California Labor and Employment Defense Blog

Between A Rock and A Hard Place -- Ricci v. DeStefano Addresses the Conflict Between Disparate Treatment and Disparate Impact Theories

bvanvleck@vtzlaw.com (Brian Van Vleck) — Tue, 30 Jun 2009 13:10:30 -0800

The U.S. Supreme Court decision in Ricci v. DeStefano is very much in the tradition of the Court's affirmative action jurisprudence of the last 40 years. In other words, it is confusing and provides little or no practical guidance to real-world employers.

The factual scenario in Ricci placed the employer (the New Haven Fire Department) in an excruciating dilemma. It had taken great pains to design and administer a promotion test that would be job related and fair to members of all ethnic groups. But when the results came back, the only candidates eligible for promotion were white. The minority candidates threatened a lawsuit if the test results were used. And the white candidates threatened a lawsuit if they were thrown out.

The hapless City chose to be sued by the white firefighters. In throwing out the test results, the City admittedly acted for racially discriminatory reasons -- i.e. because "too many" whites had passed the test. The City argued, however, that avoiding a lawsuit over the unintended disparate impact of its test should be a legal justification for its intentional disparate treatment in voiding the results for racial reasons.

The Court recognized that employers may be faced with a conflict between potential liability for "disparate treatment" and "disparate impact." The Court's resolution was to create a new affirmative defense under which an employer may be immunized from liability for an adverse employment action if it had a "strong-basis-in-evidence" to believe that its action was necessary to avoid liability under another theory of discrimination.

This is a strange rule because it basically directs employers to put themselves on trial and reach a legal conclusion as to how they are most likely to be found liable (even where they believe they have done nothing wrong under any theory) .

It also goes without saying that this "strong-basis-in-evidence" standard is inevitably in the eye of the beholder. After all, the Supreme Court ruled in favor of the white firefighters on the ground that the evidence of intentional disparate treatment was slam-dunk compared to the very weak claim for disparate impact from the test. However, the First Circuit panel whose decision was overruled (including soon-to-be Supreme Court Justice Sonia Sotomayor) had looked at the same record and found the opposite to be true.

Binding Effect of PAGA Decisions Is An Alternative To Class Certification -- Arias v. Superior Court

bvanvleck@vtzlaw.com (Brian Van Vleck) — Tue, 30 Jun 2009 09:08:58 -0800

The California Supreme opinion in Arias v. Superior Court has created a potent new alternative to class actions for enforcing Labor Code provisions.

The Supreme Court granted review to decide whether plaintiffs must obtain formal class certification in order to bring claims under two different statutes -- the Unfair Competition Law (the "UCL," Business and Professions Code section 17200, et seq.) and the Labor Code Private Attorney General Act of 2004 ("PAGA," Labor Code section 2698, et seq.). The answers were "Yes" as to the UCL, and "No" as to PAGA.

The really interesting part of the decision, however, was the Supreme Court's elucidation of how principles of collateral estoppel should apply in a representative PAGA action which has not been formally certified as a class action. To understand the due process issues raised by such an action the Court first explained the burdens imposed on a defendant by the prospect of "one-way intervention."

Unfairness may result from application of collateral estoppel when, for example, various plaintiffs in separate lawsuits against the same defendant assert claims presenting common issues. Because collateral estoppel may be invoked only against a party to the prior lawsuit in which the issue was determined, and because in our example the defendant would be a party to every lawsuit while each of the various plaintiffs would be a party in only one lawsuit, the defendant would in later lawsuits be bound by any adverse determination of the common issues, while none of the plaintiffs would be similarly bound by prior determinations in the defendant's favor. Thus, one plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevailed; then everyone else would ride on that single success. (Internal Citations omitted).

The Court went on to explain, however, that this "one-way intervention" problem cannot arise as to employee claims for the penalties provided solely by PAGA itself.

Because an aggrieved employee's action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. . . . Accordingly, with respect to the recovery of civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under the act, and therefore defendants' due process concerns are to that extent unfounded.

Just as significantly, however, the Court went on to specifically approve "one-way intervention" for employees who wish to "piggyback" on a favorable PAGA ruling by seeking wages and other remedies which are not provided by PAGA itself.

[I]f an employee plaintiff prevails in an action under [PAGA] for civil penalties by proving that the employer has committed a Labor Code violation, the defendant employer will be bound by the resulting judgment. Nonparty employees may then, by invoking collateral estoppel, use the judgment against the employer to obtain remedies other than civil penalties for the same Labor Code violations. If the employer had prevailed, however, the nonparty employees, because they were not given notice of the action or afforded any opportunity to be heard, would not be bound by the judgment as to remedies other than civil penalties.

In short, as construed by the Supreme Court, an action under PAGA represents the best of both worlds for plaintiffs' attorneys. On the one hand, they need not obtain class certification to bring an action on behalf of an entire group of employees. And yet, a favorable decision on the merits will still bind the employer on a class-wide basis as to both PAGA and non-PAGA claims.

Arias v. Superior Court - Class Action Requirements Clarified By California Supreme Court

azaller@vtzlaw.com (Anthony Zaller) — Mon, 29 Jun 2009 18:19:14 -0800

In almost every employment law class action filed, the plaintiff alleges a cause of action under California’s unfair competition law, found in California’s Business & Professions Code section 17200. Likewise, plaintiffs’ routinely allege causes of action under California Labor Code Private Attorneys General Act of 2004, found in Labor Code section 2698. These claims can be filed by one plaintiff as a “representative action” in which the individual plaintiff is seeking remedies on behalf of all other employees.

