. Sprint Spectrum L.P. (2007) 150 Cal.App.4th 1136, in which the Fourth District Court of Appeal held that Proposition 64 created a two-part, standing test, and applied that test to bar claims by plaintiffs who were unable to show that the defendant had attempted to enforce the unlawful and unconscionable provisions in their agreements. The case is only applicable to wage and hour cases to the extent that they include unfair competition claims arising from unlawful employment practices found in handbooks that have not been enforced, and no arising from PAGA notices. We're following the case, however, for that reason and because we think someone should sue the pants off of Sprint, too.

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