The issue decided by the California Supreme Court in Arias v. Superior Court was whether the plaintiff bringing a "representative action" must have the class certified as a class action when pursing a unfair competition claim and a Private Attorneys General Act claim. The Supreme Court held that a plaintiff must have the class certified as a class action when pursuing a Business & Professions Code section 17200 claim, but the plaintiff does not have to certify a class action to maintain a “representative action” under the Private Attorneys General Act.

The Court explained, “[a] party seeking certification of a class action bears the burden of establishing that there is an ascertainable class and a well-defined community of interest among the class members.” If a class is certified by a trial court, then everyone who fits the class definition receives notice that they are automatically in the class (unless they affirmatively opt out), and are bound by the ultimate outcome of the case.

Claims Under The Unfair Competition Law Must Be Certified As a Class Action

The Supreme Court explained that the unfair competition law prohibits “any unlawful, unfair or fraudulent business act or practice . . . .” Furthermore, in 2004, California voters passed Proposition 64 that amended Business & Professions Code section 17200 to only allow a plaintiff to bring a representative action under if he or she “suffer injury in fact and has lost money or property as a result of such unfair competition” and that the action must comply with California Code of Civil Procedure section 382, which (generally) allows for class actions under California law. The Supreme Court explained the intent of the voters in passing Proposition 64:

A thorough review of the Voter Information Guide prepared by the Secretary of State for the November 2, 2004, election at which the voters enacted Proposition 64 leaves no doubt that, as discussed below, one purpose of Proposition 64 was to impose class action requirements on private plaintiffs’ representative actions brought under the Unfair Competition Law.

Therefore, the Court held that claims brought under Section 17200 must be certified as a class action.

Claims Under The Private Attorneys General Act of 2004 Do Not Need To Be Certified As A Class Action

The Private Attorneys General Act (sometimes referred to as the bounty hunter law) was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws. As the Court noted in its opinion, at the time the legislation passed, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, the Act allows aggrieved employees to act like a private attorney general in collecting civil penalties for Labor Code violations. The employee must give 75% of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations.

Employees seeking recovery under the Private Attorneys General Act must comply with requirements that place the Labor and Workforce Development Agency and the employer on notice that the employee will be seeking remedies under the Act and give the Agency a chance to investigate itself. If the Agency does not investigate, then the plaintiff can proceed with the claim.

The Supreme Court did not agree with defendants' arguments that Private Attorneys General Act claims must be certified as a class action. The defendants argued that by not requiring class certification for these claims deprives defendants of their due process rights. Defendants explained that there is a scenario where plaintiffs could continually bring Private Attorneys General Act claims against their employer over and over for the same issues until they eventually prevail if the class certification is not required. The Supreme Court explained that this is not a concern:

Because an aggrieved employee’s action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations (Lab. Code, § 2699, subds. (a), (g)), and an action to recover civil penalties “is fundamentally a law enforcement action designed to protect the public and not to benefit private parties."

Therefore, because all employees on whose behalf the representative plaintiff seeks remedies are bound by the ultimate outcome of the case, defendants are not faced with this possibility.

The Supreme Court Tweaks Burden of Proof for Age Discrimination -- Gross v. FBL Financial Services, Inc.

bvanvleck@vtzlaw.com (Brian Van Vleck) — Sat, 20 Jun 2009 18:25:40 -0800

The U.S. Supreme Court decision in Gross v. FBL Financial Services, Inc. has been hailed by the news media and some commentators as effecting a significant change in the law which makes it "much harder" to prove age discrimination. The reality, however, is that the decision will have little or no impact in real world cases.

Under the prior rule if a plaintiff submitted direct evidence at trial (such as an admission by a person involved in his termination decision) that his age was a "motivating factor" in selecting him for termination, the burden of proof would then shift to the employer to demonstrate that it would have made the same decision regardless of age. Gross v. FBL says that the burden should remain with the employee in this situation.

This might sound like a big deal. But the "mixed motive" issue only arises after an employee has already submitted not only a prima facie case -- but strong "direct evidence" of a discriminatory motive. At this point, arguing about who bears the ultimate burden of proof is a mostly metaphysical question.

The jury will either believe discrimination was the real reason for the termination decision, or it won't. But the burden of proof would only be dispositive in the highly unlikely event that the jury determines that the evidence submitted by both sides is in perfect equipoise. This is simply not the way real jurors think or act.

Furthermore, the decision applies only to claims under the federal ADEA and has no application to cases decided under Title VII or California anti-discrimination law. And, in any event, the adverse publicity will cause Congress to legislatively overule the opinion in short order. For all of these reasons, employers should take no comfort from Gross v. FBL.

A Bad Idea Whose Time Has Come? -- Government Mandated Paid Sick Leave Under The Healthy Families Act

bvanvleck@vtzlaw.com (Brian Van Vleck) — Fri, 12 Jun 2009 09:58:24 -0800

Federal legislation to require paid sick leave is currently working its way through Congress. As currently drafted House and Senate versions of the Healthy Families Act would require seven paid sick days per year for most worker.

Passage is by no means certain but a number of thorny enforcement issues will clearly arise if the bill becomes law. For example, how sick do you really have to be to take a day off? How is this to be verified? What if the employer is skeptical about the need for the day off?

Everyone who has ever tried to leave a sick-sounding message for their boss saying that they can't make it in to work knows that using sick days is an art and not a science. Employees tend to get sick on Mondays and Fridays, and tend to take periodic "mental health days" when they can enjoy them rather than waiting for a serious injury to strike. Employers who currently offer paid sick leave know this and are generally willing to accept the cost in order to provide this sort of quasi-vacation time as a fringe benefit.

Foisting the same requirement on other, more cost-conscious employers will spawn an infinite number of petty disputes over the use of sick days. These disputes will, in turn, spawn a whole new crop of federal litigation.

In the long run, employers would presumably adapt to the requirement by treating it as one-weeks' paid vacation with no questions asked and will pay for the benefit by reducing employee base compensation accordingly. Imposing European-style vacation benefits may arguably be good policy. But it would certainly be easier to do so directly instead of creating a dispute-generating sick leave law.

Incentive Awards for Class Representatives -- Rodriguez v. West Publishing Corporation

bvanvleck@vtzlaw.com (Brian Van Vleck) — Wed, 10 Jun 2009 21:28:34 -0800

Class settlement agreements typically provide that individuals serving as class representatives may recovery special monetary payments, known as "enhancements" or "service awards." In the recent decision of Rodriguez v. West Publishing Corporation the appellate court discussed when such payments are proper and when they may cross the by creating potential conflicts of interest with other class members.

The Rodriguez decision arose when objectors challenged the lower court's approval of a $49 million settlement in an anti-trust action against the providers of the Bar-Bri and Kaplan bar review courses. The objectors claimed that a conflict of interest existed because Class Counsel and certain class representatives had agreed at the outset of the action to seek specific awards based on the amount of any future settlement. In particular:

[I]f the [settlement] amount were greater than or equal to $500,000, class counsel would seek a $10,000 award for each of them; if it were $1.5 million or more, counsel would seek a $25,000 award; if it were $5 million or more, counsel would seek $50,000; and if it were $10 million or more, counsel would seek $75,000.

The Court began its analysis by noting that there is nothing wrong or unusual about incentive awards to class representatives in general.

Incentive awards are fairly typical in class action cases. Such awards are discretionary, and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general. Awards are generally sought after a settlement or verdict has been achieved. (Internal citations omitted)

The Court proceeded to explain, however, that any agreement that purports to tie a class representative's compensation to particular settlement target may result in perverse incentives and conflicts of interest.

[O]nce the threshold cash settlement was met, the agreements created a disincentive to go to trial; going to trial would put their $75,000 at risk in return for only a marginal individual gain even if the verdict were significantly greater than the settlement. The agreements also gave the contracting representatives an interest in a monetary settlement, as distinguished from other remedies, that set them apart from other members of the class. Further, agreements of this sort infect the class action environment with the troubling appearance of shopping plaintiffships. If allowed, ex ante incentive agreements could tempt potential plaintiffs to sell their lawsuits to attorneys who are the highest bidders, and vice-versa. In addition, these agreements implicate California ethics rules that prohibit representation of clients with conflicting interests.

The Rodriguez decision thus seems to stand for the proposition that any "ex ante" agreement to seek a specific enhancement for class representatives is disapproved and may jeopardize the validity of any class settlement. Admittedly, this was a highly unusual arrangement to begin with. (As bar review customers the class representatives in Rodriguez were presumably lawyers or lawyers-to-be, which probably accounts for the unusually self-serving deal.)

Nevertheless, Rodriguez v. West Publishing is still an important decision because it expressly recognizes and approves of enhancement awards generally, as well as its discussion of the interplay between the financial incentives and fiduciary duties of class representatives.

Employment Ruling At Center Stage For Sotomayor Confirmation

azaller@vtzlaw.com (Anthony Zaller) — Tue, 02 Jun 2009 16:42:49 -0800

As judge for the Second Circuit Court of Appeals in 2007, Judge Sotomayor affirmed a lower court’s ruling that 17 white and two Hispanic firefighters were not discriminated against in violation of Title VII and the equal protection clause of the U.S. Constitution. The case is Ricci vs. DeStefano. This ruling is being closely examined in Judge Sotomayor's confirmation to the US Supreme Court and is drawing many criticisms.

The firefighters argued that the city of New Haven discriminated against them on the basis of their race when it threw out the results of a test that qualified the 19 firefighters for a promotion. The city threw out the results on the basis that none of the 27 black firefighters who took the exam, and passed, scored high enough to qualify for the promotion.

The lower court judge, Janet Bond Arterton, ruled that the city did not discriminate against the white and Hispanic firefighters. She said the city’s attempt to avoid discriminating against minority firefighters was "race neutral," because "all the test results were discarded, no one was promoted, and firefighters of every race will have to participate in another selection process." The firefighters’ appeal of the decision brought the case in front of Judge Sotomayor and two other judges for the Second Court of Appeals.

Judge Sotomayor and the other two judges upheld the lower court’s ruling in a two-paragraph opinion citing the reasons set forth in the lower court’s “thorough, thoughtful, and well-reasoned opinion.” The Los Angeles Times reports that other judges in the Second Circuit thought the opinion was inadequate, but a move to have it reconsidered was stopped by a vote of 7-6 by the judges.

The United States Supreme Court accepted review of the case. Oral arguments took place in April 2009, and a ruling from the Supreme Court is expected this month.

Managers Who Provide Table Service May Share in Tip Pool -- Appellate Court Reverses Award Against Starbucks

bvanvleck@vtzlaw.com (Brian Van Vleck) — Tue, 02 Jun 2009 13:53:29 -0800

As we previously blogged, Starbucks was hammered last year with a class restitution award of $105 million in a fight over the ownership of the change dropped in its tip jars. The central issue was whether store managers who also served customers could share in the tips which were left for all servers. The trial court took the technical line that Labor Code section 351 prohibits any "agent" of the employer from sharing in tips -- period.

The Appellate Court reversed and took a considerably more common sense approach, explaining

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. Accordingly, we reverse the judgment and order the trial court to enter judgment in Starbucks's favor.

Employers should not jump to the conclusion, however, that managers now have free reign to sharing in employee tips. Rather, the rule in Chau v. Starbucks decision applies only where (a) There is a "collective tip box" or analogous circumstances in which "a customer would necessarily understand the tip will be shared among the employees who provide the service;" and (b) the managerial employee is part of the "team" that provided the service.

UCL ClassAction Standards are Clarified By California Supreme Court -- In re Tobacco Cases II

bvanvleck@vtzlaw.com (Brian Van Vleck) — Mon, 25 May 2009 12:22:19 -0800

In re Tobacco Cases II, is the California Supreme Court’s most recent attempt to clarify the requirements for bringing a class action under the of California Unfair Competition Law, Business and Professions Code section 17200 et seq. (“UCL”). While the case involved claims of deceptive advertising by the Tobacco Industry, the opinion is also extremely important for employment class actions – the majority of which are also brought under the UCL.

The old version of the UCL allowed any person or organization to file a lawsuit on behalf of the "general public." Prop 64 curbed the perceived abuses of lawyers who were filing case without any real plaintiff involved in the case. Prop 64 did this by prohibiting anyone from representing the general public unless he "has some skin in the game" -- i.e., he must also have been injured in roughly the same way as those he is seeking to represent.

The gist of the Supreme Court's Tobacco II decision is that the same standard now applies for class certification of UCL and non-UCL class actions. In other words, while the standing requirement added by Prop 64 requires proof that the named plaintiff suffered some "injury," this imposes no higher standard than in any other class action.

As the Supreme Court explained, “the effect of Proposition 64 is to prevent uninjured private persons from suing for restitution on behalf of others.” An individual may therefore serve as a class representative in a UCL lawsuit so long as he has suffered some loss “as a result of” the alleged unfair business practice. But this requirement is pretty easily satisfied. For example, where the wrongful conduct is a false or deceptive statement, “the plaintiff is not required to allege that those misrepresentations were the sole or even the decisive cause of the injury-producing conduct.” Rather, he must only allege that the misrepresentations had some effect on his conduct – and even this minimal level of causation may be presumed where the defendant’s misrepresentations involved a material issue. This is the same injury standard applicable to individuals who file UCL actions solely on their own behalf.

On the other hand, the Court specifically rejected the argument that “all class members must individually show they have the same standing as the class representative in order to be part of the class.” Indeed, the Court repeatedly emphasized that “the UCL focus [is] on the defendant’s conduct rather, rather than the plaintiff’s damages.” Thus it is no defense to class certification to argue that some class members were not injured and could not recover under Prop 64. Instead, a class with sufficiently similar interests that meets the normal requirements of “typicality and adequacy of representation” has standing to sue “as an entity.”

The bottom line is that the UCL will continue to be a potent weapon for seeking certification in California, including class claims for unpaid wages and other employment claims.

Supreme Court Upholds "Grandfathered" Seniority System -- AT&T v. Hulteen

bvanvleck@vtzlaw.com (Brian Van Vleck) — Tue, 19 May 2009 08:47:22 -0800

When Congress passed Title VII in 1964 it did not initially ban pregnancy discrimination. In fact, it was not until the passage of the Pregnancy Discrimination Act (PDA) in 1978 that Congress finally added pregnancy as an expressly protected status.

In AT&T v. Hulteen, however, the plaintiff challenged AT&T's current retirement payments on the ground that they are based on seniority calculations that fail to give adequate credit for pregnancy leaves which were taken before pregnancy was protected under Title VII. The High Court came down squarely on the side of the seniority system.

Although adopting a service credit rule unfavorable to those out on pregnancy leave would violate Title VII today, a seniority system does not necessarily violate the statute when it gives current effect to such rules that operated before the PDA. Seniority systems are afforded special treatment under Title VII . . . reflecting Congress's understanding that their stability is valuable in its own right.When Congress passed Title VII in 1964 it included a special provision that the continued operation of a "bona fide seniority system" may not be deemed unlawful. Moreover, it was not until 1978 that Congress added pregnancy as a protected status under the statute.

As a matter of statutory construction, the Court's result seems solid. Applying the 7-2 opinion in other cases may not always be so clear cut, however. In part this is because Souter's opinion intertwines what are really two independent grounds for upholding the employer's payment calculations -- i.e., (1) that they are based on decisions which were not illegal when they were made; and (2) that they fell within the express "bona fide seniority system" carve out.

Finally, despite the characterization of some early commentators, the opinion really has nothing to do with the Lily Ledbetter Fair Pay Act of 2009, which only extends the statute of limitations for employment decisions that were illegal at the the time they were made.

Watkins v. Wachovia Corporation - New Class Action Opinion On The Effects Of Releases In Severance Agreements And Individually Settling With Named Plaintiffs

azaller@vtzlaw.com (Anthony Zaller) — Sun, 19 Apr 2009 21:30:35 -0800

Plaintiffs Brown and Watkins brought a wage and hour class action against Wachovia seeking damages for unpaid overtime on behalf of all California sales assistants on the basis that they were misclassified as exempt employees or that Wachovia simply did not pay the hourly employees for overtime worked.

Brown’s Release of All Claims In Connection With A Severance Package Precludes Her From Participating In This Lawsuit

At the trial court level, Wachovia brought a motion for summary judgment against Brown’s claims on the basis that Brown signed a release of all claims in conjunction with a severance package. Wachovia won the summary judgment motion at the trial court level, but Brown appealed. The issue on this appeal is whether Brown’s release of all claims in her severance package precluded her from bringing her claim for unpaid overtime in this case.

In exchange for additional severance benefits when leaving Wachovia, Brown signed a release of all claims against Wachovia. Brown argued that the release is unenforceable because it violates the law in that Labor Code section 206.5(a) prohibits the release of all claims for unpaid wages unless payment is made in full for all claimed wages. The section provides:

“An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee.”

The court rejected this argument on the basis that section 206.5 must be read with Labor Code section 206(a). Section 206(a) provides “In case of a dispute over wages, the employer shall pay, without condition . . . all wages, or parts thereof, conceded by him to be due, leaving to the employee all remedies he might otherwise be entitled to as to any balance claimed.”

The court noted that this exact argument proffered by Brown was rejected recently in another case, Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796. The court explained:

[The Pick Up Stix court] concluded that Labor Code section 206.5 simply prohibits employers from coercing settlements by withholding wages concededly due. In other words, wages are not considered “due” and unreleasable under Labor Code section 206.5, unless they required to be paid under Labor Code section 206. When a bona fide dispute exists, the disputed amounts are not “due,” and the bona fide dispute can be voluntarily settled with a release and a payment – even if the payment is for an amount less than the total wages claimed by the employee.

The issue then is whether there was a dispute of wages due when Brown signed her release. If there was a dispute about the amount of wages owed, then the release bars Brown from ever suing Wachovia. If there was no dispute at the time Brown signed the release with Wachovia, then she could sue for unpaid wages – even though she signed the release.

The court ruled in Wachovia’s favor in holding that there was a dispute over unpaid wages at the time Brown signed the release. The court said this was evidenced by the fact that she complained to management earlier that she was not being paid overtime. The court also noted the fact that Brown was maintaining two time sheets while she was working for Wachovia – one time sheet she submitted to Wachovia and was paid for all time on, and another time sheet that included all of her overtime that was not paid.

The court concluded:

In other words, when Brown’s employment was terminated, she: (1) received all wages Wachovia conceded were due to her (based on the time sheets she had submitted); (2) believed she possessed a claim for further overtime pay; and (3) voluntarily elected to receive enhanced severance benefits in exchange for releasing her claims against Wachovia. Under these circumstances, the release is enforceable. Summary judgment was therefore appropriately granted.

Watkins’s Individual Settlement Precludes Her From Proceeding With The Class Action

Watkins filed a motion for class certification, which was denied by the lower court. The parties entered into settlement discussions, and she agreed to settle her individual claims, but purported to retain her rights to continue her appeal of the class action claims. Wachovia argued that Watkins’s appeal must be dismissed as moot because of the settlement she no longer has standing to pursue the class action.

The court explained:

Watkins assumes, however, that her “class claim” for unpaid overtime wages has independent vitality and can continue after she has settled her “individual claim” for the same wages. The argument reflects a misunderstanding of the nature of a class action. A class action is a procedural device used “when the parties are numerous, and it is impracticable to bring them all before the court.” (Code Civ. Proc., § 382.) In such a situation, “one or more may sue or defend for the benefit of all.” (Ibid.) When a plaintiff brings a class action, the plaintiff undertakes a fiduciary duty to the other members of the class, under which the plaintiff agrees not to settle the other class members’ claims for the plaintiff’s individual gain. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871.) But this duty should not be confused with an additional claim for relief. A representative plaintiff still possesses only a single claim for relief – the plaintiff’s own. That the plaintiff has undertaken to also sue “for the benefit of all” does not mean that the plaintiff has somehow obtained a “class claim” for relief that can be asserted independent of the plaintiff’s own claim. “[T]he right of a litigant to employ [class action procedure] is a procedural right only, ancillary to the litigation of substantive claims. Should these substantive claims become moot . . . , by settlement of all personal claims for example, the court retains no jurisdiction over the controversy of the individual plaintiffs.” (Deposit Guaranty National Bank v. Roper (1980) 445 U.S. 326, 332. (“Roper”)).

The court concluded that Watkins’s appeal must be dismissed. She voluntarily released her wage claim against Wachovia for $51,000. As the court explained, her “class claim’ is simply a procedural device by which she pursued her substantive claim for overtime wages. Having settled her substantive claim, the class claim disappears, and her appeal of the denial of class certification must be dismissed.”

The opinion, Watkins v. Wachovia Corporation, is a must read for wage and hour litigators [especially the analysis regarding “pick off” cases – when defendants try to stop class actions from going forward by picking off the named plaintiff by entering into an individual settlement with them].

Unions Can Require Their Members to Arbitrate Claims For Violation of Individual Statutory Rights -- 14 Penn Plaza v. Pyett

bvanvleck@vtzlaw.com (Brian Van Vleck) — Thu, 16 Apr 2009 17:16:35 -0800

The National Labor Relations Act (NLRA) has always encouraged unions and management to contract for an exclusive grievance and arbitration procedure to resolve claims for violation of their collective bargaining agreements (CBAs). Since at least 1991, the Supreme Court has also allowed individual employees to contract for mandatory arbitration of their individual claims for violation of statutory rights. Until now, however, the Court had never squarely addressed the next logical question -- i.e., Can a union collectively bind its members to a CBA provision that requires them to arbitrate their own individual statutory claims such as claims for discrimination?

The 5-4 majority opinion in 14 Penn Plaza v. Pyett, answers that question in the affirmative. But the reasoning is so riddled with prerequisites, caveats, and reservations that few, if any, real-world CBAs could be read to actually require arbitration of individual statutory claims.

First, the arbitration provision must "clearly and unmistakeably" cover such claims. Most CBAs include a generic "non-discrimination" clause. But virtually none go as far as the Penn Plaza agreement, which specifically listed various state and federal anti-discrimination statutes and provided that "All such claims shall be subject to the grievance and arbitration procedures [of the CBA] as the sole and exclusive remedy for violations."

Second, the Penn Plaza decision deliberately sidesteps the most important issue -- whether the procedural limitations of a union-controlled grievance and arbitration process amount to an unenforceable waiver of substantive rights. For example, what if (as is usually the case) the grievance and arbitration process can be initiated only by the union and not the employee. And what if (again, the usual case) the CBA imposes shortened limitations periods and no access to discovery.

Under the substantial body of case law governing non-labor arbitration agreements, including the California Supreme Court's Armendariz decision, such limitations would render an arbitration agreement unconscionable and unenforceable. Should a different result apply merely because an arbitration agreement is part of a collective bargaining agreement?

The parties in Penn Plaza had a live dispute as to whether the procedural limitations of the arbitration clause amounted to a de facto waiver of substantive anti-discrimination rights. But the Supreme Court merely remanded these issues back to the lowers courts without any constructive guidance. As a result, the main upshot of the Penn Plaza decision will be to spawn a wave of lower court litigation to determine whether CBA arbitration remedies can be stretched to include statutory claims for violation of Title VII, the FEHA, and wage and hour laws.

The Perfect Storm

azaller@vtzlaw.com (Anthony Zaller) — Fri, 10 Apr 2009 09:21:42 -0800

Employers in California and across the nation are facing some of the most difficult times in almost 80 years on the employment and labor front. In addition to the bad economy, employers are struggling with the new regulations already put into place by the Obama administration, such as the newly enacted Ledbetter Fair Pay Act. Employers are also concerned about the looming regulations the administration said it supports, primarily the Employee Free Choice Act. Oh, and we cannot forget, the new Secretary of Labor, Hilda Solis, has vowed to ramp up the Department of Labor’s field audits on employers with the help of 150 new investigators it will be hiring under the American Recovery and Reinvestment Act.

What should employers do?

First, it is not a bad time to conduct an audit of pay practices to ensure compliance with the existing regulations. If an employer is going through layoffs, there is a very good likelihood that its pay practices will be under close scrutiny. Second, employers need to understand what their obligations will be if the Employee Free Choice Act is actually enacted. With the decrease of union membership over the last few years, employers need to review what their obligations are when dealing with unionizing efforts.

EEOC Found To Violate FLSA Overtime Law

azaller@vtzlaw.com (Anthony Zaller) — Tue, 31 Mar 2009 16:08:06 -0800

An arbitrator held that the Equal Employment Opportunity Commission willfully violated the Fair Labor Standards Act on a nationwide basis with its own employees. The issue arose from the EEOC's policy of providing "comp" time to employees instead of paying them overtime. The Washington Post reports:

The ruling stems from a grievance filed by the [National Council of EEOC Locals] union in 2006 and involves overtime disputes dating to 2003. Wolf found that the EEOC's practice of paying compensatory time to any employee who worked extra hours did not satisfy the Fair Labor Standards Act.

"With rare exception in this record, the concept of 'requesting' compensatory time was a fiction," Wolf wrote. Employees were pressured to work extra hours but not offered extra pay, according to the arbitrator. "With rare exception in this record, the concept of 'requesting' compensatory time was a fiction," Wolf wrote. Employees were pressured to work extra hours but not offered extra pay, according to the arbitrator.

Apparently the EEOC case load has been steadily increasing the last few years. But instead of hiring new employees to manage the increased work levels, the EEOC simply placed the burden on its existing employees. The EEOC's press release on the arbitrator's ruling can be viewed at its website here.

SEIU Picketed by Its Own Workers

bvanvleck@vtzlaw.com (Brian Van Vleck) — Mon, 30 Mar 2009 15:41:20 -0800

Times are apparently so hard these days that, according to a story by the Associated Press today, even the unions are experiencing labor unrest.

Dozens of employees of the Service Employees International Union picketed their own union Friday over its decision to lay off about 75 workers.

The staffers marched outside SEIU headquarters in Washington as they yelled into bullhorns, passed out flyers and chanted, "Justice for all, not just some."

"This union is supposed to be at the forefront of the progressive movement, but it can't seem to follow its own ideology," said Malcolm Harris, president of the Union of Union Representatives, which represents 210 SEIU organizers and field staff around the country.

The UUR has filed unfair labor practice charges and age and race discrimination claims against SEIU. Harris called SEIU leaders "hypocrites" for calling out corporations that shed workers, yet moving to lay off their own employees.

I frankly had no idea that their was a union of union employees, but I guess it makes sense. (And I can't help wondering who represents the UUR workers). But more than a few business owners will certainly enjoy seeing the SEIU get a small dose of its own tactics.

Federal Service Contractors are Not Exempt from California Labor Code -- Naranjo v. Spectrum Security Services, Inc.

bvanvleck@vtzlaw.com (Brian Van Vleck) — Thu, 26 Mar 2009 07:52:33 -0800

Employers who provide services under contract to the federal government are required to pay minimum wages and benefits set by the Department of Labor pursuant to the McNamara-O'Hara Service Contract Act of 1965 (the "SCA") (41 U.S.C. § 351 et seq.). In Naranjo v. Spectrum Security Services, Inc. the Second District Court of Appeal held that being subject to the SCA confers no exemption from the California Labor Code -- in other words, employers must comply with whichever regulatory scheme is the most favorable to the worker on any given issue.

The opinion includes a useful explanation of how general preemption principles apply to the California Labor Code, especially the requirement to pay compensation for missed meal breaks.

As our Supreme Court has explained, the additional compensation identified in subdivision (b) of this provision is not a penalty, but a form of “premium wage” paid to employees to compensate them for an adverse condition they have encountered during their work hours, namely, the potential hazard to their health and welfare from the denial of rest and meal breaks. ( Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal .4th 1094, 1102-1111.) As such, the additional compensation is akin to overtime pay, which is another form of premium pay. (Id. at pp. 1109-1110.)

Thus, according to the Court, the purpose of California' s meal period legislation is in no way inconsistent with the goal of the SCA, which is "to secure for employees minimum wages and benefits determined by the Secretary of Labor."

Another Arbitration Agreement Containing A Class Action Waiver Found To Be Unenforceable

azaller@vtzlaw.com (Anthony Zaller) — Fri, 20 Mar 2009 11:33:45 -0800

[In the interest of full disclosure – my firm represents Western Pizza in this case. Because of this, we are expressing none of our own analyses about the Court’s opinion, but are simply reporting the court’s findings.]

Octavio Sanchez works as a delivery driver for defendant. He filed a class action lawsuit alleging that the drivers not only are not adequately reimbursed for their expenses incurred in the performance of their job duties, but also as a result are paid less than the legal minimum wage. Sanchez signed an arbitration agreement that contained a provision that he would not participate in any class action litigation. Western Pizza filed a motion to enforce the arbitration agreement, which the trial court denied. Western Pizza appealed the lower court’s decision.

Western Pizza argued on appeal that:

The enforceability of the arbitration agreement is a question for the arbitrator to decide;
The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempts California law to the extent that California law would prevent the enforcement of the agreement;
The class arbitration waiver does not impermissibly interfere with the employees’ ability to vindicate their statutory rights, and therefore is enforceable;
The terms of the arbitration agreement are neither procedurally nor substantively unconscionable.

The court, not the arbitrator decides the enforceability of the arbitration agreement

The court explained:

Accordingly, we conclude, consistent with the rule stated in Discover Bank, supra, 36 Cal.4th at page 171, that the question whether the arbitration agreement is enforceable based on general contract law principles, including the question whether it is unconscionable or contrary to public policy, is a question for the court to decide rather than an arbitrator, regardless of whether the FAA applies.

Federal Arbitration Act (FAA) does not preempt California law

The court held that under the FAA, the validity and enforceability of an arbitration agreement is governed by state contract law:

Under California law, the question whether an arbitration agreement is unenforceable, in whole or in part, based on general contract law principles is a question for the court to decide, rather than an arbitrator. (Discover Bank, supra, 36 Cal.4th at p. 171; Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1530; see Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1365.) This includes the determination whether an arbitration agreement is unconscionable or contrary to public policy. (Discover Bank, supra, at p. 171.) Discover Bank concluded that the FAA, and particularly the opinion by the United States Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [123 S.Ct. 2402], did not conflict with California law on this point and that the California rule therefore governs.

The Enforceability of the Class Arbitration Waiver

The court set out the factors established in Gentry v. Superior Court to determine whether the class action waiver is unenforceable:

Gentry stated that a trial court determining whether a class arbitration waiver impermissibly interferes with unwaivable statutory rights must consider: “[(1)] the modest size of the potential individual recovery, [(2)] the potential for retaliation against members of the class, [(3)] the fact that absent members of the class may be ill informed about their rights, and [(4]) other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.” Gentry continued: “If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘ vindicate [their] unwaivable rights in an arbitration forum.’

(citations omitted). The court found that these factors supports the lower court’s holding that the agreement was unenforceable: the amounts at issue for reimbursement are modest, retaliation against low wage earners is “significant,” and most of the drivers here are immigrants with limited English skills “who are likely to be unaware of their legal rights.”

Unconscionability Of The Agreement\

The court held that the arbitration agreement was distinguishable from the agreement used in Gentry:

The record here does not indicate a distorted presentation of the benefits of arbitration to the degree that was present in Gentry, supra, 42 Cal.4th 443. The arbitration agreement states that the purpose of the agreement is “to resolve any disputes that may arise between the Parties in a timely, fair and individualized manner,” but otherwise does not extol the benefits of arbitration. The arbitration agreement does not limit the limitations periods, the remedies available, or the amount of punitive damages. It states, “Except as otherwise required by law, each party shall bear its own attorney fees and costs,” and therefore incorporates any statutory right to recover fees rather than creating a presumption against a fee recovery. Thus, the arbitration agreement neither contains the same types of disadvantages for employees as were present in Gentry nor fails to mention such disadvantageous terms. Moreover, the arbitration agreement expressly states that that the agreement “is not a mandatory condition of employment.”

The court still found, however, that there were elements of unconscionability in the agreement:

We conclude, however, that the record indicates a degree of procedural unconscionability in two respects. First, as in Gentry, the inequality in bargaining power between the low-wage employees and their employer makes it likely that the employees felt at least some pressure to sign the arbitration agreement. Second, the arbitration agreement suggests that there are multiple arbitrators to chose from (“the then-current Employment Arbitration panel of the Dispute Eradication Services”) and fails to mention that the designated arbitration provider includes only one arbitrator. This renders the arbitrator selection process illusory and creates a significant risk that Western Pizza as a “repeat player” before the same arbitrator will reap a significant advantage. These circumstances indicate that the employees’ decision to enter into the arbitration agreement likely was not a free and informed decision but was marked by some degree of oppression and unfair surprise, i.e., procedural unconscionability. We therefore must scrutinize the terms of the arbitration agreement to determine whether it is so unfairly one-sided as to be substantively unconscionable.

(citations and footnote omitted).

The court also held that the agreement did not provide for a neutral arbitrator. This is despite the fact that the arbitration agreement contained a clause that both parties had to agree to the arbitrator before the arbitrator could bind the parties. The court explained that “it seems likely that an employee in Sanchez’s position would not feel free to reject the arbitration provider designated by his employer under the terms of the agreement even after a dispute had arisen.”

In conclusion, the Court stated:

The arbitration agreement here includes a class arbitration waiver that is contrary to public policy and an unconscionable arbitrator selection clause, as we have stated. These are important provisions that, if they were not challenged in litigation, could create substantial disadvantages for an employee seeking to arbitrate a modest claim. Although it may be true that neither of these provisions alone would justify the refusal to enforce the entire arbitration agreement (see Gentry, supra, 42 Cal.4th at p. 466; Scissor Tail, supra, 28 Cal.3d at p. 828), we believe that these provisions considered together indicate an effort to impose on an employee a forum with distinct advantages for the employer. As in Armendariz, supra, 24 Cal.4th at page 124, we conclude that the arbitration agreement is permeated by an unlawful purpose. Accordingly, the denial of the motion to compel arbitration was proper.

The opinion, Sanchez v. Western Pizza, can be viewed at the Court’s website for a short period of time in Word and PDF.

This opinion comes on the heels of others that have also rejected arbitration agreements with class action waivers. And while the California Supreme Court left open the possibility that waivers may be enforceable in Gentry v. Superior Court, the recent line of lower appellate decisions (see Franco v. Athens Disposal Co.), including the decision in Sanchez v. Western Pizza, seems to have all but closed the door on any such possibility.

Obama Administration Moves to Block Bonus Payments to AIG Employees

bvanvleck@vtzlaw.com (Brian Van Vleck) — Tue, 17 Mar 2009 09:42:13 -0800

According to an article this morning in the Miami Herald the Obama administration will be attempting to block bonus payments to AIG executives and traders. A number of other prominent politicians have also piled on with righteous indignation at the prospect of paying large bonuses to highly paid executives at a company that is, for all intents and purposes, nationalized.

''At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money,'' said Sen. Russ Feingold, D-Wis. Other lawmakers from both parties said much the same.

To the extent any of these executives worked in California, however, the administration's efforts to retract promised bonuses may run afoul of the Labor Code. For example, case law has interpreted Labor Code section 221 to prohibit any retroactive deductions from wages that have already been earned. In other words, an employee who is induced to work by an offer or promise of a bonus or other specified incentive has a vested right to receive the compensation. It is irrelevant that the Company may experienced financial difficulties or changed circumstances in the meantime.

While we don't know the terms of the express or implied bonus agreements at issue, it is safe to say that the taxpayers may not save any money if AIG is pressured to incur the legal liability and ensuing litigation which will result from a retroactive cancellation of bonus wages.

Court Refuses to Enforce Class Arbitration Waiver -- Franco v. Athens Disposal Company, Inc.

bvanvleck@vtzlaw.com (Brian Van Vleck) — Thu, 12 Mar 2009 20:19:15 -0800

In Franco v. Athens Disposal Company, Inc. the Court refused to enforce a class action waiver in an arbitration agreement which the employer was attempting to use to thwart class claims for missed meal periods. The case vividly illustrates how attempting to enforce such an agreement will likely result in an early ruling on the desirability of class certification.

This is because the California Supreme Court's 2007 decision in Gentry v. Superior Court generally disapproved of arbitration agreements that purport to prohibit class-wide arbitration. The Court's rationale was that the procedural obstacles to enforcing small claims individually would typically be prohibitive -- so that waiving the class remedy would have the same effect as an "exculpatory" waiver of substantive rights. It thus left the door open just a sliver by allowing employers to try to prove a class-wide remedy is not necessary to ensure effective enforcement of the statutory rights of employees.

At such an early stage, however, the deck is stacked against the employer. And trying to meet the standard set by Gentry may amount to a trap that can prejudice any later attempt to avoid class certification. For example, just in the context of denying the motion to compel arbitration the Franco court concluded that: "Here, class treatment would be more practical than individual actions, regardless of whether the claims are adjudicated through arbitration or in the trial court."

When deciding to enforce an arbitration agreement employers will have to think carefully if precipitating such a ruling at the outset of the case is ultimately in their best interests.

Obama Tells AFL-CIO He Will Pass The Employee "Free Choice" Act

dturner@vtzlaw.com (Daniel Turner) — Thu, 05 Mar 2009 18:15:26 -0800

Although candidate Obama supported the Employee “Free Choice” Act during the campaign, he had yet to declare whether he would support that bill as president and – if so – when he would press for its passage in Congress. President Obama removed all doubt regarding his position this week as he informed AFL-CIO leaders that “we will pass the Employee Free Choice Act” and supporters are expected to introduce that act in the Senate within the next few weeks. As we previously posted, the “Free Choice” Act would make it easier to form unions as employees could simply sign cards signaling their support for union formation rather than actually conduct an election through secret-ballot elections. For more information on President Obama’s decision to push the Employee Free Choice Act this year, click here.